ASSET PURCHASE AGREEMENT
DATED AUGUST 31, 2006, AND EFFECTIVE AUGUST 28, 2006
BETWEEN AND AMONG
MID-POWER RESOURCE CORPORATION,
AS SELLER,
AND
▇▇▇▇▇▇ ENERGY, INC.,
AS BUYER,
AND
▇▇▇▇▇▇ ENERGY LIMITED,
AS PARENT OF BUYER
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of August
31, 2006, but effective as of August 28, 2006, is between and among MID-POWER
RESOURCE CORPORATION, a Nevada corporation ("Seller"); ▇▇▇▇▇▇ ENERGY, INC., a
Texas corporation ("Buyer"); and ▇▇▇▇▇▇ ENERGY LIMITED, an entity organized
under the laws of Australia ("Parent"). Hereinafter, Buyer and Parent are
sometimes collectively referred to as "▇▇▇▇▇▇." Seller, Buyer and Parent are
each a "Party" and collectively the "Parties" as referred to herein.
WHEREAS, Seller owns certain oil and gas properties and related assets
located in Carbon and ▇▇▇▇▇ Counties, Utah, and known as the "Clear Creek
Project";
WHEREAS, Buyer is a wholly-owned subsidiary of Parent;
WHEREAS, Seller and Buyer have previously entered into that certain
Farmout and Exploration Agreement for the Clear Creek Natural Gas Unit, Carbon
and ▇▇▇▇▇ County, Utah, dated effective February 22, 2005 (the "Farmout
Agreement"), wherein Seller granted Buyer the right to earn a seventy-five
percent working interest (75% WI) in leases within the Clear Creek Project upon
completion of certain earning conditions, including: (i) drilling obligations;
(ii) completion of a Capital Expenditure Program described therein; and (iii)
the issuance of options to purchase five million (5,000,000) ordinary shares of
Parent, at an exercise price of forty cents Australian (AU$0.40). Said options
were to be earned by Seller in two tranches. The parties to the Farmout
Agreement also created an Area of Mutual Interest covering lands in the general
vicinity of the Clear Creek Natural Gas Unit;
WHEREAS, on May 9, 2006, Buyer was legally designated as the operator
of the Clear Creek Natural Gas Unit (the "Operator Change Date");
WHEREAS, Seller and Buyer desire to terminate the Farmout Agreement as
between them, but keep the Farmout Agreement in place as to third parties that
were signatory to the Farmout Agreement. Upon completion of the asset purchase
contemplated hereunder, Buyer will assume Seller's position under the Farmout
Agreement with respect to said third parties; and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, such oil and gas properties and related assets upon the terms and
subject to the conditions set forth herein, subject to a retained and reserved
real property interest of 12.5% of the net proceeds attributable to 100% of the
working interest based on an approximate 80% net revenue interest.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Parties hereto agree as follows:
ARTICLE I.
SALE AND PURCHASE
Subject to the terms and conditions of this Agreement, Seller agrees to
sell and convey to Buyer, and Buyer agrees to purchase from Seller, effective as
of midnight, Mountain Daylight Time on May 9, 2006 (the "Effective Time"), the
following described assets and properties (collectively, the "Assets"). The
Closing shall take place at the offices of Buyer or such other location
designated by the Parties on August 31, 2006 (the "Closing Date").
(a) Interests. The undivided interests specified in Exhibit A in, to or
under the Hydrocarbon Interests described therein and all other interests of
Seller in, to or under or derived from the Lands and related rights and
property, reserving unto the Seller the Net Profits Interest as provided herein
(collectively, the "Subject Interests"). As used in this Agreement, the term
"Hydrocarbon Interests" shall mean (i) leases affecting, relating to or covering
any oil, gas and other hydrocarbons and the leasehold interests and estates in
the nature of working or operating interests under such leases, as well as
overriding royalties, net profits interests, production payments, carried
interests, rights of recoupment and other interests in, under or relating to
such leases, (ii) fee interests in oil, gas or other hydrocarbons, (iii) royalty
interests in oil, gas or other hydrocarbons, (iv) any other interest in oil, gas
or other hydrocarbons in place, (v) any economic or contractual rights, options
or interests in and to any of the foregoing, including, without limitation, any
farm-out or farm-in agreement affecting any interest or estate in oil, gas or
other hydrocarbons, and (vi) any and all rights and interests attributable or
allocable thereto by virtue of any pooling, unitization, communitization,
production sharing or similar agreement, order or declaration;
(b) Lands. All right, title and interest of Seller in and to the lands
covered by or subject to the Hydrocarbon Interests (the "Lands");
(c) Rights and Property. All right, title and interest of Seller in and
to or derived from the following insofar as the same are attributable to the
Subject Interests: (i) all rights with respect to the use and occupancy of the
surface of and the subsurface depths under the Lands, (ii) all agreements and
contracts, easements, rights-of-way, servitudes and other estates, (iii) all
real and personal property located upon the Lands or used in connection with the
exploration, development or operation of the Subject Interests, and (iv) any and
all lease files, title files, land files, division order files, marketing files,
well files, production records, seismic, geological, geophysical and engineering
data, and all other files, maps and data (in whatever form) arising out of or
relating to the Subject Interests or the ownership, use, maintenance or
operation of the other Assets (the "Records"); and
(d) Hydrocarbons. All (i) oil, gas and other hydrocarbons produced from
or attributable to the Subject Interests with respect to all periods subsequent
to the Effective Time and (ii) proceeds from or of such oil, gas and other
hydrocarbons.
ARTICLE II.
CONSIDERATION AND PAYMENT
Section 2.1 Consideration. The consideration for the sale and
conveyance of the Assets to Buyer is as follows:
(a) Cash. One million dollars US (US$1,000,000) in cash payable at
Closing (the "Cash Payment");
(b) Ordinary Shares. Thirteen million one hundred thousand (13,100,000)
ordinary shares of Parent, a public company traded on the Australian Stock
Exchange to be issued by Parent to Seller at Closing (the "Share Payment");
(c) Immediately Exercisable Options. Immediately exercisable options to
purchase five million (5,000,000) of Parent's ordinary shares at an exercise
price of forty cents Australian (AU$0.40) per share to be issued by Parent to
Seller at Closing pursuant to that certain option agreement attached hereto as
Exhibit B (the "Immediately Exercisable Options"); and
(d) Reserve-Based Options. Options to purchase up to eight million
(8,000,000) of Parent's ordinary shares subject to certain vesting requirements
that are the subject of Article III (the "Reserve-Based Options").
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The Cash Payment, Share Payment, Immediately Exercisable Options, and the
Reserve-Based Options together shall constitute the "Purchase Price." The
Immediately Exercisable Options and the Reserve-Based Options together are
sometimes referred to herein as the "Options." The Share Payment, the Options,
and the ordinary shares issuable upon the exercise of the Options are referred
to together as the "Securities."
Section 2.2 Payment. At the Closing, Buyer shall wire transfer the Cash
Payment in immediately available funds to the account of Seller as it shall
separately direct or such other account specified by Seller to Buyer on or prior
to the second business day immediately preceding the Closing Date.
ARTICLE III.
RESERVE-BASED OPTIONS
Section 3.1 Definition of Reserves. For purposes of this Agreement, the
following definitions adopted by the Society of Petroleum Engineers will apply:
Proved Reserves shall mean those quantities of oil, gas and associated
hydrocarbons that, by analysis of geological and engineering data, can
be estimated with reasonable certainty to be commercially recoverable,
from a given date forward, from known reservoirs and under economic
conditions, operating methods, and government regulations as of the
date of the evaluation, by deterministic methods intended to express a
high degree of confidence that the quantities will be recovered. Proved
Reserves shall include both developed and undeveloped reserves.
Probable Reserves shall mean those reserves that analysis of geological
and engineering data suggests are more likely than not to be
recoverable and may include (a) reserves anticipated to be proved by
normal step-out drilling where sub-surface control is inadequate to
classify these reserves as proved, (b) reserves in formations that
appear to be productive based on well log characteristics but lack core
data or definitive tests and that are not analogous to producing or
Proved Reserves in the area, (c) incremental reserves attributable to
infill drilling that could have been classified as proved if closer
statutory spacing had been approved at the time of estimate, (d)
reserves attributable to improved recovery methods that have been
established by repeated commercially successful applications when (i) a
project or pilot is planned but not in operation and (ii) rock, fluid,
and reservoir characteristics appear favorable for commercial
application, (e) reserves in an area of the formation that appears to
be separated from the proved area by faulting and the geologic
interpretation indicates the subject area is structurally higher than
the proved area, (f) reserves attributable to a future workover,
treatment, re-treatment, change of equipment, or other mechanical
procedures, when such procedure has not been proved successful in ▇▇▇▇▇
that exhibit similar behavior in analogous reservoirs, and (g)
incremental reserves in proved reservoirs where an alternative
interpretation of performance or volumetric data indicates more
reserves than can be classified as proved.
Section 3.2 250 Bcf Hurdle. Parent will, at Closing, grant Seller
options to purchase two million (2,000,000) of Parent's ordinary shares pursuant
to that certain option agreement attached hereto as Exhibit C at an exercise
price of eighty cents Australian (AU$0.80) per share, which options shall become
exercisable in the event an Annual Reserve Report, as defined below, estimates
that the aggregate of all Proved and Probable Reserves of hydrocarbons in place,
in whatever form, attributable to Buyer's interests in any hydrocarbons below
the surface of the Lands, at any depth and whether acquired by Buyer pursuant to
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this Agreement or otherwise, either before or after the date hereof, plus all
hydrocarbons produced and delivered for sale from the Hydrocarbon Interests
since the Effective Time, appropriately adjusted to avoid duplication, are equal
to or greater than two hundred fifty billion cubic feet (250 Bcf) (the "250 Bcf
Hurdle"). All such options granted when the 250 Bcf Hurdle is met shall expire
unless exercised within thirty-six (36) months from the date the 250 Bcf Hurdle
is met.
Section 3.3 500 Bcf Hurdle. Parent will, at Closing, grant Seller
incremental options to purchase two million (2,000,000) of Parent's ordinary
shares pursuant to that certain option agreement attached hereto as Exhibit C at
an exercise price of eighty cents Australian (AU$0.80) per share, which options
shall become exercisable in the event an Annual Reserve Report estimates that
the aggregate of all Proved and Probable Reserves of hydrocarbons in place, in
whatever form, attributable to Buyer's interests in any hydrocarbons below the
surface of the Lands, at any depth and whether acquired by Buyer pursuant to
this Agreement or otherwise, either before or after the date hereof, plus all
hydrocarbons produced and delivered for sale from the Hydrocarbon Interests
since the Effective Time, appropriately adjusted to avoid duplication, are equal
to or greater than five hundred billion cubic feet (500 Bcf) (the "500 Bcf
Hurdle"). All such options granted when the 500 Bcf Hurdle is met shall expire
unless exercised within thirty-six (36) months from the date the 500 Bcf Hurdle
is met.
Section 3.4 750 Bcf Hurdle. Parent will, at Closing, grant Seller
incremental options to purchase four million (4,000,000) of Parent's ordinary
shares pursuant to that certain option agreement attached hereto as Exhibit C at
an exercise price of eighty cents Australian (AU$0.80) per share, which options
shall become exercisable in the event an Annual Reserve Report, estimates that
the aggregate of all Proved and Probable Reserves of hydrocarbons in place, in
whatever form, attributable to Buyer's interests in any hydrocarbons below the
surface of the Lands, at any depth and whether acquired by Buyer pursuant to
this Agreement or otherwise, either before or after the date hereof, plus all
hydrocarbons produced and delivered for sale from the Hydrocarbon Interests
since the Effective Time, appropriately adjusted to avoid duplication, are equal
to or greater than seven hundred fifty billion cubic feet (750 Bcf) (the "750
Bcf Hurdle"). All such options granted when the 750 Bcf Hurdle is met shall
expire unless exercised within thirty-six (36) months from the date the 750 Bcf
Hurdle is met.
Section 3.5 Change of Control. Following the Closing, upon a Change of
Control of Parent (as defined below) that occurs prior to any of the reserve
hurdles set forth above (the 250 Bcf Hurdle, the 500 Bcf Hurdle, or the 750 Bcf
Hurdle) being met, all of said reserve hurdles shall be deemed to have been met
and all of the options described above (an aggregate of 8,000,000 options) shall
be immediately vested and be immediately exercisable for a period of thirty-six
(36) months from the date of the event constituting a Change of Control. For
purposes of this Agreement, Change in Control shall mean (a) an acquisition of
any voting securities of the Buyer or Parent by any person, entity or group
acting in concert immediately after which such person, entity or group acting in
concert has beneficial ownership of 15% or more of the combined voting power of
the Buyer or Parent then outstanding voting securities without the approval of
the board; (b) a merger or consolidation that results in more than 50% of the
combined voting power of the Buyer's or Parent's then outstanding voting
securities of the Buyer or its successor or Parent or its successor changing
ownership (whether or not approved by the board); (c) the sale of all or
substantially all of the Buyer's or Parent's assets in a single transaction or
series of related transactions; (d) approval by the shareholders of the Buyer or
the Parent of a plan of complete liquidation of the Buyer or Parent; or (e) the
individuals constituting the board of Buyer or Parent as of the date of this
Agreement (the "Incumbent Board") cease for any reason to constitute at least
1/2 of the members of the board of Buyer or Parent; provided, however, that if
the election, or nomination for election by the Buyer's or Parent's
shareholders, of any new director was approved by a vote of the Incumbent Board,
such new director shall be considered a member of the Incumbent Board.
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Section 3.6 Annual Engineering Study. At Marion's expense, ▇▇▇▇▇▇ shall
cause ▇▇▇▇▇ ▇▇▇▇▇ Company or any other independent, qualified petroleum
engineering firm of national standing reasonably acceptable to Seller (the
"Engineering Firm") to prepare a written engineering report evaluating the
Proved Reserve and Probable Reserve quantities attributable to the Hydrocarbon
Interests on an annual basis until the 750 Bcf Hurdle is met or until December
31, 2016 (the "Annual Reserve Report") in accordance with the following:
(a) As soon as practicable after the end of each fiscal year
(the "Reserve Study Date"), but in any event by July 31 of the following year,
▇▇▇▇▇▇ shall deliver or cause to be delivered to the Engineering Firm and upon
request to the Seller all (i) geological, geophysical and engineering data,
including drilling logs, drillstem tests, pressure tests, delivery and
deliverability records, geological and engineering studies or other data
gathered prior to and as of the Reserve Study Date respecting the Clear Creek
Natural Gas Unit; (ii) records of all hydrocarbons delivered for sale from the
Hydrocarbon Interests for the fiscal year ending on the Reserve Study Date;
(iii) a copy of each report, study, evaluation, estimate or other writing
respecting the Hydrocarbon Interests prepared by or on behalf of ▇▇▇▇▇▇ for
internal uses or for delivery to any governmental authority, potential funding
source, owner, investor or other third party; and (iv) such other information
under the care, custody, or control of ▇▇▇▇▇▇ that the Engineering Firm or
Seller may reasonably request, to the extent that such other information can be
obtained by or on behalf of ▇▇▇▇▇▇ without unreasonable effort or expense.
(b) As soon as practicable after the receipt of the
information required to be delivered by ▇▇▇▇▇▇ pursuant to paragraph (b) of this
section, but in any event by September 30 of the year following the Reserve
Study Date, the Engineering Firm shall prepare and transmit to ▇▇▇▇▇▇ and Seller
the Engineering Firm's estimate of the Proved and Probable Reserves attributable
to the Hydrocarbon Interests together with a calculation of the sum of such
Proved and Probable Reserves and all hydrocarbons produced and delivered for
sale from the Hydrocarbon Interests since the Effective Time, appropriately
adjusted to avoid duplication, all in accordance with the requirements of this
Agreement and, to the extent consistent with this Agreement, the standards of
the American Society of Petroleum Engineers. In the event that hydrocarbons
other than gas are present, such other hydrocarbons shall be converted at their
British Thermal Unit equivalent in accordance with standard engineering
practice, as shall be described in such report. The Engineering Firm's study and
estimate prepared in accordance with this paragraph is hereinafter referred to
as the "Preliminary Hurdle Calculation."
(c) ▇▇▇▇▇▇ and Seller shall promptly review the Preliminary
Hurdle Calculation, and each shall advise the other of the respects, if any, in
which it disputes such calculation, setting forth with reasonable specificity
the particulars of such disagreement (the "Disagreement Notice"). If one such
Party does not provide the other Party with a Disagreement Notice within 20 days
after delivery of the Preliminary Reserve Calculation, the amount set forth
therein shall be deemed conclusively acceptable to such Party. If neither such
party delivers a Disagreement Notice, such Preliminary Hurdle Calculation shall
be deemed conclusive and determinative as to whether a specific hurdle has been
met. If either or both such Parties provide the other with a Disagreement Notice
within 20 days after delivery of the Preliminary Hurdle Calculation, the Parties
shall proceed with diligence and dispatch in accordance with the terms and
provisions of the alternative dispute resolution procedures set forth in
Schedule 12.2 attached hereto and fully incorporated herein.
(d) In the event ▇▇▇▇▇▇ refuses to timely deliver to the
Engineering Firm the information required to be delivered pursuant to paragraph
(a) above and such failure continues for greater than 90 days after written
notice and demand for cure from Seller to ▇▇▇▇▇▇, then the next succeeding
hurdle shall be deemed to have been met and the Options to become exercisable on
meeting such hurdle shall automatically be immediately vested and become
exercisable.
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ARTICLE IV.
NET PROFITS INTEREST
Upon assignment of the Assets by Seller to Buyer, Seller shall reserve
and retain as an interest in lands a Net Profits Interest equal to 12.5% of the
net revenue attributable to 100% of the working interest based on an approximate
80% net revenue interest in the rights of Buyer in the Clear Creek Unit, payable
pursuant to Exhibit D and Exhibit E attached hereto.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Seller. To the best of
Seller's knowledge, Seller represents and warrants to Buyer as follows:
(a) Organization and Qualification. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Nevada and has the requisite power to carry on its business as it is now being
conducted. Seller is duly qualified to do business, and is in good standing, in
each jurisdiction in which the Assets owned or leased by it makes such
qualification necessary.
(b) Authority. Seller has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution, delivery, and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all requisite
action on the part of Seller.
(c) Consents. Except for (i) consents and approvals of assignments by
any governmental authority that are customarily obtained after Closing, and (ii)
the consents, approvals, authorizations, filings or notices expressly described
and set forth in Schedule 5.1(c), no consent, approval, authorization or permit
of, or filing with or notification to, any person or entity is required for or
in connection with the execution and delivery of this Agreement by Seller or for
or in connection with the consummation of the transactions and performance of
the terms and conditions contemplated hereby by Seller.
(d) Actions. There are no actions, claims, suits, arbitrations,
inquiries, proceedings, investigations, condemnations or audits by or before any
court or other governmental authority pending against Seller or affecting the
Assets or, to the knowledge of Seller, threatened against Seller that relate to
the Assets or the transactions contemplated by this Agreement.
(e) Compliance with Laws. The Seller and, as of the Operator Change
Date, the Assets were in compliance in all material respects with all statutes,
laws, ordinances, rules, regulations, orders, rulings, restrictions, writs,
injunctions and decrees (collectively, "Laws") in any way affecting or relating
to the Assets.
(f) Environmental Matters. As of the Operator Change Date, the Seller
and the Assets were in compliance in all material respects with all
environmental Laws affecting or relating to the Assets, and there had been no
contamination in, on, under or from the Assets that requires any remediation
under any environmental Law.
(g) Permits. As of the Operator Change Date, Seller had all licenses,
permits, certificates, orders, approvals and authorizations of any governmental
authority necessary to own, operate, use or maintain the Assets and all of such
permits were in full force and effect and all fees and charges relating thereto
had been paid.
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(h) Material Contracts. Set forth in Schedule 5.1(h) is a true and
correct description of each material contract, agreement, lease, or similar
arrangement that is included in the Assets or by which any of the Assets were
bound as of the Operator Change Date (the "Material Contracts"). Each of the
Material Contracts was in full force and effect and there were no material
violations or breaches thereof, or existing facts or circumstances that upon
notice or the passage of time or both would constitute a material violation or
breach thereof, by Seller or any affiliate of Seller or, to the knowledge of
Seller, by any other Party thereto.
(i) Preferential Purchase Rights. None of the Assets is subject to any
preferential purchase or similar right that would become operative as a result
of the transactions contemplated by this Agreement.
(j) Taxes. As of the Operator Change Date, Seller had paid all taxes on
or relating to the Assets, or any production or revenues attributable thereto,
which were then due and payable as required by Law prior to delinquency.
(k) Gas Contracts. With respect to the gas sales contracts, gas product
purchase contracts, and gas processing and transportation contracts included in
the Assets, as of the Operator Change Date, none of such contracts warranted the
amount of the gas to be delivered.
(l) ▇▇▇▇▇. As of the Operator Change Date, each of the ▇▇▇▇▇ included
in the Assets had been drilled and completed within the acreage limits permitted
by contract, pooling, or unit agreement and by Law, and all drilling and
completion of such ▇▇▇▇▇ and all related development and operations had been
conducted in compliance in all material respects with all Laws. As of the
Operator Change Date, no such well was subject to penalties on allowables after
the Effective Time because of any overproduction.
