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EXHIBIT 10.12
 

 
 
COULTER LIMITED PARTICIPATION AGREEMENT
 
This Coulter Limited Participation Agreement ("Agreement") is made and entered
into as of January 10th, 2012, by and between La Sal Energy, LLC, a Texas
limited liability company ("La Sal"), and Torchlight Energy Resources, Inc., a
Nevada corporation ("Torchlight"). La Sal and Torchlight are hereinafter
referred to collectively as "Parties" and individually as a "Party".
 
WHEREAS, La Sal is the owner of (i) a One Hundred Percent (100%) Working
Interest and a Seventy-Five Percent (75%) Net Revenue Interest (the "La Sal
Interest") in and to those certain Oil, Gas and Mineral Leases attached as
"Exhibit A" hereto (collectively, the "Lease") upon which the following well
exists: John Coulter #1-R drilled to 11,406 TD (the "Well"); and
 
WHEREAS, the Parties desire to set forth the terms and conditions pursuant to
which Torchlight can acquire an interest in the Well;
 
Now THEREFORE, in consideration of the mutual benefits and obligations
hereunder, the Parties agree as follows:
 
1.             Definitions :
 
1.1           "Closing" means the later of the date on which La Sal and
Torchlight sign this Agreement or Torchlight initiates a wire transfer to La
Sal's account in the amount of the Purchase Price defined in Paragraph 2.1
below, which transfer shall initiate no later than 2 days after signature of
this Agreement.
 
1.2           "Production" means completion of operations on the Well resulting
in first gas sold following Closing.
 
2.             Closing Obligations; Torchlight Options:
 
2.1           At Closing, Torchlight will pay La Sal $350,000.00 (the "Purchase
Price") by cashier's check.
 
2.2           In exchange for the Purchase Price, La Sal will assign and convey
to Torchlight a Thirty-Four Percent (34%) Working Interest and a Thirty-Four
Percent (34%) Net Revenue Interest in the La Sal Interest in the Well pursuant
to an Assignment of Oil and Gas Interests and Bill of Sale ("Assignment")
substantially in the form attached hereto as "Exhibit B".
 
 
 
 

 
 
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2.3          Torchlight Option No. 1. At Closing and thereafter, Torchlight may
pay up to an additional $75,000 in 3 tranches ("Option") in exchange for La
Sal's assignment and conveyance to Torchlight of up to an additional Six Percent
(6%) interest in the La Sal Interest in the Wells pursuant to an Assignment(s):
(i) $15,000 paid at Closing as a deposit towards acquisition of an additional
Two Percent (2%) interest ("Option 1"); (ii) $25,000 paid within 45 days after
Closing for an additional Two Percent (2%) interest ("Option 2"); and (iii)
$35,000 paid within 75 days after Closing for a final additional Two Percent
(2%) interest and to complete acquisition of the initial additional Two Percent
(2%) interest ("Option 3"). If any Option payment deadline is missed, Torchlight
may not exercise its Option with respect to any remaining 2% tranches. If
Torchlight declines to exercise Option 2 or Option 3, then Torchlight shall
either pay to La Sal within three (3) days thereafter the remaining $10,000 to
complete Option 1, or La Sal shall return to Torchlight the $15,000 deposit to
Torchlight. Torchlight shall not acquire any additional Two Percent (2%)
interests until a tranche is paid for in full. For example, until the entire
$25,000 is paid by Torchlight for Option 1, La Sal shall remain the owner of the
Two Percent interest associated with Option1 and shall be entitled to all
benefits and revenue therefrom. The first revenue paid with respect to any Two
Percent (2%) interest after acquisition by Torchlight shall be apportioned pro
rata between the Parties based on the length of ownership during that revenue
period. Any amount of the $75,000 that Torchlight may pay to La Sal is for La
Sal's sole benefit and is not for use in the Wells' operations unless La Sal in
its sole discretion so decides.
 
