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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 even reported) February 23, 1996
FORTUNE PETROLEUM CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 1-12334 95-4114732
-------- ------- ----------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
One Commerce Green, 515 W. Greens Road, Suite 720, Houston, Texas 77067
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (713) 872 1170
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 23, 1996, Fortune Petroleum Corporation ("Fortune" or "the
Company") sold its interest in all but one of its California properties for
cash in the amount of $800,000. The properties sold consisted of the Company's
interest in the Hopper Canyon, Holser Canyon, Oxnard and Sheils Canyon Fields
in Ventura County and the Bacon Hills Field in Kern County. The sale was
effective December 31, 1995. In connection with the sale, Fortune is required
to pay commissions and expenses estimated to be $75,000.
The Company's sole remaining California property is the Sespe Field,
Ventura County, California. Fortune has entered into a letter of intent to
sell this property to Seneca Resources for approximately #340,000. The sale is
expected to close in the first quarter of 1996, with an effective date of
December 1, 1995. The sale of the Sespe property is subject to completion of
due diligence by the parties, and no assurance can be given that such sale will
occur.
All of the Company's California properties were pledged to secure the
Company's Credit Facility with BankOne, Texas. Concurrently with the closing
of the sale of the non-Sespe
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properties, Fortune paid down the Credit Facility by $1.1 million, representing
the entire indebtedness secured by the Company's California properties.
The closing of the sale of the non-Sespe properties and the
anticipated sale of the Sespe property will complete the Company's strategic
move to focus its efforts on exploration in the gulf Coast and south Texas
areas. As previously announced, in furtherance of the change in focus, the
Company has also completed the relocation of its headquarters to Houston.
At December 31, 1994 (the latest date as of which data is available),
Fortune owned and operated 39 gross and 29.92 net wells located in California.
Production in California during 1994 totaled approximately 63,021 net barrels
of oil and 68,626 net Mcf of gas. This represented about 72% of the Company's
1994 oil production and about 6.7% of its gas production. Properties located
in California, which are all operated by the Company, comprised approximately
92% of Fortune's net proved oil reserves and 31% of Fortune's net proven gas
reserves as of December 31, 1994.
Despite the high percentage of oil production represented by these
properties, the costs of operating the wells in California was, in the view of
management, disproportionately high in relation to the revenues generated. The
high cost of production in California on the Company's properties was a result
of several factors, including the low gravity of the oil, the small production
from each well and environmental and workers' compensation costs. Therefore,
the net income received by the Company on the California properties was small
in relation to the cost of operation.
It is anticipated that the Company will take a writedown against its
1995 results as a result of the sale. The writedown is expected to be $1.5
million, but the exact amount will depend on the Company's depletion allowance
through the effective dates of the transactions.
Item 5. OTHER EVENTS.
As previously disclosed, in connection with the financing of the
acquisition of the Timbalier Block in December 1995, Fortune issued 1,321,117
shares of its Common Stock to a group of European investors in a transaction
which qualified for an exemption from the registration requirements of the
Securities Act of 1933 under Regulation S. Under the terms of the agreements
with such purchasers, the purchasers would be entitled to receive additional
shares under "reset" provisions which called for a recalculation of the
purchase price at the expiration of the 40 day holding period for the initial
stock acquisition.
Such recalculation have now been completed, and indicate that the
purchasers are entitled to receive an aggregate of an additional 1,265,729
shares. The Company has applied for listing of such shares with the American
Stock Exchange and cannot issue the shares until such listing is approved. In
addition, the Company and the AMEX are conducting an inquiry into unusual
trading activity in the Fortune Common Stock on the Exchange during the
recalculation period under the "reset" provision. The Company cannot predict
when any additional shares will be issued to these purchasers.
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of businesses sold. To be filed by
amendment with the time permitted by the Commission's rules.
(b) Pro forma financial information. To be filed by amendment
with the time permitted by the Commission's rules.
(c) Exhibits.
2.1 Purchase and Sale Agreement dated February 23, 1996,
between Fortune Petroleum Corporation and Arnold and Joan
Travis and The Wood Family Trust
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORTUNE PETROLEUM CORPORATION
Date: March 8, 1996 By: s/ TYRONE J. FAIRBANKS
------------------------------------
Tyrone J. Fairbanks, President
and Chief Executive Officer
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EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is made and
entered into this __ day of January, 1996, but is effective for all purposes as
of December 31, 1995, by and between ARNOLD and JOAN TRAVIS and THE WOOD FAMILY
TRUST ("Purchasers") and FORTUNE PETROLEUM CORPORATION, a Delaware corporation
("Seller").
W I T N E S E T H:
WHEREAS, Seller is the owner of the oil and gas leaseholds and related
equipment defined below as the Assets; and
WHEREAS, Seller desires to sell to Purchasers, and Purchasers desire
to purchase from Seller, the Assets upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing, and the mutual and
dependent promises contained herein, and other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the Parties agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 AGREEMENT TO SELL AND PURCHASE. Subject to the terms and
conditions of this Agreement, Purchasers agree to purchase, and Seller agrees
to sell, transfer, and convey all its right, title, and interest in the Assets,
as of the Effective Time.
1.2 ASSETS. The term "Assets" shall mean all Seller's right,
title and interest in:
A. The oil, gas and mineral leasehold interests more
particularly described in the attached Exhibit "A", which is incorporated
herein by reference (hereafter referred to as the "Properties"), subject to all
existing agreements including, but not limited to, operating agreements,
unitization agreements, pooling agreements, declarations of pooling or
unitization, farmout agreements, assignments, oil or gas sale contracts, gas
processing contracts, and any and all other instruments and agreements
pertaining thereto (the "Existing Contracts") which Existing Contracts are
identified on Exhibit "B" hereof.
