Document:

MONTANA OIL PROPERTIES, INC.

 

	
             
 	
            2812 First Ave. N., Ste. 305
 

                               P.O. Box 3194

	
            Oil & Gas Exploration
 	
            Billings, MT  59103
 

	
            Phone 406-252-0233
 	
            E-mail montoil@wtp.net
 	
            Fax 406-896-8281
 

 

 

 

October 4, 2006

 

Northern Oil & Gas Inc.

130 Lake Street West

Wayzata, Minnesota 55391

Attn: Michael Reger

 

 

	
             
 	
            RE:
 	
            Offer to Purchase
 

	
             
 	
            Sheridan County Stacked Play
 

	
             
 	
            Sheridan County, Montana
 

 

Dear Mr. Reger: 

 

The purpose of this letter is to set forth the basic terms and conditions under which Northern Oil and Gas Inc. (NOG) has agreed to acquire and Montana Oil Properties, Inc. (MOP) has agreed to sell certain oil and gas leases as described in Exhibit “A” attached hereto and made a part hereof.  When accepted in the manner hereinafter provided for, this Letter Agreement shall serve to set forth in writing the terms and conditions of such purchase and sale, which supersedes all prior correspondence, understands or agreements whether made verbally or in writing.  It is NOG’s sole responsibility to perform all due diligence, and otherwise conduct any geologic, operational and/or feasibility  studies.

 

The basic terms are as follows:

 

NOG agrees to pay $825,000.00 for approximately 22,000.00 net acres and approximately 24,000.00 gross acres as set forth on the attached Exhibit “A” (“Purchased Leases”).

 

MOP shall convey all Purchased Leases unto NOG utilizing a mutually acceptable form of assignment and shall deliver the Purchased Leases unto NOG with MOP retaining an ORRI equal to 7.5% of 8/8ths.

 

MOP shall receive 400,000.00 shares of stock in Northern Oil and Gas Inc.  Restrictions on the sale of these shares are listed and described in Exhibit “B” attached hereto.  

 

Buyer agrees that it will finance the acquisition and reprocess of current 3-D seismic.  Buyer also agrees that it will secure capital commitments sufficient to drill 5 exploratory wells on Purchased Leases during the term of said Leases.

Closing on this transaction shall take place no later than February 12, 2007.  Closing may be by mail or in person as decided by NOG and MOP.  At such Closing, NOG shall wire transfer the Amount, as adjusted directly to MOP’s account and MOP shall deliver the appropriate assignment unto NOG.

 

NOG shall conduct whatever examinations it deems necessary to satisfy itself as to title of the Purchased Leases.  At a mutually agreed upon date MOP shall provide NOG with copies of all Purchased Leases, confirmation of payment for all bonus, delay rentals or other monies owing third parties for the Purchased Leases, and copies of all ownership reports or other title information which Selling Party has in its possession that relate to lands covered by the Purchased Leases.  

 

NOG agrees to provide MOP with copies of all well information obtained by NOG, it’s contractors or assigns, from any well drilled on the Purchased Leases or lands pooled, unitized or communitized therewith.  Such well information may include, but not limited to, all applications or filings filed with the State of Montana, daily drilling reports, logs, test results, core analysis, production tests and production reports.

 

NOG agrees to wire transfer the sum of $165,000.00 into MOP’s account located at Stockman Bank in Billings, Montana no later than 11:00 a.m. October 20, 2006.  This amount represents a down payment on the purchase of the Leases.  The $165,000.00 will be applied to the total purchase price at time of closing.  This $165,000.00 down payment shall be non refundable unless material title defects are present within the existing leases.  NOG agrees that this down payment shall represent an equity position in the aforementioned Leases only after the balance of the purchase price is received by MOP on or before February 12, 2007.  If NOG does not wire transfer $165,000.00 by 11:00 a.m. CST on October 20, 2006, this Agreement shall become null and void.

 

If you agree with the terms and conditions set forth in this Letter Agreement, Please so indicate by signing below in the space provided and returning one (1) executed copy of this letter to the undersigned via facsimile transmission to 406-896-8281.

 

Sincerely,

 

Montana Oil Properties, Inc.

 

Steven L. Reger

President

 

Agreed to and accepted this ___ day of October, 2006

 

Northern Oil and Gas Inc.

 

By: ___________________________

 

Title:__________________________November 15, 2006

 

Northern Oil & Gas, Inc.

