EXECUTION COUNTERPART
STOCK PURCHASE AND SALE AGREEMENT
among
DUNE ENERGY, INC.
(the "Purchaser"),
GOLDKING ENERGY CORPORATION
(the "Company")
and
GOLDKING ENERGY HOLDINGS, L.P.
(the "Shareholder")
As of April 13, 2007
STOCK PURCHASE AND SALE AGREEMENT
This STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into effective as of this 13th day of April, 2007, by and among DUNE
ENERGY, INC., a Delaware corporation (the "Purchaser"), GOLDKING ENERGY
CORPORATION, a Delaware corporation (the "Company"), and GOLDKING ENERGY
HOLDINGS, LP, a Texas limited partnership, as the sole shareholder of the
Company (the "Shareholder").
R E C I T A L S:
A. The Shareholder desires to sell, and Purchaser desires to purchase, all
of the issued and outstanding shares of capital stock of the Company for the
consideration and on the terms set forth in this Agreement.
B. The Purchaser, the Shareholder and the Company (the "Parties") desire
to make certain representations, warranties, covenants and agreements in
connection with this Agreement.
In consideration of the recitals and the mutual covenants and agreements
set forth in this Agreement, the Parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, each of the
following terms has the meaning given in this Section 1.1 or in the Sections
referred to below:
"AAA" has the meaning specified in Section 10.1.
"Accounting Firm" has the meaning specified in Section 5.10(c).
"Adjusted Consideration" means the Base Consideration as adjusted pursuant
to Section 2.2(a).
"Advisory Services Agreement" means the Advisory Services, Reimbursement
and Indemnification Agreement between the Company and Natural Gas Partners,
dated as of July 26, 2004.
"Affiliate" means, with respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person. For
purposes of this definition, the term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of voting securities,
contract, voting trust, membership in management or in the group appointing or
electing management, or otherwise through formal or informal arrangements or
business relationships.
"Affiliated Group" means any affiliated group within the meaning of
Section 1504(a) of the Code or any similar group defined under a similar
provision of state, local, or foreign Tax Law.
"Aggregate Defect Threshold" has the meaning specified in Section 5.9(b).
"Agreement" means this Stock Purchase and Sale Agreement, as amended,
supplemented or modified from time to time.
"Allocated Values" means the allocation of values for certain Assets of
the Company shown on Schedule 1.1.
"Ancillary Agreements" means those letters of credit, escrow accounts,
bonds and other similar agreements or arrangements that have been obtained by or
on behalf of the Company or the Subsidiary for the benefit of Third Parties
pursuant to the terms of the Leases or other agreements to which the Company or
the Subsidiary is a party and which may terminate upon the Closing, including,
without limitation, those letters of credit, escrow accounts, bonds and other
similar agreements or arrangements described on Schedule 3.2(d). Ancillary
Agreements shall not constitute nor be included within the definitions of "Bank
Credit Agreements", "Debt", or "Material Agreements" as used in this Agreement.
"Arbitration Notice" has the meaning specified in Section 10.3.
"Arbitration Proceeding" has the meaning specified in Section 10.1.
"Assets" means the Oil and Gas Interests of the Company and the
Subsidiary, together with the other real and personal property reflected in the
Financial Statements, the Material Agreements, and all other assets and
properties owned by the Company or the Subsidiary (including without limitation,
the Seismic Licenses).
"Bank Credit Agreement(s)" means, collectively, the Credit Agreement and
the Second Lien Term Loan Agreement.
"Base Consideration" has the meaning specified in Section 2.2(a).
"Cash Portion" has the meaning specified in Section 2.2(a).
"Casualty Event" means any fire, explosion, earthquake, act of the public
enemy, act of God, or other event or occurrence that results in damage to or the
destruction of an Asset.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System List.
"Claims", for purposes of this Agreement, means, whether arising out of
this Agreement or otherwise, any and all claims, demands, Liens, notices of
non-compliance or violation, notices of liability or potential liability,
investigations, actions (whether judicial, administrative, or arbitrational),
causes of action and suits.
"Closing" means the closing and consummation of the transactions
contemplated by this Agreement.
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"Closing Date" means the date on which the Closing occurs.
"Closing Date Statement" shall have the meaning set forth in Section
5.10(a).
"COBRA" means the Consolidated Omnibus Reconciliation Act of 1985, as
amended, as contained in Section 4980B of the Code.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any successor
Governmental Authority.
"Company" has the meaning set forth in the introductory paragraph of this
Agreement.
"Company Benefit Policy" has the meaning specified in Section 3.8(a).
"Company Certificate" means a certificate representing shares of the
Company Common Stock.
"Company Common Stock" means the issued and outstanding common stock, par
value $0.01 per share, of the Company.
"Company Employee(s)" has the meaning specified in Section 3.7.
"Company Employee Benefit Plans" has the meaning specified in Section
3.8(a).
"Company Permits" has the meaning specified in Section 3.12.
"Company Representative" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors) or other
representative of the Company or the Subsidiary.
"Confidentiality Agreement" means the letter agreement dated October 19,
2006, between the Company and Purchaser relating to the Company's furnishing of
information to Purchaser in connection with Purchaser's evaluation of a possible
transaction between the Company and Purchaser.
"Confidentiality and Non-Compete Agreements" means the Confidentiality and
Noncompete Agreements dated as of July 26, 2004, by and among the Shareholder,
the Company and each of Xxxxxxx X. Xxxxxxxxx, Xx., Xxxxxxx X. XxXxxxx and Xxxxx
X. XxXxxxxxx.
"Consideration Shares" has the meaning specified in Section 2.2(a).
"Consultant(s)" has the meaning specified in Section 5.9(a)(iii).
"County" has the meaning specified in Section 10.1.
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"Credit Agreement" means that certain Credit Agreement, dated as of
September 28, 2006, by and among Goldking Energy Corporation, predecessor in
interest to the Subsidiary, as Borrower, and Bank of America, N.A., as
Administrative Agent, and Union Bank of California, N.A., as Syndication Agent,
as amended by that certain First Amendment to Credit Agreement, dated December
19, 2006, by and among the Subsidiary, as Borrower, the Company, as Parent, and
Bank of America, N.A., as Administrative Agent, and Union Bank of California,
N.A., as Syndication Agent.
"Cure Period" has the meaning specified in Section 5.9(e).
"Damages" means any and all liabilities, damages and losses, judgments,
and all costs or expenses, including reasonable attorneys' and consultants' fees
and other costs and expenses incurred in connection with the investigation and
defense or settlement of same, incurred in respect of Third Party Claims or
Claims between the Parties, but excluding special, incidental, indirect,
consequential, punitive or exemplary damages (unless such amount is recovered
from an indemnified Person pursuant to a claim by a Third Party).
"Debt" means, for any Person, without duplication: (a) all obligations of
such Person for borrowed money; (b) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; provided, however, that
the obligations evidenced by that certain Premium Finance Agreement, Disclosure
Statement and Security Agreement, by and between the Company and MD Premium
Finance Corporation evidencing total premium payments of $3,401,206.24, shall
not be included in this definition of Debt; (c) all indebtedness of such Person
on which interest charges are customarily paid or accrue; (d) the unreimbursed
portion of all letters of credit issued for the account of such Person; (e) any
obligation of such Person representing the deferred purchase price of property
or services purchased by such Person other than trade payables incurred in the
ordinary course of business and which are not past due in accordance with their
terms; (f) any indebtedness, liability or obligation secured by a Lien on the
assets of such Person whether or not such indebtedness, liability or obligation
is otherwise non-recourse to such Person; (g) the present value of all
obligations in respect of leases that are capitalized on the books and records
of such Person; (h) liabilities with respect to payments received in
consideration of Hydrocarbons yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas in
return for payments already received and the undischarged balance of any
production payment, forward sale, balancing, deferred production, or similar
arrangement relating to the future delivery of Hydrocarbons produced from or
allocable to the Oil and Gas Interests without receiving full payment therefor
at or after the time of delivery created by such Person or for the creation of
which such Person directly or indirectly received payment); and (i) all
liability of such Person as a general partner or joint venturer for obligations
of the nature described in clauses (a) through (h) preceding; provided, however,
any agreement, contract, commitment or understanding evidencing or related to
(i) any Hedging Transaction or (ii) any Ancillary Agreement shall not constitute
Debt.
"Defensible Title" means (a) with respect to Leases and Lands, such title
that (i) is evidenced by an instrument or instruments filed of record in
accordance with the conveyance and recording laws of the applicable
jurisdiction; (ii) entitles the Company to receive throughout the life of the
applicable well, Unit, or Lease shown on Schedule 1.1, a share of the
Hydrocarbons produced from such well, Unit, or Lease at least equal to the NRI
shown on Schedule 1.1 for such well, Unit, or Lease, without reduction,
suspension or termination, except for decreases where the Company is obligated
to allow others to make up past underproduction, (iii) obligates the Company to
bear, without increase throughout the life of such well, Unit, or Lease, a share
of the costs and expenses of operations on and the development and maintenance
of such well, Unit, or Lease no greater than the WI shown on Schedule 1.1 for
such well, Unit, or Lease, except increases that result in at least a
proportionate increase in the Company's NRI in such well, Unit, or Lease, and
(iv) except for Permitted Encumbrances, is free and clear of all Liens, and (b)
with respect to all other Assets, such title that is good and defensible and,
subject to the Permitted Encumbrances, is free and clear of all Liens.
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"Xxxxxxx Money" has the meaning specified in Section 2.6.
"Environmental Defect" has the meaning specified in Section 5.9(a).
"Environmental Law" means any Law relating to the environment, health,
safety, Hazardous Material (including the use, handling, transportation,
production, disposal, discharge or storage thereof), industrial hygiene, the
environmental conditions on, under, or about any real property owned, leased or
operated at any time by the Company or the Subsidiary, including soil,
groundwater, and indoor and ambient air conditions or the reporting or
remediation of environmental contamination, in each case as such Laws may be
amended from time to time. Environmental Laws include, without limitation, the
Clean Air Act, as amended (the "Clean Air Act"), the Federal Water Pollution
Control Act, as amended (the "Clean Water Act"), the Rivers and Harbors Act of
1899, as amended, the Safe Drinking Water Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, as amended
("XXXX"), the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Toxic Substances Control Act, as amended ("TSCA"), the
Occupational Safety and Health Act, as amended ("OSHA"), the Hazardous Materials
Transportation Act ("HMTA"), as amended, the Federal Insecticide, Fungicide, and
Rodenticide Act, as amended ("FIFRA"), the Oil Pollution Act of 1990, as amended
("OPA"), the Texas Solid Waste Disposal Act, the applicable rules of the
Railroad Commission of Texas relating to management or disposal of oilfield
waste and any other Law whose purpose is to conserve or protect human health,
the environment, wildlife or natural resources.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time and the regulations promulgated by the
United States Department of Labor thereunder.
"ERISA Affiliate" means, with respect to the Company or the Subsidiary,
any other Person that, together with the Company and/or the Subsidiary, would be
treated as a single employer under Section 414 of the Code and relevant
regulations promulgated by the United States Treasury Department.
"Exchange Act" means the Exchange Act of 1934, as amended.
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"Excluded Assets" has the meaning specified in Section 2.7.
"Excluded Damages" has the meaning specified in Section 9.2.
"Expiration Date" means the date that is forty-five (45) days after the
date of this Agreement, as such date may be extended by Purchaser pursuant to
Section 2.5 to a date that is no more than sixty (60) days after the date of
this Agreement.
"Financial Statements" means the consolidated balance sheets of the
Company and the Subsidiary, as of December 31, 2006, and 2005, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the years ended December 31, 2006 and 2005 and the period from July 27, 2004 to
December 31, 2004, as audited by Xxxx & Associates LLP, independent certified
public accountants (the "Company's Auditors"), including in each case the notes
thereto, together with the reports thereon of the Company's Auditors.
"GAAP" means generally accepted accounting principles, as recognized by
the U.S. Financial Accounting Standards Board (or any generally recognized
successor), applied on a basis consistent with basis on which the Financial
Statements were prepared.
"Governmental Authority" means any national, state, county or municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over any of the Parties or any of their
respective properties or assets.
"Hazardous Material" means (a) any "hazardous substance" and "pollutants
and contaminants", as defined by CERCLA; (b) any "hazardous waste" as defined by
RCRA; (c) any solid, hazardous, dangerous or toxic chemical, material, waste or
substance, within the meaning of and regulated by any Environmental Law; (d) any
asbestos-containing materials in any form or condition; (e) any polychlorinated
biphenyls in any form or condition; (f) "petroleum, including any fraction
thereof" and "natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel" as those terms are used in CERCLA; (g) any air
pollutant which is so designated by the U.S. Environmental Protection Agency as
authorized by the Clean Air Act; and (h) any wastes regulated by applicable
rules of the Railroad Commission of Texas. The term also includes naturally
occurring radioactive material ("NORM") concentrated, disposed of, released or
present on, resulting from, or in association with Hydrocarbon activities.
"Hedging Transaction" means any futures, hedge, swap, collar, put, call,
floor, cap, option or other contract of the Company or the Subsidiary that is
intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons, interest
rates, currencies or securities.
"Hydrocarbons" means oil, condensate, gas, casinghead gas, natural gas
liquids, and other liquid or gaseous hydrocarbons.
"Indemnified Persons" has the meaning specified in Section 5.6.
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"Individual Environmental Defect Threshold" has the meaning specified in
Section 5.9(b).
"Individual Title Defect Threshold" has the meaning specified in Section
5.9(b).
"Interest Rate" means a rate of interest equal to ten percent (10%) per
annum.
"Lands" means the lands covered by the Leases or included in Units with
which the Leases may have been pooled or unitized.
"Law" means any constitution, common law, statute, code, ordinance,
regulation, rule, injunction, judgment, order, decree, ruling, change or other
official act of any Governmental Authority and "Laws" means all of the
foregoing.
"Leases" means the oil and gas leases, fee mineral interests, subleases,
mineral servitudes, licenses, concessions, and other rights and interests
described more particularly on the attached Exhibit A, whether developed or
undeveloped, and the estates created thereby, as to all Lands and depths covered
thereby or the applicable part or portion thereof if specifically limited as to
depth or geographic extent on Exhibit A, subject to the terms, conditions,
covenants, and obligations set forth in the Leases.
"Lien" means any lien, mortgage, deed of trust, security interest, pledge,
deposit, restriction, burden, encumbrance, right of a vendor under any title
retention or conditional sale agreement, or lease or other arrangement
substantially equivalent thereto, but does not include any production payment
obligation.
"Master Service Agreements" means any agreement, contract, commitment or
understanding described or referred to in Schedule 3.5 (Part II).
"Material Adverse Effect" means (a) when used with respect to the Company
and the Subsidiary, a result or consequence that would materially adversely
affect the financial condition, results of operations or business of the Company
and the Subsidiary, taken as a whole, or the aggregate value of the Assets,
would materially impair the ability of the Company or the Subsidiary to own,
hold, develop and operate the Assets, or would impair the ability of the Company
or the Subsidiary to perform its obligations hereunder or consummate the
transactions contemplated hereby or prevent or materially delay the performance
of this Agreement, excluding, however, changes resulting from commodity price
movements, normal oilfield operating, drilling and producing occurrences or
changes resulting from general economic conditions that may impact the energy
industry as a whole, and (b) when used with respect to Purchaser, a result or
consequence that would materially adversely affect its ability to perform its
obligations hereunder or consummate the transactions contemplated hereby or
prevent or materially delay the performance of this Agreement, excluding,
however, changes resulting from commodity price movements, normal oilfield
operating, drilling and producing occurrences or changes resulting from general
economic conditions that may impact the energy industry as a whole.
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"Material Agreement" means, with respect to any Person, any of the
following agreements, contracts, commitments, or understandings to which such
Person is a party, by which such Person is directly or indirectly bound, or to
which any assets of such Person may be subject (other than oil, gas and mineral
leases and oil and gas leases): (a) all exploration agreements; farmin, farmout,
and participation agreements; dry hole, acreage contribution, and bottom hole
agreements; partnership, joint venture, and similar agreements; operating
agreements; acquisition agreements; area of interest agreements; pooling,
unitization, and communitization agreements; and (b) except to the extent
terminable by the Shareholder, the Company or the Subsidiary without penalty on
notice of sixty (60) days or less, any agreements that involve the expenditure
of more than, or the collection of revenue of more than, $25,000 on average per
month, including, without limitation: Hydrocarbon purchase, sale, exchange,
gathering, storage, transportation, and marketing agreements; balancing
agreements; processing, fractionation, compression, condensate removal and
handling, dehydration, treatment, and separation agreements; saltwater, water,
and waste injection and disposal agreements; options; service agreements;
communications, facilities, computer, software, and equipment leases and
licenses, to the extent transferable; futures contracts, derivatives agreements,
other risk management agreements, and insurance policies, to the extent
transferable; provided, however, that any agreement, contract, commitment or
understanding evidencing or related to any Hedging Transaction, or any Debt of
the Company or the Subsidiary, or that constitutes an Ancillary Agreement,
Lease, Master Service Agreement, or Seismic License, shall not constitute a
Material Agreement.
"Natural Gas Partners" means Natural Gas Partners VII, L.P., a Delaware
limited partnership.
"NRI" means the fractional interest in Hydrocarbons produced from or
allocated to a well, Unit, or Lease that the Company is entitled to receive
(including any royalties or overriding royalties that the Company owns), after
deduction of all royalties, overriding royalties, production payments, carried
interests, reversionary interests, and other burdens upon and payments out of
production that burden the Company's or the Subsidiary's interest.
"Oil and Gas Interest(s)" means (a) the undivided interests specified in
Exhibit A, together with any and all other rights, titles, and interests of the
Company and/or the Subsidiary (including, in each case, working interests,
record title interests, interests in operating rights, farm-out or farm-in
rights, rights under joint operating agreements, royalty interests, overriding
royalty interests, carried interests, production payments, net profits
interests, reversionary rights, reservations, possibilities of reverter,
conversion rights and options, and any and all other direct and indirect
interests in and rights with respect to Hydrocarbons of any kind and nature) in,
to, under, or derived from the Leases and Lands; (b) interests in and rights
with respect to Hydrocarbons and other minerals or revenues produced therefrom
or allocable thereto and contracts in connection therewith and claims and rights
thereto (including unitization and pooling agreements and orders, division
orders, transfer orders, mineral deeds, royalty deeds, oil and gas sales,
exchange and processing contracts and agreements, and in each case interests
thereunder); (c) surface interests, fee interests, easements, rights of way,
licenses, permits, surface leases, and other interests associated with,
appurtenant to, or necessary for the operation of any of the foregoing; (d)
interests in equipment and machinery, including Hydrocarbon xxxxx, injection
xxxxx, disposal xxxxx, well equipment and machinery, oil and gas production,
gathering, transmission, compression, treating, processing and storage
facilities (including tanks, tank batteries, pipelines and gathering systems),
pumps, water plants, electric plants, gasoline and gas processing plants,
refineries and other tangible personal property, equipment, and fixtures
associated with, appurtenant to, or necessary for the operation of any of the
foregoing; and (e) subject to any applicable confidentiality or similar
agreements, and to the extent the Company or the Subsidiary owns or has access
to, maps, logs, geological, geophysical, reserve engineering, and other
scientific and technical information, reports, and data (including, without
limitation, conventional and 3-D seismic data) that relate to the items listed
in this definition and are proprietary to the Company or the Subsidiary, but
excluding any interests in and rights under the Seismic Licenses.
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"Parties" has the meaning set forth in the second Recital of this
Agreement.
