Exhibit 2.1
EXECUTION COPY
BY AND AMONG
DBLE ACQUISITION CORPORATION,
AND
PETROSEARCH ENERGY CORPORATION
DATED AS OF MARCH 30, 2009
Table of Contents
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ARTICLE 1. REFERENCES AND DEFINITIONS |
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1.1 References and Titles |
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1.2 Definitions |
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2 |
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ARTICLE 2. THE MERGER |
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2.1 The Merger |
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2.2 Effective Time |
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2.3 Effect of the Merger on Constituent Corporations |
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2.4 Articles of Incorporation and Bylaws of Surviving Corporation |
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2.5 Directors and Officers of Surviving Corporation |
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2.6 Maximum Number of Shares of Parent Common Stock to be Issued; Contingent Cash
Consideration; Fractional Shares; Effect on Outstanding Securities of the Company,
Merger Sub |
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2.7 Dissenting Shares |
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2.8 Exchange Procedures |
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2.9 No Further Ownership Rights in Company Capital Stock |
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2.10 Lost, Stolen or Destroyed Certificates |
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2.11 Taking of Necessary Action; Further Action |
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
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3.1 Organization, Standing and Power |
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3.2 Capital Structure |
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3.3 Subsidiaries |
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3.4 Authority |
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3.5 SEC Documents; Financial Statements; Books and Records |
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3.6 Payables; Receivables |
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3.7 Compliance with Laws |
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3.8 No Defaults |
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3.9 Litigation |
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3.10 Conduct in the Ordinary Course |
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3.11 Absence of Undisclosed Liabilities |
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3.12 Complete Disclosure |
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3.13 Certain Agreements |
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3.14 Employee Benefit Plans |
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3.15 Employee Matters |
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3.16 Major Contracts |
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3.17 Oil and Gas Operations |
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3.18 Taxes |
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3.19 Intellectual Property |
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3.20 No Governmental Regulation |
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Table of Contents
(continued)
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3.21 Restrictions on Business Activities |
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3.22 Title to Properties |
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3.23 Environmental Matters |
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3.24 Insurance |
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3.25 Registration Statement; Proxy Statement |
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3.26 Disclosure Controls and Procedures |
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3.27 Opinion of Financial Advisor |
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3.28 Board Approval |
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3.29 Vote Required |
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3.30 Personnel |
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3.31 Third-Party Consents |
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3.32 Product Warranties; Defects; Liabilities |
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3.33 Related Party Transactions |
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3.34 Brokers or Finders; Professional Fees |
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3.35 Imbalances |
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3.36 Preferential Purchase Rights |
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3.37 No Tax Partnerships |
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3.38 Royalties |
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3.39 Representations Complete |
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ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB |
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4.1 Organization, Standing and Power |
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4.2 Authority |
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4.3 SEC Documents; Financial Statements |
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4.4 Litigation |
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4.5 Brokers or Finders; Professional Fees |
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4.6 Disclosure Controls and Procedures |
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4.7 No Vote Required |
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4.8 Interim Operations of Merger Sub |
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4.9 Compliance with Laws |
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4.10 No Defaults |
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4.11 Conduct in the Ordinary Course |
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4.12 Absence of Undisclosed Liabilities |
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4.13 Taxes |
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ARTICLE 5. CONDUCT PRIOR TO THE EFFECTIVE TIME |
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5.1 Conduct of Business of the Company |
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5.2 No Solicitation |
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Table of Contents
(continued)
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ARTICLE 6. ADDITIONAL AGREEMENTS |
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6.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board Recommendations |
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6.2 Meeting of Company Stockholders |
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6.3 Access to Information |
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6.4 Confidentiality |
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6.5 Expenses |
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6.6 Public Disclosure |
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6.7 Approvals |
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6.8 Notification of Certain Matters |
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6.9 Voting Agreement/Irrevocable Proxies |
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6.10 Affiliate Agreement |
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6.11 Indemnification |
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6.12 Reasonable Efforts and Further Assurances |
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6.13 Listing of Additional Shares |
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6.14 Notices |
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6.15 Blue Sky Laws |
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6.16 Parent Board of Directors |
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6.17 Working Capital Statement |
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6.18 Section 16 Matters |
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ARTICLE 7. CONDITIONS TO THE MERGER |
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7.1 Conditions to Obligations of Each Party to Effect the Merger |
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7.2 Additional Conditions to Obligations of the Company |
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7.3 Additional Conditions to the Obligations of Parent and Merger Sub |
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ARTICLE 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES |
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ARTICLE 9. TERMINATION, AMENDMENT AND WAIVER |
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9.1 Termination |
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9.2 Effect of Termination |
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9.3 Amendment |
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9.4 Extension; Waiver |
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ARTICLE 10. MISCELLANEOUS PROVISIONS |
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10.1 Notices |
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10.2 Entire Agreement |
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10.3 Further Assurances; Post-Closing Cooperation |
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10.4 Third Party Beneficiaries |
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10.5 No Assignment; Binding Effect |
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10.6 Headings |
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10.7 Invalid Provisions |
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10.8 Governing Law |
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10.9 Construction |
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10.10 Counterparts |
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10.11 Specific Performance; Remedies Cumulative |
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10.12 Withholding |
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Table of Contents
(continued)
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LIST OF EXHIBITS |
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Exhibit A
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Form of Voting Agreement |
Exhibit B
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Form of Articles of Merger |
Exhibit C
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Statement of Non-U.S. Real Property Holding Company Status |
Exhibit D-1
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Officer’s Certificates for Parent and Merger Sub |
Exhibit D-2
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Secretary’s Certificate for Parent and Merger Sub |
Exhibit E-1
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Officer’s Certificate for Company |
Exhibit E-2
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Secretary’s Certificate for Company |
Exhibit F
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Form of Lock-Up Agreement |
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LIST OF SCHEDULES |
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Schedule 1
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Company Disclosure Schedule |
Schedule 2
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List of Company Warrant Holders |
Schedule 3
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Parent Disclosure Schedule |
Schedule 4
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Working Capital Calculation |
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THIS
AGREEMENT AND PLAN OF MERGER (this “
Agreement”) is made and entered into as of
March 30, 2009, by and among
Double Eagle Petroleum Co., a
Maryland corporation (“
Parent”),
DBLE Acquisition Corporation, a Nevada corporation and a wholly-owned subsidiary of Parent
(“
Merger Sub”), and Petrosearch Energy Corporation, a Nevada corporation (the
“
Company”). Capitalized terms used and not otherwise defined herein have the meanings set
forth in Article 1.