130 Lake Street West

Wayzata, Minnesota 55391

Attn: Michael L. Reger

 

 

	
             
 	
            RE:
 	
            Offer to Purchase
 

	
             
 	
            Bakken Prospect
 

	
             
 	
            Mountrail County, North Dakota
 

 

Dear Mr. Reger, 

 

The purpose of this letter is to set forth the basic terms and conditions under which Northern Oil and Gas Inc. (Northern) has agreed to acquire and Southfork Exploration, LLC (Southfork) has agreed to sell certain oil and gas leases as described in Exhibit “A” attached hereto and made a part hereof.  When accepted in the manner hereinafter provided for, this Letter Agreement shall serve to set forth in writing the terms and conditions of such purchase and sale, which supersedes all prior correspondence, understands or agreements whether made verbally or in writing.  It is Northern’s sole responsibility to perform all due diligence, and otherwise conduct any geologic, operational and/or feasibility  studies.

 

The basic terms are as follows:

 

Northern agrees to pay Southfork $90 per acre for approximately 1,500 net acres as set forth on the attached Exhibit “A” (“Purchased Leases”).  

 

Southfork shall receive 90 shares of stock in Northern Oil and Gas Inc per net acre.  Restrictions on the sale of these shares are listed and described in Exhibit “B” attached hereto.  

 

Southfork shall convey all Purchased Leases unto Northern utilizing a mutually acceptable form of assignment and shall deliver 80.00% Net Revenue Interest in Purchased Leases unto Northern.

 

Closing on this transaction shall take place no later than February 12, 2007.  Closing may be by mail or in person as decided by Northern and Southfork.  At such Closing, Northern shall wire transfer the Amount, as adjusted directly to Southfork’s account and Southfork shall deliver the appropriate assignment unto Northern.

 

Any additional leases, up to 3500 net acres, acquired by Southfork up to May 1, 2007 in Townships 154 North, Range 88 West, Township 154 North, Range 89 West, 153 North Range 88 West, and 153 North, Range 89 West, all in Mountrail County, North Dakota will be acquired by Northern at the same terms listed above.  Northern will have a right of first refusal on all 

acreage acquired by Southfork over and above 3500 net acres until August 1, 2007.  The right of first refusal will be in effect for Ten (10) business days after postmark date of a certified, express mailed letter to Northern with a legitimate offer attached.

 

Northern shall conduct whatever examinations it deems necessary to satisfy itself as to title of the Purchased Leases.  At a mutually agreed upon date Southfork shall provide Northern with copies of all Purchased Leases, confirmation of payment for all bonus, delay rentals or other monies owing third parties for the Purchased Leases, and copies of all ownership reports or other title information which Selling Party has in its possession that relate to lands covered by the Purchased Leases.  

 

Northern agrees to provide Southfork with copies of all well information obtained by Northern, it’s contractors or assigns, from any well drilled on the Purchased Leases or lands pooled, unitized or communitized therewith.  Such well information may include, but not limited to, all applications or filings filed with the State of Montana, daily drilling reports, logs, test results, core analysis, production tests and production reports.

 

Northern agrees to wire transfer the sum of $65,000 into Southfork’s account located at Stockman Bank in Billings, Montana no later than 5:00 p.m. November 22, 2006.  This amount represents a down payment on the purchase of the Leases.  The $65,000 will be applied to the total purchase price at time of closing.  This $65,000 down payment shall be non refundable unless material title defects are present within the existing leases.  Northern agrees that this down payment shall represent an equity position in the aforementioned Leases only after the balance of the purchase price is received by Southfork on or before February 12, 2007.  If Northern does not wire transfer $65,000 by 5:00 p.m. CST on November 22, 2006, this Agreement shall become null and void.

 

If you agree with the terms and conditions set forth in this Letter Agreement, please so indicate by signing below in the space provided and returning one (1) executed copy of this letter to the undersigned via facsimile transmission to 406-248-5344.

 

Sincerely,

 

Southfork Exploration, LLC.

 

J.R. Reger,

President

 

Agreed to and accepted this ___ day of November, 2006

 

Northern Oil and Gas Inc.

 

By: ___________________________

 

Title:__________________________

Authorized SignatureEXHIBIT 10.3

 

NORTHERN OIL AND GAS, INC.