"Permitted Encumbrances" means (a) Liens for Taxes, assessments or other
governmental charges or levies if the same shall not at the particular time in
question be due and delinquent or (if foreclosure, or other similar proceedings
shall not have been commenced or, if commenced, shall have been stayed) are
being contested in good faith by appropriate proceedings; (b) Liens of carriers,
warehousemen, mechanics, laborers, materialmen, landlords, vendors, workmen and
operators arising by operation of law in the ordinary course of business or by a
written agreement existing as of the date hereof and necessary or incident to
the exploration, development, operation and maintenance of Hydrocarbon
properties and related facilities and assets for sums not yet due or being
contested in good faith by appropriate proceedings; (c) Liens incurred in the
ordinary course of business in connection with worker's compensation,
unemployment insurance and other social security legislation (other than ERISA)
which would not, individually or in the aggregate, result in a Material Adverse
Effect on the Company; (d) Liens incurred in the ordinary course of business to
secure the performance of bids, tenders, trade contracts, Leases, statutory
obligations, surety and appeal bonds, performance and repayment bonds and other
obligations of a like nature; (e) easements, rights-of-way, surface leases,
licenses, restrictions, servitudes, permits, conditions, covenants, exceptions,
reservations and other similar encumbrances incurred in the ordinary course of
business or existing on property not materially impairing the value of the
Assets or interfering with the ordinary conduct of the business of the Company
or the Subsidiary or rights to any of the Assets; (f) Liens created or arising
by operation of Law to secure a Party's obligations as a purchaser of oil and
gas; (g) all rights to consent by, required notices to, filings with, or other
actions by Governmental Authorities to the extent customarily obtained
subsequent to the Closing; (h) farmin, farmout, carried working interest, joint
operating, pooling, unitization, royalty, overriding royalty, sales and similar
agreements relating to the exploration or development of, or production from,
Hydrocarbon properties entered into in the ordinary course of business, provided
the effect thereof does not operate to reduce the NRI of the Company or the
Subsidiary for any well, Unit or Lease below the NRI set forth in Schedule 1.1
for such well, Unit or Lease or increase the WI of the Company or the Subsidiary
for any well, Unit or Lease above the WI set forth in Schedule 1.1 for such
well, Unit or Lease (unless there is a corresponding increase in the NRI for
such well, Unit or Lease); (i) any defects, irregularities or deficiencies in
title to the Oil and Gas Interests which (A) do not operate to reduce the NRI of
the Company or the Subsidiary for any well, Unit or Lease below the NRI set
forth in Schedule 1.1 for such well, Unit or Lease or increase the WI of the
Company or the Subsidiary for any well, Unit or Lease above the WI set forth in
Schedule 1.1 for such well, Unit or Lease (unless there is a corresponding
increase in the NRI for such well, Unit or Lease) and (B) do not materially
impair the ownership, operation, use, or value of the Assets or interfere with
the ordinary conduct of the business of the Company or the Subsidiary or rights
to any of the Assets; (j) preferential rights to purchase and Third-Party
Consents (A) the operation of which is not triggered or which are otherwise not
applicable to the transaction contemplated hereby or (B) with respect to which
waivers or consents have been obtained from the appropriate Persons or the
appropriate time period for asserting the right has expired without an exercise
of the rights, in each case, prior to the Closing; (k) valid, subsisting and
applicable Laws, provided the effect thereof does not operate to reduce the NRI
of the Company or the Subsidiary for any well, Unit or Lease below the NRI set
forth in Schedule 1.1 for such well, Unit or Lease or increase the WI of the
Company or the Subsidiary for any well, Unit or Lease above the WI set forth in
Schedule 1.1 for such well, Unit or Lease (unless there is a corresponding
increase in the NRI for such well, Unit or Lease); and (l) with respect to those
Oil and Gas Interests acquired by the Company or the Subsidiary from Hilcorp
Energy II, L.P., Hilcorp Energy I, L.P., and Hilcorp Energy IV, L.P., defects or
irregularities in title which for the five (5) year period preceding the date of
the Agreement have not delayed or prevented the Company or the Subsidiary (or
its predecessor, if owned by the Company or the Subsidiary less than five (5)
years) from receiving its NRI share of the proceeds of production or caused it
to bear a share of expenses and costs greater than its WI share from any well,
Unit or Lease.
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"Person" (whether or not capitalized) means any natural person,
corporation, limited or general partnership, joint venture, association, limited
liability company, trust, bank, trust company, land trust, business trust or
other entity or organization, whether or not a Governmental Authority.
"Purchaser" has the meaning set forth in the introductory paragraph of
this Agreement.
"Purchaser Confidential Information" means any information concerning the
businesses and affairs of Purchaser and its Subsidiaries that is not already
generally available to the public.
"Purchaser Representative" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors), Affiliate or other
representative of Purchaser or its Subsidiaries.
"Records" shall mean all files, records (including, without limitation,
minute books and other corporate records, land and title records, plats,
surveys, abstracts of title, title insurance policies, title opinions, and title
curative, lease, contract, division order, marketing, correspondence,
operations, environmental, insurance, production, accounting, tax, regulatory,
and facility and well records and files) of the Company and the Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
between Shareholder and Purchaser substantially in the form attached hereto as
Exhibit B.
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"Reimbursement Agreement" means that certain Reimbursement Agreement,
dated July 26, 2004, by and among Goldking Holding Corporation, a Delaware
corporation and predecessor in interest to the Company, and Natural Gas
Partners.
"Responsible Officer" means, with respect to any entity, President, the
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer or any
Vice President of such entity.
"Second Lien Term Loan Agreement" means, that certain Second Lien Term
Loan Agreement, dated as of December 19, 2006, by and among the Subsidiary, as
Borrower, the Company, as Parent Guarantor, and Bank of America, N.A., as
Administrative Agent, and the institutions listed therein, as Lenders.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC Reports" has the meaning specified in Section 4.11.
"Seismic Licenses" has the meaning set forth in Section 3.29.
"Shareholder" has the meaning specified in the introductory paragraph of
this Agreement.
"Subscription and Contribution Agreement" means that certain Subscription
and Contribution Agreement, dated July 26, 2004, by and among the Shareholder,
Natural Gas Partners, and other related parties as further described therein.
"Subsidiary" has the meaning specified in Section 3.2(a).
"Subsidiary Common Stock" means the issued and outstanding common stock,
no par value, of the Subsidiary.
"Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any foreign,
federal, state, or local taxing authority in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any legal
requirement relating to any Tax.
"Taxes" means taxes of any kind, levies or other like assessments,
customs, duties, imposts, charges or fees, including income, gross receipts, ad
valorem, value added, excise, real or personal property, asset, sales, use,
federal royalty, license, payroll, transaction, net worth and franchise taxes,
estimated taxes, withholding, employment, social security, workers compensation,
utility, severance, production, unemployment compensation, occupation, premium,
windfall profits, transfer and capital gains taxes or other charges, imposed,
assessed, or collected by a foreign, federal, state or local taxing authority,
including any interest, penalties or additions thereto, whether disputed or not,
and penalties for the failure to file any Tax Return or report and including any
such taxes, levies, assessments, customs, duties, imposts, charges or fees
payable pursuant to any tax-sharing agreement or other contract relating to the
sharing or payment of any such tax, levy, assessment, custom, duty, impost,
charge, or fee.
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"Third Party" means any Person who or which is not a party to this
Agreement or who or which is not an Affiliate of any party to this Agreement.
"Third Party Consent" means the consent or approval of any Person other
than the Company, Purchaser or any Governmental Authority.
"Title Defect" has the meaning specified in Section 5.9(a).
"2006 Year End Audited Balance Sheet" means the audited consolidated
balance sheet of the Company and the Subsidiary as at December 31, 2006,
included in the Financial Statements.
"Units" means all unitization, communitization and pooling agreements and
orders covering the Lands and/or the Leases, or any portion thereof, and the
pooled, unitized, and/or communitized areas created thereby.
"Voting and Transfer Restriction Agreement" means that certain Voting and
Transfer Restriction Agreement, dated July 26, 2004, by and among the
Shareholder, Natural Gas Partners, and other related parties as further
described therein.
"WI" means the interest in a well, Unit, or Lease of the Company or the
Subsidiary that is burdened with the obligation to bear a fractional share of
the costs and expenses associated with the exploration, development and
operation of such well, Unit, or Lease.
Section 1.2 References and Titles. All references in this Agreement to
Exhibits, Schedules, Articles, Sections, subsections and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections
and other subdivisions of or to this Agreement unless expressly provided
otherwise. Titles appearing at the beginning of any Articles, Sections,
subsections or other subdivisions of this Agreement are for convenience only, do
not constitute any part of this Agreement, and shall be disregarded in
construing the language hereof. The words "this Agreement," "herein," "hereby,"
"hereunder" and "hereof," and words of similar import, refer to this Agreement
as a whole and not to any particular subdivision unless expressly so limited.
The words "this Article," "this Section" and "this subsection," and words of
similar import, refer only to the Article, Section or subsection hereof in which
such words occur. The word "or" is not exclusive, and the word "including" (in
its various forms) means including without limitation. Pronouns in masculine,
feminine or neuter genders shall be construed to state and include any other
gender, and words, terms and titles (including terms defined herein) in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
As used in the representations and warranties contained in this Agreement,
the phrases "knowledge", "to the knowledge", and similar expressions, when used
with respect to the representing Party, shall mean that Responsible Officers of
such representing Party, individually or collectively, either (a) have actual
knowledge that the matter being represented and warranted is true and accurate
or (b) have no reason to believe that the matter being represented and warranted
is not true and accurate.
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ARTICLE II.
SALE AND TRANSFER OF COMPANY COMMON STOCK; CLOSING
Section 2.1 Purchase and Sale. Subject to the terms and conditions set
forth in this Agreement, at the Closing, the Shareholder will sell and transfer
the Company Common Stock to Purchaser, and Purchaser will purchase the Company
Common Stock from the Shareholder.
Section 2.2 Consideration.
(a) Base Consideration. The base consideration (the "Base Consideration")
for all of the Company Common Stock shall be THREE HUNDRED TWENTY MILLION, FIVE
HUNDRED THOUSAND DOLLARS ($320,500,000.00). The Base Consideration shall be
payable as follows: (i) THREE HUNDRED TWO MILLION, FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($302,500,000.00) in cash (the "Cash Portion"), plus or minus the
adjustments provided for in Section 2.2(b), and (ii) 10,055,866 shares of
Purchaser's common stock, par value $0.001 per share (the "Consideration
Shares"), having a value equal to EIGHTEEN MILLION AND NO/100 DOLLARS
($18,000,000.00). The Base Consideration, plus or minus the adjustments to the
Cash Portion provided for in Section 2.2(b), shall be referred to herein as the
"Adjusted Consideration."
(b) Adjustments to the Cash Portion. The Cash Portion payable at the time
of the Closing shall be calculated as the Cash Portion:
(i) increased by the amount of any additional Debt incurred by the
Company or the Subsidiary during the period between the execution of this
Agreement and the Closing Date in accordance with the Bank Credit Agreement with
respect to the Oil and Gas Interests, up to but not to exceed $8,000,000.00;
(ii) increased by any amount received prior to the Closing by the
Shareholder, the Company, and/or the Subsidiary from EnerVest Energy, L.P., in
connection with an acquisition by the Shareholder from EnerVest Energy, L.P.,
prior to the Closing;
(iii) increased by the amount of interest (if any) accrued on the
Base Consideration pursuant to Section 2.5; and
(iv) reduced by the amounts permitted under Section 5.9 in
connection with uncured Title Defects and unremedied Environmental Defects.
Section 2.3 No Further Ownership Rights in Company Common Stock. The
Adjusted Consideration paid upon the surrender and exchange of shares of Company
Common Stock in accordance with the terms hereof shall be deemed to have been
paid in full satisfaction of all rights pertaining to such shares of Company
Common Stock. After the Closing Date, there shall be no further registration of
transfers on the stock transfer books of the Company of the shares of Company
Common Stock that were outstanding immediately prior to the Closing Date.
Section 2.4 Closing. The Closing shall take place on the Closing Date at
10:00 a.m., Central Standard Time, at the offices of Xxxxx & Xxxxxxxxx LLP, 0000
Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000, or at such other time and place as
is agreed by Purchaser and Shareholder. At the Closing:
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(a) Shareholder shall deliver to Purchaser:
(i) stock certificates representing all of the Company Common Stock
endorsed in blank and the certificates referred to in Section 6.2(a) and Section
6.2(b);
(ii) the releases and other documents described in Section 5.8;
(iii) all consents, waivers, and approvals required to be obtained
by Shareholder from Governmental Authorities and third Persons prior to the
Closing, pursuant to Section 6.1(a) and Section 6.2(c);
(iv) recordable releases and terminations covering all Liens on the
Assets other than those Liens comprising Permitted Encumbrances;
(v) evidence of the resignation or removal of all of the directors
of the Company;
(vi) an opinion, dated the Closing Date, of Xxxxx & Xxxxxxxxx LLP,
counsel for Shareholder, that addresses the matters set forth in Exhibit E, and
that is otherwise in form and substance satisfactory to Purchaser; and
(vii) the Registration Rights Agreement.
(b) Purchaser shall deliver to Shareholder:
(i) the Adjusted Consideration, payable as follows: (A) the Cash
Portion, adjusted as provided in Section 2.2(b) as reflected in the Closing Date
Statement, by wire transfer of immediately available U.S. Funds to an account or
accounts designated by Shareholder in writing to Purchaser; and (B) stock
certificates evidencing the Consideration Shares;
(ii) the certificates referred to in Section 6.3(a) and Section
6.3(b);
(iii) opinions, dated the Closing Date, of Xxxxx & XxxXxxxxx LLP and
Xxxxxxx Xxxxxx L.L.P., counsel for Purchaser, that address the matters set forth
in Exhibit F, and that are otherwise in form and substance satisfactory to
Shareholder;
(iv) if requested by Shareholder pursuant to Section 7.4, the
Sublease Agreement; and
(v) the Registration Rights Agreement.
Section 2.5 Extension of Expiration Date. At any time on or prior to the
date that is forty (40) days after the date of this Agreement, Purchaser may, by
written notice to the Shareholder and the Company, elect to extend the
Expiration Date to a date that is no more than sixty (60) days after the date of
this Agreement. The Cash Portion payable at the Closing shall be increased by an
amount equal to interest accrued at the Interest Rate on the total Base
Consideration, as adjusted pursuant to Sections 2.2(b)(i), 2.2(b)(ii), and
2.2(b)(iv), for each day after the date that is forty-five (45) days after the
date of this Agreement through and including the Closing Date.
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Section 2.6 Xxxxxxx Money. Contemporaneously with the execution of this
Agreement, Purchaser has deposited Fifteen Million U.S. Dollars ($15,000,000)
(the "Xxxxxxx Money") with Shareholder by wire transfer of immediately U.S.
available funds to the account or accounts designated by the Shareholder in
writing to Purchaser. Shareholder shall invest the Xxxxxxx Money in (a) a
Regions Bank money market account, (b) a trust account with Regions Bank or (c)
a money market mutual fund. The Xxxxxxx Money shall earn interest in an amount
specified for the account or fund in which it is invested. In the event the
Closing occurs, the Xxxxxxx Money, plus accrued interest, shall be credited
against the Cash Portion. In the event this Agreement is terminated prior to
Closing, the Xxxxxxx Money shall be distributed pursuant to Section 8.2.
Section 2.7 Excluded Assets. For purposes of this Agreement, the "Excluded
Assets" shall consist of (i) the Assets of the Company and the Subsidiary and
property owned by Xxxxxxx X. Xxxxxxxxx, Xx. described more particularly on
Schedule 2.7, and (ii) ownership of and the right to use the name "Goldking
Energy Corporation," "Goldking Operating Company," or any other variant of the
name "Goldking," including, without limitation, all trademarks, logos, and
internet domain rights related thereto. The Excluded Assets will be, prior to
the Closing, distributed or assigned by the Company or the Subsidiary to the
Shareholder or otherwise transferred to its nominee(s) and shall not constitute
a part of the Assets. If any of the Excluded Assets have not been distributed or
assigned prior to the Closing, then Purchaser shall cause any such Excluded
Assets to be distributed or assigned to the Shareholder or its nominee(s) after
the Closing. None of the representations or warranties of the Shareholder or the
Company set forth in this Agreement, nor any of the other provisions of this
Agreement, shall be applicable to the Excluded Assets.
Section 2.8 Unregistered Shares; Legends: Registration. The Consideration
Shares to be issued to Shareholder as contemplated in Section 2.2(a) will not be
registered under the Securities Act or registered or qualified for sale under
any state securities Law and cannot be resold without registration or an
exemption under the Securities Act. Such shares will therefore be "restricted
securities" as defined in Rule 144 under the Securities Act. Each certificate
representing the Purchaser Common Stock shall bear a restrictive legend
referencing the Securities Act. At the Closing, Shareholder and Purchaser will
execute the Registration Rights Agreement relating to the Consideration Shares.
Section 2.9 Taking of Necessary Action; Further Action. Shareholder and
Purchaser shall use all commercially reasonable efforts to take all such actions
as may be necessary or appropriate in order to effectuate the Closing as
promptly as commercially practicable. If, at any time after the Closing, any
further action is necessary or desirable to carry out the purposes of this
Agreement, all of the Parties shall use all commercially reasonable efforts to
take all such lawful and necessary action.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS AND THE COMPANY
Shareholder hereby represents and warrants to Purchaser as follows:
Section 3.1 Shareholder Representations.
(a) Organization. Shareholder is a limited partnership duly organized and
validly existing under the Laws of the State of Texas. The general partner of
Shareholder is GEH GP, L.L.C., a limited liability company duly organized,
validly existing, and in good standing under the Laws of the State of Texas.
Shareholder has all requisite power and authority to own and operate its
property and assets and to carry on its business as now conducted.
(b) Authority and Enforceability. Shareholder has full capacity, power and
authority to enter into and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary partnership action on the part of
Shareholder, if applicable, and no other partnership proceedings or action on
the part of Shareholder are necessary to authorize the execution or delivery of
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Shareholder and
(assuming that this Agreement constitutes a valid and binding obligation of
Purchaser) constitutes a valid and binding obligation of Shareholder,
enforceable against Shareholder in accordance with its terms.
(c) No Violations. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby and compliance by
Shareholder with the provisions hereof will not, conflict with, result in any
violation of or default under, or result in the creation of any Lien on any of
the properties or assets of Shareholder under any provision of (i) its
partnership agreement, certificate of limited partnership, or other
organizational documents, (ii) assuming the consents, approvals, authorizations
or permits and filings or notifications referred to in Section 3.2(e) are duly
and timely obtained or made, any loan or credit agreement, note, bond, mortgage,
indenture, lease, permit, concession, franchise, license, or Material Agreement
to which Shareholder is a party or by which Shareholder is bound, or (iii) any
judgment, order, decree, or Law applicable to Shareholder or its respective
properties or assets.
(d) Title to Shares. Shareholder is (and at the Closing will be) the sole
record and beneficial owner of, and upon consummation of the transactions
contemplated hereby, Purchaser will acquire valid and marketable title to, all
of the Company Common Stock then issued and outstanding, free and clear of all
Liens, equities, proxies, options, or restrictions, other than (i) those that
may arise by virtue of any actions taken by or on behalf of Purchaser or its
Affiliates or (ii) restrictions on transfer that may be imposed by federal or
state securities Laws.
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(e) Litigation. Except as set forth on Schedule 3.1(e), there is no Claim
by any Person or Governmental Authority (including, without limitation,
expropriation or forfeiture proceedings), and no legal, administrative, or
arbitration proceeding pending or, to Shareholder's knowledge, threatened
against Shareholder or any of its property, or to which Shareholder is a party,
that reasonably may be expected to affect or impair in any material respect the
ability of Shareholder to consummate the transactions contemplated in this
Agreement.
(f) Governmental Approvals. Except for approvals by Governmental
Authorities customarily obtained after the Closing, no authorization, consent,
approval, exemption, franchise, permit, or license of, or filing with, any
Governmental Authority is required to authorize, or is otherwise required by any
Governmental Authority in connection with, the valid execution and delivery by
Shareholder of this Agreement, the transfer of the Company Common Stock to
Purchaser, or the performance by Shareholder of its other obligations hereunder.
(g) No Insolvency. There are no bankruptcy, insolvency, reorganization, or
arrangement proceedings pending, or to Shareholder's knowledge, threatened
against Shareholder or any Affiliate that controls Shareholder.
