STOCK PURCHASE AND OPTION AGREEMENT
STOCK
PURCHASE AND OPTION AGREEMENT
AGREEMENT,
dated October 7, 1987, between K.R.M. Petroleum Corporation, a Delaware
corporation with its principal executive offices located at 0000 Xxxxx Xxxxxx,
Xxxxx 000, Xxxxxx, Xxxxxxxx 00000 (the "Seller"), and The American Energy Group,
a New York joint venture with its principal executive offices located at 000
Xxxxx Xxxxxx, Xxxxx Xxxxxx, Xxx Xxxx 00000 (the "Buyer").
The
parties hereto agree as follows:
1.
Sale and Purchase of the Shares.
Simultaneously
with the execution of this Agreement, and on the terms and in reliance on the
representations, warranties and covenants hereinafter set forth, the Seller is
selling to the Buyer, and Buyer is purchasing from the Seller, 2,900,000 shares
of Common Stock, par value $.10 per share, of the Seller (the "Shares") at a
price of $0.70 per Share being an aggregate purchase price of $2,030,000.
Payment of the purchase price is being made by wire transfer in Denver,
Colorado, funds payable to the order of Seller against delivery of one
certificate registered in the name of the Buyer representing the
Shares.
2.
Reevaluation to Adjust Shares.
If the
average bid price for Seller's Common Stock during any consecutive thirty (30)
days preceding October 1, 1990, has been $3.00 or greater, Buyer shall have the
right to reevaluate the "1987 Assets" (hereinafter defined) of Seller. If the
average bid price for Seller's Common stock during any consecutive thirty (30)
days preceding October 1, 1990, has not been $3.00 or greater, Seller shall have
the right to reevaluate the 1987 Assets, in a like manner. Such right of Buyer
or Seller to reevaluate must be exercised within seven (7) business days
following October 1, 1990.
This
reevaluation will be made as follows:
For the
purpose of this Agreement, the portion of the aggregate purchase price for the
Shares represented by Seller's present oil and gas properties is $1,797,422, or
an aggregate of 2,567,746 shares of such Common Stock. Such present oil and gas
properties are referred to as the "1987 Assets".
All "net
cash flows" during the three year period ending September 30, 1990, from the
1987 Assets will be discounted, at 20% per annum, back to October 1, 1987. To
that amount will be added the present value of the "estimated future net cash
flow" from the 1987 Assets as of September 30, 1990, discounted back to October
1, 1987 at 20%. Present value shall be determined by a nationally recognized
petroleum engineering consulting firm in the manner shown by Annex A hereto. For
the purpose of this reevaluation, and to compute "net cash flows" and "estimated
future net cash flow", the price of oil will be increased, from an initial price
of $19.50 at October 1, 1987, 5% per year for the first 5 years and 3% per year
thereafter. The price of natural gas will be increased, from an initial price of
$1.74 at October 1, 1987, 5% per year for the first 5 years then increased 3%
per year thereafter. The result of such reevaluation is hereinafter referred to
as the "1990 Assets". If either Buyer or Seller shall have elected to reevaluate
the 1987 Assets as above provided, and if either of Buyer or Seller shall then
elect to adjust Shares, such adjustments shall be made as follows:
If
one-half the 1990 Assets is less than one-half of the 1987 Assets, Buyer will be
issued additional shares of Common Stock (the "Reevaluation Shares") in an
amount equal to such difference divided by $.70, in order to bring the average
cost per share down to reflect the redetermined asset value per share; provided,
however, the average price per share shall not be less than $.57.
If
one-half of the 1990 Assets is greater than one-half of the 1987 Assets, Buyer
will surrender back to Seller as treasury shares such number of shares of Common
Stock in an amount equal to such difference divided by $.70, in order to bring
the average acquisition cost per share up to this value; provided, however, that
the average price per share shall not exceed $.83 per share.
The
Reevaluation Shares and such shares to be surrendered as treasury shares shall
be adjusted for stock splits, dividends, recapitalization or similar
matters.
