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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0001086319-02-000006.txt : 20020415
<SEC-HEADER>0001086319-02-000006.hdr.sgml : 20020415
ACCESSION NUMBER: 0001086319-02-000006
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 13
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020329
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: GASCO ENERGY INC
CENTRAL INDEX KEY: 0001086319
STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311]
IRS NUMBER: 980204105
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-26321
FILM NUMBER: 02593001
BUSINESS ADDRESS:
STREET 1: 14 INVERNESS DRIVE EAST BLDG H
STREET 2: BLDG H SUITE 236
CITY: ENGLEWOOD
STATE: CO
ZIP: 80112
BUSINESS PHONE: 3037130047
MAIL ADDRESS:
STREET 1: 14 INVERNESS DRIVE EAST BLDG H
STREET 2: BLDG H SUITE 236
CITY: ENGLEWOOD
STATE: CO
ZIP: 80112
FORMER COMPANY:
FORMER CONFORMED NAME: LEK INTERNATIONAL INC
DATE OF NAME CHANGE: 19990511
FORMER COMPANY:
FORMER CONFORMED NAME: SAN JOAQUIN RESOURCES INC
DATE OF NAME CHANGE: 20000516
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>form10k.txt
<DESCRIPTION>GASCO ENERGY 10-K 12/31/01
<TEXT>
- -----------------------------------------------------------------------------
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal Year Ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-26321
GASCO ENERGY, INC.
(Exact name of registrant as specified in its charter)
NEVADA 98-0204105
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Inverness Drive East, Building H, Suite 236, Englewood, CO 80112
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code: (303) 483-0044
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.0001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common shares held by non-affiliates of the
registrant as of March 15, 2002 was approximately $ 40,185,376.
Number of shares outstanding of Common Stock, $0.0001 par value, as of March 15,
2002: 31,928,800 shares
Documents incorporated by reference:
The information called for by Part III of Form 10-K is incorporated by reference
to the definitive proxy statement for the annual meeting of stockholders of the
Company to be filed with the Securities and Exchange Commission not later than
120 days after December 31, 2001.
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Business of Gasco
Gasco Energy, Inc. ("Gasco" or "the Company") is engaged in locating and
developing hydrocarbon prospects, primarily located in the Rocky Mountain
region. The Company's mission is to create shareholder value by applying new
technologies to generate and develop high-potential exploitation prospects.
History
Gasco (formerly known as San Joaquin Resources Inc. ("SJRI")) was incorporated
on April 21, 1997 under the laws of the State of Nevada, as "LEK International,
Inc." The Company operated as a "shell" company until December 31, 1999, when a
change in control occurred in conjunction with closing under an Agreement and
Plan of Reorganization with San Joaquin Oil & Gas Ltd., a Nevada corporation
("Oil & Gas"). Prior to closing under this Agreement and Plan of Reorganization,
the Company had a total of 3,700,000 shares of common stock issued and
outstanding. The Company issued 8,069,000 new shares of common stock in exchange
for all of the issued and outstanding common stock of Oil & Gas. As a result of
that transaction, Oil & Gas became a wholly-owned subsidiary of Gasco.
On February 1, 2001, the Company entered into an Agreement and Plan of
Reorganization (the "Pannonian Agreement") whereby it issued 14,000,000 shares
of its common stock and warrants to the former stockholders of Pannonian Energy,
Inc. ("Pannonian"), a private corporation incorporated under the laws of the
State of Delaware, in connection with the merger of Pannonian with a subsidiary
of the Company (the "Pannonian Merger"). Pannonian was an independent energy
company engaged in the exploration, development and acquisition of crude oil and
natural gas reserves in the western United States and was also considered a
development stage oil and gas company as defined by Statement of Financial
Accounting Standards ("SFAS") No. 7.
Under the terms of the merger agreement between the Company and Pannonian,
Pannonian was required, prior to closing of the merger on March 30, 2001, to
divest itself of all assets not associated with its "Riverbend" area of interest
(the "non-Riverbend assets"). The "spin-offs" were accounted for at the recorded
amounts. The net book value of the non-Riverbend assets in the United States
transferred, including cash of $1,000,000 and liabilities of $555,185, was
approximately $1,850,000. The non-Riverbend assets located outside of the United
States were held by Pannonian International Ltd. ("PIL"), the shares of which
were distributed to the Pannonian stockholders. The net book value of PIL as of
the date of distribution was approximately $174,000.
Certain shareholders of SJRI surrendered for cancellation 2,438,930 common
shares of the Company's capital stock on completion of the Pannonian Merger.
Upon completion of the transaction, Pannonian became a wholly owned subsidiary
of the Company. However, since this transaction resulted in the existing
shareholders of Pannonian acquiring control of the Company, for financial
reporting purposes the business combination is accounted for as a reverse
acquisition with Pannonian as the accounting acquirer. All information presented
for periods prior to March 30, 2001 represents the historical information of
Pannonian.
Acquisition, Exploration and Development Expenses
During the fiscal year ended December 31, 2001, Gasco paid cash of $7,395,867 in
identifying and acquiring petroleum and natural gas leases and prospect rights,
compared with $566,204 expended in 2000. At December 31, 2001, the Company owned
direct interests in 173,228 gross acres covered by petroleum and natural gas
leases. See "Item 2 - Description of Properties".
Principal Products or Services and Markets
Gasco conducts exploration activities to locate natural gas and crude petroleum.
The principal markets for these commodities are natural gas transmission
pipeline companies, utilities, refining companies and private industry
end-users.
Competitive Business Conditions, Competitive Position in the Industry and
Methods of Competition
The Company's natural gas and petroleum exploration activities take place in a
highly competitive and speculative business atmosphere. In seeking suitable
natural gas and petroleum properties for acquisition, Gasco competes with a
number of other companies operating in its areas of interest, including large
oil and gas companies and other independent operators with greater financial
resources. Management does not believe that Gasco's competitive position in the
petroleum and natural gas industry will be significant.
Management anticipates a tight market for obtaining drilling rigs and services,
and the manpower to run them. The current high level of drilling activity in
Gasco's areas of exploration may have a significant adverse impact on the timing
and profitability of Gasco's operations. In addition, as discussed under Risk
Factors, Gasco will be required to obtain drilling permits for its wells, and
there is no assurance that such permits will be available timely or at all.
The prices of the Company's products are controlled by domestic and world
markets. However, competition in the petroleum and natural gas exploration
industry also exists in the form of competition to acquire the most promising
acreage blocks and obtaining the most favorable prices for transporting the
product. Gasco, and ventures in which it participates, are relatively small
compared to other petroleum and natural gas exploration companies and may have
difficulty acquiring additional acreage and/or projects, and may have difficulty
arranging for the transportation of product, in the event Gasco, or a venture in
which it participates, is successful in its exploration efforts.
Governmental Regulations and Environmental Laws
Gasco and any venture in which it participates, is required to obtain local
government and other permits for drilling oil or gas wells.
Exploration and production activities relating to oil and gas leases are subject
to numerous environmental laws, rules and regulations. The Federal Clean Water
Act requires Gasco to construct a fresh water containment barrier between the
surface of each drilling site and the underlying water table.
Various federal, state and local laws and regulations covering the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, may affect the Company's operations and costs through their effect
on oil and gas exploration, development and production operations. Environmental
laws and regulations have changed substantially and rapidly over the last 30
years, and Gasco anticipates that there will be continuing changes. Laws and
regulations protecting the environment have generally become more stringent in
recent years, and may in certain circumstances impose "strict liability,"
rendering a corporation liable for environmental damages without regard to
negligence or fault on the part of such corporation. Such laws and regulations
may expose Gasco to liability for the conduct of operations or conditions caused
by others, or for acts of Gasco which were in compliance with all applicable
laws at the time such acts were performed. Increasingly strict environmental
restrictions and limitations have resulted in increased operating costs for
Gasco and other businesses throughout the United States, and it is possible that
the costs of compliance with environmental laws and regulations will continue to
increase. The modification of existing laws or regulations or the adoption of
new laws or regulations relating to environmental matters could have a material
adverse effect on Gasco's operations. In addition, Gasco's existing and proposed
operations could result in liability for fires, blowouts, oil spills, discharge
of hazardous materials into surface and subsurface aquifers and other
environmental damage, any one of which could result in personal injury, loss of
life, property damage or destruction or suspension of operations.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, requires payments for cleanup of
certain abandoned waste disposal sites, even though such waste disposal
activities were undertaken in compliance with regulations applicable at the time
of disposal. Under the Superfund law, one party may, under certain
circumstances, be required to bear more than its proportional share of cleanup
costs at a site where it has responsibility pursuant to the legislation, if
payments cannot be obtained from other responsible parties. Other legislation
mandates cleanup of certain wastes at facilities that are currently being
operated. States also have regulatory programs that can mandate waste cleanup.
CERCLA authorizes the Environmental Protection Agency ("EPA") and, in some
cases, third parties to take actions in response to threats to the public health
or the environment and to seek to recover from the responsible classes of
persons the costs they incur. The scope of financial liability under these laws
involves inherent uncertainties.
It is not anticipated that the Company will be required in the near future to
expend material amounts because of environmental laws and regulations, but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate future cost of compliance.
The Company believes it is presently in compliance with all applicable federal,
state or local environmental laws, rules or regulations; however, continued
compliance (or failure to comply) and future legislation may have an adverse
impact on the Company's present and contemplated business operations.
The foregoing is only a brief summary of some of the existing environmental
laws, rules and regulations to which the Company's business operations are
subject, and there are many others, the effects of which could have an adverse
impact on Gasco. Future legislation in this area will no doubt be enacted and
revisions will be made in current laws. No assurance can be given as to what
effect these present and future laws, rules and regulations will have on Gasco's
current and future operations.
Number of Total Employees and Number of Full-Time Employees
As of March 15, 2002, Gasco has nine full-time employees.
The Company's officers and directors are involved with other companies, some of
which now have, or may in the future have, a business plan involving the oil and
gas business. As a result, potential conflicts of interest may arise. If an
officer or director of the Company is presented with business opportunities
under circumstances where there may be a doubt as to whether the opportunity
should belong to Gasco or another company with which he is affiliated, that
officer or director is under legal duty to disclose the opportunity to all such
companies simultaneously, and that officer or director may not participate in
the decision of any such company to pursue or attempt to pursue any such
opportunity.
Risk Factors
Due to the nature of the Company's business and the present stage of exploration
on its oil and gas prospects, the following risk factors apply to Gasco's
operations:
Accumulated Losses
During the year ended December 31, 2001, Gasco incurred a loss of $4,129,459,
and has an accumulated deficit of $17,115,554 since inception, including the
Series A Convertible Redeemable Preferred Stock deemed distribution of
$11,400,000 as further described in Note 5 of the accompanying financial
statements.
To date the Company's operations have not generated sufficient operating cash
flows to provide working capital for the Company's ongoing overhead, the funding
of its lease acquisitions and the exploration and development of these
properties. There can be no assurances that Gasco will be able to successfully
develop any prospects that it acquires or that it will achieve profitability
from its operations.
Absence of a Mature Public Market
The Company's common stock has only been trading in the public markets since
January 2001, and such trading has been sporadic and erratic. A holder of
Gasco's common stock may not be able to liquidate his or her investment in the
event of an emergency and shares of Gasco's common stock may not be accepted as
collateral for loans.
The Company has applied for listing on the American Stock Exchange ("AMEX").
Listing on the AMEX is discretionary with the Exchange, however, and there is no
assurance that Gasco will be accepted for AMEX listing, or that such a listing
will result in an active trading market.
Exploration and Production Risks
The business of exploring for and producing oil and gas involves a substantial
risk of investment loss that even a combination of experience, knowledge and
careful evaluation may not be able to overcome. Drilling oil and gas wells
involves the risk that the wells will be unproductive or that, although
productive, the wells do not produce oil and/or gas in economic quantities.
Other hazards, such as unusual or unexpected geological formations, pressures,
fires, blowouts, loss of circulation of drilling fluids or other conditions may
substantially delay or prevent completion of any well. Adverse weather
conditions can also hinder drilling operations. A major risk affecting drilling
is the need to obtain drilling permits from local authorities. Delays in
obtaining drilling permits, the failure to obtain a drilling permit for a well,
or a permit with unreasonable conditions or costs could have a materially
adverse effect on Gasco's ability to effectively develop its properties.
A productive well may become uneconomic in the event water or other deleterious
substances are encountered, which impair or prevent the production of oil and/or
gas from the well. In addition, production from any well may be unmarketable if
it is impregnated with water or other deleterious substances.
As with any petroleum property, there can be no assurance that oil and gas will
be produced from the properties in which Gasco, or any venture, in which the
Company participates, may obtain an interest. In addition, the marketability of
oil and gas which may be acquired or discovered will be affected by numerous
factors beyond the control of Gasco. These factors include the proximity and
capacity of oil and gas pipelines and processing equipment, market fluctuations
of prices, taxes, royalties, land tenure, allowable production and environmental
protection. The extent of these factors cannot be accurately predicted, but any
one or a combination of these factors may result in Gasco not receiving an
adequate return on invested capital. There is no assurance that crude oil or
natural gas in commercial quantities will be discovered by Gasco, or any venture
in which Gasco participates.
Financing Risks
Gasco has relied on the sale of its equity capital to fund working capital and
the acquisition of its prospects and related leases. Gasco will be required to
raise additional capital in 2002. There is no assurance that additional funding
will be available to fund the acquisition, exploration or development of any
additional properties. There can be no assurance that Gasco will be able to
obtain adequate financing in the future or that the terms of such financing will
be favorable. Any future financing will likely result in substantial dilution to
Gasco's stockholders. Failure to generate operating cash flow or to obtain
additional financing could result in substantial dilution of Gasco's property
interests, or delay or cause indefinite postponement of further exploration and
development of its prospects with the possible loss of such properties.
In this regard, the Company entered into an agreement with Phillips Petroleum
("Phillips") to conduct drilling operations on Gasco's Riverbend project.
Phillips will fund its share of drilling and completion costs to the total
depth, and the Company must fund its own drilling and completion costs in order
to maximize its interests in the Riverbend wells being drilled by Phillips.
Additionally, the Company owns a majority interest in the shallower formations
including the Wasatch formation. The Riverbend project alone will call for
significant new funding that may not be available within a reasonable time or on
terms acceptable to Gasco. The Company is considering several options for its
2002 drilling program.
Uninsurable Risks
Although management believes the operator of any properties in which Gasco may
acquire interests, will acquire and maintain appropriate insurance coverage in
accordance with standard industry practice, Gasco may suffer losses from
uninsurable hazards or from hazards which the operator or Gasco has chosen not
to insure against because of high premium costs or other reasons. Gasco intends
to engage in participating in the drilling of both exploratory and development
wells. Exploratory wells have much greater dry hole risk than do wells that are
drilled offsetting established production. Gasco may become subject to liability
for pollution, fire, explosion, blowouts, cratering and oil spills against which
the Company cannot insure or against which the Company may elect not to insure.
Such events could result in substantial damage to oil and gas wells, producing
facilities and other property and personal injury. The payment of any such
liabilities may have a material, adverse effect on Gasco's financial position.
No Assurance of Titles
It is Gasco's practice, in acquiring petroleum and natural gas leases, or
undivided interests in petroleum and natural gas leases, not to undergo the
expense of retaining lawyers to examine the title to the mineral interest to be
placed under lease or already placed under lease. Rather, Gasco will rely upon
the judgment of petroleum and natural gas lease brokers or landmen who perform
the fieldwork in examining records in the appropriate governmental office before
attempting to place under lease a specific mineral interest. This practice is
widely followed in the petroleum and natural gas industry.
Prior to the drilling of a petroleum and natural gas well, however, it is the
normal practice in the petroleum and natural gas industry for the person or
company acting as the operator of the well to obtain a preliminary title review
of the spacing unit within which the proposed petroleum and natural gas well is
to be drilled to ensure there are no obvious deficiencies in title to the well.
It frequently happens, as a result of such examinations, that certain curative
work must be done to correct deficiencies in the marketability of the title, and
such curative work entails expense. The work might include obtaining affidavits
of heirship or causing an estate to be administered.
From time to time, the examination made by title lawyers reveals that a
petroleum and natural gas lease or leases is worthless, having been purchased in
error from a person who is not the owner of the mineral interest desired. In
such instances, the amount paid for such petroleum and natural gas lease or
leases is generally lost.
To date Gasco has not lost title to any of its petroleum and natural gas leases,
nor is Gasco aware that any of its currently held properties is subject to being
lost as a result of faulty titles.
Environmental Regulations
In general, as noted above, the exploration and proposed production activities
of Gasco are subject to certain federal, state and local laws and regulations
relating to environmental quality and pollution control. Such laws and
regulations increase the costs of these activities and may prevent or delay the
commencement or continuance of a given operation. Compliance with these laws and
regulations has not had a material effect on Gasco's operations or financial
condition to date. Specifically, Gasco is subject to legislation regarding
emissions into the environment, water discharges, and storage and disposition of
hazardous wastes. In addition, legislation has been enacted which requires well
and facility sites to be abandoned and reclaimed to the satisfaction of state
authorities. However, such laws and regulations are frequently changed and Gasco
is unable to predict the ultimate cost of compliance. Generally, environmental
requirements do not appear to affect Gasco any differently or to any greater or
lesser extent than other companies in the industry.
Gasco believes that its operations comply, in all material respects, with all
applicable environmental regulations.
Governmental Regulations
Petroleum and natural gas exploration, development and production are subject to
various types of regulation by local, state and federal agencies. Legislation
affecting the petroleum and natural gas industry is under constant review for
amendment and expansion. Also, numerous departments and agencies, both federal
and state, are authorized by statute to issue and have issued rules and
regulations binding on the petroleum and natural gas industry and its individual
members, some of which carry substantial penalties for failure to comply. The
regulatory burden on the petroleum and natural gas industry increases Gasco's
cost of doing business and, consequently, affects its profitability. There is no
assurance that laws and regulations enacted in the future will not adversely
affect the petroleum and natural gas industry. However, since these regulations
generally apply to all petroleum and natural gas producers, management of Gasco
believes that these regulations should not put Gasco at a material disadvantage
with respect to other petroleum and natural gas producers.
Most states in which Gasco may own and/or operate properties have statutes,
rules and regulations governing conservation matters including the unitization
or pooling of petroleum and natural gas properties, establishment of maximum
rates of production from petroleum and natural gas wells and the spacing of such
wells.
Petroleum and natural gas mineral rights may be held by individuals or
corporations and, in certain circumstances, by governments having jurisdiction
over the area in which such mineral rights are located. As a general rule,
parties holding such mineral rights grant licenses or leases to third parties to
facilitate the exploration and development of these mineral rights. The terms of
the leases and licenses are generally established to require timely development.
Notwithstanding the ownership of mineral rights, the government of the
jurisdiction in which mineral rights are located generally retains authority
over the manner of development of those rights.
In addition to royalties paid to freehold owners, each state generally imposes a
production or severance tax with respect to production and sale of crude oil,
natural gas and natural gas liquids within their respective jurisdictions. For
the most part, state production taxes are applied as a percentage of production
or sales. Payment of these taxes is in the normal course of operations in the
petroleum and natural gas industry and should not have a material impact on
Gasco's financial condition.
Natural Gas and Oil Prices
In recent decades, there have been periods of both worldwide overproduction and
underproduction of hydrocarbons and periods of both increased and relaxed energy
conservation efforts. Such conditions have resulted in periods of excess supply
of, and reduced demand for, crude oil on a worldwide basis and for natural gas
on a domestic basis. These periods have been followed by periods of short supply
of, and increased demand for, crude oil and natural gas. The excess or short
supply of crude oil has placed pressures on prices and has resulted in dramatic
price fluctuations even during relatively short periods of seasonal market
demand.
Competition
The petroleum and natural gas industry is intensely competitive and Gasco
competes with other companies, which have greater resources. Many of such
companies not only explore for and produce crude petroleum and natural gas but
also carry on refining operations and market petroleum and other products on a
regional, national or worldwide basis. Such companies may be able to pay more
for productive petroleum and natural gas properties and exploratory prospects to
define, evaluate, bid for and purchase a greater number of properties and
prospects than Gasco's financial or human resources permit. Gasco's ability to
acquire additional properties and to discover reserves in the future will be
dependent upon its ability to evaluate and select suitable properties and to
consummate transactions in a highly competitive environment. There is also
competition between the petroleum and natural gas industry and other industries
with respect to the supply of energy and fuel to industrial, commercial and
individual customers. There is no assurance that Gasco will be able to
effectively compete against such companies.
<PAGE>
Risks Associated with Management of Growth
Because of its small size, Gasco's growth will be seen as rapid as the Company
seeks to acquire a critical mass of assets and capacities through mergers or
acquisitions. These growth steps are aimed at improving the value of Gasco and
to achieve certain economies of scale. Although there is no assurance that this
rapid growth will occur, to the extent that it does occur, it will place a
significant strain on Gasco's financial, technical, operational and management
resources. As Gasco expands its activities and increases the number of projects
it is evaluating or in which it participates, there will be additional demands
on Gasco's financial, technical and management resources. The failure to
continue to upgrade Gasco's technical, administrative, operating and financial
control systems or the occurrence of unexpected expansion difficulties,
including the recruitment and retention of experienced managers, geoscientists
and engineers, could have a material adverse effect on Gasco's business,
financial condition and results of operations.
Dependence upon Key Personnel
The success of Gasco's operations and activities is dependent to a significant
extent on the efforts and abilities of its management. The loss of services of
any of its key managers could have a material adverse effect on Gasco. Gasco has
not obtained "key man" insurance for any of its management.
Mr. Erickson is the President and CEO of Gasco. The loss of his services may
adversely affect the business and prospects of Gasco.
Adequate Labor
In the event Gasco needs to employ additional personnel, the Company will need
to recruit qualified personnel to staff our operations. Gasco believes that such
personnel currently are available at reasonable salaries and wages in the
geographic areas in which Gasco operates. There can be no assurance, however,
that such personnel will be available in the future. In addition, we cannot
predict whether the labor staffing at any of Gasco's projects will be unionized,
which may result in potentially higher operating costs.
Dividend Risks
Gasco has not paid any dividends on its common shares and does not intend to pay
dividends on its common shares in the immediate future. Any decision to pay
dividends on its common shares in the future will be made by the board of
directors of Gasco on the basis of earnings, financial requirements and other
such conditions that may exist at that time.
Conflicts of Interest
Certain of the officers and directors will also serve as directors of other
companies or have significant shareholdings in other companies. To the extent
that such other companies participate in ventures in which Gasco may
participate, or compete for prospects or financial resources with Gasco, these
officers and directors of Gasco will have a conflict of interest in negotiating
and concluding terms relating to the extent of such participation. In the event
that such a conflict of interest arises at a meeting of the board of directors,
a director who has such a conflict must disclose the nature and extent of his
interest to the board of directors and abstain from voting for or against the
approval of such a participation or such terms.
Two of the Company's directors are also directors of Brek Energy, which
currently owns 100% of Gasco's outstanding Series A Convertible Redeemable
Preferred Stock ("Preferred Stock"), which is entitled to 26% of the voting
power of the Company's stock as long as 50% of the Preferred Stock remains
outstanding. Subject to the approval of Brek's shareholders, Brek has announced
its intention to acquire an additional 7,000,000 shares of the Company's Common
Stock from certain of its shareholders in exchange for 19,250,000 shares of Brek
common stock and to convert 50% of its Preferred Stock into 4,750,000 shares of
the Company's Common Stock, which would result in Brek having approximately 53%
voting control of Gasco with a 45% equity interest. The Brek directors on the
Company's Board have fiduciary duties to manage Brek, including its investments
in subsidiaries such as Gasco, in a manner beneficial to Brek and its
shareholders. In some circumstances these duties may conflict with their duties
as directors of Gasco.
In accordance with the laws of the State of Nevada, the directors of Gasco are
required to act honestly and in good faith with a view to the best interests of
Gasco. In determining whether or not Gasco will participate in a particular
program and the interest therein to be acquired by it, the directors will
primarily consider the degree of risk to which Gasco may be exposed and its
financial position at that time.
Penny Stock Regulation
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stock". Generally, "penny stocks" are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system). If
Gasco's shares are traded for less than $5 per share, as they currently are, the
shares will be subject to the SEC's penny stock rules unless (1) Gasco's net
tangible assets exceed $5,000,000 during Gasco's first three years of continuous
operations or $2,000,000 after Gasco's first three years of continuous
operations; (2) Gasco has had average revenue of at least $6,000,000 for the
last three years; or (3) Gasco becomes listed on a national securities exchange
or becomes quoted on the NASDAQ system.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prescribed by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise
exempt from those rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
As long as Gasco's Common Stock remains subject to the penny stock rules, the
holders of the Common Stock may find it difficult to sell their shares.
Enforcement of Legal Process
Three of the directors of Gasco reside outside the United States. A substantial
portion of the assets of such persons is located outside the United States. As a
result it may be difficult or impossible to effect service of process within the
United States upon such persons, to bring suit in the United States or to
enforce, in the U.S. courts, any judgment obtained there against such persons
predicated upon any civil liability provisions of the U.S. federal securities
laws.
Foreign courts may not entertain original actions against Gasco's directors or
officers predicated solely upon U.S. federal securities laws. Furthermore,
judgments predicated upon any civil liability provisions of the U.S. federal
securities laws may not be directly enforceable in foreign countries.
Cautionary Statement Regarding Forward-Looking Statements
In the interest of providing the shareholders with certain information regarding
the Company's future plans and operations, certain statements set forth in this
Form 10-K relate to management's future plans and objectives. Such statements
are forward-looking statements within the meanings of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements other than statements of historical
facts included in this report, including, without limitation, statements
regarding the Company's future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "intend," "project," "estimate," "anticipate,"
"believe," or "continue" or the negative thereof or similar terminology.
Although any forward-looking statements contained in this Form 10-K or otherwise
expressed by or on behalf of the Company are, to the knowledge and in the
judgment of the officers and directors of the Company, believed to be
reasonable, there can be no assurances that any of these expectations will prove
correct or that any of the actions that are planned will be taken.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
Important factors that could cause actual results to differ materially from the
Company expectations ("Cautionary Statements") include those discussed in this
report under the caption "Risk Factors", above. All subsequent written and oral
forward-looking statements attributable to the Company, or persons acting on its
behalf, are expressly qualified in their entirety by the Cautionary Statements.
The Company assumes no duty to update or revise its forward-looking statements
based on changes in internal estimates or expectations or otherwise.
<PAGE>
ITEM 2 - DESCRIPTION OF PROPERTY
Petroleum and Natural Gas Properties
Gasco's principal business is the acquisition of leasehold interests in
petroleum and natural gas rights, either directly or indirectly, and the
exploration for and development of petroleum and natural gas. All of Gasco's
properties are located in the continental United States.
Riverbend Project
The Riverbend project is comprised of approximately 117,000 gross acres in the
Uinta Basin of northeastern Utah, some of which is leased by Gasco, some of
which is subject to farmout and other agreements under which Gasco may earn
leasehold interests, and some of which is held by third parties. Gasco's
geologic and engineering focus is concentrated on three tight-sand formations in
the basin: the Wasatch, Mesaverde and Mancos formations.
In December 2000, Gasco entered into an agreement with Phillips that defined a
60,000-acre Area of Mutual Interest ("AMI") within the Riverbend project, not
all of which is currently leased by either Gasco or Phillips. Under the terms of
this agreement, Phillips paid $1,000,000 to Gasco upon execution of the
agreement, and later expended $8,000,000 in connection with the drilling and
completion of three producing wells. As a result of Phillips' drilling, Gasco
earned additional acreage under certain farmout agreements during 2001. The
agreement further afforded Phillips the right to acquire an 80% interest in all
of Gasco's leases and farmout agreements within the AMI by assigning to Gasco
leasehold interests in two leases within the AMI that Gasco heretofore had no
ownership.
There has been some uncertainty as to whether Phillips timely exercised its
right to acquire the 80% interest in all of Gasco's leases and contracts within
the AMI. Gasco has indicated its willingness, subject to the satisfaction of
certain conditions, to accept the assignment of the two leases that has since
been tendered by Phillips and to proceed with the assignment of the concerned
interests to Phillips. Phillips has indicated that it will begin drilling a new
earning well in the AMI on April 17, 2002. Gasco is currently considering
whether or not to participate in this well.
During January 2002, Gasco entered into an agreement with Halliburton Energy
Services ("Halliburton") under which Halliburton has the option to earn up to a
50% participation interest proportionate to their investment by funding the
completions of Wasatch wells. The Company, at its option, may elect to limit
Halliburton's funding, and the resulting participation interest to 25%. The
Company and Halliburton will also share technical information through the
formation of a joint technical team. Gasco began drilling the first well during
February 2002. The Company anticipates drilling three gross (1.5 net) wells in
this area during 2002 and has set its capital budget at $3,000,000. After the
wells drilled under this agreement have reached a payout status, as defined in
the agreement, Halliburton will retain an interest equal to 5% of Gasco's total
interest prior to payout. The Company is considering several options for its
2002 drilling program. One of these options is to create a drilling joint
venture to spread the risk and the drilling expenses among the investors in the
joint venture.
Greater Green River Basin Project
In Wyoming, Gasco established an AMI with Burlington Resources ("Burlington")
covering approximately 330,000 acres in Sublette County, Wyoming within the
Greater Green River Basin. As of March 15, 2002, the Company leases
approximately 67,000 acres in this area. The exploration agreement governing the
AMI requires Burlington to drill two wells and to shoot 180 miles of
high-resolution 2-D seismic. During 2001, three shallow wells were drilled in
this area for the purpose of holding acreage and earning expiring leasehold. Two
of the wells tested only the Fort Union and Upper Lance formations and the third
well tested all zones. All of these wells have been cased and are in various
stages of completion. They did not evaluate the deeper, high-potential Middle
and Lower Lance formations that are prolific producers in the nearby Jonah Field
and Pinedale Anticline area. Gasco and Burlington are targeting these deeper
formations with their ongoing seismic and exploration activities.
In 2001, Burlington drilled two wells and shot 80 miles of seismic. As of March
15, 2002, one of the wells drilled is in the completion stage and the other is
waiting on completion. During 2002, Burlington plans to complete the second
well, complete the seismic program and drill additional wells. The Company also
anticipates participating in the drilling of one gross well in this area and has
set its 2002 capital budget in this area at $750,000.
During February 2002, the Company purchased a 50% interest in 21,613 acres for
approximately $1,411,000 and a 20% interest in 4,098 acres for approximately
$107,000 in Sublette County, Wyoming. The Company also purchased additional
leasehold interests in Sublette County, Wyoming covering approximately 16,606
acres for a total purchase price of $1,500,000 on February 19, 2002. In
connection with this transaction, the Company received an exclusive option to
purchase an additional 72,583 acres in this area. Monthly payments of $300,000
are required during 2002 in order to maintain this option. The Company may elect
to exercise its option to complete the transaction at any time.
On February 26, 2002, Gasco began drilling a well in the Southwest Jonah field
located in the Greater Green River Basin in Sublette County, Wyoming. This was
the first well drilled within a newly created AMI with Cabot Oil and Gas,
consisting of nine sections (5,760 gross acres, 1,440 net acres). The well was
drilled to a total depth of 11,000 feet. The well encountered natural gas,
however not of sufficient quantities to be deemed economic. The Company still
has an option to drill additional wells within the AMI if the new interpretation
of the well's data in integration with the seismic data warrants such testing.
The net dry hole cost of the well is estimated at $500,000.
Southern California Project
The Company currently leases approximately 3,900 net acres in the Kern and San
Luis Obispo Counties of southern California. The Company has no drilling or
development plans for this acreage during 2002, but plans to continue paying
leasehold rentals and other minimum geological expenses to preserve the
Company's acreage positions on these three oil prospects. The Company may
consider selling these positions in the future.
Productive Gas Wells
The following summarizes the Company's productive and shut-in gas wells as of
December 31, 2001. Productive wells are producing wells and wells capable of
production. Shut-in wells are wells that are capable of production but are
currently not producing. Gross wells are the total number of wells in which the
Company has an interest. Net wells are the sum of the Company's fractional
interests owned in the gross wells.
Productive Gas Wells
Gross Net
Producing gas wells 4 1.5
Shut-in gas wells 4 3.2
- ---
8 4.7
= ===
Gasco does not operate any of these wells.
Oil and Gas Acreage
The following table sets forth the undeveloped leasehold acreage, by area, held
by the Company as of December 31, 2001. Undeveloped acres are acres on which
wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or not
such acreage contains proved reserves. Gross acres are the total number of acres
in which Gasco has a working interest. Net acres are the sum of Gasco's
fractional interests owned in the gross acres. In certain leases, the Company's
ownership is not the same for all depths; therefore, the net acres in these
leases are calculated using the lowest ownership interest at any depth. Gross
Net
Utah 116,997 81,034
Wyoming 52,363 45,232
California 3,868 3,866
------------ ------------
Total acres 173,228 130,132
============ ============
Subsequent to December 31, 2001, the Company acquired approximately 42,317 gross
(28,233 net) undeveloped acres in Sublette County, Wyoming. On March 7, 2002,
the Company completed a strategic exchange of acreage within the Uinta Basin in
northeastern Utah, whereby it received 3,359 gross acres (2,474 net) in exchange
for 320 gross acres (160 net) and the contractual right to earn Wasatch rights
on approximately 2,463 net Uinta Basin acres.
The Company has a right to purchase an additional 72,583 acres in the Greater
Green River Basin by paying monthly option fees of $300,000 during 2002. The
Company can also earn a 37.5% interest in an additional 21,760 acres in Sublette
County, Wyoming if it participates in the drilling of one well prior to November
2002. The Company also has the right to earn a 20% interest in 21,951 gross
acres within the Uinta Basin by participating in the drilling of four wells
prior to February 2004.
Drilling Activity
The following table sets for the Company's drilling activity during the year
ended December 31, 2001. The Company had no drilling activity during the years
ended December 31, 2000 and 1999.
Gross Net
Exploratory Wells:
Productive 4 1.6
Dry 2 2.0
--------- -------
Total wells 6 3.6
========= =======
Office Space
The Company leases approximately 2,400 square feet of office space in Englewood,
Colorado for approximately $34,500 per year under a lease that terminates on
August 30, 2004. The Company's management believes that this space will be
adequate for its operations during the next year.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was initially admitted for trading on the OTC
Bulletin Board on August 25, 2000 under the trading symbol "SJQR" and trading
did not commence until January 2001. On March 30, 2001, SJRI changed its name to
Gasco and began trading under the symbol "GASE". As of March 15, 2002, the
Company had 84 registered shareholders of its common stock. During the last two
fiscal years, no cash dividends were declared on Gasco's common stock and
management does not anticipate that dividends will be paid in the near future.
The following table sets forth, for the periods indicated, the high and low
closing bid quotations for the Company's common stock as reported by NASDAQ.com.
High Low
First Quarter 2001 $ 4.00 $ 0.03
Second Quarter 2001 3.95 2.20
Third Quarter 2001 3.20 1.10
Fourth Quarter 2001 2.80 1.30
Equity Transactions
The Company's equity transactions during 2001 are described as follows:
In January 2001, the Company issued an option to Mark Erickson, who was the
President of Pannonian at the time, to purchase 1,000,000 shares of the
Company's common stock at $1.00 per share. The option was issued in connection
with the Company's acquisition of Pannonian. The option is fully vested and
expires on February 2, 2011. The $269,000 fair market value of the option
determined using the Black Scholes Pricing model, was charged to operations
during the year ended December 31, 2001.
During January and May 2001, the Company issued 2,275,000 shares of common stock
for cash at $3.00 per share, pursuant to private placements for gross proceeds
of $6,825,000. The costs of these offerings were $574,835, $191,250 of which was
paid to Canaccord International Ltd. and $150,000 of which was paid to DMD
Investments as broker commissions. In September 2001, the Company issued an
additional 227,500 shares of common stock for no additional consideration to the
holders of the original shares in accordance with the terms of the offering. The
offering was conducted in accordance with the provisions of Regulation S under
the Securities Act of 1933, and all purchasers of these shares were residents of
foreign countries.
In March 2001, the Company issued 14,000,000 shares of common stock to the
shareholders of Pannonian pursuant to the Pannonian Agreement. In connection
with the Pannonian Merger, the shareholders of SJRI returned for cancellation
2,438,930 shares of common stock for no consideration. See Item 1. Business;
History.
In April 2001, the Company paid cash of $200,808 and issued 75,000 shares of its
common stock, valued at $247,500 ($3.30 per share), for unproved oil and gas
properties from an unrelated entity.
In July 2001, the Company acquired unproved oil and gas properties from an
unrelated entity for $700,000 cash and 300,000 shares of the Company's common
stock, valued at $846,000 ($2.82 per share).
In July 2001, Brek Energy Corporation (formerly known as First Ecom.com, Inc.)
("Brek") purchased 1,000 shares of the Company's Preferred Stock for
$19,000,000. Brek agreed not to transfer the Preferred Stock or the common stock
issuable upon conversion thereof for three years (the "lock up period") except
under certain circumstances and except for 10% of such common stock per year.
During the lock up period, Brek has given the Company the right of first refusal
on all of the Company securities it holds. Certain principal stockholders of the
Company also gave Brek a similar right of first refusal for a five-year period.
Costs of the sale, including 1,025,000 shares of common stock valued at
$3,280,000 ($3.20 per share), were $4,849,633. The total costs of the sale
included $1,500,000 and the issuance of 125,000 shares of common stock valued at
$400,000 paid to Canaccord International Ltd. and the issuance of 900,000 shares
of common stock valued at $2,880,000 paid to Wet Coast Management Corp. as
brokerage commissions.
During December 2001, the Company repurchased 73,700 shares of its own stock on
the open market at prices ranging from $1.12 to $2.46 per share.
During the year ended December 31, 2001, the Company granted options to
employees, directors and consultants to purchase an aggregate 6,519,000 shares
of the Company's common stock at exercise prices ranging from $1.00 to $3.15 per
share. The options vest at varying schedules within three years of their grant
date and expire within ten years from the grant date. The aggregate fair market
value of options, determined using the Black Scholes Pricing Model, granted to
consultants of $423,594 was charged to operations during the year ended December
31, 2001.
During the first quarter of 2002, the Company issued an additional 250,000
options to purchase shares of common stock to employees and directors of the
Company, at exercise prices ranging from $1.68 to $1.75 per share. The options
vest quarterly over a two-year period and expire within ten years from the grant
date.
Unless otherwise noted, each of the above sales of securities by the Company
were exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2) thereof, inasmuch as each such sale was conducted as a private
placement to sophisticated buyers.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial data, derived from the
consolidated financial statements, regarding Gasco's financial position and
results of operations as the dates indicated. All information for periods prior
to March 30, 2001 represents the historical information of Pannonian because
Pannonian was considered the acquiring entity for accounting purposes.
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
-----------------------------------------
2001 2000 1999 1998
---- ---- ---- ----
Summary of Operations
<S> <C> <C> <C> <C>
Revenue $ 36,850 - - -
General & administrative expense 4,331,825 $951,734 $738,153 $6,000
Net loss (4,129,459) (843,261) (736,834) (6,000)
Net loss per share (0.63) (0.06) (.06) -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
-----------------------------------------
2001 2000 1999 1998
---- ---- ---- ----
Balance Sheet
<S> <C> <C> <C> <C>
Working capital (deficit) $11,860,584 $ (420,370) $(65,798) $(6,000)
Cash and cash equivalents 12,296,585 881,041 163,490 -
Oil and gas properties 9,152,740 1,991,290 2,484,919 -
Total assets 21,658,525 3,007,259 2,688,826 -
Stockholders' equity (deficit) 21,065,425 1,578,905 2,422,166 (6,000)
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the results of operations of Gasco for the period
ended December 31, 2001 should be read in conjunction with the consolidated
financial statements of Gasco and related notes included therein.
Business Combination
On February 1, 2001, the Company entered into the Pannonian Agreement whereby it
issued 14,000,000 shares of its common stock in connection with the Pannonian
Merger. Pannonian was an independent energy company engaged in the exploration,
development and acquisition of crude oil and natural gas reserves in the western
United States. Pannonian is an exploration stage oil and gas company.
Under the terms of the Pannonian Agreement, Pannonian was required, prior to
closing of the merger transaction on March 30, 2001, to divest itself of all
assets not associated with its "Riverbend" area of interest (the "non-Riverbend
assets"). The "spin-offs" were accounted for at the recorded amounts. The net
book value of the non-Riverbend assets in the United States transferred,
including cash of $1,000,000 and liabilities of $555,185, was approximately
$1,850,000. The net book value of PIL (which owned the non-Riverbend assets
located outside the United States) as of the date of distribution was
approximately $174,000.
Certain shareholders of SJRI surrendered for cancellation 2,438,930 common
shares of the Company's capital stock on completion of the transaction
contemplated by the Pannonian Agreement.
Upon completion of the transaction, Pannonian became a wholly owned subsidiary
of the Company. However, since this transaction resulted in the existing
shareholders of Pannonian acquiring control of the Company, for financial
reporting purposes the business combination is accounted for as a reverse
acquisition with Pannonian as the accounting acquirer. All information presented
for periods prior to March 30, 2001 represents the historical information of
Pannonian.
<PAGE>
Overview
The Company follows the full cost method of accounting whereby all costs related
to the acquisition and development of oil and gas properties are capitalized
into a single cost center ("full cost pool"). Such costs include lease
acquisition costs, geological and geophysical expenses, overhead directly
related to exploration and development activities and costs of drilling both
productive and non-productive wells. Proceeds from property sales are generally
credited to the full cost pool without gain or loss recognition unless such a
sale would significantly alter the relationship between capitalized costs and
the proved reserves attributable to these costs. A significant alteration would
typically involve a sale of 25% or more of the proved reserves related to a
single full cost pool.
Depletion of exploration and development costs and depreciation of production
equipment is computed using the units of production method based upon estimated
proved oil and gas reserves. The costs of unproved properties are withheld from
the depletion base until such time as they are either developed or abandoned.
The properties are reviewed periodically for impairment. For depletion and
depreciation purposes, relative volumes of oil and gas production and reserves
are converted at the energy equivalent rate of six thousand cubic feet of
natural gas to one barrel of crude oil. Gasco's wells began producing in late
October of 2001; therefore, the Company does not have sufficient production
information by which reserves can be estimated. Because of this, and because the
costs associated with the Company's oil and gas properties relate to projects
which have not yet been associated with proved reserves, the Company has not
recorded depletion expense during the year ended December 31, 2001.
Under the full cost method of accounting, capitalized oil and gas property costs
less accumulated depletion and net of deferred income taxes may not exceed an
amount equal to the present value, discounted at 10%, of estimated future net
revenues from proved oil and gas reserves plus the cost, or estimated fair
value, if lower of unproved properties. Should capitalized costs exceed this
ceiling, an impairment is recognized. The present value of estimated future net
revenues is computed by applying current prices of oil and gas to estimated
future production of proved oil and gas reserves as of period-end, less
estimated future expenditures to be incurred in developing and producing the
proved reserves assuming the continuation of existing economic conditions. Under
the full cost method of accounting the Company is not currently required to
perform a ceiling test, as described above, because the Company's oil and gas
property costs relate to unevaluated or unproved properties which are not
associated with proved reserves.
Forward Looking Statements
Please refer to the section entitled "Cautionary Statement Regarding Forward
Looking Statements" under Item 1. For a discussion of factors which could affect
the outcome of forward looking statements used by the Company.
Results of Operations
All information for periods prior to March 30, 2001 represents the historical
information of Pannonian because Pannonian was considered the acquiring entity
for accounting purposes.
2001 Compared to 2000
During 2001, the Company owned interests in two wells that began producing in
late October. The oil and gas revenue and lease operating expense during 2001
relate to these wells and is comprised of approximately 17,545 mcf of gas at an
average price of $2.10 per mcf. The Company had no producing wells during 2000
and 1999. Interest income during 2001 represents the interest earned on the
Company's cash balance, which increased from $881,041 in 2000 to $12,296,585
primarily due to the sale of preferred and common stock during 2001. General and
administrative expense increased from $951,734 in 2000 to $4,331,825 in 2001,
primarily due to the increase in staff and professional fees associated with the
commencement of its own operations. The interest expense during 2001 and 2000
represents the amounts incurred on the Company's outstanding notes payable which
were paid off during 2001. Other income during 2000 consisted primarily of a
$200,000 gain on the sale of a drilling permit offset by miscellaneous expenses.
Other income during 2001 is comprised of numerous miscellaneous items, none of
which is individually significant.
2000 Compared to 1999
General and administrative expenses increased from $738,153 in 1999 to $951,734
in 2000 primarily due to increased consulting expenses during 2000. Interest
expense during 2000 and 1999 was comprised of the interest on the Company's
notes payable balances. The increase was due to a higher average notes payable
balance during 2000 as compared to 1999. Other income during 2000 consisted
primarily of a $200,000 gain on the sale of a drilling permit offset by
miscellaneous expenses. Other income during 1999 was comprised of numerous
miscellaneous items, none of which were individually significant.
Financial Condition and Plan of Operations
At December 31, 2001, the Company had cash and cash equivalents of $12,296,585
compared to $881,041 at December 31, 2000. The increase in cash and cash
equivalents is primarily attributable to the proceeds of $25,825,000 from the
sale of preferred and common stock partially offset by the cash used in
operating activities during the year ended December 31, 2001, and payments
related to acquisitions of oil and gas properties during the year. As of March
15, 2002, the Company's balance in cash and cash equivalents had decreased to
approximately $8,400,000, primarily because of the Company's acquisition of
acreage in Wyoming for approximately $2,900,000, the payment of a $300,000
option payment for the right to purchase additional acreage in the Greater Green
River Basin of Wyoming and ongoing expenditures for general and administrative
expenses.
Working capital increased from a deficit of $420,370 at December 31, 2000 to
$11,860,584 at December 31, 2001, primarily due to the proceeds from the sale of
preferred and common stock discussed above.
In management's view, given the nature of the Company's operations, which
consist of the acquisition, exploration and evaluation of petroleum and natural
gas properties and participation in drilling activities on these properties, the
most meaningful information relates to current liquidity and solvency. The
Company's financial success will be dependent upon the extent to which Gasco can
discover sufficient economic reserves and successfully develop and produce from
the properties containing those reserves. Such development may take years to
complete and the amount of resulting income, if any, is difficult to determine
with any certainty. The sales value of any petroleum or natural gas that is
discovered is largely dependent upon other factors beyond the Company's control.
To date, the Company's capital needs have been met primarily through equity
financings.
During the next twelve months, the operational plans for Gasco entail conducting
the following:
a. Drill and complete three gross wells in the Riverbend Project.
b. Drill one gross well in the Greater Green River Basin Project.
c. Continue paying leasehold rentals and other expenses to preserve
the Company's acreage positions.
d. Continue paying monthly option fee of $300,000 to preserve the
Company's right to acquire approximately 72,583 acres in the Greater
Green River Basin as discussed above.
In order to earn interests in additional acreage and depths in Riverbend, the
Company will need to expend significant additional capital to drill and complete
wells. The Company is considering several options for implementing its 2002
drilling program. It will be necessary for Gasco to acquire additional financing
in order to complete its operational plan for 2002. There is no assurance that
financing will be available to the Company on favorable terms or at all. Any
financing by Gasco will likely result in substantial dilution the Company's
stockholders.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk relates to changes in the pricing applicable
to the sales of gas production in the Uinta Basin of northeastern Utah and the
Greater Green River Basin of west central Wyoming. This risk will become more
significant to the Company as more wells are drilled and begin producing in
these areas. Although the Company is not using derivatives at this time to
mitigate the risk of adverse changes in commodity prices, it may consider using
them in the future.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Reports 24-26
Consolidated Balance Sheets at December 31, 2001 and 2000 27
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999 28
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2001, 2000 and 1999 29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999 30
Notes to Consolidated Financial Statements 31-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Gasco Energy, Inc.:
We have audited the accompanying consolidated balance sheet of Gasco Energy,
Inc. and subsidiaries (the "Company"), a development stage company, (formerly
known as San Joaquin Resources, Inc.) as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended, and for the period from May 21, 1998 (date of
incorporation) to December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The Company's
financial statements as of December 31, 2000 and for the year then ended and for
the period May 21, 1998 (date of incorporation) through December 31, 2000 and
the financial statements for the year ended December 31, 1999 and for the period
May 21, 1998 (date of incorporation) through December 31, 1999 were audited by
other auditors whose reports, dated September 20, 2001 and December 4, 2000,
expressed unqualified opinions on those statements, and both reports included an
explanatory paragraph describing conditions which raised substantial doubt about
the Company's ability to continue as a going concern. The financial statements
for the period May 21, 1998 (date of incorporation) through December 31, 2000
reflect total revenues and net loss of $200,000 and $1,586,095, respectively, of
the related totals. The other auditors' reports have been furnished to us, and
our opinion, insofar as it relates to the amounts included for such prior
periods, is based solely on the reports of such other auditors.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the reports of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2001, and the results of
its operations and its cash flows for the year then ended, and for the period
from May 21, 1998 (date of incorporation) to December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche, LLP
Denver, Colorado
March 15, 2002
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders GASCO ENERGY, INC.
We have audited the accompanying balance sheet of Gasco Energy, Inc. (formerly
known as Pannonian Energy Inc.) and subsidiaries (a development stage company)
as of December 31, 2000, the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended, and cumulative
amounts from inception to December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The consolidated
financial statements of the Company as of December 31, 1998 and 1999 were
audited by other auditors whose report dated December 4, 2000 included an
explanatory paragraph describing conditions which raise substantial doubt about
the Company's ability to continue as a going concern.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Gasco
Energy, Inc. and its subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for the year then ended and cumulative
amounts from inception to December 31, 2000 in conformity with accounting
principals generally accepted in the United States of America.
Wheeler Wasoff, P.C.
Denver, Colorado
September 20, 2001
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of Gasco Energy, Inc. (formerly
Pannonian Energy, Inc.)
In our opinion, the accompanying statements of operations, changes in
stockholders equity and cash flows from inception on May 21, 1998 through
December 31, 1999 present fairly, in all material respects, the results of
operations and cash flows of Gasco Energy, Inc, (formerly Pannonian Energy,
Inc.) from inception on May 21, 1998 through December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance wit
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statements from inception on May 21, 1998 through
December 31, 1999 have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 2 to the December 31, 1999 financial
statements (not presented separately herein) the Company has suffered recurring
losses from operations and net operating cash outflows that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2 to the December 31, 1999
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
December 4, 2000
Removed: dual dating in signature line (,except as to last two paragraphs in
note 8 as to which the date is January 31, 2001)
<PAGE>
<TABLE>
<CAPTION>
GASCO ENERGY, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31,
2001 2000
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 12,296,585 $ 881,041
Accounts receivable and prepaid expenses 157,099 13,923
Due from joint interest partners - 113,020
--------- -------
Total Current Assets 12,453,684 1,007,984
OIL AND GAS PROPERTIES, at cost, accounted for using
the full cost method of accounting 9,152,740 1,991,290
PROPERTY AND EQUIPMENT, net 52,101 7,985
------- -----
$ 21,658,525 $ 3,007,259
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 593,100 $ 221,972
Accrued bonus payable - 423,000
Notes payable-related - 544,280
Notes payable-other - 239,102
------- -------
Total Current Liabilities 593,100 1,428,354
-------- ---------
COMMITMENTS (see Note 9)
STOCKHOLDERS' EQUITY
Series A Convertible Redeemable preferred stock-
$.001 par value; 5,000,000 shares authorized; 1,000
shares issued and outstanding in 2001, none in 2000 1 -
Common stock-$.0001 par value; 100,000,000 shares
authorized; 27,252,500 shares issued and 27,178,800
shares outstanding in 2001; 13,800,595 shares issued
and outstanding in 2000 2,725 1,380
Additional paid in capital 38,569,923 3,163,620
Deferred compensation (261,375)
Deficit accumulated during the development stage (17,115,554) (1,586,095)
Less cost of treasury stock of 73,700 common shares in 2001 (130,295) -
--------- -------------
21,065,425 1,578,905
---------- -----------
$ 21,658,525 $ 3,007,259
============= ============
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GASCO ENERGY, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
For the Year Ended from Inception
December 31, to December 31,
2001 2000 1999 2001
REVENUES
<S> <C> <C> <C> <C>
Oil and gas $ 36,850 - - $ 36,850
Gain on sale of permit - $ 200,000 - 200,000
Interest 193,352 193,352
--------- ------------ --------- ----------
230,202 200,000 $ - 430,202
--------- ----------- ---------- ----------
OPERATING EXPENSES
General and administrative 4,331,825 951,734 738,153 6,027,175
Lease operating 12,679 - - 12,679
Interest 67,363 61,776 13,347 142,486
--------- --------- ------------- ----------
4,411,867 1,013,510 751,500 6,182,340
--------- --------- ---------- ----------
OTHER INCOME (EXPENSES) 52,206 (29,751) 14,666 36,584
--------- --------- -------- ----------
NET LOSS (4,129,459) (843,261) (736,834) (5,715,554)
----------- ----------- --------- -----------
Series A Convertible Redeemable
Preferred Stock deemed distribution (11,400,000) (11,400,000)
------------- ---------- ---------- ------------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (15,529,459) $(843,261) $(736,834) $ (17,115,554)
============== ========== ========== =============
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.63) $ (0.06) $ (0.06) $ (1.01)
========== ======== ======== ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 24,835,144 13,800,595 11,923,093 16,998,353
=========== =========== =========== ==========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
47
<TABLE>
<CAPTION>
GASCO ENERGY, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Redeemable
Preferred Stock Common Stock Additional Deferred Accumulated Treasury Total
Shares Amount Shares Amount Paid in Capital Compensation Deficit Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at Inception
(May 21, 1998)
Net loss $ (6,000) $ (6,000)
------- ------ ------- ------- ------------ --------- --------- ------- ----------
Balance, December 31, 1998 (6,000) (6,000)
Issuance of common shares 13,800,595 $1,380 $ 3,163,620 3,163,620
Net loss (736,834) (736,834)
------- ----- --------- ----- ------------ --------- ---------- ------- -----------
Balance, December 31, 1999 13,800,595 1,380 3,163,620 (742,834) (742,834)
Net loss (843,261) (843,261)
------- ---- --------- ----- ------------ ---------- ---------- ------- ----------
Balance, December 31, 2000 13,800,595 1,380 3,163,620 (1,586,095) 1,578,905
Distribution of assets (2,023,568) (2,023,568)
Issuance of common shares
in connection with
reverse acquisition of San
Joaquin Resources, Inc. 9,549,405 955 571,389 572,344
Issuance of 1,000 convertible
redeemable preferred shares 1,000 $ 1 17,430,366 17,430,367
Issuance of common shares 3,902,500 390 7,343,147 7,343,537
Options issued for services 686,148 $ (686,148)
Amortization of deferred
compensation expense 423,594 423,594
Deemed distribution 11,400,000 (11,400,000)
Repurchase of common stock (130,295) (130,295)
Net loss (4,129,459) (4,129,459)
------- ----- ----------- ----- ------------ ----------- ----------- ---------- -----------
Balance, December 31, 2001 1,000 1 27,252,500 $2,725 $ 38,571,102 $ (262,554) $ (17,115,554) $(130,295) $ 21,065,425
====== ===== =========== ===== ============ ============ ============ ============ ============
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GASCO ENERGY, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
For the Years Ended from Inception
December 31, to December 31,
2001 2000 1999 2001
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss $ (4,129,459) $ (843,261) $ (736,834) $ (5,715,554)
Adjustments to reconcile net loss to net cash used by
operating activities
Depreciation and abandonment expense 5,760 16,347 537 22,644
Stock option compensation 423,594 50,000 473,594
Non-cash charges for legal and interest expense 213,831 213,831
Gain on sale of permit (200,000) (200,000)
Changes in assets and liabilities provided (used)
cash net of noncash activity
Accounts receivable and prepaids 11,323 23,449 (37,372) (157,099)
Accounts payable and accruals (51,872) 609,249 20,082 593,100
-------- -------- ------- -------
Net cash used by operating activities (3,740,654) (180,385) (703,587) (4,769,484)
---------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for equipment (49,876) - (3,582) (53,458)
Cash paid for oil and gas properties (7,395,867) (566,204) (884,919) (8,702,132)
Cash received upon recapitalization and merger 265,029 - - 265,029
Proceeds from sale of oil and gas interests 1,394,797 1,394,797
--------- --------- ----------- ----------
Net cash provided by (used in) investing activities (7,180,714) 828,593 (888,501) (7,095,764)
--------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 6,826,218 1,515,000 8,341,218
Proceeds from sale of preferred stock 19,000,000 19,000,000
Repurchase of common shares (130,295) (130,295)
Cash paid for offering costs (2,144,468) (2,144,468)
Proceeds from short-term borrowings 500,000 252,871 316,991 1,069,862
Repayments of short-term borrowings (714,543) (183,528) (76,413) (974,484)
Distribution to Rubicon Oil and Gas, Inc. (1,000,000) (1,000,000)
----------- ---------- ---------- ------------
Net cash provided by financing activities 22,336,912 69,343 1,755,578 24,161,833
---------- --------- ---------- ------------
NET INCREASE IN CASH 11,415,544 717,551 163,490 12,296,585
881,041
CASH, BEGINNING OF PERIODS 881,041 163,490
--------- -------- ----------- ------------
CASH, END OF PERIODS $ 12,296,585 $881,041 $163,490 $ 12,296,585
============= ========== ========== =============
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
GASCO ENERGY INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - ORGANIZATION
Gasco Energy, Inc. ("Gasco" or the "Company") (formerly known as San Joaquin
Resources Inc. ("SJRI")) is an independent energy company engaged in the
exploration, development and acquisition of crude oil and natural gas reserves
in the western United States.
On February 1, 2001, SJRI, a Nevada corporation, and Pannonian Energy, Inc.
("Pannonian"), a Delaware corporation, entered into an Agreement and Plan of
Reorganization (the "Pannonian Agreement") whereby a subsidiary of SJRI merged
into Pannonian and SJRI issued 14,000,000 shares of its common stock to the
former shareholders of Pannonian in exchange for all of the outstanding shares
and warrants of Pannonian. Certain shareholders of SJRI surrendered for
cancellation 2,438,930 common shares of the Company's capital in connection with
the transaction, and as a result the existing shareholders of Pannonian acquired
control of the combined company. For financial reporting purposes this business
combination is accounted for as a reverse acquisition with Pannonian as the
accounting acquirer.
The reverse acquisition was valued at $572,344 and was allocated as follows:
Oil and gas properties $ 265,836
Receivables, prepaid and other, net 41,479
Cash 265,029
------------------
Net assets acquired $ 572,344
==================
The Company is considered a development stage company, as were both Pannonian
and SJRI, as defined by Statement of Accounting Standards No. 7.
Under the terms of the Pannonian Agreement, Pannonian was required, prior to
closing of the merger on March 30, 2001, to divest itself of all assets not
associated with its "Riverbend" area of interest (the non-Riverbend assets). The
"spin-offs" were accounted for at the recorded amounts. The net book value of
the non-Riverbend assets in the United States transferred, including cash of
$1,000,000 and liabilities of $555,185, was approximately $1,850,000. The
non-Riverbend assets located outside the United States were held by Pannonian
International Ltd. ("PIL"), the shares of which were distributed to the
Pannonian stockholders. The book value of PIL as of the date of distribution was
approximately $174,000.
The following (unaudited) pro forma information presents the financial
information of the Company as if the consolidation of Gasco and Pannonian had
taken place on January 1 of each year presented. The pro forma results are not
indicative of future results.
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
2001 2000
----------------------------------- ----------------------------------
As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C>
Revenue $ 36,850 $ 36,850 $ - $ -
Net loss (4,129,459) (4,172,061) (843,261) (1,047,888)
Net loss per share basic
and diluted $ (0.63) $ (0.63) $ (0.06) $ (0.09)
========= ============== ========= ========
</TABLE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include Gasco and its wholly
owned subsidiaries, Pannonian and San Joaquin Oil and Gas, Ltd. as of December
31, 2001. The consolidated financial statements as of and for the year ended
December 31, 2000 include Pannonian and its wholly owned subsidiary PIL. The
statements for the year ended December 31, 1999 include only Pannonian. All
significant intercompany transactions have been eliminated upon consolidation.
All share and per share amounts included in these financial statements have been
restated to show the retroactive effect of the conversion of Pannonian shares
into SJRI/Gasco shares.
Cash and Cash Equivalents
All highly liquid investments purchased with an initial maturity of three months
or less are considered to be cash equivalents.
Property, Plant and Equipment
The Company follows the full cost method of accounting whereby all costs related
to the acquisition and development of oil and gas properties are capitalized
into a single cost center ("full cost pool"). Such costs include lease
acquisition costs, geological and geophysical expenses, overhead directly
related to exploration and development activities and costs of drilling both
productive and non-productive wells. Proceeds from property sales are generally
credited to the full cost pool without gain or loss recognition unless such a
sale would significantly alter the relationship between capitalized costs and
the proved reserves attributable to these costs. A significant alteration would
typically involve a sale of 25% or more of the proved reserves related to a
single full cost pool.
Depletion of exploration and development costs and depreciation of production
equipment is computed using the units of production method based upon estimated
proved oil and gas reserves. The costs of unproved properties are withheld from
the depletion base until such time as they are either developed or abandoned.
The properties are reviewed periodically for impairment. For depletion and
depreciation purposes, relative volumes of oil and gas production and reserves
are converted at the energy equivalent rate of six thousand cubic feet of
natural gas to one barrel of crude oil. Gasco's wells began producing in late
October of 2001; therefore, the Company does not have sufficient production
information by which reserves can be estimated. Because of this, and because the
costs associated with the Company's oil and gas properties relate to projects
which have not yet been associated with proved reserves, the Company has not
recorded depletion expense during the year ended December 31, 2001.
Under the full cost method of accounting, capitalized oil and gas property costs
less accumulated depletion and net of deferred income taxes may not exceed an
amount equal to the present value, discounted at 10%, of estimated future net
revenues from proved oil and gas reserves plus the cost, or estimated fair
value, if lower of unproved properties. Should capitalized costs exceed this
ceiling, an impairment is recognized. The present value of estimated future net
revenues is computed by applying current prices of oil and gas to estimated
future production of proved oil and gas reserves as of period-end, less
estimated future expenditures to be incurred in developing and producing the
proved reserves assuming the continuation of existing economic conditions. Under
the full cost method of accounting the Company is not currently required to
perform a ceiling test, as described above, because the Company's oil and gas
property costs relate to unevaluated or unproved properties which are not
associated with proved reserves.
Impairment of Long-lived Assets
The Company's unproved properties are evaluated periodically for the possibility
of potential impairment. Other than oil and gas properties, the Company has no
other long-lived assets and to date has not recognized any impairment losses.
Revenue Recognition
Oil and gas revenue is recognized as income when the oil or gas is produced and
sold.
Computation of Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss)
attributable to the common shareholders by the weighted average number of common
shares outstanding during the reporting period. Diluted income per common share
includes the potential dilution that could occur upon exercise of the options to
acquire common stock computed using the treasury stock method which assumes that
the increase in the number of shares is reduced by the number of shares which
could have been repurchased by the Company with the proceeds from the exercise
of the options (which were assumed to have been made at the average market price
of the common shares during the reporting period). The options described in Note
3 have not been included in the computation of diluted income (loss) per share
during all periods because their inclusion would have been anti-dilutive.
<PAGE>
Use of Estimates
The preparation of the financial statements for the Company in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Other Comprehensive Income
The Company does not have any items of other comprehensive income for the years
ended December 31, 2001, 2000 and 1999. Therefore, total comprehensive income
(loss) is the same as net income (loss) for these periods.
Income Taxes
The Company uses the liability method of accounting for income taxes under which
deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the accounting bases and the tax
bases of the Company's assets and liabilities. The deferred tax assets and
liabilities are computed using enacted tax rates in effect for the year in which
the temporary differences are expected to reverse.
Stock Based Compensation
The Company accounts for its stock-based compensation using Accounting
Principles Board's Opinion No. 25 ("APB No. 25"). Under APB 25, compensation
expense is recognized for stock options with an exercise price that is less than
the market price on the grant date of the option. For stock options with
exercise prices at or above the market value of the stock on the grant date, the
Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123"). Under SFAS 123, the Company provides pro forma information regarding net
income (loss) as if compensation expense for the options granted had been
determined in accordance with the fair value method of SFAS 123.
Concentration of Credit Risk
The Company's cash equivalents are exposed to concentrations of credit
risk. The Company manages and controls this risk by investing these funds
with a major financial institution.
Recent Accounting Pronouncements
In June 2001, SFAS No. 141, "Business Combinations" was issued by the FASB. SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. The Company has evaluated the
provisions of this statement and has determined it will have no impact on its
financial position or results of operations.
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was issued by
the FASB. SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon adoption of
this statement. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be tested for impairment, and write-downs may be necessary. The Company is
required to implement SFAS No. 142 on January 1, 2002 and has determined it will
have no impact on its financial position or results of operations.
In June 2001 the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations, " which requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
The asset retirement liability will be allocated to operating expense by using a
systematic and rational method. The statement is effective for fiscal years
beginning June 15, 2002. The Company has not yet determined the impact of
adoption of this statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets be
measured at the lower of carrying amount or fair value less costs to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and generally is to be applied prospectively. The
Company has evaluated the provisions of these statements and has determined it
will have no impact on its financial position or results of operations.
Reclassifications
Certain reclassifications have been made to prior years' amounts to conform to
the classifications used in the current year.
NOTE 3 - OIL AND GAS PROPERTY
At December 31, the Company's unproved properties consist of leasehold costs in
the following areas:
2001 2000
---- ----
Utah $3,843,270 $ 473,546
Wyoming 5,034,930 --
California 274,540 --
Non-riverbend assets 1,405,242
Foreign concessions 112,502
---------------- ----- -------
--
$9,152,740 $1,991,290
========== ==========
NOTE 4 - PROPERTY DISPOSITIONS
On March 30, 2001, the Company divested itself of all assets not associated with
its "Riverbend" area of interest (the non-Riverbend assets), as required by the
Pannonian Agreement described in Note 1. The divestiture is summarized below.
Oil and gas properties $ 1,405,242
Cash 1,000,000
Liabilities transferred (555,185)
---------
$ 1,850,057
The oil and gas properties, cash and liabilities were transferred to a newly
formed entity Rubicon Oil and Gas, Inc. ("Rubicon"). The Pannonian shareholders
were allocated shares in Rubicon on a one for one basis with their Pannonian
shares.
The Company held, through PIL, non-United States oil and gas properties. In
accordance with the Agreement, the Company distributed, as a dividend in kind,
all of the outstanding shares of PIL to the shareholders of the Company on a one
to one basis with their Pannonian shares. The book value of the PIL shares as of
the date of distribution was approximately $174,000.
NOTE 5 - STOCKHOLDERS' EQUITY
The Company's capital stock consists of 100,000,000 shares of common stock, par
value $0.0001 per share, and 5,000,000 shares of preferred stock, par value
$0.001 per share.
Series A Convertible Redeemable Preferred Stock - Gasco has 1,000 shares of
Series A Convertible Redeemable Preferred Stock ("Preferred Stock") issued and
outstanding. The Preferred Stock is convertible into 9,500,000 shares of Gasco
Common Stock, has no fixed dividend rate and is entitled to a $1.00 per share
liquidation preference. The Preferred Stock is entitled to vote along with the
Gasco common stock and, for so long as at least half of the Preferred Stock
remains outstanding, is entitled to 26% of the combined voting power of all the
common stock and preferred stock. The Preferred Stock is also entitled to vote
as a class on certain matters. The Company may at its option redeem the
outstanding portion of the Preferred Stock for $19,000 per share on or after
August 31, 2006 if the last sale price for the Company's common stock was at
least $2.00 per share (adjusted for any splits) for the previous 20 day period.
In July 2001, Brek Energy Corporation (formerly known as First Ecom.com, Inc.)
("Brek") purchased 1,000 shares of the Company's Preferred Stock for
$19,000,000. Brek agreed not to transfer the Preferred Stock or the common stock
issuable upon conversion thereof for three years (the "lock up period") except
under certain circumstances and except for 10% of such common stock per year.
During the lock up period, Brek has given the Company the right of first refusal
on all of the Company securities it holds. Certain principal stockholders of the
Company also gave Brek a similar right of first refusal for a five-year period.
Costs of the sale, including 1,025,000 shares of common stock valued at
$3,280,000 ($3.20 per share), were $4,849,633. The total costs of the sale
included $1,500,000 and the issuance of 125,000 shares of common stock valued at
$400,000 paid to Canaccord International Ltd. and the issuance of 900,000 shares
of common stock valued at $2,880,000 paid to Wet Coast Management Corp. as
brokerage commissions.
The Company recognized $11,400,000 as a deemed distribution to the holders of
the Preferred Stock upon issuance due to a beneficial conversion feature into
the Company's common stock in accordance with Emerging Issues Task Force
("EITF") 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios to Certain Convertible
Instruments" and EITF 00-27 "Application of EITF Issue 98-5". The deemed
distribution is the difference between the market price on the date of issuance
($3.20) and the conversion rate.
Common Stock - Gasco has 27,252,000 shares of Common Stock issued and 27,178,300
shares outstanding as of December 31, 2001. The common shareholders are entitled
to one vote per share on all matters to be voted on by the shareholders;
however, there are no cumulative voting rights. Additionally, as long as 50% of
the Preferred Stock is outstanding, the Preferred Stock holders are entitled to
vote as a class equal to 26%, therefore, the common shareholders are effectively
entitled to 0.74 votes per share. The common shareholders are entitled to
dividends and other distributions as may be declared by the board of directors.
Upon liquidation or dissolution, the common shareholders will be entitled to
share ratably in the distribution of all assets remaining available for
distribution after satisfaction of all liabilities and payment of the
liquidation preference of any outstanding preferred stock.
The Company's common stock equity transactions during 2001 are described as
follows:
In connection with the Pannonian/SJRI merger, SJRI issued an option to a
Pannonian officer, to purchase 1,000,000 shares of the Company's common stock at
$1.00 per share. The $269,000 fair market value of the option determined using
the Black Scholes Pricing model, was charged to operations of the combined
company during the year ended December 31, 2001.
During January and May 2001, the Company issued 2,275,000 shares of common stock
for cash at $3.00 per share, pursuant to private placements for gross proceeds
of $6,825,000. The costs of these offerings were $574,835, $191,250 of which was
paid to Canaccord International Ltd. and $150,000 of which was paid to DMD
Investments as broker commissions. In September 2001, the Company issued an
additional 227,500 shares of common stock for no additional consideration to the
holders of the original shares in accordance with the terms of the offering. The
offering was conducted in accordance with the provisions of Regulation S under
the Securities Act of 1933, and all purchasers were residents of foreign
countries.
In April 2001, the Company paid cash of $200,808 and issued 75,000 shares of its
common stock, valued at $247,500 ($3.30 per share), for unproved oil and gas
properties from an unrelated entity.
In July 2001, the Company acquired unproved oil and gas properties from an
entity for $700,000 cash and 300,000 shares of the Company's common stock,
valued at $846,000 ($2.82 per share). See related party discussion in Note 8 for
further discussion.
During December 2001, the Company repurchased 73,700 shares of its own stock on
the open market at prices ranging from $1.12 to $2.46 per share.
Stock Option Plan - During the year ended December 31, 2001, the Company granted
options to employees, directors and consultants to purchase an aggregate
6,519,000 shares of the Company's common stock at exercise prices ranging from
$1.89 to $3.15 per share. The options vest at varying schedules within three
years of their grant date and expire within ten years from the grant date. The
aggregate fair market value of options, determined using the Black Scholes
Pricing Model, granted to consultants, including the Pannonian officer issuance
above, of $423,594 was charged to operations during the year ended December 31,
2001.
During the first quarter of 2002, the Company issued an additional 250,000
options to purchase shares of common stock to employees and directors of the
Company, at exercise prices ranging from $1.68 to $1.75 per share. The options
vest quarterly over a two-year period and expire within ten years from the grant
date.
A summary of the options granted to purchase common stock and the changes
therein during the year ended December 31, 2001 is presented below. There were
no options issued during the years ended December 31, 2000 or 1999.
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Number of Options
<S> <C> <C>
Outstanding as of December 31, 2000 - $ --
Granted 6,519,000 2.25
Cancelled (126,250) 3.03
-------- ----
Outstanding as of December 31, 2001 6,392,750 $2.23
========= =====
Exercisable as of December 31, 2001 5,137,250 $2.01
========= =====
Weighted average fair value of options granted $1.37
=====
Weighted average remaining contractual life of options outstanding 8.91 years
==========
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation ("SFAS
123") for the stock options granted to the employees and directors of the
Company. Accordingly, no compensation cost has been recognized for these
options. Had compensation expense for the options granted been determined based
on the fair value at the grant date for the options, consistent with the
provisions of SFAS 123, the Company's net loss and net loss per share for the
year ended December 31, 2001 would have been increased to the pro forma amounts
indicated below:
Net loss: As reported $(4,129,459)
Pro forma (9,811,728)
Net loss per share: As reported $(0.63)
Pro forma (0.85)
The fair value of the common stock options granted during 2001, for disclosure
purposes was estimated on the grant dates using the Black Scholes Pricing Model
and the following assumptions.
Expected dividend yield --
Expected price volatility 89%
Risk-free interest rate 3.8% - 4.9%
Expected life of options 5 years
NOTE 6 - STATEMENT OF CASH FLOWS
The following transactions represent the non-cash investing activities of the
Company during the year ended December 31, 2001.
The Company issued 375,000 shares of common stock for oil and gas
properties, valued at $1,093,500 ($2.82 to $3.30 per share).
The Company issued 1,025,000 shares of common stock in conjunction with
the sale of preferred stock, valued at $3,280,000 ($3.20 per share).
The following transactions represent the non-cash financing activities of the
Company during the year ended December 31, 2000.
Certain individuals paid legal fees on behalf of the Company for which
they were issued promissory notes in the aggregate amount of $198,193.
The Company entered into notes for the acquisition of oil and gas
properties in the aggregate amount of $781,917. The Company assumed an
18.75% interest in the notes, which was $143,609. The notes and the
related properties were spun off as part of the Pannonian Agreement as
described in Notes 1 and 4.
Cash paid for interest was $67,363, $11,072 and $23,292 for the years ended
December 31, 2001, 2000 and 1999, respectively.
NOTE 7 - NOTES PAYABLE
Notes payable - related at December 31, 2000 consists four notes totaling
$529,280 payable to directors or officers of the Company and one note payable of
$15,000 to an entity owned by a director of the Company with similar terms
bearing interest at rates ranging from 5% to 10%.
Notes payable - other at December 31, 2000 consists of two notes totaling
$239,102 payable to unrelated entities bearing interest at 6% and 12%.
All of these notes were settled during 2001.
NOTE 8 - INCOME TAXES
The Company has generated net operating losses of $4,200,000, $1,300,000 and
$740,000. The Company did not recognize income tax expense during the years
ended December 31, 2001, 2000, or 1999 because of the Company's operating
losses. The net operating losses may be offset against taxable income through
2021.
During the years ended December 31, 2001 and 2000, the tax benefits of the net
operating losses of approximately $1,600,000 and $192,000 were offset by
valuation allowances of the same amounts. The increase in valuation allowance
reduces the net tax rate to zero. The Company has fully reserved the tax
benefits of these net operating losses because the likelihood of realizing these
tax benefits cannot be determined at this time.
The temporary differences between the timing of reporting certain items for
financial and tax reporting purposes, consist primarily of exploration costs
related to oil and gas properties.
NOTE 9 - RELATED PARTY TRANSACTIONS
One of the Company's directors earned a combined total of $9,000 in consulting
fees from Rubicon and PIL during 2001.
A director of the Company earned consulting fees of $52,000 and $50,000 from the
Company during the years ended December 31, 2001 and 2000, respectively. During
2001, the Company paid $240,000 in consulting fees to a company owned by a
director of Gasco. The fees paid to the director's company are committed through
January 31, 2006.
An officer of the Company earned a $28,000 fee and 12,500 shares of Gasco's
common stock for consulting services provided in connection with a property
acquisition described in Note 4. This same officer was paid $22,879 in
consulting fees prior to his appointment. As part of this officer's offer of
employment, the Company has committed to purchase the consulting business of the
officer for 250,000 shares of common stock. The transaction is expected to be
completed within the next year.
An officer of the Company was an employee of and owns a less than 1% interest in
an entity from which Gasco purchased acreage in Utah and Wyoming during 2001 and
2002.
During 2000, the Company incurred debt to related parties in the aggregate
amount of $366,657 for cash loans, expenses paid on behalf of the Company and
conversion of interest to debt. Repayments made during 2000 aggregated $63,000.
The Board of Directors approved the payment of bonuses and directors fees to the
officers and directors of the Company in the aggregate amount of $455,000, of
which $32,000 was paid as of December 31, 2000. The remaining balance was paid
during 2001.
During 2000, the Company paid consulting and professional fees to officers,
directors and related parties of $96,000.
Certain of the Company's directors and officers have working and/or overriding
royalty interests in oil and gas properties in which the Company has an
interest. It is expected that the directors and officers may participate with
the Company in future projects. All participation by directors and officers will
continue to be approved by the disinterested members of the Company's Board of
Directors.
The Company's management believes that the above transactions and services were
provided in the normal course of business with terms that could be obtained from
non-related sources.
NOTE 10 - COMMITMENTS
The Company leases office facilities in Denver, Colorado for approximately
$34,500 per year under a lease that expires on August 30, 2004. Remaining
commitments under this lease mature as follows:
Year Ending December 31, Annual Rentals
2002 $34,775
2003 35,960
2004 24,500
------
$95,235
Rent expense for the years ending December 31, 2001, 2000 and 1999 was $46,476,
$52,573 and $45,216, respectively.
As is customary in the oil and gas industry, the Company may at times have
commitments in place to reserve or earn certain acreage positions or wells. If
the Company does not pay such commitments, the acreage positions or wells may be
lost.
The Company has entered into employment agreements with certain key officers
through January 31, 2006. Total compensation for the officers covered is
$560,000 per annum. The agreements contain clauses regarding termination and
demotion of the officer that would require payment of an amount ranging from one
times compensation to up to approximately ten times the defined compensation.
Included in the employment agreements is a bonus calculation for each of the
covered officers totaling 2.125% of a defined cash flow figure based on net
after tax earnings adjusted for certain expenses. The agreements also contain
anti-dilution provisions that contain the requirements to grant options to the
officers and one director for them to remain at their current ownership
percentages.
<PAGE>
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company adopted a 401(k) profit sharing plan (the "Plan") in October 2001,
available to employees who meet the Plan's eligibility requirements. The Plan is
a defined contribution plan. The Company may make discretionary contributions to
the Plan and is required to contribute 3% of the participating employee's
compensation to the Plan. The contributions made by the Company totaled $6,270
during the year ended December 31, 2001.
NOTE 12 - SELECTED QUARTERLY INFORMATION (Unaudited)
The following represents selected quarterly financial information for the years
ended December 31, 2001 and 2000.
<TABLE>
<CAPTION>
2001 For the Quarter Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Gross revenue $ -- $ -- $ -- $36,850 a
Net revenue from oil
and gas operations -- -- -- 24,171 a
Net loss (653,369) (875,624) (744,516) (1,855,950) b
Net loss per share
basic and diluted (0.03) (0.04) (0.45) c (0.07)
</TABLE>
a - The increase in gross revenue and net revenue from oil and gas operations
during the fourth quarter is due to the revenue and lease operating expenses
from two wells that were drilled during the third and fourth quarters.
b - The increase in the net loss during the fourth quarter of 2001 is primarily
due to increased general and administrative expenses resulting from the
increased level of operating activity associated with the commencement of the
Company's own operations.
c - The increase in the net loss per share during the third quarter of 2001 is
due to the recognition of $11,400,000 in a deemed distribution to the holders of
the Preferred Stock as further described in Note 3.
<TABLE>
<CAPTION>
2000 For the Quarter Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Gross revenue $ -- $ -- $ -- $ --
Net revenue from oil
and gas operations -- -- -- --
Net income (loss) (58,459) (98,423) (162,692) (523,687)
Net loss per share
basic and diluted -- (0.01) (0.01) (0.04)
</TABLE>
NOTE 13 - SUBSEQUENT EVENTS
The Company acquired a 50% interest in 21,613 acres in Sublette County Wyoming
for approximately $1,411,000 on February 13, 2002.
On February 19, 2002, the Company acquired leasehold interests covering
approximately 16,606 acres in the Greater Green River Basin located in
west-central Wyoming for $1,500,000. In connection with this transaction, the
Company received an exclusive option to purchase an additional 72,583 acres in
this area by making monthly payments of $300,000 during 2002 in order to
maintain this option. The Company may elect to exercise its option to complete
the transaction at any time.
In connection with its drilling projects, the Company entered into a $2,000,000
letter of credit during February 2002. The letter of credit is collateralized
with cash and it terminates in August 2002.
On March 7, 2002, the Company completed a strategic exchange of certain of its
properties in the Uinta Basin located in northeastern Utah. The Company received
approximately 2,474 net acres located in its Uinta Basin Riverbend Project in
exchange for 160 net acres and the contractual right to earn Wasatch rights on
approximately 2,463 net Uinta Basin acres. The acreage that the Company receives
contains four well bores, two of which are producing, and three of which have
recompletion opportunities.
During March 2002, Brek entered into agreements with individual shareholders of
Gasco to acquire 7,000,000 shares of Gasco's common stock in exchange for
19,250,000 shares of Brek. Additionally, Brek has exercised its right to convert
50% of its Preferred Stock into 4,750,000 common shares, which will result in
Brek having approximately 53% voting control of Gasco with a 45% equity
interest. The share exchange is subject to the approval of Brek shareholders.
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included in the definitive proxy
statement of Gasco relating to the Company's Annual Meeting of Shareholders to
be filed with the SEC pursuant to Regulation 14A, which information is
incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item will be included in the definitive proxy
statement of Gasco relating to the Company's Annual Meeting of Shareholders to
be filed with the SEC pursuant to Regulation 14A, which information is
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item will be included in the definitive proxy
statement of Gasco relating to the Company's Annual Meeting of Shareholders to
be filed with the SEC pursuant to Regulation 14A, which information is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the definitive proxy
statement of Gasco relating to the Company's Annual Meeting of Shareholders to
be filed with the SEC pursuant to Regulation 14A, which information is
incorporated herein by reference.
ITEM 14 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Exhibit
2.1 Agreement and Plan of Reorganization dated January 31, 2001 among San
Joaquin Resources Inc., Pannonian Acquisition Corporation, and Pannonian
Energy (1)
3.1 Amended and Restated Articles of Incorporation (2)
3.2 Certificate of Amendment to Articles of Incorporation of San Joaquin
Resources (1)
3.3 Bylaws (3)
3.4 Amendment to Article II, Section 6 of the Bylaws (4)
10.1 1999 Stock Option Plan (5)
10.2 Financing Agreement with Wet Coast Management Corp. (6)
10.3 Consulting Agreement with Wet Coast Management Corp. (6)
10.4 Acquisition Agreement with Phillips Petroleum Company and Pannonian
Energy, Inc. dated December 18, 2000 (6)
10.5 Financing Agreement with Canaccord International Ltd.
dated March 15,2001(6)
10.6 Financial Services Agreement with Canaccord International Ltd.
dated March 15, 2001 (6)
10.7 Private Placement Agency Agreement with Canaccord International Ltd.
dated as of March 22, 2001 (7)
10.8 Form of Stock Option Agreement under the 1999
Stock Option Plan 10.9 Stock Option Agreement dated
January 2, 2001 between Gasco and Mark A.
Erickson
10.10 Form of Stock Option Agreement dated February 8, 2001 between Gasco and
each of Mark A. Erickson, Marc Bruner, J. Timothy Bowes,
Carl Stadelhofer and Howard O. Sharpe
10.11 W. King Grant Employment Contract dated June 22, 2001
10.12 Michael Decker Employment Contract dated June 29, 2001
10.13 Mark A. Erickson Employment Contract dated July 11, 2001
10.14 Consulting Agreement dated July 11, 2001, between Gasco and Marc Bruner
10.15 Muddy Creek Exploration Agreement dated August 15, 2001, between Gasco,
Shama Zoe Limited Partnership and Burlington Oil and Gas Company
10.16 CD Exploration Agreement dated August 15, 2001, between Gasco, Shama Zoe
Limited Partnership and Burlington Oil and Gas Company
10.17 Gamma Ray Exploration Agreement dated August 15, 2001, between Gasco,
Shama Zoe Limited Partnership and Burlington Oil and Gas Company
10.18 Sublette County WY AMI Agreement dated August 22, 2001 between Gasco,
Alpine Gas Company and Burlington Oil and Gas Company
10.19 Lead Contractor Agreement dated January 24, 2002, between Gasco and
Halliburton Energy Services, Inc.
(1) Incorporated by reference to the exhibits filed with
the Company's Form 8-K dated January 31, 2001.
(2) Incorporated by reference to the exhibits filed with
the Company's Form 8-K dated December 31, 1999.
(3) Incorporated by reference to the exhibits filed with
the Company's Form 10-SB dated July 23, 1999.
(4) Incorporated by reference to the exhibits filed with
the Company's Form 10-QSB for the quarter ended
September 30, 2000.
(5) Incorporated by reference to the exhibits filed with
the Company's Form 10-KSB for the fiscal year ended
December 31, 1999.
(6) Incorporated by reference to the exhibits filed
with the Company's Form 10-KSB for the fiscal year
ended December 31, 2000.
(7) Incorporated by reference to the exhibits filed
with the Company's Form 10-QSB for the quarter
ended June 30, 2001.
<TABLE>
<CAPTION>
(b) Reports on Form 8-K: The following reports on Form 8-K were filed
during the last quarter during the period covered by this report:
<S> <C>
Form 8-K dated October 3, 2001 filed Slide Presentation dated October 4, 2001
October 3, 2001 Executive Summary dated October 4, 2001
(Items 7 and 9)
Form 8-K dated October 10, 2001 filed Press Release dated October 4, 2001
October 10, 2001 (Items 7 and 9)
Form 8-K dated October 11, 2001 filed Press Release dated October 11, 2001
October 11, 2001 (Items 7 and 9)
Form 8-K/A dated October 22, 2001 Amendment to Form 8-K dated filed October 22,
2001 January 31, 2001 (Item 7)
Form 8-K dated October 26, 2001 filed Press Release dated October 26, 2001
October 26, 2001 (Items 7 and 9)
Form 8-K dated October 26, 2001 filed Slide Presentation dated October 17, 2001
October 26, 2001 (Items 7 and 9)
Form 8-K dated November 2, 2001 Change in Certifying Accountant
filed November 2, 2001 (Items 4 and 7)
Form 8-K dated December 3, 2001 filed Press Release dated December 3, 2001
December 3, 2001 (Items 7 and 9)
Form 8-K dated December 13, 2001 filed Press Release dated December 13, 2001
December 13, 2001 (Items 7 and 9)
Form 8-K/A dated December 18, 2001 Change in Certifying Accountant
filed December 18, 2001 (Items 4 and 7)
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GASCO ENERGY, INC. Dated: March 15, 2002
By /s/ Mark Erickson
-------------------------
. Mark Erickson, President and CEO
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/ Mark Erickson Director and President March 15, 2002
- ------------------------- Chief Executive Officer
Mark Erickson
/s/ Marc Bruner Director March 15, 2002
- ------------------------
Marc Bruner
/s/ Gregory Pek Director March 15, 2002
- ------------------------
Gregory Pek
/s/ Carl Stadelhofer Director March 15, 2002
- ------------------------
Carl Stadelhofer
/s/ Carmen Lotito Director March 15, 2002
- -----------------------
Carmen Lotito
/s/ Michael Decker Director and Executive Vice President March 15, 2002
- --------------------- Chief Operating Officer
Michael Decker
/s/ W. King Grant Director and Executive Vice President March 15, 2002
- --------------------- Principal Financial and Accounting Officer
W. King Grant
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>3
<FILENAME>ex108.txt
<DESCRIPTION>FORM OF STOCK OPTION AGREEMENT
<TEXT>
GASCO ENERGY, inc.
STOCK OPTION
When duly signed by an authorized officer of GASCO ENERGY, inc.
(hereinafter referred to as "the Company"), this document grants to the natural
person whose name is printed at the bottom of this document (hereinafter
"Optionee") an option to acquire shares of the Common Stock of the Company
("hereinafter "the Option"). The terms of this Stock Option are set out below.
This Stock Option is effective as of the date of the authorized signature at the
end of this document.
The Option recognizes that Optionee has made a significant and
important contribution to the success of the Company, and is capable and
inclined to make further important contributions to the success of the Company.
The Board of Directors of the Company has authorized the grant of the Option to
Optionee.
1. Term of Option; When Exercisable. The Option may be exercised in
whole or in part, and at any time, during the period shown on the signature page
hereof, but only upon and to the extent of vesting of the Option as shown on the
signature page (hereinafter "the Term"); subject to the provisions of the
Optionee's employment agreement with the Company.
The Option will expire at 5:00 PM Mountain Time on the date
shown on the signature page hereof, and thereafter shall be of no further force
or effect.
2. How Exercisable. Optionee may exercise the Option by delivery of a
Written Exercise in the form attached as Exhibit "A," which must be dated,
signed and fully completed. The Company must receive your Written Exercise (a)
within the Term; and (b) accompanied by the full exercise price for the shares
to be acquired. The exercise price may be paid in one of the following ways:
(a) in the form of a cashier's check payable to the Company in the
amount of the exercise price per share multiplied by the
number of shares being exercised.
(b) in the form of a written request that the full number of
shares covered by the Option be exercised, but also directing
that the Company retain and cancel the number of shares having
an aggregate Fair Market Value equal to the total exercise
price due. (For example, assume that the Option covered 16
shares with an exercise price of $2.00 per share and a Fair
Market Value of $4.00 per share at the time of exercise. In
this example, Optionee could direct that 8 shares be retained
and cancelled in full payment for the delivery of 8 shares,
net, to Optionee.)
Certificate(s) evidencing the shares you acquire through the Option
will be issued within a reasonable time following exercise.
3. By Whom Exercisable. The Option may be exercised only by the
Optionee or Optionee's legal personal representative.
4. No Stockholder Rights. Optionee will not have any rights as
a stockholder of the Company with respect to any shares
covered by the Option until exercise of the Option with respect to such shares.
5. Tax Effects; Securities Law Compliance. The Company makes no
representations as to the tax effects as a result of
Optionee's receipt of the Option or as a result of the exercise of the Option.
The shares underlying the Option and which may be acquired through
exercise of the Option have not been registered under the Securities Act of 1933
or under any applicable state securities registration laws, and may not be
resold or transferred without such a registration being in force or the
availability of an exemption from such registration. Optionee is solely
responsible to ascertain, determine and comply with all applicable securities
laws in connection with the exercise of the Option and the sale or transfer of
the underlying shares. Share certificates issued upon the exercise of the Option
shall be legended in accordance with this Section 5.
6. Miscellaneous.
This Option shall be construed in accordance with, and governed by, the
substantive laws of Nevada without reference to principles governing choice or
conflicts of law.
All provisions of this Option are subject to the terms of Optionee's
employment agreement with the Company.
This Option may not be amended or modified by the Company except by an
agreement in writing that is signed by the Company and Optionee.
The captions used herein are for ease of reference only and shall not
define or limit the provisions hereof.
"Fair Market Value" as used in this Option shall mean the most recent
appraised value of the Company divided by the total number of outstanding shares
of Common Stock, including all shares covered by outstanding stock options
regardless of vesting; provided that if there is an independently derived market
price for shares of the Company's Common Stock, as on a public market or
exchange, that reported value will be Fair Market Value.
NAME OF OPTIONEE: _________________
The date vested, expiration date, number of shares, and exercise price
per share of this option are set forth below provided that Optionee is still
employed by the Company on the day before the vesting date in question.
Grant Date Date Vested Expiration Date Number of Shares Exercise Price/Share
GASCO ENERGY, inc.
By:
Its: President
GASCO ENERGY, inc.
WRITTEN EXERCISE OF OPTION
To: GASCO ENERGY, inc.:
Optionee was granted an option ("the Option") to purchase shares of the
Common Stock of the Company, a copy of which is attached to this Written
Exercise. Optionee acknowledges that the validity of the Option is contingent
upon the fulfillment of the conditions contained in the Option and in this
Written Exercise. Optionee hereby affirms the terms of the Option, and declares
that Optionee is not currently in breach or derogation of the terms of the
Option.
Seeking to be bound thereby, and understanding that the Company will
rely hereon, Optionee hereby exercises the Option and makes the following
representations:
1. Optionee hereby exercises the Option and purchases thereby the
number of shares of Common Stock of the Company set forth in the place provided
below, for a total exercise price set forth in the space provided below.
2. The exercise price is fair and the undersigned waives any challenge
as to its determination.
3. The Option is governed by federal and state tax and securities laws
and by its own terms. Optionee has consulted with tax and securities counsel or
other advisor(s) and has been satisfied as to the federal and state securities
law and tax incidents of the exercise of this Option. Optionee holds the Company
harmless as to the disclosure or failure to disclose part or all of any such
securities law or tax incidents. Optionee hereby waives any challenge or
objection to the Option based on any such changes in federal or state law.
4. Access has been provided to the Company's most recent financial
statements and Optionee has been given an opportunity, directly or through
agents, to discuss the affairs of the Company with members of the Company's
senior management.
NO. OF SHARES: TOTAL EXERCISE PRICE: $
Exercise Price is: (check one) / / Cashier's Check / / Net-Out of Shares
(enclosed) (according to formula)
DATED this __________ day of _____________________,
OPTIONEE NAME:
(print)
OPTIONEE SIGNATURE:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>4
<FILENAME>ex109.txt
<DESCRIPTION>STOCK OPTION AGREEMENT - ERICKSON
<TEXT>
san joaquin resources, inc.
STOCK OPTION
When duly signed by an authorized officer of san joaquin resources,
inc. (hereinafter referred to as "the Company"), this document grants to the
natural person whose name is printed at the bottom of this document (hereinafter
"Optionee") an option to acquire shares of the Common Stock of the Company
("hereinafter "the Option"). The terms of this Stock Option are set out below.
This Stock Option is effective as of the date of the authorized signature at the
end of this document.
The Option recognizes that Optionee has made a significant and important
contribution to the success of the Company, and is capable and inclined to make
further important contributions to the success of the Company. The Board of
Directors of the Company has authorized the grant of the Option to Optionee;
1. Term of Option; When Exercisable. The Option may be exercised in
whole or in part, and at any time, during the period shown on the signature page
hereof, but only upon and to the extent of vesting of the Option as shown on the
signature page (hereinafter "the Term"); provided that upon termination of the
employment of Optionee by the Company, the term provided below shall be reduced
to the lesser of the time remaining on the term of the Option and 1 year from
the date of termination.
The Option will expire at 5:00 PM Mountain Time on the date
shown on the signature page hereof, and thereafter shall be of no further force
or effect.
2. How Exercisable. Optionee may exercise the Option by delivery of a
Written Exercise in the form attached as Exhibit "A," which must be dated,
signed and fully completed. The Company must receive your Written Exercise (a)
within the Term; and (b) accompanied by the full exercise price for the shares
to be acquired. The exercise price may be paid in one of the following ways:
(a) in the form of a cashier's check payable to the Company in the amount of
the exercise price per share multiplied by the number of shares being
exercised.
(b) in the form of an irrevocable and unconditional undertaking by a registered
securities broker- dealer that it will deliver the exercise price in cash
to the Company within a maximum of three (3) days. (Thereupon the Company
will issue and deliver to said broker-dealer one or more certificates
representing the shares being acquired under the Option.)
(c) in the form of a written request that the full number of
shares covered by the Option be exercised, but also directing
that the Company retain and cancel the number of shares having
an aggregate Fair Market Value equal to the total exercise
price due. (For example, assume that the Option covered 16
shares with an exercise price of $2.00 per share and a Fair
Market Value of $4.00 per share at the time of exercise. In
this example, Optionee could direct that 8 shares be retained
and cancelled in full payment for the delivery of 8 shares,
net, to Optionee.)
Certificate(s) evidencing the shares you acquire through the Option
will be issued within a reasonable time following exercise.
3. By Whom Exercisable. The Option may be exercised only by the Optionee or
Optionee's legal personal representative.
4. No Stockholder Rights. Optionee will not have any rights as a stockholder
of the Company with respect to any shares covered
by the Option until exercise of the Option with respect to such shares.
5. Tax Effects; Securities Law Compliance. The Company makes no
representations as to the tax effects as a result of Optionee's receipt of
the Option or as a result of the exercise of the Option.
The shares underlying the Option and which may be acquired through
exercise of the Option have not been registered under the Securities Act of 1933
or under any applicable state securities registration laws, and may not be
resold or transferred without such a registration being in force or the
availability of an exemption from such registration. Optionee is solely
responsible to ascertain, determine and comply with all applicable securities
laws in connection with the exercise of the Option and the sale or transfer of
the underlying shares. Share certificates issued upon the exercise of the Option
shall be legended in accordance with this Section 6.
6. If You Want to Sell Your Shares. The Company has the first right to
purchase any shares acquired under the Option. If you ever conclude to transfer
the shares acquired under the Option, whether by sale, gift or pledge, the
Company must first be given notice and a 30-day opportunity to purchase such
shares for Fair Market Value. Any shares transferred in violation of this
section 7 will be cancelled and voided by the Company.
8. Miscellaneous.
This Option shall be construed in accordance with, and governed by, the
substantive laws of Utah without reference to principles governing choice or
conflicts of law.
This Option may not be amended or modified by the Company except by an
agreement in writing that is signed by the Company and Optionee.
The captions used herein are for ease of reference only and shall not
define or limit the provisions hereof.
"Fair Market Value" as used in this Option shall mean the most recent
appraised value of the Company divided by the total number of outstanding shares
of Common Stock, including all shares covered by outstanding stock options
regardless of vesting; provided that if there is an independently derived market
price for shares of the Company's Common Stock, as on a public market or
exchange, that reported value will be Fair Market Value.
NAME OF OPTIONEE: Mark Erickson
NO. OF SHARES: 1,000,000 EXERCISE PRICE PER SHARE: $ 1.00
VESTING OF OPTION: Fully vested on date of grant.
DATE OF OPTION: January 2, 2001 OPTION TERM ENDS: January 2, 2011
san joaquin resources, inc.
By:
-----------------------
Its: President
san joaquin resources, inc.
WRITTEN EXERCISE OF OPTION
To: san joaquin resources, inc.:
Optionee was granted an option ("the Option") to purchase shares of the
Common Stock of the Company, a copy of which is attached to this Written
Exercise. Optionee acknowledges that the validity of the Option is contingent
upon the fulfillment of the conditions contained in the Option and in this
Written Exercise. Optionee hereby affirms the terms of the Option, and declares
that Optionee is not currently in breach or derogation of the terms of the
Option.
Seeking to be bound thereby, and understanding that the Company will
rely hereon, Optionee hereby exercises the Option and makes the following
representations:
1. Optionee hereby exercises the Option and purchases thereby the
number of shares of Common Stock of the Company set forth in the place provided
below, for a total exercise price set forth in the space provided below.
2. The exercise price is fair and the undersigned waives any challenge
as to its determination.
3. The Option is governed by federal and state tax and securities laws
and by its own terms. Optionee has consulted with tax and securities counsel or
other advisor(s) and has been satisfied as to the federal and state securities
law and tax incidents of the exercise of this Option. Optionee holds the Company
harmless as to the disclosure or failure to disclose part or all of any such
securities law or tax incidents. Optionee hereby waives any challenge or
objection to the Option based on any such changes in federal or state law.
4. Access has been provided to the Company's most recent financial
statements and Optionee has been given an opportunity, directly or through
agents, to discuss the affairs of the Company with members of the Company's
senior management.
================================================================================
NO. OF SHARES: TOTAL EXERCISE PRICE:
$
-----------------------------------------------------
Exercise Price is: (check one) / / Cashier's Check / / Broker Undertaking / /
Net-Out --- --- --- of Shares
(enclosed) (enclosed) (according to formula)
DATED this __________ day of _____________________,
----------
OPTIONEE NAME:
-------------------------------------------------------
(print)
OPTIONEE SIGNATURE:
--------------------------------------------------
428266.02
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>5
<FILENAME>ex1010.txt
<DESCRIPTION>FORM OF OPTION AGREEMENT 2/8/01
<TEXT>
GASCO ENERGY, inc.
STOCK OPTION
When duly signed by an authorized officer of GASCO ENERGY, inc.
(hereinafter referred to as "the Company"), this document grants to the natural
person whose name is printed at the bottom of this document (hereinafter
"Optionee") an option to acquire shares of the Common Stock of the Company
("hereinafter "the Option"). The terms of this Stock Option are set out below.
This Stock Option is effective as of the date of the authorized signature at the
end of this document.
The Option recognizes that Optionee has made a significant and
important contribution to the success of the Company, and is capable and
inclined to make further important contributions to the success of the Company.
The Board of Directors of the Company has authorized the grant of the Option to
Optionee.
1. Term of Option; When Exercisable. The Option may be exercised in
whole or in part, and at any time, during the period shown on the signature page
hereof, but only upon and to the extent of vesting of the Option as shown on the
signature page (hereinafter "the Term"); subject to the provisions of the
Optionee's employment agreement with the Company.
The Option will expire at 5:00 PM Mountain Time on the date
shown on the signature page hereof, and thereafter shall be of no further force
or effect.
2. How Exercisable. Optionee may exercise the Option by delivery of a
Written Exercise in the form attached as Exhibit "A," which must be dated,
signed and fully completed. The Company must receive your Written Exercise (a)
within the Term; and (b) accompanied by the full exercise price for the shares
to be acquired. The exercise price may be paid in one of the following ways:
(a) in the form of a cashier's check payable to the Company in the
amount of the exercise price per share multiplied by the
number of shares being exercised.
(b) in the form of a written request that the full number of
shares covered by the Option be exercised, but also directing
that the Company retain and cancel the number of shares having
an aggregate Fair Market Value equal to the total exercise
price due. (For example, assume that the Option covered 16
shares with an exercise price of $2.00 per share and a Fair
Market Value of $4.00 per share at the time of exercise. In
this example, Optionee could direct that 8 shares be retained
and cancelled in full payment for the delivery of 8 shares,
net, to Optionee.)
Certificate(s) evidencing the shares you acquire through the Option
will be issued within a reasonable time following exercise.
3. By Whom Exercisable. The Option may be exercised only by the
Optionee or Optionee's legal personal representative.
4. No Stockholder Rights. Optionee will not have any rights as
a stockholder of the Company with respect to any shares
covered by the Option until exercise of the Option with respect to such shares.
5. Tax Effects; Securities Law Compliance. The Company makes no
representations as to the tax effects as a result of
Optionee's receipt of the Option or as a result of the exercise of the Option.
The shares underlying the Option and which may be acquired through
exercise of the Option have not been registered under the Securities Act of 1933
or under any applicable state securities registration laws, and may not be
resold or transferred without such a registration being in force or the
availability of an exemption from such registration. Optionee is solely
responsible to ascertain, determine and comply with all applicable securities
laws in connection with the exercise of the Option and the sale or transfer of
the underlying shares. Share certificates issued upon the exercise of the Option
shall be legended in accordance with this Section 5.
6. Miscellaneous.
This Option shall be construed in accordance with, and governed by, the
substantive laws of Nevada without reference to principles governing choice or
conflicts of law.
All provisions of this Option are subject to the terms of Optionee's
employment agreement with the Company.
This Option may not be amended or modified by the Company except by an
agreement in writing that is signed by the Company and Optionee.
The captions used herein are for ease of reference only and shall not
define or limit the provisions hereof.
"Fair Market Value" as used in this Option shall mean the most recent
appraised value of the Company divided by the total number of outstanding shares
of Common Stock, including all shares covered by outstanding stock options
regardless of vesting; provided that if there is an independently derived market
price for shares of the Company's Common Stock, as on a public market or
exchange, that reported value will be Fair Market Value.
NAME OF OPTIONEE: _________________
The date vested, expiration date, number of shares, and exercise price
per share of this option are set forth below provided that Optionee is still
employed by the Company on the day before the vesting date in question.
Grant Date Date Vested Expiration Date Number of Shares Exercise Price/Share
GASCO ENERGY, inc.
By:
Its: President
GASCO ENERGY, inc.
WRITTEN EXERCISE OF OPTION
To: GASCO ENERGY, inc.:
Optionee was granted an option ("the Option") to purchase shares of the
Common Stock of the Company, a copy of which is attached to this Written
Exercise. Optionee acknowledges that the validity of the Option is contingent
upon the fulfillment of the conditions contained in the Option and in this
Written Exercise. Optionee hereby affirms the terms of the Option, and declares
that Optionee is not currently in breach or derogation of the terms of the
Option.
Seeking to be bound thereby, and understanding that the Company will
rely hereon, Optionee hereby exercises the Option and makes the following
representations:
1. Optionee hereby exercises the Option and purchases thereby the
number of shares of Common Stock of the Company set forth in the place provided
below, for a total exercise price set forth in the space provided below.
2. The exercise price is fair and the undersigned waives any challenge
as to its determination.
3. The Option is governed by federal and state tax and securities laws
and by its own terms. Optionee has consulted with tax and securities counsel or
other advisor(s) and has been satisfied as to the federal and state securities
law and tax incidents of the exercise of this Option. Optionee holds the Company
harmless as to the disclosure or failure to disclose part or all of any such
securities law or tax incidents. Optionee hereby waives any challenge or
objection to the Option based on any such changes in federal or state law.
4. Access has been provided to the Company's most recent financial
statements and Optionee has been given an opportunity, directly or through
agents, to discuss the affairs of the Company with members of the Company's
senior management.
NO. OF SHARES: TOTAL EXERCISE PRICE: $
Exercise Price is: (check one) / / Cashier's Check / / Net-Out of Shares
(enclosed) (according to formula)
DATED this __________ day of _____________________,
OPTIONEE NAME:
(print)
OPTIONEE SIGNATURE:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>6
<FILENAME>ex1011.txt
<DESCRIPTION>W. KING GRANT EMPLOYMENT AGREEMENT
<TEXT>
Page 1 of 17
GASCO ENERGY, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of this 22nd day of June 2001 by W. King
Grant, III at 222 Papermill Lane, Fairfield, CT 06430, ("Executive"), and GASCO
ENERGY, INC., a Nevada corporation, with offices at 14 Inverness Drive East,
Suite H236, Denver, Colorado 80112 (the "Company"), for the purpose of setting
forth the terms and conditions of Executive's employment by the Company and to
protect the Company's knowledge, expertise, customer relationships and the
confidential information the Company has developed regarding clients, customers,
shareholders, option holders, employees, products, business operations and
services. As of the Effective Date, this Agreement supersedes any prior
understandings or agreements between Executive and the Company or any of the
Company's subsidiaries or affiliates.
RECITALS:
WHEREAS, the Board desires to provide for the continued employment of
Executive and to make certain changes in Executive's employment arrangements
with the Company which the Board has determined will reinforce and encourage the
continued attention and dedication to the Company of Executive as a member of
the Company's management, in the best interest of the Company and its
shareholders. Executive is willing to commit himself to continue to serve the
Company, on the terms and conditions herein provided, although this Agreement
may be amended at any time by written agreement among the parties; and
WHEREAS, in order to effect the foregoing, the Company and Executive
wish to enter into an employment agreement on the terms and conditions set forth
below,
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. TIME AND EFFORTS
1.1 Executive shall be employed as the Company's Chief Financial
Officer and Executive Vice President and shall devote his full-time attention,
except as allowed in subsections 1.3 and 1.6 below, to the duties and
responsibilities of Chief Financial Officer and Executive Vice President in
furtherance of the Company's business for a minimum of ten day per business
month. Subject to consultation with and the direction of the Board of Directors,
Executive shall have full responsibility for, and specific authority as
described in the bylaws of the Corporation, Article V, Section 11.0
(Attached-Exhibit A).
1.2 In the performance of all of his responsibilities hereunder,
Executive shall be subject to all of the Company's policies, rules, and
regulations applicable to its officers and employees generally. Executive shall
report to the President and Chief Executive Officer.
1.3 Without the prior express authorization of the Board, which shall
not unreasonably be withheld, Executive shall not, directly or indirectly,
during the Term of this Agreement engage in any activity competitive with or
adverse to the Company's business, whether alone, as a partner or independent
contractor, or as an officer, director, or employee of any other corporation.
This Agreement shall not be interpreted to prohibit Executive from making
passive personal investments, conducting private business affairs, or engaging
in educational or charitable activities, if those activities do not materially
interfere with the services required hereunder. Subject to the reasonable prior
approval of the Board, Executive may act as a director of any profit or
non-profit corporation or other business entity, if such activity is not
inconsistent with the business of the Company. Executive's oil and gas holdings
are detailed in Exhibit B of this agreement.
1.4 In order to induce the Company to enter into this Agreement,
Executive represents and warrants to the Company that (i) Executive is not a
party or subject to any employment agreement or arrangement with any other
person, firm, company, corporation or other business entity which is in
competition with the Company; and (ii) Executive is subject to no restraint,
limitation or restriction by virtue of any agreement or arrangement, or by
virtue of any law or rule of law or otherwise which would impair Executive's
right or ability to enter the employ of the Company or to perform fully his
duties and obligations pursuant to this Agreement.
1.5 Without first obtaining the written permission of the Board in each
instance, Executive will not authorize or permit the Company to engage the
services, of, or engage in any business activity with, or provide any financial
or other benefit to, any affiliate of Executive. The phrase "affiliate of
Executive" as used in this Agreement shall mean and include Executive's family
by blood or marriage (including, without limitation, parents, spouse, siblings,
children and in-laws), and any business or business entity which is directly or
indirectly owned or controlled by Executive or any member of Executive's family
or in which Executive or any member of Executive's family has any direct or
indirect financial interest whatsoever.
1.6 The Company acknowledges that Executive is working on the basis of
a ten (10) calendar days per month work base. Executive may procure outside
consulting clients in accordance with subsection 1.3 above.
1.7 Location. Executive shall not be required to make his office in the
Company's offices in Englewood, Colorado or elsewhere, or to be present in the
Company's offices for more than five calendar days per month during any
consecutive three-month period.
2. TERM
The initial Term of this Agreement is from 6/01/01 (the "Effective
Date") until 5/31/04; however on each anniversary of the Effective Date after
5/31/03, this Agreement shall be automatically extended for an additional
one-year Term from such anniversary date unless the Company notifies Executive
in writing 90 days prior to the anniversary of the Effective Date that the
Company will not be renewing this Agreement on the next anniversary of the
Effective Date, or unless sooner terminated pursuant to Section 4. References
hereinafter to the "Term" of this Agreement shall refer to both the initial term
and any extended term of Executive's employment hereunder.
3. COMPANY'S AUTHORITY
Executive agrees to observe and comply with the reasonable rules and
regulations of Company as adopted by the Board of Directors of the Company or
committee of the Board of Directors respecting performance of Executive's duties
and to carry out and perform orders, directions, and policies of Company as they
may be, from time-to-time, stated to Executive either verbally or in writing.
4. TERMINATION
This Agreement shall be terminated upon the happening of any of the
following events:
4.1 Upon the death of Executive.
4.2 Whenever the Company and Executive shall mutually agree to
termination.
4.3 At the option of the Company, upon written notice by the Company to
Executive, for Cause. "Cause" shall exist for such termination if Executive (i)
pleads or is found guilty of a felony involving an act of dishonesty or moral
turpitude by a court of competent jurisdiction; (ii) has engaged in gross
misconduct, materially and demonstratively injurious to the company; (iii) has
made any material misrepresentation or omission to the Company under Section 1.5
hereof; (iv) has committed an unexcused material breach of his duty in the
course of Executive's employment; (v) has been guilty of habitual neglect of his
duties; (vi) has usurped a corporate opportunity, is guilty of fraudulent
embezzlement of property or funds of the Company, or committed any act of fraud
or intentional misrepresentation, moral turpitude, dishonesty or other
misconduct that would constitute a felony; or (vii) has committed a material,
unexcused breach of this Agreement. Prior to any termination for Cause, Company
shall give Executive written notice and the opportunity to cure to the extent
curable.
4.4 The Company may terminate Executive's employment under this
Agreement at any time without Cause, on at least ninety (90) working days
written notice, subject to provisions for payment of compensation as specified
under Section 5.5 of this Agreement. Should the Company (i) demote the Executive
below the status of Chief Financial Officer, (ii) significantly diminish
Executive's responsibilities without Cause, (iii) fail to obtain and
subsequently maintain appropriate directors' and officers' liability insurance
prior to the earlier of (a) obtaining a NASDAQ National Market, American Stock
Exchange, or equivalent listing for its common stock or (b) December 31, 2001,
(iv) require Executive to relocate in violation of subsection 1.7, or (v) within
thirty (30) days of the Effective Date, fail to elect Executive to its Board of
Directors, or at any time thereafter remove him from same, this Agreement shall
terminate, at Executive's option, subject to provisions for payment of
compensation as specified under Section 5.5 of this Agreement.
4.5 At the option of Executive, upon 90 days written notice by
Executive to the Company.
4.6 If as a result of Executive's incapacity due to physical or mental
illness, Executive shall have been absent from his duties hereunder on a
full-time basis for the entire period of three consecutive months, and within 30
days after written notice of termination is given (which may occur before or
after the end of such three-month period) shall not have returned to the
performance of his duties hereunder on a full-time basis, the Company may
terminate Executive's employment hereunder.
4.7 Upon the expiration of the Term of this Agreement, or any
extension or renewal thereof.
4.8 Upon a Change of Control as defined in subsection 5.5.4 below.
5. CURRENT COMPENSATION
5.1 Annual Salary. For all services rendered by Executive under this
Agreement, the Company shall pay or cause to be paid to Executive, and Executive
shall accept the Annual Salary and Incentive Compensation, if any, all in
accordance with the subject to the terms of this Agreement. For purposes of this
Agreement, the term "Compensation" shall mean the Annual Salary and Bonus
Compensation, if any. Executive shall be entitled to receive as current
compensation an Annual Salary in an amount of not less than $120,000.
(Hereinafter referred to as the "Salary"). References in this Agreement to
"annual" or "per annum" or "Annual" and similar phrases shall mean the
twelve-month period commencing on June 1 of each year during the Term of this
Agreement unless otherwise indicated.
5.1.1 Additional Salary. For each day that Executive works in
excess of ten days per month, Executive shall be entitled to
receive additional compensation of $2,000.
5.2 Bonus Compensation. Executive shall also be entitled to annual
incentive compensation ("Bonus Compensation") equal to 0.5% of the sum of the
Company's net after-tax earnings as reported in the Company's audited year-end
financial statements plus interest expense, deferred taxes, depletion expenses,
depreciation expenses, amortization expenses, and exploration expenses (which
sum is hereinafter referred to as "cash flow"). The parties agree that
exploration expenses would be deducted from net after-tax earning only if the
Company has elected the "successful-efforts" accounting method; if the Company
has elected the "full-cost" accounting method, exploration expenses would
already be deducted in the computation of the Company's net after-tax earnings,
subject to the additional provisions forth in Sections 5.2.1 and 5.2.2 below.
5.2.1 The parties agree that Bonus Compensation payments are
intended to be based on cash flow from undrilled Company-owned properties as of
the date of this Agreement and undrilled properties acquired by the Company
subsequent to the date of this Agreement. Should the Company acquire
proven-producing properties with existing cash flows, net income less the
hypothetical income tax due thereon plus interest expense, deferred taxes,
depletion expenses, depreciation expenses, amortization expenses, and
exploration expenses (which exploration expenses would only be added if the
Company has elected the "successful-efforts" accounting method) attributable to
the acquired, proven-producing properties shall be deducted from the base amount
upon which the cash flow is derived.
5.2.2 Should the Company acquire proven-producing properties
with existing cash flows, the parties agree to negotiate in good faith with
respect to the development of a schedule of the declining production profile of
such properties. The parties agree that the amount derived by multiplying the
proven-production stream, as set forth in the schedule, by the corresponding
sales price, less corresponding production costs shall be subtracted from the
cash flow upon which Bonus Compensation is based.
5.2.3 Bonus Compensation payments due hereunder shall be made
within 15 days after the Company has received the signed audit report covering
the year-end financial statements.
5.3 Royalty Trust. Executive shall participate in the Pannonian
Employee Royalty Trust Agreement dated March 25th, 2001 (attached as
Exhibit C) according to the terms contained therein.
5.4 Payments of Current Compensation. The payment of Executive's Annual
Salary and additional salary (pursuant to subsection 5.1.1 above) shall be made
in monthly installments on the then prevailing paydays of the Company. Any
payment for Incentive Compensation will be made in accordance with the Executive
Incentive Compensation Plan, and payment will be made in one lump sum
concurrently with payments made to others in senior management. All payments are
subject to the customary withholding tax and other employment taxes as required
with respect to compensation paid to an employee.
5.5 Payment of Compensation on Termination.
5.5.1 Upon termination of Executive's employment prior to the
expiration of this Agreement, if such termination is pursuant to Section 4.1,
4.2, 4.5, 4.6, or 4.7 hereof, Executive shall be entitled to any Annual Salary,
Bonus Compensation, and vacation accrued but unpaid through the date of
termination of employment, payable on the date of termination. Executive shall
also be entitled to exercise any vested options for a period of One (1) Year
following the termination of his employment hereunder.
5.5.2 Upon termination of Executive's employment prior to the
expiration of this Agreement, if such termination is pursuant to Section 4.4
hereof, Executive shall be entitled to any Annual Salary, Bonus Compensation,
and vacation accrued but unpaid through the date of termination of employment,
payable on the date of termination. Executive shall also be entitled to
compensation in an amount equal to the greater of (i) Executive's Annual Salary
for one year and (ii) Executive's Annual Salary for the period from the date of
termination through the remaining Term of this Agreement. Executive shall also
be entitled to exercise any vested options for a period of one year following
the termination of his employment hereunder. The provisions of this Section
5.5.2 shall apply throughout the Term of this Agreement, including any period of
extension in accordance with the provisions of Section 2 above.
5.5.3 In the event that Executive is not serving as the Chief
Financial Officer during the term of this Agreement or is terminated as a result
of a Change of Control (as hereafter defined), Executive shall be entitled to
any Annual Salary, Bonus Compensation, and vacation accrued but unpaid through
the date of termination of employment, payable on the date of termination. Upon
termination as a result of a Change of Control, Executive shall also be entitled
to receive the payment set forth in Section 5.5.2. Executive shall be entitled
to exercise all granted stock options for a period of one year following the
termination of his employment hereunder.
5.5.4 For all purposes of this Agreement, a "change of
control" shall mean and shall be deemed to have occurred if: (i) there shall be
consummated (X) any consolidation or merger of the Company with another
corporation or entity and as a result of such consolidation or merger less than
50% of the outstanding voting securities of the surviving or resulting
corporation or entity shall be owned, directly or indirectly, in the aggregate
by the stockholders of the Company, other than "affiliates," as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of any party
to such consolidation or merger, as the same shall have existed immediately
prior to such consolidation or merger, or (Y) any sale, lease, exchange or other
transfer (or in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; (ii) the stockholders of the
Company shall have approved any plan or proposal for the liquidation or
dissolution of the Company; (iii) any "person" (as such term is used in the
Section 13(d) and 14(d) (2) of the Exchange Act) shall have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
50% or more of the Company's outstanding common stock, without the prior
approval of the Board; (iv) during any period of two consecutive years,
individuals who at the beginning of such period constituted the entire Board of
Directors shall have ceased for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
stockholders, of each new Director was approved by vote of at least two-thirds
of the Directors then still in office who were Directors at the beginning of the
period; (v) a change of control of a nature that would be required to be
reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act shall have occurred; or (vi) any consolidation or merger
of the Company with another corporation or entity and as a result of such
consolidation or merger Executive is not retained by the Board of Directors as
the Chief Financial Officer of the Company (a "Change of Control").
6. DETERMINATION OF DISABILITY; PAYMENT OF DISABILITY INSURANCE PREMIUMS
6.1 In the event Executive's disability, as defined in Section 4.6, is
in question, and after written request by the Company, Executive refuses to be
examined by his regularly attending physician or if the regularly attending
physician fails to submit a report within 30 days after the examination has been
requested by the Company, the determination of disability shall be made by the
Company.
6.2 Executive shall be entitled to the disability benefits available to
all executive employees of the Company. It is the intent of the Company to
establish a disability insurance program as soon as practicable.
7. MISCELLANEOUS BENEFITS
7.1 Medical Insurance. Executive and his family shall be entitled to
participate in any medical, dental, vision, life, long-term disability, other
insurance or employee benefit program instituted or maintained by the Company
for the benefit of its executive employees. It is the intent of the Company to
establish a medical and dental insurance program as soon as practicable. Company
will pay 50% of the premiums. Executive is required to pay his portion of the
premiums in accordance with health insurance contract.
7.2 401(k) plan. Executive shall be entitled to participate in the
Company's 401(k) or other similar retirement benefit plan. The Company agrees to
implement a 401(k) or other similar retirement benefit plan as soon as it is
reasonably feasible, based on the size of the Company and its financial
condition.
7.3 Payment of Benefits on Termination of Employment. If Executive's
employment with the Company is terminated, Executive shall be entitled to
maintain his employee benefits in accordance with his maximum COBRA rights.
7.4 Business Expenses. Executive shall be reimbursed for all reasonable
expenses incurred by Executive in connection with Executive's attendance of
business meetings and promotion of Company business, including the cost of
travel to and from the Company's offices, upon presentation by Executive to the
Company of an expense report and adequate records or other documentation
substantiating the expenditures, not less frequently than monthly. Any such
amounts disallowed, as a business expense for federal or state income tax
purposes, shall be deemed additional salary to Executive. The fact that the
Company may not reimburse Executive for an expense is not an indication that the
Company determined that the expense was not incurred on its behalf or in
connection with the Company's business. In addition, upon presentation of an
invoice by Executive to the Company, an unaccountable expense of $1,200 per
month for automobile and office expense is to be paid each month during the Term
of this Agreement.
7.5 Additional Benefits. Executive shall be entitled to participate in
all programs, rights and benefits for which executive is otherwise entitled to
any bonus plan, incentive plan, participation plan or extra compensation plan,
pension plan, overriding royalty plan in proportion to his Annual Salary base,
profit sharing plan, life, medical, dental, disability or other insurance plan
or policy or other plan or benefit the Company may provide for senior executives
or for employees of the Company generally from time to time in effect during the
term of this Agreement. For the avoidance of doubt, the rights granted or
afforded to Executive under any such plans shall be not less than the most
favorable rights and highest amounts granted to employees of similar or lower
position with the Company and on terms at least as favorable.
8. VACATION
During each calendar year of the Term of this Agreement, Executive
shall be entitled three (3) weeks of paid vacation. Executive shall be entitled
to receive payment for accrued vacation not taken during each calendar year
during the Term of this Agreement or may accrue such vacation for use in a
subsequent calendar year; however Executive shall be subject to a maximum of
three weeks of accrued vacation.
9. RESTRICTIVE COVENANTS
9.1 Confidential Information. Executive acknowledges that in his
employment hereunder he occupies a position of trust and confidence. During the
Term, and thereafter in accordance with the provisions of this Agreement,
Executive shall not, except as may be required to perform his duties hereunder
as required by applicable law, and except for information which is or becomes
publicly available other than as a result of a breach by Executive of the
provisions hereof, disclose to others or use, whether directly or indirectly,
any Confidential Information. "Confidential Information" shall mean information
about the Company, its subsidiaries and affiliates, and their respective
suppliers, clients and customers that is not disclosed by the Company for
financial reporting purposes and that was learned by Executive in the course of
his employment hereunder, including (without limitation) proprietary knowledge,
trade secrets, market research, data, formulae, information and supplier, client
and customer lists and all papers, resumes, and records (including computer
records) of the documents containing such Confidential Information. Executive
agrees to deliver or return to the Company, at the Company's request at any time
or upon termination or expiration of his employment, or as soon thereafter as
possible, all documents, computer tapes and disks, records, lists, data,
drawings, prints, notes and written information (and all copies thereof)
furnished by the Company or any of its subsidiaries affiliates or prepared by
Executive during the Term of his employment by the Company. The obligations
hereof shall not apply to any information that is or becomes public or in the
public domain by action of the Company or through no fault of Executive.
9.2 Business Diversion. During the Term and for 12 months thereafter,
Executive shall not, directly or indirectly, influence or attempt to influence
customers or suppliers of the Company or any of its subsidiaries or affiliates
to divert their business to any competitor of the Company, to the exclusion of
the Company. However, Executive may contract with the same customers and
suppliers after the Term hereof so long as it is not to the exclusion of the
Company's relationships with such customers and suppliers.
9.3 Non-Solicitation. Executive recognizes that he will possess
confidential information about other employees of the Company and its
subsidiaries and affiliates relating to, among other things, their education,
experience, skills, abilities, compensation and benefits, and interpersonal
relationships with suppliers and customers of the Company. Executive recognizes
that the information he will possess about these other employees is not
generally known, is of substantial value to the Company, and will be acquired by
him because of his business position with the Company. Executive agrees that,
during the Term and for 12 months thereafter, he will not, directly or
indirectly, solicit or recruit any employee of the Company, its subsidiaries or
affiliates for the purpose of being employed by him or by any other person on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of the Company, including its subsidiaries or affiliates, to any other
person. However, if Executive's employment is terminated in accordance with the
provisions of Section 4.4, nothing herein shall prevent Executive from
soliciting or recruiting, directly or indirectly, any employee of the Company
recruited to the Company by Executive.
9.4 If Executive breaches, or threatens to commit a breach of, any of
the provisions of Section 9 (the "Restrictive Covenants"), the Company and its
subsidiaries shall have the right to seek the following:
9.4.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company or its
subsidiaries and that money damages may not provide an adequate remedy to the
Company or its subsidiaries.
9.4.2 Accounting. The right and remedy to require Executive to
account for and pay over to the Company or its subsidiaries, as the case may be,
all compensation, profits, monies, accruals, increments or other benefits
derived or received by Executive as a result of any transaction constituting a
breach of the Restrictive Covenants.
9.4.3 Severability of Restrictive Covenants. Executive
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in geographic and temporal scope and in all other respects. If any court
determines at any of the Restrictive Covenants, or any part thereof, is invalid
or unenforceable, the remainder of the Restrictive Covenants shall not thereby
be affected and shall be given full effect without regard to the invalid
provisions.
9.4.4 Blue Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope or such provision, such court shall have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall not be enforceable.
9.4.5 Enforceability of Jurisdictions. The obligations in this
Section 9 shall survive the termination of Executive's employment or expiration
of this Agreement and shall be fully enforceable thereafter. Executive intends
to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the
courts of any jurisdiction within the geographic scope of such Restrictive
Covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of Executive that such determination not bar or
in any way affect the right of the Company or its subsidiaries to the relief
provided above in the courts of any other jurisdiction within the geographic
scope of such Restrictive Covenants, as to breaches of such Restrictive
Covenants in such other respective jurisdictions, such Restrictive Covenants as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent Restrictive Covenants.
10. PARTICIPATION IN STOCK AND OPTION EXECUTIVE COMPENSATION PLAN
10.1 Initial Option Grant. Executive shall be granted 300,000 options
to purchase 300,000 shares of Common Stock of the Company pursuant to the terms
and conditions contained in the Company's Stock and Option and Incentive Award
Plan, (the "Plan") at an exercise price equal to $3.00 per share as to 200,000
options and $3.15 per share as to the remaining 100,000 options. The vesting of
these options shall be as follows: (1) 100,000 of the $3.00 options vest upon
execution of this Agreement and (2) the remaining 200,000 options vest quarterly
in eight (8) equal amounts.
10.1.1 Company represents that as of the Effective Date there
are 26,405,000 shares issued and outstanding and that there are 3,300,000
options and warrants issued so that Executive's fully diluted equity ownership
in the Company is 1.0099% (300,000/29,705,000 x 100%). If at any time it is
determined that as of the Effective Date that the total of shares, options and
warrants was greater than 29,705,000 then the Company shall immediately issue
Executive additional options on the same terms as those issued in 10.1 above so
that Executive's fully diluted equity ownership is restored to 1.0099%.
10.1.2 No shares, options, or warrants issued subsequent to
the Effective Date (except for any options issued pursuant to 10.1.1 above)
shall be used to recalculate Executive's fully diluted equity ownership.
10.1.3 Upon consummation of the FECC merger transaction as
substantially described in the Agreement and Plan of Reorganization between
First Ecom.com, Inc. and Gasco Energy, Inc. dated June15, 2001) the options
granted in 10.1.1 shall be cancelled. Concurrent with consummation of the
merger, Executive shall be granted 682,800 options to purchase 682,800 shares of
common stock of the surviving company at a price of $1.25 per share. Half
(341,400) of the options shall vest immediately and the remaining options shall
vest at the rate of 85,350 (25%) per quarter of the succeeding year.
10.1.4 If any conditions contained herein contradict the Plan
then the terms of this Agreement shall supersede those of the Plan.
10.2 Executive shall be considered for additional grants of options,
stock appreciation rights, phantom stock rights, and any similar option or
securities or equity compensation when and as such grants are considered for
other executives or employees of the Company.
10.3 In the event of termination of Executive's employment pursuant to
a Change of Control, Executive shall be entitled to exercise all vested options,
and any additional options that have been granted. In the event of termination
of Executive's employment pursuant to Section 4.4, any additional options that
have been granted but have not yet vested in accordance with their terms shall
immediately vest.
10.4 Anti-Dilution Upon the completion of any subsequent transaction
involving the issuance of Common Stock, or issuance of any security which is
convertible, by its terms into Common Stock of the Company (a "Financing"),
Company shall grant Executive additional options to purchase shares of the
Company's Common Stock at the same price as Financing. The number of options
granted to Executive shall be sufficient to maintain Executive's ownership
interest in the Company (the ratio of a) the sum of the number of Executive's
unexercised options (both vested and unvested) plus the number of shares owned
by Executive as result of exercising options to b) the total number of shares of
Company's Common Stock plus the number of shares represented by all unexercised
options) at the level that existed immediately prior to such Financing.
11. DISPUTE RESOLUTION
The parties agree that any dispute that may arise in connection with,
arising out of or relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Executive's employment with the Company, the
termination of that employment, or any other dispute by and among the parties or
their successors, assigns or affiliates, shall be submitted to binding
arbitration in Arapahoe County, Colorado according to the Employment Dispute
Resolution Rules and Procedures of the American Arbitration Association. This
arbitration obligation extends to any and all claims that may arise by and
between the parties or their successors, assigns or affiliates, and expressly
extends to, without limitation, claims or cause of action for wrongful
termination, impairment of ability to compete in the open labor market, breach
or an express or implied contract, breach of the covenant of good faith and fair
dealing, breach of fiduciary duty, fraud, misrepresentation, defamation,
slander, infliction of emotional distress, disability, loss of future earnings,
and claims under the applicable state constitution, the United States
Constitution, and applicable state fair employment laws, federal equal
employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Labor-Management Relations Act, as amended, the Worker Retraining
and Notification Act of 1988, the Americans With Disabilities Act of 1990, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and the California Fair Employment and Housing Act, as amended.
12. ASSIGNMENT
This Agreement is a personal contract, and the rights, interests and
obligations of Executive hereunder may not be sold, transferred, assigned,
pledged or hypothecated except as otherwise expressly permitted by the
provisions of this Agreement. Executive may, with the prior written consent of
the Company (which shall not unreasonably be withheld), assign this Agreement to
an entity (corporation, partnership or limited liability company) that is
controlled by Executive. Executive shall not under any circumstances have any
option or right to require payment hereunder otherwise than in accordance with
the terms hereof. Except as otherwise expressly provided herein, Executive shall
not have any power of anticipation, alienation or assignment of payments
contemplated hereunder, and all rights and benefits of Executive shall be for
the sole personal benefit of Executive, and no other person shall acquire any
right, title or interest hereunder by reason of any sale, assignment, transfer,
claim or judgment or bankruptcy proceedings against Executive; provided,
however, that in the event of Executive's death, Executive's estate, legal
representatives or beneficiaries (as the case may be) shall have the right to
receive all of the benefits that accrued to Executive pursuant to, and in
accordance with, the terms of this Agreement.
13. SUCCESSOR
This Agreement may be assigned by the Company to any successor interest
to its business. This Agreement shall bind and inure to the benefit of the
Company's successors and assigns as well.
14. NOTICES
All notices, requests and demands hereunder shall be in writing and
delivered by hand, by mail, or by telegram, and shall be deemed given if by hand
delivery, upon such delivery, and if by mail, 48 hours after deposit in the
United States mail, first class, registered or certified mail, postage prepaid
and properly addressed to the party at the address set forth at the beginning of
this Agreement. Any party may change its address for purposes of this paragraph
by giving the other party written notice of the new address in the manner set
forth above.
15. INVALID PROVISIONS
Invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
16. AMENDMENT, MODIFICATION OR REVOCATION
This Agreement may be amended, modified or revoked in whole or in part,
but only by a written instrument which specifically refers to this Agreement and
expressly states that it constitutes an amendment, modification or revocation
hereof, as the case may be, and only if such written instrument has been signed
by each of the parties to this Agreement.
17. HEADINGS
The headings in this Agreement are inserted for convenience only and
are not to be considered in construction of the provisions hereof.
18. ENTIRE AGREEMENT
This Agreement contains the entire understanding among the parties and
supersedes any prior written or verbal agreements between them respecting the
subject matter hereof, including, without limitation, any prior verbal or
written employment agreement between Executive and the Company. Upon the
effectiveness hereof, any such prior verbal or written agreements shall
terminate.
No representations or warranties of any kind or nature relating to the
Company or its affiliates or their respective businesses, assets, liabilities,
operations, future plans or prospects have been made by or on behalf of the
Company to Executive; nor have any representations or warranties of any kind or
nature been made by Executive to the Company, except as expressly set forth in
this Agreement.
19. ATTORNEYS' FEES
If any legal action is necessary to enforce the terms and conditions of
this Agreement, the prevailing party in such action shall be entitled to recover
all costs of suit and reasonable attorneys' fees as determined by the
arbitrator.
20. FURTHER ASSURANCES
The parties shall execute such documents and take such other action as
is necessary or appropriate to effectuate the provisions of this Agreement.
21. CONTROLLING LAW
This Agreement shall be governed by the laws of the State of Colorado.
22. WAIVER
A waiver by either party of any of the terms and conditions hereof
shall not be construed as a general waiver by such party, and such party shall
be free to reinstate such part or clause, with or without notice to the other
party.
23. INDEMNIFICATION
To the fullest extent permitted by law and the Company's Certificate of
Incorporation and Bylaws, the Company shall indemnify, defend, and hold harmless
the Executive for all amounts (including, without limitation, judgments, fines,
settlement payments, losses, damages, costs and expenses, including reasonable
attorneys fees, incurred or paid by Executive in connection with any action,
proceeding, suit or investigation arising out of or relating to the performance
by Executive of services for, or acting as, an officer or employee of the
Company or any subsidiary thereof. The Company agrees to use its best efforts to
maintain directors' and officers' liability insurance, but the failure of the
Company to maintain such insurance or any portion thereof shall not negate nor
diminish Company's obligations as set forth in this paragraph.
24. PERIODIC REVIEWS
During January of each year during the term hereof, the Board of
Directors of the Company shall review Executive's Annual Salary, bonus, stock
options, and additional benefits then being provided to Executive. Following
each such review, the Company may in its discretion increase the Annual Salary,
bonus, stock options, and benefits; however, the Company shall not decrease such
items during the period Executive serves as an employee of the Company. Prior to
November 30th of each year during the term hereof, the Board of Directors of the
Company shall communicate in writing the results of such review to Executive.