B. All (i) wells, tanks, pipelines, steam generators,
fixtures, equipment, improvements, and other property and (ii) easements,
rights-of-way, permits, licenses, servitudes, environmental permits, orders,
rights, authorizations, and appurtenances, used or held for use or related to
the Properties or the development or operation of the Properties or the
production, treatment, storage, compression, processing or transportation of
hydrocarbons
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from or on the Properties (collectively, the "Incidental Property"). Without
limiting the foregoing, an inventory of certain Incidental Property is set
forth in Exhibit "C" hereto.
C. All rights and obligations arising from the Existing
Contracts applicable to the Properties.
D. All of the applicable files, records, and data relating to
the items described in subsections A, B, and C, above, (but excluding Seller's
internal financial and accounting records) (the "Records") including, without
limitation, title records (including abstracts of title and title curative
documents), contracts, geological and geophysical records, data and
information, production records, electric logs, core data, pressure data,
decline curves, and graphical production curves, and all related matters in the
possession of Seller.
E. Subject to section 1.5 below, all oil, gas, or other
minerals or other substances produced from or attributable to the Properties
from and after the Effective Time, together with all proceeds from or
attributable thereto.
1.3 ASSETS EXCLUDED. The Assets at the Effective Time do not
include Seller's accounts receivable associated with the Assets, cash on hand,
cash equivalents, indemnity bonds, or certificates of deposit.
1.4 EFFECTIVE TIME. Ownership of the Assets shall be transferred
from Seller to Purchasers at the closing of the transaction contemplated herein
as provided in Article X (the "Closing"), but shall be effective as of 7:00
a.m. on December 31, 1995 (the "Effective Time"). Seller shall be entitled to
any amount realized from and accruing to the Assets prior to the Effective
Time, and shall be liable for the payment of all expenses (including, but not
limited to, capital expenditures) attributable to the Assets and arising prior
to the Effective Time. Purchasers shall be entitled to any amount realized
from and accruing to the Assets and arising subsequent to the Effective Time,
and shall be liable for the payment of all expenses (including, but not limited
to, capital expenses) attributable to the Assets subsequent to the Effective
Time.
1.5 MEASUREMENT OF PRODUCTION. Seller shall cause the oil storage
facilities on, or utilized in connection with, the Assets to be gauged as of
the Effective Time and cause the gas production meter charts and the sales
meter charts on the pipelines transporting gas production from the Assets to be
read (or changed) as of the Effective Time. Purchasers shall have the right to
witness all such gauging and chart reading. The production in such
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storage facilities, or downstream of such meters on the gas pipelines, prior to
and as of the Effective Time shall belong to Seller, and production placed in
such storage facilities thereafter and production upstream of the meters on the
pipelines shall belong to Purchasers and shall become a part of the Assets.
Prior to Closing, Purchasers, upon request, shall be provided with access to
the records of the gauging and chart reading for the purpose of verifying such
records.
1.6 RECORDS. Seller shall have the right to make copies of the
Records as it may desire prior to the delivery of the Records to Purchasers.
Purchasers shall maintain the records for a period of five (5) years after the
Closing and shall further grant to Seller or its designee access to the
Records, upon written request of Seller during normal business hours and Seller
shall have the right to copy such copies of Records at its sole cost and
expense.
ARTICLE II
PURCHASE PRICE
The purchase price for the Assets (the "Purchase Price") shall be
determined as follows:
A. Eight Hundred Forty Thousand Dollars ($840,000.00);
B. Plus the value of all oil produced or gas in storage or
upstream of the pipeline connection constituting the point of sale at the
Effective Time that is credited to the Properties (value to be the contract
price in effect as of the Effective Time or, if no contract price, the market
price at the wellhead less any taxes deducted by the purchaser of such oil or
gas if any);
C. Plus the amount of all expenses and deposits (including,
but not limited to, capital expenditures) paid by Seller and relating to any of
the Assets for any period of time after the Effective Time;
D. Plus the value of any Property Taxes, as defined in
Section 13.1, paid by Seller and relating to any of the Assets for any period
of time after the Effective Time;
E. Less all monies, proceeds, receipts and income received by
Seller, net of royalties, and attributable to the Assets for all periods of
time subsequent to the Effective Time, including an amount equal to the value
of oil, gas or other minerals or substances produced and sold by Seller after
the Effective Time;
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F. Less the amount of all advances and deposits received by
Seller and relating to the Assets after the Effective Time; and
G. Less the amount of Seller's prorated share of any accrued
but unpaid Property Taxes relating to any of the Assets for the period prior to
the Effective Time.
ARTICLE III
REVIEW OF ASSETS
3.1 ACCESS TO RECORDS AND PROPERTIES. Prior to the execution of
this Agreement, Seller has granted Purchasers access to the Properties and
certain of the files and records relating to the Assets. Until the Closing,
Seller will give Purchasers access to the Records in Seller's possession
relating to the Assets and will use its best efforts to furnish to Purchasers
all other information (including accounting and financial information) with
respect to the Assets as Purchasers may from time to time reasonably request,
except to the extent that Seller is prohibited from disclosing such information
by law or agreement with a third party and, with respect to such restricted
information, Seller shall use its best efforts to cause such information to be
disclosed to Purchasers. Such access by Purchasers shall be limited to
Seller's normal business hours, by appointment only, and shall be without
disruption of Seller's normal and usual operations. Seller hereby grants to
Purchasers a license to enter upon any of the Properties prior to the Closing,
subject only to reasonable notice to Seller, in order to conduct inspections,
tests, surveys, appraisals, and studies which Purchasers may desire at their
sole cost, risk and expense to determine the condition of the Assets,
including, without limitation, whether hazardous substances are present in or
under the Assets.
