Document:

Exhibit
10.4

 

PURCHASE
OPTION AGREEMENT

 

This Purchase Option Agreement dated December 14,
2007 is between Rock Energy Partners, LP, Santa Maria Pacific, LLC, Gitte-Ten,
LLC, NW Casmalia Properties, LLC, Phoenix Energy, LLC, and Orcutt Properties,
LLC.

 

R E C I T
A L S:

 

WHEREAS, the parties
have entered into the Base Agreement;

 

WHEREAS, the Base
Agreement provides for entry into this Agreement by the parties; and

 

NOW, THEREFORE, in
good and valuable consideration, the parties agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

The definitions of the terms contained in the
Base Agreement are incorporated herein. All terms defined in the Base Agreement
will have the same meaning when employed in this Agreement. The following
additional terms as used in this Agreement shall have the meanings indicated
below unless the context otherwise requires:

 

1.1           “Base Agreement” shall mean the Base
Agreement dated December 1, 2007 executed by REP and the SMP Parties,
together with all exhibits and schedules attached thereto and referenced
therein and any and all properly executed amendments thereto that expressly
provide that they are to supplement, amend or revise said Based Agreement.

 

1.2           “Business Day” shall mean a day other
than a Saturday, a Sunday, or any federal holiday.

 

1.3           “Closing” shall mean the occurrence
of the events necessary to consummate a sale to REP pursuant to this Agreement.

 

1.4           “Closing Date” shall mean the date
specified as such in each notice of intent to exercise an option described in Article III,
Article IV and Article V of this Agreement.

 

1.5           “Consent Leases” shall mean the
Leases described in Exhibit A.

 

1.6           “Default” shall mean the occurrence
of any conditions, events or acts which would constitute an Event of Default or
which with the giving of notice or lapse of time or both would, unless cured or
waived, become an Event of Default.

 

 

1.7           “Development/Earn in Agreement” shall
mean the agreement dated December 14, 2007 between Rock Energy Partners,
LP, Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW Casmalia Properties, LLC,
Phoenix Energy, LLC, and Orcutt Properties, LLC.

 

1.8           “Event of Default” shall mean the occurrence of any
conditions, events or acts described in Section 9.1.

 

1.9           “NW
Casmalia Option A Interests” shall mean (i) a 3.33333% BPO Working
Interest and a 2.99997% APO Working Interest in the NW Casmalia Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the NW
Casmalia Property Rights.

 

1.10         “NW
Casmalia Option B Interests” shall mean (i) a 3.33333% BPO Working
Interest and a 2.99997% APO Working Interest in the NW Casmalia Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the NW
Casmalia Property Rights.

 

1.11         “NW
Casmalia Option C Interests” shall mean (i) a 3.33333% BPO Working
Interest and a 2.99997% APO Working Interest in the NW Casmalia Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the NW
Casmalia Property Rights.

 

1.12         “Option A” shall mean the option
granted pursuant to Article III of this Agreement which is subject to the
terms and conditions of this Agreement.

 

1.13         “Option A Exercise Period” shall mean
the period from the Closing Date with respect to the Development/Earn In
Agreement Option II until the earlier of (i) 3:00 p.m., Pacific
Standard Time, on June 30, 2008, or (ii) occurrence of an Event of
Default.

 

1.14         “Option A Interests” shall mean the
Orcutt GTL Option A Interests, Orcutt OPL Option A Interests, Orcutt PEL Option
A Interests and NW Casmalia Option A Interests.

 

1.15         “Option B” shall mean the option
granted pursuant to Article IV of this Agreement which is subject to the
terms and conditions of this Agreement.

 

1.16         “Option B Exercise Period” shall mean
from the Closing Date with respect to Option A until the earlier of (i) 3:00 p.m.,
Pacific Standard Time, on September 30, 2008, or (ii) occurrence of
an Event of Default.

 

1.17         “Option B Interests” shall mean the
Orcutt GTL Option B Interests, Orcutt OPL Option B Interests, Orcutt PEL Option
B Interests and NW Casmalia Option B Interests.

 

1.18         “Option C” shall mean the option
granted pursuant to Artcile IV of this Agreement which is subject to the terms
and conditions of this Agreement.

 

2

 

1.19         “Option C Exercise Period” shall mean
from the Closing Date with respect to Option B until the earlier of (i) 3:00 p.m.,
Pacific Standard Time, on December 31, 2008, or (ii) occurrence of an
Event of Default.

 

1.20         “Option C Interests” shall mean the
Orcutt GTL Option C Interests, Orcutt OPL Option C Interests, Orcutt PEL Option
C Interests and NW Casmalia Option C Interests.

 

1.21         “Orcutt GTL Option A Interests” shall
mean (i) a 3.69637% BPO Working Interest and a 3.32673% APO Working
Interest in the Orcutt GTL Leases, other than the Shell Lease, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
GTL Property Rights, all of which are subject to and burdened by the GTL
Adjustment ORRI.

 

1.22         “Orcutt GTL Option B Interests” shall
mean (i) a 3.69637% BPO Working Interest and a 3.32673% APO Working
Interest in the Orcutt GTL Leases, other than the Shell Lease, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
GTL Property Rights, all of which are subject to and burdened by the GTL
Adjustment ORRI.