3.
Representations and Warranties of the Seller.
Seller represents and warrants to Buyer as follows:
3.1. Organization,
Good Standing, Power, Etc. The Seller (a) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(b) is qualified or authorized to do business as a foreign corporation and is in
good standing in all jurisdictions in which such qualification is required; and
(c) has all requisite corporate power and authority, licenses, permits and
franchises to (i) own or lease and operate its properties and carry on its
business as presently being conducted; (ii) execute, deliver and perform this
Agreement; (iii) issue the Shares and the Reevaluation Shares; and (iv)
consummate the transactions contemplated hereby.
3.2. Certificate
of Incorporation and By-laws. The Seller has heretofore furnished the Buyer with
a complete and correct copy of (a) the Seller's Certificate of Incorporation, as
amended to date, and (b) the Seller's By-laws, as amended to date. The Seller's
Certificate of Incorporation and By-laws are in full force and effect, and the
Seller is not in violation of any of the provisions thereof.
3.3. Capitalization.
3.3.1 The
capitalization of Seller consists of (a) 15,000,000 shares of Common Stock, par
value $0.10 per share (the "Common Stock"), of which, on the date hereof,
2,817,746 shares are issued and outstanding and 200,882 shares are held in the
treasury of the Seller, (b) 10,000,000 shares of Preferred Stock, par value
$0.10 per share, none of which have been issued; and (c) 6,000,000 shares of
Class B Stock, par value $0.10 per share, none of which have been issued. All of
such issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable with no personal liability
attaching to the ownership thereof.
3.3.2 The
Shares have been duly authorized and validly issued and are fully paid and
non-assessable with no personal liability attaching to the ownership thereof.
The Reevaluation Shares have been duly authorized and validly reserved for
issuance upon determination of the Reevaluation, and will be, when issued upon
such exercise, duly authorized and validly issued, fully paid and non-assessable
with no personal liability attaching to the ownership thereof.
3.4. Agreements
Relating to Capital Stock. Insofar as known to the Seller, there are no
agreements or understandings among Seller's stockholders with respect to the
voting of shares of Seller's Common Stock on any matter. Seller is not a party
to any agreement which imposes any obligation on the Seller, or creates any
rights in any person, with respect to shares of the capital stock or any other
security of the Seller, except as referred to in Section 3.5.
3.5. Options,
Warrants, Rights, etc. Seller does not have outstanding any option, warrant, or
other right to purchase or convert any obligation into, any shares of its Common
Stock, or any other of its securities, nor has Seller agreed to issue or sell
any shares of its Common Stock, except upon exercise of options granted pursuant
to the Seller's 1983 qualified stock option plan to purchase an aggregate of
35,000 shares of Seller's Common Stock.
3.6. Subsidiaries.
Seller does not have any subsidiaries and does not own a controlling interest in
any capital stock of any corporation.
3.7. Authorization
of Agreement. This Agreement has been duly and validly authorized, executed and
delivered by the Seller and constitutes the valid and binding obligation of the
Seller, enforceable against Seller in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws presently and hereafter in effect affecting the enforcement of
creditors' rights generally.
3.8. Government
and Other Consents. No consent, authorization or approval of, or exemption by,
any governmental or public body or authority is required in connection with the
execution, delivery and performance by the Seller of this Agreement or any of
the instruments or agreements herein referred to, or the taking of any action
herein contemplated.
3.9. Financial
Statements. Seller has delivered to Buyer copies of Seller's Annual Report, Form
10-K, as filed with the Securities and Exchange Commission which contains the
audited Balance Sheets of Seller as of December 31, 1986, and December 31, 1985,
and the related Statements of Operations, Stockholders' Equity and Changes in
Financial Position for the fiscal years ended on such dates, and Seller's
Quarterly Report, Form 10-Q for the six months ended June 30, 1987, which
contains the unaudited Balance Sheet of Seller as of June 30, 1987, and related
Statements of Operations and Changes in Financial Position for the six months
then ended. The foregoing financial statements have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
that of prior years or periods, are correct and complete and fairly present the
financial position and results of operations of Seller as of said dates and for
the periods indicated. Since June 30, 1987, there has not been any material
adverse change in the business, assets or condition, financial or otherwise, of
the Seller, the Seller has not incurred any obligation or liability (fixed or
contingent) except trade or business obligations incurred in the ordinary course
of business, none of which are materially adverse and the Seller has not
declared or paid any dividend or made any payment or distribution to its
stockholders or purchased or redeemed any shares of its Common Stock. Seller has
informed Buyer that effective July 1, 1987, Seller sold substantially all of its
producing oil and gas properties in the State of Kansas, together with its
reversionary interest in certain of Seller's oil and gas properties in the
Coochie Field, Concordia Parish, Louisiana, for an aggregate consideration of
$600,000. Of such cash consideration, $535,000 was applied to a reduction of
Seller's bank debt and $65,000 was applied to working capital.
3.10 Title
to Property. The Seller has good and marketable title to all of its assets and
properties, whether real or personal, tangible or intangible, subject to no
liens, mortgages, security interests, encumbrances or charges other than (i)
minor imperfections or exceptions of or to title, none of which will materially
interfere with the realization by the Company of the practical benefits of
ownership or use of such assets and properties and (ii) liens and security
interests securing the Seller's debt to United Bank of Denver, National
Association, which debt, as of the date hereof, has an outstanding principal
balance of $1,975,000.
3.11 Property
and Inventories. The oil and gas properties of the Seller consist of the oil and
gas properties described on a schedule heretofore delivered by Seller to Buyer
and initialled by each party for identification.
3.12 Taxes.
All federal, state, local and other governmental (both domestic and foreign) tax
returns, including, but not limited to, withholding, excise, unemployment,
franchise, use, Social Security and property tax renditions, required to be
filed by, or with respect to, the Seller have been timely and correctly filed,
and all taxes, other assessments and levies shown thereon which are due and
payable have been paid; except that Seller has not filed its 1986 Federal income
tax return and an extension of time to file such return was made to September
15, 1987. No further extension has been filed. In addition, Seller has not filed
its 1986 income tax returns (i) in the States of Colorado, Louisiana, Nebraska
and Utah and extensions have been filed in respect of such returns to October
15, 1987; (ii) in the States of Kansas, Mississippi, New Mexico, North Dakota
and Oklahoma, for which extensions were filed to September 15, 1987, based upon
the 1986 Federal income tax return. Further, Seller has not filed the 1986
Federal income tax return and the 1986 income tax returns for the States of
Colorado, Montana, Michigan, Utah and North Dakota on behalf of DECA Energy
Corp. All taxes and other assessments and levies which either the Seller is
required by law to withhold or to collect have been duly withheld or collected
and have been paid over to the proper governmental authorities or are held by
the Seller for such payment, and all such withholdings and collections and all
other payments due in connection therewith are duly reflected on the books of
the Seller.
3.13 Books
and Records. The books and records of the Seller accurately and fairly reflect
the transactions relating to, and dispositions of, the assets of the Seller as
set forth therein. All books and minutes of the Company are in existence, are in
the possession of the Seller at the principal office of the Seller and will be
maintained at such location on the Closing Date.
3.14 Litigation
and Claims. There is no litigation or, to the knowledge of Seller, any claim
pending or threatened involving or affecting the Seller. To the knowledge of
Seller, there is no threatened or pending investigation, including written
inquiries, citations or complaints by any federal, state or local government or
governmental department, commission, board, bureau, agency or administration
against or affecting the Company.