Section 3.2 Organization and Authority of the Company.
(a) Organization of Company. The Company (i) is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, (ii) has the requisite power and authority to own, lease and operate
its properties and to conduct its business as it is presently being conducted,
and (iii) is duly qualified to do business as a foreign corporation, and is in
good standing, under the Laws of the State of Texas and in each other
jurisdiction where the character of the properties owned or leased by it or the
nature of its activities makes such qualification necessary (except for any such
other jurisdiction where any failure to be so qualified or to be in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on the Company). Copies of the articles of incorporation and by-laws of
the Company have heretofore been delivered to Purchaser, and such copies are
accurate and complete as of the date hereof. The Company is the sole shareholder
of Goldking Operating Company, a Texas corporation (the "Subsidiary"). There are
no other subsidiaries of the Company besides the Subsidiary.
(b) Organization of Subsidiary. The Subsidiary (i) is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Texas, (ii) has the requisite power and authority to own, lease and operate its
properties and to conduct its business as it is presently being conducted, and
(iii) is duly qualified to do business as a foreign corporation in, and is in
good standing under, the Laws of the State of Louisiana and in each other
jurisdiction where the character of the properties owned or leased by it or the
nature of its activities makes such qualification necessary (except for any such
other jurisdiction where any failure to be so qualified or to be in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on the Subsidiary). Copies of the governing documents of the Subsidiary
have heretofore been delivered to Purchaser, and such copies are accurate and
complete as of the date hereof. There are no subsidiaries of the Subsidiary.
17
(c) Authority and Enforceability. The Company has the requisite corporate
power and authority to enter into and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company, including approval by the board of directors and sole shareholder of
the Company, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company and (assuming that this
Agreement constitutes a valid and binding obligation of Purchaser) constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
(d) No Violations. Except as set forth on in Schedule 3.2(d), the
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance by the Company with the
provisions hereof will not, conflict with, result in any violation of or default
(with or without notice or lapse of time or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
benefit under, or result in the creation of any Lien on any of the properties or
assets of the Company or the Subsidiary under, any provision of: (i) the
articles of incorporation, by-laws or other organizational documents of the
Company or the Subsidiary; (ii) assuming the consents, approvals,
authorizations, permits, filings and notifications referred to in Section 3.2(e)
are duly and timely obtained or made, any loan or credit agreement, note, bond,
mortgage, indenture, lease (including Leases), permit, concession, franchise,
license or Material Agreement applicable to the Company or the Subsidiary; or
(iii) any Law applicable to the Company, the Subsidiary, or its respective
properties or assets other than, in the case of clause (ii) or (iii) above, any
such conflict, violation, default, right, loss or Lien that, individually or in
the aggregate, would not have a Material Adverse Effect on the Company or the
Subsidiary.
(e) Consents and Approvals. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for (i) approvals by
Governmental Authorities customarily obtained after the Closing, and (ii) such
filings and approvals as may be required by any securities Law. Except as set
forth in Schedule 3.2(e), no Third Party Consent is required by or with respect
to the Company or the Subsidiary in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby
except for (x) any consents, approvals or payments required under the Seismic
Licenses, (y) any consents, or approvals or payments required under any
agreement, contract, commitment or understanding that is not a Material
Agreement, and (z) any consent, approval, waiver or payment required by the
terms of the Bank Credit Agreement.
Section 3.3 Financial Statements.
(a) Attached hereto as Exhibit G is a copy of the Financial Statements.
The Financial Statements (i) were prepared in accordance with GAAP, (ii) fairly
present, in all material respects, the consolidated financial condition and the
results of operations, changes in shareholders' equity, and cash flows of the
Company and the Subsidiary as at the respective dates of and for the periods
referred to in the Financial Statements, (iii) reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements, and (iv) have
been prepared from and are in accordance with the accounting records of the
Company and the Subsidiary. Shareholder has also delivered to Purchaser copies
of all letters from the Company's Auditors to the boards of directors or the
audit committees of, respectively, Shareholder, the Company, or the Subsidiary
during the thirty six (36) months preceding the execution of this Agreement,
together with copies of all responses thereto.
18
(b) Schedule 3.3(b) contains a complete and accurate list of all accounts
receivable of the Company and the Subsidiary as of February 28, 2007.
(c) Except as set forth on Schedule 3.3(c), since December 31, 2006, (i)
there has not occurred (A) any Casualty Event (whether or not covered by
insurance) that has resulted, or may reasonably be expected to result, in
Damages in excess of $1,000,000, or (B) any other adverse change in the physical
operating condition of the Assets or the financial condition, operations, or
business of the Company or the Subsidiary that has had, or may reasonably be
expected to have, a Material Adverse Effect on the Company or the Subsidiary.
(d) To the knowledge of the Shareholder and the Company, neither the
Company nor the Subsidiary has any liabilities of any kind that would have been
required to be reflected in, reserved against or otherwise described on the 2006
Year End Balance Sheet or in the notes thereto in accordance with GAAP and were
not so reflected, reserved against or described, other than (i) liabilities
incurred in the ordinary course of business after December 31, 2006, (ii)
liabilities incurred in connection with the transactions contemplated hereby and
(iii) liabilities that would not have a Material Adverse Effect on the Company
or the Subsidiary.
Section 3.4 Capital Structure.
(a) The authorized capital stock of the Company consists of 10 shares of
the Company Common Stock, par value $0.10 per share. The authorized capital
stock of the Subsidiary consists of one million (1,000,000) shares of the
Subsidiary Common Stock, no par value per share.
(b) There are, as of the date of this Agreement, issued and outstanding 10
shares of Company Common Stock and one thousand (1,000) shares of Subsidiary
Common Stock. No shares of Company Common Stock are held by the Company as
treasury stock, and no shares of Subsidiary Common Stock are held by the
Subsidiary as treasury stock.
(c) Except as set forth in or pursuant to Section 3.4(b), there are issued
and outstanding (i) no shares of capital stock or other voting securities of the
Company or the Subsidiary, (ii) no securities of the Company, the Subsidiary, or
any other Person convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities of the Company or the Subsidiary, (iii)
no equity equivalents, interests in the ownership or earnings of the Company or
the Subsidiary, or (iv) no subscriptions, options, warrants, calls, rights,
commitments, understandings or agreements to which the Company or the Subsidiary
is a party or by which it is bound obligating the Company or the Subsidiary to
issue, deliver, sell, purchase, redeem or acquire shares of capital stock or
other voting securities of the Company or the Subsidiary (or securities
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities of the Company or the Subsidiary) or obligating the
Company or the Subsidiary to grant, extend or enter into any such subscription,
option, warrant, call, right, commitment, understanding or agreement, or
otherwise relating in any way to the sale, assignment, transfer, encumbrance, or
delivery of the Company Common Stock or the Subsidiary Common Stock.
19
(d) All outstanding shares of Company Common Stock and Subsidiary Common
Stock are duly authorized and validly issued, fully paid and non-assessable and
not subject to any preemptive right.
(e) Except as set forth in Schedule 3.4(e), at the Closing, there will be
no shareholder agreement, voting trust or other agreement or understanding to
which the Company or the Subsidiary is a party or by which it is bound relating
to the voting of any shares of the capital stock of the Company or the
Subsidiary.
(f) There are no outstanding stock appreciations, phantom stock, profit
participation, or similar rights with respect to the Company or the Subsidiary.
(g) All accrued dividends on the Company Common Stock and the Subsidiary
Common Stock, if any, whether or not declared, have been paid.
Section 3.5 Material Agreements. Schedule 3.5 contains a complete list of
the Material Agreements to which either the Company or the Subsidiary is a party
(other than this Agreement and related agreements) or by which the Company, the
Subsidiary, or the Assets are bound, including all amendments and modifications
thereto. The Company has made available to Purchaser or provided Purchaser with
a true and correct copy of all such Material Agreements, including all
amendments and modifications thereof. With respect to the Material Agreements:
(i) to the knowledge of Shareholder and the Company, all Material Agreements are
in effect and have not expired or been terminated; (ii) to the knowledge of the
Shareholder and the Company, neither the Company nor the Subsidiary is in
material breach or material default, and there has occurred no event, fact, or
circumstance that, with the lapse of time or the giving of notice, or both,
would constitute such a material breach or material default by the Company or
the Subsidiary, with respect to the terms of any Material Agreement; (iii) to
the knowledge of Shareholder and the Company, no other party is in material
breach or material default with respect to the terms of any Material Agreement;
and (iv) neither the Company or the Subsidiary nor, to the knowledge of
Shareholder and the Company, any other party to any Material Agreement has given
written notice of any action to terminate, cancel, rescind, or procure a
judicial reformation of any Material Agreement or any provision thereof.
20
Section 3.6 Outstanding Debt. The Financial Statements and Schedule 3.6
together provide a complete and accurate description of all Debt and guaranties
of Debt of the Company and the Subsidiary outstanding as of the date thereof.
Section 3.7 Employment Matters. Schedule 3.7 contains a complete and
accurate list of all officers and employees of the Company and the Subsidiary,
directly or by contract, as applicable (the "Company Employees"), the job title
of each Company Employee, his or her assigned work location, date of hire ,
monthly salary or hourly wage rate(as applicable and in effect as of December
31, 2005 and December 31, 2006 ), most recent federal Form W-2, and a list
indicating any increases in cash compensation which have occurred or are
scheduled to occur after December 31, 2006. There are no material changes in the
cash compensation payable to the Company Employees for calendar years 2007 and
2008 that are not reflected on Schedule 3.7. Except as set forth in Schedule
3.7, neither the Company nor the Subsidiary is a party to or obligated under any
consulting, employment, severance, termination or similar agreement with respect
to any of the Company Employees, or any deferred compensation, incentive, bonus,
profit sharing, pension, stock option, stock purchase or similar plan or other
arrangement or other fringe benefit plan entered into or maintained for the
benefit of the Company Employees, which agreement, plan, or arrangement will
extend beyond or obligate the Company or the Subsidiary after the Closing. The
Company is in material compliance with all Laws pertaining to the Company
Employees, , including all such Laws relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection, withholding and remittance of payroll and other
employment-based Taxes. To the knowledge of Shareholder, the Company and the
Subsidiary, there is no event, fact, or circumstance arising out of or relating
in any way to any employment relationship between the Company or the Subsidiary
and any Company Employee that may reasonably be expected to result in a cause of
action against the Company or the Subsidiary. Neither the Company nor the
Subsidiary has ever been a party to any agreement with any union, labor
organization or collective bargaining unit. No Company Employees are represented
by any union, labor organization or collective bargaining unit. To the knowledge
of Shareholder, the Company and the Subsidiary, none of the Company Employees
has declared an intention or taken any actions to organize, join, or affiliate
with, any union or labor organization. To the knowledge of Shareholder, the
Company and the Subsidiary, all Company Employees are citizens of, or are
otherwise authorized to be employed in, the United States.
Section 3.8 Employee Benefit Plans.
(a) Schedule 3.8 sets forth a complete and accurate list of (i) all those
"employee benefit plans," as defined in Section 3(3) of ERISA, sponsored or
maintained as of the date of this Agreement by the Company or the Subsidiary, or
to which either the Company or the Subsidiary has an obligation to contribute
(each, a "Company Employee Benefit Plan"; and together, the "Company Employee
Benefit Plans"), and (ii) all those policies or programs, sponsored or
maintained by the Company or the Subsidiary but not involving a Company Employee
Benefit Plan, which provide for the payment or provision of severance, sick
leave, vacation pay, short term disability and/or salary continuation, deferred
compensation, stock options, stock purchase rights, educational assistance or
scholarships (each, a "Company Benefit Policy"; and together, the "Company
Benefit Policies"). Prior to the execution of this Agreement, Shareholder has
caused the Company to deliver to Purchaser complete and accurate copies of: (i)
all documents that set forth the terms of each Company Employee Benefit Plan and
any related trust, and with respect to any such Company Employee Benefit Plan
that is intended to constitute a "qualified plan" within the meaning of Section
401(a) of the Code, the most recent determination letter for each such Plan;
(ii) all documents that set forth the terms of each Company Benefit Policy;
(iii) any and all contracts with Third Party administrators, actuaries,
investment managers, consultants and other independent contractors that relate
to any Company Employee Benefit Plan and all insurance policies purchased by or
to provide benefits under any Company Employee Benefit Plan; (iv) any and all
reports submitted within the four (4) years preceding the date of this Agreement
by Third Party administrators, actuaries, investment managers, consultants or
other independent contractors with respect to any Company Employee Benefit Plan;
and (v) the Form 5500s filed in each of the most recent three (3) plan years
with respect to each Company Employee Benefit Plan (to the extent not exempt by
regulation from such filing(s)), including all schedules thereto and the
opinions of independent accountants (where applicable). Except for the Company
Employee Benefit Plans and the Company Benefit Policies, neither the Company nor
the Subsidiary maintains, or has any fixed or contingent liability with respect
to, any employee benefit, pension, or other compensation plan.
21
(b) To the knowledge of the Shareholder and the Company, except as set
forth on Schedule 3.8 hereto, each of the Company, the Subsidiary, and each
Company Employee Benefit Plan is in full compliance with ERISA, the Code, and
other applicable Laws (as relevant). With respect to each Company Employee
Benefit Plan and Each Company Benefit Policy, there exists no condition or set
of circumstances that could reasonably be expected to result in liability which
is reasonably likely to have a Material Adverse Effect on the Company or the
Subsidiary under ERISA, the Code, or any other applicable Law. All filings
required by ERISA and the Code as to each Company Employee Benefit Plan and each
Company Benefit Policy have been timely filed, and all notices and disclosures
to participants and beneficiaries required by either ERISA or the Code have been
timely provided.
(c) To the knowledge of the Shareholder and the Company, (i) each Company
Employee Benefit Plan that constitutes a "qualified plan" under Section 401(a)
of the Code is qualified in form and operation under Section 401(a), (ii) where
relevant, each trust for each such Company Employee Benefit Plan is exempt from
federal income tax under Section 501(a) of the Code, and (iii) no event has
occurred or circumstance exists that will or could give rise to disqualification
or loss of tax exempt status of any such Company Employee Benefit Plan or trust.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in any payment
becoming due to any employee or group of employees of the Company, which payment
will not be made at or prior to the Closing. Except as set forth on Schedule 3.8
hereto, each Company Employee Benefit Plan and each Company Benefit Policy can
be terminated within thirty (30) days without payment of any additional
contribution or amount and without the vesting or acceleration of any benefits
promised by such Company Employee Benefit Plan or Company Benefit Policy.
22
(e) To the knowledge of Shareholder, the Company and the Subsidiary, (i)
all contributions and payments made or accrued with respect to each Company
Employee Benefit Plan and each Company Benefit Policy are deductible (as
relevant) under Section 162 and Section 404 of the Code, (ii) no amount, or any
asset of any Company Employee Benefit Plan, is subject to the tax imposed on
unrelated business income, and (iii) no payment that is due or may become due to
any director, officer, employee or agent of the Company or the Subsidiary will
be non-deductible to the Company or the Subsidiary (as applicable) under Section
280G of the Code or will cause the Company or the Subsidiary to have an
obligation to make any "gross up" or other compensating payments to any
recipient of any payment.
(f) Neither the Company nor the Subsidiary sponsors, maintains or
contributes to, or has any obligation to maintain or contribute to, any employee
welfare benefit plan or similar arrangement which provides retiree medical
benefits or continuing coverage to or for any employee or former employee, or
any dependent of any such employee or former employee, following the termination
of Company or Subsidiary employment by any such employee or former employee,
except as may be required by the continuation coverage provisions set forth in
Part 6 of Title I of ERISA (relating to the COBRA continuation coverage Laws).
(g) Except as set forth on Schedule 3.8 hereto, neither the Company nor
the Subsidiary, nor any ERISA Affiliate of the Company or the Subsidiary,
sponsors, maintains, contributes to or participates in any "multi-employer
pension plan," as defined in Section 3(37) of ERISA, any "defined benefit plan,"
as defined in Section 414(l) of the Code, or any "multiple employer welfare
arrangement," within the meaning of Section 3(40)(A) of ERISA, or any other
employee pension benefit plan subject to Title IV of ERISA.
Section 3.9 Company Litigation. Except as set forth in Schedule 3.9, (a)
no litigation, arbitration, investigation or other proceeding is pending or, to
the knowledge of Shareholder and the Company, threatened against the Company,
the Subsidiary or any of the Assets before any court, arbitrator, or
Governmental Agency; and (b) neither the Company nor the Subsidiary is subject
to any outstanding injunction, judgment, order, decree or ruling (other than
routine oil and gas field regulatory orders). There is no litigation, proceeding
or investigation pending or, to the knowledge of Shareholder and the Company,
threatened against or affecting the Company or the Subsidiary that questions the
validity or enforceability of this Agreement or any other document, instrument
or agreement to be executed and delivered by the Company in connection with the
transactions contemplated hereby.
Section 3.10 Taxes and Tax Returns.
(a) The Company and/or the Subsidiary have filed all material Tax Returns
that it was required to file under applicable Laws. All such Tax Returns were
correct and complete in all material respects and were prepared in substantial
compliance with all applicable Laws. All material Taxes due and owing by Company
and/or the Subsidiary (whether or not shown on any Tax Return) have been paid.
Neither the Company nor the Subsidiary is currently the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever been
made in writing by a Governmental Authority in a jurisdiction in which the
Company and the Subsidiary do not file a Tax Return that the Company or the
Subsidiary is or may be subject to taxation by that jurisdiction. There are no
Liens for Taxes (other than Taxes not yet due and payable) upon any of the
Assets.
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(b) The Company and/or the Subsidiary have withheld and paid all material
Taxes required to have been withheld and paid in connection with any amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third Person.
(c) Neither Shareholder nor any director or officer (or employee
responsible for Tax matters) of the Company or the Subsidiary expects any
Governmental Authority to assess any additional Taxes for any period for which
Tax Returns have been filed. Schedule 3.10(c) lists all federal, state, local,
and foreign income Tax Returns filed with respect to the Company and the
Subsidiary for taxable periods ended on or after December 31, 2004, indicates
those Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of an audit. Shareholder has delivered to Purchaser
correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by the
Company and the Subsidiary filed or received since July 20, 2004. Except as set
forth in Schedule 3.10(c), (i) no foreign, federal, state, or local Tax audits
or administrative or judicial Tax proceedings are pending or being conducted
with respect to the Company or the Subsidiary, and (ii) neither the Company nor
the Subsidiary has received from any foreign, federal, state, or local taxing
authority (including jurisdictions where the Company and the Subsidiary have not
filed Tax Returns) any (A) notice indicating an intent to open an audit or other
review, (B) request for information related to Tax matters, or (C) notice of
deficiency or proposed adjustment for any amount of Tax proposed, asserted, or
assessed by any taxing authority against the Company or any Subsidiary.
(d) Neither the Company nor the Subsidiary has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) Neither the Company nor the Subsidiary is a party to any agreement,
contract, arrangement or plan that has resulted or could result, separately or
in the aggregate, in the payment of (i) any "excess parachute payment" within
the meaning of Section 280G of the Code (or any corresponding provision of
state, local or foreign Tax Law), or (ii) any amount that will not be fully
deductible as a result of Section 162(m) of the Code (or any corresponding
provision of state, local or foreign Tax Law). The Company and the Subsidiary
have disclosed on their federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax
within the meaning of Section 6662 of the Code. Neither the Company nor the
Subsidiary is a party to, or bound by, any Tax allocation or sharing agreement.
Neither the Company nor the Subsidiary (x) has been a member of an Affiliated
Group filing a consolidated federal income Tax Return (other than the group the
common parent of which is the Company) or (y) has never had any liability for
the Taxes of any Person (other than the Company) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local, or foreign Law),
as a transferee or successor, by contract, or otherwise.
(f) Neither the Company nor the Subsidiary is a party to any contract or
agreement that creates, for federal income Tax purposes, a partnership among the
parties to such contract or agreement for which a partnership income Tax Return
is required to be filed under the provisions of Subchapter K of Chapter 1 of
Subtitle A of the Code (other than a partnership for which an election is in
effect pursuant to Section 761 of the Code and the Treasury Regulations
thereunder to be excluded from such provisions).
