LETTER OF INTENT
This LETTER OF INTENT is entered into this 27th day of March, 2006, by
and between NITRO PETROLEUM, INC., a Nevada Corporation, hereinafter "NITRO", XX
Xxx 000, Xxxxxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxx X0X 0X0 and REO ENERGY, LTD. and
JMT RESOURCES, LTD, a Texas Partnership, hereinafter "REO" and "JMT",
respectively, whose offices are at 0000 Xxxxxxxx Xxx., Xxxx Xxxxx, Xxxxx 00000.
WHEREAS, REO is the majority owner and operator of certain oil and gas
leases located in Arkansas and Texas ("Leases") and is also the owner of
approximately one-quarter working interests in 27 xxxxx. REO has the internal
expertise to develop and operate its leasehold interests located in Texas and
Arkansas, it seeks to form a joint venture partnership with a qualified entity
to facilitate equity and debt financing; and
WHEREAS, NITRO is a listed company trading on the over-the-counter
bulletin board company who desires to participate in the development of oil and
gas interests in the States of Texas and Arkansas and is qualified to provide
debt and equity financing to its prospective partner; and
WHEREAS, NITRO wishes to fully acquire, over stages, REO and JMT, and
provide sufficient financing in its efforts to develop oil and gas properties
located in Arkansas and Texas;
NOW THEREFORE, for good and proper consideration having been paid, the
parties to this Letter of Intent agree to be bound by its terms and conditions,
to provide a directors resolution authorizing the companies herein to enter into
this Agreement by majority resolutions of the stockholders of both parties
hereto, based on representations contained herein and otherwise provided to each
party and the following terms and conditions which are agreed to by the parties
to this Letter of Intent, and agree to incorporation of such items in, and
execution of, a Definitive Agreement and Plan of Redevelopment (the "Closing
Agreement"):
1. NITRO is a corporation duly organized and validly existing under the
laws of the State of Nevada, has the corporate power to perform its
business as presently conducted, is properly authorized to do business
and is in good standing in the state where such authorization is
necessary. As of the date of this Letter of Intent, NITRO is trading
entity under the symbol "NPTR" which trades on the over-the-counter
bulletin board market and is current in its filings and requirements to
maintain a listing on that exchange.
2. NITRO desires to purchase one hundred percent (100%) of REO in
several stages. REO currently owns the following assets, hereinafter
collectively referred to as REO's Interests; approximately 7,000 acres
of mineral leasehold in Xxxxx and Xxxxxxxx Counties, Texas and is known
as the Xxxxxxx Shale Leases ("Xxxxxxx Leases") see exhibit "A" attached
hereto, approximately 1,700 acres of mineral leasehold in the
Fayetteville Shale located in several counties in Arkansas and is known
as the Fayetteville Shale Leases ("Fayetteville Leases") see exhibit "A"
attached hereto, and, an average working
interest of twenty-five percent (25%) in approximately 27 xxxxx drilled
on the Xxxxxxx Leases and known as the Xxxxxxx Working Interests
("Xxxxxxx Working Interests"), see exhibit "B" attached hereto.
3. NITRO desires to purchase one hundred percent (100%) of JMT in
several stages. JMT currently owns the following assets, hereinafter
collectively referred to as JMT's Interests; approximately 7,500 acres
of mineral leasehold in Xxxxxxx County, Texas and is known as the
Corsicana Field ("Field") see exhibit "C" attached hereto. Nitro, as of
the date of this Agreement, has a twenty-three and three-quarters
percent (23.75%) interest in the Corsicana Leases based on its
commitment to fund an additional $3,000,000 over the next two years in
JMT's Corsicana Pilot Project while JMT retains its interest of
fortyseven and one-half percent (47.5%).