3.2 ENVIRONMENTAL REVIEW. Purchasers shall have until January 31,
1996 to, at their sole cost and expense, conduct environmental assessments of
the Properties. Seller shall grant Purchasers and their representatives, at
Purchasers' sole risk, full and free rights of ingress and egress to the
Properties for such purposes. Purchasers may take cores and samples of soil,
water, or air and may test these samples either on or off the Properties to
determine whether the Properties contain or have been affected by, or have ever
contained or been affected by, any Hazardous Material. If Purchasers determine
that any such substance is present on the Properties in an uncontained
condition or under other circumstances constituting a violation of any
Environmental Law, Purchasers shall promptly notify Seller and shall provide
Seller all information in Purchasers' possession concerning the presence of
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such substance, including any facts, tests and calculations on which Purchasers
base their position. If Seller has not satisfied Purchasers, in Purchasers'
sole discretion, that the presence of Hazardous Materials has been removed and
any reasonable possibility of the recurring release of such substance precluded
or that any failure to comply with an Environmental Law has been remedied prior
to February 9, 1996, Purchasers may consider such circumstance a Defect and
shall thereafter proceed under section 3.6, below. "Hazardous Material" shall
include, without limitation, polychlorinated byphenyls, chlorinated
hydrocarbons, hazardous wastes, toxic substances or any similar such pollutants
or contaminants, and shall include substances defined as "hazardous
substances," "hazardous materials," "toxic substance," "hazardous wastes," or
"extremely hazardous wastes," in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601,
et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. Sections 2610,
et seq.; and Sections 25115, 25117, and 25316 of the California Health and
Safety Code; and any law, ordinance, and regulation promulgated pursuant to the
foregoing. The term "Environmental Law" shall mean any federal, state or local
environmental, health or safety statute, ordinance or regulation applicable to
the Assets.
3.3 SELLER'S TITLE. The documents to be executed and delivered by
Seller to Purchasers at the Closing transferring title to the Properties shall
be in a recordable form, shall grant to Purchasers full rights (to the extent
so transferable) to enforce the covenants and warranties (including
title-related warranties) to which Seller is entitled, and shall be in
substantially the form set forth in the attached Exhibit "D" hereof. As
reasonably requested by Purchasers, Seller also agrees to execute and deliver
at and after the Closing such other assignments, bills of sale, certificates of
title and other matters which are appropriate to transfer the Assets to
Purchasers.
3.4 MARKETABLE TITLE. Seller represents and warrants unto
Purchasers that it shall convey to Purchasers at the Closing Marketable Title
to all its working interest and net revenue interest in the Properties. The
term "Marketable Title" shall mean such title that is deducible of record, from
the records of the county in which the Assets are located, free from reasonable
doubt to the end that a prudent person engaged in the business of the
ownership, development and operation of producing oil and gas properties with
knowledge of
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all of the facts and their legal bearing would be willing to accept the same,
and, except for Permitted Encumbrances, Seller's working interest and net
revenue interest in each Property are free of any material liens and
encumbrances, caused or arising by, through or under Seller, but not otherwise.
3.5 PERMITTED ENCUMBRANCES. The term "Permitted Encumbrances"
shall mean, in addition to those specifically identified on Exhibit "E" hereof.
A. Royalties, overriding royalties, reversionary interests
and similar burdens if the working or net cumulative effect of such burdens
does not reduce the net revenue interests of Seller below the interest shown on
Exhibit "A" hereto.
B. Division orders and sales contracts terminable without
penalty upon no more than ninety (90) days' notice to the purchaser of
production.
C. Preferential rights to purchase and required third-party
consents to assignments and similar agreements with respect to which waivers or
consents are obtained from the appropriate parties or the appropriate time
period for asserting the rights has expired without an exercise of the rights.
D. Liens for taxes or assessments not yet delinquent or, if
delinquent, that are being contested in good faith in the normal course of
business.
E. Materialman's, mechanic's, repairman's, employee's,
contractor's, operator's, and other similar liens or charges arising in the
ordinary course of business (a) if they have not been filed pursuant to law,
(b) if filed, they have not yet become due and payable or payment is being
withheld as provided by law, or (c) if their validity is being contested in
good faith by appropriate action.
F. All rights to consent by, required notices to, filing
with, or other actions by governmental entities in connection with the sale or
conveyance of oil and gas leases or interests if they are customarily obtained
subsequent to the sale or conveyance.
G. Conventional rights of reassignment requiring notice to
the holders of the rights.
H. Easements, rights-of-way, servitudes, permits, surface
leases and other rights relating to surface operations which do not have a
material adverse effect on the operation of the Properties.
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I. All other liens, charges, encumbrances, contacts,
agreements, instruments, obligations, defects, irregularities affecting the
Properties which individually or in the aggregate are not such as to interfere
materially with the operation, value or use of any of the Properties, do not
prevent Purchasers from receiving the proceeds of production from any Property,
do not materially reduce the interest of Seller with respect to all oil and gas
produced from any Property (or a well located thereon) below the net revenue
interest, and do not increase the costs and expenses that Seller is obligated
to pay above the working interest, both as set forth in Exhibit "A" hereto.
J. All rights reserved to or vested in any governmental,
statutory or public authority to control or regulate any of the Properties in
any manner, and all applicable laws, rules and orders of governmental
authority.
K. Any Title Defects that Purchasers may have expressly
waived in writing.
L. The terms and conditions of the Existing Contracts, and
any contracts for the sale, purchase, exchange, or refining of hydrocarbons and
other agreements which are customary in the oil and gas development and
extraction business.
3.6 NOTICE OF DEFECTS. Purchasers shall notify Seller, in
writing, on or before February 12, 1996, of (a) any matter that would cause
title to any Property or portion thereof not to be Marketable Title ("Title
Defect") or (b) any condition, adverse commitment, liability, or contingency,
including, without limitation, environmental conditions, liabilities, or
contingencies, but excluding Casualty Defects ("Other Defect"), which, in
Purchasers' reasonable opinion, would materially impair the value of the
Assets, together with the amount by which Purchasers believe the value of the
Properties has been reduced by each such defect. Any conditions or
circumstances that would otherwise constitute defects which are not raised by
Purchasers to Seller, in writing, by February 12, 1996 shall be deemed to be
waived.
