Exhibit 10.6
December 17, 2004
[*]
[*]
RE: Purchase Offer
[*]
Gentlemen:
The purpose of this letter ("Letter") is to set forth the terms and
conditions under which Teton Petroleum Company ("Teton") proposes to acquire the
[*] from [*] ("[*]"). Xxxxx and [*] may be referred to individually as a "Party"
or collectively as the "Parties" and the potential transaction contemplated by
this Letter may be referred to as the "Transaction."
Teton hereby offers to purchase on the terms and conditions set forth in
this Letter all of the leasehold interests of [*] in the [*] Project covering
[*] net acres (the Leases"), as more particularly described on Exhibit A to this
Letter. If [*] accepts this offer in the space provided below, this Letter will
be a legally binding contract among the Parties, although Xxxxx anticipates that
the Parties solely for their convenience may execute a more detailed purchase
and sale agreement. As explained below, the purchase and sale contemplated
herein is subject to the approval of Xxxxx's board of directors, but it is not
subject to execution of a detailed purchase and sale agreement.
1. Consideration. The consideration for the Transaction is the retained
overriding royalty ("ORRI"), the mutual agreed written contractual obligations
between the parties and the following Cash and Stock Consideration. The total
Cash and Stock Consideration shall be $[*] ([*] x $[*]/per net acre), subject to
adjustment as provided below. Teton shall tender its company check in the amount
of $25,000.00 to [*] upon execution of this Letter by [*], which shall not be
returned or refunded to Teton under any circumstances, but which shall be
applied to reduce the Cash and Stock Consideration due at the closing. When
Xxxxx has obtained the necessary approval of its board of directors, Teton shall
wire transfer $322,354.36 to [*] as additional xxxxxxx money, which shall also
be applied to reduce the Cash and Stock Consideration due at the closing. Teton
shall use its best efforts to obtain board approval by Monday, January 10, 2005
but if Teton board approval is not obtained by Friday, January 14, 2005, the
additional xxxxxxx money shall not be paid and the Transaction shall terminate,
without any Party having any further liability or responsibility to any other
Party. If the Teton board approval is timely obtained, Teton shall, subject to
possible adjustment as provided below, pay to [*] at closing the remaining sum
of $[*] in value, $[*] of which will be in unregistered, restricted common
stock, with the remaining cash portion of the consideration paid by wire
transfer of immediately available funds. In order to determine the number of
shares to be issued to [*], each Teton common share shall conclusively be deemed
to have a value of $1.75 per share, regardless of the market price of such
shares at closing or any fluctuations in value between the date hereof and the
closing. For each share issued under this agreement a one-half warrant with a
strike price of $1.75 will be issued. The warrants will be for a term of three
years.
2. Assignment of the Leases. At Closing, [*] will deliver to Teton
assignments and bills of sale, with a special warranty of title by, through and
under [*], covering all of [*]'s right, title and interest in and to the Leases
and any xxxxx located on the lands covered by the Leases or lands pooled
therewith, together with all easements, equipment and other ancillary rights and
property associated with these Leases and xxxxx, reserving to [*] the ORRI
described in Paragraph 4 below. In addition to these assignments and bills of
sale, [*] will deliver to Teton copies or originals of all land, technical and
other data, files and records in their possession or their control relating to
the Leases and to all lands in the AMI, as defined in Paragraph 6 below,
including without limitation the Petra data set, Power Point Presentation and
other technical data subject to licensing agreements.
3. Title and Environmental Matters. The Parties acknowledge that [*] has
not developed all of the Leases and that title opinions have not been rendered
on the Leases. Xxxxx shall have until March 31, 2005 to examine title to the
Leases and the environmental condition of the lands covered thereby and deliver
to [*] a title defect letter. Teton will use its best efforts to keep [*]
informed as to any title defects on an ongoing basis. [*] will have the right
for thirty days after the notice of a defect to cure title into Teton. [*]
represents that there are [*] net mineral acres included in the Leases without
any significant environmental problems, but Xxxxx's sole remedy for a breach of
this representation shall be a reduction of the Cash Consideration due [*]
attributable to the net mineral acres not owned by [*] or not in satisfactory
environmental condition. As evidence of the breach, Xxxxx must provide
affirmative written evidence that [*]'s title to the Leases in question or the
environmental condition of the lands covered thereby is defective to a degree
that a reasonably prudent operator in the [*] would not drill (or, in the case
of environmental condition, acquire) such Lease until appropriate curative work
had been performed. The Parties agree that the value of such acreage is $[*] per
net mineral acre. If it is determined that [*] owns more than [*] net mineral
acres, then Teton's acquisition of that acreage will be addressed as Additional
Leases under Paragraph 5, below. If it is determined that [*] owns less than
138,063 net acres with acceptable title and acceptable environmental condition,
then this Transaction shall terminate and the $322,354.36 of additional xxxxxxx
money shall be refunded by [*] to Teton.
4. [*] ORRI. In the assignment of the Leases to Teton, [*] shall retain an
ORRI (subject to proportionate reduction) equal to 5.0% on any Leases in which
[*] currently owns an 87.5% NRI. The ORRI reserved on all other leases owned by
[*] will be the difference between existing burdens and 20%, although [*] will
never reserve an ORRI larger than 5.0% and will never deliver a NRI to Teton
less than 80%. The Parties intend that the overall delivered project NRI will be
approximately 82.4% to Teton. All ORRI reservations will contain customary
extension and renewal language. The ORRI so reserved will be free of all
production costs through the wellhead, but will bear its proportionate share of
all costs incurred after the wellhead and all taxes in a industry standard arms
length sale.