IN WITNESS WHEREOF, the parties have entered into this Agreement on
_____________, 2001.
THE COMPANY: EXECUTIVE:
GASCO ENERGY, INC.
By:
- --------------------------------- ----------------------------------
Mark A. Erickson, President W. King Grant, III
Exhibit A
Exhibit B
Oil & Gas Holdings
_____ share of common stock of Key Energy Services
Exhibit C
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>7
<FILENAME>ex1012.txt
<DESCRIPTION>DECKER EMPLOYMENT AGREEMENT
<TEXT>
Page 1 of 16
GASCO ENERGY, INC.
STRATEGIC CONSULTING AGREEMENT
THIS AGREEMENT is made as of this 11 day of July 2001 by Resource
Venture Management and Marc A. Bruner, Blauenweg 29, 4116 Metzerlen,
Switzerland, ("Consultant"), and GASCO ENERGY, INC., a Nevada corporation, with
offices at 14 Inverness Drive East, Suite H236, Denver, Colorado 80112 (the
"Company"), for the purpose of setting forth the terms and conditions of
Consultant's services by the Company and to protect the Company's knowledge,
expertise, customer relationships and the confidential information the Company
has developed regarding clients, customers, shareholders, option holders,
employees, products, business operations and services. As of the Effective Date,
this Agreement supersedes any prior understandings or agreements between
Consultant and the Company or any of the Company's subsidiaries or affiliates.
RECITALS:
WHEREAS, the Board desires to provide for the continued services of
Consultant and to make certain changes in Consultant's services arrangements
with the Company which the Board has determined will reinforce and encourage the
continued attention and dedication to the Company of Consultant as a member of
the Company's management, in the best interest of the Company and its
shareholders. Consultant is willing to commit himself to continue to serve the
Company, on the terms and conditions herein provided, although this Agreement
may be amended at any time by written agreement among the parties; and
WHEREAS, in order to effect the foregoing, the Company and Consultant
wish to enter into a consulting agreement on the terms and conditions set forth
below,
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. TIME AND EFFORTS
1.1 Consultant shall be hired as the Company's Strategic Consultant and
shall devote time and attention to the duties and responsibilities of Strategic
Consultant in furtherance of the Company's business.
1.2 In the performance of all of his responsibilities hereunder,
Consultant shall be subject to all of the Company's policies, rules, and
regulations applicable to its officers and employees generally. Consultant shall
report to the President and Chief Executive Officer and Board of Directors.
2. TERM
The initial Term of this Agreement is from 2/01/01 (the "Effective
Date") until 1/31/06; however on each anniversary of the Effective Date after
1/31/05, this Agreement shall be automatically extended for an additional
one-year Term from such anniversary date unless the Company notifies Consultant
in writing 90 days prior to the anniversary of the Effective Date that the
Company will not be renewing this Agreement on the next anniversary of the
Effective Date, or unless sooner terminated pursuant to Section 4. References
hereinafter to the "Term" of this Agreement shall refer to both the initial term
and any extended term of Consultant's services hereunder.
3. COMPANY'S AUTHORITY
Consultant agrees to observe and comply with the reasonable rules and
regulations of Company as adopted by the Board of Directors of the Company or
committee of the Board of Directors respecting performance of Consultant's
duties and to carry out and perform orders, directions, and policies of Company
as they may be, from time-to-time, stated to Consultant either verbally or in
writing.
4. TERMINATION
This Agreement shall be terminated upon the happening of any of the
following events:
4.1 Upon the death of Consultant.
4.2 Whenever the Company and Consultant shall mutually agree to
termination.
4.3 At the option of the Company, upon written notice by the Company to
Consultant, for Cause. "Cause" shall exist for such termination if Consultant
(i) pleads or is found guilty of a felony involving an act of dishonesty or
moral turpitude by a court of competent jurisdiction; (ii) has engaged in gross
misconduct, materially and demonstratively injurious to the company; (iii) has
made any material misrepresentation or omission to the Company under Section 1.5
hereof; (iv) has committed an unexcused material breach of his duty in the
course of Consultant's services; (v) has been guilty of habitual neglect of his
duties; (vi) has usurped a corporate opportunity, is guilty of fraudulent
embezzlement of property or funds of the Company, or committed any act of fraud
or intentional misrepresentation, moral turpitude, dishonesty or other
misconduct that would constitute a felony; or (vii) has committed a material,
unexcused breach of this Agreement. Prior to any termination for Cause, Company
shall give Consultant written notice and the opportunity to cure to the extent
curable.
4.4 The Company may terminate Consultant's services under this
Agreement at any time without Cause, on at least ninety (90) working days
written notice, subject to provisions for payment of compensation as specified
under Section 5.5 of this Agreement. Should the Company (i) demote the
Consultant below the status of Chairman of the Board and member of the Executive
Committee should one exist, (ii) significantly diminish Consultant's
responsibilities without Cause, (iii) fail to obtain and subsequently maintain
appropriate directors' and officers' liability insurance prior to the earlier of
(a) obtaining a NASDAQ National Market, American Stock Exchange, or equivalent
listing for its common stock or (b) December 31, 2001, or (iv) within thirty
(30) days of the Effective Date, fail to elect Consultant to its Board of
Directors, or at any time thereafter remove him from same, this Agreement shall
terminate, at Consultant's option, subject to provisions for payment of
compensation as specified under Section 5.5 of this Agreement.
4.5 At the option of Consultant, upon 90 days written notice by
Consultant to the Company.
4.6 If as a result of Consultant's incapacity due to physical or mental
illness, Consultant shall have been absent from his duties hereunder on a
part-time basis for the entire period of three consecutive months, and within 30
days after written notice of termination is given (which may occur before or
after the end of such three-month period) shall not have returned to the
performance of his duties hereunder on a part-time basis, the Company may
terminate Consultant's services hereunder.
4.7 Upon the expiration of the Term of this Agreement, or any
extension or renewal thereof.
4.8 Upon a Change of Control as defined in subsection 5.5.4 below.
5. CURRENT COMPENSATION
5.1 Annual Fee. For all services rendered by Consultant under this
Agreement, the Company shall pay or cause to be paid to Consultant, and
Consultant shall accept the Annual Fee and Bonus Compensation, if any, all in
accordance with the subject to the terms of this Agreement. For purposes of this
Agreement, the term "Compensation" shall mean the Annual Salary and Bonus
Compensation, if any. Consultant shall be entitled to receive as current
compensation an Annual Fee in an amount of not less than $240,000. (Hereinafter
referred to as the "Consulting Fee"). References in this Agreement to "annual"
or "per annum" or "Annual" and similar phrases shall mean the twelve-month
period commencing on February 1 of each year during the Term of this Agreement
unless otherwise indicated.
5.2 Bonus Compensation. Consultant shall also be entitled to annual
incentive compensation ("Bonus Compensation") equal to 0.875% of the sum of the
Company's net after-tax earnings as reported in the Company's audited year-end
financial statements plus interest expense, deferred taxes, depletion expenses,
depreciation expenses, amortization expenses, and exploration expenses (which
sum is hereinafter referred to as "cash flow"). The parties agree that
exploration expenses would be deducted from net after-tax earning only if the
Company has elected the "successful-efforts" accounting method; if the Company
has elected the "full-cost" accounting method, exploration expenses would
already be deducted in the computation of the Company's net after-tax earnings,
subject to the additional provisions forth in Sections 5.2.1 and 5.2.2 below.
5.2.1 The parties agree that Bonus Compensation payments are
intended to be based on cash flow from undrilled Company-owned properties as of
the date of this Agreement and undrilled properties acquired by the Company
subsequent to the date of this Agreement. Should the Company acquire
proven-producing properties with existing cash flows, net income less the
hypothetical income tax due thereon plus interest expense, deferred taxes,
depletion expenses, depreciation expenses, amortization expenses, and
exploration expenses (which exploration expenses would only be added if the
Company has elected the "successful-efforts" accounting method) attributable to
the acquired, proven-producing properties shall be deducted from the base amount
upon which the cash flow is derived.
5.2.2 Should the Company acquire proven-producing properties
with existing cash flows, the parties agree to negotiate in good faith with
respect to the development of a schedule of the declining production profile of
such properties. The parties agree that the amount derived by multiplying the
proven-production stream, as set forth in the schedule, by the corresponding
sales price, less corresponding production costs shall be subtracted from the
cash flow upon which Bonus Compensation is based.
5.2.3 Bonus Compensation payments due hereunder shall be made
within 15 days after the Company has received the signed audit report covering
the year-end financial statements.
5.3 Royalty Trust. Consultant shall participate in the Pannonian
Employee Royalty Trust Agreement dated March 25th, 2001 (attached as Exhibit C)
according to the terms contained therein even though Consultant is not an
employee of the company.
5.4 Payments of Current Compensation. The payment of Consultant's
Annual Fee shall be made in monthly installments on the then prevailing paydays
of the Company. Any payment for Incentive Compensation will be made in
accordance with the Consultant Incentive Compensation Plan, and payment will be
made in one lump sum concurrently with payments made to others in senior
management. All payments are not subject to the customary withholding tax and
other employment taxes as required with respect to compensation paid to an
employee.
5.5 Payment of Compensation on Termination.
5.5.1 Upon termination of Consultant's services prior to the
expiration of this Agreement, if such termination is pursuant to Section 4.1,
4.2, 4.5, 4.6, or 4.7 hereof, Consultant shall be entitled to his Annual Fee and
Bonus Compensation, earned but unpaid through the date of termination of
agreement, payable on the date of termination. Consultant shall also be entitled
to exercise any vested options for a period of One (1) Year following the
termination of his agreement hereunder.
5.5.2 Upon termination of Consultant's agreement prior to the
expiration of this Agreement, if such termination is pursuant to Section 4.4
hereof, Consultant shall be entitled to any Annual Fee, Bonus Compensation,
earned but unpaid through the date of termination of employment, payable on the
date of termination. In addition, in case of termination pursuant to Section
4.4, the payment of $1,000,000 in cash if terminated prior to the first
anniversary of the Effective Date, and $2,500,000 in cash if terminated pursuant
to Section 4.4 after the first anniversary of the Effective Date, which
additional payments shall be made in quarterly installments. Consultant shall
also be entitled to exercise any vested options for a period of one year
following the termination of this agreement hereunder. The provisions of this
Section 5.5.2 shall apply throughout the Term of this Agreement, including any
period of extension in accordance with the provisions of Section 2 above.
5.5.3 In the event that Consultant is not serving as the
Chairman of the Board and Strategic Consultant during the term of this Agreement
or is terminated as a result of a Change of Control (as hereafter defined),
Consultant shall be entitled to any Annual Fee and Bonus Compensation earned but
unpaid through the date of termination of this contract, payable on the date of
termination. Upon termination as a result of a Change of Control, Consultant
shall also be entitled to receive the payment set forth in Section 5.5.2.
Consultant shall be entitled to exercise all granted stock options for a period
of one year following the termination of his employment hereunder.
5.5.4 For all purposes of this Agreement, a "change of
control" shall mean and shall be deemed to have occurred if: (i) there shall be
consummated (X) any consolidation or merger of the Company with another
corporation or entity and as a result of such consolidation or merger less than
50% of the outstanding voting securities of the surviving or resulting
corporation or entity shall be owned, directly or indirectly, in the aggregate
by the stockholders of the Company, other than "affiliates," as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of any party
to such consolidation or merger, as the same shall have existed immediately
prior to such consolidation or merger, or (Y) any sale, lease, exchange or other
transfer (or in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; (ii) the stockholders of the
Company shall have approved any plan or proposal for the liquidation or
dissolution of the Company; (iii) any "person" (as such term is used in the
Section 13(d) and 14(d) (2) of the Exchange Act) shall have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
50% or more of the Company's outstanding common stock, without the prior
approval of the Board; (iv) during any period of two consecutive years,
individuals who at the beginning of such period constituted the entire Board of
Directors shall have ceased for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
stockholders, of each new Director was approved by vote of at least two-thirds
of the Directors then still in office who were Directors at the beginning of the
period; (v) a change of control of a nature that would be required to be
reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act shall have occurred; or (vi) any consolidation or merger
of the Company with another corporation or entity and as a result of such
consolidation or merger Consultant is not retained by the Board of Directors as
the Chairman of the Board and Strategic Consultant (a "Change of Control").
6. DETERMINATION OF DISABILITY; PAYMENT OF DISABILITY INSURANCE PREMIUMS
---------------------------------------------------------------------
6.1 In the event Consultant's disability, as defined in Section 4.6, is
in question, and after written request by the Company, Consultant refuses to be
examined by his regularly attending physician or if the regularly attending
physician fails to submit a report within 30 days after the examination has been
requested by the Company, the determination of disability shall be made by the
Company.
6.2 Consultant shall be entitled to the disability benefits available
to all executive employees of the Company. It is the intent of the Company to
establish a disability insurance program as soon as practicable.
7. MISCELLANEOUS BENEFITS
7.1 Medical Insurance. Consultant and his family shall be entitled to
participate in any medical, dental, vision, life, long-term disability, other
insurance or employee benefit program instituted or maintained by the Company
for the benefit of its Consultant employees. It is the intent of the Company to
establish a medical and dental insurance program as soon as practicable. Company
will pay 50% of the premiums. Consultant is required to pay his portion of the
premiums in accordance with health insurance contract.
7.2 401(k) plan. Consultant shall be entitled to participate in the
Company's 401(k) or other similar retirement benefit plan. The Company agrees to
implement a 401(k) or other similar retirement benefit plan as soon as it is
reasonably feasible, based on the size of the Company and its financial
condition.
7.3 Payment of Benefits on Termination of Agreement. If Consultant's
agreement with the Company is terminated, Consultant shall be entitled to
maintain his employee benefits in accordance with his maximum COBRA rights.
7.4 Business Expenses. Consultant shall be reimbursed for all
reasonable expenses incurred by Consultant in connection with Consultant's
attendance of business meetings and promotion of Company business upon
presentation by Consultant to the Company of an expense report and adequate
records or other documentation substantiating the expenditures, not less
frequently than monthly. Any such amounts disallowed, as a business expense for
federal or state income tax purposes, shall be deemed additional salary to
Consultant. The fact that the Company may not reimburse Consultant for an
expense is not an indication that the Company determined that the expense was
not incurred on its behalf or in connection with the Company's business.
7.5 Additional Benefits. Consultant shall be entitled to participate in
all programs, rights and benefits for which Consultant is otherwise entitled to
any bonus plan, incentive plan, participation plan or extra compensation plan,
pension plan, overriding royalty plan in proportion to his Annual Fee base,
profit sharing plan, life, medical, dental, disability or other insurance plan
or policy or other plan or benefit the Company may provide for senior
Consultants or for employees of the Company generally from time to time in
effect during the term of this Agreement. For the avoidance of doubt, the rights
granted or afforded to Consultant under any such plans shall be not less than
the most favorable rights and highest amounts granted to employees of similar or
lower position with the Company and on terms at least as favorable.
8. VACATION
During each calendar year of the Term of this Agreement, Consultant
shall be entitled six (6) weeks of paid vacation. Consultant shall be entitled
to receive payment for accrued vacation not taken during each calendar year
during the Term of this Agreement.
9. RESTRICTIVE COVENANTS
9.1 Confidential Information. Consultant acknowledges that in his
services hereunder he occupies a position of trust and confidence. During the
Term, and thereafter in accordance with the provisions of this Agreement,
Consultant shall not, except as may be required to perform his duties hereunder
as required by applicable law, and except for information which is or becomes
publicly available other than as a result of a breach by Consultant of the
provisions hereof, disclose to others or use, whether directly or indirectly,
any Confidential Information. "Confidential Information" shall mean information
about the Company, its subsidiaries and affiliates, and their respective
suppliers, clients and customers that is not disclosed by the Company for
financial reporting purposes and that was learned by Consultant in the course of
this agreement hereunder, including (without limitation) proprietary knowledge,
trade secrets, market research, data, formulae, information and supplier, client
and customer lists and all papers, resumes, and records (including computer
records) of the documents containing such Confidential Information. Consultant
agrees to deliver or return to the Company, at the Company's request at any time
or upon termination or expiration of this agreement, or as soon thereafter as
possible, all documents, computer tapes and disks, records, lists, data,
drawings, prints, notes and written information (and all copies thereof)
furnished by the Company or any of its subsidiaries affiliates or prepared by
Consultant during the Term of this agreement by the Company. The obligations
hereof shall not apply to any information that is or becomes public or in the
public domain by action of the Company or through no fault of Consultant.
9.2 Business Diversion. During the Term and for 12 months thereafter,
Consultant shall not, directly or indirectly, influence or attempt to influence
customers or suppliers of the Company or any of its subsidiaries or affiliates
to divert their business to any competitor of the Company, to the exclusion of
the Company. However, Consultant may contract with the same customers and
suppliers after the Term hereof so long as it is not to the exclusion of the
Company's relationships with such customers and suppliers.
9.3 Non-Solicitation. Consultant recognizes that he will possess
confidential information about other employees of the Company and its
subsidiaries and affiliates relating to, among other things, their education,
experience, skills, abilities, compensation and benefits, and interpersonal
relationships with suppliers and customers of the Company. Consultant recognizes
that the information he will possess about these other employees is not
generally known, is of substantial value to the Company, and will be acquired by
him because of his business position with the Company. Consultant agrees that,
during the Term and for 12 months thereafter, he will not, directly or
indirectly, solicit or recruit any employee of the Company, its subsidiaries or
affiliates for the purpose of being employed by him or by any other person on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of the Company, including its subsidiaries or affiliates, to any other
person. However, if Consultant's employment is terminated in accordance with the
provisions of Section 4.4, nothing herein shall prevent Consultant from
soliciting or recruiting, directly or indirectly, any employee of the Company
recruited to the Company by Consultant.
9.4 If Consultant breaches, or threatens to commit a breach of, any of
the provisions of Section 9 (the "Restrictive Covenants"), the Company and its
subsidiaries shall have the right to seek the following:
9.4.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company or its
subsidiaries and that money damages may not provide an adequate remedy to the
Company or its subsidiaries.
9.4.2 Accounting. The right and remedy to require Consultant
to account for and pay over to the Company or its subsidiaries, as the case may
be, all compensation, profits, monies, accruals, increments or other benefits
derived or received by Consultant as a result of any transaction constituting a
breach of the Restrictive Covenants.
9.4.3 Severability of Restrictive Covenants. Consultant
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in geographic and temporal scope and in all other respects. If any court
determines at any of the Restrictive Covenants, or any part thereof, is invalid
or unenforceable, the remainder of the Restrictive Covenants shall not thereby
be affected and shall be given full effect without regard to the invalid
provisions.
9.4.4 Blue Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope or such provision, such court shall have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall not be enforceable.
9.4.5 Enforceability of Jurisdictions. The obligations in this
Section 9 shall survive the termination of Consultant's Agreement or expiration
of this Agreement and shall be fully enforceable thereafter. Consultant intends
to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the
courts of any jurisdiction within the geographic scope of such Restrictive
Covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of Consultant that such determination not bar or
in any way affect the right of the Company or its subsidiaries to the relief
provided above in the courts of any other jurisdiction within the geographic
scope of such Restrictive Covenants, as to breaches of such Restrictive
Covenants in such other respective jurisdictions, such Restrictive Covenants as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent Restrictive Covenants.
10. PARTICIPATION IN STOCK AND OPTION CONSULTANT COMPENSATION PLAN
--------------------------------------------------------------
10.1 Initial Option Grant. Consultant shall be granted 200,000 options
to purchase 200,000 shares of Common Stock of the Company pursuant to the terms
and conditions contained in the Company's Stock and Option and Incentive Award
Plan, (the "Plan") at an exercise price equal $2.50 per share for 200,000
shares. The vesting of these options shall be as follows: (1) 50,000 of the
options vest upon execution of this Agreement and (2) the remaining 200,000
options vest quarterly in eight (8) equal amounts.
10.1.1 Company represents that as of the Effective Date there
are 26,405,000 shares issued and outstanding and that there are 3,300,000
options and warrants issued so that Consultant's fully diluted equity ownership
in the Company is 0.6733% (200,000/29,705,000 x 100%). If at any time it is
determined that as of the Effective Date that the total of shares, options and
warrants was greater than 29,705,000 then the Company shall immediately issue
Consultant additional options on the same terms as those issued in 10.1 above so
that Consultant's fully diluted equity ownership is restored to 0.6733%.
10.1.2 No shares, options, or warrants issued subsequent to
the Effective Date (except for any options issued pursuant to 10.1.1 above)
shall be used to recalculate Consultant's fully diluted equity ownership.
10.1.3 If any conditions contained herein contradict the Plan
then the terms of this Agreement shall supersede those of the Plan.
10.2 Consultant shall be considered for additional grants of options,
stock appreciation rights, phantom stock rights, and any similar option or
securities or equity compensation when and as such grants are considered for
other Consultants or employees of the Company.
10.3 In the event of termination of Consultant's agreement pursuant to
a Change of Control, Consultant shall be entitled to exercise all vested
options, and any additional options that have been granted. In the event of
termination of Consultant's agreement pursuant to Section 4.4, any additional
options that have been granted but have not yet vested in accordance with their
terms shall immediately vest.
10.4 Anti-Dilution Upon the completion of any subsequent transaction
involving the issuance of Common Stock, or issuance of any security which is
convertible, by its terms into Common Stock of the Company (a "Financing"),
Company shall grant Consultant additional options and/or warrants to purchase
shares of the Company's Common Stock at the same price as Financing. The number
of options and/or warrants granted to Consultant shall be sufficient to maintain
Consultant's ownership interest in the Company (the ratio of a) the sum of the
number of Consultant's unexercised options/warrants (both vested and unvested)
plus the number of shares owned by Consultant as result of exercising
options/warrants to b) the total number of shares of Company's Common Stock plus
the number of shares represented by all unexercised options/warrants) at the
level that existed immediately prior to such Financing. At the completion of the
Canaccord financing of $25,000,000 or financings that total $25,000,000 which
are subsequent to the initial $7.2 MM financing, the total number of options and
warrants granted to Consultant shall equal 5% of the total outstanding common
stock as defined in this paragraph.
11. DISPUTE RESOLUTION
The parties agree that any dispute that may arise in connection with,
arising out of or relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Consultant's agreement with the Company, the
termination of that agreement, or any other dispute by and among the parties or
their successors, assigns or affiliates, shall be submitted to binding
arbitration in Arapahoe County, Colorado according to the Contract Dispute
Resolution Rules and Procedures of the American Arbitration Association. This
arbitration obligation extends to any and all claims that may arise by and
between the parties or their successors, assigns or affiliates, and expressly
extends to, without limitation, claims or cause of action for wrongful
termination, impairment of ability to compete in the open labor market, breach
or an express or implied contract, breach of the covenant of good faith and fair
dealing, breach of fiduciary duty, fraud, misrepresentation, defamation,
slander, infliction of emotional distress, disability, loss of future earnings,
and claims under the applicable state constitution, the United States
Constitution, and applicable state fair employment laws, federal equal
employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Labor-Management Relations Act, as amended, the Worker Retraining
and Notification Act of 1988, the Americans With Disabilities Act of 1990, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and the California Fair Employment and Housing Act, as amended.
12. ASSIGNMENT
This Agreement is a personal contract, and the rights, interests and
obligations of Consultant hereunder may not be sold, transferred, assigned,
pledged or hypothecated except as otherwise expressly permitted by the
provisions of this Agreement. Consultant may, with the prior written consent of
the Company (which shall not unreasonably be withheld), assign this Agreement to
an entity (corporation, partnership or limited liability company) that is
controlled by Consultant. Consultant shall not under any circumstances have any
option or right to require payment hereunder otherwise than in accordance with
the terms hereof. Except as otherwise expressly provided herein, Consultant
shall not have any power of anticipation, alienation or assignment of payments
contemplated hereunder, and all rights and benefits of Consultant shall be for
the sole personal benefit of Consultant, and no other person shall acquire any
right, title or interest hereunder by reason of any sale, assignment, transfer,
claim or judgment or bankruptcy proceedings against Consultant; provided,
however, that in the event of Consultant's death, Consultant's estate, legal
representatives or beneficiaries (as the case may be) shall have the right to
receive all of the benefits that accrued to Consultant pursuant to, and in
accordance with, the terms of this Agreement.
13. SUCCESSOR
This Agreement may be assigned by the Company to any successor interest
to its business. This Agreement shall bind and inure to the benefit of the
Company's successors and assigns as well.
14. NOTICES
All notices, requests and demands hereunder shall be in writing and
delivered by hand, by mail, or by telegram, and shall be deemed given if by hand
delivery, upon such delivery, and if by mail, 48 hours after deposit in the
United States mail, first class, registered or certified mail, postage prepaid
and properly addressed to the party at the address set forth at the beginning of
this Agreement. Any party may change its address for purposes of this paragraph
by giving the other party written notice of the new address in the manner set
forth above.
15. INVALID PROVISIONS
Invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
16. AMENDMENT, MODIFICATION OR REVOCATION
This Agreement may be amended, modified or revoked in whole or in part,
but only by a written instrument which specifically refers to this Agreement and
expressly states that it constitutes an amendment, modification or revocation
hereof, as the case may be, and only if such written instrument has been signed
by each of the parties to this Agreement.
17. HEADINGS
The headings in this Agreement are inserted for convenience only and
are not to be considered in construction of the provisions hereof.
18. ENTIRE AGREEMENT
This Agreement contains the entire understanding among the parties and
supersedes any prior written or verbal agreements between them respecting the
subject matter hereof, including, without limitation, any prior verbal or
written employment agreement between Consultant and the Company. Upon the
effectiveness hereof, any such prior verbal or written agreements shall
terminate.
No representations or warranties of any kind or nature relating to the
Company or its affiliates or their respective businesses, assets, liabilities,
operations, future plans or prospects have been made by or on behalf of the
Company to Consultant; nor have any representations or warranties of any kind or
nature been made by Consultant to the Company, except as expressly set forth in
this Agreement.
19. ATTORNEYS' FEES
If any legal action is necessary to enforce the terms and conditions of
this Agreement, the prevailing party in such action shall be entitled to recover
all costs of suit and reasonable attorneys' fees as determined by the
arbitrator.
20. FURTHER ASSURANCES
The parties shall execute such documents and take such other action as
is necessary or appropriate to effectuate the provisions of this Agreement.
21. CONTROLLING LAW
This Agreement shall be governed by the laws of the State of Colorado.
22. WAIVER
A waiver by either party of any of the terms and conditions hereof
shall not be construed as a general waiver by such party, and such party shall
be free to reinstate such part or clause, with or without notice to the other
party.
23. INDEMNIFICATION
To the fullest extent permitted by law and the Company's Certificate of
Incorporation and Bylaws, the Company shall indemnify, defend, and hold harmless
the Consultant for all amounts (including, without limitation, judgments, fines,
settlement payments, losses, damages, costs and expenses, including reasonable
attorneys fees, incurred or paid by Consultant in connection with any action,
proceeding, suit or investigation arising out of or relating to the performance
by Consultant of services for, or acting as, an officer or employee of the
Company or any subsidiary thereof. The Company agrees to use its best efforts to
maintain directors' and officers' liability insurance, but the failure of the
Company to maintain such insurance or any portion thereof shall not negate nor
diminish Company's obligations as set forth in this paragraph.
24. PERIODIC REVIEWS
During January of each year during the term hereof, the Board of
Directors of the Company shall review Consultant's Annual Fee, bonus, stock
options, and additional benefits then being provided to Consultant. Following
each such review, the Company may in its discretion increase the Annual Fee,
bonus, stock options, and benefits; however, the Company shall not decrease such
items during the period Consultant serves as an employee of the Company. Prior
to November 30th of each year during the term hereof, the Board of Directors of
the Company shall communicate in writing the results of such review to
Consultant.
IN WITNESS WHEREOF, the parties have entered into this Agreement on
July 11, 2001.
THE COMPANY: CONSULTANT:
GASCO ENERGY, INC.
By:
-------------------------------- -----------------------------
Mark A. Erickson, President Marc A. Bruner
Exhibit A
Exhibit B
Oil and Gas Holdings
Minority, non-controlling stocks in various oil and gas companies
Exhibit C
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>8
<FILENAME>ex1013.txt
<DESCRIPTION>ERICKSON EMPLOYMENT CONTRACT
<TEXT>
Page 1 of 20
GASCO ENERGY, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of this 11th day of July 2001 by Mark A.
Erickson at 1135 E. Kistler Ct., Highlands Ranch, CO 80126, ("Executive"), and
GASCO ENERGY, INC., a Nevada corporation, with offices at 14 Inverness Drive
East, Suite H236, Denver, Colorado 80112 (the "Company"), for the purpose of
setting forth the terms and conditions of Executive's employment by the Company
and to protect the Company's knowledge, expertise, customer relationships and
the confidential information the Company has developed regarding clients,
customers, shareholders, option holders, employees, products, business
operations and services. As of the Effective Date, this Agreement supersedes any
prior understandings or agreements between Executive and the Company or any of
the Company's subsidiaries or affiliates.
RECITALS:
WHEREAS, the Board desires to provide for the continued employment of
Executive and to make certain changes in Executive's employment arrangements
with the Company which the Board has determined will reinforce and encourage the
continued attention and dedication to the Company of Executive as a member of
the Company's management, in the best interest of the Company and its
shareholders. Executive is willing to commit himself to continue to serve the
Company, on the terms and conditions herein provided, although this Agreement
may be amended at any time by written agreement among the parties; and
WHEREAS, in order to effect the foregoing, the Company and Executive
wish to enter into an employment agreement on the terms and conditions set forth
below,
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. TIME AND EFFORTS
1.1 Executive shall be employed as the Company's Chief Executive
Officer and President and shall devote his full-time attention, except as
allowed in subsections 1.3 and 1.6 below, to the duties and responsibilities of
Chief Executive Officer and President. Subject to consultation with and the
direction of the Board of Directors, Executive shall have full responsibility
for, and specific authority as described in the bylaws of the Corporation,
Article V, Section 11.0 (Attached-Exhibit A).
1.2 In the performance of all of his responsibilities hereunder,
Executive shall be subject to all of the Company's policies, rules, and
regulations applicable to its officers and employees generally. Executive shall
report to the Board of Directors.
1.3 Without the prior express authorization of the Board, which shall
not unreasonably be withheld, Executive shall not, directly or indirectly,
during the Term of this Agreement engage in any activity competitive with or
adverse to the Company's business, whether alone, as a partner or independent
contractor, or as an officer, director, or employee of any other corporation.
This Agreement shall not be interpreted to prohibit Executive from making
passive personal investments, conducting private business affairs, or engaging
in educational or charitable activities, if those activities do not materially
interfere with the services required hereunder. Subject to the reasonable prior
approval of the Board, Executive may act as a director of any profit or
non-profit corporation or other business entity, if such activity is not
inconsistent with the business of the Company. Executive's oil and gas holdings
are detailed in Exhibit B of this agreement.
1.4 In order to induce the Company to enter into this Agreement,
Executive represents and warrants to the Company that (i) Executive is not a
party or subject to any employment agreement or arrangement with any other
person, firm, company, corporation or other business entity which is in
competition with the Company; and (ii) Executive is subject to no restraint,
limitation or restriction by virtue of any agreement or arrangement, or by
virtue of any law or rule of law or otherwise which would impair Executive's
right or ability to enter the employ of the Company or to perform fully his
duties and obligations pursuant to this Agreement.
1.5 Without first obtaining the written permission of the Board in each
instance, Executive will not authorize or permit the Company to engage the
services, of, or engage in any business activity with, or provide any financial
or other benefit to, any affiliate of Executive. The phrase "affiliate of
Executive" as used in this Agreement shall mean and include Executive's family
by blood or marriage (including, without limitation, parents, spouse, siblings,
children and in-laws), and any business or business entity which is directly or
indirectly owned or controlled by Executive or any member of Executive's family
or in which Executive or any member of Executive's family has any direct or
indirect financial interest whatsoever.
2. TERM
The initial Term of this Agreement is from 2/01/01 (the "Effective
Date") until 1/31/06; however on each anniversary of the Effective Date after
1/31/05, this Agreement shall be automatically extended for an additional
one-year Term from such anniversary date unless the Company notifies Executive
in writing 90 days prior to the anniversary of the Effective Date that the
Company will not be renewing this Agreement on the next anniversary of the
Effective Date, or unless sooner terminated pursuant to Section 4. References
hereinafter to the "Term" of this Agreement shall refer to both the initial term
and any extended term of Executive's employment hereunder.
3. COMPANY'S AUTHORITY
Executive agrees to observe and comply with the reasonable rules and
regulations of Company as adopted by the Board of Directors of the Company or
committee of the Board of Directors respecting performance of Executive's duties
and to carry out and perform orders, directions, and policies of Company as they
may be, from time-to-time, stated to Executive either verbally or in writing.
4. TERMINATION
This Agreement shall be terminated upon the happening of any of the
following events:
4.1 Upon the death of Executive.
4.2 Whenever the Company and Executive shall mutually agree to
termination.
4.3 At the option of the Company, upon written notice by the Company to
Executive, for Cause. "Cause" shall exist for such termination if Executive (i)
pleads or is found guilty of a felony involving an act of dishonesty or moral
turpitude by a court of competent jurisdiction; (ii) has engaged in gross
misconduct, materially and demonstratively injurious to the company; (iii) has
made any material misrepresentation or omission to the Company under Section 1.5
hereof; (iv) has committed an unexcused material breach of his duty in the
course of Executive's employment; (v) has been guilty of habitual neglect of his
duties; (vi) has usurped a corporate opportunity, is guilty of fraudulent
embezzlement of property or funds of the Company, or committed any act of fraud
or intentional misrepresentation, moral turpitude, dishonesty or other
misconduct that would constitute a felony; or (vii) has committed a material,
unexcused breach of this Agreement. Prior to any termination for Cause, Company
shall give Executive written notice and the opportunity to cure to the extent
curable.
4.4 The Company may terminate Executive's employment under this
Agreement at any time without Cause, on at least ninety (90) working days
written notice, subject to provisions for payment of compensation as specified
under Section 5.5 of this Agreement. Should the Company (i) demote the Executive
below the status of Chief Executive Officer and President, and member of the
Executive Committee should one exist, (ii) significantly diminish Executive's
responsibilities without Cause, (iii) fail to obtain and subsequently maintain
appropriate directors' and officers' liability insurance prior to the earlier of
(a) obtaining a NASDAQ National Market, American Stock Exchange, or equivalent
listing for its common stock or (b) December 31, 2001, (iv) require Executive to
relocate in violation of subsection 1.7, or (v) within thirty (30) days of the
Effective Date, fail to elect Executive to its Board of Directors, or at any
time thereafter remove him from same, this Agreement shall terminate, at
Executive's option, subject to provisions for payment of compensation as
specified under Section 5.5 of this Agreement.
4.5 At the option of Executive, upon 90 days written notice by
Executive to the Company.
4.6 If as a result of Executive's incapacity due to physical or mental
illness, Executive shall have been absent from his duties hereunder on a
full-time basis for the entire period of three consecutive months, and within 30
days after written notice of termination is given (which may occur before or
after the end of such three-month period) shall not have returned to the
performance of his duties hereunder on a full-time basis, the Company may
terminate Executive's employment hereunder.
4.7 Upon the expiration of the Term of this Agreement, or any
extension or renewal thereof.
4.8 Upon a Change of Control as defined in subsection 5.5.4 below.
5. CURRENT COMPENSATION
5.1 Annual Salary. For all services rendered by Executive under this
Agreement, the Company shall pay or cause to be paid to Executive, and Executive
shall accept the Annual Salary and Bonus Compensation, if any, all in accordance
with the subject to the terms of this Agreement. For purposes of this Agreement,
the term "Compensation" shall mean the Annual Salary and Bonus Compensation, if
any. Executive shall be entitled to receive as current compensation an Annual
Salary in an amount of not less than $240,000. (Hereinafter referred to as the
"Salary"). References in this Agreement to "annual" or "per annum" or "Annual"
and similar phrases shall mean the twelve-month period commencing on February 1
of each year during the Term of this Agreement unless otherwise indicated.
5.2 Bonus Compensation. Executive shall also be entitled to annual
incentive compensation ("Bonus Compensation") equal to 0.875% of the sum of the
Company's net after-tax earnings as reported in the Company's audited year-end
financial statements plus interest expense, deferred taxes, depletion expenses,
depreciation expenses, amortization expenses, and exploration expenses (which
sum is hereinafter referred to as "cash flow"). The parties agree that
exploration expenses would be deducted from net after-tax earning only if the
Company has elected the "successful-efforts" accounting method; if the Company
has elected the "full-cost" accounting method, exploration expenses would
already be deducted in the computation of the Company's net after-tax earnings,
subject to the additional provisions forth in Sections 5.2.1 and 5.2.2 below.
5.2.1 The parties agree that Bonus Compensation payments are
intended to be based on cash flow from undrilled Company-owned properties as of
the date of this Agreement and undrilled properties acquired by the Company
subsequent to the date of this Agreement. Should the Company acquire
proven-producing properties with existing cash flows, net income less the
hypothetical income tax due thereon plus interest expense, deferred taxes,
depletion expenses, depreciation expenses, amortization expenses, and
exploration expenses (which exploration expenses would only be added if the
Company has elected the "successful-efforts" accounting method) attributable to
the acquired, proven-producing properties shall be deducted from the base amount
upon which the cash flow is derived.
5.2.2 Should the Company acquire proven-producing properties
with existing cash flows, the parties agree to negotiate in good faith with
respect to the development of a schedule of the declining production profile of
such properties. The parties agree that the amount derived by multiplying the
proven-production stream, as set forth in the schedule, by the corresponding
sales price, less corresponding production costs shall be subtracted from the
cash flow upon which Bonus Compensation is based.
5.2.3 Bonus Compensation payments due hereunder shall be made
within 15 days after the Company has received the signed audit report covering
the year-end financial statements.
5.3 Royalty Trust. Executive shall participate in the Pannonian
Employee Royalty Trust Agreement dated March 25th, 2001 (attached as
Exhibit C) according to the terms contained therein.
5.4 Payments of Current Compensation. The payment of Executive's Annual
Salary and additional salary (pursuant to subsection 5.1.1 above) shall be made
in monthly installments on the then prevailing paydays of the Company. Any
payment for Incentive Compensation will be made in accordance with the Executive
Incentive Compensation Plan, and payment will be made in one lump sum
concurrently with payments made to others in senior management. All payments are
subject to the customary withholding tax and other employment taxes as required
with respect to compensation paid to an employee.
5.5 Payment of Compensation on Termination.
5.5.1 Upon termination of Executive's employment prior to the
expiration of this Agreement, if such termination is pursuant to Section 4.1,
4.2, 4.5, 4.6, or 4.7 hereof, Executive shall be entitled to any Annual Salary,
Bonus Compensation, and vacation accrued but unpaid through the date of
termination of employment, payable on the date of termination. Executive shall
also be entitled to exercise any vested options for a period of One (1) Year
following the termination of his employment hereunder.
5.5.2 Upon termination of Executive's employment prior to the
expiration of this Agreement, if such termination is pursuant to Section 4.4
hereof, Executive shall be entitled to any Annual Salary, Bonus Compensation,
and vacation accrued but unpaid through the date of termination of employment,
payable on the date of termination. In addition, in case of termination pursuant
to Section 4.4, the payment of $1,000,000 in cash if terminated prior to the
first anniversary of the Effective Date, and $2,500,000 in cash if terminated
pursuant to Section 4.4 after the first anniversary of the Effective Date, which
additional payments shall be made in quarterly installments. Executive shall
also be entitled to exercise any vested options for a period of one year
following the termination of his employment hereunder. The provisions of this
Section 5.5.2 shall apply throughout the Term of this Agreement, including any
period of extension in accordance with the provisions of Section 2 above.
5.5.3 In the event that Executive is not serving as the Chief
Executive Officer and President during the term of this Agreement or is
terminated as a result of a Change of Control (as hereafter defined), Executive
shall be entitled to any Annual Salary, Bonus Compensation, and vacation accrued
but unpaid through the date of termination of employment, payable on the date of
termination. Upon termination as a result of a Change of Control, Executive
shall also be entitled to receive the payment set forth in Section 5.5.2.
Executive shall be entitled to exercise all granted stock options for a period
of one year following the termination of his employment hereunder.
5.5.4 For all purposes of this Agreement, a "change of
control" shall mean and shall be deemed to have occurred if: (i) there shall be
consummated (X) any consolidation or merger of the Company with another
corporation or entity and as a result of such consolidation or merger less than
50% of the outstanding voting securities of the surviving or resulting
corporation or entity shall be owned, directly or indirectly, in the aggregate
by the stockholders of the Company, other than "affiliates," as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of any party
to such consolidation or merger, as the same shall have existed immediately
prior to such consolidation or merger, or (Y) any sale, lease, exchange or other
transfer (or in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; (ii) the stockholders of the
Company shall have approved any plan or proposal for the liquidation or
dissolution of the Company; (iii) any "person" (as such term is used in the
Section 13(d) and 14(d) (2) of the Exchange Act) shall have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
50% or more of the Company's outstanding common stock, without the prior
approval of the Board; (iv) during any period of two consecutive years,
individuals who at the beginning of such period constituted the entire Board of
Directors shall have ceased for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
stockholders, of each new Director was approved by vote of at least two-thirds
of the Directors then still in office who were Directors at the beginning of the
period; (v) a change of control of a nature that would be required to be
reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act shall have occurred; or (vi) any consolidation or merger
of the Company with another corporation or entity and as a result of such
consolidation or merger Executive is not retained by the Board of Directors as
the Chief Executive Officer of the Company (a "Change of Control").
6. DETERMINATION OF DISABILITY; PAYMENT OF DISABILITY INSURANCE PREMIUMS
---------------------------------------------------------------------
6.1 In the event Executive's disability, as defined in Section 4.6, is
in question, and after written request by the Company, Executive refuses to be
examined by his regularly attending physician or if the regularly attending
physician fails to submit a report within 30 days after the examination has been
requested by the Company, the determination of disability shall be made by the
Company.
6.2 Executive shall be entitled to the disability benefits available to
all executive employees of the Company. It is the intent of the Company to
establish a disability insurance program as soon as practicable.
7. MISCELLANEOUS BENEFITS
7.1 Medical Insurance. Executive and his family shall be entitled to
participate in any medical, dental, vision, life, long-term disability, other
insurance or employee benefit program instituted or maintained by the Company
for the benefit of its executive employees. It is the intent of the Company to
establish a medical and dental insurance program as soon as practicable. Company
will pay 50% of the premiums. Executive is required to pay his portion of the
premiums in accordance with health insurance contract.
7.2 401(k) plan. Executive shall be entitled to participate in the
Company's 401(k) or other similar retirement benefit plan. The Company agrees to
implement a 401(k) or other similar retirement benefit plan as soon as it is
reasonably feasible, based on the size of the Company and its financial
condition.
7.3 Payment of Benefits on Termination of Employment. If Executive's
employment with the Company is terminated, Executive shall be entitled to
maintain his employee benefits in accordance with his maximum COBRA rights.
7.4 Business Expenses. Executive shall be reimbursed for all reasonable
expenses incurred by Executive in connection with Executive's attendance of
business meetings and promotion of Company business, including the cost of
travel to and from the Company's offices, upon presentation by Executive to the
Company of an expense report and adequate records or other documentation
substantiating the expenditures, not less frequently than monthly. Any such
amounts disallowed, as a business expense for federal or state income tax
purposes, shall be deemed additional salary to Executive. The fact that the
Company may not reimburse Executive for an expense is not an indication that the
Company determined that the expense was not incurred on its behalf or in
connection with the Company's business.
7.5 Additional Benefits. Executive shall be entitled to participate in
all programs, rights and benefits for which executive is otherwise entitled to
any bonus plan, incentive plan, participation plan or extra compensation plan,
pension plan, overriding royalty plan in proportion to his Annual Salary base,
profit sharing plan, life, medical, dental, disability or other insurance plan
or policy or other plan or benefit the Company may provide for senior executives
or for employees of the Company generally from time to time in effect during the
term of this Agreement. For the avoidance of doubt, the rights granted or
afforded to Executive under any such plans shall be not less than the most
favorable rights and highest amounts granted to employees of similar or lower
position with the Company and on terms at least as favorable.
8. VACATION
During each calendar year of the Term of this Agreement, Executive
shall be entitled Twelve (12) weeks of paid vacation, six (6) weeks of paid
vacation and six (6) weeks or vacation without pay. Executive shall be entitled
to receive payment for accrued vacation not taken during each calendar year
during the Term of this Agreement or may accrue such vacation for use in a
subsequent calendar year; however Executive shall be subject to a maximum of
three (3) weeks of accrued vacation.
9. RESTRICTIVE COVENANTS
9.1 Confidential Information. Executive acknowledges that in his
employment hereunder he occupies a position of trust and confidence. During the
Term, and thereafter in accordance with the provisions of this Agreement,
Executive shall not, except as may be required to perform his duties hereunder
as required by applicable law, and except for information which is or becomes
publicly available other than as a result of a breach by Executive of the
provisions hereof, disclose to others or use, whether directly or indirectly,
any Confidential Information. "Confidential Information" shall mean information
about the Company, its subsidiaries and affiliates, and their respective
suppliers, clients and customers that is not disclosed by the Company for
financial reporting purposes and that was learned by Executive in the course of
his employment hereunder, including (without limitation) proprietary knowledge,
trade secrets, market research, data, formulae, information and supplier, client
and customer lists and all papers, resumes, and records (including computer
records) of the documents containing such Confidential Information. Executive
agrees to deliver or return to the Company, at the Company's request at any time
or upon termination or expiration of his employment, or as soon thereafter as
possible, all documents, computer tapes and disks, records, lists, data,
drawings, prints, notes and written information (and all copies thereof)
furnished by the Company or any of its subsidiaries affiliates or prepared by
Executive during the Term of his employment by the Company. The obligations
hereof shall not apply to any information that is or becomes public or in the
public domain by action of the Company or through no fault of Executive.
