Exhibit 10.3
ANCILLARY AGREEMENT TO PURCHASE AND SALE AGREEMENT
This Ancillary Agreement to Purchase and Sale Agreement (the "Ancillary
Agreement") is entered into this 14th day of October, 2005, by and between Lynx
Production Company, Inc., whose address is 0000 Xxxx Xxxxxx, Xxxxx 000, XX 00,
Xxxxxx, Xxxxx 00000 (herein "Lynx") and Parallel, L.P., whose address is 0000 X.
Xxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 (herein "Parallel").
Recitals:
A. Contemporaneous herewith Lynx Production Company, Inc., et al. (herein
collectively, "Sellers") are entering into a Purchase and Sale Agreement
(the "Purchase Agreement") pursuant to which and subject to the terms and
conditions thereof, Sellers are agreeing to sell to Parallel, and Parallel
is agreeing to purchase from Sellers, the Assets (as therein defined)
comprising oil and gas properties and related assets therein described
which are owned by Sellers situated in Xxxxxx and Andrews Counties, Texas.
B. Certain aspects of the transaction contemplated in the Purchase Agreement
pertain solely to Lynx and its interests in the Assets and do not relate
to the interests of the other parties Sellers in and to the Assets.
C. Lynx and Parallel address the terms of the transaction which pertain
exclusively to Lynx and its interest in and to the Assets within this
Ancillary Agreement.
Covenants:
For adequate consideration Lynx and Parallel agree, conditioned upon the
closing of the transaction contemplated in the Purchase Agreement and Parallel
becoming successor Operator of the oil and gas leases and xxxxx included among
the Assets, as follows:
1. Reserved Interest: Lynx will reserve unto itself and not sell or convey to
Parallel an undivided ten percent (10%) interest in and to the Assets (the
"Reserved Interest"). The portion of the Purchase Price allocated to Lynx
pursuant to the provisions of the Purchase Agreement and attributable to
Lynx' interests in the Assets will be reduced proportionately to the
extent of the Reserved Interest
2. Cascade Energy Corporation Interests: Lynx presently is considering the
possibility of acquiring Cascade Energy Corporation ("Cascade") in a stock
purchase transaction. If such transaction is consummated, its closing will
occur prior to the final closing of the transaction contemplated in the
Purchase Agreement. Cascade is a party to the Purchase Agreement. If Lynx
acquires the stock of Cascade then, at Lynx' option, either (a) Lynx will
retain the Cascade interests in the
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Assets as part of the Reserved Interest (in which event the provisions of
the Purchase Agreement will no longer apply to Cascade's interests in the
Assets) or (b) Cascade will close the sale of its interest in the Assets
to Parallel per the provisions of the Purchase Agreement. If Lynx does not
acquire the stock of Cascade, then the terms and provisions of the
Purchase Agreement as relates to Cascade's interests in the Assets will
remain legally binding and in full force and effect.
3. On-going Land Work: Various land activities relative to the properties
included among the Assets have been commenced and remain on-going. Such
activities include leasing and lease renewals, as well as title
examination and responsive curative efforts preliminary to drilling a new
well in Xxxxxxx 00, Xxxxx X-00. Xxxxxxxx recognizes the likely benefit of
these activities which will accrue to Parallel as the purchaser of the
Assets, despite the fact that much of the cost incurred in connection with
this on-going activity will have been incurred prior to the Effective Date
of the Purchase Agreement. In order to insure that these activities will
not be interrupted due to the contemplated sale of the Assets, Parallel
agrees that conditioned upon the consummation of the transaction
contemplated in the Purchase Agreement, at closing Parallel will reimburse
Lynx et al. (or Lynx Operating Co., Inc., the operator, as applicable) for
all third party costs and expenses associated with this on-going land and
title work, limited to such costs and expenses as are incurred in
connection therewith subsequent to September 15, 2005. Such expenses
currently are estimated to be $25,000, but in no event shall such expenses
exceed $25,000.
