EXHIBIT 10.1
PURCHASE AND SALE
AGREEMENT
This
PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into as
of May 20, 2009 by and between REOSTAR ENERGY CORPORATION, a Nevada
corporation (the "Purchaser" or "REOS"), and ZAZA ENERGY, LLC, a
Texas limited liability company ("ZaZa"), and Eli Smith and
Associates (collectively, the "Sellers").
WHEREAS,
the Sellers desire to sell the properties listed in Exhibit A
attached hereto (the "Properties") containing approximately 13,000
gross mineral acres located in Lavaca County, Texas, to the
Purchaser in exchange for cash, while retaining certain overriding
royalty interests, and back-in after prospect payout rights.
WHEREAS,
ZaZa and REOS desire to act as the "Operator of Record" and
"Contract Operator," respectively, in connection with the
development of and subsequent operations of the Properties for the
benefit of the owners thereof;
WHEREAS,
concurrent with or prior to the Closing of the transaction
contemplated by this Agreement, the Purchaser shall have
consummated a debt or equity financing (or a combination thereof)
for a minimum aggregate amount of Fifteen Million Dollars
($15,000,000) (the "Financing");
WHEREAS,
the parties desire to complete the transaction contemplated by this
Agreement on the terms set forth herein.
NOW,
THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions set forth below, and for other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties to this Agreement agree as
follows:
1.
DEFINITIONS. For purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise
requires, the terms defined above in the Recitals and in this
Section 1 have the meaning herein and assigned to them in the
capitalized terms defined by inclusion in quotation marks and
parenthesis elsewhere in the Agreement have the meaning so ascribed
to them.
a.
"Acquired
Assets" means the Properties and the Related Records of the
Sellers.
b.
"Area" means the
lands covered by the sketch attached as Schedule 1(b) and is also
called the Hackberry Creek Project by the parties.
c.
"Area of Mutual
Interest" has the meaning ascribed to it in Section 7(b).
d.
"Back-In After
Prospect Pay Out Interest" has the meaning ascribed to it in
Section 4(a)(ii).
e.
"Basic Documents"
means all of the oil, gas and other mineral leases and assignments
of other interests which evidence the Properties and all
contractually binding arrangements to which the Properties may be
subject and which will be binding on the Properties or the
Purchaser after the Closing (including without limitation,
overriding royalty assignments, farmout and farmin
agreements, option agreements,
forced pooling orders, assignments of production payments, unit
agreements, and joint operating agreements).
f.
"Closing Date"
has the meaning ascribed to it in Section 3(b).
g
"Closing" has the
meaning ascribed to it in Section 3(b).
h.
"Contract
Operator" means the entity that operates the Hackberry Creek
Prospect through the functions and responsibilities defined in the
Joint Operating Agreement ("JOA") and related documents executed on
its behalf, defined herein as REOS.
i.
"Existing
Burdens" means (i) any royalty, overriding royalty, production
payment, and other similar burdens on production which burden the
Subject Leases at the time of acquisition, and (ii) the Reserved
Overriding Royalty Interest.
j.
"Financing" has
the meaning ascribed to it in the Recitals.
k.
"Operator of
Record" means the entity that is a registered operator with the
Railroad Commission of the State of Texas ("RRC") and files the
necessary information with the RRC as it relates to the operation
and reporting of the Hackberry Creek Prospect on its behalf for the
benefit of all working interest and royalty owners in the same,
defined herein as ZAZA.
l.
"Overriding Royalty
Interest" has the meaning ascribed to it in Section
4(a)(i).
m.
"Properties"
means all of the oil, gas and other mineral properties, leases,
rights and undivided interests listed on Exhibit A.
n.
"Prospect Payout"
means, that point in time when the cumulative Proceeds received
from the Wells drilled on the Hackberry Creek Project equal the
cumulative Acquisition Costs, Seismic Costs, Exploration and
Development Costs, and Operating Costs attributable to all such
Wells incurred and paid pursuant to the Hackberry Creek
Project.
For
purposes hereof, the following terms will have the meaning set out
below,
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i.