3.15 Contracts
and Commitments. Schedule A describes all material contracts, commitments,
leases, licenses, judgments, decrees, joint venture agreements or other
arrangements to which the Seller is a party. To the best knowledge of Seller,
Seller has not materially breached any provision of, nor is Seller in material
default in any respect under the terms of, any contract, commitment, agreement,
lease or license the effect of which would have a material adverse impact on the
business or financial condition of the Seller; and the contracts, commitments,
agreements, leases and licenses are valid and enforceable in accordance with
their terms and construed by the Seller.
3.16 Insurance.
Seller has in force policies of insurance of the type and amounts customarily
carried by companies engaged in a business similar to that of the Seller. All of
such insurance or the equivalent will be continued in full force and effect
through the closing. No policies of insurance presently in force shall be
cancelled or change in any respect prior to closing, except with the prior
written consent of Buyer.
3.17 Officers
and Directors. Schedule B contains a complete and correct list of the officers
and directors of the Seller. Simultaneously with the execution and delivery of
this Agreement, Messrs. Xxxxx X. Xxxxxxx, Xxxxxx X. Xxxxx, Xxxxxx X. Xxxxxx and
Xxxxxx X. Xxxx have resigned as Directors of the Company and Messrs. Xxxxxx X.
Xxxxxxxx, III and Xxxxxxx X. Xxxxxx, Xx. have been elected as Directors of the
Company.
4.
Representation of Buyer and Legend.
The Buyer
represents that it is acquiring the Shares and the Reevaluation Shares for its
own account and not with a view to the distribution thereof within the meaning
of the Securities Act of 1933. Each certificate for Shares or Reevaluation
Shares shall be stamped or otherwise imprinted with an appropriate restrictive
legend.
5.
Opinion of Counsel for the Seller.
Simultaneously
with the execution of this Agreement, Buyer is receiving from Xxxxx X. Xxxxxxx,
Esq., counsel for the Seller, a favorable opinion, dated the date hereof, to the
effect that: (a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all requisite power
to carry on its business as now being conducted and to execute, deliver and
perform this Agreement; (b) Seller is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted by it or the property owned, operated or leased by it
makes such qualification necessary; (c) this Agreement has been duly authorized
by all necessary corporate action on the part of the Seller, has been duly
executed and delivered by Seller and constitutes the legal, valid and binding
obligation of Seller in accordance with its terms; (d) the Shares have been duly
authorized and are validly issued, fully paid and non-assessable with no
personal liability attaching to the ownership thereof; (e) the Reevaluation
Shares have been duly authorized and validly reserved for issuance upon
reevaluation of the 1987 Assets, and will be, if and when issued upon such
reevaluation, duly authorized and validly issued, fully paid and non-assessable
with no personal liability attaching to the ownership thereof; (f) no
authorization, approval, consent or order of any court or tribunal or any
Federal, state or governmental body and no consent, approval or authorization of
any person (including the stockholders of the Seller) is required in connection
with the execution, delivery and performance by Seller of this Agreement, the
issuance, sale and delivery of the Shares and the Reevaluation Shares, and the
consummation of the transactions contemplated hereby; (g) neither the execution,
delivery or performance by Seller of this Agreement, nor compliance by Seller
with the terms and provisions hereof, will conflict with, or result in breach of
the terms, conditions or provisions of, or will constitute a default under, the
Certificate of Incorporation or By-laws of Seller or any agreement or instrument
known to such counsel to which Seller is a party or by which Seller or any of
its properties or assets is bound; (h) there are no actions, suits or
proceedings pending or, to the knowledge of such counsel, threatened against the
Seller before any court or administrative agency, which, if adversely decided,
will result in any material adverse change in the business or financial
condition of the Seller or which questions the validity of this Agreement or the
Shares or the Reevaluation Shares issuable hereunder; (i) the issuance, sale and
delivery of the Shares and Reevaluation Shares under the circumstances
contemplated by this Agreement constitute exempted transactions under the
Securities Act of 1933; and (j) as to such other matters incident to the
transactions contemplated hereby as Buyer may reasonably request.
6.
Board of Directors of Seller.
