OPTION AGREEMENT TO PURCHASE OIL AND GAS LEASES
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This Option Agreement to Purchase Oil and Gas Leases ("Agreement") is made
as of June 17, 2005 ("Effective Date") among PETROSEARCH ENERGY CORPORATION, A
NEVADA CORPORATION ("PEC"), PETROSEARCH OPERATING COMPANY, L.L.C., A TEXAS
LIMITED LIABILITY COMPANY ("POC") and TK PETROSEARCH, L.L.C., A TEXAS LIMITED
LIABILITY COMPANY ("TK")[PEC, POC and TK being collectively called "Seller"] and
T. XXXXXX XXXXX OR ASSIGNS ("Purchaser").
RECITALS:
A. TK is the owner of leasehold working interests in certain oil and gas
leases situated in Fort Bend County, Texas ("Leases") together with various
items of equipment and personal property located on or about the Leases, and POC
is the owner of certain equipment and personal property used in connection with
the operations upon the Leases.
B. Purchaser desires to obtain an exclusive option to purchase leasehold
working interests in the Leases from TK and certain equipment and personal
property from POC, and the Seller desires to grant such exclusive option under
the terms and conditions set forth herein.
TERMS OF AGREEMENT:
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which are hereby acknowledged, Seller and Purchaser covenant and agree as
follows:
1. GRANT OF EXCLUSIVE OPTION. For the separate and distinct
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consideration of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) cash (the
"Option Consideration") paid to the Seller not later than the fifth (5th)
business day after delivery of this Agreement, signed by Seller, whether or not
signed by Purchaser, the Seller hereby GRANTS and CONVEYS unto Purchaser,
subject to the conditions precedent to exercise set forth herein, the exclusive
right and option (the "Option") to obtain from Seller during the Option Period
(hereinafter defined) the Assets described in the form of Asset Purchase
Agreement attached hereto as Exhibit I and made a part hereof (the "Assets"),
for a purchase price (the "Purchase Price") equal to ONE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 ($1,800,000.00), as adjusted under the terms of the Asset
Purchase Agreement. Failure to pay the Option Consideration by the fifth (5th)
business day after this Agreement, as signed by Seller, is delivered to
Purchaser shall render this Agreement void and of no force and effect,
notwithstanding the date of execution of this Agreement by Purchaser.
2. TERM OF THE OPTION. The Option shall exist from the Effective Date
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until July 29, 2005 (the "Option Period") and shall be deemed to expire at 5:00
o'clock P.M., local time, on such date, unless exercised by Purchaser prior to
such time. In the event that the expiration of the Option occurs on a Saturday,
Sunday or banking holiday, then the expiration date shall automatically be
extended to the next banking day following such date.
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3. EXERCISE OF THE OPTION. In the event that Purchaser elects to
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exercise the Option, Purchaser shall notify Seller in writing at least five (5)
business days prior to the expiration of the Option Term of its intention to
exercise the Option and shall tender to Seller on or before the expiration of
the Option Term the full Purchase Price, less the Option Consideration for which
Purchaser shall be given full credit upon exercise (i.e., $100,000.00). The
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closing of the purchase transaction as contemplated in the attached Asset
Purchase Agreement (i.e. "exercise of the Option") shall occur five (5) business
days after notice from Purchaser, but not later than July 29, 2005. T. Xxxxxx
Xxxxx acknowledges and agrees that he shall not share or participate in any
manner in the consideration to be paid by Purchaser to Seller under this Option
Agreement or the Asset Purchase Agreement.
4. FAILURE TO EXERCISE THE OPTION. (a) Except as set forth herein, in the
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event that Purchaser fails to timely exercise the Option, the Option shall be
deemed to have automatically terminated at the expiration of the Option Term and
neither party shall have any further obligation or duty to the other party under
this Agreement. In the event of such termination, any sums paid by Purchaser to
Seller, including the Option Consideration, shall be forfeited to Seller and
shall not be subject to any claim for reimbursement. (b) Purchaser shall be
entitled to the return of the Option Consideration without penalty upon the
occurrence of either of the following: the threat or commencement by a third
party which is not an officer, principal or affiliate of Purchaser, of an
administrative or judicial proceeding seeking to prevent or restrain the
consummation of the Asset Purchase Agreement or which would materially and
adversely affect the Assets or the use thereof; or a material and adverse change
to the physical condition of the Assets. Seller agrees that it will give Seller
prompt written notice of the occurrence of either of the foregoing events
("Notice"). Upon Purchaser's receipt of Notice from Seller, Purchaser shall
have the right, in its sole discretion, to request Seller to return the Option
Consideration. Seller shall return the Option Consideration in full and in good
funds to Purchaser within three business days following Seller's receipt of
Purchaser's request.
5. TIME OF ESSENCE/ATTORNEYS' FEES. Time is of the essence with respect
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to this Agreement and after the exercise of the Option, if any, each party
hereto shall have the right of specific performance as to the obligations set
forth herein. In the event that either party seeks enforcement of this
Agreement in any legal or equitable proceeding, the prevailing party in such
proceeding shall be entitled to recover from the other party all expenses
attributable to such proceeding, including interest, court costs and attorneys
fees.
6. ENTIRE AGREEMENT. This Agreement, the documents to be executed
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hereunder, and each Exhibit attached hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties pertaining to the subject matter hereof. There are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein or in documents delivered pursuant hereto. No supplement, amendment,
alteration, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the parties hereto.
7. CAPTIONS. The captions in this Agreement are for convenience only and
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may not be considered a part of or as affecting the construction or
interpretation of any provision of this Agreement.
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8. ASSIGNABILITY. Purchaser may assign any of its rights hereunder,
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including its rights to receive the Assets. This Agreement binds and inures to
the benefit of the parties hereto and their respective heirs, successors,
representatives, assigns and transferees.