RECITALS
A. The respective Boards of Directors of each of Parent, Merger Sub and the Company believe
it is in the best interests of their respective entities and stockholders that Parent acquire the
Company through the merger of Merger Sub with and into the Company (the “Merger”).
B. The Boards of Directors of each of Parent, Merger Sub and the Company have approved the
Merger, this Agreement and the transactions contemplated hereby.
C. Pursuant to the Merger, among other things, and subject to the terms and conditions of
this Agreement, all of the issued and outstanding shares of capital stock of the Company,
including without limitation, the Common Stock, the Series A 8% Convertible Preferred Stock and
the Series B Convertible Preferred Stock of the Company (collectively, “Company Capital
Stock”), shall be converted into the right to receive shares of Common Stock of Parent, with a
par value of $0.10 per share (“Parent Common Stock”).
D. As an inducement to Parent and Merger Sub to enter into this Agreement, certain officers
and directors of the Company have concurrently herewith entered into Voting Agreements with Parent
in substantially the form attached hereto as Exhibit A (“Voting Agreements”)
pursuant to which, among other things, such officers and directors will agree to vote the shares
of Company Capital Stock owned by them in favor of the Merger.
E. The Company, Parent and Merger Sub desire to make certain representations, warranties,
covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises, representations and warranties
set forth herein, and for other good and valuable consideration, intending to be legally bound
hereby the parties agree as follows:
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ARTICLE 1.
REFERENCES AND DEFINITIONS
1.1 References and Titles.
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 phrase “to the knowledge” of
the representing party shall mean that Responsible Officers of such party, individually or
collectively, either (i) know that the matter being represented and warranted is true and accurate
or (ii) have no reason, after reasonable inquiry, to believe that the matter being represented and
warranted is not true and accurate.
1.2 Definitions.
As used in this Agreement, the following defined terms shall have the meanings indicated
below:
“Accounts” has the meaning ascribed to it in Section 3.6(b).
“Acquisition Proposal” means any contract, proposal, offer or other indication of interest
(whether or not in writing and whether or not delivered to the stockholders of the Company)
relating to any of the following (other than the transactions contemplated by this Agreement or the
Merger): (a) any Business Combination directly or indirectly involving the Company or the Company
Subsidiaries, (b) the acquisition in any manner, directly or indirectly, of any business or group
of assets that generates 10% or more of the Company’s consolidated net revenues, net income or
stockholders’ equity, or assets representing 10% or more of the book value of the assets of the
Target Companies, taken as a whole, or any license, lease, long-term supply agreement, exchange,
mortgage, pledge or other arrangement having a similar economic effect, in each case in a single
transaction or a series of related transactions, or (c) any direct or indirect acquisition of
beneficial ownership (as defined under Section 13(d) of the Exchange Act) of 10% or more of the
shares of the Company Common Stock, whether in a single transaction or a series of related
transactions.
“Action or Proceeding” means any action, suit, complaint, petition, claim, investigation,
proceeding, arbitration, litigation or Governmental Entity investigation, audit or other
proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or
Governmental Entity.
“Affiliate” means, as applied to any Person, (a) any other Person directly or indirectly
controlling, controlled by or under common control with, that Person, (b) any other Person that
owns or controls 10% or more of any class of equity securities (including any equity securities
issuable upon the exercise of any option or convertible security) of that Person or any of its
Affiliates, or (c) any director, partner, executive officer, or manager of such Person. For the
purposes of this definition, “control” (including with correlative meanings, the terms
“controlling”, “controlled by”, and “under common control with”) as applied to any Person, means
the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through ownership of voting securities or by
contract or otherwise.
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“Aggregate Cash Consideration” has the meaning ascribed to it in Section 2.6(a)(ii).
“Aggregate Consideration” means the sum of the (a) Aggregate Fractional Share Cash Amount;
plus (b) the Aggregate Stock Consideration, or if applicable, the Aggregate Stock Consideration as
Adjusted for Parent Stock Price, or if applicable, the Aggregate Stock Consideration as Adjusted
for Working Capital Shortfall; plus (c) any Aggregate Cash Consideration.
“Aggregate Fractional Share Cash Amount” means the total amount of cash payable by Parent to
all stockholders of the Company in lieu of fractional shares of Parent Common Stock.
“Aggregate Stock Consideration” has the meaning ascribed to it in Section 2.6(a)(i).
“Aggregate Stock Consideration as Adjusted for Parent Stock Price” has the meaning ascribed to
it in Section 2.6(a)(i).
“Aggregate Stock Consideration as Adjusted for Working Capital Shortfall” has the meaning
ascribed to it in Section 2.6(a)(iii).
“Agreement” means this
Agreement and Plan of Merger, the Exhibits, the Company Disclosure
Schedule, the Parent Disclosure Schedule and any other Schedules attached hereto, as the same may
be amended or supplemented from time to time in accordance with the terms hereof.
