EXHIBIT 10.24
XPLOR Energy, Inc.
Araxas Energy Corporation
00000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxxxx, Xxxxx 00000
September 24, 1997
Xxxx X. Xxxxxxxxxxxx
Xxxxxxxxxxxx Oil & Gas Company, Inc.
00 Xxxx Xxxx Xxxx Xxxxx
Xxx Xxxxxxxxx, XX 00000
RE: STOCK ACQUISITION OF XXXXXXXXXXXX OIL AND GAS COMPANY, INC.
("COMPANY")
Dear Xxxx:
The purpose of this letter is to set forth our agreement concerning the
acquisition of all of the outstanding capital stock of Company and of two oil
and gas properties by XPLOR Energy, Inc. ("XPLOR"), upon the terms and
conditions set forth below. If this letter is acceptable to you, it will, upon
your execution and delivery to the undersigned, constitute a binding agreement.
By execution below, Xxxx X. Xxxxxxxxxxxx ("Xxxx") hereby represents and
warrants as follows:
A. Company is duly organized, validly existing and in good standing under
the laws of the State of Texas. Company was organized under Texas corporate law
on July 6, 1995. Company is not qualified to do business now or at any prior
time in any other jurisdiction. Since incorporation, Company's exclusive
business has been to acquire, own and manage non-operated interests in oil and
gas properties. Company has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Internal Revenue Code of 1986, as
amended ("Code") at all times during its existence, and will be an S corporation
up to and including the Closing Date.
B. The authorized capital stock of Company consists of 100,000,000 shares
of common stock, par value $1.00 per share ("Common Stock"), of which 2,000
shares of Common Stock are issued and outstanding as of the date hereof, and are
held of record and beneficially as set forth below:
Stockholder No. of Shares
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Xxxx X. Xxxxxxxxxxxx 1,000
Xxxxx X. Xxxxxxxxxxxx ("Xxxxx") 1,000
Xxxx X. Xxxxxxxxxxxx
September 24, 1997
Page 2
As of the date hereof, there are no outstanding subscriptions, rights, options,
warrants, convertible securities or other agreements or commitments obligating
Company to sell, convey, issue or transfer from treasury or otherwise issue any
additional shares of its Common Stock or any other securities convertible into
Common Stock.
C. As of the date hereof, there are no rights, agreements, understandings
or arrangements of any kind enforceable against Xxxx or Xxxxx (collectively, the
"Sellers") or permitting or requiring either of the Sellers to sell shares of
Common Stock or granting any party(ies) any rights in connection with the sale
by either of the Sellers of shares of Common Stock. Each of the Sellers owns
all right, title and interest in such shareholder's Common Stock, free and clear
of all liens, claims, encumbrances of any kind whatsoever. The certificates to
be delivered to XPLOR at Closing representing the Common Stock, and the
endorsements thereon or stock powers delivered therewith, will be valid and
genuine.
D. The Company presently owns, and shall own as of the Closing Date
(defined below), (i) the oil and gas properties listed on Exhibit "A-1" attached
hereto, each of which working interests and overriding royalty interests was
acquired through Araxas Energy Corporation, an Oklahoma Corporation ("Araxas")
or its subsidiaries (the "Araxas Assets"), other than two properties separately
owned by Xxxx as identified thereon (the "Individually Owned Assets"), and (ii)
the oil and gas properties listed on Exhibit "A-2" attached hereto (the "Non-
Araxas Assets"). Xxxx presently owns, and shall own as of the Closing Date, the
Individually Owned Assets. The Company with respect to the Araxas Assets, and
Xxxx with respect to the Individually Owned Assets, have the same title and
interest in such properties as has been delivered to them by Araxas, and such
properties are not subject to any mortgage, pledge, lien, security interest,
encumbrance, lease or adverse claim created by, through or under the Company or
Xxxx, as the case may be. The Company has good and indefeasible title to the
Non-Araxas Assets, which are not subject to any mortgage, pledge, lien, security
interest, encumbrance, lease or adverse claim.
