Attached files
STOCK PURCHASE
AGREEMENT
This
Stock Purchase Agreement (“Agreement”) is entered into as of the 1st day of
March, 2010 (“Effective Date”) among AMERICAN ENERGY PRODUCTION,
INC., a Delaware corporation (“AENP”), EARL R. WALKER (“Walker”),
EMERALD BAY ENERGY,
INC., an
Alberta, Canada corporation, (“EBY”) and DARREN LYONS OR ASSIGNS
(“Lyons”) [AENP, Walker, EBY and Lyons are collectively referred to herein as
the “Parties” and EBY and Lyons are collectively referred to herein as the
“Purchasers”].
RECITALS:
A. AENP,
whose common shares are publicly traded on the over-the-counter bulletin board
under the symbol “AENP”, is the owner of one thousand (1,000) shares
of common stock, no par value, of PRODUCTION RESOURCES, INC. ,a
Texas corporation (“PRI”) , being all of the outstanding capital stock of PRI
(the “PRI Stock”). PRI is the owner of certain oil and gas leases
situated in Medina County, Texas together with the wells thereon and various
items of equipment and personal property located on or about the leases or used
in connection therewith, which Leases are more particularly described in Exhibit “A” attached
hereto and made a part hereof (the “Leases”).
B. EBY,
whose shares are publicly traded on the TSX Venture Exchange under the symbol
“EBY”, and Lyons (collectively, “Purchasers”) desire to purchase from AENP the
PRI Stock and AENP and Purchasers have agreed that the sale should be
consummated under the terms and conditions hereof.
TERMS OF
AGREEMENT:
NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, AENP, Walker and Purchasers covenant and agree as
follows:
ARTICLE
I
AGREEMENT
TO SELL, PURCHASE PRICE, STIPULATIONS
REGARDING
EXCLUDED AND INCLUDED ASSETS AND LIABILITIES, AND CLOSING ESCROW
1.01. Agreement
to Sell PRI Stock. As of Closing
(hereinafter defined), AENP agrees to sell, transfer and convey to Purchasers,
in equal fifty percent (50%) shares, the PRI Stock free and clear of
encumbrances, excluding the assets termed the “Excluded Assets” and including
the assets held in the name of Walker termed the “Included Assets” described in
section 1.03 of this Agreement.
1.02. Purchase
Price. The Purchase
Price (“Purchase Price”) to be paid by EBY to AENP for the PRI Stock shall be
comprised of EIGHT HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($850,000.00)
payable as follows:
a) Cash
Component. FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 UNITED
STATES DOLLARS ($425,000.00) cash (the “Cash Component”) at Closing to be
provided by Lyons.
b) EBY Stock
Component. USD$425,000.00 worth of EBY common
stock (the “EBY Stock Component”) at $0.08 (Canadian Dollars) per EBY
common share based upon the exchange rate between Canadian and United States
Dollars as of the date of Closing, to be issued to AENP at Closing in
certificated form with the legend described hereinbelow; provided, however, that
in the event that the EBY Stock Component results in ownership by AENP of ten
percent (10%) or more of the outstanding shares of EBY, then the EBY Stock
Component shall be reduced to an amount of EBY shares which does not exceed
9.97% of the total outstanding common shares of EBY and the resulting shortfall
in the $425,000 value of the EBY Stock Component of the Purchase Price shall be
paid to AENP in cash as consulting services fees under the consulting agreement
described in section 1.04 of this Agreement. AENP understands
and acknowledges that upon the original issuance thereof, and until such time as
the same is no longer required under U.S. Securities Act and the U.S. Securities
Exchange Act of 1934, as amended, the rules and regulations of the United States
Securities and Exchange Commission thereunder and the securities laws of the
states and other jurisdictions of the United States, the certificates
representing the EBY Stock Component, and all certificates issued in exchange
therefor or in substitution thereof, shall bear the following legend in
substantially the following form and be subject to the following
provisions:
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UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER THE SECURITIES SHALL NOT
TRADE THE SECURITY BEFORE THE DATE THAT IS 4 MONTHS AND A DAY AFTER March 8, 2010.
Without
the prior written approval of the TSX Venture Exchange and compliance with all
applicable securities legislation, the securities represented by this
certificate may not be sold, transferred, hypothecated or otherwise traded on or
through the facilities of the TSX Venture Exchange or otherwise in Canada or to
or for the benefit of a Canadian resident until the date that is 4 months and a
day after March 8,
2010.
:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”) OR APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT AND IN COMPLIANCE
WITH LOCAL SECURITIES LAWS, (C) IN COMPLIANCE WITH THE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE 1933 ACT PROVIDED BY RULE 144 or RULE 144A
THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE 1933
ACT OR ANY APPLICABLE STATE LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE,
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORCE
AND SUBSTANCE, IN EITHER CASE REASONABLY SATISFACTORY TO THE COMPANY TO SUCH
EFFECT. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. IF THESE SECURITIES ARE
SOLD AT ANY TIME THE COMPANY IS A “FOREIGN CORPORATION” AS DEFINED IN RULE 902
UNDER THE 1933 ACT, A NEW CERTIFICATE, BEARING NO LEGEND, THE DELIVERY OF WHICH
WILL CONSTITUTE “GOOD DELIVERY” MAY BE OBTAINED FROM THE COMPANY’S TRANSFER
AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN FORM
SATISFACTORY TO THE COMPANY AND THE COMPANY’S TRANSFER AGENT TO THE EFFECT THAT
THE SALE OF THE SECURITIES IS BEING MADE IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE 1933 ACT.”
provided,
that if, at the time EBY is a “foreign issuer” as defined in Regulation S
(“Regulation S”) promulgated under the U.S. Securities Act of 1933, as amended,
(the “U.S. Securities Act”) the shares that comprise EBY Stock Component are
being sold in compliance with the requirements of Rule 904 of Regulation S, as
referred to above, and in compliance with Canadian local laws and regulations,
the legend may be removed by providing a declaration to the EBY’s transfer agent
for the shares in a form as EBY may prescribe from time to time;
notwithstanding
the foregoing, EBY’s transfer agent may impose additional requirements for the
removal of legends from securities sold in accordance with Rule 904 of
Regulation S in the future; and
provided
further, that, if any of the shares that comprise EBY Stock Component are being
sold pursuant to Rule 144 of the U.S. Securities Act, the legend may be removed
by delivery to EBY’s transfer agent of an opinion of counsel of recognized
standing in form and substance satisfactory to EBY, to the effect that the
legend is no longer required under applicable requirements of U.S. Securities
Act;
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1.03. Stipulations
Among Parties As To Certain Excluded And Included Assets and
Liabilities.
(a) Excluded Assets. The
Parties hereby stipulate and agree that the sale of PRI Stock shall NOT include (i) the
vacuum pump, down hole heater and electrical converter currently stored on the
Clara Gray Lease, and (ii) a 1% overriding royalty interest in the Leases to be
retained by AENP only as to oil and gas production occurring greater than 1,200
feet subsurface (collectively, the “Excluded Assets”). At Closing,
the Excluded Assets shall be documented by a Bill of Sale from PRI to AENP as to
the Clara Gray Lease equipment and by a recordable Assignment of Overriding
Royalty Interest as to the reserved deep rights overriding royalty in the forms
attached hereto as Exhibit “B” and Exhibit “C”,
respectively.
(b) Certain Included
Assets. The Parties further hereby stipulate and agree
that the sale shall specifically include the following items as well as any
other asset vested in PRI other than the Excluded Assets: all Leases, equipment,
vehicles, stored oil, accounts receivable, insurance receivables, rebates,
refunds, cash deposits, bank accounts and instruments, letters of credit, and
cash accounts.
(c) Included and Excluded
Liabilities. As a stock sale, all liabilities of PRI shall
stay with PRI, but it is intended that AENP bear responsibility for and pay any
liabilities which relate to periods prior to and through December 31, 2009, and
that Purchasers bear responsibility for and pay (through PRI) any liabilities
from and after January 1, 2010, except to the extent that such
liabilities accrued or pertain to periods prior to January 1,
2010. In this regard, Purchasers shall be responsible for all 2010 ad
valorem real and personal property taxes, trade payables and professional
payables of PRI after January 1, 2010 (except any counsel retained by AENP in
connection with this transaction), but AENP shall be responsible for liabilities
which relate to 2009 and before, such as federal income taxes of PRI for 2009
and prior years. The provisions of this section shall be
covered by the mutual indemnity provisions set forth in Article VIII of this
Agreement.
1.04. AENP
Consulting Agreement. At Closing, EBY and AENP shall execute a Consulting
Agreement under which EBY shall pay to AENP a consulting fee equal to the value
shortfall in the $425,000.00 EBY Stock Component described in section
1.02(b) above in monthly payments equal to not less than $2,000
principal plus interest on the outstanding principal at the rate of 7% per
annum.
1.05. Closing
Into Escrow Pending TSX Venture Exchange
Approval. The sale of the PRI Stock to EBY is
subject to approval by the TSX Venture Exchange. Accordingly, upon
execution of this Agreement, the PRI Stock (with transferring Stock Power), the
Purchase Price (both Cash Component and EBY Stock Component) and the respective
Seller Closing Documents and Purchaser Closing Documents (hereinafter defined)
shall be deposited into escrow with the Escrow Agent named in, and pursuant to,
the terms of the Escrow Agreement attached hereto and made a part hereof as
Exhibit
“D”. Upon obtaining the TSX Venture Exchange Approval,
the Escrow Agent shall release the PRI Stock to Purchasers release the Purchase
Price to AENP, and release the executed Seller Closing Documents and Purchaser
Closing Documents to the respective Parties.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES OF AENP
As a
material consideration for the payment by Purchasers of the Purchase Price, and
except as disclosed to Purchaser in any Schedule hereto, AENP hereby represents
and warrants to Purchasers the following:
3.01. Organization. PRI is duly
organized, validly existing and in good standing under the Laws of the State of
Texas. The Company has full power and authority to own, lease
and operate its properties and to conduct the Business.