“Articles of Merger” has the meaning ascribed to it in Section 2.2.
“Approval” means any approval, authorization, consent, permit, franchise, grant, license,
easement, certificate, qualification or registration, or any waiver of any of the foregoing,
required to be obtained from or made with, or any notice, statement or other communication required
to be filed with or delivered to, any Governmental Entity or any other Person.
“Assets and Properties” of any Person means all assets and properties of every kind, nature,
character and description (whether real, personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned, licensed or leased by such Person, including cash, cash
equivalents, investment assets, accounts and notes receivable, chattel paper, documents,
instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual
Property.
“Assumed Warrants” has the meaning ascribed to it in Section 2.6(e).
“Book-Entry Shares” has the meaning ascribed to it in Section 2.8(b).
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“Books and Records” means, in the case of any Person, all files, documents, instruments,
papers, books and records relating to the business of such Person, including financial statements,
internal reports, Tax returns and related work papers and letters from accountants, budgets,
pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and
books, stock transfer ledgers, contracts, Licenses, customer lists, computer files and programs
(including data processing files and records), retrieval programs, operating data and plans and
environmental studies and plans.
“Business Combination” means, with respect to any Person, (a) any merger, consolidation or
other business combination to which such Person is a party; (b) any sale, dividend, split or other
disposition of any capital stock or other equity interests of such Person whether outstanding or
newly, issued; (c) any tender offer (including a self tender), exchange offer, recapitalization,
restructuring, liquidation, dissolution or similar or extraordinary transaction; (d) any sale,
dividend or other disposition of all or a material portion of the Assets and Properties of such
Person; or (e) the entering into of any agreement or understanding, the granting of any rights or
options, or the acquiescence of such Person, with respect to any of the foregoing.
“Business Day” means a day other than Saturday, Sunday or any day on which banks located in
the State of Colorado are authorized or obligated to close.
“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. § 9601 et seq., as amended, and any regulations promulgated thereunder.
“CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability
Information System List.
“Certificates” has the meaning ascribed to it in Section 2.8(b).
“Closing” means the closing of the transactions contemplated by Section 2.2.
“Closing Date” has the meaning ascribed to it in Section 2.2.
“COBRA” has the meaning ascribed to it in Section 3.14(d).
“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder.
“Company” has the meaning ascribed to it in the forepart of this Agreement.
“Company Affiliate(s)” has the meaning ascribed to it in Section 6.10.
“Company Capital Stock” means the Company Common Stock, the Company Series A Preferred Stock,
the Company Series B Preferred Stock and any other class or series of capital stock of the Company.
“Company Charter Documents” has the meaning ascribed to it in Section 6.2(a).
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“Company Common Stock” has the meaning ascribed to it in Section 3.2(a)(ii).
“Company Contract” has the meaning ascribed to it in Section 3.16.
“Company Disclosure Schedule” has the meaning ascribed to it in the forepart of Article 3.
“Company Employee Plans” has the meaning ascribed to it in Section 3.14(a).
“Company Financial Statements” means the audited consolidated financial statements of the
Company and its subsidiaries (including the related notes) included (or incorporated by reference)
in the Company’s Annual Report on Form 10-K for the years ended December 31, 2007 and December 31,
2008, in each case as filed with the SEC.
“Company Preferred Stock” has the meaning ascribed to it in Section 3.2(a)(i).
“Company Proposal” has the meaning ascribed to it in Section 6.2(b).
“Company Representative” means any director, officer, employee, agent, advisor (including
legal, accounting and financial advisors) or other representative of any of the Target Companies.
“Company Reserve Report” means the reserve report as of December 31, 2008, prepared by the
Company, as audited by Xxxxx Xxxxx Company, Petroleum Consultants, and made available to Parent.
“Company Returns” has the meaning ascribed to it in Section 3.18.
“Company SEC Documents” has the meaning ascribed to it in Section 3.5.
“Company Series A Preferred Stock” has the meaning ascribed to it in Section 3.2(a)(i).
“Company Series B Preferred Stock” has the meaning ascribed to it in Section 3.2(a)(i).
“Company Stockholders’ Meeting” has the meaning ascribed to it in Section 3.25.
“Company Warrants” means all warrants to purchase Company Capital Stock listed on Schedule 2.
“Company Warrant Common Stock” has the meaning ascribed to it in Section 2.6(a)(i).
“Confidentiality Agreement” has the meaning ascribed to it in Section 6.4.
“Defensible Title” means such right, title and interest that is (a) evidenced by an instrument
or instruments filed of record in accordance with the conveyance and recording laws of the
applicable jurisdiction to the extent necessary to prevail against competing claims of bona fide
purchasers for value without notice, and (b) subject to Permitted Liens, free and clear of all
Liens, claims, infringements, burdens and other defects.
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“Effective Time” has the meaning ascribed to it in Section 2.2.
“Environmental Law” means any Law relating to (a) emissions, discharges, releases or
threatened releases of Hazardous Materials into the environment, including into ambient air, soil,
sediments, land surface or subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land; (b) the generation, treatment, storage,
disposal, use, handling, manufacturing, recycling, transportation or shipment of Hazardous
Materials; (c) occupational health and safety; or (d) the pollution of the environment, solid waste
handling, treatment or disposal, reclamation or remediation activities, or protection of
environmentally sensitive areas; provided, however, that the term Environmental Law shall not
include any Laws relating to plugging and abandonment obligations and liabilities. The term
“Environmental Law” shall include, but not be limited to the following statutes and the regulations
promulgated thereunder: the Clean Air Act, 42 U.S.C. § 7401 et seq., the Clean Water Act, 33 U.S.C.