24
(g) Neither the Company nor the Subsidiary is a foreign person within the
meaning of Section 1445(f)(3) of the Code.
(h) Beginning with the calendar year ending December 31, 2004, and for
each calendar year thereafter, neither the Company nor the Subsidiary has
participated in a transaction required to be registered or disclosed to the
Internal Revenue Service pursuant to Section 6111 of the Code or Section
1.6011-4 of the Treasury regulations, or for which lists are required to be
maintained pursuant to Section 6112 of the Code.
(i) Neither the Company nor the Subsidiary will be required to include any
item of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Effective Time as a result
of any: (i) change in method of accounting for a taxable period ending on or
prior to the Effective Time; (ii) "closing agreement" as described in Section
7121 of the Code (or any corresponding or similar provision of state, local or
foreign income Tax Law) executed on or prior to the Effective Time; (iii)
intercompany transaction or excess loss account described in Treasury
regulations under Section 1502 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax Law); (iv) installment sale or
open transaction disposition made on or prior to the Effective Time; or (v)
prepaid amount received on or prior to the Effective Time.
(j) Neither the Company nor the Subsidiary has distributed stock of
another Person, or has had its stock distributed by another Person, in a
transaction that was purported or intended to be governed in whole or in part by
Sections 355 or 361 of the Code.
Section 3.11 Ownership of Assets. Except as set forth in Schedule 3.11,
the Company and Subsidiary have Defensible Title to all of the Assets.
Section 3.12 Compliance with Laws and Permits. Neither the Company nor the
Subsidiary is in material violation of, or in default in any respect under, and
no event has occurred that (with notice or the lapse of time or both) would
constitute a violation of or default under: (a) its governing documents; or (b)
any Law, except for any violation or default that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. The Company and
the Subsidiary have obtained and hold all permits, licenses, variances,
exemptions, orders, franchises, approvals and authorizations of all Governmental
Authorities necessary for the lawful conduct of its business or the lawful
ownership, use and operation of the Assets (the "Company Permits"), except for
Company Permits which the failure to obtain or hold would not, individually or
in the aggregate, have a Material Adverse Effect on the Company or the
Subsidiary. All of such Company Permits are in full force and effect. The
Company and the Subsidiary, as applicable, and, to the knowledge of Shareholder
and the Company, are in compliance with the terms of the Company Permits, except
where the failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. No investigation or review by any
Governmental Authority with respect to the Company or Subsidiary is pending or,
to the knowledge of Shareholder or the Company, threatened, except as set forth
in Schedule 3.12.
25
Section 3.13 Proprietary Rights. To the knowledge of the Company, the
operation of the business of the Company or the Subsidiary does not infringe any
patent, copyright, trademark or other proprietary rights of others, and, neither
the Company nor the Subsidiary has received any notice from any third party of
any such alleged infringement by the Company or Subsidiary.
Section 3.14 Environmental Matters. Except as set forth in Schedule 3.14:
(a) To the knowledge of Shareholder and the Company, the Company and the
Subsidiary have conducted their respective business and operated the Assets, and
are conducting their business and operating the Assets, and the condition of all
facilities and properties (including off-site storage or disposal of any
Hazardous Materials from such facilities or properties) currently or formerly
owned, leased or operated by the Company or the Subsidiary is, in material
compliance with all Environmental Laws;
(b) The Company and the Subsidiary have obtained and hold all Company
Permits required under Environmental Laws in connection with the ownership, use,
and operation of the Assets, except for Company Permits which the failure to
obtain or hold would not, individually or in the aggregate, have a Material
Adverse Effect on the Company or the Subsidiary. All of such Company Permits are
in full force and effect.
(c) The Company has not been notified in writing by any Governmental
Authority or other third Person that any of the operations or Assets of the
Company or the Subsidiary are the subject of any investigation or inquiry by any
Governmental Authority or other third party evaluating whether any material
remedial action is needed to respond to a release or threatened release of any
Hazardous Material or to the improper storage or disposal (including storage or
disposal at offsite locations) of any Hazardous Material;
(d) Neither the Company, the Subsidiary nor, to the knowledge of
Shareholder or the Company, any other Person has filed any notice under any Law
indicating that (i) the Company or the Subsidiary is responsible for the
improper release into the environment, or the improper storage or disposal, of
any Hazardous Material, or (ii) any Hazardous Material is improperly stored or
disposed of upon any property of the Company or the Subsidiary;
(e) To the knowledge of Shareholder and the Company, the Company and the
Subsidiary do not have any contingent liability, that would have a Material
Adverse Effect, in connection with (i) the release or, to the knowledge of
Shareholder or the Company, threatened release into the environment at, beneath
or on any property now or previously owned or leased by the Company or the
Subsidiary; or (ii) the storage or disposal of any Hazardous Material;
(f) There is no litigation arbitration, or administrative proceeding
pending against the Company, the Subsidiary, or any Asset, or to which the
Company, or the Subsidiary is a party, that may reasonably be expected to
subject the Company, the Subsidiary, or the owner of any Asset to liability in
favor of any Governmental Authority or other Person as the result of any Claim
based on the alleged violation of, or non-compliance with, any Environmental
Law, or any Company Permit obtained pursuant to any Environment Law, or any
filing obtained or made pursuant thereto by the Company or the Subsidiary or to
require the Company the Subsidiary, or the owner of any Asset to remediate,
remove, or respond to a release or threatened release of any Hazardous Material
or the improper storage or disposal of any Hazardous Material. Neither
Shareholder, the Company, nor the Subsidiary has received any Claim, complaint,
notice, inquiry or request for information involving any matter which remains
unresolved as of the date hereof with respect to any alleged violation of any
Environmental Law, or any Company Permit obtained pursuant to any Environmental
Law, or any filing made in connection therewith or regarding potential liability
under any Environmental Law, or any Company Permit obtained pursuant to any
Environmental Law, or any filing made in connection therewith relating to
operations or conditions of any facilities or property (including off site
storage or disposal of any Hazardous Material from such facilities or property)
currently or formerly owned, leased or operated by the Company or the
Subsidiary;
26
(g) To the knowledge of Shareholder and the Company, no property now or
previously owned, leased or operated by the Company or the Subsidiary is listed
on the National Priorities List pursuant to CERCLA or on the CERCLIS or on any
other federal or state list as sites requiring investigation or cleanup;
(h) To the knowledge of Shareholder and the Company, neither the Company
nor the Subsidiary is directly transporting, has not directly transported, is
not directly arranging for the transportation of, and has not directly
transported, any Hazardous Material to any location which is listed on the
National Priorities List pursuant to CERCLA, on the CERCLIS, or on any similar
federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations that may lead to material claims
against the Company or the Subsidiary for remedial work, damage to natural
resources or personal injury, including claims under CERCLA;
(i) There are no sites, locations or operations at which the Company or
the Subsidiary is currently undertaking, or has completed, any remedial or
response action relating to any disposal or release, as required by
Environmental Laws;
(j) To the knowledge of the Company, all underground storage tanks and
solid waste disposal facilities owned or operated by the Company or the
Subsidiary are used and operated in material compliance with Environmental Laws;
and
(k) To the knowledge of Shareholder and the Company, there are no physical
or environmental conditions, that would have a Material Adverse Effect, existing
on any property owned or leased by the Company or Subsidiary resulting from the
operations or activities of the Company or the Subsidiary, past or present, at
any location, that could reasonably be expected to give rise to any on-site or
off-site remedial obligations under any applicable Environmental Laws, other
than normal and ordinary remedial work associated with plugging and abandoning
of oil and gas facilities.
(l) Notwithstanding anything in this Section 3.14 to the contrary, the
representations in this Section 3.14 are made to the actual knowledge of
Shareholder and the Company with respect to xxxxx and other Assets not operated
by the Company or the Subsidiary, and neither Shareholder, the Company, nor the
Subsidiary has undertaken any independent due diligence or investigation with
respect thereto.
27
Section 3.15 Insurance. The Company and the Subsidiary maintain, and
through the Closing Date will maintain, insurance with reputable insurers (or
pursuant to self-insurance programs) in such amounts and covering such risks as
set forth in Schedule 3.15. The Company and the Subsidiary, as applicable, have
paid, or have entered into financing arrangements with respect to, all premiums
due and payable under, and are otherwise in compliance with, the terms of all
such insurance policies or self-insurance programs. Except as set forth in
Schedule 3.15, (i) there are no outstanding claims under any such policies or
binders; and (ii) no notice of cancellation or non-renewal of any such policy or
binder has been received.
Section 3.16 Governmental Regulation. Neither the Company nor the
Subsidiary is subject to regulation under the Investment Company Act of 1940 or
any state public utilities Laws.
Section 3.17 Brokers. Except as set forth in Schedule 3.17, no broker,
finder, investment banker or other Person is or will be, in connection with the
transactions contemplated by this Agreement, entitled to any brokerage, finder's
or other fee or compensation based on any arrangement or agreement made by or on
behalf of the Shareholder. Neither Purchaser, the Company nor the Subsidiary
will have any obligation or liability to any such broker, finder, investment
banker or other Person. Shareholder shall indemnify and hold Purchaser, the
Company, and the Subsidiary harmless from any and all Claims and Damages
asserted against any one or more of Purchaser, the Company, or the Subsidiary by
any Person claiming to have acted on behalf of Shareholder, or to have been
retained by Shareholder, as a broker in connection with the transaction
contemplated by this Agreement.
Section 3.18 Description of Oil and Gas Interests. Exhibit A contains a
complete list of the items described in clause (a) of the definition of Oil and
Gas Interests and all Hydrocarbon xxxxx located thereon.
Section 3.19 Leases.
(a) To the knowledge of the Shareholder and the Company, each Lease is in
effect and has not expired or been terminated. The Company and/or the Subsidiary
have, in all material respects, fulfilled all requirements for filings,
certificates, consents, approvals, disclosures, and similar matters contained in
the Leases, and the Company and/or the Subsidiary is fully qualified to own the
Leases under the terms thereof and applicable Law. With respect to the Leases
under which the Company and/or the Subsidiary is the designated operator, the
Company or the Subsidiary, as applicable, is qualified to operate such Leases
under the terms thereof and applicable Law. To the knowledge of the Shareholder
and the Company, neither the Company nor the Subsidiary is in material breach or
material default, and there has occurred no event, fact, or circumstance that,
with the lapse of time or the giving of notice, or both, would constitute such a
material breach or material default by the Company or the Subsidiary, with
respect to any terms of any Lease. To the knowledge of the Shareholder and the
Company, no lessor under any Lease has given or threatened to give notice of any
action to terminate, cancel, rescind, repudiate, or procure a judicial
reformation of any Lease or any provision thereof.
28
(b) To the knowledge of the Shareholder and the Company, each Lease
authorizes surface operations on the lands covered thereby for the drilling,
development, operation, and production of Hydrocarbon xxxxx, or for those Leases
as to which surface operations are restricted or impractical for operational or
regulatory reasons, there exist Leases covering contiguous acreage from which
surface operations with respect to such surface-restricted Leases may be
conducted.
(c) Notwithstanding anything in this Section 3.19 to the contrary, the
representations contained in this Section 3.19 are made to the actual knowledge
of Shareholder and the Company with respect to the Oil and Gas Interests not
operated by the Company or the Subsidiary, and neither the Company nor the
Subsidiary has undertaken independent due diligence or investigation with
respect thereto.
Section 3.20 Oil and Gas Operations.
(a) Exhibit A lists all of the xxxxx (producing, non-producing, injection,
and disposal) included in the Oil and Gas Interests. Except as set forth in
Schedule 3.20(a), to the knowledge of the Shareholder and the Company, all xxxxx
included in the Oil and Gas Interests have been drilled at legal locations and
(if completed) completed, operated and produced in each case in accordance with
generally accepted oil and gas field practices and in compliance in all material
respects with applicable Leases, Material Agreements, and Laws. Except as set
forth in Schedule 3.20(a):
(i) there are no such xxxxx that the Company or the Subsidiary is
currently obligated by Law or contract to plug and abandon;
(ii) there are no such xxxxx that are subject to exceptions to a
requirement to plug and abandon issued by a Governmental Authority having
jurisdiction over the applicable Lease;
(iii) during the period of the ownership of the Oil and Gas
Interests by the Company or the Subsidiary, there are no such xxxxx that have
been plugged and abandoned but have not been plugged in accordance, in all
material respects, with all applicable Laws and requirements of each
Governmental Authority having jurisdiction over the Oil and Gas Interests; and
(iv) during the period of the ownership of the Oil and Gas Interests
by the Company or the Subsidiary, all such xxxxx have been produced in
compliance with allowables allocated thereto by the applicable Governmental
Authority, except such violations that reasonably could not be expected to have
a Material Adverse Effect on the Company or the Subsidiary.
(b) Except as set forth in Schedule 3.20(b), all Material Agreements
relating to the sale or purchase of Hydrocarbons are terminable without penalty
on no more than thirty (30) days' prior notice. Proceeds from the sale of
Hydrocarbons produced from the Oil and Gas Interests are being received by the
Company or the Subsidiary in a timely manner at the prices provided for in the
applicable Hydrocarbon sale or purchase agreement pursuant to appropriate
division orders, transfer orders, or similar documents binding on the company or
the Subsidiary and are not being held in suspense for any reason (except for
amounts held in suspense in the ordinary course of business), subject to a Claim
for refund by the purchaser, used as an offset or as collateral for other
obligations, or otherwise not being paid in the ordinary course; and
29
(c) Except as set forth in Schedule 3.20(c), no Person has any call upon,
option to purchase, or similar rights with respect to the Hydrocarbon production
from the Oil and Gas Interests;
(d) Except as otherwise reflected in Schedule 3.20(d), none of the Oil and
Gas Interests or Material Agreements is subject to a preferential right to
purchase, right of first refusal, right of first offer, or similar right or
restriction, the operation of which is triggered by the transactions
contemplated in this Agreement.
(e) Notwithstanding anything in this Section 3.20 to the contrary, the
representations contained in this Section 3.20 are made to the actual knowledge
of Shareholder and the Company with respect to the Oil and Gas Interests not
operated by the Company or the Subsidiary and neither the Company nor the
Subsidiary has undertaken independent due diligence or investigation with
respect thereto.
Section 3.21 Gas Imbalances. To the knowledge of Shareholder and the
Company, except as is reflected in Schedule 3.21, (a) there are no aggregate
production, transportation or processing imbalances existing with respect to the
Company, the Subsidiary, or the Oil and Gas Interests, and (b) neither Company,
nor the Subsidiary has received any deficiency payments under Hydrocarbon sales
contracts for which any party has a right to take deficiency gas from the
Company or the Company or the Subsidiary, nor has the Subsidiary received any
payments for production which are subject to refund or recoupment out of future
production.
Section 3.22 Royalties. Except as set forth in Schedule 3.22, all
royalties, overriding royalties, compensatory royalties and other payments due
from or in respect of Hydrocarbon production from or allocable to the Oil and
Gas Interests have been, and prior to the Closing will be properly and correctly
paid or provided for in all material respects in accordance with the terms of
the applicable Lease(s) or Material Agreement(s) and applicable Law.
Section 3.23 Prepayments. No prepayment for Hydrocarbon sales has been
received by the Subsidiary for Hydrocarbons which have not been delivered as of
the date hereof.
Section 3.24 Capital Expenditures. As of the date of this Agreement, the
presently approved face amount of any currently outstanding and effective
authorities for expenditure with respect to the Oil and Gas Interests would not
require the Company or the Subsidiary to make or incur after the Closing any
individual capital expenditure in excess of $500,000, with the total of such
individual capital expenditures not to exceed $2,000,000, except as set forth on
Schedule 3.24.
30
Section 3.25 Other Mineral Related Matters. Except as set forth in
Schedule 3.25, as of the date of this Agreement, neither the Company nor the
Subsidiary is obligated by virtue of any prepayment arrangement, "take or pay"
arrangement, production payment arrangement, gas balancing agreement or
otherwise, to deliver or to suffer the delivery of Hydrocarbons produced from or
allocable to Oil and Gas Interests at some future time (or make a cash payment
in lieu thereof) without then or thereafter receiving full payment therefor
without deduction or credit on account of such arrangement from the price that
would otherwise be received. Section 3.26 Additional Drilling Obligations.
Except as set forth in Schedule 3.26, (a) neither the Company nor the Subsidiary
has any explicit contractual obligation, including obligations under the terms
of any Lease, to drill additional xxxxx or conduct other material development
operations in order to earn or continue to hold during the primary term of any
Lease, any portion of the Oil and Gas Interests, and (b) neither the Company nor
the Subsidiary has obtained knowledge of any requirements or demands by a lessor
under any Lease affecting any of the Oil and Gas Interests to drill additional
xxxxx or conduct additional development operations. Except as set forth in
Schedule 3.26, there are no material operations on the Oil and Gas Interests
with respect to which the Company, the Subsidiary, or any other Person has
become a non-consenting party.
Section 3.27 Payment of Expenses. The Company and/or the Subsidiary has
paid, or will pay in accordance with past practices, its proportionate share of
all amounts owed by the Company or the Subsidiary in connection with the Oil and
Gas Interests for which the Company or the Subsidiary have received invoices
from the operator(s) thereof, and there are no past due cash calls or payments
due from the Company or the Subsidiary that are unpaid under the terms of the
Leases, Material Agreements, or otherwise with respect to the Oil and Gas
Interests.
Section 3.28 Financial and Product Hedging Transactions. Schedule 3.28
summarizes the outstanding hedging positions under all outstanding Hedging
Transactions and financial hedging positions of the Company and the Subsidiary
(including fixed price controls, collars, swaps, caps, xxxxxx and puts) as of
the date reflected on Schedule 3.28. Each Hedging Transaction has not expired or
been terminated. To the knowledge of the Shareholder and the Company, neither
the Company nor the Subsidiary is in material breach or material default, and
there has occurred no event, fact, or circumstance that, with the lapse of time
or the giving of notice, or both, would constitute such a material breach or
material default by the Company or the Subsidiary, with respect to its
obligations under the documents evidencing the Hedging Transactions. Except as
set forth on Schedule 3.28, neither the Company nor the Subsidiary is subject to
any outstanding or unsatisfied margin call or other request for collateral in
connection with the Hedging Transactions.
Section 3.29 Seismic Licenses. To the extent not prohibited by the terms
thereof, or any confidentiality agreement, Schedule 3.29 identifies all of the
license agreements relating to the performance of seismic exploration on the Oil
and Gas Interests ("Seismic Licenses") to which the Company or the Subsidiary is
a party. With respect to the Seismic Licenses: (i) to the knowledge of
Shareholder and the Company, all Seismic Licenses are in effect and have not
expired or terminated; (ii) to the knowledge of the Shareholder and the Company,
neither the Company nor the Subsidiary is in material breach or material
default, and there has occurred no event, fact, or circumstance that, with the
lapse of time or the giving of notice, or both, would constitute such a material
breach or material default by the Company or the Subsidiary, with respect to the
terms of any Seismic License; (iii) to the knowledge of Shareholder and the
Company, no other party is in material breach or material default with respect
to the terms of any Seismic License; and (iv) neither the Company nor the
Subsidiary nor, to the knowledge of Shareholder and the Company, any other party
to any Seismic License has given written notice of any action to terminate,
cancel, rescind, or procure a judicial reformation of any Seismic License or any
provision thereof. To the extent not prohibited by the terms of the Seismic
Licenses or any confidentiality agreement, all of the transfer fees or similar
amounts payable by the Company or the Subsidiary under the terms of the Seismic
Licenses upon the consummation of the transactions contemplated herein, or the
method of calculating same, are set forth in Schedule 3.29.
