LETTER OF INTENT
December 5, 2000
Mr. Thomas J. McMinn
Mr. Gary L. Chitty
Diasu Oil & Gas Company, Inc.
4422 FM 1960, Suite 400
Houston, TX 77069
Dear Messrs. Chitty & McMinn:
Trinity Energy Resources, Inc. ("Trinity"), (Buyer), is pleased to submit this
Letter of Intent to enter into a formal and definitive purchase and sale
agreement (the "Agreement") to purchase the Stock of Diasu Oil and Gas Company,
Inc. ("Diasu") on the following terms and conditions, subject to the approval of
Trinity's board of directors:
1. Each of you, as the only holders of all of the issued and
outstanding shares of the capital stock of Diasu, which Trinity
understands consists solely of the Common Stock owned by the two
of you, will sell all of that capital stock to Trinity, or to
such entity as may be selected by Trinity. Although structured as
a stock purchase and sale, Closing is made specifically subject
to the ownership by Diasu, at the Closing Date, of the assets
specified in this Letter of Intent. Diasu's assets will be
distributed by the purchaser of the stock to Trinity at Closing.
2. The effective date ("Effective Date") of the sale of the Stock
shall be November 1, 2000. The closing of the transaction shall
be at a date and time mutually agreed upon ("Closing Date").
However, the parties agree that time is of the essence and will
attempt to close on or before December 29, 2000. In the event the
closing fails to occur on or before January 20, 2001, the
Effective Date of the sale shall be changed to December 1, 2000.
3. It is agreed that the sale price associated with the transaction
shall be Four Million Dollars ($4,000,000), whereby Three
million, six hundred thousand dollars ($3,600,000.00) shall be
paid in cash and Four Hundred Thousand Dollars ($400,000.00)
shall be paid in equity equivalent in Trinity Common Stock, with
adjustments for Diasu's net working capital at the Effective Date
and other items set forth in paragraph 4 below. The valuation of
Trinity Common Stock shall be calculated on the basis of an
average of the closing price of Trinity Common Stock related to
the last 20 trading sessions before the closing date. If there be
any adjustments to purchase price for any of the reasons
described below, adjustments will relate to the cash component of
the purchase price, not the equity component.
<PAGE>
4. At closing, Diasu's net working capital as of the Effective Date
shall be determined. Net working capital shall mean:
a) the aggregate of all cash, notes and accounts
receivable that are collectible in the normal course of
business and that are not more than 90 days past due,
with Trinity assuming that none currently exist past 90
days prior to closing, accrued revenues (including oil
or condensate in the tanks) attributable to the
production from Diasu's oil and gas properties prior to
the Effective Date and other current assets as
determined according to generally accepted accounting
principles (GAAP), less ---- the aggregate of all notes
payable, trade payables, and other current liabilities
and indebtedness of Diasu determined according to
generally accepted accounting principles.
Diasu's net working capital as of the Effective Date, if positive,
shall be added to the purchase price, or if negative, shall be
deducted from the purchase price. The following items shall be
downward or upward adjustments to the purchase price:
i) the value attributable to gas imbalances, if Diasu is
overproduced or underproduced;
ii) the value of title defects or interest adjustments to
Diasu's oil and gas properties;
iii) the amount of any dividends or distributions made to
the partners of Diasu between the Effective Date and
the Closing Date (the "Interim Period");
iv) the value of any asset or item of inventory described
in Exhibit A disposed of during the Interim Period; and
v) the amount of any extraordinary salary, wage, bonuses
or compensation paid to the partners or any officer,
director, or employee of Diasu during the Interim
Period.