2.4          Torchlight Option No. 2. Torchlight also may purchase up to an
additional Five Percent (5%) interest in the La Sal Interest in the Wells
pursuant to an Assignment(s) in full percentage points at $10,000 per point, the
total number of full percentage points times $10,000 per point totaling the
"Purchase Price". Torchlight must exercise this option to purchase within 30
days from the first date of Production by notifying La Sal in writing of the
number of points, if any, Torchlight will acquire and by paying La Sal (i) fifty
percent of the Purchase Price within thirty (30) days and (ii) the remaining
fifty percent of the Purchase Price within 60 days from election.
 
La Sal has right to keep the points, or sell the points in full or part to a
third party, if Torchlight has not made its election in writing to La Sal within
the 30 days and paid as described above. La Sal will assign and convey
percentage points purchased by Torchlight pursuant to an Assignment pro rata in
accordance with each fifty percent payment. Until receipt of payment, however,
La Sal shall remain the owner of the additional full percentage points and shall
be entitled to all benefits and revenue therefrom.
 
 
 
 
 
 

 
 
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2.5           The rights granted by La Sal to Torchlight pursuant to the terms
hereof are without warranty, either express or implied. Upon request, La Sal
will furnish to Torchlight, at Torchlight's cost, such abstracts or evidence of
title as it has in its files, but there shall be no obligation on the part of La
Sal to purchase new or supplemental abstracts or to do any curative work in
connection with title to the Well or the Lease. Any Assignment shall be subject
to the reservations, obligations to reassign, depth limitations and other terms
and provisions set forth in this Agreement. Torchlight acknowledges that it has
completed and is satisfied with its due diligence review of the Well and has no
reservations with respect to the same and that due diligence is not a condition
precedent to the Closing.
 
3.          Performance Obligations:
 
3.1           Operator Position. Evergreen Energy, Inc. is the current Operator.
La Sal will at all times have sole authority to appoint the Operator under the
Joint Operating Agreement (" JOA" ), and all JOAs will include a provision to
this effect.
 
3.2           Drilling and Costs. Upon Closing, the Parties will cause the
Operator to frac the John Coulter #1-R well. The Parties anticipate that the
initial Purchase Price will fund the fracing, but if there is a shortfall, the
Parties shall pay for additional costs out of pocket in accordance with their
actual percentage interests in the Well.
 
4.          Additional Deliveries at Closing.
 
4.1           Each Party shall deliver at Closing certified resolutions of its
Board of Directors approving this Agreement.
 
4.2           All of the Parties shall execute, acknowledge, and deliver or
cause to be executed, acknowledged and delivered such instruments and take such
other actions as may be necessary or advisable to carry out their obligations
under this Agreement and under any document, certificate, or other instrument
delivered pursuant hereto.
 
5.          Revenue and Expense Sharing.
 
5.1           Upon Production, the net revenue split shall be 80% to Torchlight
and 20% to La Sal until net revenue is an accumulated $437,500.
 
5.2           While net revenue split is 80%/20%, expenses above the $350,000
initiall paid in shall be split according to actual percentage interests in the
Well.
 
 

 
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5.3          After net revenue is an accumulated $437,500, net revenue shall be
split according to the actual percentage interests in the Well.
 
6.            Remedies on Default.
 
6.1          If Closing does not occur on or before January 16, 2012, then this
Agreement shall be null and void and neither Party shall be liable to the other
for failure to close.
 
7.            Additional Terms.
 
7.1          Confidential Information: The Parties agree that all geophysical,
geological, engineering, technical, and production tests or other data obtained
from the Well shall be the property of the Parties to this Agreement and shall
be maintained as confidential information for a period of two (2) years from the
termination of this Agreement, unless all parties agree in writing to a lesser
period of time. However, any Party may disclose without the consent of the other
Party to this Agreement such confidential information (a) to an outside party
with which it is engaged in a bona fide negotiation to contract for an oil
and/or gas sale contract; (b) to a governmental agency when required by such
agency; (c) to reputable financial institutions or similar entities in
connection with a bona fide financial transaction; (d) to accredited engineering
firms for the purpose of evaluation on a confidential basis; (e) to a parent,
subsidiary, and affiliated companies of a Party; and (f) to reputable and
financially responsible third parties with whom a Party is engaged in a bona
fide effort to (1) sell all or a portion of the property subject to this
Agreement, (2) effect a merger or consolidation or other transaction in which
such third party proposes to acquire all or a controlling share of the stock in
a Party hereto, or (3) purchased all or substantially all of the assets of a
Party hereto or affiliated of a Party hereto, provided that any third party
permitted access to confidential data shall agree in writing not to communicate
such information to anyone and shall further agree to make no use of such
information adverse to the Parties hereto within the area covered by such
information during the period of time that such information remains confidential
hereunder.
 