"Proceeds" means
the sum of (a) the proceeds realized from the sale of production
from all Wells, after excluding the Existing Burdens attributable
thereto, (b) any sales proceeds realized from the sale or other
disposition of part, or all, of an interest in the Wells, or the
Subject Leases, (c) any insurance proceeds received in respect of
loss or damage to Wells, or the Subject Leases, and (d) proceeds
received in respect of damages pursuant to any settlement or
judgment in legal proceedings affecting the Wells, Subject Leases
or operations thereon.
ii.
"Exploration and
Development Costs" of the Wells means all actual third party
direct costs and expenses incurred or paid with respect thereto,
including but not limited to (a) costs of drilling, re-entering,
logging, testing, completing, and equipping such Well(s) for
production, (b) that portion of drilling rate overhead charges
allocated to such
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Well(s) under
the applicable JOA, and (c) costs of plugging and abandoning and
surface restoration for any such well completed as a dryhole.
iii.
"Operating Costs"
of a Well means all costs incurred in producing such Well and
disposing of such production including, but not limited to:
(1)
Labor and other services
necessary for the maintenance and operations of such Well;
(2)
Materials, supplies,
transportation, repairs, and replacements used in the maintenance
and operation of such Well, including replacements for all parts of
machinery, equipment, tanks, or other equipment to replace and/or
repair original Well and/or lease equipment;
(3)
Reworking or
re-equipping such Well;
(4)
Gathering, treating,
processing, transporting, and marketing of production from such
Well; and ad valorem, severance, gathering, windfall profits, or
other applicable taxes; and
(5)
That portion allocated to
such Well in accordance with the usual and customary accounting
practices of all other costs (including, but not limited to,
overhead costs of the Contract Operator as set out in the JOA)
which, pursuant to such accounting practices, are determined to be
Operating Costs.
iv.
"Acquisition
Costs" means the sum of all costs incurred and paid that are
associated with acquiring the Subject Leases, including land
brokerage, title and curative costs, and all delay rentals
paid.
v.
"Seismic Costs"
means all costs incurred and paid in connection with the
Exploration Program, including without limitation costs of
acquiring seismic permits, options and licenses attributable to the
Area.
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o.
"Related Records"
means all the files, records and data relating to the Acquired
Assets, including without limitation, title records (including
abstracts of title and title curative documents), geological and
geophysical interpretations, seismic records (to the extent the
same are transferable) and related contracts, correspondence owned
by the Sellers.
p.
"Subject Leases"
means the Oil, Gas and Mineral Leases covering portions of the
Project Area acquired or to be acquired in connection with
Exploration efforts identified pursuant to this Agreement.
Assignments to the Subject Leases shall be made to the Parties in
conjunction with closing of the Purchase and Sales Agreement or
immediately if agreement has been executed and if proper elections
and payments have been made. Each lease assignment will provide
that the lease reverts to Seller if the lease has not been included
in a drilling or production unit prior to two hundred seventy (270)
days from the lease termination date.
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q.
"Working
Interest" means the operating interests under an oil and gas
lease and when used in the plural, the aggregate of all such
interests.
2.
SALE
OF ASSETS; ASSUMPTION OF LIABILITIES.
a.
Sale of Assets By the
Sellers . At the Closing, for the consideration set out in
Section 3 below, the Sellers shall grant, sell, convey and assign
to the Purchaser all right, title and interest of Sellers in and to
the Acquired Assets, except that as to each Property, the Sellers
will retain (i) a One Percent (1%) Working Interest, (ii) an
Overriding Royalty Interest in and to the Subject Leases equal to
the positive difference between (a) Twenty-Five Percent (25%) of
8/8ths and (b) the lessor's royalty burden, determined on a lease
by lease basis; in no event, however, to ever be less than Three
Percent (3%) of 8/8ths. (ZaZa will deliver a Seventy-Five Percent
(75%) to Seventy-Two Percent (72%) NRI in the Subject Leases using
the above parameters), and (iii) a Back-In After Prospect Pay Out
Interest, all as more fully described in Section 4(a), to have and
hold the same unto Purchaser, its successors and assigns forever,
and the Purchaser shall accept such grant, sale, conveyance, and
assignment. The Overriding Royalty Interest and Back-in After
Prospect Payout Working Interest shall be divided among the Sellers
in accordance with the agreement between the Sellers dated
10/31/2008.
b.