3.7 REMEDIES FOR DEFECTS. For any Defect timely disclosed to
Seller as provided in section 3.6, above, and provided Purchasers elect not to
waive such Defect, Seller shall have the right, but not the obligation, to
attempt to cure any such Defect for ten (10) days following such notice. With
respect to any such Defect that Seller elects not to cure or fail to cure
within such ten-day period, Seller shall give notice to Purchasers, within five
(5) days thereafter, that it desires to reach an agreement as to a reduction of
the Purchase Price
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caused by the Defect, in which case the Purchase Price shall be reduced by such
value, and the Property subject to the Defect shall be sold pursuant to this
Agreement. If the Parties fail to reach agreement as to the reduction of the
Purchase Price within five days after delivery of such notice by Seller, a
determination of such reduction shall be made by a mutually acceptable
consultant, who shall take into account all factors necessary for a proper
evaluation. The consultant's determination shall be conclusive, binding on the
Parties, and enforceable in any court of competent jurisdiction. All costs and
expenses associated with such a third-party determination shall be borne
equally by the Parties. Notwithstanding the foregoing, no remedy shall be made
for any Defect pursuant to this section 3.7 if the aggregate amount
attributable to all such Defects is less than $50,000.
3.8 CASUALTY LOSS. If any of the Properties are substantially
damaged or destroyed by fire or other casualty ("Casualty Defect") prior to the
Effective Time, Seller shall notify Purchasers promptly after Seller learns of
such event. Seller shall have the right, but not the obligation, to cure any
personal property or fixtures, replacing the damaged Properties with equivalent
items, no later than the Closing. In the event Seller elects not to cure or
replace the damaged Properties, Purchasers shall proceed to purchase the
damaged Properties; however, Purchasers may reduce the Purchase Price by the
value of damage to the Properties. In that event, insurance proceeds and all
rights and claims against other parties relating to the Casualty Defect, if
any, shall belong to Seller. In the event the parties cannot agree within
thirty (30) days of Seller's notice upon the value of damage to the Properties
for the purpose of reducing the Purchase Price in accordance with this Section
3.8, such determination shall be made by a mutually acceptable consultant. All
costs and expenses associated with such a determination shall be borne equally
by the Parties. If any Casualty Defects occur subsequent to the Effective Time
but prior to the Closing, Purchasers shall proceed to purchase the damaged
Properties at the price shown in Section 2.lA hereof, excluding any reduction
in the purchase price for Casualty Defects, and shall be entitled to retain all
insurance proceeds and claims against other parties relating to any such
Casualty Defect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents the following:
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4.1 DISCLAIMERS. Except as specifically set forth in Article III
and this Article IV, Seller makes no warranties or representations, express or
implied, in connection with the Assets, and expressly disclaim any such
representations or warranties, except as set forth herein, with regard to any
information or data disclosed or provided by it or its officers, directors,
agents, representatives, employees, or advisors to Purchasers or Purchasers'
agents, representatives, employees, or advisors. Subject to this Section 4.1
and to the schedule of exceptions attached hereto as Exhibit "F" hereof (the
"Schedule of Exceptions"), Seller makes the representations and warranties set
forth in Sections 4.2 through 4.11. SELLER EXPRESSLY DISCLAIMS ANY WARRANTY AS
TO THE CONDITION OF ANY REAL OR PERSONAL PROPERTY, FIXTURES AND ITEMS OF
MOVABLE PROPERTY COMPRISING ANY PART OF THE ASSETS INCLUDING (a) ANY IMPLIED OR
EXPRESS WARRANTY OF MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (d) ANY RIGHTS OF PURCHASERS
UNDER APPLICABLE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION; AND (e) ANY
CLAIM BY PURCHASERS FOR DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN,
IT BEING EXPRESSLY UNDERSTOOD BY PURCHASERS THAT THE PERSONAL PROPERTY,
FIXTURES AND ITEMS ARE BEING CONVEYED TO PURCHASERS AS IS, WHERE IS, WITH ALL
FAULTS, AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR AND THAT PURCHASERS
HAVE MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS PURCHASERS DEEM APPROPRIATE.
4.2 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware, has all necessary power to own the Properties and to carry on
its business as now owned and operated by it, and is duly qualified to do
business and is in good standing in all jurisdictions in which the nature of
its business or of its Properties makes such qualifications necessary.
4.3 POWER. Except as identified on the Schedule of Exceptions,
Seller has the
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power to enter into and perform this Agreement and the transactions
contemplated by this Agreement. Subject to any preferential purchase rights,
and restrictions on assignment of the type generally found in the oil and gas
industry, and rights to consent by, required notice to, and filings with or
other actions by governmental entities where the same are customarily obtained
subsequent to the assignment of oil and gas interests, the execution, delivery
and performance of this Agreement by Seller, and the transactions contemplated
by this Agreement, will not violate (a) any material agreement or instrument to
which Seller is a party or by which Seller or any of the Assets are bound, (b)
any judgment, order, ruling, or decree applicable to Seller, as a party in
interest, or (c) any law, rule or regulation applicable to Seller relating to
the Assets other than a violation which would not have a material adverse
effect on Seller or the Assets.
4.4 AUTHORIZATION. The execution, delivery and performance of
this Agreement and the transactions contemplated by this Agreement have been
duly and validly authorized by all requisite action on the part of Seller.
