Document:

Exhibit 10.2

 

LEASE ACQUISITION

AND

PARTICIPATION AGREEMENT

 

BETWEEN

FORT PECK ENERGY COMPANY, LLC

AND

SAMSON OIL AND GAS USA MONTANA, INC.

 

DATED AS OF JUNE 22, 2011

 

  

  

  

  

TABLE OF CONTENTS

 

	
Article I. AGREEMENT FOR PURCHASE AND SALE

	
2

	
Section 1.1   Agreement for Purchase and Sale

	
2

	
Section 1.2   Access to Records

	
3

	
Section 1.3   On-Site Inspection

	
3

	
Section 1.4   Confidentiality

	
4

	
Section 1.5   Disclaimer

	
5

	
Section 1.6   Purchase Price for Initial Leases

	
5

	
Section 1.7   Conditions Precedent to Closing

	
5

	
Section 1.8   Closing

	
6

	
Section 1.9   Termination

	
7

	
Section 1.10    Liabilities Upon Termination

	
7

	
Section 1.11    In-Process Leases

	
8

	
Section 1.12    Option to Exclude River Acreage

	
8

	
Section 1.13    Option to Purchase Additional Acreage

	
8

	
Section 1.14    Sales by Buyer of Block A Purchased Acreage

	
10

	
Section 1.15    Tag-Along Right

	
10

	
Article II. TITLE MATTERS

	
11

	
Section 2.1   Certain Definitions

	
11

	
Section 2.2   Title Defect

	
12

	
Section 2.3   Consents

	
13

	
Section 2.4   Special Warranty of Title; Subrogation of Warranties

	
14

	
Section 2.5   Title Benefit

	
14

	
Article III. DRILLING COMMITMENT

	
14

	
Section 3.1   Initial Test Wells

	
14

	
Section 3.2   Force Majeure

	
17

	
Section 3.3   Additional Drilling

	
17

	
Article IV. SELLER’S PARTICIPATION OPTION

	
18

	
Section 4.1   Seller’s Participation Option

	
18

	
Article V. AREA OF MUTUAL INTEREST

	
19

	
Section 5.1   Area of Mutual Interest

	
19

	
Section 5.2   Marketing AMI Leases to Third Parties

	
21

	
Section 5.3   Seller’s AMI Option

	
21

	
Section 5.4   Mattelin Property

	
21

	
Article VI. OPERATORSHIP

	
22

	
Section 6.1   Joint Operating Agreement

	
22

	
Article VII. SELLER’S REPRESENTATIONS AND WARRANTIES

	
22

	
Section 7.1   Seller’s Representations and Warranties

	
22

	
Article VIII. BUYER’S REPRESENTATIONS AND WARRANTIES

	
24

	
Section 8.1   Buyer’s Representations And Warranties

	
24

	
Article IX. POST-CLOSING OBLIGATIONS

	
25

	
Section 9.1   Post-Closing Obligations

	
25

	
Article X. DISCLAIMERS

	
25

	
Section 10.1     Disclaimer; Title; Condition and Fitness of the Properties

	
25

	
Section 10.2     Information About the Properties

	
26

   

  

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Article XI. MISCELLANEOUS

	
26

	
Section 11.1     Exhibits and Schedules

	
26

	
Section 11.2     Expenses

	
26

	
Section 11.3     Notices

	
26

	
Section 11.4     Amendments

	
28

	
Section 11.5     Headings

	
28

	
Section 11.6     Counterparts/Fax Signatures

	
28

	
Section 11.7     References

	
28

	
Section 11.8     Governing Law; Wavier of Jury Trial

	
28

	
Section 11.9     Arbitration

	
28

	
Section 11.10   Entire Agreement

	
29

	
Section 11.11   Binding Effect

	
29

	
Section 11.12   No Third-Party Beneficiaries

	
29

	
Section 11.13   Survival

	
29

	
Section 11.14   Waiver

	
29

	
Section 11.15   Limitation on Damages

	
30

	
Section 11.16   Severability

	
30

	
Section 11.17   Announcements

	
30

	
Section 11.18   Transfer Taxes and Recording Fees

	
30

	
Section 11.19   Relationship of the Parties

	
30

	
Section 11.20   Further Assurances

	
30

 

EXHIBITS AND SCHEDULES:

 

	
Exhibit A

	
Plat of Block A

	
Exhibit B

	
Initial Acreage

	
Exhibit C

	
Initial Leases (WI and Net Acres)

	
Exhibit D

	
Form of Assignment

	
Exhibit E

	
AMI

	
Exhibit F

	
JOA

	
Exhibit G

	
Technical Requirements

	
Exhibit H

	
In-Process Leases

	
Exhibit I

	
Mattelin Leases

  

  

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INDEX OF DEFINITIONS

 

	
Acreage Deficiency

	
13

	
Acreage Participation Option

	
18

	
Actual Acres

	
13

	
Affected Party

	
17

	
Agreement

	
1

	
AMI

	
19

	
AMI Assignment

	
20

	
AMI Leases

	
19

	
AMI Purchase Price

	
20

	
AMI Term

	
19

	
Area of Mutual Interest

	
19

	
Assignment

	
6

	
BIA

	
7

	
Block A

	
1

	
Block A Purchased Acreage

	
9

	
Buyer

	
1

	
Buyer’s Drilling Costs

	
17

	
Claims

	
4

	
Closing

	
6

	
Closing Date

	
6

	
Closing Statement

	
5

	
Cure Period

	
13

	
Defensible Title

	
11

	
Divestiture

	
9

	
Divestiture Agreement

	
10

	
Divestiture Lands

	
10

	
Divestiture Offer

	
10

	
Drilling and Completion

	
17

	
Due Diligence Materials

	
4

	
Effective Date

	
1

	
Environmental Assessment

	
3

	
Environmental Defect

	
3

	
Environmental Defect Notice

	
3

	
First Test Well

	
14

	
Force Majeure

	
17

	
Fort Peck AMI Agreement

	
12

	
Hull Lease

	
16

	
Initial Acreage

	
2

	
Initial Leases

	
2

	
In-Process Leases

	
7

	
Intended Acres

	
13

	
Intended Initial Net Acres

	
2

	
Joint Operating Agreement

	
22

	
Lease Burdens

	
2

	
Mattelin Lease

	
21

	
Net Acre Deficit

	
8

	
Net Acre Surplus

	
8

	
Net Acres

	
2

	
Net Revenue Interest

	
11

	
Non-Acquiring Party

	
20

	
Objective Depth

	
14

	
Option

	
8

	
Option Acres

	
9

	
Option Allowance

	
8

	
Option Closing Date

	
9

	
Option Closing Statement

	
9

	
Option Exercise Notice

	
9

	
Option Lease

	
9

	
Option Price

	
9

	
Option Termination Date

	
9

	
Optional Acreage

	
9

	
Opt-Out Lands

	
19

	
Participating Interest

	
20

	
Parties

	
1

	
Party

	
1

	
Permitted Encumbrances

	
11

	
Production Notice

	
17

	
Property Records

	
3

	
Prospective Purchaser

	
10

	
Purchase Price

	
5

	
Remaining Acreage

	
8

	
Remaining Block A Purchased Acreage

	
18

	
Replaced Lease(s)

	
8

	
Restricted Period

	
10

	
Second Test Well

	
15

	
Seller

	
1

	
Stabilized Production

	
17

	
Stimulation Well

	
21

	
Substitute Well

	
15

	
Substitution Lease

	
8

	
Substitution Notice

	
8

	
Substitution Period

	
8

	
Tag-Along Right

	
10

	
Target Lands

	
19

	
Target Lease Terms

	
19

	
Target Meeting

	
19

 

  

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Test Well

	
14

	
Test Well Option Price

	
18

	
Test Wells

	
14

	
Title Benefit

	
14

	
Title Defect

	
12

	
Title Defect Notice

	
12

	
Title Examination Period

	
12

	
Undivided Divestiture Interest

	
10

	
Well Costs

	
18

	
Well Information

	
18

  

  

iv

  

EXECUTION VERSION

LEASE ACQUISITION AND PARTICIPATION AGREEMENT

 

This Lease Acquisition and Participation Agreement (“Agreement”), dated this 22nd day of June, 2011 (the “Effective Date”), is by and between Fort Peck Energy Company, LLC, a Delaware limited liability company (“Seller”), and SAMSON OIL AND GAS USA MONTANA, INC., a Colorado corporation (“Buyer”).  Each of Seller and Buyer is sometimes referred to herein as a “Party” and they are sometimes collectively referred to herein as the “Parties.”

WITNESSETH

WHEREAS, Seller is the owner of certain oil and gas leases covering lands in Daniels, Roosevelt, Sheridan, and Valley Counties, Montana; and

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, oil and gas leases covering not less than 20,000 Net Acres (as defined herein) out of the area known as the “Fort Peck East Exploration Area — Block A”, which area is shown on Exhibit A attached hereto (“Block A”), together with the option to acquire oil and gas leases covering up to an additional 20,000 Net Acres out of Seller’s remaining acreage, all as more fully described herein; and

WHEREAS, Seller desires to retain the option, but not the obligation, to participate for a 33.3% interest in either or both of the initial two wells drilled by Buyer on the acquired leases, together with the option to purchase an undivided 33.3% interest in any remaining acreage acquired by Buyer from Seller that was not included in the spacing units for such initial two wells; and

WHEREAS, Seller and Buyer desire to establish an area of mutual interest and to provide for the potential acquisition of additional leases within such area of mutual interest under terms mutually agreeable to Seller and Buyer.

NOW, THEREFORE, for and in consideration of the mutual covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

  

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ARTICLE I.

 

AGREEMENT FOR PURCHASE AND SALE

 

Section 1.1           Agreement for Purchase and Sale.

 

(a)           Subject to the terms and conditions of this Agreement and the reservations and exceptions set forth herein, Buyer agrees to purchase from Seller, and Seller agrees to sell, assign and deliver to Buyer, all of Seller’s right, title and interest in and to oil and gas leases (the “Initial Leases”) covering the lands within Block A described in Exhibit B attached hereto (such lands being collectively referred to herein as the “Initial Acreage”).  The approximate number of Net Acres covered by the Initial Leases, in the aggregate, before giving effect to any substitutions or exclusions as provided herein, is 20,028.406 Net Acres (the “Intended Initial Net Acres”).

 

(b)           Seller shall use reasonable efforts to deliver Defensible Title (as defined herein) to 100% of the Initial Leases.  To the extent, Seller is able to deliver Defensible Title (as defined herein) to Initial Leases covering at least 90%, but less than 100%, of the Intended Initial Net Acres, then:  (i) Seller may assign to Buyer all of its right, title and interest in other oil and gas leases covering an approximately equivalent number of Net Acres in adjoining (to the extent possible) lands in Block A in substitution for the Net Acres in the Initial Leases as to which Seller is unable to deliver Defensible Title, or (ii) Buyer, in its sole discretion, may elect to waive any title defect(s).  To the extent Seller is unable to deliver Defensible Title to Initial Leases covering at least 90% of the Intended Initial Net Acres, then either Party may terminate this Agreement upon written notice to the other Party delivered prior to Closing, and upon such termination neither Party shall have any further obligation or liability to the other Party hereunder.

 

(c)           Notwithstanding any other provision hereof, Seller shall reserve from the assignment(s) of the Initial Leases and, if applicable, the Mattelin Leases, an overriding royalty interest in the Initial Leases and the Mattelin Leases equal to the positive difference, if any, between 20% and lease burdens existing as of the effective date of such assignment, including, without limitation, lessors’ royalties, overriding royalties, and similar burdens on or measured by production from the Initial Leases (“Lease Burdens”).

 

(d)           If prior to Closing either Party notifies the other Party of any Initial Lease as to which Seller’s Net Revenue Interest is less than 80% (or such lower Net Revenue Interest with respect to such Lease as may be specified in Exhibit C), proportionately reduced in the event Seller’s working interest in such Lease is less than 100% or the subject lease covers less than 100% of the mineral estate in the lands covered thereby, then, unless such defect is waived by Buyer or cured prior to Closing, the affected lease shall be excluded from the Initial Leases delivered at Closing and, at Seller’s election, either (i) the Purchase Price payable by Buyer at Closing shall be reduced by the price allocable to such excluded lease, or (ii) Seller shall assign to Buyer all of its right, title and interest in other oil and gas leases covering an approximately equivalent number of Net Acres in adjoining (to the extent possible) lands in Block A in substitution for the Net Acres in the affected leases.  Except with respect to breaches of Seller’s special warranty of title, the provisions of this Section 1.1 shall be Buyer’s sole and exclusive remedies for Title Defects of which Buyer has actual knowledge prior to Closing.  For purposes of the foregoing sentence, Buyer’s actual knowledge shall mean the actual knowledge of an executive officer of Buyer or of Conrad Woodland or Tracy Butzen.

 

(e)           For purposes of this Agreement, “Net Acres” shall mean with respect to a lease (i) the undivided interest of Seller in the leasehold estate created by the applicable lease multiplied by (ii) the number of acres covered by the lease multiplied by (iii) the lessor’s percentage interest in the oil and gas mineral estate in the land covered by the lease.

 

  

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Section 1.2           Access to Records.

 

(a)           As used herein, “Property Records” means all of Seller’s lease files, abstracts, title opinions, title memoranda and contract files, insofar as they are directly related to the Initial Leases, including all leases, surface agreements and related contracts thereto; provided, however, that the Property Records shall not include Seller’s internal memoranda, notes, and correspondence.

 

(b)           Seller shall make the Property Records available to Buyer at the offices of Seller during Seller’s normal business hours.  Subject to the consent and cooperation of third parties, Seller will assist Buyer in Buyer’s efforts to obtain, at Buyer’s expense, such additional information from such third parties as Buyer may reasonably request.  Buyer may inspect the Property Records and such additional information only to the extent that it may do so without violating any obligation of confidence or contractual commitment of Seller to a third party.  Seller shall use commercially reasonable efforts, but at no cost or expense to Seller, to obtain the necessary consents to allow Buyer’s examination of any confidential information that is material to the transaction contemplated by this Agreement.

 

Section 1.3           On-Site Inspection.

 

(a)           Seller hereby consents to Buyer conducting, prior to Closing and upon advance notice to Seller, at Buyer’s sole risk and expense, on-site inspections and an ASTM Phase One Environmental Assessment (the “Environmental Assessment”) of the Initial Acreage.  In connection with the Environmental Assessment, Buyer agrees not to interfere with the normal operations on the Initial Acreage and agrees to comply with all requirements and safety policies of the operator.  Seller shall be provided at least forty-eight (48) hours’ prior notice of any such inspection, and Seller’s representative(s) shall have the right to witness all such inspections.  Buyer may not, without the prior written consent of Seller, conduct any borings or other invasive tests or examinations with respect to the Initial Acreage.  The cost and expense of the Environmental Assessment shall be borne solely by Buyer.  With respect to any samples taken in connection with the Environmental Assessment, Buyer shall take split samples, providing one of each such sample, properly labeled and identified, to Seller.

