Text Marked By [* * *] Has Been Omitted Pursuant To A Request For Confidential Treatment And Was Filed Separately With The Securities And Exchange Commission. AGREEMENT FOR PURCHASE OF TERM ASSIGNMENT

 

 

Text Marked By [* * *] Has Been Omitted Pursuant To A Request For Confidential Treatment And Was Filed Separately With The Securities And Exchange Commission.

AGREEMENT FOR PURCHASE OF TERM ASSIGNMENT

For and in consideration of the mutual covenants herein contained, and the payments, conveyances and agreements set forth and provided for herewith, Buyer and Seller hereby agree as set forth below. All undefined, initially capitalized terms used in this Agreement shall have the meanings that are ascribed to such terms in Paragraph 26 of this Agreement.  All Exhibits referred to in this Agreement are listed in Paragraph 25, are hereby incorporated in this Agreement by reference and constitute a part of this Agreement.

Upon the terms and conditions and subject to the exclusions and reservations set forth herein, Seller hereby agrees to transfer, sell, assign, and convey to Buyer, for a set period of time commencing on the Closing Date (as such term is hereinafter defined) and expiring 654 days from said Closing Date ("Primary Term"), and Buyer hereby agrees to purchase and acquire for said Primary Term, all of Seller’s rights, titles and interests in and to the Mississippi Formation underlying those producing and non-producing oil and gas leases in the States of Kansas and Oklahoma, along with certain force-pooled interests in the State of Oklahoma, more particularly described on Exhibit "A" attached hereto and incorporated herein by reference, insofar and only insofar as said leases and pooled interests cover the lands described on Exhibit "A" (each, a "Lease", and collectively, the "Leases"), but limited to production from wells drilled by Buyer thereon and therein after the Closing Date, including all of Seller's right, title, and interest in and to such operating agreements, farmout agreements, pooling orders, assignments and other such contracts and agreements applicable to the Mississippi Formation in and under the Leases in which Seller has an assignable interest (collectively, the “Contracts”), but all without warranty or representation as to effectiveness or validity, or otherwise.

The Primary Term of the said conveyance by Seller to Buyer may be extended as to the Mississippi Formation underlying one or more of the Leases pursuant to the further provisions of this Agreement.  The said rights, titles and interests to be sold by Seller and purchased by Buyer hereunder are sometimes hereinafter referred to as the “Property”.

A.    For the purposes of this Agreement, as to Leases covering lands in the State of Kansas, the Mississippi Formation shall be defined as the stratigraphic equivalent of all depths between 4,982 feet and 5,391 feet, inclusive, as shown on the Log-Tech Dual Compensated Porosity log dated February 22, 2007 for the Peppard #3-20 well (API #15 ###-###-####) located near the center of the Southeast Quarter of the Southeast Quarter of the Northwest Quarter of the Northeast Quarter of Section 20, Township 31 South, Range 17 West (SE/4SE/4NW/4NE/4 Sec. 20-31s-17w), Comanche County, Kansas.

B.     For the purposes of this Agreement, as to Leases covering lands in the State of Oklahoma, the Mississippi Formation shall be defined as the stratigraphic equivalent of all depths between 5,571 feet and 6,540 feet, inclusive, as shown on the Schlumberger Compensated Neutron Formation Density log dated June 10, 1982, for the Cashdollar #1-19 well located at the center of the Southwest Quarter of the Southwest Quarter of Section 19, Township 27 North, Range 17 West (SW/4SW/4 Sec. 19-27n-17w), Woods County, Oklahoma.

 

 

C.     The term "Payout" as used herein shall mean that point in time, on a well by well basis, when a well drilled by Buyer on the Property in the State of Kansas has sold the following specified barrels of oil equivalent ("BOE"), in each case utilizing a conversion factor for gas sales of 8 MCF per 1 barrel of oil: for a Vertical Well (as such term is hereinafter defined): Ten Thousand (10,000) BOE; for a Short-Lateral Horizontal Well (as such term is hereinafter defined): Twenty-five Thousand (25,000) BOE; and for an Earning Well or Horizontal Well (as such terms are hereinafter defined) Fifty Thousand (50,000) BOE.  Commencing no later than the last day of the month following the month of first production from a well drilled by Buyer on the Property in the State of Kansas, and no later than the last day of each succeeding month, Buyer shall furnish Seller with a statement showing the oil and gas production and sales from such well during the preceding month, the cumulative sales of oil, gas, and barrels of oil equivalent utilizing the aforesaid conversion factor, and the barrels of oil equivalent remaining to be sold in order to reach Payout with respect to such well.  The After-Payout increase in Seller's reserved overriding royalty interest shall be effective immediately upon Payout of each such well, and Buyer shall ensure that any retroactive adjustments to revenue distributions necessitated by Payout are promptly made.  Upon Buyer's written confirmation of the occurrence of Payout as to any well, Seller shall have the option of recording an affidavit or notice of Payout in the records of the county and state in which such well is located, and any third party shall have the right to rely on said notice or affidavit as conclusive evidence that Payout has occurred; provided, however, Seller shall first submit such notice or affidavit to Buyer for approval as to form and substance prior to recording in the public records, such approval not to be unreasonably withheld.

D.     Seller, or its affiliated designee, reserves the continuing preferential right and option, from time to time and at any time, but not the obligation, to purchase all or any part of the oil and/or other liquid Hydrocarbons (including condensate, distillate, and other liquids recovered from the well stream by normal lease-separation methods) produced and saved from any well drilled by Buyer on the Property.  The price paid therefor shall be Seller's or Seller's affiliated designee's "posted" price, gravity adjusted, applicable thereto for the particular crude type. Transportation charges may be deducted where applicable.  Notwithstanding the foregoing, however, in no event shall the price to be paid to Buyer for a sale of oil and/or liquid Hydrocarbons be less than Buyer can receive from an arms length transaction with a bona fide third party purchaser of such production, including bonuses, pursuant to a written offer furnished to Seller or its affiliated designee no later than forty-five (45) days in advance of an anticipated sale.  No oil or other liquid Hydrocarbons shall be sold by Buyer from any well drilled on the Property until Seller or its affiliated designee has had the chance to exercise its preferential right and option as described above.  Buyer shall notify Seller or its affiliated designee as far in advance as possible of impending production.  Seller or its affiliated designee shall have a reasonable period of time, not to exceed fifteen (15) days, to exercise or waive its preferential right and option.  Any waiver of Seller's preferential right and option to purchase such oil and/or liquid Hydrocarbons shall not preclude Seller from later exercising such right and option.  In the event Buyer's exercises its preferential right to purchase liquid Hydrocarbons pursuant to the provisions of this Paragraph 5.D., Buyer and Seller shall enter into a Crude Oil Purchase Contract substantially in the form of Exhibit "D" attached hereto and incorporated herein by reference.

E.     Seller, or its affiliated designee, reserves the continuing preferential right and option, from time to time and at any time, but not the obligation, to purchase all or any part of the gas (the term "gas" to include natural gas, casinghead gas and other gaseous substances and all constituents thereof in the well stream other than the liquid Hydrocarbons described in Paragraph 5.D. above) produced and saved by Buyer from any well drilled on the Property on the same terms (or terms economically equivalent thereto) as those under which Buyer proposes to sell or dispose of same to another bona fide purchaser that is ready, willing and able to so purchase the gas.  No contract for the sale or other disposition of the gas, or any part thereof, shall ever be made by Buyer until Seller shall have either first exercised or waived in writing its above-described preferential right and option with respect to the gas.  Buyer shall notify Seller or its affiliated designee in writing of any proposed disposition of the gas as much in advance as reasonably possible, and Seller or its affiliated designee shall have a reasonable time, but no less than thirty (30) days after receipt of written notice of all terms of each bona fide offer to purchase gas, or part thereof, in which to notify Buyer of the election to either exercise or waive the preferential right and option, in which event Buyer and Seller shall enter into a mutually acceptable gas purchase contract containing such terms. Any waiver of Seller's preferential right and option to purchase such gas shall not preclude Seller from later exercising such right and option.  Seller does not warrant any gas market for gas that may be produced from the Property, nor does Seller agree to undertake any effort to ensure that such gas is transported, marketed, or sold. In the event such gas is subject to existing gas purchase contract(s) of Seller or Seller's affiliated designee, Buyer agrees to comply with the terms of such contracts, and Seller agrees to assist Buyer in selling such gas thereunder, or in attempting to secure a release of such gas from such contract(s).  However, Seller shall have no liability whatsoever with respect thereto, nor shall Seller have any obligation to allow Buyer to utilize Seller's existing or future gas marketing arrangements or sales facilities.