9. APPLICABLE LAW. THIS AGREEMENT, OTHER DOCUMENTS DELIVERED PURSUANT
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HERETO AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THE VALIDITY OF
THE VARIOUS CONVEYANCES AFFECTING THE TITLE TO REAL PROPERTY SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THIS
AGREEMENT IS PERFORMABLE IN AND VENUE SHALL LIE IN FORT BEND COUNTY, TEXAS.
10. NOTICES. Any notice, communication, request, instruction or other
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document required or permitted hereunder shall be given in writing by certified
mail, return receipt requested, postage prepaid, or by overnight courier,
prepaid telegram, or personal delivery, as follows:
To Seller: Petrosearch Energy Corporation
0000 Xxxxxxx Xxxxx
Xxxxx 000X
Xxxxxxx, Xxxxx 00000
Attention: President
(000) 000-0000 - Fax
To Purchaser: T. Xxxxxx Xxxxx
000 Xxxx Xxx Xxxx., Xxxxx 000
Xxxxxxx, Xxxxx 00000
(000) 000-0000 - Fax
or to such other address or to the attention of such other person as shall be
designated in writing by any party to the other party hereafter. All notices
will be deemed to have been given as of the date of receipt.
11. BROKERAGE FEES AND TRANSACTION EXPENSES. Except as otherwise provided
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herein, each party shall be solely responsible for all expenses incurred by it
in connection with this transaction, including, without limitation, fees and
expenses of its brokers, counsel and accountants, if any.
12. COUNTERPARTS. This Agreement may be executed in counterpart
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originals, each of which shall be treated as a fully executed original hereof
when all parties hereto have executed such a counterpart.
EXECUTED effective as of the date set forth above.
SIGNATURES APPEAR ON NEXT PAGE
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"SELLER"
PETROSEARCH ENERGY CORPORATION,
a Nevada corporation
By:/s/ Xxxxxxx Xxxx
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Name: Xxxxxxx Xxxx
Title: President
PETROSEARCH OPERATING COMPANY, L.L.C.,
a Texas limited liability company
By:/s/ Xxxxxxx Xxxx
------------------------------------------
Name: Xxxxxxx Xxxx
Title: Manager
TK PETROSEARCH, L.L.C.,
a Texas limited liability company
By:/s/ Xxxxxxx Xxxx
------------------------------------------
Name: Xxxxxxx Xxxx
Title: Manager
"PURCHASER"
/s/ T. Xxxxxx Xxxxx
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T. XXXXXX XXXXX (or Assigns)
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THIRD AMENDMENT TO
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OPTION AGREEMENT AND ASSET PURCHASE AGREEMENT
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CURRENT DATE: August 3, 2005.
DATE OF CONTRACT: June 17, 2005 (Option Agreement with Asset Purchase
Agreement attached thereto as Exhibit I).
SELLER: Petrosearch Energy Corporation, Petrosearch Operating Company,
L.L.C. and TK Petrosearch, L.L.C.
ORIGINAL PURCHASER: T. Xxxxxx Xxxxx or assigns.
PROPERTY: Oil and Gas Leases and personal property described in Exhibit "A"
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attached hereto.
FOR VALUE RECEIVED, the undersigned parties hereby amend the Option
Agreement and Asset Purchase Agreement as follows:
AMENDED TERMS:
1. The closing date set forth in paragraph 3 of the Option Agreement and
paragraph 6 of the Asset Purchase Agreement shall be amended from July
29, 2005, to August 3, 2005.
2. The effective date of transfer set forth in paragraph 2 of the Asset
Purchase Agreement shall remain July 1, 2005, notwithstanding an
August 3 Closing Date.
3. The Purchaser is amended to Kellco Energy, Ltd., a Texas limited
partnership ("Kellco").
4. The Purchase Price is to be funded partially by Kellco, and partially
by BlackRock Energy Capital, Ltd. ("BlackRock"). As of August 1, 2005,
BlackRock has wired to Seller $1,655,000. The balance shall be paid by
Kellco and/or Kellco's lender, including approximately $80,000 which
will be funded by Kellco by causing Seller to receive and retain the
July production proceeds to be delivered by Gulfmark Energy, Inc.
during the third week of August.
5. Gulfmark Energy, Inc. shall be instructed jointly by Seller and Kellco
to pay the July production proceeds to Seller.
6. The parties have agreed to the allocation of the Purchase Price
attached hereto.
