Form 8-K. Current Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 11, 1999
Cotton Valley Resources Corporation
(Exact name of registrant as specified in its charter)
Yukon Territory, Canada 0-28814 98-0164357
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3300 Bank One Center, 100 N. Broadway, Oklahoma City, OK 73102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (405) 606-8500
6510 Abrams Road, Suite 300, Dallas, TX 75231
(Former name or former address, if changed since last report.)
================================================================================
<PAGE>
Item 1. Changes in Control of Registrant.
A. Person acquiring control: Jack E. Wheeler
B. Amount and source of consideration: 250 shares of common stock (being
25% of the issued and outstanding equity) of East Wood Equity Venture, Inc.
("East Wood"), a Colorado corporation, which shares were acquired by Mr.
Wheeler, effective January 1999 upon the merging of Crown Partners L.L.C.
Minerals Division into East Wood.
C. Basis of control: Mr. Wheeler holds beneficial ownership to almost 25%
of the outstanding common shares and special warrants of Cotton Valley
Resources Corporation (the "Corporation" or "Registrant"), and currently
serves as its president, chairman of the board and chief executive officer.
D. Date and description of the transaction: On September 16, 1999 the
Corporation entered into a "Share Purchase Agreement," a copy of which is
annexed hereto as Exhibit A whereby the Corporation delivered 20,000,000
shares of its common stock, no par value, ("CVRC Common Stock") to its
wholly owned subsidiary, Aspen Energy Group, Inc. ("AEG"), as a capital
contribution, and in return was issued 20,000,000 shares of the common stock
of AEG ("AEG Common Stock"). The Corporation also agreed to acquire 500
shares of the common stock (being 50% of the amount outstanding) of East
Wood ("East Wood Common Stock")through the delivery to Mr. Jack E. Wheeler
of the 20,000,000 shares of AEG Common Stock and the issuance and delivery
to unrelated third parties of 5,000,000 shares of CVRC Common Stock and
21,230,897 special warrants (the "Special Warrants") where each
Special Warrant is convertible into one share of CVRC Common Stock
immediately upon authorization from the shareholders of the Corporation for
the issuance of such additional shares of CVRC Common Stock. In connection
with the execution of the agreement, Jack E. Wheeler was elected president,
chairman and chief executive officer of the corporation, effective upon the
receipt of required approvals from the Canadian Dealing Network and the
Ontario Securities Commission. Effective October 11, 1999 notice of the
final approval for the transaction was received from the regulatory
authorities and all documents and shares where delivered from escrow to
the appropriate parties.
<PAGE>
E. Percentage of Voting Securities Owned by Control Person(s): Through his
ownership of AEG, Mr. Jack E. Wheeler is the beneficial holder of 24.7% of the
outstanding shares of CVRC Common Stock, assuming conversion of the Special
Warrants. Control was relinquished by Mr. Eugene A. Soltero and Mr. James E.
Hogue, founders and promoters of the Corporation. Messrs. Soltero and Hogue
have agreed to vote for directors nominated by Mr. Wheeler any CVRC Common
Shares they hold or for which they may hold any directors' voting rights.
Approximately 8,500,000 (or approximately 10.5%) of outstanding CVRC Common
Shares are currently subject to this agreement.
Item 2. Acquisition or Disposition of Assets.
A. Date and Manner of the Acquisition: See Item 1, Paragraph D, above.
B. Description of the Assets:
General. East Wood Equity Venture, Inc. ("East Wood") was formed under the
laws of the State of Colorado by a Statement of Merger merging Crown Partners,
LLC., Minerals Division ("Crown Partners") with East Wood Equity Venture, Inc.
effective on January 2, 1999. The registered office of East Wood is located at
122 E. Reds Road, P.O. Box 7665, Aspen, Colorado 81611 and the principal
executive office is located at 3300 Bank One Center, 100 North Broadway,
Oklahoma City, OK 73102 .
Prior to the merger, East Wood was a private company which merged with
Crown Partners, a company active in the oil and gas industry. References
to East Wood include, especially with regard to the business of East Wood,
the business previously carried on principally by Crown Partners.
Business of East Wood and Description of East Wood Properties. East Wood
operates in the oil and gas industry in various states throughout the United
States and owns interests in approximately 400 producing oil and gas properties
located in Alabama, Arkansas, California, Louisiana, Mississippi, Montana,
Oklahoma, Texas and Wyoming (collectively, the "East Wood Properties"). East
Wood owns a working interest in the majority of these wells, however, it does
have a mineral owner royalty interest in 8 wells and an overriding royalty
interest in 79 wells. The main concentration of properties is in Oklahoma
with 337 wells and Texas with 30 wells.
Approximately 81% of the East Wood Properties are gas wells while the
remaining 19% are oil wells. East Wood has working interests and royalty
interests ranging from less than 1% to 43% in wells ranging in depths from
5,200' to 23,650'.
East Wood has a very active development program and participates in an
average of 15 to 20 wells per year. Based on the most recent reserve reports,
East Wood's interest in the East Wood Properties have estimated proved developed
net reserves of over 290,950 barrels of oil and condensate and 11,858,677 Mcf
gas.
<PAGE>
Estimate of Proved Developed Oil and Gas Reserves. Pursuant to a report
(the "Report") dated September 2, 1999 from American Energy Advisors, Inc.
("AEA"), the proved developed reserves and future revenues attributable to East
Wood's interest in the East Wood Properties have been quantified. AEA prepared
the Report, signed by Kendell V. Tholstrom, P.Eng., and Stephen A. Lieberman,
P.E. of AEA. Mr. Tholstrom is a graduate of the Montana School of Mines (1968)
and also has a Bachelor of Science degree in Petroleum Engineering and a Masters
of Science in Petroleum Engineering from the Montana School of Mines (1970). He
is a registered professional engineer in Colorado (Registration No. 23120) since
1985. Mr. Lieberman received a B.Sc. degree in Petroleum and Natural Gas
Engineering from Pennsylvania State University in June 1974. He is a member of
the Society of Petroleum Engineers. AEA were selected to issue the Report based
primarily on their qualification to issue qualifying reserve reports for both
U.S. and Canadian oil and gas properties. No material relationship previously
existed between East Wood and AEA prior to this Report. The proved developed
reserves in the Report were estimated pursuant to the guidelines of the United
States Securities and Exchange Commission using constant prices. The summary of
the proved developed reserves and future revenue net to East Wood's interests in
the East Wood Properties as at July 1, 1999 are estimated as follows:
ESTIMATED ESTIMATED
ESCALATED PRICING NET RESERVES FUTURE NEW REVENUE
Oil and Gas Not Discounted
Condensate (Mcf) Discounted At 10%
Reserve Category (Barrels) ($) ($)
___________________________________________________________________________
Proved Developed
Producing 284,532 11,396,606 21,963,500 11,030,608
Proved Developed
Non-Producing 6,418 462,071 946,821 594,843
_____________________________________________________________________________
Total Proved Developed 290,950 11,858,677 22,910,321 11,625,451
<PAGE>
The oil reserves shown include oil and condensate. Oil volumes are
expressed in barrels, one of which is equivalent to 42 United States gallons.
Gas volumes are expressed in thousands of standard cubic feet ("Mcf") and are
evaluated at the appropriate temperature and pressure base.
The reserves and future revenue estimated in the Report are for proved
developed producing and proved developed non-producing reserves. These
estimates do not include any value for probable or possible reserves which might
exist for these properties, or any value which might be attributable to
interests in undeveloped acreage or reserves.