F.     Whether or not Seller exercises its preferential right to purchase Hydrocarbons produced by Buyer from the Property pursuant to the provisions of Paragraphs 5.D. and/or 5.E. above, Buyer shall ensure that Seller is immediately provided with written notice of any and all changes of ownership affecting surface, mineral, royalty, overriding royalty or other interests under or relating to the Leases of which Buyer, and/or the purchaser of Buyer's production is advised, including copies of all correspondence and documentation pertaining thereto.

 

Prior to Closing, Seller shall give Buyer and Buyer's authorized representatives at any reasonable time and upon reasonable notice, access to all contract, land, lease, and title information, data and records to the extent that such information, data and records are in Seller's possession and relate to the Property.  Seller makes no representation, express or implied, with respect to the accuracy or completeness of any information, data or records now, heretofore, or hereafter made available to Buyer in connection with the transaction contemplated hereby, including, without limitation, any description of the Property or Leases, potential for production of Hydrocarbons from the Property, or any other matters contained in any material furnished to Buyer by Seller or by Seller's agents, representatives or Broker (as such term is hereinafter defined).  All information made available to Buyer in connection with this Agreement or the transaction contemplated hereby, including specifically, but without limitation, any supplemental information acquired by Buyer pursuant to Paragraph 7. below, and all information concerning title defects of any nature, shall be maintained strictly confidential by Buyer in accordance with the terms and provisions of that certain letter agreement dated March 8, 2012, by and between Seller and SXTRA LLC, and attached hereto as Exhibit "E" ("Confidentiality Agreement"), and any and all information, data and records provided by Seller to Buyer hereunder concerning the Property shall be considered Confidential Information (as said term is defined in the Confidentiality Agreement).  Notwithstanding the terms and provisions of the Confidentiality Agreement, from and after the Closing, Buyer shall have the right to utilize the Evaluation Material (as said term is defined in the Confidentiality Agreement) for the purpose of attempting to further develop the Property as is contemplated herein, and Buyer's obligation to maintain the confidentiality of the Evaluation Material shall not terminate for a period of ten (10) years from the Closing Date.  Further, Buyer shall take whatever reasonable steps may be necessary to ensure that Buyer's employees, consultants, and agents, including without limitation SXTRA LLC and its employees, comply with the provisions of the Confidentiality Agreement as modified by this Paragraph 6. of this Agreement.

A.    For a period of sixty (60) days from the Effective Date (“Buyer’s Title Review Period”), Seller shall afford to Buyer and its authorized representatives reasonable access during normal business hours to the office, personnel and books and records of Seller in order for Buyer to conduct a title examination as it may in its sole discretion choose to conduct with respect to the Property in order to determine whether a Material Title Defect (as defined below, and whether one or more) exists.  Such books and records shall include, without limitation, all abstracts of title, title opinions, title files, lease files, assignments, division orders, operating records and agreements, financial and accountings records, and Contracts, in each case insofar as same may now be in existence and in the possession of Seller.  The cost and expense of Buyer’s title review shall be borne solely by Buyer.  Any land, lease or title information, data or records concerning the Leases or Property supplemental to what is in Seller's possession and made available to Buyer pursuant to Paragraph 6. hereof shall be secured by Buyer at Buyer's sole cost and expense, and Buyer shall furnish Seller with copies of all such information so secured, whether before or after the Closing, including without limitation, all documents, title take-offs, and title opinions, at no cost to Seller.  Buyer shall have the right to advise Seller in writing of any Material Title Defect (as such term is hereinafter defined) pertaining to the Leases prior to the expiration of Buyer's Title Review Period.  To be effective, Buyer's written notice shall include both a brief description of the matter constituting the asserted Material Title Defect and supporting documents reasonably necessary for Seller to verify the existence of such asserted Material Title Defect.  Should Buyer fail to give such effective notice to Seller of a Material Title Defect within the time provided, Buyer shall be deemed to have waived any such Material Title Defect.  Seller shall have no obligation to cure any defects in title, but shall cooperate fully with Buyer in any title curative work, both before and after Closing.  If any Material Title Defect in a Lease is not acceptable to, or is not waived by, Buyer, as determined by Buyer in its sole discretion, and Seller does not elect prior to Closing to cure such defect, such Lease shall be excluded from this Agreement and the Purchase Price shall be reduced at Closing on a per acre basis for each net acre subject to Material Title Defect, utilizing $550.00 per net acre for acreage in Comanche, Harper, and Kiowa Counties, Kansas, and $650.00 per net acre for acreage in Barber County, Kansas and Woods County, Oklahoma.

 

B.     The term "Material Title Defect" as used herein shall mean any defect that (i) would prevent Seller from assigning record title to Seller's interest in a Lease to Buyer free of claims and defects other than Permitted Encumbrances (as such term is hereinafter defined); or (ii) would prevent Seller from assigning Seller's interest in a Lease to Buyer free of all mortgages, liens, encumbrances, or other security interests; or (iii) would prevent Seller from assigning Seller's interest in a Lease to Buyer free from pending claims, litigation, or threatened litigation, and shall also include any condition determined to be a Recognized Environmental Condition under any Site Assessment (as such term is hereinafter defined) performed by Buyer pursuant to the provisions of Paragraph 7.F. The term “Permitted Encumbrances” as used herein shall mean such claims and/or defects which are customarily acceptable to a knowledgeable purchaser of oil and gas interests in the area in which the Leases and Property are located and which do not prevent Buyer from entering upon the Leases and Property to conduct customary exploration and production activities.  Buyer and Seller specifically agree that the following are Permitted Encumbrances: (a) defects or irregularities arising out of lack of proof of authority on behalf of a corporation, partnership, limited liability company, or trust (unless it is clear from other documentation that a signatory party has not signed a document in the proper representative capacity) or a variation in corporate or entity name, unless Buyer provides affirmative evidence that such action was not authorized and results in another Person’s superior claim of title to the relevant Property; (b) defects or irregularities in acknowledgements; (c) defects or irregularities arising out of the lack of recorded powers of attorney from corporations to execute and deliver documents on their behalf; (d) defects or irregularities that have been cured or remedied by applicable statutes of limitation or statutes for prescription; (e) defects or irregularities in the chain of title consisting of the failure to recite marital status in documents or omissions of heirship proceedings; (f) defects or irregularities resulting from or related to probate proceedings or the lack thereof which defects or irregularities have been outstanding for five (5) years or more; (g) defects or irregularities in the statutory root of title arising out of the lack of a survey; (h) failure to obtain ratification of pooling or unitization by non-participating royalty and executive mineral interest owners; (i) outstanding deed of trust and mortgage liens burdening the interests of any lessor under any of the Leases, unless there is evidence that the mortgagee or lien holder has asserted a default under any such deed of trust or mortgage and has exercised, or intends to exercise, foreclosure proceedings; (j) preferential rights to purchase which are not exercised with respect to the transaction contemplated by this Agreement; (k) rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of oil and gas leases or interests if the same are customarily obtained routinely and subsequent to such sale or conveyance; (l) rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any of the properties in any manner, and all Applicable Laws, rules and orders of governmental authority; (m) conventional rights of reassignment normally actuated by an intent to abandon or release a lease and requiring notice to the holders of such rights; or (n) defects or irregularities arising out of prior oil and gas leases which, on their face, expired more than three (3) years prior to the Closing, and which have not been released of record unless there is evidence that such leases have been maintained by production, drilling or otherwise.

C.     In the event Seller elects to cure an asserted Material Title Defect, there shall be no reduction in the Purchase Price at Closing on account of such Material Title Defect, and the affected Lease shall be conveyed to Buyer as contemplated herein. Seller shall have a period of ninety (90) days after the Closing to cure all or any portion of such asserted Material Title Defect at its sole cost and expense.  If by such date Seller is not able to cure such Material Title Defect, and such Material Title Defect is not waived by Buyer, the Lease (or portion thereof) still affected by the Material Title Defect shall be reassigned to Seller, and Buyer shall be entitled to a post-closing adjustment to the Purchase Price in the amount provided for hereinabove as if such Lease, or portion thereof, had been excluded from this sale at Closing.