E. With respect to the Araxas Assets and the Individually Owned Assets,
(i) neither the Company nor Xxxx has any liabilities, duties and/or obligations
of any nature applicable thereto, other than those existing when such properties
were originally transferred by Araxas or subsequently incurred pursuant to Joint
Operating Agreements and/or similar agreements normally applicable to the
operation of oil and gas properties in the ordinary course of business
(collectively, the "Oil and Gas Agreements"), and (ii) the only joint interest
xxxxxxxx applicable to such properties which have been received prior to the
date hereof and are unpaid are set forth on Exhibit "B" attached hereto. With
respect to the Non-Araxas Assets, there are no liabilities, duties and/or
obligations of any
Xxxx X. Xxxxxxxxxxxx
September 24, 1997
Page 3
nature, other than pursuant to Oil and Gas Agreements. Except as set forth
above, the Company does not have, and Xxxx does not have with respect to the
Individually Owned Assets, any liabilities, duties and/or obligations (whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated and whether due or to become due),
as of the date hereof, including, but not limited to, amounts due or to become
due, under any contract or arrangement for labor, services or materials rendered
or acquired, or to be rendered or acquired, by or on behalf of Company, or for
taxes or other similar assessments or fees or other costs with respect to the
activities or assets of the Company. There are no pending or threatened legal
claims or proceedings against or involving the Company and/or its assets.
The acquisition and sale of all outstanding shares of Common Stock
(collectively, "Company Shares") shall be consummated in accordance with the
following terms and conditions:
1. Sale and Purchase. Subject to the terms hereof (i) XPLOR shall
purchase from each of the Sellers, and each of the Sellers shall sell, assign
and convey, at the Closing (as defined below) on the Closing Date, all right,
title and interest in the Company Shares, free and clear of all liens, claims
and encumbrances; and (ii) XPLOR shall purchase, and Xxxx shall sell, assign and
convey, at the Closing on the Closing Date, all right, title and interest in the
Individually Owned Assets, free and clear of all liens, claims and encumbrances
created by, through or under Xxxx.
2. Purchase Price. The total consideration XPLOR shall be obligated to
pay Sellers for the Company Shares and Individually Owned Assets ("Purchase
Price") shall be Two Million Nine Hundred Fifty Thousand and no/100 Dollars
($2,950,000.00) U.S., payable as follows: (i) Seven Hundred Fifty Thousand
Dollars ($750,000.00) shall be payable in immediately available funds on the
Closing Date; and (ii) XPLOR will deliver at the Closing a promissory note(s) in
the aggregate principal amount of $2,200,000, in the form attached hereto as
Exhibit "C" ("Promissory Note"), subject to adjustment as provided therein.
Such Purchase Price shall be allocated between the Individually Owned Assets and
the Company Shares as Xxxx and XPLOR shall agree at the Closing, and to the
extent allocated to the Company Shares such portion of the Purchase Price shall
be allocated pro rata between the Sellers based on the number of Company Shares
sold hereunder.
The parties agree that the purchase and sale of the Company Shares and the
Individually Owned Assets shall be effective as of the opening of business on
September 1, 1997 ("Effective Time"), for purposes of division of revenues and
expenses (other than expenses applicable to the Araxas Assets and the
Individually Owned Assets listed on Exhibit "B" attached hereto which shall be
paid by XPLOR). Accordingly, on or before December 31, 1997, XPLOR and Sellers
shall prepare a final accounting with respect to the proceeds of Pre-Effective
Time production received
Xxxx X. Xxxxxxxxxxxx
September 24, 1997
Page 4
after the Closing Date and Pre-Effective Time expenses (except those expenses
set forth on Exhibit "B") paid after the Closing Date, and the net proceeds (if
any) shall be paid to the Sellers. Any net expenses shall be offset against the
Promissory Note.
Before or after Closing, Company and Xxxx agree to promptly send to XPLOR
any checks received by either of them which relate to post Effective Time
production, and any invoices relating to post Effective Time expenses for the
properties being sold to XPLOR.
3. Xxxxxxx Money Deposit. Contemporaneously with the execution and
delivery of this letter agreement by the Sellers, XPLOR shall have deposited the
sum of Fifty Thousand and no/100 Dollars ($50,000.00) with Xxxx as a deposit
("Xxxxxxx Deposit") to be applied against the payment of the Purchase Price at
the Closing or otherwise disposed of pursuant to this letter agreement. By
execution hereof, Xxxx acknowledges receipt of the Xxxxxxx Deposit.
4. Covenants Pending Closing. After the execution hereof and prior to
the Closing, Company and Xxxx agree that Company's business and affairs will be
conducted only in the ordinary course and consistent with the Company's prior
practice, and Company shall maintain, keep and preserve its business properties
in good condition and repair in order to preserve the business and goodwill of
Company intact, and will not enter into any commitment or contract without
XPLOR's prior written consent. Neither Xxxx nor Company shall engage in any
transaction which may materially affect the Individually Owned Assets, or the
operations, capital, assets or liabilities of Company. Notwithstanding anything
to the contrary in this Section 4, Company and Xxxx shall be permitted to (i)
cash any checks received by either of them relating to pre-Effective Time
production and (ii) transfer to Xxxx all cash in Company's account no. 58907K88
at Xxxxxxx Xxxxx immediately prior to Closing.
5. Closing. The closing ("Closing") of this letter agreement shall occur
at a mutually satisfactory place and time ("Closing Date") no later than October
3, 1997, unless extended in writing by the mutual agreement of the parties, or
by XPLOR as a result of an unsatisfied condition to closing set forth in
paragraphs (a) through (c) below (but in no event past October 15, 1997).
The obligations of XPLOR to consummate the transactions described herein
are subject to the satisfaction at or prior to the Closing of the following
conditions, unless waived in writing by XPLOR:
(a) obtaining financing for the cash payment provided in Section 2
hereof from Credit Lyonnais New York Branch ("Credit Lyonnais"), pursuant
to the terms of the Credit
Xxxx X. Xxxxxxxxxxxx
September 24, 1997
Page 5
Agreement between Credit Lyonnais and an affiliate of XPLOR (which XPLOR
agrees to use its best efforts in accordance with reasonable commercial
practice to obtain), including, but not limited to, the requirement that
Sellers enter into a subordination agreement with Credit Lyonnais with
respect to the Promissory Note on terms and conditions requested by Credit
Lyonnais;
(b) all the representations of Xxxx and/or the Company made herein or
in any document delivered pursuant hereto shall be true and correct in all
material respects at and as of Closing Date as though each such
representation and warranty were made at and as of such time; and
(c) stock certificate(s), with respect to the Company Shares, duly
endorsed and ready for transfer, with respect to the Company Shares, and
duly executed and acknowledged assignment with respect to the Individually
Owned Assets acceptable to XPLOR.
The obligation of the Sellers to consummate the transactions described
herein will be subject to the condition that XPLOR deliver the Purchase Price in
the manner required by Section 2 hereof.
In the event this letter agreement does not close because the terms and
conditions hereof to be satisfied at or prior to the Closing have not been
satisfied (and the necessity for satisfying same has not expired or has not been
waived by the party entitled to do so), the Sellers shall be entitled to retain
the Xxxxxxx Deposit, XPLOR shall issue and deliver to the Sellers six thousand
(6,000) shares of Common Stock, par value $0.001 per share, of XPLOR,
proportionately adjusted for any stock split or stock dividend after the date
hereof and before such shares are issued, ("XPLOR Shares"), Company shall pay
Sellers One Hundred Thousand and no/100 Dollars ($100,000) in immediately
available funds, which shall be treated as liquidated damages and not as a
penalty as the Sellers' sole remedy by reason of such failure of Closing,
(except as described in the next sentence below) and Xxxx shall be entitled to
all of the rights and subject to the provisions set forth in Paragraphs
3,4,5,6,9, 10 and 11 of that certain Severance Agreement dated September 23,
1997, between Xxxxxxx X. Xxxxxxx and XPLOR and its affiliates, a copy of which
is attached hereto as Exhibit "D" (other than Exhibit "A" to such Severance
Agreement), and XPLOR shall enter with a written agreement with Xxxx on
substantially identical terms to evidence such rights. If the failure to close
is attributable to the breach of this letter agreement by Sellers or Xxxx,
Sellers shall not be entitled to the additional $100,000 payment set forth
above, (which shall be treated as liquidated damages and not as a penalty as
XPLOR's sole remedy by reason of such failure of Closing) but if the failure to
close is attributable to the breach of this letter agreement by XPLOR, then
XPLOR
Xxxx X. Xxxxxxxxxxxx
September 24, 1997
Page 6
shall pay Sellers an additional $100,000 in immediately available funds as
additional liquidated damages.
6. Certain Tax Covenants.
(a) Section 338(h)(10) Election. Company and each of the Sellers will
join with XPLOR in making an election under Section 338(h)(10) of the Code
with respect to the purchase and sale of the Company Stock hereunder (the
"Election"). Sellers will include any income, gain, loss, deduction or
other tax item resulting from the Election on their individual income tax
returns.