SIGNATURES APPEAR ON FOLLOWING PAGE
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PETROSEARCH ENERGY CORPORATION,
a Nevada corporation
By:/s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
Title: CFO and Vice President
PETROSEARCH OPERATING COMPANY, L.L.C.,
a Texas limited liability company
By:/s/ Xxxxx X. Xxxxxxx
------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Manager
TK PETROSEARCH, L.L.C.,
a Texas limited liability company
By:/s/ Xxxxx X. Xxxxxxx
------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Manager
KELLCO ENERGY, LTD.,
a Texas limited partnership
BY: KELLCO ENERGY GP, LLC,
Its General Partner
By: /s/ T. Xxxxxx Xxxxx
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Name: T. Xxxxxx Xxxxx
Title: Managing Member
/s/ T. Xxxxxx Xxxxx
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T. XXXXXX XXXXX
/s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
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EXHIBIT "A"
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1. One hundred percent (100%) of the leasehold working interest estate owned
by TK attributable to the oil, gas and mineral leases and ratifications and
extensions thereof more particularly described below, ("Leases"), which is
a 70% leasehold working interest in each of the Leases:
SAWTOOTH LEASE-132.7268 ACRES
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50.00 acres, 50 acres, 22.7268 acres and 10 acres, more or less, Xxxxxx
Xxxxxxxxxx Xxxxxx, X-000, Xxxx Xxxx County, Texas, and being those tracts
more particularly described in Amendment to Oil, Gas and Mineral Lease
dated November 30, 2004 between Teletower Partnership and Chain Oil & Gas,
Inc., Sawtooth, Inc. and TK Petrosearch Corporation, recorded under
#2004154612 of the Official Public Records, Fort Bend County, Texas; and
described as follows therein:
1. "That certain tract of land described in the expired oil and gas lease
known as the "Xxxxxxx, West Lease" dated August 21, 1926 from Xxx. Xxxxxx
X. Xxxx and X. X. Xxxxxxx as Lessors to Xxxxxxxxx Corporation as Lessee
covering 25 acres of land, more or less, in the Xxxxxx Xxxxxxxxxxx Survey,
A-191, Fort Bend County, Texas, and recorded at Volume 114, Page 60 of the
Fort Bend County, Texas Deed Records, INSOFAR AND ONLY INSOFAR as said
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lease covered and included the North 10 acres of the 25 acre tract of land
covered by and described in said lease, the South boundary line of said 10
acre tract described herein being parallel to the North line of said 25
acre tract and a sufficient distance South thereof so as to cover and
include exactly 10 acres of land."
2. "That certain tract of land described in the expired oil and gas lease
known as the "Xxxx-Xxxxxxx Lease" dated June 21, 1947 from Xxx. Xxxxxx X.
Xxxx, individually, and Xxxxxx X. Xxxxxxx as Executor of and Trustee under
the Last Will and Testament of Xxxxx X. Xxxxxxx, Deceased, as Lessors, to
X. X. Xxxxx, as Lessee, covering 42 acres of land, more or less, in the
Xxxxxx Xxxxxxxxxxx Survey, A-191, Fort Bend County, Texas and recorded at
Volume 249, Page 13 of the Fort Bend County Deed Records, INSOFAR AND ONLY
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INSOFAR as said lease covered and included the East 22.7268 acres of the 42
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acre tract of land covered by and included in said lease, said 22.7268 acre
tract being more fully described by metes and bounds description found at
Volume 2203, Page 192 of the Fort Bend County Deed Records, which such
description is incorporated herein by reference for all purposes."
ZIVLEY TRUSTEE LEASE-65.572 ACRES
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Memorandum of Oil, Gas and Mineral Lease, being 65.572 acres of land, more
or less, out of the Xxxxxx Xxxxxxxxxx Xxxxxx, X-000, Xxxx Xxxx Xxxxxx,
Xxxxx, from Xxxxxx X. Xxxxxx, Trustee to TK Petrosearch, L.L.C.
Corporation, dated
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December 2nd, 2004 and recorded under #2004147869 of the Official Public
Records, Fort Bend County, Texas.
65.572 acres of land, more or less, situated in the Xxxxxx Hobermaker
Survey, Abstract No. 191, Fort Bend County, Texas, said 65.572 acres of
land being more particularly described as "Third Property" in that certain
Deed, dated April 12, 1990, from Xxxxxxx Xxxx, Trustee to Xxxxxx X. Xxxxxx,
Trustee, as recorded in Volume 2206, Page 1266 of the Official Records of
Fort Bend County, Texas,
SANTA XXXX LEASE-55 ACRES
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Oil, Gas and Mineral Lease, being 55.0 acres of land, more or less, out of
the Xxxxxx Xxxxxxxxxx Xxxxxx, X-000, Xxxx Xxxx County, Texas, from
Lindenwood Royalty Company, Xxxxxxx X. Xxxxx, Santa Xxxx Resources, Inc.,
T. Xxxxxx Xxxxx and Viking Royalty Group to TK Petrosearch, L.L.C.
Corporation, dated August 16th, 2004 and recorded under #2004151310 of the
Official Public Records, Fort Bend County, Texas.
55.0 acres of land, more or less, described as a 50 acre tract and a 5 acre
tract situated in the Xxxxxx Hobermaker Survey, A-191, Fort Bend County,
Texas, and being the same land more fully described in that certain
Quitclaim Mineral Deed, dated August 5th, 1997, from Chevron U.S.A., Inc.
to Santa Xxxx Resources, Inc., as recorded in File No. 9778656, Official
Records of Fort Bend County, Texas.
XXXXXX LEASE-167.903 ACRES
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Memorandum of Oil, Gas and Mineral Lease, being 167.903 acres of land, more
or less, out of the Xxxxxx Xxxxxxxxxx Xxxxxx, X-000, Xxxx Xxxx Xxxxxx,
Xxxxx, from Xxxxxx X. Xxxxxx, Trustee to TK Petrosearch, L.L.C.
Corporation, dated December 16th, 2004 and recorded under #2005007991 of
the Official Public Records, Fort Bend County, Texas.