D.    In the event actual net acreage covered under any Lease is determined by Buyer to be less than seventy (70%) percent of the net acreage reflected on Exhibit “A” for such Lease, then such Lease shall, at the option of Buyer, be excluded from the Property and the Purchase Price shall be reduced at Closing by multiplying any reduction in the net leasehold acres delivered by the same per net acre price as is set forth in Paragraph 7.A. above for a Material Title Defect.  Subject to Buyer's rights in the preceding sentence, in the event it is determined Seller is not able to deliver one hundred (100%) percent of the net leasehold acres set forth on Exhibit "A" for any Lease, or in the event it is determined Seller is not able to deliver the net revenue interest set forth on Exhibit "A" (the "Scheduled NRI") for any Lease, such deficiency shall not be considered as a Material Title Defect, and the affected Lease shall remain subject to this Agreement and shall be conveyed by Seller to Buyer at Closing as is contemplated herein.  The Purchase Price shall be reduced at Closing by multiplying any reduction in the net leasehold acres delivered by the same per net acre price as is set forth in Paragraph 7.A. above for a Material Title Defect.  In the event Seller is not able to deliver the Scheduled NRI for any Lease, but the leasehold net revenue interest which can be delivered by Seller in and to such Lease (the "Deliverable NRI") is not less than seventy-five percent (75%), there shall be no adjustment in the Purchase Price for any such reduction in delivered net revenue.  In the event the Deliverable NRI in and to a Lease is less than the Scheduled NRI for such Lease, and is less than seventy-five percent (75%), the Purchase Price shall be reduced at Closing by multiplying the net leasehold acres covered by such Lease as set forth on Exhibit "A" by the same per net acre price as is set forth in Paragraph 7.A. above for a Material Title Defect, and then multiplying that product by a ratio, with the numerator being the difference between (w) the lesser of the Scheduled NRI for such Lease, or seventy-five percent (75%) and (x) the Deliverable NRI, and the denominator being the lesser of (y) the Scheduled NRI for such Lease, or (z) seventy-five percent (75%).

 

E.     In the event it is determined that the net leasehold acres to be delivered by Seller is greater than the net leasehold acres shown on Exhibit "A", the Purchase Price shall be increased at Closing by multiplying any increase in the net leasehold acres delivered by Seller by the same per net acre price as is set forth in Paragraph 7.A. above for a Material Title Defect.  To the extent the additional net leasehold acres delivered by Seller are delivered at a lesser leasehold net revenue interest than is shown on Exhibit "A" for the affected Lease, the increase in the Purchase Price shall be reduced on the same basis and in the same manner as is described in Paragraph 7.D. above.  If the net leasehold acres to be delivered by Seller is greater due to the addition of a Lease not shown on Exhibit "A", such lease shall be delivered at the leasehold net revenue interests provided for in Paragraph 5.B. above, or at the existing leasehold net revenue interest, if less, but in such event the resultant increase in the Purchase Price shall not be reduced. In the event the aggregate increase in the Purchase Price pursuant to this Paragraph 7.E. is more than five percent (5%) of the amount of the unadjusted Purchase Price set forth in Paragraph 3. of this Agreement, Buyer shall have the option not to purchase, and to exclude from this Agreement, sufficient net leasehold acres to reduce such increase to no more than five percent (5%) of said unadjusted Purchase Price. Any net leasehold acres so excluded shall be determined by the mutual agreement of Buyer and Seller by the exclusion of Lease(s) in their entirety, but if such agreement cannot be reached, then the net leasehold acres to be excluded shall be determined by Seller solely from the Lease(s) which resulted in such increase.  In either event, if a Lease is to be excluded from this Agreement pursuant to the provisions of this Paragraph 7.E., all Leases covering any lands covered by such Lease, and all Leases covering lands unitized therewith, shall also be excluded.

F.     Buyer shall have the option, but not the obligation, at reasonable times during Buyer's Title Review Period and upon adequate notice to Seller, to physically access the Property for the purposes of environmental investigation, which shall be limited to conducting a Phase I Environmental Site Assessment in accordance with the American Society for Testing and Materials (A.S.T.M.) Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (Publication Designation: E1527-05), hereinafter referred to as the "Site Assessment". Buyer shall furnish Seller, free of any cost or expense, with a copy of any written report prepared by or for Buyer related to any Site Assessment as soon as reasonably possible after it is prepared.  Prior to Closing, any environmental report prepared by or for Buyer shall be maintained in strict confidence and for use solely in connection with Buyer's evaluation of the Property.  Except for the obligation to provide reports to Seller as set forth in the preceding sentence, if Closing does not occur, such reports shall not be disclosed to any other party, any such reports or information relating to the Site Assessment shall be deemed the property of Seller, and all such reports or information shall be provided to Seller, or destroyed by Buyer, at Seller's request.

G.     If Buyer exercises its option to access the Property under Paragraph 7.F above, or otherwise, then such access, and any environmental examination and inspection shall be at Buyer's sole cost and risk.  Buyer and its representatives shall abide by all safety rules and other reasonable restrictions imposed by Seller with respect thereto, and Buyer shall, upon written request by Seller, provide Seller with such waivers of liability and/or indemnities as Seller may reasonably request, and with proof of insurance.

It is understood the Purchase Price includes payment at the rate of Twenty-five Thousand Dollars ($25,000.00) per square mile for acquisition of approximately 19.5 square miles of 3-D seismic data owned by Seller and covering the Leases and other lands as more particularly described on the Seismic Data License Agreement attached hereto as Exhibit "F" and by reference made a part hereof.  At Closing, Seller shall deliver to Buyer processed 3D seismic data volumes, load sheets, sonic log data within the volumes, and related synthetic seismograms, shoot design, and acquisition parameters for such 3D seismic (the "Seismic Data"), but subject to the said Seismic Data License Agreement, which shall be executed by Buyer and Seller at or before Closing.

A.    Buyer anticipates exploring for production of Hydrocarbons from the Property by the conduct of 3-D seismic operations and the drilling of horizontal wells thereon.  For the purposes of this Agreement, the term "Horizontal Well" shall mean a well drilled for the production of Hydrocarbons from the Mississippi Formation with a lateral length of no less than Four Thousand feet (4000'); the term "Short-Lateral Horizontal Well" shall mean a well drilled for the production of Hydrocarbons from the Mississippi Formation with a lateral length of no less than Two Thousand feet (2000').  Buyer shall have no obligation to conduct any such seismic operations or horizontal drilling during the Primary Term, but Buyer shall not have the right to extend the Primary Term of the conveyance of any Lease unless Buyer shall have complied with the requirements for drilling of horizontal wells set forth in Paragraph 10.A. below.

 

In addition to Horizontal and Short-Lateral Horizontal Wells, Buyer shall have the right to drill wells from the surface location with a lateral length of no more than One Thousand feet (1000') for the production of Hydrocarbons from the Mississippi Formation (each, a "Vertical Well"), provided however, unless otherwise expressly consented to by Seller in writing, in the event Buyer drills a Vertical Well on the Property, Buyer may not commence another Vertical Well on the Property unless Buyer has first drilled at least the same number of Horizontal Wells and Short-Lateral Horizontal Wells on the Property, in aggregate, as the number of Vertical Wells. Other than Horizontal Wells, Short-Lateral Horizontal Wells, and allowed Vertical Wells drilled for the production of Hydrocarbons from the Mississippi Formation, Buyer shall have no right to drill any well, horizontal or otherwise, for the production of Hydrocarbons on any Lease. Buyer may drill one or more pilot wells for the purpose of evaluating (but not producing Hydrocarbons from) the Mississippi Formation (each, a "Pilot Well"), but any such Pilot Well which is not later used to kick off and drill a Horizontal Well, Short-Lateral Horizontal Well, or Earning Well shall not be completed for the production of Hydrocarbons from the Mississippi Formation unless Buyer then has the right to drill a Vertical Well under the provisions of this Paragraph 9.A., and, unless otherwise consented to by Seller in writing, Buyer may not complete any such Pilot Well for the production of Hydrocarbons from the Mississippi Formation unless such Pilot Well is located no less than Six Hundred and Sixty feet (660') from any currently existing well on the Leases.  Any such eligible Pilot Well so completed for the production of Hydrocarbons from the Mississippi Formation shall be considered a Vertical Well for all purposes under this Agreement.

B.     To the extent that Buyer conducts or participates in any seismic survey including any of the Leases during the term of any assignment from Seller to Buyer made hereunder, Buyer shall license to Seller, free of cost to Seller, all raw and processed data (but excluding Buyer's review, analysis and interpretation of the same) acquired or generated from the entirety of such seismic survey.  Such license shall be substantially in the form of the Seismic Data License Agreement attached hereto as Exhibit "F".