(b) Tax Periods Ending on or Before the Closing Date. Sellers shall
prepare and file or cause to be prepared and filed, all income tax returns
for the Company for all periods ending on or prior to the Closing Date,
which are filed after the Closing Date. Sellers agree to provide XPLOR a
copy of the tax return proposed to be filed pursuant to the preceding
sentence, a reasonable time in advance of such filing date, and shall make
such revisions to such tax returns as are reasonably requested by XPLOR.
Sellers shall not file such tax returns without the consent of XPLOR which
consents will not be unreasonably withheld. Sellers shall include any
income, gain, loss, deduction or other tax item for such periods on their
individual income tax returns in a manner consistent with the Schedule K-
1's furnished by Company to the Sellers for such periods.
7. Securities Laws. Each of the Sellers (i) understands that the
Promissory Notes have not been, and will not be, registered under the federal or
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving a public offering, (ii) is
acquiring the Promissory Notes solely for his or her own account for investment
purposes, and not with a view to the distribution thereof, (iii) is a
sophisticated investor with knowledge and experience in financial matters, (iv)
has received certain information concerning XPLOR and has had the opportunity to
obtain additional information as desired in order to evaluate the merits and the
risks inherent in holding the Promissory Notes, and (v) is able to bear the
economic risk and lack of liquidity inherent in holding the Promissory Notes.
8. Indemnification. Sellers hereby indemnify and agree to hold XPLOR
harmless from, against and in respect of (and shall on demand reimburse XPLOR
for): (i) any and all loss, liability, damage or claim (including legal fees)
suffered or incurred by XPLOR or Company by reason of any untrue representation,
breach of warranty or nonfulfillment of any covenant of Sellers or Xxxx
contained herein; and (ii) any liability, debt, and/or obligation of the Company
or with respect its
Xxxx X. Xxxxxxxxxxxx
September 24, 1997
Page 7
assets, or with respect to the Individually Owned Assets, that arose or was
incurred prior to the Effective Time, except liabilities, debts, and obligations
that are listed on Exhibit "B" or that arise from the Oil and Gas Agreements.
Any such indemnification shall be limited to the Purchase Price hereunder, and
may, at the election of XPLOR be effected by set-off against amounts otherwise
due under the Promissory Notes. All indemnification obligations hereunder shall
expire on the second anniversary of the Closing Date, except indemnification for
environmental and tax liabilities, which shall survive until the underlying
statute of limitation for asserting claims against Company or its affiliates
under applicable state or federal law has expired. Notwithstanding the
foregoing, Sellers shall not be liable under this Section 8 for XPLOR's
attorney's fees attributable to environmental claims with respect to the Araxas
Assets and the Individually Owned Assets.
9. Expenses. XPLOR and Sellers shall each be responsible for its or
their own expenses incurred in connection with the transactions contemplated
hereby.
10. Binding Effect. This letter agreement is intended to be a binding
agreement between the parties hereto and will bind and inure to the benefit of
the successors and assigns of such party. This letter agreement sets forth the
entire understanding and agreement of the parties hereto with regard to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
arrangements and understandings related thereto. This letter agreement may be
amended, modified, superseded or canceled only by written instrument which
specifically states that it amends this letter agreement, and is executed and
delivered by each person and by an authorized officer of each entity to be bound
by such amendment.
11. Governing Law. This Letter Agreement and all amendments thereof shall
be governed by and construed in accordance with the laws of the State of Texas,
without reference to its conflict of law provisions.
12. Signatures. Acceptance of the terms of this Letter Agreement by Xxxx
and Company may be evidenced by execution in multiple counterparts, each of
which, as so executed, shall be deemed to be an original, and all such
counterparts, taken together, shall constitute one and the same instrument.
Xxxx X. Xxxxxxxxxxxx
September 24, 1997
Page 8
If you are in agreement with the terms of this letter and desire to proceed
with the transaction described herein, please sign the enclosed duplicate of
this letter in the space provided below and return it to the undersigned no
later than 6:00 p.m., Houston time, September __, 1997.
Very truly yours,
XPLOR ENERGY, INC.
By: /s/ Xxxxxx X. Xxxxx
--------------------------------------
Xxxxxx X. Xxxxx,
President and Chief Executive Officer
Accepted and agreed as of the date specified below:
/s/ Xxxx X. Xxxxxxxxxxxx
-----------------------------
Xxxx X. Xxxxxxxxxxxx
/s/ Xxxxx X. Xxxxxxxxxxxx
-----------------------------
Xxxxx X. Xxxxxxxxxxxx
Date: September 24, 1997
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