Exhibit
10.12
MERGER AGREEMENT
(Purchase of Shares)
between
Sonoran Energy Inc.
("PURCHASER")
and
Baron Oil AS,
("SELLER")
This Merger Agreement , is made as
of May 7, 2004 (the "Agreement "), among Sonoran Energy Inc,
a Washington corporation, ("Sonoran " or " Purchaser "), and
Shareholders of Baron Oil AS. , a Norwegian Corporation ("
Baron " or " Seller ").
WHEREAS , the parties operate within the same area having
complimentary activities and business strength agreed to create
synergies; and
WHEREAS respective Boards of Directors of both the Seller and
Purchaser have approved the terms of this Agreement and of the
transactions contemplated hereby; and
WHEREAS , this Agreement provides for the terms of transfer
of shares from the shareholders of Seller to Purchaser in exchange
for shares in Purchaser and
WHEREAS , the Seller and Purchaser desire to set forth the
terms of the agreement in connection with the transactions provided
for herein; and
NOW, THEREFORE , in consideration of the promises and
representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
Definitions
. As used herein, the following terms
shall have the following meanings:
" Acquired Assets and
Liabilities " has the meaning specified in Section 2.03
hereof.
" Agreement " has
the meaning specified in the introductory paragraph
above.
" Ancillary Documents
" as to any Person means all agreements, releases, certificates and
other documents contemplated by this Agreement to be entered into
or executed by such Person; and where a reference to a Person is
made in conjunction with a reference to " Ancillary
Documents ," the term shall refer only to such documents which
such Person has entered into or executed.
"Assumed Liabilities
" means the liabilities which are set
forth specifically in Exhibit A
" Closing " has the
meaning specified in Section 3.01 hereof.
" Closing Date
" has the meaning specified in Section
3.01 hereof.
" Code " means the
Internal Revenue Code of 1986, as amended.
" Common Stock " means the
common stock of Sonoran Energy Inc.
" Damages
" has the meaning specified in Section
6.02 hereof.
"Effective Date"
The effective date of this agreement is
May 7, 2004 in the allocation of production runs and
offsets.
" Governmental Entity
" has the meaning specified in Section 4.02 hereof.
" Information Statement "
has the meaning specified in the introductory paragraph
above.
" Knowledge " means,
with respect to any Person, (i) actual knowledge of such Person
(including the actual knowledge of the officers, directors and key
employees of such Person) and (ii) actual knowledge that could have
been acquired by such Person after making such due inquiry and
exercising such due diligence as a prudent businessperson would
have made or exercised in the management of his or her business
affairs in light of the circumstances.
" Laws "
means all applicable common law and any
statute, law, code, ordinance, regulation, rule, resolution, order,
determination, writ, injunction, award
(including, without limitation, any award
of any arbitrator), judgments and decrees applicable to the
specified persons or entities and to the businesses and assets
thereof. The laws of the State of California will have overriding
preference.
" Merger "
means the acquisition of a controlling
interest in Baron Oil by exchanging sufficient shares of Sonoran
common stock to obtain a 51% or greater interest in the outstanding
securities of Baron Oil. Baron Oil will not be dissolved, but
will continue in operation.
" Person
" means a natural person, corporation,
partnership or other business entity, or any Governmental
Entity.
" Purchase Price " has the
meaning specified in Section 3.02 hereof.
" Purchaser
" has the meaning specified in the
introductory paragraph above.
" SEC " means the Securities and Exchange
Commission.
" Securities Act " means
the Securities Act of 1933, as amended.
" Seller
" has the meaning specified in the
introductory paragraph above. This shall mean the shareholders of
Baron oil or upon the election of Seller all or a part of the
proceeds of the purchase can be directed to assignees of
Seller.
ARTICLE 2 – PURCHASED ASSETS AND ASSUMED
LIABILITIES
2.01 Purchase and Sale of Shares .
Subject to the terms and conditions of this Agreement
Purchaser will offer to acquire all outstanding shares in Seller.
Consideration will be in form of shares in Purchaser and the offer
price (exchange rate) are set out in Section 3.02
2.02 Acceptance . Acceptance of the offer
will be irrevocable and will include all of an accepting
shareholder's shares
2.03 Transfer of ownership . Ownership rights in
the shares and all shareholders rights (including options, the
rights to vote and to receive dividends will remain with the
accepting shareholder until such time as the purchase by Purchaser
becomes unconditional in every respect.
2.04 Transfer free from charge . Shares
tendered will be acquired on the terms of the offer, free from
charges and encumbrances and together with all rights attaching
thereto
2.05 Assumption of liabilities . Purchaser will as new major shareholder take the
Acquired Assets subject to those liabilities which are associated
with the Acquired Assets, including drilling costs, clean up costs
and well closing costs as set out in Exhibit C.
2.06 Recommendation . The Board of directors and
senior management of the Seller will recommend the offer to the
shareholders of Seller.
2.07 Tax exemption. Purchaser understands and
agrees that there is a condition for Seller and shareholders of
Seller that tax exemption from the Norwegian Ministry of Finance is
granted on terms acceptable for Seller and Shareholders of Seller
on or before closing.
.