C.     Subject to the terms of the applicable Lease, and all Applicable Laws, rules and regulations of any governmental authority with jurisdiction over such matters, Buyer shall have the option, should it choose to do so, to drill one or more vertical wells on the Leases for salt water disposal purposes into depths below the top of the Arbuckle formation ("SWD Well").  For the purposes of this Agreement, as to Leases in the State of Kansas, the top of the Arbuckle formation shall be defined as the stratigraphic equivalent of 5,692 feet as shown on the Log-Tech Dual Compensated Porosity log dated April 18, 2010 for the Berexco LLC Alton #1-3 well (API # 15 ###-###-####) located near the center of the Northeast Quarter of the Southwest Quarter of the Northwest Quarter of Section 3, Township 31 South, Range 18 West (NE/4SW/4NW/4) Sec. 20-31s-17w), Comanche County, Kansas. As to Leases in the State of Oklahoma, the top of the Arbuckle formation shall be defined as the stratigraphic equivalent of 7,090 feet as shown on the Schlumberger Compensated Neutron Formation Density log referred to in Paragraph 2.B. above.  No salt water disposal into any other zone or formation underlying the Leases shall be permitted.  Buyer shall be solely responsible for securing any and all agreements, including but not limited to rights-of-way and salt water disposal agreements, necessary to drill, operate and utilize any SWD Well for its purposes, but any such agreement obtained by Buyer shall be drawn so as to allow Seller the right to utilize such SWD Well for disposal of salt water produced from wells operated by Seller, and to be assignable to Seller should such well revert to Seller under the provisions of this Agreement.  To the extent of any available capacity, Seller shall have the right to utilize any SWD Well drilled by Buyer for such disposal purposes of Seller, limited only by the capacity of such SWD Well to accept salt water produced by wells drilled by Buyer on the Property. The first 300 barrels per day disposed by Seller into a SWD Well of Buyer shall be free of any charge to Seller by Buyer, provided however, Seller shall reimburse Buyer for any payments made by Buyer on Seller's behalf to allow any such disposal by Seller under the terms of Buyer's landowner agreement(s).  In the event Seller shall dispose of more than 300 barrels per day into a SWD Well of Buyer, Seller shall pay monthly, upon receipt of billing by Buyer, for its proportionate share of the direct costs incurred by Buyer in the operation and maintenance of the SWD Well during that month.  Seller's proportionate share of such costs shall be the percentage determined by dividing the number of barrels disposed by Seller into Buyer's SWD Well by the total number of barrels disposed into Buyer's SWD Well over the preceding six (6) month period.  In the event Seller exercises its right to utilize any such SWD, Seller shall be solely responsible for the costs of installing and maintaining any and all lines, pipe, storage and metering facilities necessary or convenient for utilization of said SWD Well by Seller.

D.    Notwithstanding any provision or authority which may be contained in the Leases, including any amendments thereof, unless otherwise specifically agreed by Seller in writing subsequent to Closing (which agreement may be withheld by Seller for any cause, or without cause), any well drilled by Buyer involving the Property shall be drilled to produce only from lands covered by the Leases, and Buyer shall not have the right to pool or unitize the Leases with other leases covering lands not covered by the Leases, whether or not Buyer may own such other leases covering such other lands. Buyer shall be solely responsible for securing any and all amendments to the Leases necessary to establish any production units desired by Buyer, but unless otherwise agreed by Seller as provided above, all such production units shall encompass only lands covered by the Leases, shall not exceed three hundred and twenty (320) acres for a Horizontal Well and one-hundred and sixty (160) acres for a Short-Lateral Horizontal Well, and shall be subject to prior written approval of Seller, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, Buyer shall not have the right to alter or amend any existing production unit covering the Property, nor shall Buyer apply to alter or amend any existing spacing rules applicable to the Property.  To the extent Buyer drills a producing well and the production therefrom is subject to an existing production or spacing unit, all non-working interest revenues from such well shall be paid in accordance with the terms of the agreement(s) under which such existing production or spacing unit was established.

 

E.     Buyer shall conduct all of its operations on the Leases and locate all of its exploration and production facilities in a manner so as to avoid any damage to, and minimize interference with, Seller's wells and operations, and Buyer shall advise and consult with Seller prior to commencement of any seismic, drilling, completion, or other major operations on the Leases in order to avoid any such damage or interference.  The location of all of Buyer's such facilities shall be agreed upon between Buyer and Seller in advance; such agreement shall not be unreasonably withheld by either party.  Each party shall have the right to use the other's lease roads, including usage for rotary tools or other heavy equipment.  In the event Buyer utilizes Seller's existing lease roads for rotary tools or other heavy equipment, Buyer shall restore such roads to the same or better condition as existed prior to such usage.  In the event Buyer utilizes Seller's existing lease roads for normal operations hereunder, Buyer and Seller shall share equally the cost and expense of maintaining said roads.  Similarly, in the event Seller utilizes new lease roads constructed by Buyer for rotary tools or other heavy equipment, Seller shall restore such roads to the same or better condition as existed prior to such usage, and if Seller utilizes Buyer's new lease roads for its normal operations, Seller and Buyer shall share equally the cost and expense of maintaining such roads.

 

(ii)    If Buyer determines to plug and abandon any well drilled by Buyer on a Lease after completion (or after attempting completion), Buyer shall provide notice to Seller of Buyer's intention to abandon and Seller shall, within thirty (30) days from receipt of such notice, either consent to such plugging and abandonment, or elect to take over operations of such well for its own account.  Failure of Seller to respond to Buyer's notice within the time provided shall be deemed as Seller's consent to plug and abandon such well.

(iii)   In the event Seller gives its consent to the plugging and abandonment of any well drilled by Buyer hereunder, Buyer shall promptly plug and abandon such well in accordance with all the requirements of any governmental body having jurisdiction.  In the event Seller elects to take over such well, Seller shall pay Buyer the net salvage value (after plugging and abandonment expense) of the recoverable equipment in the hole, if any, and the well's surface equipment, if any, and effective as of its election, shall assume operations of the well at its sole cost, risk, and expense, which shall include assumption of responsibility for compliance with any directive of any governmental agency having jurisdiction over such well.  In such event, Buyer shall forfeit any and all right to the well so taken over by Seller, and shall promptly reassign to Seller, all Leases of which, by completion of such well, Buyer has either earned or would have earned, in whole or in part, a Secondary Term Assignment, with Buyer retaining only rights to the wellbore(s) of any other wells owned by Buyer then producing in commercial quantities on such Lease(s) and that portion of any Lease(s) of which Buyer has either earned or would have earned  a Secondary Term Assignment with respect to such other producing wells.  Such reassignment shall be in form and content acceptable to Seller, but shall include provision for Seller's assumption of any and all liabilities with respect to the well and Lease(s) assigned and indemnification of Buyer with respect thereto. Any such Lease(s) so reassigned to Seller shall no longer be subject to the terms of this Agreement.

K.     At all times while conducting operations on the Property, Buyer shall comply with the workers compensation laws of the state where the operations are being conducted and shall carry insurance with the minimum limits of liability described on Exhibit "H" attached hereto and incorporated herein by reference.  Buyer agrees to cause the insurance company or companies with whom the said insurance is carried to issue endorsements to the policies representing such insurance to extend the coverage thereof to Seller and the Internal Partners.  Buyer shall at all times keep the Property free and clear of all labor, mechanics' and materialmen's liens, whether through bonding over such liens or through any other means of releasing such liens available at law or in equity.

L.     Buyer shall be responsible for obtaining all necessary Permits or other documentation required under state or federal law or otherwise by public authorities relative to its operations on the Property, including, without limitation, all necessary bonds, plugging or otherwise, and shall comply with all Permits, statutes, rules, regulations, and orders of any governmental authority with respect to its operations on the Property, including, without limitation, any governmental request or requirement in conjunction with Buyer's operations to repair, restore mechanical integrity, plug, re-plug and/or abandon any well of whatsoever type, status or classification located on the Leases, whether or not drilled by Buyer, or to take any cleanup or other action with respect thereto. Buyer shall be responsible for all costs associated with obtaining such Permits or other documentation, and with compliance with such Permits, statutes, rules, regulations, and orders, and shall indemnify and hold Seller harmless from any and all liabilities with respect thereto or arising therefrom.  In addition to the foregoing, Buyer shall, prior to commencement by Buyer of each well drilled by Buyer on the Property, furnish a surety bond in favor of Seller in the amount of Twenty-five Thousand Dollars ($25,000.00), executed by Buyer as principal, and by a corporate surety acceptable to Seller and authorized to do business in the state in which the well is located.  Such bond shall be in form and content satisfactory to Seller, guaranteeing the plugging and abandonment of each such well in accordance with all rules and regulations of the constituted authorities.