This Agreement has been duly executed and delivered on behalf of Seller and, at
the Closing, all documents and instruments required to be executed and
delivered by Seller shall have been duly executed and delivered. This
Agreement constitutes a legal, valid and binding obligation of Seller
enforceable in accordance with its terms, subject, however, to bankruptcy,
insolvency, reorganization, fraudulent conveyance and similar laws from time to
time in effect relating to the rights and remedies of creditors, as well as to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.5 BROKERS. Seller has incurred no obligation or liability,
contingent or otherwise, for brokers' or finders' fees relating to the matters
provided for in this Agreement which will be the responsibility of Purchasers,
and any such obligation or liability that might exist shall be the sole
obligation of Seller.
4.6 DEFAULT OF AGREEMENT. Seller is not in default under the
terms of any contracts, leases, or agreements respecting the Properties which
might result in a material impairment or loss of title to any material part of
the Properties or the value thereof or which might materially hinder or impede
the operations of the Properties.
4.7 VIOLATION OF LAW. Seller is not in violation of any
applicable laws, rules,
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regulations or orders of any governmental agency having jurisdiction over the
Properties or operations thereon which would result in a material impairment of
the Properties or the value thereof or which would materially hinder or impede
the operation of the Properties.
4.8 CLAIMS AND LITIGATION. There are no legal or administrative
proceedings, material claims or investigations now pending or, to the best of
Seller's knowledge, threatened before any court or administrative body against
Seller, which, upon determination would adversely effect the value of the
Assets or which has or will materially affect Seller's ability to consummate
the transactions contemplated by this Agreement.
4.9 TAXES AND ASSESSMENTS. To the best of Seller's knowledge,
all material ad valorem, production, severance, excise, and similar taxes and
assessments based upon or measured by the value of or the ownership of the
production of hydrocarbons from the Properties which have become due and payable
have been properly paid or are being challenged in good faith, all applicable
tax returns have been filed, and Seller knows of no claim by any applicable
taxing authority in connection with the payment of these taxes.
4.10 PAYMENT OF RENTS AND ROYALTIES. Seller has either paid or
caused to be paid in a timely and proper manner all rents, royalties, and other
applicable lease maintenance payments which have come due and payable, and all
oil and gas leases described in Exhibit "A" hereof are valid and in full force
and effect as of the Closing.
4.11 EXHIBITS. To the best of Seller's knowledge, all information
contained in the Exhibits attached to this Agreement is free from any
intentional misrepresentation or omission of material facts or disclosures.
ARTICLE V
REPRESENTATIONS OF PURCHASERS
Purchasers hereby represent and warrant to Seller the following:
5.1 STATUS. Purchasers are individuals experienced in the
acquisition and operation of oil and gas properties and consider themselves
qualified to carry on the business of producing and marketing hydrocarbons, to
be conducted by them following the consummation of the transaction contemplated
hereby.
5.2 BROKERS. Purchasers have incurred no obligation or liability,
contingent or otherwise, for brokers' or finders' fees relating to the matters
provided for in this Agreement which will be the responsibility of Seller. Any
such obligation or liability that might exist
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shall be the sole obligation of Purchasers.
5.3 CLAIMS AND LITIGATION. There is no suit, action, claim,
investigation or inquiry by any person or entity or any administrative agency
or governmental body and no legal, administrative or arbitration proceeding
pending or, to Purchasers' best knowledge, threatened against Purchasers which
has or will materially affect Purchasers' ability to consummate the
transactions contemplated by this Agreement.
5.4 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties by Purchasers in this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary to make the statements or facts contained herein not misleading.
ARTICLE VI
PRE-CLOSING OBLIGATIONS OF SELLER
6.1 OPERATIONS. From the date of this Agreement until the Closing
(the "Interim Period"), except as otherwise approved by Purchasers, Seller
shall (a) permit Purchasers to have access to the Properties, (b) consult with
Purchasers with respect to all material decisions to be made with respect to
the Properties, (c) operate the Properties as a reasonably prudent operator,
(d) act, with respect to the Assets, in good faith and in accordance with its
best business judgment as if the Assets were not being sold to Purchasers, (e)
exercise reasonable diligence in safeguarding and maintaining secure and
confidential all geological and geophysical maps, confidential reports and data
in its possession relating to the Assets, and (f) not transfer, sell,
hypothecate, encumber, abandon or otherwise dispose of any material portion of
the Properties (other than as required in connection with the exercise by third
parties of preferential rights to purchase any of the Properties) without the
prior written consent of Purchasers.
6.2 PERMISSIONS. During the Interim Period, Seller shall use
reasonable efforts to obtain all permissions, approvals, and consents by
federal, state and local governmental authorities and others as may be required
to consummate the transaction contemplated by this Agreement (excluding
governmental permissions, approvals and consents which are customarily obtained
after the assignment of an oil and gas interest, which shall be the
responsibility of Purchasers to obtain).
6.3 DEFAULTS. Seller shall give prompt written notice to
Purchasers of any notice
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of default (or written threat of default, whether disputed or denied by Seller)
received or given by Seller subsequent to the Effective Time under any
instrument or agreement affecting the Properties to which Seller is a party or
by which it or any of the Properties is bound.
6.4 CONDUCT OF BUSINESS IN NORMAL COURSE. Seller will carry on
its business and activities on the Properties diligently and in substantially
the same manner as they previously have been carried out, and shall not make or
institute any unusual or novel methods of purchase, sale, lease, management,
accounting, or operation that will vary materially from those methods used as
of the Effective Date without the prior written consent of Purchasers.
6.5 PRESERVATION OF BUSINESS AND RELATIONSHIPS. Seller will use
its reasonable best efforts, without making any commitments on behalf of
Purchasers, to preserve its business organizations intact and to preserve its
present relationships with suppliers, customers, and others having business
relationships with Seller.
6.6 MAINTENANCE AND INSURANCE. Seller will continue to carry its
existing insurance, subject to variations in amount required by the ordinary
operations of its business. At the request of Purchasers and at Purchasers'
sole expense, the amount of insurance against fire and other casualties which,
at the date of this Agreement, is carried on any of the Properties or in
respect of any operations shall be increased by such amount or amounts as
Purchasers shall specify.
