<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 8-KSB
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 31, 1997
COTTON VALLEY RESOURCES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Yukon Territory, Canada
(State or Other Jurisdiction of Incorporation)
0-28814 98-0164357
(Commission File Number) (I.R.S. Employer Identification Number)
8350 N. Central Expressway, Suite M2030
Dallas, Texas 75206
(Address of Principal Executive Offices) (Zip Code)
(214) 363-1968
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
================================================================================
<PAGE> 2
INFORMATION INCLUDED IN REPORT ON FORM 8-KSB
ITEM 5. ACQUISITION OR DISPOSITION OF ASSETS.
Effective June 30, 1997, Cotton Valley Resources Corporation (the
"Registrant") acquired Aspen Energy Corporation, a New Mexico corporation ("Old
Aspen"), by merger with a wholly-owned Nevada subsidiary corporation. The
acquisition closed on July 31, 1997 and has been accounted for as a purchase.
The purchase price for the acquisition consisted of $500,000 cash and short-
term notes and 2,511,317 shares of the Registrant's common stock, no par value,
of which 270,000 shares were returned to the Registrant by two Old Aspen
shareholders in settlement of notes payable to Old Aspen in the amount of
$425,000. The principal asset acquired was an interest in the Means (Queen
Sand) Unit in Andrews County, Texas. The acquisition also included an
interest, having less than $500,000 in value, in two wells in Utah, which have
been sold for $200,000, two wells in Latimer County, Oklahoma, one well in
Harrison County, Texas and several shallow wells in Gregg County, Texas.
On February 18, 1998, Leon A. Romero, the former president of Old Aspen,
was elected to the Registrant's Board of Directors to serve until the next
meeting of shareholders at which directors are elected or his sooner death,
resignation or removal.
-2-
<PAGE> 3
ITEM 7. ACQUISITION OR DISPOSITION OF ASSETS.
(a)(1) Financial statements of business acquired:
(i) Balance Sheets.
(ii) Statements of Operations and Retained
Earnings.
(iii) Statements of Cash Flows.
(iv) Notes to Financial Statements.
(b)(1) Pro Forma financial information:
(i) Unaudited Pro Forma Combined Statement of
Operations.
(ii) Notes to Unaudited Pro Forma Combined
Statement of Operations.
(c) Exhibits
The following is a list of exhibits filed as part of this Current Report
on Form 8-KSB:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated June 30, 1997, among Cotton Valley Resources
Corporation, Cotton Valley Operating, Inc., Aspen Energy Corporation, Leon A. Romero,
George W. Peel, Albert Sena and Dorothy Carter. Exhibits and schedules have been omitted,
but are available upon request to the Registrant.
9.1 Voting Agreement, dated January 30, 1997, among Eugene A. Soltero, James E. Hogue, Leon A.
Romero, George W. Peel, Alberta Sena and Dorothy Carter.
</TABLE>
-3-
<PAGE> 4
COTTON VALLEY RESOURCES CORPORATION AND ASPEN ENERGY CORPORATION
The following unaudited pro forma combined statement of operations is derived
from the financial statements of Cotton Valley Resources Corporation (the
"Company") and Aspen Energy Corporation. In July 1997, the Company acquired
100% of the common stock of Aspen for a purchase price consisting of $200,000 in
cash, $300,000 non-interest bearing six month notes and 2,241,000 shares of the
Company's common stock (net of 270,000 shares transferred back to the Company to
retire $425,000 of loans from Aspen to the Aspen stockholders). The Unaudited
Pro Forma Income Statement for the year ended June 30, 1997 has been prepared
assuming the acquisition had been consummated as of the beginning of the fiscal
year.
The unaudited combined pro forma financial statements should be read in
conjunction with the notes thereto and with the financial statements of the
Company as included in its Form 10-KSB and the financial statements of Aspen
included herein.
The unaudited combined pro forma financial statements are not indicative of the
financial position or results of operations of the Company which would actually
have occurred if the acquisition of Aspen had occurred at the date presented or
which may be obtained in the future. In addition, future results may vary
significantly from the results reflected in such statements due to normal oil
and gas production declines, changes in prices paid for oil and gas, future
acquisitions, drilling activity and other factors.
F-1
<PAGE> 5
COTTON VALLEY RESOURCES CORPORATION AND ASPEN ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COTTON VALLEY ASPEN
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
JUNE 30, 1997 DECEMBER 31, 1996 ADJUSTMENTS COMBINED
------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OIL AND GAS SALES $ 272,243 $ 368,054 $ 46,518 (1) $ 686,815
COSTS AND EXPENSES:
Oil and gas production costs 252,272 369,147 20,839 (1) 642,258
Depletion 27,000 190,068 (1,000)(2) 216,068
General and administrative 2,825,678 498,151 48,377 (1) 3,372,206
Interest 93,171 15,000 (3) 108,171
------------ ------------ ------------ ------------
Total costs and expenses 3,198,121 1,057,366 83,216 4,338,703
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (2,925,878) (689,312) (36,698) (3,651,888)
INCOME TAX BENEFIT 919,000 237,143 12,944 (4) 1,169,087
------------ ------------ ------------ ------------
NET LOSS $ (2,006,878) $ (452,169) $ (23,754) $ (2,482,801)
============ ============ ============ ============
NET LOSS PER SHARE:
Basic and diluted $ (0.20) $ (0.01) $ (0.21)
============ ============ ============
WEIGHTED AVERAGE SHARES 9,901,000 2,241,000 (5) 12,142,000
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
F-2
<PAGE> 6
COTTON VALLEY RESOURCES CORPORATION AND ASPEN ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(1) Adjustments to add Aspen's operations for the six months ended June 30,
1997, and deduct Aspen's operations for the six months ended June 30,
1996, to its operations for the year ended December 31, 1996. The
adjustment is necessary to record Aspen's operations for the year ended
June 30, 1997 as if Aspen had been acquired by Cotton Valley at the
beginning of that fiscal year.
(2) Adjustment to depletion expense to record the depletion expense as if
Aspen had been acquired on July 1, 1996.
(3) To record imputed interest expense on the $300,000 six month note
payable issued the sellers of Aspen.
(4) To record the effect of the pro forma adjustments on the income tax
benefit.
(5) To record the net shares issued in the acquisition as if they had been
issued on July 1, 1996.
F-3
<PAGE> 7
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Aspen Energy Corporation
Dallas, Texas
We have audited the accompanying balance sheets of Aspen Energy Corporation as
of December 31, 1996, and the related statements of operations and retained
earnings and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aspen Energy Corporation as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Dallas, Texas
January 30, 1998
F-4
<PAGE> 8
ASPEN ENERGY CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
JUNE 30, DECEMBER 31,
----------- -----------
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash (including $376,677 in interest-bearing accounts at
December 31, 1996) $ 22,990 $ 407,566
Accounts receivable 42,330 40,680
----------- -----------
Total current assets 65,320 448,246
PROVED OIL AND GAS PROPERTIES (full cost method) 1,300,419 1,216,032
Less accumulated depletion (337,765) (242,765)
----------- -----------
Net oil and gas property 962,654 973,267
OTHER ASSETS 52,853 52,003
----------- -----------
Total assets $ 1,080,827 $ 1,473,516
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 54,708 $ 56,490
Income tax payable 237,000 314,000
----------- -----------
Total current liabilities 291,708 370,490
DEFERRED INCOME TAX LIABILITY 289,014 320,514
PRODUCTION PAYMENT LIABILITY 62,791 65,800
STOCKHOLDERS' EQUITY:
Common stock, no par value, 50,000 shares authorized;
50,000 shares issued and outstanding 1,000 1,000
Loans receivable from related parties (425,000) (345,000)
Retained earnings 861,314 1,060,712
----------- -----------
Total stockholders' equity 437,314 716,712
----------- -----------
Total liabilities and stockholders' equity $ 1,080,827 $ 1,473,516
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE> 9
ASPEN ENERGY CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
(Unaudited)
----------- YEAR ENDED
SIX MONTHS ENDED JUNE 30, DECEMBER 31,
------------------------------ -----------
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE -Oil and gas sales $ 221,408 $ 174,890 $ 368,054
COSTS AND EXPENSES:
Production expenses 158,975 138,136 369,147
Depletion and depreciation 95,000 89,800 190,068
General and administrative 276,545 237,610 506,700
----------- ----------- -----------
Total costs and expenses 530,520 465,546 1,065,915
OTHER INCOME (EXPENSE) -
Interest income (expense), net 1,214 10,656 8,549
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (307,898) (280,000) (689,312)
INCOME TAX BENEFIT 108,500 98,000 237,143
----------- ----------- -----------
NET LOSS (199,398) (182,000) (452,169)
RETAINED EARNINGS, beginning of year 1,060,712 1,512,881 1,512,881
----------- ----------- -----------
RETAINED EARNINGS, end of period $ 861,314 $ 1,330,881 $ 1,060,712
=========== =========== ===========
NET LOSS PER SHARE $ (3.99) $ (3.64) $ (9.04)
=========== =========== ===========
WEIGHTED AVERAGE SHARES 50,000 50,000 50,000
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
<PAGE> 10
ASPEN ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
----------- YEAR ENDED
SIX MONTHS ENDED JUNE 30, DECEMBER 31,
-------------------------- ---------
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(199,398) $(182,000) $(452,169)
Adjustments to reconcile to net cash used by
operating
activities:
Depletion and depreciation 95,000 89,800 190,068
Deferred tax benefit (31,500) (98,000) (237,143)
Changes in current assets and liabilities:
Accounts receivable (1,650) (11,522) 2,390
Other assets (850) (12,750) (18,321)
Accounts payable and accrued liabilities (1,782) -- (34,103)
Income tax payable (77,000) -- --
Other 7,000 (11,803) (39,187)
--------- --------- ---------
Net cash used by operating activities (210,180) (226,275) (588,465)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas properties -- -- 490,828
Collection of notes receivable -- 103,500 140,000
Loans to related parties (80,000) -- --
Additions to oil and gas properties (84,387) (180,670) (406,689)
--------- --------- ---------
Net cash provided (used) by investing activities (164,387) (77,170) 224,139
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of production payment liability (3,009) (4,700) (5,766)
--------- --------- ---------
NET DECREASE IN CASH (377,576) (308,145) (370,092)
CASH, BEGINNING OF THE PERIOD 407,566 777,658 777,658
--------- --------- ---------
CASH, END OF THE PERIOD $ 29,990 $ 469,513 $ 407,566
========= ========= =========
SUPPLEMENTAL INFORMATION -
Cash paid during the period for interest $ 2,600 $ 2,840 $ 5,800
========= ========= =========
Property financed with production payment liability $ -- $ 71,566 $ 71,566
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-7
<PAGE> 11
ASPEN ENERGY CORPORATION.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Aspen Energy Corporation (the "Company") is engaged in the acquisition,
operation and development of oil and gas properties, which are located
primarily in Texas, Oklahoma and Utah as of December 31, 1996.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Revenue Recognition
The Company recognizes revenue as oil or gas is produced and sold.