In preparing the Report, American Energy Advisors, Inc. were not retained
to provide an estimate of proved undeveloped reserves. The Report shall be made
available for inspection and copying at the principal executive officers of East
Wood during regular business hours by any interested shareholder.
Directors and Officers. The board of directors of East Wood consists of
three (3) members. The following table sets forth the name, the municipality of
residence, the office held and the principal occupation of each officer and
director of East Wood:
Name and Municipality of Residence Office Principal Occupation
______________________________________________________________________________
Jack E. Wheeler Director, Oil and gas
Edmond, Oklahoma President and Chief businessperson
Executive Officer
Farrell Kahn Director and Chairman Oil and gas
Aspen, Colorado businessperson
Patrice Kahn Director and Secretary Oil and gas
Aspen, Colorado businessperson
______________________________________________________________________________
Indebtedness of Directors and Senior Officers. There has been no outstanding
indebtedness to East Wood by any officer or director of East Wood or any
associate of such person since the merger forming East Wood on January 2,
1999.
Capitalization. The following sets out the capitalization of East Wood as
at September 30, 1999:
Outstanding as at
Number Authorized September 30, 1999
----------------- ------------------
Share Capital
Common Shares 1,000 $104,788
(1,000 shares)
Retained Earnings - $1,206,457
------------------ ------------------
Total Capitalization - $1,311,245
Escrowed Shares. No shares of East Wood are held in escrow.
<PAGE>
Share Capital. East Wood's authorized capital consists of 1,000 common
shares, of which 1,000 common shares are currently issued and outstanding.
Share Attributes. The following is a summary of the material provisions
attaching to the common shares and is subject to the detailed provisions of the
constating documents of East Wood describing the rights, privileges,
restrictions and conditions of such shares:
The holders of the common shares of East Wood are entitled to:
(i) receive notice of any meeting of shareholders of East Wood and to
attend and vote at any such meeting on the basis of one vote for each share
held;
(ii) have restrictions imposed upon the transfer of any common shares by
East Wood, provided that such restrictions as made from time to time be so
imposed or notice of the substance thereof must be set forth upon the face or
back of the certificates representing such common shares; and
(iii) pre-emptive rights to acquire unissued shares of East Wood.
Principal Holders of Voting Shares. According to the register of
shareholders of East Wood, the following shareholders hold 10% or more of the
issued and outstanding common shares in the capital of East Wood.
Shareholder Number of Shares %of Outstanding
Shares
________________________________________________________________________
Cotton Valley Resources
Corporation 500 50%
Farrell Kahn 188 18.8%
Previous Issuances of Common Shares of East Wood.
Brief
Number and Net Amount Description
Class of Price Realized by East of Utilization
Date Method of Sale Shares Per Share Wood of Funds
________________________________________________________________________________
January 2, Corporate 2 Common U.S.$1.00 U.S.$2.00 Corporate
1999 Organization- Shares organization
Merger merger
January 4, Subscription 998 Common See Note(1) Acquisition of N/A
1999 Shares Crown Partners,
LLC assets
_________________________________________________________________________
<PAGE>
Note (1): The 998 common shares were issued to the shareholders of Crown
Partners, LLC, which was merged with East Wood Equity Venture, Inc. to form
East Wood on January 2, 1999.
Interest of Management and Others in Material Transactions. Other than as
described below or elsewhere in this document, no officer or director of East
Wood, and no person or company holding more than 10% of the issued and
outstanding common shares of East Wood, or any associate or affiliate thereof,
has any material beneficial interest in any transaction completed since the
merger forming East Wood effective on January 2, 1999, or in any proposed
transaction, which has materially affected or will materially affect East Wood.
Material Contracts. The only material contracts entered into by East Wood,
copies of which are available for inspection at the offices of East Wood at
122 E. Reds Road, P.O. Box 7665, Aspen, Colorado 81611 by contacting Farrell
Kahn, Chairman of East Wood, are the Shares Purchase Agreement (Exhibit A
hereto) and for each of the producing properties comprising the East Wood
Properties, there exists separate operating agreements, title opinions and
division orders (directing to whom and manner in which all proceeds are to be
distributed) (collectively, "Operating Agreements"). No single Operating
Agreement constitutes a material contract of East Wood.
Auditors, Transfer Agent and Registrar. The accountants of East Wood are
Lederer & Co., P.C. of Aspen, Colorado. East Wood acts as its own transfer
agent and registrar.
C. Nature and Amount of Consideration: See Item 1, Paragraph D, above.
D. Principle Followed in Determining the Amount of the Consideration: Under
the terms of the Purchase Agreement, the Corporation acquired a 50% interest in
East Wood for consideration equal to, upon exercise of the outstanding Special
Warrants, 46,230,897 Common Shares . This represented an acquisition of a 50%
interest in a company which, according to a reserve report dated September 2,
1999 prepared by American Energy Advisors, Inc., had an estimated future net
revenue value, discounted at 10%, of US$11,625,451. As a result, the
Corporation issued the 46,230,897 Common Shares to acquire half of that value,
or approximately US$5.8 million. In addition, East Wood owns proved undeveloped
reserves with respect to more than 600 undrilled oil and gas locations, the
values of which have not yet been confirmed by outside third party engineers,
but which the Corporation's engineer valued at amounts exceeding $35 million.
The 50% of East Wood represents $22.5 million of reserves (less approximately
$2.3 million of debt). The Corporation entered into the Shares Purchase
Agreement to acquire 50% of the outstanding shares of East Wood because it was
in a position where substantially all of its reserves were undeveloped without
income being generated, and was losing approximately US$40,000 per month. By
acquiring a 50% interest in East Wood, the Corporation would have a viable
business from currently producing oil and gas wells, with positive cash flows,
as well as adding significantly to its undeveloped reserves. In addition, the
price paid in shares represents increased value to the Corporation.
D. Identity of the Person(s) from Whom Assets were Acquired: Jack E. Wheeler,
Apollo Investments Limited, Stillwater Gas Productions Inc. and Custer County
Drillers Inc.
<PAGE>
Item 7. Financial Statements and Exhibits
A. Financial Statements and Pro Forma Financial Information of Business Being
Acquired: It is impracticable to provide the required financial statements and
pro forma financial information at this time. The Corporation expects to file
such statements and information within thirty days.
B. Exhibits: Exhibit A-Shares Purchase Agreement dated September 16, 1999.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cotton Valley Resources Corporation
(Registrant)
Date: October 25, 1999 /s/ Jack E. Wheeler
Jack E. Wheeler
Chief Executive Officer
<PAGE>
Exhibit A
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 16th day of September, 1999.
AMONG:
JACK E. WHEELER, of the City of Edmond, in the State of
Oklahoma.
(hereinafter referred to as "Wheeler")
OF THE FIRST PART
- and -
APOLLO INVESTMENTS LIMITED, a corporation
incorporated and formed under the laws of Turks and Caicos
Islands, British West Indies.
(hereinafter referred to as "Apollo")
OF THE SECOND PART
- and -
STILLWATER GAS PRODUCTION INC., a corporation
incorporated and formed under the laws of Turks and Caicos
Islands, British West Indies.
(hereinafter referred to as "Stillwater")
OF THE THIRD PART
- and -
CUSTER COUNTY DRILLERS INC., a corporation
incorporated and formed under the laws of Turks and Caicos
Islands, British West Indies.
(hereinafter referred to as "Custer")
OF THE FOURTH PART
<PAGE>
(hereinafter each of Wheeler, Apollo, Stillwater and Custer
also individually referred to as a "Vendor" and collectively as
the "Vendors")
- and -
COTTON VALLEY RESOURCES CORPORATION, a
Yukon Territory corporation.
