March 20, 2007
Exhibit
10.1
March
20,
2007
Angel
LLC
CN
Energy
LLC
Xxxxxxx
Energy Company, LLC
Fuel
Exploration, LLC
MHBR
Energy, LLC
Rocky
Mountain Rig LLC
c/o
Xxxxxx X. Xxxxxx
0000
Xxxx
Xxxxxxxx Xxxxxx
Greenwood
Village, Colorado 80111
Re: |
Ute
Muddy Sand Unit, Fence Creek Muddy Sand Unit, Boos
Unit
|
Xxxxxxxx and Xxxxxxxx Counties, Wyoming |
Dear
Xx.
Xxxxxx:
This
letter constitutes a letter of intent regarding the terms and conditions under
which True North Energy Corporation (“Buyer”) is willing to acquire all
interests of Angel
LLC, CN Energy LLC, Xxxxxxx Energy Company, LLC, Fuel Exploration, LLC and
MHBR
Energy, LLC (collectively
“Sellers”) in the units described above (the “Units”) together with the workover
rig (the “Rig”) owned by Rocky Mountain Rig LLC (“RMR”), a wholly owned
subsidiary of Sellers.
1. Properties.
The
"Properties" are all interests in the Units owned by Sellers as of
7:00 a.m., local time on March 1, 2007 (the Effective Date") as described
in the offering brochure made available to Buyer by P&M Petroleum Management
LLC (“P&M”) on February 20, 2007, including without limitation the interests
in the xxxxx listed on Exhibit A attached hereto and all of Seller's right,
title and interest in and to the producing and nonproducing oil and gas
properties contained in the areas of the Units outlined on the plats attached
hereto as Exhibits B-1, B-2 and B-3 together with a corresponding interest
in
all related oil and gas interests (including related oil and gas units and
the
unit and/or pooling declarations, agreements, and orders that affect those
units), oil and gas xxxxx, injection and disposal xxxxx, equipment, materials,
production facilities, pipelines, plants, gathering lines, contracts (in-cluding
farmout or other acquisition agreements, oil and gas sales contracts, and
operating agreements), options, easements, rights-of-way, permits, and surface
leases; and all other rights, properties and privileges associated with the
use,
ownership, and/or operation of any of the foregoing. The "Properties" also
include the Rig and all of Sellers’ and RMR’s files and information relating to
the foregoing.
2. Purchase
Price.
The
purchase price for the Properties other than the Rig (the "Units Purchase
Price") shall be $22,000,000, payable by Buyer to Seller at closing 50% in
cash
and 50% in the issuance of a number of shares of Buyer’s common stock computed
by dividing $11,000,000 by the sum of $0.20 per share of Buyer’s common stock
plus average closing trading price of Buyer’s common stock for the ten trading
days immediately preceding the day on which the Definitive Agreement is
executed. The purchase price for the Rig shall be $650,000 payable entirely
in
cash (the “Rig Purchase Price”). Sellers
will be granted piggyback rights pursuant to which Sellers may request that
Buyer include the common stock consideration provided as part of the Purchase
Price in any registration statement filed with the Securities and Exchange
Commission to register other common stock of Buyer (other than a registration
on
Form S-4 or S-8, or any successor or other forms promulgated for similar
purposes). Each party will be responsible for payment of its own costs and
expenses in connection with this transaction. Each party agrees to discharge
its
own brokerage or finders’ fees or agents’ commissions or like payment in
connection with the transactions contemplated by this letter of
intent.
3. Definitive
Agreement.
Upon
execution of this letter, the parties agree to undertake, diligently and in
good
faith, to execute a definitive purchase and sale agreement (the "Definitive
Agreement") no later than June 1, 2007, which shall contain the provisions
of
this letter of intent and other mutually acceptable provisions customary in
transactions of this sort. The
Definitive Agreement will contain representations, warranties and
indemnification customary in an asset purchase agreement for this type of
property, including representations, warranties and indemnification as to good
and marketable title to the Properties, material contracts, due payment of
royalties and taxes, litigation matters, environmental condition, and compliance
with law. All representations will be made as of the execution and delivery
of
the Definitive Agreement and shall survive the Closing for a period of one
(1)
year, except for all representations regarding environmental, royalty, and
tax
matters, which will extend for the applicable statute of
limitations.