 

1.23         “Orcutt GTL Option C Interests” shall
mean (i) a 3.69637% BPO Working Interest and a 3.32673% APO Working
Interest in the Orcutt GTL Leases, other than the Shell Lease, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
GTL Property Rights, all of which are subject to and burdened by the GTL
Adjustment ORRI.

 

1.24         “Orcutt
OPL Option A Interests” shall mean (i) a 3.33333% BPO Working Interest
and a 2.99997% APO Working Interest in the Orcutt OPL Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
OPL Property Rights.

 

1.25         “Orcutt
OPL Option B Interests” shall mean (i) a 3.33333% BPO Working Interest
and a 2.99997% APO Working Interest in the Orcutt OPL Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
OPL Property Rights.

 

1.26         “Orcutt
OPL Option C Interests” shall mean (i) a 3.33333% BPO Working Interest
and a 2.99997% APO Working Interest in the Orcutt OPL Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
OPL Property Rights.

 

1.27         “Orcutt
PEL Option A Interests” shall mean (i) a 3.33333% BPO Working Interest
and a 2.99997% APO Working Interest in the Orcutt PEL Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
PEL Property Rights.

 

3

 

1.28         “Orcutt
PEL Option B Interests” shall mean (i) a 3.33333% BPO Working Interest
and a 2.99997% APO Working Interest in the Orcutt PEL Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
PEL Property Rights.

 

1.29         “Orcutt
PEL Option C Interests” shall mean (i) a 3.33333% BPO Working Interest
and a 2.99997% APO Working Interest in the Orcutt PEL Leases, and (ii) a
3.33333% BPO Working Interest and a 2.99997% APO Working Interest in the Orcutt
PEL Property Rights.

 

1.30         “REP Reaffirmation and Release” shall
mean the instrument in the form of Exhibit B.

 

1.31         “SMP Parties Reaffirmation and Release”
shall mean the instrument in the form of Exhibit C.

 

ARTICLE II

 

Option
Price

 

2.1           Contemporaneously with the execution of this
Agreement, as the purchase price for Option A, Option B and Option C, REP has
delivered to SMP, as agent for itself and the remaining SMP Parties, REP’s
check in the amount of ONE HUNDRED AND NO/100 Dollars (U.S. $100.00) (the “Independent
Consideration”), which is in addition to and independent of any other
consideration provided hereunder. The Independent Consideration is
non-refundable and shall be retained by Seller under all circumstances.

 

2.2           The SMP Parties acknowledge the receipt of
the Independent Consideration and acknowledge the sufficiency of the
Independent Consideration as the purchase price for Option A, Option B and
Option C to solely support this Agreement.

 

ARTICLE
III

 

Option A

 

3.1           Grant of Option. Subject to the
strict adherence to the terms and conditions contained in this Agreement, the
SMP Parties hereby grant to REP the option to acquire an assignment of the (i) Orcutt
GTL Option A Interests, (ii) Orcutt PEL Option A Interests, (iii) Orcutt
OPL Option A Interests and (iv) NW Casmalia Option A Interests (excluding
the Consent Leases if consent to assign is not obtained), prior to expiration
of the Option A Exercise Period.

 

3.2           Notice of Intent to Exercise. REP
must deliver to the SMP Parties written notice by REP of its intent to exercise
Option A. The notice must be signed by REP and delivered to the SMP Parties no
later than three (3) Business Days prior to the earlier of (i) the
Closing Date, and (ii) expiration of the Option A Exercise Period. The
notice must specify a Closing Date that 

 

4

 

is prior to expiration of the
Option A Exercise Period. Delivery of such notice is a pre-condition to
exercise of Option A.

 

3.3           Closing. A Closing will be scheduled
for the Closing Date specified in the notice of intent to exercise pursuant to Section 3.2.

 

3.4           Exercise of Option. To exercise the
option granted pursuant to this Article, REP must at the Closing deliver to the
SMP Parties the following:

 

a.                                       by
transfer of immediately available funds to an account designated by the SMP
Parties, the sum of Eight Million Three Hundred Thirty-Three Thousand Three
Hundred Thirty-Three and 00/100 Dollars ($8,333,333.00) on or before the
Closing Date; and

 

b.                                      a
duly executed REP Reaffirmation and Release.

 

Provided that REP timely satisfies its requirements to exercise Option
A the SMP Parties shall at the Closing deliver to REP the following:

 

a.                                       an
assignment of the Orcutt GTL Option A Interests duly executed by GTL or its
assignee;

 

b.                                      an
assignment of the Orcutt PEL Option A Interests duly executed by PEL or its
assignee;

 

c.                                       an
assignment of the Orcutt OPL Option A Interests duly executed by OPL or its
assignee;

 

d.                                      an
assignment of the NW Casmalia Option A Interests (excluding the Consent Leases
if consent to assign is not obtained prior to Closing) duly executed by NWCL or
its assignee; and

 

e.                                       a
duly executed SMP Parties Reaffirmation and Release dated as of the Closing
Date.

 

3.5           Effect of Failure to Timely Exercise
Option A. As provided in Article IX, failure to timely satisfy all of
its requirements to exercise Option A shall constitute an Event of Default.

 

3.6           Effective Date of Assignment. The
Effective Date of the assignments of the (i) Orcutt GTL Option A
Interests, (ii) Orcutt PEL Option A Interests, (iii) Orcutt OPL
Option A Interests, and (iv) NW Casmalia Option A Interests, shall be July 1,
2008.