9.2 Business Diversion. During the Term and for 12 months thereafter,
Executive shall not, directly or indirectly, influence or attempt to influence
customers or suppliers of the Company or any of its subsidiaries or affiliates
to divert their business to any competitor of the Company, to the exclusion of
the Company. However, Executive may contract with the same customers and
suppliers after the Term hereof so long as it is not to the exclusion of the
Company's relationships with such customers and suppliers.
9.3 Non-Solicitation. Executive recognizes that he will possess
confidential information about other employees of the Company and its
subsidiaries and affiliates relating to, among other things, their education,
experience, skills, abilities, compensation and benefits, and interpersonal
relationships with suppliers and customers of the Company. Executive recognizes
that the information he will possess about these other employees is not
generally known, is of substantial value to the Company, and will be acquired by
him because of his business position with the Company. Executive agrees that,
during the Term and for 12 months thereafter, he will not, directly or
indirectly, solicit or recruit any employee of the Company, its subsidiaries or
affiliates for the purpose of being employed by him or by any other person on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of the Company, including its subsidiaries or affiliates, to any other
person. However, if Executive's employment is terminated in accordance with the
provisions of Section 4.4, nothing herein shall prevent Executive from
soliciting or recruiting, directly or indirectly, any employee of the Company
recruited to the Company by Executive.
9.4 If Executive breaches, or threatens to commit a breach of, any of
the provisions of Section 9 (the "Restrictive Covenants"), the Company and its
subsidiaries shall have the right to seek the following:
9.4.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company or its
subsidiaries and that money damages may not provide an adequate remedy to the
Company or its subsidiaries.
9.4.2 Accounting. The right and remedy to require Executive to
account for and pay over to the Company or its subsidiaries, as the case may be,
all compensation, profits, monies, accruals, increments or other benefits
derived or received by Executive as a result of any transaction constituting a
breach of the Restrictive Covenants.
9.4.3 Severability of Restrictive Covenants. Executive
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in geographic and temporal scope and in all other respects. If any court
determines at any of the Restrictive Covenants, or any part thereof, is invalid
or unenforceable, the remainder of the Restrictive Covenants shall not thereby
be affected and shall be given full effect without regard to the invalid
provisions.
9.4.4 Blue Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope or such provision, such court shall have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall not be enforceable.
9.4.5 Enforceability of Jurisdictions. The obligations in this
Section 9 shall survive the termination of Executive's employment or expiration
of this Agreement and shall be fully enforceable thereafter. Executive intends
to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the
courts of any jurisdiction within the geographic scope of such Restrictive
Covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of Executive that such determination not bar or
in any way affect the right of the Company or its subsidiaries to the relief
provided above in the courts of any other jurisdiction within the geographic
scope of such Restrictive Covenants, as to breaches of such Restrictive
Covenants in such other respective jurisdictions, such Restrictive Covenants as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent Restrictive Covenants.
10. PARTICIPATION IN STOCK AND OPTION EXECUTIVE COMPENSATION PLAN
-------------------------------------------------------------
10.1 Initial Option Grant. Executive shall be granted 1,250,000 options
to purchase 1,250,000 shares of Common Stock of the Company pursuant to the
terms and conditions contained in the Company's Stock and Option and Incentive
Award Plan, (the "Plan") at an exercise price equal to 1,000,000 shares @ $1.00
per share and 250,000 shares @ $2.50 per share. The vesting of these options
shall be as follows: (1) 1,000,000 options vested pursuant to existing option
contract granted on January 2, 2001 and (2) the remaining 250,000 options vest
quarterly in eight (8) equal amounts.
10.1.1 Company represents that as of the Effective Date there
are 26,405,000 shares issued and outstanding and that there are 3,300,000
options and warrants issued so that Executive's fully diluted equity ownership
in the Company is 4.2080% (1,250,000/29,705,000 x 100%). If at any time it is
determined that as of the Effective Date that the total of shares, options and
warrants was greater than 29,705,000 then the Company shall immediately issue
Executive additional options on the same terms as those issued in 10.1 above so
that Executive's fully diluted equity ownership is restored to 4.2080%.
10.1.2 No shares, options, or warrants issued subsequent to
the Effective Date (except for any options issued pursuant to 10.1.1 above)
shall be used to recalculate Executive's fully diluted equity ownership.
10.1.3 If any conditions contained herein contradict the Plan
then the terms of this Agreement shall supersede those of the Plan.
10.2 Executive shall be considered for additional grants of options,
stock appreciation rights, phantom stock rights, and any similar option or
securities or equity compensation when and as such grants are considered for
other executives or employees of the Company.
10.3 In the event of termination of Executive's employment pursuant to
a Change of Control, Executive shall be entitled to exercise all vested options,
and any additional options that have been granted. In the event of termination
of Executive's employment pursuant to Section 4.4, any additional options that
have been granted but have not yet vested in accordance with their terms shall
immediately vest.
10.4 Anti-Dilution Upon the completion of any subsequent transaction
involving the issuance of Common Stock, or issuance of any security which is
convertible, by its terms into Common Stock of the Company (a "Financing"),
Company shall grant Executive additional options and/or warrants to purchase
shares of the Company's Common Stock at the same price as Financing. The number
of options and/or warrants granted to Executive shall be sufficient to maintain
Executive's ownership interest in the Company (the ratio of a) the sum of the
number of Executive's unexercised options/warrants (both vested and unvested)
plus the number of shares owned by Executive as result of exercising
options/warrants to b) the total number of shares of Company's Common Stock plus
the number of shares represented by all unexercised options/warrants) at the
level that existed immediately prior to such Financing. At the completion of the
Canaccord Financing of $25,000,000 or all financings in total subsequent to the
initial $7.2 Million financing the total number of options and warrants granted
to executive shall equal 5% of the total outstanding common stock as defined in
this paragraph.
11. DISPUTE RESOLUTION
The parties agree that any dispute that may arise in connection with,
arising out of or relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Executive's employment with the Company, the
termination of that employment, or any other dispute by and among the parties or
their successors, assigns or affiliates, shall be submitted to binding
arbitration in Arapahoe County, Colorado according to the Employment Dispute
Resolution Rules and Procedures of the American Arbitration Association. This
arbitration obligation extends to any and all claims that may arise by and
between the parties or their successors, assigns or affiliates, and expressly
extends to, without limitation, claims or cause of action for wrongful
termination, impairment of ability to compete in the open labor market, breach
or an express or implied contract, breach of the covenant of good faith and fair
dealing, breach of fiduciary duty, fraud, misrepresentation, defamation,
slander, infliction of emotional distress, disability, loss of future earnings,
and claims under the applicable state constitution, the United States
Constitution, and applicable state fair employment laws, federal equal
employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Labor-Management Relations Act, as amended, the Worker Retraining
and Notification Act of 1988, the Americans With Disabilities Act of 1990, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and the California Fair Employment and Housing Act, as amended.
12. ASSIGNMENT
This Agreement is a personal contract, and the rights, interests and
obligations of Executive hereunder may not be sold, transferred, assigned,
pledged or hypothecated except as otherwise expressly permitted by the
provisions of this Agreement. Executive may, with the prior written consent of
the Company (which shall not unreasonably be withheld), assign this Agreement to
an entity (corporation, partnership or limited liability company) that is
controlled by Executive. Executive shall not under any circumstances have any
option or right to require payment hereunder otherwise than in accordance with
the terms hereof. Except as otherwise expressly provided herein, Executive shall
not have any power of anticipation, alienation or assignment of payments
contemplated hereunder, and all rights and benefits of Executive shall be for
the sole personal benefit of Executive, and no other person shall acquire any
right, title or interest hereunder by reason of any sale, assignment, transfer,
claim or judgment or bankruptcy proceedings against Executive; provided,
however, that in the event of Executive's death, Executive's estate, legal
representatives or beneficiaries (as the case may be) shall have the right to
receive all of the benefits that accrued to Executive pursuant to, and in
accordance with, the terms of this Agreement.
13. SUCCESSOR
This Agreement may be assigned by the Company to any successor interest
to its business. This Agreement shall bind and inure to the benefit of the
Company's successors and assigns as well.
14. NOTICES
All notices, requests and demands hereunder shall be in writing and
delivered by hand, by mail, or by telegram, and shall be deemed given if by hand
delivery, upon such delivery, and if by mail, 48 hours after deposit in the
United States mail, first class, registered or certified mail, postage prepaid
and properly addressed to the party at the address set forth at the beginning of
this Agreement. Any party may change its address for purposes of this paragraph
by giving the other party written notice of the new address in the manner set
forth above.
15. INVALID PROVISIONS
Invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
16. AMENDMENT, MODIFICATION OR REVOCATION
This Agreement may be amended, modified or revoked in whole or in part,
but only by a written instrument which specifically refers to this Agreement and
expressly states that it constitutes an amendment, modification or revocation
hereof, as the case may be, and only if such written instrument has been signed
by each of the parties to this Agreement.
17. HEADINGS
The headings in this Agreement are inserted for convenience only and
are not to be considered in construction of the provisions hereof.
18. ENTIRE AGREEMENT
This Agreement contains the entire understanding among the parties and
supersedes any prior written or verbal agreements between them respecting the
subject matter hereof, including, without limitation, any prior verbal or
written employment agreement between Executive and the Company. Upon the
effectiveness hereof, any such prior verbal or written agreements shall
terminate.
No representations or warranties of any kind or nature relating to the
Company or its affiliates or their respective businesses, assets, liabilities,
operations, future plans or prospects have been made by or on behalf of the
Company to Executive; nor have any representations or warranties of any kind or
nature been made by Executive to the Company, except as expressly set forth in
this Agreement.
19. ATTORNEYS' FEES
If any legal action is necessary to enforce the terms and conditions of
this Agreement, the prevailing party in such action shall be entitled to recover
all costs of suit and reasonable attorneys' fees as determined by the
arbitrator.
20. FURTHER ASSURANCES
The parties shall execute such documents and take such other action as
is necessary or appropriate to effectuate the provisions of this Agreement.
21. CONTROLLING LAW
This Agreement shall be governed by the laws of the State of Colorado.
22. WAIVER
A waiver by either party of any of the terms and conditions hereof
shall not be construed as a general waiver by such party, and such party shall
be free to reinstate such part or clause, with or without notice to the other
party.
23. INDEMNIFICATION
To the fullest extent permitted by law and the Company's Certificate of
Incorporation and Bylaws, the Company shall indemnify, defend, and hold harmless
the Executive for all amounts (including, without limitation, judgments, fines,
settlement payments, losses, damages, costs and expenses, including reasonable
attorneys fees, incurred or paid by Executive in connection with any action,
proceeding, suit or investigation arising out of or relating to the performance
by Executive of services for, or acting as, an officer or employee of the
Company or any subsidiary thereof. The Company agrees to use its best efforts to
maintain directors' and officers' liability insurance, but the failure of the
Company to maintain such insurance or any portion thereof shall not negate nor
diminish Company's obligations as set forth in this paragraph.
24. PERIODIC REVIEWS
During January of each year during the term hereof, the Board of
Directors of the Company shall review Executive's Annual Salary, bonus, stock
options, and additional benefits then being provided to Executive. Following
each such review, the Company may in its discretion increase the Annual Salary,
bonus, stock options, and benefits; however, the Company shall not decrease such
items during the period Executive serves as an employee of the Company. Prior to
November 30th of each year during the term hereof, the Board of Directors of the
Company shall communicate in writing the results of such review to Executive.
IN WITNESS WHEREOF, the parties have entered into this Agreement on
Jully 11, 2001.
THE COMPANY: EXECUTIVE:
GASCO ENERGY, INC.
By: /s/ Marc A. Bruner /s/ Mark. A. Erickson
------------------------ ---------------------------------
Marc A. Bruner, Chairman Mark A. Erickson
Exhibit A
By Laws of Gasco Energy Inc
Exhibit B
Oil & Gas Holdings
WI ownership in Coalbed Methane Properties located in the state of Oklahoma
ORRI in Coalbed Methane Properties located in the state of Oklahoma
ORRI in leasehold located in Sec 30, T9S, R19E in Unitah County Utah
acquired from Gillman Hill.
Stock in Rubicon Holdings, which holds ownership in properties located in
Oklahoma, Utah and Colorado.
Misc. minority, non-controlling stocks in public companies.
Exhibit C
Royalty Trust
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>9
<FILENAME>ex1014.txt
<DESCRIPTION>BRUNER CONSULTING AGREEMENT
<TEXT>
Page 1 of 16
GASCO ENERGY, INC.
STRATEGIC CONSULTING AGREEMENT
THIS AGREEMENT is made as of this 11 day of July 2001 by Resource
Venture Management and Marc A. Bruner, Blauenweg 29, 4116 Metzerlen,
Switzerland, ("Consultant"), and GASCO ENERGY, INC., a Nevada corporation, with
offices at 14 Inverness Drive East, Suite H236, Denver, Colorado 80112 (the
"Company"), for the purpose of setting forth the terms and conditions of
Consultant's services by the Company and to protect the Company's knowledge,
expertise, customer relationships and the confidential information the Company
has developed regarding clients, customers, shareholders, option holders,
employees, products, business operations and services. As of the Effective Date,
this Agreement supersedes any prior understandings or agreements between
Consultant and the Company or any of the Company's subsidiaries or affiliates.
RECITALS:
WHEREAS, the Board desires to provide for the continued services of
Consultant and to make certain changes in Consultant's services arrangements
with the Company which the Board has determined will reinforce and encourage the
continued attention and dedication to the Company of Consultant as a member of
the Company's management, in the best interest of the Company and its
shareholders. Consultant is willing to commit himself to continue to serve the
Company, on the terms and conditions herein provided, although this Agreement
may be amended at any time by written agreement among the parties; and
WHEREAS, in order to effect the foregoing, the Company and Consultant
wish to enter into a consulting agreement on the terms and conditions set forth
below,
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. TIME AND EFFORTS
1.1 Consultant shall be hired as the Company's Strategic Consultant and
shall devote time and attention to the duties and responsibilities of Strategic
Consultant in furtherance of the Company's business.
1.2 In the performance of all of his responsibilities hereunder,
Consultant shall be subject to all of the Company's policies, rules, and
regulations applicable to its officers and employees generally. Consultant shall
report to the President and Chief Executive Officer and Board of Directors.
2. TERM
The initial Term of this Agreement is from 2/01/01 (the "Effective
Date") until 1/31/06; however on each anniversary of the Effective Date after
1/31/05, this Agreement shall be automatically extended for an additional
one-year Term from such anniversary date unless the Company notifies Consultant
in writing 90 days prior to the anniversary of the Effective Date that the
Company will not be renewing this Agreement on the next anniversary of the
Effective Date, or unless sooner terminated pursuant to Section 4. References
hereinafter to the "Term" of this Agreement shall refer to both the initial term
and any extended term of Consultant's services hereunder.
3. COMPANY'S AUTHORITY
Consultant agrees to observe and comply with the reasonable rules and
regulations of Company as adopted by the Board of Directors of the Company or
committee of the Board of Directors respecting performance of Consultant's
duties and to carry out and perform orders, directions, and policies of Company
as they may be, from time-to-time, stated to Consultant either verbally or in
writing.
4. TERMINATION
This Agreement shall be terminated upon the happening of any of the
following events:
4.1 Upon the death of Consultant.
4.2 Whenever the Company and Consultant shall mutually agree to
termination.
4.3 At the option of the Company, upon written notice by the Company to
Consultant, for Cause. "Cause" shall exist for such termination if Consultant
(i) pleads or is found guilty of a felony involving an act of dishonesty or
moral turpitude by a court of competent jurisdiction; (ii) has engaged in gross
misconduct, materially and demonstratively injurious to the company; (iii) has
made any material misrepresentation or omission to the Company under Section 1.5
hereof; (iv) has committed an unexcused material breach of his duty in the
course of Consultant's services; (v) has been guilty of habitual neglect of his
duties; (vi) has usurped a corporate opportunity, is guilty of fraudulent
embezzlement of property or funds of the Company, or committed any act of fraud
or intentional misrepresentation, moral turpitude, dishonesty or other
misconduct that would constitute a felony; or (vii) has committed a material,
unexcused breach of this Agreement. Prior to any termination for Cause, Company
shall give Consultant written notice and the opportunity to cure to the extent
curable.
4.4 The Company may terminate Consultant's services under this
Agreement at any time without Cause, on at least ninety (90) working days
written notice, subject to provisions for payment of compensation as specified
under Section 5.5 of this Agreement. Should the Company (i) demote the
Consultant below the status of Chairman of the Board and member of the Executive
Committee should one exist, (ii) significantly diminish Consultant's
responsibilities without Cause, (iii) fail to obtain and subsequently maintain
appropriate directors' and officers' liability insurance prior to the earlier of
(a) obtaining a NASDAQ National Market, American Stock Exchange, or equivalent
listing for its common stock or (b) December 31, 2001, or (iv) within thirty
(30) days of the Effective Date, fail to elect Consultant to its Board of
Directors, or at any time thereafter remove him from same, this Agreement shall
terminate, at Consultant's option, subject to provisions for payment of
compensation as specified under Section 5.5 of this Agreement.
4.5 At the option of Consultant, upon 90 days written notice by
Consultant to the Company.
4.6 If as a result of Consultant's incapacity due to physical or mental
illness, Consultant shall have been absent from his duties hereunder on a
part-time basis for the entire period of three consecutive months, and within 30
days after written notice of termination is given (which may occur before or
after the end of such three-month period) shall not have returned to the
performance of his duties hereunder on a part-time basis, the Company may
terminate Consultant's services hereunder.
4.7 Upon the expiration of the Term of this Agreement, or any
extension or renewal thereof.
4.8 Upon a Change of Control as defined in subsection 5.5.4 below.
5. CURRENT COMPENSATION
5.1 Annual Fee. For all services rendered by Consultant under this
Agreement, the Company shall pay or cause to be paid to Consultant, and
Consultant shall accept the Annual Fee and Bonus Compensation, if any, all in
accordance with the subject to the terms of this Agreement. For purposes of this
Agreement, the term "Compensation" shall mean the Annual Salary and Bonus
Compensation, if any. Consultant shall be entitled to receive as current
compensation an Annual Fee in an amount of not less than $240,000. (Hereinafter
referred to as the "Consulting Fee"). References in this Agreement to "annual"
or "per annum" or "Annual" and similar phrases shall mean the twelve-month
period commencing on February 1 of each year during the Term of this Agreement
unless otherwise indicated.
5.2 Bonus Compensation. Consultant shall also be entitled to annual
incentive compensation ("Bonus Compensation") equal to 0.875% of the sum of the
Company's net after-tax earnings as reported in the Company's audited year-end
financial statements plus interest expense, deferred taxes, depletion expenses,
depreciation expenses, amortization expenses, and exploration expenses (which
sum is hereinafter referred to as "cash flow"). The parties agree that
exploration expenses would be deducted from net after-tax earning only if the
Company has elected the "successful-efforts" accounting method; if the Company
has elected the "full-cost" accounting method, exploration expenses would
already be deducted in the computation of the Company's net after-tax earnings,
subject to the additional provisions forth in Sections 5.2.1 and 5.2.2 below.
5.2.1 The parties agree that Bonus Compensation payments are
intended to be based on cash flow from undrilled Company-owned properties as of
the date of this Agreement and undrilled properties acquired by the Company
subsequent to the date of this Agreement. Should the Company acquire
proven-producing properties with existing cash flows, net income less the
hypothetical income tax due thereon plus interest expense, deferred taxes,
depletion expenses, depreciation expenses, amortization expenses, and
exploration expenses (which exploration expenses would only be added if the
Company has elected the "successful-efforts" accounting method) attributable to
the acquired, proven-producing properties shall be deducted from the base amount
upon which the cash flow is derived.
5.2.2 Should the Company acquire proven-producing properties
with existing cash flows, the parties agree to negotiate in good faith with
respect to the development of a schedule of the declining production profile of
such properties. The parties agree that the amount derived by multiplying the
proven-production stream, as set forth in the schedule, by the corresponding
sales price, less corresponding production costs shall be subtracted from the
cash flow upon which Bonus Compensation is based.
5.2.3 Bonus Compensation payments due hereunder shall be made
within 15 days after the Company has received the signed audit report covering
the year-end financial statements.
5.3 Royalty Trust. Consultant shall participate in the Pannonian
Employee Royalty Trust Agreement dated March 25th, 2001 (attached as Exhibit C)
according to the terms contained therein even though Consultant is not an
employee of the company.
5.4 Payments of Current Compensation. The payment of Consultant's
Annual Fee shall be made in monthly installments on the then prevailing paydays
of the Company. Any payment for Incentive Compensation will be made in
accordance with the Consultant Incentive Compensation Plan, and payment will be
made in one lump sum concurrently with payments made to others in senior
management. All payments are not subject to the customary withholding tax and
other employment taxes as required with respect to compensation paid to an
employee.
5.5 Payment of Compensation on Termination.
5.5.1 Upon termination of Consultant's services prior to the
expiration of this Agreement, if such termination is pursuant to Section 4.1,
4.2, 4.5, 4.6, or 4.7 hereof, Consultant shall be entitled to his Annual Fee and
Bonus Compensation, earned but unpaid through the date of termination of
agreement, payable on the date of termination. Consultant shall also be entitled
to exercise any vested options for a period of One (1) Year following the
termination of his agreement hereunder.
5.5.2 Upon termination of Consultant's agreement prior to the
expiration of this Agreement, if such termination is pursuant to Section 4.4
hereof, Consultant shall be entitled to any Annual Fee, Bonus Compensation,
earned but unpaid through the date of termination of employment, payable on the
date of termination. In addition, in case of termination pursuant to Section
4.4, the payment of $1,000,000 in cash if terminated prior to the first
anniversary of the Effective Date, and $2,500,000 in cash if terminated pursuant
to Section 4.4 after the first anniversary of the Effective Date, which
additional payments shall be made in quarterly installments. Consultant shall
also be entitled to exercise any vested options for a period of one year
following the termination of this agreement hereunder. The provisions of this
Section 5.5.2 shall apply throughout the Term of this Agreement, including any
period of extension in accordance with the provisions of Section 2 above.
5.5.3 In the event that Consultant is not serving as the
Chairman of the Board and Strategic Consultant during the term of this Agreement
or is terminated as a result of a Change of Control (as hereafter defined),
Consultant shall be entitled to any Annual Fee and Bonus Compensation earned but
unpaid through the date of termination of this contract, payable on the date of
termination. Upon termination as a result of a Change of Control, Consultant
shall also be entitled to receive the payment set forth in Section 5.5.2.
Consultant shall be entitled to exercise all granted stock options for a period
of one year following the termination of his employment hereunder.
5.5.4 For all purposes of this Agreement, a "change of
control" shall mean and shall be deemed to have occurred if: (i) there shall be
consummated (X) any consolidation or merger of the Company with another
corporation or entity and as a result of such consolidation or merger less than
50% of the outstanding voting securities of the surviving or resulting
corporation or entity shall be owned, directly or indirectly, in the aggregate
by the stockholders of the Company, other than "affiliates," as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of any party
to such consolidation or merger, as the same shall have existed immediately
prior to such consolidation or merger, or (Y) any sale, lease, exchange or other
transfer (or in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; (ii) the stockholders of the
Company shall have approved any plan or proposal for the liquidation or
dissolution of the Company; (iii) any "person" (as such term is used in the
Section 13(d) and 14(d) (2) of the Exchange Act) shall have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
50% or more of the Company's outstanding common stock, without the prior
approval of the Board; (iv) during any period of two consecutive years,
individuals who at the beginning of such period constituted the entire Board of
Directors shall have ceased for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
stockholders, of each new Director was approved by vote of at least two-thirds
of the Directors then still in office who were Directors at the beginning of the
period; (v) a change of control of a nature that would be required to be
reported in response to item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act shall have occurred; or (vi) any consolidation or merger
of the Company with another corporation or entity and as a result of such
consolidation or merger Consultant is not retained by the Board of Directors as
the Chairman of the Board and Strategic Consultant (a "Change of Control").
6. DETERMINATION OF DISABILITY; PAYMENT OF DISABILITY INSURANCE PREMIUMS
---------------------------------------------------------------------
6.1 In the event Consultant's disability, as defined in Section 4.6, is
in question, and after written request by the Company, Consultant refuses to be
examined by his regularly attending physician or if the regularly attending
physician fails to submit a report within 30 days after the examination has been
requested by the Company, the determination of disability shall be made by the
Company.
6.2 Consultant shall be entitled to the disability benefits available
to all executive employees of the Company. It is the intent of the Company to
establish a disability insurance program as soon as practicable.
7. MISCELLANEOUS BENEFITS
7.1 Medical Insurance. Consultant and his family shall be entitled to
participate in any medical, dental, vision, life, long-term disability, other
insurance or employee benefit program instituted or maintained by the Company
for the benefit of its Consultant employees. It is the intent of the Company to
establish a medical and dental insurance program as soon as practicable. Company
will pay 50% of the premiums. Consultant is required to pay his portion of the
premiums in accordance with health insurance contract.
7.2 401(k) plan. Consultant shall be entitled to participate in the
Company's 401(k) or other similar retirement benefit plan. The Company agrees to
implement a 401(k) or other similar retirement benefit plan as soon as it is
reasonably feasible, based on the size of the Company and its financial
condition.
7.3 Payment of Benefits on Termination of Agreement. If Consultant's
agreement with the Company is terminated, Consultant shall be entitled to
maintain his employee benefits in accordance with his maximum COBRA rights.
7.4 Business Expenses. Consultant shall be reimbursed for all
reasonable expenses incurred by Consultant in connection with Consultant's
attendance of business meetings and promotion of Company business upon
presentation by Consultant to the Company of an expense report and adequate
records or other documentation substantiating the expenditures, not less
frequently than monthly. Any such amounts disallowed, as a business expense for
federal or state income tax purposes, shall be deemed additional salary to
Consultant. The fact that the Company may not reimburse Consultant for an
expense is not an indication that the Company determined that the expense was
not incurred on its behalf or in connection with the Company's business.
7.5 Additional Benefits. Consultant shall be entitled to participate in
all programs, rights and benefits for which Consultant is otherwise entitled to
any bonus plan, incentive plan, participation plan or extra compensation plan,
pension plan, overriding royalty plan in proportion to his Annual Fee base,
profit sharing plan, life, medical, dental, disability or other insurance plan
or policy or other plan or benefit the Company may provide for senior
Consultants or for employees of the Company generally from time to time in
effect during the term of this Agreement. For the avoidance of doubt, the rights
granted or afforded to Consultant under any such plans shall be not less than
the most favorable rights and highest amounts granted to employees of similar or
lower position with the Company and on terms at least as favorable.
8. VACATION
During each calendar year of the Term of this Agreement, Consultant
shall be entitled six (6) weeks of paid vacation. Consultant shall be entitled
to receive payment for accrued vacation not taken during each calendar year
during the Term of this Agreement.
9. RESTRICTIVE COVENANTS
9.1 Confidential Information. Consultant acknowledges that in his
services hereunder he occupies a position of trust and confidence. During the
Term, and thereafter in accordance with the provisions of this Agreement,
Consultant shall not, except as may be required to perform his duties hereunder
as required by applicable law, and except for information which is or becomes
publicly available other than as a result of a breach by Consultant of the
provisions hereof, disclose to others or use, whether directly or indirectly,
any Confidential Information. "Confidential Information" shall mean information
about the Company, its subsidiaries and affiliates, and their respective
suppliers, clients and customers that is not disclosed by the Company for
financial reporting purposes and that was learned by Consultant in the course of
this agreement hereunder, including (without limitation) proprietary knowledge,
trade secrets, market research, data, formulae, information and supplier, client
and customer lists and all papers, resumes, and records (including computer
records) of the documents containing such Confidential Information. Consultant
agrees to deliver or return to the Company, at the Company's request at any time
or upon termination or expiration of this agreement, or as soon thereafter as
possible, all documents, computer tapes and disks, records, lists, data,
drawings, prints, notes and written information (and all copies thereof)
furnished by the Company or any of its subsidiaries affiliates or prepared by
Consultant during the Term of this agreement by the Company. The obligations
hereof shall not apply to any information that is or becomes public or in the
public domain by action of the Company or through no fault of Consultant.
9.2 Business Diversion. During the Term and for 12 months thereafter,
Consultant shall not, directly or indirectly, influence or attempt to influence
customers or suppliers of the Company or any of its subsidiaries or affiliates
to divert their business to any competitor of the Company, to the exclusion of
the Company. However, Consultant may contract with the same customers and
suppliers after the Term hereof so long as it is not to the exclusion of the
Company's relationships with such customers and suppliers.
9.3 Non-Solicitation. Consultant recognizes that he will possess
confidential information about other employees of the Company and its
subsidiaries and affiliates relating to, among other things, their education,
experience, skills, abilities, compensation and benefits, and interpersonal
relationships with suppliers and customers of the Company. Consultant recognizes
that the information he will possess about these other employees is not
generally known, is of substantial value to the Company, and will be acquired by
him because of his business position with the Company. Consultant agrees that,
during the Term and for 12 months thereafter, he will not, directly or
indirectly, solicit or recruit any employee of the Company, its subsidiaries or
affiliates for the purpose of being employed by him or by any other person on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of the Company, including its subsidiaries or affiliates, to any other
person. However, if Consultant's employment is terminated in accordance with the
provisions of Section 4.4, nothing herein shall prevent Consultant from
soliciting or recruiting, directly or indirectly, any employee of the Company
recruited to the Company by Consultant.
9.4 If Consultant breaches, or threatens to commit a breach of, any of
the provisions of Section 9 (the "Restrictive Covenants"), the Company and its
subsidiaries shall have the right to seek the following:
9.4.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company or its
subsidiaries and that money damages may not provide an adequate remedy to the
Company or its subsidiaries.
9.4.2 Accounting. The right and remedy to require Consultant
to account for and pay over to the Company or its subsidiaries, as the case may
be, all compensation, profits, monies, accruals, increments or other benefits
derived or received by Consultant as a result of any transaction constituting a
breach of the Restrictive Covenants.
9.4.3 Severability of Restrictive Covenants. Consultant
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in geographic and temporal scope and in all other respects. If any court
determines at any of the Restrictive Covenants, or any part thereof, is invalid
or unenforceable, the remainder of the Restrictive Covenants shall not thereby
be affected and shall be given full effect without regard to the invalid
provisions.
9.4.4 Blue Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope or such provision, such court shall have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall not be enforceable.
9.4.5 Enforceability of Jurisdictions. The obligations in this
Section 9 shall survive the termination of Consultant's Agreement or expiration
of this Agreement and shall be fully enforceable thereafter. Consultant intends
to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the
courts of any jurisdiction within the geographic scope of such Restrictive
Covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of Consultant that such determination not bar or
in any way affect the right of the Company or its subsidiaries to the relief
provided above in the courts of any other jurisdiction within the geographic
scope of such Restrictive Covenants, as to breaches of such Restrictive
Covenants in such other respective jurisdictions, such Restrictive Covenants as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent Restrictive Covenants.
10. PARTICIPATION IN STOCK AND OPTION CONSULTANT COMPENSATION PLAN
--------------------------------------------------------------
10.1 Initial Option Grant. Consultant shall be granted 200,000 options
to purchase 200,000 shares of Common Stock of the Company pursuant to the terms
and conditions contained in the Company's Stock and Option and Incentive Award
Plan, (the "Plan") at an exercise price equal $2.50 per share for 200,000
shares. The vesting of these options shall be as follows: (1) 50,000 of the
options vest upon execution of this Agreement and (2) the remaining 200,000
options vest quarterly in eight (8) equal amounts.
10.1.1 Company represents that as of the Effective Date there
are 26,405,000 shares issued and outstanding and that there are 3,300,000
options and warrants issued so that Consultant's fully diluted equity ownership
in the Company is 0.6733% (200,000/29,705,000 x 100%). If at any time it is
determined that as of the Effective Date that the total of shares, options and
warrants was greater than 29,705,000 then the Company shall immediately issue
Consultant additional options on the same terms as those issued in 10.1 above so
that Consultant's fully diluted equity ownership is restored to 0.6733%.
10.1.2 No shares, options, or warrants issued subsequent to
the Effective Date (except for any options issued pursuant to 10.1.1 above)
shall be used to recalculate Consultant's fully diluted equity ownership.
10.1.3 If any conditions contained herein contradict the Plan
then the terms of this Agreement shall supersede those of the Plan.
10.2 Consultant shall be considered for additional grants of options,
stock appreciation rights, phantom stock rights, and any similar option or
securities or equity compensation when and as such grants are considered for
other Consultants or employees of the Company.
10.3 In the event of termination of Consultant's agreement pursuant to
a Change of Control, Consultant shall be entitled to exercise all vested
options, and any additional options that have been granted. In the event of
termination of Consultant's agreement pursuant to Section 4.4, any additional
options that have been granted but have not yet vested in accordance with their
terms shall immediately vest.
10.4 Anti-Dilution Upon the completion of any subsequent transaction
involving the issuance of Common Stock, or issuance of any security which is
convertible, by its terms into Common Stock of the Company (a "Financing"),
Company shall grant Consultant additional options and/or warrants to purchase
shares of the Company's Common Stock at the same price as Financing. The number
of options and/or warrants granted to Consultant shall be sufficient to maintain
Consultant's ownership interest in the Company (the ratio of a) the sum of the
number of Consultant's unexercised options/warrants (both vested and unvested)
plus the number of shares owned by Consultant as result of exercising
options/warrants to b) the total number of shares of Company's Common Stock plus
the number of shares represented by all unexercised options/warrants) at the
level that existed immediately prior to such Financing. At the completion of the
Canaccord financing of $25,000,000 or financings that total $25,000,000 which
are subsequent to the initial $7.2 MM financing, the total number of options and
warrants granted to Consultant shall equal 5% of the total outstanding common
stock as defined in this paragraph.
11. DISPUTE RESOLUTION
The parties agree that any dispute that may arise in connection with,
arising out of or relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Consultant's agreement with the Company, the
termination of that agreement, or any other dispute by and among the parties or
their successors, assigns or affiliates, shall be submitted to binding
arbitration in Arapahoe County, Colorado according to the Contract Dispute
Resolution Rules and Procedures of the American Arbitration Association. This
arbitration obligation extends to any and all claims that may arise by and
between the parties or their successors, assigns or affiliates, and expressly
extends to, without limitation, claims or cause of action for wrongful
termination, impairment of ability to compete in the open labor market, breach
or an express or implied contract, breach of the covenant of good faith and fair
dealing, breach of fiduciary duty, fraud, misrepresentation, defamation,
slander, infliction of emotional distress, disability, loss of future earnings,
and claims under the applicable state constitution, the United States
Constitution, and applicable state fair employment laws, federal equal
employment opportunity laws, and federal and state labor statutes and
regulations, including, but not limited to, the Civil Rights Act of 1964, as
amended, the Labor-Management Relations Act, as amended, the Worker Retraining
and Notification Act of 1988, the Americans With Disabilities Act of 1990, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security
Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as
amended, and the California Fair Employment and Housing Act, as amended.
12. ASSIGNMENT
This Agreement is a personal contract, and the rights, interests and
obligations of Consultant hereunder may not be sold, transferred, assigned,
pledged or hypothecated except as otherwise expressly permitted by the
provisions of this Agreement. Consultant may, with the prior written consent of
the Company (which shall not unreasonably be withheld), assign this Agreement to
an entity (corporation, partnership or limited liability company) that is
controlled by Consultant. Consultant shall not under any circumstances have any
option or right to require payment hereunder otherwise than in accordance with
the terms hereof. Except as otherwise expressly provided herein, Consultant
shall not have any power of anticipation, alienation or assignment of payments
contemplated hereunder, and all rights and benefits of Consultant shall be for
the sole personal benefit of Consultant, and no other person shall acquire any
right, title or interest hereunder by reason of any sale, assignment, transfer,
claim or judgment or bankruptcy proceedings against Consultant; provided,
however, that in the event of Consultant's death, Consultant's estate, legal
representatives or beneficiaries (as the case may be) shall have the right to
receive all of the benefits that accrued to Consultant pursuant to, and in
accordance with, the terms of this Agreement.
13. SUCCESSOR
This Agreement may be assigned by the Company to any successor interest
to its business. This Agreement shall bind and inure to the benefit of the
Company's successors and assigns as well.
14. NOTICES
All notices, requests and demands hereunder shall be in writing and
delivered by hand, by mail, or by telegram, and shall be deemed given if by hand
delivery, upon such delivery, and if by mail, 48 hours after deposit in the
United States mail, first class, registered or certified mail, postage prepaid
and properly addressed to the party at the address set forth at the beginning of
this Agreement. Any party may change its address for purposes of this paragraph
by giving the other party written notice of the new address in the manner set
forth above.
15. INVALID PROVISIONS
Invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
16. AMENDMENT, MODIFICATION OR REVOCATION
This Agreement may be amended, modified or revoked in whole or in part,
but only by a written instrument which specifically refers to this Agreement and
expressly states that it constitutes an amendment, modification or revocation
hereof, as the case may be, and only if such written instrument has been signed
by each of the parties to this Agreement.
17. HEADINGS
The headings in this Agreement are inserted for convenience only and
are not to be considered in construction of the provisions hereof.
18. ENTIRE AGREEMENT
This Agreement contains the entire understanding among the parties and
supersedes any prior written or verbal agreements between them respecting the
subject matter hereof, including, without limitation, any prior verbal or
written employment agreement between Consultant and the Company. Upon the
effectiveness hereof, any such prior verbal or written agreements shall
terminate.
No representations or warranties of any kind or nature relating to the
Company or its affiliates or their respective businesses, assets, liabilities,
operations, future plans or prospects have been made by or on behalf of the
Company to Consultant; nor have any representations or warranties of any kind or
nature been made by Consultant to the Company, except as expressly set forth in
this Agreement.
19. ATTORNEYS' FEES
If any legal action is necessary to enforce the terms and conditions of
this Agreement, the prevailing party in such action shall be entitled to recover
all costs of suit and reasonable attorneys' fees as determined by the
arbitrator.
20. FURTHER ASSURANCES
The parties shall execute such documents and take such other action as
is necessary or appropriate to effectuate the provisions of this Agreement.
21. CONTROLLING LAW
This Agreement shall be governed by the laws of the State of Colorado.
22. WAIVER
A waiver by either party of any of the terms and conditions hereof
shall not be construed as a general waiver by such party, and such party shall
be free to reinstate such part or clause, with or without notice to the other
party.
23. INDEMNIFICATION
To the fullest extent permitted by law and the Company's Certificate of
Incorporation and Bylaws, the Company shall indemnify, defend, and hold harmless
the Consultant for all amounts (including, without limitation, judgments, fines,
settlement payments, losses, damages, costs and expenses, including reasonable
attorneys fees, incurred or paid by Consultant in connection with any action,
proceeding, suit or investigation arising out of or relating to the performance
by Consultant of services for, or acting as, an officer or employee of the
Company or any subsidiary thereof. The Company agrees to use its best efforts to
maintain directors' and officers' liability insurance, but the failure of the
Company to maintain such insurance or any portion thereof shall not negate nor
diminish Company's obligations as set forth in this paragraph.
24. PERIODIC REVIEWS
During January of each year during the term hereof, the Board of
Directors of the Company shall review Consultant's Annual Fee, bonus, stock
options, and additional benefits then being provided to Consultant. Following
each such review, the Company may in its discretion increase the Annual Fee,
bonus, stock options, and benefits; however, the Company shall not decrease such
items during the period Consultant serves as an employee of the Company. Prior
to November 30th of each year during the term hereof, the Board of Directors of
the Company shall communicate in writing the results of such review to
Consultant.
IN WITNESS WHEREOF, the parties have entered into this Agreement on
July 11, 2001.
THE COMPANY: CONSULTANT:
GASCO ENERGY, INC.
By:/s/ Mark Erickson Marc Bruner
----------------------------- -----------------------------------
Mark A. Erickson, President Marc A. Bruner
Exhibit A
Exhibit B
Oil and Gas Holdings
Minority, non-controlling stocks in various oil and gas companies
Exhibit C
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>10
<FILENAME>ex1015.txt
<DESCRIPTION>MUDDY CREEK EXPLORATION AGREEMENT
<TEXT>
12
MUDDY CREEK EXPLORATION AGREEMENT
This Muddy Creek Exploration Agreement is made and entered into this
15th day of August, 2001, by and between Shama Zoe Limited Partnership ("Shama
Zoe"), a Colorado limited partnership whose address is 7128 South Poplar Lane,
Englewood, Colorado 80112; Pannonian Energy, Inc. ("Pannonian"), a Delaware
corporation whose address is 14 Inverness Drive East, Suite 236, Englewood,
Colorado 80112; and Burlington Resources Oil & Gas Company LP by BROG GP Inc.,
its sole General/Partner ("Burlington"), whose address is 3300 North "A" Street,
Midland, Texas 79705-5406. Shama Zoe was formerly known as Shama Kafar Limited
Partnership, and certain lease files and other official property records do not
yet reflect the name change from Shama Kafar Limited Partnership. For the
avoidance of doubt, however, reference in this Agreement to Shama Zoe and its
properties shall always include Shama Kafar and its properties. Shama Zoe and
Pannonian are collectively referred to in this Agreement as the "Participants."
Shama Zoe is the owner of a substantial portion of the oil and gas
leasehold interests committed to the Muddy Creek Unit, a federal exploratory
unit covering lands in Sublette County, Wyoming. By an unrecorded Farmout
Agreement dated as of April 1, 2001, Shama Zoe granted Pannonian the right to
earn interests in the leases owned by Shama Zoe in the Muddy Creek Unit by
drilling up to two wells, the first of which has already been drilled and
completed by Pannonian.
The Participants would like Burlington to obtain, process and interpret
new seismic data from lands within the Muddy Creek Unit. Burlington is willing
to perform this work if by so doing it may earn the right to acquire certain
interests in the Leases under the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises, the mutual covenants,
and the agreements hereinafter set forth to be kept and performed, and subject
to all of the terms, provisions, conditions and reservations set forth herein,
the Participants and Burlington agree to the following:
1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
"Agreement" means this Muddy Creek Exploration Agreement between
the Participants and Burlington.
"AMI Acreage" means a Lease or Interest acquired by either
Participants or Burlington after the date of this Agreement.
"Base of the Fort Union Formation" means the stratigraphic
equivalent of 7,173 feet as identified on the Gamma Ray, Spontaneous Potential
(SP) and the Resistivity curves for the Ultra Resources Cottonwood Federal
#32-33 well located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111
West, Sublette County, Wyoming.
"Base of the Lance Formation" means the stratigraphic equivalent
of 10,395 feet as identified on the Gamma Ray, Spontaneous Potential (SP) and
Resistivity curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
"Checkerboard Configuration" means a pattern of alternating
sections being entirely odd numbered sections or entirely even numbered
sections.
"Commercial Producer" means production from a well in quantities
sufficient to qualify under the "Yates Decision" as determined by the Bureau of
Land Management which is to yield a return in excess of the costs of production
and marketing, including taxes, royalty, lifting, compression, treating,
marketing and transportation costs. In determining whether a well is producing
in commercial quantities, one shall not consider whether the party or parties
drilling the well will recover costs associated with drilling, testing,
completing and equipping a well through the tank battery or pipeline
connections, or remedial work or reworking of a well during its productive life.
Likewise any expenses incurred in connection with acquiring this Agreement or
any Leases, or any costs related to district or home office overhead or employee
costs, shall not be considered in determining whether a well is producing in
commercial quantities. The intent of the parties hereto is that only those
expenses directly incurred in connection with actual operations on the
particular well involved will be considered in determining whether a well is
producing in commercial quantities. The standard by which commercial quantities
is measured shall also include a determination of whether or not under all of
the relevant circumstances a reasonably prudent operator would, for the purpose
of making a profit and not merely for speculation, continue to operate the well
in the manner in which the well in question is operated, with the period of time
to be considered in connection with making such a determination to be reasonable
in relation to the context of this Agreement.
"Designation of Agent" means the instrument designating a party,
other than the unit operator, as operator of a specific well.
"Economic Quantities of Hydrocarbons" means a well Participants
believe can produce oil and/or gas in quantities sufficient to repay the cost of
drilling, completing, and producing operations with a reasonable profit.
"Environmental Claim" means any claim, demand or cause of action
asserted by any governmental body or any person relating to sickness, disease or
death, property damage or damage to the environment resulting from the transport
or Release within the Muddy Creek Unitized Area of any chemical or Hazardous
Material or emission into the environment.
"Environment" means surface and subterranean waters, land
surface, subsurface strata, air, wildlife, aquatic species, and vegetation.
"Environmental Laws" means all federal, state and local laws,
statutes, ordinances, now or hereafter in effect, as may be amended, and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the regulation and
protection of human health, safety or the environment, including without
limitation laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials. Environmental Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, the Federal Insecticide, Fungicide, and Rodenticide Act, as amended,
the Resources Conservation and Recovery Act, as amended, the Toxic Substances
Control Act, as amended, the Clean Air Act, as amended, the Federal Water
Pollution Control Act, as amended, the Clean Water Act, as amended, the Oil
Pollution Control Act, as amended, the Oil Pollution Act of 1990, as amended,
and the Endangered Species Act, as amended.