ARTICLE VII
PRE-CLOSING OBLIGATIONS OF PURCHASERS
7.1 CONFIDENTIALITY. Purchasers shall cause the information and
data furnished or made available by Seller to Purchasers and their employees
and representatives in connection with this Agreement or Purchasers'
investigation of the Assets, to be maintained in confidence and not to be used
for any purpose other than in connection with this Agreement or Purchasers'
investigation of the Assets; provided, however, that the foregoing obligation
shall terminate on the earlier to occur of (a) the Closing or (b) such time as
the information or data in question becomes generally available to the oil and
gas industry other than through the breach of the foregoing obligation. The
obligations of Purchasers under this section 7.1 shall be in addition to, and
not in lieu of, Purchasers' obligation under any confidentiality agreements
relating to the Assets previously executed by Purchasers.
7.2 RETURN OF DATA. Purchasers agree that if this Agreement is
terminated for any
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reason whatsoever, Purchasers shall, at Seller's request, promptly return to
Seller all information and data furnished to Purchasers or their employees and
representatives in connection with this Agreement or Purchasers' investigation
of the Assets, and Purchasers agree not to retain any copies of any such
information or data.
7.3 COOPERATION. Purchasers will cooperate with Seller to assist
it in carrying out the agreements as set forth in Article VI above.
ARTICLE VIII
CONDITIONS OF SELLER TO CLOSING
The obligation of Seller to consummate the transaction contemplated by
this Agreement is subject, at the option of Seller, to the fulfillment on or
prior to the Closing of each of the following conditions:
8.1 REPRESENTATIONS. The representations and warranties of
Purchasers contained in this Agreement shall be true and correct in all
material respects on the Closing as though made on and as of such date.
8.2 PERFORMANCE. Purchasers shall have performed all obligations,
covenants and agreements hereunder and shall have complied with all covenants
and conditions contained in this Agreement to be performed or complied with by
them at or prior to the Closing.
8.3 PENDING MATTERS. No suit, action or other proceeding, public
or private, shall be pending, which (a) seeks to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this Agreement,
(b) challenges the transactions contemplated by this Agreement under the United
States antitrust laws, or (c) seeks either monetary or injunctive relief from
the transactions contemplated hereunder.
8.4 MATERIAL CHANGE. There shall not have been material change in
the financial condition of Purchasers from the date hereof. Purchasers shall
not after the date hereof, have transferred, sold, hypothecated, encumbered,
abandoned, or otherwise disposed of any material portion of the assets or
properties owned by it.
ARTICLE IX
CONDITIONS OF PURCHASERS TO CLOSING
The obligation of Purchasers to consummate the transaction provided
for in this Agreement is subject, at the option of Purchasers, to the
fulfillment on or prior to Closing of each of the following conditions:
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9.1 REPRESENTATIONS. The representations and warranties of Seller
contained in this Agreement shall be true and correct in all material respects
on the Closing as though made on and as of such date.
9.2 PERFORMANCE. Seller shall have performed all obligations,
covenants and agreements hereunder and shall have complied with all covenants
and conditions contained in this Agreement to be performed or complied with by
them at or prior to the Closing.
9.3 PENDING MATTERS. No suit, action or other proceeding, public
or private, shall be pending, which (a) seeks to restrain, enjoin or otherwise
prohibit, the consummation of the transactions contemplated by this Agreement,
(b) challenges the transactions contemplated by this Agreement under the United
States antitrust laws, or (c) seeks either monetary or injunctive relief from
the transactions contemplated hereunder.
ARTICLE X
CLOSING
10.1 TIME AND PLACE OF CLOSING. If the conditions to Closing have
been satisfied or waived, the consummation of the transactions contemplated by
this Agreement shall be held on February 20, 1996 and shall be held at the
offices of Burris, Drulias & Gartenberg, 11755 Wilshire Boulevard, Suite 1230,
Los Angeles, California.
10.2 CHANGE OF CLOSING DATE. The Closing may be changed to such
earlier or later date as may be fixed by mutual agreement of the Parties.
10.3 CLOSING OBLIGATIONS. At the Closing:
A. Seller shall execute, acknowledge and deliver the deeds,
assignments, bills of sale, or other transfer documents provided for in this
Agreement, deliver possession of the Assets to Purchasers, and shall execute
and deliver to Purchasers such other instruments and take such other action
as may be necessary to carry out their obligations under this Agreement;
B. Seller shall deliver to Purchasers the Records pertaining
to the Assets;
C. Seller and Purchasers shall execute, acknowledge, and
deliver transfer orders or letters in lieu thereof directing all purchasers of
production to make payment to Purchasers of proceeds attributable to production
from the Properties to Purchasers;
D. Purchasers shall execute such other instruments and take
such other action
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as may be necessary to carry out its obligations under this Agreement;
E. Purchasers shall take possession of the Assets, and take
over custody and control of the Assets, all accounting, lease maintenance and
other related functions and, where possible, all operations on the Properties;
and
ARTICLE XI
POST-CLOSING OBLIGATIONS
11.1 CALCULATION OF ADJUSTED PURCHASE PRICE. Not later than
forty-five (45) days after the Closing, Seller shall prepare, in accordance
with this Agreement, and deliver to Purchasers a final statement setting forth
post-closing adjustments to the Purchase Price and showing the calculation of
such adjustments (the "Closing Adjustment Statement"). The Closing Adjustment
Statement will include any adjustments pursuant to Article II and, if the
Closing Adjustment Statement reflects a balance owing to Purchasers, such
payment shall be delivered with the Closing Adjustment Statement. Within
thirty (30) days after receipt of the Closing Adjustment Statement, Purchasers
shall deliver to Seller any objections that Purchasers have such statement. If
Purchasers have no objections to the Closing Adjustment Statement and it
reflects a balance owing to Seller, Purchasers shall pay such balance within
such thirty (30) day period. The Parties shall undertake to agree on the
adjustments no later than ninety (90) days after the Closing. Final
adjustments shall be made in cash and shall be conclusively deemed to be final
unless challenged by Purchasers within thirty (30) days of receipt of the
Closing Adjustment Statement. If the Parties cannot reach agreement as to all
or any portion of the final adjustments, such disputed portion shall be
resolved by submitting the issue to arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association then currently in
effect, which Arbitration shall be held in Los Angeles County, California.
