PROPERTY PURCHASE AGREEMENT
THIS PROPERTY PURCHASE AGREEMENT (this "Agreement") is made as of the 23rd
day of April, 2002, by and between Gasco Energy, Inc. ("Gasco"), a Nevada
corporation whose address is ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and Shama Zoe Limited Partnership ("Shama Zoe"), a Colorado
limited partnership whose address is ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇. Shama Zoe was formerly known as ▇▇▇▇▇ ▇▇▇▇▇ Limited Partnership, and
certain lease files and other official property records do not yet reflect the
name change from ▇▇▇▇▇ ▇▇▇▇▇ Limited Partnership. In addition, Shama Zoe
occasionally does business under the trade name "Alpine Gas Company," and
certain assets may be held in the name of Alpine Gas Company. For the avoidance
of doubt, reference in this Agreement to Shama Zoe and to the Property shall
always include ▇▇▇▇▇ ▇▇▇▇▇ and Alpine Gas Company, as well as the properties of
▇▇▇▇▇ ▇▇▇▇▇ and Alpine Gas Company.
ARTICLE I
PROPERTY SALE
1.1 The Property. Subject to the exceptions and reservations specifically
set forth in Section 1.3 below, the term "Property" as used in this Agreement
refers to all of the right, title and interest of Shama Zoe in and to the
following:
(a) All oil and gas interests now owned by Shama Zoe in Sublette
County, Wyoming, including, without limitation, those created by the oil
and gas leases specifically described in Exhibit A (collectively, the
"Leases"); all carried interests, overriding royalties, and production
payments associated with the Leases; all oil, gas, and other hydrocarbons
and associated substances (collectively, the "Hydrocarbons") attributable
to the Leases and the lands covered thereby (the "Lands"); and all contract
rights and interests associated with the Leases and Lands.
(b) The oil and gas ▇▇▇▇▇ and units associated therewith, specifically
described in Exhibit B (collectively, the "▇▇▇▇▇"), together with all
disposal ▇▇▇▇▇ on the Lands or on lands pooled or unitized therewith, and
all personal property, equipment, fixtures, improvements, permits,
rights-of-way and easements used or held for use in connection with the
production, gathering, treatment, processing, compression, storing, sale or
disposal of Hydrocarbons or water produced from the properties and
interests described in Section 1.1(a), except to the extent otherwise
provided in Section 2.3 in respect of the ▇▇▇▇ 13-19 well.
(c) The unitization, pooling and communitization agreements,
declarations and orders, and the units created thereby and all other such
agreements relating to the properties and interests described in Sections
1.1(a) and (b) and to the production of Hydrocarbons, if any, attributable
to said properties and interests.
(d) All existing and effective sales, purchase, exchange, gathering,
transportation and processing contracts, operating agreements, balancing
agreements, farmout agreements, service agreements, and other contracts,
agreements and instruments of every type and nature whatsoever, insofar as
they relate to the properties and interests described in Sections 1.1(a)
through (c).
(e) The files, records and data relating to the items described in
Sections 1.1(a) through (d) maintained by Shama Zoe and relating to the
interests described in Sections 1.1(a) through (d) (including without
limitation, all lease files, land files, well files, drilling reports,
division order files, abstracts, federal and state status reports and title
opinions, seismic data, geophysical data and other geologic information and
data (the "Records").
1.2 Sale of the Property. At the Closing (as hereinafter defined), Shama
Zoe agrees to transfer the Property to Pannonian Energy, Inc. ("Pannonian"), a
wholly owned subsidiary of Gasco, effective as of 7:00 a.m., Mountain Time, on
the Closing Date (as hereinafter defined) (the "Effective Time"). The transfers
will be made, as to federal and state leases, on customary assignment of
operating rights forms and, as to fee leases, ▇▇▇▇▇ and other items described in
Section 1.1(b), on forms substantially similar to those used by the parties in
their past dealings. The separate assignments of contract rights mentioned in
Section 1.1(a) (including, without limitation, the Exploration Agreements and
all side letters, amendments, and other agreements [collectively, the
"Burlington Exploration Agreements"] among Shama Zoe, Pannonian and Burlington
Oil & Gas Company, LP ["Burlington"]) and the assignments of the contracts,
agreements and other items described in Sections 1.1(c) and 1.1(d) will be made
only (i) to the extent that they relate to the interests in the Leases that are
being assigned to Pannonian, after giving effect to the exceptions and
reservations described in Section 1.3, and (ii) as to 100% of all future earning
rights and preferential rights.
1.3 Exceptions and Reservations. Notwithstanding the foregoing, the
Property shall not include any of the following items, each of which shall be
excepted from the transfer contemplated by Section 1.2 and reserved to Shama
Zoe, its successors and assigns:
(a) A divided 75% leasehold interest (proportionately reduced if Shama
Zoe is assigning less than the full leasehold interest or if the lease
covers less than the full fee oil and gas estate) in the Fort Union
formation in all of the Leases being assigned, so that Pannonian shall
receive 100% of the Fort Union rights in one 160-acre quarter section of
every section and Shama Zoe shall receive 100% of the rights in the
remaining three quarter-sections of every section, as originally
contemplated by the Farmout Agreement between Pannonian and Shama Zoe dated
April 1, 2001;
(b) An undivided 10% leasehold interest in the Leases in all
formations other than the Fort Union formation, which shall be carried as
to the full 10% leasehold interest by Gasco in the wellbores of the first
ten ▇▇▇▇▇ drilled by Gasco on lands covered by the Leases, as to a 7.5%
leasehold interest in the wellbores of the second ten ▇▇▇▇▇ drilled by
Gasco on lands covered by the Leases, as to a 5% leasehold interest in the
wellbores of the third ten ▇▇▇▇▇ drilled by Gasco on lands covered by the
Leases, and as to a 2.5% leasehold interest in all formations other than
the Fort Union formation in the wellbores of the next twenty ▇▇▇▇▇ (in
other words, ▇▇▇▇▇ 31 through 50) drilled by Gasco on lands covered by the
Leases, in all cases carried by Pannonian through the tanks or through
connection to the gas sales line, without any recoupment or recovery,
either before or after payout, by Pannonian of the amount paid in
connection with the carry from production or otherwise; provided, however,
that (i) the carries shall not apply to ▇▇▇▇▇ commenced with an objective
of being completed in the Fort Union formation and (ii) the reserved 10%
leasehold interest and all of the carries shall be proportionately reduced
if Shama Zoe is assigning less than the full leasehold interest in the
concerned lease, if the lease covers less than the full fee oil and gas
estate, or if Pannonian is assigning any leasehold interest to Burlington
pursuant to the requirements of any of the Burlington Exploration
Agreements. The reserved carried working interests shall never apply to or
burden any interests that are assigned to Burlington, its successors and
assigns, by Pannonian pursuant to the requirements of any of the Burlington
Exploration Agreements; and
(c) An overriding royalty interest on production obtained under the
terms of each Lease equal to the difference between 19% and the landowner
royalties, overriding royalties and other burdens on production in
existence on the Closing Date, subject to proportionate reduction if Shama
Zoe is assigning less than the full leasehold interest in the concerned
lease, if the lease covers less than the full fee oil and gas estate, or if
Pannonian assigns any leasehold interest to Burlington pursuant to the
requirements of any of the Burlington Exploration Agreements. The reserved
overriding royalty interests shall never apply to or burden any interests
that are assigned to Burlington, its successors and assigns, by Pannonian
pursuant to the requirements of any of the Burlington Exploration
Agreements.