M.   Buyer shall comply in all respects with all of the express and implied covenants of the Leases to the extent such Leases cover the Property, including, but not limited to, any necessary environmental or pollution clean-up occasioned by Buyer's operations, and plugging and abandonment of all wells drilled by Buyer on the Leases (unless assumed by Seller pursuant to Paragraph 9.J.(iii) above).  Prior to conducting any operations on the Leases, Buyer shall make satisfactory arrangements with the owners of all surface rights to be affected by such operations for ingress and egress, and shall conduct its operations in a manner to disturb or utilize no more of the surface of the lands than is necessary to conduct prudent operations thereon. Upon plugging and abandonment by Buyer of any well drilled on the Leases, Buyer shall promptly remove all of its equipment, shall restore surface of the lands as nearly as is reasonably practicable to its condition prior to the drilling of such well, and shall comply with any additional or more stringent surface restoration or clean-up requirements under the applicable Lease.

N.     In conducting its operations on the Property, Buyer shall be acting independently of Seller, and none of such operations shall be considered as joint, it being expressly understood that this Agreement does not constitute any type of joint venture or partnership of any nature, mining or otherwise.  Unless assumed by Seller under the provisions of Paragraph 9.J.(iii) above, Seller shall have no responsibility or liability whatsoever in connection with the conduct of any operations, drilling or otherwise, undertaken and prosecuted by Buyer on the Leases and Property. All such operations shall be at Buyer's sole cost, risk, and expense.

 

A.    In the event and only in the event Buyer shall have completed drilling operations on no less than three (3) Horizontal Wells on the Property within 654 days of the Closing (the "Option Date"), Buyer shall have the option (the "Option"), to extend the Primary Term of the then valid Leases for a period of one (1) year, or until the expiration date of such Lease, whichever is the earlier (the "Extended Primary Term") by paying Seller the sum of Two Hundred Dollars ($200.00) per net acre (as shown on Exhibit "A") covered by each of the Leases for which the Option is exercised. For the purposes of the preceding sentence, the completion of drilling operations of two (2) Short-Lateral Horizontal Wells shall be considered the completion of drilling operations on one (1) Horizontal Well.  The completion of drilling operations on Vertical Wells or Earning Wells shall not be considered in determining whether Buyer shall have earned the right to exercise the Option. Provided Buyer has completed the required drilling by the Option Date, Buyer may exercise the Option by notifying Seller in writing, no later than the Option Date, of the Leases for which Buyer wishes to exercise the Option, and by paying Seller therefor as set forth above, within three (3) Business Days thereafter. Failure of Buyer to give such notice as to any Lease, or to make payment for such Lease, within the times provided, shall be deemed an election by Buyer not to exercise the Option with respect to such Lease.

B.     Buyer shall not be obligated to exercise the Option with respect to all of the Leases, but if Buyer elects to exercise the Option with respect to any Lease, Buyer must exercise the Option with respect to all of the then valid Leases included with such Lease within any pre-existing production or spacing unit, and with respect to all of the acreage covered by a Lease, excluding only such Leases or acreage for which Buyer has earned a Secondary Term Assignment.

C.     In the event Buyer timely exercises the Option with respect to a Lease, Seller shall, within fifteen (15) days from receipt of Buyer's payment, execute and deliver to Buyer one or more Extension of Partial Term Assignment of Oil and Gas Leases covering the Leases for which the Option has been exercised, substantially in the form of Exhibit "I" attached hereto and incorporated herein by reference.

D.     In the event Buyer has commenced the actual drilling, below surface casing, of a well on a Lease prior to the expiration of the Primary Term or Extended Primary Term, with rotary tools capable of drilling such well to completion, the expiration of the Primary Term or Extended Primary Term of such Lease shall be deferred, and Buyer shall have the right to continue the drilling of such well to total depth, and if applicable earn a Secondary Term Assignment of such Lease as is provided in Paragraph 11.  Otherwise, Buyer shall not have the right to extend the Primary Term of any Lease except through exercise of the Option, which may only be exercised as is provided in Paragraph 10.A. above; the provisions of this Paragraph 10.D. shall not be construed to alter the requirement that Buyer must have completed drilling operations on no less than three (3) Horizontal Wells (or the equivalent thereof as provided in Paragraph 10.A above) by the Option Date in order to have the right to exercise the Option.

E.     As is set forth on Exhibit "A", the primary term of certain Leases not currently held by production expires prior to the Option Date, and/or prior to the expiration of the Extended Primary Term if the Option is exercised with respect to such Lease(s).  In addition, certain Leases currently held by production could expire in accordance with their terms prior to the Option Date, the expiration of the Primary Term, or the expiration of the Extended Primary Term, due to lack of continued production or other circumstances. Seller shall endeavor to advise Buyer in advance of the pending expiration of any Lease which has been assigned to Buyer hereunder and is within the Primary Term or Extended Primary Term of any such assignment, but shall incur no liability to Buyer for failure to do so, it being expressly understood Seller shall have no obligation to maintain any Lease in force and effect through renewal, extension, re-establishment of production, or otherwise, and shall have no liability whatsoever to Buyer or otherwise with respect thereto.  It is expressly understood that the terms "Primary Term" and "Extended Primary Term" as used in this Agreement bear no relationship to the primary term, or to the extended primary term, as same may affect the duration of any Lease as between the lessor and lessee thereof.  Instead, the terms "Primary Term" and "Extended Primary Term" as used herein relate solely to the duration of the term assignments contemplated under this Agreement, and the interests to be conveyed thereunder may terminate earlier than is contemplated herein to the extent any of the underlying leasehold interests terminate.  It is further understood that Buyer cannot exercise the Option with respect to any lease which has expired, and in the event Buyer exercises the Option and makes payment therefor with respect to any such expired Lease, Seller shall promptly refund any such erroneous payment made.

 

 

In the event Buyer does not elect to commence reworking operations or drilling/completion operations within the time provided, or if reworking operations are timely commenced and prosecuted but are not successful in restoring commercial production from the Mississippi Formation in such Producing Well, or if operations for a New Well are timely commenced and prosecuted, but do not result in commercial production from the Mississippi Formation, the Secondary Term Assignment applicable to such Producing Well shall thereupon terminate; provided, however, in the event Buyer has drilled (an) additional well or wells hereunder then producing from the Mississippi Formation in commercial quantities on a Lease or Unit covered by the Secondary Term Assignment applicable to such Producing Well, the Secondary Term Assignment shall not terminate with respect to that portion of any Lease(s) of which Buyer would have earned a Secondary Term Assignment by completion of such additional well(s).

Notwithstanding the termination of any Secondary Term Assignment, Buyer shall remain liable for all of its obligations hereunder with respect Buyer's operations on the Lands and Lease(s) covered by such Secondary Term Assignment unless assumed by Seller under the provisions of Paragraph 9.J.(iii).

From and after the Closing, Buyer shall assume and be responsible, on a going forward basis, for all future (but not past) duties, liabilities and obligations of Seller of whatsoever nature, express or implied, with respect to the Property, including, without limitation, those arising under or by virtue of any of the Contracts, or any other lease, contract, agreement, document, permit, or applicable statute or rule, regulation or order of any governmental authority.  Without limiting the generality of the foregoing, Buyer shall assume and be responsible for any and all claims, demands, and causes of action of every kind and character, brought by or in favor of any Person, company, corporation, governmental agency or other entity, for damage to the Property or to the environment, for pollution, or for the condition of the Wells and Leases, or any lands and premises, arising out of Buyer's actions or operations with respect to the Property or any portion thereof, shall indemnify and hold Seller harmless from and against any and all liability with respect thereto, and shall carry all such insurance, including umbrella coverage, necessary to satisfy such responsibilities and indemnities.  Such assumption, responsibility and indemnity shall apply to all such claims, demands or causes of actions arising directly or indirectly from or incident to, the use, occupation, operation, maintenance or abandonment of the Property by Buyer.  Notwithstanding the foregoing, however, Buyer shall not assume, and shall have no responsibility whatsoever with respect to, any Contract by and between Berexco LLC and any its Affiliates (the "Berexco Group"), or by between the Berexco Group, or any of them, and any Internal Partner, nor shall Buyer assume or be liable for any claims, demands and causes of action which arise from acts or omissions occurring prior to the Closing Date or otherwise arising from the acts or omissions of Seller, the Berexco Group or the Internal Partners.