 

5

 

ARTICLE IV

 

Option B

 

4.1           Grant of Option. Subject to the
strict adherence to the terms and conditions contained in this Agreement, the
SMP Parties hereby grant to REP the option to acquire an assignment of the (i) Orcutt
GTL Option B Interests, (ii) Orcutt PEL Option B Interests, (iii) Orcutt
OPL Option B Interests, and (iv) NW Casmalia Option B Interests (excluding
the Consent Leases if consent to assign is not obtained), prior to expiration
of the Option B Exercise Period.

 

4.2           Notice of Intent to Exercise. REP
must deliver to the SMP Parties written notice by REP of its intent to exercise
Option B. The notice must be signed by REP and delivered to the SMP Parties no
later than three (3) Business Days prior to the earlier of (i) the
intended Closing Date, and (ii) expiration of the Option B Exercise Period.
The notice must specify a Closing Date that is prior to expiration of the
Option B Exercise Period. Delivery of such notice is a pre-condition to
exercise of Option B.

 

4.3           Closing. A Closing will be scheduled
for the Closing Date specified in the notice of intent to exercise pursuant to Section 4.2.

 

4.4           Exercise of Option. To exercise the
option granted pursuant to this Article, REP must at the Closing deliver to the
SMP Parties the following:

 

a.                                       by
transfer of immediately available funds to an account designated by the SMP
Parties, the sum of Eight Million Three Hundred Thirty-Three Thousand Three
Hundred Thirty-Three and 00/100 Dollars ($8,333,333.00) on or before the
Closing Date; and

 

b.                                      the
duly executed REP Reaffirmation and Release.

 

Provided that REP timely satisfies its requirements to exercise Option
B, the SMP Parties shall at the Closing deliver to REP the following:

 

a.                                       an
assignment of the Orcutt GTL Option B Interests duly executed by GTL or its
assignee;

 

b.                                      an
assignment of the Orcutt PEL Option B Interests duly executed by PEL or its
assignee;

 

c.                                       an
assignment of the Orcutt OPL Option B Interests duly executed by OPL or its
assignee;

 

d.                                      an
assignment of the NW Casmalia Option B Interests (excluding the Consent Leases
if consent to assign is not obtained prior to Closing) duly executed by NWCP or
its assignee; and

 

6

 

e.                                       a
duly executed SMP Parties Reaffirmation and Release

 

4.5           Effective Date of Assignment. The
effective date of the assignments of the (i) Orcutt GTL Option B
Interests, (ii) Orcutt PEL Option B Interests, (iii) Orcutt OPL
Option B Interest, and (iv) NW Casmalia Option B Interests, shall be October 1,
2008.

 

ARTICLE V

 

Option C

 

5.1           Grant of Option. Subject to the
strict adherence to the terms and conditions contained in this Agreement, the
SMP Parties hereby grant to REP the option to acquire an assignment of the (i) Orcutt
GTL Option C Interests, (ii) Orcutt PEL Option C Interests, (iii) Orcutt
OPL Option C Interests, and (iv) NW Casmalia Option C Interests (excluding
the Consent Leases if consent to assign is not obtained), prior to expiration
of the Option C Exercise Period.

 

5.2           Notice of Intent to Exercise. REP
must deliver to the SMP Parties written notice by REP of its intent to exercise
Option C. The notice must be signed by REP and delivered to the SMP Parties no
later than three (3) Business Days prior to the earlier of (i) the
intended exercise date, and (ii) expiration of the Option C Exercise
Period. The notice must specify a Closing Date that is prior to expiration of
the Option C Exercise Period. Delivery of such notice is a pre-condition to
exercise of Option C.

 

5.3           Closing. A Closing will be scheduled
for the date specified in the notice of intent to exercise pursuant to Section 5.2.

 

5.4           Exercise of Option. To exercise the
option granted pursuant to this Article, REP must at the Closing deliver to the
SMP Parties the following:

 

a.                                       by
transfer of immediately available funds to an account designated by the SMP
Parties, the sum of Eight Million Three Hundred Thirty-Three Thousand Three
Hundred Thirty-Three and 00/100 Dollars ($8,333,333.00); and

 

b.                                      the
duly executed REP Reaffirmation and Release.

 

Provided that REP timely satisfies the requirements to exercise Option
C, the SMP Parties shall at the Closing deliver to REP the following:

 

a.                                       an
assignment of the Orcutt GTL Option C Interests duly executed by GTL or its
assignee;

 

b.                                      an
assignment of the Orcutt PEL Option C Interests duly executed by PEL or its
assignee;

 

7

 

c.                                       an
assignment of the Orcutt OPL Option C Interests duly executed by OPL or its
assignee;

 

d.                                      an
assignment of the NW Casmalia Option C Interests (excluding the Consent Leases
if consent to assign is not obtained prior to Closing) duly executed by NWCP or
its assignee; and

 

e.                                       a
duly executed SMP Parties Reaffirmation and Release.

 

5.5           Effect of Failure to Timely Exercise
Option C. As provided in Article IX, failure to timely satisfy all of
its requirements to exercise Option C shall constitute an Event of Default.