5. A full description of assets is provided in Exhibit A. It is
understood by Buyers as well as by each of you that only those
assets included in Exhibit A, attached hereto, shall be
considered assets of Diasu with respect to this agreement. Any
property or asset not included in Exhibit A is explicitly
understood not to be a part of the asset transfer. Assets
included in the purchase shall include all oil and gas producing
equipment, fixtures, plants, pipelines and other such typical
oilfield devices, limited, however, to equipment, fixtures,
plants, pipelines and other such typical oilfield devices
associated with properties described in Exhibit A. Project
related well, land, legal and production files are considered to
be critical operational files, and will be arranged for delivery
to Trinity offices as soon as practicable upon closing. Diasu
office furnishings, fixtures, computers, computer software and
supplies and equipment will not be included in the asset
transfer.
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<PAGE>
6. Diasu presently has a debt facility in place which is secured by
the personal guarantee of Messrs. McMinn and Chitty. Trinity
agrees to retire the debt facility on or before closing.
7. Diasu is the trustee of the Diasu Oil & Gas Company, Inc. Pension
Plan and Trust and the Diasu Oil & Gas Company, Inc. Profit
Sharing Plan and Trust (collectively the "Plans"). Trinity
understands and agrees that the Plans and the assets of the Plans
are solely for the designated beneficiaries of the Plans and that
neither the Plans nor the assets of the Plans will be part of the
assets being disposed of by Diasu. Trinity agrees to cause the
beneficiaries of the Plan to affect a rollover of the Plans to a
successor and/or other retirement or benefit account within a
reasonable amount of time subsequent to closing. After the
Closing Date, Trinity shall have no obligations with respect to
the Plans, as trustee or otherwise, and each of you, jointly and
severally, agrees to indemnify and hold Trinity harmless from any
claims, damages or losses asserted by any beneficiary of the
Plans with respect to any of the Plans. Furthermore, Trinity
shall not be or become a plan administrator, fiduciary or other
responsible person under ERISA, and each of you, jointly and
severally, agrees to indemnify and hold Trinity harmless from any
claims, damages or losses asserted by any governmental agency
with respect to any of the Plans.
8. Diasu is the owner of certain Life Insurance policies on Messrs.
McMinn and Chitty. The buyers understand and agree that all life
insurance policies owned by Diasu are solely for the benefit of
McMinn and Chitty and will be transferred to them, respectively,
at or before closing.
9. The parties agree that effective as of the Closing Date Trinity
will have the option, in accordance with existing Joint Operating
Agreements, to replace Diasu as operator of the oil and gas
producing property assets currently being operated by Diasu.
Joint Operating Agreements currently in force will be honored and
binding upon Trinity.
10. Upon execution of this letter of Intent, Trinity agrees to pay
earnest money in the amount of Forty thousand dollars
($40,000.00). Said earnest money will provide Trinity the
exclusive option to review, for a period of 45 days from the date
of this agreement, all pertinent materials required to satisfy
due diligence investigation for the transaction. The exclusive
review period may be extended upon mutual written agreement of
the parties. Appropriate agreed upon extensions, if granted, will
be granted requiring no additional earnest money from Trinity.
The earnest money will be non-refundable, but applicable against
the cash portion of the purchase price, except in the case of the
following:
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<PAGE>
a. due diligence reviews establish unacceptable risk in
environmental, field mechanical operations, material changes
in reservoir performance expectations as compared to
engineered reserves calculated by the buyer to date, and
other conditions identified to be in material contrast to
those described by the seller prior to the date of this
agreement.
b. a non-closable condition is identified due to incurable
title defects.
c. The value of adjustments due to title defects, interest
adjustments, or changes in value of any nature to the oil
and gas properties listed in Exhibit A exceeds 1% of the
agreed upon purchase price.
If a. or b. c. above occur, then Trinity or Diasu each reserve the right to
terminate this agreement and the earnest money will be returned to Trinity.
11. Upon execution of this agreement, Trinity will have full
access to all exploration, production, financial and legal
records of Diasu which are relevant to the completion of due
diligence reviews of the purchase. Given that Trinity is a
publicly traded company, an audit of Diasu's books will be
required to satisfy reporting requirements. An outline of
potential due diligence review areas is attached as Exhibit
B. Diasu also agrees to provide free access to all field
production facilities which relate to the transaction; where
appropriate, Diasu personnel will be available to escort
reviewers into sensitive or restricted areas.