The costs of any such arbitration shall be shared equally by the Parties.
11.2 RECEIPTS AND CREDITS. Following final adjustments, all
monies, proceeds, receipts, credits and income attributable to the Assets for
all periods of time subsequent to the Effective Time shall be the sole property
and entitlement of Purchasers, and, to the extent received by Seller, it shall
fully disclose, account for and transmit the same promptly to Purchasers.
Following final adjustments, all monies, proceeds, receipts and income
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attributable to the Assets, for all periods of time prior to the Effective
Time, shall be the sole property and entitlement of Seller and, to the extent
received by Purchasers, they shall fully disclose, account for and transmit the
same promptly to Seller. All costs, expenses, disbursements, obligations and
liabilities attributable to the Assets for period of time prior to the
Effective Time, regardless of when due or payable shall be the sole obligation
of Seller and Seller shall promptly pay, or if paid by Purchasers, promptly
reimburse Purchasers for and hold Purchasers harmless from and against same.
All costs, expenses, disbursements, obligations, and liabilities attributable
to the Assets for periods of time subsequent to the Effective Time, regardless
of when due or payable, shall be the sole obligation of the Purchasers and
Purchasers shall promptly pay, or if paid by Seller, promptly reimburse Seller
for and hold Seller harmless from and against same. Seller shall be entitled
to a credit for and reimbursement in an amount equal to any amount received by
Purchasers after the Closing for any delivery or performance by Seller prior to
the Effective Time.
11.3 ASSUMPTION OF OBLIGATIONS AND INDEMNIFICATION. At Closing (a)
Purchasers shall and do hereby assume all expenses and obligations attributable
to the Assets on or after the Effective Time including, but not limited to, any
obligation to properly plug and abandon all wells now or hereafter located on
the Properties (regardless of whether any such obligation to plug and abandon
or restoration of the surface is attributable to periods of time prior to or
after the Effective Time) and restore the surface of the Properties in
accordance with applicable lease or other agreements and governmental
(including environmental) laws, orders and regulations, and, upon request of
Seller, Purchasers agree to execute and deliver specific assumption agreements
with respect to any such obligations, (b) Purchasers agree to indemnify, defend,
and hold harmless Seller, its shareholders, officers, directors, employees,
agents, and representatives, from and against any and all claims, liabilities,
losses, costs and expenses (including, without limitation, court costs and
reasonable attorneys' fees) that are attributable to or arise out of the use or
operation of the Assets on or after the Effective Time (including, without
limitation, with respect to the obligation to properly plug and abandon all
wells now or hereafter located on the Properties including restoration of
the surface) and, with respect to damage to property, or injury to or death of
persons, occurring after the Effective Time but attributable in
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whole or in part to conditions that existed before the Effective Time, except
to the extent Seller or its shareholders, officers, directors, employees,
agents, and representatives were grossly negligent or acted with willful
misconduct; and (c) Seller agrees to indemnify, defend and hold harmless
Purchasers from and against (i) any and all claims, liabilities, losses, costs
and expenses (including, without limitation, court costs and reasonable
attorneys' fees) that are attributable to or arise out of the use or operation
of the Assets before the Effective Time (other than relating to the obligation
to properly plug and abandon all wells and restore the surface of the property)
or (ii) to property damage or injury to or death of persons occurring from and
after the Effective Time and prior to the Closing, to the extent such property
damage or injury or death is the result of Seller's gross negligence or willful
misconduct.
11.4 RECORDING. As soon as practicable after the Closing,
Purchasers shall record all deeds, conveyances and assignments of the
Properties in the appropriate counties and provide Seller with all recording
data.
11.5 FURTHER ASSURANCES. After the Closing, the Parties agree to
take such further action and to execute, acknowledge and deliver all such
further documents that are necessary or useful in carrying out the purposes of
this Agreement or of any document delivered pursuant to this Agreement. In
addition, upon request, Seller shall provide Purchasers with reasonable access
to Seller's accounting and financial information regarding the Assets to
enable Purchasers to prepare pro forma financial statements in order to comply
with rules or requirements of any governmental agency having jurisdiction.
ARTICLE XII
TERMINATION
12.1 RIGHT OF TERMINATION. This Agreement may be terminated at any
time at or prior to the Closing:
A. By mutual consent of the Parties; or
B. At the option of the non-breaching Party if the other
Party is in material default of its obligations under this Agreement, ten (10)
days after delivery of notice of such
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default to the breaching party if a cure of the default is not effected.
12.2 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to section 12.1, this Agreement shall become void and of no further
force or effect, except for the provisions of Sections 7.1 and 7.2 hereof,
which shall remain in force. In the event this Agreement is terminated
pursuant to section 12.1B, each Party shall retain all rights which it may have
against the other in law and at equity.
ARTICLE XIII
TAXES
13.1 APPORTIONMENT OF AD VALOREM AND PROPERTY TAX. All ad valorem
taxes, real property taxes, personal property taxes, and similar obligations
relating to the Assets ("Property Taxes") shall be prorated between Seller and
Purchasers as of the Effective Time and the Purchase Price shall be adjusted
accordingly. The proration shall be based on the actual assessment of the
taxing period in which the Effective Time occurs. Seller agrees to (a)
immediately forward to Purchasers any Property Tax reports and returns received
by Seller after the Closing and (b) provide Purchasers with appropriate
information which is necessary for Purchasers to file any required Property Tax
reports and returns.