4. REO and JMT agree to the sell REO's and JMT's Interests to NITRO based
on NITRO's inducement and consideration of the following terms and
conditions:
[a]. The payment of $500,000, the receipt of which is hereby
acknowledged by REO and JMT, NITRO and/or its nominee[s] has paid
to REO an advance against the initial equity purchase of
thirty-three percent (33%) of REO's Interests for $6,200,000 USD
("First Stage Purchase"), which consists of the following
breakdown:
1. $2.7 million to buy Big Giant Rig 2
2. $2 million cash to Xxxx/Xxxxxxx ($1 million each)
3. $1.5 to pay off all existing debt of REO; and
[b]. NITRO shall pay in cash the remaining purchase price of
$5,700,000 USD for the First Stage Purchase on or before May 1,
2006 and;
[c]. NITRO shall provide a cash equity financing to REO and/or its
affiliate JMT, the approximate amount of $59,000,000 USD by or
before December 31, 2006, the uses and or allocations of which
are attached herein as Exhibit "B" or [ii] in the event that
NITRO fails to meet its funding obligations under paragraphs 4[b]
or 4[c], the equity contributed to date by NITRO to REO will be
converted to a working interest ownership in Big Giant Rig # 2
purchased under 4[a] 1., the terms of which are described in
paragraph 5 of this Agreement;
Upon the funding of equity monies described in 4 [c] above, Nitro and/or REO
will enlist a mutually acceptable third-party engineer to determine the total
appraised value of REO's Interests, which at that time shall also include any
acquisitions made during the period from the date of this Agreement to the date
that a final value determination is made, which shall be done no later than
December 31, 2007.
[d]. The final purchase price for REO's and JMT's interests will be
based on the valuation of all of their respective assets,
existing as of the date of this Agreement and including those
acquired up to the date of evaluation, less the funds advanced to
REO and JMT, as defined herein, and hereafter multiplied by the
amount of residual interest held by REO and JMT after the first
stage of financing, as defined above, or sixty-six and two-thirds
percent (66.66%).
5. In exchange for the initial equity contribution made by NITRO to REO,
NITRO shall be entitled to receive 33% of the net income derived by
REO. Conversely, in exchange for the funding provided by NITRO to JMT,
NITRO will be entitled to receive 70% of the net income derived from
JMT's Interest in the Corsicana Leases. NITRO will earn a proportionate
working interest in those xxxxx drilled and completed under this
project as their investment progresses.
6. NITRO is in compliance with all material provisions and requirements of
any and all contracts, agreements, leases, licenses, and SEC/listing
requirements and to which NITRO is a party and which, is material to
the conduct of the business of the Joint Venture with REO.
7. The acquisition of JMT as contemplated herein calls for the development
of the Field in phases with the Pilot Project being labeled as the
first phase and the redevelopment of the entire Field as subsequent
phases. If the parties hereto determine that the Phase 1 Pilot Project
is successful, then the Joint Venture shall proceed with the
redevelopment of the entire Field. NITRO will be responsible for the
financing of the redevelopment of the Field and other ancillary actions
undertaken by the Joint Venture, including, but limited to 3D seismic
shoots of the Field, drilling and completing well bores to greater
depths and acquiring additional acreage in and around the location of
the Field.
A further major inducement to JMT to enter into this acquisition is
NITRO's commitment to affect a $3,000,000 funding in a timely manner for
NITRO/JMT's future development plans of the Corsicana Field, should both
parties choose to continue into phase II of the redevelopment of the
Field. Should these funds not materialize in the manner described and
agreed in the Definitive Agreement and Plan of Redevelopment, certain
default provisions would limit NITRO's interest in the Field to that of
the Pilot Project. Its interest in the net income derived from the Pilot
Project, however, would not be diminished as a result.
8. As required by law, the vote for approval of the Definitive Agreement
and Plan of Redevelopment contemplated by this Letter of Intent shall be
approved by a vote of the holders of at least a majority of the issued
and outstanding shares of NITRO, JMT and REO.
Furthermore, there are filing requirements concerning Proxy
Solicitation Materials (Regulation 14A/Schedule 14A) which are subject
to filing with the Securities and Exchange Commission.
9. At any time prior to the acquisition Closing Date, the parties hereto
may, by written mutual agreement, approved by their respective Board of
Directors, amend, modify or waive
compliance with any of the conditions, covenants or provisions of this
Letter of Intent or the Definitive Agreement and Plan of Redevelopment.
10. Each party hereto agrees to grant to the. other the right of first
refusal on the sale of their respective interests or on any subsequent
drilling opportunity on the subject properties described above,
regardless of circumstance or depth, including REO's additional 3,000
acres in the Corsicana area.