§ 1251 et seq., RCRA, the Superfund Amendments and Xxxxxxxxxxxxxxx Xxx, 00 X.X.X. § 00000 et seq.,
the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Water Pollution Control Act, 33
U.S.C. § 1251 et seq., the Safe Drinking Water Act, 42 U.S.C. § 300f et seq., CERCLA, and any
state, county, or local regulations similar thereto.
“ERISA” has the meaning ascribed to it in Section 3.14(a).
“ERISA Affiliate” has the meaning ascribed to it in Section 3.14(a).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder.
“Exchange Agent” means Parent’s transfer agent for its common stock or such other institution
as designated by Parent.
“Exchange Ratio” has the meaning ascribed to it in Section 2.6(a)(i).
“Final Working Capital” has the meaning ascribed to it in Section 6.17.
“Final Working Capital Shortfall” means the positive difference, if any, between $8,750,000
minus the Final Working Capital.
“Financial Statement Date” has the meaning ascribed to it in Section 3.22(d).
“Fractional Share Cash Amount” has the meaning ascribed to it in Section 2.6(b).
“GAAP” means generally accepted accounting principles in the United States, as in effect from
time to time.
“Governmental Action” means any authorization, application, approval, consent, exemption,
filing, license, notice, registration, permit, franchise or other requirement of, to or with any
Governmental Entity.
“Governmental Entity” means any court, tribunal, arbitrator, authority, agency, bureau, board,
commission, department, official or other instrumentality of the United States, any foreign
country or any domestic or foreign state, county, city or other political subdivision, and
shall include any stock exchange, quotation service and the Financial Industry Regulatory
Authority, Inc.
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“Government Licenses” has the meaning ascribed to it in Section 3.7.
“Hazardous Materials” means any substance: (a) the presence of which requires investigation or
remediation under any federal, state or local statute, regulation, ordinance, order, action, policy
or common law; (b) that is or becomes defined as “hazardous waste,” “hazardous substance,”
pollutant or contaminant under any federal, state or local statute, regulation, ordinance, rule,
directive or order or any amendments thereto including, without limitation, CERCLA (42 U.S.C.
Section 9601 et seq.) and/or the Resource Conservation and Recovery Act (41 U.S.C. Section 6901 et
seq.); (c) that is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous and is or becomes regulated by any Governmental Entity, agency,
department, commission, board or instrumentality of the United States, the State of Texas or any
political subdivision thereof; (d) that contains gasoline, diesel fuel or other petroleum
hydrocarbons, or any fraction or byproducts thereof; (e) that contains polychlorinated biphenyls
(PCBs), friable asbestos or urea formaldehyde foam insulation; (f) radon gas; (g) any chemical,
material, waste or substance regulated by any Governmental Entity under Environmental Law; (h) any
radioactive material, excluding any naturally occurring radioactive material, and any source,
special or byproduct material as defined in 42 U.S.C. 2011 et seq.
“Indebtedness” of any Person means all obligations of such Person (a) for borrowed money, (b)
evidenced by notes, bonds, debentures or similar instruments, (c) for the deferred purchase price
of goods or services (other than trade payables or accruals incurred in the ordinary course of
business), (d) under capital leases and (e) in the nature of guarantees of the obligations
described in clauses (a) through (d) above of any other Person.
“Indemnified Parties” shall have the meaning ascribed to it in Section 6.11(a).
“Independent Accountants” shall have the meaning ascribed to it in Section 6.17.
“Intellectual Property” shall have the meaning ascribed to it in Section 3.19.
“IRS” means the United States Internal Revenue Service or any successor entity.
“Law” or “Laws” means any law, statute, order, decree, consent decree, judgment, rule,
regulation, ordinance or other pronouncement having the effect of law whether in the United States,
any foreign country, or any domestic or foreign state, county, city or other political subdivision
or of any Governmental Entity.
“Liabilities” means all Indebtedness, obligations and other liabilities of a Person, whether
absolute, accrued, contingent (or based upon any contingency), known or unknown, fixed or
otherwise, or whether due or to become due.
“License” means any contract that grants a Person the right to use or otherwise enjoy the
benefits of any Intellectual Property (including without limitation any covenants not to xxx with
respect to any Intellectual Property).
- 7 -
“Liens” means any mortgage, pledge, assessment, security interest, lease, lien, easement,
license, covenant, condition, restriction, adverse claim, levy, charge, option, equity, adverse
claim or restriction or other encumbrance of any kind, or any conditional sale contract, title
retention contract or other contract or agreement to give any of the foregoing, except for any
restrictions on transfer generally arising under any applicable federal or state securities law.
“Material Adverse Effect” means:
(a) when used with respect to the Company, a result or consequence that would (i) materially
adversely affect the financial condition, results of operations, business, properties or prospects
of the Company and its Subsidiaries (taken as a whole), or (ii) materially impair the ability of
the Company and its Subsidiaries (taken as a whole) to own, hold, develop and operate their assets;
provided, however, that a Material Adverse Effect shall not include any effect or change that
arises by one or more of: (A) the determination that any xxxxx drilled in the ordinary course of
business are or are deemed to be non-commercial, (B) the determination that any xxxxx perform or
are performing below forecast, (C) any deferral of production resumption or contracting activities
in the ordinary course of business or due to weather related events, (D) production from existing
xxxxx being below production reflected in reserve estimates, (E) labor shortages in the specialized
areas necessary to the respective industry, (F) any adverse effect or losses resulting from any
hedging transactions, (G) changes to economic, political or business conditions affecting the
domestic energy markets generally, except, in each case, to the extent any such changes or effects
materially disproportionately affect the Company, (H) the occurrence of natural disasters of any
type, (I) changes in market prices, both domestically and globally, for any carbon-based energy
product and any write-down for accounting purposes of oil and gas reserves as a result of a
“ceiling test” or property impairment to the extent but only to the extent such write-down or
property impairment is directly attributable to changes in market prices of oil or gas, (J) the
announcement or pendency of this Agreement and the transactions contemplated hereby, compliance
with the terms hereof or the disclosure of the fact that Parent is the prospective owner of the
Company, including any Action or Proceeding arising from any of the foregoing, (K) the existence or
occurrence of war, acts of war, terrorism or similar hostilities, (L) changes in Laws of general
applicability or interpretations thereof by courts or Governmental Entities, or (M) changes in the
market price of either Parent Common Stock or Company Common Stock (but not any change underlying
such changes in price to the extent such change would otherwise constitute a Material Adverse
Effect).