13.2 SALES TAXES. Purchasers shall be liable for any sales tax or
other transfer tax, as well as any applicable conveyance, transfer and
recording fees, and real estate transfer stamps or taxes imposed on the
transfer of the Assets pursuant to this Agreement and any interest or penalties
assessed thereon.
13.3 OTHER TAXES. All production, severance, excise, windfall
profit and other taxes (other than income taxes) relating to production of oil,
gas and condensate attributable to the Assets prior to the Effective Time shall
be paid by Seller, and all such taxes relating to such production on or after
the Effective Time shall be paid by Purchasers.
13.4 COOPERATION. Each Party shall provide the other with
reasonable information which may be required by the other for the purpose of
preparing tax returns and responding to any audit by any taxing jurisdiction.
Each shall cooperate with all reasonable requests of the other made in
connection with contesting the imposition of taxes. Notwithstanding anything
to the contrary in this Agreement, neither shall be required at any time to
disclose to the other any tax returns or other confidential tax information.
ARTICLE XIV
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MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement, the documents to be
executed pursuant to this Agreement, and the attached Exhibits constitute the
entire agreement between the Parties pertaining to the subject matter of this
Agreement and supersede all prior agreements, understandings, negotiations and
discussions of the Parties, whether oral or written. There are no warranties,
representations, or other agreements between the Parties in connection with the
subject matter of this Agreement except as specifically set forth herein or in
documents delivered pursuant hereto. No supplement, amendment, alteration,
modification, or waiver of this Agreement shall be binding unless executed in
writing by the Parties.
14.2 WAIVER. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions of this
Agreement (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
14.3 HEADINGS. The headings of articles and sections used in this
Agreement are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Agreement.
14.4 ASSIGNMENT. No Party shall assign all or any part of this
Agreement, nor shall any Party assign or delegate any of its rights or duties
hereunder, without the prior written consent of the other Party and any
assignment made without such consent shall be void. Except as otherwise
provided in this Section 14.4, this Agreement shall be binding upon and inure
to the benefit of the Parties and their respective permitted successors,
assigns and legal representatives.
14.5 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall
entitle any party other than Purchasers and Seller to any claim, cause of
action, remedy or right of any kind.
14.6 GOVERNING LAW. This Agreement, other documents delivered
pursuant hereto, and the legal relations between the Parties shall be governed
and construed in accordance with the laws of the State of California, excluding
the body of law relating to conflicts of law. The validity of the various
assignments or conveyances affecting the title to the Properties shall be
governed by and construed in accordance with the laws of the jurisdiction
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in which the Properties are located. The warranties contained in such
assignments or conveyances and the remedies arising from such warranties shall
be governed by and construed in accordance with the laws of the State of
California, excluding the body of law relating to conflicts of law.
14.7 ARBITRATION. Any claim or controversy arising out of the
provisions of this Agreement shall be resolved by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
All hearings in any such arbitration shall be held in Los Angeles County,
California. Any judgment upon the award rendered by the arbitrator in such
arbitration may be entered in any court having jurisdiction thereover.
14.8 ATTORNEY'S FEES. In the event legal action is instituted in
order to enforce or interpret the provisions of this Agreement, the prevailing
party in such action shall be entitled to recover, as an item of its costs, the
reasonable value of its attorney's fees incurred in such action.
14.9 NOTICES. Any notice, communication, request, instruction, or
other document required or permitted by this Agreement shall be given in
writing by certified mail, return receipt requested, postage prepaid, or by
prepaid air express, telegram, or delivered, as follows:
If to Seller:
Fortune Petroleum Corporation
30101 Agoura Court, Suite 110
Agoura Hills, California 91301
Attention: Mr. Tyrone J. Fairbanks
If to Purchaser:
Arnold and Joan Travis
727 Holmby Avenue
Los Angles, California 90024
14.10 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute for
all purposes one agreement.
14.11 EXPENSES. Except as otherwise provided in this Agreement,
each Party shall
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be solely responsible for all expenses incurred by it in connection with this
transaction (including, without limitation, fees and expenses of its own
counsel, accountants, and consultants) and shall not be entitled to
reimbursement therefor from the other.
14.12 EXHIBITS. All references in this Agreement to Exhibits shall
be deemed to be references to such Exhibits as the same may be amended and
supplemented by mutual agreement of the Parties through and as of the Closing.
14.13 PUBLICITY. The Parties agree that, prior to making any public
announcement or statement with respect to the transactions contemplated by this
Agreement, the Party desiring to make such public announcement or statement
shall consult with the other parties hereto and exercise its best efforts to
(a) agree upon the text of a joint public announcement or statement to be made
by both of such parties or (b) obtain approval of the other party hereto to the
text of a public announcement or statement to be made solely by one Party.
Nothing contained herein shall be construed to require any Party to obtain
approval of the others to disclose information with respect to the transactions
contemplated by this Agreement to any state or federal governmental authority
or agency to the extent required by applicable law or by any applicable rules,
regulations or orders of any governmental authority or agency having
jurisdiction or necessary to comply with disclosure requirements of any stock
exchange and applicable securities laws.
14.14 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect.
14.15 SURVIVAL. The representations and warranties of the Parties
and any obligation of the Parties set forth in this Agreement, shall not
survive the Closing except as specifically set forth in sections 11.1, 11.2,
11.3, 14.8, and 14.11 of this Agreement.
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IN WITNESS WHEREOF, the Parties hereto have executed and delivered
this Agreement as of the day and year first above written.
SELLER: PURCHASERS:
FORTUNE PETROLEUM CORPORATION
-----------------------------------
ARNOLD TRAVIS
By:
---------------------------------- -----------------------------------
DEAN W. DRULIAS JOAN TRAVIS
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JACK WOODS
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