167.903 ACRES, more or less, a part of the Xxxxxx Hobermaker Survey, A-191,
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Fort Bend County, Texas, and being more particularly described in the
following two (2) tracts of land, to wit:
TRACT NO. 1: (117.903 Acres)
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117.903 acres, more or less, being a part of the Xxxxxx Hobermaker Survey,
A-191, Fort Bend County, Texas, and being all of that certain 244.413 acre
tract more particularly described in that certain Warranty Deed dated
December 15, 1972 from Xxxx X. Xxxxx, et al, to Xxxxxxx X. Xxxxxxx,
Trustee, recorded in Volume 582, Page 000, Xxxx Xxxxxxx xx Xxxx Xxxx
Xxxxxx, Xxxxx; LESS AND EXCEPT 32 acres, more or less, and being that
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portion of a 65.572 acre tract lying within the said 244.413 acre tract;
Said 65.572 acre tract being more particularly described in Deed dated
April 12, 1990 from Xxxxxxx Xxxx, Trustee, to Xxxxxx X. Xxxxxx, Trustee,
recorded in Volume 2206, Page 1266, Deed Records
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of Fort Bend County, Texas; and LESS AND EXCEPT the most Northern 94.51
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acres, more less, being all of that certain 100 acre tract more
particularly described in that certain Mineral Deed dated May 22, 1920,
from Xxx. Xxxxx Xxxxxx Luscher and husband, Xxxxxxx X. Xxxxxxx, to Gulf
Production Company, recorded in Volume 85, Page 385, Deed Records of Fort
Bend County, Texas, less and excepting that certain 5.49 acre tract more
particularly described in that certain Deed dated August 25, 1967, from
Xxxx Xxxxxxx Xxxxxx, et al, to Houston Lighting & Power Company, recorded
in Volume 496, Page 537, Deed Records of Fort Bend County, Texas.
TRACT NO. 2: (50.00 Acres)
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50.00 acres, more or less, being a part of the Xxxxxx Hobermaker Survey,
A-191, Fort Bend County, Texas, and being all that certain 100 acre tract
more particularly described in that certain Mineral Deed dated May 22,
1920, from Xxx. Xxxxx Xxxxxx Luscher and husband, Xxxxxxx X. Xxxxxxx, to
Gulf Production Company, recorded in Volume 85, Page 000, Xxxx Xxxxxxx xx
Xxxx Xxxx Xxxxxx, Xxxxx; LESS AND EXCEPT the most Northern 50 acres of the
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100 acres described above, and being that same "Northern" 50 acres
described by metes and bounds and conveyed to Gulf Oil Corporation in that
certain Partition Deed dated August 12, 1938, between Xxx. Xxxxx Xxxxxx
Luscher, et al, recorded in Volume 176, Page 510, Deed Records of Fort Bend
County, Texas.
2. One hundred percent (100%) of Seller's interests in the fixtures, oil
xxxxx, well bores, water xxxxx, surface pumping equipment, casing, downhole
equipment, storage tanks, produced and stored hydrocarbons, tubing,
equipment, dog houses, tools and personal property (collectively, the
"Equipment") owned by POC situated on or about the Leases, including
without limitation, the xxxxx ("Xxxxx") located on the Leases, which shall
specifically exclude any and all pickup trucks, hand tools, computers,
office equipment, telephones, facsimile machines or other office equipment
(collectively, the "Excluded Items"), but shall specifically include the
1986 Xxxxx Motor Home VIN 0XXXX00X0X0000000.
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"FORM OF"
ASSET PURCHASE AGREEMENT
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This Asset Purchase Agreement ("Agreement") is entered into as of the ____
day of June, 2005 ("Effective Date"), among PETROSEARCH ENERGY CORPORATION, A
NEVADA CORPORATION ("PEC"), PETROSEARCH OPERATING COMPANY, L.L.C., A TEXAS
LIMITED LIABILITY COMPANY ("POC") and TK PETROSEARCH, L.L.C., A TEXAS LIMITED
LIABILITY COMPANY ("TK")[PEC, POC and TK being collectively called "Seller"] and
[____________] ("Purchaser").
RECITALS:
A. TK is the owner of leasehold working interests in certain oil and gas
leases situated in Fort Bend County, Texas ("Leases") together with various
items of equipment and personal property located on or about the Leases, and POC
is the owner of certain equipment and personal property used in connection with
the operations upon the Leases.
B. Seller desires to sell and Purchaser desires to purchase the leasehold
working interests in the Leases from TK and certain equipment and personal
property from POC and Seller and Purchaser have agreed that the sale should be
consummated under the terms and conditions hereof.
TERMS OF AGREEMENT:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Seller, and Purchaser covenant and agree as
follows:
1. AGREEMENT TO SELL AND TO PURCHASE. Seller (to the extent of TK's and POC's
----------------------------------
respective interests) hereby agrees to sell, convey and assign unto Purchaser,
and Purchaser hereby agrees to accept and purchase from Seller for the Purchase
Price (hereinafter defined) and on and subject to the conditions herein set
forth, the property hereinafter collectively referred to as the "Assets" and
described in Exhibit "A" attached hereto and incorporated herein for all
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purposes.
2. EFFECTIVE DATE OF TRANSFER/OIL IN TANKS. The effective date of transfer of
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the Assets shall be at 12:01 a.m. of the first day of the calendar month in
which Closing (defined in paragraph 6 below) occurs. Seller shall be paid for
all oil in the existing storage tanks on the Leases which relate to the existing
xxxxx, excluding the Zively #1 Well and the West & Xxxxxxx #38 Well (the "New
Xxxxx"). The computation of barrels of oil and hand shall be based upon monthly
gauge reports, Railroad Commission Form P-1s and Crude Oil Purchaser field sale
tickets if the applicable effective date for this transaction is June 1 (due to
a closing in June) and shall be based upon an independent gauge report from
Seller's xxxxxx engaged at Seller's expense if the effective date is July 1.
The applicable price for the gauged barrels of oil shall be the actual price
received at the time of sale and shall be reconciled in conjunction with the
Closing Escrow described in paragraph 6 below.
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3. PURCHASE PRICE. The Purchase Price to be paid by Purchaser for the Assets,
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shall be ONE MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($1,800,000.00)
which shall be payable in cash at Closing, subject to adjustment and the items
subject to the Closing Escrow described in paragraph 6 below.