(hereinafter referred to as the "Purchaser")
OF THE FIFTH PART
- and -
ASPEN ENERGY GROUP, INC., a Texas corporation.
(hereinafter referred to as "Aspen")
OF THE SIXTH PART
- and -
EAST WOOD EQUITY VENTURE, INC., a corporation
incorporated under the laws of the State of Colorado.
(hereinafter referred to as "East Wood")
OF THE SEVENTH PART
WHEREAS each Vendor beneficially held an interest in Crown Partners
LLC Minerals Division, a Colorado limited liability company, which in
aggregate represented 50% of the issued and outstanding members' interests
in Crown Partners;
AND WHEREAS pursuant to a merger between East Wood and Crown Partners
made effective January 2, 1999, the Vendors received a 50% interest of all
the issued and outstanding shares in the capital of East Wood, which the
Vendors wish to sell to the Purchaser pursuant to the terms of this
agreement;
AND WHEREAS the Purchasers will acquire the interest of the Vendors in
East Wood through its wholly-owned subsidiary, Aspen;
<PAGE>
AND WHEREAS the Purchaser wishes to purchase the said issued and
outstanding shares in East Wood owned by the Vendors, all upon and subject
to the terms and conditions hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that for good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged
by each of the parties hereto) the parties make the agreements and
acknowledgments hereinafter set forth:
ARTICLE I
INTERPRETATION
1.1 Definitions - Whenever used in this Agreement, unless there is something
in the subject matter or context inconsistent therewith, the following words
and terms shall have the respective meanings ascribed to them as follows:
(1) "Agreement" means this Share Purchase Agreement and all instruments
supplemental hereto or in amendment or confirmation hereof; "hereof",
"hereto", and "hereunder" and similar expressions mean and refer to
this Agreement and not to any particular Article or Section;
"Article", "Section", "paragraph" or "clause" means and refers to
the specified article, section, paragraph or clause of this
Agreement;
(2) "Business" means the business presently and heretofore carried on
by East Wood consisting of oil and gas property operations;
(3) "Business Day" means a day other than a Saturday, Sunday or any
other day on which the principal commercial banks located at the
City of Toronto are not open for business during normal banking
hours;
(4) "Closing" means the completion of the sale and purchase of the
Purchased Members Interest hereunder by the transfer and delivery
of documents of title thereto and the payment of the purchase
price therefor as contemplated herein;
(5) "Closing Date" means September 16, 1999, or such other date as
the parties hereto may agree as to the date upon which the Closing
shall take place;
(6) "Closing Time" means 3:00 o'clock in the afternoon on the Closing
Date or such other time on the Closing Date as the parties hereto
may agree as to the time on the Closing Date which the Closing
shall take place;
(7) "Cotton Valley Properties" means the Cotton Valley Properties as
defined in Section 5.1(h);
<PAGE>
(8) "Cotton Valley Shares" means the 25,000,000 common shares in the
capital stock of the Purchaser to be issued to the Vendors in
payment and satisfaction of the Purchase Price pursuant to
subsection 2.1(c) of this Agreement;
(9) "East Wood Properties" means the East Wood Properties as set forth
on Schedule 1.1(i) hereto;
(10) "Effective Date" means July 1, 1999.
(11) "Purchase Price" has the meaning ascribed to it in subsection 2.1(a)
of this Agreement; and
(12) "Purchased Shares" means Five Hundred (500) shares representing
fifty (50%) percent of the issued and outstanding common shares in
East Wood owned by the Vendors in the following numbers:
Wheeler - 250 shares
Apollo - 63 shares
Stillwater - 62 shares
Custer - 125 shares
(13) "Warrants" means 21,230,897 special warrants of Cotton Valley
issuable to Stillwater and Custer as consideration, having the
terms and conditions attached as Schedule 2.1(c).
1.2 Headings - The division of this Agreement into Articles and Sections and
the insertion of headings are for the convenience of reference only and shall
not affect the construction or interpretation of this Agreement.
1.3 Number - In this Agreement and unless the context otherwise requires,
words importing the singular number only shall include the plural and vice
versa, words importing the neuter gender shall include the masculine and
feminine genders and vice versa and words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated
organizations and corporations and vice versa.
1.4 Joint and Several - Whenever in this Agreement the word "Vendors" is
used, the same shall extend to include and obligate jointly and severally
each of Wheeler, Apollo, Stillwater and Custer and their respective
successors and assigns.
1.5 Currency - All payments required hereunder to be made and all currency
mentioned herein shall be in and refer to U.S. dollars.
<PAGE>
1.6 Reference to Statutes - All references contained in this Agreement to
a statute shall be deemed to be made to such statute as now enacted or as
the same may from time to time be amended, re-enacted or replaced, and in
the case of any such amendment, re-enactment or replacement, such reference
herein to a provision of such statute shall be read as a reference to
such amended, re-enacted or replaced provision.
ARTICLE II
PURCHASE AND SALE
1.7 Action by Vendors and Purchaser - Subject to the terms and conditions
of this Agreement, at the Closing Time:
(1) Purchase Price - The Vendors shall sell and the Purchaser shall
purchase the 500 shares of East Wood for 25,000,000 shares of
the Purchaser plus the 21,230,897 Warrants.
(2) Delivery of Certificates, etc. - The Vendors shall deliver to
the Purchaser at the Closing certificates or documents of title
or other evidences of ownership of the Purchased Shares to be sold
and purchased hereunder duly endorsed for transfer, or accompanied
by irrevocable security transfer powers of attorney duly executed
in blank, in either case by the holders of record thereof, all in
form and substance sufficient to permit the recording or registration
of the Purchaser, to be held by its wholly-owned subsidiary Aspen,
as the new owner of record of the Purchased Shares in compliance
with all applicable requirements, provisions and procedures relating
to the recording or registration of such ownership. The Vendors
shall also deliver to the Purchaser certified copies of the
resolutions of the board of directors, shareholders or members of
East Wood, as the case may be, required to approve the transfer of
the Purchased Shares by the Vendors to the Purchaser through its
wholly-owned subsidiary Aspen.
(3) Payment to the Vendors - The Purchaser shall pay the Purchase Price
on Closing by the issuance to each Vendor of the Cotton Valley Shares
and Warrants in the following numbers:
Wheeler - 20,000,000 common shares
Apollo - 5,000,000 common shares
Stillwater - 7,076,965 Warrants
Custer - 14,153,932 Warrants
<PAGE>
Notwithstanding the foregoing, in the case of payment to the Vendors
Wheeler and Apollo of the Cotton Valley Shares, the 5,000,000 Cotton Valley
Shares issuable to Apollo will be issued in the name of Apollo, and the
20,000,000 Cotton Valley Shares issuable to Wheeler will be issued to Aspen,
which shares shall be held by Aspen subject to the terms and conditions
attaching to the Class A common shares of Aspen. The Class A
shares of Aspen ("Aspen Shares") shall have the terms and conditions attached
hereto as Schedule 2.1(c). A total of 20,000,000 Aspen Shares will be issued
to Wheeler. Each Aspen Share, according to the terms and conditions attaching
thereto as set out in Schedule 2.1(c), will have the right to vote the
underlying Cotton Valley Shares on a one-for-one basis, to the extent that
such Aspen Shares are outstanding. Each holder of an Aspen Share shall have
the right, at the holder's option, to convert or redeem such Aspen Share for a
Cotton Valley Share, on the basis of one Cotton Valley Share for each Aspen
Share so converted or redeemed.