11. Contemplated dates relating to this Letter of Intent, the terms and
conditions of the acquisition, and the acquisition Closing Dates are:
March 31, 2006 Letter of Intent Closing Date - Signing of Letter of
Intent
May 1, 2006 Equity Funding Date - NITRO's initial equity
contribution of $5,700,000 is due for the purchase
of 33% of REO
December 31, 2006 2nd Equity Funding Date - no less than
$59,000,000 must be received under the terms of
the Definitive Agreement and Plan of Redevelopment
to affect the final purchase of the REO's and JMT's
respective interests.
December 31, 2007 Enlist the services of a third-party appraiser to
determine the fair market value of the assets
acquired by NITRO, both initially and during
the time since it entered into this Agreement.
12A. Inability to Fund based on conditions set forth herein
In the event that Nitro is able to fund the initial acquisition of REO's
percentage and JMT's percentage, as described above, then Nitro will
convert the money it has funded on December 31, 2006 to working
interests and/or overriding royalties in the leases acquired from the
date of this Agreement to December 31, 2006, and also include, but not
be limited to, acquisitions of equipment, xxxxx drilled and other
purchases considered to be assets of the Joint Venture. The respective
interest assigned to Nitro under these circumstances will be equal to
the amount of financing provided by Nitro (both debt and equity) divided
by the current fair market value of all of the assets, as determined by
a mutually acceptable, third party appraiser.
12B. Representations & Warranties by JMT Resources, Ltd. and REO Energy, Ltd.
JMT and REO represents and warrants as follows:
[a]. That JMT and REO is without contingent and/or substantial
liabilities that
would effect the Pilot Project. Any such contracts and/or obligations
are in the usual course of business and no such contracts or
obligations are liens or other liabilities which, if disclosed, would
alter substantially the financial condition what has been represented.
[b]. There have not been, and prior to the acquisition Closing
Date there will not be, any material adverse changes in the financial
position of contracts and/or obligations, except changes arising in the
ordinary course of business.
[c]. JMT is the rightful owner of the 95% working interest in
the Field, whose leases and acreage amounts are listed in Exhibit "A."
REO is the rightful owner of 100% working interest in the Xxxxxxx Leases
and Fayetteville Leases, whose leases and acreage amounts are listed in
Exhibit "A." These leases are unencumbered and without liens or any
other type of deficiency that would prevent REO from executing the
Definitive Agreement and Plan of Redevelopment. Further, that REO is the
rightful owner of the working interests listed in exhibit "B," attached
hereto, which interests have not been encumbered or pledged and are
without any type of title deficiency.
[d]. REO and or its affiliates will indemnify NITRO against all
existing liabilities, contingent or otherwise, which currently exist on
any of the assets held by JMT and REO and both parties shall
simultaneously hold NITRO harmless accordingly.
13. Representations & Warranties by NITRO.
NITRO represents and warrants as follows:
[a]. The Officers of NITRO are duly authorized to execute this
agreement pursuant to authorization of its Board of Directors.
[b]. Since their latest filing with the SEC, there have not been, and
prior to the acquisition Closing Date there will not be, any
material adverse changes in the financial position of NITRO
except changes arising in the ordinary course of business.
[c]. NITRO is not involved in any pending litigation or governmental
investigation or proceeding not reflected in such Financial
Statements or otherwise disclosed in writing to REO that would
have an adverse effect of the Redevelopment of the Field or any
other asset acquired herein.
14. The parties hereto agree to keep confidential all proprietary
information. The parties further agree to keep confidential any and all
names, telephone or facsimile numbers, and any other matters considered
confidential arising from this agreement and the subsequent Definitive
Agreement and Plan of Redevelopment.
15. This agreement may be signed in counterpart. Facsimile signatures, if
required, shall be acceptable and legally binding.
16. This Letter of Intent, and its terms and conditions therein, shall be
effective and binding upon the date of execution of this agreement. This
Agreement and the legal relations between the parties hereto shall be
governed by and construed in accordance with the laws of the State of
Texas.
17. All parties to this agreement realize time is of the essence in
concluding this transaction.
IN WITNESS WHEREOF, the parties have executed this agreement in good faith on
the day and date first above written.
NITRO PETROLEUM, LTD. JMT RESOURCES, LTD.
/s/ Xxx Xxxxx /s/ Xxxx Xxxxxx
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By: Xxx Xxxxx By: Xxxx X. Xxxxxx
Title: President Title: Managing Partner
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Attest: Attest:
REO Energy, Ltd.
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By: Xxx Xxxx Xxxxxxx
Title: Managing Partner
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Attest:
