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EXHIBIT 10.10
PROPERTY OPTION AGREEMENT
This agreement entered into as of the date set forth below is between Cotton
Valley Energy Corporation, a Nevada Corporation (hereinafter referred to as
"Purchaser"), with its address at 0000 Xxxxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxx,
00000 and East Texas Limestone Limited Partnership (hereinafter referred to as
"Seller"), represented by its general partner, Hibernia Management Company,
located at 0000 Xxxxxxxx Xx., Xxxxx 000, Xxxxxx, Xxxxx 00000
WITNESSETH
WHEREAS, Seller represents that it owns, or holds executive rights to
5,389 net acres of Oil, Gas, and Mineral leases within the boundaries outlined
on EXHIBIT "A" attached, "Cheneyboro Field Oil Productivity Map", designated as
the "Contract Area", and
WHEREAS, Seller has initiated negotiations to acquire an additional
2,947 net acres of Oil, Gas and Mineral leases within the area outlined on
Exhibit A as the "Option Area"; and
WHEREAS, Seller also has reason to believe that it can acquire
additional leases within the areas outlined as the "North Substitute Area" and
"South Substitute Area";
NOW THEREFORE, for and in consideration of the delivery of certain
securities of Purchaser as set forth below and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, Seller hereby
grants an exclusive option to Purchaser until May 25, 1995 (the "Option Date")
to purchase all or any portion of Seller's interests in oil, gas and mineral
leases ("Leases") and related property and equipment in the Contract Area, and
an exclusive option until 30 days following the Option Date to purchase all or
any portion of Leases Seller may purchase or contract to purchase in the Option
Area, all according to the following terms and conditions:
1. The securities (which shall be delivered to Seller on or
before March 15, 1995) shall consist of: (a) 8,131,333 shares of the Common
Stock of Purchaser, $0.001 par value (the "Common Stock"); (b) a warrant to
purchase 2,032,833 shares of Common Stock at Three Canadian Dollars (C$3.00)
per share on or before March 15, 1996 (the "C$3.00 Warrant"); (c) a warrant to
purchase 2,032,833 shares of Common Stock at Four Canadian Dollars (C$4.00) per
share on or before March 15, 1997 (the "C$4.00 Warrant"); and (d) a warrant to
purchase 2,032,833 shares of Common Stock at Five Canadian Dollars (C$5.00) per
share on or before March 15, 1998 (the "C$5.00 Warrant"). Seller shall execute
a securities acquisition agreement with respect to the securities being
acquired in the form of Exhibit B attached hereto. The warrants to be delivered
shall be in the form of Exhibit C attached hereto.
2. Each Lease delivered by Seller shall either: (i) have a
minimum of two years remaining primary term; or (ii) be held by production. To
the extent any Lease owned by Seller does not meet one of the foregoing
criteria, Seller shall, at its own expense, make its best efforts to acquire a
top-Lease or renewal Lease which meets the criteria, and shall tender such top-
Lease or renewal
Property Option Agreement....Page 1
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Lease to Purchaser within 60 days following the Option Date. If, within 60 days
following the Option Date, Seller is unable to deliver good and marketable to
title to at least 4,000 net acres of Leases within the 25,000 barrel iso-
cumulative contour area shown in Exhibit A for the Contract Area and Option
Area, Seller shall use its best efforts to acquire and tender to Purchaser the
difference in net acres of Leases from the North Substitute Area and the South
Substitute Area.
3. The purchase price for the first 4,000 net acres of Leases
delivered by Seller and accepted by Purchaser within the Contract Area shall be
one hundred dollars ($100.00) per net acre, and the purchase price for the next
1,389 net acres of Leases within the Contract Area shall be twenty-one and
59/100 dollars ($21.59) per net acre. The purchase price for the Leases
delivered by Seller in the Option Area and Substitute Areas shall be one
hundred dollars ($ 100.00) per net acre.
4. All Leases assigned will have an average of 80.0% Net Revenue
Interest with the understanding that a 2.0% Overriding Royalty Interest (ORRI)
in the Contract Area and North Substitute Area will be assigned to Xx. Xx
Xxxxxx, Five Star Exploration Company, before subsequently assigning net 78%
revenue leases to Purchaser.
5. In order to exercise its option, Purchaser shall place into an
escrow account, on or before the Option Date, two hundred thousand dollars
($200,000.00), from which payments will be made to Seller as Leases meeting the
qualifications of Paragraph 2 above are assigned to Purchaser.
6. In the event Purchaser acquires a minimum of 2,000 net acres
of Leases within the Contract Area, Purchaser will agree to recomplete the
horizontal Texlan (ARCO) Xxxxx Xxxxxxxx #1 Well. Seller would have complete
access to the location and all test data.
7. An Area of Mutual Interest ("AMI") is hereby established with
respect to the North Cheneyboro Area and South Cheneyboro Area, as shown in
Exhibit A. Any interests in any Leases after 60 days beyond the Option Date
which are acquired by Seller within the AMI must be offered to the Purchaser at
Seller's cost within ten days after acquisition. An overriding royalty interest
of two percent (2%) shall be assigned to Xx. Xx Xxxxxx with respect to any
Leases acquired pursuant to this paragraph which lie within the North Area of
Mutual Interest as shown on Exhibit A.
8. On any re-entry by Purchaser of an existing wellbore for
horizontal recompletion within the North Area of Mutual Interest (including the
aforementioned Xxxxxxxx Well), Seller will be carried for a reversionary one-
quarter Working Interest in such well, where the amount to be paid out includes
all costs of the Purchaser with respect to such well. On any new wellbore
drilled by Purchaser in the North Area of Mutual Interest, vertical or
horizontal, Seller will be carried for a one-sixteenth reversionary Working
Interest.
9. Any new acreage acquired by Purchaser in the AMI would be for
Purchaser's account with said acreage costs to be "loaded" on the first
commercial reentry or new well drilled in the AMI subsequent to acreage
acquisition.
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10. In the event Purchaser elects to acquire at least 4,000 net
acres of Leases within the 25,000 barrel iso-cumulative contour as shown in
Exhibit A, and Seller is unable, within 60 days following the Option date, to
deliver good and merchantable title to at least 4,000 of said net acres, Seller
shall return to Purchaser shares of Common Stock, C$3.00 Warrants, C$4.00
Warrants and C$5.00 Warrants proportional to the amount of net acres of Leases
under 4,000 within the 25,000 barrel isocumulative contour that Seller is
unable to deliver. In the event Purchase does not exercise any portion of its
option hereunder, for any reason, Seller, upon written demand, shall return 50%
of amounts it previously received of Common Stock, C$3.00 Warrants, C$4.00
Warrants and C$5.00 Warrants.
11. This agreement shall be governed by the laws of the State of
Texas.
12. Should any additional instruments need to be executed,
certified, or delivered by one Party to the other, to any third party and/or
filed with or delivered to any public officer in order to carry our the purpose
and intent of this Agreement, each Party hereto agrees to promptly execute and
deliver any and all such instruments reasonable necessary to carry out the
purpose and intent of this Agreement.
13. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and each of which alone, and all of which
together, shall constitute one and the same instrument. It is agreed to that a
facsimile transmission signed copy of this Agreement shall be treated and
considered an original for all intended purposes.
14. It is expressly agreed that this Agreement embodies the entire
agreement of the parties with regard to the subject matter herein, and that
there is no other oral or written agreement or understanding between the
parties at the time of execution hereunder. In addition, this Agreement may be
amended or modified only by written agreement signed by all of the parties
hereto.
15. The terms and provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their successors, transferees,
sub-licensees and assigns.
Executed as of this First day of March, 1995.
COTTON VALLEY ENERGY CORPORATION
By /s/ XXXXXX X. XXXXXXX Title: Managing Director
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EAST TEXAS LIMESTONE LIMITED PARTNERSHIP
HIBERNIA MANAGEMENT COMPANY, General Partner
By: /s/ XXXXXXX X. XXXXX Title: President
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Property Option Agreement....Page 3