2.2 Effective Date - The acquisition of the Purchased Shares and the
ownership in East Wood shall, upon Closing, be effective from the Effective
Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
1.8 Unless specifically stated that a Vendor is making a covenant,
representation or warranty severally, the Vendors hereby covenant, represent
and warrant jointly to the Purchaser that:
(1) Right to Sell - The Purchased Shares constitute in the aggregate
fifty (50%) percent of the issued and outstanding shares in East Wood,
and each Vendor severally covenants, represents and warrants that
such Vendor is the sole registered and beneficial owner of those
Purchased Shares set out beside such Vendor's name in Subsection
1.1(k), free and clear of all liens, charges, pledges, security
interests, demands, adverse claims, rights, or other
encumbrances whatsoever and no person, firm or corporation now has
or at Closing will have any right, option, agreement or arrangement
capable of becoming an agreement for the acquisition of any of the
Purchased Shares or any interest therein from such Vendor.
(2) Due Authorization, etc. - Each Vendor severally covenants, represents
and warrants that he has all necessary power, authority and capacity
to enter into this Agreement and the agreements and other instruments
contemplated herein and the consummation of the transactions
contemplated hereunder and thereunder.
<PAGE>
(3) Valid and Binding Obligation - This Agreement constitutes and the
agreements and other instruments contemplated herein when executed
will constitute valid and binding obligations of each Vendor
enforceable against each of them in accordance with the terms
hereof and thereof subject, however, to limitations with respect
to enforcement imposed in connection with laws affecting the
rights of creditors generally including, without limitation, applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws
and to the extent that equitable remedies such as specific performance
and injunction are in the discretion of the court from which they are
sought.
(4) No Violation - The disposition of the Purchased Shares and the
entering into and performance of this Agreement and the agreements
and other instruments contemplated herein will not violate, contravene,
breach or offend against or result in any default under any security
agreement, indenture, mortgage, lease, order, undertaking, licence,
permit, agreement, instrument, charter or by-law provision, resolution
of shareholders or directors, statute, regulation, judgment, decree
or law to which East Wood is a party or by which it may be bound or
affected; each Vendor hereby severally covenants, represents and
warrants that the disposition by such Vendor of those Purchased Shares
set out beside his or its name in Subsection 1.1(k) of this Agreement
and the entering into and performance of this Agreement and the
agreements and other instruments contemplated herein will not
violate, contravene, breach or offend against or result in any
default under any security agreement, indenture, mortgage, lease,
order, undertaking, licence, permit, agreement, instrument,
charter or by-law provision, resolution of shareholders or directors,
statute regulation, judgment, decree or law to which such Vendor is
a party or by which such Vendor may be bound or affected; and neither
the Vendors nor East Wood are, or will be at Closing, party to or
subject to or bound by the terms of any unanimous shareholder
agreement that restricts the transfer of shares in the capital of
East Wood. No licenses, agreements or other instruments or documents
will terminate or require assignment as a result of the entering into
of this Agreement or the consummation of the transactions contemplated
hereby.
(5) Organization, Standing and Power - East Wood is a Colorado corporation
duly organized, validly existing and in good standing under the laws
of the State of Colorado, having all requisite power and authority
to own and operate oil and gas properties, including the East Wood
Properties, and to carry on their business as now being conducted.
<PAGE>
(6) Issued Shares - Of the authorized capital of East Wood One Thousand
(1,000) common shares (and no more) have been duly and validly issued
and are outstanding as fully paid and non-assessable common shares
in East Wood. The certificates evidencing such shares, including
the Purchased Shares do not contain any reference to a restriction
on the transfer of the Purchased Shares (other than set out in the
Articles of Incorporation) a unanimous shareholder agreement or a
lien in favour of East Wood and bear no restrictive legends. Neither
the constating documents or by-laws of East Wood nor any agreement
contain or provide for restrictive legends thereto.
(7) No Options - No options, warrants, convertible obligations or other
rights to purchase or acquire the Purchased Shares or other securities
of East Wood have been authorized, allotted or agreed to by the
Vendors.
(8) Residence of the Vendor - Each Vendor severally covenants, represents
and warrants that such Vendor is a non-resident of Canada for the
purposes of Section 116 of the Income Tax Act (Canada).
(9) Merger with Crown Partners LLC - Each Vendor severally covenants,
represents and warrants to the Purchaser that the merger effective
January 2, 1999 between East Wood and Crown Partners LLC (the
"Merger") was done in full compliance with applicable laws, and
make the following specific representations and warranties concerning
the Merger:
(1) that they will provide within ninety (90) days of the Closing Date
an audit of the East Wood financial statements at December 31,
1998;
(2) that the financial information contained in the Crown Partners LLC
financial statements at December 31, 1998 are not impacted in a
material way as a result of the Merger with East Wood;
(3) that East Wood, prior to the Merger, was a shell corporation which
had not carried on business in any manner or incurred any material
liabilities whatsoever; and
(4) each Vendor personally indemnifies Cotton Valley and Aspen for
any damages or losses caused as a result of a misrepresentation
contained in this section concerning the Merger, and the
representations and warranties made concerning East Wood and
Crown Partners LLC.
<PAGE>
(10) Full Disclosure - None of the foregoing representations and statements
of fact contains any untrue statement of material fact or omits to
state any material fact necessary to make any such statement or
representation not misleading to a prospective purchaser of the
Purchased Shares seeking full information as to the Vendors and the
Purchased Shares. The Vendors have no information or knowledge of
any facts relating to the Business or to the Purchased Shares which
the Vendors have not disclosed to the Purchaser and which are not
within the public domain and which in the aggregate would have a
material adverse effect on the financial condition or prospects of
East Wood.
1.9 Reliance - The Vendors hereby expressly acknowledge that the Purchaser and
Aspen are relying upon the covenants, representations and warranties of the
Vendors contained in this Agreement or in any agreement, certificate or other
document delivered pursuant hereto in connection with the purchase of the
Purchased Shares hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EAST WOOD
1.10 East Wood hereby covenants, represents and warrants to the Purchaser that:
(1) Organization, Standing and Power - East Wood is a Colorado corporation
duly organized, validly existing and in good standing under the laws
of the State of Colorado, having all requisite power and authority to
own and operate, and does own and operate, oil and gas properties,
including the East Wood Properties, and to carry on its business as
now being conducted. The Merger completed with Crown Partners LLC
effective January 2, 1999 was done in compliance with all applicable
laws, and does not affect the valid existence of East Wood.
(2) Authority and Enforceability - This Agreement is the valid and binding
obligation of East Wood, has been duly and validly authorized by all
necessary corporate action on the part of East Wood and is enforceable
against it in accordance with its terms. Neither the execution and
delivery by East Wood of this Agreement nor the consummation of the
transactions contemplated hereby, nor compliance of them with any
of the provisions hereof, will
<PAGE>
(1) conflict with or result in a breach of any provision of any East
Wood operating agreement;
(2) result in a default (with due notice or lapse of time or both) or
give rise to any right or termination, cancellation or acceleration
under any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, license or agreement to which
East Wood is a Party or by which East Wood or any of its properties
or assets may be bound.
(3) violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to them or any of their properties
or assets, except for violations which will not have a material
adverse effect on their business or properties ("Material Adverse
Effect"); or
(4) require the consent, approval, authorization or permit of, or
filing with or notification to any governmental authority or
any other person, except as set forth in Schedule 4.1(b) hereof.
(3) Absence of Changes - Except as disclosed in writing to Cotton Valley
prior to Closing, there have been no material adverse changes in the
condition of the Business or the East Wood Properties.
(4) Agreements - Cotton Valley acknowledges that East Wood 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 East Wood and the
oil and gas leases owned by East Wood 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 materially adverse manner with respect to
the East Wood Properties and is in the form and substance considered
conventional within the oil and gas industry.