Oil and Gas Producing Operations
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition,
exploration, and development of oil and gas reserves, including directly
related overhead costs, are capitalized in the full cost pool. All
capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves, are amortized on the unit-of-production
method using estimates of proved reserves.
In addition, capitalized costs are subject to a "ceiling test", which
basically limits such costs to the aggregate of the estimated present
value, discounted at a 10% interest rate, of future net revenues from
proved reserves, based on current economic and operating conditions, plus
the lower of cost or fair market value of unproved properties.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and
proved reserves of oil and gas, in which case the gain or loss is
recognized in income. Abondonments of properties are accounted for as
adjustments of capitalized costs with no loss recognized.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due, if any, plus
net deferred taxes related primarily to differences between the bases of
assets and liabilities for financial and income tax reporting. Deferred
tax assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred tax assets
include recognition of operating losses that are available to offset future
taxable income and tax credits that are available to offset future income
taxes. Valuation allowances are recognized to limit recognition of
deferred tax assets where appropriate. Such allowances may be reversed
when circumstances provide evidence that the deferred tax assets will more
likely than not be realized.
Financial Investments
The Company's financial instruments are cash, accounts receivable and
payable and loans receivable from related parties. Management estimates
that the fair values of these financial instruments approximate their
carrying values due to their short-term nature.
F-8
<PAGE> 12
ASPEN ENERGY CORPORATION.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
Loss Per Share
Loss per share is computed based on the weighted average number of shares
outstanding during the period.
Use of Estimates and Certain Significant Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates. Significant assumptions are required in the
valuation of proved oil and gas reserves, which as described above may
affect the amount at which oil and gas properties are recorded. It is at
least reasonably possible those estimates could be revised in the near term
and those revisions could be material.
Unaudited Information
The balance sheet as of June 30, 1997 and the statements of operations for
the six month periods ended June 30, 1997 and 1996 were taken from the
Company's books and records without audit. However, in the opinion of
management, such information includes all adjustments which are necessary
to properly reflect the financial position of the Company as of June 30,
1997 and the results of its operations for the six months ended June 30,
1997 and 1996.
2. LOANS RECEIVABLE FROM RELATED PARTIES
The Company had loans receivable from stockholders for cash advances that
totaled $425,000 and $345,000 at June 30, 1997 and December 31, 1996,
respectively. The loans were unsecured, non-interest bearing and contained
no specific repayment terms. The loans were subsequently retired as
described in Note 6, and have been classified as a reduction of
stockholders' equity in the accompanying balance sheets.
3. PRODUCTION PAYMENT LIABILITY
The Company has a liability associated with the purchase of an oil and gas
property that requires payment to the creditor of 25% of the net revenue
earned from the property each month. The liability does not have a stated
interest rate. Therefore, interest was imputed at 10%. The balance at June
30, 1997 and December 31, 1996 is $62,791 and $65,800, respectively.
4. CONCENTRATION OF CREDIT RISK AND SALES REVENUE
The Company had the following concentrations in volume of oil and gas sales
revenue in 1996:
<TABLE>
<CAPTION>
Customer
--------
<S> <C>
A 43%
B 29%
C 22%
</TABLE>
Additionally, the three customers above accounted for a substantial
majority of accrued oil and gas sales as of December 31, 1996.
The Company periodically maintains balances in financial institutions in
excess of FDIC insurance limits. The Company had a balance in one
institution at December 31, 1996 that was $276,677 in excess of such limit.
F-9
<PAGE> 13
ASPEN ENERGY CORPORATION.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
5. INCOME TAXES
The Company's income tax benefit of $237,143 for the year ended December
31, 1996 was composed entirely of deferred taxes.
The Company's deferred tax liability of $320,514 at December 31, 1996 was
the result of different bases for book and tax purposes of the Company's
oil and gas properties.
6. SUBSEQUENT EVENT
In 1997, 100% of the Company's stock was sold to Cotton Valley Resources
Corporation. In connection with that transaction, the loans receivable
from related parties (Note 2) were retired.
7. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The following table sets forth certain information with respect to the oil
and gas producing activities of the Company:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------
1996
-----------
<S> <C>
Costs incurred in oil and gas producing activities:
Acquisition of proved properties $ 252,236
Development costs 226,019
-----------
Total costs incurred $ 478,255
===========
</TABLE>
The following table, based on information prepared by independent petroleum
engineers, summarizes changes in the estimates of the Company's net
interest in total proved reserves of crude oil and condensate and natural
gas, all of which are domestic reserves:
<TABLE>
<CAPTION>
Oil Gas
--- ---
(Barrels) (MCF)
---------- ----------
<S> <C> <C>
Balance, January 1, 1996 1,569,690 598,476
Production (9,690) (130,476)
---------- ----------
Balance, December 31, 1996 1,560,000 468,000
========== ==========
</TABLE>
All of the above reserves were classified as proved undeveloped and are
located in the continental United States. The Company has production on
the property, but intends to convert the property to a waterflood project,
which would entail conversion of the producing wells to injection wells.
The Company also has other, relatively minor, producing properties for
which reserve reports were not prepared. To develop the Company's reserves
will require a substantial investment of capital, which is currently not
available. Therefore, the Company will either have to raise additional
capital or sell interests in its property, which would reduce the Company's
net interest in its reserves.
F-10
<PAGE> 14
ASPEN ENERGY CORPORATION.
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 1996 is unaudited.)
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. The above estimated net interests in proved reserves are based
upon subjective engineering judgments and may be affected by the
limitations inherent in such estimation. The process of estimating
reserves is subject to continual revision as additional information becomes
available as a result of drilling, testing, reservoir studies and
production history, especially in connection with the Company as all the
reserves are proved undeveloped. There can be no assurance that such
estimates will not be materially revised in subsequent periods.
8. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED)
The standardized measure of discounted future net cash flows at December
31, 1996, relating to proved oil and gas reserves is set forth below. The
assumptions used to compute the standardized measure are those prescribed
by the Financial Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations of actual revenues to be
derived from those reserves nor their present worth. The limitations
inherent in the reserve quantity estimation process are equally applicable
to the standardized measure computations since these estimates are the
basis for the valuation process.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1996
-------------
<S> <C>
Future cash inflows $ 31,473,000
Future development and production costs (12,972,000)
-------------
Future net cash flows, before income tax 18,501,000
Future income taxes (6,475,000)
-------------
Future net cash flows 12,026,000
10% annual discount (4,089,000)
-------------
Standardized measure of discounted future net cash flows $ 7,937,000
=============
</TABLE>
Future net cash flows were computed using year-end prices and costs, and
year-end statutory tax rates (adjusted for permanent differences) that
relate to existing proved oil and gas reserves at year end. The following
are the principal sources of change in the standardized measure of
discounted future net cash flows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-------------
<S> <C>
Sale of oil and gas produced, net of production costs $ 1,000
Net changes in prices and production costs 2,317,000
Accretion of discount 603,000
Net change in income taxes (810,000)
Other changes (205,000)
-------------
Net change 1,906,000
Balance, beginning of year 6,031,000
-------------
Balance, end of year $ 7,937,000
=============
</TABLE>
F-11
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COTTON VALLEY RESOURCES CORPORATION
(Registrant)
By: /s/ Eugene A. Soltero
-----------------------------------------
EUGENE A. SOLTERO, Chairman of the Board
and Chief Executive Officer
Dated: February 25, 1998
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated June 30, 1997, among Cotton Valley Resources
Corporation, Cotton Valley Operating, Inc., Aspen Energy Corporation, Leon A. Romero,
George W. Peel, Albert Sena and Dorothy Carter. Exhibits and schedules have been omitted,
but are available upon request to the Registrant.
9.1 Voting Agreement, dated January 30, 1997, among Eugene A. Soltero, James E. Hogue, Leon A.
Romero, George W. Peel, Alberta Sena and Dorothy Carter.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is entered into as of
June 30, 1997 by and among Cotton Valley Resources Corporation, an Ontario
corporation ("Buyer"), Cotton Valley Operating, Inc., a Nevada corporation,
("Merger Sub"), Aspen Energy Corporation, a New Mexico corporation ("Aspen"),
Leon A. Romero ("Romero"), George W. Peel ("Peel"), Albert Sena ("Sena"), and
Dorothy Carter ("Carter") (Romero, Peel, Sena and Carter being hereinafter
collectively referred to as "Shareholders" and individually as "Shareholder").
RECITALS
A. The respective Board of Directors of Buyer, Merger Sub and Aspen have
approved and declared fair to and advisable and in the best interests of their
respective stockholders that Aspen merge (the "Merger") with and into Merger Sub
on the terms and subject to the conditions set forth herein; and
B. For United States federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section
368(a)(2)(D) of the United States Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER; CLOSING
1.01 The Merger.
1.01.01 The Merger. Subject to the terms and conditions of this Agreement,
and in accordance with the General Corporation Law of the State of Nevada (the
"NGCL") and the New Mexico Business Corporation Act ("NMBCA"), at the Effective
Time (as defined below), Aspen will be merged with and into Merger Sub, with
Merger Sub being the surviving corporation in the Merger and becoming a
wholly-owned subsidiary of Buyer, and the separate corporate existence of Aspen
shall cease (the Merger Sub, as the surviving corporation in the Merger being
herein referred to as the "Surviving Corporation").
1.02 Conversion of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of the Shareholders of any of the shares (the
"Shares") of common stock, no par value per share, of Aspen ("Aspen Common
Stock"), Buyer or Merger Sub;
(i) The Shares issued and outstanding immediately prior to the
Effective Time
AGREEMENT AND PLAN OF MERGER, Page 1
<PAGE> 2
shall be converted into the right to receive that portion of the
Purchase Price, as hereinafter defined, which portion will be
determined as provided in Section 1.05 hereof, and
(ii) Each share of common stock of the Merger Sub issued and
outstanding at the Effective Time shall remain one share of the common
stock of the Surviving Corporation.
1.03 Filing of Plans of Merger. At the Closing, the parties shall cause the
Merger to be consummated by filing a duly executed Certificate of Merger with
the Secretary of State of the State of Nevada, in such form as the parties
determine is required by and in accordance with the relevant provisions of the
NGCL and by filing a duly executed Certificate of Merger with the Secretary of
State of the State of New Mexico, in such form as the parties hereto determine
is required by and in accordance with the relevant provisions of the NMBCA (the
date and time of the second of such filings is referred to herein as the
"Effective Date" or "Effective Time").