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3.02. Enforceability. AENP will have,
at Closing, full power and authority to execute and deliver this Agreement and
each of the other agreements, certificates and instruments to be executed by
AENP in connection with or pursuant to this Agreement (collectively, and
together with this Agreement, the “Seller Closing Documents”), to perform its
obligations under the Seller Closing Documents and to consummate the
transactions contemplated by this Agreement and the Seller Closing
Documents. The execution and delivery by AENP of the Seller Closing
Documents, the performance by AENP of its obligations under the Seller Closing
Documents and the consummation by such Seller of the transactions contemplated
by this Agreement and the Seller Closing Documents have been duly
authorized. This Agreement has been duly and validly executed and
delivered by AENP and constitutes the legal, valid and binding obligation of
AENP enforceable against AENP in accordance with its terms. As of the
Closing, the Seller Closing Documents will constitute the legal, valid and
binding obligations of AENP enforceable in accordance with the respective
terms.
3.03. No
Conflicts. The execution and
delivery of the Seller Closing Documents, the performance by AENP of its
obligations under the Seller Closing Documents and the consummation by AENP of
the transactions contemplated by Seller Closing Documents do not, and will
not:
(a) violate
any provision of law or any permit;
(b) violate
any provision of the organization documents of the Company;
(c) require
any consent, waiver, approval, registration, order, action or authorization of,
declaration or filing with or notification to any governmental authority or
other person (whether pursuant to a contract or otherwise), other than a
consent, waiver, approval, authorization, registration, order, declaration,
filing or notification that has been obtained or made prior to the execution and
delivery by AENP of this Agreement;
(d) violate,
conflict with, constitute a default under or breach any term, condition or
provision of any contract or order (whether with the passage of time, the giving
of notice or otherwise);
(e) result
in the termination of, give rise to a right of termination or cancellation of or
accelerate the performance required pursuant to any contract (whether
with the passage of time, the giving of notice or otherwise); or
(f)
result in
the creation of any encumbrance with respect to any asset of
PRI.
3.04
Capitalization. The
PRI Stock is duly authorized, validly issued, fully paid and nonassessable and
has been issued in compliance with all applicable securities
laws. PRI has not issued any other options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or entered into any agreement giving any person any right to
subscribe for or acquire, any securities issued by PRI.
3.05.
Status of
Company Assets.
(a) PRI
has good and marketable title to all of its assets, free and clear of all
Encumbrances.
(b) By
acquiring the PRI Stock as contemplated by this Agreement, Purchasers will be
indirectly acquiring control, through PRI, of the assets of
PRI. Except as disclosed in this Agreement, no part of the business
and no asset is owned or held by any person other than PRI.
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(c)
To AENP's actual knowledge, each of the Leases is in full force and
effect.
3.06. Insurance. Insurance
coverages for PRI will remain in place through the Closing.
3.07. Employees.
(a) To
AENP’s actual knowledge, PRI is currently in substantial compliance with all
material laws relating to the employment of labor, including without limitation
the Occupational Safety and Health Act.
(b) PRI
does not have any oral or written agreements or understandings to provide its
employees pay raises, bonuses, stock options or other compensation
benefits.
(c) PRI
does not have any written employment agreements with its employees with the
exception of Walker, which employment agreement shall be mutually terminated by
PRI and Walker at Closing and renegotiated as between Walker and the new
management of PRI.
3.08. Environmental
and RRC Matters.
(a) Legal
Compliance. To AENP’s actual knowledge, the Leases are in
substantial compliance, in material respects, with all material environmental
laws.
(b)
No Claims or
Proceedings. To AENP’s actual knowledge, PRI is not subject to
any pending claim or legal proceeding, nor is any threatened, investigating,
asserting or alleging the material violation of any environmental
law.
(c) Railroad Commission
Status. To AENP’s actual knowledge, all sales of crude
oil produced from the Leases prior to the Effective Date hereof have been in
substantial compliance with applicable local, state and federal law, rules and
regulations and there are not any known conditions on the lands covered by the
Leases which would constitute a violation of any such laws, rules or
regulations. All pertinent Railroad Commission filings affecting or
pertaining to the Leases are current and there are no outstanding violations of
any Railroad Commission rule of which PRI or AENPhas received
notice.
3.09. Pending
Lawsuits and Claims. To AENP’s actual knowledge, there are not
any claims, lawsuits, actions or other proceedings pending or threatened for any
Court, tribunal, agency or governmental entity which affect the Leases or the
PRI Stock.