 

  

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(b)           If the Environmental Assessment identifies any condition or conditions on or of the Initial Leases which, in the aggregate, cause them to be not in compliance in any material respect with any applicable federal, state or local environmental laws (an “Environmental Defect”), Buyer shall notify Seller prior to the Closing of such alleged Environmental Defect.  To be effective, such notice (the “Environmental Defect Notice”) must (i) be in writing, (ii) be received by Seller prior to Closing, (iii) describe the Environmental Defect in reasonable detail, including identification of the Initial Lease(s) affected thereby and the environmental laws allegedly violated; (iii) include Buyer’s proposed curative for such Environmental Defect; and (iv) include a copy of the Environmental Assessment or other report identifying the Environmental Defect prepared by a reputable environmental consultant with experience conducting environmental assessments covering oil and gas leases located in the State of Montana.  Any matters that may otherwise constitute Environmental Defects, but of which Seller has not been specifically notified by Buyer in accordance with the foregoing, shall be deemed to have been waived by Buyer for all purposes.  Upon the receipt of an effective Environmental Defect Notice from Buyer, Seller shall have the option, but not the obligation, to attempt to cure such Environmental Defect at any time prior to the Closing, in which event Seller may, upon written notice to Buyer, extend the Closing by up to thirty (30) days, during which period Seller shall endeavor to cure such Environmental Defect(s).  Alternatively, if Buyer and Seller so agree in writing, Seller may elect to cure the Environmental Defect post-Closing, at Seller’s expense, in which event the Closing shall not be extended and Seller shall, at Seller’s expense, use commercially reasonable best efforts post-Closing to cure the Environmental Defect in a timely manner.  If Seller elects to attempt to cure an Environmental Defect, Seller may implement the lowest cost reasonable effective remedy for such Environmental Defect which is consistent with applicable environmental laws, taking into account that non-permanent remedies may be the most cost effective curative reasonably available.  Unless (i) Seller cures such Environmental Defects prior to Closing (as Closing may be extended as provided above); (ii) Seller and Buyer agree in writing that such Environmental Defects may be cured post-Closing, as provided above; or (iii) Buyer waives such Environmental Defect(s), then the lease(s) affected thereby shall be excluded from this Agreement and the Purchase Price shall be reduced by an amount equal to the price payable for such lease pursuant to Section 1.6(a); provided, however, that either Party may, upon written notice to the other, terminate this Agreement if, after giving effect to such exclusions, the remaining Initial Leases cover less than 85% of the Intended Initial Net Acres.

 

(c)           Buyer hereby RELEASES and INDEMNIFIES and SHALL DEFEND AND HOLD HARMLESS Seller and its respective members, managers, employees, agents, representatives, contractors, successors, and assigns) (the “Indemnified Parties”) from and against any and all claims, demands, actions, causes of action, suits, and other legal proceedings, judgments, assessments, damages, penalties, fines, costs, and expenses (including reasonable attorneys’ fees) (collectively, “Claims”) arising from Buyer’s inspection of the Initial Acreage, including, without limitation, Claims for personal injuries to or death of any person or damage to the property of any person, except for injuries, death or damage to property caused by the gross negligence or willful misconduct of the Indemnified Parties.  THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE INITIAL ACREAGE OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OR STRICT LIABILITY OF, ANY OF THE INDEMNIFIED PARTIES.

 

Section 1.4           Confidentiality.  Buyer shall keep any data or information acquired by Buyer in the course of its due diligence examination (including, without limitation, information acquired pursuant to its review of the Property Records and its conduct of the Environmental Assessment) and any reports or results generated from such due diligence examination (the “Due Diligence Materials”) strictly confidential and shall not disclose any of such data, information or results to any governmental authority or other third party unless required by law or regulation and then only after written notice to Seller of the determination of the need for disclosure.  If Buyer becomes legally compelled to disclose any of the Due Diligence Materials, Buyer shall use all commercially reasonable efforts to provide Seller with notice sufficiently prior to any such disclosure so as to allow Seller, at Seller’s expense, to file any protective order, or seek any other remedy, as it deems appropriate under the circumstances.  Buyer shall use the Due Diligence Materials only in connection with the transactions contemplated by this Agreement.  If this Agreement is terminated prior to the Closing, Buyer shall, upon Seller’s request, deliver the Due Diligence Materials to Seller, which Due Diligence Materials shall become the sole property of Seller.

 

  

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Section 1.5          Disclaimer.  Except for the representations and warranties contained in this Agreement, Seller makes no warranty or representation of any kind as to the Property Records or any information contained therein.  Buyer agrees that any conclusions drawn from the Property Records shall be the result of its own independent review and judgment.

 

Section 1.6           Purchase Price for Initial Leases.

 

(a)           Purchase Price.  The purchase price payable by Buyer to Seller for the Initial Leases (the “Purchase Price”) shall be an amount equal to the sum of the following:  (a) with respect to those Initial Leases acquired by Seller prior to the Effective Date, the purchase price shall be $175 per Net Acre, multiplied by the number of Net Acres covered by such Initial Leases, as set forth in Exhibit C; and (b) with respect to those Initial Leases acquired by Seller between the Effective Date and the Closing Date, the purchase price shall be (i) $175 per Net Acre multiplied by the number of Net Acres covered by such Initial Leases, or (ii) if greater, the lease bonus, first year rental payment and other acquisition costs actually paid by Seller for such Initial Leases plus any additional actual costs paid by the Seller to acquire the Initial Leases for each Net Acre, provided that Seller shall have obtained Buyer’s approval of the costs described in this clause (ii) above.  The Purchase Price shall be paid at Closing, as defined herein, by wire transfer of immediately available funds.  The Purchase Price shall reimburse Seller for lease bonus and the first year rental payments paid by Seller for the Initial Leases.  Buyer shall assume, and bear responsibility for payment of, all other obligations under such Initial Leases.

 

(b)           Closing Statement.  At least three (3) business days prior to Closing, Seller shall deliver to Buyer a closing statement (“Closing Statement”) setting out the calculation of the Purchase Price, including, with respect to each Initial Lease, the number of Net Acres covered thereby and the purchase price payable therefor.

 

Section 1.7           Conditions Precedent to Closing.

 

(a)           Seller’s Conditions.  The obligations of Seller at Closing are subject, at the option of Seller, to the satisfaction or waiver at or prior to Closing of the following conditions precedent:

 

(i)           All representations and warranties of Buyer contained in Article VIII shall be true and correct in all material respects on and as of the Closing Date, and Buyer shall have performed and satisfied all covenants and agreements required by this Agreement to be performed and satisfied by Buyer at or prior to the Closing in all material respects;

 

(ii)          Buyer stands ready, willing and able to Close with Seller;

 

(iii)         No order has been entered by any court or governmental agency having jurisdiction over the Parties or the subject matter of this Agreement that restrains or prohibits the transactions contemplated by this Agreement that remains in effect on the Closing Date; and

 

  

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(iv)          Seller has not given notice of termination pursuant to Sections 1.1(b) or 1.3(b).

 

(b)          Buyer’s Conditions.  The obligations of Buyer at the Closing are subject, at the option of Buyer, to the satisfaction or waiver at or prior to Closing of the following conditions precedent:

 

(i)           All representations and warranties of Seller contained in Article VII shall be true and correct in all material respects on and as of the Closing Date, and Seller shall have performed and satisfied all covenants and agreements required by this Agreement to be performed and satisfied by Seller at or prior to the Closing in all material respects;

 

(ii)          Seller stands ready, willing and able to Close with Buyer;

 

(iii)         No order has been entered by any court or governmental agency having jurisdiction over the Parties or the subject matter of this Agreement that restrains or prohibits the purchase and sale contemplated by this Agreement and that remains in effect at the time of Closing; and

 

(iv)         Seller has not given notice of termination pursuant to Sections 1.1(b) or 1.3(b).

 

Section 1.8           Closing.

 

(a)           Closing Date.  Unless extended pursuant to Section 1.3(b), Closing of the purchase and sale of the Initial Leases (the “Closing”) shall occur at a mutually agreeable time and place within thirty (30) days following the Effective Date.  The date on which Closing occurs is referred to herein as the “Closing Date.”

 

(b)           Closing Deliveries.  At Closing, the following shall occur:

 

(i)           Buyer shall deliver to Seller, by wire transfer of immediately available funds, the Purchase Price for the Initial Leases;

 

(ii)           Buyer and Seller shall execute and acknowledge, and Seller shall deliver to Buyer, an Assignment and Bill of Sale, substantially in the form of Exhibit D attached hereto (the “Assignment”) in sufficient counterparts to facilitate recording;

 

(iii)           Buyer and Seller shall execute such governmental assignment forms as may be necessary to effect the assignment of the Initial Leases to Buyer; and

 

(iv)           Seller shall execute and deliver to Buyer a certificate of Seller’s non-foreign status and certifying that Seller is not subject to withholding under Section 1445 of the Internal Revenue Code, as amended.

 

  

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Section 1.9           Termination.  This Agreement may be terminated prior to Closing, upon written notice to the other Party, in accordance with the following provisions:

 

(a)           By mutual consent of Buyer and Seller;

 

(b)           By Buyer or Seller, as the case may be, pursuant to Sections 1.1(b) or 1.3(b);

 

(c)           By Seller, if Seller’s conditions set forth in Section 1.7(a) are not satisfied through no fault of Seller, or are not waived by Seller, as of the Closing Date;

 

(d)           By Buyer, if Buyer’s conditions set forth in Section 1.7(b) are not satisfied through no fault of Buyer, or are not waived by Buyer, as of the Closing Date; or

 

(e)           By Seller, if Closing has not occurred within thirty (30) days following the Effective Date, as the Closing date may be extended pursuant to Section 1.3(b), through no fault of Seller, provided, Seller is not in material default under this Agreement and is ready, willing and able to Close.

 

Section 1.10         Liabilities Upon Termination.

 

(a)           Buyer’s Default.  Subject to Section 1.10(c), if Closing does not occur because (i) Buyer wrongfully fails to tender performance at Closing or otherwise materially breaches this Agreement prior to Closing, or (ii) Seller terminates this Agreement as of right pursuant to Section 1.9(e), and if Seller is not in material default under this Agreement and is ready, willing and able to Close, Seller shall be entitled to an amount equal to $175 multiplied by the number of Net Acres covered by the Initial Leases.  Buyer’s failure to Close shall not be considered wrongful if Buyer’s conditions under Section 1.7(b) are not satisfied through no fault of Buyer and are not waived by Buyer.

 

(b)           Seller’s Default.  Subject to Section 1.10(c), if Closing does not occur because Seller wrongfully fails to tender performance at Closing or otherwise materially breaches this Agreement prior to Closing, and if Buyer is not in material default under this Agreement and is ready, willing and able to Close, Buyer shall retain all of its legal and equitable remedies for Seller’s breach of this Agreement including, without limitation, specific performance.  Seller’s failure to close shall not be considered wrongful if Seller’s conditions under Section 1.7(a) are not satisfied through no fault of Seller and are not waived by Seller.

 

(c)           Other Termination.  If this Agreement is terminated pursuant to Sections 1.9(a) or 1.9(b), each Party shall release the other Party from any and all liability for termination of this Agreement.

 

  

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Section 1.11         In-Process Leases.  Certain oil and gas leases covering lands in Block A, as described in Exhibit H (the “In-Process Leases”), have been signed by Seller and delivered to the Bureau of Indian Affairs (“BIA”) for execution and issuance, but as of the Effective Date, have not been issued to Seller.  The Parties agree that Exhibit H may be supplemented from time to time by Seller up until two (2) business days prior to Closing.  During the period between the Effective Date and the commencement of drilling of the First Test Well (the “Substitution Period”), Seller shall notify Buyer from time to time in writing as In-Process Leases are issued to Seller by the BIA, such notices to be provided by Seller within five (5) business days after Seller’s receipt of the issued Lease.  Buyer may, from time to time, deliver to Seller during the Substitution Period a written notice (“Substitution Notice”) to elect the substitution of one or more of the In-Process Leases (a “Substitution Lease”) for Initial Leases covering approximately the same number of Net Acres (the “Replaced Lease(s)”).  In the event a Substitution Notice is delivered to Seller prior to Closing, (a) the Substitution Lease(s) described therein shall be deemed for all purposes to be Initial Lease(s), and shall be included in the assignment of the Initial Leases delivered at Closing, and (b) the Replaced Lease(s) shall be deemed to be included in the Remaining Acreage, as defined herein.  In the event a Substitution Notice is delivered during the period between Closing and the conclusion of the Substitution Period, then within ten (10) business days following Seller’s receipt of a timely delivered Substitution Notice, (x) Buyer shall reassign the Replaced Lease(s) to Seller, free and clear of all liens, claims and encumbrances arising by, through or under Buyer, and such Replaced Lease(s) shall thereafter be deemed to be included in the Remaining Acreage; and (y) Seller shall assign the Substitution Lease(s) to Buyer, by an Assignment substantially in the form of Exhibit D, subject to Seller’s retained overriding royalty interest, if applicable, as provided in Section 1.1(c), and the Substitution Lease(s) shall thereafter be deemed to be included in the Initial Leases.  If at the conclusion of the Substitution Period, (i) the number of Net Acres covered by the Substitution Leases exceeds the number of Net Acres covered by the Replaced Leases (a “Net Acre Surplus”), then within ten (10) days after the end of the Substitution Period, Buyer shall pay Seller an amount equal to the Net Acre Surplus multiplied by $175, or (ii) the number of Net Acres covered by the Substitution Leases is less than the number of Net Acres covered by the Replaced Leases (the “Net Acre Deficit”), then within ten (10) days after the end of the Substitution Period, Seller shall pay Buyer an amount equal to the Net Acre Deficit multiplied by $175.

 

Section 1.12         Option to Exclude River Acreage.  Notwithstanding any other provision hereof, Seller shall have the option, upon written notice delivered to Buyer at any time prior to the first anniversary of the Closing Date to exclude from this Agreement up to 1000 acres of Block A Acreage located within designated spacing units along the riparian boundaries of the Missouri River or the Big Muddy River.  In the event Seller so excludes such acreage it shall substitute an approximately equal number of Net Acres in Block A, in the same manner as provided in Section 1.11 above with regard to Substitution Leases.

 

Section 1.13         Option to Purchase Additional Acreage.

 

(a)           Subject to the same terms of this Agreement with respect to the purchase of the Initial Leases and except as otherwise indicated herein, in addition to the Initial Leases, Seller hereby grants to Buyer the option (the “Option”), but not the obligation, to purchase all of Seller’s leasehold interest in the remaining acreage in Block A (“Remaining Acreage”), which shall not exceed an additional 20,000 Net Acres within Block A, plus an allowance of up to 320 Net Acres, in the aggregate, if necessary to include all the Net Acres in any particular section (the “Option Allowance”).  Notwithstanding the foregoing, if Seller’s Remaining Acreage in Block A prior to Buyer’s exercise of the Option exceeds 20,000 Net Acres, Seller shall designate the 20,000 Net Acres and the Option Allowance subject to the Option and shall notify Buyer of such designation within five (5) business days after Seller’s receipt of Buyer’s Option Exercise Notice, as herein defined. In the event Buyer exercises the Option, the lands as to which Buyer exercises the Option shall be referred to herein as the “Optional Acreage” (the Initial Acreage, the Mattelin Leases (if acquired, as provided in Section 5.4) and the Optional Acreage being collectively referred to herein as the “Block A Purchased Acreage”).  

 

  

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(b)           The purchase price for the Optional Acreage (the “Option Price”) shall be (a) with respect to those leases covering Optional Acreage (“Option Leases”) acquired by Seller prior to the Effective Date, the purchase price shall be $225 per Net Acre, multiplied by the number of Net Acres comprising the Optional Acreage (the “Option Acres”); and (b) with respect to those Option Leases acquired by Seller between the Effective Date and the Closing Date, the purchase price shall be (i) $225 per Net Acre multiplied by the number of Net Acres covered by such Option Leases, or (ii) if greater, the lease bonus, first year rental payment and other acquisition costs actually paid by Seller for such Option Leases plus any additional actual costs paid by the Seller to acquire the Option Leases,  provided that Seller shall have obtained Buyer’s approval of the costs described in this clause (ii) above.