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Section 3.30 Books and Records. The minute books of the Company and the
Subsidiary contain a complete and accurate record of the material corporate
actions of the shareholders and directors (and any committees thereof) of each
corporation since July 27, 2004. All other books, records and files of the
Company and the Subsidiary (including those pertaining to the Oil and Gas
Interests and the other Assets, those pertaining to the production, gathering,
transportation and sale of Hydrocarbons, and those pertaining to corporate,
accounting, financial and employee records): (a) have been prepared, assembled
and maintained accurately in accordance with usual and customary policies and
procedures and (b) fairly and accurately reflect the business and operations of
the Company and the Subsidiary and the ownership, use, enjoyment, and operation
of the Assets.
Section 3.31 Master Service Agreements. Schedule 3.5, Part II contains a
complete list, as of April 1, 2007, of the Master Service Agreements to which
either the Company or the Subsidiary is a party or by which the Company or the
Subsidiary is bound. With respect to the Master Service Agreements: (i) to the
knowledge of Shareholder and the Company, all Master Service Agreements are in
effect and have not expired or terminated; (ii) to the knowledge of the
Shareholder and the Company, neither the Company nor the Subsidiary is in
material breach or material default, and there has occurred no event, fact, or
circumstance that, with the lapse of time or the giving of notice, or both,
would constitute such a material breach or material default by the Company or
the Subsidiary, with respect to the terms of any Master Service Agreement; (iii)
to the knowledge of Shareholder and the Company, no other party is in material
breach or material default with respect to the terms of any Master Service
Agreement; and (iv) neither the Company nor the Subsidiary nor, to the knowledge
of Shareholder and the Company, any other party to any Master Service Agreement
has given written notice of any action to terminate, cancel, rescind, or procure
a judicial reformation of any Master Service Agreement or any provision thereof.
Section 3.32 Investment Intent. Shareholder acknowledges that the
Consideration Shares to be delivered by Purchaser under this Agreement are not
registered under the Securities Act or registered or qualified for sale under
any state securities law and cannot be resold without registration under or an
exemption from the Securities Act. Shareholder is acquiring the Consideration
Shares for its own account for investment and not with a view toward the sale or
distribution of the Consideration Shares. Shareholder has sufficient knowledge
and experience in financial and business matters to enable it to evaluate the
risks of acquiring the Consideration Shares and has the ability to bear the
economic risks of such investment.
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Section 3.33 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 3,
SHAREHOLDER, THE COMPANY, AND THEIR ADVISORS HAVE MADE AND MAKE NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT
OF THE COMPANY OR THE SUBSIDIARY, OR ANY OF THE COMPANY'S OR THE SUBSIDIARY'S
ASSETS, LIABILITIES OR OPERATIONS, INCLUDING WITH RESPECT TO MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE, AND ANY SUCH OTHER REPRESENTATIONS OR
WARRANTIES ARE EXPRESSLY DISCLAIMED. PURCHASER ACKNOWLEDGES AND AGREES THAT,
EXCEPT TO THE EXTENT SPECIFICALLY SET FORTH IN THIS ARTICLE 3, PURCHASER IS
PURCHASING THE COMPANY COMMON STOCK ON AN "AS-IS, WHERE-IS" BASIS. EXCEPT AS
EXPRESSLY PROVIDED IN THIS ARTICLE 3, THE OIL AND GAS INTERESTS ARE "AS-IS,
WHERE-IS," AND WITH ALL FAULTS IN THEIR PRESENT CONDITION AND STATE OF REPAIR,
WITHOUT RECOURSE, AND, EXCEPT AS PROVIDED IN THIS ARTICLE 3, THE COMPANY AND
SHAREHOLDER DISCLAIM ANY AND ALL REPRESENTATIONS CONCERNING THE OIL AND GAS
INTERESTS, EXPRESS, STATUTORY, IMPLIED OR OTHERWISE.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Shareholder and the
Company as follows:
Section 4.1 Organization. Purchaser (a) is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware;
(b) has the requisite power and authority to own, lease and operate its
properties and to conduct its business as it is presently being conducted; and
(c) is duly qualified to do business as a foreign corporation, and is in good
standing, under the Laws of the States of Texas and Louisiana and each other
jurisdiction where the character of the properties owned or leased by it or the
nature of its activities makes such qualification necessary (except where any
failure to be so qualified as a foreign corporation or to be in good standing
would not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser).
Section 4.2 Authority and Enforceability. Purchaser has the requisite
corporate power and authority to enter into and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of Purchaser, including approval by the board of directors of Purchaser, and no
other corporate proceedings on the part of Purchaser are necessary to authorize
the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Purchaser, and (assuming that this Agreement
constitutes a valid and binding obligation of the Shareholder and the Company)
constitutes a valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms.
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Section 4.3 No Violations. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby and compliance
by Purchaser with the provisions hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of Purchaser under, any provision
of (a) the certificate or articles of incorporation or bylaws or other governing
documents of Purchaser; (b) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in Section 4.4 are duly and
timely obtained or made, any loan or credit agreement, note, bond, mortgage,
indenture, lease, permit, concession, franchise, license or other agreement or
instrument applicable to Purchaser; or (c) any judgment, order, decree, or Law
applicable to Purchaser or any of its properties or assets, other than, in the
case of clause (b) or (c) above, any such conflict, violation, default, right,
loss or Lien that, individually or in the aggregate, would not have a Material
Adverse Effect on Purchaser.
Section 4.4 Consents and Approvals. No consent, approval, order or
authorization of, registration, declaration or filing with, or permit from, any
Governmental Authority is required by or with respect to Purchaser in connection
with the execution and delivery of this Agreement by Purchaser or the
consummation by Purchaser of the transactions contemplated hereby, except such
filings and approvals as may be required by any securities, corporate or other
Law. No Third Party Consent is required by or with respect to Purchaser in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
Section 4.5 Litigation. There is no litigation, administrative,
investigative, or other proceeding pending or, to the knowledge of Purchaser,
threatened against or affecting Purchaser (a) that questions the validity or
enforceability of this Agreement or any other document, instrument or agreement
to be executed and delivered by Purchaser in connection with the transactions
contemplated hereby or (b) with respect to which there is a reasonable
likelihood of a determination which, individually or in the aggregate, would
materially hinder or impair the consummation of the transactions contemplated by
this Agreement.
Section 4.6 Funding. On or before the Expiration Date, Purchaser will have
available adequate funds in an aggregate amount sufficient to pay (a) all
amounts required to be paid by Purchaser under this Agreement; and (b) all
expenses which have been or will be incurred by Purchaser in connection with
this Agreement and the transactions contemplated hereby.
Section 4.7 Brokers. Except as set forth on Schedule 4.7, no broker,
finder, investment banker or other Person is or will be, in connection with the
transactions contemplated by this Agreement, entitled to any brokerage, finder's
or other fee or compensation based on any arrangement or agreement made by or on
behalf of Purchaser. Neither Shareholder nor the Company will have any
obligation or liability to any such broker, finder, investment banker or other
Person. Purchaser shall indemnify and hold the Shareholder and the Company
harmless from any and all Claims and Damages asserted against any one or more of
the Shareholder and the Company by any Person claiming to have acted on behalf
of Purchaser, or to have been retained by Purchaser, as a broker in connection
with the transaction contemplated by this Agreement.
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Section 4.8 Investment Intent. Purchaser acknowledges that the Company
Common Stock being purchased by Purchaser under this Agreement are not
registered under the Securities Act or registered or qualified for sale under
any state securities law and cannot be resold without registration under or an
exemption from the Securities Act. Purchaser is acquiring the Company Common
Stock for its own account for investment and not with a view toward the sale or
distribution of the Company Common Stock. Purchaser has sufficient knowledge and
experience in financial and business matters to enable it to evaluate the risks
of investment in the Company Common Stock and has the ability to bear the
economic risks of such investment.
Section 4.9 Consideration Shares. All Consideration Shares to be delivered
to Shareholder under with this Agreement have been duly authorized and, upon the
Closing Date, shall be deemed validly issued, fully-paid, and non-assessable and
not subject to any preemptive right.
Section 4.10 Capitalization. Without giving effect to the transactions
contemplated by this Agreement, the authorized capital stock of Purchaser
consists of an aggregate of (i) 100,000,000 shares of common stock, par value
$0.001 per share, of which 60,810,813 shares are issued and outstanding and (ii)
1,000,000 shares of preferred stock, par value $0.001 per share, none of which
are outstanding. As of the date of this Agreement, there are 4,954,324 shares of
common stock reserved for issuance upon the exercise and/or conversion of issued
and outstanding options, warrants, and other derivative securities. All
presently issued and outstanding shares of common stock have been duly
authorized and validly issued and are fully paid and nonassessable and free of
any preemptive or similar rights, and have been issued in compliance with
applicable securities Laws. To Purchaser's knowledge, except for rights
described in Schedule 4.10 of the Agreement, there are no other options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire from Purchaser any capital stock or other
securities of Purchaser, or any other agreements to issue any such securities or
rights.
Section 4.11 SEC Reports; Financial Statements. Purchaser has filed all
reports, schedules, forms, statements and other documents required to be filed
by Purchaser under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two (2) years preceding the date
hereof (or such shorter period as Purchaser was required by Law to file such
material) (the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
"SEC Reports") on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
financial statements of Purchaser included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with GAAP,
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of Purchaser and its consolidated subsidiaries as of and for
the dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
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Section 4.12 Section 4.12 Material Changes. Since the date of the latest
audited financial statements included within the SEC Reports, except as set
forth below in this Section 4.12 or as specifically disclosed in a subsequent
SEC Report filed prior to the date hereof, (i) there has been no event,
occurrence or development that has materially, adversely affected the financial
condition, results of operations, or business of Purchaser and its consolidated
subsidiaries, taken as a whole, or the aggregate value of the Assets of
Purchaser or its subsidiaries, or otherwise has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) Purchaser has not incurred
any liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in Purchaser's
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) Purchaser has not altered its method of accounting, (iv)
Purchaser has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) Purchaser has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing stock plans of Purchaser. Purchaser does not have pending
before the Commission any request for confidential treatment of information.
Except as set forth on Schedule 4.12, no event, liability or development has
occurred or exists with respect to Purchaser or its subsidiaries or their
respective business, properties, operations or financial condition that would be
required to be disclosed by Purchaser under applicable securities Laws at the
time this representation is made that has not been publicly disclosed at least
one (1) Business Day prior to the date that this representation is made.
ARTICLE V.
COVENANTS
Section 5.1 Conduct of Business by the Company Pending Closing. Except as
contemplated by this Agreement or to the extent that Purchaser shall otherwise
consent in writing, during the period from the date of this Agreement to the
Closing, the Company will not take, and shall cause the Subsidiary not to take,
any action except in the ordinary course of business, and the Company will use,
and shall cause the Subsidiary to use commercially reasonable efforts to
preserve intact in all material respects its business organization, assets,
prospects and advantageous business relationships and to maintain satisfactory
relationships with its lessors, co-working interest owners, royalty owners,
operators, processors, gatherers, transporters, marketers, licensors, licensees,
suppliers, contractors, distributors, purchasers, customers and others having
advantageous business relationships with it. Without limiting the generality of
the foregoing, Shareholder shall not permit the Company to take, and the Company
shall not permit the Subsidiary to take, any of the following actions, except as
set forth in Schedule 5.1, without the written consent of Purchaser:
36
(a) Authorize or effect any change in its governing documents;
(b) Grant any options, warrants, or other rights to purchase or obtain any
of its capital stock, or issue, sell or otherwise dispose of any of its capital
stock;
(c) Declare, set aside or pay any dividend or distribution with respect to
its capital stock (whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of its capital stock, except that, prior to Closing,
either the Company or Subsidiary may declare and distribute to its equity
holders a dividend or distribution consisting of the Excluded Assets;
(d) Issue any note, bond, or other Debt security or create, incur, assume,
or guarantee any indebtedness for borrowed money or capitalized lease obligation
other than Debt incurred under the Bank Credit Agreement and Debt incurred under
the Hedging Transactions;
(e) Impose any Lien upon any of the Assets except for Permitted
Encumbrances and except for Liens granted pursuant to the Bank Credit Agreement
and the Hedging Transactions;
(f) Make any capital investment in, make any loan to, or acquire the
securities or assets of any other Person;
(g) Make any change in employment terms for any of its officers or
employees, except for such actions as are otherwise provided for or permitted in
this Agreement;
(h) Enter into, adopt or amend any employment agreement or pension plan,
or grant, or become obligated to grant, any increase in the compensation payable
or to become payable to any of its officers or employees or any general increase
in the compensation payable or to become payable to its employees, except for
such actions as are otherwise provided for herein;
(i) Pay, discharge or satisfy any Claims, liabilities or obligations
(absolute, accrued, contingent or otherwise; provided that either the Company or
Subsidiary may make the following payments: (A) the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against on the Financial Statements, subsequently incurred in the
ordinary course of business, disclosed pursuant to this Agreement, or incurred
as the result of emergencies experienced with respect to the Oil and Gas
Interests; (B) payments under the Bank Credit Agreement; (C) payments under the
Hedging Transactions; (D) payments of current liabilities; and (E) payments to
Affiliates which shall be repaid prior to Closing; in each such case so as to
keep the Assets free of Liens, except as permitted under clause (e) of this
Section 5.1;
37
(j) Acquire (including by lease) any material assets or properties or
dispose of, mortgage or encumber any assets or properties; provided that either
the Company or Subsidiary may do so (i) in the ordinary course of business, (ii)
with respect to those matters set forth in Schedule 5.1(j) or (iii) with respect
to the Excluded Assets;
(k) Enter into any Material Agreement or waive, release, grant or transfer
any material rights, or amend, modify, terminate, release, or otherwise change
in any material respect any existing license, Lease, Material Agreement, or
other document; provided that either the Company or the Subsidiary may do so as
contemplated by this Agreement;
(l) Make any capital expenditures not previously authorized by the
approved budget, attached hereto as Exhibit C and made part hereof, except for
capital expenditures pursuant to commitments disclosed under or not covered by
Section 3.24;
(m) Modify the terms of or close out any of its positions on its Hedging
Transactions in effect or enter into any new hedging positions;
(n) Elect not to participate in an operation proposed in any well or Unit
included in the Oil and Gas interests;
(o) Plug and abandon any well or abandon and remove any other personal
property, equipment, or fixtures included in the Assets;
(p) Initiate any proceeding before any Governmental Authority pertaining
to the Assets; or
(q) Commit to any of the foregoing.
Notwithstanding the foregoing, during the period from the date of this
Agreement to the Closing Date, the Company shall, and shall cause the Subsidiary
to, in each case to the extent within its reasonable control:
(A) Cause the Assets to be maintained and operated in a good and
workmanlike manner consistent with past practices and in compliance with
applicable Laws;
(B) Perform all material obligations of the Company and/or the Subsidiary
under the Leases, the Material Agreements, the Master Service Agreements, the
Seismic Licenses and all Company Permits;
(C) Promptly notify Purchaser of (i) any written notice of which any
Responsible Officer of Shareholder, the Company, or the Subsidiary becomes aware
relating to any default, inquiry into any possible default, or action to alter,
terminate, rescind, repudiate, or procure a judicial reformation of any Oil and
Gas Interest, Material Agreement, Master Service Agreement, Seismic License or
Company Permit, or any provision thereof, (ii) any new suit, action, or other
proceeding before any court or Governmental Authority relating to the Assets, or
to which the Company or the Subsidiary are a party; and
38
(D) Maintain in effect insurance providing the same type of coverage, in
the same amounts, and with the same deductibles as the insurance maintained in
effect by the Company and/or the Subsidiary on the date of this Agreement.
Section 5.2 Access to Assets, Personnel and Information.
(a) From the date hereof until the Closing, the Company will afford to
Purchaser and the Purchaser Representatives, at Purchaser's sole risk and
expense, reasonable access to any of the assets, books and records, contracts,
facilities, audit work papers and payroll records of the Company and the
Subsidiary requested by Purchaser or the Purchaser Representatives. In
connection with the foregoing, Shareholder, the Company, and the Subsidiary
agree to make available, promptly after the execution of this Agreement, the
relevant employees of the Company and the Subsidiary, either in person or
telephonically, as Purchaser or the Purchaser Representatives may reasonably
request in writing, to answer questions and otherwise facilitate the Purchaser's
and the Purchaser Representatives' drafting of disclosure related to the
Company, the Subsidiary, their respective properties and operations and the
Financial Statements to be included in offering materials and related documents
required by Purchaser and the Purchaser Representatives in connection with
raising capital to finance the consummation of the transactions contemplated
hereby. In addition, Shareholder, the Company, and the Subsidiary agree, at
Purchaser's sole risk and expense, to authorize the Company's and the
Subsidiary's independent auditors and reserve engineers to be available to
answer questions and provide relevant documents reasonably requested in writing
by Purchaser or the Purchaser Representatives relating to the Company, the
Subsidiary, their respective properties and operations and the Financial
Statements. Purchaser shall separately engage the independent auditors and
reserve engineers in connection with the foregoing and shall be solely
responsible for all fees and expenses of the independent auditors and reserve
engineers incurred in connection therewith. Notwithstanding the foregoing, no
investigation pursuant to this Section 5.2(a) will affect or be deemed to modify
any of the representations or warranties made by Shareholder or the Company in
this Agreement. The confidentiality of all such documents and information
furnished to Purchaser shall be maintained by Purchaser in accordance with the
Confidentiality Agreement; provided, however, that, subject to compliance with
any third party confidentiality agreements to which the Company or the
Subsidiary is a party, nothing contained in the Confidentiality Agreement shall
be deemed to prevent Purchaser or Purchaser's representatives from preparing and
distributing all offering materials and related documents required by Purchaser
and Purchaser's Representatives in connection with raising capital to finance
the consummation of the transaction contemplated herein.
(b) From the date hereof until the Closing, Purchaser and the Purchaser
Representatives shall have the right and opportunity to make an environmental
and physical assessment of the Assets and, in connection therewith, shall have
the right to enter and inspect the Assets and all xxxxx, well sites, facilities,
buildings and improvements thereon; provided, however, that Purchaser may not,
without the prior written consent of the Company, conduct any soil or water
tests or borings or other invasive tests or examinations with respect to the
Assets. The Company shall be provided at least forty-eight (48) hours prior
written notice of any such inspection, and the Company Representatives shall
have the right to witness all such inspections. Purchaser shall (and shall cause
the Purchaser Representatives to) keep any data or information acquired by any
such examinations and the results of any analyses of such data and information
strictly confidential and will not (and will cause the Purchaser Representatives
not to) disclose any of such data, information or results to any Person unless
otherwise required by Law and then only after written notice to the Company of
the determination of the need for disclosure. Purchaser shall indemnify, defend
and hold the Company, the Company Representatives, the Subsidiary and the
Shareholder harmless from and against any and all Claims and Damages to the
extent arising out of or as a result of the activities of Purchaser and the
Purchaser Representatives on the Assets in connection with conducting such
environmental and physical assessment, except to the extent of and limited by
the gross negligence or willful misconduct of the Company, the Subsidiary, or
any Company Representative. The foregoing indemnity shall survive and continue
in full force and effect notwithstanding any termination of this Agreement.
Purchaser agrees to provide to the Company, upon request, a copy of any
environmental assessments of the Assets conducted by or on behalf of Purchaser,
including any reports, data, and conclusions, and to maintain the
confidentiality of the information set forth therein until the Closing except to
the extent disclosure is required under applicable Law. Purchaser agrees to
comply with the rules, regulations and instructions issued by the Company
Representatives and operators regarding the actions of Purchaser and the
Purchaser Representatives while upon, entering or leaving the Assets.
39
(c) Purchaser will not (and will cause the Purchaser Representatives not
to), use any information obtained pursuant to this Section 5.2 for any purpose
unrelated to the consummation of the transactions contemplated by this Agreement
or the procurement of financing with respect thereto.