(b) when used with respect to Parent, a result or consequence that would (i) materially
adversely affect the financial condition, results of operations, business, properties or prospects
of the Parent and its Subsidiaries (taken as a whole), or (ii) materially impair the ability of the
Parent and its Subsidiaries (taken as a whole) to own, hold, develop and operate their assets;
provided, however, that a Material Adverse Effect shall not include any effect or change that
arises by one or more of: (A) the determination that any xxxxx drilled in the ordinary course of
business are or are deemed to be non-commercial, (B) the determination that any xxxxx perform or
are performing below forecast, (C) any deferral of production resumption or contracting activities
in the ordinary course of business or due to weather related events, (D) production from existing
xxxxx being below production reflected in reserve estimates,
(E) labor shortages in the specialized areas necessary to the
respective industry,
- 8 -
(F) any adverse effect or losses
resulting from any hedging transactions, (G) changes to economic, political or business conditions
affecting the domestic energy markets generally, except, in each case, to the extent any such
changes or effects materially disproportionately affect Parent, (H) the occurrence of natural
disasters of any type, (I) changes in market prices, both domestically and globally, for any
carbon-based energy product and any write-down for accounting purposes of oil and gas reserves as a
result of a “ceiling test” or property impairment to the extent but only to the extent such
write-down or property impairment is directly attributable to changes in market prices of oil or
gas, (J) the announcement or pendency of this Agreement and the transactions contemplated hereby,
compliance with the terms hereof or the disclosure of the fact that Parent is the prospective owner
of the Company, including any Action or Proceeding arising from any of the foregoing, (K) the
existence or occurrence of war, acts of war, terrorism or similar hostilities, (L) changes in Laws
of general applicability or interpretations thereof by courts or Governmental Entities, or (M)
changes in the market price of either Parent Common Stock or Company Common Stock (but not any
change underlying such changes in price to the extent such change would otherwise constitute a
Material Adverse Effect).
“Merger” has the meaning ascribed to it in the recitals to this Agreement.
“Merger Sub” has the meaning ascribed to it in the forepart of this Agreement.
“NRS” means the Nevada Revised Statutes and all amendments and additions thereto.
“Notice of Objection” has the meaning ascribed to it in Section 6.17.
“Oil and Gas” means oil, condensate, gas, casinghead gas and other liquid or gaseous
hydrocarbons.
“Oil and Gas Interest(s)” means: (a) direct and indirect interests in and rights with respect
to oil, gas, mineral and related properties and assets of any kind and nature, including working,
royalty and overriding royalty interests, production payments, operating rights, net profits
interests, other non-working interests and non-operating interests; (b) interests in and rights
with respect to Oil and Gas and other minerals or revenues therefrom and contracts in connection
therewith and claims and rights thereto (including oil and gas leases, operating agreements,
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), surface interests, mineral fee interests, reversionary interests,
reservations and concessions; (c) easements, rights of way, licenses, permits, leases, and other
interests associated with, appurtenant to, or necessary for the operation of any of the foregoing;
and (d) interests in equipment and machinery (including 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 and
fixtures associated with, appurtenant to, or necessary for the operation of any of the foregoing.
References in this Agreement to the “Oil and Gas Interests of the Company” or “Company’s Oil and
Gas Interests” mean the collective Oil and Gas Interests of the Company and its Subsidiaries.
References in this Agreement to the “Oil and Gas Interests of Parent” or “Parent’s Oil and Gas
Interests” mean the collective Oil and Gas Interests of the Parent and its Subsidiaries.
- 9 -
“Operated Oil and Gas Interests” has the meaning ascribed to it in Section 3.7.
“Option” means any security, right, subscription, warrant, option, “phantom” stock right or
other contract that gives the right to (a) purchase or otherwise receive or be issued any shares of
capital stock or other equity interests of any Person or any security of any kind convertible into
or exchangeable or exercisable for any shares of capital stock or other equity interests of any
Person; or (b) receive any benefits or rights similar to any rights enjoyed by or accruing to the
holder of shares of capital stock or other equity interests of any Person, including any rights to
participate in the equity, income or election of directors or officers of any Person.
“Order” means any writ, judgment, decree, injunction or similar order of any Governmental
Entity or regulatory authority (in each such case whether preliminary or final).
“Other Filings” has the meaning ascribed to it in Section 6.1(a).
“Ownership Interests” means, as applicable: (a) the ownership interests of the Company in its
proved properties, as set forth in the Company Reserve Report; or (b) the ownership interests of
Parent in its proved properties, as set forth in the Parent Reserve Report.
“Parent” has the meaning ascribed to it in the forepart of this Agreement.
“Parent Bank Credit Agreement” means the Credit Agreement, dated as of February 26, 2009,
among Parent and the other Borrowers identified therein, and Bank of Oklahoma, N.A., et. al., as
lenders.