(m) Well and Facility Status. There are no ▇▇▇▇▇ included in the Assets
that, as of the Operator Change Date, (i) Seller was obligated by Law or
contract to plug and abandon, or (ii) were subject to exceptions to a
requirement to plug and abandon issued by a governmental authority. Seller has
not installed any underground storage tanks or constructed any unlined pits in,
on or underlying any of the Assets and, to the knowledge of Seller, no
underground storage tanks or unlined pits have been installed or constructed by
anyone else in, on or underlying any of the Assets.
(n) No Tax Partnership. The Assets are not subject to any tax
partnership agreement or provisions requiring a partnership income tax return to
be filed under Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue
Code of 1986, as amended.
(o) Proposed Operations or Expenditures. Other than as set forth in
Schedule 5.1(o), (i) Seller has not consented to, non-consented to, issued or
received any notice of a proposed drilling, completion, recompletion, deepening,
reworking, plugging back or plugging and abandonment with respect to the Assets
except for any such operations heretofore commenced for which Buyer has no
liability, and (ii) Seller has not issued or received any authorization for
expenditure with respect to the Assets for any period after the Effective Time,
except for delay rental or other lease payments that Seller has paid.
(p) Royalties. As of the Operator Change Date, Seller had paid all
royalties, overriding royalties and other burdens on production due by the
Seller with respect to the Assets.
(q) Title. As of the Operator Change Date, Seller has "Defensible
Title." As used in this Agreement, "Defensible Title" shall mean, respectively
as to the Subject Interest or Subject Interests related to a particular well,
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well location, unit or other subdivision of property described in Exhibit A (a
"Property Subdivision"), record title to such Subject Interest or Subject
Interests related to such Property Subdivision that: (i) entitles Seller to
receive and retain, without suspension, reduction or termination, not less than
the applicable net revenue interest or net revenue interests specified for such
Property Subdivision in Exhibit A through plugging, abandonment and salvage of
such Property Subdivision; (ii) obligates Seller to bear the costs and expenses
attributable to the maintenance, development, and operation of such Property
Subdivision through plugging, abandonment and salvage of such Property
Subdivision in an amount not greater than the applicable working interest or
working interests specified for such Property Subdivision in Exhibit A; and
(iii) constitutes marketable record title under Utah Code ▇▇▇. ss. 57-9-1.
Defensible Title shall be subject to any exceptions identified in the
Acquisition Title Opinion dated August 12, 2002, identified as Exhibit A to the
Farmout Agreement, and shall not be diminished by any liens, security interests,
or other encumbrances created by, through, or under ▇▇▇▇▇▇ after the date of the
Farmout Agreement.
(r) Condition of Assets. As of the Operator Change Date, the machinery,
equipment, tangible personal property, fixtures and improvements included in the
Assets meet industry standards concerning reasonably good working order and
repair.
(s) Hedging. None of the Assets is subject to or are bound by any
futures, hedge, swap, collar, put, call, option or other commodities contract or
agreement.
(t) Brokerage Fees and Commissions. Neither Seller nor any affiliate of
Seller has incurred any obligation or entered into any agreement for any
investment banking, brokerage or finder's fee or commission in respect of the
transactions contemplated by this Agreement for which Buyer shall incur any
liability.
Section 5.2 Representations and Warranties of Buyer. To the best of
Buyer's knowledge, Buyer represents and warrants to Seller as follows:
(a) Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Texas and has the requisite corporate power to carry on its business as it is
now being conducted. Buyer is duly qualified to do business and is in good
standing in each jurisdiction in which the Assets to be acquired by it makes
such qualification necessary.
(b) Authority. Buyer has all requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement. The execution, delivery, and performance of this Agreement and the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action on the part of Buyer.
(c) Actions. There are no actions pending against Buyer or, to the
knowledge of Buyer, threatened against Buyer that relate to the transactions
contemplated by this Agreement.
(d) Brokerage Fees and Commissions. Neither Buyer nor any affiliate of
Buyer has incurred any obligation or entered into any agreement for any
investment banking, brokerage or finder's fee or commission in respect of the
transactions contemplated by this Agreement for which Seller shall incur any
liability.
Section 5.3 Representations and Warranties of Parent. To the best of
Parent's knowledge, Parent represents and warrants to Seller as follows:
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(a) Subsidiaries. Parent owns, directly or indirectly, all of the
capital stock or other equity interests of Buyer free and clear of any liens,
and all the issued and outstanding shares of capital stock of Buyer are validly
issued and are fully paid, non-assessable, and free of preemptive and similar
rights to subscribe for or purchase securities. Parent has no other
subsidiaries.
(b) Organization and Qualification. Parent and Buyer are each an entity
duly incorporated or otherwise organized, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Parent nor Buyer is in violation or default of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Parent and the Buyer is duly
qualified to conduct business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material adverse
effect on the legality, validity or enforceability of this Agreement or the
agreements for the Immediately Exercisable Options and the Reserve-Based Options
(together, the "Transaction Documents"), (ii) a material adverse effect on the
results of operations, assets, business, prospects or condition (financial or
otherwise) of the Parent and the Buyer, taken as a whole, or (iii) a material
adverse effect on the Parent's ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of (i), (ii) or
(iii), a "Material Adverse Effect") and no proceeding has been instituted in any
such jurisdiction revoking, limiting, curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
(c) Authority. Parent has the requisite corporate power and authority
to enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of the Transaction Documents by
Parent and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of the
Parent and no further action is required by the Parent, its board of directors
or its stockholders in connection therewith. Each Transaction Document has been
(or upon delivery will have been) duly executed by the Parent and, when
delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Parent enforceable against it in accordance
with its terms except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by Parent, the issuance and sale of the Securities and the
consummation by Parent of the other transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of the Parent's
or Buyer's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any lien upon any of the properties or
assets of the Parent or Buyer, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Parent or Buyer debt or otherwise) or other understanding to which
Parent or Buyer is a party or by which any property or asset of the Parent or
Buyer is bound or affected, or (iii) conflict with or result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Parent or Buyer
9
is subject (including federal and state securities laws and regulations), or by
which any property or asset of Parent or Buyer is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.
(e) Actions. There is no action, suit, proceeding, inquiry, or
investigation before or by any court, public board, governmental agency or
authority, or self-regulatory organization or body pending or threatened against
or affecting Parent, Buyer, or any of their respective directors or officers in
their capacities as such, wherein an unfavorable decision, ruling or finding
would have a Material Adverse Effect or would adversely affect the transactions
contemplated by this Agreement or that would adversely affect the validity or
enforceability of, or the authority or ability of Parent to consummate the
transactions contemplated by this Agreement. Parent and Buyer are unaware of any
facts that could give rise to a claim or proceeding that, if asserted or
conducted with results unfavorable to Parent or Buyer, could have a Material
Adverse Effect.
(f) Brokerage Fees and Commissions. Neither Parent nor Buyer has
incurred any obligation or entered into any agreement for any investment
banking, brokerage or finder's fee or commission in respect of the transactions
contemplated by this Agreement for which Seller shall incur any liability.
(g) Issuance of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all liens imposed by Parent. The ordinary shares to be issued upon
exercise of the Options, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and nonassessable,
free and clear of all liens imposed by Parent. Parent has reserved from its duly
authorized capital stock the maximum number of Ordinary Shares issuable pursuant
to this Agreement and the Options.
(h) Capitalization.
(i) The authorized capital stock of Parent consists of
192,414,201 fully paid issued ordinary shares. In addition, a total of
88,141,201 listed and unlisted options to purchase ordinary shares were
issued. Each of the outstanding shares of Parent is duly authorized,
validly issued, and fully paid and nonassessable, and has not been
issued in violation of (nor are any of the authorized shares of
Parent's capital stock subject to) any preemptive or similar rights
created by statute, Parent's charter documents, or any agreement to
which Parent is a party or bound, and such outstanding shares owned by
Parent are owned free and clear of all security interests, liens,
claims, pledges, agreements, limitations on Parent's voting rights,
charges or other encumbrances of any nature whatsoever.
(ii) Except as identified in section 5.3(h)(i) or as set forth
in Schedule 5.3(h), there are no options, warrants, or other rights
(including registration rights), agreements, arrangements, or
commitments of any character to which Parent is a party relating to the
issued or unissued capital stock of Parent or obligating Parent to
grant, issue, or sell any shares of its capital stock. Except as set
forth in Schedule 5.3(h), Parent has no obligations, contingent or
otherwise, to (1) repurchase, redeem, or otherwise acquire any ordinary
shares or other capital stock of Parent; or (2) provide material funds
to, or make any material investment in (in the form of a loan, capital
contribution, or otherwise), or provide any guarantee with respect to
the obligations of any other person. Except as described in Schedule
5.3(h), Parent does not directly or indirectly own, has not agreed to
purchase or otherwise acquire, or does not hold any interest
convertible into or exchangeable or exercisable for, 5% or more of the
capital stock of any corporation, partnership, joint venture, or other
business association or entity. Except as set forth in Schedule 5.3(h),
there are no agreements, arrangements, or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be
entitled to receive any payment based on Parent's revenues or earnings
or calculated in accordance therewith. Except as set forth in Schedule
10
5.3(h), there are no voting trusts, proxies, or other agreements or
understanding to which Parent is a party or by which Parent is bound
with respect to the voting of any shares of capital stock of Parent.
(i) Required Filings and Consents. Except as set forth in Schedule
5.3(i), the execution and delivery of this Agreement by Parent does not, and
consummation of the transactions contemplated hereby will not, require Parent to
obtain any consent, license, permit, approval, waiver, authorization or order
of, or to make any filing with or notification to, any governmental or
regulatory authority, domestic or foreign, except when the failure to obtain
such consents, licenses, permits, approvals, waivers, authorizations or orders,
or to make such filings or notifications, would not, either individually or in
the aggregate, materially interfere with Parent's performance of its obligations
under this Agreement and would not have a Material Adverse Effect.
(j) Reports and Financial Statements.
(i) Parent has furnished to Seller complete and accurate
copies, as amended or supplemented, of (1) its annual report for the
fiscal year ended June 30, 2005; (2) its interim financial report for
the half-year ended December 31, 2005; and (3) its quarterly report for
the quarter ended March 31, 2006, as filed with the Australian Stock
Exchange ("ASX"), and all other reports filed by Parent with the ASX
since June 30, 2005.
(ii) The audited consolidated financial statements of Parent
included in Parent's annual report for the fiscal year ended June 30,
2005 (1) comply as to form in all material respects with applicable
accounting requirements, including the Accounting Standards, Urgent
Issues Consensus Views, the Authoritative Pronouncements of the
Australian Accounting Standard Board, and the Corporations ▇▇▇ ▇▇▇▇;
(2) fairly present the consolidated financial condition, results of
operations, and cash flows of Parent as of the respective date thereof
and for the period referred to therein, and (3) are consistent with
Parent's books and records.
(k) Absence of Certain Changes or Events. Except as set forth in
Schedule 5.3(k), since the date of Parent's most recent balance sheet provided
in accordance with the description in section 5.3(j), there has not been any
material adverse change in the business, operations, properties, level of
inventory, assets, or condition of the business or any damage, destruction, or
loss (whether or not covered by insurance) or Parent or Buyer, including:
(i) any change in the assets, liabilities, financial
condition, or operating results of Parent or Buyer, except changes in
the ordinary course of business;
(ii) any damage, destruction, or loss, whether or not covered
by insurance;
(iii) any waiver by Parent or Buyer of a valuable right or of
a material debt owed to it;
(iv) any change or amendment to Parent's charter documents or
any agreement by which Parent or any of its assets or properties is
bound or subject;
(v) any loans made by Parent or Buyer to or for the benefit of
their employees, officers, or directors, or any members of their
immediate families, other than travel advances and other advances made
in the ordinary course of their business;
11
(vi) any resignation or termination of any executive officer
or key employee of Parent or Buyer, and Parent is not aware of any
impending resignation or termination of employment of any such officer
or key employee;
(vii) any material change in any compensation arrangement or
agreement with any employee, director, or equity owner;
(viii) any adoption, creation, or material change in any
profit sharing, bonus, deferred compensation, insurance, pension,
retirement, or other employee benefit plan, payment, or arrangement
made to, for, or with the officers, directors, or employees of Parent
or Buyer;
(ix) any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets, or other intangible assets;
(x) any satisfaction or discharge of any lien or payment of
any obligation by Parent or Buyer, except in the ordinary course of
business and that is not material to the business, properties,
prospects, or financial condition of Parent or Buyer;
(xi) any declaration, setting aside, or payment or other
distribution in respect of any of Parent's equity ownership, or any
direct or indirect redemption, purchase, or other acquisition of any of
such equity ownership by Parent;
(xii) any lien created by Parent or Buyer respecting any of
their material properties or assets, except liens for taxes not yet due
or payable;
(xiii) any other event or condition of any character that has
had a material adverse effect; or
(xiv) any agreement or commitment by Parent or Buyer to do any
of the things described or in accordance with this section 5.3.
(l) Compliance. Neither Parent nor Buyer (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by Parent or Buyer
under), nor has Parent or Buyer received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws applicable to its business and all such
laws that affect the environment, except in each case as could not have or
reasonably be expected to result in a Material Adverse Effect.
(m) No Vote Required. No vote of the holders of any class or series of
Parent's equity security is necessary to approve the transactions contemplated
by the Transaction Documents.
(n) Labor Relations. No material labor dispute exists or is imminent
with respect to any of the employees of Parent that could reasonably be expected
to result in a Material Adverse Effect. None of Parent's or Buyer's employees is
a member of a union that relates to such employee's relationship with Parent,
and neither Parent nor Buyer is a party to a collective bargaining agreement,
and Parent and Buyer believe that their relationships with their employees are
good. No executive officer is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
12
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject Parent or Buyer to any liability
with respect to any of the foregoing matters. Parent and Buyer are in compliance
with all U.S. federal, state, local, and foreign laws and regulations relating
to employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(o) Information Supplied. Without limiting any of the representations
and warranties contained herein, no representation or warranty of Parent and no
statement by Parent or other information contained in or documents referred to
in Parent's disclosure schedules, as of the date of such representation,
warranty, statement, or document, contains or contained any untrue statement of
material fact, or, at the date thereof, omits or omitted to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which such statements are or were made, not misleading.
(p) Foreign Corrupt Practices. Neither Parent nor Buyer has, nor any
director, officer, agent, employee, or other person acting on behalf of Parent
or Buyer has in the course of his or her actions for or on behalf of Parent,
used any corporate funds for any unlawful contribution, gift, entertainment, or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback, or other unlawful payment to any
foreign or domestic government official or employee. Without limiting the
generality of the foregoing, Parent and Buyer have not directly or indirectly
made or agreed to make (whether or not said payment is lawful) any payment to
obtain, or with respect to, sales other than usual and regular compensation to
its or their employees and sales representatives with respect to such sales.
(q) Title to Assets. Parent and Buyer have good and marketable title in
fee simple to all real property owned by them that is material to the business
of Parent and Buyer and good and marketable title in all personal property owned
by them that is material to the business of Parent and Buyer, in each case free
and clear of all liens, except for liens as do not materially affect the value
of such property and do not materially interfere with the use made and proposed
to be made of such property by Parent and Buyer and liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. All oil and gas royalty, working or operating interests or
other rights held under lease on an oil and gas drilling location are held by
Parent or Buyer under valid, subsisting and enforceable leases, farmout or
participation agreements or other agreements with which Parent and Buyer are in
compliance. Any other real property and facilities held under lease by Parent
and Buyer are held by them under valid, subsisting, and enforceable leases with
which Parent and Buyer are in compliance.
(r) Insurance. Parent and Buyer are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which Parent and Buyer are
engaged, including, but not limited to, directors and officers insurance
coverage. Neither Parent nor Buyer has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(s) Governmental Permits, etc. Each of Parent and Buyer has all
necessary franchises, licenses, certificates, and other authorizations from any
foreign, federal, state, or local government or governmental agency, department,
13
or body that are currently necessary for the operation of its business as
currently conducted, except when the failure to currently possess could not
reasonably be expected to have a Material Adverse Effect.
(t) Proprietary Rights. Parent does not own any material inventions,
patent applications, patents, trademarks (both registered and unregistered),
trade names, copyrights, or trade secrets necessary for the conduct of the
business of Parent or Buyer as currently conducted.
(u) Transactions with Affiliates and Employees. Except as set forth on
Schedule 5.3(u), none of the officers or directors of Parent and none of the
employees of Parent is presently a party to any transaction with Parent or Buyer
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or any entity in which any officer, director, or any such employee has
a substantial interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than (i) for payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of Parent and (iii) for other employee benefits, including stock option
agreements under any stock option plan of Parent.
(v) Key Employees; Parent's Knowledge. Each Key Employee (as defined
below) is currently serving Parent in the capacity disclosed in its most recent
annual report. No Key Employee is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, noncompetition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject Parent or Buyer to any liability with
respect to any of the foregoing matters. No Key Employee has any intention to
terminate or limit his employment with, or services to, the Parent or Buyer, nor
is any such Key Employee subject to any constraints (e.g., litigation) that
would cause such employee to be unable to devote his full time and attention to
such employment or services. "Key Employee" means each officer of Buyer.
(w) Drilling Practices. The real property on which the Parent and Buyer
have the right to explore, develop, or recover oil and gas substances (the
"Current Properties"); all right, title, and interest of Parent and Buyer in and
to the Current Properties; and all machinery, equipment, jigs, drills, dies,
tools, handling equipment, furniture, furnishings and accessories and supplies
of all kinds used on the Current Properties (collectively the "Oilfield Assets")
have been operated in accordance with good oilfield practice, in compliance with
the applicable law, ordinance, rule, regulation, order, judgment, or decree of
any governmental entity, court, or arbitration tribunal, except for possible
violations, the sanctions for which, either singly or in the aggregate would not
have a Material Adverse Effect, and materially in accordance with the terms and
conditions of all agreements applicable thereto.
(x) Oil or Gas Balancing Agreements. Neither Parent nor Buyer, nor any
other person on their behalf, have entered into any agreement or arrangements,
commonly known as an oil or gas balancing, swaps, overproduction, or
underlift-overlift agreements, that are among two or more persons owning
interests in a portion of the Current Properties or pooled or unitized
therewith; nor has there been any circumstance or case whereby one of such
persons has taken, or may hereafter take, a share of the production of oil or
gas substances from such Current Properties greater than it would otherwise be
entitled to by virtue of its interest in such Current Properties, and which
excess taking entitled the other persons to a credit in respect of subsequent
production of Parent's oil and gas substances produced from such Current
Properties.
14
(y) Assets Subject to Obligations. The Oilfield Assets are not affected
by any "take or pay" obligations.
(z) Allowables. None of the oil and gas ▇▇▇▇▇ operated by Parent or
Buyer on the Current Properties has been produced in excess of applicable
production allowables imposed by applicable law, ordinance, rule, regulation,
order, judgment, or decree of any governmental entity, court, or arbitration
tribunal, since Parent or Buyer acquired its interest therein. Such oil and gas
▇▇▇▇▇ are not subject to any production penalty and Parent is not aware of any
impending change in statutorily imposed or sanctioned production allowables
imposed by applicable governmental entities currently applicable to any of the
oil and gas ▇▇▇▇▇ other than changes that are in the public domain.
(aa) Environmental Matters. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. ss. 9601, et seq., the Superfund Amendments and Reauthorization Act of
1986, Pub. L. no. 99 499, the Hazardous Materials Transportation Act, 49 U.S.C.
ss. 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. ss.
6901, et seq., or other applicable state or federal laws adopted pursuant to any
of the foregoing. Except as set forth in Schedule 5.3(aa), during the period of
ownership, use, or other occupancy of the properties of Parent and Buyer,
neither Parent nor Buyer have used, generated, manufactured, stored, treated,
disposed of, or released any hazardous waste or substance on, under, or about
any of the properties, except in compliance with environmental laws.
(bb) Internal Accounting Controls. Parent and Buyer maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
ARTICLE VI.
INVESTIGATION OF ASSETS
Buyer conducted an investigation into the Assets in connection with the
entry into the Farmout Agreement, and since that time has had full access to all
Records, and its personnel have had full access to the Clear Creek Natural Gas
Unit, both before and after the Operator Change Date. Buyer hereby acknowledges
it has had the opportunity to inspect the Assets to its full satisfaction and
specifically disclaims reliance on any representations, statements, or
warranties of Seller except as specifically set forth in this Agreement.
ARTICLE VII.
COVENANTS OF SELLER, BUYER, AND PARENT
Section 7.1 Conduct of Business Pending Closing. Except as approved by
Buyer in writing (which approval shall not be unreasonably withheld), Seller
covenants and agrees that:
(a) Sales. Seller shall not sell, transfer, assign, convey, farm-out,
release, abandon or otherwise dispose of any of the Assets, or enter into any
transaction the effect of which would be to cause Seller's ownership interest in
any of the Assets to be altered from Seller's ownership interest as of the date
of this Agreement, other than oil, gas and other hydrocarbons produced, saved
and sold in the ordinary course of business.
(b) Encumbrances. Seller shall not create or permit the creation of any
lien, security interest or other encumbrance on any of the Assets.
15
(c) Contracts and Agreements. Seller shall not enter into any oil, gas
or other hydrocarbon sales, supply, exchange, processing or transportation
contract with respect to the Assets without written consent of Buyer.
(d) Notice of Defaults. Seller shall give prompt written notice to
Buyer of any written notice of default (or threat of default, whether disputed
or denied) received or given by Seller under any material instrument or
agreement affecting the Assets to which Seller is a party or by which Seller or
any of the Assets are bound.