12. Prior to closing, Diasu shall maintain and operate its oil
and gas properties in a good and workmanlike manner
consistent with prudent and generally accepted oilfield
practices. Diasu shall not sell, dispose, pledge, mortgage,
hypothecate or otherwise transfer or encumber the properties
listed in Exhibit A, or its interest in them without written
consent of Trinity. If any of the properties listed in
Exhibit A are sold or transferred, the purchase price shall
be reduced accordingly by the value, as calculated by
Trinity, of any properties being sold or transferred.
13. The parties agree to keep this transaction confidential
among the parties, except as may be appropriate for
Securities and Exchange Commission reporting requirements on
the part of Trinity. Diasu further agrees that upon
acceptance of this Letter of Intent and as long as the
Letter is in effect, it will not enter into any negotiations
with any other potential buyers of the properties listed in
Exhibit A.
14. Representations and warranties shall be made by Diasu, to
the best of its current knowledge, and/or its principal
shareholders, subject to mutually satisfactory exceptions
and caveats that shall include the following:
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<PAGE>
A. The financial statements of Diasu for each of the last five
years and whether the financial statements fairly represent
the financial condition and results of the company's
operations, as of the dates and for the periods indicated,
in accordance with generally accepted accounting standards
and the absence of specific changes since the most recent
balance sheet date. All disclosures shall be made of
differences from the GAAP method of accounting if
applicable.
B. The status of all taxes and tax returns that must be filed
by Diasu, as well as the adequacy of provisions for accrued
taxes.
C. The status of all leases, contracts and obligations of
Diasu.
D. The status, existence and proper description of Diasu's
assets, inventories, accounts receivable and net worth.
E. The execution and performance of the Agreement will not
violate or breach any other contract, order, judgment,
articles of incorporation, by laws or shareholders'
agreement involving Diasu or to which Diasu is a party.
F. The absence of any material misstatements or omissions with
respect to Diasu.
G. Such other representations and warranties, that, after
investigation of Diasu by Buyers, Buyers deem appropriate.
15. Buyers' obligation to close the Agreement shall be subject to the
following conditions to be performed by Diasu on or before the closing
date:
A. That the representations and warranties made by Diasu and its
principal shareholders are true in all material respects and all
covenants and agreements required to be performed by Diasu or
others are performed.
B. That appropriate opinions of counsel are delivered to the
parties.
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<PAGE>
C. That no material adverse change occurs in the business affairs or
financial condition of Diasu since the date of signing of the
Agreement.
D. That all corporate and stockholder actions and approvals
necessary to consummate this transaction are properly taken by
Diasu.
E. That the transaction close by a date not later than the date
stated herein unless mutually agreed to in writing by the
parties.
F. That Diasu and its principal shareholders execute an agreement
satisfactory to Buyers in which Diasu and its principal
shareholders agree to hold harmless and indemnify Buyers from any
liability or costs relating to acts, omissions or transactions
occurring on or before the closing date, including the
transactions contemplated in this letter of intent, or relating
to incorrect representations and warranties. All obligations
related to the leases, contracts and operations of properties
listed on Exhibit A, will be excluded from this indemnity.
G. The representations, warranties and covenants of Diasu and its
principal shareholders shall survive the date of the sale for a
period of three years.
H. Such other conditions to which the parties mutually agree.
16. This Letter of Intent is not intended to be a binding agreement except
that the terms of paragraphs 3, 10 and 13 shall become binding upon
acceptance of this letter of intent and no party shall have any
liability or obligation to any other party nor any rights against any
other party arising out of this letter of intent.
17. In the event that the Definitive Purchase and Sale Agreement is not
executed and Closing does by January 31, 2001, this Letter of Intent
shall terminate unless extended in writing by both parties.
18. This Letter of Intent shall remain open to Diasu's acceptance until
10:00 A.M., Thursday, December 7, 2000.
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Please indicate your acceptance of the terms herein by signing below and
returning the executed copy to me at your earliest convenience.
