Archer Petroleum Corp (Archer or the Company)is pleased to announce its entry into a purchase and sale agreement (the “Acquisition Agreement”) with Arrakis Oil Recovery, LLC (“Arrakis”) for the acquisition by Archer of a 25% interest in the Peak Project, and a sublicense agreement (the “Sublicense Agreement”) with Phoenix Metals, Inc. (dba Imperial Chemical Company) (“ICC”) for the acquisition of certain exclusive international production and sales rights for Sandklene 950. Arrakis and ICC are subsidiaries of Imperial Petroleum Inc. (“Imperial Petroleum”).
The Peak Project, located in Logan county, Kentucky, totaling approximately 270 acres, is comprised of certain lands included in mining permit application Number 071-9702 which are subject to a joint venture (the “Peak JV”) between Arrakis and Peak Concepts, LLC (“Peak”). The Peak JV is being carried out through MidAmerica Oil Sands, LLC.
Pursuant to the Acquisition Agreement, Arrakis agreed to sell a 25% interest in the Peak JV to Archer in consideration for the issuance of 500,000 common shares of Archer (collectively, the “Archer Shares”) and US$300,000 of expenditures being incurred on the operations of the Peak JV, which expenditures shall be incurred on a timeline to be mutually agreed upon by Arrakis and Archer, provided that Archer shall not be required to expend more than US$50,000 in the six months following closing of the acquisition. On closing, the membership interests in the Peak JV are expected to be held as to 25% by Arrakis, 25% by Archer, and 50% by Peak. The Archer Shares to be issued on closing will be subject to a statutory hold period expiring four months and one day after the issuance of the Archer Shares.
Pursuant to the Sublicense Agreement, ICC has granted Archer an exclusive sublicense and the exclusive right to utilize the License (as defined below) in international markets to manufacture, sell and market Sandklene 950 in international territories, except with respect to operations conducted by or facilities owned in whole or in part, now or in the future, by certain existing customers of ICC (the “Sublicense”). The Sublicense does not give Archer any rights to manufacture, sell or market Sandklene 950 to any parties for use within the United States, including operations or facilities owned or managed by Archer. Sandklene 950 is a chemical wetting agent useful in the recovery of oil from tar sands. The original license for Sandklene 950 was granted to Imperial Petroleum by MDEChem, Inc. (“MDE”), and Imperial Petroleum assigned the exclusive rights to manufacture, sell and market Sandklene 950 (the “License”) to ICC.
In consideration of ICC granting Archer the Sublicense, Archer has agreed to reserve and pay to ICC US$400,000 and a royalty of US$1.00 for each gallon of Sandklene 950 manufactured by Archer, which royalty is in addition to the royalty of US$1.75 per gallon reserved to MDE as provided for under the License. ICC, however, has agreed to pay Archer a royalty of US$1.00 per gallon on all sales of Sandklene 950 to existing customers for their operations outside of Canada and the United States. Pursuant to the Sublicense Agreement, if Archer defaults on its obligations under the Acquisition Agreement to spend $300,000 on the operations of the Peak JV and issue 500,000 Archer Shares on or before January 31, 2014, then Archer will be required to pay the balance of the $300,000 that it has not spent on the operations of the Peak JV and to issue the balance of the Archer Shares that it has not issued to ICC in order to maintain the Sublicense. Also, MDE has agreed that in the event that Imperial Petroleum defaults or otherwise terminates the License, MDE will allow Archer’s rights to manufacture, sell and market Sandklene 950 to continue as provided for in the Sublicense Agreement.
Closing of the proposed transaction is subject to a number of conditions, including the parties completing their respective due diligence and approval of the TSX Venture Exchange. The Acquisition Agreement may be terminated at any time by mutual agreement of the parties. Unless otherwise agreed to by the parties, the Acquisition Agreement will automatically terminate in the event that the closing conditions are not fulfilled or waived by the closing date or if the proposed transaction does not close on or before July 15, 2013. The Company expects that a portion of the funds raised pursuant to the private placement financing of the Company announced on June 10, 2013 will be used to fund the Company’s obligations pursuant to the Acquisition Agreement.