So long
as XxXxxxxx Corporation shall be the holder of ten percent (10%) or more of
Seller's Common Stock and at the request of XxXxxxxx Corporation, Buyer will use
its best efforts to cause two persons designated by XxXxxxxx Corporation to be
nominated and elected to, and remain on, the Board of Directors of
Seller.
7.
General and Administrative Costs.
For a
period of one year from and after the date of this Agreement, Buyer will not
permit or cause the general and administrative costs of Seller to exceed an
average of $15,000 per month. Thereafter and until October 1, 1990, Buyer will
not permit or cause the general and administrative costs of Seller to exceed an
average of $15,000 per month without the unanimous approval of the Board of
Directors of Seller. General and administrative costs shall include all items of
overhead not specifically allocated to individual oil and gas properties, but
will not include (i) the amortization of pre-paid items or the payment of
capitalized lease obligations (ii) the payment for goods and services rendered
or received prior to the date of closing; (iii) costs associated with the
preparation and filing of Seller's and Deca Energy Corp's tax returns for
periods prior to September 30, 1987, and (iv) all costs and expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement, including consulting fees, transition costs and the relocation of
Seller's office to White Plains, New York. Fees in connection with the annual
audit of Seller for 1987 and the independent engineering review of Seller's oil
and gas properties for 1987 will be prorated to September 30, 1987.
8.
Purchase of Kabrana Royalties.
Simultaneously
with the execution of this Agreement, and on the terms and in reliance on the
representations, and warranties herein set forth, the Seller is purchasing from
Sterling Drilling and Production Company, Inc., as agent for Buyer and Sterling
Drilling and Production Company, Inc. as agent for Buyer is selling to the
Seller an undivided one-third (1/3) of the interest acquired by Buyer in those
certain oil and gas properties and interests therein known as the "Kabrana
Royalties" located in Xxxxxx, Young and Xxxx Counties, Texas. The purchase price
to be paid by Seller to Buyer is $950,000, adjusted for net production from June
30, 1987, and to bear interest at the rate of 12% per annum from August 18,
1987, on such adjusted purchase price, payable by certified or bank check
payable to the Buyer. Such oil and gas properties and interests are more
particularly described in the form of assignments attached hereto as Annex B.
Such assignments shall be with special warranty of title, conveying good and
marketable title, free and clear of all liens and encumbrances.
9.
Option to Purchase Shares of Sterling Drilling and Production Co.,
Inc.
By their
execution hereof, each of Messr. Xxxxxx X. Xxxxxxxx, III and Xxxxxxx X. Xxxxxx,
Xx. as principals of Buyer and as additional consideration to Seller to enter
into this Agreement, do hereby grant to Seller the following option to purchase
shares of the voting equity securities of Sterling Drilling and Production Co.,
Inc.:
If prior
to October 1, 1990, the average bid and asked price of Seller's Common Stock as
quoted on the over-the-counter market for any preceding consecutive thirty (30)
day period shall not be $2.25 or greater, then Seller shall have the option to
purchase for an aggregate consideration of $1.00, an aggregate of 10% of all
voting equity securities of Sterling Drilling and Production Co., Inc. or any
successor, held of record or beneficially by Messrs. Xxxxxx X.
Xxxxxxxx, III and Xxxxxxx X. Xxxxxx, Xx. which number of shares shall not be
less than 6% of Al outstanding voting equity securities of Sterling Drilling and
Production Co., Inc.
If the
average bid and asked price of Seller's Common Stock during any preceding
consecutive thirty (30) day period prior to October 1, 1990, is greater than
$2.25, then such option shall terminate. Such option shall be exercisable at any
time during the 30 day period following October 1, 1990, upon written notice to
Messrs. Sterling and Drimal. At any time following exercise of such option by
Seller, Messrs. Sterling and Drimal may repurchase such securities of Sterling
Drilling & Production Co., Inc. for any aggregate cash consideration of
$225,000.
10. Finder's
Fees.