1.04 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided under the NGCL and the NMBCA.
1.05 Consideration Purchase Price and Payment. The purchase price ("Purchase
Price") shall be:
1.05.01 $500,000 (US) which shall be paid as follows:
1.05.1.1 $200,000.00 (US) in cash at Closing,
1.05.1.2 Promissory Notes in the aggregate principal amount
of $300,000.00 in the form attached hereto as
Exhibit "A", and
1.05.02 Two million five hundred eleven thousand three hundred
seventeen (2,511,317) shares of, Buyer's no par value common stock
("Buyer Common Stock").
1.05.03 Each element of the consideration set forth in Sections
1.05.01 and 1.05.02 above shall be divided among the Shareholders and
paid and delivered by Buyer to Shareholders in the following
percentages:
<TABLE>
<CAPTION>
Name Percentage
---- ----------
<S> <C>
Romero 44.5%
Peel 42.5%
Sena 10.0%
Carter 3.0%
----
Total 100%
====
</TABLE>
AGREEMENT AND PLAN OF MERGER, Page 2
<PAGE> 3
1.05.04 Each element of the consideration set forth in Sections 1.05.01 and
1.05.02 shall be delivered to Shareholders at Closing in percentages set
forth in Section 1.05.03. In the event that the Purchase Price is reduced
in accordance with Section 7.02, each element of the Purchase Price shall
be reduced by a percentage, the numerator of which is the dollar amount of
the reduction of the Purchase Price and the denominator of which is
$4,500,000. Each Shareholder will bear a portion of any such reduction in
Purchase Price in the proportions set forth in Section 1.05.03 above.
1.06 Closing. The completion of the purchase and sale of the Shares as
contemplated by this Agreement, as well as the physical act or acts of execution
and delivery of the documents contemplated hereby and delivery of consideration
as provided above (the "Closing") shall occur at the offices of Buyer at 8350
North Central Expressway, Suite M2030, Dallas, Texas, at a time and date
mutually acceptable to Shareholders and Buyer on or before July 31, 1997. Also,
at Closing, Shareholders shall deliver executed resignations of all officers and
directors of Aspen and executed forms changing the signatures on all bank
accounts, in a form reasonably acceptable to Buyer.
ARTICLE II
OTHER TERMS AND CONDITIONS OF SALE
2.01 Shareholders Accounts Payable to Aspen. After Closing, the following
Shareholders agree to deliver to Aspen and Buyer agrees to cause Aspen to accept
an aggregate of two hundred seventy thousand (270,000) shares of the Buyer
Common Stock in full satisfaction of the obligations owed by such Shareholders
to Aspen as set forth as follows:
Number of Shares Amount of
of Buyer Obligation Owing
Shareholder Common Stock to Aspen
- ----------- ------------ --------
Romero 139,765 $220,000
Peel 111,176 $175,000
Sena 19,059 $30,000
Total 270,000 $425,000
ARTICLE III
BUYER COMMON STOCK - RESTRICTIONS
3.01 Unregistered Shares. The shares of Buyer Common Stock to be issued to
Shareholders hereunder will be issued in Canada and will be transferable in
Canada without registration under the
AGREEMENT AND PLAN OF MERGER, Page 3
<PAGE> 4
Canadian securities laws. However, at the time of issuance, the Buyer Common
Stock will not be registered under the Securities Act of 1933 or the securities
acts of any state of the United States of America.
3.02 Investment Representations. In connection with the delivery of the Buyer
Common Stock each Shareholder represents and warrants:
3.02.01 Shareholder is purchasing the Buyer Common Stock for his own
account for investment and not with the view to their distribution other
than in accordance with the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations promulgated by the United States Securities
and Exchange Commission thereunder, and with the Canadian Securities laws
("Canadian Laws").
3.02.02 Shareholder understands that the shares of Buyer Common Stock have
not been registered under the Act, that they must be held indefinitely
unless they are subsequently registered under the Act or an exemption from
such registration is available, and, except as set forth herein, Buyer is
under no obligation to register the shares under the Act or to comply with
any such exemption.
3.02.03 Shareholder understands that so long as such action may be
appropriate for compliance under the Act and Canadian Laws, Buyer may (a)
place a legend, label, or sticker upon the certificates representing the
Buyer Common Stock to be acquired by Shareholder referring to the
investment commitment contained herein, and (b) advise the Transfer Agent
for the shares (by "stop-transfer" instructions) of the representations and
agreements contained herein; provided that such "stop-transfer"
instructions shall not prevent the Shareholders from transferring their
shares of Buyer Common Stock in Canada.
3.03 Restrictions on Sale. Shareholders agree not to sell, trade, give or
transfer the Buyer Common Stock to be issued to Shareholders pursuant to Section
1.05.02 above, except as specifically provided in this Section 3.03.
Shareholders agreement not to sell, trade, give or transfer the Buyer Common
Stock shall terminate (i) as to 60,000 shares thereof each month beginning on
September 1, 1997, and continuing the first day of each month thereafter through
July 1, 1998, and (ii) as to any remaining shares on August 1, 1998. The share
certificates evidencing ownership of this agreement shall bear a legend
reflecting this agreement and specifically referring to this Section 3.03 of
this Agreement.
3.04 Registration Statement. Buyer agrees that if at any time Buyer shall
determine to make application to register any of its securities under the Act or
Canadian Laws, it will upon each such determination promptly give written notice
of its intention in that regard to Shareholders. Upon a written request from a
Shareholder, given not more than ten days after receipt of notice from Buyer of
such proposed application, Buyer will endeavor to register under the Act and
Canadian Laws any Buyer Common Stock then held by any of the Shareholders. Buyer
agrees to use its best efforts to the end that each registration of shares
required to be made by Buyer shall become effective as
AGREEMENT AND PLAN OF MERGER, Page 4
<PAGE> 5
promptly as possible and remain effective for as long a period of time as is
practicable.
3.05 Furnishing of Documents. Shareholder shall furnish to each Shareholder such
reasonable number of copies of the registration statement, such prospectuses as
are contained in the registration statement and such other documents as the
Shareholders may reasonably request in order to facilitate the offering of the
shares of Buyer Common Stock.
3.06 Amendments and Supplements. Buyer shall prepare and promptly file with the
Securities and Exchange Commission (the "SEC") and promptly notify the
Shareholders of the filing of such amendments or supplements to each
registration statement or prospectuses contained therein as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to the shares of Buyer Common Stock is required to be delivered under the Act,
any event shall have occurred as a result of which any such prospectus or any
other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were made
not misleading. Buyer shall also advise the Shareholders promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of the registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
3.07 Duration. In the event that any registration statement filed by Buyer under
this Article III becomes effective, to the extent permitted by the applicable
law under which such registration statement was filed, Buyer shall use its best
efforts to maintain the effectiveness of the registration statement until such
time as Buyer reasonably determines, based on an opinion of counsel, that all of
the Shareholders will be eligible to sell all of the shares of Buyer Common
Stock then owned by the Shareholders without the need for continued registration
of the shares.
3.08 Indemnification.
3.08.01 Buyer will indemnify and hold harmless the Shareholders and their
directors and officers, if applicable, and each person, if any, who
controls a Shareholder within the meaning of the Act, from and against any
and all losses, damages, liabilities, costs and expenses to which the
Shareholders or any such controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages, liabilities,
costs or expenses are caused by any untrue statement or alleged untrue
statement of any material fact contained in the registration statement, any
prospectus contained therein or any amendment or supplement thereto, or
arise out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that, Shareholder will not be
liable in any such case to the extent that any such loss, claim, damage,
liability, cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished
AGREEMENT AND PLAN OF MERGER, Page 5
<PAGE> 6
by any Shareholder or such controlling person in writing specifically for use in
the preparation thereof.
3.08.02 Each of the Shareholders severally and not jointly will indemnify and
hold harmless Buyer and each person, if any, who controls Buyer within the
meaning of the Act, from and against any and all losses, damages, liabilities,
costs and expenses to which Buyer or any such controlling person may become
subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made;
not misleading, to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by or on behalf of any
Shareholder specifically for use in the preparation thereof.
3.08.03 Promptly after receipt by an indemnified party pursuant to the
provisions of Section 3.08.01 or 3.08.02 of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said Sections, promptly notify
the indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability which it
may have hereunder unless the indemnifying party has been materially prejudiced
thereby nor will such failure to so notify the indemnifying party relieve it
from any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, if the defendants in any action include both the indemnified
party and the indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said Section 3.08.01 or 3.08.02 for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the indemnified
party shall have employed counsel in accordance with the provisions of the
preceding sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the notice of the commencement of the
action, or (iii) the indemnifying party has authorized the employment
AGREEMENT AND PLAN OF MERGER, Page 6
<PAGE> 7
of counsel for the indemnified party at the expense of the indemnifying
party.
3.08.04 In the event any of the shares of Buyer Common Stock are sold by
any Shareholder or Shareholders in an underwritten public offering
consented to by Buyer, Buyer shall provide indemnification to the
underwriters of such offering and any person controlling any such
underwriter on behalf of the Shareholder or Shareholders making the
offering all to the extent set forth in Section 3.08; provided, however,
that Buyer shall not be required to consent to any such underwriting or to
provide such indemnification in respect to the matters described in the
proviso to the first sentence of Section 3.08.01.
3.09 Expenses of Registration. Each registration statement hereunder and all
expenses associated therewith shall be at the expense of Buyer; provided,
however, that Buyer shall not be obligated to bear the expense of any
underwriting charges, commissions or fees with respect to the sale of the shares
sold by Shareholders. The rights of registration under this paragraph may not be
assigned without the expressed written consent of Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 Each Shareholder represents and warrants to Buyer and Merger Sub as to
himself or herself, and not as to the other Shareholders, as follows:
4.01.01 Authority and Enforceability. This Agreement is the valid and
binding obligation of each Shareholder, enforceable against each
Shareholder in accordance with its terms. Neither the execution and
delivery by Shareholder of this Agreement nor the consummation of the
transactions contemplated hereby, nor compliance by Shareholder with any of
the provisions hereof, will
(i) result in a material default (with due notice or lapse or time or
both) or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license or agreement to which
Shareholder is a party or by which Shareholder may be bound or,
(ii) violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to any Shareholder, Aspen, or any of
Aspen's properties or assets.