 

INCENTIVE STOCK OPTION PLAN 

 

1.        Purpose.  The purpose of this Plan is to provide a means whereby Northern Oil and Gas, Inc. (the “Company”) may be able, by granting options to purchase stock in the Company, to attract and retain persons of ability as employees, directors, consultants and advisors of the Company or any subsidiary corporation of the Company (the “Subsidiaries”), and to motivate such persons through an increased personal interest in the Company and the Subsidiaries, to exert their best efforts on behalf of the Company and the Subsidiaries, and thus to advance the interests of such corporations and benefit their shareholders.  Both options which qualify for favorable tax treatment under Section 422 of the Internal Revenue Code (the “Code”), and options which do not
so qualify, may be granted under the Plan.

 

2.            Reservation of Shares.  A total of 2,000,000 shares of the authorized but unissued common stock of the Company, par value $.0001 per share, is reserved for issue upon the exercise of options granted under the Plan.  If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares covered thereby shall become available for additional options which  may be issued to persons eligible under the Plan so long as it remains in effect.  Shares reserved for issue as provided herein shall cease to be reserved upon termination of the Plan.

 

3.            Administration.  The Plan shall be administered initially by the Board of Directors of the Company, or a Compensation Committee appointed by the Board of Directors.  At such time as the Company’s common stock is registered under the Securities Exchange Act of 1934, the Plan shall be administered by a Compensation Committee comprised solely of two or more directors who qualify as non-employee directors under SEC Rule 16b-3 and as outside directors under Section 162(m) of the Code.  The Board or the Committee shall have the full power to construe and interpret the Plan and to establish and amend rules and regulations for its administration.  The Board or the Committee shall determine which persons shall be granted options hereunder, the number of shares for which each
option shall be granted, and any limitations on the exercise of an option in addition to those imposed by this Plan.  The Board or the Committee shall apply such criteria as it deems appropriate in determining the persons to whom options are granted and the number of shares to be covered by each option.  No person may be granted an option to purchase more than 250,000 shares in any calendar year.

 

4.            Eligibility.  An option may be granted to any employee, director, consultant or advisor of the Company or a Subsidiary, except that no consultant or advisor shall be granted options in connection with the offer and sale of securities in a capital raising transaction on behalf of the Company.

 

5.            Option Price.  The option price per share of stock, to be determined from time to time by the Board or the Committee, shall be not less than the fair market value of such stock on the date an option to purchase the same is granted.  In making such determination, the Board or the Committee may rely on market quotations, if available, but if not available, upon 

independent appraisals of the stock or such other information deemed appropriate by the Board or the Committee.

 

6.            Changes in Present Stock.  In the event of a recapitalization, merger, consolidation, reorganization, stock dividend, stock split or other change in capitalization affecting the Company’s present capital stock, appropriate adjustment may be made by the Board or the Committee in the number and kind of shares and the option price of shares which are or may become subject to options granted or to be granted hereunder.

 

7.            Exercise of Option.  Receipt by the Company of a written notice from the person to whom the option has been granted, specifying the number of shares to be purchased, accompanied by payment of the purchase price for such shares, shall constitute exercise of the option as to such shares.  The date of receipt by the Company of such written notice shall be the date of exercise of the option.

 

	
             
 	
            8.
 	
            Option Provisions.
 

 

	
             
 	
            (a)
 	
            Agreement.  Each option granted under the Plan shall be evidenced by a Stock Option Agreement executed by the Company and the optionee, and shall be subject to the following terms and conditions, and such other terms and conditions as may be prescribed by the Board or the Committee.
 

 

	
             
 	
            (b)
 	
            Payment.  The full purchase price of the shares acquired upon exercise of an option shall be paid in cash, certified or cashier’s check, or in the form of common stock of the Company of equal value.
 

 

If the terms of an option so permit, an optionee may elect to pay all or part of the option exercise price by having the Company withhold from the shares that would otherwise be issued upon exercise that number of shares having a Fair Market Value equal to the aggregate option exercise price for the shares with respect to which such election is made.

 

	
             
 	
            (c)
 	
            Exercise Period.  The period within which an option must be exercised shall be ten years from date of grant, or such shorter period as provided elsewhere in this Plan.  The Board or the Committee may provide that an option will vest and become exercisable only upon the completion of specified periods of employment, or the attainment of other performance goals.  To the extent exercisable, an option may be exercised in whole or in part.  Outstanding unvested options shall become immediately exercisable in full in the event the Company is acquired by merger, purchase of all or substantially all of the Company’s assets, or purchase of a majority of the outstanding stock by a single party or a group acting in concert.
 