 

(c)           The Option may be exercised by Buyer upon written notice (the “Option Exercise Notice”) delivered to Seller within ten (10) business days following the date which is 120 days after (i) the date on which initial perforation or fracture stimulation, as applicable, of the Second Test Well is completed or, (ii) if such Well is not completed as a producing well, the date on which drilling operations for such well have ceased and the rig is ready to be moved off the location (the “Option Termination Date”).  If the Option is not timely exercised, it shall automatically expire on the Option Termination Date.

 

(d)           If the Option is timely exercised, then within ten (10) business days following the exercise of the Option, Seller shall deliver to Buyer a closing statement (“Option Closing Statement”) setting out (i) with respect to each lease included in the Optional Acreage (each, an “Option Lease”), the number of Option Acres covered thereby, and (ii) the calculation of the Option Price to be paid by Buyer for the Optional Acreage.  Within ten (10) business days after receipt of the Option Closing Statement, (i) Buyer shall pay the Option Price to Seller by wire transfer of immediately available funds; and (ii) Seller shall execute, acknowledge and deliver to Buyer an Assignment of Seller’s interest in the Optional Acreage, such Assignment to be substantially in the form of Exhibit D attached hereto.  The date on which closing of the purchase pursuant to the Option occurs is referred to herein as the “Option Closing Date.”

 

(e)           Notwithstanding any other provision hereof, Seller shall reserve from the assignment(s) of the Option Leases an overriding royalty interest in such Option Leases equal to the positive difference, if any, between 20% and Lease Burdens.

 

  

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Section 1.14         Sales by Buyer of Block A Purchased Acreage.  Buyer shall not sell, assign, transfer, exchange or otherwise transfer or dispose of all or any portion of Buyer’s right, title or interest in and to the Block A Purchased Acreage (including, without limitation, any indirect transfer by merger of Buyer with or into a third party, or sale of all or substantially all of the issued and outstanding shares of Buyer to a third party) (a “Divestiture”) at any time prior to Seller’s receipt of a Production Notice with respect to the Second Test Well, as defined herein, or if the Second Test Well is not completed as a producing well, the date on which drilling operations for such well have ceased and the rig is ready to be moved off the location (the “Restricted Period”), without Seller’s prior written consent.  If during the Restricted Period Buyer enters into an agreement with respect to a Divestiture (a “Divestiture Agreement”) for which the prior written consent of Seller is obtained, then upon consummation of such Divestiture, Buyer shall pay to Seller an amount equal to 33.3% of the positive difference, if any, between (i) the purchase price and other consideration received by Buyer in consideration for the sale of the Buyer’s interest in the Block A Purchased Acreage so transferred in the permitted Divestiture; and (ii) the Purchase Price, or Option Price, as applicable, paid by Buyer to Seller for such divested acreage; provided that such Divestiture shall be subject to, and Seller shall at all times retain, its rights to exercise the participation options provided in Article IV herein and any and all right, title and interest acquired by Seller through exercise of such options and any such interests of the Seller owned or exercisable by Seller shall not be included in any sale by Buyer pursuant to this Section 1.14 unless otherwise previously approved and agreed to in writing by Seller.  If during the Restricted Period Buyer enters into a Divesture Agreement without the prior written consent of Seller, Buyer shall immediately remit to Seller 100% of the proceeds and other consideration received by Buyer from such Divestiture.

 

Section 1.15         Tag-Along Right.  In the event an unrelated third party purchaser (the “Prospective Purchaser”) makes an offer (the “Divestiture Offer”) to Buyer to acquire all or any portion of Buyer’s right, title or interest in and to all or any portion of the Block A Purchased Acreage (the portion of the Block A Purchased Acreage subject to the Divestiture Offer being referred to herein as the “Divestiture Lands”) during or after the Restricted Period, Buyer shall immediately deliver to Seller a notice setting forth the terms and conditions of the Divestiture Offer, including a true and complete copy of any offer letters, proposals, agreements, schedules, exhibits or other materials relating thereto.  Upon receipt of the notice of the Divestiture Offer from Buyer, Seller shall have ten (10) business days to elect, upon written notice to Buyer, to participate in the Divestiture Offer and to sell to the Prospective Purchaser all or a portion of the Divestiture Lands then owned by Seller under the same terms and conditions (the “Tag-Along Right”).  In the event Seller elects to exercise the Tag-Along Right, the Prospective Purchaser shall be required to purchase all of Seller’s interest in the Divestiture Lands under the same terms and conditions as it offered to purchase Buyer’s interest therein; provided, however, that if the Prospective Purchaser proposed to purchase only an undivided portion of Buyer’s interest in the Divestiture Lands (the “Undivided Divestiture Interest”) and such Prospective Purchaser is unwilling to purchase a greater undivided interest in the Divestiture Lands, then the Prospective Purchaser shall purchase (i) from Buyer 66.7% of the Undivided Divestiture Interest; and (ii) from Seller, 33.3% of the Undivided Divestiture Interest.  Notwithstanding any other provision hereof, this Section 1.13 shall not apply to a transfer, exchange or disposition arising from any indirect transfer (x) by merger of Buyer with or into an affiliate of Buyer or sale or other transfer of all or substantially all of the issued and outstanding shares of Buyer to an affiliate of Buyer; or (y) by merger of Buyer with or into third party or sale or other transfer of all or substantially all of the issued and outstanding shares of Buyer to a third party, provided that the Block A Purchased Acreage does not, at the time of such transfer, comprise substantially all of the assets of Buyer.  For purposes of the foregoing sentence the Block A Purchased Acreage shall be deemed to comprise substantially all of the assets of Buyer if the reasonably determined value thereof comprises 90% or more of the aggregate value of all of Buyer’s assets.

 

  

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ARTICLE II.

TITLE MATTERS

 

Section 2.1           Certain Definitions.  As used in this Agreement, each of the following terms has the meaning provided below:

 

(a)           “Defensible Title” means, with respect to the Block A Purchased Acreage, such beneficial, legal and record title ownership of the units, leases and lands related thereto that, subject to and except for Permitted Encumbrances as defined in Section 2.1(b):

 

(i)           entitles Seller to a share of the hydrocarbons produced, saved and marketed from each lease included in the Block A Purchased Acreage (subject to any depth limitations specified in the subject lease) and throughout the duration of the productive life of such lease, after satisfaction of all royalties, overriding royalties, nonparticipating royalties, net profits interests or other similar burdens on or measured by production of hydrocarbons (a “Net Revenue Interest”), of not less than the Net Revenue Interest share shown in Exhibit C with respect to such lease except as otherwise specifically set forth in such Exhibit;

 

(ii)          entitles Seller to the number of Net Acres covered by a lease as set forth in the Closing Statement, or the Option Closing Statement, as applicable for that lease; and

 

(iii)          is free and clear of all liens and encumbrances.

 

In addition, title to any lease comprising the Initial Acreage or Optional Acreage shall not be considered to be Defensible Title unless (y) an Environmental Assessment applicable to the lease has been issued by the Bureau of Indian Affairs in compliance with the National Environmental Policy Act, to the extent applicable; and (z) if the lease covers allottee lands, the consent from the requisite percentage of the mineral interest owned by allottees in lands covered by the lease has been obtained, pursuant to Pub. L. 106-462 (114 Stat. 1992).

(b)           “Permitted Encumbrances” means the following:

 

(i)           lessors’ royalties, overriding royalties, net profits interests, production payments, reversionary interests and similar burdens if the net cumulative effect of such burdens does not operate to reduce the Seller’s Net Revenue Interest, on a lease-by-lease basis, below 80% (or such lower Net Revenue Interest with respect to a Lease as may be specified in Exhibit C), proportionately reduced in the event Seller’s working interest in the subject lease is less than 100% or the subject lease covers less than 100% of the mineral estate in the lands covered thereby;

 

(ii)          all rights to consent by, required notices to, filings with, or other actions by federal, state or local governmental bodies, in connection with the conveyance of the applicable lease if the same are customarily sought after Closing;

 

(iii)         rights of reassignment contained in any agreement providing for reassignment upon the surrender or expiration of any option or lease;

 

  

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(iv)         easements, rights of way, servitudes, permits, surface leases and other rights with respect to surface operations, on, over or in respect of any of the Initial Leases or the Option Leases or any restriction on access thereto that do not materially interfere with the operation of the affected lease;

 

(v)           liens created under deeds of trust, mortgages and similar instruments by the lessor under a lease covering the lessor’s surface and mineral interests in the land covered thereby which would customarily be accepted in taking oil and gas leases or purchasing undeveloped oil and gas leases and for which the lessee would customarily seek a subordination of such lien to the oil and gas leasehold estate prior to conducting drilling activities on the lease;

 

(vi)          liens for taxes or assessments not yet due and delinquent or, if delinquent, that are being contested in good faith in the normal course of business;

 

(vii)        such Title Defects as Buyer has waived;

 

(viii)       minor defects and irregularities in title or other restrictions that are of the nature customarily accepted by prudent purchasers of oil and gas properties and do not materially affect the value of any lease encumbered thereby or materially impair the ability of the lessee to use any such property in its operations; provided the effect thereof does not operate to reduce the Net Revenue Interest in such lease below 80% (or such lower Net Revenue Interest with respect to a lease as may be specified in Exhibit C), proportionately reduced in the event Seller’s working interest in the subject lease is less than 100% or the subject lease covers less than 100% of the mineral estate in the lands covered thereby; and

 

(ix)          Area of Mutual Interest Agreement, dated as of March 12, 2009, by and between Fort Peck Energy Company and the Assiniboine and Sioux Tribes of the Fort Peck Indian Reservation (the “Fort Peck AMI Agreement”), and the terms and provisions of the Initial Leases.

 

(c)           “Title Defect” means any lien, encumbrance, adverse claim, default, expiration, failure, defect in or objection to real property title, other than Permitted Encumbrances, that alone or in combination with other defects renders Seller’s title to be less than Defensible Title.

 

Section 2.2            Title Defect.

 

(a)           For a period of twelve (12) months following the Effective Date (the “Title Examination Period”), Buyer shall have the right to notify Seller in writing of any Title Defects identified by Buyer that cause Seller to have less than Defensible Title to the Block A Purchased Acreage.  To be effective, such notice (the “Title Defect Notice”) must (i) be in writing, (ii) be received by Seller prior to the expiration of the Title Examination Period, (iii) describe the Title Defect in reasonable detail (including any alleged deficiency in the Net Revenue Interest or any alleged Acreage Deficiency), (iv) identify the specific leases affected by such Title Defect, (v) include the value of such Title Defect as determined by Buyer in good faith; provided that such value shall in no event exceed the amount paid by Buyer therefor; and (vi) include a copy of a drill site title opinion rendered by an attorney licensed in the state of Montana (such opinion to be prepared at Buyer’s cost and expense) identifying the Title Defect.  Any matters that may otherwise constitute Title Defects, but of which Seller has not been specifically notified by Buyer in accordance with the foregoing, shall be deemed to have been waived by Buyer for all purposes.

 

  

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(b)          Upon the receipt of an effective Title Defect Notice from Buyer, Seller shall have the option, but not the obligation, to attempt to cure such Title Defect(s).  The cost of such cure or attempted cure of such Title Defect shall be borne by Seller.

 

(i)           With respect to each Title Defect that consists of an Acreage Deficiency, as defined below, that is not cured within 180 days following receipt of the Title Defect Notice (the “Cure Period”), Seller shall, at Seller’s election, either (i) refund to Seller an amount equal to the price per net acre paid by Seller with respect to the affected lease, multiplied by a fraction, the numerator of which is the difference between the number of Net Acres to have been assigned by Seller to Buyer pursuant hereto and for which Buyer paid (“Intended Acres”) and the actual Net Acres so assigned (“Actual Acres”) (such difference being referred to herein as the “Acreage Deficiency”), and the denominator of which is the Intended Acres; or (ii) assign to Buyer additional Block A leases, or portions thereof, for which Seller has Defensible Title and reasonably acceptable to Buyer, covering Net Acres at least equal to the Acreage Deficiency.

 

(ii)          With respect to each Title Defect that is not cured prior to expiration of the Cure Period that consists of the Net Revenue Interest assigned to Buyer in the affected lease being less than 80% (or such lower Net Revenue Interest with respect to a lease as may be specified in Exhibit C), proportionately reduced to the extent that Seller assigned less than the entire working interest in the affected lease or the affected lease covers less than the entire mineral estate, (x) Buyer may, at Buyer’s election, waive the Title Defect, in which case Buyer shall accept the lease without adjustment or refund of the Purchase Price paid therefor; (y) Buyer may, at Buyer’s election, reject the affected lease, in which case Buyer shall reassign the affected lease to Seller, free and clear of all liens, claims and encumbrances arising by, through or under Buyer, and Seller shall refund to Buyer an amount equal to the Purchase Price paid by Buyer for such lease; or (z) Seller may remove the affected lease from the Initial Leases to be delivered at Closing and instead assign to Buyer replacement Block A leases, or portions thereof, for which Seller has Defensible Title and reasonably acceptable to Buyer, covering Net Acres at least equal to the Net Acres covered by the affected lease and having a Net Revenue Interest of at least 80% (or such lower Net Revenue Interest with respect to the affected lease as may be specified in Exhibit C).

 

Section 2.3           Consents.  Sellers shall use commercially reasonable efforts to obtain all required consents to assignment of the Initial Leases and, if applicable, the Option Leases.  Except for consents and approvals which are customarily obtained post-Closing (including without limitation federal, state or other governmental approvals), if a consent to assign any lease has not been obtained as of the Closing Date, with respect to the Initial Leases, or the Option Closing Date, with respect to the Option Leases, as applicable, then at Buyer’s election, the affected lease(s) shall be (a) conveyed to Buyer and the respective consents obtained by Buyer post-Closing and Buyer shall assume the risk of not obtaining such consents (provided that after Closing Seller shall continue to cooperate with Buyer to obtain such consent(s), or (b) held by Seller on behalf of Buyer until such consent(s) have been obtained; provided, however, that if such consents are not obtained within 120 days after the Closing Date or, with respect to the Optional Acreage, within 120 days after the Option Closing Date, then Seller may retain the affected leases and refund Buyer the purchase price paid therefor.

 

  

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Section 2.4           Special Warranty of Title; Subrogation of Warranties.  The assignments delivered by Seller to Buyer pursuant hereto shall provide that, subject to Permitted Encumbrances, Seller shall warrant Defensible Title to the leases free and clear of liens, claims and encumbrances arising by, through or under Seller, but not otherwise.  Sellers shall grant to Buyer, its successors and assigns, full power and right of substitution and subrogation in and to all covenants, indemnities and warranties (including warranties of title) given or made by preceding owners, vendors, or others with respect to the subject leases.  Buyer acknowledges and agrees that, except with respect to breaches of Seller’s special warranty of title, Buyer’s sole remedy for any defect of title, including any Title Defect, with respect to any of the leases assigned to it shall be as set forth in Section 2.2.

 

Section 2.5           Title Benefit.  If during the Title Examination Period Seller determines that the Actual Acres covered by a lease exceed the Intended Acres (a “Title Benefit”) with respect to a lease assigned by Seller to Buyer, Seller shall notify Buyer in writing prior to the expiration of the Title Examination Period.  Within thirty (30) days following notification of the Title Benefit, Buyer shall pay Seller an amount equal to the amount by which Actual Acres exceed Intended Acres, multiplied by the purchase price per acre paid by Buyer for the affected lease.