5. Pending Acreage. [*] is currently seeking leases covering approximately
[*] net acres, as identified in Exhibit B to this Letter. No later than March
31, 2005, [*] will provide Teton with copies of all such leases that have been
obtained and that have been recorded in the concerned real property records (the
"Additional Leases"). Xxxxx agrees to pay [*] [*] per net acre in cash and stock
in the same proportions as the payments under Paragraph 1 for up to [*] net
acres covered by the Additional Leases. Any acreage in excess of [*] net acres
will be handled under the provisions of Paragraph 6 below.
6. Area of Mutual Interest. The Parties hereby establish an Area of Mutual
Interest (the "AMI") consisting of the lands shown on Exhibit C. The Parties
hereby agree that, if [*] acquires leases or rights to acquire leases within the
AMI through December 31, 2007 (a period which may hereafter be extended by
unanimous agreement of the Parties), [*] and their successors and assigns shall
offer such leases or rights to Teton, its successors and assigns, for a purchase
price equal to 110% of the actual cash amount paid by [*] to the lessor,
assignor of farmor. If Teton elects to acquire such interest or right, or if
Teton itself obtains such a lease or right from a source other than [*], [*]
will be allowed to reserve (or will be granted) an overriding royalty interest
(subject to proportionate reduction) equal to 50% of the difference between the
net revenue interest delivered to [*] and an 80% net revenue interest, although
the retained ORRI shall never exceed 2.50%, as illustrated below:
Total Burdens Teton NRI [*] ORRI
0.1250 0.85000 0.02500
0.1875 0.80625 0.00625
0.2000 0.80000 0.00000
Teton shall use its best efforts in future acquisitions within the AMI to obtain
a NRI so that [*] receives some ORRI under the above formula.
7. Mineral Interests. For a period of two years from the date of this
Letter of Intent [*] and Teton each may purchase for their own account any
mineral, royalty or overriding royalty interest in the AMI, but, if either Party
does so, it will offer half of the interest so acquired to the other Party in
exchange for that Party's payment of half of the actual purchase price. If [*]
acquires an unleased mineral interest within the AMI, [*] and their successors
and assigns agree to lease their share of such mineral interest to Teton, its
successors and assigns, on a mutually acceptable lease form with a minimum
81.25% net revenue interest and a five-year primary term, with paid-up
consideration of $[*] per net mineral acre.
8. Teton Approval. Xxxxx's executive management team has approved the
Transaction, but Xxxxx's board of directors still must approve the Transaction.
9. Data Transfer. After the closing, Xxxxx shall furnish [*], at the
request of [*] and subject to reimbursement of actual copying costs, one legible
copy of any and all well or lease data, which shall include but not necessarily
be limited to the following: application for permit to drill, survey plats,
drilling reports, completion reports, test reports, well logs, plugging and
abandoning reports, and drilling and division order title opinions. Xxxxx
further agrees to furnish [*], again at the request of [*] and again subject to
the reimbursement of actual copying costs, a complete data set on all linear
seismic and 3-D seismic. All such data, information and reports shall, when
requested, be mailed in a timely manner to [*]. [*] will keep all information
strictly confidential until made public. [*] will not own a license to any data
transferred and will have no rights to sell, show to others or otherwise use
data except for its own internal purposes.
10. Timing. Closing of the Transaction shall occur in Xxxxx's Denver office
at 10 a.m. on Friday, April 15, 2005, or such other place and time as may be
agreed by all Parties.
11. Rentals and Obligations. From January 1, 2005 until April 15, 2006, [*]
shall make all rental payments necessary to keep the Leases in effect, although
Xxxxx shall promptly reimburse [*] all rental amounts so paid. The lease
assignments delivered at closing will contain customary reassignment clauses if
Xxxxx elects not to pay delay rentals thereafter.
12. Confidentiality Of Information; Inside Information. After timely
returning a signed copy of this Letter to Xxxxx, [*] shall advise anyone
inquiring about the Leases that the Leases are under contract and are not
available for sale or discussion. In no event will [*] identify Xxxxx as the
buyer or disclose any other information concerning this Letter or the terms of
the Transaction until Xxxxx has publicly disclosed such information and, even
after Xxxxx's public disclosure, [*] will disclose no information other than
that contained in Xxxxx's public disclosure. [*] agrees to maintain, and to
require its representatives to maintain, the confidentiality of all non-public
information concerning Teton, the Letter and this Transaction. [*] acknowledges
that Teton is subject to the reporting requirements of the Securities Exchange
Act of 1934 and that its common stock is traded publicly. [*] recognizes that
applicable securities laws impose significant restrictions concerning the use or
disclosure of the non-public information in general and in buying or selling, or
discussing with others the possibility of buying or selling, Teton securities by
persons who have access to information concerning Xxxxx that is not generally
available to members of the general public.
If the terms and conditions set forth above meet with your approval, please
execute this letter in the space provided below and return a signed copy of the
letter to Xxxx X. Xxxxxx by fax on 000-000-0000 no later than 5:00 p.m. MDT on
December 17, 2004. Immediately following receipt of such letter, Teton will
deliver its $25,000 corporate check to [*] in accordance with Paragraph 1 above
and this letter shall thereupon conclusively be deemed a binding contract among
the Parties, enforceable in accordance with its terms. If a signed copy of the
letter is not timely returned by [*], the offer contained herein will be deemed
withdrawn and of no further force or effect.
Sincerely,
TETON PETROLEUM COMPANY
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Xxxx X. Xxxxxx, President
[*] [*]
By: _________________________ By: _________________________
[*] [*]
Exhibit A: [*]
Exhibit B: [*]
Exhibit C: [*]
[*] Confidential Inforamtion has been
omitted pursuant to a request for confidential
treatment and filed seapartely with the
Commission