 

5.6           Effective Date of Assignment. The
effective date of the assignments of the (i) Orcutt GTL Option C
Interests, (ii) Orcutt PEL Option C Interests, (iii) Orcutt OPL
Option C Interests, and (iv) NW Casmalia Option C Interests, shall be January 1,
2009.

 

ARTICLE VI

 

Access to
Information and Due Diligence

 

6.1           Record Review. To allow REP (i) to
confirm the SMP Parties’ title, and (ii) to conduct additional due
diligence with respect to the Orcutt Property and the NW Casmalia Property
(following the exercise of Option A), the SMP Parties shall prior to expiration
of the Option B Exercise Period, give REP access during normal business hours
to all contract land and lease and operational records; to the extent such data
and records are in the SMP Parties’ possession and relate to the property. The
Confidentiality Agreement will continue in force and effect.

 

6.2           Physical Inspection. The SMP Parties
(upon delivery by REP of its paid up insurance policy covering liability for
the matters listed below) will permit REP, at its sole risk and expense, to
conduct reasonable inspections of the Orcutt Property and the NW Casmalia
Property at times approved by the SMP Parties. REP shall repair any damage to
the properties resulting from its inspection and shall indemnify, defend and
hold the SMP Parties harmless from and against any and all Claims arising from
REP inspecting and observing the properties, including, without limitation, (a) Claims
for personal injuries to or death of employees of REP, its contractors, agents,
consultants and representatives, and damage to the property of REP or others
acting on behalf of REP, regardless of whether such Claims arise out of or
result in whole or in part, from the condition of the properties or the SMP
Parties’ (or its employees’, agents’, contractors’, successors’ or assigns’)
sole or concurrent negligence, strict liability or fault, and (b) Claims
for personal injuries to or death of employees of the SMP Parties or third
parties, and damage to the property of the SMP Parties or third parties, to the
extent caused by the negligence, gross negligence or willful misconduct of REP.

 

6.3           Non-Extension. The Option A Exercise
Period , the Option B Exercise Period and the Option C Exercise Period will not
be extended for any reason including REP’s inability 

 

8

 

to conduct additional inspections and review so long as such inability
is not the result, directly or indirectly, of the failure by the SMP Parties to
perform their obligations under this Agreement.

 

ARTICLE
VII

 

Treatment
of Option Exercise Payments

 

Each option exercise payment shall be the
cash purchase price for the acquired interest. The option exercise payments
provided for in this Agreement shall be the property of the SMP Parties upon
receipt. REP shall have no right to or interest in any option exercise payment.
The restriction on application of funds contained in the Development/Earn in
Agreement is not applicable to the option exercise payments made hereunder.

 

ARTICLE
VIII

 

Incorporation
of Base Agreement

Representations, Disclaimers, Warranties and Indemnities

 

REP and the SMP Parties ratify, confirm and
adopt with respect to the Option A Interests, the Option B Interests and the
Option C Interests  all
statements, terms, provisions, covenants, representations, disclaimers,
warranties and indemnities made in the Base Agreement with the same force and
effect as if set out in this Agreement in full.

 

ARTICLE IX

 

Defaults

 

9.1           Events
of Default. The occurrence of any one or more of the following events shall
constitute an Event of Default hereunder.

 

9.1.1        The failure of REP to
timely satisfy the requirements to exercise any of the following options:  (i) Development/Earn-In Agreement Option
I, (ii) Development/Earn-In Agreement Option II, (iii) Option A, (iv) Option
B, or (v) Option C;

 

9.1.2        The failure, refusal or
neglect of REP to properly observe, perform or comply with any covenant,
agreement or obligation contained in this Agreement, the Base Agreement or
Operating Agreements and the continuation of such failure, refusal or neglect
for fifteen (15) days after written notice thereof has been given to REP by an
SMP Party.

 

9.1.3        Any representation,
warranty or statement made by REP in this Agreement or the Base Agreement shall
prove to have been incorrect in any material respect when made or deemed to
have been made and is not cured by REP within ten (10) days after written
notice thereof has been given to REP by an SMP Party.

 

9

 

9.1.4        The filing or commencement
by REP of a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect, or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or REP shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debt as they become due, or shall take any corporate
action to authorize any of the foregoing.

 

9.1.5        The filing or commencement
of an involuntary case or other proceeding against REP seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for
a period of ninety (90) days; or an order for relief shall be entered against
REP under the federal bankruptcy laws as now or hereafter in effect.

 

9.2           Termination Consequences. Upon the
occurrence of an Event of Default hereunder all options granted pursuant to
this Agreement as to which a Closing has not occurred shall terminate.

 

ARTICLE X

 

Notices

 

Article XII of the Base Agreement is
incorporated herein and made applicable hereto.

 

ARTICLE XI

 

Miscellaneous

 

11.1         Incorporation. Article XIII of the
Base Agreement is incorporated herein and made applicable hereto.

 

11.2         Non-Exclusion. The express
incorporation of specific provisions of the Base Agreement herein shall not
limit the extent to which this Agreement and the assignments made hereunder are
controlled by the Base Agreement.

 

11.3         Lease Exclusion Payment. In the event
that consents to assignment of interests in the Consent Leases are not obtained
prior to a Closing, NWCL shall within seven (7) days of the Closing with
respect to each option pay to REP the sum of Nine Hundred Sixty-Three and
33/100 Dollars ($963.33).

 

10

 

IN WITNESS WHEREOF, the
authorized representatives of the parties executing this Agreement on the dates
stated below.

 

	
   

  	
  ROCK ENERGY PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  4R Oil & Gas, LLC, its General
  Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Rocky V. Emery

  	
   

  
	
   

  	
  Name:

  	
  Rocky V. Emery

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
	
   

  	
   

  
	
   

  	
  SANTA MARIA PACIFIC, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Pratt

  	
   

  
	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GITTE-TEN, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Pratt

  	
   

  
	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
	
   

  	
   

  
	
   

  	
  NW CASMALIA PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Pratt

  	
   

  
	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
	
   

  	
   

  
	
   

  	
  PHOENIX ENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Pratt

  	
   

  
	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
								

 

11

 

	
   

  	
  ORCUTT PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Pratt

  	
   

  
	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
					

 

12

 

DEVELOPMENT/EARN IN AGREEMENT

 

This Development/Earn In Agreement dated December 14, 2007 is
between Rock Energy Partners, LP, Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW
Casmalia Properties, LLC, Phoenix Energy, LLC, and Orcutt Properties, LLC.

 

R E C I T A L S:

 

WHEREAS, the parties
have entered into the Base Agreement;

 

WHEREAS, the Base
Agreement provides for entry into this Development Agreement by the parties;
and

 

NOW, THEREFORE, in
good and valuable consideration, the parties agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

The definitions of the terms contained in the Base Agreement are
incorporated herein.  Unless otherwise
defined in this Development Agreement, all terms defined in the Base Agreement
will have the same meaning when employed in this Development Agreement.  The following additional terms as used in
this Development Agreement shall have the meanings indicated below unless the
context otherwise requires:

 

1.1                                 “Approved Orcutt
Development Operations” shall mean Approved Development Operations relating
to the Orcutt Leases.

 

1.2                                 “Base Agreement”
shall mean the Base Agreement dated December 1, 2007 executed by REP and
the SMP Parties, together with all exhibits and schedules attached thereto and
referenced therein and any and all properly executed amendments thereto that
expressly provide that they are to supplement, amend or revise said Agreement.

 

1.3                                 “Business Day” shall mean a day other
than a Saturday, a Sunday, or any federal holiday.

 

1.4                                 “Closing” shall
mean the occurrence of the events necessary to consummate a sale to REP
pursuant to this Development Agreement.

 

1.5                                 “Closing Date”
shall mean the date specified as such in each notice of intent to exercise an
option described in Articles III and IV of this Development Agreement.

 

1.6                                 “Consent Leases”
shall mean the Leases described in Exhibit C.

 

 

1.7                                 “Default” shall
mean the occurrence of any conditions, events or acts which would constitute an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

 

1.8                                 “Development
Agreement” shall mean this Development/Earn-In Agreement together with all
exhibits and schedules attached hereto and referenced herein and any and all
properly executed amendments hereto that expressly provide that they are to
supplement, amend or revise this Development/Earn-In Agreement.

 

1.9                                 “Event of Default” shall mean the occurrence of any
conditions, events or acts described in Section 8.1.

 

1.10                           “NW
Casmalia Option II Interests” shall mean (i) a 10% BPO Working
Interest and a 9% APO Working Interest in the NW Casmalia Lease, and (ii) a
10% BPO Working Interest and a 9% APO Working Interest in the NW Casmalia
Property Rights.

 

1.11                           “Option I” shall mean
the option granted pursuant to Article III of this Development Agreement
which is subject to the terms and conditions of this Development Agreement.

 

1.12                           “Option I Exercise Period”
shall mean the period from the date of this Development Agreement until the
earlier of (i) 3:00 p.m., Pacific Standard Time, on February 15,
2008, or (ii) occurrence of an Event of Default.

 

1.13                           “Option I Interest”
shall mean the Orcutt GTL Option I Interests, Orcutt OPL Option I Interests and
Orcutt PEL Option I Interests.

 

1.14                           “Option II” shall
mean the option granted pursuant to Article IV of this Development
Agreement which is subject to the terms and conditions of this Development
Agreement.

 

1.15                           “Option II Interest”
shall mean the Orcutt GTL Option II Interests, Orcutt OPL Option II Interests,
Orcutt PEL Option II Interests and Option II NW Casmalia Interests.

 

1.16                           “Option II Exercise
Period” shall mean from the Closing Date with respect to Option II until
the earlier of (i) 3:00 p.m., Pacific Standard Time, on April 15,
2008, or (ii) occurrence of an Event of Default.

 

1.17                           “Orcutt GTL Option I
Interests” shall mean (i) a 1.85188% BPO Working Interest and a
1.66669% APO Working Interest in the Orcutt GTL Leases, other than the Shell
Lease, and (ii) a 1.67% BPO Working Interest and a 1.503% APO Working Interest
in the Orcutt GTL Property Rights, all of which are subject to and burdened by
the GTL Adjustment ORRI.

 

1.18                           “Orcutt GTL Option II
Interests” shall mean (i) a 5.54455% BPO Working Interest and a
4.99010% APO Working Interest in the Orcutt GTL Leases, other than the Shell 

 

2

 

Lease, and (ii) a 5% BPO
Working Interest and a 4.5% APO Working Interest in the Orcutt GTL Property
Rights, all of which are subject to and burdened by the GTL Adjustment ORRI.