 

ARTICLE III.

DRILLING COMMITMENT

 

Section 3.1           Initial Test Wells.

 

(a)           Subject to Force Majeure, as defined herein, Buyer commits to (i) drill two (2) initial test wells (each, a “Test Well” and, collectively, the “Test Wells”) on the Initial Acreage or the Mattelin Leases, each Test Well (or a Substitute Well therefor) to be drilled to a depth sufficient to test the Middle Bakken and Three Forks formations (“Objective Depth”) and (ii) to run three (3) thirty foot (30’) core barrels for each Test Well from the top of the Middle Bakken through the top 18 meters, approximately, of the Three Forks formation.  Seller shall have the right to review any recovered core, but such recovered core shall be jointly owned by Buyer and Seller and Buyer shall retain possession of such recovered core, as Operator of the Test Wells.  Buyer shall use commercially reasonable best efforts to drill each of the two (2) initial Test Wells a minimum lateral length of at least 4,500 feet and comply with the technical requirements set forth on Exhibit G attached hereto.  In the event Buyer completes either or both of the Test Wells, Buyer shall perform multi-stage fracture stimulation of such completed Test Well(s); provided, however, that Buyer shall not be required to conduct such fracture stimulation if a reasonable, prudent operator would not conduct such operation for fear of placing the hole, life or property in jeopardy.

 

(b)           Subject to Force Majeure, drilling of the first Test Well on the Initial Acreage or the Mattelin Leases (the “First Test Well”) shall be commenced before the later to occur of (i) October 1, 2011 or (ii) three (3) months following receipt of a drilling permit for such well; provided that Buyer shall use commercially reasonable efforts to cooperate with Seller in obtaining a drilling permit for the First Test Well as soon as possible after the Effective Date.

 

  

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(c)           Subject to Force Majeure, drilling of the second well on the Initial Acreage or the Mattelin Leases (the “Second Test Well”) shall be commenced before the later to occur of (i) December 31, 2011 or (ii) three (3) months following receipt of a drilling permit for such well; provided that Buyer shall use commercially reasonable efforts to cooperate with Seller to obtain a drilling permit for the Second Test Well as soon as possible after the completion of drilling of the First Test Well.

 

(d)           At least 75% of the surface acres included in any unit in which the First Test Well or the Second Test Well is drilled shall be comprised of Block A Purchased Acreage.

 

(e)           In the event Buyer fails to timely commence either the First Test Well or the Second Test Well within the respective time periods provided above, or thereafter fails to drill either Test Well (or a Substitute Well therefor) to the Objective Depth, such failure shall be deemed a material breach of this Agreement and, in the event of such breach, Seller may, upon written notice to Buyer, terminate this Agreement and, upon such termination:

 

(i)           If this Agreement is terminated due to Buyer’s failure to timely commence the First Test Well or failure to drill the First Test Well (or a Substitute Well therefor) to the Objective Depth, then Buyer shall immediately relinquish and reassign to Seller all right, title and interest in and to the Initial Leases and the Mattelin Leases, free and clear of all liens, claims or encumbrances arising by, through or under Buyer, provided however, that Buyer shall retain all interest in the Hull Lease, as defined herein.

 

(ii)           If Buyer timely drills the First Test Well (or a Substitute Well therefor) to the Objective Depth but this Agreement is terminated due to Buyer’s failure to timely commence the Second Test Well or failure to drill the Second Test Well (or a Substitute Well therefor) to the Objective Depth, then Buyer shall immediately relinquish and reassign to Seller all right, title and interest in and to the Initial Leases and the Mattelin Leases, free and clear of all liens, claims or encumbrances arising by, through or under Buyer, provided, however, that Buyer shall retain (y) its interest in the First Test Well and the Initial Leases and the Mattelin Leases insofar and only insofar as they are included in the spacing unit for the First Test Well, and (z) all interest in the Hull Lease, as defined herein, subject to Seller’s overriding royalty interest and participation rights therein pursuant to Section 3.1(h), if applicable.

 

(iii)           If, prior to reaching the Objective Depth, a Test Well encounters mechanical difficulties, heaving shale, rock salt, excessive saltwater flow, practicably impenetrable formations or other conditions in the hole that would cause a reasonably prudent operator under the same or similar circumstances to discontinue drilling and to abandon such Test Well, Buyer shall have the right, within one hundred twenty (120) days after the rig was released from the last operation on such Test Well, to commence drilling of a substitute well therefor (“Substitute Well”) at a location selected by Buyer on the Initial Leases.  If a Substitute Well is timely commenced and drilled to the Objective Depth, then such Substitute Well shall in all respects be considered as if it were the Test Well for which it is substituted.

 

  

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(f)           In the event drilling permits for the First Test Well are not obtained, whether due to Force Majeure or otherwise, within twelve (12) months after the Closing Date, then Seller may, upon written notice to Buyer terminate this Agreement, provided that the failure to obtain such permit is not as a result of a material breach of this Agreement by Seller.  In the event drilling permits for the First Test Well are not obtained, whether due to Force Majeure or otherwise, within 24 months after the Closing Date, then Buyer may, upon written notice to Seller terminate this Agreement, provided that the failure to obtain such permit is not as a result of a material breach of this Agreement by Buyer.  Within fifteen (15) days after either such termination, (i) Buyer shall reassign to Seller all right, title and interest in and to the Initial Leases and the Mattelin Leases, free and clear of all liens, claims or encumbrances arising by, through or under Buyer, provided however, that Buyer shall retain all interest in the Hull Lease, as defined herein, and (ii) if the failure to obtain such drilling permits is the result of Force Majeure or Seller’s material breach of this Agreement, Seller shall refund the Purchase Price to Buyer, by wire transfer of immediately available funds.

 

(g)           In the event drilling permits for the Second Test Well are not obtained, whether due to Force Majeure or otherwise, within six (6) months after the date on which the drilling permit for the First Test Well is obtained, then Seller may, upon written notice to Buyer, terminate this Agreement, provided that the failure to obtain such permit is not as a result of a material breach of this Agreement by Seller.  Within fifteen (15) days after such termination, (i) Buyer shall reassign to Seller all right, title and interest in and to the Initial Leases and the Mattelin Leases, free and clear of all liens, claims or encumbrances arising by, through or under Buyer; provided, however, that Buyer shall retain its interest in the First Test Well and the Initial Leases and the Mattelin Leases insofar and only insofar as they are included in the spacing unit for the First Test Well; and (ii) if the failure to obtain such drilling permits is the result of Force Majeure or Seller’s material breach of this Agreement, Seller shall refund the Purchase Price to Buyer, by wire transfer of immediately available funds; provided, however, that Seller shall retain (y) that portion of the Purchase Price attributable to the Initial Leases and the Mattelin Leases insofar and only insofar as they are included in the spacing unit for the First Test Well,  and (z) all interest in the Hull Lease, as defined herein, subject to Seller’s overriding royalty interest and participation rights therein pursuant to Section 3.1(h), if applicable.

 

(h)           Notwithstanding any other provision hereof, the Parties agree that for the purposes of this Section 3.1, either or both of the Test Wells may be drilled on acreage comprised in whole, or in part, of that certain oil and gas lease owned by Buyer, dated July 10, 2006, recorded at Reception No. 371647 of the records of Roosevelt County, Montana, by and between Elizabeth M. Hull, as lessor, and East Fort Peck Exploration, as lessee, insofar as it covers approximately 960 acres in Section 3, Township 28 North, Range 54 East, and Section 35, Township 29 North, Range 54 East, Roosevelt County, Montana (the “Hull Lease”), and such Hull Lease shall be deemed to be included in the Initial Acreage for the purposes of this Section 3.1.  In the event that either or both of the Test Wells is drilled on lands comprised in whole or in part of the Hull Lease, then (i) Seller’s Test Well participation option pursuant to Section 4.1(a) and its Acreage Participation Option pursuant to Section 4.1(b) shall extend to and apply to the Hull Lease; (ii) in the event Buyer exercises any such participation option, the Tag-Along .Right pursuant to Section 1.15 shall apply to the Hull Lease, and (iii) Buyer shall assign to Seller an overriding royalty interest in and to the Hull Lease equal to the positive difference, if any, between 20% and Lease Burdens thereon existing as of the Effective Date, in each case as though the Hull Lease were an Initial Lease.  For the avoidance of doubt, the Hull Lease shall not be deemed to be an Initial Lease, but shall be treated in the same manner as an Initial Lease to the extent expressly so provided in this Section 3.1(h).

 

  

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Section 3.2           Force Majeure.

 

(a)           If either Party (an “Affected Party”) is rendered unable, in whole or in part, by Force Majeure to carry out its obligations under this Agreement, other than the obligation to make money payments, the Affected Party shall give the other Party prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the Affected Party, insofar as they are affected by the Force Majeure, shall be suspended during, but no longer than, the continuance of the Force Majeure.  The Affected Party shall use best efforts to remove the Force Majeure situation as quickly as possible.  The requirement that any Force Majeure shall be remedied as quickly as possible shall not require the settlement of strikes, lockouts, or other labor difficulty by the Affected Party, and the manner in which such difficulties are handled shall be entirely within the discretion of the Affected Party concerned.

 

(b)           Notwithstanding the foregoing, in the event drilling permits for the Test Wells are not timely obtained due to Force Majeure, this Agreement may nevertheless be terminated in accordance with Section 3.1(f) or Section 3.1(g), as applicable, provided that the remedies for termination upon the occurrence of an event of Force Majeure, as set out in Section 3.1(f) or Section 3.1(g), as applicable, shall apply.

 

(c)           As used herein, the term “Force Majeure” shall mean an act of God, strike, lockout, or other industrial disturbance, act of public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental action, governmental delay or inaction, including but not limited to delay in obtaining necessary permits, approvals or orders from the Bureau of Land Management, the Montana Board of Oil and Gas Conservation, or any other federal, tribal, state or local governmental agency or body, or any regulatory delay caused by such governmental agencies or bodies, in each case only to the extent such delay or inaction is not due to any act or omission of the Affected Party, and any other cause, whether of the kind specifically enumerated above or otherwise, in each case which is not reasonably within the control of the Affected Party.

 

Section 3.3           Additional Drilling.  The Parties may drill additional wells pursuant to Section 6.1 hereof.

 

  

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ARTICLE IV.

SELLER’S PARTICIPATION OPTION

 

Section 4.1           Seller’s Participation Option.

 

(a)           Test Well Participation Option.  Within thirty (30) days after each Test Well has been drilled, stimulated and completed, placed on production and achieved Stabilized Production, as herein defined (“Drilling and Completion”), Buyer shall provide Seller written notice of such Drilling and Completion (each, a “Production Notice”).  As used herein, “Stabilized Production” shall mean that point in time at which hydrocarbons are produced in paying quantities from the Test Well during at least 20 days of each calendar month for a period of 3 calendar months.  Each Production Notice shall include a statement of the costs incurred by Buyer to drill, complete and stimulate the subject Test Well, equip the Test Well for production and transport the production to the point of sale (“Buyer’s Drilling Costs”).  Upon delivery of each Production Notice and a subsequent written notice provided within ninety (90) days thereafter (the “90 Day Notice”), Buyer shall also provide detailed history for such Test Well, including (i) daily drilling and completion reports, (ii) offset activity information, to the extent reasonably available to Buyer, (iii) well activity following Drilling and Completion, (iv) daily production reports (including reports on all fluid), and (v) any and all other material information or information reasonably requested by Seller and available to Buyer that permit Seller to make an informed decision to participate in the Test Well (the “Well Information”).  Within fourteen (14) days following receipt of the 90 Day Notice, Seller shall have the option, but not the obligation, to acquire from Buyer an undivided 33.3% interest in the Test Well covered by such Production Notice, such option to be exercised by Seller upon written notice to Buyer delivered within such fourteen (14) day period.  Seller may make its elections with respect to each Test Well separately.  In the event Seller exercises such option, Seller shall, within fourteen (14) days, pay to Buyer an amount (the “Test Well Option Price”) equal to 33.3% of Buyer’s Drilling Costs and the lease acquisition costs paid by Buyer for the leases included in the spacing unit for such Test Well (collectively, “Well Costs”), and Buyer shall execute, acknowledge and deliver to Seller an assignment of an undivided 33.3% interest in (i) the subject Test Well, (ii) any related equipment and (iii) the leases included in the spacing unit for such Test Well, such assignment to be free and clear of all liens, claims or encumbrances arising by, through or under Buyer and to be effective as of the date of first sales of production from such Test Well.   The Test Well Option Price payable by Seller shall be adjusted downward by an amount equal to the proceeds received by Buyer from sales of hydrocarbons attributable to Seller’s 33.3% interest in such Test Well, from the date of first sales from such Test Well.

 

(b)           Acreage Participation Option.  In addition to the option provided in subparagraph (a) above, Seller shall have the option (the “Acreage Participation Option”) to acquire an undivided 33.3% working interest in that portion of the Block A Purchased Acreage that has not been included in the spacing units for the First Test Well and the Second Test Well (the “Remaining Block A Purchased Acreage”), which Acreage Participation Option may be exercised (i) as to the Initial Acreage, at any time on or before fourteen (14) days following Seller’s receipt of the 90 Day Notice for the Second Test Well and the Well Information for the Second Test Well reasonably requested by Seller, and (ii) as to the Optional Acreage, at any time on or before 90 days after Buyer’s exercise of its Option pursuant to Section 1.13.  In the event Seller exercises such option, (x) Seller shall, within fourteen (14) days after Seller’s exercise of the option, pay to Buyer an amount equal to 33.3% of the Purchase Price or Option Price, as applicable, paid by Buyer pursuant hereto for the leases included in the Remaining Block A Purchased Acreage, and (y) Buyer shall execute, acknowledge and deliver to Seller an assignment of an undivided 33.3% interest in such leases, such assignment to be free and clear of liens, claims and encumbrances arising by, through or under Buyer.

 

  

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ARTICLE V.

AREA OF MUTUAL INTEREST

 

Section 5.1           Area of Mutual Interest.

 

(a)           The Parties hereby create an area of mutual interest (“Area of Mutual Interest” or “AMI”) covering all lands located within the boundaries of the area depicted on the map attached as Exhibit E hereto.  The term of the AMI (the “AMI Term”) shall commence on the Effective Date and shall end on the second anniversary of the Closing Date.

 

(b)           Promptly after the Effective Date, Buyer and Seller shall, upon mutual written agreement, designate up to 50,000 Net Acres within the AMI (the “Target Lands”) over which they may mutually endeavor to acquire leases.  The designated Target Lands may be modified or supplemented from time to time upon mutual written agreement of the Parties.  During the AMI Term, Buyer and Seller shall meet at least monthly by teleconference or in person at Seller’s office in Poplar, Montana or another mutually acceptable location (the “Target Meeting”)  Seller shall prepare and circulate an agenda for each Target Meeting (which agenda shall include discussion items requested by Buyer) at least three (3) business days prior to the meeting.  Seller shall be the chair of each Target Meeting and shall keep written minutes thereof, copies of which shall be furnished to Buyer, detailing the actions taken and decisions made at the Target Meeting.  At the Target Meetings, Buyer and Seller shall discuss the acquisition of leases covering the Target Lands, the status of leasing activities within the Target Lands, including the description of leases acquired and outstanding lease offers, and, if known to the Seller, identification of changes in availability of acreage or of ownership of leases or acreage within the Target Lands.  When determining whether to acquire additional Target Lands, Buyer and Seller shall mutually establish during the Target Meeting:  (i) leasing priorities for such Target Lands, (ii) a proposed timeline for leasing such Target Lands, (iii) the maximum bonus price to be paid for such Target Lands, and (iv) the minimum acceptable lease terms and any other terms regarding leasing of such Target Lands, as mutually agreed upon by the Seller and Buyer (collectively, the “Target Lease Terms”).  Thereafter, the Target Lease Terms may be modified at any time upon mutual agreement of the Parties.