(d) Schedule 5.2 sets forth all of the confidentiality agreements to which
the Company is a party. Notwithstanding anything in this Section 5.2 to the
contrary: (i) neither the Shareholder, the Company, nor the Subsidiary shall be
obligated under the terms of this Section 5.2 to disclose to Purchaser or the
Purchaser Representatives, or grant Purchaser or the Purchaser Representatives
access to, information that is within the possession or control of Shareholder,
the Company, or the Subsidiary but subject to a valid and binding
confidentiality agreement with a Third Party that prohibits such disclosure
without first obtaining the consent of such Third Party, and Shareholder or the
Company, as applicable, to the extent reasonably requested by Purchaser, will
use commercially reasonable efforts to obtain any such consent; and (ii)
Purchaser shall not be obligated under the terms of this Section 5.2 to disclose
to the Company or the Company Representatives, or grant Shareholder, the
Company, the Subsidiary, or the Company Representatives access to, information
that is within Purchaser's possession or control but subject to a valid and
binding confidentiality agreement with a Third Party that prohibits such
disclosure without first obtaining the consent of such Third Party, and
Purchaser, to the extent reasonably requested by Shareholder or the Company,
will use commercially reasonable efforts to obtain any such consent.
Section 5.3 Additional Arrangements.
(a) Subject to the terms and conditions herein provided, each of the
Parties shall take, or cause to be taken, all actions and shall do, or cause to
be done, all things necessary, appropriate or desirable under any applicable
Laws or under applicable governing agreements to consummate and make effective
the transactions contemplated by this Agreement, including using commercially
reasonable efforts to obtain all necessary waivers, consents and approvals of
Governmental Authorities and Third Parties and effecting all necessary
registrations and filings. Each of the Parties shall take, or cause to be taken,
all actions or shall do, or cause to be done, all things necessary, appropriate
or desirable to cause the covenants and conditions applicable to the
transactions contemplated hereby to be performed or satisfied as soon as
practicable. In addition, if any Governmental Authority shall have issued any
order, decree, ruling or injunction, or taken any other action that would have
the effect of restraining, enjoining or otherwise prohibiting or preventing the
consummation of the transactions contemplated hereby, each of the Parties shall
use commercially reasonable efforts to have such order, decree, ruling or
injunction or other action declared ineffective as soon as practicable.
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(b) Any payment received after Closing by Purchaser, the Company, and/or
the Subsidiary from EnerVest Energy, L.P. in connection with an acquisition by
the Shareholder from EnerVest Energy, L.P. shall be paid to Shareholder within
two (2) business days of Purchaser, the Company, and/or the Subsidiary receiving
any such payment.
Section 5.4 Public Announcements; Confidentiality. Prior to the Closing,
Shareholder, the Company, and Purchaser shall consult with each other before any
of them issues any press release or otherwise makes any public statement with
respect to the transactions contemplated by this Agreement, and no Party shall
issue any press release or make any such public statement prior to obtaining the
written approval of the other Parties, which approval shall not be unreasonably
withheld or delayed. To the extent such release or public statement is required
by Law, however, the Party intending to make such release or public statement
shall give the other Parties the opportunity to review and comment upon such
release or public statement and the disclosing Party shall accept all reasonable
comments thereto; provided that such reasonable comments are received by the
Party intending to make such release sufficiently in advance of any applicable
filing deadline. Further, any Party may respond to inquiries by the press or
others regarding the transactions contemplated by this Agreement, so long as
such responses are consistent with such Party's previously issued press
releases. The Company and Shareholder agree that they will not use or disclose
to any Third Party any Purchaser Confidential Information. The Parties each
acknowledge and agree that non-public information concerning the progress of the
transaction contemplated by this Agreement is confidential information. Nothing
contained in this Section 5.4 shall be deemed to limit or restrict the right of
Purchaser and Purchaser's Representatives to prepare and distribute to Third
Parties all offering materials and related documents required by Purchaser and
Purchaser's Representatives in connection with raising capital to finance the
consummation of the transaction contemplated herein.
Section 5.5 Payment of Expenses. Each of Shareholder and Purchaser shall
pay its own expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated hereby,
whether or not the Closing occurs, except that the Company shall be entitled to
pay or reimburse Shareholder for any and all such expenses incurred by
Shareholder prior to the Closing up to, but not in excess of, $250,000.00.
41
Section 5.6 Continuation of the Company's Existing Indemnification
Obligations. From and after the Closing, the Company or its successor shall
indemnify and hold harmless the Shareholder and each Person who has been, at any
time prior to the Closing, an officer, director or shareholder of the Company
(collectively, with Natural Gas Partners per below, the "Indemnified Persons")
but only to the extent that such Indemnified Person was entitled to
indemnification from the Company immediately prior to the date hereof under
applicable Law, the articles of incorporation and bylaws of the Company and each
contract listed on Schedule 5.6, regardless of whether such contracts are
terminated on or after the Closing. In addition, the Company or its successor
shall continue the indemnification as provided to Natural Gas Partners under the
Advisory Services Agreement, regardless of whether such contract is terminated
on or after the Closing. The procedures associated with such indemnification
shall be the same as those associated with the Indemnified Persons'
indemnification from the Company immediately prior to the date hereof. The
provisions of this Section 5.6 shall survive the Closing and the Closing Date
and are intended to be for the benefit of, and shall be enforceable by, the
Parties and each Indemnified Person and their respective heirs and
representatives.
Section 5.7 Termination of Certain Agreements. Effective upon the Closing,
the Advisory Services Agreement, the Reimbursement Agreement, the
Confidentiality and Noncompete Agreements, and any other intercompany agreements
between Shareholder, on the one hand, and the Company and/or the Subsidiary, on
the other hand, shall be terminated, and no Parties shall have further rights or
obligations thereunder, except for the continuation of indemnity rights as
provided in Section 5.6 hereof. Further, effective upon the Closing, the
Shareholder and Natural Gas Partners shall cause the Company to cease to be a
party to the Subscription and Contribution Agreement and the Voting and Transfer
Restriction Agreement. Prior to the Closing, Shareholder will cause all
intercompany loan accounts and accounts receivable between Shareholder, on the
one hand, and the Company and/or the Subsidiary, on the other hand, to be
settled and all amounts owed pursuant thereto to be paid.
Section 5.8 Employee Matters.
(a) Resignation of Directors. Each director of the Company shall resign
his/her position with the Company effective at the Closing and execute a mutual
release in the form attached hereto as Exhibit D, and all outstanding agreements
between the Company and such Person, including the Confidentiality and
Non-Compete Agreements, shall be terminated by the Company prior to the Closing,
except for the continuation of indemnity rights as provided in Section 5.6
hereof.
(b) Other Employee Matters. Purchaser shall be responsible for all
communications with Company Employees regarding continued employment,
termination of employment and similar matters from and after the Closing. In
that regard, Purchaser shall comply with all applicable Laws, including, without
limitation, applicable Laws proscribing discrimination in application or hiring.
With respect to each Company Employee, Purchaser and the Company shall remain
solely responsible for, and shall indemnify and hold Shareholder harmless from
and against, all Claims of, and all liability and responsibility for the payment
of employment obligations owed to, any such Company Employee, including, without
limitation, all obligations and liabilities with respect to final pay,
termination or severance pay (if any), accrued vacation, final benefits
distributions, bonuses, rights under COBRA pertaining to rights of election to
continue medical insurance coverage, and notices of rights under applicable Laws
concerning vested pension, profit-sharing and other retirement benefits.
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(c) Retaining Employees. Shareholder agrees that Purchaser may extend
offers of employment to qualified Company Employees prior to the Closing, and
that such offers of employment do not constitute acts of tortious interference
with the business of Shareholder. Neither Shareholder nor GEH GP, L.L.C., will
take any action prior to the Closing to compete with Purchaser to retain or
employ Company Employees offered employment by Purchaser (including, without
limitation, increasing the salary or benefits of any Company Employee), or
otherwise take any action that impedes or impairs the efforts of Purchaser to
hire all qualified Company Employees. Shareholder shall reasonably cooperate
with Purchaser in such efforts, but, in the absence of a breach by Shareholder
of the terms of this Agreement, Shareholder shall have no liability or
obligation to Purchaser if any Company Employee declines Purchaser's offer of
employment.
(d) Soliciting Employees. Neither the Shareholder nor GEH GP, L.L.C. will,
prior to December 31, 2007, directly or indirectly, employ any Company Employee
who has accepted an offer of employment from Purchaser hereunder, or solicit or
encourage the resignation of any such Company Employee from his/her employment
relationship with Purchaser, or otherwise compete in any way for the services of
such Company Employees.
(e) Certain Rights to Compete. Any provision to the contrary contained in
this Agreement notwithstanding, except as provided hereinafter, nothing
contained in this Agreement shall limit or restrict the right of Shareholder or
GEH GP, L.L.C., together or individually, prior to or after the Closing, to
acquire, directly or indirectly, or directly or indirectly solicit or encourage
the submission of offers from or negotiate with any other Person or entity
regarding the acquisition of, oil, gas and other mineral leases, oil, gas and
other mineral properties, or interests in any thereof; provided, however, during
the period from the Closing Date through December 31, 2007, neither Shareholder
nor GEH GP, L.L.C., will acquire, directly or indirectly, or directly or
indirectly solicit or encourage the submission of offers from or negotiate with
any other Person or entity regarding the acquisition of, or otherwise compete
with Purchaser regarding the acquisition of, oil and gas leases, oil, gas and
other mineral properties, or interests therein covering lands located within one
(1) mile of the exterior boundaries of any Oil and Gas Interest owned by the
Company or the Subsidiary on the Closing Date.
Section 5.9 Adjustments to Base Consideration.
(a) (i) Adjustments to Base Consideration For Title and
Environmental Defects. Subject to the provisions of Section 5.2, Purchaser
may conduct, at its sole cost, such title and environmental examinations
or investigations, and other examinations and investigations, as it may in
its sole discretion choose to conduct with respect to the Oil and Gas
Interests in order to determine whether any Title Defects or Environmental
Defects (as hereinafter defined) exist. Purchaser may deliver to the
Company in writing, within twenty-one (21) days of the date of this
Agreement, a written notice including: (i) a specific description of each
defect associated with the Oil and Gas Interests that it asserts
constitutes a violation of the representation set forth in Section 3.2(e)
or Section 3.11 (in either case a "Title Defect") or Section 3.14 (an
"Environmental Defect"); (ii) a description of each such Title Defect or
Environmental Defect; (iii) the amount of the adjustment to the Base
Consideration that it asserts based on such defects; and (iv) its method
of calculating such adjustment in the manner provided in Section 5.9(c)
and Section 5.9(d). If such notice is not timely submitted, Purchaser
shall be deemed to have waived its basis for an adjustment to Base
Consideration under this Section 5.9 with respect to Title Defects and
Environmental Defects. The non-existence of a title opinion or incomplete
due diligence by the Purchaser shall not constitute a Title Defect or a
lack of Defensible Title to the Assets.
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(ii) Within three (3) days after receiving Purchaser's notice
described in subsection 5.9(a)(i) above, the Company shall notify
Purchaser whether the Company agrees with the existence of the relevant
Title Defect or Environmental Defect and the proposed adjustment related
thereto. If the Company does not agree with the existence of the relevant
Title Defect or Environmental Defect and/or the proposed adjustment
related thereto, then the Parties shall enter into good faith negotiations
and shall attempt to agree on such matters.
(iii) If the Parties are unable to reach agreement concerning the
existence of the relevant Title Defect or Environmental Defect or the
amount of the related adjustment, upon either Party's written request made
within three (3) days of the Company's notification of Purchaser as set
forth in subsection 5.9(a)(ii) above, the Parties shall immediately submit
the matter to an experienced title attorney to be mutually agreed upon by
the Parties (in the case of a Title Defect) or to an experienced
environmental professional to be mutually agreed upon by the Parties (in
the case of an Environmental Defect) (each a "Consultant" and,
collectively, the "Consultants") to determine the amount of the adjustment
to the Base Consideration attributable to the Title Defect or the cost of
remediating the Environmental Defect. The cost of the Consultants shall be
borne 50% by Purchaser and 50% by Company.
(iv) Each Party shall present a written statement of its position on
the relevant Title Defect or Environmental Defect, as applicable, to the
Consultant within three (3) days of submission of such issue to the
Consultant. Within five (5) days thereafter, the Consultant shall make a
determination of all points of disagreement, including such Consultant's
best estimate of the adjustment to the Base Consideration attributable to
the relevant Title Defect or the cost to remediate the relevant
Environmental Defect, in accordance with the terms and conditions of this
Agreement. Any determination by the Consultants shall be conclusive and
binding on the Parties, and shall be enforceable against any Party in any
court of competent jurisdiction.
(b) Limits on Adjustments. No single Title Defect shall be taken into
account as an adjustment to the Base Consideration unless the value of such
Title Defect is determined to be more than $100,000 (the "Individual Title
Defect Threshold"). No single Environmental Defect shall be taken into account
as an adjustment to Base Consideration unless the cost of remediating such
Environmental Defect is determined to be more than $100,000 (the "Individual
Environmental Defect Threshold"). In addition, in order to effect an adjustment
to the Base Consideration, the value of all Title Defects and Environmental
Defects properly asserted as provided herein must exceed $5,000,000 in the
aggregate (the "Aggregate Defect Threshold"); provided, however, that the Base
Consideration shall be adjusted only by the amount equal to the excess of (i)
the total of (A) all such Title Defects that each exceed the Individual Title
Defect Threshold and (B) all such Environmental Defects that each exceed the
Individual Environmental Defect Threshold over (ii) the Aggregate Defect
Threshold.
44
(c) Title Defect Adjustments. Upon timely delivery of a notice of a Title
Defect under Section 5.9(a), Purchaser and the Company will in good faith
negotiate the validity of the Claim and the amount of any adjustment to the Base
Consideration using the following criteria:
(i) If the requested adjustment is based on the Company or the
Subsidiary owning an NRI for a well, Unit or Lease less than that shown in
Schedule 1.1, and the Aggregate Defect Threshold has been met (after
including the requested adjustment), then a downward adjustment shall be
calculated by multiplying the Allocated Value set forth for such well,
Unit, or Lease on Schedule 1.1 by a fraction (1) the numerator of which is
an amount equal to the NRI shown on Schedule 1.1 for such well, Unit, or
Lease less the decimal share to which the Company or the Subsidiary would
be entitled as a result of its ownership interest in such well, Unit, or
Lease which is unaffected by such Title Defect, and (2) the denominator of
which is the NRI shown for such well, Unit, or Lease on Schedule 1.1. Any
downward adjustments requested by Purchaser may be offset by upward
adjustments if it is determined that the Company's or the Subsidiary's NRI
for any other well, Unit, or Lease shown on Schedule 1.1 is greater than
that shown on Schedule 1.1. The value of an upward adjustment will be
determined based on the Allocated Value for such well, Unit, or Lease;
(ii) If the requested adjustment is based on the Company or the
Subsidiary owning a WI that is larger than the WI shown on Schedule 1.1,
but without a proportionate increase in the Company's or the Subsidiary's
NRI, and the Aggregate Defect Threshold has been met (after including the
requested adjustment), then the adjustment is calculated as the positive
difference (if any) obtained by subtracting (A) a recalculated Allocated
Value for such well, Unit, or Lease using the same production rates,
pricing, costs, tax forecasts, and discount factors, as shown on Schedule
1.1, used to calculate the original Allocated Value for such well, Unit,
or Lease adjusted to account for the diminution in the net present value
of the future cash flows that results from the higher expense-bearing
interest, from (B) the Allocated Value for such well, Unit, or Lease set
forth on Schedule 1.1;
(iii) If the requested adjustment is based on a Lien or other
monetary charge upon a well, Unit, or Lease or a liability to otherwise
cure a Title Defect related to a well, Unit, or Lease that the Parties
agree is liquidated in amount, and the Aggregate Defect Threshold has been
met (after including the requested adjustment), then the adjustment is the
lesser of (x) the amount necessary to remove such Lien or other monetary
charge from, or otherwise cure a Title Defect relating to, the affected
well, Unit, or Lease; or (y) the Allocated Value of the affected well,
Unit, or Lease;
45
(iv) If the requested adjustment is based on an obligation, burden
or other liability upon the affected well, Unit, or Lease not addressed by
(i) and (ii) above, and the Parties cannot agree on the amount of such
adjustment, then the adjustment, if any, shall be determined in accordance
with Section 5.9(a).
(d) Environmental Defect Adjustments. Upon timely delivery of a notice of
an Environmental Defect under this Section 5.9, Purchaser and the Company will
in good faith negotiate the validity of the claim and the amount of any
adjustment to the Base Consideration using the following criteria:
(i) If the requested adjustment is based on an Environmental Defect
related to an Oil and Gas Interest, the Parties agree on the cost to
remediate the Environmental Defect, and the Aggregate Defect Threshold has
been met (after including the requested adjustment), then the adjustment
is the lesser of (A) the amount necessary to remediate the Environmental
Defect relating to the affected Oil and Gas Interest, or (B) the Allocated
Value of the affected Oil and Gas Interest; and
(ii) If the requested adjustment is based on an Environmental Defect
and the Parties cannot agree on the amount of such adjustment, then the
adjustment, if any, shall be determined in accordance with Section 5.9(a).
(e) Remedies for Title and Environmental Defects. If the Aggregate Defect
Threshold is exceeded, and therefore, the Base Consideration would be decreased
by adjustment made pursuant to this Section 5.9 for the excess of defects over
the Aggregate Defect Threshold, the Company may, at its sole option and upon
written notice to Purchaser, do any of the following or a combination thereof:
(i) reduce the Base Consideration by the amount equal to the excess
of the aggregate value, determined as provided in Section 5.9(c) or
Section 5.9(d), as applicable, of the asserted Title Defects and
Environmental Defects over the Aggregate Defect Threshold;
(ii) elect to attempt to cure any or all of the Title Defects or
Environmental Defects prior to Closing, subject to the reasonable
satisfaction of Purchaser; or
(iii) elect to permit Shareholder to attempt to cure some or all of
the Title Defects or Environmental Defects, for a period of ninety (90)
days after the Closing Date (the "Cure Period"), in which case the Closing
shall occur as provided for in this Agreement, and the amount of the value
attributable to such Title Defects and Environmental Defects, determined
as set forth in Section 5.9(c) and Section 5.9(d), as applicable, shall be
deducted from the Base Consideration paid at the Closing. Anything in this
Agreement to the contrary notwithstanding, the Aggregate Defect Threshold
shall include the Title Defects and Environmental Defects the Company
elects to permit Shareholder to attempt to cure under this Section 5.9(e)
and shall not be subject to redetermination except as defects are cured in
Section 5.9(f) below.
46
(f) Right to Cure Defects Post-Closing. The Company and Purchaser shall
reasonably cooperate with Shareholder after Closing to cure any Title Defects or
Environmental Defects that Shareholder has elected to attempt to cure. If
Shareholder and Purchaser mutually agree that a Title Defect or an Environmental
Defect has been cured during the Cure Period, then promptly thereafter, the
amount deducted from the Base Consideration shall be paid to Shareholder in
accordance with this Agreement. If Shareholder and Purchaser mutually agree that
a portion of the subject Title Defect or Environmental Defect has been cured,
Shareholder and Purchaser shall then determine the portion of the Base
Consideration withheld at the Closing that shall be released and paid to
Shareholder in accordance with this Agreement. If Shareholder and Purchaser
mutually agree that a Title Defect or an Environmental Defect has not been cured
during the Cure Period, Purchaser shall permanently retain the portion of the
Base Consideration withheld at the Closing in accordance herewith. If, during
the Cure Period, Shareholder and Purchaser are unable to agree whether there has
been satisfactory resolution of a Title Defect or an Environmental Defect with
respect to any affected Oil and Gas Interest under this Section 5.9 that
Shareholder has elected to attempt to cure, then such disagreement shall be
resolved in the manner provided in Section 5.9(g) below.
