EXHIBIT 10.62
AGREEMENT
FOR
PURCHASE AND SALE OF ASSETS
BETWEEN
QUANTUM ENERGY, L.L.C.
AND
ROCKY MOUNTAIN GAS, INC.
DATED AS OF
JANUARY 3, 2000
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TABLE OF CONTENTS
BACKGROUND..................................................................95
ARTICLE I
PURCHASE AND SALE OF ASSETS............................................95
1.1 Transfer of Certain Assets....................................95
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1.2 Payment for Purchase..........................................95
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1.3 Payment of Recording and Filing Fees..........................97
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1.4 Purchase Price Adjustment.....................................97
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ARTICLE II
BUYER'S DUE DILIGENCE..................................................98
2.1 Due Diligence Period..........................................98
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2.2 Title.........................................................98
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2.3 Inspection of the Acquired Assets.............................98
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ARTICLE III
THE CLOSING............................................................98
3.1 Closing Date..................................................98
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3.2 Deliveries by Seller..........................................98
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3.3 Deliveries by Buyer...........................................99
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER..............................102
4.1 Organization and Qualification...............................102
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4.2 Authority to Transfer........................................102
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4.3 Title to Acquired Assets.....................................102
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4.4 Agreement Not in Breach of Other Instruments.................102
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER...............................102
5.1 Organization and Qualifications..............................102
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5.2 Authority to Purchase........................................103
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ARTICLE VI
TERMINATION...........................................................103
6.1 Termination..................................................103
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ARTICLE VII
GENERAL PROVISIONS....................................................103
7.1 Notices......................................................103
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7.2 Survival of Representations, Warranties,
Covenants and Agreements ....................................104
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7.3 Further Assurances...........................................104
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7.4 Entire Agreement.............................................104
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7.5 Binding Upon Heirs and Successors............................105
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7.6 Signatures in a Representative Capacity......................105
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7.7 Governing Law................................................105
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7.8 Severability.................................................105
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7.9 Expenses.....................................................105
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7.10 Counterparts.................................................105
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SCHEDULE 1.1........................................................Not Filed
SCHEDULE 3.4(C).....................................................Not Filed
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AGREEMENT FOR
PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS (this "Agreement") is
made and entered into effective as of January 3, 2000, by and between QUANTUM
ENERGY, L.L.C., an Oklahoma limited liability company ("Seller"), and ROCKY
MOUNTAIN GAS, INC., a Wyoming Corporation ("Buyer").
BACKGROUND
WHEREAS, Seller is engaged in the acquisition, exploration and
production of coal bed methane gas located in the Powder River Basin in Montana;
and
WHEREAS, Seller desires to transfer to Buyer, and Buyer desires to
acquire from Seller, an undivided fifty percent (50%) working interest and forty
percent (40%) net revenue interest in those certain coal bed methane leases,
properties and rights of Seller described herein, and on the terms and
conditions outlined below.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Transfer of Certain Assets. Subject to the terms and conditions
hereof, Seller hereby sells, conveys, transfers, assigns and delivers to Buyer,
and Buyer purchases, acquires and accepts from Seller, an undivided fifty
percent (50%) working interest and forty percent (40%) net revenue interest in
those certain coal bed methane leases of Seller listed in Schedule 1.1 hereto
(the "Acquired Assets"). The Acquired Assets shall be acquired by Buyer free and
clear of all mortgages, pledges, liens, charges, security interests and
encumbrances.
1.2 Payment for Purchase. As consideration for the Acquired Assets,
Buyer will pay a purchase price of Five Million and Five Hundred Thousand
Dollars ($5,500,000.00) (the "Purchase Price"), increased or decreased, as the
case may be, by the Purchase Price Adjustment determined in accordance with
Section 1.4. The purchase price shall be paid as follows:
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(a) Buyer shall pay $5,500,000.00, as adjusted by Section 1.4, for
an undivided fifty percent (50%) working interest and forty
percent (40%) net revenue interest in the Acquired Assets as
provided herein. Buyer has delivered into escrow pursuant to
the Letter of Intent, the sum of $160,000.00 with the First
Interstate Bank of Casper, Wyoming ("Escrow Agent").
(b) Buyer shall pay at Closing to Seller the sum of $3,200,000.00
in certified funds by wire transfer in accordance with
instructions from Seller representing 29% of the undivided 50%
of the working interest in the Acquired Assets.