1.4 Definition of Fort Union Formation. For purposes of the preceding
Section 1.3, the Fort Union Formation shall mean the stratigraphic equivalent of
the interval from 2,989 feet to 7,173 feet as identified in the Gamma Ray,
Spontaneous Potential (SP) and the Resistivity curves for the Ultra Resources
Cottonwood Federal #32-33 well located in the SW/4 NE/4 of Section 33, Township
32 North, Range 111 West, Sublette County, Wyoming.
ARTICLE II
PURCHASE PRICE
2.1 Payment of Purchase Price.
(a) In consideration of the transfer of the Property, Gasco shall
deliver to Shama Zoe at the Closing a certificate or certificates issued in
the name of Shama Zoe evidencing 9,500,000 shares (the "Gasco Shares") of
Gasco's fully paid and non-assessable common stock, par value $0.0001 per
share ("Gasco Stock").
(b) At the Closing and following the delivery set forth in Section
2.1(a), Shama Zoe shall deliver to Gasco a certificate, accompanied by
stock powers duly endorsed in blank, evidencing 2,000,000 shares of the
Gasco Shares delivered pursuant to Section 2.1(a) (the "Holdback Shares").
On the date that is 30 days following the Closing, Gasco shall deliver to
Shama Zoe all of the Holdback Shares, other than the Retained Shares (as
defined below). Within 30 days following the Closing, Gasco shall notify
Shama Zoe in writing (a "Title Notice") of any title defect involving all
or any portion of the Leases (a "Title Defect"), which notice shall set
forth the nature of the defect. Following receipt of any Title Notice,
Shama Zoe shall use its reasonable efforts to cure the Title Defects set
forth in such notice at its sole expense within 45 days following the
expiration of the 30-day period. If Gasco notifies Shama Zoe of a Title
Defect or Title Defects which, in the aggregate, relate to an area of Land
that is in excess of 5% of the total acreage underlying the Leases (in each
case net to the interest therein conveyed pursuant hereto by Shama Zoe to
Pannonian), then, subject to the cure provisions set forth below, Gasco
shall retain a number of Holdback Shares (the "Retained Shares") equal to
the quotient of (i) the number of net acres affected by the Title Defect or
Title Defects multiplied by $100/acre, divided by (ii) $1.93/share. No
later than the end of the 45-day period described above, Shama Zoe shall
notify Gasco in writing of its effecting any cure of a Title Defect, which
notice shall describe in reasonable detail the nature of the cure and the
Leases thereby affected. Gasco shall then have 10 days in which to notify
Shama Zoe of any disputes it may have as to the effectiveness of such cure,
or if it has no such disputes, deliver a number of Retained Shares equal to
the quotient of (i) the number of net acres affected by such cured Title
Defect multiplied by $100/acre, divided by (ii) $1.93/share. If Gasco
notifies Shama Zoe of any disputes as to the effectiveness of any cure of a
Title Defect, the parties shall cooperate with each other and use
reasonable efforts to promptly resolve such dispute. If any Title Defects
remain following the conclusion of the foregoing procedures, Gasco, at its
option, may waive the defects and deliver the related number of Retained
Shares to Shama Zoe or reconvey to Shama Zoe its interest in any Leases, or
portions thereof, affected by the Title Defects that have not been cured
and for which Retained Shares will be held permanently by Gasco.
2.2 Registration of Gasco Shares.
(a) Gasco shall, as soon as practicable following the Closing but in
no event later than May 31, 2002, file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") with respect to
the resale by Shama Zoe of the Gasco Shares and use reasonable efforts to
cause the Securities and Exchange Commission (the "SEC") to declare
effective the registration statement as soon as practicable. The parties
hereto acknowledge that the registration statement is not expected to be
filed with the SEC until the second half of May 2002, and the registration
statement will not be effective until between 60 and 120 days after it is
filed. Subject to Shama Zoe's right to sell the Gasco Shares under the
registration statement after it becomes effective, all of the Gasco Shares
will be "restricted securities" as defined in Rule 144 promulgated under
the Securities Act and subject to appropriate legends and restrictions on
transfer. In the event the registration statement is not declared effective
by the SEC by October 1, 2002, then Gasco shall issue to Shama Zoe an
additional 100,000 shares of fully paid, non-assessable common stock of
Gasco and provide for registration of shares in the same procedure as
described immediately above.
(b) All expenses incurred by Gasco in connection with registrations,
filings or qualifications pursuant to this Section 2.2, including, without
limitation, all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for Gasco (but not any
expenses, fees or disbursements incurred by Shama Zoe) shall be borne by
Gasco. Any fees or costs incurred by Shama Zoe in connection with the
registration statement shall be borne by Shama Zoe.
(c) Except to the extent information included in the registration
statement relates to Shama Zoe and is included in reliance upon written
information supplied by Shama Zoe, Shama Zoe shall not be responsible or
liable for the completeness, accuracy or sufficiency of the registration
statement. Gasco shall indemnify and hold harmless Shama Zoe for any Losses
(as defined in Section 10.2) arising out of any material misrepresentations
or untrue statements of material fact in the registration statement or any
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, other than a Loss
arising as a result of information included in the registration statement
related to Shama Zoe that is included in reliance upon written information
supplied by Shama Zoe. Shama Zoe shall indemnify and hold harmless Gasco
for any Losses arising out of any material misrepresentations or untrue
statement of a material fact in the registration statement or any omission
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading arising as a result of information
included in the registration statement related to Shama Zoe that is
included in reliance upon written information supplied by Shama Zoe.
(d) Gasco shall furnish without charge to Shama Zoe such number of
copies of the prospectus included in the registration statement and such
other documents as Shama ▇▇▇ ▇▇▇ reasonably request in order to facilitate
the disposition by Shama Zoe of the Gasco Shares. Gasco shall also promptly
notify Shama Zoe, after becoming aware thereof, of the issuance by the SEC
of any stop order suspending the effectiveness of the registration
statement or the happening of any event which makes the registration
statement or any post-effective amendment thereto, related prospectus or
any amendment or supplement thereto, or any document incorporated therein
by reference, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein in the light of the circumstances under which they
were made not misleading. Gasco shall prepare and file with the SEC all
such amendments and supplements to the registration statement and each
prospectus used in connection therewith as may be necessary to keep the
registration statement effective until the earlier of the disposition of
all the Gasco Shares by Shama Zoe or two years following the Closing Date
and as may be necessary to comply with the provisions of the Securities
Act.
(e) Shama Zoe agrees to furnish to Gasco and its independent auditors
such accounting and financial information concerning the Property as may be
required for such auditors to prepare audited financial statements for the
Property for inclusion in the registration statement. Shama Zoe understands
and agrees that in order to sell any Gasco Shares pursuant to the
registration statement, Shama Zoe or the broker effectuating such sale must
deliver a copy of the current prospectus included in the registration
statement to the purchaser of such shares prior to or simultaneously with
the delivery of the confirmation for such sale to such purchaser. Shama Zoe
understands that any sale which fails to comply with the requirements of
the preceding sentence will not be in compliance with the Securities Act
and must be rescinded. Shama Zoe understands that, upon receipt of any
notice from Gasco of the happening of any event described in the second
sentence of Section 2.2(d) hereof, Shama Zoe must immediately discontinue
disposition of its Gasco Shares pursuant to the registration statement
until the lifting of such stop order or Shama Zoe's receipt of the copies
of the supplemental or amended prospectus, as applicable.
2.3 Additional Consideration. Pannonian has previously assigned its entire
interests in the ▇▇▇▇ #13-19 wellbore, together with its leasehold interests in
a mutually acceptable spacing unit for that well, to Shama Zoe, and Shama Zoe
has assumed all obligations relating to the lease, insofar as it covers the
agreed spacing unit, and all obligations relating to the land, including
plugging liability and well site reclamation, associated with the ▇▇▇▇ #13-19.
Shama Zoe will retain such interest and the assumed obligations in the ▇▇▇▇
#13-19 wellbore and the agreed spacing unit, neither of which shall be conveyed
to Pannonian under the terms of this Agreement. In addition, until (i) Shama Zoe
has sold all of the Gasco Shares or (ii) Shama Zoe has realized $12,000,000 in
gross proceeds or other gross value from the sale or other disposition of the
Gasco Shares or (iii) two years following the Closing Date, whichever shall
first occur, Gasco shall cause Pannonian to assign to Shama Zoe an undivided 10%
leasehold interest (subject to proportionate reduction if Pannonian acquires
less than the full leasehold interest estate or if Pannonian is assigning any
leasehold interest to Burlington pursuant to the provisions of any of the
Burlington Exploration Agreements) in any new oil and gas leases that Pannonian
may acquire in Sublette County after the Closing Date.
2.4 No Adjustments to Purchase Price. Except as set forth in Sections
2.1(b) and 2.3, there will be no adjustments to the Purchase Price for cost
apportionment, ad valorem or other tax apportionment, title failure, fluctuation
of Gasco common stock market price, production sales, or any other reason.
2.5 Anti-Dilution. If prior to the Closing Date, Gasco should split or
combine the outstanding shares of Gasco common stock, recapitalize or pay a
dividend or other distribution payable in shares of Gasco common stock, then the
number of Gasco Shares to be issued pursuant to Section 2.1 hereof shall be
appropriately adjusted to reflect such split, recapitalization, combination,
dividend or distribution. Until (i) Shama Zoe has sold all of the Gasco Shares
or (ii) Shama Zoe has realized $12,000,000 in gross proceeds or other gross
value from the sale or other disposition of the Gasco Shares or (iii) two years
following the Closing Date, whichever shall first occur, Gasco shall not issue
any shares of Gasco common stock for cash consideration less than $1.80 per
share other than pursuant to the exercise of stock options outstanding on the
date hereof, without the prior written consent of the general partner of Shama
Zoe.
2.6 Lock-Up. Until (i) Shama Zoe has sold all of the Gasco Shares or (ii)
Shama Zoe has realized $12,000,000 in gross proceeds or other gross value from
the sale or other disposition of the Gasco Shares or (iii) two years following
the Closing Date, whichever shall first occur, Gasco will not issue any shares
of Gasco common stock that are registered under the Securities Act or that are
subject to registration rights that may be exercised within the foregoing time
limitations and Gasco shall not permit either ▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇▇▇ to
sell more than 200,000 of his shares of Gasco common stock without the prior
written approval of the general partner of Shama Zoe.
ARTICLE III
GASCO'S INSPECTION
3.1 Access to Records. Immediately after execution of this Agreement, Shama
Zoe will make the Records available to Gasco and its representatives for
inspection and review at the offices of Shama Zoe during normal business hours,
and during non-business hours if reasonably requested by Gasco, to permit Gasco
to perform its due diligence review. Subject to the consent and cooperation of
third parties, Shama Zoe will assist Gasco in Gasco's efforts to obtain, at
Gasco's expense, such additional information from third parties as Gasco may
reasonably request, for the purposes of Gasco's due diligence review. Gasco may
inspect the Records and such additional information only to the extent such
inspection does not violate any contractual commitment of Shama Zoe to a third
party. Shama Zoe shall use commercially reasonable efforts to obtain consent
from any such third party to disclose the information and Records to Gasco,
provided that Gasco agrees to keep same confidential and not disclose it to
anyone other than its advisors in this transaction, and provided further that
Shama Zoe shall have no obligation to make any payment to obtain such consent.
3.2 Access to the Property. Immediately after execution of this Agreement,
Shama Zoe agrees to ▇▇▇▇▇ ▇▇▇▇▇ access to the Property during reasonable
business hours, and during non-business hours if reasonably requested by Gasco,
so Gasco may conduct, at its sole risk and expense, on-site inspections and
environmental assessments of the Property. If Gasco or its agents prepares an
environmental assessment of any Asset, Gasco agrees to keep such assessment
confidential and to furnish copies thereof to Shama Zoe. In connection with any
on-site inspections, Gasco (i) agrees not to interfere with the normal operation
of the Property, (ii) agrees to comply with all requirements of the operators of
the Property and (iii) represents that it is adequately insured in accordance
with industry practice of prudent operators of oil and gas properties. Gasco
waives, releases and agrees to indemnify Shama Zoe, and their respective
directors, officers, shareholders, members, employees, agents and
representatives against all liabilities and obligations, including without
limitation, personal injury, death and/or property damage, arising from Gasco's
activities on the Property except to the extent such liability or damages are
caused by Shama Zoe's negligence or willful misconduct.
ARTICLE IV
SHAMA ZOE'S REPRESENTATIONS AND WARRANTIES
4.1 Limited Partnership Representations. Shama Zoe makes the following
representations and warranties:
(a) Formation/Qualification. Shama Zoe is a Colorado limited
partnership, duly organized, validly existing and in good standing under
the laws of the State of Colorado and is qualified to conduct business in
Wyoming.
(b) Power and Authority. Shama Zoe has all requisite power and
authority to own its interest in the Property and to carry on its
businesses as presently conducted and to execute and deliver this Agreement
and to perform its obligations under this Agreement.
(c) No Lien, No Violation. The execution and delivery of this
Agreement does not, and the fulfillment of and compliance with the terms
and conditions hereof will not, as of Closing, (i) create a lien or
encumbrance on the Property or trigger an outstanding security interest in
the Property that will remain in existence after Closing, (ii) violate, or
be in conflict with, any material provision of any statute, rule or
regulation applicable to Shama Zoe or any agreement or instrument to which
Shama Zoe is a party or by which it is bound, or, (iii) to its knowledge,
violate, or be in conflict with any judgment, decree or order applicable to
it.
(d) Authorization and Enforceability. This Agreement is duly and
validly authorized and constitutes the legal, valid and binding obligation
of Shama Zoe, enforceable in accordance with its terms, subject, however,
to the effects of bankruptcy, insolvency, reorganization, moratorium and
other laws for the protection of creditors, as well as to general
principles of equity, regardless whether such enforceability is considered
in a proceeding in equity or at law.
(e) No Bankruptcy. There are no bankruptcy proceedings pending, being
contemplated by or, to Shama Zoe's knowledge, threatened against Shama Zoe.
(f) No Broker's Fees. Shama Zoe has not engaged any broker, finder or
investment banker for which Gasco could be liable for any fees or
commissions in connection with the transactions contemplated hereby.
(g) Litigation. Shama Zoe has not received any written claim or
written demand notice that has not been resolved that would materially
adversely affect the Property. There are no actions, suits, ongoing
governmental investigations, written governmental inquiries or proceedings
pending or, to its knowledge, threatened in writing against it or any of
the Property, in any court or by or before any federal, state, municipal or
other governmental agency that would affect Shama Zoe's ability to
consummate the transaction contemplated hereby, or materially adversely
affect the Property or Shama Zoe's ownership or operation of the Property.
4.2 Shama Zoe's Representations and Warranties with Respect to the
Property. Shama Zoe makes the following representations and warranties regarding
the Property:
(a) No Liens. Except for the matters disclosed on the exhibits
attached hereto, the Property will be conveyed to Pannonian at the Closing
free and clear of all liens and encumbrances.
(b) Judgments. There are no unsatisfied judgments or injunctions
issued by a court of competent jurisdiction or other governmental agency
outstanding against Shama Zoe that would be reasonably expected to
materially interfere with the operation of the Property or impair their
ability to consummate the transaction contemplated hereby.
(c) Compliance with Law. With respect to the Property, as of the
Closing, Shama Zoe has not received written notice (i) of a material
violation of any statute, law, ordinance, regulation, permit, rule or order
of any federal, state or local government or any other governmental
department or agency, or any judgment, decree or order of any court,
applicable to their business or operations which remains uncured, and which
would have a material adverse effect on any of the Property or (ii) from
any government authority with jurisdiction over the Property that any
portion of the Property is not in substantial compliance with applicable
laws.
(d) Calls on Production. There are no calls on or preferential rights
to purchase production from the Property.
(e) Purchase Rights and Consents. There are no preferential purchase
rights burdening the Property nor is there the need to obtain any consent
or permission from any third party in respect of Shama Zoe's entry into
this Agreement or the consummation of any transaction contemplated by this
Agreement.
(f) Books and Records. Shama Zoe maintains records that accurately,
validly and fairly reflect all of its transactions with respect to the
Property in a manner to permit preparation of financial statements in
accordance with generally accepted accounting principles and any other
criteria applicable to such statements and to maintain accountability for
assets.
ARTICLE V
GASCO'S REPRESENTATIONS AND WARRANTIES
Gasco makes the following representations and warranties on behalf of
itself and all of its Subsidiaries (as defined in Section 5.1 below). All
references to Gasco in this Article V shall be deemed to include Gasco and all
of its Subsidiaries except as otherwise may be specifically indicated.
5.1 Organization and Qualification. Each of Gasco, Pannonian, and Gasco's
other direct or indirect subsidiaries (Pannonian and such other subsidiaries,
the "Subsidiaries") is a corporation or a limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and has the requisite corporate power and
authority to own or lease all material property that it purports to own or lease
and to carry on its business as now being conducted. Each of the Subsidiaries,
along with the nature and amount of Gasco's ownership therein, is set forth on
Exhibit C hereto. Each of Gasco and the Subsidiaries is duly qualified as a
foreign corporation or limited liability company, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
to the extent that the failure to so qualify would not have a material adverse
effect on the business or financial condition of any of Gasco or the
Subsidiaries.
5.2 Articles of Incorporation and Bylaws. Gasco has heretofore furnished to
Shama Zoe or its counsel a complete and correct copy of its Articles of
Incorporation, as amended, and the Bylaws, as amended, of Gasco, as presently in
effect.
5.3 Capitalization. As of April 23, 2002, the authorized capital stock of
Gasco consists of 100,000,000 shares of $.0001 par value Common Stock of which
32,012,500 shares are issued and 31,938,800 shares are outstanding; 5,000,000
shares of Preferred Stock, of which 500 shares of Series A Convertible
Redeemable Preferred Stock, $.001 par value, are outstanding. There are
4,750,000 shares of Common Stock reserved for issuance upon conversion of the
outstanding Preferred Stock. There are 6,642,750 shares of Common Stock reserved
for issuance upon exercise of stock options granted by Gasco and outstanding
warrants of Gasco. Except for this Agreement and the foregoing options,
warrants, and Preferred Stock there are no options, warrants, Preferred Stock or
other rights, agreements or commitments that do or may obligate Gasco to issue
any shares of its capital stock. The Gasco Shares, upon issuance on the terms
and conditions specified herein, will be duly authorized, validly issued, fully
paid and nonassessable, and free of preemptive rights. Upon delivery of the
Gasco Shares, in consideration of the purchase price, Shama Zoe will acquire
valid and marketable title to the Gasco Shares free and clear of any
encumbrances and restrictions except as set forth in Sections 2.1 and 2.2 of
this Agreement.
5.4 Capacity, Authorization and Enforceability of Agreement. Gasco has the
requisite corporate power and authority to enter into this Agreement, and to
perform its obligations hereunder and thereunder. This Agreement has been duly
authorized, executed and delivered by Gasco and constitutes a legal, valid and
binding obligation of Gasco enforceable against the Gasco in accordance with its
terms subject, however, to the effects of bankruptcy, insolvency,
reorganization, moratorium and similar laws for the protection of creditors, as
well as to general principles of equity, regardless whether such enforceability
is considered in a proceeding in equity or at law.
5.5 No Conflict; Required Filings and Consents. The execution and delivery
of this Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or violate any law or regulation, or, to its
knowledge, any court order, judgment or decree applicable to Gasco or by which
its property is bound or affected, or conflict with or result in any breach of
or constitute a default (or any event which without notice or lapse of time or
both would become a default) under, or give to others any rights of termination
or cancellation of, or result in the creation of any lien or encumbrance on any
of the properties or assets of Gasco pursuant to: (a) the Articles of
Incorporation or Bylaws of Gasco or (b) any material contract, instrument,
permit, license or franchise to which Gasco is a party or by which Gasco or its
property is bound or affected. Except for applicable requirements, if any, of
the Securities Act, the Securities Exchange Act of 1934 (the "Exchange Act"),
the Employee Retirement Income Security Act of 1974 and state securities laws
("Blue Sky Laws"), (i) Gasco is not required to submit any notice, report or
other filing with any governmental or regulatory authority, domestic or foreign,
in connection with the execution or delivery of this Agreement, or the
consummation of the transactions contemplated by this Agreement, and (ii) no
waiver, consent, approval or authorization of any governmental or regulatory
authority, domestic or foreign, is required to be obtained or made by Gasco in
connection with its execution or delivery of this Agreement or the consummation
of the transactions intended hereby.
5.6 Financial Statements; Securities Reports. Gasco has previously
furnished or will furnish to Shama Zoe prior to the Closing with true and
complete copies of its Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 and any amendment thereto, all Form 8-K's filed after
September 30, 2001, its Form 10-Q for the quarter ended March 31, 2002, and, if
available prior to Closing, its definitive proxy statement for the 2002 Annual
Meeting of Shareholders, in each case as filed with or furnished to the
Securities and Exchange Commission (the "SEC") (collectively, the "SEC
Reports"). The foregoing filings with the SEC, along with all other reports or
other filings required under the Exchange Act, the Securities Act of 1933, any
other applicable federal securities laws, the rules and regulations promulgated
thereunder, and Blue Sky Laws shall be referred to collectively hereafter as the
"Securities Reports." The Exchange Act, the Securities Act of 1933, any other
applicable federal securities laws, the rules and regulations promulgated
thereunder, and Blue Sky Laws shall be referred to as the "Securities Laws." The
financial statements and schedules contained in the Securities Reports (or
incorporated therein by reference) were prepared or will be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as specifically disclosed therein)
and fairly present the information purported to be included therein. Gasco has
filed all Securities Reports as required under the Securities Laws. Each of the
Securities Reports was filed with or furnished to the SEC and any applicable
state securities regulatory agencies on a timely basis and, on the date of
filing thereof, complied in all material respects with the requirements of the
Securities Laws, and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
5.7 Property, Leases and Licenses. Gasco has good and defensible title to
all of the properties and assets that the Securities Reports indicate are owned
by it, free and clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages except as may be properly described in the
Securities Reports or such as in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations, business,
properties, or assets of Gasco; provided, however, that no representation or
warranty whatsoever is made with respect to any non-producing oil, gas or
mineral leases or interests.
5.8 Material Contracts, Leases and Licenses. Any contract, agreement,
instrument, lease, or license required to be described in the Registration
Statement or the Securities Reports has been properly described therein. Any
contract, agreement, instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed with the SEC as an exhibit
to a Securities Report. Such contracts, agreements, instruments, leases and
licenses shall be referred to as the "Required Agreements." Except insofar as
any Required Agreement has been terminated by its terms or otherwise has been
terminated or amended in any material respects as set forth in any Securities
Reports, each such Required Agreement is in full force and is the valid, and
binding obligation of the parties thereto and is enforceable as to them in
accordance with its terms. Gasco enjoys peaceful and undisturbed possession
under all leases and licenses under which it is operating. Gasco is not a party
to or bound by any Required Agreement, or subject to any charter or other
restriction, which has had or may in the future have a material adverse effect
on the financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of Gasco.
5.9 Intellectual and Intangible Property. All patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
franchises, technology, know-how and other intangible properties and assets (all
of the foregoing being herein called "Intangibles") that Gasco owns or has
pending, or under which it is licensed, are in good standing and uncontested.
Except as otherwise disclosed in the Securities Reports, the Intangibles are
owned by Gasco, free and clear of all liens, security interests, pledges, and
encumbrances. All registered trademarks used by Gasco to identify its services
are protected by registration in the name of Gasco on the principal register of
the United States Patent Office. There is no right under any Intangible
necessary to the business of Gasco as presently conducted or as the Securities
Reports indicate it contemplates conducting (except as may be so designated in
the Securities Reports). Gasco has not infringed, is not infringing, and has not
received notice of infringement with respect to asserted Intangibles of others.
To the knowledge of Gasco, there is no infringement by others of Intangibles of
Gasco. To the knowledge of Gasco, there is no Intangible of others which has had
or may in the future have a materially adverse effect on the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of Gasco.
5.10 Compliance with Law. Gasco is in compliance in all material respects
with all laws and regulations applicable to its operations or with respect to
which compliance is a condition of engaging in the business thereof, except to
the extent that failure to comply would not have a material adverse effect on
the business or financial condition of Gasco. With respect to Environmental
Laws, compliance therewith is deemed to include, without limitation, that:
(a) Gasco has acquired all material permits, licenses and
authorization required under any Environmental Laws in order to conduct its
business as it has been historically conducted and Gasco is in compliance
with all such permits, licenses and authorizations;
(b) There has been no material Release by Gasco or, to the best
knowledge of Gasco's executive officers, by any other person, of any
Hazardous Substances, Oils, Pollutants or Contaminants or any other wastes
produced by, or resulting from, any business, commercial, or industrial
activities operations, or processes, on, beneath, or adjacent to any
property currently owned, occupied or held by Gasco for which Gasco may be
held liable under any Environmental Laws; and
(c) to Gasco's knowledge, there exists no written or tangible report,
synopsis or summary of any asbestos, toxic waste or Hazardous Substances,
Oils, Pollutants or Contaminants investigation made with respect to all or
any portion of the assets of Gasco (whether or not prepared by experts and
whether or not in the possession of the executive officers of Gasco).
The following definitions apply to the foregoing provisions regarding
Environmental Laws:
(1) Environmental Laws means all federal, state and local laws,
regulations, rules and ordinances relating to pollution or protection of
the environment, including, without limitation, laws relating to Releases
or threatened Releases of Hazardous Substances, Oils, Pollutants or
Contaminants into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, land, surface and
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport or handling of
Hazardous Substances, Oils, Pollutants or Contaminants.
(2) Hazardous Substances, Oils, Pollutants or Contaminants means all
substances defined as such in the National Oil and Hazardous Substances
Pollutant Contingency Plan, 40 C.F.R. ss.300.6, or defined as such under
any Environmental Laws.
(3) Release means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environmental (including, without
limitation, ambient air, surface water, groundwater, and surface or
subsurface strata) or into or out of any property, including the movement
of Hazardous Substances, Oils, Pollutants or Contaminants through or in the
air, soil, surface water, groundwater or any property.
5.11 Absence of Certain Changes. Except as disclosed in the Securities
Reports or as contemplated by this Agreement, since December 31, 2002, there has
not been:
(a) any material adverse change in the business, assets, condition
(financial or otherwise), operations or prospects of Gasco;
(b) any damage, destruction or loss, whether covered by insurance or
not, having a material adverse effect on the business or financial
condition of Gasco;
(c) any issuance of capital stock or of rights to acquire capital
stock or securities convertible into capital stock, or any agreements
relating to such issuance, other than the issuance of Common Stock upon the
exercise of stock options under the option plans of Gasco and the issuance
of 4,750,000 shares of Common Stock upon the conversion of 500 shares of
Series A Convertible Redeemable Preferred Stock;
(d) any redemption, repurchase or other acquisition of Common Stock of
Gasco or any declaration or payment of any dividend or other distribution
in cash, stock or property with respect to Common Stock, or any amendment
to the Articles of Incorporation or Bylaws or comparable documents of
Gasco, other than an amendment to the Bylaws dated April 18, 2002;
(e) any labor dispute, other than routine individual grievances that
are not, singly or in the aggregate, material to the business, assets,
condition (financial or otherwise), operations or prospects of Gasco;
(f) any entering into of any material commitment or transaction
including, without limitation, any borrowing, repayment of indebtedness,
capital expenditure or business combination, other than in the ordinary
course of business consistent with past practice or as contemplated by this
Agreement;
(g) any transfer of or rights granted under any material leases,
licenses, agreements, patents, trademarks, trade names or copyrights other
than those transferred or granted in the ordinary course of business;
(h) any change by Gasco in accounting principles or methods except
insofar as may have been required by a change in generally accepted
accounting principles;
(i) any entering into of any contract, agreement, commitment or
arrangement with respect to any of the foregoing; or
(j) any pending or, to the knowledge of Gasco, threatened litigation
or investigation against Gasco which individually or in the aggregate might
result in any material adverse change in the business, assets, condition
(financial or otherwise), operations or prospects of Gasco.
5.12 Litigation. There is no action, suit, proceeding, claim or
investigation by any person, entity, administrative agency or governmental body
pending or, to Gasco's knowledge, threatened against it before any governmental
authority that impedes or is likely to impede its ability (i) to consummate the
transactions contemplated by this Agreement or (ii) to assume the liabilities to
be assumed by it under this Agreement.
5.13 Offering. Subject to the accuracy of Shama Zoe's representations
herein, the offer, sale and issuance of the Gasco Shares to be issued to Shama
Zoe in conformity with the terms of this Agreement constitute transactions
exempt from the registration requirements of Section 5 of the Act.
5.14 Conduct of Business by Gasco Pending the Closing. Prior to the Closing
Date, unless Shama Zoe shall otherwise agree in writing or as otherwise
contemplated by this Agreement.
(i) Gasco agrees to conduct its business only in the ordinary and
usual course, and to use its best efforts to ensure that the
representations of Gasco contained hereinabove shall at all times continue
to be true.
(ii) Gasco shall use its best efforts to preserve intact the business
organization of Gasco, to keep available the services of its current
officers and key employees, and to preserve the goodwill of those having
business relationship with Gasco.
5.15 Gasco's Evaluation. In entering into this Agreement, Gasco
acknowledges and affirms that it has relied and will rely solely on the terms of
this Agreement and upon its independent analysis, evaluation and investigation
of, and judgment with respect to, the business, economic, legal, tax or other
consequences of this transaction, including without limitation, its own estimate
and appraisal of the extent and value of the Property, and the petroleum and
natural gas associated with the Property.
5.16 No Bankruptcy. There are no bankruptcy proceedings pending, being
contemplated by or, to Gasco's knowledge, threatened against Gasco.
5.17 No Broker's Fees. Gasco has not engaged any broker, finder or
investment banker for which Shama Zoe could be liable for any fees or
commissions in connection with the transactions contemplated hereby.
5.18 Fairness Opinion. Gasco has received a fairness opinion from a
qualified independent third party that the purchase of the Property is fair from
a financial view, to the shareholders of Gasco.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 Shama Zoe's Conditions Precedent. The obligations of Shama Zoe at the
Closing are subject, at the option of Shama Zoe, to the satisfaction or waiver
at or prior to the Closing of the following conditions precedent:
(a) All representations and warranties of Gasco contained in this
Agreement are true in all material respects (considering the transaction as
a whole) at and as of the Closing in accordance with their terms as if such
representations and warranties were remade at and as of the Closing;
(b) No order has been entered by any court or governmental agency
having jurisdiction over the parties or the subject matter of this
Agreement that restrains or prohibits the purchase and sale contemplated by
this Agreement and that remains in effect at the time of Closing;
(c) Gasco shall have delivered to Shama Zoe a draft of the
registration statement referred to in Section 2.2(a) that is in a form that
is substantially ready to be filed with the SEC.
(d) Shama Zoe shall have obtained a due diligence memo concerning any
material adverse change in the business, assets, condition (financial or
otherwise), operations or prospects of Gasco.
6.2 Gasco's Conditions Precedent. The obligations of Gasco at the Closing
are subject, at the option of Gasco, to the satisfaction or waiver at or prior
to the Closing of the following conditions precedent:
(a) All representations and warranties of Shama Zoe contained in this
Agreement are true in all material respects (considering the transactions
as a whole) at and as of the Closing in accordance with their terms as if
such representations were remade at and as of the Closing;
(b) No order has been entered by any court or governmental agency
having jurisdiction over the parties or the subject matter of this
Agreement that restrains or prohibits the purchase and sale contemplated by
this Agreement and that remains in effect at the time of Closing;
(c) The Gasco Board of Directors shall have approved the purchase of
the Property pursuant to the provisions of this Agreement; and
(d) From the date of this Agreement until Closing, there shall not
have been any material change in the Property, taken as a whole.
ARTICLE VII
RIGHT OF TERMINATION; LIMITATION OF DAMAGES
7.1 Termination. This Agreement may be terminated in accordance with the
following provisions:
(a) by Shama Zoe if Shama Zoe's conditions set forth in Section 6.1
are not satisfied through no fault of Shama Zoe, or are not waived by Shama
Zoe, at or before the Closing Date;
(b) by Gasco if Gasco's conditions set forth in Section 6.2 are not
satisfied through no fault of Gasco, or are not waived by Gasco, at or
before the Closing;
(c) by Shama Zoe if, through no fault of Shama Zoe, the Closing does
not occur on or before the Closing Date;
(d) by Gasco if, through no fault of Gasco, the Closing does not occur
on or before the Closing Date;
(e) by mutual agreement of the parties.
7.2 Limitation on Damages. Gasco and Shama Zoe expressly waive any and all
rights to consequential, special, incidental, punitive, or exemplary damages and
loss of profits resulting from a breach or wrongful termination of this
Agreement.
ARTICLE VIII
CLOSING
8.1 Date of Closing. The Closing of the transactions contemplated hereby
(the "Closing") shall be held on or before Thursday, May 23, 2002 or at such
other time as Gasco and Shama ▇▇▇ ▇▇▇ mutually agree (the "Closing Date").
8.2 Place of Closing. The Closing shall be held at the offices of Shama Zoe
in Denver, Colorado or at such other time and place as Gasco and Shama ▇▇▇ ▇▇▇
mutually agree in writing.
ARTICLE IX
POST-CLOSING OBLIGATIONS
9.1 Records. Shama Zoe agrees to make the Records relating to the Leases
and Lands available for pick up by Gasco as soon as is reasonably practical, but
in any event on or before 5 days after Closing. Shama ▇▇▇ ▇▇▇ retain copies of
the Records and Shama ▇▇▇ ▇▇▇ review and copy the Records upon reasonable notice
for so long as Gasco retains the Records. Gasco agrees that the Records will be
maintained in compliance with all applicable laws governing document retention.
The other records (principally seismic data, geophysical data and other geologic
information and data) shall remain in the custody of Shama Zoe, although
Pannonian may review and obtain copies of these Records upon reasonable notice.
9.2 Further Assurances. From time to time after Closing, Shama Zoe and
Gasco shall each execute, acknowledge and deliver to the other such further
instruments and take such other action as may be reasonably requested in order
to accomplish more effectively the purposes of the transactions contemplated by
this Agreement.
ARTICLE X
ASSUMPTION OF OBLIGATIONS AND INDEMNIFICATION
10.1 Pannonian's Assumption of Liabilities and Obligations. Upon Closing,
Gasco shall cause Pannonian to assume and pay, perform, fulfill and discharge
all claims, costs, expenses, liabilities and obligations attributed to the
Property and the period of time after the Effective Time (collectively, the
"Assumed Liabilities"). Shama Zoe shall be responsible only for claims, costs,
expenses, liabilities and obligations accruing or relating to the Property and
period of time prior to the Effective Time (collectively, the "Retained
Liabilities").
10.2 Indemnification. "Losses" shall mean any actual losses, costs,
expenses (including court costs, reasonable fees and expenses of attorneys,
technical experts and expert witnesses and the cost of investigation),
liabilities, damages, demands, suits, claims, and sanctions of every kind and
character (including civil fines) arising from, related to or reasonably
incident to matters indemnified against; excluding however any special,
consequential, punitive or exemplary damages, loss of profits incurred by a
party hereto or Loss incurred as a result of the indemnified party indemnifying
a third party. For purposes of this Article X, Gasco shall mean and include
Pannonian.
After the Closing, the parties agree to indemnify each other as follows:
(a) Shama Zoe's Indemnification of Gasco. Shama Zoe assumes all risk,
liability, obligation and Losses in connection with, and shall defend,
indemnify, and save and hold harmless Gasco, its partners and all officers,
directors, employees and agents of Gasco and its partners, from and against
all Losses which arise from or in connection with (i) the Retained
Liabilities, (ii) any matter for which Shama Zoe has agreed to indemnify
Gasco under this Agreement, and (iii) any breach of the representations,
warranties, covenants or agreements by Shama Zoe under this Agreement.
(b) Gasco's Indemnification of Shama Zoe. Gasco assumes all risk,
liability, obligation and Losses in connection with, and shall defend,
indemnify, and save and hold harmless Shama Zoe, its respective officers,
directors, members, employees and agents, from and against all Losses which
arise from or in connection with (i) the Assumed Liabilities, (ii) any
matter for which Gasco has agreed to indemnify Shama Zoe under this
Agreement, and (iii) any breach of representations, warranties, covenants,
or agreements by Gasco under this Agreement.
(c) Release. Gasco shall be deemed to have released Shama Zoe at the
Closing from any Losses for which Gasco has agreed to indemnify Shama Zoe
hereunder, and Shama Zoe shall be deemed to have released Gasco at the
Closing from any Losses for which Shama Zoe has agreed to indemnify Gasco
hereunder.
10.3 Limitation on Shama Zoe's Indemnity Obligations. If the Loss directly
caused by the breach of the representation or warranty does not exceed a $5,000
threshold or if the Loss directly caused by the breach is not an actual Loss
already incurred by Gasco, then the parties deem that the representation or
warranty has not been breached on account of such Loss.
10.4 Procedure. The indemnifications contained in Section 10.2 shall be
implemented as follows:
(a) Coverage. Such indemnity shall extend to all Losses suffered or
incurred by the indemnified party.
(b) Claim Notice. The party seeking indemnification under the terms of
this Agreement ("Indemnified Party") shall submit a written "Claim Notice"
to the other party ("Indemnifying Party") which, to be effective, must
state: (i) the amount of each payment claimed by an Indemnified Party to be
owing, (ii) the basis for such claim, with supporting documentation, and
(iii) a list identifying to the extent reasonably possible each separate
item of Loss for which payment is so claimed. The amount claimed shall be
paid by the Indemnifying Party to the extent required herein within 30 days
after receipt of the Claim Notice, or after the amount of such payment has
been finally established, whichever last occurs.
(c) Information. Within 60 days after the Indemnified Party receives
notice of a claim or legal action that may result in a Loss for which
indemnification may be sought under this Article 10 (a "Claim"), the
Indemnified Party shall give written notice of such Claim to the
Indemnifying Party. If the Indemnifying Party or its counsel so requests,
the Indemnified Party shall furnish the Indemnifying Party with copies of
all pleadings and other information with respect to such Claim. At the
election of the Indemnifying Party made within 60 days after receipt of
such notice, the Indemnified Party shall permit the Indemnifying Party to
assume control of such Claim (to the extent only that such Claim, legal
action or other matter relates to a Loss for which the Indemnifying Party
is liable), including the determination of all appropriate actions, the
negotiation of settlements on behalf of the Indemnified Party, and the
conduct of litigation through attorneys of the Indemnifying Party's choice;
provided, however, that no such settlement can result in any liability or
cost to the Indemnified Party for which it is entitled to be indemnified
hereunder without its consent. If the Indemnifying Party elects to assume
control, (i) any expense incurred by the Indemnified Party thereafter for
investigation or defense of the matter shall be borne by the Indemnified
Party, and (ii) the Indemnified Party shall give all reasonable information
and assistance, other than pecuniary, that the Indemnifying Party shall
deem necessary to the proper defense of such Claim, legal action, or other
matter. In the absence of such an election, the Indemnified Party will use
its best efforts to defend, at the Indemnifying Party's expense, any claim,
legal action or other matter to which such other Party's indemnification
under this Article 10 applies until the Indemnifying Party assumes such
defense, and, if the Indemnifying Party fails to assume such defense within
the time period provided above, settle the same in the Indemnified Party's
reasonable discretion at the Indemnifying Party's expense. If such a Claim
requires immediate action, both the Indemnified Party and the Indemnifying
Party will cooperate in good faith to take appropriate action so as not to
jeopardize defense of such Claim or either Party's position with respect to
such Claim.