7.2          Publicity: Neither Party shall distribute any information or
photographs concerning the Lease, the Well, the rights and obligations under
this Agreement or the JOA to the press or other media without the approval of
the other Party, which shall not be unreasonably withheld.
 
 
 

 
 
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7.3           Assignment: Torchlight shall not assign its interest in the Well
to a third party without first offering said interest to La Sal with the same
terms and conditions as the assigning Party's bona fide written offer to or from
such third party, and subject in all cases to the prior written consent of the
other Party, which consent shall not be unreasonably withheld, and any such
assignment shall only be made in compliance with the terms of the JOA and any
consent requirements of the Lease, and shall further expressly provide that the
terms and conditions of this Agreement and the JOA shall extend to and be
binding upon the assigning Party's successors, legal representatives and
assigns. Such right of first offering and consent to assignment shall not be
required on any assignment such as a mortgage or volumetric production payment
or similar arrangement given to secure an indebtedness of the assigning Party.
 
8.          Representations and Warranties.
 
8.1           Torchlight represents and warrants to La Sal as follows:
 
a.           Torchlight is validly existing and, as applicable, in good standing
under the laws of the jurisdiction of its incorporation. Torchlight has the
power and authority to carry on its business as now conducted and to enter into
and to carry out the terms of this Agreement.
 
b.           Torchlight is duly qualified or licensed to conduct business as a
corporation, as applicable, in the jurisdiction in which the Well are located.
 
c.           The execution and delivery of this Agreement by Torchlight and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action.
 
d.           Torchlight is not a party to, or in any way obligated under, nor
does Torchlight have any knowledge of, any contact or outstanding claim for the
payment of any broker's or finder's fee which Torchlight is obligated to pay in
connection with the origin, negotiation, execution, or performance of this
Agreement.
 
e.           No authorization, consent or approval of any third party is
required to be obtained by Torchlight for the execution and delivery of this
Agreement or the consummation by Torchlight of the transaction contemplated
hereunder, and except for such authorizations, consents, approval or filings
which, if not obtained or made (as applicable) would not, individually or in the
aggregate, have a material adverse effect.
 
f.           There are no claims, disputes or litigation pending or, to the
Torchlight's knowledge, threatened, in which Torchlight is or may be a party
affecting the execution and delivery of this Agreement by Torchlight or the
consummation of the transactions contemplated hereby by Torchlight. There are no
bankruptcy, reorganization or arrangements pending, being contemplated by or, to
Torchlight's knowledge, threatened against Torchlight.
 
 

 
 
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8.2          La Sal represents and warrants to Torchlight as follows:
 
a.          La Sal is validly existing and, as applicable, in good standing
under the laws of the jurisdiction of its formation. La Sal has the power and
authority to carry on its business as now conducted and to enter into and to
carry out the terms of this Agreement.
 
b.          La Sal is duly qualified or licensed to conduct business as a
corporation, as applicable, in the jurisdiction in which the Well are located.
 
c.          The execution and delivery of this Agreement by La Sal and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action.
 
d.          No authorization, consent or approval of any third party is required
to be obtained by Torchlight for the execution and delivery of this Agreement or
the consummation by Torchlight of the transaction contemplated hereunder, and
except for such authorizations, consents, approval or filings which, if not
obtained or made (as applicable) would not, individually or in the aggregate,
have a material adverse effect.
 
e.          There are no claims, disputes or litigation pending or, to La Sal's
knowledge, threatened, in which La Sal is or may be a party affecting the
execution and delivery of this Agreement by La Sal or the consummation of the
transactions contemplated hereby by La Sal. There are no bankruptcy,
reorganization or arrangements pending, being contemplated by or, to La Sal's
knowledge, threatened against La Sal.
 
f.          To La Sal's knowledge, all necessary governmental permits, licenses,
approvals, consents, certificates and other authorizations required by
applicable laws with regard to the ownership or operations of the Well have been
obtained and maintained in effect and no violations exist in respect of such
permits, licenses, approvals, consents, certificates or authorizations except
for such permits, licenses, approvals, consents, certificates or authorizations
the absence of which are not material.
 