4. ALLOCATION OF PURCHASE PRICE. In order to comply with applicable Internal
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Revenue Service regulations regarding allocation of Purchase Price proceeds,
Seller and Purchaser covenant and agree that the Purchase Price shall be
allocated for Internal Revenue Service purposes as follows:
(a) Oil and Gas Leaseholds $ _________
(b) Depreciable Equipment $ _________
(c) Other $ _________
Total $1,800,000.00
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All allocations as between TK and POC shall be based upon actual ownership of
the specific Asset sold hereunder.
5. ADDITIONAL CONSIDERATION TO SELLER FOR NEW XXXXX AND INTERIM OPERATING
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COSTS. As additional consideration for the Assets, including the purchase of
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the Zively #1 and West & Xxxxxxx #38 Xxxxx (collectively "New Xxxxx") drilled by
POC after May 1, 2005, Purchaser shall assume and agrees to pay to Seller a sum
equal to (1) 100% of the actual costs of drilling, completing and equipping (or
plugging, if applicable) the New Xxxxx, plus (2) 100% of the actual costs of
operating the New Xxxxx from their respective date of first production through a
date which is the first day of the calendar month in which Closing occurs, (3)
100% of the costs of operating the existing xxxxx (other than the New Xxxxx) for
the month of Closing, plus (4) a sum equal to the monthly salary check
($15,000.00) paid to T. Xxxxxx Xxxxx on or about the first day of the calendar
month of closing. Purchaser shall be allocated all of the proceeds of
production attributable to the New Xxxxx, if any, and hereby covenants to Seller
to maintain and provide at Closing accurate gauge reports for the New Xxxxx.
Seller shall be allocated all production from the existing xxxxx (other than the
New Xxxxx) for the months prior to the month of Closing, including proceeds
checks from the crude oil purchaser which are received after the Effective Date
but which pertain to production prior to the Effective Date. Finally, Purchaser
shall reimburse and pay to Seller all leasehold costs incurred in the month of
Closing relating to rentals, title work, extensions of leases or similar
expenditures for the benefit of the Leases.
6. CLOSING AND CLOSING ESCROW. Closing shall take place on or before 5:00
------------------------------
p.m., July 29, 2005, at the offices of Seller ("Closing") as elected by
Purchaser pursuant to the prior Option Agreement, at which xxxx Xxxxxx and
Purchaser shall exchange all documentation and pay all consideration described
herein. Due to the likelihood that all of the cost, income and production
figures will not be fully known by the Closing date, Purchaser shall, at
Closing, pay certain
2
known expenses to Seller in cash and deposit at Closing with Xxxxx X. Xxxxxx, as
Escrow Agent, the unknown expenses, as follows:
CASH PAYMENTS:
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(a) The following payments shall be paid to Seller at Closing in cash:
(i) $1,800,000.00; (ii) drilling, completion and equipment costs for the New
Xxxxx that have already been paid by Seller; (iii) all operating costs
attributable to the New Xxxxx that have already been paid by Seller; (iv) the
$15,000.00 salary check paid to T. Xxxxxx Xxxxx for the month of Closing; and
(v) all operating costs attributable to the existing xxxxx (other than the New
Xxxxx) for work in the month of Closing which have already been paid by Seller.
FUNDS TO BE ESCROWED:
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(b) The following payments shall be paid by Purchaser to Escrow Agent at
Closing in cash based upon estimates made by Seller using the best available
information: (i) the value of the gauged oil in the storage tanks as of the
Effective Date for the existing xxxxx (but not the New Xxxxx) based upon the
posted per barrel price on the Effective Date; (ii) estimated drilling,
completion and equipment costs for the New Xxxxx not yet paid; (iii)estimated
operating costs attributable to the New Xxxxx not yet paid; (iv) estimated
operating costs attributable to the existing xxxxx (but not the New Xxxxx) for
work in the month of Closing not yet paid; and (v) all estimated leasehold costs
for rentals, title work or extensions or similar charges relating to the Leases
in the Closing month which Seller reasonably anticipates will be required to be
paid prior to the transfer of title.
(c) Net production proceeds received by Seller from the crude oil
purchaser that are attributable to the New Xxxxx shall be credited to Purchaser
and applied as an offset to the shortfall, if any, in the escrow balance which
would be payable to Seller upon reconciliation.
FINAL RECONCILIATION AND RESOLUTION OF DISPUTES AS TO ESCROW
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(d) At such time as the final costs are known, the escrow balance shall be
promptly reconciled to determine the New Well Expense Reconciled Total. If
actual costs exceed income, the New Well Expense Reconciled Total shall be paid
by Purchaser to Seller. If income exceeds actual costs, the New Well Expense
Reconciled Total shall be paid by Seller to Purchaser. The reconciled escrow
account balance held by Escrow Agent (including credits to Purchaser for
estimates which exceed actual costs and debits to Purchaser for estimates which
are deficient) shall be released at such time to the appropriate party or
parties.
(e) If within thirty (30) days following receipt by Purchaser of a notice
of disagreement as to the New Well Expense Reconciled Total and, Purchaser and
Seller are unable to resolve any disagreement with respect to the New Well
Expense Reconciled Total, the disagreement shall be submitted for resolution to
the Houston office of an independent certified public accountant mutually agreed
to by Purchaser and Seller (the "Accountant"). The Accountant shall act as an
arbitrator to determine and resolve only those issues still in dispute. Such
determination (A) shall be made within thirty (30) days of the submission of the
dispute, based solely on the presentations by Purchaser and Seller; (B) shall be
effected in a manner which is consistent with
3
GAAP while recognizing the stipulations herein regarding adjustments which may
not be consistent with formal "cash basis" GAAP principles; (C) shall be set
forth in a written statement delivered to Purchaser and Seller; and (D) shall be
final, conclusive and binding on Purchaser and Seller. The fees and expenses
of the Accountant in connection with any such determination shall be paid by the
losing party in the dispute; provided, however, that Purchaser and Seller shall
request the Accountant to make a good faith estimate of its fees and expenses
and Purchaser and Seller shall each pay one-half of any retainer required by the
Accountant, subject to reimbursement by the losing party.
