RATIFICATION AND ASSUMPTION
Exhibit
10.3
RATIFICATION
AND ASSUMPTION
This
Ratification and Assumption Agreement ("Agreement") is by and between Gastar
Exploration Ltd. and Gastar Exploration Texas LP (collectively the "Sellers")
and Navasota Resources, LP (the "Buyer").
Sellers
have previously entered into a Letter of Intent dated April 27, 2007 (the "LOI")
with Chesapeake Energy Corporation and Chesapeake Exploration Limited
Partnership (collectively called "Chesapeake"), a copy of which is attached
hereto as Exhibit "A", which outlines the terms and conditions for the sale
of (i) 10,000,000 shares of Gastar Exploration Ltd. Common stock and (ii) all
of
the Sellers' interest in the oil and gas leases described in Exhibit "A"
attached to the LOI (the "Leases").
By
letter
dated April 27, 2007, Sellers notified the Buyer of the terms and conditions
of
the LOI, that Buyer held a preferential right to purchase the Leases on the
terms and conditions of the LOI, and requested that Buyer notify the Sellers
as
to whether the Buyer is electing to exercise the preferential
right.
By
letter
dated May 7, 2007, from the Buyer to the Sellers, the Buyer notified the Sellers
that it had elected to exercise the preferential right (“Buyer’s Election
Notice”). By letter dated May 7, 2007, from the Sellers to the Buyer (the “Title
Defect Letter”), the Sellers acknowledged receipt of Buyer’s Election Notice and
disclosed to the Buyer certain title defects identified by Chesapeake (the
“May
7 Title Defects”) described on Exhibit A thereto, proposes a subsequent closing
within 60 days for the Leases affected by the May 7 Title Defects.
Accordingly, the parties hereto agree as follows:
1. The
LOI
has not been amended or modified, shall remain in full force and effect as
between the parties to this Agreement to the full extent as if those parties
were the original parties to the LOI, and hereby ratify and accept the LOI
as a
binding agreement between the parties to this Agreement.
2. Sellers
covenant and agree that the Buyer shall be entitled to all of the rights and
benefits of Chesapeake under the LOI (save and except that Buyer will not be
entitled to preemptive rights that were granted to Chesapeake pursuant to the
Common Share Purchase Agreement dated as of November 4, 2005), and that the
Sellers shall be obligated to perform all of its covenants and obligations
under
the LOI to the same extent as it would had Chesapeake closed the acquisition
under the terms and conditions of the LOI.
3. Buyer
assumes and agrees to be bound by all the terms and obligations of the LOI
to
the same extent as Chesapeake would be had Chesapeake closed the acquisition
under the terms and conditions of the LOI.
4. The
Sellers agree under the Title Defect Letter to attempt to cure the Title Defects
on or before July 9, 2007. The Sellers shall keep the Buyer apprised of its
efforts in such regard. Between the date hereof and July 9, 2007, the Sellers
shall sell and the Buyer shall buy, from time to time, such Leases affected
by
the May 7 Title Defects which are cured to the Buyer's satisfaction, not to
be
unreasonably withheld or delayed, at a price equal to $7,500 per net mineral
leasehold acre conveyed (each such event a "Subsequent Closing"). To schedule
a
Subsequent Closing, Sellers will deliver written notice to Buyer identifying
the
Leases as to which Sellers believe they have cured title and the net mineral
leasehold acres covered by such Leases. Subject to Buyer's satisfaction that
title has been cured (as provided above), and provided the aggregate price
to be
paid by Buyer for the Leases as to which title has been cured exceeds $500,000,
Sellers and Buyer shall hold a Subsequent Closing five (5) business days
following receipt of Seller's notice to Buyer; provided that Sellers may at
any
time deliver notice to Buyer that all remaining title defects that can be cured
have been cured in which event a Subsequent Closing will be held notwithstanding
the aggregate price to be paid by Buyer for the Leases to be conveyed.