“Parent Closing Stock Price” means the average VWAP of the Parent Common Stock over the 20
trading days ending on the third trading day preceding the Closing Date.
“Parent Common Stock” has the meaning ascribed to it in Recital C.
“Parent Companies” means Parent and each of the Parent’s Subsidiaries.
“Parent Disclosure Schedule” has the meaning ascribed to it in the forepart of the Article 4.
“Parent Financial Statements” means the audited consolidated financial statements of Parent
and its subsidiaries (including the related notes) included (or incorporated by reference) in
Parent’s Annual Report on Form 10-K for the years ended December 31, 2007 and December 31, 2008, in
each case as filed with the SEC.
“Parent Reserve Report” means the reserve report as of December 31, 2008 prepared by Parent as
audited by Netherland, Xxxxxx & Associates, Inc. and provided to the Company.
“Parent Returns” has the meaning ascribed to it in Section 4.13.
“Parent SEC Documents” has the meaning ascribed to it in Section 4.3.
- 10 -
“PBGC” means the Pension Benefit Guaranty Corporation established under ERISA.
“Permit” means any license, permit, franchise or authorization.
“Permitted Liens” means: (a) statutory Liens for Taxes, assessments or other governmental
charges or levies (i) which are not yet delinquent or (ii) which are being contested in good faith
and adequate reserves have been maintained as may be required by or consistent with GAAP and,
whether reserves are set aside or not, are listed on the applicable Company Disclosure Schedule;
(b) Liens of carriers, warehousemen, mechanics, laborers, materialmen, landlords, vendors, workmen
and operators, in each case only to the extent 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 Oil and Gas properties and related
facilities and assets for sums not yet due or being contested in good faith and adequate reserves
have been maintained as may be required by or consistent with GAAP; (c) Liens incurred in the
ordinary course of business in connection with workers’ compensation, unemployment insurance and
other social security legislation (other than ERISA) that would not and will not, individually or
in the aggregate, result in a Material Adverse Effect on the Target Companies; (d) deposits of cash
or securities to secure the performance of bids, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (e) Liens, easements, rights-of-way, restrictions, servitudes,
permits, conditions, covenants, exceptions, reservations and other similar encumbrances incurred in
the ordinary course of business or existing on property and not, in any case (i) materially
impairing the value of the assets of any of the Target Companies, (ii) interfering with the
ordinary conduct of the business of any of the Target Companies, or rights to any of their assets
or (iii) increasing the working interest (without a corresponding increase in net revenue interest)
or decreasing the net revenue interest of the Target Companies reflected in their respective
Ownership Interests; (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 closing; (h) farm-out, carried working interest, joint operating, unitization,
royalty, overriding royalty, net profit interests, sales, area of mutual interest 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 of any of
such in existence on the working and net revenue interests of the Target Companies has been
properly reflected in their respective Ownership Interests; (i) Liens arising under or created
pursuant to the any Company Bank Credit Agreement, as applicable; (j) Liens described on the
Company Disclosure Schedule; and (k) minor defects and irregularities in title of any property, so
long as such defects and irregularities that do not (i) increase the working interest (without a
corresponding increase in net revenue interest) or decrease the net revenue interest of the Target
Companies that are reflected in their respective Ownership Interests, (ii) materially impair the
value of any of the assets of the Target Companies, or (iii) interfere with the ordinary conduct of
the business of any of the Target Companies or rights to any of their assets.
“Person” means any natural person, corporation, general partnership, limited partnership,
limited liability company or partnership, proprietorship, other business organization, trust,
union, association or Governmental Entity.
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“Pre-Closing Working Capital” has the meaning ascribed to it in Section 6.17.
“Pre-Closing Working Capital Statement” has the meaning ascribed to it in Section 6.17.
“Proxy Statement/Prospectus” has the meaning ascribed to it in Section 3.25.
“RCRA” means the Resource Conservation and Recovery Act, 42 U.S.C § 6901 et seq., as amended,
and any regulations promulgated thereunder.
“Registration Statement” has the meaning ascribed to it in Section 3.25.
“Remaining Government Licenses” has the meaning ascribed to it in Section 3.7.
“Required Company Vote” means approval of the Company Proposal by the affirmative vote of a
majority of the holders of the Company’s capital stock.
“Responsible Officers” means (a) for the Company, Xxxxxxx Xxxx, Xxxxx X. Xxxxxxx and Xxxxx
Xxxxxxxx; and (b) for Parent, Xxxxxxx Xxxx, Xxxxxx Xxxxxx and D. Xxxxxx Xxxxxxxxxxx.
“Review Period” has the meaning ascribed to it in Section 6.17.
“SEC” means the Securities and Exchange Commission or any successor entity.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“SOX” means the Xxxxxxxx-Xxxxx Act of 2002, and the rules and regulations promulgated
thereunder.
“Subsidiary” means any Person in which the Company or Parent, as the context requires,
directly or indirectly through Subsidiaries or otherwise, beneficially owns at least 50% of either
the equity interest in, or the voting control of, such Person, whether or not existing on the date
hereof.
“Superior Proposal” means a bona fide written Acquisition Proposal made by a third party for
at least a majority of the voting power of the Company’s then outstanding equity securities or all
or substantially all of the assets of the Target Companies, taken as a whole, if the Board of
Directors of the Company determines in good faith (based on, among other things, the advice of its
independent financial advisors and after consultation with outside counsel, and taking into account
all legal, financial, regulatory and other aspects of the Acquisition Proposal) that such
Acquisition Proposal (a) would, if consummated in accordance with its terms, be more favorable,
from a financial point of view, to the holders of the Company Common Stock than the transactions
contemplated by this Agreement (taking into account any amounts payable pursuant to Section 9.2(b)
by the Company); (b) contains conditions which are all reasonably capable of being satisfied in a
timely manner; and (c) is not subject to any financing contingency or to the extent financing for
such proposal is required, that such financing is then committed.