<PAGE>
(5) Capitalization of East Wood - 1,000 shares of common stock and 4
promissory notes for debt totalling approximately $4.6 million.
(6) Consents - No consents for East Wood to enter into this Agreement
and consummate the actions contemplated by this Agreement are
required.
(7) Environmental Matters - Except as set forth on Schedule 4.1(g)
hereto, with respect to the Properties owned by East Wood now or in
the past, (collectively the "East Wood Properties"):
(1) To its knowledge, at no time during Crown Partner's ownership
have the East Wood Properties been used by them, or by anyone
else, for the generation, storage or disposal of a Hazardous
Substance (as hereinafter defined) or as a landfill or other
waste disposal site, except in compliance with Environmental
Laws (as hereinafter defined) and East Wood has not received
any notification of violation of said laws, except as previously
disclosed in writing to Cotton Valley. To the knowledge of East
Wood, 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. 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;
(2) East Wood has not entered into, and, no predecessor to it has
entered into, or is subject to, any agreements, consent orders,
decrees, judgments, license or permit conditions, or, 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 East Wood Properties or that require any
change in the present conditions of any of the East Wood
Properties;
<PAGE>
(3) There are no actions, suits, claims or proceedings seeking money
damages, injunctive relief, remedial action, or other remedy,
pending or threatened, against any of the East Wood Properties
or against East Wood from its ownership or operation of the
East Wood 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;
(4) Neither the execution of this Agreement nor the consummation of
the transactions contemplated by this Agreement will violate any
Environmental Law or require the consent or approval of any agency
charged with enforcing any Environmental Law.
(8) Governmental Rules. East Wood has not received any notice of a default
under or violation of:
(1) 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
(2) any material agreement or obligation to which it is a party or
by which it is bound or to which it may be subject except for
violations that will not have a Material Adverse Effect.
(9) Liability for Brokers' Fees. East Wood will not directly or indirectly
incur any liability or expense as a result of any undertakings or
agreements of East Wood 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, except as disclosed to Cotton Valley with regard to Dominick
& Dominick Securities Inc.
(10) Liabilities and Taxes. Except as reflected on the attached Schedule
4.1(j), all liabilities, franchise taxes, federal income taxes, state
income taxes, ad valorem taxes (based on 1999 rates), real property,
personal property, production, severance, excise and other all other
material taxes and liabilities for which East Wood may be liable for
periods of time ending prior to September 14, 1999 have been duly
and timely paid or accrued.
<PAGE>
(11) Litigation. Except as reflected on the attached Schedule 4.1(k),
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 threatened against or affecting
East Wood or any of its assets or which has affected or could affect
its ability to consummate the transactions contemplated by this
Agreement.
(12) No Demands. East Wood has received no notice of any claimed defaults,
offsets or demands with respect to its properties and there is no
default existing with respect to any contracts that would have a
Material Adverse Effect.
(13) No Liens or Encumbrances. The interests of the members of East Wood
and all of the assets and properties of East Wood, which are the
subject hereof, are free and clear of all liens and encumbrances except
as reflected on the attached Schedule 4.1(m).
(14) Non-Foreign Representation. East Wood is not a Non-Resident Alien
Foreign Corporation, Foreign Partnership, Foreign Trust or Foreign
Estate (as those terms are defined in the Internal Revenue Code and
Income Tax Regulations).
(15) Payments. All payments of any kind required to be made by East Wood
to Third Parties under any existing contract or agreement, with regard
to its properties, have been or will be properly and timely paid for
or provided for.
(16) Qualification. East Wood is an experienced and knowledgeable investor
in natural resource 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, East
Wood has relied solely on its independent investigation of, and
judgment with respect to, the Cotton Valley 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 Cotton
Valley.
(17) Reports. From June 1, 1996 until January 2, 1999 Crown Partners has,
and from January 3, 1999 until the date hereof, East Wood has, filed
all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with the State of
Colorado (collectively, the "East Wood Reports"). As of their
respective dates (but taking into account any amendments filed prior
to the date of this Agreement), the East Wood Reports complied in all
material respects with all the rules and regulations promulgated by
the State of Colorado 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 East Wood included in the East Wood 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 East Wood as of the date
thereof and the results of its operations and its cash flows for the
periods then ended.
<PAGE>
(18) Royalties - All royalties and other payments due from or in connection
with sales from the East Wood' Properties for all periods of time prior
to Closing have been or will be properly and correctly paid by them.
(19) Notice of Breach of Representations or Warranties - East Wood will
immediately notify Cotton Valley upon the discovery that any
representation or warranty of East Wood becomes or will become untrue
on the Closing Date.
(20) Survivability - All representations and warranties contained in this
Article IV shall survive the Closing.
1.11 Reliance - East Wood hereby expressly acknowledges that the Purchaser and
Aspen are relying upon the covenants, representations and warranties of the East
Wood contained in this Agreement or in any agreement, certificate or other
document delivered pursuant hereto in connection with the purchase of the
Purchased Shares hereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND ASPEN
1.12 The Purchaser and where applicable Aspen hereby covenant, represent and
warrant to the Vendors and to East Wood as follows:
(1) Organization, Standing and Power. The Purchaser is a Yukon Territory
Corporation duly organized, validly exiting and in good standing under
the laws of the Yukon Territory, Canada, having all requisite power
and authority to carry on their business as now being conducted.
Aspen is a Texas corporation duly organized, validly existing and
in good standing under the laws of the State of Texas, having all
requisite power and authority to carry on their business as now being
conducted.
(2) Authority and Enforceability. This Agreement is a valid and binding
obligation of each of the Purchaser and Aspen, has been duly and
validly authorized by all necessary corporate action on the part of
each of the Purchaser and Aspen and is enforceable against each in
accordance with its terms. Neither the execution and delivery by
the Purchaser or Aspen of this Agreement nor the consummation of the
transactions contemplated hereby, nor compliance of it with any of the
provisions hereof, will:
(1) conflict with or result in a breach of any provision of the
Purchaser's or Aspen's certificate of organization,
(2) result in a default (with due notice of lapse of 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 either is a party or by which any of its
properties or assets may be bound,
(3) violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to them or any of their properties
or assets, except for violations which will not have a material
adverse effect on either party's business or properties ("Material
Adverse Effect"); or
(4) require the consent, approval, authorization or permit of, or
filing with or notification to any governmental authority or any
other person, except as set forth in Schedule 5.1(b) hereof.
<PAGE>
(3) Absence of Changes. Except as disclosed in writing to East Wood and
the Vendors prior to Closing, there have been no material adverse
changes in the condition of the Purchaser's business or properties.
(4) Agreements. East Wood and the Vendors acknowledge that the Purchaser
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 the
Purchaser and the oil and gas leases owned by the Purchaser 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 materially
adverse manner with respect to the Purchaser and are in form and
substance considered conventional within the oil and gas industry.
(5) Capitalization of the Purchaser and Aspen. Of the authorized capital
of Cotton Valley, no preference shares and 34,198,198 common shares
(and no more) have been duly and validly issued and are outstanding
as fully paid and non-assessable shares in the capital of the
Purchaser. At Closing, exclusive of the Cotton Valley Shares, there
shall be 34,198,198 common shares of Cotton Valley outstanding. Upon
consummation of the transactions contemplated hereby and the issuance
and delivery of certificates representing the 5,000,000 Cotton Valley
Shares to Apollo and the 20,000,000 Cotton Valley Shares to Aspen, to
be held by Aspen for issuance to Wheeler pursuant to the terms of the
Aspen Shares, all as more particularly described in Schedule 2.1(c)
hereof, such shares will be duly authorized, validly issued, fully
paid and non-assessable. Other than the Warrants, there are no
other warrants, options, convertible debentures or any other form
of securities of the Purchaser issued or outstanding, except as
reflected on the attached Schedule 5.1(e).