 

1.19                           “Orcutt
OPL Option I Interests” shall mean (i) a 1.67% BPO Working Interest
and a 1.503% APO Working Interest in the Orcutt OPL Leases, and (ii) a
1.67% BPO Working Interest and a 1.503% APO Working Interest in the Orcutt OPL
Property Rights.

 

1.20                           “Orcutt
OPL Option II Interests” shall mean (i) a 5% BPO Working Interest and
a 4.5% APO Working Interest in the Orcutt OPL Leases, and (ii) a 5% BPO
Working Interest and a 4.5% APO Working Interest in the Orcutt OPL Property
Rights.

 

1.21                           “Orcutt
PEL Option I Interests” shall mean (i) a 1.67% BPO Working Interest
and a 1.503% APO Working Interest in the Orcutt PEL Leases, and (ii) a
1.67% BPO Working Interest and a 1.503% APO Working Interest in the Orcutt PEL
Property Rights.

 

1.22                           “Orcutt
PEL Option II Interests” shall mean (i) a 5% BPO Working Interest and
a 4.5% APO Working Interest in the Orcutt PEL Leases, and (ii) a 5% BPO
Working Interest and a 4.5% APO Working Interest in the Orcutt PEL Property
Rights.

 

1.23                           “Purchase Option
Agreement” shall mean an agreement by that title dated December 14,
2007 between REP, Santa Maria Pacific, LLC, Gitte-Ten, LLC, NW Casmalia
Properties, LLC, Phoenix Energy, LLC, and Orcutt Properties, LLC.

 

1.24                           “REP Reaffirmation and
Release” shall mean the instrument in the form of Exhibit A.

 

1.25                           “SMP Parties
Reaffirmation and Release” shall mean the instrument in the form of Exhibit B.

 

Any terms defined in other provisions of this Development Agreement
shall have the meanings set out therein unless the context requires otherwise.

 

ARTICLE II

 

Option Price

 

2.1                                 Contemporaneously
with the execution of this Development Agreement, as the purchase price for
Option I and Option II, REP has delivered to SMP, as agent for itself and the
remaining SMP Parties, REP’s check in the amount of ONE HUNDRED AND NO/100
Dollars (U.S. $100.00) (the “Independent Consideration”), which is in addition
to and independent of any other consideration provided hereunder.  The Independent Consideration is
non-refundable and shall be retained by Seller under all circumstances.

 

2.2                                 The
SMP Parties acknowledge the receipt of the Independent Consideration and
acknowledge the sufficiency of the Independent Consideration as the purchase
price for Option I and Option II and to solely support this Agreement.

 

3

 

ARTICLE III

 

Option I

 

3.1                                 Grant of Option.  Subject to the strict adherence to the terms
and conditions contained in this Development Agreement, the SMP Parties hereby
grant to REP the option to acquire an assignment of the (i) Orcutt GTL
Option I Interests, (ii) Orcutt PEL Option I Interests, and (iii) Orcutt
OPL Option I Interests, prior to expiration of the Option I Exercise Period.

 

3.2                                 Notice of Intent to
Exercise.  REP must deliver to the
SMP Parties written notice by REP of its intent to exercise Option I.  The notice must be signed by REP and
delivered to the SMP Parties no later than three (3) Business Days prior
to the earlier of (i) the Closing Date, and (ii) expiration of the
Option I Exercise Period.  The notice
must specify a Closing Date that is prior to expiration of the Option I
Exercise Period.  Delivery of such notice
is a pre-condition to exercise of Option I.

 

3.3                                 Closing.  A Closing will be scheduled for the Closing
Date specified in the notice of intent to exercise pursuant to Section 3.2.

 

3.4                                 Exercise of Option.  To exercise the option granted pursuant to
this Article, REP must at the Closing deliver to the SMP Parties the following:

 

a.                                       by transfer of
immediately available funds to an account designated by the SMP Parties, the
sum of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) on
or before the Closing Date; and

 

b.                                      a duly executed
REP Reaffirmation and Release.

 

Provided that REP timely satisfies its requirements to exercise Option
I, the SMP Parties shall at the Closing deliver to REP the following:

 

a.                                       an assignment of
the Orcutt GTL Option I Interests duly executed by GTL or its assignee;

 

b.                                      an assignment of
the Orcutt PEL Option I Interests duly executed by PEL or its assignee;

 

c.                                       an assignment of
the Orcutt OPL Option I Interests duly executed by OPL or its assignee; and

 

d.                                      a
duly executed SMP Parties Reaffirmation and Release dated as of the Closing
Date.

 

3.5                                 Effect
of Failure to Timely Exercise Option I. 
As provided in Article VIII, failure to timely satisfy all of its
requirement to exercise Option I shall constitute an Event of Default.

 

4

 

3.6                                 Effective
Date of Assignment.  The Effective
Date of the assignments of the (i) Orcutt GTL Option I Interests, (ii) Orcutt
PEL Option I Interests, and (iii) Orcutt OPL Option I Interests, shall be February 1,
2008.

 

ARTICLE IV

 

Option II

 

4.1                                 Grant of Option.  Subject to the strict adherence to the terms
and conditions contained in this Development Agreement, the SMP Parties hereby
grant to REP the option to acquire an assignment of the (i) Orcutt GTL
Option II Interests, (ii) Orcutt PEL Option II Interests, (iii) Orcutt
OPL Option II Interests, and (iv) NW Casmalia Option II Interests
(excluding the Consent Leases if consent to assign is not obtained), prior to
expiration of the Option II Exercise Period.