Notwithstanding the foregoing, on July 9, 2007 a final Subsequent Closing shall
be held at which Sellers shall convey to Buyer all remaining Leases as to which
title has been cured to Buyer's reasonable satisfaction, regardless of the
aggregate price to be paid by Buyer for the Leases to be conveyed. At each
Subsequent Closing, Sellers shall deliver to Buyer a conveyance of the Leases
as
to which title has been cured in the form attached as Exhibit "B" to the LOI
together with releases of any liens or security interests created by, through
or
under Sellers to the extent not previously provided to Buyer, and Buyer shall
deliver to Sellers the purchase price attributable thereto.
--Signature
pages to follow--
Executed
this 9th
day of
May, 2007.
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NAVASOTA
RESOURCES, LP
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by
its General Partner ▇▇▇▇ ▇▇▇▇ GP, LLC
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By:
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/s/
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
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President
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By:
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/s/
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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J.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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President
and Chief Executive Officer
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GASTAR
EXPLORATION TEXAS LP,
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by
its General Partner, Gastar Exploration Texas, LLC
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By:
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/s/
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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J.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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President
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Exhibit
A
1331
▇▇▇▇▇ “Street, Suite 1080
▇▇▇▇▇▇▇,
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Phone
(▇▇▇) ▇▇▇-▇▇▇▇
Fax
(▇▇▇) ▇▇▇-▇▇▇▇
April
27,
2007
▇▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chairman
and CEO
Chesapeake
Energy Corporation
▇▇▇▇
▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
RE:
Letter of Intent
Dear
▇▇.
▇▇▇▇▇▇▇▇▇:
When
executed by the parties, this letter shall constitute a Letter of Intent (the
“LOI”) by and between Gastar Exploration Ltd. and/or its affiliate Gastar
Exploration Texas LP (collectively “Gastar”) and Chesapeake Energy Corporation
and/or its affiliate Chesapeake Exploration Limited Partnership (collectively
“Chesapeake”), relating to a single transaction involving the purchase of Gastar
stock and interests in oil and gas leases located in ▇▇▇▇▇▇▇▇ and ▇▇▇▇ Counties,
Texas (the “Transaction”).
The
purpose of this LOI is to set forth the terms upon which Chesapeake shall
purchase from Gastar and Gastar shall sell to Chesapeake all of Gastar's
leasehold interests in the oil and gas leases described on Exhibit “A” attached
hereto and made a part hereof (the “Leases”).
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A.
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Purchase
of Leases and Stock
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1)
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Gastar
represents that Gastar’s total net ownership in the Leases is 9,633.75 net
leasehold acres.
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2)
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Gastar's
obligation to sell the Leases at the price and on the terms set forth
herein is subject to the condition precedent that Chesapeake will,
simultaneously with the purchase of the Leases, also acquire ten
million
(10,000,000) newly issued shares of Gastar Exploration Ltd.'s common
stock
(the "Purchase Shares"). At Closing Chesapeake shall purchase, and
Gastar
shall issue, sell and assign to Chesapeake, the Purchase Shares and
the
Leases for total consideration of $92,253,125, (the "Purchase Price").
The
Purchase Price will be allocated to the Purchase Shares and the Leases
based on a price of USD $2.00 per share for the Purchase Shares and
$7,500
per net leasehold acre for the Leases. While for accounting purposes
certain values are being placed on the various components of the
Transaction, the parties acknowledge and agree that the consideration
attributable to the matters covered hereby were not derived separately
but
were negotiated as a whole and that the transactions will not be
consummated without each of the matters covered hereby being completed.
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A-1
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3)
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The
Leases assigned from Gastar to Chesapeake shall be subject to all
existing
burdens of record, contracts and obligations including existing
contractual overriding royalty interests, after payout “back in” working
interests and existing acreage dedications and processing volume
commitments under natural gas sales agreements.
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4)
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Gastar
represents to Chesapeake that the Leases contain contractual lease
extension language that grants the Lessee the option to extend each
Lease
(with the exception of Leases covering approximately 35.42 net leasehold
acres) for a two year period by tendering a defined payment to Lessor.
Gastar shall be responsible for tendering the contractual lease extension
payments for all Leases with an expiration date prior to August 1,
2007,
provided that after closing of the Transaction, such extension payment
will be tendered to Chesapeake with a notice letter fully describing
the
Leases to be extended pursuant thereto and, upon receipt of such
payment
Chesapeake will cause the Lease or Leases covered thereby to be extended.