DOCUMENTS TO BE EXCHANGED AT FINAL RECONCILIATION
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(f) The following documents shall be exchanged by Seller and Purchaser
upon final reconciliation of the escrow account:
DELIVERY OBLIGATIONS OF SELLER:
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(i) Executed Assignment of Assets conveying from the Seller to Purchaser
each Asset, subject to the terms of this Agreement.
(ii) Railroad Commission of Texas forms P-4 (as transferor) transferring
operations from POC to Purchaser's designated Railroad Commission operator.
(iii) All Well files, geologic materials, technical materials, title
materials, and warranty materials pertaining to the Assets.
DELIVERY OBLIGATIONS OF PURCHASER:
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(iv) Executed Railroad Commission of Texas forms P-4 (by the operator
transferee).
(v) An insurance certificate pursuant to paragraph 11(a) below.
(vi) A Quitclaim of Interest in TK Petrosearch, LLC pursuant to paragraph
10 below.
7. PROVISIONS REGARDING ESCROW AGENT.
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(a) All funds shall be held in an attorney IOLTA account without
investment or accrual of interest. Disbursements shall be made to the parties
upon receipt of a written directive executed by Seller and Purchaser containing
joint instructions.
(b) Seller and Purchaser acknowledge and agree that in the event of any
conflicting instruction or disagreement as to the disbursement of the funds,
Escrow Agent may interplead all of the funds into the District Court of Xxxxxx
County, Texas.
(c) Escrow Agent hereby agrees to perform its services without charge
other than reimbursement of out-of-pocket expenses and other costs as may be
incurred by Escrow Agent in
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the administration of this Agreement ("Expenses"), which Expenses, if any, shall
be borne by Seller.
(d) Escrow Agent is under no duty to enforce payment or delivery of any
assignment or payment contemplated hereunder. Escrow Agent shall be protected
in acting upon any notice, request, certificate, approval, consent or any other
paper believed by him to be genuine, signed by the proper party or parties and
in accordance with the terms of this Agreement. Escrow Agent shall, upon
request, provide the requesting party with a statement which summarizes all
disbursement activity. Escrow Agent shall be under no duty or obligation other
than those herein specifically provided. Escrow Agent shall have no liability
under, or duty to inquire into the terms and provisions of any other agreement.
Seller and Purchaser hereby agree that each shall indemnify and hold Escrow
Agent harmless from any and all losses, costs, damages or expenses (including
reasonable attorney's fees) it may sustain by reason of its services as Escrow
Agent hereunder except by reason of such acts or omissions for which Escrow
Agent is responsible under the next sentence following. Escrow Agent shall not
be liable for any action taken or not taken by it under the terms hereof in the
absence of an express breach of its obligations hereunder or gross negligence or
willful misconduct on its part; in particular, Escrow Agent will not be liable
for any negligent action taken on its part.
8. CONVEYANCES "AS IS". Seller and Purchaser stipulate and agree that the
----------------------
Assets shall be transferred and conveyed by Seller to Purchaser upon final
reconciliation of the escrow account "as is, where is and with all faults" and
all conveyancing and closing documentation shall contain affirmative statements
that no warranties or representations, either expressed or implied, shall be
made by Seller, or either of TK or POC, except the warranties of title given by
Seller to Purchaser and except the specific warranties and representations set
forth herein.
9. REPRESENTATIONS AND WARRANTIES OF SELLER. Each Seller, jointly and
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severally, hereby represents and warrants to Purchaser as follows:
(a) Authority. PEC is a corporation duly organized, validly existing and
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in good standing under the laws of the State of Nevada. PEC has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. POC and TK are each limited liability
companies duly organized, validly existing and in good standing under the laws
of the State of Texas. POC and TK have all requisite entity power to enter into
this Agreement and to consummate the transactions contemplated hereby. All
requisite action and approval required to be taken by PEC, POC and TK to
authorize the execution, delivery and performance of this Agreement and the
assignment of the Assets ("Assignment") and the consummation of the transactions
contemplated hereby has been taken. This Agreement has been duly executed and
delivered by Seller, and at the Closing the Assignment will be duly and validly
executed and delivered by Seller. This Agreement and the Assignment constitute,
or will constitute, as applicable, valid and binding obligations of Seller,
enforceable against each Seller in accordance with their respective terms,
except to the extent that enforceability of the terms and provisions of this
Agreement and the Assignment is subject to the effect of applicable bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or other laws
relating to or affecting creditors' rights generally and by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
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(b) Assigned Interest. Except for a 1% of 8/8ths override held by Fortuna
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Energy, L.P. in the Leases ("Fortuna Override"), each Seller has good and
marketable title to its respective Assets, free and clear of all Liens (other
than any Liens that will be discharged on or prior to the Closing Date). For
purposes of this Agreement, "Lien" means any lien, mortgage, security interest,
pledge, claim, option, or any other charge or encumbrance. On delivery of the
Assignment and on Seller's receipt of the Purchase Price, good and valid title
to the Assets will pass to Buyers free and clear of any Liens other than the
Fortuna Override.
(c) Consents and Approvals; No Violation. Neither the execution and
-----------------------------------------
delivery of this Agreement or the Assignment nor the consummation of the
transactions contemplated hereby or thereby will: (a) conflict with or result in
any breach of any provision of the articles of incorporation or by-laws or
operating agreement (or other similar governing documents) of the Seller; (b)
require any consent, permit of, or filing with or notification to, any
Governmental Body or any other Person; (c) result in a default (or give rise to
any right of termination, cancellation or acceleration), or with the passage of
time, the giving of notice or the taking of any action by a third party, would
result in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which any Seller is a
party or by which any Seller or any of their assets may be bound; (d) with the
passage of time, the giving of notice or the taking of any action by a third
party, have any of the effects in subsection (c) of this Section 2.3; or (e)
violate any order or regulation or Laws applicable to any Seller or any of
their respective assets.