(d) Dispute. If the existence of a valid Claim or amount to be paid by
an Indemnifying Party is in dispute, the parties agree to submit
determination of the existence of a valid Claim or the amount to be paid
pursuant to the Claim Notice to binding arbitration in Denver, Colorado
such arbitration to be conducted as follows: The arbitration proceeding
shall be governed by Colorado law and shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"), with discovery to be conducted in accordance with the Federal
Rules of Civil Procedure, and with any disputes over the scope of discovery
to be determined by the arbitrators. The arbitration shall be before a
three person panel of neutral arbitrators, consisting of one person from
each of the following categories: (1) an attorney who has practiced in the
area of oil and gas law for at least 10 years; (2) a retired judge at the
United States District Court or Appellate Court level having jurisdiction
in Colorado or Wyoming; and (3) a person with at least 10 years of oil and
gas industry experience as a petroleum engineer and experience in the
geologic basin where the Property is located. The AAA shall submit a list
of persons meeting the criteria outlined above for each category of
arbitrator, and the parties shall select one person from each category in
the manner established by the AAA. The arbitrators shall conduct a hearing
no later than 60 days after submission of the matter to arbitration, and a
written decision shall be rendered by the arbitrators within 30 days of the
hearing. At the hearing, the parties shall present such evidence and
witnesses as they may choose, with or without counsel. Adherence to formal
rules of evidence shall not be required but the arbitration panel shall
consider any evidence and testimony that it determines to be relevant, in
accordance with procedures that it determines to be appropriate. Any award
entered in the arbitration shall be made by a written opinion stating the
reasons and basis for the award made and any payment due pursuant to the
arbitration shall be made within 15 days of the arbitrators' decision. The
final decision may be filed in a court of competent jurisdiction and may be
enforced by any party as a final judgment of such court. Each party shall
bear its own costs and expenses of the arbitration, provided, however, that
the costs of employing the arbitrators shall be borne 50% by Shama Zoe and
50% by Gasco.
10.5 No Insurance; Subrogation. The indemnifications provided in this
Article 10 shall not be construed as a form of insurance. Gasco and Shama Zoe
hereby waive for themselves, their successors or assigns, including, without
limitation, any insurers, any rights to subrogation for Losses for which each of
them is respectively liable or against which each respectively indemnifies the
other, and, if required by applicable policies, Gasco and Shama Zoe shall obtain
waiver of such subrogation from their respective insurers.
10.6 Reservation as to Non-Parties. Nothing herein is intended to limit or
otherwise waive any recourse Gasco or Shama ▇▇▇ ▇▇▇ have against any non-party
for any obligations or liabilities that may be incurred with respect to the
Property.
ARTICLE XI
MISCELLANEOUS
11.1 Expenses. Except as otherwise specifically provided, all fees, costs
and expenses incurred by Gasco or Shama Zoe in negotiating this Agreement or in
consummating the transactions contemplated by this Agreement shall be paid by
the party incurring the same, including, without limitation, engineering, land,
title, legal and accounting fees, costs and expenses.
11.2 Notices. All notices and communications required or permitted under
this Agreement shall be in writing and addressed as set forth below. Any
communication or delivery hereunder shall be deemed to have been duly made and
the receiving party charged with notice (i) if personally delivered, when
received, (ii) if sent by telecopy or facsimile transmission, when received
(iii) if mailed, 5 business days after mailing, certified mail, return receipt
requested, or (iv) if sent by overnight courier, one day after sending. All
notices shall be addressed as follows:
If to Shama Zoe:
Shama Zoe Limited Partnership
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
If to Gasco:
Gasco Energy, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Any party may, by written notice so delivered to the other parties, change the
address or individual to which delivery shall thereafter be made.
11.3 Amendments. Except for waivers specifically provided for in this
Agreement, this Agreement may not be amended nor any rights hereunder waived
except by an instrument in writing signed by the party to be charged with such
amendment or waiver and delivered by such party to the party claiming the
benefit of such amendment or waiver.
11.4 Assignment. Gasco and Shama Zoe shall not assign all or any portion of
its respective rights or delegate all or any portion of its respective duties
under this Agreement unless it continues to remain liable for the performance of
its obligations hereunder.
11.5 Headings. The headings of the Articles and Sections of this Agreement
are for guidance and convenience of reference only and shall not limit or
otherwise affect any of the terms or provisions of this Agreement.
11.6 References. References made in this Agreement, including use of a
pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals or entities. As used in this Agreement, "person"
shall mean any natural person, corporation, partnership, trust, limited
liability company, court, agency, government, board, commission, estate or other
entity or authority.
11.7 Governing Law. This Agreement and the transactions contemplated hereby
and any arbitration or dispute resolution conducted pursuant hereto shall be
construed in accordance with, and governed by, the laws of the State of Colorado
without reference to the conflict of laws principles thereof.
11.8 Entire Agreement. This Agreement constitutes the entire understanding
among the parties, their respective partners, shareholders, officers, directors
and employees with respect to the subject matter hereof, superseding all
negotiations, prior discussions and prior agreements and understandings relating
to such subject matter; provided, however, that without limiting the generality
of the foregoing, this Agreement is the result of a renegotiation and
restructuring of transactions originally set forth in a letter agreement between
Shama Zoe and Pannonian, dated February 11, 2002 (the "February 11 Agreement"),
and until the Closing, (a) the February 11 Agreement shall remain in full force
and effect except that the $300,000 option payment due on May 15, 2002 shall be
eliminated, and (b) the provisions of the February 11 Agreement will control
over any contrary provisions of this Agreement; provided, however, that the
provisions of this Agreement shall apply to the maximum extent not inconsistent
with the February 11 Agreement. After the Closing, the February 11 Agreement,
and as of the date hereof, all other agreements between the parties hereto
relating to the subject matter hereof, shall be completely superseded and
replaced by this Agreement.
11.9 Knowledge. The knowledge of a party shall mean for purposes of this
Agreement, the actual, conscious knowledge of the party at the time the
assertion regarding knowledge is made including such knowledge as would have
been obtained by a reasonable and prudent operator given the circumstances in
question. If the party is a corporation or other entity other than a natural
person, knowledge of such party shall mean the such actual, conscious knowledge
must be on the part of the person having supervising management authority over
the matters to which such knowledge pertains including such knowledge as would
have been obtained by a reasonable and prudent operator given the circumstances
in question.
11.10 Binding Effect. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto, and their respective successors and
assigns.
11.11 Limitation on Damages. The parties expressly waive any and all rights
to consequential, special, incidental, punitive or exemplary damages, or loss of
profits resulting from breach of this Agreement.
11.12 No Third-Party Beneficiaries. This Agreement is intended to benefit
only the parties hereto and their respective permitted successors and assigns.
11.13 Severability. If at any time subsequent to the date hereof, any
provision of this Agreement shall be held by any court of competent jurisdiction
to be illegal, void or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such provision shall have no
effect upon and shall not impair the enforceability of any other provision of
this Agreement.
11.14 Waiver. No consent or waiver, express of implied, to or of any breach
or default in the performance of any obligation or covenant hereunder shall
constitute a consent or waiver to or of any other breach or default in the
performance of the same or any other obligations hereunder.
11.15 Survival. The representations, warranties, covenants and agreements
made herein shall survive the Closing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
SHAMA ZOE LIMITED PARTNERSHIP GASCO ENERGY, INC.
By: By:
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▇▇▇▇▇▇ ▇▇▇▇, General Partner ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