Of the authorized capital of Aspen, no Class A common shares and
1,000 common shares (and no more) have been duly and validly issued
and are outstanding as fully paid and non-assessable shares in the
capital of Aspen at Closing. Upon consummation of the transactions
contemplated hereby and the issuance and delivery of certificates
representing the 20,000,000 Class A common shares of Aspen
previously defined as the Aspen Shares, with the attributes attached
as Schedule 2.1(c), such shares will be duly authorized, validly
issued, fully paid and nonassessable. There are no other warrants,
options, convertible debentures or any other form of securities of
Aspen issued or outstanding, except as reflected on the attached
Schedule 5.1(e).
<PAGE>
(6) Cotton Valley and Aspen Common Stock. The Cotton Valley Shares will
be authorized and issued common stock of the Purchaser, with no par
value, held by Aspen in the case of the 20,000,000 shares for issuance
to Wheeler, in accordance with the terms, conditions and rights
attaching to the Aspen Shares.
The Aspen Shares will be issued as fully paid, non-assessable Class
A common shares in the capital of Aspen, with the exchange rights
and voting rights attached thereto as set out in Schedule 5.1(f).
[Schedule 5.1(f) to contain exchange rights and process, along with
confirmation that individuals holding Aspen Shares have irrevocable
rights to vote shares in Cotton Valley.]
(7) Cotton Valley Warrants. The Warrants issued hereunder to the Vendors,
as described in Schedule 2.1(c), will be duly issued by the Purchaser
and exercisable for common shares of Cotton Valley according to the
terms and conditions contained therein. The common shares of Cotton
Valley issuable on the due exercise of the Warrants (which may only
occur following Cotton Valley shareholder approval) will be issued
as fully paid, non-assessable shares in the capital of Cotton Valley.
(8) Consents. No consents for the Purchaser or Aspen to enter into this
Agreement and consummate the actions contemplated by this Agreement
are required.
(9) Environmental Matters. Except as set forth in Schedule 5.1(i)
attached hereto, with respect to the properties owned by the Purchaser
now or in the past, (collectively the "Cotton Valley Properties"):
<PAGE>
(1) To its knowledge, at no time during the Purchaser's ownership
have the Cotton Valley Properties been used by them, or by anyone
else, for the generation, storage or disposal of a Hazardous
Substance (as hereinafter defined below) or as a landfill or
other waste disposal site, except in compliance with Environmental
Laws (as hereinafter defined) and the Purchaser has not received
any notification of violation of said laws, except as previously
disclosed in writing to East Wood. To the knowledge of the
Purchaser, 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. 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.
(2) The Purchaser has not entered into, and, no predecessor to it
has entered into, or is subject to, any agreements, consent
orders, decrees, judgments, license or permit conditions, or,
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.
(3) There are no actions, suits, claims or proceedings seeking
money damages, injunctive relief, remedial action, or other
remedy, pending or threatened, against any of the properties
or against the Purchaser 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.
(4) Neither the execution of this Agreement nor the consummation of
the transactions contemplated by this Agreement will violate any
Environmental law or require the consent or approval of any
agency charged with enforcing any Environmental Law.
<PAGE>
(10) Governmental Rules. The Purchaser has not received any notice of a
default under or violation of:
(1) any law, order, writ, injunction, rule, regulation or decree of
any governmental body, agency or court of any commission of other
administrative agency except for violations that will not have a
Material Adverse Effect, or
(2) any material agreement or obligation to which it is a Party or
by which it is bound or to which it may be subject except for
violations that will not have a Material Adverse Effect.
(11) Liability for Brokers' Fees. The Purchaser or Aspen will not
directly or indirectly incur any liability or expense as a result
of any undertakings or agreements of the Purchaser 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, other than pursuant to the
agreement with Dominick & Dominick Securities Inc.
(12) Liabilities and Taxes. Except as reflected on the attached Schedule
5.1(l), all liabilities, franchise taxes, federal income taxes,
state income taxes, ad valorem taxes (based on 1999 rates), real
property, personal property, production, severance, excise and all
other material taxes and liabilities for which the Purchaser may be
liable for periods of time ending prior to [September 14,] 1999
have been duly and timely paid or accrued.
(13) Litigation. Except as reflected on the attached Schedule 5.1(m),
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 threatened
against or affecting the Purchaser or any of its assets or which
has affected or could affect its ability to consummate the
transactions contemplated by this Agreement.
(14) No Demands. The Purchaser has received no notice of any claimed
defaults, offsets or demands with respect to its properties and
there is no default existing with respect to any contracts that
would have a Material Adverse Effect.
(15) No Liens or Encumbrances. The shares of the Purchaser and Aspen
and all of the assets and properties of each of the Purchaser and
Aspen which are the subject hereof, are free and clear of all liens
and encumbrances except as reflected on the attached Schedule 5.1(o).
(16) Non-Foreign Representation. Neither the Purchaser nor Aspen is a Non-
Resident Alien Foreign Corporation, Foreign Partnership, Foreign
Trust or Foreign Estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations).
(17) Payments. All payments of any kind required to be made by the
Purchaser to Third Parties under any existing contract or agreement,
with regard to their properties, having been or will be properly
and timely paid or provided for.
(18) Qualification. The Purchaser is an experienced and knowledgeable
investor in natural resource 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, the Purchaser has relied solely on its independent
investigation of, and judgment with respect to, the East
Wood 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 East Wood.
(19) Receipt of Cotton Valley Reports. East Wood has been furnished
with and had the opportunity to review all Cotton Valley Reports
(hereinafter defined) filed with the U.S. Securities and Exchange
Commission ("SEC") through the Closing Date.
(20) Reports. From January 1, 1996 until the date hereof, the Purchaser
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,
"Cotton Valley Reports"). As of their respective dates (but taking
into account any amendments filed prior to the date of this
Agreement), the Cotton Valley 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.
<PAGE>
The financial statements of the Purchaser included in the Cotton
Valley 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, having 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 the Purchaser as of the date thereof and the
results of its operations and its cash flows for the periods then
ended.
(21) Royalties. All royalties and other payments due from or in connection
with sales from the Cotton Valley's Properties for all periods of time
prior to Closing have been or will be properly and correctly paid by
them.
ARTICLE VI
CONDITIONS PRECEDENT TO THE PERFORMANCE BY THE PURCHASER
AND THE VENDORS OF THEIR OBLIGATIONS UNDER THIS AGREEMENT
1.13 Purchaser's Conditions - The obligation of the Purchaser to complete the
purchase of the Purchased Shares hereunder shall be subject to the satisfaction
of, or compliance with, at or before the Closing Time, each of the following
conditions precedent (each of which is hereby acknowledged to be inserted for
the exclusive benefit of the Purchaser and may be waived by the Purchaser in
whole or in part):
(1) Truth and Accuracy of Representations of Vendors and East Wood at
Closing Time - All of the representations and warranties of the
Vendors and of East Wood made in or pursuant to this Agreement
(including the Schedules hereto) or in agreement, certificate or
other document delivered or given pursuant to this Agreement,
including, without limitation, the representations and warranties
set forth in Article IV hereof, shall be true and correct in all
material respects as at the Closing Time and with the same effect as
if made at and as of the Closing Time (except as such representations
and warranties may be affected by the occurrence of events or
transactions expressly contemplated and permitted hereby).