Section 7.2 Conveyance. Upon the terms and subject to the conditions of
this Agreement, at or prior to the Closing, Seller and Buyer shall execute and
deliver or cause the execution and delivery of the Assignment, ▇▇▇▇ of Sale and
Deed with Reservation of Net Profits Interest, in substantially the form
attached hereto as Exhibit F (the "Conveyance"), together with all special
federal or other assignment forms as may be required by Law to be executed in
connection with the conveyance of specific Assets; provided that the terms and
provisions of the Conveyance shall control as to any conflict between the
Conveyance and any such special assignment forms.
Section 7.3 Public Announcements. Without the prior written approval of
the other Party hereto, which approval shall not be unreasonably withheld, no
Party hereto will issue, or permit any agent or affiliate of it to issue, any
press releases or otherwise make, or cause any agent or affiliate of it to make,
any public statements with respect to this Agreement and the transactions
contemplated hereby, except when such release or statement is deemed in good
faith by the releasing Party to be required by Law or any national securities
exchange, in which case the Party will use its commercially reasonable efforts
to provide a copy to the other Party prior to any release or statement.
Section 7.4 Further Assurances. Seller, Buyer, and Parent each agree,
from time to time, whether before, at or after the Closing Date, to execute and
deliver or cause its respective affiliates to execute and deliver such further
instruments of conveyance and transfer and take such other action as may be
necessary to carry out the purposes and intents of this Agreement.
Section 7.5 Post-Closing Covenants of Buyer. Buyer covenants and
agrees:
(a) that it shall, with reasonable commercial diligence and dispatch,
explore all geological zones and formations in which Buyer at any time has an
interest below the surface of the Lands and, as warranted, develop and place the
same into production with a view toward maximizing recovery of Hydrocarbons
therefrom; and
(b) that it shall, on an annual basis, provide Seller with a capital
budget, which shall include an approximate description of its proposed field
activities for the following year, including estimated expenditures.
ARTICLE VIII.
CLOSING CONDITIONS
Section 8.1 Seller's Closing Conditions. The obligation of Seller to
consummate the transactions contemplated hereby is subject, at the option of
Seller, to the satisfaction on or prior to the Closing Date of all of the
following conditions:
(a) Representations, Warranties and Covenants. The (i) representations
and warranties of Buyer and Parent contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, and (ii)
16
covenants and agreements of Buyer and Parent to be performed on or before the
Closing Date in accordance with this Agreement shall have been duly performed in
all material respects.
(b) Conveyance. Buyer shall have executed and delivered the Conveyance
prior to or on the Closing Date.
(c) No Material Adverse Change. There has been no material adverse
change in the financial condition of Parent.
Section 8.2 Buyer's Closing Conditions. The obligation of Buyer to
consummate the transactions contemplated hereby is subject, at the option of
Buyer, to the satisfaction on or prior to the Closing Date of all of the
following conditions:
(a) Representations, Warranties and Covenants. The (i) representations
and warranties of Seller contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date, and (ii) covenants and
agreements of Seller to be performed on or before the Closing Date in accordance
with this Agreement shall have been duly performed in all material respects.
(b) Conveyance. Seller shall have executed and delivered the Conveyance
prior to or on the Closing Date.
(c) Material Adverse Change. There has been no material adverse change
in the operation or condition of the Assets since the Effective Time.
ARTICLE IX.
CLOSING
Section 9.1 Closing. The "Closing" shall be held on the Closing Date at
10:00 a.m. (local time), at the offices of Buyer at ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, or at such other time or place as the Parties may
otherwise agree in writing.
Section 9.2 Seller's Closing Obligations. At Closing, Seller shall
execute and deliver, or cause to be executed and delivered, to Buyer the
following:
(a) the Conveyance;
(b) the Existing Well Net Profits Interest Agreement;
(c) the Future Well Net Profits Interest Agreement;
(d) the Termination Agreement, terminating the Farmout Agreement;
(e) letters in lieu of division and transfer orders executed by Seller
relating to the Subject Interests in form reasonably necessary to reflect the
conveyances contemplated hereby that have been approved by Buyer;
(f) the Records; and
(g) any agreements, instruments, and documents that are required by
other terms of this Agreement to be executed and/or delivered by Seller to Buyer
at the Closing.
17
Section 9.3 Buyer's Closing Obligations. At Closing, Buyer shall (a)
deliver, or cause to be delivered, the Purchase Price to Seller in immediately
available funds to the bank account as provided in section 2.2 and the Share
Payment; and (b) execute and deliver, or cause to be executed and delivered, to
Seller the following:
(i) the Conveyance;
(ii) the Existing Well Net Profits Interest Agreement;
(iii) the Future Well Net Profits Interest Agreement;
(iv) the Termination Agreement, terminating the Farmout
Agreement;
(v) the Immediately Exercisable Options and the Reserve-Based
Options;
(vi) a legal opinion in substantially the form attached hereto
as Exhibit G; and
(vii) any other agreements, instruments, and documents that
are required by other terms of this Agreement to be executed and/or
delivered by Buyer to Seller at the Closing.
ARTICLE X.
EFFECT OF CLOSING
Section 10.1 Revenues. After Closing, all proceeds, accounts
receivable, notes receivable, income, revenues, monies and other items included
in or attributable to the Assets with respect to any period of time after the
Effective Time shall belong to and be paid over to Buyer.
Section 10.2 Expenses. After Closing, all accounts payable and other
costs and expenses with respect to the Assets prior to the Effective Time shall
be borne by Seller. Any costs and expenses with respect to the Assets after the
Effective Time shall be borne by the Buyer.
Section 10.3 Payments and Obligations. If monies are received by any
Party hereto that, under the terms of this Article X, belong to another Party,
the same shall immediately be paid over to the proper Party. If an invoice or
other evidence of an obligation is received that under the terms of this Article
X is partially the obligation of Seller and partially the obligation of Buyer,
then the Parties shall consult each other and each shall promptly pay its
portion of such obligation to the obligee.
Section 10.4 Survival. The representations and warranties of the
Parties contained in this Agreement shall survive the Closing until twenty-four
(24) months after the Closing Date. All of the covenants and agreements made by
each Party in this Agreement shall survive the consummation of the transactions
contemplated herein and shall continue in full force and effect after the
Closing indefinitely until all obligations with respect to any such covenants
are fulfilled in their entirety.
ARTICLE XI.
INDEMNIFICATION
Section 11.1 Indemnification by Buyer. FROM AND AFTER THE CLOSING DATE,
BUYER SHALL INDEMNIFY AND HOLD HARMLESS THE SELLER, ITS PRESENT AND FORMER
DIRECTORS, OFFICERS/PARTNERS, EMPLOYEES AND AGENTS, AND EACH OF THE DIRECTORS,
18
OFFICERS, PARTNERS, MEMBERS, HEIRS, EXECUTORS, SUCCESSORS AND PERMITTED ASSIGNS
OF ANY OF THE FOREGOING (COLLECTIVELY, THE "SELLER INDEMNIFIED PARTIES") FROM
AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, FINES, PENALTIES,
JUDGMENTS, SETTLEMENTS, AWARDS, COSTS, TAXES AND EXPENSES (INCLUDING REASONABLE
FEES AND EXPENSES OF COUNSEL, CONSULTANTS, EXPERTS AND OTHER PROFESSIONAL FEES)
(COLLECTIVELY, "LOSSES") ARISING OUT OF OR ATTRIBUTABLE OR RELATING TO (a) THE
OWNERSHIP, USE, MAINTENANCE OR OPERATION OF THE ASSETS FROM AND AFTER MAY 10,
2005, AND (b) ANY MISREPRESENTATION, BREACH OF WARRANTY OR NONFULFILLMENT OF ANY
COVENANT OR AGREEMENT ON THE PART OF BUYER HEREUNDER.
Section 11.2 Indemnification by Parent. FROM AND AFTER THE CLOSING
DATE, PARENT SHALL INDEMNIFY AND HOLD HARMLESS THE SELLER INDEMNIFIED PARTIES
FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, FINES, PENALTIES,
JUDGMENTS, SETTLEMENTS, AWARDS, COSTS, TAXES AND EXPENSES (INCLUDING REASONABLE
FEES AND EXPENSES OF COUNSEL, CONSULTANTS, EXPERTS AND OTHER PROFESSIONAL FEES)
ARISING OUT OF OR ATTRIBUTABLE OR RELATING TO ANY MISREPRESENTATION, BREACH OF
WARRANTY OR NONFULFILLMENT OF ANY COVENANT OR AGREEMENT ON THE PART OF BUYER
HEREUNDER.
Section 11.3 Indemnification by Seller. SELLER SHALL INDEMNIFY AND HOLD
HARMLESS BUYER AND PARENT, THEIR PRESENT AND FORMER DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS, AND EACH OF THE DIRECTORS, OFFICERS, HEIRS, EXECUTORS,
SUCCESSORS AND ASSIGNS OF ANY OF THE FOREGOING (COLLECTIVELY, THE "BUYER
INDEMNIFIED PARTIES") FROM AND AGAINST ANY AND ALL LOSSES ARISING OUT OF OR
ATTRIBUTABLE OR RELATING TO (a) THE OWNERSHIP, USE, MAINTENANCE OR OPERATION OF
THE ASSETS THAT OCCURRED PRIOR TO MAY 10, 2005, AND (b) FROM AND AFTER THE
EFFECTIVE TIME ANY MISREPRESENTATION, BREACH OF WARRANTY OR NONFULFILLMENT OF
ANY COVENANT OR AGREEMENT ON THE PART OF SELLER HEREUNDER.
Section 11.4 Exclusive Remedy. Seller, Buyer, and Parent acknowledge
and agree that from and after the Closing Date the indemnification provisions of
this Article XI are the sole and exclusive remedy of Seller, Buyer, and Parent
for the breach of any representation or warranty or nonfulfillment of any
covenant or agreement on the part of Seller or Buyer or Parent under this
Agreement or any certificate delivered pursuant hereto, and Seller does hereby
release, acquit and forever discharge all Buyer Indemnified Parties and Buyer
and Parent do hereby release, acquit, and forever discharge all Seller
Indemnified Parties from any such other remedies.
ARTICLE XII.
TERMINATION; DISPUTE RESOLUTION; REMEDIES; LIMITATIONS
Section 12.1 Termination of Agreement. This Agreement and the
transactions contemplated hereby may be terminated at any time prior to the
Closing:
(a) by the mutual consent of Seller and Buyer; or
(b) if the Closing has not occurred by the close of business on the
Closing Date, then (i) by Seller if any condition specified in section 8.1 has
not been satisfied on or before such close of business, and shall not
19
theretofore have been waived by Seller, or (ii) by Buyer if any condition
specified in section 8.2 has not been satisfied on or before such close of
business, and shall not theretofore have been waived by Buyer; provided, in each
case, that the failure to consummate the transactions contemplated hereby on or
before such date did not result from the failure by the Party or Parties seeking
termination of this Agreement to fulfill any undertaking or commitment provided
for herein on the part of such Party or Parties that is required to be fulfilled
on or prior to Closing.
Section 12.2 Dispute Resolution. In the event of any dispute between
the Parties relating to this Agreement and/or the Assets, the Parties agree to
abide by the terms and provisions of the alternative dispute resolution
procedures set forth in Schedule 12.2 attached hereto and fully incorporated
herein.
Section 12.3 Limitations. NOTWITHSTANDING ANYTHING CONTAINED TO THE
CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, SELLER, BUYER, AND PARENT
AGREE THAT THE RECOVERY BY ANY PARTY HERETO OF ANY DAMAGES SUFFERED OR INCURRED
BY IT AS A RESULT OF ANY BREACH BY ANOTHER PARTY OF ANY OF ITS REPRESENTATIONS,
WARRANTIES, COVENANTS OR AGREEMENTS UNDER THIS AGREEMENT SHALL BE LIMITED TO THE
ACTUAL DAMAGES SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF
THE BREACH BY THE BREACHING PARTY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS
OR AGREEMENTS HEREUNDER AND IN NO EVENT SHALL THE BREACHING PARTY BE LIABLE TO
THE NON-BREACHING PARTY FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR
PUNITIVE DAMAGES SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF
THE BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES,
COVENANTS OR AGREEMENTS HEREUNDER. For purposes of the foregoing, actual damages
may, however, include indirect, consequential, special, exemplary or punitive
damages to the extent (a) the injuries or losses resulting in or giving rise to
such damages are incurred or suffered by a person or entity that is not a Seller
Indemnified Party, a Buyer Indemnified Party or an affiliate of any of the
foregoing, and (b) such damages are recovered against an indemnified Party
hereunder by a person or entity that is not a Seller Indemnified Party, a Buyer
Indemnified Party or an affiliate of any of the foregoing. This section 12.3
shall operate only to limit a Party's liability and shall not operate to
increase or expand any contractual obligation of a Party hereunder or cause any
contractual obligation of a Party hereunder to survive longer than as otherwise
provided.
ARTICLE XIII.
MISCELLANEOUS
Section 13.1 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the Parties and delivered to the other Party.
Section 13.2 Governing Law. THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF UTAH WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING
TO CONFLICTS OF LAW RULES THAT WOULD DIRECT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.
Section 13.3 Entire Agreement. This Agreement and the schedules and
exhibits hereto contain the entire agreement between the Parties with respect to
the subject matter hereof and there are no agreements, understandings,
representations or warranties between the Parties other than those set forth or
20
referred to herein. The headings herein are for convenience only and shall have
no significance in the interpretation hereof.
Section 13.4 Expenses. Buyer shall be responsible for all recording
fees relating to the filing of instruments transferring title to Buyer from
Seller. Seller shall be responsible for (a) any sales taxes that may become due
and owing by reason of the sale of the Assets hereunder, (b) all transfer,
stamp, documentary and similar taxes imposed on the Parties hereto with respect
to the property transfer contemplated pursuant to this Agreement, and (c) all
income and other taxes incurred by or imposed on Seller with respect to the
transactions contemplated hereby. All other costs and expenses incurred by each
Party hereto in connection with all things required to be done by it hereunder,
including attorney's fees, accountant fees and the expense of title examination,
shall be borne by the Party incurring same.
Section 13.5 Notices. Unless otherwise expressly provided in this
Agreement, all notices required or permitted hereunder shall be in writing and
deemed sufficiently given for all purposes hereof if (a) delivered in person, by
courier, by overnight delivery service or by registered or certified United
States Mail to the person or entity to be notified, with receipt obtained, or
(b) sent by telecopy, telefax or other facsimile or electronic transmission,
with "answer back" or other "advice of receipt" obtained, in each case to the
appropriate address or number as set forth below. Each notice shall be deemed
effective on receipt by the addressee as aforesaid; provided that, notice
received by telex, telecopy, telefax or other facsimile or electronic
transmission after 5:00 p.m. at the location of the addressee of such notice
shall be deemed received on the first business day following the date of such
electronic receipt. Notices to Seller shall be addressed as follows:
Mid-Power Resources Corporation
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address or to such other telecopy, telefax or other facsimile
or electronic transmission number and to the attention of such other person or
entity as Seller may designate by written notice to Buyer. Notices to Buyer
shall be addressed to:
▇▇▇▇▇▇ Energy, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Vice President-Land
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
21
or at such other address or to such other telecopy, telefax or other facsimile
or electronic transmission number and to the attention of such other person as
Buyer may designate by written notice to Seller. Notices to Parent shall be
addressed to:
▇▇▇▇▇▇ Energy Limited
Suite 3, Pacific Tower
737 Burwood Road
HAWTHORN, VIC, AUSTRALIA, 3122
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone No.: ▇▇ ▇▇▇▇ ▇▇▇▇
Facsimile No.: 03 8862 6614
Section 13.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns.
Section 13.7 Amendments and Waivers. This Agreement may not be modified
or amended except by an instrument or instruments in writing signed by the Party
against whom enforcement of any such modification or amendment is sought. Any
Party hereto may, only by an instrument in writing, waive compliance by another
Party hereto with any term or provision of this Agreement on the part of such
other Party hereto to be performed or complied with. The waiver by any Party
hereto of a breach of any term or provision of this Agreement shall not be
construed as a waiver of any subsequent breach.
Section 13.8 Schedules and Exhibits. All schedules and exhibits hereto
that are referred to herein are hereby made a part hereof and incorporated
herein by such reference.
Section 13.9 Ad Valorem Tax Proration. Ad valorem taxes related to the
Assets will be prorated as of the Effective Time. For ad valorem taxes for a
period that the Effective Time splits that have been paid by Seller, Buyer shall
reimburse Seller for the portion thereof equal to the percentage of such period
represented by the portion of such period beginning at the Effective Time. For
ad valorem taxes for a period that the Effective Time splits that have not been
paid to Seller, Buyer shall pay such taxes and Seller shall reimburse Buyer for
a percentage of such taxes equal to the portion of such period that ends on the
day immediately preceding the Effective Time. Section 13.10 Agreement for the
Parties' Benefit Only. Except as specified in Article XI, which is also intended
to benefit and to be enforceable by any of the indemnified parties, this
Agreement is not intended to confer upon any person or entity not a Party hereto
any rights or remedies hereunder, and no person or entity, other than the
Parties hereto or the other Seller Indemnified Parties or the other Buyer
Indemnified Parties, is entitled to rely on any representation, warranty,
covenant or agreement contained herein. In each case, such third party
beneficiary may only bring suit against the defaulting Party or Parties.
Section 13.11 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any adverse
manner to any Party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the Parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
Section 13.12 Time of Essence. Time is of the essence in this
Agreement.
22
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the Parties as of the day first above written.
SELLER:
MID-POWER RESOURCE CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
BUYER:
▇▇▇▇▇▇ ENERGY, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President-Land
PARENT:
▇▇▇▇▇▇ ENERGY LIMITED
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President-Land
23
Schedule 5.1(c)
Required Consents
None
Schedule 5.1(h)
Material Contracts
None
Schedule 5.1(o)
Proposed Operations or Expenditures
None
Schedule 5.3(h)
Commitments Related to Parent's Capital
None
Schedule 5.3(i)
Required Filings and Consents
None
Schedule 5.3(k)
Material Adverse Changes
None
Schedule 5.3(u)
Transactions with Affiliates and Employees
None
Schedule 5.3(aa)
Environmental Matters
None
Schedule 12.2
Alternative Dispute Resolution Procedures
In the event of any dispute, the Parties shall promptly negotiate in
good faith in attempt to resolve such dispute. Any dispute that is not resolved
by the Parties shall be settled exclusively and finally by arbitration in
accordance with the following procedures:
(a) Such arbitration shall be conducted pursuant to the
Federal Arbitration Act, except as expressly provided otherwise in this
Agreement. The validity, construction, and interpretation of these
procedures, and all procedural aspects of the arbitration conducted
pursuant hereto, including the determination of the issues that are
subject to arbitration (i.e., arbitrability), the scope of the
arbitrable issues, allegations of "fraud in the inducement" to enter
into the Agreement or these arbitration procedures, allegations of
waiver, laches, delay or other defenses to arbitrability, and the rules
governing the conduct of the arbitration (including the time for filing
an answer, the time for the filing of counterclaims, the times for
amending the pleadings, the specificity of the pleadings, the extent
and scope of discovery, the issuance of subpoenas, the times for the
designation of experts, whether the arbitration is to be stayed pending
resolution of related litigation involving third parties not bound by
the Agreement, the receipt of evidence, and the like), shall be decided
by an independent expert, who shall serve as sole arbitrator (the
"Independent Expert"). The Independent Expert shall be appointed by
mutual agreement of Seller and Buyer from among candidates with
experience and expertise in the area that is the subject of such
Dispute, and failing such agreement, such Independent Expert for such
Dispute shall be selected in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Rules"). The
arbitration administered by the Independent Expert and shall be
conducted pursuant to the Rules, except as expressly provided otherwise
in this Agreement. The arbitration proceedings shall be subject to any
optional rules contained in the Rules for emergency measures and, in
the case of disputes with respect to amounts in excess of $1,000,000,
optional rules for large and complex cases.
(b) The Independent Expert shall permit and facilitate such
discovery as he/she determines is appropriate in the circumstances,
taking into account the needs of the Parties and the desirability of
making discovery expeditious and cost-effective. Such discovery may
include pre-hearing depositions, particularly depositions of witnesses
who will not appear personally to testify, if there is a demonstrated
need therefor. The Independent Expert may issue orders to protect the
confidentiality of proprietary information, trade secrets and other
sensitive information disclosed in discovery.
(c) All arbitration proceedings hereunder shall be conducted
in Dallas, Texas, or such other mutually agreeable location.
(d) In deciding the substance of the dispute, the Independent
Expert shall refer to the substantive laws of the State of Utah for
guidance (excluding choice-of-law principles that might call for the
application of the laws of another jurisdiction). Matters relating to
arbitration shall be governed by the Federal Arbitration Act.
(e) The Parties shall request the Independent Expert to
conduct a hearing as soon as reasonably practicable after appointment
and to render a final decision completely disposing of the dispute that
is the subject of such proceedings as soon as reasonably practicable
after the final hearing. The Parties shall instruct the Independent
Expert to impose time limitations he/she considers reasonable for each
phase of such proceeding, including, without limitation, limits on the
time allotted to each Party for the presentation of its case and
rebuttal. The Independent Expert shall actively manage the proceedings
as he/she deems best so as to make the proceedings fair, expeditious,
economical, and less burdensome than litigation. To provide for speed
and efficiency, the Independent Expert may: (i) limit the time allotted
to each Party for presentation of its case; and (ii) exclude testimony
and other evidence they deem irrelevant or cumulative.