“Surviving Corporation” has the meaning ascribed to it in Section 2.1.
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“Target Companies” means the Company and each of the Company’s Subsidiaries.
“Tax” or “Taxes” or “Taxable” each has the meaning ascribed to it in Section 3.18.
“Tax Authority” has the meaning ascribed to it in Section 3.18.
“Third-Party Consent” means the consent or approval of any Person other than the Target
Companies, any of the Parent Companies or any Governmental Entity.
“Third Party Expenses” has the meaning ascribed to it in Section 6.5.
“Voting Agreements” has the meaning ascribed to it in Recital D.
“VWAP” means for a share of Parent Common Stock as of any date, the dollar volume-weighted
average price for the Parent Common Stock on the NASDAQ Stock Market during the period beginning at
9:30:01 a.m., New York City time (or such other time as the NASDAQ Stock Market publicly announces
is the official open of trading), and ending at 4:00:00 p.m., New York City time (or such other
time as the NASDAQ Stock Market publicly announces is the official close of trading) as reported by
Bloomberg through its “Volume at Price” functions, or, if the foregoing does not apply, the dollar
volume/weighted average price of the Parent Common Stock in the over-the-counter market on the
electronic bulletin board for the Parent Common Stock during the period beginning at 9:30:01 a.m.,
New York City time (or such other time as the NASDAQ Stock Market publicly announces is the
official open of trading) and ending at 4:00:00 p.m., New York City time (or such other time as the
NASDAQ Stock Market publicly announces is the official close of trading) as reported by Bloomberg,
or, if no dollar/volume weighted average price is reported for the Parent Common Stock by Bloomberg
for such hours, the average of the highest closing bid prices and the lowest closing ask prices of
each of the market makers for the Parent Common Stock as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). All such determinations are to be
appropriately adjusted for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
“Working Capital” as of any date means, on a consolidated basis, the Company’s current assets
minus current liabilities, and shall be calculated in accordance with the formula set forth on
Schedule 4 attached hereto.
“Working Capital Adjustment” has the meaning ascribed to it in Section 6.17.
ARTICLE 2.
THE MERGER
2.1 The Merger. At the Effective Time and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of the NRS, Merger Sub shall be merged
with and into the Company, the separate corporate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation and a wholly-owned subsidiary of Parent. The
Company, following the Merger, is sometimes referred to herein as the “Surviving
Corporation.”
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2.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 9.1, the closing of the Merger (the “Closing”) will take place as promptly as
practicable, but no later than two (2) Business Days following satisfaction or waiver of the
conditions set forth in Article 7, at the offices of Xxxxxx Xxxxx LLP, 0000 Xxxxxxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000, unless another place or time is agreed to by Parent and the
Company. The date upon which the Closing actually occurs is herein referred to as the “Closing
Date.” On the Closing Date, the parties hereto shall cause the Merger to be consummated by
filing the Articles of Merger (or like instrument) in substantially the form attached hereto as
Exhibit B (the “Articles of Merger”) with the Secretary of State of Nevada in
accordance with the relevant provisions of applicable Law (the date and time of acceptance by the
Secretary of State of the State of Nevada or such later date and time agreed to in writing by the
parties being referred to herein as the “Effective Time”).
2.3 Effect of the Merger on Constituent Corporations. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of the NRS, this Agreement
and the Articles of Merger. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the property, rights, privileges, powers and franchises of Merger Sub
and the Company shall vest in the Surviving Corporation, and all debts, liabilities, obligations,
restrictions, disabilities and duties of Merger Sub and the Company shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation.
2.4 Articles of Incorporation and Bylaws of Surviving Corporation.
(a) At the Effective Time, the form of Articles of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall become the Articles of Incorporation of the
Surviving Corporation until thereafter amended, as provided by applicable Law and such Articles of
Incorporation and the Bylaws of the Surviving Corporation; provided, however, that Article I of the
amended and restated Articles of Incorporation of the Surviving Corporation shall read in its
entirety as follows: “The name of the Corporation is Petrosearch Energy Corporation”.
(b) The form of Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall become the Bylaws of the Surviving Corporation until thereafter amended as provided by such
Bylaws, the Articles of Incorporation and applicable Law.
2.5 Directors and Officers of Surviving Corporation. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving Corporation, each
to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation. The directors of the Company shall each resign effective immediately prior to the
Effective Time. The officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation. The officers of the Company shall each resign effective immediately prior
to the Effective Time.
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2.6 Maximum Number of Shares of Parent Common Stock to be Issued; Contingent Cash
Consideration; Fractional Shares; Effect on Outstanding Securities of the Company, Merger Sub.
The consideration to be paid by Parent in connection with the Merger
shall be the Aggregate Consideration. On the terms and subject to the conditions of this
Agreement, as of the Effective Time, by virtue of the Merger and without any action on the part of
Parent or Merger Sub, the Company or the holder of any shares of the Company Capital Stock or
Company Warrants, the following shall occur:
(a) Conversion of Company Capital Stock and Contingent Cash Consideration.