Upon
execution of the Definitive Agreement, Buyer shall deposit into escrow with
an
independent escrow agent the sum of $220,000 which shall be paid to Sellers
as
part of the Purchase Price delivered at closing or paid to Sellers upon Xxxxx’s
wrongful failure to close, and refunded to Buyer in the event of Sellers’
wrongful failure to close in addition to any other remedies available to Buyer
under the Definitive Agreement or applicable law.
4. Closing.
Xxxxx’s
obligation to close the purchase of the Properties shall be subject to
satisfactory results of Xxxxx’s due diligence as described below and to Buyer’s
obtaining a satisfactory commitment to finance payment of the Purchase Price
and
to other customary closing conditions. In addition, Xxxxx’s obligation to close
the purchase of the Rig shall be subject to Xxxxx’s obtaining a satisfactory
commitment from the operator of the Rig to remain contracted for work on the
Rig
for a satisfactory period after the Closing. Closing of the purchase and sale
of
the Properties shall occur upon satisfaction of all conditions to closing but
no
later than July 16, 2007 in the offices of Buyer’s counsel, and the transfer of
the Properties shall be effective as of the Effective Date. At the Closing,
Sellers shall convey the Properties other than the Rig to Buyer by assignment
and bill of sale containing a special warranty of title, i.e., a warranty
against claims arising by, through and under Sellers, and shall deliver
governmental assignment forms, certificates, opinions of counsel relating to
due
authorization, enforceability of the transaction and other corporate matters
relating to Sellers’ execution and performance of the Definitive Agreement and
related documents, and post-closing financial assurances as shall be reasonably
required to provide Buyer with appropriate indemnity security. At the Closing
RMR shall convey the Rig to Buyer by bill of sale and certificate of title
containing a special warranty of title. The Properties will be conveyed free
and
clear of all encumbrances and other burdens not disclosed to and accepted by
Buyer prior to execution of the Definitive Agreement.
5. Due
Diligence.
Upon
execution of this letter of intent and until the first to occur of the
termination of this letter of intent pursuant to paragraph 11 below or the
Closing, Buyer shall have the opportunity to conduct a complete and unrestricted
"due diligence" inspection of the Properties and review of the files relating
thereto, including files and operations of third parties operating the
Properties, in order to satisfy itself with respect to the Properties. In
particular, Xxxxx will have the opportunity to satisfy itself with respect
to
the following matters (and such other matters as the parties shall agree in
the
Definitive Agreement):
a. |
That
Sellers have good and marketable title to the working interests and
net
revenue interests in the Properties evaluated by Xxxxx, subject to
mutually agreeable dollar thresholds and baskets for excepting minor
ownership variances;
|
b. |
That
the xxxxx, equipment, and facilities included in the Properties presently
being produced are in good condition and are
operational;
|
c. |
That
none of the Properties are subject to or involved in any demands,
lawsuits, disputes, investigations, or controversies prior to Closing
that
might materially adversely affect their ownership or their
value;
|
d. |
That
the Properties have been operated in a prudent manner, in compliance
with
law, and that there are no conditions on the Properties giving rise
to
liability under any environmental laws;
|
e. |
That
all royalties and taxes have been properly and completely
paid;
|
f. |
That
all leases and contracts included in the Properties are in full force
and
effect, and that there are no unusual or onerous provisions in any
of the
leases or contracts that would materially affect the value, ownership
or
operation of any of the Properties;
|
g. |
That
Sellers have obtained or will obtain at Closing all necessary approvals
for transfer of the Properties to Buyer;
|
h. |
That
the Rig is in satisfactory condition for safe and adequate operation
and
is in good repair with all required ratings and licenses and is not
subject to any contracts with any third parties or to any indebtedness
or
other claims or approvals of third parties other than the approval
of
Sellers; and
|
i. |
That
production from the Properties is not committed to any gathering
agreement, purchase agreement, hedging agreement, call on production,
prepayment agreement or other agreement relating to the gathering,
treatment, transportation, processing, sale or marketing of production
not
terminable by Buyer upon occurrence of the
Closing.
|
6. Adjustments
to Purchase Price; Indemnities.