(f) Notwithstanding any other provision in this Agreement to
the contrary, the Parties expressly agree that the Independent Expert
shall have absolutely no authority to award consequential, incidental,
special, treble, exemplary or punitive damages of any type under any
circumstances regardless of whether such damages may be available under
Utah law, or any other laws, or under the Federal Arbitration Act or
the Rules.
(g) The Parties shall request that final decision of the
Independent Expert be in writing, be as brief as possible, set forth
the reasons for such final decision, and if the Independent Expert
awards monetary damages to either Party, contain a certification by the
Independent Expert that they have not included any consequential,
incidental, special, treble, exemplary or punitive damages. To the
fullest extent permitted by law, the arbitration proceeding and the
Independent Expert's decision and award shall be maintained in
confidence by the Parties and the Parties shall instruct the
Independent Expert to likewise maintain such matters in confidence.
EXHIBIT A TO
ASSET PURCHASE AGREEMENT
SCHEDULE SHOWING THE OWNERSHIP OF OIL AND GAS INTERESTS
CLEAR CREEK UNIT AREA
CARBON & ▇▇▇▇▇ COUNTIES, UTAH
Attached to and made part of that certain Asset Purchase Agreement dated August
31, 2006, and effective as of August 28, 2006, by and between Mid-Power Resource
Corporation, as Seller, and ▇▇▇▇▇▇ Energy Inc., as Buyer, and ▇▇▇▇▇▇ Energy
Limited, as Parent of Buyer
Exhibit A
============================================================================================================================
LEGAL LESSOR BOOK/
SEC/T/R DESCRIPTION Federal/State/Fee NAME & ADDRESS DATE PAGE COUNTY
----------------------------------------------------------------------------------------------------------------------------
13S-6E, SEC: 13 E/2SE/4NE/4, E/2E/2SE/4, SW/4SE/4SE/4 ▇▇▇/ ▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇ Fuel Company 8/4/45 3Y/359 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-6E, SEC: 24 E/2NE, S/2SWNE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 17 S/2SW
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 18 LOTS 1,2,3,4, E/2SW/2, S/2SE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 19 LOTS 1,2,3,4, NENW, W/2NE, NENE, NWSE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 20 N/2NW, W/2NE, SWSENE, W/2SE, W/2E/2SE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 29 W/2NE, W2NENE, SENE, E/2SE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 30 LOTS 1,2,3,4 E/2SW, SENE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 31 LOTS 1,2,4, SENW, SESW, E/2
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 32 ALL
----------------------------------------------------------------------------------------------------------------------------
14S-7E, SEC: 5 ▇▇▇▇ ▇,▇,▇,▇, ▇/▇▇▇, ▇▇, ▇▇▇▇, ▇/▇▇▇
----------------------------------------------------------------------------------------------------------------------------
14S-7E, SEC: 6 LOTS 1,2,3,4,5, AND ALL OF 6 AND 7 IN
CARBON COUNTY, E/2SW, SENW, S/2NE
----------------------------------------------------------------------------------------------------------------------------
14S-7E, SEC: 7 ALL OF NENW LYING IN CARBON COUNTY
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AE ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 4/1/77 173/450 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023- ▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ 4/1/77 173/430 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 4/1/77 173/435 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AF ▇▇▇▇▇▇ ▇▇▇▇▇▇ 4/1/77 173/455 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AG ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 4/1/77 173/460 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AC ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 4/1/77 173/440 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AD ▇▇▇▇ ▇▇▇▇▇▇ 4/1/77 173/445 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 7 SE OF ▇▇▇ ▇, ▇▇▇ ▇, ▇/▇▇▇, ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ NATURAL
SWSENW, E/2NWNE, SWNWNE FEE/UT 2570-00027 GAS CO 1/1/57 45/187 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 W/2NW, SENW FEE/ UT 2570-000 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 7/26/50 15c/380 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 17 SWNE, W/2SE FEE/ UT 2570-000 Estate of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ 7/1/77 173/424 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 17 SWNE, W/2SE FEE/ UT 2570-000 Estate of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ 7/1/77 173/418 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 17 SWNE, W/2SE FEE/ UT 2570-000 Estate of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ 7/1/77 173/412 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E SEC 5 SWSW FEE/UT 2570-0002 ▇.▇. ▇▇▇▇▇▇▇▇ 7/29/52 19/46 CARBON
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
13S-7E ▇▇▇ ▇ ▇▇▇▇
----------------------------------------------------------------------------------------------------------------------------
▇▇▇-▇▇ SEC 7 E/2NE
----------------------------------------------------------------------------------------------------------------------------
14S-6E ▇▇▇ ▇ ▇/▇▇▇ ▇▇▇/▇▇ ▇▇▇▇-▇▇▇▇ ▇▇▇▇ Fuel Company 8/4/45 C/73 ▇▇▇▇▇
----------------------------------------------------------------------------------------------------------------------------
14S-6E SEC 12 E/2NENW
----------------------------------------------------------------------------------------------------------------------------
14S-7E SEC 6 ALL ▇▇▇▇ ▇ ▇▇▇ ▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------------------------------------------------------------------------------------------
14S-7E SEC 7 LOTS 1 AND 2, ALL NENW LYING IN ▇▇▇▇▇
COUNTY
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8: W/2NW, SENW FEE/UT 2570-0002 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 9/4/52 17/416 CARBON
----------------------------------------------------------------------------------------------------------------------------
14S-6E SEC 24 NESE, SENE FEE/UT 2570-0002 ▇▇▇▇▇▇ DODGE CORP
AND THE 11/1/76 90/785 EMERY
----------------------------------------------------------------------------------------------------------------------------
13S7E, ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇▇ OF UTAH ML-1254 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇▇▇ ▇, ▇▇▇▇ ▇▇▇▇▇/▇▇ 2570-
00016 STATE OF UTAH ML-1255 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇▇▇▇, ▇/▇▇▇, ▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ML-1256 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇▇▇▇, ▇/▇▇▇, ▇▇, ▇/▇▇▇
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇/▇▇▇, ▇▇▇▇ ▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ML-1257 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
14S-7E, ▇▇▇ ▇ ▇/▇▇▇, ▇▇▇▇ ▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ML-1258 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇ ▇▇▇▇, ▇/▇▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
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============================================================================================================================
EXHIBIT B TO
ASSET PURCHASE AGREEMENT
STOCK OPTION AGREEMENT BETWEEN ▇▇▇▇▇▇ ENERGY LIMITED AND
MID-POWER RESOURCE CORPORATION DATED AUGUST 28, 2006
Stock Option Agreement
▇▇▇▇▇▇ Energy Limited
And
Mid-Power Resource Corporation
Contents
Clause Page
Date 1
Parties 1
Introduction 1
Operative Part 1
1. Defined Terms 1
2. Conditions 2
3. Options 2
4. Exercise 3
5. Warranties 3
6. Term of This Agreement 3
7. Communications 4
8. General 5
Schedule 1 - Dictionary
Schedule 2 - Warranties
Schedule 3 - Addresses for Service
Signing Page
Date
________________________________________________________________________________
This Stock Option Agreement is made this 28th day of August, 2006.
Parties
________________________________________________________________________________
The Parties to this agreement are -
▇▇▇▇▇▇ Energy Limited ("MAE")
ABN 99 000 031 292
Mid-Power Resource Corporation ("MPRC")
Introduction
________________________________________________________________________________
MAE is an Australian public company listed on the Australian Stock
Exchange Limited.
▇▇▇▇▇▇ Energy, Inc. ("MEI") is a Texas corporation which is a wholly
owned subsidiary of MAE.
MPRC is a Nevada corporation.
MPRC has entered into the Asset Purchase Agreement with MEI.
Pursuant to the terms and conditions of the Asset Purchase Agreement,
MEI and its parent, MAE, have agreed to grant MPRC certain options to
subscribe for shares in MAE.
This agreement governs the parties' rights and obligations with respect
to the options being granted.
This agreement will be Exhibit "B" to the Asset Purchase Agreement.
Operative Part
1. Defined Terms
________________________________________________________________________________
Words and phrases with a particular meaning are defined in the
dictionary in schedule 1 to this agreement and have an initial capital
letter.
1
These meanings apply in this agreement unless the contrary intention
appears.
2. Conditions
________________________________________________________________________________
2.1 When this agreement becomes enforceable
The rights and obligations of the parties under this agreement are
enforceable on and from the date they sign this agreement.
3. Options
________________________________________________________________________________
3.1 Issuance of the options
As of the Closing Date of the Asset Purchase Agreement, all of the
options listed below shall be issued by MAE to MPRC:
--------------------------------------------------------------
Option Giver Option Taker Subject Matter of the
Option
--------------------------------------------------------------
MAE MPRC Five Million (5MM) shares
in MAE at an option
exercise price of AUD
0.40 per share
--------------------------------------------------------------
3.2 Option exercise period
MPRC may exercise the options at any time during the period beginning
on the Closing Date of the Asset Purchase Agreement and ending on the
fifth anniversary of that date, when the options lapse.
3.3 Exercising an option
MPRC may exercise an option by giving written notice to MAE.
2
4. Exercise
________________________________________________________________________________
4.1 MPRC's obligations on exercise
MPRC will pay the option exercise price by electronic funds transfer
(EFT) on the Exercise Date.
4.2 MAE's obligations on completion
Subject to receiving payment of the option exercise price MAE will
issue scrip and enter MPRC as the holder of the shares which are the
subject of the option within two (2) Business Days after the Exercise
Date.
5. Warranties
________________________________________________________________________________
5.1 MAE's warranties
MAE warrants and represents to MPRC that each of the statements set out
in part 1 of schedule 2 is correct.
MAE will repeat the warranties and representations on the Exercise
Date.
MAE acknowledges that MPRC has entered into this agreement in reliance
on those representations and warranties.
5.2 MPRC's warranties
MPRC warrants and represents to MAE that each of the statements set out
in part 2 of schedule 2 is correct.
MPRC will repeat the warranties and representations on the Exercise
Date.
MPRC acknowledges that MPRC has entered into this agreement in reliance
on those representations and warranties.
6. Term of this Agreement
________________________________________________________________________________
6.1 Commencement
This agreement is taken to have commenced on the 28th day of August,
2006.
3
6.2 Duration
This agreement will end on the 28th day of August, 2011, unless ended
before that date.
6.3 Consensus to end this agreement
The parties may agree to end this agreement at any time.
6.4 Automatic ending
This agreement ends automatically if the Asset Purchase Agreement is
terminated.
7. Communications
________________________________________________________________________________
7.1 How notices are to be given
A party must give any notice, consent, or demand under this agreement
in writing that must be signed by either that party or that party's
Authorized Representative.
A party may give a notice, consent, or demand under this agreement by -
(a) sending it by email to the other party's email address, or
(b) sending it by facsimile to the other party's facsimile number, or
(c) in any other way the law permits.
7.2 Deemed receipt
A notice or other communication is properly given or served if -
(a) sent by facsimile, at the time which the facsimile machine
from which it is sent records that the communication has been
transmitted satisfactorily (or, if such time is outside normal
business hours, at the time of resumption of normal business
hours);
(b) sent by electronic mail, only in the event that the other
party acknowledges receipt by any means; or
(c) sent by any other electronic means, only in the event that the
other party acknowledges receipt by means.
4
7.3 Services of notice
Each party's address for service is set out in schedule 3.
A party may give notice to the other of any change, of contact, person,
address or facsimile number.
8. General
________________________________________________________________________________
8.1 Action on a non-Business day
If something is to be done in accordance with this agreement on a day
that is not a Business Day, then that thing must be done on the
following Business Day.
8.2 Amendments
No party may vary this agreement unless the other party agrees in
writing.
8.3 Assignment
No party may assign their rights under this agreement unless the other
party agrees in writing.
8.4 Construction
In this agreement -
(a) a reference to an individual or person includes a reference to
a company and vice versa;
(b) the singular includes the plural and vice versa;
(c) a word denoting a gender includes all genders;
(d) a schedule or annexure to this agreement is a part of the
document;
(e) a reference to a schedule is a reference to a schedule of this
agreement unless indicated otherwise;
(f) a reference to an agreement or document or law is a reference
to the agreement, document, or law (and, if applicable, any of
its provisions) as amended, novated, supplemented, or replaced
for the time being;
(g) a reference to "dollars" or "$" is to an amount in Australian
currency; and
5
(h) where an expression is defined, another part of speech or
grammatical form of that expression has a corresponding
meaning.
8.5 Costs
Each party must bear and is responsible for its own costs in respect of
the preparation, execution, completion and carrying into effect of this
agreement.
8.6. Counterparts
This agreement may consist of a number of copies, each signed by one or
more parties to this agreement.
If so, the signed copies are taken as making up the one document.
8.7 Entire agreement
This agreement sets out the rights and obligations of the parties in
respect of its subject matter, being subject to the terms and
conditions of the Asset Purchase Agreement which shall control in the
case of any conflicts or inconsistencies.
8.8 Further steps
The parties must do all things and sign all documents necessary to give
effect to this agreement.
8.9 Governing law and jurisdiction
The laws of the State of Victoria, Australia, govern this document.
The parties irrevocably submit to the jurisdiction of the courts of the
State of Victoria.
8.10 Headings
Headings do not affect the interpretation of this agreement.
8.11 Severance
Each provision of this document is severable from the others and
severance of a provision does not affect any other provision of this
agreement.
6
8.12 Survival of clauses
A provision of this document that can, and is intended to, operate
after the ending of this agreement, remains effective.
8.13 Time of the essence
Time is of the essence in a party's performance of obligations under
this agreement.
8.14 Waiver
A party may waive any right under this agreement only by giving written
notice to the other waiving that particular right.
A party who does not exercise any right, or does not exercise it as
soon as practicable, does not wave that right.
A party who exercises a right once, or partly, may exercise that right,
or other rights, again.
7
Schedule 1
(Clause 1)
Dictionary
Asset Purchase Agreement means the agreement so called as of the
Effective Date, August 28, 2006, between
MPRC and MEI.
Authorized Representative means in a respect of a Shareholder, a
person whom that Shareholder has appointed
as an authorized representative, or that
party's lawyer.
Business Day means a day which is not a Saturday, Sunday,
a public or bank holiday in Melbourne.
Exercise Date in respect of the exercise of the options is
two (2) Business days after the date on
which MAE receives notice from MPRC that
MPRC will exercise the options.
MAE means ▇▇▇▇▇▇ Energy Limited ABN 99 000 031
292
MEI means ▇▇▇▇▇▇ Energy Inc.
MPRC means Mid-Power Resource Corporation
8
Schedule 2
(Clause 5)
Warranties
Part 1 MAE's Warranties
________________________________________________________________________________
Corporate status
MAE is incorporated in Australia.
MAE is not an externally administered body corporate and no controller
has been appointed.
Note: Clause 9 of the Corporation ▇▇▇ ▇▇▇▇ (Cth) defines' externally
administered body `corporate' and `controller'.
Corporate power and corporate action
MAE has the corporate power, and has taken all corporate action
necessary, to enter into this agreement and do all things this
agreement requires.
The company will not contravene any -
(a) law or directive from a government body
(b) agreement to which the corporation is a party, or
(c) obligation to another party
By entering into this agreement and doing all things that they require.
Due execution
MAE has duly executed this agreement.
Part 2 MPRC's warranties
________________________________________________________________________________
Corporate status
MPRC is incorporated in Nevada.
9
Corporate power and corporate action
MPRC has the corporate power, and has taken all corporate action
necessary, to enter into this agreement and do all things this
agreement requires.
MPRC will not contravene any -
(a) law or directive from a government body
(b) agreement to which the corporation is a party, or
(c) obligation to another party
By entering into this Agreement and doing all things that they require.
Due Execution
MPRC has duly executed this agreement.
10
Schedule 3
(Clause 7)
Addresses for Service
--------------------------------------------------------------------------------
Party Address
--------------------------------------------------------------------------------
MAE Contact Person ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------------
Address
-------------------------------------------
Email
--------------------------------------------------------------------------------
MPRC Contact Person ▇▇▇ ▇▇▇▇▇
-------------------------------------------
Address
-------------------------------------------
Email ▇▇▇▇▇▇@▇▇▇-▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
--------------------------------------------------------------------------------
11
Signing Page
________________________________________________________________________________
Executed by ▇▇▇▇▇▇ Energy Limited, ABN 99
000 031 29 in accordance with section 127(1)
of the Corporations ▇▇▇ ▇▇▇▇ (Cth) by
authority of its directors
/s/ ▇▇▇▇ ▇▇▇▇▇▇ /s/ P. T. Collery
------------------------------- -----------------------------
Signature Signature
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------- -----------------------------
Print Name Print Name
Vice President Director
------------------------------- -----------------------------
Office Held Office Held
Executed by Mid-Power Resource
Corporation
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Signature
▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Print Name
President
-------------------------------
Office Held
12
EXHIBIT C TO
ASSET PURCHASE AGREEMENT
STOCK OPTION AGREEMENT BETWEEN ▇▇▇▇▇▇ ENERGY LIMITED AND
MID-POWER RESOURCE CORPORATION DATED AUGUST 28, 2006
Stock Option Agreement
▇▇▇▇▇▇ Energy Limited
And
Mid-Power Resource Corporation
Contents
_______________________________________________________________________________
Clause Page
Date 1
Parties 1
Introduction 1
Operative Part 1
1. Defined Terms 1
2. Conditions 2
3. Options 2
4. Dilution Protection 4
5. Exercise 5
6. Warranties 5
7. Term of This Agreement 6
8. Communications 6
9. General 7
Schedule 1 - Dictionary
Schedule 2 - Warranties
Schedule 3 - Addresses for Service
Signing Page
Date
________________________________________________________________________________
This Stock Option Agreement is made this 28th day of August, 2006.
Parties
________________________________________________________________________________
The Parties to this agreement are -
▇▇▇▇▇▇ Energy Limited ("MAE")
ABN 99 000 031 292
Mid-Power Resource Corporation ("MPRC")
Introduction
________________________________________________________________________________
MAE is an Australian public company listed on the Australian Stock
Exchange Limited.
▇▇▇▇▇▇ Energy Inc. ("MEI") is a Texas corporation which is a wholly
owned subsidiary of MAE.
MPRC is a Nevada corporation.
MPRC has entered into an Asset Purchase Agreement with MEI.
Part of the consideration under the Asset Purchase Agreement is for MAE
to issue, subject to the fulfillment or waiver of certain conditions
precedent, 3 tranches of options to subscribe for unissued shares in
MAE.
This agreement deals with the 3 tranches of options.
This agreement will be Exhibit "C" to the Asset Purchase Agreement.
Operative Part
1. Defined Terms
________________________________________________________________________________
Words and phrases with a particular meaning are defined in the
dictionary in schedule 1 to this agreement and have an initial capital
letter.
These meanings apply in this agreement unless the contrary intention
appears.
1
2. Conditions
________________________________________________________________________________
2.1 When this agreement becomes enforceable
The rights and obligations of the parties under this agreement, except
under clause 3, are enforceable on and from the date they sign this
agreement.
The formation of a binding contract under clause 3.1, 3.2 or 3.3, as
the case may be, is subject to the fulfillment or waiver of each
condition in that sub-clause.
2.2 Effect of non-fulfillment
If the conditions precedent to the vesting of the option comprised in
Tranche 1, Tranche 2 or Tranche 3, as the case may be, are not
fulfilled on the date this agreement ends under clause 7.1, then all
rights and obligations under this agreement are at an end as to their
future operation.
2.3 Waiver
The conditions precedent to the vesting of options under clause 3 are
for the benefit of MAE which may waive any of them by written notice to
MPRC.
3. Options
________________________________________________________________________________
3.1 Options in Tranche 1
When each of these conditions precedent to the vesting of the options
in Tranche 1 are fulfilled or waived, as the case may be -
(a) this agreement is in force; and
(b) MEI has received an annual reserve report demonstrating that
the 250 Bcf Hurdle has been met pursuant to Section 3.2 of the
Asset Purchase Agreement;
then these options shall be deemed vested and immediately exercisable -
--------------------------------------------------------------
Option Giver Option Taker Subject Matter of the
Option
--------------------------------------------------------------
MAE MPRC 2.0 M shares in MAE at
an option exercise price
of AUD 0.80 per share
--------------------------------------------------------------
2
3.2 Options in Tranche 2
When each of these conditions precedent to the vesting of the options
in Tranche 2t are fulfilled or waived, as the case may be -
(a) this agreement is in force; and
(b) MEI has received an annual reserve report demonstrating the
500 Bcf Hurdle has been met pursuant to Section 3.3 of the
Asset Purchase Agreement;
then these options shall be deemed vested and immediately exercisable -
--------------------------------------------------------------
Option Giver Option Taker Subject Matter of the
Option
--------------------------------------------------------------
MAE MPRC 2.0 M shares in MAE at
an option exercise price
of AUD 0.80 per share
--------------------------------------------------------------
3.3 Options in Tranche 3
When each of these conditions precedent to the vesting of the options
in Tranche 3 are fulfilled or waived, as the case may be -
(a) this agreement is in force; and
(b) MEI has received an annual reserve report demonstrating that
the 750 Bcf Hurdle has been met pursuant to Section 3.4 of the
Asset Purchase Agreement;
then these options shall be deemed vested and immediately exercisable -
--------------------------------------------------------------
Option Giver Option Taker Subject Matter of the
Option
--------------------------------------------------------------
MAE MPRC 4.0 M shares in MAE at
an option exercise price
of AUD 0.80 per share
--------------------------------------------------------------
3
3.4 Option exercise period
MPRC may exercise the options at any time during the period beginning
on the date of vesting and ending on the third anniversary of that
date, when the options comprised in Tranche 1, 2 or 3, as the case may
be, expire (at midnight on that day).