(g) Dispute Regarding Defects. If Shareholder and Purchaser are not in
agreement as to whether a Title Defect or an Environmental Defect exists or
whether such Title Defect or Environmental Defect has been satisfactorily cured
following the Closing Date pursuant to Section 5.9(f) above, then either
Shareholder or Purchaser may submit the dispute to a Consultant not later than
120 days following the Closing. Any Consultant(s) shall have been selected prior
to the Closing. The cost of any Consultant(s) shall be paid 50% by Shareholder
and 50% by Purchaser. Each Party shall present a written statement of its
position on the defect in question to the Consultant within thirty (30) days of
the dispute's submission for resolution. Within thirty (30) days of the Parties'
presentation of their positions, the Consultant shall make a determination as to
whether or not a defect exists or whether or not the defect in question has been
cured, or if the defect in question has been partially cured. If the defect in
question has been partially cured, the Consultant shall determine withheld
portion of the Base Consideration that should permanently be retained by
Purchaser to compensate Purchaser for the uncured portion of such defect,
applying the principles set forth in this Section 5.9, and the remainder of such
amount withheld from the Base Consideration shall be paid to Shareholder in
accordance with this Agreement. Any determination by a Consultant shall be
conclusive and binding on the Parties and shall be enforceable against any Party
in any court of competent jurisdiction.
(h) Shareholder's Right to Terminate. Shareholder may terminate this
Agreement by written notice to Purchaser if Purchaser timely identifies Title
Defects and Environmental Defects which, without regard to the Individual Title
Defect Threshold, the Individual Environmental Defect Threshold, or the
Aggregate Defect Threshold, would result in adjustments to the Base
Consideration in excess of $32,050,000.
(i) Purchaser's Right to Terminate. Purchaser may terminate this Agreement
by written notice to Shareholder if Purchaser timely identifies Title Defects
and Environmental Defects that are determined, either by agreement of the
Parties or by the Consultants pursuant to Section 5.9(a), and without regard to
the Individual Title Defect Threshold, the Individual Environmental Defect
Threshold, or the Aggregate Defect Threshold, to be valid and to result in
adjustments to the Base Consideration in excess of $32,050,000.
47
Section 5.10 Closing Date Statement.
(a) Not later than three (3) business days before the Closing Date, the
Company will deliver to Purchaser a statement (the "Closing Date Statement")
which sets forth (A) the Cash Portion; (B) the determination of the adjustments
to the Cash Portion required under Section 2.2(b); (C) the amount of the Cash
Portion resulting from such adjustments; and (D) the account of Shareholder for
the wire transfer, pursuant to Section 2.4(b)(i), of the Cash Portion, adjusted
as provided in Section 2.2(b).
(b) Not later than two (2) business days after receiving the Closing Date
Statement, Purchaser will notify the Company of any adjustments to the Closing
Date Statement that Purchaser believes are appropriate. The Parties will
negotiate in good faith the resolution of any differences with regard to the
adjustments. The Company will give Purchaser access to all information related
to the determination of the Closing Date Statement.
(c) The Parties agree that the Closing Date Statement (as adjusted as
provided herein) shall be final and conclusive. If the Parties are unable to
reach agreement concerning the amount of such adjustment, upon either Party's
written request made by no later than two (2) days before the Closing Date, the
Parties shall immediately submit the matter to an accounting firm to be mutually
agreed upon by the Parties (the "Accounting Firm") to determine the final amount
of such adjustments; provided, however, that, subject to the fulfillment of all
other Closing conditions set forth in this Agreement, the Closing shall take
place as otherwise herein provided. The amount of such adjustment in dispute
shall be deducted from the Xxxxxxx Money and shall remain in escrow with
Shareholder until such dispute has been resolved as herein provided.
(d) The fees of the Accounting Firm shall be borne equally by the Parties.
(e) Each Party shall present a written statement of its position on the
adjustments in question to the Accounting Firm within ten (10) days of
submission of such matter thereto. The Accounting Firm shall make, within ten
(10) days after the Parties' presentation of their respective positions, a
determination on all points of disagreement. Any determination by the Accounting
Firm shall be conclusive and binding on the Parties, and shall be enforceable
against any Party in any court of competent jurisdiction.
Section 5.11 Name Change. Within fourteen (14) days after the Closing
Date, Purchaser agrees to take all necessary action (i) with the proper
Governmental Authorities in order to change the name of the Company and the
Subsidiary to exclude any reference to the word "Goldking" and (ii) to remove
the name "Goldking" from all Assets.
Section 5.12 Discharge of Debt. Prior to or concurrently with the Closing,
Shareholder, the Company, and the Subsidiary shall cause to be paid and
discharged in full (i) all outstanding principal, interest, fees, and expenses
due on Debt outstanding under the Bank Credit Agreement and (ii) all other
outstanding Debt of the Company and the Subsidiary as of the Closing Date,
including, without limitation, all long-term debt and short-term notes payable
reflected in the 2006 Year End Audited Balance Sheet and Schedule 3.6, and all
Debt incurred by the Company or the Subsidiary during the period between the
date of execution hereof and the Closing Date as to which the Cash Portion is
increased pursuant to Section 2.2(b)(i), but excluding all "Asset retirement
obligations" reflected therein and excluding the obligations evidenced by that
certain Premium Finance Agreement, Disclosure Statement and Security Agreement,
by and between the Company and MD Premium Finance Corporation evidencing total
premium payments of $3,401,206.24. In addition, prior to or concurrently with
the Closing, Shareholder, the Company, and the Subsidiary shall cause all Liens
and security interests held by the lender under the Bank Credit Agreement and
any other holder of Debt of the Company and/or the Subsidiary referred to in the
first sentence of this Section 5.12 to be released and terminated in full, so
that as of the Closing Date, the Assets will be free and clear of all Liens
except for Permitted Encumbrances.
48
Section 5.13 Hedging Transactions. Shareholder and the Company shall use
commercially reasonable efforts to cause the Hedging Transactions to remain in
full force and effect after the Closing and shall take no action to cause any of
the Hedging Transactions to be terminated; provided, however, that prior to the
Closing, neither Shareholder nor the Company shall be required, and after the
Closing, Shareholder shall not be required, to expend any money or provide any
collateral to cause the Hedging Transactions to remain in full force and effect
after the Closing Date. To the extent that, prior to or after the Closing, the
counterparty(ies) in the Hedging Transactions require Purchaser, the Company, or
the Subsidiary to provide additional margin or other additional security in
order to maintain one or more of the Hedging Transactions in effect, such
additional margin or other additional security shall be the responsibility of
Purchaser.
Section 5.14 Seismic Licenses. Shareholder and the Company shall use
commercially reasonable efforts to cooperate with Purchaser in obtaining all
Third Party Consents required to cause the Seismic Licenses to remain in full
force and effect as part of the Assets after the Closing.
Section 5.15 Casualty Event. Shareholder or the Company shall give
Purchaser prompt written notice of any Casualty Event that occurs with respect
to any Asset between the date of this Agreement and the Closing Date, together
with a description of the applicable insurance coverage and an estimate of the
exposure of the Company or the Subsidiary with respect to such Casualty Event.
Shareholder shall use commercially reasonable efforts to cause the Company or
the Subsidiary to repair or, in the case of a Casualty Event affecting personal
property and equipment, replace with items of equivalent quality and value, any
such Asset damaged or taken by the relevant Casualty Event at the cost and
expense of the Company or the Subsidiary, as applicable. Subject to the terms of
this Agreement, if a Casualty Event occurs prior to, but remains unrepaired as
of, the Closing Date, Purchaser shall nevertheless purchase the Company Common
Stock at the Closing. Shareholder, if prior to the Closing, or Purchaser, if
after the Closing, shall cause the Company to file, or to cause the Subsidiary
to file, all permissible Claims under all applicable insurance policies of the
Company and/or the Subsidiary with the respect to the relevant Casualty Event
and promptly to remit to Purchaser all such insurance proceeds following the
receipt thereof by the Company or the Subsidiary. At Purchaser's request,
Shareholder, the Company, and the Subsidiary shall also assign to Purchaser any
and all Claims against third Persons that Shareholder, the Company, or the
Subsidiary may have with respect to such Casualty Event.
49
Section 5.16 Unaudited Financial Statements. As soon as reasonably
practicable after the execution of this Agreement, which is expected to be on or
about May 15, 2007, Shareholder shall furnish to Purchaser an unaudited
consolidated balance sheet of the Company and the Subsidiary, and an unaudited
consolidated statement of operations of the Company and Subsidiary, as of March
31, 2007.
Section 5.17 Purchaser Indemnification. Purchaser shall defend, indemnify
and hold harmless Shareholder, the Company and their respective Affiliates and
each of their respective officers, directors, partners, managers and members,
against any and all Claims and Damages, joint or several, to which they or any
of them may become subject under the Securities Act, the Securities Exchange Act
of 1934 or otherwise, insofar as such Claims and Damages arise out of or are
based upon any act or omission of Purchaser in connection with, or any untrue
statement or alleged untrue statement of a material fact contained in, any
registration statement, prospectus, offering circular, memorandum or other
offering material, or in any supplement thereto or amendment thereof, used by
Purchaser or any of its Affiliates to offer for sale or sell securities, whether
before or after the Closing, to fund any portion of the Adjusted Consideration,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading. This indemnity will be in addition to any
liability that the Purchaser may otherwise have, including but not limited to
other liability under this Agreement.
ARTICLE VI.
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Proceed with Closing.
The respective obligations of each Party to proceed with Closing shall be
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) Approvals and Waivers. All filings required to be made prior to the
Closing with, and all consents, approvals, permits and authorizations required
to be obtained prior to the Closing from, any Governmental Authority in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been made or
obtained (as the case may be), except, in each case, where the failure to obtain
such consents, approvals, permits and authorizations and waivers would not be
reasonably likely to materially adversely affect the consummation of the
transaction contemplated by this Agreement.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transaction contemplated by this Agreement shall be in
effect; provided, however, that prior to invoking this condition, each Party
shall use commercially reasonable efforts to have any such decree, ruling,
injunction or order vacated, and, if necessary, the Closing shall be delayed for
up to thirty (30) days while such efforts are taking place.
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Section 6.2 Conditions to Obligations of Purchaser. The obligations of
Purchaser to proceed with Closing are subject to the satisfaction, at or prior
to the Closing, of the following conditions, any or all of which may be waived
in whole or in part by Purchaser:
(a) Representations and Warranties. The representations and warranties of
the Shareholder and the Company set forth in Article 3 shall be true and correct
in all material respects as of the Closing Date as though made on and as of that
time (except that any such representations and warranties which expressly relate
only to an earlier date shall be true and correct on the Closing Date as of such
earlier date) and Purchaser shall have received a certificate signed by a
Responsible Officer of Shareholder to such effect; provided, however, that the
condition set forth in this Section 6.2(a) shall not be applicable to the
representations and warranties regarding Title in Section 3.11 and Environmental
Matters in Section 3.14 (which are addressed in Section 5.10); and provided,
further, that for purposes of this Section 6.2(a), all qualifications relating
to materiality contained in such representations and warranties shall be
disregarded.
(b) Performance of Covenants and Agreements by the Company. Shareholder
and the Company shall have performed in all material respects all covenants and
agreements required to be performed by them under this Agreement at or prior to
the Closing Date, and Purchaser shall have received a certificate signed by a
Responsible Officer of Shareholder to such effect.
(c) Consents and Waivers. All Third Party Consents listed in Schedule
3.2(e) shall have been obtained.
(d) Termination of Bank Credit Agreement. Shareholder, the Company, and
the Subsidiary shall have made arrangements with all relevant lenders to pay and
discharge in full all Debt of the Company and the Subsidiary, and obtain
releases or termination statements of all Liens, in each case referred to in
Section 5.12.
Section 6.3 Conditions to Obligations of Shareholder and the Company. The
obligations of Shareholder and the Company to proceed with Closing are subject
to the satisfaction, at or prior to the Closing, of the following conditions,
any or all of which may be waived in whole or in part by Shareholder and/or the
Company:
(a) Representations and Warranties. The representations and warranties of
Purchaser set forth in Article 4 shall be true and correct in all material
respects as of the Closing Date as though made on and as of that time (except
that any such representations and warranties which expressly relate only to an
earlier date shall be true and correct on the Closing Date as of such earlier
date), and Shareholder and the Company shall have received a certificate signed
by the chief executive officer or the chief operating officer of Purchaser to
such effect; provided, however, that for purposes of this Section 6.3(a), all
qualifications relating to materiality contained in such representations and
warranties shall be disregarded.
(b) Performance of Covenants and Agreements by Purchaser. Purchaser shall
have performed in all material respects all covenants and agreements required to
be performed by it under this Agreement at or prior to the Closing Date, and
Shareholder and the Company shall have received a certificate signed by the
chief executive officer, the chief operating officer or the chief financial
officer of Purchaser to such effect.
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ARTICLE VII.
POST CLOSING MATTERS
Section 7.1 Records. At the Closing, Shareholders shall deliver to
Purchaser the minute books of the Company and the Subsidiary. At any time after
the Closing, pursuant to Purchaser's reasonable instructions, Shareholder shall
deliver to Purchaser the remainder of the Records. Purchaser shall be entitled
to all original Records. Prior to the delivery thereof to Purchaser, Shareholder
may make and retain, at its expense, copies of the Records. Purchaser agrees to
maintain all original Records (other than Records relating to Taxes, which are
covered in Section 7.3(b)) until the fifth (5th) anniversary of the Closing
Date, or, if any of such Records pertain to a Claim pending at such fifth
anniversary date, until such Claim is finally resolved and the time for all
appeals has been exhausted. Purchaser will provide to Shareholder, on reasonable
notice during normal business hours at Shareholder's cost and expense,
reasonable access to the Records for purposes of obtaining information for the
preparation of tax returns, financial statements, and other legitimate business
purposes of Shareholder.
Section 7.2 Further Cooperation. After the Closing Date, Purchaser and
Shareholder shall execute and deliver, or shall cause to be executed and
delivered from time to time, such further documents and instruments of transfer,
and shall take such other actions as either Party may reasonably request, to
accomplish the transaction contemplated by this Agreement. If, after the Closing
Date, either Party receives monies belonging to the other, such amounts shall be
promptly disbursed to the Party entitled to receive them. If an invoice or other
evidence of an obligation is received by a Party, which is either an obligation
assumed by the other Party or partially an obligation of both Shareholder and
Purchaser, the Parties shall consult with each other, and an adjustment for such
amount will be made in cash as the Parties may agree. If Shareholder and
Purchaser are unable to agree on the disposition of such an obligation,
Shareholder and Purchaser shall submit the matter to binding arbitration in
accordance with the terms of Article 10.
Section 7.3 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Purchaser and Shareholder for certain
tax matters following the Closing Date:
(a) Purchaser shall prepare or cause to be prepared and file or cause to
be filed all Tax Returns for the Company and the Subsidiary that are filed after
the Closing Date.
(b) Purchaser, Company, the Subsidiary, and Shareholder shall cooperate
fully, as and to the extent reasonably requested by the other Party, in
connection with the filing of Tax Returns pursuant to Section 7.3(a) and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other Party's request) the provision
of Records and information that are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company, the Subsidiary, and Shareholder agree
(i) to retain all Records with respect to Tax matters pertinent to the Company
and the Subsidiary relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations (and, to the extent
notified by Purchaser or Shareholder, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any taxing authority, and (ii) to give the other Party reasonable written
notice prior to transferring, destroying or discarding any such Records and, if
the other Party so requests, Company and its Subsidiaries or Shareholder, as the
case may be, shall allow the other Party to take possession of such books and
records. Purchaser and Shareholder further agree, upon request, (x) to use their
best efforts to obtain any certificate or other document from any Governmental
Authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby), and (y) to provide the other
Party with all information that either Party may be required to report pursuant
to sections 6043 or 6043A of the Code or Treasury regulations promulgated
thereunder.
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(c) All Tax-sharing agreements or similar agreements with respect to or
involving the Company and the Subsidiary shall be terminated as of the Closing
Date and, after the Closing Date, the Company and the Subsidiary shall not be
bound thereby or have any liability thereunder.
(d) All transfer, documentary, sales, use, stamp, registration and other
such Taxes (including any penalties and interest) incurred in connection with
consummation of the transactions contemplated by this Agreement shall be paid by
Purchaser when due, and Purchaser will, at its own expense, file all necessary
Tax Returns and other documentation with respect to all such Taxes, fees and
charges.
ARTICLE VIII.
TERMINATION
Section 8.1 Termination Rights. This Agreement may be terminated:
(a) At any time prior to the Closing Date by mutual written consent of
Purchaser and Shareholder;
(b) At any time prior to the Closing Date, by Shareholder (to the extent
Shareholder is not in material breach or material default of its obligations
under this Agreement) if Purchaser is in material breach or material default or
has otherwise failed to comply in any material respect with any of its
respective covenants or agreements contained in this Agreement, but only if
Shareholder has given Purchaser at least ten (10) days' prior notice of such
material breach, default or failure to comply and such material breach, default,
or failure to comply has not been, or cannot be, cured before expiration of such
period;
(c) At any time prior to the Closing Date, by Purchaser (to the extent
Purchaser is not in material breach or material default of, or has otherwise
failed to comply in any material respect with, any of its covenants, agreements,
or obligations under this Agreement) if Shareholder is in material breach or
material default of, or has otherwise failed to comply in any material respect
with any of its covenants, agreements, or obligations under this Agreement, but
only if Purchaser has given Shareholder at least ten (10) days' prior notice of
such material breach, default, or failure to comply, and such material breach,
default, or failure to comply has not been, or cannot be, cured before the
expiration of such period;
53
(d) At or at any time after the Expiration Date, by either Shareholder or
Purchaser if the Closing does not occur because any of the conditions contained
in Section 6.1 is not fulfilled, or waived by both Parties, as of or before the
Expiration Date;
(e) At or at any time after the Expiration Date, by Shareholder if the
Closing has not occurred on or before the Expiration Date, provided, however,
that the right to terminate this Agreement shall not be available to the
Shareholder if the Shareholder's failure to satisfy any of the conditions in
Section 6.2 has been the sole, direct, proximate cause of the failure of Closing
to occur on or before the Expiration Date;
(f) At or at any time after the Expiration Date, by Purchaser if (i) the
Closing does not occur because any of the conditions contained in Section 6.2
have not been fulfilled by Shareholder, or waived by Purchaser, as of the
Expiration Date, and (ii) all of the conditions set forth in Section 6.1 and
Section 6.3 have been fulfilled as of or before the Expiration Date;
(g) by Shareholder in accordance with Section 5.9(h); or
(h) By Purchaser in accordance with Section 5.9(i);
provided, however, that this Agreement shall not expire or terminate during the
pendency of any arbitration proceedings initiated hereunder.
Section 8.2 Effect of Termination. If this Agreement is terminated by
either Purchaser or Shareholder pursuant to the provisions of Section 8.1, this
Agreement shall forthwith become void except for, and there shall be no further
obligation on the part of any Party or its respective Affiliates, directors,
officers, employees or shareholders except pursuant to, the provisions of
Sections 3.17 and 4.7 (with respect to the indemnification provisions contained
therein), Section 5.2(b) (but only to the extent of the confidentiality and
indemnification provisions contained therein), Section 5.4 (with respect to the
confidentiality provisions contained therein), Section 5.5, this Section 8.2,
Section 9.2, Section 11.10, and the Confidentiality Agreement (which shall
continue pursuant to their terms). If this Agreement is terminated by
Shareholder and Purchaser pursuant to Section 8.1(a), or by Shareholder pursuant
to Section 8.1(g), or by Purchaser pursuant to Section 8.1(h), or by Shareholder
or Purchaser pursuant to Section 8.1(d), neither Party shall have any further
liability to the other Party as the result of such termination, and Purchaser
shall be entitled to the return of the Xxxxxxx Money, plus all accrued interest.