3.10. Taxes. There
are no delinquent taxes or assessments pertaining to the Leases, the PRI Stock
or PRI. To AENP’s actual knowledge, all required tax returns and
reports due as of the Effective Date relating to PRI and the PRI assets have
been duly and timely filed.
3.11. Trade and
Professional Creditors Current. All trade and
professional creditors and third party service providers who have
provided services or goods for the Leases and have invoiced PRI for same have
been paid current. Purchasers shall pay the PRI trade and
professional creditors liabilities relating to periods after January 1, 2010,
but not AENP’s counsel relating to this transaction.
3.12. Related
Party Transactions. There are no
inter-company receivables or payables between PRI, on the one hand, and any
related party or insider, on the other hand, which shall survive
Closing.
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3.13. Brokers’
Fees. PRI has no
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this
Agreement.
3.14.
No
Misrepresentations. To AENP’s actual
knowledge, the representations, warranties and statements made by AENP in or
pursuant to this Agreement are true, complete and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make any such representation, warranty or
statement, under the circumstances in which it is made, not
misleading.
ARTICLE
IV.
REPRESENTATIONS
AND WARRANTIES OF PURCHASERS
4.01. Enforceability. Purchasers have
full power and authority to execute and deliver this Agreement and each of the
other agreements, certificates and instruments to be executed by Purchasers in
connection with or pursuant to this Agreement (collectively, and together with
this Agreement, the “Purchaser Closing Documents”), to perform their obligations
under Purchaser Closing Documents and to consummate the transactions
contemplated by this Agreement. The execution and delivery by
Purchasers of the Purchaser Closing Documents, the performance by Purchasers of
their obligations under Purchaser Closing Documents and the consummation by
Purchasers of the transactions contemplated by Purchaser Closing Documents have
been duly authorized by all necessary action. This Agreement has been
duly and validly executed and delivered by Purchasers and constitutes the legal,
valid and binding obligation of Purchasers enforceable against Purchasers in
accordance with its terms. As of the Closing, the other Purchaser
Closing Documents will be duly and validly executed and delivered by Purchasers
and, upon such execution and delivery, will constitute the legal, valid and
binding obligations of Purchasers enforceable against Purchasers in accordance
with their respective terms.
4.02.
No
Conflicts. The execution and
delivery by Purchasers of the Purchaser Closing Documents, the performance by
Purchasers of their obligations under Purchaser Closing Documents and the
consummation by Purchaser of the transactions contemplated by Purchaser Closing
Documents do not, and will not, (a) violate any provision of Law, (b) require
any consent, waiver, approval, Order, registration, action, or authorization of,
declaration or filing with or notification to any Governmental Authority or
other Person (whether pursuant to a contract or otherwise), other than a
consent, waiver, approval, Order, registration, authorization, declaration,
filing or notification that has been obtained or made prior to the execution and
delivery by Purchasers of this Agreement; or (c) violate, conflict with,
constitute a default under or breach any term, condition or provision of any
contract or Order (whether with the passage of time, the giving of notice or
otherwise).
4.03. Legal
Proceedings. To Purchasers’
actual knowledge, there are no legal proceedings, pending or threatened, that
question the validity of this Agreement or any action taken or to be taken by
Purchasers in connection with the consummation of the transactions contemplated
by this Agreement.
4.04.
No
Misrepresentations. To Purchasers’
actual knowledge, the representations, warranties and statements made by
Purchasers in or pursuant to this Agreement are true, complete and correct in
all material respects and do not contain any untrue statement of a material fact
or omit to state any material fact necessary to make any such representation,
warranty or statement, under the circumstances in which it is made, not
misleading.
ARTICLE
V.
COVENANTS
APPLICABLE TO PERIOD PRIOR TO CLOSING
5.01. Conduct
of the Business Pending the Closing. Except as
otherwise expressly contemplated by this Agreement, from the date hereof until
the Closing, AENP and/or PRI shall not, without prior written consent from
Purchasers, (a) effect any material
transaction involving PRI which is materially inconsistent with the past
practices of PRI or not in material furtherance of the business; (b)materially
increase the salary or benefits of any employee; (c) make any material capital
expenditures or commitments not reasonably necessary for continued operations;
or (d) sell, assign, transfer, factor or convey any material portion of the PRI
assets materially inconsistent with the ordinary course of business or past
practices of PRI.
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5.02. Acquisition
Proposals. AENP and PRI
shall not, directly or indirectly, initiate, solicit or encourage any third
party to make, or facilitate (including by the provision of information
regarding PRI), entertain, discuss or negotiate, or endorse, accept or enter
into any agreement with respect to, any proposal for an
acquisition.
5.03. Public
Announcements. None of the
Parties or their respective related persons, agents and representatives will
issue any press release or public announcement concerning this Agreement or the
transactions contemplated by this Agreement without obtaining the prior written
approval of the other Parties to this Agreement.