Sincerely,
/s/ Dennis E. Hedke
------------------------
Dennis E. Hedke
Acting President & CEO
ACCEPTED, This 6th day of December, 2000
DIASU OIL AND GAS COMPANY, INC.
/s/ Thomas J. McMinn /s/ Gary L. Chitty
---------------------------------- ------------------------------
by Thomas J. McMinn/Title by Gary L. Chitty/Title
<PAGE>
EXHIBIT A
DIASU OIL & GAS CO., INC.
WELL SUMMARY
<TABLE>
<CAPTION>
LEASE FIELD COUNTY/PARISH STATE WORKING INTEREST NET REVENUE INTEREST
% %
<S> <C> <C> <C>
Dawson Heirs #1 Bourg Terrebonne LA 87.50 64.7499
L.M. Broussard #1 Abbeville Vermilion LA 18.18 13.6862
Constantine #1 Leeville Lafourche LA 89.38 67.0313
Constantine #2 Leeville Lafourche LA 57.12 38.6509
L L & E #2 Leeville Lafourche LA 41.67 29.0000
Barrow #1 Leeville Lafourche LA 28.92 20.2417
Barrow #5 Leeville Lafourche LA 35.58 24.9080
Barrow #2 (wellbore onlyLeeville Lafourche LA 16.70 --
Barrow #4 (wellbore onlyLeeville Lafourche LA 35.42 --
State Lease 12805 Breton Sound Plaquemines LA 66.67 49.3333
Ocker Trust #1 Lake Burgintine Aransas TX 7.00 5.2500
Keystone Mills #1 Conroe Montgomery TX 50.00 37.5000
W.P. McComb #1 Conroe Montgomery TX 33.33 24.9998
Morgan Creek #1 Bob Smith Roberson TX 95.00 68.6750
Sager #1 Perryton Ochiltree TX 3.50 2.8000
Buszkiewic #1 Ash Creek Sheridan WY 52.50 45.9375
Buszkiewic #2 Ash Creek Sheridan WY 52.50 45.9375
Hallworth #1 Ash Creek Sheridan WY 52.50 45.9375
Hallworth #2 Ash Creek Sheridan WY 52.50 45.9375
Hallworth #3 Ash Creek Sheridan WY 52.50 45.9375
Hallworth #5 Ash Creek Sheridan WY 52.50 45.9375
Hallworth #6 (SWD) Ash Creek Sheridan WY 52.50 --
Hallworth #7 (SWD) Ash Creek Sheridan WY 52.50 --
Hallworth #8 Ash Creek Sheridan WY 52.50 45.9375
Hallworth #10 (SWD) Ash Creek Sheridan WY 52.50 --
JV States #B1 Ash Creek Sheridan WY 52.50 45.9375
JV States #C1 Ash Creek Sheridan WY 52.50 44.7891
JV States #C2 Ash Creek Sheridan WY 52.50 44.7891
</TABLE>
<PAGE>
EXHIBIT B
DUE DILIGENCE REVIEW OUTLINE
INDEX
A. LAND AND LAND RECORDS
B. EXPLORATION/EXPLOITATION
C. PRODUCTION OPERATIONS
D. FIELD OFFICE FACILITES
E. DRILLING
F. RESERVOIR ENGINEERING
G. CONSTRUCTION
H. JOINT VENTURE OPERATIONS
I. ENVIRONMENTAL/REGULATORY
J. SAFETY
K. INVENTORY
L. EMPLOYEE RELATIONS
M. GAS SALES
N. GENERAL ACCOUNTING
O. JOINT VENTURE OPERATIONS
P. GENERAL ACCOUNTING
Q. TAX
R. AFE CONTROL AND EXPENDITURE REPORTING
S. AUDITS
T. MANAGEMENT INFORMATION SERVICES
U. TELECOMMUNICATIONS
V. PURCHASING
W. LEGAL
X. INSURANCE
Y. PROPERTY MANAGEMENT BOOK