4.01.02 Non-Foreign Representation. Shareholder is not a non-resident
alien, foreign corporation, foreign partnership, foreign trust or foreign
estate (as those terms are defined in Internal Revenue Code and Income Tax
Regulations).
AGREEMENT AND PLAN OF MERGER, Page 7
<PAGE> 8
4.01.3 Consents. No consents for Shareholder to enter into this agreement
and consummate the actions contemplated by this Agreement are required.
4.01.4 No liens or Encumbrances. The shares of Aspen common stock owned by
Shareholders which are the subject hereof, are free and clear of all liens
and encumbrances.
4.01.5 Receipt of Buyer Reports. Each Shareholder has received and reviewed
all Buyer Reports filed through the date Closing Date.
4.02 Aspen represents and warrants to Buyer and Merger Sub as follows:
4.02.01 Organization. Standing and Power. Aspen is a corporation duly
organized, validly existing and in good standing under the laws of the
state of New Mexico having all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being
conducted. Aspen is duly qualified to carry on its business in each state
identified in Exhibit "C-1" where failure to so qualify would have a
materially adverse effect upon its business or properties in such state.
4.02.02 Authority and Enforceability. This Agreement is the valid and
binding obligation of Aspen, enforceable against Aspen in accordance with
its terms. Neither the execution and delivery by Aspen of this Agreement
nor the consummation of the transactions contemplated hereby, nor
compliance Aspen with any of the provisions hereof, will
(i) result in a default (with due notice or lapse or time or both) or
give rise to any right of termination, cancellation or acceleration
under any of the terms, conditions or provisions of any material note,
bond, mortgage, indenture, license or agreement to which Aspen is a
party or by which Aspen or any of Aspen's properties or assets may be
bound, except for such defaults, terminations, cancellations or
accelerations that will not have a material adverse effect on the
business or properties of Aspen ("Material Adverse Effect") or,
(ii) violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to Aspen or any of Aspen's properties or
assets, except for violations which will not have a Material Adverse
Effect.
4.02.03 Litigation. Except as disclosed on Schedule 4.02.03, there are no
actions, suits, claims, proceedings, agency enforcement actions or
investigations by any person or entity or by any administrative agency or
governmental body and no legal, administrative or arbitration proceeding
pending or, to the Knowledge of Aspen, threatened against or affecting
Aspen or any of Aspen's assets or which has affected or could affect
Aspen's ability to consummate the transactions contemplated by this
Agreement. "Knowledge of Aspen" means the actual conscious awareness of
information by Leon Romero or George Peel.
AGREEMENT AND PLAN OF MERGER, Page 8
<PAGE> 9
4.02.04 Liability for Brokers' Fees. Buyer will not directly or indirectly incur
any liability or expense as a result of any undertakings or agreements of Aspen
for brokerage fees, finder's fees, agent's commissions or other similar forms of
compensation in connection with this Agreement or any agreement or transaction
contemplated hereby,
4.02.05 Royalties. All material royalties, overriding royalties, compensatory
royalties and other material payments due from or in respect of production with
respect to the oil and gas leases owned by Aspen for all periods of time prior
to May 31, 1997, have been or will be properly and correctly paid by Aspen.
Aspen has not received any unresolved notice from any lessor of the leases which
demands compensation or reimbursement or release as a result of any alleged
mispayment by Aspen of any royalties due with respect to the oil and gas leases
owned by Aspen. For purposes of this Section 4.02.05, a payment shall be
considered material to the extent that the failure to make such payment would
result in a termination of the lease affected thereby or result in the payment
of additional sums to any person.
4.02.06 Payments. All payments of any kind required to be made by Aspen to third
parties under any existing contract or agreement, with regard to the Aspen
properties, have been or will be properly and timely paid or provided for.
4.02.07 No Demands. Aspen has received no notice of any claimed defaults,
offsets or cancellations from any lessors with respect to the oil and gas leases
owned by Aspen, and to the Knowledge of Aspen there is no default existing with
respect to any of (i) the oil and gas leases owned by Aspen or any express or
implied term of any oil and gas leases owned by Aspen, or (ii) the contracts to
which Aspen may be subject.
4.02.08 Condition of Equipment. All equipment and machinery owned by Aspen and
located on the lands covered by the oil and gas leases owned by Aspen is in good
operating condition, except for normal wear and tear.
4.02.09 Liabilities and Taxes. Except as noted on Balance Sheet attached hereto
as Schedule 4.02.09, all liabilities, franchise taxes, federal income taxes,
state income taxes, ad valorem (based on 1996 rates), real property, personal
property, production, severance, excise and other all other material taxes and
liabilities for which Aspen may be liable for periods of time ending prior to
June 30, 1997 (the "Balance Sheet Date") have been duly and timely paid or
accrued.
4.02.10 Agreements. The parties acknowledge that Aspen is in the business of
acquiring, exploring and developing oil and gas interests and, in the course of
carrying on such business, either executes (or assumes) and makes applicable to
its interests various agreements of the types generally experienced in the oil
and gas industry. The contractually binding arrangements to which Aspen and the
oil and gas leases owned by Aspen are subject are of the type generally found in
the oil and gas industry, do not (individually or in the aggregate) contain
unusual or unduly burdensome provisions which may operate in a
AGREEMENT AND PLAN OF MERGER, Page 9
<PAGE> 10
materially adverse manner with respect to the properties of Aspen and are in
form and substance considered conventional within the oil and gas industry.
4.02.11 Gas Imbalances. Except as described on Schedule 4.02.11 attached hereto,
Aspen has received no deficiency payments under gas contracts covering any of
the oil and gas leases owned by Aspen or to which Aspen may be subject for which
any party has a right to take deficiency gas from Aspen or its properties, nor
has Aspen received any payments for production from the oil and gas leases owned
by Aspen which are subject to refund or recoupment out of future production.
Schedule 4.02. 11 describes the extent to which Aspen is overproduced or
underproduced as to any of the oil and gas leases owned by Aspen and Seller
represents that there is no other imbalance existing under balancing agreements
or otherwise to which Aspen is subject.
4.02.12 Absence of Changes. Except as disclosed in writing to Buyer prior to
Closing, since the Balance Sheet Date, to the knowledge of Aspen, there have
been no material adverse changes in the condition of Aspen's properties or
wells.
4.02.13 Governmental Rules. Aspen is not in default under or in violation of:
(a) any law, order, writ, injunction rule, regulation or degree of any
governmental body, agency or court or of any commission or other
administrative agency, except for violations that will not have a Material
Adverse Effect, or
(b) any material agreement or obligation to which it is a party or by which
it is bound or to which it or the oil and gas leases owned by Aspen may be
subject except for violations that will not have a Material Adverse Effect.
4.02.14 Contracts. With respect to the oil or gas product purchase and sale
contracts and gas processing or transportation agreements to which the oil and
gas leases owned by Aspen or to which Aspen is subject (the "Contracts"), except
as set forth on Schedule 4.02.14:
(a) Aspen is not obligated by virtue of any prepayment arrangement under
any of the Contracts containing a "take or pay" or similar provision or a
production payment or any other arrangement to deliver hydrocarbons
produced from the assets owned by Aspen at some future time without then or
thereafter receiving full payment therefor.
(b) The Contracts do not call for dedications of material geographic areas
at prices less than determined by reference to market indices. None of the
Contracts warrant the amount of gas to be delivered. Seller is not aware of
any situations relating to the Leases where deliveries of natural gas
dedicated to interstate commerce have been terminated or diverted therefrom
without there having been obtained
AGREEMENT AND PLAN OF MERGER, Page 10
<PAGE> 11
appropriate abandonment orders or other required regulatory approvals.
(c) Payments for gas sold pursuant to each of the Contracts are current
(subject to adjustment in accordance with the Contracts) and in accordance
with the prices set forth in the Contracts.
(d) No purchaser under any of the Contracts has communicated to Aspen (or
to the Knowledge of Aspen if Aspen is not the operator), directly or
indirectly, its intent to cancel, terminate or renegotiate any of the
Contracts or otherwise to fail or refuse to take or pay for gas in the
quantities and at the price set out in any of the Contracts whether such
failure or refusal was pursuant to any force majeure, market-out or any
similar provision contained in any of the Contracts or agreement or
otherwise.
4.02.16 Environmental Matters. With respect to the real properties owned by
Aspen now or in the past, including the properties set forth and described in
Exhibit "C-1" attached hereto (collectively the "Properties"):
(a) The Properties have been used by Aspen solely for oil and gas
operations and related operations; at no time during Aspen's ownership have
the Properties been used by Aspen, or, to the Knowledge of Aspen, by anyone
else, for the generation, storage or disposal of a Hazardous Substance (as
defined below) or as a landfill or other waste disposal site, except in
compliance with Environmental Laws as hereinafter defined. To the Knowledge
of Aspen, there are no Hazardous Substances currently on the Land, except
in compliance with Environmental Laws. "Hazardous Substance" means any
substance now or hereafter defined as a "hazardous substance" under Section
101 of the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C.A. Section. 9601(14). "Environmental Laws" means all laws,
statutes, regulations and judicial interpretations of the United States and
the State of Texas or either of them, or any other governmental or
quasi-governmental authority having jurisdiction, that relate to the
prevention, abatement or elimination of pollution, or the protection of the
environment, including the federal Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation and Recovery Act,
the Clean Water Act, the Safe Drinking Water Act, the Toxic Substance
Control Act, the Hazardous Materials Transportation Act and all state
statutes serving similar or related purposes.
(b) Aspen has not entered into, and, to the Knowledge of Aspen, no
predecessor to Aspen has entered into, or is subject to, any agreements,
consent orders, decrees, judgments, license or permit conditions, or, to
the Knowledge of Aspen, other directives of governmental authorities in
existence at this time based on any Environmental Laws that relate to the
future use of any of the Properties or that require any change in the
present conditions of any of the Properties.
AGREEMENT AND PLAN OF MERGER, Page 11
<PAGE> 12
(c) There are no actions, suits, claims or proceedings seeking money
damages, injunctive relief, remedial action or other remedy, pending or, to
the Knowledge of Aspen, threatened, against any of the Properties or
against Aspen from its ownership or operation of the Properties and
relating to the violation of, or noncompliance with, an Environmental Law;
the disposal, discharge, or release of any Hazardous Substance; or the
exposure of any person to any other solid waste, pollutant, chemical
substance, noise or vibration.