5.04. Supplemental
Disclosure. AENP will
promptly supplement or amend any disclosures made pursuant to this Agreement
with respect to any matter of which it acquires actual knowledge, and that
arises or is discovered, after the date hereof and prior to the Closing
Date.
ARTICLE
VI.
CONDITIONS
PRECEDENT TO CLOSING
6.01. Conditions
to Obligations of AENP and Purchasers to Close Transaction. The obligations
of Purchasers to consummate the purchase of the PRI Stock and the obligations of
AENP to consummate the sale, transfer and assignment to Purchasers of the PRI
Stock at the Closing is subject to (a) approval of the transaction by the TSX
Venture Exchange and (b) all representations and warranties of Purchasers and
AENP contained in this Agreement must be true and correct in all material
respects at and as of the Closing.
ARTICLE
VII
CLOSING
7.01. Closing
Time and Location. Closing shall
occur upon the date that the TSX Venture Exchange notifies EBY of its approval
of the transaction in the offices of PRI, Hondo, Medina County, Texas , or at
such other time and place as the Parties shall mutually agree.
7.02 Opportunity
to Inspect. EBY
acknowledges that it has inspected the Leases, wells and equipment and that same
are acceptable to it. EBY has been advised that certain of the
existing wells are located in the 100-year flood plain.
7.03. Items to
be Exchanged/Released from Escrow at Closing. At Closing, the
parties shall exchange and/or deliver (or cause to be exchanged and delivered by
Escrow Agent from escrow) the following items, fully executed where
appropriate:
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By
AENP:
(a)
Stock Power executed, in blank, conveying the PRI Stock;
(b)
Mutual termination of the Walker employment agreement as between PRI and Walker
;
(c) Railroad
Commission of Texas Form P-5 identifying new management for PRI;
and
(d) PRI’s
records and files.
By
Purchasers:
(e) the
Cash Component;
(f) the
EBY Stock Component certificate;
(g) the
Assignment of Overriding Royalty Interest [as to deep rights only];
and
(h) the
Consulting Agreement [covering EBY Stock Component value shortfall per section
1.02(b)].
ARTICLE
VIII.
INDEMNIFICATION
8.01.
Indemnification. AENP and
Purchasers agree to defend, indemnify and hold one another and their respective
successors and assigns (the “Indemnitees”)
harmless from and against any and all claims and losses suffered by any
Indemnitee directly arising from or relating to: (a) any facts that
constitute, or any allegations that, if true, would constitute, a material
breach of any representation or warranty made by the Indemnitor in this
Agreement; (b) any facts that constitute, or any allegations
that, if true, would constitute, a material breach or default in the performance
of any covenant, obligation or agreement of any Indemnitor pursuant
to this Agreement; and (c) financial claims, liabilities and damages suffered by
an Indemnitee relating to a time period for which the other Party is responsible
under this Agreement
8.02. Survival
of Representations and Warranties. The representations and
warranties of the Parties (or any of them) set forth in this Agreement will
survive the execution and delivery of this Agreement.
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8.03.
Notice
and Resolution of Claims.
(a)
Notice. Each
Indemnitee must provide written notice within five (5) business days to Sellers
and Shareholder (the “Indemnifying Parties”) after obtaining knowledge of any
claim that it may have pursuant to Section 8.01 (whether for its own losses or
in connection with a third party claim); provided that the failure to provide
reasonably prompt notice will not limit the rights of an Indemnitee to
indemnification hereunder except to the extent that such failure materially
increases the dollar amount of any such claim for indemnification or materially
prejudices the ability of the Indemnifying Party to defend such
claim. Such notice will set forth in reasonable detail the claim and
the basis for indemnification.
(b)
Right to Assume
Defense. With respect to a claim for indemnity that arises
from a third party claim, the Indemnifying Parties will have sixty (60) days
after receipt of notice to assume the conduct and control of the settlement or
defense of such third party claim, through counsel selected by the Indemnifying
Parties, though reasonably acceptable to the Indemnitee, and at the expense of
the Indemnifying Parties, if the Indemnifying Parties acknowledge their
obligation to indemnify the Indemnitee for any Losses resulting from such third
party claim. The Indemnitee may participate in such defense or
settlement through its own counsel, but such separate counsel will be at its own
expense unless the conditions set forth above are not satisfied. In
no event, however, will the Indemnifying Parties be liable for the fees and
expenses of more than one separate counsel of the Indemnitee.
(c)
Obligations Following
Assumption of Defense. If the Indemnifying Parties assume the
defense of a third party claim, they must take all commercially reasonable steps
necessary to investigate and defend or settle such third party claim and will
hold the Indemnitee harmless from and against any and all losses caused by or
arising out of any settlement approved by the Indemnifying Parties or any
judgment entered in connection with such third party claim. Without
the written consent of the Indemnitee, not to be unreasonably withheld or
delayed, the Indemnifying Party will not consent to entry of any judgment or
enter into any settlement that does not include an unconditional and complete
release of the Indemnitee by the claimant or plaintiff making the third party
claim.