 

(c)           Either Party may acquire leases covering the Target Lands.  Leases covering lands within the AMI and acquired by either Party during the AMI Term are referred to herein as the “AMI Leases”.

 

(d)           At any time following the Parties’ agreement on Target Lease Terms for particular Target Lands, but in any event prior to the acquisition by either Party of an AMI Lease covering such Target Lands, Seller may notify Buyer that it will not participate in acquiring leasehold interests in such Target Lands (the “Opt-Out Lands”).  In such event, if Buyer still wishes to acquire the Opt-Out Lands, Seller may continue to assist in the acquisition of leases covering the Opt-Out Lands on behalf of Buyer, but it shall have no obligation to acquire or retain for itself any working interest in the Opt-Out Lands.  If during the AMI Term Seller acquires leases covering the Opt-Out Lands conforming to the Target Lease Terms, Seller shall sell to Buyer, and Buyer shall purchase from Seller, all of Seller’s interest therein for the AMI Purchase Price.  If during the AMI Term Buyer acquires leases covering the Opt-Out Lands, Seller shall have no right or obligation to purchase any interest therein from Buyer, and Buyer shall retain all of its interest therein, subject to Seller’s overriding royalty interest pursuant to Section 5.1(h) herein.

 

  

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(e)           Except as otherwise provided herein, the Party acquiring an AMI Lease during the AMI Term (the “Acquiring Party”) agrees to sell, and the other Party (the “Non-Acquiring Party”) agrees to purchase its respective Participating Interest, as defined herein, in, the AMI Lease for a purchase price (the “AMI Purchase Price”) equal to the sum of (i) the Non-Acquiring Party’s respective Participating Interest share of the lease bonus and first year rental paid by the Acquiring Party for the AMI Lease, together with any other amounts paid by the Acquiring Party to acquire the AMI Lease, plus in the case where Seller is the Acquiring Party, (ii) $50 per net acre; provided, however, that unless the Non-Acquiring Party’s prior approval is obtained, the Non-Acquiring Party shall have no obligation to purchase from the Acquiring Party any AMI Leases (x) in which the Net Revenue Interest in the subject lease is less than 80% (subject to proportionate reduction in the event that the acquired working interest in the lease is less than 100% or the lease covers less than the entire mineral estate in the lands covered thereby) or (y) which is acquired for a higher bonus or on other terms materially less favorable than those agreed to by the Parties as set forth in Section 5.1(b).  The Acquiring Party shall pay the lease bonus and first year rental for the leases comprising the AMI Leases acquired by it, subject to the Non-Acquiring Party’s obligation to reimburse the Acquiring Party for the Non-Acquiring Party’s Participating Interest share thereof, as provided above, and the Non-Acquiring Party shall assume, and bear responsibility for payment of its Participating Interest share of all other obligations under the leases comprising the AMI Leases.

 

(f)           As used herein, the term “Participating Interest” shall mean with respect to Buyer, 66.7%, and with respect to Seller, 33.3%; provided, however, that as to the Opt-Out Lands, Participating Interest shall mean, with respect to Buyer, 100%, and with respect to Seller, 0%.

 

(g)           The Acquiring Party shall notify the Non-Acquiring Party of its acquisition of AMI Leases (including acquisitions of leases covering Opt-Out Lands) at least quarterly during the AMI Term, and within thirty (30) days after Non-Acquiring Party’s receipt of an acquisition notice from the Acquiring Party specifying the interests acquired and the amounts paid by the Acquiring Party therefor, the Non-Acquiring Party shall pay to the Acquiring Party the AMI Purchase Price therefor, pursuant to Section 5.1(e), and the Acquiring Party shall execute, acknowledge and deliver to the Non-Acquiring Party assignments (each an “AMI Assignment”) of the Non-Acquiring Party’s Participating Interest in the AMI Leases.

 

(h)           Notwithstanding any other provision hereof, Seller shall reserve or be assigned, as applicable, an overriding royalty interest in each of the AMI Leases (including any leases covering Opt-Out Lands), equal to the positive difference, if any, between 20% and lease burdens existing as of the effective date of such assignment, including, without limitation, lessors’ royalties, overriding royalties, and similar burdens on or measured by production from the AMI Leases.  Such overriding royalty interest shall apply to each AMI Lease, regardless of whether such AMI Lease was initially acquired by Buyer or Seller and notwithstanding Seller’s election not to participate in the acquisition of leases covering the Opt-Out Lands.

 

  

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(i)            If Buyer identifies any Title Defects with respect to AMI Lease(s) covered by an AMI Assignment within the earlier to occur of twenty-four (24) months following the effective date of such assignment or the commencement of the drilling of a well on a spacing unit which includes lands covered thereby, Buyer shall provide Seller a Title Defect Notice in accordance with the provisions of Section 2.2(a), and for a period of 180 days following receipt of such Notice, Seller shall have the right, but not the obligation, to attempt to cure the Title Defect.  The cost of such title curative shall be borne by Buyer in proportion to its Participating Share with respect to the affected AMI Lease.  In the event Seller is unable to cure the Title Defect, all further losses, costs and liabilities arising from or relating to the Title Defect shall be borne by Buyer in proportion to its Participating Share with respect to the affected AMI Lease.

 

Section 5.2           Marketing AMI Leases to Third Parties.  Buyer shall have the option, but not the obligation, to drill an appraisal well (the “Stimulation Well”) on the acreage within the AMI assigned to it by Seller.  In the event the drilling of a Stimulation Well is not commenced within twenty-four (24) months after the Effective Date, then Buyer and Seller agree to reasonably cooperate with one another to locate a third party to participate in the development of the AMI Leases, with the mutual goal of maximizing the economic returns within the AMI for both Buyer and Seller.  Seller shall lead the effort to locate a third party participant, but Seller shall have no liability to Buyer in the event it is unable to locate such a third party participant.

 

Section 5.3           Seller’s AMI Option.  For the initial Stimulation Well drilled in the AMI Leases, Seller shall assign to Buyer Seller’s retained 33.3% interest in the leases included in the drill site spacing unit designated by the applicable governmental agency for such well, and if no such spacing unit designation exists, then Seller shall assign its retained 33.3% interest in the 640 acres upon which the drill site is located.  Within thirty (30) days after the Drilling and Completion of the initial Stimulation Well, Buyer shall provide Seller a Production Notice and a 90 Day Notice, each such notice to be accompanied by a statement of Buyer’s Drilling Costs for such well and the Well Information.  Within fourteen (14) days following the receipt of the 90 Day Notice, Seller shall have the option, but not the obligation, to acquire from Buyer an undivided 33.3% interest in the initial Stimulation Well, such option to be exercised by Seller upon written notice to Buyer delivered within such fourteen (14) day period.  In the event Seller exercises such option, Seller shall, within fourteen (14) days pay to Buyer an amount equal to 33.3% of Buyer’s Well Costs, and Buyer shall execute, acknowledge and deliver to Seller an assignment of an undivided 33.3% interest in (i) the initial Stimulation Well, (ii) any related equipment and (iii) the leases included in the spacing unit for the initial Stimulation Well, such assignment to be free and clear of all liens, claims or encumbrances arising by, through or under Buyer and to be effective as of the date of first sales of production from the initial Stimulation Well.

 

Section 5.4          Mattelin Property.  The Parties acknowledge that Seller is currently in discussions with the Mattelin Mineral Trust, as mineral owner, to acquire oil and gas leases covering approximately 2,527 Net Acres, as more particularly described in Exhibit I (the “Mattelin Leases”).  Subject to the provisions of this Section 5.4, Seller agrees to use good faith commercial efforts to acquire the Mattelin Leases on or before Closing.  Seller shall obtain Buyer’s prior written approval of the final terms of any Mattelin Lease, whereupon Seller shall acquire such Mattelin Lease, and notwithstanding any other provision hereof, Seller shall bear up to $100 per Net Acre of acquisition costs for such Mattelin Lease, and Buyer shall bear any acquisition costs therefor over $100 per Net Acre.  Seller shall notify Buyer upon consummation of such acquisition and within five (5) business days after receipt of such notice, Buyer shall pay to Seller its share of the acquisition costs for such Mattelin Lease and Seller shall deliver to Buyer an assignment of an undivided 66.7% interest in the Mattelin Lease, subject to Seller’s retained overriding royalty interest provided in Section 5.1(h).

 

  

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ARTICLE VI.

OPERATORSHIP

 

Section 6.1           Joint Operating Agreement.  To the extent not subject to an existing joint operating agreement, the Parties’ interests in the Block A Purchased Acreage and in the AMI shall be subject to a joint operating agreement substantially in the form of Exhibit F attached hereto (the “Joint Operating Agreement”).  Buyer shall be designated the Operator under the Joint Operating Agreement.  Notwithstanding the foregoing, Buyer shall subcontract with Seller on mutually acceptable, customary commercial terms, to provide services in connection with obtaining necessary regulatory permits in connection with the drilling of wells hereunder, including, without limitation, the First Test Well and the Second Test Well.  After the completion of drilling of the Second Test Well, either Party shall have the right, but not the obligation, to propose the drilling of additional wells within the Block A Purchased Acreage and the AMI Leases.  Each well proposal shall be in writing, and shall include the depth and location of the proposed well, a description (including acreage boundaries) of the structural feature (seismically defined, where available) targeted by the proposed well, an AFE setting out a reasonable estimate of the anticipated costs of the proposed well, and an executable joint operating agreement (an “Additional Joint Operating Agreement”), substantially in the form of Exhibit F, which shall provide for a Contract Area covering the spacing unit for the proposed well.  All of the Parties, whether or not they intend to participate in the proposed well, shall execute the Additional Joint Operating Agreement, and all further operations for the proposed well shall thereafter be controlled by the terms of such Additional Joint Operating Agreement.  Buyer shall be designated the operator under any Additional Joint Operating Agreement.  In the event of a conflict between the terms of this Agreement and any joint operating agreement under this Section 6.1, this Agreement will control.

 

ARTICLE VII.

SELLER’S REPRESENTATIONS AND WARRANTIES

 

Section 7.1          Seller’s Representations and Warranties.  Seller makes the following representations and warranties:

 

(a)           Organization and Standing.  Seller is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware and is duly qualified to carry on its business in the State(s) where lands covered by Block A and the AMI are located.

 

  

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(b)          Power.  Seller has all requisite power and authority to carry on its business as presently conducted.  The execution and delivery of this Agreement does not, and the fulfillment of and compliance with the terms and conditions hereof will not, as of the Closing Date, violate, or be in conflict with, any material provision of Seller’s governing documents, or any material provision of any agreement or instrument to which Seller is a party or by which it is bound, or any judgment, decree, order, statute, rule or regulation applicable to Seller.

 

(c)           Authorization and Enforceability.  This Agreement constitutes Seller’s legal, valid and binding obligation, enforceable in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and other laws for the protection of creditors, as well as to general principles of equity, regardless whether such enforceability is considered in a proceeding in equity or at law.

 

(d)           Liability for Brokers’ Fees.  Seller has not incurred any liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Buyer shall have any responsibility whatsoever.

 

(e)           Lawsuits and Claims.  Except as disclosed in Schedule 7.1(e), there is no written demand or lawsuit, nor any compliance order, notice of probable violation or similar governmental action, pending or threatened before any court or governmental agency that (i) would result in a material impairment or loss of title to any part of the Initial Leases or impairment of the value thereof, (ii) seeks the imposition of substantial damages with respect to the Initial Acreage, or (iii) would materially hinder or impede the operation of the Initial Acreage.

 

(f)           Compliance with Laws.  Seller is not in violation of, and Seller has received no notice that Seller is alleged to be in violation of, any law, rule, regulation, order, permit, certificate, writ, judgment, stipulation, injunction, decree, determination, award, or decision of any court, government, or governmental agency or instrumentality, or arbitrator binding upon Seller which violation or alleged violation is reasonably likely to have an adverse effect on:  (1) the Initial Acreage or its value; or (2) the ability of Seller to perform under this Agreement.

 

(g)           Taxes.  Seller has paid in full all taxes, assessments, and other charges assessed or imposed on Seller with respect to the Initial Leases by any local, state, tribal, or federal taxing authority, other than income or sales taxes, except those that are not yet past due and payable.

 

(h)           Allegations of Breach or Default.  Seller is not in breach or default in any material respect, and Seller has received no notice that it is alleged to be in breach or default in any material respect, under the terms of any leases or related contracts comprising a part of or affecting the Initial Acreage, which breach or default has not been cured by Closing, and the Initial Leases are in full force and effect and Seller has made all payments (including any applicable bonus, delay rentals, or similar payments) due thereunder or required to be made by Seller to maintain the Initial Leases in effect.

 

(i)           Non-Producing.  The Initial Leases are non-producing and Seller has not engaged in any oil or gas production or development activities on any of the Initial Leases.

 

  

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(j)           No Production Dedications.  No Hydrocarbons to be produced from the Initial Acreage are subject to any hydrocarbon sales, purchase or exchange contracts and no third party has any call upon, option to purchase, take-or-pay obligations, dedication rights or similar rights with respect to the Hydrocarbons to be produced from the Initial Acreage.

 

(k)           Consents and Preferential Purchase Rights. Except for the Fort Peck AMI Agreement, none of the Initial Acreage, including any lease thereon, or any portion thereof, is subject to any area of mutual interest requirements, preferential rights to purchase or restrictions on assignment or required third-party consents to assignment, which may be applicable to the transactions contemplated by this Agreement.

 

ARTICLE VIII.

BUYER’S REPRESENTATIONS AND WARRANTIES

 

Section 8.1          Buyer’s Representations And Warranties.  Buyer makes the following representations and warranties:

 

(a)           Organization and Standing.  Buyer is a corporation duly organized, validly existing and in good standing under the laws of Colorado and is duly qualified to carry on its business in the State(s) where lands covered by Block A and the AMI are located.

 

(b)           Power.  Buyer has all requisite power and authority to carry on its business as presently conducted.  The execution and delivery of this Agreement does not, and the fulfillment of and compliance with the terms and conditions hereof will not, as of the Closing Date, violate, or be in conflict with, any material provision of Buyer’s governing documents, or any material provision of any agreement or instrument to which Buyer is a party or by which it is bound, or any judgment, decree, order, statute, rule or regulation applicable to Buyer.

 

(c)           Authorization and Enforceability.  This Agreement constitutes Buyer’s legal, valid and binding obligation, enforceable in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and other laws for the protection of creditors, as well as to general principles of equity, regardless whether such enforceability is considered in a proceeding in equity or at law.

 

(d)          Liability for Brokers’ Fees.  Buyer has not incurred any liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Seller shall have any responsibility whatsoever.

 

(e)           Buyer’s Evaluation.  Buyer is an experienced and knowledgeable investor in the oil and gas business.  Buyer has been advised by and has relied solely upon its own expertise in legal, tax and other professional counsel concerning the transaction contemplated by this Agreement, the Initial Acreage and the Optional Acreage and the value thereof.