<PAGE>
(2) Legal Matters - The due creation and issuance of the Purchased Shares,
the title of the Vendors to the Purchased Shares, the form of and
documentation relating to the transfer of the Purchased Shares by the
Vendors to the Purchaser, and all corporate proceedings of East Wood,
its shareholders, members and directors, and all matters which in the
reasonable opinion of counsel for the Purchaser are material in
connection with the transactions herein contemplated shall be
completed and all relevant documents, records and information shall
be supplied by the Vendors to such counsel for that purpose.
1.14 Vendors' Conditions - The obligation of the Vendors to complete the sale
of the Purchased Shares hereunder shall be subject to the satisfaction of or
compliance with, at or before the Closing Time, each of the following
conditions precedent (each of which is hereby acknowledged to be inserted
for the exclusive benefit of the Vendors and may be waived by the Vendors in
whole or in part):
(1) Truth and Accuracy of Representations of Purchaser at Closing Time-
All of the representations and warranties of the Purchaser and Aspen
made in or pursuant to this Agreement or in any agreement, certificate
or other document delivered or given pursuant to this Agreement,
including without limitation the representations and warranties set
forth in Article V hereof, shall be true and correct in all material
respects as at the Closing Time and with the same effect as if made at
and as of the Closing Time.
(2) Performance of Obligations - The Purchaser shall have complied with
and performed in all respects all its obligations, covenants and
agreements herein.
1.15 Non-Performance of Conditions for the Benefit of the Purchaser - In the
event that any of the conditions set forth in Section 6.1 shall not be
fulfilled and/or performed at or before the Closing Time, the Purchaser
may terminate this Agreement by notice in writing to the Vendors, and the
Purchaser shall thereupon be released from all obligations under this
Agreement and the Vendors shall also be released from all obligations under
this Agreement, provided any of the said conditions may be waived in whole or
in part by the Purchaser at any time without prejudice to its right of
termination in the event of a non-fulfilment and/or non-performance of any
other condition or conditions, any such waiver to be binding upon the
Purchaser only if the same is in writing.
<PAGE>
1.16 Non-Performance of Conditions for the Benefit of the Vendors - In the
event that any of the conditions set forth in Section 6.2 shall not be
fulfilled and/or performed at or before the Closing Time, the Vendors may
terminate this Agreement by notice in writing to the Purchaser, and the
Vendors shall thereupon be released from all obligations under this
Agreement and the Purchaser shall also be released from all obligations
under this Agreement, provided any of the said conditions may be waived in
whole or in part by the Vendors at any time without prejudice to its right
of termination in the event of a non-fulfilment and/or non-performance of
any other condition or conditions, any such waiver to be binding upon the
Vendors only if the same is in writing. Each Vendor acknowledges and
agrees that a notice in writing to the Purchaser by fewer than all of the
Vendors to terminate this Agreement and any waiver in whole or in part by
fewer than all of the Vendors of any of the said conditions pursuant to
this Section 6.4 shall be conclusively deemed not to be a notice to
terminate or waiver, as the case may be, for purposes of this Agreement,
including this Section 6.4.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE VENDORS AND PURCHASER
1.17 Survival of Representations, Warranties and Covenants of the Vendors -
The representations, warranties and covenants of the Vendors and of East
Wood contained in this Agreement or in any agreement, certificate or any
other document delivered or given pursuant to this Agreement shall survive
the completion of the transactions contemplated by this Agreement and,
notwithstanding such completion or any investigation made by or on behalf
of the Purchaser, shall continue in full force and effect for the benefit of
the Purchaser.
1.18 Survival of Representations, Warranties and Covenants of the Purchaser -
The covenants, representations and warranties of the Purchaser contained in
this Agreement or in any agreement, certificate or any other document
delivered or given pursuant to this Agreement shall survive the completion
of the transactions contemplated by this Agreements and, notwithstanding
such completion or any investigation made by or on behalf of the Vendors,
shall continue in full force and effect for the benefit of the Vendors.
ARTICLE VIII
CLOSING
1.19 The Closing - The sale and purchase of the Purchased Shares hereunder
shall be completed at the Closing Time at the offices of Weir & Foulds or
at such other location as may be mutually agreed upon by the parties
hereto.
<PAGE>
1.20 Tender - Any tender of documents hereunder may be made upon the
parties hereto or their respective counsel.
ARTICLE IX
GENERAL
1.21 Expenses - All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses.
1.22 Time - Time shall be of the essence of this Agreement and of every
part hereof and no extension or variation of this Agreement shall operate as
a waiver of this provision.
1.23 Notices - All payments and communications which may be or are required
to be given by either party to the other herein, shall (in the absence of
any specific provision to the contrary) be in writing and delivered or sent
by prepaid registered mail or telecopier to the parties at their following
respective addresses:
For: Jack E. Wheeler
2101 W. Coffee Creek Road
Edmond, Oklahoma 73003
Apollo Investments Limited
c/o Cox and McNeese
Suite 102
3601 North Classen Blvd.
Oklahoma City, Okla. 73118
Stillwater Gas Productions Inc.
c/o Cox and McNeese
Suite 102
3601 North Classen Blvd.
Oklahoma City, Okla. 73118
Custer County Drillers Inc.
c/o Cox and McNeese
Suite 102
3601 North Classen Blvd.
Oklahoma City, Okla. 73118
<PAGE>
For: Cotton Valley Resources Corporation
6510 Abrams Road
Suite 300
Dallas, Texas 75231
Attention: Mr. James Hogue
Facsimile: (214) 221-6510
with a copy to: Aspen Energy Group, Inc.
c/o 6510 Abrams Road
Suite 300
Dallas, Texas 75231
Attention: President
Facsimile: (214) 221-6510
with a copy to: Weir & Foulds
Barristers and Solicitors
130 King Street West
Suite 1600
Toronto, ON M5X 1J5
Attention: Mr. Wayne Egan
Facsimile: (416) 365-1876
For: East Wood Equity Ventures Inc.
5900 Mosteller Drive
Suite 1900
Oklahoma City, Oklahoma 73112
Attention: President
Facsimile: (415) 512-2479
<PAGE>
and if any such payment or communication is sent by prepaid registered
mail, it shall, subject to the following sentence, be conclusively
deemed to have been received on the third business day following the
mailing thereof and, if delivered or telecopied, it shall be conclusively
deemed to have been received at the time of delivery or transmission.
Notwithstanding the foregoing provisions with respect to mailing, in
the event that it may be reasonably anticipated that, due to any strike,
lock-out or similar event involving an interruption in postal service,
any payment or communication will not be received by the addressee by
no later than the third (3rd) Business Day following the mailing thereof,
then the mailing of any such payment or communication as aforesaid shall
not be an effective means of sending the same but rather any payment or
communication must then be sent by an alternative means of transportation
which it may reasonably be anticipated will cause the payment or
communication to be received reasonably expeditiously by the addressee.
Either party may from time to time change its address hereinbefore set
forth by notice to the other of them in accordance with this section.
1.24 Governing Law - This Agreement and the rights and obligations and
relations of the parties hereto shall be governed by and construed in
accordance with the laws of the Ontario (but without giving effect to any
conflict of laws rules). The parties hereto agree that the Courts of Ontario
shall have jurisdiction to entertain any action or other legal proceedings
based on any provisions of this Agreement. Each party hereto does hereby
attorn to the jurisdiction of the Courts of the Ontario.
1.25 Headings - The index to and headings in this Agreement and in the
Schedules hereto are inserted solely for convenience of reference and do
not affect the interpretation thereof or define, limit or construe the
contents of any provision of this Agreement.