(d)
Failure to Assume
Defense. Failure by the Indemnifying Parties to notify the
Indemnitee of their election to assume the defense of any third party claim
within sixty (60) days after their receipt of notice thereof will be
deemed a waiver by the Indemnifying Parties of their right to assume the defense
of such third party claim. In such event, the Indemnitee shall defend
against such third party claim in any manner it in good faith deems reasonably
appropriate.
(e)
Payment of
Indemnity. Upon final agreement by the parties or the entry of
a final, non-appealable order by a court of competent jurisdiction that an
Indemnitee is entitled to indemnification under this Article VIII, the
Indemnifying Party must promptly pay or reimburse, as appropriate, the
Indemnitee for all losses to which it is entitled to be indemnified
hereunder.
ARTICLE
IX.
TAX
MATTERS
9.01. Cooperation
for Certain Tax-Related Matters. AENP and
Purchasers will, and will cause their respective representatives and agents to,
provide any requesting party that is a party to this Agreement with such
assistance and documents, without charge, as may be reasonably requested by such
party in connection with (a) the preparation of any tax return, (b) the conduct
of any audit relating to liability for or refunds or adjustments with respect to
taxes and (c) any other tax-related matter that is a subject of this
Agreement. Such cooperation and assistance will be provided to the
requesting party promptly upon its request. This covenant shall
survive the Closing.
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ARTICLE
X
MISCELLANEOUS
PROVISIONS
10.01. Covenants
and Representations to Survive Closing. This Agreement
and the covenants and representations of each Party to this Agreement shall
survive the Closing.
10.02. Time is
of the Essence/Attorneys Fees. Time is of the
essence with regard to all obligations to be performed under this
Agreement. If any party seeks to enforce, in law or in
equity, any provision contained herein, then the prevailing party in such
proceeding shall be entitled to attorneys fees, interest and all such other
disbursements and relief provided under law.
10.03. Payment
of Expenses. Except as
otherwise provided herein, all of the fees and expenses incurred by any party
prior to the Closing in order to complete the transactions required or permitted
hereby shall be paid by the party incurring such fees and expense.
10.04. Modification
or Amendment. The Parties
hereto may modify or amend this Agreement only by written agreement executed and
delivered by the respective parties.
10.05. Binding
on Heirs and Assigns. This Agreement
shall inure to and be binding upon the undersigned and their respective heirs,
representatives, successors and assigns.
10.06. Counterparts. For the
convenience of the parties hereto, this Agreement may be executed in any number
of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
10.07. No
Waivers. No waiver of or
failure to act upon any of the provisions of this Agreement or any right or
remedy arising under this Agreement shall be deemed or shall constitute a waiver
of any other provisions, rights or remedies (whether similar or dissimilar) nor
shall such waiver or failure to act constitute a continuing waiver or evidence
of a binding course of conduct.
10.08. GOVERNING
LAW. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS, AND SHALL BE PERFORMABLE IN MEDINA COUNTY,
TEXAS.
10.09. Notices. Any notice,
request, instruction or other document to be given hereunder by any party to the
others shall be in writing (by FAX, mail, telegram or private courier) and
delivered to the parties as follows:
To
AENP:
American Energy Production
Attn: Charles
Bitters
P.O. Box 1406 (Phys. Add. 6073 Hwy 281
S. zip 76067)
Mineral Wells, TX 76068
FAX: (972) 636-5750
To
Walker:
Earl R. Walker
1077 County Road 342
Hondo,
Texas 78861
FAX: (830) 426-3406
-10-
To
EBY:
Emerald Bay Energy
Attn: Shelby
Beattie
#3, 4015-1st
Street SE
Calgary, Alberta CAN T2G
4X7
FAX: (403) 263-6001
To
Lyons:
Darren Lyons
Site 6, Box 4
RR 1
Okotoks, Alberta CAN T1S
1A1
Email: wardtire@yahoo.ca
Notices
shall be deemed given on the date of actual receipt by the
party. Notices given by certified or registered mail shall be deemed
given three (3) days after deposit with the United States or Canadian Postal
Service, properly posted and addressed to the party’s last known address, unless
actually received prior to the expiration of the 3-day period.
10.10. Entire
Contract. This Agreement
constitutes the entire agreement, and supersedes all other prior agreements and
understandings, both written and oral, between the Parties with respect to the
subject matter hereof.
10.11. Captions
for Convenience. All captions
herein are for convenience or reference only and do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
10.12. Severability. In case any one
or more of the provisions contained in this Agreement shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or enforceability shall not affect any other provision hereof, and
this Agreement shall be construed as if such invalid, illegal or enforceable
provision had never been contained herein.