13.   REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES

(i)     Berexco LLC is acting as agent hereunder for those parties listed on Exhibit "K" (the "Internal Partners") attached hereto and made a part hereof, and has all requisite power and authority to enter into this Agreement for itself and the Internal Partners, and to perform its obligations and those of the Internal Partners hereunder. The consummation of the transactions contemplated by this Agreement will not violate or be in conflict with any provision of Seller's by-laws or governing documents, or any material agreement, or instrument to which Berexco LLC or any Internal Partner is a party or by which it is bound, or any judgment, decree, order, statute, rule or regulation applicable to Seller, or an Internal Partner.  Berexco LLC will fully indemnify and hold Buyer harmless from and against any and all liability asserted by any of the Internal Partners or the Berexco Group arising from Buyer's reliance upon this representation as Berexco LLC's authority to consummate the transactions contemplated hereby on behalf of the Internal Partners, to represent the Berexco Group and Internal Partners with respect to any Contract by, between, or amongst them and as Buyer's authority to make payment of the Purchase Price (including any post-Closing adjustments thereto) issue notices, and do any other act or thing required or contemplated by this Agreement solely to Berexco LLC as agent for the Internal Partners.

(ii)    Seller is validly existing, and, if applicable, in good standing, under the laws of the jurisdiction of its organization. The execution, delivery and performance of this Agreement and the transactions contemplated hereunder have been duly and validly authorized by all requisite action on the part of Seller and the Internal Partners.

(iii)   This Agreement constitutes, and all documents and instruments required hereunder to be executed and delivered by Seller at Closing will constitute, valid, legal and binding obligations of Seller and the Internal Partners in accordance with their respective terms.

 

(iv)   Except as listed on Exhibit "L" attached hereto and made a part hereof, to Seller’s knowledge, as of the date hereof, no suit, action or other Proceeding is pending before any court or governmental agency to which Seller or any Internal Partner is named a party and which might result in impairment or loss of Seller’s or an Internal Partner's title to any part of the Property, that might hinder or impede operation of the Property, or that might otherwise materially and adversely affect the value of the Property, and to the knowledge of Seller, no such suit, action or other Proceeding is threatened.  Seller shall promptly notify Buyer of any such Proceeding arising prior to the Closing.

(v)    Except for the gas purchase contracts listed on Exhibit "M" attached hereto and made a part hereof, to the knowledge of Seller, no Person has any call upon, option to purchase or similar right to obtain production from all or any part of the Property.

(vi)   Seller is not obligated by virtue of a prepayment arrangement, make-up right under a production sales contract containing a “take or pay” or similar provision, production payment or any other arrangement, to deliver Hydrocarbons or proceeds from the sale thereof, attributable to the Property at some future time.

(vii)  There are no bankruptcy, reorganization or arrangement Proceedings pending, being contemplated by, or to Seller’s knowledge, threatened against Seller.

(viii)  Exhibit "N" attached hereto and made a part hereof is a listing of all currently existing wells on the Leases to which Buyer may drill or conduct seismic operations no closer than the distances set forth in Paragraphs 9.A. and 9.F. of this Agreement.

(ix)    Seller and each of the Internal Partners is not a "foreign person" within the meaning of Section 1445 of the Internal Revenue Code.

The phrases "knowledge of Seller", "Seller's knowledge", and any other variations thereof, shall mean the actual knowledge of Adam E. Beren or Charles B. Spradlin, Jr.

B.     From and after the date of execution of this Agreement until the Closing Date, Seller shall not, nor shall any of its officers, directors, employees or agents, directly or indirectly, solicit, initiate, pursue, consider, or otherwise participate in any discussions or negotiations with, or provide any information to or otherwise cooperate in any way with, any Person, concerning (i) any competing offers with respect to the Property or Seller's rights with respect thereto, or (ii) any offer or indication of interest with respect to any transaction involving the sale, transfer, license, or other disposition of the Property. Seller shall immediately terminate any such actions pending on the date of execution of this Agreement. From and after the date of execution of this Agreement and until the Closing, except as may be otherwise consented to by Buyer in writing, Seller shall not dedicate, sell, farmout, encumber or dispose of any of the Property, nor shall Seller drill any new well on the Property for production of Hydrocarbons from the Mississippi Formation.

C.     Seller has made and shall make no other warranty or representation, express or implied, as to the accuracy or completeness of any data, information or materials heretofore or hereafter furnished or conveyed to Buyer in connection with the Property, whether made by Seller or its employees, officers, representatives or agents, including without limitation Riviera-Ensley Energy Advisors ("Broker"), and whether as to the ability, capacity or potential of the Property to produce Hydrocarbons, at any particular rate or in any particular quantity, or otherwise.  Any and all such data, information or other materials which may have been furnished or conveyed to Buyer was so furnished or conveyed as a convenience, and any reliance upon or use thereof shall be at Buyer's sole risk.  Buyer is fully aware of all facts and information related to the contemplated operations, condition, and value of the Property, has not relied on Seller or its agents, including without limitation, Broker, for any such facts or information.  Seller has made and makes no representation whatsoever as to the title to the lands covered hereunder, or by the Leases or Contracts appertaining thereto, nor does Seller make any representation as to the effectiveness or validity of any the Leases or the Contracts, and all such lands, Leases and Contracts shall be assigned without warranty, either express or implied, of title, effectiveness, validity or otherwise, except that Seller shall warrant and defend title from and against any party claiming by, through or under Seller, an Internal Partner, or the Berexco Group, but not otherwise.

 

(i)     Buyer has all requisite power and authority to enter into this Agreement, to purchase the Property on the terms described in this Agreement, and to perform its other obligations under this Agreement. The consummation of the transactions contemplated by this Agreement will not violate, or be in conflict with, any provision of Buyer's charter, by-laws or governing documents, or any material agreement or instrument to which Buyer is a party or by which Buyer is bound, or any judgment, decree, order, statute, rule or regulation applicable to Buyer.

(ii)    Buyer is validly existing, and, if applicable, in good standing, under the laws of the jurisdiction of its organization. The execution, delivery and performance of this Agreement and the transactions contemplated hereunder have been duly and validly authorized by all requisite action on the part of Buyer.

(iii)   This Agreement constitutes, and all documents and instruments required hereunder to be executed and delivered by Buyer at Closing will constitute, legal, valid and binding obligations of Buyer in accordance with their respective terms.

(iv)   Buyer has examined the Property for all purposes, and is not relying on any prior description of the Property, whether written or verbal, which may have been delivered by Seller or its employees, officers, representatives, or agents, including without limitation Broker.

(v)    Buyer hereby certifies and acknowledges that it has or will obtain all necessary Permits, approvals or other authorities necessary under applicable state and federal law to accept assignment of the Property and conduct the operations contemplated hereby thereon, and will hold Seller harmless from and against any and all liability with respect thereto.

(vi)   To Buyer’s knowledge, as of the date hereof, no suit, action or other Proceeding is pending before any court or governmental agency which might result in impairment of Buyer's ability to pay the Purchase Price and accept assignment of the Property, and to conduct the operations contemplated hereby thereon, and to the knowledge of Buyer, no such suit, action or other Proceeding is threatened.  Buyer shall promptly notify Seller of any such Proceeding arising prior to the Closing.

(vii)  There are no bankruptcy, reorganization or arrangement Proceedings pending, being contemplated by, or to Buyer’s knowledge, threatened against Buyer or any of its members.

E.      Buyer warrants and represents that it is actively engaged in the oil and gas business, and is an experienced and knowledgeable investor in the oil and gas business, familiar with the risks attendant to the conduct of activities in the oil and gas business in general, and the rights and interests covered by this Agreement in particular. Buyer acknowledges and covenants that it has been given the full opportunity to ask questions, and Seller has answered all inquiries, if any, which Buyer has put to it concerning the rights and interests covered by, and the terms and conditions of, this Agreement.

F.     Buyer warrants and represents that it is acquiring the interests covered by this Agreement for its own account as an investment and not with a view to the resale or distribution of all or any part of such interests, and that the representations and warranties of Buyer herein shall be deemed to be made by, and shall be binding upon Buyer and its Affiliates, and their respective assigns.  Buyer recognizes and understands that the interest it is acquiring hereunder has not been registered under the Securities Act of 1933, as amended, or under the securities act of any State, and that Buyer therefore recognizes that it must bear the economic risk of investment for an indefinite period of time.  Buyer specifically waives the applicability of the Kansas Consumer Protection Act and all similar laws of other jurisdictions to the transactions contemplated hereby.  Buyer warrants and represents that prior to entering into this Agreement, Buyer was advised by, and has relied solely upon, its own legal, tax and other professional counsel concerning this Agreement, the Property, and the value thereof.