(d) Neither the execution of this Agreement nor the consummation of the
transactions contemplated by this Agreement will violate any Environmental
Law or, to the Knowledge of Aspen, require the consent or approval of any
agency charged with enforcing any Environmental Law,
4.02.17 Wells. To the Knowledge of Aspen, all of the wells ("Wells") located on
the Leases owned by Aspen set forth on Exhibit "C-2" have been drilled and
completed substantially within the limits permitted by contract, pooling or unit
agreement, and by law; and all drilling and completion of the Wells and all
related development and operations have been conducted in material compliance
with all applicable laws, ordinances, rules, regulations and permits. To the
Knowledge of Aspen, no Well is subject to penalties on allowable after the date
hereof because of any overproduction or any other violation of applicable laws,
rules, regulations, or permits or judgments, orders or decrees of any court or
governmental body or agency which would have a material adverse effect on
Properties taken as a whole.
4.02.18 Well Status. To the Knowledge of Aspen there are no Wells located on the
Properties that
(i) Aspen is currently obligated by law or contract to plug and abandon;
(ii) Aspen will be obligated by law or contract to plug and abandon with
the lapse of time or notice or both because the Well is not currently
capable of producing in commercial quantities;
(iii) are subject to exceptions to a requirement to plug and abandon issued
by a regulatory authority having jurisdiction over the Wells; or
(iv) have been plugged and abandoned but have not been plugged in
accordance with all applicable requirements of each regulatory authority
having jurisdiction over the Wells.
4.02.19 Federal Leases. To the knowledge of Aspen, all federal lease accounts
with respect to deferral leases secured from the United States or agencies
thereof included in the Properties are current and all payments required
thereunder have been made in all respects and there exist no impediments to the
approval by the Minerals Management Service, and
AGREEMENT AND PLAN OF MERGER, Page 12
<PAGE> 13
Aspen has complied with all laws, rules and regulations applicable to such
Leases.
4.02.20 Non-Foreign Representation. Aspen is not a non-resident alien,
foreign corporation, foreign partnership, foreign trust or foreign estate
(as those terms are defined in the Code and Income Tax Regulations
promulgated thereunder).
4.02.21 Consents. No consents for Aspen to enter into this agreement and
consummate the actions contemplated by this Agreement are required.
4.02.23 Commitments for Expenditures. There are no outstanding authorities
for expenditures (AFE's) which Aspen has received from a third party
operator, but has not responded to.
4.02.25 Expenditure Commitments. To the Knowledge of Aspen there were no
commitments or proposals by third parties for the work over of any well,
the drilling of a new well, installation of any equipment which would in
the aggregate result in the expenditure after June 1, 1997, of more than
$5,000.00.
4.02.27 Capitalization of Aspen. Aspen has authorized 50,000 shares of
common stock, 50,000 shares of which are issued and outstanding, all of
which are owned and held by Sellers. There are no warrants, options,
convertible debentures or any other form of securities of Aspen issued or
outstanding, except for the aforementioned 50,000 shares of common stock.
4.03 Buyer and Merger Sub represent and warrant to each Shareholder and Aspen as
follows:
4.03.01 Organization, Standing and Power. Buyer is an Ontario corporation
duly organized, validly existing and in good standing under the laws of the
Provence of Ontario, Canada, having all requisite power and authority to
own, lease and operate its properties and to carry on its business as now
being conducted. Buyer is duly qualified to carry on its business in each
state identified in Exhibit "C-1" where failure to so qualify would have a
materially adverse effect upon its business or properties in such state.
Merger Sub is a Nevada corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada having all requisite
power and authority to own, lease and operate its properties and to carry
on its business as now being conducted. Merger Sub is duly qualified to
carry on its business in each state identified in Exhibit "C-1" A where
failure to so qualify would have a materially adverse effect upon its
business or properties in such state.
4.03.02 Authority and Enforceability. The execution and delivery by Buyer
and Merger Sub of this Agreement and the Notes and the consummation of the
transactions contemplated hereby, have been duly and validly authorized by
all necessary corporate action on the part of Buyer and Merger Sub. This
Agreement is and upon the Closing the Notes will be the valid and binding
obligations of Buyer and Merger Sub, enforceable against Buyer and Merger
Sub in accordance with their respective terms. This Agreement has been duly
executed and
AGREEMENT AND PLAN OF MERGER, Page 13
<PAGE> 14
delivered by Buyer and Merger Sub and the Notes when executed and delivered
in accordance herewith, will be duly executed and delivered. Neither the
execution and delivery by Buyer and Merger Sub of this Agreement or the
Notes nor the consummation of the transactions contemplated hereby or
thereby, nor compliance by Buyer and Merger Sub with any of the provisions
hereof or thereof, will
(i) conflict with or result in a breach of any provision of Buyer or
Merger Sub's certificate of organization or operating agreement,
(ii) result in a material default (with due notice or lapse or time or
both) or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license or agreement to which Buyer
or Merger Sub is a party or by which Buyer or Merger Sub or any of
Buyer's or Merger Sub's properties or assets may be bound,
(iii) violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to Buyer or Merger Sub, or Buyer's or
Merger Sub's properties or assets or,
(iv) require the consent, approval, authorization or permit of, or
filing with or notification to any governmental authority or any other
person.
4.03.03 Suits. There is no suit, action, claim, investigation, proceeding,
agency enforcement action or inquiry by any person or entity or by any
administrative agency or governmental body and no legal, administrative or
arbitration proceeding pending, or to Buyer's or Merger Sub's best
knowledge, threatened against or affecting Buyer or Merger Sub or any of
Buyer's or Merger Sub's assets or which has affected or could affect
Buyer's or Merger Sub's ability to consummate the transactions contemplated
by this Agreement.
4.03.04 Liability for Brokers' Fees. Neither Shareholders nor Aspen will
directly or indirectly incur any liability or expense as a result of any
undertakings or agreements of Buyer or Merger Sub for brokerage fees,
finder's fees, agent's commissions or other similar forms of compensation
in connection with this Agreement or any agreement or transaction
contemplated hereby.
4.03.05 Buyer Qualification. Buyer is an experienced and knowledgeable
investor in oil and gas properties and has the financial and business
expertise to evaluate the merits and risks of the transactions contemplated
by this Agreement. In entering into this Agreement, Buyer has relied solely
on the express representations and covenants of Shareholders and Aspen in
this Agreement, its independent investigation of and judgment with respect
to, the Properties and the advice of its own legal, tax, economic,
environmental, engineering, geological and geophysical advisors and not on
any comments or statements of any representatives of, or consultants or
advisors engaged by Shareholder.
AGREEMENT AND PLAN OF MERGER, Page 14
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4.03.06 Reports and Financial Statements. From January 1, 1996 until the
date hereof, Buyer has filed all reports, registrations and statements,
together with any required amendments thereto, that it was required to file
with the SEC, including, but not limited to any Forms 10-KSB, Forms 10-QSB,
Forms 8-KSB, Forms 20-F and proxy statements (collectively, the "Buyer
Reports"). As of their respective dates (but taking into account any
amendments filed prior to the date of this Agreement), the Buyer Reports
complied in all material respects with all the rules and regulations
promulgated by the SEC and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Buyer included in the Buyer Reports comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with U.S. generally accepted accounting principles
consistently applied during the periods presented (except, as noted
therein, or, in the case of the unaudited statements, as permitted by Form
10-QSB of the SEC) and fairly present (subject, in the case of the
unaudited statements, to normal audit adjustments) the financial position
of Buyer as of the date thereof and the results of its operations and its
cash flows for the periods then ended.
4.03.07 Buyer Common Stock. The shares of Buyer Common Stock to be issued
to Shareholders hereunder will be authorized but unissued common stock of
Buyer, with no par value.
4.03.08 Buyer's Capitalization. Buyer has authorized unlimited shares of
common stock of which 12,608,806 shares will be outstanding prior to
Closing. Upon consummation of the transactions contemplated hereby and the
issuance and delivery of certificates representing shares of Buyer Common
Stock to Shareholders such shares of Buyer Common Stock will be duly
authorized, validly issued, fully paid and nonassessable.
4.04 Notice of Breach of Representations or Warranties. Buyer, Shareholders and
Aspen will immediately notify each other upon the discovery that any
representation or warranty of such party is, becomes or will be untrue on the
Closing Date.
4.05 Survivability. All representations and warranties contained in this Article
IV shall survive Closing.
ARTICLE V
COVENANTS PENDING CLOSING
5.01 Access. Shareholders and Aspen will give or use all reasonable efforts to
cause Buyer and
AGREEMENT AND PLAN OF MERGER, Page 15
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its attorneys and other representatives to be given access to the all of the
books, records and properties of Aspen and to any records, documents or
information of Aspen or Shareholders pertaining to Aspen and the ownership
and/or operation of Aspen's properties. Such access shall be at reasonable times
on prior notice. Buyer recognizes and agrees that all materials made available
to it (whether pursuant to this Section or otherwise) in connection with the
transaction contemplated hereby are made available to it as an accommodation,
and without representation or warranty of any kind as to the accuracy and
completeness of such materials. BUYER HEREBY AGREES To DEFEND, INDEMNIFY,
RELEASE, PROTECT, SAVE AND HOLD HARMLESS SHAREHOLDERS AND ASPEN FROM AND AGAINST
ANY AND ALL LOSSES ARISING OUT OF OR RELATING TO ANY CLAIMS RELATING TO ANY
PLANT OR FIELD VISIT, OR OTHER DUE DILIGENCE ACTIVITY, CONDUCTED BY BUYER OR ANY
OF ITS AGENTS, REPRESENTATIVES, AFFILIATES, SUCCESSORS, ASSIGNS, OFFICERS,
REPRESENTATIVES OR DIRECTORS INCLUDING WITHOUT LIMITATION ANY LOSSES RESULTING,
IN WHOLE OR IN PART, FROM THE CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY
OF SHAREHOLDERS OR ASPEN:
5.02 Interim Operations by Aspen. Aspen covenants that from the date hereof to
the Closing Date, except (A) as provided herein, (B) as required by any existing
contract or (C) otherwise consented to in writing by Buyer, Aspen will:
5.02.01 Not (A) operate or in any manner deal with, incur obligations with
respect to, or undertake any transactions relating to, its properties other
than transactions (i) in the normal, usual and customary manner, (ii) of a
nature and in an amount consistent with prior practice, (iii) in the
ordinary and regular course of business of owning and operating its
properties, and (iv) subject to the terms and conditions of this Agreement;
(B) dispose of; encumber or relinquish any of Aspen's properties (other
than relinquishments resulting from the expiration of leases that Aspen has
no right or option to renew); (C) waive, compromise or settle any right or
claim that would have a Material Adverse Effect; or (D) commit to any
expenditure in excess of $5,000.00 net to the interest of Aspen for capital
expenditures on any well.