SIGNATURES
APPEAR ON FOLLOWING PAGE
EXECUTED by the undersigned as of the
Effective Date set forth above.
AMERICAN ENERGY PRODUCTION,
INC.
By: /s/ Charles Bitters___
Charles Bitters, President
/s/ Earl Walker________
EARL R. WALKER
EMERALD BAY ENERGY, INC.
By:/s/ Shelby Beattie___
Shelby Beattie, President and
CEO
/s/ Darren Lyons__
DARREN LYONS
-11-
EXHIBIT
“A”
[Lease
Descriptions]
Herring - Holloway
Leases:
Lease
Date: [Lease
1] February 23, 1956
[Lease
2] February 23, 1956
Lessor: [Lease
1] Elizabeth L. Herring, et vir.
[Lease
2] Joseph W. Holloway, et ux.
Lessee: [Lease
1] L. C. Collins
[Lease
2] L. C. Collins
Rec.
Ref: [Lease
1] Volume 170, Page 65
[Lease
2] Volume 170, Page 60
Acreage:
[Lease
1] 71.23 acres, T. Mercier Sy. No. 328, A-669
[Lease 2] 20 acres, T.
Mercier Sy. No. 328, A-669
Description of
Lands
All that
certain tract of land situated in the County of Medina, State of Texas,
described as follows:
All
situated in Medina County, Texas, described in two tracts for a total of 91.23
acres, more or less, described by metes and bounds as follows:
FIRST
TRACT: Twenty
(20) acres of land out of Survey No. 328, Theophile Mercier, in Medina County,
Texas, described by metes and bounds as follows, to wit:
BEGINNING
at the stake and fence corner in the west boundary line of the Hondo-Biry Road,
located at the point where the west boundary line of said Hondo-Biry Road
intersects with the South boundary line of said, Survey No. 328;
THENCE N.
89 deg. W. with fence, along the south boundary line of a public road, 240 varas
to a stake;
-12-
THENCE
North 461.3 varas to a stake under fence;
THENCE
with fence S. 89 deg. 47' E. 247.2 varas to a stake in the west boundary line of
the Hondo-Biry Road;
THENCE
with fence along the west boundary line of said Hondo-Biry road, S. 1 deg. W.
464.8 varas to the place of beginning.
SECOND
TRACT: 71.23 acres more or less, out of Survey No. 328, in the
name of Theophile Mercier, described by metes and bounds as
follows:
BEGINNING
at a stake and fence corner in the West boundary line of the Hondo-Biry Road,
located a point where the West boundary line of the said Hondo-Biry Road
intersects with the South boundary line of the said Survey No. 328;
THENCE
with fence along the South boundary line of said Survey N. 328, and along N.
boundary line of a public road, N. 89 deg. W. 1240 varas to a stake for the
place of beginning;
THENCE
North 89 deg. West with fence along South boundary line of said Survey No. 328,
and along the North Boundary line of public road, 887.5 varas to a stake and
fence corner;
THENCE
North 1 deg. E. with fence, 449 varas to a stake and fence corner;
THENCE S.
89 deg. 47 min. with fence, 880 varas to a stake;
THENCE
South 461.3 varas to the place of beginning.
Oscar Schmidt
Lease:
Lease
Date: July
20, 1995
Lessor: Oscar
F. Schmidt, et ux.
Lessee: Texas
Coast Oil & Gas Company
Rec.
Ref.: Volume
167, Page 100
Acreage: 100
acres, P.E. Durst Sy.15, A-303
-13-
V.H. Neumann
Lease:
Lease
Date: September
25, 1954
Lessor: V.
H. Neumann, et ux.
Lessee: E.
L. Kelley
Rec.
Ref.: Volume
165, Page 270
Acreage: 214.1
acres, being 107.8 acres out of Survey No. 247, Jos. Walker and 106.3 acres out
of Survey No. 328, T. Mercier.
V. H. Neumann "B"
Lease:
Lease
Date: November
4, 1954
Lessor: Thomas
Neumann, s.m.
Lessee: E.
L. Kelley
Rec.
Ref.:
Volume 165, Page 400
Acreage: 311.9
acres, being 204.2 acres Jos. Walker Sy. No. 247, 106.7 acres, and 1 acre, T.
Mercier, Sy. No. 328.
Lenora Schmidt “A” and
Lenora Schmidt "B" Leases:
Lease
Date: July
20, 1955
Lessor: Lenora
Schmidt, f.s.
Lessee: Texas
Coast Oil & Gas Company
Rec.
Ref.: Volume
167, Page 104
Acreage: 277
acres, P. E. Durst Sy. No. 15, A-303, being more particularly described by metes
and bounds in a partition deed dated May 2, 1953, recorded in Volume 158, Page
342, Deed Records of Medina County, Texas.