 

(f)           Qualified to Hold Leases.  Buyer is eligible under all applicable laws and regulations to own leases covering the Initial Acreage and the Optional Acreage.

 

  

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ARTICLE IX.

POST-CLOSING OBLIGATIONS

 

Section 9.1           Post-Closing Obligations.  Seller and Buyer shall have the following post-Closing obligations:

 

(a)           Property Records.  Within sixty (60) days after Closing, Seller shall deliver to Buyer the originals of the Property Records at a location designated by Buyer.  Any transportation, postage or delivery costs from Seller’s offices shall be at Buyer’s sole cost, risk and expense.

 

(b)           Further Assurances.  Seller and Buyer agree to execute and deliver from time to time such further instruments and do such other acts as may be reasonably requested and necessary to effectuate the purposes of this Agreement.

 

ARTICLE X.

DISCLAIMERS

 

Section 10.1         Disclaimer; Title; Condition and Fitness of the Properties.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN THE ASSIGNMENT DELIVERED PURSUANT HERETO, SELLER WILL CONVEY TO BUYER THE INITIAL ACREAGE AND, IF APPLICABLE, THE OPTIONAL ACREAGE, WITHOUT ANY EXPRESS, STATUTORY, OR IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND, INCLUDING WITHOUT LIMITATION WARRANTIES RELATING TO (i) TITLE, (ii) THE CONDITION OF THE PROPERTY, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY OF THE PROPERTY, (iv) ANY IMPLIED OR EXPRESS WARRANTY OF THE FITNESS OF THE PROPERTY FOR A PARTICULAR PURPOSE, (v) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (vi) ANY RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE ADJUSTED PURCHASE PRICE, (vii) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, (viii) ANY IMPLIED WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, (ix) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, (x) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ANY ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT, OR PROTECTION OF THE ENVIRONMENT OR HEALTH, AND (xi) ANY RIGHTS OF BUYER UNDER STATUTES TO CLAIM DIMINUTION OF VALUE.  EXCEPT AS SET FORTH IN THIS AGREEMENT OR IN THE ASSIGNMENT, BUYER WILL ACCEPT THE PROPERTY “AS IS,” “WHERE IS,” AND “WITH ALL FAULTS” AND IN ITS PRESENT CONDITION AND STATE OF REPAIR. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO (a) THE AMOUNT, VALUE, QUALITY, QUANTITY, VOLUME, OR DELIVERABILITY OF ANY OIL, GAS, OR OTHER MINERALS OR RESERVES (IF ANY) IN, UNDER, OR ATTRIBUTABLE TO THE PROPERTY, (b) THE PHYSICAL, OPERATING, REGULATORY COMPLIANCE, SAFETY, OR ENVIRONMENTAL CONDITION OF THE PROPERTY, OR (c) THE GEOLOGICAL OR ENGINEERING CONDITION OF THE PROPERTY OR ANY VALUE THEREOF.

 

  

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Section 10.2         Information About the Properties.  Except as expressly set forth in this Agreement, each Party disclaims all liability and responsibility for any representation, warranty, statement, or communication (oral or written) to any other Party (including any information contained in any opinion, information, or advice that may have been provided to any such Party by any employee, officer, director, agent, consultant, engineer, or engineering firm, trustee, representative, partner, member, beneficiary, stockholder, or contractor of such disclaiming Party or its affiliates) wherever and however made, including those made in any data room and any supplements or amendments thereto or during any negotiations with respect to this Agreement.  EXCEPT AS SET FORTH IN THIS AGREEMENT OR IN THE ASSIGNMENT, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY, OR IMPLIED, AS TO (i) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION, OR RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE PROPERTY, (ii) THE PRESENCE, QUALITY, AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTY, (iii) THE ABILITY OF THE PROPERTY TO PRODUCE HYDROCARBONS, (iv) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS, OR PROFITS, IF ANY, TO BE DERIVED FROM THE PROPERTY, OR (v) THE ENVIRONMENTAL CONDITION OF THE PROPERTY.

 

ARTICLE XI.

MISCELLANEOUS

 

Section 11.1         Exhibits and Schedules. The Exhibits and Schedules to this Agreement are hereby incorporated in this Agreement by reference and constitute a part of this Agreement.

 

Section 11.2        Expenses.  Except as otherwise specifically provided, all fees, costs and expenses incurred by Buyer or Sellers in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the Party incurring the same, including, without limitation, engineering, land, title, legal and accounting fees, costs and expenses.  Without limiting the generality of the foregoing, to the extent that prior to the Effective Date Buyer has incurred costs and expenses in connection with preliminary well site work, well assessment, well locations, and scouting, such costs and expenses shall be borne solely by Buyer; provided, that, in the event Seller elects to exercise its participation option pursuant to Section 4.1, Seller shall bear its share of any such costs which are acquisition costs.

 

Section 11.3        Notices.  All notices and communications required or permitted under this Agreement shall be in writing and addressed as set forth below.  Any communication or delivery hereunder shall be deemed to have been duly made and the receiving Party charged with notice (i) if personally delivered, when received, (ii) if sent by facsimile transmission, when received, (iii) if mailed, five business days after mailing, certified mail, return receipt requested, or (iv) if sent by overnight courier, one day after sending.  All notices shall be addressed as follows:

 

  

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If to Seller:

Fort Peck Energy Company, LLC

317 C East Street

Poplar, MT  59255

Attn:  Mr. Lynn Becker

Telephone:  (406) 768-3093

Fax:  (406) 768-3504

Email:  Becker@NARPLLC.com

With copies to:

Andrews Kurth LLP

600 Travis, Suite 4200

Houston, TX 77002

Attention:  Cheryl S. Phillips

Telephone: (713) 220-4200

Fax: (713) 220-4285

Email: cphillips@andrewskurth.com

If to Buyer:

Samson Oil and Gas USA Montana, Inc.

1331 17th Street, Suite 710

Denver, CO 80202

Attn:  Terry Barr

Telephone:  (303) 296-3994

Fax:  (303) 295-1961

Email:  terry.barr@samsonoilandgas.com

With copies to:

Davis Graham & Stubbs LLP

1550 17th Street, Suite 500

Denver, CO  80202

Attn:  Greg Danielson

Telephone:  (303) 892-7438

Fax:  (303-893-1379

Email:  greg.danielson@dgslaw.com

Any Party may, by written notice so delivered to the other Parties, change the address or individual to which delivery shall thereafter be made.

 

  

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Section 11.4       Amendments.  Except for waivers specifically provided for in this Agreement, this Agreement may not be amended nor any rights hereunder waived except by an instrument in writing signed by the Party to be charged with such amendment or waiver and delivered by such Party to the Party claiming the benefit of such amendment or waiver.

 

Section 11.5         Headings.  The headings of the Articles and Sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement.

 

Section 11.6         Counterparts/Fax Signatures.  This Agreement may be executed by Buyer and Sellers in any number of counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute but one and the same instrument.  Signatures exchanged by fax or .pdf signatures shall be considered binding.

 

Section 11.7        References.  References made in this Agreement, including use of a pronoun, shall be deemed to include where applicable, masculine, feminine, singular or plural, individuals or entities.  As used in this Agreement, “person” shall mean any natural person, corporation, partnership, trust, limited liability company, court, agency, government, board, commission, estate or other entity or authority.

 

Section 11.8       Governing Law; Wavier of Jury Trial.  This Agreement and the transactions contemplated hereby shall be construed in accordance with, and governed by, the laws of the State of Texas, without regard to its conflicts of laws rules; provided, however, the laws of the State where the subject leases are located shall control the Assignment with respect to conveyance matters and other real property matters necessarily subject to the laws of the State where the subject leases are located.  EACH OF THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.

 

Section 11.9         Arbitration.  Except as otherwise indicated herein, any claim, controversy or dispute arising out of, relating to, or in connection with the Agreement or the agreements and transactions contemplated hereby, by Buyer or Seller, including the interpretation, validity, termination or breach thereof, shall be resolved solely through binding arbitration in accordance with the dispute resolution procedures set forth in this Section 11.9.  The Parties covenant that they shall not resort to court remedies except as provided for in this Section 11.9, or for preliminary relief in aid of arbitration. Except as otherwise provided in this Agreement, the following provisions shall apply to any arbitrations conducted pursuant to this Agreement:

 

(a)           Within ten (10) days after written demand by either party for arbitration, each party shall appoint one arbitrator.  The two arbitrators so appointed shall then appoint a third arbitrator.  If either party shall fail to appoint an arbitrator within the time stated, or if the two arbitrators so appointed fail within ten (10) days after the appointment of the second of them to agree on a third arbitrator, the arbitrator or arbitrators necessary to complete a panel of three (3) arbitrators shall be appointed pursuant to the commercial arbitration rules specified by the AAA.  All arbitrators must be neutral disinterested parties who have never been officers, directors or employees or attorneys of the parties or any of their Affiliates, must have not less than ten (10) years experience in the oil and gas industry, and must have a formal financial/accounting, petroleum engineering, land or legal education.

 

  

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(b)           The arbitration proceeding shall be governed by Texas law and shall be conducted in accordance with the Commercial Arbitration Rules of the AAA with discovery to be conducted in accordance with the Federal Rules of Civil Procedure, and with any disputes over the scope of discovery to be determined by the arbitrators.

 

(c)           The arbitration proceeding shall be held in Denver, Colorado and a hearing shall be held no later than sixty (60) days after submission of the matter to arbitration, and a written decision shall be rendered by the arbitrators within thirty (30) days of the hearing.

 

(d)           At the hearing, the parties shall present such evidence and witnesses as they may choose, with or without counsel.  Adherence to formal rules of evidence shall not be required but the arbitration panel shall consider any evidence and testimony that it determines to be relevant, in accordance with procedures that it determines to be appropriate.

 

(e)           Any award entered in the arbitration shall be made by a written opinion stating the reasons and basis for the award made and may include an award of reasonable costs and attorney’s fees if the arbitrator panel so determines.

 

(f)           The costs incurred in employing the arbitrators, including the arbitrators’ retention of any independent qualified experts, shall be borne 50% by the Seller and 50% by Buyer.

 

(g)           The arbitrator’s award may be filed in any court of competent jurisdiction and may be enforced by any party as a final judgment of such court.

 

Section 11.10       Entire Agreement.  This Agreement constitutes the entire understanding among the Parties with respect to the subject matter hereof, superseding all negotiations, prior discussions and prior agreements and understandings relating to such subject matter.

 

Section 11.11       Binding Effect.  This Agreement shall be binding upon, and shall inure to the benefit of, the Parties hereto, and their respective successors and assigns.

 

Section 11.12       No Third-Party Beneficiaries.  This Agreement is intended only to benefit the Parties hereto and their respective permitted successors and assigns.

 

Section 11.13       Survival.  All representations and warranties in this Agreement shall survive for a period of one (1) year following the Closing Date.

 

Section 11.14       Waiver.  The waiver or failure of any Party to enforce any provision of this Agreement shall not be construed or operate as a waiver of any further breach of such provision or of any other provision of this Agreement.

 

  

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Section 11.15       Limitation on Damages.  The Parties hereto expressly waive any and all rights to consequential, special, incidental, punitive or exemplary damages, or loss of profits resulting from any breach of this Agreement.

 

Section 11.16       Severability.  It is the intent of the Parties that the provisions contained in this Agreement shall be severable.  Should any provisions, in whole or in part, be held invalid as a matter of law, such holding shall not affect the other portions of this Agreement, and such portions that are not invalid shall be given effect without the invalid portion.

 

Section 11.17      Announcements.  Except as and to the extent required by law, neither Buyer nor Seller will make any press release or announcement with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other Party, such consent not to be unreasonably withheld or delayed; provided, however, if a Party is required to make such a public announcement or statement by law or under the rules and regulations of the New York Stock Exchange (or other public stock exchange of similar reputation and standing) on which the shares of such Party or any of its Affiliates are listed, then the same may be made without the approval of the other Party.  The opinion of counsel of the Party making such announcement or statement shall be conclusive evidence of such requirement by law or rules or regulations.

 

Section 11.18       Transfer Taxes and Recording Fees.  Buyer shall pay all sales, transfer, use or similar taxes , if any, occasioned by the sale or transfer of the Initial Acreage and the Optional Acreage and all documentary, transfer, filing, licensing, and recording fees required in connection with the processing, filing, licensing or recording of any assignments, titles or bills of sale.

 

Section 11.19      Relationship of the Parties.  This Agreement shall not be deemed or construed to create an agency relationship between the Parties.  This Agreement is not intended to create, and shall not be construed to create, a mining, joint venture, tax or other partnership or association or to render the Parties liable as partners.  However, if for federal income tax purposes, this Agreement and the operations conducted by the parties pursuant hereto are regarded as having created a partnership, each party thereby affected elects to be excluded from the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle “A,” of the Internal Revenue Code of 1986, as amended (hereinafter referred to as the “Code”), as permitted and authorized by Section 761 of the Code and the regulations promulgated thereunder.  Should there be any requirement that each Party thereby affected give further evidence of this election, each such party shall execute such documents and furnish such other evidence as may be required by the Internal Revenue Service or as may be necessary to evidence this election.  No Party shall give any notice or take any other action inconsistent with the election made hereby.

 

Section 11.20      Further Assurances.  From time to time after Closing, Seller and Buyer shall each execute, acknowledge and deliver to the other such further instruments and take such other action as may be reasonably requested in order to accomplish more effectively the purposes of the transactions contemplated by this Agreement.

 

[Signature Page Follows]

  

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IN WITNESS WHEREOF the Parties have executed this Agreement effective as of the Effective Time.

 

	
SELLER:

	 
	
FORT PECK ENERGY COMPANY, LLC, a Delaware limited liability company

	 	 
	
By:

	
Native American Resource Partners, LLC, as Manager

	  	  
	
By:

	
/s/ John P. Jurrius

	
Name:  John P. Jurrius

	
Title:  President and Chief Executive Officer

	
BUYER:

	  
	
SAMSON OIL AND GAS USA MONTANA, INC., a Colorado corporation

	 	 
	
By:

	
/s/ Terence Barr

	
Name:  Terence Barr

	
Title:  President and Chief Executive OfficerExhibit 10.4

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into as of January 1, 2011 (the “Effective Date”), by and between Samson Oil and Gas USA, Inc., a Colorado corporation (“Company”), and Terence M. Barr (“Employee”).

 

Recitals

 

Company desires to retain the personal services of Employee as President and Chief Executive Officer and Managing Director of Company and of Company’s parent, Samson Oil & Gas Limited (“Parent”) and Employee is willing to continue to make his services available to Company and Parent, on the terms and conditions hereinafter set forth.  All references herein to dollars or $ are to United States dollars.

 

Agreement

 

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties agree as follows:

 

1.           Employment.

 

1.1           Employment and Term.  Company hereby agrees to employ Employee and Employee hereby agrees to serve Company, on the terms and conditions set forth herein, for the period commencing on the Effective Date and continuing through December 31, 2013, unless sooner terminated in accordance with the terms and conditions hereof (the “Term”).  The Term will be extended for a second three (3) year period ending December 31, 2016 unless either party gives written notice on or before September 30, 2013 of the party’s decision not to so extend.