5.02.02 Promptly notify Buyer of any suit, lessor demand action, demand for
payment by an operator or payor or other proceeding before any court,
arbitrator, or governmental agency and any cause of action which relates to
Aspen, the properties owned by Aspen or which might result in impairment or
loss to Aspen of any portion of the properties owned by Aspen or which
might hinder or impede the operation of the properties owned by Aspen.
5.02.03 Make or give all notifications, filings, consents or approvals
from, to or with all governmental authorities, and will cooperate with
Buyer in obtaining the issuance, assignment or transfer, as the case may
be, by each such authority of such permits as may be necessary for Buyer to
own and operate Aspen and its properties following the consummation of the
transactions contemplated in this Agreement; provided that Aspen shall not
be required to incur any expense in connection therewith.
AGREEMENT AND PLAN OF MERGER, Page 16
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5.02.04 Maintain in effect insurance providing the same type coverage, in
the same amounts with the same deductibles as the insurance maintained in
effect by Aspen or its affiliates on the date hereof
5.03 Interim Operations by Buyer. Buyer covenants that from the date hereof to
the Closing Date, Buyer will not (i) declare, set aside or pay any dividends on,
or make any other actual, constructive or deemed distribution in respect of, any
of its capital stock, or otherwise make any payments to its stockholders in
their capacity as such, (ii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, (iii) purchase,
redeem or otherwise acquire any shares of capital stock, or any securities of
Buyer or any rights, warrants or options to acquire any such shares or other
securities, (iv) adopt a plan of complete liquidation or partial liquidation or
resolutions providing for or authorizing such a liquidation, or a dissolution,
restructuring, recapitalization or reorganization or (v) amend its certificate,
bylaws or similar organizational documents.
ARTICLE VI
CONDITIONS TO CLOSING
6.01 Conditions to Obligations of Aspen and Shareholders. The obligations of
Aspen and Shareholders under this Agreement are subject to the satisfaction at
or prior to Closing, of the following conditions:
6.01.01 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.
6.01.02 Buyer will have performed and complied with, or caused the
performance of and compliance with, in all material respects, all the
obligations, terms, conditions, and agreements required by this Agreement
to be performed or complied with by it on or prior to Closing.
6.01.03 Buyer shall have delivered the Purchase Price, as adjusted at the
Closing, to Shareholders.
6.01.04 As of the Closing, no suit, action or other proceeding shall be
pending or threatened before any court or governmental agency seeking to
restrain Aspen and Shareholders from consummating the actions contemplated
by this Agreement or prohibit the Closing or seeking damages against Aspen
and Shareholders as a result of the consummation of this Agreement.
AGREEMENT AND PLAN OF MERGER, Page 17
<PAGE> 18
6.01.05 Buyer shall have delivered to Aspen and Shareholders a certified
copy of the resolutions of Buyer's and Merger Sub's boards of directors and
the sole shareholder of Merger Sub authorizing the consummation of the
transactions contemplated in this Agreement by Buyer and Merger Sub.
6.01.06 Shareholders shall have received an opinion from the law firm of
Weir & Foulds that the shares of Buyer Common Stock may be sold or
exchanged in Canada without registration of the shares under the Canadian
securities laws.
6.01.07 The Voting Agreement in the form of Exhibit "D" shall have been
fully executed and delivered by the parties thereto.
6.01.08 The Shareholders shall have approved the merger in accordance with
the NMBCA.
6.02 Conditions to Obligations of Buyer. The obligations of Buyer under this
Agreement are subject to the satisfaction, at or prior to Closing, of the
following conditions:
6.02.01 All representations and warranties of Shareholders and Aspen
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.
6.02.02 Shareholders and Aspen will have performed and compiled with, or
caused the performance and compliance with, in all material respects, all
the obligations, terms, conditions, and agreements required by this
Agreement to be performed or complied with by Shareholders and Aspen on or
prior to Closing, and Shareholders shall have delivered to Buyer at Closing
the stock certificates representing all of the shares of Aspen.
6.02.03 As of the Closing, no suit, action or other proceeding shall be
pending or threatened before any court or governmental agency seeking to
restrain Buyer from consummating the transactions contemplated by this
Agreement or prohibit the Closing or seeking damages against Buyer as a
result of the consummation of this Agreement.
6.02.04 Aspen shall have delivered to Buyer a certified copy of the
resolutions of Aspen's Board of Directors and shareholders authorizing the
consummation of the transactions contemplated in this Agreement by Aspen.
And Shareholders and Aspen shall deliver to Buyer resignations of all
officers and directors of Aspen.
AGREEMENT AND PLAN OF MERGER, Page 18
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ARTICLE VII
TITLE AND ENVIRONMENTAL
7.00 As to the oil and gas properties owned by Aspen set forth in Exhibits "C-1"
and "C-2" (Exhibits C-1 and C-2 are collectively referred to as Exhibit "C"),
this Article VII shall apply.
7.01 Defensible Title.
7.01.01 For purposes hereof; "Defensible Title" means with respect to the
Properties such title as (A) will enable Merger Sub, as Aspen's successor,
to receive payment for production from a particular Lease in an amount not
less than the "Net Revenue Interest" for the property as set forth on
Exhibit "C", without reduction, suspension or termination throughout the
productive life of wells located on the property, (except for any
reduction, suspension or termination (i) caused by Aspen, (ii) that arises
as a result of Permitted Encumbrances or (iii) is set forth in the Exhibit
"C"); (B) will obligate Merger Sub, as Aspen's successor, to bear no
greater "Expense Interest" than the Expense Interest for each of the Leases
identified on the Exhibit "C" without increase throughout the productive
life of such well (except for any increase (i) caused by Aspen (ii) that
arises as result of Permitted Encumbrances or (iii) is set forth in the
Exhibit "C"; and (C) is free and clear of all liens, encumbrances or
security interests, except for Permitted Encumbrances.
7.01.02 For purposes hereof a "Title Defect" shall be any lien,
encumbrance, security interest, claim or burden, other than Permitted
Encumbrances, which causes Aspen to have at Closing less than Defensible
Title in the Properties. Buyer shall be entitled to a reduction in the
Purchase Price due to the existence of uncured Title Defects according to
the provisions of this Article VII. Such customary liens, charges,
encumbrances, defects and irregularities that may exist, including, but
not limited to, defects in the early chain of title such as failure to
recite marital status in documents, omission of succession or heirship
proceedings, lack of survey, defects that have been cured by possession
and failure to record releases of liens, production payments, leases or
mortgages that have expired by their terms, and other matters which would
not reasonably be expected to result in claims that will materially and
adversely affect Aspen's title to the Properties, shall not constitute
"Title Defects" hereunder.
7.01.03 For purposes hereof "Permitted Encumbrances" shall mean (A) liens
securing payments to mechanics and materialmen, payments of taxes or claims
arising by statute to secure or protect any other payment obligation that
are, in each case, not yet delinquent or, if delinquent, are being
contested in good faith in the normal course of business and which, if
contested, have been disclosed to Buyer; (B) any obligations or duties to
any municipality or public authority with respect to any franchise, grant,
certificate, license or permit, and all applicable law; (C) Title Defects
that Buyer fails to assert in accordance with the provisions of this
Article VII prior to the Notice Date; (D) consents to assignment by a third
party or
AGREEMENT AND PLAN OF MERGER, Page 19
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governmental authority that are obtained by the Closing Date or that are
customarily obtained after the consummation of transactions of the nature
contemplated in this Agreement; (E) any easements, right-of-way,
servitudes, permits and other rights in respect of surface operations,
pipelines or the like, and easements for pipelines, power lines and other
similar rights-of-way, and encroachments, on, over or in respect of any of
the Leases that do not unreasonably or materially interfere with the
operation of the Leases for exploration and production of hydrocarbons or
related operations; (F) all royalties, overriding royalties, net profits
interests, production payments, carried interests, reversionary interests,
calls on production and other burdens on or deductions from the proceeds of
production that do not operate to (i) reduce the Net Revenue Interest
("NRI") in a Lease below that set forth in Exhibit "C" for such Lease or
(ii) increase the Expense Interest ("WI") in a Lease above that set forth
in Exhibit "C" for such Lease without a proportionate increase in the NRI
for such Well; (G) the terms and conditions of the Lease(s); (H) the terms
and conditions of all production sales contracts, transportation
agreements, pooling agreements, unitization agreements, operating
agreements, processing agreements, and all other contracts, agreements and
instruments related to or utilized in connection with the properties, or
the production, storage, treatment, transportation, sale or disposal of
oil, gas or other hydrocarbons, mineral or substances therefrom, to the
extent such contracts (i) do not reduce the NRI in a Lease below that set
forth in Exhibit "C" for such Lease, (ii) do not increase the WI in a Lease
above that set forth in Exhibit "C" for such Lease without a proportionate
increase in the NRI for such Lease or (iii) are of the type normally
entered into in the normal course of business by a reasonable, prudent
owner of similar properties; (I) conventional rights of reassignment prior
to abandonment; (J) any required third party consents to assignment and
similar agreements and obligations with respect to which prior to Closing
(i) waivers or consents have been obtained from the appropriate person or
(ii) the applicable period of time for asserting such rights has expired
without any exercise of such rights or (iii) arrangements have been made by
the parties to allow Buyer to receive substantially the same economic
benefits as if all such waivers and consents had been obtained; and (K) any
other liens, charges, encumbrances, contracts, agreements, instruments,
obligations, defects or irregularities of any kind whatsoever affecting the
Properties that individually or in the aggregate are not such as would
materially adversely affect the ownership, operation, value or use of the
Properties.
7.02 Environmental Condition. Buyer shall conduct investigations and inspections
of the physical premises of the Properties as Buyer in its sole discretion may
deem advisable. In the event that Buyer's investigations and inspections
discloses an "Environmental Defect" which shall include the existence of any
hazardous materials, the threatened release of hazardous materials or the
violation or threatened violation of any Federal. State or local statute, rule,
regulation or ordnance relating to protection of the environment. In the event
that Buyer determines that an Environmental Defect exists, Buyer may (i)
terminate this Agreement or (ii) give Shareholders notice of the existence of
the defect and seek to negotiate a reduction of the Purchase Price as provided
in the next section.