G.     No broker or finder other than Broker has acted for or on behalf of Seller in connection with this Agreement or the transactions contemplated hereby, and no broker or finder other than Broker is entitled to any brokerage or finder's fees or commission with respect thereto based in any way on agreements, arrangements or understandings made by or on behalf of Seller.  Seller shall be solely responsible and shall hold Buyer harmless from any commission, fee or expense due Broker, and both Buyer and Seller agree to indemnify and hold each other harmless from and against any fees or expenses claimed by any other brokers or finders in connection with this Agreement or the transaction contemplated hereby.

 

H.     Buyer shall defend, indemnify and hold Seller harmless from and against any and all liabilities, debts, claims, damages, and loss incurred in connection with Buyer's operations hereunder on the Property.  Seller shall defend, indemnify and hold Buyer harmless from and against any and all liabilities, debts, claims, damages and loss incurred in connection with Seller's operations on the Leases outside of this Agreement, including with respect to all prior acts or omissions of, and operations conducted by, Seller or its predecessors on the Leases. The indemnities of Seller and Buyer in this Paragraph 13.H. shall survive the Closing.

14.   CLOSING

A.    Unless otherwise agreed to by the parties, the Closing shall take place at the offices of Seller fifteen (15) days following the expiration of Buyer's Title Review Period (the "Closing Date"), or such other earlier date or place, or in such other manner, as may be determined by mutual agreement of the parties.

(i)     one or more fully executed and recordable Partial Term Assignments of Oil and Gas Leases substantially in the form of Exhibit "C" attached hereto, and such other documents as may be reasonably necessary to convey the Property to Buyer in accordance with the provisions hereof;

(ii)    the executed Seismic Data License Agreement and the Seismic Data;

(iii)   the executed Escrow Agreement;

(iv)   a certification from Seller in form substantially similar to that attached hereto and made a part hereof as Exhibit "O", that such Person is not a "foreign person" within the meaning of Section 1445 of the Internal Revenue Code; and

(iv)   such other and further Closing documents as Buyer may reasonably request prior to Closing.

(i)     bank wire transfer of immediately available funds in the amount of the Purchase Price less the Performance Deposit, adjusted by any Closing Date Adjustments, payable to the order of Seller;

(ii)    the executed Seismic Data License Agreement;

(iii)   the executed Escrow Agreement;

(iv)   certificates of good standing evidencing Buyer's qualification to transact business in the states of Kansas, Oklahoma, and Buyer's state of formation; and

(v)    such other and further Closing documents as Seller may reasonably request prior to Closing.

 

At Closing, the Purchase Price shall be reduced as provided in Paragraph 7.A. for any Lease excluded from this Agreement as a result of a Material Title Defect which is not waived by Buyer and which Seller does not elect to cure, reduced as provided in Paragraph 7.D. for any reduction in net leasehold acres or leasehold net revenue interest actually delivered by Seller in any Lease, and increased as provided in Paragraph 7.E. for any additional net leasehold acres delivered by Seller in any Lease.

A.    The obligations of Seller under this Agreement are subject, at the option of Seller, to the satisfaction at or prior to Closing of the following conditions:  (i) all representations and warranties of Buyer contained in this Agreement shall be true in all material respects at and as of Closing as if such representations and warranties were made at and as of Closing; (ii) Buyer shall have performed and satisfied all agreements required by this Agreement to be performed and satisfied by Buyer at or prior to Closing; and (iii) the aggregate downward adjustment (if any) to the Purchase Price which results from the procedures set forth in Paragraph 7. does not exceed ten percent (10%) of the unadjusted Purchase Price. To the extent that Seller terminates this Agreement due to closing condition (iii) above, then the Performance Deposit shall be immediately refunded to Buyer. To the extent that Seller terminates this Agreement due to any failure of Buyer to complete any of the closing conditions above, and Seller is not in material breach of this Agreement, then the Performance Deposit shall be immediately paid to Seller.

B.     The obligations of Buyer under this Agreement are subject, at the option of Buyer, to the satisfaction at or prior to Closing of the following conditions:  (i) all representations and warranties of Seller contained in this Agreement shall be true in all material respects at and as of Closing as if such representations were made at and as of Closing, and (ii) Seller shall have performed and satisfied all covenants and conditions required by this Agreement to be performed and satisfied by Seller at or prior to Closing. To the extent that Buyer terminates this Agreement due to any failure of Seller to complete any of the closing conditions above, and Buyer is not in material breach of this Agreement, then the Performance Deposit shall be immediately paid to Buyer. If Buyer proceeds to Closing with knowledge of any condition above not being met by Seller, such condition will be deemed waived by Buyer as a condition to close and Buyer hereby waives any claim for breach of a covenant, representation or warranty or for any indemnity related to such condition which would otherwise be owed pursuant to this Agreement.

No later than one hundred and twenty (120) days after Closing, Seller shall prepare a statement setting forth each adjustment or payment which was not finally determined as of the Closing under the provisions of Paragraphs 7.C. hereof, and showing the calculation of the final settlement price based upon such statement ("Final Settlement Price").  Seller shall submit such statement to Buyer and shall afford Buyer access to Seller's records pertaining to the computations contained in said statement.  Buyer shall advise Seller in writing of any errors or omissions within fifteen (15) days of receipt of such statement. In the event (i) the Final Settlement Price is more than the amount previously paid to Seller, Buyer shall pay to Seller the amount of such difference in immediately available funds, or (ii) the Final Settlement Price is less than the amount Previously paid to Seller, Seller shall pay to Buyer the amount of such difference in immediately available funds.  Such payments shall be made within five (5) Business Days after expiration of the notice period.

 

Any and all sales, conveyance or other similar taxes imposed as a result of the transactions contemplated by this Agreement, other than any income taxes of Seller, shall be paid by and are the responsibility of Buyer.  Buyer shall also be responsible for the payment of all severance, ad valorem or other taxes levied against Buyer's share of any production from any well drilled by Buyer on the Leases. Seller shall be responsible for the payment of all severance, ad valorem or other taxes levied against Seller's share of any production from any well on the Leases.  If requested by Seller, Buyer shall submit any ad valorem tax renditions to Seller on wells drilled by Buyer no later than fifteen (15) days prior to filing such renditions with the applicable county(ies), in order that Seller may review and make suggestions on adjusting such renditions prior to filing.

A.    Should Buyer default in its obligations hereunder in any material respect prior to Closing, including but not limited to, a failure to be present at the designated time for the Closing hereof, Seller's sole remedy shall be to receive payment of the Performance Deposit from the Hinkle Law Firm LLC client trust account and retain such Performance Deposit as liquidated damages and to terminate this Agreement, Seller hereby waiving all other legal or equitable remedies, including without limitation, damages or a suit for specific performance. BUYER AND SELLER HEREBY ACKNOWLEDGE THAT THE EXTENT OF ACTUAL DAMAGES WHICH SELLER WOULD SUFFER AS A RESULT OF BUYER'S DEFAULT WOULD BE EXTREMELY DIFFICULT TO ASCERTAIN AND HAVE AGREED, AFTER SPECIFIC NEGOTIATION, THAT THE AMOUNT OF THE PERFORMANCE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE CIRCUMSTANCES, IS INTENDED TO CONSTITUTE A FIXED AMOUNT OF LIQUIDATED DAMAGES, AND DOES NOT CONSTITUTE A PENALTY.

B.     Should Seller default in its obligations hereunder in any material respect prior to Closing, including but not limited to, a failure to be present at the designated time for the Closing hereof, Buyer's sole remedy shall be [***]. BUYER AND SELLER HEREBY ACKNOWLEDGE THAT THE EXTENT OF ACTUAL DAMAGES WHICH BUYER WOULD SUFFER AS A RESULT OF SELLER'S DEFAULT WOULD BE EXTREMELY DIFFICULT TO ASCERTAIN AND HAVE AGREED, AFTER SPECIFIC NEGOTIATION, THAT [***] IS A FAIR AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE CIRCUMSTANCES, IS INTENDED TO CONSTITUTE A FIXED AMOUNT OF LIQUIDATED DAMAGES, AND DOES NOT CONSTITUTE A PENALTY.