(d) No Broker. The Seller has not, directly or indirectly, incurred any
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obligation or entered into any agreement with any Person that would obligate the
Seller or Purchaser to pay any commission, brokerage fee, "finder's fee" or
similar compensation in respect of the transactions contemplated by this
Agreement.
(e) Permits. The Seller possesses all Permits from all Governmental
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Bodies that are necessary to the ownership and operation of the Assets as
currently conducted, and all such Permits are in full force and effect. No
lawsuits, actions, proceedings or investigations by or against the Assets are
pending, or, to Seller's knowledge, threatened seeking the revocation or
limitation of any such Permit.
(f) Compliance with Laws. The Seller is in compliance with all applicable
---------------------
Laws and regulations applicable to the conduct of its business and are not in
default with respect to any order applicable to the Partnership in the conduct
of its business;
i. The Seller has not received any notice or other communication from any
Governmental Body or any other Person regarding any actual, alleged,
possible or potential violation of, or failure to comply with, any
term or requirement of any order to which any of the Assets, is
subject; and
ii. The Seller has not received any notice or other communication from any
Governmental Body or any other Person regarding (i) any actual,
alleged, possible or potential violation of, or failure to comply
with, any Law or regulation or (ii)
6
any actual, alleged, possible, or potential obligation on the part of
the Seller to undertake, or to bear all or any portion of, any
remedial action of any nature.
(g) Insurance. Schedule 7(g) hereto sets forth a list of all insurance
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policies issued in favor of Seller that relate to the Seller or its business.
All of such policies have been in full force and effect since June 1, 2002. No
Seller is co-insurer under any such policies of insurance except to the extent
of the amount of the deductible, self-retention or similar amounts applicable to
such policies. Seller is listed as an insured or an additional insured on each
of the policies listed in Schedule 7(g).
(h) Material Contracts. Except as disclosed on Schedule 7(h), the Seller
--------------------
is not a party to any Material Contract and, with respect to all such Material
Contracts, (a) there are no disputes thereunder and (b) the Seller is not, nor,
to Seller's knowledge, is any other party to any Material Contract in material
breach thereof or material default thereunder and there does not exist under any
provision thereof, to Seller's knowledge, any event that, with the giving of
notice or the lapse of time or both, would constitute such a breach or default.
Schedule 7(h) hereto also discloses all notes, mortgages, indentures and other
obligations and agreements and other instruments relating to any lending or
borrowing effected by the Seller, or, to Seller's knowledge, by any other party
and, in either case, to which any of the Assets is subject. Except as set forth
on Schedule 7(h), within the last 36 months no Seller has given or received any
notice or complaint or other communication regarding any actual, alleged,
possible or potential warranty claim, violation or breach of or default under
any Material Contract. There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any amounts paid or payable to or with
respect to any Material Contract.
(i) Powers of Attorney. No Persons hold powers of attorney for the
---------------------
Seller.
(j) Litigation. There is no and within the last 36 months there has been
-----------
no, action, suit, investigation, inquiry, order or proceeding pending, or to the
knowledge of Seller, threatened, (a) to which Seller is or would be a party or
(b) which relates to the Assets that would prevent or delay in any material
respect the consummation of the transactions contemplated by this Agreement.
(k) No Rights to Acquire. There are no outstanding contracts, warrants,
-----------------------
options, rights, agreements, calls or other commitments to which the Seller is a
party relating to or providing for the purchase of the Assets.
(l) Environmental Matters. The Seller (or its operator) has operated the
-----------------------
Assets in compliance with all applicable Environmental Laws and Environmental
Permits; (b) there are no existing, pending or to Seller's knowledge threatened
actions, suits, investigations, inquiries, or proceedings by or before any
court, any Governmental Body or third party relating to any Environmental Laws,
with respect to the Seller's business; (c) all notices and Environmental
Permits, if any, required to be obtained or filed under any applicable
Environmental Laws in connection with the Seller's business or the operations of
the Assets, including treatment, storage, disposal or release of a hazardous
substance or solid waste into the environment, have been duly obtained or filed,
and are validly in effect if issued, and the Seller is in compliance therewith;
and (d) to Seller's knowledge, there are no conditions existing or resulting
from the
7
conduct of the operations of the Assets that have been given or will give rise
to any unsatisfied on-site or off-site response, removal, closure or remedial
obligations of the Seller under any Environmental Laws. The terms "release" and
"hazardous substance" have the meanings specified in CERCLA, and the term
"disposal" has the meaning specified in RCRA.
(m) Taxes. The Seller has timely filed all returns and reports in respect
------
of Taxes required to be filed with respect to the Seller's business or the
Assets, and all Taxes required to be shown on such returns and reports or
otherwise due have been timely paid. "Taxes" means any and all taxes, fees,
levies, duties, tariffs, imposts and other charges of any kind imposed by a
Governmental Body or taxing authority including, without limitation: taxes with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, payroll, employment or net worth. None of the tax returns
of the Seller are currently being audited or examined by any taxing authority.
The Seller has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
(n) Disclosure. No representation or warranty of Seller in this Agreement
-----------
and no statement in the schedules hereto omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading. No notice given by
Seller pursuant to this Agreement will contain any untrue statement or omit to
state a material fact necessary to make the statements therein or in this
Agreement, in light of the circumstances in which they were made, not
misleading.