For Leases with expiration dates after August 1, 2007 through May
4, 2008,
Chesapeake shall be responsible for tendering contractual lease extension
payments and shall invoice Gastar for its proportionate share of
the
contractual lease extension payments. The amount invoiced to Gastar
shall
be calculated based on the existing contractual lease extension language
in each Lease and Gastar’s undivided ownership interest in each such Lease
immediately prior to closing of the Transaction. Within 30 days of
receipt
of the lease extension payment invoice from Chesapeake, along with
payment
documentation, Gastar shall tender its proportionate share of the
lease
extension payments to Chesapeake. Gastar will have no obligation
for
payment of lease extensions for leases expiring after May 4,
2008.
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Gastar
shall use commercially reasonable efforts to extend the existing 35.42 net
leasehold acres of Leases that do not contain extension language or enter into
new leases with respect to such acreage on substantially the same terms as
the
existing leases but in any event terms consistent with the market at the time
of
renewal. If Gastar fails to obtain an extension or a new lease on such terms
for
the 35.42 net acres within 90 days after the applicable termination of such
lease, Gastar will refund to Chesapeake $7,500 per net acre for the portion
of
such Leases that are not extended by extensions or new leases. In addition,
in
the event that prior to closing the Transaction the parties determine there
is a
title failure with respect to any of the Leases, the purchase price will be
reduced by an amount equal to $7,500 times the number of net acres affected
by
such title failure.
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5)
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Transfer
of title to the Leases shall be made by special warranty under the
terms
of which Gastar shall, subject to customary permitted encumbrances,
warrant and defend title to the leasehold/working interests assigned
to
Chesapeake against every person lawfully claiming the interests assigned
or any part thereof by, through or under Gastar, but not otherwise.
The
assignment of Gastar’s interests in the Leases from Gastar to Chesapeake
shall be made on the form attached hereto and made a part hereof
as
Exhibit “B”.
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A-2
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6)
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Chesapeake
shall have reasonable access to any Gastar records pertaining to
the
Leases prior to, and after Closing.
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7)
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Within
30 days of completion Gastar shall receive, from Chesapeake, free
of cost,
all well information for each well drilled on the lands subject to
the
Leases or lands pooled therewith.
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7)
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The
purchase of the Purchase Shares will be subject to the terms and
conditions of a Common Share Purchase Agreement mutually agreeable
to
Gastar and Chesapeake, but in substantially the form attached hereto
as
Exhibit “C”.
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B.
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Interdependent
Obligations
The purchase and issuance of the Purchase Shares and the purchase
and sale
of the Leases are each part of a single Transaction with each part
contingent on the successful closing of the other. Neither party
will be
required to close on less than the entire Transaction contemplated
hereby.
Chesapeake and Gastar each acknowledge and agree that: (i) it is
a
condition precedent to Gastar’s obligation to consummate the Transaction
that Chesapeake acquires both the Purchase Shares and the Leases;
and (ii)
it is a condition precedent to Chesapeake’s obligation to consummate the
Transaction that Gastar sell to Chesapeake both the Purchase Shares
and
the Leases.
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The
Closing shall occur at a mutually agreeable location on the date that is two
(2)
local business days after the expiration of the ten (10) day right of first
refusal and/or preferential right held by third parties under that certain
Operating Agreement dated July 7, 2000 applicable to the Leases. In the event
a
right of first refusal and/or preferential right is exercised with respect
to
the entire Transaction, this LOI will not be deemed terminated unless the party
exercising such right consummates the entire Transaction within two (2) local
business days after the end of the ten (10) day preferential right period.
A-3
The
undersigned are bound by the terms of this LOI immediately upon their execution
of this document.
Sincerely,
/s/
J.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
J.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
and Chief Executive Officer
GASTAR
EXPLORATION TEXAS LP,
By
its
General Partner, Gastar Exploration
Texas
LLC
/s/
J.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
J.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
Agreed
to
and accepted this 27th day of April, 2007.
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CHESAPEAKE
ENERGY CORPORATION
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By:
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/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, Executive Vice President
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CHESAPEAKE
EXPLORATION LIMITED PARTNERSHIP
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By:
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Chesapeake
Operating, Inc., General Partner
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By:
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/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, Executive Vice President
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A-4