 

4.2                                 Notice of Intent to
Exercise.  REP must deliver to the
SMP Parties written notice by REP of its intent to exercise Option II.  The notice must be signed by REP and
delivered to the SMP Parties no later than three (3) Business Days prior
to the earlier of (i) the intended Closing Date, and (ii) expiration
of the Option II Exercise Period.  The
notice must specify a Closing Date that is prior to expiration of the Option II
Exercise Period.  Delivery of such notice
is a pre-condition to exercise of Option I.

 

4.3                                 Closing.  A Closing will be scheduled for the Closing
Date specified in the notice of intent to exercise pursuant to Section 4.2.

 

4.4                                 Exercise of Option.  To exercise the option granted pursuant to
this Article, REP must at the Closing deliver to the SMP Parties the following:

 

a.                                       by transfer of
immediately available funds to an account designated by the SMP Parties, the
sum of Six Million Seven Hundred Twenty Thousand and 00/100 Dollars
($6,720,000.00) on or before the Closing Date;

 

b.                                      the duly executed
REP Reaffirmation and Release; and

 

c.                                       the duly
executed NW Casmalia Operating Agreement.

 

Provided that REP timely satisfies the requirements to exercise Option
II, the SMP Parties shall at the Closing deliver to REP the following:

 

a.                                       an assignment of
the Orcutt GTL Option II Interests duly executed by GTL or its assignee;

 

b.                                      an assignment of
the Orcutt PEL Option II Interests duly executed by PEL or its assignee;

 

5

 

c.                                       an assignment of
the Orcutt OPL Option II Interests duly executed by OPL or its assignee;

 

d.                                      an assignment of
the NW Casmalia Option II Interests (excluding the Consent Leases if consent to
assign is not obtained prior to Closing) duly executed by NWCP or its assignee;
and

 

e.                                       a duly executed
SMP Parties Reaffirmation and Release.

 

4.5                                 Effect
of Failure to Timely Exercise Option II. 
As provided in Article VIII failure to timely satisfy all of its
requirements to exercise Option II shall constitute an Event of Default.

 

4.6                                 Effective
Date of Assignment. The effective date of the assignments of the (i) Orcutt
GTL Option II Interests, (ii) Orcutt PEL Option II Interests, (iii) Orcutt
OPL Option II Interests, and (iv) NW Casmalia Option II Interests, shall
be April 1, 2008.

 

ARTICLE V

 

Access to Information and Due Diligence

 

5.1                                 Record
Review.  To allow REP (i) to
confirm the SMP Parties’ title, and (ii) to conduct additional due
diligence with respect to the Orcutt Property and (following the exercise of
Option I), the NW Casmalia Property, the SMP Parties shall prior to expiration
of the Option II Exercise Period, give REP access during normal business hours
to all contract land and lease and operational records; to the extent such data
and records are in the SMP Parties’ possession and relate to the property.  The Confidentiality Agreement will continue
in force and effect.

 

5.2                                 Physical Inspection.  The SMP Parties will (upon delivery by REP of
its paid up insurance policy covering liability for the matters listed below)
permit REP, at its sole risk and expense, to conduct reasonable inspections of
the Orcutt Property and, following exercise of Option I, the NW Casmalia
Property, at times approved by the SMP Parties. 
REP shall repair any damage to the properties resulting from its
inspection and shall indemnify, defend and hold the SMP Parties harmless from
and against any and all Claims arising from REP inspecting and observing the
properties, including, without limitation, (a) Claims for personal
injuries to or death of employees of REP, its contractors, agents, consultants
and representatives, and damage to the property of REP or others acting on
behalf of REP, regardless of whether such Claims arise out of or result in
whole or in part, from the condition of the properties or the SMP Parties’ (or
its employees’, agents’, contractors’, successors’ or assigns’) sole or
concurrent negligence, strict liability or fault, and (b) Claims for
personal injuries to or death of employees of the SMP Parties or third parties,
and damage to the property of the SMP Parties or third parties, to the extent
caused by the negligence, gross negligence or willful misconduct of REP.

 

5.3                                 Environmental
Inspection.  Prior to expiration of
the Option I Exercise Period, REP shall have the right, at its sole cost, to
perform and environmental assessment of the Orcutt Property and, following
exercise of Option I, the NW Casmalia Property. 
Unless otherwise agreed by the SMP Parties, the environmental assessment
shall consist of (i) a review of all 

 

6

 

contracts, records and data
(other than related to the Excluded Properties) relating to environmental
matters, including without limitation, all environmental reports and site
assessments to the extent such contracts, records and data are in the SMP
Parties’ possession and government environmental records, and (ii) a site
visit to visually inspect the property.

 

5.4                                 Non-Extension.  The Option I Exercise Period and the Option
II Exercise Period will not be extended for any reason including REP’s
inability to conduct additional inspections and review so long as such
inability is not the result, directly or indirectly, of the failure by the SMP
Parties to perform their obligations under this Agreement.

 

ARTICLE VI

 

Application of Option Exercise Payments

 

6.1                                 Ownership of Funds.  The option exercise payments provided for in
this Development Agreement shall be the property of the applicable SMP Party
immediately upon receipt.  REP shall have
no right to or interest in any option exercise payment.