"Fort Union Formation" means the stratigraphic interval from
2,989 feet to 7,173 feet as identified on the Gamma Ray, Spontaneous Potential
(SP) and the Resistivity curves for the Ultra Resources Cottonwood Federal
#32-33 well located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111
West, Sublette County, Wyoming.
"Hazardous Material" means any material, including without
limitation naturally occurring or radioactive materials, the emission, Release,
transportation, use, presence or disposal of which is regulated by or which may
be remediated under any Environmental Law.
"Incremental Costs" means the costs to drill to 50' below the
base of the Fort Union Formation in an under-balanced manner, including but not
limited to air, corrosion chemicals, parasite string equipment, and an
intermediate casing string, if required for hole integrity or to conduct
production testing in the Fort Union Formation minus the costs to drill such
well in a conventional manner.
"Interest" means unleased mineral interest, contractual operating
rights, or other rights or partial interests therein, or any other grant,
agreement or arrangement which authorizes the owner thereof to explore for,
produce, save and market oil and gas, including top leases, farmout agreements
or any other type of agreement under which the right to explore and/or develop a
portion of the lands included in the AMI can be earned.
"Lance Formation" means the stratigraphic interval from 7,173 feet to
10,395 feet as identified on the Gamma Ray, Spontaneous Potential (SP) and
Resistivity curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
"Lease" means an oil and gas lease committed to the Muddy Creek
Unit, but only to the extent that the lands covered thereby are within the Muddy
Creek Unitized Area.
"Lease Burden" means all burdens, including, without limitation,
any royalty, overriding royalty, production payment, net profits interest,
carried interest, reversionary interest or other charge upon a leasehold
interest or the production therefrom.
"Muddy Creek Unit" means the federal exploratory unit created by
the Muddy Creek Unit Agreement.
"Muddy Creek Unit Agreement" means the federal exploratory unit
agreement that unitizes the lands covered by this Agreement.
"Option Well(s)" means a Lance Formation test well drilled
pursuant to this Agreement.
"Objective Depth" means the projected total depth of the well as
defined in the drilling proposal of the party or parties proposing the drilling
of such well.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, disbursal, leaching or migration into
the environment or into or out of any property, including the movement of
Hazardous Material through or in the air, soil or water.
"Second Unit Obligation Well" means the second obligation well
required under the terms of the Muddy Creek Unit Agreement ( the first unit
obligation well has been drilled by Alpine Oil and Gas)
"Seismic Commitment" means the number of line miles of new
seismic data Burlington will acquire under this Agreement.
"Subsequently Created Burden" means a Lease Burden which is
created by a party subsequent to the party's acquisition of the Lease or
Interest which is subject to the burden.
"Top of the Lance Formation" means the stratigraphic equivalent
of 6,790 feet as identified on the Gamma Ray, Spontaneous Potential (SP) and the
Resistively curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
2. SEISMIC
Burlington will conduct, at its sole risk and expense, a seismic program
to acquire new seismic data as set forth in this Article 2 and identified in red
on Exhibit "A" within the Muddy Creek Unitized Area. Burlington will acquire
approximately 35 line miles of new seismic data as part of its Seismic
Commitment within the Muddy Creek Unitized Area. Burlington will pay for all
costs and will own the data. Burlington will attempt to permit, shoot and
acquire such seismic data no later than November 15, 2001. Burlington shall
complete the, processing and interpretation of the acquired seismic data by
February 1, 2002. In the event Burlington is unable to permit, shoot and acquire
the 2-D seismic data in its entirety by November 15, 2001 because of delays in
permitting and winter range stipulations, Burlington will resume acquisition of
the seismic data as soon as possible after April 30, 2002 and complete
acquisition of the remaining data by June 15, 2002. Burlington shall complete
the processing and interpretation of any seismic data acquired after April 30,
2002, if any, by August 30, 2002. Burlington will advise the Participants, in
writing, of contemplated parameters prior to acquisition and processing of the
data. Burlington will manage all phases of the seismic program and will present
prints, Mylar and tapes of the final stack seismic sections and migrated
versions; copies of all field data, including digital field reels, observers
note, surveyors notes, and shot hole drill logs (if dynamite sourced to each of
the Participants within 30 days after Burlington's receipt thereof. Upon
fourteen (14) days written request Participant shall have the right to review
and receive a copy of Burlington's current interpretation of the seismic
results. All data provided under this Agreement shall include a complete image,
whether stacked or migrated. The Participants' use of such data will be governed
by the License Agreement attached hereto as Exhibit "B."
The Participants agree that the information and data furnished hereunder
shall not be disclosed, traded, transferred, sold, loaned or otherwise made
available in any form to any third party, provided that:
(a) data may be made available by a Participants to contractors, consultants,
and engineering firms hired by such Participants for the purpose of evaluation
of the data for the Participant's internal use;
(b) data may be made available by a Participants in the Participant's offices to
a third party evaluating the possible acquisition of all or a portion of the
Participant's interest subject to this Agreement;
(c) data may be shown to, and copies thereof provided to, governmental agencies
having jurisdiction to the extent required by applicable law or regulation,
provided that if a Participants discloses the same, such Participants shall
promptly advise Burlington, in writing, the full details of each demand, order
or request for such data, to whom disclosure is to be made, and the law or
regulation requiring disclosure, and shall take all actions and assist in taking
all actions as permitted by applicable laws and regulations to object to such
disclosures and require the confidential treatment of the data which must be
disclosed:
(d) Participants may not show, trade, sell or otherwise disclose the data to any
person or party not permanently employed by such Participants, without the
express written consent of Burlington, except as provided for in subparagraphs
(a) and (b) above.
Notwithstanding any of the foregoing, in the event such data is shown to
any third party by a Participants, the third party must execute a written
contract agreeing to be bound by the confidentiality provisions of this
Agreement. Each Participant shall maintain all information and data furnished or
made available to it in strictest confidence, and shall not permit any third
party to review such data except in accordance with the terms hereof.
BURLINGTON DOES NOT MAKE ANY GUARANTEE AS TO THE ACCURACY OF THE
SEISMIC DATA AND DISCLAIMS ALL IMPLIED WARRANTIES INCLUDING FITNESS FOR A
PARTICULAR PURPOSE AND MERCHANTABILITY. PARTICIPANTS WILL HAVE SOLE
RESPONSBILITY FOR ANY ACTIONS TAKEN BY IT, OR BY OTHERS RELYING ON ITS ADVICE,
BASED ON THE SEISMIC DATA AND INTERPRETATIONS.
For any mile of seismic Burlington shoots that is less than the Seismic
Commitment, as of June 15, 2002, Burlington will pay Participants the sum of
$10,000 per line mile, however the payment will satisfy Burlington's Seismic
Commitment under this Agreement.
3. SECOND UNIT OBLIGATION WELL
The Muddy Creek Unit Agreement requires a Second Unit Obligation Well
be commenced on or before November 10, 2001. The unit agreement also requires
the well be drilled to at least a depth of 50 feet below the base of the Fort
Union Formation using an under-balanced method which allows for production of
formation fluids while drilling. Prior to commencing operations for the Second
Unit Obligation Well, Burlington will meet with the Bureau of Land Management
office in Casper, Wyoming to present Burlington's under-balanced method to be
used while drilling the Fort Union Formation in the Second Unit Obligation Well.
Burlington will commence operations for the Second Unit Obligation Well
on or before October 15, 2001. Participants agree to pay Burlington the
Incremental Costs to drill the Fort Union Formation using the under-balanced
method set forth above. After Burlington has drilled the Second Unit Obligation
Well or substitute well, if any, to a depth of 50 feet below the Base of the
Fort Union Formation Burlington will prepare an invoice for the Incremental
Costs. Participants will deliver payment to Burlington for the Incremental Costs
within 30 days after receipt of Burlington's invoice for such costs. Except to
the extent that Participants are specifically responsible for costs under the
express terms of this Article 3, the Second Unit Obligation Well shall be
drilled and completed at Burlington's sole risk and expense.
When Burlington has drilled the Second Unit Obligation Well to a depth
of 50 feet below the base of the Fort Union Formation, Burlington will suspend
its drilling operation and immediately notify Participants. Participants will
have 24 hours from receipt of such notice to elect to test or attempt a
completion in the Fort Union Formation. Such election shall be made to
Burlington in writing prior to the expiration of the 24 hour election period
with specific instructions for the operation(s) Participants desire to conduct.
Burlington will conduct the requested operation(s) on behalf of Participants.
However, Participants will bear the entire cost, risk and expense of any such
operation(s) conducted by Burlington in the Second Unit Obligation Well on
behalf of Participants in the Fort Union Formation after Burlington has drilled
to a depth of 50 feet below the base of the Fort Union Formation. Participants
agree to pay such costs within 30 days after receipt of Burlington's invoice for
such operation(s).
If Participants elect not to test or attempt a completion in the Fort
Union Formation or if Participants fail to notify Burlington of Participant's
election prior to the expiration of the 24 hour election period, Burlington may,
at its option, resume drilling and continue such operation until the Base of the
Lance Formation has been penetrated in the Second Unit Obligation Well.
If Participants elect to complete the Second Unit Obligation Well in
the Fort Union Formation and if such completion results in production of
Economic Quantities of Hydrocarbons, Participants shall notify Burlington of
such event and of Participants' intention to produce oil and or gas from the
Fort Union Formation. Burlington will, within a reasonable time after receipt of
such notice, deliver to Participants an itemized statement of Burlington's costs
to drill the Second Unit Obligation Well to a depth of 50 feet below the Base of
the Fort Union Formation. Participants will, within 30 days after receipt of
such notice, reimburse Burlington for such costs plus any other costs paid by
Burlington and not yet reimbursed by Participants, including but not limited to
the drilling, testing, evaluating and completion of the Second Unit Obligation
Well in the Fort Union Formation. Burlington will operate the Second Unit
Obligation Well on behalf of Participants pursuant to the terms of the Operating
Agreement for the Muddy Creek Unit, unless after completion, Participants
provide Burlington written notice that the Participants desire to operate such
well. In such event, Burlington will provide Participants with an executed
Designation of Agent allowing Participants to operate said well under the terms
of the Muddy Creek Unit Agreement.
If Participants elect to complete the Second Unit Obligation Well in
the Fort Union Formation and fail to obtain production of Economic Quantities of
Hydrocarbons, then Participants shall notify Burlington of such event and of
Participants' desire to discontinue such completion operations. Burlington will
have 24 hours after receipt of this notice in which to elect either (i) to
resume drilling and continue drilling at Burlington's sole expense until the
Base of the Lance Formation has been penetrated in the Second Unit Obligation
Well or (ii) to plug and abandon the well at Participants' sole expense.
It is understood, and Participants agree Burlington may, at its option,
drill the Second Unit Obligation Well deeper than the Lance Formation.
4. OPTION WELLS
By conducting the seismic program set forth in Article 2 and drilling
the Second Unit Obligation Well set forth in Article 3 of this Agreement,
Burlington will earn the right and option to drill Option Wells at its sole risk
and expense to test the Lance Formation on lands covered by the Leases.
Burlington shall have the right and option to drill Option Wells at any time
consistent with the plan of development and operation as then in effect for the
Muddy Creek Unit. Burlington is under no obligation to drill any Option Well,
but it must provide written notice to Participants stating whether it elects to
drill an Option Well no later than 60 days before a well commencement date
required by the Muddy Creek Unit Agreement or the Plan of Development then in
effect for the Muddy Creek Unit. If Burlington makes a timely written notice to
drill the well, then Burlington shall thereafter be contractually bound to drill
the well. If Burlington sends a written notice that it does not elect to drill
the well, or if no written notice is timely received by Participants, then
Burlington shall conclusively be deemed to have surrendered and given up all of
its rights to drill additional Option Wells under this Agreement. However, if
Burlington has a pending or approved Application for Permit to Drill and
Burlington sends a written notice that it does not elect to drill the well, or
if no written notice is timely received by Participants, then, upon written
request by Participants, Burlington will assign such permit along with a
Designation of Agent, to Participants.
Burlington's right and option to commence additional Option Wells shall
conclusively terminate on December 31, 2008, or when the maximum number of
sections provided by the last paragraph of this Article 4 have been drilled,
whichever shall first occur. Burlington and Participants understand and agree
that Participants do not own all of the acreage within the Muddy Creek Unit.
From time to time Burlington may elect to drill a well on lands not owned by
Participants. To the extent that any such well satisfies a commencement date
required by the Muddy Creek Unit Agreement or Plan of Development then in effect
for the Muddy Creek Unit, Burlington shall maintain its right and option to
drill Option Wells under this agreement. Burlington will pay 100% of all
drilling, completing and equipping (or plugging and reclamation) costs incurred
in connection with each Option Well drilled by Burlington hereunder.
All Option Wells must be drilled in a Checkerboard Configuration, so
that if the first Option Well is drilled in an even-numbered governmental
section, every Option Well must be drilled in an even-numbered governmental
section, or if the first Option Well is drilled in an odd-numbered section, then
every Option Well must be drilled in an odd-numbered section. By drilling such
Option Wells Burlington shall earn an assignment of a Lease or Interest from
Participants as hereinafter provided. Burlington may earn a Lease or Interest
from Participants under this Agreement up to an aggregate total of 20 sections.
However, Burlington may never earn Leases or Interests under this Agreement
covering more than one-half of the total sections owned by Participants in the
Muddy Creek Unit as of the date of this Agreement.
It is understood, and Participants agree Burlington may, at its option,
drill any Option Well deeper than the Lance Formation.
5. INTERESTS EARNED BY BURLINGTON
When Burlington drills to its Objective Depth and completes either the
Second Unit Obligation Well or an Option Well in a section where it has not
previously earned a Lease or Interest, whether as a producer or as a dry hole,
the Participants will assign to Burlington 100% of their working interest and
operating rights below the Base of the Fort Union Formation in all Leases
covering the section in which such well was drilled, but only to the extent that
such Leases cover lands in that section. The Participants will always reserve
and retain depths from the surface to the Base of the Fort Union Formation.
Burlington will earn from the Base of the Fort Union to 100 feet below depth
drilled.
Assignments of working interest and operating rights in federal and
state leases will be made on the appropriate governmental forms. Assignments of
fee leases will be made on the form attached hereto on Exhibit "C" attached
hereto and made a part hereof. All assignments made to Burlington shall deliver
to Burlington an 80% net revenue interest, subject to proportionate reduction.
If the net revenue interest in a Lease or Interest at the date of an assignment
is greater than 80%, then the assigning Participants may reserve to themselves
an overriding royalty equal to the difference between 20% and existing burdens,
so that the delivered net revenue shall be exactly 80%.
6. UNIT FORMATION AND RENTAL REIMBURSEMENT
6.1 Unit Formation Reimbursements. Burlington shall reimburse Shama Zoe
50% of the total amount invoiced by UnitSource Incorporated for its services and
expenses in connection with the formation and approval of the Muddy Creek Unit.
Shama Zoe shall provide photocopies of all of the applicable invoices to
Burlington, and Burlington shall remit its 50% reimbursement within 30 days
after its receipt of these invoices.
6.2 Lease Rental Reimbursements. During the period that Burlington has
the right to drill Option Wells under this Agreement, Burlington agrees to pay
50% of the delay rentals paid in connection with the Leases. Shama Zoe will
invoice Burlington as rentals for such Leases become due and Burlington will pay
such invoice within 30 days after its receipt of each such invoice.
7. AREA OF MUTUAL INTEREST
7.1 Mutual Interest. Participants and Burlington hereby constitute and
designate an Area of Mutual Interest consisting of all the lands covered by the
Muddy Creek Unit Agreement. Such AMI shall be for a term of five (5) years.
Burlington is hereby designated as Operator of the AMI. Burlington agrees to
bear 50% and Participants agree to bear 50% of all costs in connection with any
lease acquisition program conducted by or on behalf of Burlington and/or
Participants within the AMI, including, but not limited to, lease brokerage and
acquisition costs and all related expenses, such as attorneys' fees for title
examination and title curative matters relating to said lease acquisition.
In the event Burlington should acquire any AMI Acreage covering land
within the AMI, Burlington shall promptly notify Participants in writing of the
acquisition of such AMI Acreage. The notice shall set forth (a) the description
of the Lease or Interest acquired, and (b) the pertinent terms of such
acquisition, including copies of leases, assignments, title data and any other
agreement relating to the acquisition of the interests and the rights and
obligations associated therewith. Participants shall have the option to acquire
50% of the AMI Acreage acquired by Burlington in any such Lease or Interest,
proportionately reduced to the Lease or Interest acquired, by paying their 50%
share of the bonus costs associated with the acquisition of the AMI Acreage
acquired. Participants shall have a period of thirty (30) days from receipt of
such notice to exercise such option by giving Burlington notice in writing.
Failure by Participants to respond within the above-specified 30-day period
shall be deemed an election by Participants not to acquire their proportionate
part of the AMI Acreage described in the said notice. Should Participants elect
to acquire its interest, such AMI Acreage shall be assigned free of any
Subsequently Created Burdens or any reservations or exceptions in excess of the
Lease Burdens provided for in the Lease or burdening such Interest on the date
such were acquired by Burlington. Assignments of working interest and operating
rights in federal and state leases will be made on the appropriate government
forms while assignments of fee leases will be made on the form attached hereto
as Exhibit "C". It is agreed that if Participants elect to acquire an interest
in any AMI Acreage so acquired by Burlington under this paragraph, said AMI
Acreage will be owned 50% by Burlington and 50% by Participants. Participants
shall pay, within thirty (30) days from receipt of an invoice, 50% of the bonus
monies paid for the acquisition of the AMI Acreage.
In the event Participants should acquire any AMI Acreage covering land
with in the AMI, Participants shall promptly notify Burlington in writing of the
acquisition of such AMI Acreage. The notice shall set forth (a) the description
of the Lease or Interest acquired, and (b) the pertinent terms of such
acquisition, including copies of leases, assignments, title data and any other
agreement relating to the acquisition of the interests and the rights and
obligations associated therewith. Burlington shall have the option to acquire
50% of the AMI Acreage acquired by Participants in any such Lease or Interest,
proportionately reduced to the Lease or Interest acquired, by paying their 50%
share of the bonus costs associated with the acquisition of the AMI Acreage
acquired. Burlington shall have a period of thirty (30) days from receipt of
such notice to exercise such option by giving Participants notice in writing.
Failure by Burlington to respond within the above-specified 30-day period shall
be deemed an election by Burlington not to acquire their proportionate part of
the AMI Acreage described in the said notice. Should Burlington elect to acquire
its interest, such AMI Acreage shall be assigned free of any Subsequently
Created Burdens or any reservations or exceptions in excess of the Lease Burdens
provided for in the Lease or burdening such Interest on the date such were
acquired by Participants. Assignments of working interest and operating rights
in federal and state leases will be made on the appropriate government forms
while assignments of fee leases will be made on the form attached hereto as
Exhibit "C". It is agreed that if Burlington elects to acquire an interest in
any AMI Acreage so acquired by Participants under this paragraph, said AMI
Acreage will be owned 50% by Burlington and 50% by Participants. Burlington
shall pay, within thirty (30) days from receipt of an invoice, 50% of the bonus
monies paid for the acquisition of the AMI Acreage.
If Burlington and Participants both elect to participate in the
acquisition of AMI Acreage the Operating Agreement, attached hereto as Exhibit
"F", shall become effective to govern all operations conducted by the parties on
such AMI Acreage.
If any AMI Acreage is acquired through a farmout agreement, exploration
agreement or any other agreement that requires a well to be drilled in order to
earn a Lease or Interest in the particular AMI Acreage, then any party who
elects not to participate in the first well drilled under such agreement will
forfeit any and all rights to earn any AMI Acreage acquired under such farmout
or exploration agreement.
8. MISCELLANEOUS PROVISIONS
8.1 Assignability. Due to the unique nature of the relationship between
the Participants and Burlington, the rights of Burlington hereunder shall not be
assigned, subleased, farmed out, or otherwise transferred or conveyed without
the Participants' prior written consent, and any attempt to assign rights
hereunder without the Participants' prior written consent shall cause this
Agreement to terminate as to the interests and land attempted to be assigned.
Should consent for any one assignment be granted, it shall not be considered
consent to any further or additional assignments. A party shall not be relieved
from any liability or responsibility under this Agreement in the event of an
assignment, in whole or in part, and the obligations of this Agreement shall not
only be those of party assigning an interest hereunder, but shall be the joint
and several obligations of each and every assignee of any interest herein or any
land covered hereby. To be effective, a copy of an approved assignment,
sublease, farmout or other transfer of rights under this Agreement shall be
furnished to the Participants within 30 days from the date thereof. With the
exception of assignments affecting oil and gas leases granted pursuant hereto,
other assignments, subleases, farmouts or transfers of rights under this
Agreement shall not be recorded, unless authorized in writing by the
Participants. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors, assigns and legal
representatives. The assignee/lessee under any lease or assignment delivered
hereunder shall be solely responsible for recording of any leases, assignments
or other documents conveyed under this Agreement. This section does not apply to
Leases or Interests earned by Burlington under this Agreement.
8.2 Compliance with Environmental Laws. The operator of any well subject
to this Agreement agrees to cause all of its employees, agents, contractors and
any other persons occupying or present on the premises to comply with all
applicable Environmental Laws. The operator of any well subject to this
Agreement agrees to use every reasonable means to ensure that no Release of
Hazardous Material of any kind whatsoever shall occur as a result of the
operations contemplated hereby. The operator of any well subject to this
Agreement, agrees not to allow, or cause the release of any Hazardous Material
on, into or from the Unit Area that could result in (1) the violation of any
Environmental Law or in the creation of any Environmental Claim, including
without limitation, notification, or remediation, under any Environmental Law or
(2) a diminution in value of the property. The operator of any well subject to
this Agreement, further agrees not to handle, use or otherwise manage and to
cause its employees, agents, contractors, and any other person occupying or
present on the premises not to manage any Hazardous Material in violation of any
Environmental Law and to conduct operations hereunder so as to prevent the
Release or threat of Release of any Hazardous Material on, to, or from the
Unitized Area which could result in an Environmental Claim.
8.3 Exhibits. This Agreement, including the Exhibits attached hereto,
constitutes the entire understanding and agreement with respect to the subject
matter hereof, superseding all negotiations, prior discussions, and prior
agreements and understandings relating to the subject matter. This Agreement may
not be modified or amended except by written instrument duly executed by the
Participants and Burlington and which explicitly states that it is a subsequent
amendment of this Agreement. If any provision of this Agreement is held invalid
or unenforceable, such invalidity or unenforceability shall not affect the
remaining provisions.
8.4 Further Assurances. After execution of this Agreement, each of the
parties agrees to execute, acknowledge and deliver to the other party such
further instruments and take such other action as may be reasonably requested in
order to more effectively assure that all of the respective properties, rights,
titles, interests, estates and privileges intended to be covered or assigned,
delivered or inuring to the benefit of such party hereunder are delivered.
8.5 Governing Law. This Agreement shall be governed and construed and
enforced in ------------- accordance with the laws of Wyoming.
8.6 Insurance. In all operations conducted by the operator of
any well
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hereunder, including without limitation conducting geophysical exploration and
drilling wells, the operator agrees to carry insurance as specified by the
Insurance Requirements reflected in Exhibit "D" attached hereto.
8.7 Notices. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and any communication or delivery hereunder shall be deemed to have been duly
given and received when actually delivered to the address set forth below the
party to be notified addressed as follows:
If to SHAMA ZOE:
Shama Zoe Limited Partnership
7128 South Poplar Lane
Englewood, CO 80112
Telephone: 303-771-1101
Fax: 303-771-1134
If to PANNONIAN:
Pannonian Energy, Inc.
Attention: Howard Sharpe or Mike Decker
14 Inverness Drive East, Suite H-236
Englewood, CO 80112
Telephone: (303) 713-0054
Fax: (303) 483-0011
If to BURLINGTON:
BURLINGTON RESOURCES
OIL & GAS COMPANY, LP
Attention: James B. (Trey) Shepherd, III
P. O. Box 51810
Midland, TX 79710
Telephone: (915) 688-6929
Fax: (915) 688-6010
Any party may by written notice so delivered to the other, change the
address to which the delivery shall thereafter be made.
8.8 Plugging Wells. The operator of any well shall properly plug all wells
drilled by it on the Unitized Area and either not capable of or no longer
capable of producing oil or gas in as a Commercial Producer. The operator shall
restore the surface of the land around any plugged well as might be required
under any applicable lease or recorded agreement. The operator of any well shall
comply with all statutory requirements and governmental rules and regulations in
effect at the time of the plugging of any well and agrees to fully defend,
protect, indemnify and hold the other party harmless from and against each and
every claim, demand or cause of action and expense or liability arising from the
operator's failure to plug or properly plug any well or restore the surface.
8.9 Standard of Performance. The operator of any well shall perform all
work under this Agreement with reasonable diligence, prudence and in a
workmanlike manner, as would a reasonable prudent operator under the same or
similar circumstances.
8.10 Substitute Wells. If any well drilled under the terms of this
Agreement fails to reach its objective depth, either because of mechanical
difficulties or because the well encounters excessive water flow, loss of
circulation, excessive pressures, cavities, salt or salt dome material, heaving
shale or other practicably impenetrable conditions which would, in the opinion
of a prudent operator, render further drilling impracticable, then the operator
of such well may at its election commence actual drilling of a substitute well
at approximately the same location with the same objective depth within 30 days
after abandonment of the well being replaced and thereupon the substitute well
should be considered and treated for all purposes as though it were the well for
which it is a substitute.
8.11 Time is of the Essence. Time is of the essence in the performance
of all provisions of this
----------------------
Agreement.
8.12 Warranty. This Agreement is made without express or implied
warranty of any kind. The Participants make no representations or warranties
regarding the quantity, boundaries or availability of the lands in the Muddy
Creek Unit, the Participants' ownership of the said lands, or the Participants'
rights of ingress or egress to said land from or across adjacent or adjoining
lands; and Burlington hereby denies any such representation and warranties,
releases the Participants from any claim for such, and accepts the Participants'
acreage subject to this Agreement with all defects and encumbrances.
8.13 Well Access and Information. The operator of any well shall allow
the other party and their representatives full access to all wells drilled on
the Unitized Area, including access to the records thereof and to the derrick
floor at their sole risk and expense, and the other party shall be provided,
within 10 business days, with samples or copies of all cores, cuttings, logs,
drilling data, testing and completing data, and all information obtained by the
operator pertaining to any well drilled hereunder, and all other well
information reports and data of the nature and within the terms specified on the
Well Data Requirements Schedule attached hereto as Exhibits "E". However, it is
hereby agreed by all parties hereto that if Shama Zoe enters into a
confidentiality agreement with Gilman Hill and his associates for testing all or
any portion of his proprietary technology on either (a) the proprietary "FAST"
drilling system or (b) the proprietary "TALL FRAC" well stimulation/completion
system or any proprietary derivatives therefrom on any well operated by Shama
Zoe and subject to this agreement, then Shama Zoe will not be required to permit
access to such test well or to disclose to any parties hereto any confidential
proprietary information derived from such test well or to the proprietary
technology applied thereto.
8.14 Indemnification. BURLINGTON AGREES TO RELEASE, INDEMNIFY, PROTECT,
DEFEND AND HOLD HARMLESS PARTICPANTS AND THEIR PARENTS, OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS AND REPRESENTATIVES, CONTRACTORS AND SUBCONTRACTORS AT ANY
TIER FROM AND AGAINST ANY AND ALL CLAIMS OR CAUSES OF ACTION, INCLUDING COSTS
AND ATTORNEYS' FEES BROUGHT OR ASSERTED BY BURLINGTON OR ITS EMPLOYEES OR
REPRESENTATIVES ON ACCOUNT OF PERSONAL INJURIES, DEATH OR DAMAGE TO PROPERTY
SUSTAINED BY ANY SUCH PERSONS OR ENTITY IN ANY WAY OCCURRING, INCIDENT TO,
ARISING OUT OF OR IN CONNECTION WITH SUCH PERSON'S OR ENTITIES' PRESENCE ON A
PARTICIPANTS' LOCATION OR DERRICK FLOOR, WHETHER OR NOT CAUSED BY THE JOINT
AND/OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF THE INDEMNITEES
UNLESS SUCH INJURY, DEATH, OR DAMAGE IS THE RESULT OF PARTICIPANTS', ITS
CONTRACTOR'S OR SUBCONTRACTOR'S SOLE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
PARTICIPANTS AGREE TO RELEASE, INDEMNIFY, PROTECT, DEFEND AND HOLD HARMLESS
BURLINGTON AND ITS PARENTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
REPRESENTATIVES, CONTRACTORS AND SUBCONTRACTORS AT ANY TIER FROM AND AGAINST ANY
AND ALL CLAIMS OR CAUSES OF ACTION, INCLUDING COSTS AND ATTORNEYS' FEES BROUGHT
OR ASSERTED BY PARTICIPANTS OR ITS EMPLOYEES OR REPRESENTATIVES ON ACCOUNT OF
PERSONAL INJURIES, DEATH OR DAMAGE TO PROPERTY SUSTAINED BY ANY SUCH PERSONS OR
ENTITY IN ANY WAY OCCURRING, INCIDENT TO, ARISING OUT OF OR IN CONNECTION WITH
SUCH PERSON'S OR ENTITIES' PRESENCE ON A BURLINGTON LOCATION OR DERRICK FLOOR,
WHETHER OR NOT CAUSED BY THE JOINT AND/OR CONCURRENT NEGLIGENCE, FAULT OR STRICT
LIABILITY OF THE INDEMNITEES UNLESS SUCH INJURY, DEATH, OR DAMAGE IS THE RESULT
OF BURLINGTON, ITS CONTRACTOR'S OR SUBCONTRACTOR'S SOLE NEGLIGENCE, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
8.15 Applicability to Successors, Assigns and Affiliates. This
Agreement shall be binding upon the parties hereto and their respective
successors and assigns, and likewise shall be binding upon any affiliated
corporations, partnerships, or other business entities of whatever form.
8.16 Force Majeure. In the event either party to this Agreement is
rendered unable, wholly or in part, by force majeure to carry out its
obligations under this Agreement, it is agreed that, upon such party giving
written notice and reasonably full particulars of such conditions constituting
force majeure to the other party hereto within a reasonable time after the
occurrence, then the obligation of the party giving such notice, so far as
affected by force majeure, shall be suspended during continuance of any
inability so caused, but no longer. The cause of the force majeure, so far as
possible, shall be remedied with all reasonable dispatch. The requirement that
any force majeure shall be remedied with all reasonable dispatch shall not
require the settlement of strikes, lockouts or other labor difficulty by the
party involved, contrary to its wishes; how all difficulties shall be handled
shall be entirely within the discretion of the party concerned. The term "force
majeure", as employed herein, shall mean acts of God, strikes, lockouts or other
industrial disturbance, act of the public enemy, wars, riots, epidemics,
lightning, earthquakes, fires, floods or direct injunction, prohibition or
interruption by acts, order, regulations or requirements of governmental
authority.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SHAMA ZOE LIMITED PARTNERSHIP
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
PANNONIAN ENERGY, INC.
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
BURLINGTON RESOURCES OIL & GAS COMPANY LP
By BROG GP INC., IT'S SOLE GENERAL PARTNER
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
EXHIBIT "B"
ATTACHED TO THAT CERTAIN EXPLORATION AGREEMENT DATED AUGUST 15, 2001 BY AND
BETWEEN PARTICIPANTS., AND BURLINGTON RESOURCES OIL AND GAS INC.
SUBLETTE COUNTY, WYOMING
DATA LICENSE TERMS AND CONDITIONS
1. BURLINGTON RESOURCES OIL & GAS COMPANY ("Licensor") represents and
warrants that it owns and has the right and authority to deliver the
Data (a description of each seismic line to be included here)
(hereinafter "Data") under the terms of this Agreement. LICENSOR DOES
NOT MAKE ANY GUARANTEE AS TO THE ACCURACY OF THE DATA AND DISCLAIMS ALL
IMPLIED WARRANTIES INCLUDING FITNESS FOR A PARTICULAR PURPOSE AND
MERCHANTABILITY. SHAMA ZOE LIMITED PARTNERSHIP AND PANNONIAN ENERGY,
INC. (collectively, together with their successors and assigns, the
"Licensee") WILL HAVE SOLE RESPONSBILITY FOR ANY ACTIONS TAKEN BY IT,
OR BY OTHERS RELYING ON ITS ADVICE, BASED ON THE DATA LICENSED UNDER
THIS AGREEMENT.
2. LICENSOR shall continue to own the Data as well as any copyright, trade
secret or any other intellectual property related to the Data and shall
have the exclusive right to sell, trade, loan, copy, disclose,
distribute, transfer or otherwise make available Data; provided that
LICENSEE may make copies of the Data and any derivative works for its
own internal use.
3. LICENSEE agrees that the Data received subject to this Agreement,
including any copies and any derivative works, and the Data in
reprocessed form (but not including any analysis or interpretation),
shall be maintained as confidential, shall be for its own internal use
only and that the Data shall not be disclosed, sold, traded
distributed, transferred, disposed of or otherwise made available to
other parties except under the following conditions:
a. LICENSEE may provide the Data to a consultant for the preparation of an
analysis or interpretation or for reprocessing for LICENSEE,
provided such consultant is not allowed to retain a copy of
the Data and agrees to treat the Data as confidential;
b. LICENSEE may show, but may not provide copies of, the Data to an
affiliate of LICENSEE; provided that said affiliates agree to
hold all such Data in confidence;
c. Such Data may be shown to, and copies thereof provided to,
agencies of federal and state governments having jurisdiction
to the extent required by applicable law or regulation
provided that LICENSEE shall promptly advise LICENSOR, in
writing, of full details of each request, demand, order, etc.
for the Data, to whom disclosure is to be made, and the law or
regulation requiring disclosure and shall take all actions,
and assist in taking actions, as permitted by applicable laws
and regulations to object to such disclosures and to require
the confidential treatment of the Data which must be
disclosed.
d. LICENSEE may show the Data in LICENSEE's offices to third
parties when endeavoring to make a bona fide contract with a
third party relating to specific drilling operations, but in
no case shall third parties be allowed to copy the data, to
have it in their possession outside of LICENSEE's offices, or
to further disclose such information to others.
LICENSOR LICENSEE
BURLINGTON RESOURCES SHAMA ZOE LIMITED PARTNERSHIP
OIL & GAS COMPANY
-------------------------- ---------------------------------
S. Keith Frank (Signature)
Attorney-in-Fact
Date:______________________ Date:_____________________________
PANNONIAN ENERGY, INC.
---------------------------------
(Signature)
Date:_________________________
EXHIBIT "C"
ATTACHED TO THAT CERTAIN EXPLORATION
AGREEMENT DATED AUGUST 15, 2001 BY
AND BETWEEN PARTICIPANTS, AND
BURLINGTON RESOURCES OIL AND GAS
INC.
SUBLETTE COUNTY, WYOMING
ASSIGNMENT
STATE OF WYOMINGss.
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF SUBLETTE ss.
WHEREAS, _____________________, whose mailing address is _____________,
is the present owner of an interest in those certain Oil, Gas and Mineral Leases
described in Exhibit "A" attached hereto and made a part hereof,
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, ____________________, as Assignor, does hereby
transfer, assign and convey, without warranty of title, express or implied, unto
BURLINGTON RESOURCES OIL & GAS COMPANY, INC. whose mailing address is P. O. Box
51810, Midland, Texas 79710, its successors and assigns, as Assignee, an
undivided 100% of Assignor's right, title and interest in and to the Oil, Gas
and Mineral Leases described in Exhibit "A" hereof, insofar, but only insofar,
as these leases cover depths from the base of the Fort Union formation (defined
as the stratigraphic equivalent of 7,173 feet as identified on the Gamma Ray,
Spontaneous Potential (SP) and the Resistivity curves for the Ultra Resources
Cottonwood Federal #32-33 well located in the SW/4 NE/4 of Section 33, Township
32 North, Range 111 West, Sublette County, Wyoming) to 100 feet below the total
depth drilled in the [insert name and location of the earning well]. All other
depths covered by the leases are excepted from this Assignment and retained by
Assignor.
Assignor is delivering an eighty (80%) net revenue interest
(calculated on the basis of a 100% leasehold interest) on all leases assigned
hereunder and Assignor is reserving, for itself, its successors and assigns, an
overriding royalty equal to the difference between existing burdens and 20%,
subject to proportionate reduction if the leases cover less than the entire fee
mineral interest or if the interest being assigned is less than a 100% leasehold
interest in the depths which are being assigned.
This Assignment is executed and effective this ____ day of ____________
, 20--.
ASSIGNOR:
By:______________________________
Title:____________________________
STATE OF WYOMING ss.
ss.
COUNTY OF SUBLETTE ss.
The foregoing instrument was executed before me this ____ day
of___________, 2000, by __________________________, as
________________________________ of ___________________________________, on
behalf of said corporation.
----------------------------------
Notary Public in and for the State of _____
Print Name:________________________
My Commission Expires:
- ---------------------
EXHIBIT "D"
ATTACHED TO THAT CERTAIN EXPLORATION AGREEMENT DATED AUGUST 15, 2001 BY AND
BETWEEN PARTICIPANTS., AND BURLINGTON RESOURCES OIL AND GAS INC.
SUBLETTE COUNTY, WYOMING
INSURANCE PROVISIONS
1. At all times during the conduct of operations hereunder, Operator shall
maintain in force the following minimum limits of insurance at the
expense of and for the benefit of the joint account:
A. Workers' Compensation Insurance in accordance with the laws of
the states in which operations are
conducted under this Agreement.
B. Employers' Liability Insurance with a limit of $500,000.00 per
occurrence.
C. Automobile Liability Insurance covering owned, non-owned and
hired automobiles with a combined
single limit of $1,000,000.00 per occurrence.
2. Operator may self insure for the above insurance coverages, and, in such
event, Operator shall charge the joint account with an amount that shall
not exceed the amount of premium that would be charged at the effective
manual rate (NCCI or similar). Charges for auto liability shall be
included in the equipment charges.
3. No other insurance shall be carried by Operator for the benefit of the
joint account.
4. Any party may, at its own expense, acquire such other insurance as it
deems necessary to protect itself against any claims, losses, damages or
destruction arising out of operations of the joint property. In lieu of
obtaining an insurance policy, a party may elect to self insure.
5. In the event of a loss not covered by the insurance provided for in
Number 1. above, such loss shall be charged to the joint account and be
borne by the parties in proportion to their respective interest in the
joint property.
6. Operator shall require all contractors and subcontractors working or
performing services hereunder to carry workers' compensation, employers'
liability, auto liability and general liability and such other insurance
as Operator deems necessary.
EXHIBIT "E"
ATTACHED TO THAT CERTAIN EXPLORATION AGREEMENT DATED AUGUST 15, 2001 BY AND
BETWEEN SHAMA ZOE, ET. AL., AND BURLINGTON RESOURCES OIL AND GAS INC. SUBLETTE
COUNTY, WYOMING
INFORMATION REQUIREMENTS
FOR PANNONIAN ENERGY INC.
NO OF
COPIES REQUIRED/REQUESTED INFORMATION
2 Drilling Application/Permit, Location Plat with Eleva- tion, Completion
Report, Abandonment Report, FERC Fil- ings, Federal MMS Filings and all other
regulatory reports
1 Drilling and Casing Program; Completion Procedure (when applicable)
1 Daily Mud Logs - Telecopy daily to 303-483-0011
2 DST Reports/Charts, DST Fluid and Gas Sample Analysis, Sample Descriptions,
Core Descriptions and Analyses, Final Copy of Mud Log
Casing Approval or P&A Approval (as required by Con- tracts)
2 Field & Wireline Logs, to include all interpretation logs
2 Final
w/1 Film
1 9 Track LIS Customer Digital Well Tape
1 Geological Correspondence and information, including Paleo Samples upon
request, Slabbed Section of Cored Interval, (if applicable) and dry set of
cuttings
1 Land Correspondence, Operating Agreements .
1 Monthly Production Reports (including gas, oil, and water with producing days
and FTP), Pressure Surveys (Bottomhole and Surface), Annual Back Pressure De-
liverability Tests, Gas and Water Analyses
DAILY DRILLING, MUDLOGS AND COMPLETION REPORTS
Fax daily before 11 a.m. (303-483-0011).
48 HOUR NOTIFICATION
Log Runs, Tests, Changes in Evaluation Programs, and First Mud Log Show. (
Notify Designated Geologist or, if unavailable, one of the individuals listed
below:)
*******************************************************************************
Pannonian Energy Inc.
14 Inverness Drive East
Suite H-236
Englewood, CO 80112
Telephone: 303-483-0044
Office Phone Residence Phone
Mark Erickson 303-713-0047 303-881-5444
Robin Dean 303-713-0031 303-377-8594
Mike Decker 303-713-0042 Cell 303-204-3880
EXHIBIT "E"
ATTACHED TO THAT CERTAIN EXPLORATION AGREEMENT DATED AUGUST 15, 2001 BY AND
BETWEEN SHAMA ZOE, ET. AL., AND BURLINGTON RESOURCES OIL AND GAS INC. SUBLETTE
COUNTY, WYOMING
INFORMATION REQUIREMENTS
FOR SHAMA ZOE LTD PARTNERSHIP
NO OF
COPIES REQUIRED/REQUESTED INFORMATION
2 Drilling Application/Permit, Location Plat with Eleva- tion, Completion
Report, Abandonment Report, FERC Fil- ings, Federal MMS Filings and all other
regulatory reports
1 Drilling & Casing Prog; Completion Procedure (when applicable)
1 Daily Mud Logs - Telecopy daily to 303-771-1134
2 DST Reports/Charts, DST Fluid and Gas Sample Analysis, Sample Descriptions,
Core Descriptions and Analyses, Final Copy of Mud Log
Casing Approval or P&A Approval (as required by Con- tracts)
2 Field & Wireline Logs
2 Final
w/1 Film
1 9 Track LIS Customer Digital Well Tape
1 Geological Correspondence and information, including Paleo Samples upon
request, Slabbed Section of Cored Interval, (if applicable)
1 Land Correspondence, Operating Agreements .
1 Monthly Production Reports (including gas, oil, and water with producing days
and FTP), Pressure Surveys (Bottomhole and Surface), Annual Back Pressure
Deliverability Tests, Gas and Water Analyses
DAILY DRILLING, MUDLOGS AND COMPLETION REPORTS
Fax daily before 11 a.m. (303-771-1134).
48 HOUR NOTIFICATION
Log Runs, Tests, Changes in Evaluation Programs, and First Mud Log Show. (
Notify Designated Geologist or, if unavailable, one of the individuals listed
below:)
********************************************************************************
Shama Zoe Ltd Partnership.
7128 South Poplar Lane
Englewood, CO 80112
Telephone: 303-771-1101
Office Phone Residence Phone
Gilman A. Hill 303-771-1101 303-773-3303
EXHIBIT "E"
ATTACHED TO THAT CERTAIN EXPLORATION AGREEMENT
DATED AUGUST 15, 2001 BY AND BETWEEN
PARTICIPANTS, AND BURLINGTON RESOURCES OIL
AND GAS INC.
SUBLETTE COUNTY, WYOMING
INFORMATION REQUIREMENTS
FOR BURLINGTON
NO OF
COPIES REQUIRED/REQUESTED INFORMATION
2 Drilling Application/Permit, Location Plat with Eleva- tion, Completion
Report, Abandonment Report, FERC Fil- ings, Federal MMS Filings and all other
regulatory reports
1 Casing Program; Completion Procedure (when applicable)
1 Daily Mud Logs - Telecopy daily to 915-688-6010
2 DST Reports/Charts, DST Fluid and Gas Sample Analysis, Sample Descriptions,
Core Descriptions and Analyses, Final Copy of Mud Log
Casing Approval or P&A Approval (as required by Con- tracts)
2 Field & Wireline Logs
2 Final
w/1 Film
1 9 Track LIS Customer Digital Well Tape
1 Geological Correspondence and information, including Paleo Samples upon
request, Slabbed Section of Cored Interval, (if applicable)
1 Land Correspondence, Operating Agreements .
1 Monthly Production Reports (including gas, oil, and water with producing days
and FTP), Pressure Surveys (Bottomhole and Surface), Annual Back Pressure
Deliverability Tests, Gas and Water Analyses
DAILY DRILLING, MUDLOGS AND COMPLETION REPORTS
Fax daily before 11 a.m. (915-688-6010).
48 HOUR NOTIFICATION
Log Runs, Tests, Changes in Evaluation Programs, and First Mud Log Show.