Assumption of
Liabilities by the Purchaser . At the Closing, the Sellers
shall transfer, assign and delegate to the Purchaser all of the
liabilities set forth on Exhibit B hereto (the "Assumed
Liabilities"), and the Purchaser shall accept such transfer,
assignment and delegation and assume and undertake to pay, perform
and discharge such Assumed Liabilities when due. Except for the
Assumed Liabilities, the Purchaser shall not assume and shall not
be liable or responsible for any liability of Sellers or any
affiliate of Sellers.
c.
Project
Operations . REOS, as Contract Operator, will conduct the
exploration and development across the Hackberry Creek Area and
conduct operations on the Hackberry Creek Project. All Project
exploration and development costs for the Area shall be paid by
parties in accordance with their respective Working Interests. The
Contract Operator shall invoice or AFE the parties in accordance
with the JOA (as defined in Section 8g.)
3.
PURCHASE CONSIDERATION; CLOSING DELIVERABLES.
a.
Consideration .
In exchange for the Acquired Assets, the Purchaser shall pay to
ZaZa on behalf of the Sellers Five Million Five Hundred Thousand
Dollars ($5,500,000) payable by wire transfer in immediately
available funds. As additional consideration, the Purchaser agrees
to assume the Assumed Liabilities. ZaZa shall dispurse funds in
accordance with the agreement between the Sellers dated
10/31/2008.
b.
Closing . The
closing of the sale of the Acquired Assets and the other
transactions contemplated hereunder (the "Closing") shall take
place at the offices of ReoStar Energy Corporation, located at 3880
Hulen St., Ste 500, Fort Worth, Texas 76107 on or before August 1,
2009 or at such other time and place upon which the Sellers and the
Purchaser shall mutually agree (the "Closing Date").
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c.
Deliverables by the
Sellers . At the Closing, the Sellers shall (i) take all steps
necessary to place the Purchaser in actual possession and control
of the Acquired Assets and (ii) deliver the following items, duly
executed by the Sellers as applicable, all of which shall be in a
form and substance reasonably acceptable to the Purchaser and the
Purchaser's counsel:
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A.
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A General
Assignment and Bill of Sale from the Sellers covering all of the
applicable Acquired Assets;
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B.
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An Assignment
and Assumption Agreement covering all of the Assumed
Liabilities;
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C.
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Assignments of
all leases and interests covering all of the applicable Acquired
Assets from Eli Smith (the title nominee of record);
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D.
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All other Basic
Documents or instruments of assignment, transfer, or conveyance, in
each case dated as of the date of this Agreement, as the Sellers
and the Purchaser and their respective counsels shall reasonably
deem necessary or appropriate to vest in or confirm title to the
Acquired Assets;
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E.
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A certificate
of existence and of good standing for each of the Sellers from the
Secretary of State of the State of Texas, dated within ten (10)
days of the Closing;
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F.
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Copies of
resolutions, certified by the Secretary of each of the Sellers as
to the authorization of this Agreement and all of the transactions
contemplated hereby;
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G.
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A fully
executed Joint Operating Agreement covering the Acquired Assets and
the AMI in the form attached as Schedule 3(d)(iv); and
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H.
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A fully
executed copy of this Agreement.
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d.
Deliverables by the
Purchaser . At the Closing, the Purchaser shall (i) deliver to
the Sellers in the aggregate the consideration set forth in Section
3(a) above, and (ii) deliver the following items, duly executed by
the Purchaser as applicable, all of which shall be in a form and
substance reasonably acceptable to the Sellers and Sellers'
counsel:
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A.
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An Assignment
and Assumption Agreement covering all of the Assumed
Liabilities;
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B.
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A certificate
of existence and of good standing for the Purchaser from the
Secretary of State of the State of Nevada, dated within ten (10)
days of the Closing and evidence that Purchaser is qualified to do
business and in good standing in the State of Texas, again dated
within ten (10) days of the Closing;
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C.
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Copies of
resolutions of the Purchaser's board of directors, certified by the
Secretary of the Purchaser as to the authorization of this
Agreement and all of the transactions contemplated
hereby;
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D.
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A fully
executed Joint Operating Agreement covering the Acquired Assets and
the AMI in the form attached as Schedule 3(d)(iv); and
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E.
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A fully
executed copy of this Agreement.
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4.
TITLE MATTERS.
a.