9.           Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision in such jurisdiction, and this Agreement shall be reformed,
construed and enforced in such jurisdiction to the fullest extent permitted to
give effect to the intention of the parties, and as if such invalid, illegal or
unenforceable provision had never been contained herein.
 
 

 
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10.          No Partnership. Nothing herein is intended to create or shall be
construed as creating a partnership or employment relationship between the
Parties. It is expressly agreed that the relationship between the Parties shall
not constitute a partnership, joint venture, agency or other unincorporated
organization with respect to this Agreement. The Agreement and the exchange of
consideration and compensation hereunder shall not be construed as a right to
share in the net profits of another Party, and no Party shall have an obligation
to share losses hereunder.
 
11.          Governing Law; Jurisdiction. THE CONSTRUCTION, PERFORMANCE,
EXECUTION AND ENFORCEMENT OF THIS AGREEMENT AND ANY DISPUTE, WHETHER IN CONTRACT
OR TORT, SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
THE PARTIES AGREE AND STIPULATE THAT THE SOLE AND EXCLUSIVE VENUE FOR ANY CAUSE
OF ACTION WHATSOEVER NATURE ARISING HEREUNDER IS HEREBY FIXED IN HARRIS COUNTY,
TEXAS. THE CONSTRUCTION, PERFORMANCE, EXECUTION AND ENFORCEMENT OF THIS
AGREEMENT, THE ASSIGNMENT HEREUNDER, AND THE JOA SHALL BE DETERMINED IN
ACCORDANC E WITH THE LAWS OF THE STATE OF TEXAS, EXCLUSIVELY IN HARRIS COUNTY,
TEXAS.
 
12.          Notices. All notices and communications required or permitted under
this Agreement shall be in writing, and any communication or delivery hereunder
shall be deemed to have been duly made when personally delivered to the
individual indicated below, or if mailed or sent by facsimile transmission
(provided such facsimile is confirmed by proof of delivery), when received by
the party charged with such notice and addressed as follows:
 
if to La Sal:
La Sal Energy, LLC
2802 Ferndale
Houston, Texas 77098
Attn: Paul Hendershott
(713) 522-9389 (fax)
 

 
 
 

 
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if to Torchlight:
Torchlight Energy Resources, Inc.
2007 Enterprise Avenue
League City, Texas 77573
Attn: Tom Lapinski
(314) 667-3537 (fax)
 
13.          Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof, being the limited
participation in the Well. This Agreement supersedes all prior written
agreements, arrangements, communications and understandings and all prior and
contemporaneous oral agreements, arrangements, communications and
understandings. No term or provision of this agreement may be amended,
discharged or modified in any respect except in writing signed by the parties
hereto. In the event of conflict between the terms of this Agreement and the
JOA, this Agreement shall control.
 
14.          No Presumption Against Drafting Party. Each Party acknowledges that
it has been, or has the opportunity to be, represented by counsel in connection
with this Agreement and the transactions contemplated by this Agreement.
Accordingly, any rule of law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the drafting
Party has no application and is expressly waived.
 
15.          Counterpart Execution. This Agreement may be executed in any number
of counterparts and each counterparty so executed shall have the same force and
effect as an original instrument; however, this agreement shall not be effective
unless and until signed by all the parties.
 
 
AGREED AND ACCEPTED THIS
10th DAY OF JANUARY 2012
 
AGREED AND ACCEPTED THIS
10th DAY OF JANUARY 2012
                        La Sal Energy, LLC   Torchlight Energy Resources, Inc.  
            By:
/s/  Paul Hendershott
  By:
/s/  Tom Lapinski
   
Paul Hendershott
   
Tom Lapinski
  Its Manager   Its CEO and President  

 
 
 
 
 

 
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EXHIBIT A
 
The Lease(s) are attached hereto.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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