 

	
             
 	
            (d)
 	
            Rights of Optionee Before Exercise.  The holder of an option shall not have the rights of a shareholder with respect to the shares covered by his 
 

 

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or her option until such shares have been issued to him or her upon exercise of an option.

 

	
             
 	
            (e)
 	
            No Rights to Continued Employment.  Nothing in the Plan or in any Stock Option Agreement entered into pursuant hereto shall be construed to confer upon any optionee any right to continue in the employ of the Company or any Subsidiary or interfere in any way with the right of the Company as the employer to terminate his or her employment at any time.
 

 

	
             
 	
            (f)
 	
            Death of Optionee.  Upon the death of an optionee, the option, or any portion thereof, may be exercised to the extent the optionee was entitled to do so at the time of the optionee’s death, by his or her executor or administrator or other person entitled by law to the optionee’s rights under the option, at any time within six months subsequent to the date of death.  The option shall automatically expire six months after the optionee’s death to the extent not exercised.
 

 

	
             
 	
            (g)
 	
            Termination of Employment.  If an optionee is an employee of the Company or a Subsidiary, and if the optionee’s employment is terminated other than by death or for conduct which is contrary to the best interests of the optionee’s employer, the optionee may, within 90 days of such termination, exercise any unexercised portion of the option to the extent he or she was entitled to do so at the time of such termination.  The option shall automatically expire 90 days after such termination to the extent not exercised.  If the optionee’s employment is terminated by the optionee’s employer for conduct which is contrary to the best interests of the optionee’s employer, as determined by the optionee’s employer in its sole discretion, the unexercised portion of the optionee’s option shall automatically expire at
that time.
 

 

	
             
 	
            (h)
 	
            Non-transferability of Option.  No option shall be transferable by the optionee other than by will or by the laws of descent and distribution, and each option shall be exercisable during the optionee’s life time only by the optionee.
 

 

	
             
 	
            (i)
 	
            Date of Grant.  The date on which the Board approves the granting of an option shall be considered the date on which such option is granted.
 

 

	
             
 	
            9.
 	
            Additional Provisions for Incentive Stock Options.  
 

 

	
             
 	
            (a)
 	
            Dollar Limit.  Each option granted to an employee shall constitute an incentive stock option, provided that no more than $100,000 of such options (based upon the fair market value of the underlying shares as of the date of grant) can first become exercisable for any employee in any calendar year.  To the extent an option grant exceeds the $100,000 limitation, it shall constitute a non-qualified stock option.  Each stock 
 

 

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option agreement with an employee shall specify the extent to which it is an incentive and/or non-qualified stock option.  For purposes of applying the $100,000 limitation, options granted under this Plan and all other incentive stock option plans of the Company and any parent or subsidiary corporation shall be included.

 

	
             
 	
            (b)
 	
            Ten Percent Shareholders.  No incentive stock option shall be granted to any employee who at the time directly or indirectly owns more than 10 percent of the combined voting power of all classes of stock of the Company or of a parent or subsidiary corporation, unless the exercise price is not less than 110 percent of the fair market value of such stock on the date of grant, and unless the option is not exercisable more than five years after the date of grant.
 

 

10.          Restrictions on Transfer.  During any period in which the offering of the shares under the Plan is not registered under federal and state securities laws, optionees shall agree in their stock option agreements that they are acquiring shares under the Plan for investment purposes, and not for resale, and that the shares cannot be resold or otherwise transferred except pursuant to registration or unless, in the opinion of counsel for the Company, registration is not required.

 

Any restrictions upon shares acquired upon exercise of an option pursuant to the Plan and the stock option agreement shall be binding upon the optionee, and his or her heirs, executors, and administrators.  Any stock certificate issued under the Plan which is subject to restrictions shall be endorsed so as to refer to the restrictions on transfer imposed by the Plan and by applicable securities laws.

 

11.          Termination of Plan.  The Plan shall terminate ten years after date of its adoption by the Board of Directors, unless sooner terminated by issuance of all shares reserved for issuance hereunder.  No option shall be granted under the Plan after such termination date.

 

12.          Amendment of the Plan.  The Board of Directors may at any time terminate the Plan, or make such modifications to the Plan as it shall deem advisable.  No termination or amendment of the Plan may, without the consent of the optionee to whom any option shall previously have been granted, adversely affect the rights of such optionee under such option.

 

13.          Shareholder Approval.  The Board of Directors shall submit the Plan to the Shareholders for approval not later than the next regular meeting of the shareholders.

 

 

 

018226/260001/546011_1

 

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