Seller
(a) represents and warrants to Buyer that it has not taken and will not take any
action which would cause Buyer to have any obligation or liability to any person
for broker's or finder's fees in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby, and
(b) agrees to indemnify Buyer against any loss, liability, cost or expense
arising out of the breach or inaccuracy of the foregoing representation and
warranty.
Buyer (a)
represents and warrants to Seller that it has not taken and will not take any
action which would cause Seller to have any obligation or liability to any
person for broker's or finder's fees in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, and (b) agrees to indemnify Seller against any loss, liability, cost or
expense arising out of the breach or inaccuracy of the foregoing representation
and warranty.
11.
Survival of Representations, Warranties and Agreements.
None of
the representations, warranties and agreements contained herein or made in
writing by Seller in connection herewith shall survive the closing and the
issuance and delivery of the Shares regardless of any investigation made by or
on behalf of Buyer.
12.
Expenses.
Whether
or not the transactions hereby contemplated are consummated, each of the parties
hereto shall pay the fees and expenses of their respective counsel, accountants
and other experts, and all other expenses arising in connection%with the
preparation of this Agreement and the consummation of the transactions
contemplated hereby and no party shall have any liability to any other party for
such expenses.
13.
Other Interests.
Seller
recognizes their Buyer and Sterling Drilling and Production Company, Inc. are
each engaged in the oil and gas business for their account and for the account
of third parties, including their principals and affiliates.
14.
Successors and Assigns.
All
representations, warranties, covenants and agreements in this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns whether so expressed
or not.
15.
Governing Law.
This
Agreement is to be governed by and interpreted under the laws of the State of
New York, without giving effect to the principles of conflicts of laws
thereof.
16.
Notices.
All
notices, requests, Consents and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by certified mail, return receipt requested, with postage prepaid as
follows:
16.1
If to the Seller, addressed to:
K.R.M.
Petroleum Corporation
0000
Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx,
Xxxxxxxx 00000
16.2 If
to Buyer, addressed to:
The
American Energy Group
000 Xxxxx
Xxxxxx
Xxxxx
Xxxxxx, Xxx Xxxx 00000
Attention:
Xxxxxxx X. Xxxxxx, Xx.
16.3 If
to Messrs. Sterling and Drimal, addressed to:
Sterling
Drilling and Production Co., Inc.
000 Xxxxx
Xxxxxx
Xxxxx
Xxxxxx, Xxx Xxxx 00000
17.
Entire Agreement.
This
Agreement constitutes the entire agreement between the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, between the parties hereto with respect to the subject matter
hereof.
18.
Amendments and Waivers.
This
Agreement may not be modified or amended except by an instrument or instruments
in writing signed by the party against whom enforcement of any such modification
or amendment is sought. Any party hereto may, by an instrument in writing, waive
compliance by the other party with any term or provision of this Agreement on
the part of such other party hereto to be performed or complied with. The waiver
by any party hereto of a breach of any term or provision of this Agreement shall
not be construed as a waiver of any subsequent breach.
19.
Separability.
Any term
or provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed in
their respective names by one of their officers or representatives thereunto
duly authorized as of the date first above written.
| K.R.M. PETROLEUM CORPORATION | |||
|
|
By:
|
/s/ X. XXXXXX XXXXX | |
| X. Xxxxxx Xxxxx | |||
| President | |||
| THE AMERICAN ENERGY GROUP | |||
|
By:
STERLING DRILLING AND PRODUCTION CO.,
INC., MANAGING VENTURER
|
|||
|
|
By:
|
/s/ XXXXXXX X. XXXXXX, XX. | |
| Xxxxxxx X. Xxxxxx, Xx. | |||
| /s/ XXXXXX X. XXXXXXXX, III | |||
| Xxxxxx X. Xxxxxxxx, III | |||
| /s/ XXXXXXX X. XXXXXX, XX. | |||
| Xxxxxxx X. Xxxxxx, Xx. | |||