(Notify Designated Geologist or, if unavailable, one of the individuals listed
below:)
********************************************************************************
BURLINGTON RESOURCES OIL & GAS COMPANY
P. O. Box 51810
Midland, TX 79710
Telephone: 915/688-6800
Office Phone Residence Phone
Ward Whiteman 915/688-9063 915/697-7799
Ken Beattie 915/688-9107 915/699-2381
Trey Shepherd 915/688-6929 915/697-2504
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>11
<FILENAME>ex1016.txt
<DESCRIPTION>CD EXPLORATION AGREEMENT
<TEXT>
3/26/2002 12
3/26/2002 1
CD EXPLORATION AGREEMENT
This CD Exploration Agreement is made and entered into this 15th day of
August, 2001, by and between Shama Zoe Limited Partnership ("Shama Zoe"), a
Colorado limited partnership whose address is 7128 South Poplar Lane, Englewood,
Colorado 80112; Pannonian Energy, Inc. ("Pannonian"), a Delaware corporation
whose address is 14 Inverness Drive East, Suite H-236, Englewood, Colorado
80112; and Burlington Resources Oil & Gas Company LP by BROG GP Inc., its sole
General/Partner ("Burlington"), whose address is 3300 North "A" Street, Midland,
Texas 79705-5406. Shama Zoe was formerly known as Shama Kafar Limited
Partnership, and certain lease files and other official property records do not
yet reflect the name change from Shama Kafar Limited Partnership. For the
avoidance of doubt, however, reference in this Agreement to Shama Zoe and its
properties shall always include Shama Kafar and its properties. Shama Zoe and
Pannonian are collectively referred to in this Agreement as the "Participants."
Shama Zoe is the owner of a substantial portion of the oil and gas
leasehold interests committed to the CD Unit, a federal exploratory unit
covering lands in Sublette County, Wyoming. By an unrecorded Farmout Agreement
dated as of April 1, 2001, Shama Zoe granted Pannonian the right to earn
interests in the leases owned by Shama Zoe in the CD Unit by drilling up to two
wells, the first of which has already been drilled and completed by Pannonian.
The Participants would like Burlington to obtain, process and interpret
new seismic data from lands within the CD Unit. Burlington is willing to perform
this work if by so doing it may earn the right to acquire certain interests in
the Leases under the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises, the mutual covenants,
and the agreements hereinafter set forth to be kept and performed, and subject
to all of the terms, provisions, conditions and reservations set forth herein,
the Participants and Burlington agree to the following:
1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
"Agreement" means this CD Exploration Agreement between the
Participants and Burlington.
"AMI Acreage" means a Lease or Interest acquired by either
Participants or Burlington after the date of this Agreement.
"Base of the Fort Union Formation" means the stratigraphic
equivalent of 7,173 feet as identified on the Gamma Ray, Spontaneous Potential
(SP) and the Resistivity curves for the Ultra Resources Cottonwood Federal
#32-33 well located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111
West, Sublette County, Wyoming.
"Base of the Lance Formation" means the stratigraphic equivalent
of 10,395 feet as identified on the Gamma Ray, Spontaneous Potential (SP) and
Resistivity curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
"Checkerboard Configuration" means a pattern of alternating
sections being entirely odd numbered sections or entirely even numbered
sections.
"Commercial Producer" means production from a well in quantities
sufficient to qualify under the "Yates Decision" as determined by the Bureau of
Land Management which is to yield a return in excess of the costs of production
and marketing, including taxes, royalty, lifting, compression, treating,
marketing and transportation costs. In determining whether a well is producing
in commercial quantities, one shall not consider whether the party or parties
drilling
<PAGE>
the well will recover costs associated with drilling, testing, completing and
equipping a well through the tank battery or pipeline connections, or remedial
work or reworking of a well during its productive life. Likewise any expenses
incurred in connection with acquiring this Agreement or any Leases, or any costs
related to district or home office overhead or employee costs, shall not be
considered in determining whether a well is producing in commercial quantities.
The intent of the parties hereto is that only those expenses directly incurred
in connection with actual operations on the particular well involved will be
considered in determining whether a well is producing in commercial quantities.
The standard by which commercial quantities is measured shall also include a
determination of whether or not under all of the relevant circumstances a
reasonably prudent operator would, for the purpose of making a profit and not
merely for speculation, continue to operate the well in the manner in which the
well in question is operated, with the period of time to be considered in
connection with making such a determination to be reasonable in relation to the
context of this Agreement.
"Designation of Agent" means the instrument designating a party,
other than the unit operator, as operator of a specific well.
"Economic Quantities of Hydrocarbons" means a well Participants
believe can produce oil and/or gas in quantities sufficient to repay the cost of
drilling, completing, and producing operations with a reasonable profit.
"Environmental Claim" means any claim, demand or cause of action
asserted by any governmental body or any person relating to sickness, disease or
death, property damage or damage to the environment resulting from the transport
or Release within the CD Unitized Area of any chemical or Hazardous Material or
emission into the environment.
"Environment" means surface and subterranean waters, land
surface, subsurface strata, air, wildlife, aquatic species, and vegetation.
"Environmental Laws" means all federal, state and local laws,
statutes, ordinances, now or hereafter in effect, as may be amended, and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the regulation and
protection of human health, safety or the environment, including without
limitation laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials. Environmental Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, the Federal Insecticide, Fungicide, and Rodenticide Act, as amended,
the Resources Conservation and Recovery Act, as amended, the Toxic Substances
Control Act, as amended, the Clean Air Act, as amended, the Federal Water
Pollution Control Act, as amended, the Clean Water Act, as amended, the Oil
Pollution Control Act, as amended, the Oil Pollution Act of 1990, as amended,
and the Endangered Species Act, as amended.
"Fort Union Formation" means the stratigraphic interval from
2,989 feet to 7,173 feet as identified on the Gamma Ray, Spontaneous Potential
(SP) and the Resistivity curves for the Ultra Resources Cottonwood Federal
#32-33 well located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111
West, Sublette County, Wyoming.
"Hazardous Material" means any material, including without
limitation naturally occurring or radioactive materials, the emission, Release,
transportation, use, presence or disposal of which is regulated by or which may
be remediated under any Environmental Law.
"Incremental Costs" means the costs to drill to 50' below the
base of the Fort Union Formation in an under-balanced manner, including but not
limited to air, corrosion chemicals, parasite string equipment, and an
intermediate casing string, if required for hole integrity or to conduct
production testing in the Fort Union Formation minus the costs to drill such
well in a conventional manner.
<PAGE>
"Interest" means unleased mineral interest, contractual operating
rights, or other rights or partial interests therein, or any other grant,
agreement or arrangement which authorizes the owner thereof to explore for,
produce, save and market oil and gas, including top leases, farmout agreements
or any other type of agreement under which the right to explore and/or develop a
portion of the lands included in the AMI can be earned.
"Lance Formation" means the stratigraphic interval from 7,173
feet to 10,395 feet as identified on the Gamma Ray, Spontaneous Potential (SP)
and Resistivity curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
"Lease" means an oil and gas lease committed to the CD Unit, but
only to the extent that the lands covered thereby are within the CD Unitized
Area.
"Lease Burden" means all burdens, including, without limitation,
any royalty, overriding royalty, production payment, net profits interest,
carried interest, reversionary interest or other charge upon a leasehold
interest or the production therefrom.
"CD Unit" means the federal exploratory unit created by the CD
Unit Agreement.
"CD Unit Agreement" means the federal exploratory unit agreement
that unitizes the lands covered by this Agreement.
"Option Well(s)" means a Lance Formation test well drilled
pursuant to this Agreement.
"Objective Depth" means the projected total depth of the well as
defined in the drilling proposal of the party or parties proposing the drilling
of such well.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, disbursal, leaching or migration into
the environment or into or out of any property, including the movement of
Hazardous Material through or in the air, soil or water.
"Second Unit Obligation Well" means the second obligation well
required under the terms of the CD Unit Agreement ( the first unit obligation
well has been drilled by Alpine Oil and Gas)
"Seismic Commitment" means the number of line miles of new
seismic data Burlington will acquire under this Agreement.
"Subsequently Created Burden" means a Lease Burden which is
created by a party subsequent to the party's acquisition of the Lease or
Interest which is subject to the burden.
"Top of the Lance Formation" means the stratigraphic equivalent
of 7,173 feet as identified on the Gamma Ray, Spontaneous Potential (SP) and the
Resistively curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
"Unitized Area" means the total land area covered by the CD Unit
Agreement.
2. SEISMIC
Burlington will conduct, at its sole risk and expense, a seismic program
to acquire new seismic data as set forth in this Article 2 and identified in red
on Exhibit "A" within the CD Unitized Area. Burlington will acquire
approximately 13 line miles of new seismic data as part of its Seismic
Commitment within the CD Unitized Area. Burlington will pay for all costs and
will own the data. Burlington will attempt to permit, shoot and acquire such
seismic data no later than November 15, 2001. Burlington shall complete the,
processing and interpretation of the acquired seismic data by February 1, 2002.
In the event Burlington is unable to permit, shoot and acquire the 2-D seismic
data in its entirety by November 15, 2001 because of delays in permitting and
winter range stipulations, Burlington will resume acquisition of the seismic
data as soon as possible after April 30, 2002 and complete acquisition of the
<PAGE>
remaining data by June 15, 2002. Burlington shall complete the processing and
interpretation of any seismic data acquired after April 30, 2002, if any, by
August 30, 2002. Burlington will advise the Participants, in writing, of
contemplated parameters prior to acquisition and processing of the data.
Burlington will manage all phases of the seismic program and will present
prints, Mylar and tapes of the final stack seismic sections and migrated
versions; copies of all field data, including digital field reels, observers
note, surveyors notes, and shot hole drill logs (if dynamite sourced to each of
the Participants within 30 days after Burlington's receipt thereof. Upon
fourteen (14) days written request Participant shall have the right to review
and receive a copy of Burlington's current interpretation of the seismic
results. All data provided under the Unitized Area shall include a complete
image, whether stacked or migrated. The Participants' use of such data will be
governed by the License Agreement attached hereto as Exhibit "B."
The Participants agree that the information and data furnished hereunder
shall not be disclosed, traded, transferred, sold, loaned or otherwise made
available in any form to any third party, provided that:
(a) data may be made available by a Participants to contractors, consultants,
and engineering firms hired by such Participants for the purpose of evaluation
of the data for the Participant's internal use;
(b) data may be made available by a Participants in the Participant's offices to
a third party evaluating the possible acquisition of all or a portion of the
Participant's interest subject to this Agreement;
(c) data may be shown to, and copies thereof provided to, governmental agencies
having jurisdiction to the extent required by applicable law or regulation,
provided that if a Participants discloses the same, such Participants shall
promptly advise Burlington, in writing, the full details of each demand, order
or request for such data, to whom disclosure is to be made, and the law or
regulation requiring disclosure, and shall take all actions and assist in taking
all actions as permitted by applicable laws and regulations to object to such
disclosures and require the confidential treatment of the data which must be
disclosed:
(d) Participants may not show, trade, sell or otherwise disclose the data to any
person or party not permanently employed by such Participants, without the
express written consent of Burlington, except as provided for in subparagraphs
(a) and (b) above.
Notwithstanding any of the foregoing, in the event such data is shown to
any third party by a Participants, the third party must execute a written
contract agreeing to be bound by the confidentiality provisions of this
Agreement. Each Participant shall maintain all information and data furnished or
made available to it in strictest confidence, and shall not permit any third
party to review such data except in accordance with the terms hereof.
BURLINGTON DOES NOT MAKE ANY GUARANTEE AS TO THE ACCURACY OF THE
SEISMIC DATA AND DISCLAIMS ALL IMPLIED WARRANTIES INCLUDING FITNESS FOR A
PARTICULAR PURPOSE AND MERCHANTABILITY. PARTICIPANTS WILL HAVE SOLE
RESPONSBILITY FOR ANY ACTIONS TAKEN BY IT, OR BY OTHERS RELYING ON ITS ADVICE,
BASED ON THE SEISMIC DATA AND INTERPRETATIONS.
For any mile of seismic Burlington shoots that is less than the Seismic
Commitment, as of June 15, 2002, Burlington will pay Participants the sum of
$10,000 per line mile, however the payment will satisfy Burlington's Seismic
Commitment under this Agreement.
3. SECOND UNIT OBLIGATION WELL
The CD Unit Agreement requires a Second Unit Obligation Well be
commenced on or before December 31, 2001. The unit agreement also requires the
well be drilled to at least a depth of 50 feet below the base of the Fort Union
Formation using an under-balanced method which allows for production of
formation fluids while drilling. Prior to commencing operations for the Second
Unit Obligation Well, Burlington will meet with the
<PAGE>
Bureau of Land Management office in Casper, Wyoming to present Burlington's
under-balanced method to be used while drilling the Fort Union Formation in the
Second Unit Obligation Well.
Burlington will commence operations for the Second Unit Obligation Well
on or before November 30, 2001. Participants agree to pay Burlington the
Incremental Costs to drill the Fort Union Formation using the under-balanced
method set forth above. After Burlington has drilled the Second Unit Obligation
Well or substitute well, if any, to a depth of 50 feet below the Base of the
Fort Union Formation Burlington will prepare an invoice for the Incremental
Costs. Participants will deliver payment to Burlington for the Incremental Costs
within 30 days after receipt of Burlington's invoice for such costs. Except to
the extent that Participants are specifically responsible for costs under the
express terms of this Article 3, the Second Unit Obligation Well shall be
drilled and completed at Burlington's sole risk and expense.
When Burlington has drilled the Second Unit Obligation Well to a depth
of 50 feet below the base of the Fort Union Formation, Burlington will suspend
its drilling operation and immediately notify Participants. Participants will
have 24 hours from receipt of such notice to elect to test or attempt a
completion in the Fort Union Formation. Such election shall be made to
Burlington in writing prior to the expiration of the 24 hour election period
with specific instructions for the operation(s) Participants desire to conduct.
Burlington will conduct the requested operation(s) on behalf of Participants.
However, Participants will bear the entire cost, risk and expense of any such
operation(s) conducted by Burlington in the Second Unit Obligation Well on
behalf of Participants in the Fort Union Formation after Burlington has drilled
to a depth of 50 feet below the base of the Fort Union Formation. Participants
agree to pay such costs within 30 days after receipt of Burlington's invoice for
such operation(s).
If Participants elect not to test or attempt a completion in the Fort
Union Formation or if Participants fail to notify Burlington of Participant's
election prior to the expiration of the 24 hour election period, Burlington may,
at its option, resume drilling and continue such operation until the Base of the
Lance Formation has been penetrated in the Second Unit Obligation Well.
If Participants elect to complete the Second Unit Obligation Well in
the Fort Union Formation and if such completion results in production of
Economic Quantities of Hydrocarbons, Participants shall notify Burlington of
such event and of Participants' intention to produce oil and or gas from the
Fort Union Formation. Burlington will, within a reasonable time after receipt of
such notice, deliver to Participants an itemized statement of Burlington's costs
to drill the Second Unit Obligation Well to a depth of 50 feet below the Base of
the Fort Union Formation. Participants will, within 30 days after receipt of
such notice, reimburse Burlington for such costs plus any other costs paid by
Burlington and not yet reimbursed by Participants, including but not limited to
the drilling, testing, evaluating and completion of the Second Unit Obligation
Well in the Fort Union Formation. Burlington will operate the Second Unit
Obligation Well on behalf of Participants pursuant to the terms of the Operating
Agreement for the CD Unit, unless after completion, Participants provide
Burlington written notice that the Participants desire to operate such well. In
such event, Burlington will provide Participants with an executed Designation of
Agent allowing Participants to operate said well under the terms of the CD Unit
Agreement.
If Participants elect to complete the Second Unit Obligation Well in
the Fort Union Formation and fail to obtain production of Economic Quantities of
Hydrocarbons, then Participants shall notify Burlington of such event and of
Participants' desire to discontinue such completion operations. Burlington will
have 24 hours after receipt of this notice in which to elect either (i) to
resume drilling and continue drilling at Burlington's sole expense until the
Base of the Lance Formation has been penetrated in the Second Unit Obligation
Well or (ii) to plug and abandon the well at Participants' sole expense.
It is understood, and Participants agree Burlington may, at its option,
drill the Second Unit Obligation Well deeper than the Lance Formation.
4. OPTION WELLS
By conducting the seismic program set forth in Article 2 and drilling
the Second Unit Obligation Well set forth in Article 3 of this Agreement,
Burlington will earn the right and option to drill Option Wells at its sole risk
and expense to test the Lance Formation on lands
<PAGE>
covered by the Leases. Burlington shall have the right and option to drill
Option Wells at any time consistent with the plan of development and operation
as then in effect for the CD Unit. Burlington is under no obligation to drill
any Option Well, but it must provide written notice to Participants stating
whether it elects to drill an Option Well no later than 60 days before a well
commencement date required by the CD Unit Agreement or the Plan of Development
then in effect for the CD Unit. If Burlington makes a timely written notice to
drill the well, then Burlington shall thereafter be contractually bound to drill
the well. If Burlington sends a written notice that it does not elect to drill
the well, or if no written notice is timely received by Participants, then
Burlington shall conclusively be deemed to have surrendered and given up all of
its rights to drill additional Option Wells under this Agreement. However, if
Burlington has a pending or approved Application for Permit to Drill and
Burlington sends a written notice that it does not elect to drill the well, or
if no written notice is timely received by Participants, then, upon written
request by Participants, Burlington will assign such permit along with a
Designation of Agent, to Participants.
Burlington's right and option to commence additional Option Wells shall
conclusively terminate on December 31, 2008, or when the maximum number of
sections provided by the last paragraph of this Article 4 have been drilled,
whichever shall first occur. Burlington and Participants understand and agree
that Participants do not own all of the acreage within the CD Unit. From time to
time Burlington may elect to drill a well on lands not owned by Participants. To
the extent that any such well satisfies a commencement date required by the CD
Unit Agreement or Plan of Development then in effect for the CD Unit, Burlington
shall maintain its right and option to drill Option Wells under this agreement.
Burlington will pay 100% of all drilling, completing and equipping (or plugging
and reclamation) costs incurred in connection with each Option Well drilled by
Burlington hereunder.
All Option Wells must be drilled in a Checkerboard Configuration, so
that if the first Option Well is drilled in an even-numbered governmental
section, every Option Well must be drilled in an even-numbered governmental
section, or if the first Option Well is drilled in an odd-numbered section, then
every Option Well must be drilled in an odd-numbered section. By drilling such
Option Wells Burlington shall earn an assignment of a Lease or Interest from
Participants as hereinafter provided. Burlington may earn a Lease or Interest
from Participants under this Agreement up to an aggregate total of 20 sections.
However, Burlington may never earn Leases or Interests under this Agreement
covering more than one-half of the total sections owned by Participants in the
CD Unit as of the date of this Agreement.
It is understood, and Participants agree Burlington may, at its option,
drill any Option Well deeper than the Lance Formation.
5. INTERESTS EARNED BY BURLINGTON
When Burlington drills to its Objective Depth and completes either the
Second Unit Obligation Well or an Option Well in a section where it has not
previously earned a Lease or Interest, whether as a producer or as a dry hole,
the Participants will assign to Burlington 100% of their working interest and
operating rights below the Base of the Fort Union Formation in all Leases
covering the section in which such well was drilled, but only to the extent that
such Leases cover lands in that section. The Participants will always reserve
and retain depths from the surface to the Base of the Fort Union Formation.
Burlington will earn from the Base of the Fort Union to 100 feet below depth
drilled.
Assignments of working interest and operating rights in federal and
state leases will be made on the appropriate governmental forms. Assignments of
fee leases will be made on the form attached hereto on Exhibit "C" attached
hereto and made a part hereof. All assignments made to Burlington shall deliver
to Burlington an 80% net revenue interest, subject to proportionate reduction.
If the net revenue interest in a Lease or Interest at the date of an assignment
is greater than 80%, then the assigning Participants may reserve to themselves
an overriding royalty equal to the difference between 20% and existing burdens,
so that the delivered net revenue shall be exactly 80%.
<PAGE>
6. UNIT FORMATION AND RENTAL REIMBURSEMENT
6.1 Unit Formation Reimbursements. Burlington shall reimburse Shama Zoe
50% of the total amount invoiced by UnitSource Incorporated for its services and
expenses in connection with the formation and approval of the CD Unit. Shama Zoe
shall provide photocopies of all of the applicable invoices to Burlington, and
Burlington shall remit its 50% reimbursement within 30 days after its receipt of
these invoices.
6.2 Lease Rental Reimbursements. During the period that Burlington has
the right to drill Option Wells under this Agreement, Burlington agrees to pay
50% of the delay rentals paid in connection with the Leases. Shama Zoe will
invoice Burlington as rentals for such Leases become due and Burlington will pay
such invoice within 30 days after its receipt of each such invoice.
7. AREA OF MUTUAL INTEREST
7.1 Mutual Interest. Participants and Burlington hereby constitute and
designate an Area of Mutual Interest consisting of all the lands covered by the
CD Unit Agreement. Such AMI shall be for a term of five (5) years. Burlington is
hereby designated as Operator of the AMI. Burlington agrees to bear 50% and
Participants agree to bear 50% of all costs in connection with any lease
acquisition program conducted by or on behalf of Burlington and/or Participants
within the AMI, including, but not limited to, lease brokerage and acquisition
costs and all related expenses, such as attorneys' fees for title examination
and title curative matters relating to said lease acquisition.
In the event Burlington should acquire any AMI Acreage covering land
within the AMI, Burlington shall promptly notify Participants in writing of the
acquisition of such AMI Acreage. The notice shall set forth (a) the description
of the Lease or Interest acquired, and (b) the pertinent terms of such
acquisition, including copies of leases, assignments, title data and any other
agreement relating to the acquisition of the interests and the rights and
obligations associated therewith. Participants shall have the option to acquire
50% of the AMI Acreage acquired by Burlington in any such Lease or Interest,
proportionately reduced to the Lease or Interest acquired, by paying their 50%
share of the bonus costs associated with the acquisition of the AMI Acreage
acquired. Participants shall have a period of thirty (30) days from receipt of
such notice to exercise such option by giving Burlington notice in writing.
Failure by Participants to respond within the above-specified 30-day period
shall be deemed an election by Participants not to acquire their proportionate
part of the AMI Acreage described in the said notice. Should Participants elect
to acquire its interest, such AMI Acreage shall be assigned free of any
Subsequently Created Burdens or any reservations or exceptions in excess of the
Lease Burdens provided for in the Lease or burdening such Interest on the date
such were acquired by Burlington. Assignments of working interest and operating
rights in federal and state leases will be made on the appropriate government
forms while assignments of fee leases will be made on the form attached hereto
as Exhibit "C". It is agreed that if Participants elect to acquire an interest
in any AMI Acreage so acquired by Burlington under this paragraph, said AMI
Acreage will be owned 50% by Burlington and 50% by Participants. Participants
shall pay, within thirty (30) days from receipt of an invoice, 50% of the bonus
monies paid for the acquisition of the AMI Acreage.
In the event Participants should acquire any AMI Acreage covering land
with in the AMI, Participants shall promptly notify Burlington in writing of the
acquisition of such AMI Acreage. The notice shall set forth (a) the description
of the Lease or Interest acquired, and (b) the pertinent terms of such
acquisition, including copies of leases, assignments, title data and any other
agreement relating to the acquisition of the interests and the rights and
obligations associated therewith. Burlington shall have the option to acquire
50% of the AMI Acreage acquired by Participants in any such Lease or Interest,
proportionately reduced to the Lease or Interest acquired, by paying their 50%
share of the bonus costs associated with the acquisition of the AMI Acreage
acquired. Burlington shall have a period of thirty (30) days from receipt of
such notice to exercise such option by giving Participants notice in writing.
Failure by Burlington to respond within the above-specified 30-day period shall
be deemed an election by Burlington not to acquire their proportionate part of
the AMI Acreage described in the said notice. Should Burlington elect to acquire
its interest, such AMI Acreage shall be assigned free of any Subsequently
Created Burdens or any reservations or exceptions in excess of the Lease Burdens
provided for in the Lease or burdening such Interest on the date such were
acquired by Participants. Assignments of working interest and operating rights
in federal and state leases will be made on the appropriate government forms
while assignments of fee leases will be made on the form attached hereto as
Exhibit "C". It is agreed that if Burlington elects to acquire an interest in
any AMI Acreage so acquired by Participants under this paragraph, said AMI
Acreage will be owned 50% by Burlington and 50% by Participants. Burlington
shall pay, within thirty (30) days from receipt of an invoice, 50% of the bonus
monies paid for the acquisition of the AMI Acreage.
If Burlington and Participants both elect to participate in the
acquisition of AMI Acreage the Operating Agreement, attached hereto as Exhibit
"F", shall become effective to govern all operations conducted by the parties on
such AMI Acreage.
If any AMI Acreage is acquired through a farmout agreement, exploration
agreement or any other agreement that requires a well to be drilled in order to
earn a Lease or Interest in the particular AMI Acreage, then any party who
elects not to participate in the first well drilled under such agreement will
forfeit any and all rights to earn any AMI Acreage acquired under such farmout
or exploration agreement.
8. MISCELLANEOUS PROVISIONS
8.1 Assignability. Due to the unique nature of the relationship between
the Participants and Burlington, the rights of Burlington hereunder shall not be
assigned, subleased, farmed out, or otherwise transferred or conveyed without
the Participants' prior written consent, and any attempt to assign rights
hereunder without the Participants' prior written consent shall cause this
Agreement to terminate as to the interests and land attempted to be assigned.
Should consent for any one assignment be granted, it shall not be considered
consent to any further or additional assignments. A party shall not be relieved
from any liability or responsibility under this Agreement in the event of an
assignment, in whole or in part, and the obligations of this Agreement shall not
only be those of party assigning an interest hereunder, but shall be the joint
and several obligations of each and every assignee of any interest herein or any
land covered hereby. To be effective, a copy of an approved assignment,
sublease, farmout or other transfer of rights under this Agreement shall be
furnished to the Participants within 30 days from the date thereof. With the
exception of assignments affecting oil and gas leases granted pursuant hereto,
other assignments, subleases, farmouts or transfers of rights under this
Agreement shall not be recorded, unless authorized in writing by the
Participants. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors, assigns and legal
representatives. The assignee/lessee under any lease or assignment delivered
hereunder shall be solely responsible for recording of any leases, assignments
or other documents conveyed under this Agreement. This section does not apply to
Leases or Interests earned by Burlington under this Agreement.
8.2 Compliance with Environmental Laws. The operator of any well subject
to this Agreement agrees to cause all of its employees, agents, contractors and
any other persons occupying or present on the premises to comply with all
applicable Environmental Laws. The operator of any well subject to this
Agreement agrees to use every reasonable means to ensure that no Release of
Hazardous Material of any kind whatsoever shall occur as a result of the
operations contemplated hereby. The operator of any well subject to this
Agreement, agrees not to allow, or cause the release of any Hazardous Material
on, into or from the Unit Area that could result in (1) the violation of any
Environmental Law or in the creation of any Environmental Claim, including
without limitation, notification, or remediation, under any Environmental Law or
(2) a diminution in value of the property. The operator of any well subject to
this Agreement, further agrees not to handle, use or otherwise manage and to
cause its employees, agents, contractors, and any other person occupying or
present on the premises not to manage any Hazardous Material in violation of any
Environmental Law and to conduct operations hereunder so as to prevent the
Release or threat of Release of any Hazardous Material on, to, or from the
Unitized Area which could result in an Environmental Claim.
<PAGE>
8.3 Exhibits. This Agreement, including the Exhibits attached hereto,
constitutes the entire understanding and agreement with respect to the subject
matter hereof, superseding all negotiations, prior discussions, and prior
agreements and understandings relating to the subject matter. This Agreement may
not be modified or amended except by written instrument duly executed by the
Participants and Burlington and which explicitly states that it is a subsequent
amendment of this Agreement. If any provision of this Agreement is held invalid
or unenforceable, such invalidity or unenforceability shall not affect the
remaining provisions.
8.4 Further Assurances. After execution of this Agreement, each of the
parties agrees to execute, acknowledge and deliver to the other party such
further instruments and take such other action as may be reasonably requested in
order to more effectively assure that all of the respective properties, rights,
titles, interests, estates and privileges intended to be covered or assigned,
delivered or inuring to the benefit of such party hereunder are delivered.
8.5 Governing Law. This Agreement shall be governed and construed and
enforced in accordance with the laws of Wyoming.
8.6 Insurance. In all operations conducted by the operator of any well
----------
hereunder, including without limitation conducting geophysical exploration and
drilling wells, the operator agrees to carry insurance as specified by the
Insurance Requirements reflected in Exhibit "D" attached hereto.
8.7 Notices. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and any communication or delivery hereunder shall be deemed to have been duly
given and received when actually delivered to the address set forth below the
party to be notified addressed as follows:
If to SHAMA ZOE:
Shama Zoe Limited Partnership
7128 South Poplar Lane
Englewood, CO 80112
Telephone: 303-771-1101
Fax: 303-771-1134
If to PANNONIAN:
Pannonian Energy, Inc.
Attention: Howard Sharpe or Mike Decker
14 Inverness Drive East, Suite H-236
Englewood, CO 80112
Telephone: (303) 713-0054
Fax: (303) 483-0011
If to BURLINGTON:
BURLINGTON RESOURCES
OIL & GAS COMPANY, LP
Attention: James B. (Trey) Shepherd, III
P. O. Box 51810
Midland, TX 79710
Telephone: (915) 688-6929
Fax: (915) 688-6010
Any party may by written notice so delivered to the other, change the
address to which the delivery shall thereafter be made.
<PAGE>
8.8 Plugging Wells. The operator of any well shall properly plug all
wells drilled by it on the Unitized Area and either not capable of or no longer
capable of producing oil or gas in as a Commercial Producer. The operator shall
restore the surface of the land around any plugged well as might be required
under any applicable lease or recorded agreement. The operator of any well shall
comply with all statutory requirements and governmental rules and regulations in
effect at the time of the plugging of any well and agrees to fully defend,
protect, indemnify and hold the other party harmless from and against each and
every claim, demand or cause of action and expense or liability arising from the
operator's failure to plug or properly plug any well or restore the surface.
8.9 Standard of Performance. The operator of any well shall perform all
work under this Agreement with reasonable diligence, prudence and in a
workmanlike manner, as would a reasonable prudent operator under the same or
similar circumstances.
8.10 Substitute Wells. If any well drilled under the terms of this
Agreement fails to reach its objective depth, either because of mechanical
difficulties or because the well encounters excessive water flow, loss of
circulation, excessive pressures, cavities, salt or salt dome material, heaving
shale or other practicably impenetrable conditions which would, in the opinion
of a prudent operator, render further drilling impracticable, then the operator
of such well may at its election commence actual drilling of a substitute well
at approximately the same location with the same objective depth within 30 days
after abandonment of the well being replaced and thereupon the substitute well
should be considered and treated for all purposes as though it were the well for
which it is a substitute.
8.11 Time is of the Essence. Time is of the essence in the performance
of all provisions of this Agreement.
----------------------
8.12 Warranty. This Agreement is made without express or implied
warranty of any kind. The Participants make no representations or warranties
regarding the quantity, boundaries or availability of the lands in the CD Unit,
the Participants' ownership of the said lands, or the Participants' rights of
ingress or egress to said land from or across adjacent or adjoining lands; and
Burlington hereby denies any such representation and warranties, releases the
Participants from any claim for such, and accepts the Participants' acreage
subject to this Agreement with all defects and encumbrances.
8.13 Well Access and Information. The operator of any well shall allow
the other party and their representatives full access to all wells drilled on
the Unitized Area, including access to the records thereof and to the derrick
floor at their sole risk and expense, and the other party shall be provided,
within 10 business days, with samples or copies of all cores, cuttings, logs,
drilling data, testing and completing data, and all information obtained by the
operator pertaining to any well drilled hereunder, and all other well
information reports and data of the nature and within the terms specified on the
Well Data Requirements Schedule attached hereto as Exhibits "E". However, it is
hereby agreed by all parties hereto that if Shama Zoe enters into a
confidentiality agreement with Gilman Hill and his associates for testing all or
any portion of his proprietary technology on either (a) the proprietary "FAST"
drilling system or (b) the proprietary "TALL FRAC" well stimulation/completion
system or any proprietary derivatives therefrom on any well operated by Shama
Zoe and subject to this agreement, then Shama Zoe will not be required to permit
access to such test well or to disclose to any parties hereto any confidential
proprietary information derived from such test well or to the proprietary
technology applied thereto.
8.14 Indemnification. BURLINGTON AGREES TO RELEASE, INDEMNIFY, PROTECT,
DEFEND AND HOLD HARMLESS PARTICPANTS AND THEIR PARENTS, OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS AND REPRESENTATIVES, CONTRACTORS AND SUBCONTRACTORS AT ANY
TIER FROM AND AGAINST ANY AND ALL CLAIMS OR CAUSES OF ACTION, INCLUDING COSTS
AND ATTORNEYS' FEES BROUGHT OR ASSERTED BY BURLINGTON OR ITS EMPLOYEES OR
REPRESENTATIVES ON ACCOUNT OF PERSONAL INJURIES, DEATH OR DAMAGE TO PROPERTY
SUSTAINED BY ANY SUCH PERSONS OR ENTITY IN ANY WAY OCCURRING, INCIDENT TO,
ARISING OUT OF OR IN CONNECTION WITH SUCH PERSON'S OR ENTITIES' PRESENCE ON A
PARTICIPANTS' LOCATION OR DERRICK FLOOR, WHETHER OR NOT CAUSED BY THE JOINT
AND/OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF THE INDEMNITEES
UNLESS SUCH INJURY, DEATH, OR DAMAGE IS THE RESULT OF PARTICIPANTS', ITS
CONTRACTOR'S OR SUBCONTRACTOR'S SOLE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
PARTICIPANTS AGREE TO RELEASE, INDEMNIFY, PROTECT, DEFEND AND HOLD HARMLESS
BURLINGTON AND ITS PARENTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
REPRESENTATIVES, CONTRACTORS AND SUBCONTRACTORS AT ANY TIER FROM AND AGAINST ANY
AND ALL CLAIMS OR CAUSES OF ACTION, INCLUDING COSTS AND ATTORNEYS' FEES BROUGHT
OR ASSERTED BY PARTICIPANTS OR ITS EMPLOYEES OR REPRESENTATIVES ON ACCOUNT OF
PERSONAL INJURIES, DEATH OR DAMAGE TO PROPERTY SUSTAINED BY ANY SUCH PERSONS OR
ENTITY IN ANY WAY OCCURRING, INCIDENT TO, ARISING OUT OF OR IN CONNECTION WITH
SUCH PERSON'S OR ENTITIES' PRESENCE ON A BURLINGTON LOCATION OR DERRICK FLOOR,
WHETHER OR NOT CAUSED BY THE JOINT AND/OR CONCURRENT NEGLIGENCE, FAULT OR STRICT
LIABILITY OF THE INDEMNITEES UNLESS SUCH INJURY, DEATH, OR DAMAGE IS THE RESULT
OF BURLINGTON, ITS CONTRACTOR'S OR SUBCONTRACTOR'S SOLE NEGLIGENCE, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
8.15 Applicability to Successors, Assigns and Affiliates. This
Agreement shall be binding upon the parties hereto and their respective
successors and assigns, and likewise shall be binding upon any affiliated
corporations, partnerships, or other business entities of whatever form.
8.16 Force Majeure. In the event either party to this Agreement is
rendered unable, wholly or in part, by force majeure to carry out its
obligations under this Agreement, it is agreed that, upon such party giving
written notice and reasonably full particulars of such conditions constituting
force majeure to the other party hereto within a reasonable time after the
occurrence, then the obligation of the party giving such notice, so far as
affected by force majeure, shall be suspended during continuance of any
inability so caused, but no longer. The cause of the force majeure, so far as
possible, shall be remedied with all reasonable dispatch. The requirement that
any force majeure shall be remedied with all reasonable dispatch shall not
require the settlement of strikes, lockouts or other labor difficulty by the
party involved, contrary to its wishes; how all difficulties shall be handled
shall be entirely within the discretion of the party concerned. The term "force
majeure", as employed herein, shall mean acts of God, strikes, lockouts or other
industrial disturbance, act of the public enemy, wars, riots, epidemics,
lightning, earthquakes, fires, floods or direct injunction, prohibition or
interruption by acts, order, regulations or requirements of governmental
authority.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SHAMA ZOE LIMITED PARTNERSHIP
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
<PAGE>
PANNONIAN ENERGY, INC.
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
BURLINGTON RESOURCES OIL & GAS COMPANY LP
By BROG GP INC., IT'S SOLE GENERAL PARTNER
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
<PAGE>
EXHIBIT "B"
ATTACHED TO THAT CERTAIN
EXPLORATION AGREEMENT
DATED AUGUST 15, 2001
BY AND BETWEEN
PARTICIPANTS, AND
BURLINGTON RESOURCES
OIL AND GAS INC.
SUBLETTE COUNTY, WYOMING
DATA LICENSE TERMS AND CONDITIONS
1. BURLINGTON RESOURCES OIL & GAS COMPANY ("Licensor") represents and
warrants that it owns and has the right and authority to deliver the
Data (a description of each seismic line to be included here)
(hereinafter "Data") under the terms of this Agreement. LICENSOR DOES
NOT MAKE ANY GUARANTEE AS TO THE ACCURACY OF THE DATA AND DISCLAIMS ALL
IMPLIED WARRANTIES INCLUDING FITNESS FOR A PARTICULAR PURPOSE AND
MERCHANTABILITY. SHAMA ZOE LIMITED PARTNERSHIP AND PANNONIAN ENERGY,
INC. (collectively, together with their successors and assigns, the
"Licensee") WILL HAVE SOLE RESPONSBILITY FOR ANY ACTIONS TAKEN BY IT,
OR BY OTHERS RELYING ON ITS ADVICE, BASED ON THE DATA LICENSED UNDER
THIS AGREEMENT.
2. LICENSOR shall continue to own the Data as well as any copyright, trade
secret or any other intellectual property related to the Data and shall
have the exclusive right to sell, trade, loan, copy, disclose,
distribute, transfer or otherwise make available Data; provided that
LICENSEE may make copies of the Data and any derivative works for its
own internal use.
3. LICENSEE agrees that the Data received subject to this Agreement,
including any copies and any derivative works, and the Data in
reprocessed form (but not including any analysis or interpretation),
shall be maintained as confidential, shall be for its own internal use
only and that the Data shall not be disclosed, sold, traded
distributed, transferred, disposed of or otherwise made available to
other parties except under the following conditions:
a. LICENSEE may provide the Data to a consultant for the preparation of
an analysis or interpretation or for reprocessing for LICENSEE,
provided such consultant is not allowed to retain a copy of the Data
and agrees to treat the Data as confidential;
b. LICENSEE may show, but may not provide copies of, the Data to an
affiliate of LICENSEE; provided that said affiliates agree to hold all
such Data in confidence;
c. Such Data may be shown to, and copies thereof provided to, agencies of
federal and state governments having jurisdiction to the extent
required by applicable law or regulation provided that LICENSEE shall
promptly advise LICENSOR, in writing, of full details of each request,
demand, order, etc. for the Data, to whom disclosure is to be made,
and the law or regulation requiring disclosure and shall take all
actions, and assist in taking actions, as permitted by applicable laws
and regulations to object to such disclosures and to require the
confidential treatment of the Data which must be disclosed.
d. LICENSEE may show the Data in LICENSEE's offices to third parties when
endeavoring to make a bona fide contract with a third party relating
to specific drilling operations, but in no case shall third parties be
allowed to copy the data, to have it in their possession outside of
LICENSEE's offices, or to further disclose such information to others.
LICENSOR LICENSEE
BURLINGTON RESOURCES SHAMA ZOE LIMITED PARTNERSHIP
OIL & GAS COMPANY
-------------------------- ----------------------------------
S. Keith Frank (Signature)
Attorney-in-Fact
Date:______________________ Date:_____________________________
PANNONIAN ENERGY, INC.
---------------------------------
(Signature)
Date:_____________________________
<PAGE>
EXHIBIT "C"
ATTACHED TO THAT CERTAIN
EXPLORATION AGREEMENT
DATED AUGUST 15, 2001
BY AND BETWEEN
PARTICPANTS, AND
BURLINGTON RESOURCES
OIL AND GAS INC.
SUBLETTE COUNTY, WYOMING
ASSIGNMENT
STATE OF WYOMINGss.
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF SUBLETTE ss.
WHEREAS, _____________________, whose mailing address is _____________,
is the present owner of an interest in those certain Oil, Gas and Mineral Leases
described in Exhibit "A" attached hereto and made a part hereof,
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, ____________________, as Assignor, does hereby
transfer, assign and convey, without warranty of title, express or implied, unto
BURLINGTON RESOURCES OIL & GAS COMPANY, INC. whose mailing address is P. O. Box
51810, Midland, Texas 79710, its successors and assigns, as Assignee, an
undivided 100% of Assignor's right, title and interest in and to the Oil, Gas
and Mineral Leases described in Exhibit "A" hereof, insofar, but only insofar,
as these leases cover depths from the base of the Fort Union formation (defined
as the stratigraphic equivalent of 7,173 feet as identified on the Gamma Ray,
Spontaneous Potential (SP) and the Resistivity curves for the Ultra Resources
Cottonwood Federal #32-33 well located in the SW/4 NE/4 of Section 33, Township
32 North, Range 111 West, Sublette County, Wyoming) to 100 feet below the total
depth drilled in the [insert name and location of the earning well]. All other
depths covered by the leases are excepted from this Assignment and retained by
Assignor.
Assignor is delivering an eighty (80%) net revenue interest
(calculated on the basis of a 100% leasehold interest) on all leases assigned
hereunder and Assignor is reserving, for itself, its successors and assigns, an
overriding royalty equal to the difference between existing burdens and 20%,
subject to proportionate reduction if the leases cover less than the entire fee
mineral interest or if the interest being assigned is less than a 100% leasehold
interest in the depths which are being assigned.
This Assignment is executed and effective this ____ day of ____________
, 20--.
ASSIGNOR:
By:______________________________
Title:____________________________
STATE OF WYOMING ss.
ss.
COUNTY OF SUBLETTE ss.
The foregoing instrument was executed before me this ____ day
of___________, 2000, by __________________________, as
________________________________ of ___________________________________, on
behalf of said corporation.
----------------------------------
Notary Public in and for the State of _____
Print Name:________________________
My Commission Expires:
- ---------------------
<PAGE>
EXHIBIT "D"
ATTACHED TO THAT CERTAIN EXPLORATION AGREEMENT DATED AUGUST 15, 2001 BY AND
BETWEEN PARTICIPANTS, ET. AL., AND BURLINGTON RESOURCES OIL AND GAS INC.
SUBLETTE COUNTY, WYOMING
INSURANCE PROVISIONS
1. At all times during the conduct of operations hereunder, Operator shall
maintain in force the following minimum limits of insurance at the
expense of and for the benefit of the joint account:
A. Workers' Compensation Insurance in accordance with the laws of the
states in which operations are conducted under this Agreement.
B. Employers' Liability Insurance with a limit of $500,000.00 per
occurrence.
C. Automobile Liability Insurance covering owned, non-owned and hired
automobiles with a combined single limit of $1,000,000.00 per
occurrence.
2. Operator may self insure for the above insurance coverages, and, in such
event, Operator shall charge the joint account with an amount that shall
not exceed the amount of premium that would be charged at the effective
manual rate (NCCI or similar). Charges for auto liability shall be
included in the equipment charges.
3. No other insurance shall be carried by Operator for the benefit of the
joint account.
4. Any party may, at its own expense, acquire such other insurance as it deems
necessary to protect itself against any claims, losses, damages or
destruction arising out of operations of the joint property. In lieu of
obtaining an insurance policy, a party may elect to self insure.
5. In the event of a loss not covered by the insurance provided for in Number
1. above, such loss shall be charged to the joint account and be borne by
the parties in proportion to their respective interest in the joint
property.
6. Operator shall require all contractors and subcontractors working or
performing services hereunder to carry workers' compensation, employers'
liability, auto liability and general liability and such other insurance
as Operator deems necessary.
<PAGE>
EXHIBIT "E"
ATTACHED TO THAT CERTAIN
EXPLORATION AGREEMENT
DATED AUGUST 15, 2001
BY AND BETWEEN
PARTICIPANTS, AND
BURLINGTON RESOURCES
OIL AND GAS INC.
SUBLETTE COUNTY, WYOMING
INFORMATION REQUIREMENTS
FOR PANNONIAN ENERGY INC.
NO OF
COPIES REQUIRED/REQUESTED INFORMATION
2 Drilling Application/Permit, Location Plat with Eleva- tion, Completion
Report, Abandonment Report, FERC Fil- ings, Federal MMS Filings and all
other regulatory reports
1 Drilling and Casing Program; Completion Procedure (when applicable)
1 Daily Mud Logs - Telecopy daily to 303-483-0011
2 DST Reports/Charts, DST Fluid and Gas Sample Analysis, Sample Descriptions,
Core Descriptions and Analyses, Final Copy of Mud Log
Casing Approval or P&A Approval (as required by Con- tracts)
2 Field & Wireline Logs, to include all interpretation logs
2 Final
w/1 Film
1 9 Track LIS Customer Digital Well Tape
1 Geological Correspondence and information, including Paleo Samples upon
request, Slabbed Section of Cored Interval, (if applicable) and dry set of
cuttings
1 Land Correspondence, Operating Agreements
1 Monthly Production Reports (including gas, oil, and water with producing
days and FTP), Pressure Surveys (Bottomhole and Surface), Annual Back
Pressure De- liverability Tests, Gas and Water Analyses
DAILY DRILLING, MUDLOGS AND COMPLETION REPORTS
Fax daily before 11 a.m. (303-483-0011).
48 HOUR NOTIFICATION
Log Runs, Tests, Changes in Evaluation Programs, and First Mud Log Show. (
Notify Designated Geologist or, if unavailable, one of the individuals
listed below:)
********************************************************************************
Pannonian Energy Inc.