 

6.2                                 Application of
Option I Exercise Payment.  The
Option I Exercise Payment received by the applicable SMP Party pursuant to Article III
shall be expended by said SMP Party in connection with Direct Cost of Approved
Orcutt Development Operations.

 

6.3                                 Application of
Option II Exercise Payment.  The
Option II Exercise Payment received by the applicable SMP Parties pursuant to Article IV
shall be expended by said SMP Parties solely in connection with Direct Cost of
Approved Development Operations.

 

ARTICLE VII

 

Incorporation of Base Agreement

Representations, Indemnities, Disclaimers and
Warranties

 

REP and the SMP Parties ratify, confirm and adopt with respect to the
Option I Interest and the Option II Interest all statements, terms, provisions,
covenants, representations, indemnities, disclaimers and warranties made in the
Base Agreement with the same force and effect as if set out in this Development
Agreement in full.

 

ARTICLE VIII

 

Defaults

 

8.1                                 Events
of Default.  The occurrence of any
one or more of the following events shall constitute an Event of Default
hereunder.

 

8.1.1                        The
failure of REP to timely satisfy the requirements to exercise either Option I
or Option II;

 

7

 

8.1.2                        The
failure, refusal or neglect of REP to properly observe, perform or comply with
any covenant, agreement or obligation contained in the Transaction Documents
and the continuation of such failure, refusal or neglect for fifteen (15) days
after written notice thereof has been given to REP by an SMP Party.

 

8.1.3                        Any
representation, warranty or statement made by REP in this Development Agreement
or the Base Agreement by REP shall prove to have been incorrect in any material
respect when made or deemed to have been made and is not cured by REP within
ten (10) days after written notice thereof has been given to REP by an SMP
Party.

 

8.1.4                        The filing
or commencement by REP of a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect,
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or REP
shall consent to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debt as they become due, or shall take any
corporate action to authorize any of the foregoing.

 

8.1.5                        The filing
or commencement of an involuntary case or other proceeding against REP seeking
liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for
a period of ninety (90) days; or an order for relief shall be entered against
REP under the federal bankruptcy laws as now or hereafter in effect.

 

8.2                                 Termination
Consequences.  Upon the occurrence of
an Event of Default hereunder (i) all options granted pursuant to this Development
Agreement as to which a Closing has not occurred shall terminate, and (ii) all
rights and options of REP under the Purchase Option Agreement shall terminate.

 

ARTICLE IX

 

Notices

 

Article XII of the Base Agreement is incorporated herein and made
applicable hereto.

 

8

 

ARTICLE X

 

Miscellaneous

 

10.1                           Article XIII of the
Base Agreement is incorporated herein and made applicable hereto.

 

10.2                           Non-Exclusion.  The express incorporation of specific
provisions of the Base Agreement herein shall not limit the extent to which
this Agreement and the assignments made hereunder are controlled by the Base
Agreement.

 

10.3                           Lease Exclusion Payment.  In the event that consents to assignment of
the interests in the Consent Leases are not obtained prior to the Option II
Closing, NWCL shall within seven (7) days of the Closing pay to REP the
sum of Two Thousand Eight Hundred Ninety and 00/100 Dollars ($2,890.00).

 

IN WITNESS WHEREOF, the
authorized representatives of the parties have executed this Development
Agreement as of the date first set out above.

 

	
   

  	
   

  	
  ROCK ENERGY
  PARTNERS, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  4R Oil & Gas, LLC, its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Rocky V.
  Emery

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Rocky V.
  Emery

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
   

  	
  Date:

  	
  12-12-07

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SANTA MARIA
  PACIFIC, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David
  Pratt

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
   

  	
  Date:

  	
  12-12-07

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GITTE-TEN, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David
  Pratt

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
   

  	
  Date:

  	
  12-12-07

  	
   

  
								

 

9

 

	
   

  	
  NW CASMALIA
  PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David
  Pratt

  	
   

  
	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PHOENIX ENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David
  Pratt

  	
   

  
	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ORCUTT
  PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David
  Pratt

  	
   

  
	
   

  	
  Name:

  	
  David Pratt

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
  Date:

  	
  12-12-07

  	
   

  
							

 

10Exhibit 10.5

 

> In accordance with
Paragraph 3.5 of that certain Asset Purchase Agreement “(APA”) entered into on December     ,
2007, the undersigned agree that he (she) will not publicly or privately sell,
assign, transfer, convey pledge or hypothicate any shares of the common stock
of Hanover Gold Company, Inc for a period of three months from the closing date
of the APA. Thereafter such sales shall be limited to 5 percent, 10 percent and
20 percent respectively of the undersigned’s holdings for each of the following
three month periods, respectively. Following such periods, there shall be no
further restrictions on such sales. 

	
  > 

  
	
  > Dated

  	
   

  	
   

  
	
  > 

  
	
  > 

  	
   

  	
   

  
	
  > Print name

  
	
  > 

  
	
  > 

  	
   

  	
   

  
	
  > Signature

  
	
  > 

  
	
  > 

  	
   

  	
   

  
	
  > Number of shares
  owned

  
	
  > 

  
	
  >

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00134-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00134-of-00352.parquet"}]]