C.     In the event either party is in default in any material respect of any provision of this Agreement after Closing, the non-defaulting party, as a condition precedent to its remedies, must give the defaulting party written notice of the default in strict accordance with the notice requirements of this Agreement.  The defaulting party shall have thirty (30) Business Days from receipt of such notice to commence curing the default and shall thereafter diligently pursue the completion thereof, but in no event shall such cure period extend beyond ninety (90) days, unless a longer period is mutually agreed by the parties.  If the default is timely cured, this Agreement shall continue in full force and effect.  If the default is not timely cured, the non-defaulting party may pursue its applicable remedies set forth in the following Paragraphs 19.D. and 19.E.

D.     If Buyer fails to comply with any of the material provisions of this Agreement after Closing and fails to cure the same within the applicable cure periods, Seller may, upon the first such occurrence, elect to terminate the Primary Term (including any Extended Primary Term) of any or all of the Leases assigned to Buyer hereunder that are directly related to, or are the subject matter of, Buyer's material uncured default.  Any such election to terminate by Seller shall be made no later than thirty (30) days following the expiration of the applicable cure period.  If Buyer thereafter again fails to comply with any of the material provisions of this Agreement and fails to cure the same within the applicable cure periods, Seller may elect, no later than thirty (30) days following the expiration of the applicable cure period, to terminate the Primary Term (including any Extended Primary Term) of any or all of the Leases assigned to Buyer hereunder that are directly related to, or are the subject matter of, Buyer's material uncured default, and, in the event Buyer's uncured defaults (on a cumulative basis) have given rise to claims in excess of Fifty Thousand  Dollars ($50,000) and/or have resulted from Buyer's failure to comply with the provisions of Paragraphs 6., 9.A., 9. D., 9.F., 9.H., 9.J., 9.K., 9.L., 9.M., 10.G., 20., 21., or 22. of this Agreement, Seller may elect, no later than thirty (30) days following the expiration of the applicable cure period, to terminate this Agreement and/or, at Seller's option, immediately terminate the Primary Term (including any Extended Primary Term) of any or all other Leases assigned to Buyer hereunder.  Notwithstanding any such termination, Seller shall not have the right to unilaterally terminate any Secondary Term Assignment which Buyer has earned under the provisions of this Agreement. In exercising any such election to terminate, Seller shall not waive, or otherwise be precluded from exercising, any other rights or remedies, at law or in equity, which it may have for the breach of the Agreement by Buyer or for Buyer's failure to perform this Agreement in whole or in part.

 

E.     If Seller fails to comply with any of the material provisions of this Agreement after Closing, and fails to cure the same within the applicable cure periods, Buyer may pursue any and all rights or remedies, at law or in equity, which it may have for the breach of the Agreement by Seller or for Seller's failure to perform this Agreement in whole or in part, including specific performance of this Agreement as it relates to delivery of any Assignment, Extension of Primary Term Assignment, or Secondary Term Assignment without the necessity of proving irreparable harm.

This Agreement is personal in nature.  Neither this Agreement, the Leases, nor any interest in the Property shall be assigned, conveyed, transferred, or otherwise disposed of by Buyer in any manner (collectively, a "Transfer"), in whole or in part, without the express written consent of Seller, which consent may be withheld by Seller for any cause, or for no cause, provided however, Seller specifically acknowledges that Buyer may, without Seller's consent, assign this Agreement once to any entity into or with which Buyer may be merged, consolidated or reorganized or to any Affiliate of Buyer (a “Permitted Transfer”).  Seller acknowledges that one or more of the members comprising Buyer (“Buyer Members”) are publicly traded entities as of the date of this Agreement, and, subject to the provisions of Paragraph 21. below, that any sale, assignment or other transfer of the stock of Buyer Members by a shareholder(s) shall not be deemed an assignment of this Agreement by operation of law or otherwise.  Should consent to any Transfer be given, or if a Permitted Transfer should occur, no further Transfer shall be made without further written consent from Seller, which consent may also be withheld by Seller for any cause, or for no cause. Any Transfer permitted hereunder shall expressly reference and be made subject to this Agreement, including the Transfer restrictions in this paragraph. Buyer shall keep the Property free and clear of any and all liens of any nature, provided, however, and notwithstanding the foregoing, Buyer may mortgage, pledge, hypothecate or in any manner encumber this Agreement or the Property to fund the cost of any wells or Buyer's other activities with respect to the Property, but any such mortgage, pledge, hypothecation or encumbrance shall expressly reference and be made expressly subject to this Agreement, and shall be made expressly subordinate and expressly subject to Seller's rights under the terms of this Agreement. Any Transfer, mortgage, pledge, hypothecations, or other encumbrance made or created in violation of the provisions of this Paragraph 20. shall be null and void.

For the purposes of this Paragraph 21, a "change of control" of Buyer, or of an Affiliate transferee or other transferee of Buyer, shall mean a transaction or series of related transactions within a six-month period which result in the security holders of such entity immediately prior to such transaction or series or related transaction no longer holding, directly or indirectly, more than 50% of the voting securities of the entity immediately following such transaction or series of related transactions.

 

22.   [***]

Any notice, request, waiver, demand or consent required or permitted to be given hereunder shall be in writing and delivered by U.S. mail or courier service, addressed to a party at the below addresses. The delivery date of such shall be the date the same is deposited in an official United States Post Office, postage prepaid, certified or registered mail, return receipt requested, or the date delivered by such courier service with the service fee prepaid.

 

SELLER:	BUYER:
Berexco LLC	Condor Energy Technology LLC
2020 N. Bramblewood	4125 Blackhawk Plaza Circle, Suite 201
Wichita, Kansas  67206	Danville, California 94506
Attn:  Mr. Adam E. Beren	Attn:   Mr. Frank Ingriselli
With copy to:  Mr. Charles Spradlin	Facsimile: 925 ###-###-####
Facsimile:   ###-###-####

 

A.    Time shall be of the essence of this Agreement.  This Agreement states the entire agreement between the parties, superceding any and all prior communications or agreements between the parties with respect to the subject matter contained herein, and may be supplemented, altered, amended, modified or revoked only by a writing signed by both parties. Should any conflict arise between the terms and conditions of any prior communication or agreement between the parties hereto, oral or written, and this Agreement, then, in such event, this Agreement shall control.  No amendment, modification, supplement or waiver of the terms of this Agreement shall be binding unless executed in writing by both parties hereto.

B.     Seller and Buyer hereby agree from time to time after the Closing, to execute, acknowledge and deliver all such other documents, instruments, or forms as may reasonably be required in connection with the terms and provisions of this Agreement, and to perform and take such actions as may be necessary or appropriate in connection with the performance of the transactions which are contemplated by this Agreement.

C.     The indemnities, representations, warranties and agreements contained in this Agreement and in any certificate or other instrument delivered by or on behalf of either party pursuant to this Agreement shall survive the Closing.

D.     There shall be no press release or public communication by either party concerning this Agreement and/or the transaction contemplated hereby except with the express written consent of the other party, including the express written consent of the other party of the use of such party's identity or any characterization or material information concerning such party to be included in such press release or public communication.  The provisions of this Paragraph 24.D. shall not prevent, in the absence of such consent, a public disclosure or communication which the party making such disclosure or communication is required to make pursuant to Applicable Law or regulation; provided, however, in such event the disclosing party shall not reveal the identity of the other party unless specifically required by law or regulation to do so, and shall limit any other disclosure concerning the other party to only such information as is required by law or regulation to be disclosed. After the Closing Date, Buyer shall have the right to publicly disclose any information (via press releases and other announcements) related to its activities on the Property, including, without limitation, well activity, including drilling locations, IP rates, logs, production data, reserve reports, etc., provided that no such general activity disclosures shall name or identify Seller, without Seller’s prior written consent.

E.     The paragraph headings used in this Agreement are for reference and guidance purposes only and shall have no significance in, and do not affect in any way, the meaning or interpretation of this Agreement.

 

F.     If any term or other provision of this Agreement is judicially determined to be invalid, illegal, or incapable of being enforced under any rule of law, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substances of the transaction contemplated hereby are not affected in a materially adverse manner with respect to either party.

The below listed Exhibits are referred to in this Agreement, are incorporated into this Agreement by reference, and constitute a part of this Agreement.  Both Buyer and Seller have received a full and complete set of Exhibits as of the execution date of this Agreement.

 

26.   CERTAIN DEFINED TERMS:

 

In addition to such terms as are defined in the preamble to this Agreement and in Paragraph 26. above, the following terms are used in this Agreement as defined in the Paragraphs set forth below opposite such terms:

 

 

IN WITNESS HEREOF, the parties hereto have entered into and executed this Agreement as of the date first above written.

LEASES

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