If Shareholder terminates this Agreement pursuant to Section 8.1(b) or Section
8.1(e), then in addition to such right to terminate, and as its sole and
exclusive remedies with respect to such failure of the Closing to occur,
Shareholder shall retain the Xxxxxxx Money, plus all accrued interest, and if
Purchaser has extended the Expiration Date pursuant to Section 2.5, Purchaser
shall pay to Shareholder the amount of interest accrued on the Base
Consideration pursuant to Section 2.5. If Purchaser terminates this Agreement
pursuant to Section 8.1(c) or Section 8.1(f), then in addition to such right of
termination, Purchaser shall be entitled to the return of the Xxxxxxx Money,
plus all accrued interest, and to pursue arbitration against Shareholder for all
damages that are the direct and proximate result of the material breach or
material default or failure to comply in any material respect by Shareholder
described in Section 8.1 (c) or Shareholder's failure to fulfill the conditions
described in Section 6.2; provided, however, that in no event shall the
aggregate amount to be paid by the Shareholder and the Company with respect to
such damages exceed $20,000,000.00. The Parties hereby acknowledge that the
extent of damages to Shareholder occasioned by any failure or refusal of
Purchaser to satisfy any such conditions would be impossible or extremely
impractical to ascertain and that the amount of the Xxxxxxx Money is a fair and
reasonable estimate of the damages under the circumstances. IN NO EVENT WILL ANY
PARTY BE LIABLE TO ANY OTHER PARTY FOR INCIDENTAL, CONSEQUENTIAL, EXEMPLARY,
PUNITIVE OR SPECIAL DAMAGES OF ANY KIND OR FOR LOST OR IMPUTED PROFITS RESULTING
FROM ANY TERMINATION OF THIS AGREEMENT. Upon such termination, Shareholder shall
be free to immediately enjoy all rights of ownership and to sell, transfer,
encumber or otherwise dispose of the Company Common Stock or any of the Oil and
Gas Interests to any other Person without any restriction under this Agreement.
54
ARTICLE IX.
SURVIVAL
Section 9.1 Survival of Representations and Warranties.
(a) Except as otherwise provided herein, all representations, warranties,
covenants, agreements, and indemnities of Purchaser and Shareholder under this
Agreement shall survive the Closing and the transfer of the Company Common Stock
and shall remain in force and effect as provided in this Section 9.1(a), as
applicable, regardless of any investigation at any time made by or on behalf of
Purchaser or Shareholder, or of any information that Purchaser or Shareholder
may have with respect thereto. Such survival does not obligate any Party to make
any further representation or warranty after the Closing Date, or to cause any
representation or warranty made hereunder to remain true and correct after the
Closing Date. Notwithstanding the foregoing, the representations and warranties
made by the Shareholder in Section 3.11 and Section 3.14 shall not survive the
Closing.
(b) After the Closing, neither Purchaser nor Shareholder shall be entitled
to enforce its remedies against the other Party with respect to the inaccuracy
or breach of any representation or warranty made by such Party hereunder unless
the Party seeking to enforce remedies gives written notice of the alleged breach
or inaccuracy to the Party against whom enforcement is sought no later than
December 31, 2007.
(c) Except for the Parties' indemnification obligations pursuant to
Section 3.17, Section 4.7, Section 5.2(b) and Section 5.17, after the Closing,
neither Purchaser nor Shareholder shall be entitled to enforce its remedies
against the other Party with respect to a breach or default in the performance
by such Party of any covenant or agreement of that Party contained in this
Agreement unless the Party seeking to enforce remedies gives written notice of
the alleged breach or default to the Party against whom enforcement is sought no
later than December 31, 2007, except with respect to any covenant or agreement
expressly required to be performed after December 31, 2007.
55
(d) Notwithstanding the other provisions of this Agreement, Shareholder
and the Company shall, in the aggregate, not have obligations for Claims or
Damages incurred by Purchaser under this Agreement for any breach, inaccuracy or
default by Shareholder or the Company of any representations, warranties,
covenants or indemnities, (i) for any individual item where the Damages are less
than $100,000 and (ii) in respect of each individual item where the Damages are
equal to or greater than $100,000, unless the aggregate amount of all such
Damages exceeds $5,000,000, and then only to the extent of such excess. In no
event shall the aggregate amount to be paid by the Shareholder and the Company
to the Purchaser for any such Claims or Damages under this Agreement exceed
$15,000,000.
Section 9.2 NO CONSEQUENTIAL DAMAGES. Notwithstanding any OTHER PROVISION
OF THIS AGREEMENT, NO PARTY SHALL BE ENTITLED TO ANY CONSEQUENTIAL DAMAGES,
INCLUDING EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR SPECIAL DAMAGES
(COLLECTIVELY, "EXCLUDED DAMAGES") SUFFERED BY ANOTHER PARTY HERETO, AND
PURCHASER HEREBY RELEASES SHAREHOLDER AND THE COMPANY, AND SHAREHOLDER AND THE
COMPANY HEREBY RELEASE PURCHASER, IN EACH CASE TO THE FULLEST EXTENT APPLICABLE
LAW PERMITS, FROM LIABILITIES FOR ALL EXCLUDED DAMAGES.
Section 9.3 Scope of Representations and Warranties of Shareholder and the
Company. Purchaser acknowledges that, except as expressly provided in this
agreement, neither Shareholder nor the Company have made, and Shareholder and
the Company hereby expressly disclaim and negate, any representation or
warranty, express, implied, at common law, by statute or otherwise relating to,
and Purchaser hereby expressly waives and relinquishes any and all Claims
against Shareholder, the Company and their representatives in connection with
the accuracy, completeness or materiality of any such representation or warranty
or any information, data or other materials (written or oral), heretofore
furnished to Purchaser and its representatives by or on behalf of Shareholder
and/or the Company. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SHAREHOLDER,
THE SUBSIDIARY AND THE COMPANY EXPRESSLY DISCLAIM AND NEGATE, AND PURCHASER
HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT AND FIXTURES CONSTITUTING A
PART OF THE ASSETS (I) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (II)
ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (III) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
(IV) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE LEGAL REQUIREMENTS TO CLAIM
DIMINUTION OF CONSIDERATION, (V) ANY CLAIMS BY PURCHASER FOR DAMAGES BECAUSE OF
ANY LATENT OR PATENT DEFECTS OR OTHER DEFECTS, WHETHER KNOWN OR UNKNOWN AND (VI)
ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LEGAL REQUIREMENTS. THE
COMPANY, SHAREHOLDER AND PURCHASER AGREE THAT, TO THE EXTENT REQUIRED BY
APPLICABLE LEGAL REQUIREMENTS TO BE EFFECTIVE, THE DISCLAIMERS OF THE WARRANTIES
CONTAINED IN THIS SECTION ARE "CONSPICUOUS."
56
ARTICLE X.
ARBITRATION
Section 10.1 Jurisdiction. The Parties hereby agree that all
controversies, Claims and matters of difference shall be resolved by binding
arbitration (an "Arbitration Proceeding") before the American Arbitration
Association (the "AAA") located in Xxxxxx County, Texas (the "County"),
according to the commercial rules and practices of the AAA from time-to-time in
force; provided, however, that the Parties reserve their rights to seek and
obtain injunctive or other equitable relief from a court of competent
jurisdiction, without waiving the right to compel such arbitration pursuant to
this Section 10.1. Without limiting the generality of the foregoing, the
following shall be considered controversies for this purpose: all questions
relating to the breach of any obligation, warranty, promise, right or condition
hereunder; and any question as to whether the right to arbitrate a certain
dispute exists. This agreement to arbitrate shall be self-executing without the
necessity of filing any action in any court and shall be specifically
enforceable under the prevailing arbitration Law.
Section 10.2 Injunctive Relief. Notwithstanding Section 10.1, should any
party seek temporary, preliminary or permanent injunctions, such injunctions
shall be obtained through a court of competent jurisdiction, and not through an
Arbitration Proceeding, without otherwise waiving the right to compel or be
bound by arbitration pursuant to this Article 10. In such case, the arbitrator
shall be bound by the terms of injunctive relief issued by a court of competent
jurisdiction.
Section 10.3 Initiation. A Party shall institute an Arbitration Proceeding
by sending written notice of an intent to arbitrate (hereinafter the
"Arbitration Notice") to the other Party and to the AAA in accordance with the
manner of notice provided in this Agreement. The Arbitration Notice shall set
forth a description of the dispute, the amount in controversy, and the remedy
sought. An Arbitration Proceeding may proceed in the absence of any Party if the
Arbitration Notice has been properly given to such Party. Each Party shall have
the right to be represented by legal counsel throughout the Arbitration
Proceeding.
Section 10.4 Selection of Arbitrator. Within fifteen (15) days of the date
of the Arbitration Notice, each Party shall appoint one arbitrator and notify
the other Party of such appointment; provided, however, that no officer, agent,
attorney, employee of a Party or other person who has a financial interest in
said dispute may be appointed. Promptly after their appointment, the two (2)
arbitrators appointed by the Parties shall meet and select the third and
presiding arbitrator from a panel provided by the AAA. In the event the first
two (2) arbitrators cannot agree upon the selection of the third arbitrator
within thirty (30) days, the third arbitrator shall be appointed by the AAA
pursuant to its rules. Each Arbitrator shall, if possible, have experience in
evaluating and buying and selling oil and gas interests. Once appointed there
will be no direct communication between such arbitrators and the Parties that
appointed them.
57
Section 10.5 Payment of Fees. Each Party shall pay the fees charged by the
arbitrator that it appointed and one-half of the third arbitrator's fees and
one-half of all fees charged by AAA, except that each Party shall pay the fees
charged by AAA in connection with the filing of a Party's statement of claim or
answer. The arbitrators may award all of the arbitration and AAA fees paid by
either Party to a Party as part of the award.
Section 10.6 Discovery. The Parties shall have the right to engage in any
and all discovery pertaining to civil litigation as they would be entitled to
pursuant to the Texas Rules of Civil Procedure including, without limitation,
all pre-hearing discovery as would be permitted in civil litigation. Said
discovery shall proceed pursuant to the provisions of the Texas Rules of Civil
Procedure governing discovery in civil litigation and all conditions and
objections allowed under the rules of said Texas Rules of Civil Procedure shall
be allowed with respect to such discovery. The arbitrator shall rule upon
motions to compel or limit discovery and shall have the authority to impose
sanctions, including attorneys' fees and costs, to the same extent as a court of
law or equity should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification.
Section 10.7 Scope of Powers. The arbitrators shall have the power to
issue any award, judgment, decree or order of relief that a court of law could
issue under such applicable Law including, but not limited to, money damages;
and for such purposes, it is hereby expressly acknowledged and agreed that
damages at law will be an adequate remedy for a breach or threatened breach of
any provision of this Agreement, it being the intention of this sentence to make
clear the agreement of the parties hereto that the respective rights and
obligations of the parties hereto hereunder shall be enforceable in any
arbitration proceedings in accordance with principles of Law. The arbitrators
shall not have the authority to grant injunctive relief.
Section 10.8 Written Decision. The arbitrators shall prepare a written
decision, signed by the presiding arbitrator that shall be sent to the Parties
within thirty (30) calendar days following the conclusion of the hearing. The
written statement will be supported by written findings of fact and conclusions
which adequately set forth the basis of the arbitrators' decision. The
arbitrators shall also be entitled to award to the prevailing Party attorneys'
fees and costs, plus the AAA's and the arbitrators' fees and expenses.
Section 10.9 Awards. The Parties agree to abide by all awards, judgments,
decrees or orders rendered in an Arbitration Proceeding by the arbitrators. The
award, judgment, decree or order of the arbitrators, and the findings of the
arbitrators, shall be final, conclusive and binding upon the Parties to the
extent and in the manner provided by Texas statute. Any judgment upon the award
and enforcement of any other judgment, decree or order of relief granted by the
arbitrators may be entered or obtained in any court of competent jurisdiction,
state or federal, in the county in which the residence or principal office of a
non-prevailing Party is located, as a basis of judgment and of the issuance of
execution for its collection and, at the election of the party making such
filing, with the clerk of one or more other courts, state or federal, having
jurisdiction over the Party against whom such an award is rendered or such
Party's property. The Parties shall have the right to petition the District
Court of Xxxxxx County to confirm, correct or vacate the arbitrators' award in
accordance with the provisions of the Texas Rules of Civil Procedure.
58
ARTICLE XI.
MISCELLANEOUS
Section 11.1 Amendment. This Agreement may not be amended except by a
written instrument signed on behalf of each of the Parties.
Section 11.2 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and either delivered personally
(effective upon delivery), by facsimile transmission (effective on the next day
after transmission), by recognized overnight delivery service (effective on the
next day after delivery to the service), or by registered or certified mail,
postage prepaid and return receipt requested (effective on the fifth day after
being so mailed), at the following addresses or facsimile transmission numbers
(or at such other address or facsimile transmission number for a Party as shall
be specified by like notice):
If to Purchaser:
Dune Energy, Inc.
0000 Xxxx Xxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xx. Xxxxx X. Xxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with copies to:
Xxxxx & XxxXxxxxx LLP
0 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
and
Xxxxxxx Xxxxxx L.L.P.
0000 XxXxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxxx
Telephone No.: (000) 000-0000
Facsimile: (000) 000-0000
59
If to Shareholder or to the Company:
Xxxxxxx X. Xxxxxxxxx, Xx.
Goldking Energy Holdings, L.P.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Telefax: 000-000-0000
with copies to:
Xxxxxxxxxxx Xxx
Natural Gas Partners VII, L.P.
000 X. Xxxx Xxxxxxxxx Xxx., Xxx. 000
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Telefax: (000) 000-0000
and
W. Xxxx Xxxxxxx, Jr.
Xxxxx & Xxxxxxxxx LLP
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Telefax: 713-751-1717
Section 11.3 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties, it being understood that all
Parties need not sign the same counterpart.
Section 11.4 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
Section 11.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement (together with the Confidentiality Agreement and the documents and
instruments delivered by the Parties pursuant to this Agreement): (a)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the Parties with respect to the
subject matter hereof; and (b) except as provided in Section 5.2 and Section
5.6, is solely for the benefit of the Parties and their respective successors,
legal representatives and assigns and does not confer on any other Person any
rights or remedies hereunder.
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Section 11.6 Applicable Law. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Texas, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof.
Section 11.7 No Remedy in Certain Circumstances. Each Party agrees that,
should any court or other competent authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any Party
to take any action inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and enforceability of the
remaining provisions and obligations contained or set forth herein shall not in
any way be affected or impaired thereby, unless the foregoing inconsistent
action or the failure to take an action constitutes a material breach of this
Agreement or makes this Agreement impossible to perform, in which case this
Agreement shall terminate pursuant to Article 7. Except as otherwise
contemplated by this Agreement, to the extent that a Party took an action
inconsistent herewith or failed to take action consistent herewith or required
hereby pursuant to an order or judgment of a court or other competent
Governmental Authority, such Party shall not incur any liability or obligation
unless such Party breached its obligations under Section 5.5 or did not in good
faith seek to resist or object to the imposition or entering of such order or
judgment.
Section 11.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the Parties
(whether by operation of law or otherwise) without the prior written consent of
the other Parties, except that Purchaser may assign, pledge, or grant a security
interest in its rights under this Agreement to secure financing and may assign,
in its sole discretion, its rights, interests and obligations hereunder to any
wholly-owned subsidiary of Purchaser, provided that Purchaser shall notify the
Company of any such assignment and remain responsible for all of its obligations
hereunder. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the Parties and their
respective successors and assigns.
Section 11.9 Waivers. At any time prior to the Closing, the Parties may,
to the extent legally allowed: (a) extend the time for the performance of any of
the obligations or other acts of the other Parties; (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto; and (c) waive performance of any of the covenants or
agreements, or satisfaction of any of the conditions, contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such Party. Except
as provided in this Agreement, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any Party, shall be deemed to
constitute a waiver by the Party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any Party of a breach of any provision hereof shall not
operate or be construed as a waiver of any prior or subsequent breach of the
same or any other provisions hereof.
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Section 11.10 Confidentiality.
(a) Shareholder's and Purchaser's respective obligations under the
Confidentiality Agreement shall terminate upon the Closing. Purchaser agrees
that if this Agreement is terminated for any reason whatsoever, Purchaser's
obligations under the Confidentiality Agreement shall continue in accordance
with the terms thereof.
(b) After the Closing, Shareholder agrees not to disclose geological,
seismic and other proprietary data related to the Assets, or other information
that Shareholder or the Company would treat as confidential if it were the owner
of the Company and/or the Subsidiary or any confidential information provided by
Purchaser to Shareholder, and Purchaser agrees not to disclose proprietary or
confidential information of Shareholder other than the Records provided by
Shareholder to Purchaser, unless (i) the Person to which such confidentiality
obligation is owed shall have consented thereto in writing, (ii) disclosure is
required pursuant to a court order or by subpoena or similar legal process, or
(iii) disclosure is made on advice of its counsel, pursuant to a request by a
Governmental Authority, pursuant to applicable Laws, or to comply with the rules
and regulations of any stock exchange, or (iv) such information has been
previously made public (except as a result of a breach of this Agreement);
provided, however, each Party may disclose such information to its
representatives, agents, attorneys, consultants, and auditors as needed, but in
such event, the relevant Party shall use commercially reasonable efforts to
cause such persons to keep such information confidential.
(c) Notwithstanding anything herein to the contrary, the Parties (and each
Affiliate and Person acting on behalf of any Party) agree that each Party (and
each employee, representative, and other agent of such Party) may disclose to
any and all Persons, without limitation of any kind, the transaction's tax
treatment and tax structure (as such terms are used in sections 6011 and 6112 of
the Code and Treasury regulations thereunder) contemplated by this Agreement and
all materials of any kind (including opinions or other tax analyses) provided to
such Party or such Person relating to such tax treatment and tax structure,
except to the extent necessary to comply with any applicable federal or state
securities Laws. This authorization is not intended to permit disclosure of any
other information including (without limitation) (i) any portion of any
materials to the extent not related to the transaction's tax treatment or tax
structure, (ii) the identities of participants or potential participants, (iii)
the existence or status of any negotiations, (iv) any pricing or financial
information (except to the extent such pricing or financial information is
related to the transaction's tax treatment or tax structure), or (v) any other
term or detail not relevant to the transaction's tax treatment or the tax
structure.
Section 11.11 Incorporation. The Exhibits and Schedules referred to herein
are attached to and by this reference incorporated herein for all purposes.
Section 11.12 Mutual Release.
(a) Subject to the occurrence of the Closing and as of the Closing Date,
Purchaser and the Company release and forever discharge Shareholder and its
Affiliates and the shareholders, directors, officers, agents, controlling
persons, representatives, advisors and employees of Shareholder and its
Affiliates, and their respective heirs, executors, administrators, successors
and assigns, from any and all Claims of the Company or Purchaser, or their
Affiliates, related to the Company (except for Claims arising under this
Agreement) that arise out of acts, events, conditions or omissions occurring or
existing at any time prior to and including the Closing Date.
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(b) Subject to the occurrence of the Closing and as of the Closing Date,
Shareholder releases and forever discharges Purchaser and the Company from any
and all Claims of Shareholder or its Affiliates related to the Company (except
for Claims arising under this Agreement) that arise out of acts, events,
conditions or omissions occurring or existing at any time prior to and including
the Closing Date.
(Signatures Begin on Following Page)
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives, on the date first written above.
COMPANY
GOLDKING ENERGY CORPORATION
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxxxxx, Xx.
-----------------------------------------
Name: /s/ Xxxxxxx X. Xxxxxxxxx, Xx.
---------------------------------------
Title: President & CEO
--------------------------------------
SHAREHOLDER
GOLDKING ENERGY HOLDINGS, L.P.
a Texas limited partnership
By: GEH GP, L.L.C., a Texas limited liability
company, its General Partner
By: /s/ Xxxxxxx X. Xxxxxxxxx, Xx.
-----------------------------------------
Name: /s/ Xxxxxxx X. Xxxxxxxxx, Xx.
---------------------------------------
Title: President & CEO
--------------------------------------
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TABLE OF CONTENTS
SIGNATURE PAGE FOR DUNE ENERGY, INC., TO
STOCK PURCHASE AND SALE AGREEMENT
DATED AS OF APRIL 13, 2007, AMONG
DUNE ENERGY, INC, GOLDKING ENERGY CORPORATION,
AND GOLDKING ENERGY HOLDINGS, L.P.
PURCHASER
DUNE ENERGY, INC.,
a Delaware corporation
By: /s/ Xxxxx Xxxxx
---------------------
Dr. Xxxxx Xxxxx
President
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