(c) Buyer shall pay to Seller, or use to drill, construct
infrastructure or the acquisition of additional acreage on
behalf of Seller, in Seller's sole discretion, the sum of
$1,000,000.00 on or before may 1, 2000. In the event that
Buyer fails to pay or use for the benefit of Seller, in the
Seller's sole discretion, the sum of $1,000,000.00 on or
before May 1, 2000, then Buyer shall assign 9% of its
undivided 50% working interest in the Acquired Assets to
Seller.
(d) Buyer shall pay to Seller, or use to drill, construct
infrastructure or the acquisition of additional acreage on
behalf of Seller, in Seller's sole discretion, the sum of
$1,300,000.00 on or before December 31, 2000. In the event
that Buyer fails to pay or use for the benefit of Seller, in
Seller's sole discretion, the sum of $1,300,000.00 on or
before December 31, 2000, then Buyer shall assign 12% of its
undivided 50% working interest in the Acquired Assets to
Seller. At the sole option of Seller, Buyer may pay $1,300,000
in cash, or provide services of equivalent value to drill
wells, and in the latter event, the Seller would receive
$1,300,000 in revenues from all of the net revenues from the
wells so drilled, at which point in time the Buyer would then
own a 50% working interest (40% net revenue interest in such
wells.
(e) Buyer shall spend the sum of $2,500,000.00 to be used to drill
and complete a minimum of 25 wells on the Acquired Assets
between January 1, 2000 and November 30, 2000, subject to
force majeure. Buyer and Seller shall each own and undivided
50% interest in the wells drilled subject to reduction as
provided herein. In the event that the costs to drill and
complete a minimum of 25 wells exceeds $2,500,000.00, the
Buyer and Seller agree that they shall each pay fifty percent
(50%) of the actual costs in excess of $2,500,000.00 to drill
and complete the 25 wells.
In the event that Buyer shall fail to spend the total sum of
$2,500,000.00 to drill and complete the wells on or before
November 30, 2000; and in the event that on or before November
30, 2000, Quantum or its affiliate spends part or all of the
sum of $2,500,000.00 to drill and complete wells on the
Acquired Assets, Buyer shall have the right to acquire its pro
rata share of the working interest in
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the wells drilled by Quantum or its affiliate by paying the
sum of $2,500,000.00 plus the cost of funds incurred by
Quantum or its affiliate to drill and complete the wells. In
additions, Quantum or its affiliate shall receive 60% of the
pro rata net revenues from the wells drilled with the
$2,500,000.00 for a period of two (2) years from the date
Buyer pays the $2,500,000.00 plus Quantum's cost of funds.
After the two year period has expired, Buyer shall be entitled
to its pro rata share of the net revenue from the wells based
on this Agreement. This right to acquire the interest in the
wells shall expire on November 30, 2002. Prior to the time
that buyer exercises its right and purchases its pro rata
share of the working interest, Quantum or its affiliate shall
be entitled to 100% of the revenue from the wells.
In the event that Quantum or its affiliate pays in excess of
$2,500,000.00 prior to November 30, 2000 or pays 100% of the
cost of any well(s) after November 30, 2000; Buyer shall
back-in to its pro rata share of the working interest in the
well(s) after Seller has recovered its costs in the wells plus
300%. In the event, that Rocky Mountain Gas spends funds on a
project and Quantum does not elect to match those funds,
Quantum shall back-in to its 50% interest in the project after
Rocky Mountain Gas has recovered its costs in the project plus
300%.
1.3 Payment of Recording and Filing Fees. Buyer shall pay all
Montana recording and filing fees, if any, due as a result of the transactions
contemplated by this Agreement.
1.4 Purchase Price Adjustment. At Closing, the Purchase Price will
be adjusted by increasing or decreasing the amount thereof pursuant to the
following provisions utilizing the procedures and methodology set forth herein:
(a) On the net acres in excess of 185,000 listed in Schedule 1.1,
Buyer shall have the option to pay to Seller $59.46 per acre
for a fifty percent (50%) working interest and forty percent
(40%) net revenue interest in the acreage. This sum shall be
$427,160.64, and shall be paid to Seller or spent on Seller's
behalf, in Seller's sole discretion, on or before May 1, 2000.
(b) On any lease acres acquired by Buyer prior to Closing, Seller
shall have a right of first refusal to pay to Buyer fifty
percent (50%) of the actual land acquisition costs plus fifty
percent (50%) of all professional fees to acquire the leases,
for an undivided fifty percent (50%) working interest in the
leases. This payment shall be made on or before May 1, 2000.
(c) Seller and Buyer shall agree to pay their pro rat share of any
rental fees on the Acquired Assets on or before the due date
of the lease rental. In the event that one party fails to pay
its pro rata share of the lease rentals, then the other party
may pay the defaulting party's pro rata share of the delay
rentals. The defaulting
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party must pay its pro rata share of the lease rentals plus a
300% penalty in order to continue to own its pro rata share of
the lease. This payment must be made within twelve (12) months
of the payment of the lease rental by the non- defaulting
party.