All
liabilities and benefits relating to the Properties shall be apportioned between
the parties as of the Effective Date. The Purchase Price shall also be subject
to the usual and customary adjustments for title defects, environmental defects,
production in tanks, gas take imbalances, the net operating income received
by
Sellers for the period after the Effective Date, ad valorem and severance taxes
based on ownership of property or production, and such other adjustments as
are
usual or customary in the purchase and sale of producing oil and gas properties,
or as are agreed upon by the parties. Each party shall either indemnify or
defend the other against the liabilities retained or assumed by such party
and
against any breaches of representations and warranties and covenants of such
party contained in the Definitive Agreement, whether discovered before or after
the Closing.
7. Exclusivity.
Until
the first to occur of the termination of this letter of intent or the execution
of the Definitive Agreement, Sellers and RMR shall not, directly or indirectly,
encourage, solicit, or entertain any other offers, inquiries, or proposals
for
the purchase and sale of the Properties, or conduct any negotiation or
discussion or provide any information pertaining to the sale of the Properties
with any person or entity other than Buyer or its representatives.
8. Disclosure.
Except
as and to the extent required by law or otherwise as a result of Buyer’s status
as a public company, without the prior written consent of either Buyer or
Sellers and RMR as to the disclosure by the other, neither Sellers nor RMR
nor
Buyer shall, and each shall direct its respective officers, directors, owners,
managers, employees, affiliates, and advisors not to, directly or indirectly,
make any public comment, statement or communication with respect to, or
otherwise disclose or permit the disclosure of the existence of discussions
regarding, a possible transaction between the parties or any of the terms,
conditions or other aspects of the transaction proposed in this letter of
intent.
9. Non-Public
Information.
Sellers
and RMR hereby acknowledge that during the period from the date hereof through
the Closing, Sellers and RMR may become aware of “material non-public
information” (as defined under applicable securities laws) regarding Buyer.
Sellers and RMR shall refrain, and shall communicate to other persons, including
their respective officers, directors, owners, managers, employees, affiliates
and advisors, having knowledge of such information that they are required under
applicable securities laws to refrain from trading in Buyer’s securities while
such information is material.
10. Counterparts.
This
letter of intent may be executed in one or more counterparts, each of which
will
be deemed to be an original copy and all of which, when taken together, will
be
deemed to constitute one and the same document. This letter of intent shall
not
be effective for any purpose as against any party hereto unless and until all
parties hereto have executed a counterpart of this letter.
11. Term. If
all
parties have not executed this letter of intent by March 31, 2007, this letter
of intent shall be deemed to have terminated. Following execution of this letter
of intent by all parties, this letter of intent shall remain in effect until
the
earlier of 60 days from the date of this letter or the execution of the
Definitive Agreement.
12. Limitations
on Binding Obligations. This
letter is a letter of intent and except for the provisions of paragraphs 7,
8
and 9 shall not contain a binding or contractual obligation of any party hereto
with respect to the purchase and sale of the Properties. Such binding
obligations shall be created, if at all, by execution of the Definitive
Agreement.
If
the
provisions of this letter are acceptable, please have all Sellers and RMR
execute and return one executed counterpart to the undersigned. We appreciate
the opportunity to acquire these Properties, and we look forward to working
with
you to close this transaction as soon as possible.
Sincerely,
True
North Energy Corporation
By |
/s/
Xxxx Xxxxxxxx
|
Xxxx
X. Xxxxxxxx
President
and CEO
|
The foregoing accepted and agreed to this 22nd day of March, 2007:
Rocky
Mountain Rig, LLC
By |
/s/
Xxxxx Xxxxxx
|
Manager |
Angel,
LLC
By |
/s/
Xxxxxx X. Xxxxxx
|
Manager |
CN
Energy, LLC
By |
/s/
Xxxxx Xxxxxx
|
Manager |
Xxxxxxx
Energy Company, LLC
By |
/s/
Xxxx Xxxxxxx
|
Manager |
Fuel
Exploration, LLC
By |
/s/
Xxx Xxxxxx
|
Manager |
MHBR
Energy, LLC
By |
/s/
Xxxxx X. Xxxxxxxx
|
Manager |