 

1.2           Duties of Employee.  Employee shall serve as the President and Chief Executive Officer of Company and Parent, and shall have and exercise general responsibility for the management of Company and Parent.  Employee shall report to the Board of Directors of Parent (the “Board”, which term may also include a committee of the Board when used herein, depending on the context).  Employee shall also have such other powers and duties as the Board may from time to time delegate to him provided that such duties are consistent with his position.  Employee shall devote substantially all his working time and attention to the business and affairs of Company and Parent (excluding any vacation and sick leave to which Employee is entitled), render such services to the best of his ability, and use his best efforts to promote the interests of Company and Parent.  So long as such activities do not interfere with the performance of Employee’s responsibilities as an employee of Company in accordance with this Agreement, it shall not be a violation of this Agreement for Employee to: (i) serve on corporate, civic or charitable boards or committees; (ii) deliver lectures or fulfill speaking engagements; (iii) manage personal investments; or (iv) participate in continuing education seminars or similar activities relevant to his duties and responsibilities for Company.

 

  

  

  

 

1.3           Place of Performance.  In connection with his employment by Company, Employee shall be based at Company’s offices in Colorado or another mutually agreed location, except for travel necessary in connection with Company’s business.

 

2.           Compensation.

 

2.1           Total Salary.  Employee shall receive a total annual compensation in an amount set by the Board from time to time throughout the Term (the “Total Salary”).  The base salary, automobile lease and automobile running cost components of Total Salary will be accrued on a daily basis and payable in installments consistent with Company’s normal payroll schedule, subject to applicable withholding and other taxes.  As of the Effective Date, Employee’s Total Salary is $406,802.  Employee’s Total Salary may be increased during the Term, but shall not be decreased without Employee’s written consent.  The Total Salary for Employee shall be paid in a manner mutually agreed between Employee and Company and may include, but will not be limited to, cash salary, automobile leasing and running payments and spousal travel.  The initial allocation of the Total Salary is set forth in Exhibit A.  Employee and Company may, from time to time, agree to change the allocation of Total Salary in Exhibit A by written agreement signed by both Company and Employee.

 

The full amount of the spousal travel component of Total Salary, if any, will be available at any time during the calendar year to reimburse Employee’s spousal travel expenses upon the presentation of related expense documentation to Employee in accordance with related Company policies and procedures.  To the extent that Employee is not reimbursed for the full amount of the spousal travel component of Total Salary on or before December 31 of the calendar year in which it first became available, Company will pay him the remaining amount no later than March 15 of the calendar year following the calendar year when such amount first became available to him.  However, if Employee’s employment is terminated, the spousal travel component of his Total Salary shall be treated as being accrued on a daily basis during the period beginning on January 1 and ending on the last day of his employment.

 

  

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2.2           Incentive Compensation.  In addition to and not as a substitute for Employee’s Total Salary, Employee shall be paid a cash bonus for the calendar year 2011 (the “2011 Cash Bonus”) in an amount equal to as much as 100% of the Total Cost of Employee Compensation at the end of the calendar year 2011 (the “Target Bonus”).  The “Total Cost of Employee Compensation” is set forth in Exhibit A attached hereto.  The minimum portion of the Target Bonus that Employee will receive as the 2011 Cash Bonus shall be determined by reference to the amount of the percentage increase, if any, in the Combined Volume Weighted Average Price (the “CVWAP”) for Parent’s Ordinary Shares on the Australian Securities Exchange (“ASX”) and for its American Depository Shares (“ADSs”) on the NYSE Amex, in each case for all trading days in December 2011 as compared to the CVWAP for all trading days in December 2010.  The CVWAP shall be calculated by an independent body acceptable to the Board (such as Company’s independent auditors) on the basis of each individual trade recorded by the ASX and the NYSE Amex during that period.  If for any reason individual trade data is not available, then the independent body selected by the Board shall use the best information available to make a comparable calculation for each day’s trades.  Because each ADS represents 20 Ordinary Shares, the trading volume of the ADSs will be converted to Ordinary Shares before averaging, with the result that the NYSE Amex ADS trading volume will be multiplied by 20 (or in accordance with the then applicable Ordinary Share to ADS ratio, if different) to determine the number of Ordinary Share equivalents traded.  For each trading day on the NYSE Amex, the price and volume of ADS trades will first be converted to Ordinary Share equivalents, in U.S. dollars, and then the price of those converted trades will be further converted to Australian dollars using the exchange rate quoted by the Reserve Bank of Australia for that trading day.  Each trade on the ASX and on the NYSE Amex (after the foregoing conversion of the ADSs to Ordinary Share equivalents  in Australian dollars) shall then be valued by multiplying the number of Ordinary Shares or Ordinary Share equivalents in the trade times the trade price in Australian dollars (the “Trade Value”).  The resulting pool of the CVWAP shall be equal to the sum of the Trade Values on both exchanges divided by the total number of Ordinary Shares and Ordinary Share equivalents traded.

 

The 2011 Cash Bonus payable to Employee will then be paid in accordance with the following:

 

	
Year to Year CVWAP increase

	
Minimum Percentage of Target

Bonus Payable

 

	
                                     Less than 24.99%

	
                                     Nil to 24.99%

 

	
                                     25.00% to 49.99%

	
                                     25.00% to 49.99%

 

	
                                     50.00 % to 99.99%

	
                                     50.00% to 99.99%

 

	
                                     100%

	
                                     100%

 

	
                                     Greater than 100%

	
                                     100%

 

 

Notwithstanding the foregoing, the Board may elect to pay Employee a higher percentage of the Target Bonus than would otherwise be payable on account of the increase in CVWAP as set forth above, but not more than 100%, if the Board determines, in its sole discretion, that such higher percentage is warranted under the circumstances.  If Employee is employed by Company on January 1, 2012, then the 2011 Cash Bonus shall be paid to Employee on or after that date but no later than March 15, 2012.

 

  

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After 2011, the 2011 Cash Bonus will not apply but, for each remaining year of the Term, an alternate incentive compensation plan covering Employee will be adopted by the Board prior to December 31 of the preceding year, beginning with the adoption of a 2012 incentive compensation plan prior to December 31, 2011.  If Employee voluntarily resigns his employment on or after January 1, 2012, and no such alternative incentive compensation plan has been adopted by the Board at the effective time of such resignation, then the failure to adopt the alternative compensation plan shall constitute a material reduction in other benefits under Section 4.6(b) of this Agreement and such resignation shall be deemed to have been a resignation for “good reason” under Section 4.6.

 

2.3           Relocation Expenses.

 

(a)           If (i) Employee resigns for Good Reason under Section 4.6, or (ii) this Agreement is terminated by Company for any reason other than a termination for Cause under Section 4.1, or (iii) Company declines to extend the Term for a second three (3) year period under Section 1.1, then Company shall reimburse Employee for all reasonable relocation expenses incurred by Employee in returning to Australia, in the event that Employee elects to do so.  Such reasonable relocation expenses shall be considered “reasonable moving expenses . . . related to the termination of services,” as defined under Treasury Regulation Section 1.409A-1(b)(9)(v)(A) and must be incurred by Employee on or before the last day of Employee’s second taxable year following the taxable year in which the separation from service occurs.  Company shall make such reimbursement payments to Employee upon its receipt of documentation that, in Company’s sole and absolute discretion, proves that Employee incurred such relocation expense, but in no event later than the last day of Employee’s third taxable year following the taxable year in which the separation from service occurs.

 

(b)           If Company’s offices to which Employee is assigned are relocated outside of the Denver, Colorado metropolitan area and Employee remains employed by Company pursuant to this Agreement, then Company shall pay all reasonable relocation expenses incurred by Employee in relocating to Company’s new location.  The requirements for the timing of such expenses and their reimbursement shall be subject to and in accordance with the relocation expense payment policies and procedures of Company, as in effect as of the date Employee is advised of the relocation.

 

3.           Expense Reimbursement and Other Benefits.

 

3.1           Expense Reimbursement.  During the Term, Company shall reimburse Employee for all documented reasonable expenses actually paid or incurred by Employee in the course of and pursuant to the business of Company, subject to and in accordance with the expense reimbursement policies and procedures in effect for Company’s employees from time to time.

 

  

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3.2           Additional Benefits.  During the Term, Company shall make available to Employee such benefits and perquisites as are generally provided by Company to its senior management (subject to eligibility), including but not limited to non-pecuniary U.S. immigration and visa support, participation in any group life, medical, health, dental, disability or accident insurance, pension plan, 401(k) savings and investment plan, profit-sharing plan, employee stock purchase plan, incentive compensation plan or other such benefit plan or policy, if any, which may presently be in effect or which may hereafter be adopted by Company for the benefit of its senior management or its employees generally, in each case subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement (the “Additional Benefits”).  While Company’s actual cost of the Additional Benefits is not included in Employee’s Total Salary, an estimate of the cost of the Additional Compensation is included in the Total Cost of Employee Compensation set forth in Exhibit A hereto in order to ensure the parties’ recognition of the total expense incurred by Company and the total value of the compensation and benefits received by Employee.   Company may, in its sole and absolute discretion, amend or terminate any Additional Benefit or change its administrative policies and practices with respect to any such benefit.

 

3.3           Annual Leave.  Employee shall be entitled to five (5) weeks of annual leave each calendar year.  The annual leave will vest evenly each payroll and shall be accrued from calendar year to calendar year in accordance with Company policies and procedures then in effect.  Employee shall be paid for any remaining annual leave accrual following the termination of employment for any reason.  Annual leave shall be taken at a mutually agreeable time.

 

3.4           Personal Leave.  Personal leave shall be available to Employee for use in accordance with Company policies and procedures then in effect.  Personal leave will not accrue for longer than a year and Employee will not be entitled to receive payment for any accrued personal leave upon the termination of their employment.

 

4.           Termination.

 

4.1           Termination for Cause.  Notwithstanding anything to the contrary contained in this Agreement, Company hereunder may terminate this Agreement and Employee’s employment for Cause.  As used in this Agreement, “Cause” shall mean (i) any action or omission of Employee which constitutes (A) a breach of any of the provisions of Section 5 of this Agreement, (B) a breach by Employee of his fiduciary duties and obligations to Company, or (C) Employee’s failure or refusal to follow any lawful directive of the Board, in each case which act or omission is not cured (if capable of being cured) within ten (10) days after written notice of same from Company to Employee, or (ii) conduct constituting fraud, embezzlement, misappropriation or gross dishonesty by Employee in connection with the performance of his duties under this Agreement, or a conviction of Employee for a felony (other than a traffic violation) or, if it shall damage or bring into disrepute the business, reputation or goodwill of Company or impair Employee's ability to perform his duties with Company, any crime involving moral turpitude.  Employee shall be given a written notice of termination for Cause specifying the details thereof.  Upon any termination pursuant to this Section 4.1, Employee shall only be entitled to his Total Salary as accrued through the date of termination, reimbursement of expenses incurred prior to the date of termination in accordance with Section 3.1 hereof and, and any other compensation and benefits payable in accordance with Section 3.2 hereof.  Upon making such payments, Company shall have no further liability to Employee hereunder.

 

  

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4.2           Disability. Notwithstanding anything to the contrary contained in this Agreement, Company, by written notice to Employee, shall at all times have the right to terminate this Agreement and Employee’s employment hereunder if Employee shall, as the result of mental or physical incapacity, illness or disability, fail or be unable to perform his duties and responsibilities provided for herein in all material respects for a period of more than sixty (60) consecutive days in any 12-month period.  Upon any termination pursuant to this Section 4.2, (i) within thirty (30) days after the date of termination, Company shall pay Employee any unpaid amounts of his Total Salary accrued prior to the date of termination and shall reimburse Employee for all expenses described in Section 3.1 of this Agreement and incurred prior to the date of termination, and (ii) in lieu of any further Total Salary, incentive compensation or other benefits or payments to Employee for periods subsequent to the date of termination Company shall pay to Employee the Severance Payments and Severance Benefits specified in Section 4.4.  Upon making such payments and providing such benefits, Company shall have no further liability hereunder; provided, however, that Employee shall be entitled to receive any amounts then payable pursuant to any employee benefit plan, life insurance policy or other plan, program or policy then maintained or provided by Company to Employee in accordance with Section 3.2 hereof and under the terms thereof.

 

4.3           Death.  In the event of the death of Employee during the term of his employment hereunder, this Agreement shall terminate on the date of Employee’s death.  Upon any such termination, (i) within thirty (30) days after the date of termination, Company shall pay to the estate of Employee any unpaid amounts of his Total Salary accrued prior to the date of termination and reimbursement for all expenses described in Section 3.1 of this Agreement and incurred by Employee prior to his death, and (ii) in lieu of any further Total Salary, incentive compensation or other benefits or payments to the estate of Employee for periods subsequent to the date of termination, Company shall pay to the estate of Employee the Severance Payments specified in Section 4.4.  Upon making such payments, Company shall have no further liability hereunder; provided, that Employee’s spouse, beneficiaries or estate, as the case may be, shall be entitled to receive any amounts then payable pursuant to any employee benefit plan, life insurance policy or other plan, program or policy then maintained or provided by Company to Employee in accordance with Section 3.2 hereof and under the terms thereof.  Nothing herein is intended to give Employee’s spouse, beneficiaries or estate any rights to or interest in any key man life insurance policy on Employee maintained by Company for the benefit of Company.

 

  

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4.4           Termination Without Cause.  At any time Company shall have the right to terminate this Agreement and Employee’s employment hereunder by written notice to Employee.  Upon any termination without Cause pursuant to this Section 4.4, Company shall pay Employee any unpaid amounts of his Total Salary accrued prior to the date of termination and shall reimburse Employee for all expenses described in Section 3.1 of this Agreement and incurred prior to the date of termination, provided, however, that if Company provided Employee with less than ninety (90) days prior written notice of the date of such termination without Cause, then in addition to his Total Salary and benefits through the date of such termination, Company shall also pay Employee an amount (“Severance Payments”) equal to his Total Salary for the difference between the required ninety (90) days notice and the actual notice given by Company (the “Without Cause Notice Period”), subject to all appropriate withholdings and deductions.  If there is a Change in Control of Company at any time during the Term, however, whether before or after any notice of termination without Cause, then Employee shall be entitled to receive notice of the effective date of termination twelve (12) months prior to such date (“Change in Control Notice Period”) instead of the Without Cause Notice Period of only ninety (90) days.  If there is a Change in Control during the Term and Company provides Employee with a notice of termination that is less than the Change in Control Notice Period, then the Severance Payments shall be, subject to all appropriate withholdings and deductions, based on the difference between the Change in Control Notice Period and the actual notice given by Company.  Severance Payments shall be paid to Employee in a lump sum upon the termination of Employee’s employment, provided, however, that no Severance Payments shall be paid until Employee has signed a form of release agreement satisfactory to Company, returned it to Company and not revoked it during any applicable statutory revocation period.  Employee will forfeit the right to any payment under this Section 4.4 unless such release, which will be provided by Company promptly after Employee’s termination, is signed and not subsequently revoked within ninety (90) days after it has been provided to Employee.  Employee shall also receive the Additional Benefits for the entire Without Cause Notice Period or the Change in Control Notice Period, as the case may be (the “Severance Benefits”)  Upon making the Severance Payments and providing the Severance Benefits, if any, required by this Section 4.4, Company shall have no further liability hereunder other than any amounts then payable pursuant to any employee benefit plan, life insurance policy or other plan, program or policy then maintained or provided by Company to Employee in accordance with Section 3.2 and under the terms thereof.  For purposes of this Agreement, a Change in Control of Company shall be deemed to have occurred if (i) any person, entity or group becomes the beneficial owner, directly or indirectly, of 50.1% or more of the voting securities of Company or Parent; or (ii) as a result of, or in connection with, any tender offer, exchange offer, merger, business combination, sale of assets or contested election of directors (a “Transaction”), the persons who were directors of Company or Parent immediately before the Transaction no longer constitute a majority of the directors of Company or Parent; or (iii) Company or Parent is merged or consolidated with another corporation or entity and, as a result of the merger or consolidation, less than 50.1% of the outstanding voting securities of the surviving corporation or entity is then owned in the aggregate by the former stockholders of Company or Parent; or (iv) Company or Parent transfers all or substantially all of its assets to another company which is not a wholly owned subsidiary of Company or Parent.