(d) Buyer and Seller mutually agree to devise a budget directed
toward acquisition of leases in the AMI whereby costs are
shared equally on a 50/50 basis.
ARTICLE II
BUYER'S DUE DILIGENCE
2.1 Due Diligence Period. Buyer shall have a period which ended at
5:00 p.m. Mountain Standard Time of November 12, 1999 (the "Diligence Period")
in which to complete its review of the Acquired Assets.
2.2 Title. Buyer shall have reviewed all information required in
its sole discretion and approved, within the time period, the documentation
supporting the legal ownership of the coal bed methane leases in Quantum Energy,
L.L.C. as set out in Schedule 1.1.
2.3 Inspection of the Acquired Assets. During the Due Diligence
Period and up to the date of Closing, buyer may independently inspect or cause
to be inspected by other qualified persons, at Buyer's sole cost and expense,
all aspects of the Acquired Assets which Buyer determines in its sole discretion
are relevant or material to Buyer's decision to purchase an undivided fifty
percent (50%) working interest in the Acquired Assets.
ARTICLE III
THE CLOSING
3.1 Closing Date. The transfer of an undivided fifty percent (50%)
of the Acquired Assets by Seller to Buyer and all other transactions
contemplated by this Agreement (the "Closing") shall take place at 1:00 p.m.
Pacific Standard time effective on Monday, January 3, 2000, as the parties shall
agree, or at such other time or other place as Seller and Buyer may mutually
agree (the "Closing Date").
3.2 Deliveries by Seller. At the Closing, Seller shall deliver the
following to Buyer, the receipt of which shall be a condition to Closing:
(a) The duly executed Assignments in recordable form transferring
an undivided fifty percent (50%) working interest and forty
percent (40%) net revenue interest in the Acquired Assets to
Buyer.
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(b) Articles of Organization and Operating Agreement of Powder
River Gas, L.L.C.
(c) Such other documents as are reasonably requested by Buyer or
its counsel.
3.3 Deliveries by Buyer. At the Closing, Buyer shall deliver the
following, the receipt of which shall be a condition to Closing:
(a) The sum of $3,200,000.00 in certified funds to be wire
transferred to Seller's bank account as directed by Seller on
or before Closing.
(b) The duly executed Assignments in recordable form transferring
an undivided 9% and 12% interest in the Acquired Assets to
Seller. These assignments shall be held by Seller. In the
event that Buyer fails to make the payments under Section 1.2
or 1.2(a) then Seller shall be entitled to file the
appropriate Assignments of Record.
(c) Such other documents as are reasonably requested by Seller or
its counsel.
3.4 Conditions to Closing.
(a) Seller and Buyer shall commit to drill and complete an
additional 100 wells between January 1, 2000, and December 31,
2000, subject to force majeure. Each party shall pay its pro
rata share of the actual costs to drill and complete the 100
wells during the year 2000. In the event that either Seller or
Buyer shall elect not to drill a well (s) under this paragraph
(a) during the year 2000, the party who elects to drill the
well(s) shall recover its costs to drill and complete the
well(s) plus a 300% penalty prior to the nonconsenting party
backing in for its pro rata share of the working interest in
the well(s). This penalty provision shall also apply to all
future years between the parties.
(b) Seller has drilled three (3) wells on the Acquired Assets.
Buyer shall have the option, which must be exercised by
January 3, 2000, or it shall lapse, to participate as a
working interest owner in the three (3) wells drilled by
Seller on the Acquired Assets prior to Closing as set out on
Schedule 3.4(c) hereof. With respect to the wells drilled
prior to the Closing of this Agreement, Buyer agrees to pay
fifty percent (50%) of the cost to drill and complete the
wells for its 50% working interest in the wells. All
information with respect to these wells will remain
confidential by Buyer. Buyer shall pay its 50% of the costs to
drill and complete the wells or agree to provide services
equal to the obligation under this paragraph, in the Seller's
sole discretion at Closing.
(c) The parties shall form a joint operating company to develop
the Acquired Assets and shall negotiate in good faith the
terms and conditions of the joint operating
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company. The parties have agreed on the following issues with
respect to the joint operating company:
(i) The joint operating company shall be a limited
liability company formed in the state of Wyoming and
qualified to do business in the state of Montana. The
legal name of the limited liability company shall be
Powder River Gas, L.L.C. Seller and Buyer or their
affiliates shall each own 50% of the membership units
in Powder River Gas, L.L.C.