14 Inverness Drive East
Suite H-236
Englewood, CO 80112
Telephone: 303-483-0044
Office Phone Residence Phone
Mark Erickson 303-713-0047 303-881-5444
Robin Dean 303-713-0031 303-377-8594
Mike Decker Cell 303-204-3880 303-713-0042
<PAGE>
EXHIBIT "E"
ATTACHED TO THAT CERTAIN
EXPLORATION AGREEMENT
DATED AUGUST 15, 2001
BY AND BETWEEN
PARTICIPANTS, AND
BURLINGTON RESOURCES
OIL AND GAS INC.
SUBLETTE COUNTY, WYOMING
INFORMATION REQUIREMENTS
FOR SHAMA ZOE LTD PARTNERSHIP
NO OF
COPIES REQUIRED/REQUESTED INFORMATION
2 Drilling Application/Permit, Location Plat with Eleva- tion, Completion
Report, Abandonment Report, FERC Fil- ings, Federal MMS Filings and all
other regulatory reports
1 Drilling & Casing Prog; Completion Procedure (when applicable)
1 Daily Mud Logs - Telecopy daily to 303-771-1134
2 DST Reports/Charts, DST Fluid and Gas Sample Analysis, Sample Descriptions,
Core Descriptions and Analyses, Final Copy of Mud Log
Casing Approval or P&A Approval (as required by Con- tracts)
2 Field & Wireline Logs
2 Final
w/1 Film
1 9 Track LIS Customer Digital Well Tape
1 Geological Correspondence and information, including Paleo Samples upon
request, Slabbed Section of Cored Interval, (if applicable)
1 Land Correspondence, Operating Agreements .
1 Monthly Production Reports (including gas, oil, and water with producing
days and FTP), Pressure Surveys (Bottomhole and Surface), Annual Back
Pressure Deliverability Tests, Gas and Water Analyses
DAILY DRILLING, MUDLOGS AND COMPLETION REPORTS
Fax daily before 11 a.m. (303-771-1134).
48 HOUR NOTIFICATION
Log Runs, Tests, Changes in Evaluation Programs, and First Mud Log Show. (
Notify Designated Geologist or, if unavailable, one of the individuals
listed below:)
********************************************************************************
Shama Zoe Ltd Partnership.
7128 South Poplar Lane
Englewood, CO 80112
Telephone: 303-771-1101
Office Phone Residence Phone
Gilman A. Hill 303-771-1101 303-773-3303
<PAGE>
EXHIBIT "E"
ATTACHED TO THAT CERTAIN
EXPLORATION AGREEMENT
DATED AUGUST 15, 2001
BY AND BETWEEN
PARTICIPANTS, AND
BURLINGTON RESOURCES
OIL AND GAS INC.
SUBLETTE COUNTY, WYOMING
INFORMATION REQUIREMENTS
FOR BURLINGTON
NO OF
COPIES REQUIRED/REQUESTED INFORMATION
2 Drilling Application/Permit, Location Plat with Eleva- tion, Completion
Report, Abandonment Report, FERC Fil- ings, Federal MMS Filings and all
other regulatory reports
1 Casing Program; Completion Procedure (when applicable)
1 Daily Mud Logs - Telecopy daily to 915-688-6010
2 DST Reports/Charts, DST Fluid and Gas Sample Analysis, Sample Descriptions,
Core Descriptions and Analyses, Final Copy of Mud Log
Casing Approval or P&A Approval (as required by Con- tracts)
2 Field & Wireline Logs 2 Final w/1 Film
1 9 Track LIS Customer Digital Well Tape
1 Geological Correspondence and information, including Paleo Samples upon
request, Slabbed Section of Cored Interval, (if applicable)
1 Land Correspondence, Operating Agreements .
1 Monthly Production Reports (including gas, oil, and water with producing
days and FTP), Pressure Surveys (Bottomhole and Surface), Annual Back
Pressure Deliverability Tests, Gas and Water Analyses
DAILY DRILLING, MUDLOGS AND COMPLETION REPORTS
Fax daily before 11 a.m. (915-688-6010).
48 HOUR NOTIFICATION
Log Runs, Tests, Changes in Evaluation Programs, and First Mud Log Show. (
Notify Designated Geologist or, if unavailable, one of the individuals
listed below:)
********************************************************************************
BURLINGTON RESOURCES OIL & GAS COMPANY
P. O. Box 51810
Midland, TX 79710
Telephone: 915/688-6800
Office Phone Residence Phone
Ward Whiteman 915/688-9063 915/697-7799
Ken Beattie 915/688-9107 915/699-2381
Trey Shepherd 915/688-6929 915/697-2504
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>12
<FILENAME>ex1017.txt
<DESCRIPTION>GAMMA RAY EXPLORATION AGREEMENT
<TEXT>
2
11/20/2001
11/20/2001 1
GAMMA RAY EXPLORATION AGREEMENT
This Gamma Ray Exploration Agreement is made and entered into this 15th
day of August, 2001, by and between Shama Zoe Limited Partnership ("Shama Zoe"),
a Colorado limited partnership whose address is 7128 South Poplar Lane,
Englewood, Colorado 80112; Pannonian Energy, Inc. ("Pannonian"), a Delaware
corporation whose address is 14 Inverness Drive East, Suite H-236, Englewood,
Colorado 80112; and Burlington Resources Oil & Gas Company LP by BROG GP Inc.,
its sole General/Partner ("Burlington"), whose address is 3300 North "A" Street,
Midland, Texas 79705-5406. Shama Zoe was formerly known as Shama Kafar Limited
Partnership, and certain lease files and other official property records do not
yet reflect the name change from Shama Kafar Limited Partnership. For the
avoidance of doubt, however, reference in this Agreement to Shama Zoe and its
properties shall always include Shama Kafar and its properties. Shama Zoe and
Pannonian are collectively referred to in this Agreement as the "Participants."
Shama Zoe is the owner of a substantial portion of the oil and gas
leasehold interests committed to the Gamma Ray Unit, a federal exploratory unit
covering lands in Sublette County, Wyoming. By an unrecorded Farmout Agreement
dated as of April 1, 2001, Shama Zoe granted Pannonian the right to earn
interests in the leases owned by Shama Zoe in the Gamma Ray Unit by drilling up
to two wells, the first of which has already been drilled and completed by
Pannonian.
The Participants would like Burlington to obtain, process and interpret
new seismic data from lands within the Gamma Ray Unit. Burlington is willing to
perform this work if by so doing it may earn the right to acquire certain
interests in the Leases under the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises, the mutual covenants,
and the agreements hereinafter set forth to be kept and performed, and subject
to all of the terms, provisions, conditions and reservations set forth herein,
the Participants and Burlington agree to the following:
1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
"Agreement" means this Gamma Ray Exploration Agreement between
the Participants and Burlington.
"AMI Acreage" means a Lease or Interest acquired by either
Participants or Burlington after the date of this Agreement.
"Base of the Fort Union Formation" means the stratigraphic
equivalent of 7,173 feet as identified on the Gamma Ray, Spontaneous Potential
(SP) and the Resistivity curves for the Ultra Resources Cottonwood Federal
#32-33 well located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111
West, Sublette County, Wyoming.
"Base of the Lance Formation" means the stratigraphic equivalent
of 10,395 feet as identified on the Gamma Ray, Spontaneous Potential (SP) and
Resistivity curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
"Checkerboard Configuration" means a pattern of alternating
sections being entirely odd numbered sections or entirely even numbered
sections.
"Commercial Producer" means production from a well in quantities
sufficient to qualify under the "Yates Decision" as determined by the Bureau of
Land Management which is to yield a return in excess of the costs of production
and marketing, including taxes, royalty, lifting, compression, treating,
marketing and transportation costs. In determining whether a well is producing
in commercial quantities, one shall not consider whether the party or parties
drilling the well will recover costs associated with drilling, testing,
completing and equipping a well through the tank battery or pipeline
connections, or remedial work or reworking of a well during its productive life.
Likewise any expenses incurred in connection with acquiring this Agreement or
any Leases, or any costs related to district or home office overhead or employee
costs, shall not be considered in determining whether a well is producing in
commercial quantities. The intent of the parties hereto is that only those
expenses directly incurred in connection with actual operations on the
particular well involved will be considered in determining whether a well is
producing in commercial quantities. The standard by which commercial quantities
is measured shall also include a determination of whether or not under all of
the relevant circumstances a reasonably prudent operator would, for the purpose
of making a profit and not merely for speculation, continue to operate the well
in the manner in which the well in question is operated, with the period of time
to be considered in connection with making such a determination to be reasonable
in relation to the context of this Agreement.
"Designation of Agent" means the instrument designating a party,
other than the unit operator, as operator of a specific well.
"Economic Quantities of Hydrocarbons" means a well Participants
believe can produce oil and/or gas in quantities sufficient to repay the cost of
drilling, completing, and producing operations with a reasonable profit.
"Environmental Claim" means any claim, demand or cause of action
asserted by any governmental body or any person relating to sickness, disease or
death, property damage or damage to the environment resulting from the transport
or Release within the Gamma Ray Unitized Area of any chemical or Hazardous
Material or emission into the environment.
"Environment" means surface and subterranean waters, land
surface, subsurface strata, air, wildlife, aquatic species, and vegetation.
"Environmental Laws" means all federal, state and local laws,
statutes, ordinances, now or hereafter in effect, as may be amended, and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the regulation and
protection of human health, safety or the environment, including without
limitation laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials. Environmental Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, the Federal Insecticide, Fungicide, and Rodenticide Act, as amended,
the Resources Conservation and Recovery Act, as amended, the Toxic Substances
Control Act, as amended, the Clean Air Act, as amended, the Federal Water
Pollution Control Act, as amended, the Clean Water Act, as amended, the Oil
Pollution Control Act, as amended, the Oil Pollution Act of 1990, as amended,
and the Endangered Species Act, as amended.
"Fort Union Formation" means the stratigraphic interval from
2,989 feet to 7,173 feet as identified on the Gamma Ray, Spontaneous Potential
(SP) and the Resistivity curves for the Ultra Resources Cottonwood Federal
#32-33 well located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111
West, Sublette County, Wyoming.
"Hazardous Material" means any material, including without
limitation naturally occurring or radioactive materials, the emission, Release,
transportation, use, presence or disposal of which is regulated by or which may
be remediated under any Environmental Law.
"Incremental Costs" means the costs to drill to 50' below the
base of the Fort Union Formation in an under-balanced manner, including but not
limited to air, corrosion chemicals, parasite string equipment, and an
intermediate casing string, if required for hole integrity or to conduct
production testing in the Fort Union Formation minus the costs to drill such
well in a conventional manner.
"Interest" means unleased mineral interest, contractual operating
rights, or other rights or partial interests therein, or any other grant,
agreement or arrangement which authorizes the owner thereof to explore for,
produce, save and market oil and gas, including top leases, farmout agreements
or any other type of agreement under which the right to explore and/or develop a
portion of the lands included in the AMI can be earned.
"Lance Formation" means the stratigraphic interval from 7,173
feet to 10,395 feet as identified on the Gamma Ray, Spontaneous Potential (SP)
and Resistivity curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
"Lease" means an oil and gas lease committed to the Gamma Ray
Unit, but only to the extent that the lands covered thereby are within the Gamma
Ray Unitized Area.
"Lease Burden" means all burdens, including, without limitation,
any royalty, overriding royalty, production payment, net profits interest,
carried interest, reversionary interest or other charge upon a leasehold
interest or the production therefrom.
"Gamma Ray Unit" means the federal exploratory unit created by
the Gamma Ray Unit Agreement.
"Gamma Ray Unit Agreement" means the federal exploratory unit
agreement that unitizes the lands covered by this Agreement.
"Option Well(s)" means a Lance Formation test well drilled
pursuant to this Agreement.
"Objective Depth" means the projected total depth of the well as
defined in the drilling proposal of the party or parties proposing the drilling
of such well.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, disbursal, leaching or migration into
the environment or into or out of any property, including the movement of
Hazardous Material through or in the air, soil or water.
"Second Unit Obligation Well" means the second obligation well
required under the terms of the Gamma Ray Unit Agreement ( the first unit
obligation well has been drilled by Alpine Oil and Gas)
"Seismic Commitment" means the number of line miles of new
seismic data Burlington will acquire under this Agreement.
"Subsequently Created Burden" means a Lease Burden which is
created by a party subsequent to the party's acquisition of the Lease or
Interest which is subject to the burden.
"Top of the Lance Formation" means the stratigraphic equivalent
of 7,173 feet as identified on the Gamma Ray, Spontaneous Potential (SP) and the
Resistively curves for the Ultra Resources Cottonwood Federal #32-33 well
located in the SW/4 NE/4 of Section 33, Township 32 North, Range 111 West,
Sublette County, Wyoming.
2. SEISMIC
Burlington will conduct, at its sole risk and expense, a seismic program
to acquire new seismic data as set forth in this Article 2 and identified in red
on Exhibit "A" within the Gamma Ray Unitized Area. Burlington will acquire
approximately 23 line miles of new seismic data as part of its Seismic
Commitment within the Gamma Ray Unitized Area. Burlington will pay for all costs
and will own the data. Burlington will attempt to permit, shoot and acquire such
seismic data no later than November 15, 2001. Burlington shall complete the,
processing and interpretation of the acquired seismic data by February 1, 2002.
In the event Burlington is unable to permit, shoot and acquire the 2-D seismic
data in its entirety by November 15, 2001 because of delays in permitting and
winter range stipulations, Burlington will resume acquisition of the seismic
data as soon as possible after April 30, 2002 and complete acquisition of the
remaining data by June 15, 2002. Burlington shall complete the processing and
interpretation of any seismic data acquired after April 30, 2002, if any, by
August 30, 2002. Burlington will advise the Participants, in writing, of
contemplated parameters prior to acquisition and processing of the data.
Burlington will manage all phases of the seismic program and will present
prints, Mylar and tapes of the final stack seismic sections and migrated
versions; copies of all field data, including digital field reels, observers
note, surveyors notes, and shot hole drill logs (if dynamite sourced to each of
the Participants within 30 days after Burlington's receipt thereof. Upon
fourteen (14) days written request Participant shall have the right to review
and receive a copy of Burlington's current interpretation of the seismic
results. All data provided under the Unitized Area shall include a complete
image, whether stacked or migrated. The Participants' use of such data will be
governed by the License Agreement attached hereto as Exhibit "B."
The Participants agree that the information and data furnished hereunder
shall not be disclosed, traded, transferred, sold, loaned or otherwise made
available in any form to any third party, provided that:
(a) data may be made available by a Participants to contractors, consultants,
and engineering firms hired by such Participants for the purpose of evaluation
of the data for the Participant's internal use;
(b) data may be made available by a Participants in the Participant's offices to
a third party evaluating the possible acquisition of all or a portion of the
Participant's interest subject to this Agreement;
(c) data may be shown to, and copies thereof provided to, governmental agencies
having jurisdiction to the extent required by applicable law or regulation,
provided that if a Participants discloses the same, such Participants shall
promptly advise Burlington, in writing, the full details of each demand, order
or request for such data, to whom disclosure is to be made, and the law or
regulation requiring disclosure, and shall take all actions and assist in taking
all actions as permitted by applicable laws and regulations to object to such
disclosures and require the confidential treatment of the data which must be
disclosed:
(d) Participants may not show, trade, sell or otherwise disclose the data to any
person or party not permanently employed by such Participants, without the
express written consent of Burlington, except as provided for in subparagraphs
(a) and (b) above.
Notwithstanding any of the foregoing, in the event such data is shown to
any third party by a Participants, the third party must execute a written
contract agreeing to be bound by the confidentiality provisions of this
Agreement. Each Participant shall maintain all information and data furnished or
made available to it in strictest confidence, and shall not permit any third
party to review such data except in accordance with the terms hereof.
BURLINGTON DOES NOT MAKE ANY GUARANTEE AS TO THE ACCURACY OF THE
SEISMIC DATA AND DISCLAIMS ALL IMPLIED WARRANTIES INCLUDING FITNESS FOR A
PARTICULAR PURPOSE AND MERCHANTABILITY. PARTICIPANTS WILL HAVE SOLE
RESPONSBILITY FOR ANY ACTIONS TAKEN BY IT, OR BY OTHERS RELYING ON ITS ADVICE,
BASED ON THE SEISMIC DATA AND INTERPRETATIONS.
For any mile of seismic Burlington shoots that is less than the Seismic
Commitment, as of June 15, 2002, Burlington will pay Participants the sum of
$10,000 per line mile, however the payment will satisfy Burlington's Seismic
Commitment under this Agreement.
3. SECOND UNIT OBLIGATION WELL
The Gamma Ray Unit Agreement requires a Second Unit Obligation Well be
commenced on or before July 5, 2001. The unit agreement also requires the well
be drilled to at least a depth of 50 feet below the base of the Fort Union
Formation using an under-balanced method which allows for production of
formation fluids while drilling. Prior to commencing operations for the Second
Unit Obligation Well, Burlington will meet with the
Bureau of Land Management office in Casper, Wyoming to present Burlington's
under-balanced method to be used while drilling the Fort Union Formation in the
Second Unit Obligation Well.
Burlington will commence operations for the Second Unit Obligation Well
on or before June 25, 2002. Participants agree to pay Burlington the Incremental
Costs to drill the Fort Union Formation using the under-balanced method set
forth above. After Burlington has drilled the Second Unit Obligation Well or
substitute well, if any, to a depth of 50 feet below the Base of the Fort Union
Formation Burlington will prepare an invoice for the Incremental Costs.
Participants will deliver payment to Burlington for the Incremental Costs within
30 days after receipt of Burlington's invoice for such costs. Except to the
extent that Participants are specifically responsible for costs under the
express terms of this Article 3, the Second Unit Obligation Well shall be
drilled and completed at Burlington's sole risk and expense.
When Burlington has drilled the Second Unit Obligation Well to a depth
of 50 feet below the base of the Fort Union Formation, Burlington will suspend
its drilling operation and immediately notify Participants. Participants will
have 24 hours from receipt of such notice to elect to test or attempt a
completion in the Fort Union Formation. Such election shall be made to
Burlington in writing prior to the expiration of the 24 hour election period
with specific instructions for the operation(s) Participants desire to conduct.
Burlington will conduct the requested operation(s) on behalf of Participants.
However, Participants will bear the entire cost, risk and expense of any such
operation(s) conducted by Burlington in the Second Unit Obligation Well on
behalf of Participants in the Fort Union Formation after Burlington has drilled
to a depth of 50 feet below the base of the Fort Union Formation. Participants
agree to pay such costs within 30 days after receipt of Burlington's invoice for
such operation(s).
If Participants elect not to test or attempt a completion in the Fort
Union Formation or if Participants fail to notify Burlington of Participant's
election prior to the expiration of the 24 hour election period, Burlington may,
at its option, resume drilling and continue such operation until the Base of the
Lance Formation has been penetrated in the Second Unit Obligation Well.
If Participants elect to complete the Second Unit Obligation Well in
the Fort Union Formation and if such completion results in production of
Economic Quantities of Hydrocarbons, Participants shall notify Burlington of
such event and of Participants' intention to produce oil and or gas from the
Fort Union Formation. Burlington will, within a reasonable time after receipt of
such notice, deliver to Participants an itemized statement of Burlington's costs
to drill the Second Unit Obligation Well to a depth of 50 feet below the Base of
the Fort Union Formation. Participants will, within 30 days after receipt of
such notice, reimburse Burlington for such costs plus any other costs paid by
Burlington and not yet reimbursed by Participants, including but not limited to
the drilling, testing, evaluating and completion of the Second Unit Obligation
Well in the Fort Union Formation. Burlington will operate the Second Unit
Obligation Well on behalf of Participants pursuant to the terms of the Operating
Agreement for the Gamma Ray Unit, unless after completion, Participants provide
Burlington written notice that the Participants desire to operate such well. In
such event, Burlington will provide Participants with an executed Designation of
Agent allowing Participants to operate said well under the terms of the Gamma
Ray Unit Agreement.
If Participants elect to complete the Second Unit Obligation Well in
the Fort Union Formation and fail to obtain production of Economic Quantities of
Hydrocarbons, then Participants shall notify Burlington of such event and of
Participants' desire to discontinue such completion operations. Burlington will
have 24 hours after receipt of this notice in which to elect either (i) to
resume drilling and continue drilling at Burlington's sole expense until the
Base of the Lance Formation has been penetrated in the Second Unit Obligation
Well or (ii) to plug and abandon the well at Participants' sole expense.
It is understood, and Participants agree Burlington may, at its option,
drill the Second Unit Obligation Well deeper than the Lance Formation.
4. OPTION WELLS
By conducting the seismic program set forth in Article 2 and drilling
the Second Unit Obligation Well set forth in Article 3 of this Agreement,
Burlington will earn the right and option to drill Option Wells at its sole risk
and expense to test the Lance Formation on lands
covered by the Leases. Burlington shall have the right and option to drill
Option Wells at any time consistent with the plan of development and operation
as then in effect for the Gamma Ray Unit. Burlington is under no obligation to
drill any Option Well, but it must provide written notice to Participants
stating whether it elects to drill an Option Well no later than 60 days before a
well commencement date required by the Gamma Ray Unit Agreement or the Plan of
Development then in effect for the Gamma Ray Unit. If Burlington makes a timely
written notice to drill the well, then Burlington shall thereafter be
contractually bound to drill the well. If Burlington sends a written notice that
it does not elect to drill the well, or if no written notice is timely received
by Participants, then Burlington shall conclusively be deemed to have
surrendered and given up all of its rights to drill additional Option Wells
under this Agreement. However, if Burlington has a pending or approved
Application for Permit to Drill and Burlington sends a written notice that it
does not elect to drill the well, or if no written notice is timely received by
Participants, then, upon written request by Participants, Burlington will assign
such permit along with a Designation of Agent, to Participants.
Burlington's right and option to commence additional Option Wells shall
conclusively terminate on December 31, 2008, or when the maximum number of
sections provided by the last paragraph of this Article 4 have been drilled,
whichever shall first occur. Burlington and Participants understand and agree
that Participants do not own all of the acreage within the Gamma Ray Unit. From
time to time Burlington may elect to drill a well on lands not owned by
Participants. To the extent that any such well satisfies a commencement date
required by the Gamma Ray Unit Agreement or Plan of Development then in effect
for the Gamma Ray Unit, Burlington shall maintain its right and option to drill
Option Wells under this agreement. Burlington will pay 100% of all drilling,
completing and equipping (or plugging and reclamation) costs incurred in
connection with each Option Well drilled by Burlington hereunder.
All Option Wells must be drilled in a Checkerboard Configuration, so
that if the first Option Well is drilled in an even-numbered governmental
section, every Option Well must be drilled in an even-numbered governmental
section, or if the first Option Well is drilled in an odd-numbered section, then
every Option Well must be drilled in an odd-numbered section. By drilling such
Option Wells Burlington shall earn an assignment of a Lease or Interest from
Participants as hereinafter provided. Burlington may earn a Lease or Interest
from Participants under this Agreement up to an aggregate total of 20 sections.
However, Burlington may never earn Leases or Interests under this Agreement
covering more than one-half of the total sections owned by Participants in the
Gamma Ray Unit as of the date of this Agreement.
It is understood, and Participants agree Burlington may, at its option,
drill any Option Well deeper than the Lance Formation.
5. INTERESTS EARNED BY BURLINGTON
When Burlington drills to its Objective Depth and completes either the
Second Unit Obligation Well or an Option Well in a section where it has not
previously earned a Lease or Interest, whether as a producer or as a dry hole,
the Participants will assign to Burlington 100% of their working interest and
operating rights below the Base of the Fort Union Formation in all Leases
covering the section in which such well was drilled, but only to the extent that
such Leases cover lands in that section. The Participants will always reserve
and retain depths from the surface to the Base of the Fort Union Formation.
Burlington will earn from the Base of the Fort Union to 100 feet below depth
drilled.
Assignments of working interest and operating rights in federal and
state leases will be made on the appropriate governmental forms. Assignments of
fee leases will be made on the form attached hereto on Exhibit "C" attached
hereto and made a part hereof. All assignments made to Burlington shall deliver
to Burlington an 80% net revenue interest, subject to proportionate reduction.
If the net revenue interest in a Lease or Interest at the date of an assignment
is greater than 80%, then the assigning Participants may reserve to themselves
an overriding royalty equal to the difference between 20% and existing burdens,
so that the delivered net revenue shall be exactly 80%.
6. UNIT FORMATION AND RENTAL REIMBURSEMENT
6.1 Unit Formation Reimbursements. Burlington shall reimburse Shama Zoe
50% of the total amount invoiced by UnitSource Incorporated for its services and
expenses in connection with the formation and approval of the Gamma Ray Unit.
Shama Zoe shall provide photocopies of all of the applicable invoices to
Burlington, and Burlington shall remit its 50% reimbursement within 30 days
after its receipt of these invoices.
6.2 Lease Rental Reimbursements. During the period that Burlington has
the right to drill Option Wells under this Agreement, Burlington agrees to pay
50% of the delay rentals paid in connection with the Leases. Shama Zoe will
invoice Burlington as rentals for such Leases become due and Burlington will pay
such invoice within 30 days after its receipt of each such invoice.
7. AREA OF MUTUAL INTEREST
7.1 Mutual Interest. Participants and Burlington hereby constitute and
designate an Area of Mutual Interest consisting of all the lands covered by the
Gamma Ray Unit Agreement. Such AMI shall be for a term of five (5) years.
Burlington is hereby designated as Operator of the AMI. Burlington agrees to
bear 50% and Participants agree to bear 50% of all costs in connection with any
lease acquisition program conducted by or on behalf of Burlington and/or
Participants within the AMI, including, but not limited to, lease brokerage and
acquisition costs and all related expenses, such as attorneys' fees for title
examination and title curative matters relating to said lease acquisition.
In the event Burlington should acquire any AMI Acreage covering land
within the AMI, Burlington shall promptly notify Participants in writing of the
acquisition of such AMI Acreage. The notice shall set forth (a) the description
of the Lease or Interest acquired, and (b) the pertinent terms of such
acquisition, including copies of leases, assignments, title data and any other
agreement relating to the acquisition of the interests and the rights and
obligations associated therewith. Participants shall have the option to acquire
50% of the AMI Acreage acquired by Burlington in any such Lease or Interest,
proportionately reduced to the Lease or Interest acquired, by paying their 50%
share of the bonus costs associated with the acquisition of the AMI Acreage
acquired. Participants shall have a period of thirty (30) days from receipt of
such notice to exercise such option by giving Burlington notice in writing.
Failure by Participants to respond within the above-specified 30-day period
shall be deemed an election by Participants not to acquire their proportionate
part of the AMI Acreage described in the said notice. Should Participants elect
to acquire its interest, such AMI Acreage shall be assigned free of any
Subsequently Created Burdens or any reservations or exceptions in excess of the
Lease Burdens provided for in the Lease or burdening such Interest on the date
such were acquired by Burlington. Assignments of working interest and operating
rights in federal and state leases will be made on the appropriate government
forms while assignments of fee leases will be made on the form attached hereto
as Exhibit "C". It is agreed that if Participants elect to acquire an interest
in any AMI Acreage so acquired by Burlington under this paragraph, said AMI
Acreage will be owned 50% by Burlington and 50% by Participants. Participants
shall pay, within thirty (30) days from receipt of an invoice, 50% of the bonus
monies paid for the acquisition of the AMI Acreage.
In the event Participants should acquire any AMI Acreage covering land
with in the AMI, Participants shall promptly notify Burlington in writing of the
acquisition of such AMI Acreage. The notice shall set forth (a) the description
of the Lease or Interest acquired, and (b) the pertinent terms of such
acquisition, including copies of leases, assignments, title data and any other
agreement relating to the acquisition of the interests and the rights and
obligations associated therewith. Burlington shall have the option to acquire
50% of the AMI Acreage acquired by Participants in any such Lease or Interest,
proportionately reduced to the Lease or Interest acquired, by paying their 50%
share of the bonus costs associated with the acquisition of the AMI Acreage
acquired. Burlington shall have a period of thirty (30) days from receipt of
such notice to exercise such option by giving Participants notice in writing.
Failure by Burlington to respond within the above-specified 30-day period shall
be deemed an election by Burlington not to acquire their proportionate part of
the AMI Acreage described in the said notice. Should Burlington elect to acquire
its interest, such AMI Acreage shall be assigned free of any Subsequently
Created Burdens or any reservations or exceptions in excess of the Lease Burdens
provided for in the Lease or burdening such Interest on the date such were
acquired by Participants. Assignments of working interest and operating rights
in federal and state leases will be made on the appropriate government forms
while assignments of fee leases will be made on the form attached hereto as
Exhibit "C". It is agreed that if Burlington elects to acquire an interest in
any AMI Acreage so acquired by Participants under this paragraph, said AMI
Acreage will be owned 50% by Burlington and 50% by Participants. Burlington
shall pay, within thirty (30) days from receipt of an invoice, 50% of the bonus
monies paid for the acquisition of the AMI Acreage.
If Burlington and Participants both elect to participate in the
acquisition of AMI Acreage the Operating Agreement, attached hereto as Exhibit
"F", shall become effective to govern all operations conducted by the parties on
such AMI Acreage.
If any AMI Acreage is acquired through a farmout agreement, exploration
agreement or any other agreement that requires a well to be drilled in order to
earn a Lease or Interest in the particular AMI Acreage, then any party who
elects not to participate in the first well drilled under such agreement will
forfeit any and all rights to earn any AMI Acreage acquired under such farmout
or exploration agreement.
8. MISCELLANEOUS PROVISIONS
8.1 Assignability. Due to the unique nature of the relationship between
the Participants and Burlington, the rights of Burlington hereunder shall not be
assigned, subleased, farmed out, or otherwise transferred or conveyed without
the Participants' prior written consent, and any attempt to assign rights
hereunder without the Participants' prior written consent shall cause this
Agreement to terminate as to the interests and land attempted to be assigned.
Should consent for any one assignment be granted, it shall not be considered
consent to any further or additional assignments. A party shall not be relieved
from any liability or responsibility under this Agreement in the event of an
assignment, in whole or in part, and the obligations of this Agreement shall not
only be those of party assigning an interest hereunder, but shall be the joint
and several obligations of each and every assignee of any interest herein or any
land covered hereby. To be effective, a copy of an approved assignment,
sublease, farmout or other transfer of rights under this Agreement shall be
furnished to the Participants within 30 days from the date thereof. With the
exception of assignments affecting oil and gas leases granted pursuant hereto,
other assignments, subleases, farmouts or transfers of rights under this
Agreement shall not be recorded, unless authorized in writing by the
Participants. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors, assigns and legal
representatives. The assignee/lessee under any lease or assignment delivered
hereunder shall be solely responsible for recording of any leases, assignments
or other documents conveyed under this Agreement. This section does not apply to
Leases or Interests earned by Burlington under this Agreement.
8.2 Compliance with Environmental Laws. The operator of any well subject
to this Agreement agrees to cause all of its employees, agents, contractors and
any other persons occupying or present on the premises to comply with all
applicable Environmental Laws. The operator of any well subject to this
Agreement agrees to use every reasonable means to ensure that no Release of
Hazardous Material of any kind whatsoever shall occur as a result of the
operations contemplated hereby. The operator of any well subject to this
Agreement, agrees not to allow, or cause the release of any Hazardous Material
on, into or from the Unit Area that could result in (1) the violation of any
Environmental Law or in the creation of any Environmental Claim, including
without limitation, notification, or remediation, under any Environmental Law or
(2) a diminution in value of the property. The operator of any well subject to
this Agreement, further agrees not to handle, use or otherwise manage and to
cause its employees, agents, contractors, and any other person occupying or
present on the premises not to manage any Hazardous Material in violation of any
Environmental Law and to conduct operations hereunder so as to prevent the
Release or threat of Release of any Hazardous Material on, to, or from the
Unitized Area which could result in an Environmental Claim.
8.3 Exhibits. This Agreement, including the Exhibits attached hereto,
constitutes the entire understanding and agreement with respect to the subject
matter hereof, superseding all negotiations, prior discussions, and prior
agreements and understandings relating to the subject matter. This Agreement may
not be modified or amended except by written instrument duly executed by the
Participants and Burlington and which explicitly states that it is a subsequent
amendment of this Agreement. If any provision of this Agreement is held invalid
or unenforceable, such invalidity or unenforceability shall not affect the
remaining provisions.
8.4 Further Assurances. After execution of this Agreement, each of the
parties agrees to execute, acknowledge and deliver to the other party such
further instruments and take such other action as may be reasonably requested in
order to more effectively assure that all of the respective properties, rights,
titles, interests, estates and privileges intended to be covered or assigned,
delivered or inuring to the benefit of such party hereunder are delivered.
8.5 Governing Law. This Agreement shall be governed and construed
and enforced in
-------------
accordance with the laws of Wyoming.
8.6 Insurance. In all operations conducted by the operator of
any well
----------
hereunder, including without limitation conducting geophysical exploration and
drilling wells, the operator agrees to carry insurance as specified by the
Insurance Requirements reflected in Exhibit "D" attached hereto.
8.7 Notices. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and any communication or delivery hereunder shall be deemed to have been duly
given and received when actually delivered to the address set forth below the
party to be notified addressed as follows:
If to SHAMA ZOE:
Shama Zoe Limited Partnership
7128 South Poplar Lane
Englewood, CO 80112
Telephone: 303-771-1101
Fax: 303-771-1134
If to PANNONIAN:
Pannonian Energy, Inc.
Attention: Howard Sharpe or Mike Decker
14 Inverness Drive East, Suite H-236
Englewood, CO 80112
Telephone: (303) 713-0054 or 0042
Fax: (303) 483-0011
If to BURLINGTON:
BURLINGTON RESOURCES
OIL & GAS COMPANY, LP
Attention: James B. (Trey) Shepherd, III
P. O. Box 51810
Midland, TX 79710
Telephone: (915) 688-6929
Fax: (915) 688-6010
Any party may by written notice so delivered to the other, change the
address to which the delivery shall thereafter be made.
8.8 Plugging Wells. The operator of any well shall properly plug all
wells drilled by it on the Unitized Area and either not capable of or no longer
capable of producing oil or gas in as a Commercial Producer. The operator shall
restore the surface of the land around any plugged well as might be required
under any applicable lease or recorded agreement. The operator of any well shall
comply with all statutory requirements and governmental rules and regulations in
effect at the time of the plugging of any well and agrees to fully defend,
protect, indemnify and hold the other party harmless from and against each and
every claim, demand or cause of action and expense or liability arising from the
operator's failure to plug or properly plug any well or restore the surface.
8.9 Standard of Performance. The operator of any well shall perform all
work under this Agreement with reasonable diligence, prudence and in a
workmanlike manner, as would a reasonable prudent operator under the same or
similar circumstances.
8.10 Substitute Wells. If any well drilled under the terms of this
Agreement fails to reach its objective depth, either because of mechanical
difficulties or because the well encounters excessive water flow, loss of
circulation, excessive pressures, cavities, salt or salt dome material, heaving
shale or other practicably impenetrable conditions which would, in the opinion
of a prudent operator, render further drilling impracticable, then the operator
of such well may at its election commence actual drilling of a substitute well
at approximately the same location with the same objective depth within 30 days
after abandonment of the well being replaced and thereupon the substitute well
should be considered and treated for all purposes as though it were the well for
which it is a substitute.
8.11 Time is of the Essence. Time is of the essence in the performance
of all provisions of this
----------------------
Agreement.
8.12 Warranty. This Agreement is made without express or implied
warranty of any kind. The Participants make no representations or warranties
regarding the quantity, boundaries or availability of the lands in the Gamma Ray
Unit, the Participants' ownership of the said lands, or the Participants' rights
of ingress or egress to said land from or across adjacent or adjoining lands;
and Burlington hereby denies any such representation and warranties, releases
the Participants from any claim for such, and accepts the Participants' acreage
subject to this Agreement with all defects and encumbrances.
8.13 Well Access and Information. The operator of any well shall allow
the other party and their representatives full access to all wells drilled on
the Unitized Area, including access to the records thereof and to the derrick
floor at their sole risk and expense, and the other party shall be provided,
within 10 business days, with samples or copies of all cores, cuttings, logs,
drilling data, testing and completing data, and all information obtained by the
operator pertaining to any well drilled hereunder, and all other well
information reports and data of the nature and within the terms specified on the
Well Data Requirements Schedule attached hereto as Exhibits "E". However, it is
hereby agreed by all parties hereto that if Shama Zoe enters into a
confidentiality agreement with Gilman Hill and his associates for testing all or
any portion of his proprietary technology on either (a) the proprietary "FAST"
drilling system or (b) the proprietary "TALL FRAC" well stimulation/completion
system or any proprietary derivatives therefrom on any well operated by Shama
Zoe and subject to this agreement, then Shama Zoe will not be required to permit
access to such test well or to disclose to any parties hereto any confidential
proprietary information derived from such test well or to the proprietary
technology applied thereto.
8.14 Indemnification. BURLINGTON AGREES TO RELEASE, INDEMNIFY, PROTECT,
DEFEND AND HOLD HARMLESS PARTICPANTS AND THEIR PARENTS, OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS AND REPRESENTATIVES, CONTRACTORS AND SUBCONTRACTORS AT ANY
TIER FROM AND AGAINST ANY AND ALL CLAIMS OR CAUSES OF ACTION, INCLUDING COSTS
AND ATTORNEYS' FEES BROUGHT OR ASSERTED BY BURLINGTON OR ITS EMPLOYEES OR
REPRESENTATIVES ON ACCOUNT OF PERSONAL INJURIES, DEATH OR DAMAGE TO PROPERTY
SUSTAINED BY ANY SUCH PERSONS OR ENTITY IN ANY WAY OCCURRING, INCIDENT TO,
ARISING OUT OF OR IN CONNECTION WITH SUCH PERSON'S OR ENTITIES' PRESENCE ON A
PARTICIPANTS' LOCATION OR DERRICK FLOOR, WHETHER OR NOT CAUSED BY THE JOINT
AND/OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF THE INDEMNITEES
UNLESS SUCH INJURY, DEATH, OR DAMAGE IS THE RESULT OF PARTICIPANTS', ITS
CONTRACTOR'S OR SUBCONTRACTOR'S SOLE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
PARTICIPANTS AGREE TO RELEASE, INDEMNIFY, PROTECT, DEFEND AND HOLD HARMLESS
BURLINGTON AND ITS PARENTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
REPRESENTATIVES, CONTRACTORS AND SUBCONTRACTORS AT ANY TIER FROM AND AGAINST ANY
AND ALL CLAIMS OR CAUSES OF ACTION, INCLUDING COSTS AND ATTORNEYS' FEES BROUGHT
OR ASSERTED BY PARTICIPANTS OR ITS EMPLOYEES OR REPRESENTATIVES ON ACCOUNT OF
PERSONAL INJURIES, DEATH OR DAMAGE TO PROPERTY SUSTAINED BY ANY SUCH PERSONS OR
ENTITY IN ANY WAY OCCURRING, INCIDENT TO, ARISING OUT OF OR IN CONNECTION WITH
SUCH PERSON'S OR ENTITIES' PRESENCE ON A BURLINGTON LOCATION OR DERRICK FLOOR,
WHETHER OR NOT CAUSED BY THE JOINT AND/OR CONCURRENT NEGLIGENCE, FAULT OR STRICT
LIABILITY OF THE INDEMNITEES UNLESS SUCH INJURY, DEATH, OR DAMAGE IS THE RESULT
OF BURLINGTON, ITS CONTRACTOR'S OR SUBCONTRACTOR'S SOLE NEGLIGENCE, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
8.15 Applicability to Successors, Assigns and Affiliates. This
Agreement shall be binding upon the parties hereto and their respective
successors and assigns, and likewise shall be binding upon any affiliated
corporations, partnerships, or other business entities of whatever form.
8.16 Force Majeure. In the event either party to this Agreement is
rendered unable, wholly or in part, by force majeure to carry out its
obligations under this Agreement, it is agreed that, upon such party giving
written notice and reasonably full particulars of such conditions constituting
force majeure to the other party hereto within a reasonable time after the
occurrence, then the obligation of the party giving such notice, so far as
affected by force majeure, shall be suspended during continuance of any
inability so caused, but no longer. The cause of the force majeure, so far as
possible, shall be remedied with all reasonable dispatch. The requirement that
any force majeure shall be remedied with all reasonable dispatch shall not
require the settlement of strikes, lockouts or other labor difficulty by the
party involved, contrary to its wishes; how all difficulties shall be handled
shall be entirely within the discretion of the party concerned. The term "force
majeure", as employed herein, shall mean acts of God, strikes, lockouts or other
industrial disturbance, act of the public enemy, wars, riots, epidemics,
lightning, earthquakes, fires, floods or direct injunction, prohibition or
interruption by acts, order, regulations or requirements of governmental
authority.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SHAMA ZOE LIMITED PARTNERSHIP
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
PANNONIAN ENERGY, INC.
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
BURLINGTON RESOURCES OIL & GAS COMPANY LP
By BROG GP INC., IT'S SOLE GENERAL PARTNER
By:______________________________
Name:___________________________
Title:____________________________
Tax ID No:_______________________
EXHIBIT "B"
ATTACHED TO THAT CERTAIN EXPLORATION AGREEMENT DATED AUGUST 15, 2001 BY AND
BETWEEN PARTICIPANTS, AND BURLINGTON RESOURCES OIL AND GAS INC. SUBLETTE COUNTY,
WYOMING DATA LICENSE TERMS AND CONDITIONS
1. BURLINGTON RESOURCES OIL & GAS COMPANY ("Licensor") represents and
warrants that it owns and has the right and authority to deliver the
Data (a description of each seismic line to be included here)
(hereinafter "Data") under the terms of this Agreement. LICENSOR DOES
NOT MAKE ANY GUARANTEE AS TO THE ACCURACY OF THE DATA AND DISCLAIMS ALL
IMPLIED WARRANTIES INCLUDING FITNESS FOR A PARTICULAR PURPOSE AND
MERCHANTABILITY. SHAMA ZOE LIMITED PARTNERSHIP AND PANNONIAN ENERGY,
INC. (collectively, together with their successors and assigns, the
"Licensee") WILL HAVE SOLE RESPONSBILITY FOR ANY ACTIONS TAKEN BY IT,
OR BY OTHERS RELYING ON ITS ADVICE, BASED ON THE DATA LICENSED UNDER
THIS AGREEMENT.
2. LICENSOR shall continue to own the Data as well as any copyright, trade
secret or any other intellectual property related to the Data and shall
have the exclusive right to sell, trade, loan, copy, disclose,
distribute, transfer or otherwise make available Data; provided that
LICENSEE may make copies of the Data and any derivative works for its
own internal use.
3. LICENSEE agrees that the Data received subject to this Agreement,
including any copies and any derivative works, and the Data in
reprocessed form (but not including any analysis or interpretation),
shall be maintained as confidential, shall be for its own internal use
only and that the Data shall not be disclosed, sold, traded
distributed, transferred, disposed of or otherwise made available to
other parties except under the following conditions:
a. LICENSEE may provide the Data to a consultant for the preparation of an
analysis or interpretation or for reprocessing for LICENSEE,
provided such consultant is not allowed to retain a copy of
the Data and agrees to treat the Data as confidential;
b. LICENSEE may show, but may not provide copies of, the Data to an
affiliate of LICENSEE; provided that said affiliates agree to
hold all such Data in confidence;
c. Such Data may be shown to, and copies thereof provided to,
agencies of federal and state governments having jurisdiction
to the extent required by applicable law or regulation
provided that LICENSEE shall promptly advise LICENSOR, in
writing, of full details of each request, demand, order, etc.
for the Data, to whom disclosure is to be made, and the law or
regulation requiring disclosure and shall take all actions,
and assist in taking actions, as permitted by applicable laws
and regulations to object to such disclosures and to require
the confidential treatment of the Data which must be
disclosed.
d. LICENSEE may show the Data in LICENSEE's offices to third
parties when endeavoring to make a bona fide contract with a
third party relating to specific drilling operations, but in
no case shall third parties be allowed to copy the data, to
have it in their possession outside of LICENSEE's offices, or
to further disclose such information to others.
LICENSOR LICENSEE
BURLINGTON RESOURCES SHAMA ZOE LIMITED PARTNERSHIP
OIL & GAS COMPANY
-------------------------- ----------------------------------
S. Keith Frank (Signature)
Attorney-in-Fact
Date:______________________ Date:_____________________________
PANNONIAN ENERGY, INC.
---------------------------------
(Signature)
Date:_____________________________
EXHIBIT "C"
ATTACHED TO THAT CERTAIN EXPLORATION AGREEMENT DATED AUGUST 15, 2001 BY AND
BETWEEN PARTICPANTS, AND BURLINGTON RESOURCES OIL AND GAS INC. SUBLETTE COUNTY,
WYOMING
ASSIGNMENT
STATE OF WYOMINGss.
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF SUBLETTE ss.
WHEREAS, _____________________, whose mailing address is _____________,
is the present owner of an interest in those certain Oil, Gas and Mineral Leases
described in Exhibit "A" attached hereto and made a part hereof,
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, ____________________, as Assignor, does hereby
transfer, assign and convey, without warranty of title, express or implied, unto
BURLINGTON RESOURCES OIL & GAS COMPANY, INC. whose mailing address is P. O. Box
51810, Midland, Texas 79710, its successors and assigns, as Assignee, an
undivided 100% of Assignor's right, title and interest in and to the Oil, Gas
and Mineral Leases describe