3.5 Exercising an option
MPRC may exercise an option by (a) giving written notice to MAE; and
(b) paying to MAE in immediately available funds the exercise price.
Until both elements have been fulfilled the options will not have been
exercised. The first day on which both elements are fulfilled in
respect of an exercise of options is the Exercise Date in respect of
those options.
3.6 Change of control
Upon a change of control of MAE (as defined below) that occurs prior to
all of the options being vested under this agreement, all of the
then-unvested options comprised in ▇▇▇▇▇▇▇▇ ▇, ▇ ▇▇▇ ▇ ▇▇▇▇▇ ▇▇
immediately vested and exercisable for a period of 36 months from the
date the event constituting a change of control. For purposes of this
agreement, change in control shall mean (a) an acquisition of any
voting securities of the MEI or MAE by any person, entity, or group
acting in concert immediately after which such person, entity, or group
acting in concert has beneficial ownership of 15% or more of the
combined voting power of the MEI or MAE then outstanding voting
securities without the approval of the board; (b) a merger or
consolidation that results in more than 50% of the combined voting
power of the MEI's or MAE's then outstanding voting securities of the
MEI or its successor or MAE or its successor changing ownership
(whether or not approved by the board); (c) the sale of all or
substantially all of the MEI's or MAE's assets in a single transaction
or series of related transactions; (d) approval by the shareholders of
the MEI or the MAE of a plan of complete liquidation of the MEI or MAE;
or (e) the individuals constituting the board of MEI or MAE as of the
date of this agreement (the "Incumbent Board") cease for any reason to
constitute at least one-half of the members of the board of MEI or MAE;
provided, however, that if the election, or nomination for election by
the MEI's or MAE's shareholders, of any new director was approved by a
vote of the Incumbent Board, such new director shall be considered a
member of the Incumbent Board.
4. Dilution Protection
________________________________________________________________________________
4.1 Subsequent equity sales
If MAE or any subsidiary thereof, as applicable, at any time while the
options are outstanding, shall sell or grant any option to purchase or
4
sell or grant any right to reprice its securities, or otherwise dispose
of or issue (or announce any offer, sale, grant, or any option to
purchase or other disposition) any ordinary shares or ordinary share
equivalents entitling any person to acquire ordinary shares at an
effective price per share less than the current exercise price under
this agreement, then MAE shall grant Mid-Power options to purchase
additional ordinary shares at an exercise price of $0.80 per share in
the amount necessary to preserve the proportional relationship between
the 8,000,000 options to be granted under this agreement and the
fully-diluted capitalization of MAE as of the date of this option
agreement, which shall be deemed to be 300,000,000 shares. A maximum of
8,000,000 additional options may be issued under this provision.
4.2 Issuance of additional options
Whenever additional options are required to be issued pursuant to the
provision of this clause 4, MAE shall promptly mail to MPRC a notice
setting forth the facts requiring the issuance of additional options
and the additional options in the number required.
5. Exercise
________________________________________________________________________________
5.1 MPRC's obligations on exercise
MPRC will pay the option exercise price by electronic funds transfer
(EFT).
5.2 MAE's obligations on exercise
Subject to receiving payment of the option exercise price MAE will
issue scrip and enter MPRC in its register of members as the holder of
the shares which are the subject of the option as soon as practicable
but in any event within the time prescribed by the listing rules of
ASX. MAE will also as soon as practicable apply to the ASX for the new
shares to be quoted on ASX.
6. Warranties
________________________________________________________________________________
6.1 MAE's warranties
MAE warrants and represents to MPRC that each of the statements set out
in part 1 of schedule 2 is correct.
MAE will repeat the warranties and representations on the Exercise
Date.
MAE acknowledges that MPRC has entered into this agreement in reliance
on those representations and warranties.
5
6.2 MPRC's warranties
MPRC warrants and represents to MAE that each of the statements set out
in part 2 of schedule 2 is correct.
MPRC will repeat the warranties and representations on the Exercise
Date.
MPRC acknowledges that MAE has entered into this agreement in reliance
on those representations and warranties.
7. Term of This Agreement
________________________________________________________________________________
7.1 Ending by agreement
The parties may agree to end their rights and obligations at any time.
7.2 Automatic ending
This agreement ends at the Exercise Date in respect of the last of the
options in the options in Tranche 3, whenever the options in Tranche 3
have all expired, whichever occurs, or in the event the Asset Purchase
Agreement is terminated.
8. Communications
________________________________________________________________________________
8.1 How notices are to be given
A party must give any notice, consent, or demand under this agreement
in writing that must be signed by either that party or that party's
Authorized Representative.
A party may give a notice, consent, or demand under this agreement by -
(a) leaving it at the other party's address, or
(b) posting it by pre-paid post to the other party's address, or
(c) sending it by facsimile to the other party's facsimile number, or
(d) in any other way the law permits.
8.2 When notices are taken to be given
6
A notice, consent, or demand under this agreement will be given or
received on either -
(a) the day it is left, or
(b) the fifth Business Day after posting, or
(b) the later of the date on the notice, consent, or demand or the
date on which the machine from which the document was sent
produces a report that the document was sent.
8.3 Services of notice
Each party's address for service is set out in schedule 3.
A party may give notice to the other of any change, of contact, person,
address or facsimile number.
9. General
________________________________________________________________________________
9.1 Action on a non-Business day
If something is to be done in accordance with this agreement on a day
that is not a Business Day, then that thing must be done on the
following Business Day.
9.2 Amendments
No party may vary this agreement unless the other party agrees in
writing.
9.3 Assignment
No party may assign their rights under this agreement unless the other
party agrees in writing.
9.4 Construction
In this agreement -
(a) a reference to an individual or person includes a reference to
a company and vice versa;
(b) the singular includes the plural and vice versa;
(c) a word denoting a gender includes all genders;
7
(d) a schedule or annexure to this agreement is a part of the
document;
(e) a reference to a schedule is a reference to a schedule of this
agreement unless indicated otherwise;
(f) a reference to an agreement or document or law is a reference
to the agreement, document, or law (and, if applicable, any of
its provisions) as amended, novated, supplemented, or replaced
for the time being;
(g) a reference to "dollars" or "$" is to an amount in Australian
currency; and
(h) where an expression is defined, another part of speech or
grammatical form of that expression has a corresponding
meaning.
9.5 Costs
Each party must bear and is responsible for its own costs in respect of
the preparation, execution, completion and carrying into effect of this
agreement.
9.6. Counterparts
This agreement may consist of a number of copies, each signed by one or
more parties to this agreement.
If so, the signed copies are taken as making up the one document.
9.7 Entire agreement
This agreement sets out the rights and obligations of the parties in
respect of its subject matter, being subject to the terms and
conditions of the Asset Purchase Agreement, which shall control in the
case of any conflicts and inconsistencies.
9.8 Further steps
The parties must do all things and sign all documents necessary to give
effect to this agreement.
9.9 Governing law and jurisdiction
The laws of the State of Victoria, Australia, govern this document.
The parties irrevocably submit to the jurisdiction of the courts of the
State of Victoria.
9.10 Headings
8
Headings do not affect the interpretation of this agreement.
9.11 Severance
Each provision of this document is severable from the others and
severance of a provision does not affect any other provision of this
agreement.
9.12 Survival of clauses
A provision of this document that can, and is intended to, operate
after the ending of this agreement, remains effective.
9.13 Time of the essence
Time is of the essence in a party's performance of obligations under
this agreement.
9.14 Waiver
A party may waive any right under this agreement only by giving written
notice to the other waiving that particular right.
A party who does not exercise any right, or does not exercise it as
soon as practicable, does not waive that right.
A party who exercises a right once, or partly, may exercise that right,
or other rights, again.
9
Schedule 1
(Clause 1)
Dictionary
Asset Purchase Agreement means the agreement so called as of the
Effective Date, August 28, 2006, between
MPRC and MEI.
ASX means Australian Stock Exchange Limited.
Authorized Representative means in a respect of a Shareholder, a
person whom that Shareholder has appointed
as an authorized representative, or that
party's lawyer.
Bcf means billion cubic feet.
Business Day means a day which is not a Saturday, Sunday,
a public or bank holiday in Melbourne.
Exercise Day has the meaning given in clause 3.5.
Expert means an independent consultant which is
properly qualified and has a good reputation
in the assessment of reserves of oil and/or
natural gas and is acceptable to MAE's
auditors so that they may rely on its report
in connection with their verification of the
value of MAE's petroleum tenements.
Expert's Report means a report commissioned by MAE from an
Expert for an assessment of the quantity of
natural gas reserves in a nominated in a
nominated petroleum tenement
MAE means ▇▇▇▇▇▇ Energy Limited ABN 99 000 031
292
M means million.
MEI means ▇▇▇▇▇▇ Energy Inc.
MPRC means Mid-Power Resource Corporation
10
Schedule 2
(Clause 6)
Warranties
Part 1 MAE's Warranties
________________________________________________________________________________
Corporate status
MAE is incorporated in Australia.
MAE is not an externally administered body corporate and no controller
has been appointed.
Note: Clause 9 of the Corporation ▇▇▇ ▇▇▇▇ (Cth) defines' externally
administered body corporate' and `controller'.
Corporate power and corporate action
MAE has the corporate power, and has taken all corporate action
necessary, to enter into this agreement and do all things this
agreement requires.
The company will not contravene any -
(a) law or directive from a government body
(b) agreement to which the corporation is a party, or
(c) obligation to another party
by entering into this agreement and doing all things that it requires.
Due execution
MAE has duly executed this agreement.
Part 2 MPRC's warranties
________________________________________________________________________________
Corporate status
MPRC is incorporated in Nevada.
11
Corporate power and corporate action
MPRC has the corporate power, and has taken all corporate action
necessary, to enter into this agreement and do all things this
agreement requires.
MPRC will not contravene any -
(a) law or directive from a government body
(b) agreement to which the corporation is a party, or
(c) obligation to another party
by entering into this Agreement and doing all things that it requires.
Due Execution
MPRC has duly executed this agreement.
12
Schedule 3
(Clause 8)
Addresses for Service
--------------------------------------------------------------------------------
Party Address
--------------------------------------------------------------------------------
MAE Contact Person ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------------
Address
-------------------------------------------
Email
--------------------------------------------------------------------------------
MPRC Contact Person
-------------------------------------------
Address
-------------------------------------------
Email
--------------------------------------------------------------------------------
13
Signing Page
________________________________________________________________________________
/s/ ▇▇▇▇ ▇▇▇▇▇▇ /s/ P. T. Collery
------------------------------- -----------------------------
Signature Signature
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------- -----------------------------
Print Name Print Name
Vice President Director
------------------------------- -----------------------------
Office Held Office Held
Executed by Mid-Power Resource
Corporation
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Signature
▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Print Name
President
-------------------------------
Office Held
14
EXHIBIT D TO
ASSET PURCHASE AGREEMENT
EXISTING WELL
NET PROFITS INTEREST AGREEMENT
THIS EXISTING WELL NET PROFITS INTEREST AGREEMENT (this "NPI
Agreement"), dated effective as of August 28, 2006, is entered into by and
between MID-POWER RESOURCE CORPORATION, a Nevada corporation ("Owner"), and
▇▇▇▇▇▇ ENERGY, INC., a Texas corporation ("Buyer").
WHEREAS, Owner and Buyer have previously entered into that certain
Farmout and Exploration Agreement for the Clear Creek Natural Gas Unit, Carbon
and ▇▇▇▇▇ Counties, Utah, dated effective February 22, 2005 (the "Farmout
Agreement"), wherein Owner granted Buyer the right to earn a seventy-five
percent working interest (75% WI) in leases within the Clear Creek Natural Gas
Unit upon completion of certain earning conditions, including: (i) drilling
obligations; (ii) a Capital Expenditure Program described therein; and (iii) the
issuance of options to purchase five million (5,000,000) ordinary shares of the
corporate parent of Buyer, at an exercise price of forty cents Australian
(AU$0.40).
WHEREAS, Buyer has initiated, but not yet completed, the performance of
its earning requirements under the Farmout Agreement as summarized above, and
Owner has not assigned, and has not become obligated to assign, to Buyer a 75%
WI in Owner's leasehold interests in the Clear Creek Natural Gas Unit.
WHEREAS, Owner and Buyer have entered into a new agreement under which
Buyer has agreed to purchase certain assets of Owner being the Clear Creek
Natural Gas Unit in Carbon and ▇▇▇▇▇ Counties, Utah, subject to the reservation
set forth herein, pursuant to that certain Asset Purchase Agreement dated of
even date to which Owner and Buyer are parties (the "Purchase Agreement") and to
which this NPI Agreement is an exhibit.
WHEREAS, pursuant to the Purchase Agreement, the Farmout Agreement will
be terminated as between Owner and Buyer, but kept in place as to third parties
that were signatory to the Farmout Agreement, so that upon consummation of the
asset transfers contemplated by the Purchase Agreement, Buyer will assume
Owner's position under the Farmout Agreement with respect to said third parties.
WHEREAS, the above-referenced termination of the Farmout Agreement as
between Owner and Buyer has become effective in accordance with the terms of the
Purchase Agreement, and under the terms of the Purchase Agreement, Owner is now
obligated to convey its working interest in and to the leases in the Clear Creek
Natural Gas Unit, subject to a reserved interest equal to 12.5% of the net
profits from gross proceeds attributable to 100% of the working interest based
on an approximate 80% net revenue interest in such leasehold interests and
related assigned assets.
WHEREAS, Owner and Buyer desire to enter into this NPI Agreement to
effect the foregoing reservation of such net profits interest from the transfer
of the leasehold interests and related assigned assets pursuant to the Agreement
and on the terms and conditions as provided herein.
NOW, THEREFORE, Owner and Buyer do hereby agree as follows:
I. CERTAIN DEFINITIONS AND REFERENCES
1.1 Certain Defined Terms. When used in this NPI Agreement, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the sections and subsections referred to below:
"Allowable Carry-forwards" is defined in Section 3.2(c).
"Assets" shall mean the Assets relating to the ▇▇▇▇▇ currently drilled
and shut-in, which are located in the Clear Creek Unit, and referred to in
Appendix A attached hereto.
"Assignment" shall mean that certain Assignment, ▇▇▇▇ of Sale, and Deed
with Reservation of Net Profits Interest, bearing even date herewith, between
Owner and Buyer, pursuant to which Buyer acquired the Assets from Owner
(excluding from the Assets the reservation of the Existing Well Net Profits
Interest as set forth herein and a separate reservation of an additional net
profits interest (the Future Well Net Profits Interest) separate from this NPI
Agreement), to be recorded simultaneously with the execution of this NPI
Agreement, said Assets being interests in the oil and gas properties more
particularly described on Appendix A hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Effective Time" shall mean midnight, Mountain Daylight time, August
28, 2006.
"Gross Proceeds" is defined in Section 3.2(a).
"Lands" shall mean all of the land described in the oil and gas leases
referenced on Appendix A hereto.
"Leases" shall mean all of the working interests, overriding royalty
interests, and other oil and gas leasehold interests assigned to Owner under the
terms of the Agreement relating to the ▇▇▇▇▇ and related drilling site locations
referred to in Appendix A attached hereto.
"Net Profits" shall mean, with respect to any Payment Period, the net
positive balance, if positive, or zero, if negative, in the Net Profits Account
maintained with respect to such Payment Period pursuant to Article III.
"Net Profits Account" is defined in Section 3.1.
"Other Income" is defined in Section 3.2(b).
"Payment Period" shall mean a calendar month.
"Person" shall mean any natural person, association, trust,
partnership, limited liability company, corporation, or other legal entity.
"Subject Hydrocarbons" means that portion of hydrocarbons produced from
and after the Effective Time, from or attributable to the Assets, including any
recompletions, redrilling, deepening, laterals, and extensions of the existing
bore holes, after deducting the appropriate share, if any, of all royalties and
any overriding royalties and other similar burdens, but without deducting the
Net Profits Interest, including any natural gas, casinghead gas, coal bed
methane gas, oil, or other hydrocarbons. There shall not be included in Subject
Hydrocarbons any gas or other minerals lost in production or used by Buyer in
conformity with good field practices for occluded natural gas from coal seams
production operations (including without limitation, fuel, gas lift, secondary
or tertiary recovery) conducted solely for the purpose of producing
hydrocarbons.
1.2 References and Titles. All references in this NPI Agreement to
articles, sections, subsections, and other subdivisions refer to corresponding
2
articles, sections, subsections, and other subdivisions of this NPI Agreement
unless expressly provided otherwise. Titles appearing at the beginning of any of
such subdivisions are for convenience only and shall not constitute part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions. The words "this NPI Agreement," "this instrument," "herein,"
"hereof," "hereby," "hereunder," and words of similar import refer to this NPI
Agreement as a whole and not to any particular subdivision unless expressly so
limited. Words in the singular form shall be construed to include the plural and
vice versa, unless the context otherwise requires. Appendix A is hereby
incorporated herein by reference and made a part hereof for all purposes.
II. RESERVATION OF NET PROFITS INTEREST
2.1 Reservation. Owner hereby reserves from the Assignment a Net
Profits Interest in and to the portion of Assets, Leases, and Subject
Hydrocarbons, defined herein in this Section 2.1, equal to 12.5% of the Net
Profits from Gross Proceeds attributable to 100% of the working interest based
on an approximate 80% net revenue interest in the Assets and the Leases
(proportionately reduced for any well and related drilling spacing unit for
which the interest assigned constitutes less than 100% of the working interest)
(the "Net Profits Interest"); such payment not to exceed the Gross Proceeds
attributable to the Assets, and subject to the terms and conditions contained
herein. This NPI Agreement is made by Owner to Buyer without any warranty of
title whatsoever, whether express, implied, or statutory, except as against
Persons claiming by, through, or under Owner. This Net Profits Interest is
subject only to the existing ▇▇▇▇▇ and drilling site locations and spacing unit
on which they are situated as more particularly described on Appendix A attached
hereto.
2.2 Interest in Real Property; Servitude upon Estate. The Net Profits
Interest hereby reserved by Owner (a) is excepted, retained, and reserved by
Owner and excluded from and carved out of the working interest conveyed, (b) is
and shall continue to be a perpetual charge, burden, and servitude of Owner on
the working interest conveyed, and (c) constitutes Owner's estate in land and
not personal property.
2.3 Acknowledgment. Owner and Buyer acknowledge that the Net Profits
Interest reserved hereby creates a Net Profits Interest under the Code, and each
agrees to report consistently therewith on its tax returns and other filings
with the Internal Revenue Service.
III. ACCOUNTING AND PAYMENT
3.1 Establishment of Net Profits Account. Buyer shall establish and
maintain a Net Profits Account (the "Net Profits Account") in accordance with
the various provisions of this NPI Agreement and at all times shall keep true
and correct books and records with respect thereto. Such books and records shall
be open for inspection, copying, and audit by Owner and its accountants and
representatives.
3.2 Credits to Net Profits Account. Except as otherwise provided
herein, the Net Profits Account shall be credited with an amount equal to the
sum of Gross Proceeds, Other Income, and Allowable Carry-forwards from the
immediately preceding Payment Period.
(a) "Gross Proceeds" shall mean, on a cash accounting basis,
all consideration directly or indirectly attributable to sales of Subject
Hydrocarbons, subject to the following:
(i) If a controversy exists (whether by reason of any
statute, order, decree, rule, regulation, contract, or otherwise) as to the
correct or lawful sales price of Subject Hydrocarbons, then, at Buyer's sole
election, Buyer may choose to treat amounts attributable to the Assets and
affected by such controversy (1) as Gross Proceeds attributable to the interest
3
of Owner, or (2) not as Gross Proceeds attributable to the interest of Owner and
in such case Buyer shall promptly deposit such amounts with an escrow agent
pending settlement of such controversy, provided that all amounts, including any
interest or Other Income, thereafter paid to Owner by such escrow agent out of
or on account of such escrow shall be considered to be amounts received from the
sale of Subject Hydrocarbons;
(ii) Cash settlements and cash make-ups attributable
to the interest of Buyer with respect to Subject Hydrocarbons under gas
balancing or similar agreements shall be considered derived from the sale of
Subject Hydrocarbons; and
(iii) Gross Proceeds shall not include Other Income.
(b) "Other Income" shall mean, on a cash accounting basis, the
following:
(i) The proceeds attributable to the interest of
Buyer after the Effective Time from (1) the sale of any materials, supplies,
equipment, and other personal property or fixtures, or any part thereof or
interest therein, located on or used in connection with the Assets, (2)
settlements and judgments from legal or other claims, (3) delay rentals, (4)
lease bonuses, and (5) rentals from reservoir use or storage; including, without
limitation, all amounts attributable thereto that are received by Buyer by way
of conformance of investment in personal property and equipment if the Assets or
any part or parts thereof are hereafter from time to time unitized or are
affected by the revision of a participating area in a unit;
(ii) The proceeds of all insurance attributable to
the interest of Owner (1) the cost of which is or was previously charged to the
Net Profits Account, directly or indirectly, and/or (2) that accrue to Buyer as
a consequence of the loss or damage to any one or more of the following that
occur after the Effective Time: the Assets or Subject Hydrocarbons, or any part
thereof or interest therein, the interest of Buyer in any materials, supplies,
equipment or other personal property or fixtures located on or used in
connection with any or all of the Assets or Subject Hydrocarbons; except to the
extent such amounts are used to repair or replace the items damaged or lost
giving rise to the receipt of such amounts;
(iii) Amounts attributable to the interest of Buyer
received from a purchaser of Subject Hydrocarbons (1) as a prepayment of any
portion of the sales price for such Subject Hydrocarbons, (2) as advance gas
payments or (3) as payments pursuant to contractual provisions providing for
"take-or-pay" payments (including amounts awarded by a court or agreed to by the
parties in any settlement of a claim (net of costs and attorneys' fees incurred
in connection therewith) as damages for the failure or refusal of the purchaser
to take Subject Hydrocarbons pursuant to the contract that contains such
provisions) shall be considered to be attributable to the sale of Subject
Hydrocarbons; provided that such amounts shall not be considered attributable to
the sale of Subject Hydrocarbons at a later date when Subject Hydrocarbons are
delivered in respect of any such payments under "make-up" or similar provisions.
(iv) The proceeds of all judgments and claims
attributable to the interest of Buyer for damages to one
or more of the following that occur after the Effective Time: the Assets or
Subject Hydrocarbons, or any part thereof or interest therein, any materials,
supplies, equipment or other personal property or fixtures, or any part thereof
or interest therein, located on or used in connection with any of the Assets or
Subject Hydrocarbons; except to the extent such amounts are used to repair or
replace the items damaged or lost giving rise to the receipt of such amounts;
(v) Any interest, penalty or other amounts
attributable to the interest of Buyer which are attributable to Subject
Hydrocarbons and are not derived from the sale of Subject Hydrocarbons; and
4
(vi) All other monies and things of value (but not
including any tax credits or other tax benefits) which are attributable to the
interest of Buyer by virtue of the ownership after the Effective Time of the
Assets or Subject Hydrocarbons and the materials, supplies, equipment and other
personal property and fixtures located on or used in connection with the Assets
or Subject Hydrocarbons; provided, however, that, except as provided in Section
3.2(b)(1)(i), any proceeds received by Buyer from the sale or other disposition
of all or any portion of the Assets shall not be included as Gross Proceeds or
Other Income.
(c) "Allowable Carry-forwards" shall mean, with respect to any
Payment Period, the amount by which Net Profits exceed Gross Proceeds for such
Payment Period.
3.3 Debits to Net Profits Account. Except as otherwise provided herein,
the Net Profits Account has a beginning debit balance, as of the Effective Time,
of four million, seven hundred thousand dollars ($4,700,000). This amount is
comprised of the capital and operating expenditures of Buyer in the Clear Creek
Unit prior to the Closing Date of the Purchase Agreement, plus the cost of the
acquisition of one million dollars ($1,000,000). If it is determined that the
capital and operating amount requires post-Closing adjustment, the Parties agree
to adjust such amount as appropriate. Thereafter, with respect to each Payment
Period, the Net Profits Account shall be debited (without duplication), on a
cash accounting basis and to the extent directly accountable and allocable to
the Assets and the Leases, with the following amounts:
(a) All direct costs, if any, that are attributable to the
Assets, (i) for all direct labor (including fringe benefits), other services and
expenses necessary for developing, operating, producing, reworking and
maintaining the Assets, (ii) for dehydration, compression, separation,
gathering, transportation, and marketing of Subject Hydrocarbons, and (iii) for
all materials, supplies, equipment and other personal property and fixtures
purchased for use on, or in connection with, any of the Assets (including,
without limitation, (1) all amounts attributable to the interest of Buyer for
conformance of investment if the Assets or any part of parts thereof are
hereafter from time to time unitized or if any participating area in a unit is
changed, and (2) the cost of secondary recovery, pressure maintenance,
repressuring, recycling and other operations conducted for the purpose of
enhancing production);
(b) Costs (including, without limitation, outside legal,
accounting and engineering services) attributable to the Assets or Subject
Hydrocarbons of (i) handling, investigation and/or settling litigation,
administrative proceedings and claims (including, without limitation, lien
claims other than liens for borrowed funds), and (ii) judgments, penalties and
other liabilities (including interest thereon), attributable to the interest of
Buyer (and not reimbursed under insurance maintained by Buyer or others) and
involving any of the Assets or Subject Hydrocarbons, or incident to the
development, operation or maintenance of the Assets or Subject Hydrocarbons, or
requiring the payment or restitution of any proceeds of Subject Hydrocarbons, or
arising from tax or royalty audits, except that there shall not be debited to
the Net Profits Account any expense incurred by Buyer in litigation of any claim
or dispute arising hereunder between Buyer and Owner or amounts paid by Owner to
Buyer pursuant to a final order entered by a court of competent jurisdiction
resolving any such claim or dispute or amounts paid by Owner to Buyer in
connection with the settlement of any such claim or dispute;
(c) All taxes (excluding income, transfer, inheritance,
estate, franchise and like taxes) with respect to the ownership of the Assets or
Subject Hydrocarbons or the production of Subject Hydrocarbons, including,
without limitation, production, severance, and/or excise and other similar taxes
assessed against, and/or measured by (or the proceeds or value attributable to)
Subject Hydrocarbons (without regard to the period of ownership for which such
taxes are assessed), occupation taxes, sales and use taxes, and ad valorem taxes
assessed against or attributable to the Assets or Subject Hydrocarbons;
5
(d) Insurance premiums attributable to the ownership or
operation of the Assets or Subject Hydrocarbons attributable to the interest of
Buyer for insurance actually carried for periods after the Effective Time with
respect to the Assets or Subject Hydrocarbons, or incident to the development,
operation or maintenance of the Assets or Subject Hydrocarbons;
(e) All amounts attributable to the Assets or Subject
Hydrocarbons and consisting of (i) rent and other consideration paid for the use
or damage to the surface, and (ii) delay rentals, shut-in well payments, minimum
royalties and similar payments paid pursuant to the provisions of agreements in
force and effect before the Effective Time;
(f) If as a result of the occurrence of the bankruptcy or
insolvency or similar occurrence of the purchaser of Subject Hydrocarbons, any
amounts previously included in Gross Proceeds or Other Income are reclaimed from
Buyer or its representative, then the amounts reclaimed, as promptly as
practicable following Buyer's payment thereof; and
(g) Except as otherwise provided elsewhere in this NPI
Agreement, all other direct expenditures, if any, attributable to the Assets or
Subject Hydrocarbons for the necessary or proper development, operation,
maintenance and administration, of the Assets or Subject Hydrocarbons if
reasonably incurred; provided, however, that notwithstanding anything herein
provided to the contrary, the Net Profits Account shall not be debited with any
cost or expense that is deducted or taken into account in determining Gross
Proceeds or Other Income, including, without limitation, the value of any
component of Gross Proceeds or Other Income.
3.4 Accounting for Net Profits. All debits to the Net Profits Account
calculated pursuant to Section 3.3 that are attributable to costs, expenses and
liabilities paid during a Payment Period, up to and including the last day of
such Payment Period, shall be debited against the Net Profits Account as of the
last day of such period. All credits to the Net Profits Account calculated
pursuant to Section 3.2 that are attributable to proceeds actually received
during a Payment Period from sales of Subject Hydrocarbons, up to and including
the last day of such Payment Period, shall be credited to the Net Profits
Account as of the last day of such Payment Period.
3.5 Payment. Not more than 45 days following a Payment Period, Buyer
shall pay to Owner the balance in the Net Profits Account, if any, attributable
to such Payment Period (not to exceed the Gross Proceeds). Buyer shall send at
the same time a statement showing the calculation of the Net Profits Interest
and clearly showing (with sufficient description so that Owner can identify such
items and the particular ▇▇▇▇▇ and Subject Hydrocarbons involved) those items
which gave rise to debits and credits to the Net Profits Account during such
Payment Period and clearly showing the Subject Hydrocarbons produced during the
Payment Period covered by such statement, the prices at which such volumes were
sold, and the taxes paid with respect to such sales.
3.6 Overpayments. If at any time Buyer is determined to have paid Owner
more than the amount then due with respect to the Net Profits Interest, Owner
shall be obligated to return any such overpayment after Buyer notifies Owner of
the amount of such overpayment and provides Buyer with substantiation thereof.
Alternatively, Buyer may offset future payments due with respect to the Net
Profits Interest for the amount of any such overpayment provided that such
overpayment is substantiated with written material to the satisfaction of Owner.
3.7 Representation Regarding Expenses. At the time Buyer submits the
statement required under Section 3.5, Buyer shall represent to Owner that there
are no material past due invoices as of the end of the prior calendar quarter in
connection with the Assets or Subject Hydrocarbons.
6
3.8 Owner's Right to Audit. Owner shall have the right, upon reasonable
prior notice and at reasonable times during regular business hours, to inspect
and audit Buyer's books and records kept in accordance with Section 3.1 (in
whatever form and wherever maintained or stored) to assure the accuracy of the
Net Profits Account. Buyer shall cooperate with Owner by giving Owner reasonable
office facilities, including access to and reasonable use of a copy machine and
assistance from Buyer's personnel (at Buyer's cost), in order for Owner to
perform its audit in compliance with generally-accepted accounting and auditing
principles. Buyer shall retain all records related to the Net Profits Account
for at least the three most recently-completed fiscal years, and Owner's right
to inspect and audit such books and records of Buyer hereunder shall survive for
three years following the end of each fiscal year. However, Owner shall not
inspect or audit such books and records more often than once per fiscal year
unless otherwise agreed to in writing by Buyer. If Owner's audit reveals that
Buyer has not maintained the Net Profits Account in compliance with the terms of
this NPI Agreement and such noncompliance results in an error in excess of 5% in
Buyer's calculation of the Net Profits Account Interest for any one or more
Payment Periods, then, in addition to any other rights and remedies available,
Buyer shall reimburse Owner the reasonable cost of the audit. Except in the
context of a dispute related to this NPI Agreement, the results of the audit
shall not be released, transferred, or disclosed by Owner or its auditor outside
of its organization, and Owner will require any independent auditor to sign an
appropriate nondisclosure agreement.
IV. MISCELLANEOUS
4.1 Governing Law. The validity, effect, and construction of this NPI
Agreement shall be governed by the laws of the State of Utah, without reference
to their respective conflict of laws provisions.
4.2. Intentions of the Parties. Nothing herein contained shall be
construed to constitute either party hereto (under state law or for tax
purposes) the agent of, or in partnership with, the other party. If, however,
the parties hereto are deemed to constitute a partnership for federal income tax
purposes, the parties elect to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A of the Code, and agree not to take any position
inconsistent with such election. In addition, the parties hereto intend that the
Net Profits Interest reserved herein by Owner shall at all times be treated as
an interest in real property or land and as a Net Profits Interest based on net
profits under the Code, and each party hereto will file all tax returns and all
Internal Revenue Service filings consistent therewith.
4.3 Notices. All notices and communications required or permitted under
this NPI Agreement shall be in writing and shall be delivered by hand, by
nationally recognized overnight delivery service, by facsimile transmission or
by registered or certified mail, postage prepaid, addressed as follows:
If to Buyer: ▇▇▇▇▇▇ Energy, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Vice President-Land
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
7
If to Owner: Mid-Power Resource Corporation
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
All notices and communications shall be effective upon actual receipt. Either
party may, by written notice so delivered to the other, change the address or
number to which delivery or facsimile shall thereafter be made.
4.4 Renewals and Extensions of Leases. The Net Profits Interest shall
apply to all renewals, extensions, and other similar arrangements (and/or
interest therein) of or with respect to any Lease, easement, right-of-way, or
other interest or agreement, which constitutes in whole or in part a portion of
the Assets, whether or not such renewals, extensions, or arrangements have
heretofore been obtained by Owner or Owner's predecessors in title, as well as
to each new lease covering any minerals covered by one or more of the Leases if
the same are taken or acquired while the relevant Lease is in force and effect
or within one year after the lapse thereof.
4.5 Further Assurances. Owner and Buyer agree to execute and deliver to
the other all such other and additional instruments, notices, division orders,
transfer orders and other documents and to do all such other and further acts
and things as may be necessary to more fully and effectively convey to Buyer the
rights, titles, and interest intended to be so conveyed.
4.6 Binding Effect. All the covenants and agreements of Buyer and Owner
herein contained shall be deemed to be covenants running with Buyer's and
Owner's respective interest in the Assets and Subject Hydrocarbons and the Lands
affected thereby. All of the provisions hereof shall inure to the benefit of,
and shall be binding upon, each of the parties hereto and their respective
successors and assigns, subject to the provisions of this Section 4.6. Any sale,
reservation, assignment, sublease, or other transfer of the Assets, or any
interest therein or any part thereof, shall provide that the Buyer assumes all
obligations of the Owner with respect to the interest transferred, and unless
the non-assigning party otherwise expressly consents in writing, the assigning
party shall also remain liable for the discharge of its obligations.
4.7 Dispute Resolution and Attorneys' Fees. Buyer and Owner acknowledge
and agree that any disputes under this NPI Agreement shall be resolved in
accordance with Section 12.2 of the Purchase Agreement and Schedule 12.2
thereto. In the event of any such dispute, or any dispute or matter that for any
reason is addressed other than in accordance with Section 12.2 of the Purchase
Agreement and Schedule 12.2 thereto, the successful or prevailing party shall be
entitled to recover reasonable attorney's fees and costs incurred, both before
and after the decision or judgment, in addition to any other relief to which it
may be entitled.
4.8 Partial Invalidity. Except as otherwise expressly stated herein, in
the event any provision contained in this NPI Agreement shall for any reason be
held invalid, illegal, or unenforceable by a court or regulatory agency of
competent jurisdiction by reason of a statutory change or enactment, such
invalidity, illegality, or unenforceability shall not affect the remaining
provisions of this NPI Agreement.
4.9 Multiple Counterparts. This NPI Agreement may be executed by Owner
and Buyer in any number of counterparts, each of which shall be deemed an
original instrument, but all of which together shall constitute but one and the
same instrument. This NPI Agreement shall become operative when each party has
executed at least one counterpart of this NPI Agreement. Delivery of an executed
8
counterpart of this NPI Agreement (or any other documents related to the
transactions contemplated by this NPI Agreement) by facsimile shall be equally
effective as delivery of a manually executed counterpart of this NPI Agreement
or any such document, and the failure to deliver a manually executed counterpart
shall not affect the validity, enforceability or binding effect of this NPI
Agreement or any such document.
OWNER:
MID-POWER RESOURCE CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, President
State of California )
: ss.
County of Sacramento )
On the 11th day of September, 2006, personally appeared before me ▇▇▇▇▇ ▇.
▇▇▇▇▇, the duly appointed President of Mid-Power Resource Corporation, the
signer of the above instrument, who duly acknowledged to me that he executed the
same on behalf of said corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Notary Public
BUYER:
▇▇▇▇▇▇ ENERGY, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
Its Vice President - Land
---------------------------------------
State of Texas )
: ss.
County of Collin )
On the 11th day of September, 2006, personally appeared before me ▇▇▇▇ ▇▇▇▇▇▇,
the duly appointed Vice President of Land of ▇▇▇▇▇▇ Energy, Inc., the signer of
the above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Notary Public
9
Appendix A
Attached to and made part of that certain Existing Well Net Profits Interest
Agreement dated effective as of August 28, 2006, by and between Mid-Power
Resource Corporation, as Owner, and ▇▇▇▇▇▇ Energy Inc., as Buyer
The ▇▇▇▇▇ commonly referred to as follows, together with the drilling spacing
location, drilling spacing area, pro ration area, drainage area, or other area
in which such ▇▇▇▇▇ are situated as of this date, as indicated by the applicable
drilling or well permit, production authorization, or similar regulatory record.
================================================================================
Well Name Section Well Spot Township Range County
--------------------------------------------------------------------------------
Utah Fuel #▇ ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ State #▇ ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇ ▇▇ ▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇ ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇▇ ▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇ ▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇ ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel A-1 ▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ Runner 13-17 ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ Runner 11-20 ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇-▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #3 32 NWSE 13S 7E Carbon
================================================================================
EXHIBIT E TO
ASSET PURCHASE AGREEMENT
FUTURE WELL
NET PROFITS INTEREST AGREEMENT
THIS FUTURE WELL NET PROFITS INTEREST AGREEMENT (this "NPI Agreement"),
dated effective as of August 28, 2006, is entered into by and between Mid-Power
Resource Corporation, a Nevada corporation ("Owner"), and ▇▇▇▇▇▇ Energy, Inc., a
Texas corporation ("Buyer").
WHEREAS, Owner and Buyer have previously entered into that certain
Farmout and Exploration Agreement for the Clear Creek Natural Gas Unit, Carbon
and ▇▇▇▇▇ Counties, Utah, dated effective February 22, 2005 (the "Farmout
Agreement"), wherein Owner granted Buyer the right to earn a seventy-five
percent working interest (75% WI) in leases within the Clear Creek Natural Gas
Unit upon completion of certain earning conditions, including: (i) drilling
obligations; (ii) a Capital Expenditure Program described therein; and (iii) the
issuance of options to purchase five million (5,000,000) ordinary shares of the
corporate parent of Buyer, at an exercise price of forty cents Australian
(AU$0.40).
WHEREAS, Buyer has initiated, but not yet completed, the performance of
its earning requirements under the Farmout Agreement as summarized above, and
Owner has not assigned, and has not become obligated to assign, to Buyer a 75%
WI in Owner's leasehold interests in the Clear Creek Natural Gas Unit.
WHEREAS, Owner and Buyer have entered into a new agreement under which
Buyer has agreed to purchase certain assets of Owner in the Clear Creek Natural
Gas Unit in Carbon and ▇▇▇▇▇ Counties, Utah, subject to the reservation set
forth herein, pursuant to that certain Asset Purchase Agreement dated of even
date to which Owner and Buyer are parties (the "Purchase Agreement") and to
which this NPI Agreement is an exhibit.
WHEREAS, pursuant to the Purchase Agreement, the Farmout Agreement will
be terminated as between Owner and Buyer, but kept in place as to third parties
that were signatory to the Farmout Agreement, so that upon consummation of the
asset transfers contemplated by the Purchase Agreement, Buyer will assume
Owner's position under the Farmout Agreement with respect to said third parties.
WHEREAS, the above-referenced termination of the Farmout Agreement as
between Owner and Buyer has become effective in accordance with the terms of the
Purchase Agreement, and under the terms of the Purchase Agreement, Owner is now
obligated to convey its working interest in and to the leases in the Clear Creek
Natural Gas Unit, subject to a reserved interest equal to 12.5% of the net
profits from gross proceeds attributable to 100% of the working interest based
on an approximate 80% net revenue interest in the leasehold interests and
related assets of Buyer in the Clear Creek Unit.
WHEREAS, Owner and Buyer desire to enter into this NPI Agreement to
effect the foregoing reservation of such net profits interest from the transfer
of the leasehold interests and related assigned assets pursuant to the Purchase
Agreement and on the terms and conditions as provided herein.
NOW, THEREFORE, Owner and Buyer do hereby agree as follows:
I. CERTAIN DEFINITIONS AND REFERENCES
1.1 Certain Defined Terms. When used in this NPI Agreement, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the sections and subsections referred to below:
"Allowable Carry-forwards" is defined in Section 3.2(c).
"Assets" shall mean the Assets as defined in the Purchase Agreement,
save and except only those Assets defined in and subject to the Existing Well
Net Profits Interest Agreement of even date between the parties to this NPI
Agreement, and such Assets are specifically defined as future ▇▇▇▇▇ to be
drilled by Buyer after the date hereof in the Clear Creek Gas Unit.
"Assignment" shall mean that certain Assignment, ▇▇▇▇ of Sale, and Deed
with Reservation of Net Profits Interest, bearing even date herewith, between
Owner and Buyer, pursuant to which Buyer acquired the Assets from Owner
(excluding from the Assets the reservation of the Future Well Net Profits
Interest as set forth herein and a separate reservation of an additional net
profits interest (the Existing Well Net Profits Interest) separate from this NPI
Agreement), to be recorded simultaneously with the execution of this NPI
Agreement, said Assets being interests in the oil and gas properties more
particularly described on Appendix A hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Effective Time" shall mean midnight, Mountain Daylight time, August
28, 2006.
"Gross Proceeds" is defined in Section 3.2(a).
"Lands" shall mean all of the land described in the oil and gas leases
referenced on Appendix A hereto.
"Leases" shall mean all of the working interests, overriding royalty
interests, and other oil and gas leasehold interests assigned to Owner under the
terms of the Agreement, save and except only those Assets defined in and subject
to the Existing Well Reservation of Net Profits Interest Agreement of even date
between the parties to this NPI Agreement.
"Net Profits" shall mean, with respect to any Payment Period, the net
positive balance, if positive, or zero, if negative, in the Net Profits Account
maintained with respect to such Payment Period pursuant to Article III.
"Net Profits Account" is defined in Section 3.1.
"Other Income" is defined in Section 3.2(b).
"Payment Period" shall mean a calendar month.
"Person" shall mean any natural person, association, trust,
partnership, limited liability company, corporation, or other legal entity.
"Subject Hydrocarbons" means that portion of hydrocarbons produced from
and after the Effective Time, from or attributable to the Assets after deducting
the appropriate share, if any, of all royalties and any overriding royalties and
other similar burdens, but without deducting the Net Profits Interest, including
any natural gas, casinghead gas, coal bed methane gas, oil, or other
hydrocarbons in lands or interests below the surface of the lands included in
the Assets, at any depth and whether acquired by Buyer pursuant to the Purchase
Agreement or otherwise, either before or after the date of this NPI Agreement.
There shall not be included in Subject Hydrocarbons any gas or other minerals
lost in production or used by Buyer in conformity with good field practices for
occluded natural gas from coal seams production operations (including without
limitation, fuel, gas lift, secondary or tertiary recovery) conducted solely for
the purpose of producing hydrocarbons.
2
1.2 References and Titles. All references in this NPI Agreement to
articles, sections, subsections, and other subdivisions refer to corresponding
articles, sections, subsections, and other subdivisions of this NPI Agreement
unless expressly provided otherwise. Titles appearing at the beginning of any of
such subdivisions are for convenience only and shall not constitute part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions. The words "this NPI Agreement," "this instrument," "herein,"
"hereof," "hereby," "hereunder" and words of similar import refer to this NPI
Agreement as a whole and not to any particular subdivision unless expressly so
limited. Words in the singular form shall be construed to include the plural and
vice versa, unless the context otherwise requires. Appendix A is hereby
incorporated herein by reference and made a part hereof for all purposes.
II. RESERVATION OF NET PROFITS INTEREST
2.1 Reservation. Owner hereby reserves from the Assignment a Net
Profits Interest in and to the portion of Assets, Leases, and Subject
Hydrocarbons, defined herein in this Section 2.1, equal to 12.5% of the Net
Profits from Gross Proceeds attributable to 100% of the working interest based
on an approximate 80% net revenue interest in the Lands or interests below the
surface of the Lands included in the interests conveyed, at any depth and
whether acquired by Buyer pursuant to this conveyance or otherwise, either
before or after the date hereof (proportionately reduced for any well and
related drilling spacing unit for which the interest held constitutes less than
100% of the working interest) (the "Net Profits Interest"); such payment not to
exceed the Gross Proceeds attributable to the Assets, and subject to the terms
and conditions contained herein. This NPI Agreement is made by Owner to Buyer
without any warranty of title whatsoever, whether express, implied, or
statutory, except as against Persons claiming by, through or under Owner. This
Net Profits Interest is subject only to ALL PORTIONS OF THE Assets and Leases
not identified with particularity in that certain Existing Well Net Profits
Interest Agreement of even date herewith and further defined as those ▇▇▇▇▇
drilled from this date forward and shall include any and all ▇▇▇▇▇ that produce
from zones within the Leases.
2.2 Interest in Real Property; Servitude upon Estate. The Net Profits
Interest hereby reserved by Owner (a) is excepted, retained, and reserved by
Owner and excluded from and carved out of the working interest conveyed, (b) is
and shall continue to be a perpetual charge, burden, and servitude of Owner on
the working interest conveyed, and (c) constitutes Owner's estate in land and
not personal property.
2.3 Acknowledgment. Owner and Buyer acknowledge that the Net Profits
Interest reserved hereby creates a Net Profits Interest under the Code, and each
agrees to report consistently therewith on its tax returns and other filings
with the Internal Revenue Service.
III. ACCOUNTING AND PAYMENT
3.1 Establishment of Net Profits Account. Buyer shall establish and
maintain a Net Profits Account (the "Net Profits Account") in accordance with
the various provisions of this NPI Agreement and at all times shall keep true
and correct books and records with respect thereto. Such books and records shall
be open for inspection, copying, and audit by Owner and its accountants and
representatives.
3.2 Credits to Net Profits Account. Except as otherwise provided
herein, the Net Profits Account shall be credited with an amount equal to the
sum of Gross Proceeds, Other Income, and Allowable Carry-forwards from the
immediately preceding Payment Period.
(a) "Gross Proceeds" shall mean, on a cash accounting basis,
all consideration directly or indirectly attributable to sales of Subject
Hydrocarbons, subject to the following:
3
(i) If a controversy exists (whether by reason of any
statute, order, decree, rule, regulation, contract, or otherwise) as to the
correct or lawful sales price of Subject Hydrocarbons, then, at Buyer's sole
election, Buyer may choose to treat amounts attributable to the Assets and
affected by such controversy (1) as Gross Proceeds attributable to the interest
of Owner, or (2) not as Gross Proceeds attributable to the interest of Owner and
in such case Buyer shall promptly deposit such amounts with an escrow agent
pending settlement of such controversy, provided that all amounts, including any
interest or Other Income, thereafter paid to Owner by such escrow agent out of
or on account of such escrow shall be considered to be amounts received from the
sale of Subject Hydrocarbons;
(ii) Cash settlements and cash make-ups attributable
to the interest of Buyer with
respect to Subject Hydrocarbons under gas balancing or similar agreements shall
be considered derived from the sale of Subject Hydrocarbons; and
(iii) Gross Proceeds shall not include Other Income.
(b) "Other Income" shall mean, on a cash accounting basis, the
following:
(i) The proceeds attributable to the interest of
Buyer after the Effective Time from (1) the sale of any materials, supplies,
equipment and other personal property or fixtures, or any part thereof or
interest therein, located on or used in connection with the Assets, (2)
settlements and judgments from legal or other claims, (3) delay rentals, (4)
lease bonuses, and (5) rentals from reservoir use or storage; including, without
limitation, all amounts attributable thereto that are received by Buyer by way
of conformance of investment in personal property and equipment if the Assets or
any part or parts thereof are hereafter from time to time unitized or are
affected by the revision of a participating area in a unit;
(ii) The proceeds of all insurance attributable to
the interest of Owner (1) the cost of which is or was previously charged to the
Net Profits Account, directly or indirectly, and/or (2) that accrue to Buyer as
a consequence of the loss or damage to any one or more of the following that
occur after the Effective Time: the Assets or Subject Hydrocarbons, or any part
thereof or interest therein, the interest of Buyer in any materials, supplies,
equipment or other personal property or fixtures located on or used in
connection with any or all of the Assets or Subject Hydrocarbons; except to the
extent such amounts are used to repair or replace the items damaged or lost
giving rise to the receipt of such amounts;
(iii) Amounts attributable to the interest of Buyer
received from a purchaser of Subject Hydrocarbons (1) as a prepayment of any
portion of the sales price for such Subject Hydrocarbons, (2) as advance gas
payments or (3) as payments pursuant to contractual provisions providing for
"take-or-pay" payments (including amounts awarded by a court or agreed to by the
parties in any settlement of a claim (net of costs and attorneys' fees incurred
in connection therewith) as damages for the failure or refusal of the purchaser
to take Subject Hydrocarbons pursuant to the contract that contains such
provisions) shall be considered to be attributable to the sale of Subject
Hydrocarbons; provided that such amounts shall not be considered attributable to
the sale of Subject Hydrocarbons at a later date when Subject Hydrocarbons are
delivered in respect of any such payments under "make-up" or similar provisions.
(iv) The proceeds of all judgments and claims
attributable to the interest of Buyer for damages to one or more of the
following that occur after the Effective Time: the Assets or Subject
Hydrocarbons, or any part thereof or interest therein, any materials, supplies,
equipment or other personal property or fixtures, or any part thereof or
interest therein, located on or used in connection with any of the Assets or
Subject Hydrocarbons; except to the extent such amounts are used to repair or
replace the items damaged or lost giving rise to the receipt of such amounts;
4
(v) Any interest, penalty or other amounts
attributable to the interest of Buyer which are attributable to Subject
Hydrocarbons and are not derived from the sale of Subject Hydrocarbons; and
(vi) All other monies and things of value (but not
including any tax credits or other tax benefits) which are attributable to the
interest of Buyer by virtue of the ownership after the Effective Time of the
Assets or Subject Hydrocarbons and the materials, supplies, equipment and other
personal property and fixtures located on or used in connection with the Assets
or Subject Hydrocarbons; provided, however, that, except as provided in Section
3.2(b)(1)(i), any proceeds received by Buyer from the sale or other disposition
of all or any portion of the Assets shall not be included as Gross Proceeds or
Other Income.
(c) "Allowable Carry-forwards" shall mean, with respect to any
Payment Period, the amount by which Net Profits exceed Gross Proceeds for such
Payment Period.
3.3 Debits to Net Profits Account. Except as otherwise provided herein,
the Net Profits Account shall have a beginning debit balance of $0 (zero),
effective as of August 10, 2006, and shall thereafter with respect to each
Payment Period shall be debited (without duplication of amounts debited
hereunder or under the Existing Well Net Profits Interest Agreement of even
date), on a cash accounting basis, with the following amounts:
(a) All direct costs, if any, that are attributable to the
Assets, (i) for all services and expenses necessary for drilling, completing,
developing, operating, producing, reworking and maintaining the Assets, (ii) for
dehydration, compression, separation, gathering, transportation, and marketing
of Subject Hydrocarbons, and (iii) for all materials, supplies, equipment and
other personal property and fixtures purchased for use on, or in connection
with, any of the Assets (including, without limitation, (A) all amounts
attributable to the interest of Buyer for conformance of investment if the
Assets or any part of parts thereof are hereafter from time to time unitized or
if any participating area in a unit is changed, and (B) the cost of secondary
recovery, pressure maintenance, repressuring, recycling and other operations
conducted for the purpose of enhancing production);
(b) Costs (including, without limitation, outside legal,
accounting and engineering services) attributable to the Assets or Subject
Hydrocarbons of (i) handling, investigation and/or settling litigation,
administrative proceedings and claims (including, without limitation, lien
claims other than liens for borrowed funds), and (ii) judgments, penalties and
other liabilities (including interest thereon), attributable to the interest of
Buyer (and not reimbursed under insurance maintained by Buyer or others) and
involving any of the Assets or Subject Hydrocarbons, or incident to the
development, operation or maintenance of the Assets or Subject Hydrocarbons, or
requiring the payment or restitution of any proceeds of Subject Hydrocarbons, or
arising from tax or royalty audits, except that there shall not be debited to
the Net Profits Account any expense incurred by Buyer in litigation of any claim
or dispute arising hereunder between Buyer and Owner or amounts paid by Owner to
Buyer pursuant to a final order entered by a court of competent jurisdiction
resolving any such claim or dispute or amounts paid by Owner to Buyer in
connection with the settlement of any such claim or dispute;
(c) All taxes (excluding income, transfer, inheritance,
estate, franchise and like taxes) with respect to the ownership of the Assets or
Subject Hydrocarbons or the production of Subject Hydrocarbons, including,
without limitation, production, severance, and/or excise and other similar taxes
assessed against, and/or measured by (or the proceeds or value attributable to)
Subject Hydrocarbons (without regard to the period of ownership for which such
taxes are assessed), occupation taxes, sales and use taxes, and ad valorem taxes
assessed against or attributable to the Assets or Subject Hydrocarbons;
5
(d) Insurance premiums attributable to the ownership or
operation of the Assets or Subject Hydrocarbons attributable to the interest of
Buyer for insurance actually carried for periods after the Effective Time with
respect to the Assets or Subject Hydrocarbons, or incident to the development,
operation or maintenance of the Assets or Subject Hydrocarbons;
(e) All amounts attributable to the Assets or Subject
Hydrocarbons and consisting of (i) rent and other consideration paid for the use
or damage to the surface, and (ii) delay rentals, shut-in well payments, minimum
royalties and similar payments paid pursuant to the provisions of agreements in
force and effect before the Effective Time;
(f) If as a result of the occurrence of the bankruptcy or
insolvency or similar occurrence of the purchaser of Subject Hydrocarbons, any
amounts previously included in Gross Proceeds or Other Income are reclaimed from
Buyer or its representative, then the amounts reclaimed, as promptly as
practicable following Buyer's payment thereof;
(g) Except as otherwise provided elsewhere in this NPI
Agreement, all other direct expenditures, if any, attributable to the Assets or
Subject Hydrocarbons for the necessary or proper development, operation,
maintenance and administration, of the Assets or Subject Hydrocarbons if
reasonably incurred; provided, however, that notwithstanding anything herein
provided to the contrary, the Net Profits Account shall not be debited with any
cost or expense that is deducted or taken into account in determining Gross
Proceeds or Other Income, including, without limitation, the value of any
component of Gross Proceeds or Other Income.
3.4 Accounting for Net Profits. All debits to the Net Profits Account
calculated pursuant to Section 3.3 that are attributable to costs, expenses and
liabilities paid during a Payment Period, up to and including the last day of
such Payment Period, shall be debited against the Net Profits Account as of the
last day of such period. All credits to the Net Profits Account calculated
pursuant to Section 3.2 that are attributable to proceeds actually received
during a Payment Period from sales of Subject Hydrocarbons, up to and including
the last day of such Payment Period, shall be credited to the Net Profits
Account as of the last day of such Payment Period.
3.5 Payment. Not more than 45 days following a Payment Period, Buyer
shall pay to Owner the balance in the Net Profits Account, if any, attributable
to such Payment Period (not to exceed the Gross Proceeds). Buyer shall send at
the same time a statement showing the calculation of the Net Profits Interest
and clearly showing (with sufficient description so that Owner can identify such
items and the particular ▇▇▇▇▇ and Subject Hydrocarbons involved) those items
which gave rise to debits and credits to the Net Profits Account during such
Payment Period and clearly showing the Subject Hydrocarbons produced during the
Payment Period covered by such statement, the prices at which such volumes were
sold, and the taxes paid with respect to such sales.
3.6 Overpayments. If at any time Buyer is determined to have paid Owner
more than the amount then due with respect to the Net Profits Interest, Owner
shall be obligated to return any such overpayment after Buyer notifies Owner of
the amount of such overpayment and provides Buyer with substantiation thereof.
Alternatively, Buyer may offset future payments due with respect to the Net
Profits Interest for the amount of any such overpayment provided that such
overpayment is substantiated with written material to the satisfaction of Owner.
3.7 Representation Regarding Expenses. At the time Buyer submits the
statement required under Section 3.5, Buyer shall represent to Owner that there
are no material past due invoices as of the end of the prior calendar quarter in
connection with the Assets or Subject Hydrocarbons.
3.8 Owner's Right to Audit. Owner shall have the right, upon reasonable
prior notice and at reasonable times during regular business hours, to inspect
and audit Buyer's books and records kept in accordance with Section 3.1 (in
whatever form and wherever maintained or stored) to assure the accuracy of the
Net Profits Account. Buyer shall cooperate with Owner by giving Owner reasonable
office facilities, including access to and reasonable use of a copy machine and
assistance from Buyer's personnel (at Buyer's cost), in order for Owner to
perform its audit in compliance with generally-accepted accounting and auditing
principles. Buyer shall retain all records related to the Net Profits Account
for at least the three most recently-completed fiscal years, and Owner's right
to inspect and audit such books and records of Buyer hereunder shall survive for
three years following the end of each fiscal year. However, Owner shall not
inspect or audit such books and records more often than once per fiscal year
unless otherwise agreed to in writing by Buyer. If Owner's audit reveals that
Buyer has not maintained the Net Profits Account in compliance with the terms of
this NPI Agreement and such noncompliance results in an error in excess of 5% in
Buyer's calculation of the Net Profits Account for any one or more Payment
Periods, then, in addition to any other rights and remedies available, Buyer
shall reimburse Owner the reasonable cost of the audit. Except in the context of
a dispute related to this NPI Agreement, the results of the audit shall not be
released, transferred, or disclosed by Owner or its auditor outside of its
organization, and Owner will require any independent auditor to sign an
appropriate nondisclosure agreement.
6
IV. MISCELLANEOUS
4.1 Governing Law. The validity, effect and construction of this NPI
Agreement shall be governed by the laws of the State of Utah, without reference
to their respective conflict of laws provisions.
4.2. Intentions of the Parties. Nothing herein contained shall be
construed to constitute either party hereto (under state law or for tax
purposes) the agent of, or in partnership with, the other party. If, however,
the parties hereto are deemed to constitute a partnership for federal income tax
purposes, the parties elect to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A of the Code, and agree not to take any position
inconsistent with such election. In addition, the parties hereto intend that the
Net Profits Interest reserved herein by Owner shall at all times be treated as
an interest in real property or land and as a Net Profits Interest based on net
profits under the Code, and each party hereto will file all tax returns and all
Internal Revenue Service filings consistent therewith.
4.3 Notices. All notices and communications required or permitted under
this NPI Agreement shall be in writing and shall be delivered by hand, by
nationally recognized overnight delivery service, by facsimile transmission or
by registered or certified mail, postage prepaid, addressed as follows:
If to Buyer: ▇▇▇▇▇▇ Energy, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Vice President-Land
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
7
If to Owner: Mid-Power Resource Corporation
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
All notices and communications shall be effective upon actual receipt. Either
party may, by written notice so delivered to the other, change the address or
number to which delivery or facsimile shall thereafter be made.
4.4 Renewals and Extensions of Leases. The Net Profits Interest shall
apply to all renewals, extensions and other similar arrangements (and/or
interest therein) of or with respect to any lease, easement, right-of-way or
other interest or agreement, which constitutes in whole or in part a portion of
the Assets, whether or not such renewals, extensions or arrangements have
heretofore been obtained by Owner or Owner's predecessors in title, as well as
to each new lease covering any minerals covered by one or more of the Leases if
the same are taken or acquired while the relevant Lease is in force and effect
or within one year after the lapse thereof.
4.5 Further Assurances. Owner and Buyer agree to execute and deliver to
the other all such other and additional instruments, notices, division orders,
transfer orders and other documents and to do all such other and further acts
and things as may be necessary to more fully and effectively convey to Buyer the
rights, titles, and interest intended to be so conveyed.
4.6 Binding Effect. All the covenants and agreements of Buyer and Owner
herein contained shall be deemed to be covenants running with Buyer's and
Owner's respective interest in the Assets and Subject Hydrocarbons and the Lands
affected thereby. All of the provisions hereof shall inure to the benefit of,
and shall be binding upon, each of the parties hereto and their respective
successors and assigns, subject to the provisions of this Section 4.6. Any sale,
reservation, assignment, sublease or other transfer of the Assets, or any
interest therein or any part thereof, shall provide that the Buyer assumes all
obligations of the Owner with respect to the interest transferred, and unless
the non-assigning party otherwise expressly consents in writing, the assigning
party shall also remain liable for the discharge of its obligations.
4.7 Dispute Resolution and Attorneys' Fees. Buyer and Owner acknowledge
and agree that any disputes under this NPI Agreement shall be resolved in
accordance with Section 12.2 of the Purchase Agreement and Schedule 12.2
thereto. In the event of any such dispute, or any dispute or matter that for any
reason is addressed other than in accordance with Section 12.2 of the Purchase
Agreement and Schedule 12.2 thereto, the successful or prevailing party shall be
entitled to recover reasonable attorney's fees and costs incurred, both before
and after the decision or judgment, in addition to any other relief to which it
may be entitled.
4.8 Partial Invalidity. Except as otherwise expressly stated herein, in
the event any provision contained in this NPI Agreement shall for any reason be
held invalid, illegal or unenforceable by a court or regulatory agency of
competent jurisdiction by reason of a statutory change or enactment, such
invalidity, illegality or unenforceability shall not affect the remaining
provisions of this NPI Agreement.
4.9 Multiple Counterparts. This NPI Agreement may be executed by Owner
and Buyer in any number of counterparts, each of which shall be deemed an
original instrument, but all of which together shall constitute but one and the
same instrument. This NPI Agreement shall become operative when each party has
executed at least one counterpart of this NPI Agreement. Delivery of an executed
8
counterpart of this NPI Agreement (or any other documents related to the
transactions contemplated by this NPI Agreement) by facsimile shall be equally
effective as delivery of a manually executed counterpart of this NPI Agreement
or any such document, and the failure to deliver a manually executed counterpart
shall not affect the validity, enforceability or binding effect of this NPI
Agreement or any such document.
OWNER:
MID-POWER RESOURCE CORPORATION
MID-POWER RESOURCE CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, President
State of California )
: ss.
County of Sacramento )
On the 11th day of September, 2006, personally appeared before me ▇▇▇▇▇ ▇.
▇▇▇▇▇, the duly appointed President of Mid-Power Resource Corporation, the
signer of the above instrument, who duly acknowledged to me that he executed the
same on behalf of said corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Notary Public
BUYER:
▇▇▇▇▇▇ ENERGY, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
Its Vice President - Land
---------------------------------------
State of Texas )
: ss.
County of Collin )
On the 11th day of September, 2006, personally appeared before me ▇▇▇▇ ▇▇▇▇▇▇,
the duly appointed Vice President of Land of ▇▇▇▇▇▇ Energy, Inc., the signer of
the above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Notary Public
9
EXHIBIT F TO
ASSET PURCHASE AGREEMENT
ASSIGNMENT, ▇▇▇▇ OF SALE AND DEED WITH RESERVATION OF NET PROFITS INTEREST
When recorded, return to:
_________________________________
_________________________________
_________________________________
_________________________________
ASSIGNMENT, ▇▇▇▇ OF SALE, AND
DEED WITH RESERVATION OF NET PROFITS INTEREST
Witnesseth:
THAT, MID-POWER RESOURCE CORPORATION, a Nevada corporation, whose address is
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, hereinafter
sometimes collectively referred to as "Assignor," for and in consideration of
the sum of Ten Dollars ($10.00) cash in hand and other good and valuable
consideration, paid by ▇▇▇▇▇▇ ENERGY, INC., a Texas corporation, whose address
is ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, hereinafter sometimes
referred to as "Assignee," the receipt and sufficiency of which are hereby
acknowledged, and the further consideration of Assignee's assumption and
agreement to assume all obligations of Assignor from and after midnight,
Mountain Daylight Time, on August 28, 2006,
Assignor does hereby grant, bargain, sell, assign, deliver, transfer, set over,
and convey unto Assignee:
(i) all of Assignor's right, title, and interest in and to the
oil, gas, and mineral leases and properties described in
Exhibit A attached hereto and made a part hereof for all
purposes, together with, including but not limited to, all
associated hydrocarbons, ▇▇▇▇▇, personal property, and
equipment, including surface and downhole equipment situated
upon or in the land and leases where the ▇▇▇▇▇ are located
and/or used in connection therewith, and all units and
unitized leases, together with all rights incident thereto;
and
(ii) all of Assignor's right, title, and interest in and to the
natural gas processing plants, fee lands, pipeline and
gathering systems, and related facilities and appurtenances
used in connection therewith described in Exhibit A attached
hereto and made a part hereof for all purposes, together with,
including but not limited to, all buildings, facilities,
easements, rights-of-way, options, servitudes, licenses,
permits, contractual rights, grants, and appurtenances,
whether recorded or unrecorded (including all amendments,
corrections, and ratifications of any instrument pertaining
thereto), and all equipment and fixtures related thereto and
used in connection therewith,
TO HAVE AND TO HOLD the rights and interests herein conveyed, together with all
and singular rights, privileges, equipment, and appurtenances thereto or in any
way belonging, unto Assignee, its successors and assigns, forever,
RESERVING, EXCEPTING, AND EXCLUDING FROM THE WITHIN CONVEYANCE AND RETAINING,
however:
(x) a net profits interest in and to the portion of the assigned
assets, leases, and subject hydrocarbons, including any
natural gas, casinghead gas, coal bed methane gas, oil, or
other hydrocarbons, attributable to those certain ▇▇▇▇▇ and
related drilling spacing units existing as of the date hereof
and more particularly described on Exhibit B attached hereto
and made a part hereof, equal to 12.5% of the net profits from
gross proceeds attributable to 100% of the working interest in
the lands or interests below the surface of the lands included
in the interests conveyed, at any depth and whether acquired
by Buyer pursuant to this conveyance or otherwise, either
before or after the date hereof (proportionately reduced for
any well and related drilling spacing unit for which the
interest assigned constitutes less than 100% of the working
interest); such payment not to exceed the gross proceeds
attributable to the assets, leases, and subject hydrocarbons
and subject to the terms and conditions contained in that
certain Existing Well Net Profits Interest Agreement by and
between Assignor and Assignee dated August 28, 2006; and
(xi) a net profits interest in and to the portion of assigned
assets, leases, and subject hydrocarbons, including any
natural gas, casinghead gas, coal bed methane gas, oil, or
other hydrocarbons, equal to 12.5% of the net profits from
gross proceeds attributable to 100% of the working interest in
the lands or interests below the surface of the lands included
in the interests conveyed, at any depth and whether acquired
by Buyer pursuant to this conveyance or otherwise, either
before or after the date hereof; such payment not to exceed
the gross proceeds attributable to the assets and subject to
the terms and conditions contained in that certain Future Well
Net Profits Interest Agreement by and between Assignor and
Assignee dated August 28, 2006;
ALL OF WHICH interest excepted, retained, and reserved by Assignor and excluded
from and carved out of the working interest conveyed, is and shall continue to
be a perpetual charge, burden, and servitude of Assignor on the working interest
conveyed, and constitutes Assignor's estate in land and not personal property,
ALL FURTHER SUBJECT to the following terms and provisions:
1. This instrument is made with warranty of title by, through, and
under Assignor, but not otherwise, and Assignor represents all of the said
properties, rights, and/or interest herein conveyed to be free and clear of all
encumbrances, except taxes and except as noted in this Assignment, ▇▇▇▇ of Sale,
and Deed with Reservation of Net Profits Interest.
2. Assignee hereby agrees to assume all unpaid tax obligations on the
properties, rights, and/or interests herein conveyed.
3. Assignor hereby agrees to execute such other instruments necessary
and that may be required by such governing authority having jurisdiction to
effect this conveyance.
4. Assignee hereby agrees to assume the operations and obligations of
Assignor, as owner and operator of the properties herein conveyed, in compliance
2
and accordance with all applicable federal, state, and local laws, order, rules,
regulations, and standards set forth by any governing authority having
jurisdiction.
5. Assignee hereby agrees to exonerate, indemnify, hold harmless, and
defend Assignor and its successors and assigns against any and all claims,
damages, and costs arising from any acts or omissions pertaining to any
activities of Assignee and its employees, representatives, agents, or
contractors and any and all expenses connected therewith including, without
limitation, all attorney's fees. Such liability, exoneration, hold harmless, and
indemnification shall, without limitation, cover bodily injury, death, damage to
property or natural resources, and compliance with all legal obligations
including, without limitation, any governmental order or directive to test,
monitor, remove, contain, treat, or neutralize any pollutants or hazardous
substances. Said liability, exoneration, hold harmless, and indemnification
shall also cover the undertaking as well as all of the costs of any response,
removal, or remedial action arising from any presence, storage, discharge,
release, spillage, or escape of any oil or gas fractions, hydrocarbons,
chlorides, gas vapors, irritants, contaminants, pollutants, or any other
hazardous, toxic, or chemical substances even if not considered hydrocarbons.
6. Assignor hereby agrees to deliver and/or turnover to Assignee all
files and records affecting and/or pertinent to the properties herein conveyed
in Assignor's possession or which Assignor may have the right to obtain.
7. Assignee hereby agrees to accept all personal property and equipment
associated with the properties and interests herein conveyed on an "as is, where
is" condition, without warranty, either express or implied, as to condition,
fitness for use or purpose, or merchantability of same.
DISCLAIMER OF IMPLIED WARRANTIES
THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE DESCRIPTION ON THE FACE OF THIS
DISCLAIMER. ASSIGNOR DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OF THE
GOODS OR OF THE FITNESS OF THE GOODS FOR ANY PURPOSE, AND ASSIGNEE AGREES THAT
THE GOODS ARE SOLD "AS IS, WHERE IS AND WITH ALL FAULTS."
This Assignment, ▇▇▇▇ of Sale, and Deed with Reservation of Net Profits Interest
is further subject to all documents currently of record in the counties and
state described on Exhibit A attached hereto and the Asset Purchase Agreement
between Assignor and Assignee dated August 31, 2006, effective August 28, 2006.
This instrument shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.]
3
EXECUTED as of September 11, 2006, but this Assignment, ▇▇▇▇ of Sale, and Deed
with Reservation of Net Profits Interest shall be effective August 28, 2006, at
midnight, the "Effective Time."
ASSIGNOR: ASSIGNEE:
MID-POWER RESOURCE CORPORATION ▇▇▇▇▇▇ ENERGY, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------- -------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, President Vice President - Land
State of California )
: ss.
County of Sacramento )
On the 11th day of September, 2006, personally appeared before me ▇▇▇▇▇ ▇.
▇▇▇▇▇, the duly appointed President of Mid-Power Resource Corporation, the
signer of the above instrument, who duly acknowledged to me that he executed the
same on behalf of said corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Notary Public
State of Texas )
: ss.
County of Collin )
On the 11th day of September, 2006, personally appeared before me ▇▇▇▇ ▇▇▇▇▇▇,
the duly appointed Vice President of Land of ▇▇▇▇▇▇ Energy, Inc., the signer of
the above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Notary Public
4
Exhibit A
Attached to and made part of that certain Assignment, ▇▇▇▇ of Sale, and Deed
with Reservation of Net Profits Interest dated September 11, 2006, and effective
as of August 28, 2006, by and between Mid-Power Resource Corporation, as
Assignor, and ▇▇▇▇▇▇ Energy Inc., as Assignee
============================================================================================================================
LEGAL LESSOR BOOK/
SEC/T/R DESCRIPTION Federal/State/Fee NAME & ADDRESS DATE PAGE COUNTY
----------------------------------------------------------------------------------------------------------------------------
13S-6E, SEC: 13 E/2SE/4NE/4, E/2E/2SE/4, SW/4SE/4SE/4 ▇▇▇/ ▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇ Fuel Company 8/4/45 3Y/359 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-6E, SEC: 24 E/2NE, S/2SWNE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 17 S/2SW
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 18 LOTS 1,2,3,4, E/2SW/2, S/2SE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 19 LOTS 1,2,3,4, NENW, W/2NE, NENE, NWSE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 20 N/2NW, W/2NE, SWSENE, W/2SE, W/2E/2SE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 29 W/2NE, W2NENE, SENE, E/2SE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 30 LOTS 1,2,3,4 E/2SW, SENE
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 31 LOTS 1,2,4, SENW, SESW, E/2
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC: 32 ALL
----------------------------------------------------------------------------------------------------------------------------
14S-7E, SEC: 5 ▇▇▇▇ ▇,▇,▇,▇, ▇/▇▇▇, ▇▇, ▇▇▇▇, ▇/▇▇▇
----------------------------------------------------------------------------------------------------------------------------
14S-7E, SEC: 6 LOTS 1,2,3,4,5, AND ALL OF 6 AND 7 IN
CARBON COUNTY, E/2SW, SENW, S/2NE
----------------------------------------------------------------------------------------------------------------------------
14S-7E, SEC: 7 ALL OF NENW LYING IN CARBON COUNTY
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AE ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 4/1/77 173/450 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023- ▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ 4/1/77 173/430 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 4/1/77 173/435 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AF ▇▇▇▇▇▇ ▇▇▇▇▇▇ 4/1/77 173/455 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AG ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 4/1/77 173/460 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AC ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 4/1/77 173/440 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 E/2SW FEE/UT 2570-00023-
AD ▇▇▇▇ ▇▇▇▇▇▇ 4/1/77 173/445 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 7 SE OF ▇▇▇ ▇, ▇▇▇ ▇, ▇/▇▇▇, ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ NATURAL
SWSENW, E/2NWNE, SWNWNE FEE/UT 2570-00027 GAS CO 1/1/57 45/187 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8 W/2NW, SENW FEE/ UT 2570-000 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 7/26/50 15c/380 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 17 SWNE, W/2SE FEE/ UT 2570-000 Estate of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ 7/1/77 173/424 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 17 SWNE, W/2SE FEE/ UT 2570-000 Estate of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ 7/1/77 173/418 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 17 SWNE, W/2SE FEE/ UT 2570-000 Estate of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ 7/1/77 173/412 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E SEC 5 SWSW FEE/UT 2570-0002 ▇.▇. ▇▇▇▇▇▇▇▇ 7/29/52 19/46 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E SEC 6 SESE
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
13S-7E SEC 7 E/2NE
----------------------------------------------------------------------------------------------------------------------------
14S-6E ▇▇▇ ▇ ▇/▇▇▇ ▇▇▇/▇▇ ▇▇▇▇-▇▇▇▇ ▇▇▇▇ Fuel Company 8/4/45 C/73 ▇▇▇▇▇
----------------------------------------------------------------------------------------------------------------------------
14S-6E SEC 12 E/2NENW
----------------------------------------------------------------------------------------------------------------------------
14S-7E SEC 6 ALL ▇▇▇▇ ▇ ▇▇▇ ▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------------------------------------------------------------------------------------------
14S-7E SEC 7 LOTS 1 AND 2, ALL NENW LYING IN ▇▇▇▇▇
COUNTY
----------------------------------------------------------------------------------------------------------------------------
13S-7E, SEC 8: W/2NW, SENW FEE/UT 2570-0002 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 9/4/52 17/416 CARBON
----------------------------------------------------------------------------------------------------------------------------
14S-6E SEC 24 NESE, SENE FEE/UT 2570-0002 ▇▇▇▇▇▇ DODGE CORP
AND THE 11/1/76 90/785 ▇▇▇▇▇
----------------------------------------------------------------------------------------------------------------------------
13S7E, ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇▇ OF UTAH ML-1254 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇▇▇ ▇, ▇▇▇▇ ▇▇▇▇▇/▇▇ 2570-
00016 STATE OF UTAH ML-1255 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇▇▇▇, ▇/▇▇▇, ▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ML-1256 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇▇▇▇, ▇/▇▇▇, ▇▇, ▇/▇▇▇
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇/▇▇▇, ▇▇▇▇ ▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ML-1257 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
14S-7E, ▇▇▇ ▇ ▇/▇▇▇, ▇▇▇▇ ▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ML-1258 1/2/52 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇ ▇▇▇▇, ▇/▇▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇ 6/1/51 CARBON
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇▇▇▇, ▇/▇▇▇
----------------------------------------------------------------------------------------------------------------------------
13S-7E, ▇▇▇ ▇▇ ▇▇, ▇/▇▇▇
----------------------------------------------------------------------------------------------------------------------------
13S-6E, ▇▇▇ ▇▇ ▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇▇ 4/1/47 CARBON
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13S-6E, ▇▇▇ ▇▇ ▇▇▇▇ ▇-▇, ▇/▇▇▇, ▇▇▇▇, ▇/▇▇▇, ▇▇,
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13S-6E, ▇▇▇ ▇▇ ▇▇▇▇ ▇-▇, ▇▇, ▇/▇▇▇, ▇/▇▇▇
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13S-7E, ▇▇▇ ▇▇ ▇▇▇▇, ▇/▇▇▇, ▇▇▇▇, E/2SW, SENW
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13S-7E, ▇▇▇ ▇▇ ▇/▇▇▇, ▇▇▇▇
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13S-7E, ▇▇▇ ▇▇ ▇▇▇▇
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▇▇▇-▇▇, ▇▇▇ ▇▇ ▇▇▇▇
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▇▇▇-▇▇, ▇▇▇ ▇▇ ▇/▇▇▇ FEDERAL/UT 2570-
00003 USA-U-14099 12/1/50 ▇▇▇▇▇
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14S-7E, ▇▇▇ ▇▇ ▇▇▇▇, ▇/▇▇▇,
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14S-7E, ▇▇▇ ▇▇ ▇▇▇ ▇, ▇▇▇▇, ▇▇▇▇
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14S-7E, ▇▇▇ ▇▇ ▇▇▇▇ ▇-▇, ▇/▇▇▇ ▇▇▇▇▇▇▇/▇▇ 2570-
00004 USA-U-017602 3/1/56 CARBON
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14S-7E, ▇▇▇ ▇▇ ▇▇▇▇ ▇-▇
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▇▇▇-▇▇, SEC 20 ALL FEDERAL/ UT 2570-
00005 USA-U-02353 11/1/51 CARBON/▇▇▇▇▇
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14S-7E, SEC 28 W/2W.2
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14S-7E, SEC 29 ALL
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14S-7E, SEC 30 ALL
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14S-7E, SEC33 ▇▇▇▇ ▇,▇ ▇/▇▇▇,▇▇
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▇▇▇-▇▇, ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇ 7/1/51 CARBON/▇▇▇▇▇
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14S-6E, SEC 25 E/2NE
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14S-7E, ▇▇▇ ▇▇ ▇/▇
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▇▇▇-▇▇, ▇▇▇ ▇▇ ▇▇
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14S-7E, SEC 19 ALL
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14S-7E, ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇ 7/1/51 ▇▇▇▇▇
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14S-7E, ▇▇▇ ▇▇ ▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇ 1/1/52 CARBON
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14S-6E, ▇▇▇ ▇ ▇▇▇▇ ▇-▇, ▇▇, ▇/▇▇/▇ ▇▇▇▇▇▇▇/▇▇ 2570-
00009 USA-U-014098 3/1/51 CARBON/▇▇▇▇▇
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14S-6E, SEC 12 NE, NESE
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14S-6E, ▇▇▇ ▇▇ ▇▇▇▇, ▇/▇▇▇
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14S-7E, ▇▇▇ ▇ ▇▇
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▇▇▇-▇▇, ▇▇▇ ▇ ▇▇▇▇ ▇-▇▇, ▇▇▇▇
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14S-7E, ▇▇▇ ▇ ▇▇▇▇ ▇-▇, ▇/▇▇▇, ▇▇ ▇▇▇▇▇▇▇/▇▇ 2570-
00010 USA-SL-065187-A 3/1/52 CARBON
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14S-6E, ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇ 6/1/51 ▇▇▇▇▇
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14S-6E, ▇▇▇ ▇▇ ▇▇▇▇
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▇▇▇-▇▇, ▇▇▇ ▇ ▇▇▇▇ ▇-▇,▇▇,▇▇,▇/▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇ 6/1/51 ▇▇▇▇▇
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15S-7E, SEC 9 N/2N/2
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15S-7E, ▇▇▇ ▇ ▇▇▇▇ ▇-▇▇, ▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇ 1/1/52 ▇▇▇▇▇
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14S-7E, SEC 31 ALL
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15S-7E, ▇▇▇ ▇ ▇▇▇▇ ▇,▇,▇▇ ▇▇▇▇▇▇▇/▇▇ ▇▇▇▇-
▇▇▇▇▇ ▇▇▇-▇-▇▇▇▇▇ 8/1/51 CARBON
============================================================================================================================
Exhibit B
Attached to and made part of that certain Assignment, ▇▇▇▇ of Sale, and Deed
with Net Profits Interest dated September 11, 2006, effective as of August 28,
2006, by and between Mid-Power Resource Corporation, as Assignor, and ▇▇▇▇▇▇
Energy Inc., as Assignee
The ▇▇▇▇▇ commonly referred to as follows, together with the drilling spacing
location, drilling spacing area, pro ration area, drainage area, or other area
in which such ▇▇▇▇▇ are situated as of this date, as indicated by the applicable
drilling or well permit, production authorization, or similar regulatory record.
================================================================================
Well Name Section Well Spot Township Range County
--------------------------------------------------------------------------------
Utah Fuel #▇ ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ State #▇ ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇ ▇▇ ▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇ ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇▇ ▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇ ▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #▇ ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel A-1 ▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ Runner 13-17 ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ Runner 11-20 ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇-▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇▇ Fuel #3 32 NWSE 13S 7E Carbon
================================================================================
EXHIBIT G TO
ASSET PURCHASE AGREEMENT
LEGAL OPINION
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Commercial Lawyer
▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇
Telephone: ▇▇▇▇ ▇▇▇▇
Fax: ▇▇▇▇ ▇▇▇▇
e-mail: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
8 September 2006
Mid-Power Resources Corporation
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Gentlemen,
Asset Purchase by ▇▇▇▇▇▇ Energy, Inc. from Mid-Power Resources Corporation --
Clear Creek Natural Gas Unit, Carbon and ▇▇▇▇▇ County, Utah, USA
Capitalised terms used herein but not otherwise defined have the same meaning as
in the Asset Purchase Agreement.
This opinion applies only in respect of the Parent and only has regard to the
laws of Australia and the relevant states thereof.
(a) The Parent is registered under the Corporations ▇▇▇ ▇▇▇▇ of Australia as a
public company limited by shares. It has all of the legal capacity and powers of
an individual and in addition the powers of a body corporate specified in
section 124(1) of the Corporations Act. That capacity and those powers qualify
it to conduct its business including the ownership of all of the capital stock
of the Buyer.
(b) The Asset Purchase Agreement, the stock option agreement relating to
Reserve-Based Options, the Share Payment and the Options have to the extent
necessary been authorized, executed and delivered by the Parent and are the
valid and binding obligations of the Parent, enforceable against the Parent in
accordance with their terms, subject to (a) any applicable bankruptcy,
insolvency or other laws affecting the rights of creditors generally; (b)
general equitable principles; and (c) clarification of the meaning and effect on
the Parent in respect of concepts and terms in the Asset Purchase Agreement
which have no meaning in the law of Australia or the relevant state of
Australia.
(c) There is no limit on the number of shares which might be issued by the
Parent, as the concept of authorized capital no longer applies in corporations
law in Australia. The issued capital of the Parent (prior to giving effect to
the transactions contemplated by the Asset Purchase Agreement) is set out in the
Asset Purchase Agreement, as is a description of the outstanding options
pursuant to which the Parent is or may be obliged to issue shares. These match
the total of (a) the corresponding information in the most recent Annual Report
of the Parent, which information would have been verified by the Auditors of the
Parent; and (b) additional information as to such shares and options advised by
the Parent to Australian Stock Exchange Limited ("ASX"), as it is required by
law to do, since the date to which that Annual Report is made up, namely 30 June
2005.
(d) The most recent Annual Report of Parent records that Buyer is a wholly owned
subsidiary. That information would have been verified by the Auditors of the
Parent. Given the significance of the Buyer in the corporate group of which the
Parent is ultimate holding company, the absence of notification to ASX indicates
that no change has occurred.
(e) The Share Payment and the Immediately Exercisable Options that are being
issued pursuant to the Asset Purchase Agreement have been authorized and when
issued by the Directors of the Parent will be validly issued. The shares in the
Share Payment will be fully paid and are not subject to preemptive rights of
others. No payment to the Parent is required for the Immediately Exercisable
Options as the consideration for their issue is provided by Seller under the
Asset Purchase Agreement. The Share Payment and the Immediately Exercisable
Options will have been issued in compliance with all applicable laws and
regulations and the Constitution of the Parent.
(f) The Reserve-Based Options when issued, and the shares issued on their
exercise (which requires payment of the AUD 0.80 per option) will have been
authorized and when issued by the Directors of the Parent will be validly
issued. The shares will be fully paid and are not subject to preemptive rights
of others. No payment to the Parent is required for the Reserve-Based Options as
the consideration for their issue is provided by Seller under the Asset Purchase
Agreement, and the satisfaction of the conditions precedent is all that is
required.
Yours faithfully
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