Interest to be
Transferred . The Sellers will transfer to Purchaser Sellers'
entire ownership interest in the Properties except that Sellers
will retain the following interests and at the time of the transfer
each of the Properties will be burdened by the following interests
in favor of Sellers, in addition to any third party and lessor
burdens:
i.
An Overriding Royalty
Interest in and to the Subject Leases equal to the positive
difference between (a) Twenty-Five Percent (25%) of 8/8ths and (b)
the lessor's royalty burden, determined on a lease by lease basis;
in no event, however, to ever be less than Three Percent (3%) of
8/8ths. ZaZa will deliver a Seventy-Five Percent (75%) to
Seventy-Two Percent (72%) NRI using the above parameters;
ii.
A Back-In After Prospect
Pay Out Interest equal to a Twenty Percent (20%) Working Interest.
Once Prospect Payout is achieved in the first instance, the Back-In
After Prospect Payout Interest will apply to all prospect expenses
and revenue incurred or received thereafter; and
iii.
A One Percent (1%)
Working Interest.
To the extent that a Subject Lease described in this Agreement
covers less than the full interest in oil, gas and other minerals
in the lands covered by such lease, the Overriding Royalty Interest
and Back-In After Prospect Payout Interest therein retained by
Sellers shall be proportionately reduced in the proportion that the
interest covered by such Subject Lease bears to the full interest
therein. Sellers shall have the right but not the obligation to pay
off their respective outstanding payout balance and be vested in
its Back-In After Prospect Payout Interest at any time.
b.
General Access .
Prior to the execution hereof, the Sellers have granted the
Purchaser access to their respective records. Until Closing, the
Sellers will, except to the extent that the Sellers are prohibited
therefrom by any agreement, contract or license to which they are a
party (i) give to the Purchaser and its representatives (such
representatives to include consultants, other attorneys and other
advisors of the Purchaser) full access to all the documents
evidencing the Properties and the Related Records, as well as all
of the offices and personnel of Sellers and any other document
pertaining to the Acquired Assets, including without limitation,
all abstracts of title, lease files, title policies, title
opinions, title records and files which the Sellers may have (or
have access to) relating in any way to the Properties, and any
geological and geophysical interpretations, (ii) use reasonable
efforts to obtain and submit to the Purchaser or its
representatives as promptly as practical, such abstracts, title
reports, status reports, certificates of title, certificates of
facts and other evidence of title covering and other information
with respect to the Properties that are reasonably available and
that the Purchaser may reasonably request; and (iii) authorize the
Purchaser and its representatives to consult with attorneys,
abstract companies and other consultants or independent contractors
of the Sellers concerning title related matters.
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c.
Covenants Relating to
Title . From and after the date hereof and until the Closing,
each of the Sellers covenants and agrees to (i) use its reasonable
efforts to provide the Purchaser with a listing of all consents,
approvals, waivers and agreements of all other parties and
governmental authorities which are necessary to the consummation of
the transactions provided for herein, (ii) use its reasonable
efforts to make all filings which may be made (and to record all
instruments that may be recorded), with respect to the Properties,
in (x) the Bureau of Land Management Records and (y) the records of
the respective counties in which the Properties are situated, in
order that the records maintained by the Bureau of Land Management
and the real property records of such counties shall accurately
reflect Seller's current interest in the Properties, including
those interests to be evidenced by assignments due to Seller but
not yet made to the Seller.
d.
Marketable Title
. The parties acknowledge that there are certain assignments of
interests with respect to the Properties listed on Exhibit A that
will be received by the Sellers after execution of this Agreement,
which interests are to be included in the Acquired Assets to be
transferred to the Purchaser hereunder. Likewise, pursuant to the
terms hereof, certain assignments of interests affecting the
Properties may be made by the Sellers to third parties prior to the
Closing, as allowed, including but not limited to the Overriding
Royalty Interests, Back-In Prospect After Pay Out Interest, and One
Percent (1%) Working Interest. The title warranties of the Sellers
hereunder, and the documents transferring title to the Purchaser at
the Closing, shall be applicable after taking into account such
assignments and reservations.
e.
Notice of Title
Defect .
i.
The Purchaser agrees to
use its reasonable efforts to identify promptly any issues with
respect to the Properties that are title defects ("Title Defects")
and shall, upon identifying any Title Defects, prom
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