(ii) The Managers shall be as follows:
Paul Mysyk
Harrison Schumacher
Pete Schoonmaker
Keith Larsen
Additionally, Roger TeSelle, Jim Factor, Mark Larsen
and John L. Larsen shall be on the management
committee. There shall be required to be at least two
(2) members from each membership group present at a
meeting to constitute a quorum.
(iii) Buyer and Seller shall each contribute $100,000.00 as
its original capital contribution to Powder River
Gas, L.L.C. The Management Committee shall agree on
an annual budget to operate Powder River Gas, L.L.C.
If additional capital is required, each party shall
contribute its 50% share of the capital. The
Management Committee shall select a bank to hold the
funds. Two (2) signatures, one from each membership
group, shall be required on all bank documents,
including checks.
(iv) The attorney and accountant for the parties shall
investigate and report to the Management Committee on
the creation of an accounting system for Powder River
Gas, L.L.C. There will be an annual audit performed
on Powder River Gas, L.L.C. by an outside independent
accounting firm.
(v) The Management Committee has authorized Pete
Schoonmaker and Jim Factor to obtain office space and
office equipment, not to exceed $5,000, in Sheridan,
Wyoming. In addition, the Management Committee
authorized the hiring of a receptionist and
accounting clerk.
(vi) The Management Committee authorized hiring the
following as independent contractors on the following
basis:
Pete Schoonmaker $400/per day
Jim Factor $400/per day
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Quantum and Rocky Mountain Gas will pay all
out-of-pocket expenses plus an automobile for Jim and
Pete respectively. Jim and Pete shall keep track of
their time spent on Powder River Gas, L.L.C.
projects.
(vii) The Management Committee shall develop a drilling
program with respect to the Acquired Assets to
develop the acreage. U.S. Energy Corp./Crested Corp.,
d/b/a USECC shall be entitled to drill the first
twenty-five (25) wells on the leases based on a
competitive drilling rate in the surrounding area.
The Management Committee shall review the results and
the costs and then shall negotiate competitive
drilling contracts for future drilling on the leases.
USECC shall be allowed to submit bids for the
drilling of the leases. Prior to the start of
drilling of the leases, the Scientific Committee,
appointed by the Management Committee, shall make
recommendations on the areas to be drilled first,
taking into consideration the marketing of gas
through existing and proposed pipelines.
The Scientific Committee shall report to the
Management Committee on the following:
* USA Well - Lipscomb Creek
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Review Burlington Railroad Acreage
* Pawnee Well
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Test water and gas
* Custer Forest #1 36-41-1
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Test Coals for water and gas
(viii) The Management Committee shall review all drilling
contracts to determine that they are competitive.
The Management Committee shall investigate whether to
build or contract out the building of the gathering
system.
The Management Committee will begin negotiating with
pipeline companies to transport the coal bed methane
gas.
(ix) Roger TeSelle has defined the AMI, which does include
the two (2) Indian Reservations, Tongue River, Custer
Forest and the Northern AMI.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller represents and warrants to Buyer as follows:
4.1 Organization and Qualification. Seller is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Oklahoma, and has all requisite power to own its properties and to
carry on its business as now owned and operated by Seller. Seller is qualified
to do business, is in good standing, and has all appropriate or necessary
licenses in each jurisdiction or place in which the nature of its business or
the character of its properties requires such registration.
4.2 Authority to Transfer. Seller has the right, power, legal
capacity and authority to enter into this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby, and no
approvals, authorizations or consents of any person other than Seller are
necessary in connection with Seller's execution, performance and delivery of
this Agreement. This Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting
creditor's rights generally.
4.3 Title to Acquired Assets. Seller has title to all of the
Acquired Assets and holds a 100% working interest and an 80% net revenue
interest in the Acquired Assets, except for 2223 acres in the Tongue River that
have a 79% net revenue interest.
4.4 Agreement Not in Breach of Other Instruments. The execution
and delivery of this Agreement and the other documents to be executed and
delivered in connection herewith and the consummation of the transactions
contemplated hereby and thereby will not result in or constitute any of the
following: (a) a default or event that, with the giving of notice or lapse of
time, or both, would be a default, breach or violation of the certificate of
limited liability company or operating agreement of Seller or any agreement,
instrument or arrangement to which Seller is a party or by which Seller or any
assets or property of Seller is bound; (b) an event that would permit any party
to terminate any contract or other agreement; or (c) the creation or imposition
of any lien, charge, or encumbrance on any of the Acquired Assets.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Wyoming, and has all corporate
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power to own its properties and to carry on its business as now owned and
operated by Buyer. Buyer is qualified to do business, is in good standing, and
has all appropriate or necessary licenses in each jurisdiction or place in which
the nature of its business or the character of its properties requires such
registration.