10. INTEREST IN TK PETROSEARCH, LLC. T. Xxxxxx Xxxxx shall quitclaim unto
-----------------------------------
Petrosearch Energy Corporation all of his interest in TK Petrosearch, LLC
effective as of the Effective Date of Closing, such quitclaim to be evidenced by
a Quitclaim of Interest delivered with the documents to be exchanged at Closing
described in paragraph 6 above. T. Xxxxxx Xxxxx acknowledges and agrees that
he shall not share or participate in any manner in the consideration to be paid
by Purchaser to Seller under the Option Agreement or this Asset Purchase
Agreement.
11. INDEMNITY. (a) Effective as of the date of Closing, Purchaser shall
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defend, indemnify and hold Seller harmless from any and all claims, damages or
losses suffered or incurred by Seller, including reasonable attorneys' fees,
penalties, and fines, as a result of (a) Purchaser's ownership of the Assets and
occupancy of and/or Purchaser's operations (or the operations of its operator)
upon the Leases from and after the Closing Date; (b) Purchaser's failure (or the
failure of its operator) to promptly observe and comply with any and all
plugging and abandonment obligations required under any of the Leases or
pursuant to Texas Railroad Commission rules and regulations; (c) environmental
related claims which arise under applicable federal or state law or as may be
asserted by the Environmental Protection Agency, the Texas Natural Resources
Conservation Commission or other applicable agencies of the federal, state,
county or municipal government. Pursuant to the provisions of Section 127.005
of the Texas Civil Practice and Remedies Code, to the extent that this indemnity
provision is covered by the Texas Anti-Indemnity Statute, Seller and Purchaser
agree that this indemnity obligation shall be supported by liability insurance
coverage to be furnished by Purchaser up to and including, but not exceeding,
$500,000.00.
(b) Notwithstanding the effective date of the transfer of the Assets,
Seller shall defend, indemnify and hold T. Xxxxxx Xxxxx and Purchaser
("Indemnitees") harmless from any
8
and all claims, damages or losses suffered or incurred by any Indemnitee,
including reasonable attorneys' fees, as a result of any Lien claim or claim of
ownership to the Assets by any third party, other than the Fortuna Override, or
any claim related to taxes assessed against the Assets for the period of
ownership by Seller.
12. OBLIGATIONS TO SURVIVE CLOSING. All obligations of the parties described
---------------------------------
herein shall survive the Closing, including without limitation, the financial
obligations, reporting obligations, insurance obligations and indemnity
obligations.
13. TIME OF ESSENCE, ATTORNEYS FEES. Time is of the essence with respect to
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this Agreement. If either party seeks to enforce, in law or in equity, any
provision contained herein, then the prevailing party in such proceeding shall
be entitled to reasonable attorneys' fees, interest and all such other
disbursements and relief provided under law.
14. PAYMENT OF EXPENSES. Except as otherwise provided herein, all of the fees
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and expenses incurred by any party prior to the Closing in order to complete the
transactions required or permitted hereby shall be paid by the party incurring
such fees and expenses.
15. MODIFICATION OR AMENDMENT. The parties hereto may modify or amend this
---------------------------
Agreement only by written agreement executed and delivered by the respective
parties.
16. BINDING ON HEIRS AND ASSIGNS. This Agreement shall inure to and be binding
-----------------------------
upon the undersigned and their respective heirs, representatives, successors and
assigns.
17. COUNTERPARTS/ FACSIMILE SIGNATURES. For the convenience of the parties
------------------------------------
hereto, this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement. A facsimile signature shall be
deemed equivalent to and binding as an original signature except when such
original signature is required by law.
18. NO WAIVERS. No waiver of or failure to act upon any of the provisions of
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this Agreement or any right or remedy arising under this Agreement shall be
deemed or shall constitute a waiver of any other provisions, rights or remedies
(whether similar or dissimilar) nor shall such waiver or failure to act
constitute a continuing waiver or evidence of a binding course of conduct unless
expressly provided herein or expressly stipulated to in writing by the parties.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
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ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND SHALL BE PERFORMABLE IN FORT
BEND COUNTY, TEXAS.
20. NOTICES. Any notice, request, instruction or other document to be given
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hereunder by any party to the others shall be in writing (by FAX, mail, telegram
or courier) and delivered to the parties as follows:
9
To Seller: Petrosearch Energy Corporation
0000 Xxxxxxx Xxxxx
Xxxxx 000X
Xxxxxxx, Xxxxx 00000
Attention: President
(000) 000-0000 - Fax
To Purchaser:
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------------------------------
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Notices shall be deemed given on the date of actual receipt by the party.
21. ENTIRE CONTRACT. This Agreement and the documents herein referenced
----------------
constitute (or when executed will constitute) the entire agreement between the
Parties, and shall supersede all other prior agreements and understandings, both
written and oral, between the Parties with respect to the subject matter hereof.
22. CAPTIONS FOR CONVENIENCE. All captions herein are for convenience or
--------------------------
reference only and do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
23. SEVERABILITY. In case any one or more of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or enforceability shall not affect
any other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or enforceable provision had never been contained herein.
SIGNATURES APPEAR ON FOLLOWING PAGE
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EXECUTED by the undersigned as of the Effective Date set forth above.
"SELLER"
PETROSEARCH ENERGY CORPORATION,
a Nevada corporation
By:
--------------------------------
Name:
Title:
PETROSEARCH OPERATING COMPANY, L.L.C.,
a Texas limited liability company
By:
--------------------------------
Name:
Title:
TK PETROSEARCH, L.L.C.,
a Texas limited liability company
By:
--------------------------------
Name:
Title:
"PURCHASER"
-----------------------------------
T. Xxxxxx Xxxxx
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