7.02 Notice of Title or Environmental Defects. Buyer shall, as soon as possible,
but in no event later than seven (7) days prior to Closing (the "Notice Date"),
give written notice to Shareholders
AGREEMENT AND PLAN OF MERGER, Page 20
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and Aspen specifying all Title Defects and Environmental Defects for which Buyer
requests a reduction in the Purchase Price and shall describe each alleged
Defect with reasonable particularity and specify for each Defect the amount of
reduction in the Purchase Price proposed by Buyer (the "Defect Amount"). If
Buyer and Shareholders are unable to reach an agreement as to the amount of
reduction of the Purchase Price for such Defect(s), Buyer will have the option
to (i) close the transaction without a reduction in the Purchase Price in which
case such action shall be deemed a waiver of all Defects on which an agreement
to the reduction in Purchase Price has not been agreed upon, or (ii) terminate
this Agreement. Failure by Buyer to timely assert a Title Defect or
Environmental Defect shall be deemed an election by Buyer to waive such Defect.
7.03 Shareholder's Election to Cure. Shareholders shall have the right to elect
to cause Aspen, at any time prior to Closing, whether or not to cure any
asserted Title Defect or Environmental; however, any curing of a Defect shall be
to the reasonable satisfaction of Buyer. The cost of curing any such Defect
shall be at the sole cost of Shareholders.
ARTICLE VII
INDEMNIFICATION
8.01 Indemnification by Shareholders. Shareholders hereby indemnify Buyer, its
directors, officers, employees and representatives, against all losses, costs,
expenses, claims and causes of action ("Claims") arising from Shareholders
breach of the representations or warranties contained in Sections 4.01 of this
Agreement and Aspen's breach of the representations or warranties contained in
Sections 4.02.03, 4.02.05, 4.02.06, 4.02.08 and 4.02.09 of this Agreement.
8.02 Indemnification by Buyer. Buyer shall assume all liability for and
indemnify Shareholder, its directors, officers, employees and representatives,
against all Claims arising from Buyer's breach of any of its representations or
warranties.
8.03 Indemnification Procedures.
8.03.01 Within three (3) business days after a party becomes aware of facts
giving rise to a Claim by it for indemnification pursuant to this Article
VIII, and prior to the expenditure or approval of the expenditure of any
funds, such a party will provide notice thereof in writing to the other
party (a "Claim Notice") specifying the nature and specific basis for such
Claim and a copy of all papers served with respect to such Claim (if any).
For purpose of this Section, receipt by a party of written notice of any
demand, assertion, claim, action or proceeding (judicial, administrative or
otherwise) by or from any person or entity other than a party to this
Agreement or any affiliate thereof which gives rise to a Claim on behalf of
such party shall constitute the discovery of facts giving rise to a Claim
by it and shall require prompt notice of the receipt of such matter as
provided in the first sentence of this Section. Each Claim Notice shall set
forth a reasonable description of the Claim as the indemnified
AGREEMENT AND PLAN OF MERGER, Page 21
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party shall then have and shall contain a statement to the effect that the party
is making a Claim pursuant to and formal demand for indemnification under, this
Article VIII. The Claim Notice must set forth the particular provision in this
Article VIII and any related provision in this Agreement pursuant to which such
indemnification Claim is made.
8.03.02 The indemnifications provided by this Agreement are expressly subject to
the following:
(A) In case any legal proceeding or claim, including any investigatory
proceeding, is brought or made against a party in a manner for which
indemnification may be provided under Section 8.01 or 8.02, the party shall
promptly notify the other party with the delivery of the Claim Notice. The
party receiving such notice shall have the right to control and assume the
defense of any such legal proceeding or claim, including the employment of
counsel satisfactory to it. If the party receiving the notice controls and
assumes the defense of any proceeding or claim, the other party shall have
the right to employ separate counsel, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless the
representation of both parties by the same counsel would be inappropriate
due to any actual or potential conflicts of interest. No party shall be
liable for the fees and expenses of more than one separate firm of
attorneys at any one time for the indemnified party in connection with any
one legal proceeding or claim or substantially similar related proceedings
and claims.
(B) Notwithstanding anything of the contrary in Section A above, the
indemnified party shall be entitled to reasonable compensation for costs of
defense, including reasonable attorneys fees, in the event that (i) the
employment of separate counsel has been authorized by the indemnifying
party, (ii) the indemnifying party has failed to defend diligently any
Claims, or (iii) the parties to such action (including any impleaded
parties) include both parties hereto, and the indemnified party has been
advised by legal counsel that there may be legal defenses available to it
which are different from, in addition to or inconsistent with, the legal
defenses available to the indemnifying party, or that the indemnified
party's interest may be adverse in whole or in part to the interest of the
indemnifying party. Neither party shall except with the prior written
consent of the other, pay, settle or compromise any Claim; provided,
however, that the indemnifying party may settle, pay or compromise any
Claim without the consent of the indemnified party if such settlement or
compromise includes as an unconditional term, the release by the claimant
or the plaintiff of the indemnified party from all further liability in
respect to any such Claims.
(C) If the Claim is of a sort which requires action on the part of the
owners of the Properties, such as restoration of surface locations, for
example, the party having knowledge or receiving notice of such Claim shall
provide the indemnifying party with the appropriate Claim Notice. The
indemnifying party shall have the option to respond
AGREEMENT AND PLAN OF MERGER, Page 22
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in such manner as it deems prudent to such Claim and shall make all
decisions and take all action in response to the Claim. Only if the
indemnifying party fails to timely and reasonably respond to such Claim may
the indemnified party take such actions as are necessary to respond to the
Claim.
ARTICLE IX
LIMITATIONS OF LIABILITY
9.01 Limitation on Liability of Shareholders. Notwithstanding any other
provision of this Agreement or any other agreement, instrument or document, the
liability of all Shareholders, as a group, for all claims made in connection
with this Agreement and the transactions contemplated herein, including, without
limitation, claims made pursuant to Article VIII shall not exceed in the
aggregate $2,250,000 and with respect to each Shareholder shall not exceed such
Shareholder's percentage (as set forth in Section 1.05.03) of $2,250,000. Under
no circumstances shall Buyer or Merger Sub assert, or shall Shareholders have,
any liability in connection with this Agreement and the transactions
contemplated herein for amounts in excess of $2,250,000 in the aggregate and
with respect to each Shareholder shall not exceed such Shareholder's percentage
(as set forth in Section 1.05.03) of $2,250,000. Buyer and Merger Sub
acknowledge that the sole and exclusive remedy available to Buyer and Merger Sub
for any claim or claims relating to this Agreement and the transactions
contemplated herein are (i) the right to terminate this Agreement pursuant to
Section 10.01, and (ii) the right to seek damages for Claims pursuant to Section
8.01, subject to the limitations in this Article IX. Notwithstanding anything in
this Agreement to the contrary, Shareholders will have no liability (for
indemnification or otherwise) with respect to any representation or warranty or
covenant or obligation to be performed and complied with or any other matter of
any kind unless on or before six months after the Closing Shareholders receive
written notice from Buyer of a claim, specifying the factual basis of that claim
in reasonable detail and the amount of liability therefor. Shareholders will
have no liability (for indemnification or otherwise) with respect to the matters
described in Article VIII until the total of all Claims with respect to such
matters for which Shareholders are liable in the aggregate exceeds $25,000, and
then only for the amount by which such Claims exceed $25,000, subject to the
limitations contained in this Article IX. Additionally, notwithstanding any
other provision of the Agreement, the liability of a Shareholder for breach of
his or her representations in Section 4.01 shall be several and not joint and
several. At the election of each Shareholder, a Shareholder may satisfy his or
her obligations under Article VIII by returning shares of Buyer Common Stock
with each share being credited against such liability at the market price on the
date such shares are delivered to Buyer.
9.02 Damage Limitation. Notwithstanding anything to the contrary herein, in no
event shall any party hereunder be liable to the other for any exemplary,
punitive, special, indirect, consequential, remote or speculative damages;
provided, however, that if a party hereto is held liable to a third party for
any of such damages and one party is obligated to indemnity the other party for
the matter that gave rise to such damages pursuant to this Agreement, then the
indemnifying party shall be liable for, and obligated to reimburse the
indemnified party for, such damages, subject to the damage limitations
AGREEMENT AND PLAN OF MERGER, Page 23
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set forth in Section 9.01.
ARTICLE X
TERMINATION
10.01 Termination of Agreement. This Agreement and the transactions contemplated
hereby may be terminated upon written notice from the party electing to
terminate this Agreement, in the following instances:
(A) By either Buyer or Aspen if Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement or its
affiliates to fully comply with its obligations hereunder) on or before
July 31, 1997, or such later date as the parties may agree upon in writing
(such date being the "Termination Date").
(B) By either party pursuant to a specific provision of this Agreement
providing for such termination.
(C) By Shareholder if the conditions set forth in Section 6.02 are not
satisfied in all materials respects or waived as of the Termination Date.
(D) By Buyer if the conditions set forth in Section 6.01 are not satisfied
in all material respects or waived as of Termination Date.
(E) At any time by the mutual written agreement of Buyer and Shareholder.
10.02 Effect of Termination. If this Agreement is terminated pursuant to Section
10.01, all further rights and obligations of the parties under this Agreement
will terminate, except that the rights and obligations in Sections 12.10 and
12.11 and this Section 10.02 will survive. The parties acknowledge that,
prior to Closing, the sole and exclusive remedy of any party to this Agreement
with respect to a breach of a representation or warranty contained herein shall
be the right to terminate this Agreement in accordance with and subject to the
provisions of this Article X; provided, however, that a termination of this
Agreement shall not relieve any party hereto from any liability for damages
incurred as a result of a breach by such party of its covenants hereunder
occurring prior to such termination. Each party hereby covenants never to
institute, directly or indirectly, any action or proceeding of any kind against
any other party hereto based on or arising out of, or in any manner related to,
the breach of a representation or warranty contained herein if this Agreement is
terminated pursuant to Section 10.01.
AGREEMENT AND PLAN OF MERGER, Page 24
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ARTICLE XI
TAX COVENANTS
11.01 Tax Covenants. Buyer and Merger Sub covenant not to dispose of any of the
assets of Merger Sub following the Merger, which would cause Merger Sub to hold
less than 90% of the fair market value of the net assets and 70% of the fair
market value of the gross assets which Merger Sub held immediately prior to the
Merger. Buyer and Merger Sub covenant that prior to December 31, 2002,
following the Merger, Buyer will not dispose of any of the stocks or securities
of Merger Sub and Merger Sub will not dispose of any of the assets of Aspen
acquired in the Merger other than in the "ordinary course of business" within
the meaning of Treas. Reg. Section 1.367(a)-3 T(g).
ARTICLE XII
MISCELLANEOUS
12.01 Currency. All references herein to "dollars" or to "$" are to United
States dollars.