 

4.5           Voluntary Resignation.  Employee may, upon not less than ninety (90) days prior written notice to Company, resign and terminate his employment hereunder.  Subject to Section 4.6, in the event Employee resigns as an employee of Company, he shall be entitled to receive only such payment(s) as he would have received had he been terminated pursuant to Section 4.1 hereof.  Employee shall not under any circumstances give Company less than ninety (90) days prior written notice of his resignation date.

 

  

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4.6           Resignation for Good Reason.  Employee may, by written notice to Company during the Term, elect to terminate his employment on the basis of “good reason” if there is (a) a material change of the principal location in which Executive is required to perform his duties hereunder without Executive’s prior consent (it being agreed that any location within the state of Colorado shall not be deemed a material change); or (b) a material reduction in (or a failure to pay or provide a material portion of) Employee’s Total Salary or other benefits payable under this Agreement or (c) a Change in Control of Company.  Any such notice of termination by Executive for “good reason” shall specify the circumstances constituting “good reason” and shall afford Company an opportunity to cure such circumstances at any time within the thirty (30) day period following the date of such notice.  If Company does cure such circumstances within said thirty (30) day period, the notice of termination shall be withdrawn by Executive and of no further force and effect.  If the circumstances cited in Executive’s notice qualify as “good reason” hereunder and are not cured within the thirty (30) days after the notice, this Agreement shall be terminated ninety (90) days after Executive’s original written notice and such termination shall be treated in all respects as if it had been a termination without cause and without notice, but not involving a Change in Control under Section 4.4 of this Agreement.  Notwithstanding the foregoing, any voluntary termination by Employee following a Change of Control shall be a termination for “good reason” pursuant to this Section 4.6 if, but only if, the date of termination is no later than the later of (i) February 13 of the first calendar year following the year in which the Change of Control occurred and (ii) the fifteenth day of the second month of Company’s fiscal year following the year in which the Change of Control occurred.

 

5.           Restrictive Covenants.

 

5.1           Nondisclosure.  (a)     Employee acknowledges that, as part of the terms of his employment by Company, he will have access to and/or may develop or assemble confidential information owned by or related to Company, its customers or its business partners or Parent.  Such confidential information (whether or not reduced to writing) shall include, without limitation, designs, processes, projects, manuals, techniques, information concerning or provided by customers, suppliers and vendors contracts, marketing strategies, agency relationships and terms, financial information, pricing and compensation structures, business relations and negotiations, employee lists, plans for drilling, exploration, development or other business, production, exploration, seismic or other business data, and any other information designated as “confidential” by Company or Parent (collectively, “Confidential Information”).  Employee shall retain all Confidential Information in confidence and shall not use or disclose Confidential Information for any purpose other than to the extent necessary to perform his duties as an employee of Company.  This duty of confidentiality shall continue indefinitely with respect to Confidential Information notwithstanding any termination of Employee’s employment so long as it remains Confidential Information.  Confidential Information shall not include any information that (i) was known by Employee from a third party source before disclosure by or on behalf of Company to Employee, (ii) becomes available to Employee from a source other than Company that is not bound by a duty of confidentiality to Company, (iii) Company makes publicly available or discloses to any third party without any obligation of confidentiality, or (iv) becomes generally publicly available or known in the industry other than as a result of its disclosure by Employee.

 

  

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(b)           Employee agrees to (i) return to Company upon request, and in any event, at the time of termination of employment for whatever reason, all documents, equipment, notes, records, computer disks and tapes and other tangible items in his possession or under his control which belong to Company or any of its affiliates or which contain or refer to any Confidential Information relating to Company or any of its affiliates and (ii) if so requested by Company, delete all Confidential Information relating to Company or any of its affiliates from any computer disks, tapes or other re-usable material in his possession or under his control which contain or refer to any Confidential Information relating to Company or any of its affiliates.

 

5.2           Non-solicitation of Customers and Employees.  During the Term and during any period of time thereafter that Severance Payments or Severance Benefits are required by this Agreement to be paid or provided to Employee, excluding for this purpose any tardy payments by Company (the “Severance Period”), Employee (a) shall not solicit the business of any person, company or firm which is a former, current, or prospective customer or business partner of Company or Parent (a “Customer”) for the benefit of anyone other than Company or Parent if the business solicited is of a type offered by Company or Parent during the Term, (b) shall not solicit or encourage any Customer to modify, diminish or eliminate its business relationship with Company or Parent or take any other action with respect to a Customer which could be detrimental to the interests of Company or Parent, and (c) shall not solicit for employment or for any other comparable service, such as consulting services, and shall not hire or engage as a consultant any employee or independent contractor employed or engaged by Company or Parent at any time during the Term.  Employee acknowledges that violation of this covenant constitutes a misappropriation of Company’s or Parent’s trade secrets in violation of his duty of confidentiality owed to Company.

 

5.3           Non-competition.  (a) During the Term and the Severance Period, unless otherwise waived in writing by Company (such waiver to be in Company’s sole and absolute discretion), Employee shall not, directly or indirectly, engage in, operate, manage, have any investment or interest or otherwise participate in any manner (whether as employee, officer, director, partner, agent, security holder, creditor, consultant or otherwise) in any sole proprietorship, partnership, corporation or business or any other person or entity (each, a “Competitor”) that engages directly or indirectly, in a Competitive Activity.  For purposes of this Agreement, a “Competitive Activity” means any business or other endeavor of a kind being conducted by Company or any of its subsidiaries or affiliates (or demonstrably anticipated by Company) in a geographic area that is within ten (10) miles of (a) any property that is owned, leased or controlled by Company at any time during the six (6) months preceding the Competitive Activity or, if Employee’s employment has been terminated, during the last six (6) months of the Term, or (b) any oil or gas prospect that Company is evaluating or in which Company is seeking to acquire an interest at any time either during the six (6) months preceding the Competitive Activity or, if Employee’s employment has been terminated, during the last six (6) months of the Term.  Employee shall be considered to have become associated with a Competitive Activity and in violation of this provision if Employee becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in a Competitive Activity.; provided, that Employee may hold or acquire, solely as an investment, shares of capital stock or other equity securities of any Competitor, so long as the securities are publicly traded and Employee does not control, acquire a controlling interest in, or become a member of a group which exercises direct or indirect control of, more than five percent (5%) of any class of equity securities of such Competitor.

 

  

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5.4           Non-disparagement.  During the Term and the Severance Period, Employee will not distribute, cause a distribution of, or make any oral or written statement, which directly or by implication tarnishes, creates a negative impression of, or puts Company, its reputation and goodwill in a bad light, or disparages Company or Parent in any other way, including but not limited to: (a) the working conditions or employment practices of Company or Parent; (b) Company’s oil and gas properties, including unproved or proved undeveloped properties; or (c) Company’s directors, officers and personnel.  It will not be a violation of this section for Employee to make truthful statements, under oath, as required by law or formal legal process.

 

5.5           Intellectual Property Rights.  Employee understands that as part of his Employment he may alone or together with others create, compile, or discover data, designs, literature, ideas, trade secrets, know-how, commercial information, or other valuable works or information, such as financial models, drilling logs, development plans, reserves estimates or valuations, seismic data and other information pertinent to the value of oil and gas properties (collectively, “Intellectual Property”).  Employee acknowledges that Company shall own all right, title, and interest in all Intellectual Property created by him in whole or in part in the course of his employment by Company.  Employee hereby assigns to Company all right, title, and interest in the copyrights or patents embodied in or represented by such Intellectual Property, including all rights of renewal and termination, and to any and all other intellectual property rights, including without limitation, trademarks, trade secrets, and know-how embodied in Intellectual Property or in any other idea or invention developed in whole or in part by Employee in the course of his Employment.  Employee further agrees to take all actions and to execute all documents necessary in order to perfect and to vest such intellectual property rights in Company.

 

5.6           Injunction.  It is recognized and hereby acknowledged by the parties hereto that a breach by Employee of any of the covenants contained in Sections 5.1 through 5.5 of this Agreement will cause irreparable harm and damage to Company, the monetary amount of which may be virtually impossible to ascertain.  As a result, Employee recognizes and hereby acknowledges that Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 6 of this Agreement by Employee or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies Company may possess.

 

  

9

  

 

5.7           American Jobs Creation Act Provisions.  It is the intention of the parties that payments or benefits payable under this Agreement not be subject to the additional tax imposed pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).  Accordingly, to the extent such potential payments or benefits could become subject to Section 409A of the Code, the parties shall cooperate to amend this Agreement with the goal of giving Employee the economic benefits described herein in a manner that does not result in such tax being imposed.  Notwithstanding anything in this Agreement to the contrary, the following provisions related to payments treated as deferred compensation under Section 409A of the Code, shall apply:

 

	
  

	
(a)

	
If (i) Employee is a “specified person” on the date of Employee’s “separation from service” within the meaning of Sections 409A(a)(2)(A)(i) and 409A(a)(2)(B)(ii) of the Code, and (ii) as a result of such separation from service Employee would receive any payment that, absent the application of this paragraph, would be subject to the interest and additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be made prior to the date that is the earliest of: (i) six (6) months after Employee’s separation from service and (ii) Employee’s date of death.

 

	
  

	
(b)

	
Any payments that are delayed pursuant to Section 5.7(a) shall be paid on the earlier of the two dates described therein.

 

	
  

	
(c)

	
Sections 5.4(a) and (b) shall not apply to any payment if and to the maximum extent that that such payment would be a payment under a separation pay plan following an “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(n)) that does not provide for a deferral of compensation by reason of the application of Treasury Regulation Section 1.409A-1(b)(9)(iii).  For the avoidance of doubt, the parties agree that this Section 5.7(c) shall be interpreted so that Employee will receive payments during the six (6) month period specified in Section 5.2(a) to the maximum amount permitted by Treasury Regulation Section 1.409A-1(b)(9)(iii).

 

	
  

	
(d)

	
If a payment that could be made under this Agreement would be subject to additional taxes and interest under Section 409A of the Code, Company in its sole discretion may accelerate some or all of a payment otherwise payable under the Agreement to the time at which such amount is includable in the income of Employee, provided that such acceleration shall only be permitted to the extent permitted under Treasury Regulation Section 1.409A-3(j)(vii) and the amount of such acceleration does not exceed the amount permitted under Treasury Regulation Section 1.409A-3(j)(vii).

 

  

10

  

 

	
  

	
(e)

	
No payment to be made under this Agreement shall be made at a time earlier than that provided for in this Agreement unless such payment is (i) an acceleration of payment permitted to be made under Treasury Regulation Section 1.409A-3(j)(4) or (ii) a payment that would otherwise not be subject to additional taxes and interest under Section 409A of the Code.

 

	
  

	
(f)

	
A payment described in Section 4.4 of this Agreement shall be made only if such payment will not be subject to additional taxes and interest under Section 409A of the Code.

 

	
  

	
(g)

	
No payment shall be made pursuant to Section 2.3 of this Agreement unless such payment would not constitute a deferral of compensation pursuant to Treasury Regulation Section 1.409A-1(b)(9)(v).

 

6.           Entire Agreement; No Conflicts With Existing Arrangements.  No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party that is not set forth expressly in this Agreement.  This Agreement contains the entire agreement, and supersedes any other agreement or understanding between Company and Employee relating to Employee’s employment, provided, however, that if and to the extent that Company has previously granted equity or other similar compensation to Employee that is subject to a vesting schedule, contingency or performance condition, this Agreement does not alter Employee’s entitlement to such compensation in accordance with the original terms thereof.  Employee represents and warrants that his employment by Company hereunder does not and will not conflict with or constitute a breach or default under any prior or existing agreement with any former employer or other person or entity.

 

7.           Notices:  All notices and other communications required or permitted under this Agreement shall be in writing and will be either hand delivered in person, sent by facsimile, sent by certified or registered first class mail, postage pre-paid, or sent by nationally recognized express courier service.  Such notices and other communications will be effective upon receipt if hand delivered or sent by facsimile, five (5) days after mailing if sent by mail, and one (l) day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party may notify the other parties in accordance with this Section:

 

If to Company:

Samson Oil & Gas Limited

The Company Secretary

Level 36, Exchange Plaza

2 The Esplanade

Perth, Western Australia 6000

Facsimile: (08) 9220 9820

  

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If to Employee:

Terence Barr

at address shown on Company’s personnel records

	
8.

	
Successors and Assigns.

 

(a)           This Agreement is personal to Employee and without the prior written consent of Company shall not be assignable by Employee otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives.

 

(b)           This Agreement shall inure to the benefit of and be binding upon Company and its successors and assigns.

 

(c)           Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean Company and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law or otherwise.

 

	
9.

	
Severability.  The invalidity of any portion of this Agreement shall not affect the enforceability of the remaining portions of this Agreement.  If any provision of this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted.  If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be reduced to a period or area that would cure such invalidity.

 

	
10.

	
Waivers.  The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation.

 

	
11.

	
No Third Party Beneficiary.  Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person (other than the parties hereto and, in the case of Employee, his heirs, personal representative(s) and/or legal representative) any rights or remedies under or by reason of this Agreement.

 

	
12.

	
Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, without regard to principles of conflict of laws.

 

  

12

  

 

	
13.

	
Survival.  Employee’s obligations under Section 5 hereof shall not terminate upon the termination of employment or the termination of this Agreement but shall continue in accordance with their terms set forth herein.

 

	
14.

	
Counterparts and Facsimile Signatures.  This Agreement may be executed in one or more counterparts and by the separate parties hereto in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.  Telecopies or other electronic facsimiles of original signatures shall be deemed to be the same as original signatures for all purposes.

 

  

13

  

 

IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date set forth above.

	  	
COMPANY:

	  	  
	  	
SAMSON OIL AND GAS USA, INC.

	  	  
	  	
By:

	
/s/ Robyn Lamont

	  	  	
 Robyn Lamont, Vice President-Finance

	  	  
	  	
PARENT:

	  	  
	  	
SAMSON OIL AND GAS LIMITED

	  	  
	  	
By:

	
/s/ Victor Rudenno

	  	  	
 Victor Rudenno, Director

	  	  
	  	
Attest:

	
/s/ Denis Rakich

	  	  	
 Denis Rakich, Secretary

	  	  
	  	
EMPLOYEE:

	  	  
	  	
By:

	
/s/ Terence M. Barr

	  	  	
 Terence M. Barr

 

  

14

  

Exhibit A

Total Salary Allocation

	  	 	
USD

	 
	
Base Salary

	 	 	366,891	 
	
Automobile Lease

	 	 	14,761	 
	
Automobile Running Costs

	 	 	5,150	 
	
Spousal Travel

	 	 	20,000	 
	
TOTAL SALARY

	 	 	406,802	 
	  	 	 	 	 
	
Estimated cost of Additional Benefits

	 	 	 	 
	  	 	 	 	 
	  	 	
USD

	 
	
401(k) matching funds

	 	 	14,700	 
	
Employer cost of health insurance

	 	 	18,498	 
	  	 	 	 	 
	
TOTAL COST OF EMPLOYEE COMPENSATION

	 	 	440,000	 

 

  

15

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