4. Reciprocal Lease Acquisition Rights: If within three (3) years
following the closing, if either Lynx or Parallel acquires oil and gas
leasehold interests within any of the sections of land described in
Exhibit "A" hereto, which interests are inclusive of depths from the top
of the Xxxxx Formation down to the base of the Queen Formation (in the
instance of acquisitions by Parallel) or any depths other than depths from
the top of the Xxxxx Formation down to the base of the Queen Formation (in
the instance of acquisition by Lynx), then the non-acquiring party will
have the option to acquire all of the acquired party's interest in the
acquired leasehold as to the non-acquiring party's formation of interest
(i.e. depths from the top of the Xxxxx Formation down to the base of the
Queen Formation, in favor of Lynx and any depths other than depths from
the top of the Xxxxx Formation down to the base of the Queen Formation in
favor of Parallel) by paying the acquiring party the sum of One Hundred
Dollars ($100.00) per net leasehold acre in exchange for a recordable
assignment of all the acquiring party's rights to the formation of
interest. Furthermore, if within three years following the closing either
Lynx or Parallel acquires oil and gas leasehold interests within Sections
8, 13 or 00, Xxxxx X-00, XXX, Xxxxxx Xxxxxx, Xxxxx, which interests are
inclusive of depths from the top of the Xxxxx Formation down to the base
of the Xxxxx Formation (in the instance of acquisitions by Parallel) or
any depth other than depths from the top of the Xxxxx Formation down to
the base of the Xxxxx Formation (in the instance of acquisitions by Lynx),
then the
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non-acquiring party will have the option to acquire all of the acquiring
party's interest in the acquired leasehold as to the non-acquiring party's
formation of interest (i.e. depths form the top of the Xxxxx Formation
down to the base of the Xxxxx Formation, in favor of Lynx, and any other
depths in favor of Parallel) by paying the acquiring party the sum of $100
per net leasehold acre in exchange for a recordable assignment of all the
acquiring party's right to the formation of interest.
5. Area of Mutual Interest. In addition to the rights provided for in
paragraph 4, above, the parties hereto also hereby create an Area of
Mutual Interest comprised of the lands described in Exhibit "A" hereto
(the "AMI"). Under the terms of the AMI, lynx shall have the right to
acquire an undivided 10% of the interest acquired by Parallel in any
Leases (as defined in the Purchase Agreement), as to all depths covered by
such Leases, SAVE AND EXCEPT depths from the top of the Xxxxx Formation
down to the base of the Queen Formation. Parallel shall give Lynx notice
in writing of the terms of the acquisition of any such Leases. Lynx shall
then have 15 days from the receipt of such notice in which to elect to
acquire and tender payment for 10% of such interest. If Lynx elects to
acquire a 10% interest in any such Leases, Lynx agrees that such interest
shall be subject to an operating agreement on a form utilized by Parallel
in its Xxxx-Xxx Area in Xxxxxxx and Xxxxxx Counties, Texas.
6. Lynx Overriding Royalty Interest. Notwithstanding Exhibit "B" to the
Purchase Agreement which reflects that the Non-Producing Leasehold Acreage
will be assigned to Parallel and the net revenue interest to be delivered
for such leases shall be 75%, with Lynx reserving an overriding royalty
interest equal to the difference between 25% and the royalties provided
for in such leases. Provided, however, that on any renewals or extensions
of any such leases, Lynx shall not be entitled to any overriding royalty
interest.
The terms and provision of this Ancillary Agreement expressly are
conditioned upon the closing of the transaction contemplated in the Purchase
Agreement. In the event of a conflict between the provisions of the Purchase
Agreement and the provisions of this Ancillary Agreement, the applicable
provisions of this Ancillary Agreement will control and prevail. In the absence
of any such conflict the terms and provisions of the Purchase Agreement as
relates to Lynx' interests in the Assets will remain legally binding and in full
force and effect.
Executed as of the date first set forth above.
LYNX PRODUCTION COMPANY, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
President
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PARALLEL PETROLEUM CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
Chief Operating Officer
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Exhibit "A"
1. All of Sections 6, 7, 14, 15, 16, and 17, Block A-22, PSL, Xxxxxx County,
Texas
2. All of Xxxxxxxx 00 xxx 00, Xxxxx X-00, XXX, Xxxxxx Xxxxxx, Xxxxx
0. All of Sections 23, 24 and 00, Xxxxx X-00, XXX, Xxxxxxx and Xxxxxx
Counties, TX
4. All of Xxxxxxx 00, Xxxxx X-00, XXX, Xxxxxxx and Xxxxxx Counties, TX.
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