5.2 Authority to Purchase. Buyer has the right, power, legal
capacity and authority to enter into this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby, and no
approvals, authorizations or consents of any person other than Buyer is
necessary in connection with Buyer's execution, performance and delivery of this
Agreement. This Agreement constitutes the legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws or equitable principles relating to or limiting creditor's
rights generally.
ARTICLE VI
TERMINATION
6.1 Termination. This Agreement may only be terminated by the
mutual consent of both Seller and Buyer. In the event that Buyer fails to close
on the date of Closing, Buyer shall forfeit the funds held in escrow and the
Escrow Agent shall deliver the $160,000.00 held in escrow to the Seller. In the
event that Seller fails to close on the date of Closing, Buyer shall be entitled
to the return of its funds held in escrow and no further penalty or damages. The
$160,000.00 is liquidated damages and shall represent the only damages
recoverable by Seller in the event Buyer fails to close.
ARTICLE VII
GENERAL PROVISIONS
7.1 Notices. All notices and other communications hereunder
("Notices") shall be in writing and shall be deemed given upon personal
delivery, facsimile transmission (with written or facsimile confirmation of
receipt), or delivery by a reputable overnight commercial delivery service
(delivery, postage or freight charges prepaid), or on the fourth day following
deposit in the United States mail (if sent by registered or certified mail,
return receipt requested, delivery, postage or freight charges prepaid),
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like Notice):
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If to Seller: QUANTUM ENERGY, L.L.C.
4481 Topanga Canyon Boulevard
Suite 202
Woodland Hills, CA 91364
Fax: (818) 704-9599
Attn: Paul Mysyk
Harrison Schumacher
with a copy to: Robert O. O'Bannon, Esq.
Phillips McFall McCaffrey McVay & Murrah, P.C.
Twelfth Floor
One Leadership Square
211 N. Robinson
Oklahoma City, OK 73102
Fax: (405) 235-4133
If to Buyer: ROCKY MOUNTAIN GAS, INC.
877 N. 8th West
Riverton, WY 82501
Fax: (307) 857-3050
Attn: John L. Larsen, Chairman
with a copy to: Mike Svilar, Esq.
ROCKY MOUNTAIN GAS, INC.
877 N. 8th West
Riverton, WY 82501
Fax: (307) 857-3050
7.2 Survival of Representations, Warranties, Covenants and
Agreements. Except as otherwise expressly provided herein, all representations,
warranties, covenants, and agreements of the parties contained in this Agreement
or in any schedule, document, certificate or other instrument delivered by or on
behalf of the parties pursuant to this Agreement, shall survive the Closing for
a period of one (1) year.
7.3 Further Assurances. The parities hereto agree to do such
further acts and to execute and deliver such additional agreements including the
Operating Agreement of Powder River Gas, L.L.C. and instruments as may be
required to consummate, evidence or confirm the transactions and agreements
contained in this Agreement.
7.4 Entire Agreement, Amendment, Waivers. This Agreement and any
exhibits delivered by the parties hereto contemporaneously herewith constitute
the entire agreement between the parties pertaining to the subject matter
contained herein and supersede all prior agreements, representations and
understandings of the parties hereto. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by all of the
parties hereto.
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7.5 Binding Upon Heirs and Successors. This Agreement shall be
binding upon and inure to the benefit of the respective successors, heirs,
assigns and personal representatives of the parties hereto.
7.6 Signatures in a Representative Capacity. Each party whose
signature is affixed hereto in a representative capacity represents and warrants
that he is authorized to execute this Agreement on behalf of and to bind the
entity on whose behalf his signature is affixed.
7.7 Governing Law. This Agreement shall be construed in accordance
with and be governed by the laws of the State of Montana.
7.8 Severability. In the event any provision of this Agreement
shall be held to be void, voidable or unenforceable, the remaining provisions
shall remain in full force and effect.
7.9 Expenses. Each party to this Agreement shall bear its own
expenses in connection with this Agreement and the transactions contemplated
hereby.
7.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed and delivered shall be an original,
and all of which when executed shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SELLER: QUANTUM ENERGY, L.L.C. an Oklahoma
limited liability company
By: /s/ Paul Mysyk
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Paul Mysyk, Managing Member
By: /s/ Harrison Schumacher
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Harrison Schumacher, Managing Member
BUYER: ROCKY MOUNTAIN GAS, INC.
By: /s/ Keith Larsen
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Keith Larsen, CEO
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