12.02 Files and Records. At Closing Shareholders shall deliver or cause to be
delivered to Buyer all original records and files, including, without limitation
corporate records, corporate minute book, check books, bank statements,
accounting files, regulatory files, joint interest billings, revenue files,
division orders, division order files, buyers statements, payout calculations,
well logs, well files, land records, contracts, maps and seismic information and
all other records and files of whatever nature relating to Aspen and any
properties owned at any time by Aspen.
12.03 Survival of Representation, Warranties and Covenants. Unless otherwise
specified herein, the obligations and liabilities of the parties under each of
their representations, warranties and covenants contained in this Agreement
shall survive the Closing and the execution and delivery of the documents to be
delivered at Closing and remain in full force and effect.
12.04 Notices. All communication or notices required or permitted to be given
under this Agreement shall be in writing, and any communication or notice shall
be deemed to have been duly made if actually delivered, including delivery by
facsimile transmission, receipt of which has been duly acknowledged, or if
mailed by registered or certified mail, postage prepaid, and addressed to:
(A) Buyer or Merger Sub:
Cotton Valley Resources Corporation
8350 North Central Expressway
Suite M2030
Dallas, Texas 75206
Attn: Mr. James E. Hogue
Telephone: (214) 363-1968
Facsimile: (214) 363-4294
AGREEMENT AND PLAN OF MERGER, Page 25
<PAGE> 26
with a copy to:
C. B. Harrison, Jr.
13101 Preston Rd., Suite 400
Dallas, Texas 75240
Telephone: (972) 934-0147
Facsimile: (972) 386-5705
(B) Shareholders:
Leon A Romero
P.0. Box 8057
Dallas, Texas 75205
Telephone: (214) 739-8828
George W. Peel
6322 Preston Crest Lane
Dallas, Texas 75230
Telephone: (972) 702-9845
Albert Sena
5114 Sawgrass Drive
Garland, Texas 75044
Telephone: (972) 495-5228
Dorothy Carter
P.0. Box 8057
Dallas, Texas 75205
Telephone: (214) 739-8828
With a copy to:
Michael E. Dillard, P.C.
Akin, Gump Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas
Telephone: (214) 969-2876
Facsimile: (214) 969-4343
AGREEMENT AND PLAN OF MERGER, Page 26
<PAGE> 27
(C) Aspen:
Aspen Energy Corporation
4849 Greenville Avenue
Suite 1177
Dallas, Texas 75206
Telephone: (214) 692-9681
Facsimile: (214) 368-4684
A party may, by written notice so delivered to the other party, change the
address to which communications or written notices shall be made under this
Agreement.
12.05 Further Assurances. Shareholders, Aspen and Buyer agree that they will,
upon request, deliver, or will cause to be executed, acknowledged and delivered,
all such documents of further assurance as may be reasonably required to fully
effect transfer of ownership of the Shares to Buyer and do, perform and take
such further actions, as may be necessary or appropriate to carry out the intent
of the transactions provided for in this Agreement. Each party shall bear its
own costs in connection with the preparation or filing of any such documents of
further assurance.
12.06 CHOICE OF LAW; ARBITRATION. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY
PRINCIPLES OF CONFLICTS OF LAWS. VENUE FOR ALL DISPUTES AND LITIGATION HEREUNDER
OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY SHALL
LIE EXCLUSIVELY IN DALLAS COUNTY, TEXAS. ANY CONTROVERSY OR CLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR ANY ALLEGED BREACH HEREOF, SHALL BE SETTLED BY
ARBITRATION. THE PARTIES HERETO AGREE THAT ANY SUCH CONTROVERSY SHALL BE
SUBMITTED TO THREE ARBITRATORS SELECTED FROM THE PANELS OF ARBITRATORS OF THE
AMERICAN ARBITRATION ASSOCIATION ("AAA") AND SHALL BE GOVERNED BY THE COMMERCIAL
ARBITRATION RULES OF THE AAA, AS AMENDED AND IN EFFECT ON THE DATE A DEMAND FOR
ARBITRATION IS FILED WITH THE AAA. ANY DEMAND SHALL SPECIFY A DOLLAR AMOUNT OF
DAMAGES SOUGHT. ARBITRATION SHALL OCCUR IN DALLAS, TEXAS AND UPON AN AWARD
RENDERED MAY BE ENTERED IN ANY UNITED STATES DISTRICT COURT OR STATE COURT IN
DALLAS, TEXAS.
12.07 Assignment. This Agreement shall not be assignable by either party without
the prior written consent of the other party, which consent shall not be
unreasonably withheld.
12.08 Binding Effect. This Agreement, the Notes, and the Voting Agreement
contain the entire agreement and understanding between the parties hereto with
respect to the purchase and sale of the
AGREEMENT AND PLAN OF MERGER, Page 27
<PAGE> 28
Shares or other transactions contemplated herein. This Agreement may not be
amended or terminated except in writing, signed by the parties hereto. In the
event any term or provision of this Agreement is determined to be invalid or
unenforceable, such invalidity or unenforceability thereof shall not affect the
remaining terms and provisions of this Agreement.
12.09 Counterparts. This Agreement may be executed in any number of counterparts
and each counterpart shall be deemed to be an original instrument, but all such
counterparts shall constitute but one instrument.
12.10 Expenses and Fees. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall be obligated to pay
the fees and expense of its counsel, accountants and other experts incident to
the negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby. All other costs shall be borne by the party
incurring such costs.
12.11 Confidentiality. Buyer has obtained and may continue to obtain
confidential and proprietary information regarding Aspen and Buyer agrees to
treat such information confidentially and not disclose such information to
anyone prior to Closing without the prior written consent of Aspen.
12.12 Exhibits. The Exhibits referred to in this Agreement are hereby
incorporated in this Agreement by this reference and constitute a part of this
Agreement. Each party has received a complete set of Exhibits as of the
execution of this Agreement. If any Exhibit inadvertently fails to list any
information which had been listed on another Exhibit, such information will be
deemed to be included on the appropriate Exhibit. Shareholders may, from time
to time prior to or at the Closing, with the agreement of Buyer, which shall
not be unreasonably withheld, supplement or amend any such Exhibit in order to
correct any matter which would constitute a breach of any representation,
warranty or covenant contained herein, except that the Shareholders may not
amend Exhibit "C" by changing the working or net revenue interests reflected
thereon and thereby cure an asserted Title Defect without making an adjustment
to the Purchase Price attributable to such change. All references to any
Exhibit hereto which is supplemented or amended as provided in this section
shall for all purposes after the Closing be deemed to be a reference to such
Exhibit as so supplemented or amended.
IN WITNESS THEREOF, Buyer, Shareholders, Merger Sub and Aspen have duly
executed this Agreement, as of the day and year first above written.
Shareholders:
/s/ LEON A. ROMERO
------------------------
Leon A. Romero
------------------------
AGREEMENT AND PLAN OF MERGER, Page 28
<PAGE> 29
/s/ GEORGE W. PEEL
-------------------------------------
George W. Peel
/s/ ALBERT SENA
-------------------------------------
Albert Sena
/s/ DOROTHY CARTER
-------------------------------------
Dorothy Carter
Aspen:
Aspen Energy Corporation
By: /s/ [ILLEGIBLE]
----------------------------------
Buyer:
Cotton Valley Resources Corporation
By: /s/ EUGENE A. SOLTERO
----------------------------------
Eugene A. Soltero,
Chief Executive Officer
Merger Sub:
Cotton Valley Operating, Inc.
By: /s/ JAMES E. HOGUE
----------------------------------
James E. Hogue, President
AGREEMENT AND PLAN OF MERGER, Page 29
<PAGE> 30
EXHIBITS AND SCHEDULES
Exhibit "A" Form of Promissory Note
Exhibit "B" There is no Exhibit "B"
Exhibit "C-1" Description of Oil and Gas Leases
Exhibit "C-2" Listing of wells, net revenue and working interests
Exhibit "D" Voting Agreement
Schedule 4.02.03 Litigation
Schedule 4.02.09 Liabilities and Taxes
Schedule 4.02.11 Gas Imbalances
Schedule 4.02.14 Contracts
AGREEMENT AND PLAN OF MERGER, Page 30
<PAGE> 1
EXHIBIT 9.1
VOTING AGREEMENT
This Agreement is made and entered into this 30th day of June 1997, at
Dallas, Texas, by and among Eugene A. Soltero ("Soltero"), James E. Hogue
("Hogue"), Leon A. Romero ("Romero"), George W. Peel ("Peel"), Albert Sena
("Sena"), and Dorothy Carter ("Carter") as shareholders of Cotton Valley
Resources Corporation, an Ontario corporation, (the "Company") for the purpose
of voting as a unit their shares of the Company.
I.
VOTING
1.1 In the event that the board of directors of the Company is expanded to
provide that four or more members need not be Canadian resident citizens,
Soltero, Hogue, Peel, Sena, and Carter agree that, for a period of five years
from the date hereof, to vote any shares of common stock owned by them at the
time of any regular or special meeting of the shareholders of the Company for
election of directors in favor of Romero as a director of the Company.
1.2 Romero, Peel, Sena, and Carter agree that, for a period of five years
from the date hereof, to vote any shares of common stock owned by them at the
time of any regular or special meeting of the shareholders of the Company for
election of directors in favor of Hogue and Soltero, or such other parties as
Hogue and Soltero may designate, as directors of the Company.
II.
MISCELLANEOUS
2.1 This Agreement is executed in multiple counterparts, each of which
shall be considered an original. An original of this Agreement will be filed
with the Secretary of the Company.
2.2 This Agreement shall be performed in Dallas, Dallas County, Texas, or
the place where any meeting of the shareholders of the Company will be held
during the term of this Agreement.
2.3 This Agreement shall be interpreted under the laws of the Province of
Ontario, Canada.
2.4 This Agreement shall terminate five years from the date hereof. Any
shares owned by a party hereto may be sold in a bona fide transaction free and
clear of the terms hereof, except if such sale is to a spouse or child, or a
trust for the benefit of the transferor, his spouse or a child, this Agreement
shall continue to apply to such shares.
VOTING AGREEMENT, Page 1
<PAGE> 2
Executed the date first set forth above.
Name Number of Shares
/s/ EUGENE A. SOLTERO
- ------------------------------------ ----------------------
Eugene A. Soltero
/s/ JAMES E. HOGUE
- ------------------------------------ ----------------------
James E. Hogue
/s/ LEON A. ROMERO
- ------------------------------------ ----------------------
Leon A. Romero
/s/ GEORGE W. PEEL
- ------------------------------------ ----------------------
George W. Peel
/s/ ALBERT SENA
- ------------------------------------ ----------------------
Albert Sena
/s/ DOROTHY CARTER
- ------------------------------------ ----------------------
Dorothy Carter
VOTING AGREEMENT, Page 2