-14-
O.K. Schmidt
Lease:
Lease
Date: August
1, 1970
Lessor:
Overton K. Schmidt, Sr., et ux.
Lessee:
W. F. Seeger
Rec.
Ref.:
Volume 231, Page 26
Acreage: 9.65
acres, P. E. Durst Sy. No. 15, A-303
Clara Gray Unit I
Lease:
Lease
Date: September
16, 1974
Lessor:
Clara Uzzell Gray, a widow
Lessee:
R. C. Buie
Rec.
Ref.:
Volume 263, Page 122
Acreage:
190 acres, Henry Wilson Sy. No. 536, A-1042.
Description of
Lands
The East
55.8701 acres of land, more or less, out of the 190.0 acre Clara Gray Lease
dated September 16, 1974, recorded December 17, 1974 in Deed Records, Volume
263, Pages 122-124, Medina County, Texas, within Survey No. 536, Henry Wilson,
Abstract No. 1042, situated about 9 miles South 5 degrees East of the City of
Hondo, Medina County, Texas, and being more fully described by metes and bounds
as follows:
Beginning
at a stake set for the E. corner of Survey No. 536, Henry Wilson; Thence West
894.3' to a 5/8" steel pin being the S.W. corner of this
tract; Thence North 00 degrees 40' East 2725.01' to a point for the
N.W. corner of this tract; Thence South 89 degrees 16' East 897.59'
to a point for the N.E. corner of this tract; Thence South 00 degrees
21' West 417.8'; South 11 degrees 00' West 31.5'; South 00
degrees 40' West 2264.8' to the place of beginning.
NOTE: There
are actually 3 separate tracts located within the 55.8701 acres formerly known
as Clara Gray Unit II, and now of part of Unit I. They are as
follows:
Clara
Gray Unit II A, 24.72 acres of land, more or less. Well Nos. 1
through 12, Tank Nos. 68152, 68153.
Clara
Gray Unit II B, 4.12 acres, more or less. Well Nos. 14 through 15,
Tank No. 88146.
-15-
Clara
Gray Unit II C, 27.0301 acres, more or less. Well Nos. 12H, 13H, 16H
through 23H, Tank Nos. 88895, 88896.
136.0994
acres of land, more or less, out of the 190.00 acre Clara Gray Lease dated
September 16, 1974, recorded December 17, 1974, in Deed Records, Volume 263,
Pages 122-124, Medina County, Texas, within Survey No. 536, Henry Wilson,
Abstract No. 1042, recorded in Deed Records, Volume 153, Pages 636-639, Medina
County, Texas, situated about 9 miles South 5 degrees East of the City of Hondo,
Medina County, Texas, and being more fully described by metes and bounds as
follows:
Beginning
at a 5/8" steel pin set for the E. corner of this tract, said 5/8" steel pin
being 894.3' West of a stake set for the S.E. corner of Survey No. 536 Henry
Wilson; Thence, N. 88 degrees 27' W. 2528.4' to a pin set for with
S.W. corner of this tract; Thence, N. 20 degrees 31' E. along the
F.M. Hwy No. 462, 2084.6' to a pin; Thence; N. 19 degrees 05' E.
along 04' E. along the F.M. Hwy No. 462, 645.0', 117.4' to a pin set for the
N.W. corner of this tract; Thence, S. 89 degrees 26' East 1764.81" to
a pin set for the N.E. corner of this tract; Thence S. 00 degrees 40'
W. 2725.01' to the place of beginning.
[Lease
Net Revenue Interests]
Herring - Holloway Lease,
RRC Lease No. 01710, 19 wells:
Production
Resources,
Inc. 100%
W.I.; 79.76562%
N.R.I.
Oscar Schmidt Lease, RRC
Lease No. 01724, 25 wells:
Production
Resources,
Inc. 100%
W.I.; 79.76560%
N.R.I.
V. H. Neumann Lease, RRC
Lease No. 01865, 9 wells:
Production
Resources,
Inc. 100%
W.I.; 82.50000%
N.R.I.
V.H. Neumann "B" Lease, RRC
Lease No. 01959, 12 wells:
Production
Resources,
Inc. 100%
W.I.; 82.50000%
N.R.I.
Lenora Schmidt “A” Lease,
RRC Lease No. 01723, 28 wells:
Production
Resources,
Inc. 100%
W.I. 79.37500%
N.R.I.
Lenora Schmidt "B" Lease,
RRC Lease No. 10480, 12 wells:
Production
Resources,
Inc. 100%
W.I. 79.37500%
N.R.I.
-16-
O.K. Schmidt Lease, RRC
Lease No. 04146, 25 wells:
Production
Resources,
Inc. 100%
W.I.; 70.00000%
N.R.I.
Clara Gray Unit I Lease, RRC
Lease No. 04731, 56 wells:
Production
Resources,
Inc. 100%
W.I.; 76.25000%
N.R.I.
-17-