1.26 Assignment - Neither this Agreement nor any rights or obligations
hereunder shall be assignable by any party hereto without the prior written
consent of each of the other parties, which consent may be unreasonably
withheld. Subject thereto, this Agreement shall enure to the benefit of and
be binding upon the parties hereto and their respective successors
(including any successor by reason of amalgamation of any party hereto)
and permitted assigns.
1.27 Entire Agreement - With respect to the subject matter of this
Agreement, this Agreement (a) sets forth the entire agreement between
the parties hereto and any persons who have in the past or who are now
representing either of the parties hereto, (b) supersedes all
prior understandings and communications between the parties hereto or any
of them, oral or written, and (c) constitutes the entire agreement between
the parties hereto. Each party hereto acknowledges and represents that
this Agreement is entered into after full investigation and that no party
is relying upon any statement or representation made by any other which is
not embodied in this Agreement. Each party hereto acknowledges that he or
it shall have no right to rely upon any amendment, promise, modification,
statement or representation made or occurring subsequent to the execution
of this Agreement unless the same is in writing and executed by each of the
parties hereto.
<PAGE>
1.28 Further Assurances - The parties hereto shall with reasonable diligence
do all such things and provide all such reasonable assurances as may be
required to consummate the transactions contemplated hereby, and each
party hereto shall provide such further documents or instruments required by
the other party as may be reasonably necessary or desirable to effect the
purpose of this Agreement and carry out its provisions whether before, at
or after the Closing Time.
1.29 Counterparts - This Agreement may be executed in any number of
counterparts and all such counterparts shall for all purposes constitute
one agreement, binding on the parties hereto, provided each party hereto
has executed at least one counterpart, and each shall be deemed to be an
original, notwithstanding that all parties are not signatory to the same
counterpart.
1.30 Waiver - The failure of any party to this Agreement to enforce at any
time any of the provisions of this Agreement or any of its rights in respect
thereto or to insist upon strict adherence to any term of this Agreement will
not be considered to be a waiver of such provision, right or term or in any
way to affect the validity of this Agreement or deprive the applicable party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. The exercise by any party to this Agreement of
any of its rights provided by this Agreement will not preclude or prejudice
such party from exercising any other right it may have by reason of this
Agreement or otherwise, irrespective of any previous action or proceeding
taken by it hereunder. Any waiver by any party hereto of the performance of
any of the provisions of this Agreement will be effective only if in writing
and signed by a duly authorized representative of such party.
1.31 Negotiation - This Agreement has been negotiated and approved by counsel
on behalf of all parties hereto and, notwithstanding any rule or maxim of
construction to the contrary, any ambiguity or uncertainty will not be
construed against any party hereto by reason of the authorship of any of
the provisions hereof.
IN WITNESS WHEREOF the parties hereto have hereunto duly executed this
Agreement as of the day and year first above written.
<PAGE>
_____________________________ ___________________________
Witness: Jack E. Wheeler
APOLLO INVESTMENTS LIMITED
Per:
Name:
Title:
STILLWATER GAS PRODUCTIONS INC.
Per:
Name: *
Title: *
CUSTER COUNTY DRILLERS INC.
Per:
Name:
Title:
COTTON VALLEY RESOURCES
CORPORATION
Per:
Name: James E. Hogue
Title: Chief Executive
Officer
ASPEN ENERGY GROUP, INC.
Per:
Name:
Title:
<PAGE>
EAST WOOD EQUITY VENTURE, INC.
Per:
Name: Jack E. Wheeler
Title: President
<PAGE>
SCHEDULE 1.1(c)
East Wood Properties
<PAGE>
SCHEDULE 2.1(c)
Special Warrants of Cotton Valley Resources Corporation
Each special warrant issuable pursuant to the terms of this Share
Purchase Agreement shall be exercisable, at the option of the holder, into
one (1) common share in the capital of Cotton Valley Resources Corporation.
Notwithstanding the foregoing, the exercise of the special warrants may
only occur upon approval by the shareholders of Cotton Valley Resources
Corporation a duly convened shareholders meeting in order to be exercisable.
In the event that shareholder approval is not obtained, then the special
warrants may not be exercised until such time as shareholder approval may
be obtained, or the special warrants are otherwise exercisable as a result
of the issued and outstanding shares in the capital of Cotton Valley
Resources Corporation.
The terms and conditions attaching to the special warrants shall be in
the form of a special warrant certificate, which certificate shall contain
the commercial and reasonable terms attaching to such a convertible security.
In particular, the special warrant certificates shall provide these special
warrants may only be exercised following shareholder approval or the exercise
thereof, and that until such exercise occurs, the holder of a special warrant
certificate and the special warrants represented thereby has no rights
whatsoever as a shareholder of Cotton Valley Resources Corporation.
<PAGE>
SCHEDULE 4.1(b(
East Wood Authority and Enforceability
Nil
<PAGE>
SCHEDULE 4.1(g)
Environmental Matters respecting East Wood Properties
None
<PAGE>
SCHEDULE 4.1 (j)
East Wood Liabilities and Taxes
None
<PAGE>
SCHEDULE 4.1 (k)
East Wood Litigation
None
<PAGE>
SCHEDULE 4.1 (m)
East Wood Liens or Encumbrances
None
<PAGE>
SCHEDULE 5.1(b)
Cotton Valley and Aspen Authority and Enforceability
Nil
<PAGE>
SCHEDULE 5.1(e)
Capitalization of the Purchaser and Aspen
Cotton Valley 34,198,198
Aspen 1,000 common
<PAGE>
SCHEDULE 5.1(i)
Cotton Valley Environmental Matters
NIL
<PAGE>
SCHEDULE 5.1(l)
Cotton Valley Liabilities and Taxes
U.S. Federal Income Tax Liability for Aspen Energy Corporation for the
periods 1994-1999 has not been paid and is subject to revision and
restatement (for carry back loss provisions) after the 1998 tax calculations
are completed.
Canadian income tax liability (if any) for fiscal years 1998 and 1999
has not been determined.
Andrews, Dallas and Navarro County taxes as set forth in Accounts
Payable Schedule attached hereto.
<PAGE>
SCHEDULE 5.1(m)
Cotton Valley Litigation
1. Stewart & Stevenson Power, Inc. v. Cotton Valley Resources Corporation
claims $29,185.03 for past services to Mustang Well Servicing, Inc. Cotton
Valley alleges a credit is due of $10,000 to $15,000 for possession
of an engine. Schedule 5.1(l) includes the full claim amount without
adjustment for the engine credit.
2. Technical Manufacturing, Inc. v. Cotton Valley Resources Corporation
alleges indebtedness of $26,338 for a skid unit held in possession of Cotton
Valley and $64,225 for a second skid unit held in possession by
Technical Manufacturing. Technical Manufacturing has offered to return the
second unit and settle all claims for $25,000. Cotton Valley claims it paid
the full amount for the first unit to the purchase agent. Schedule 5.1(l)
includes $17,063 which is the $26,338 claimed for Cotton Valley's skid less
the $9,275 Cotton Valley paid down against the second skid.
3. Several vendor lawsuits under $25,000 each and in the aggregate not
material to the financial condition of Cotton Valley are included in
Schedule 5.1(l).
<PAGE>
SCHEDULE 5.1(o)
Cotton Valley and Aspen Liens and Encumbrances
Cotton Valley's interest in the Means Field, Andrews County, Texas is subject
to liens and encumbrances in favour of an Affiliate of Cambrian Capital
Corporation in amounts set for in the audit financial statements of Cotton
Valley dated as of June 30, 1999.
Means Field Materialmen and Mechanics Liens and Encumbrances as set forth on
the following page.