ARTICLE 3 – THE CLOSING;
PURCHASE PRICE
3.01 Closing . The initial closing of the transaction
contemplated by this Agreement will be [the 30 th of
April, 2004], with final closing, subject to Section 2.06, targeted
for July 15, 2004 (the " Closing Date "), time being of the
essence. In the event Closing does not occur on the Closing Date,
or such other date as the parties shall mutually agree in writing,
this agreement shall become null and void.
On Closing date all rights to the shares
of Seller shall pass on to Purchaser in return of delivery of the
agreed shares in Purchaser in accordance with the Closing Procedure
set out in Exhibit A.
3.02 Purchase Price . Seller represents that there
are 6 208 278 shares of Baron Oil stock currently issued and
outstanding, and an additional number of options to acquire shares
of Baron Oil, issued but unexercised (See Exhibit D, which is to be
negotiated during the 75-day Unwind period). This offer is based
upon an exchange of 3 shares of Sonoran for each share of Baron at
the Closing Date. Therefore, at Closing Date, Purchaser shall
purchase all of the Baron Oil shares for a Price of Eighteen
million-six hundred and twenty-fourthousand-eight houndred and
thirty four Shares (18,624 834) of Sonoran Energy common stock,
plus the assumption of up to 100% of the Exhibit D additional
potential options. The options will be transferred to Purchaser
upon acceptance of the Offer if unexercised, see Section 3.03. The
Purchase Price shall be settled by delivering the required number
of stock in Purchaser (i.e. Sonoran Energy,symbol "SNRN") upon
Closing Date.
3.03 Exercise of options . Shareholders in Seller
may
a)
Up to the date when accepting the offer from Purchaser, upon
payment of the option consideration exercise their options to
acquire shares of Seller increasing the number of shares to be
exchanged in accordance with Section 3.02
b)
Transfer the right to exercise options as
part of the acceptance of the offer from Purchaser (i.e. no extra
compensation for unexercised options)
c)
Continue as minority shareholder in
Seller after the merger (i.e. not accepting the offer) and retain
the right to exercise the options until the expiration of the
relevant option program.
3.04
Sonoran Shares
. Shares in Purchaser will be issued and in Seller be acquired
providing a suitable mechanism under required Norwegian and
American law by which the intended purchase of all outstanding
shares can be accomplished in an efficient and cost-effective
manner. Shares issued in Purchaser representing the Purchase price
shall have ordinary voting rights and Purchaser shall continue to
be listed or qualified to be traded on Over-the-Counter Bulletin
Board or an equivalent stock exchange herinafter referred to as
"common stocks" . Trading in the shares issued as consideration
pursuant to this agreement will for an initial period be limited.
After a period of 180 days calculated from the Closing Date those
shares of common stock can be registered to become free trading
upon demand therefor by shareholders accepting the
offer.
3.05 Additional Funding . It is further agreed that
Purchaser will provide an additional commitment of $20,000,000
dollars, for the purposes of developing existing projects of
Seller. This funding shall be allocated per project, based upon
mutual agreement, and the availability of this funding will be
demonstrated to Baron within 30 days of Closing. If not so
demonstrated, the shareholders in Seller having accepted the offer
may withdraw from this agreement having their shares in Seller in
return for delivery of the number of shares received in accordance
with sub-article 3.02.
3.06 Unwind Period . Either Seller or Purchaser, may
until Closing Date decide not to complete , for any of the
following reasons:
a)
Designated
Oil Fields to be available to Seller are not available in the
time period, at the cost previously negotiated and containing the
approximate reserves represented; or
b)
Financing
by Purchaser is not demonstrable for undertaking certain
acquisitions or drilling programs to be identified within the first
35 days following the initial closing of this agreement. Purchaser
will demonstrate to Sellers that sufficient funding is available
for the purchase requirements associated with certain fields,
estimated to be in the range of $36,000,000, and that approximately
$20,000,000 would be available for development of
fields.
c)
Purchaser having received valid
acceptances representing less than in excess of [80 %] of the
issued shares of Seller.
d)
The Ministry of Finance not having
granted tax exemption as set out in Section 2.06
3.08
Post merger
cooperation. The Purchaser and Seller post
merger, shall exert all efforts to increase the probability of
closing successful acquisition opportunities of oil and gas fields
within the Caspian and Middle East regions.
3.09
Observers to the
Board of Directors . Seller and Purchaser shall from the date
of signing of this agreement have the right to be represented in
each other's board meetings with one observer.
3.10
Representation to
the Board of Directors. Both Seller and Purchaser agree that it
post merger will be in both parties interests having Seller/the
shareholders of Seller represented on the Board of Directors of
Purchaser. It is therefore the expressed intention of the parties
to make the necessary arrangements to propose to the general
meeting of Purchaser to elect new members to the Board of Director
of Purchaser reflecting the shareholders situation post merger. The
parties agree to forward such proposal on or immediately following
Closing Date.
ARTICLE 4 - REPRESENTATIONS AND
WARRANTIES
OF SELLER
Seller hereby represents and warrants to
Purchaser as follows:
4.01 Organization, Good Standing and Foreign
Qualification . Seller is a corporation duly incorporated and
validly existing and in good standing under the laws of the Kingdom
of Norway.
4.02 Authority Relative to Agreements . Seller has
the requisite corporate power and authority to enter into this
Agreement and all Ancillary Documents, and to carry out their
obligations hereunder and thereunder. The execution and delivery of
this Agreement and each Ancillary Document, and the consummation of
the transactions provided for herein and therein, have been duly
a