(i) Stock Consideration. At the Effective Time, each share of Company Capital Stock
issued and outstanding immediately prior to the Effective Time (other than any shares of Company
Capital Stock to be canceled pursuant to Section 2.6(c)) will be canceled and extinguished and be
converted automatically into the right to receive that number of shares of Parent Common Stock
equal to the Exchange Ratio. The “Exchange Ratio” shall be equal to the quotient of: (A)
the Aggregate Stock Consideration (as defined below) or, if applicable, the Aggregate Stock
Consideration as Adjusted for Parent Stock Price (as defined below), or, if applicable, the
Aggregate Stock Consideration as Adjusted for Working Capital Shortfall (as defined below), divided
by (B) the sum of (I) the issued and outstanding Company Common Stock as of March 30, 2009
(41,340,584 shares), (II) the issued and outstanding Series A Preferred Stock, on an as converted
basis (31,974 shares), (III) the issued and outstanding Series B Preferred Stock, on an as
converted basis (20,093 shares), and (D) shares of Company Common Stock issuable upon exercise of
any Company Warrants outstanding as of the Closing Date (the “Company Warrant Common
Stock”); provided, however, only the shares of Company Warrant Common Stock that exceed 750,000
shares of Company Common Stock as of the Closing Date shall be included in the calculation. For
purposes of this Agreement, the “Aggregate Stock Consideration” means 1,792,741 shares of Parent
Common Stock; provided, however, if the Parent Closing Stock Price is greater than $6.25, then the
Aggregate Stock Consideration shall be adjusted to equal $11,000,000 divided by the Parent Closing
Stock Price (the “Aggregate Stock Consideration as Adjusted for Parent Stock Price”). In
no event shall the Aggregate Stock Consideration as Adjusted for Parent Stock Price be less than
1,100,000 shares of Parent Common Stock.
(ii) Cash Consideration. At the Effective Time, if the Parent Closing Stock Price is
below $4.75 per share, an aggregate cash payment, in addition to the Aggregate Stock Consideration
payable pursuant to Section 2.6(a)(i), will be made to the holders of Company Common Stock
receiving Parent Common Stock equal to (A) $4.75 minus the greater of (I) the Parent Closing Stock
Price or (II) $4.00, multiplied (B) by the Aggregate Stock Consideration (the “Aggregate Cash
Consideration”). If Parent is required to pay any Aggregate Cash Consideration, then each
holder of Company Common Stock shall be entitled to receive a portion of the Aggregate Cash
Consideration equal to (X) the number of shares of Parent Common Stock that the holder of Company
Common Stock is entitled to receive under Section 2.6(a)(i), multiplied by (Y) $4.75 less the
greater of (I) the Parent Closing Stock Price or (II) $4.00.
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(iii) Adjustment to Consideration for Final Working Capital Shortfall. In the event
that there is a Final Working Capital Shortfall, an adjustment equal to the Final Working Capital
Shortfall shall be made to the consideration set forth in this Section 2.6 as follows: (A) first as
an offset to any Aggregate Cash Consideration set forth in Section 2.6(a)(ii);
or (B) if there is no Aggregate Cash Consideration or the Final Working Capital Shortfall is
greater than the Aggregate Cash Consideration , then the Aggregate Stock Consideration, or, if
applicable, the Aggregate Stock Consideration as Adjusted for Parent Stock Price, shall be adjusted
to equal (I) $11,000,000 less the Final Working Capital Shortfall, divided by (II) $11,000,000, and
multiplied by (III) the Aggregate Stock Consideration, or if applicable, the Aggregate Stock
Consideration as Adjusted for Parent Stock Price (the “Aggregate Stock Consideration as
Adjusted for Working Capital Shortfall”).
(b) Fractional Shares. No fractional shares of Parent Common Stock shall be issued
pursuant to the Merger. In lieu of the issuance of any such fractional share of Parent Common
Stock, cash adjustments will be paid to holders in respect of any fractional share of Parent Common
Stock that would otherwise be issuable. The amount of such adjustment shall be the product of such
fraction of a share of Parent Common Stock multiplied by the Parent Closing Stock Price (the
“Fractional Share Cash Amount”). No fractional cent shall be payable to any holder of
Company Capital Stock, and the cash payable to any such holder shall be rounded down to the nearest
cent.
(c) Cancellation of Parent-Owned and Company-Owned Stock. Each share of Company
Capital Stock owned by Parent or the Company or any Subsidiary of Parent or the Company immediately
prior to the Effective Time shall be automatically canceled and extinguished without any conversion
thereof and without any further action on the part of Parent, Merger Sub or the Company.
(d) Capital Stock of Merger Sub. Each share of Common Stock of Merger Sub, par value
$0.10 per share, that is issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and nonassessable share of Common
Stock, par value $0.001 per share of the Surviving Corporation. From and after the Effective Time,
each share certificate of Merger Sub theretofore evidencing ownership of any such shares shall
continue to evidence ownership of such shares of Common Stock of the Surviving Corporation.
(e) Company Warrants. At the Effective Time, all Company Warrants that are
outstanding as of the Effective Time shall be assumed by Parent (each such Company Warrant an
“Assumed Warrant” and collectively the “Assumed Warrants”). Each Assumed Warrant
will continue to have, and be subject to, the same terms and conditions of such Assumed Warrant
immediately prior to the Effective Time (including, without limitation, any repurchase rights or
vesting provisions and provisions regarding the acceleration of vesting on certain transactions),
except that (i) each Assumed Warrant will be exercisable (or will become exercisable in accordance
with its terms) for that number of whole shares of Parent Common Stock equal to the product of the
number of shares of Company Common Stock that were issuable upon exercise of such Assumed Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of Parent Common Stock and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such Assumed Warrant will be equal to the
quotient determined by dividing the exercise price per share of Company Common Stock at which such
Assumed Warrant was exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent.
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(f) Additional Adjustments to Exchange Ratio. The Exchange Ratio shall be equitably
adjusted to reflect fully the effect of any stock split, reverse split, stock combination, stock
dividend (including any dividend or distribution of securities convertible into Parent Common Stock
or Company Capital Stock), reorganization, reclassification, recapitalization or other like change
with respect to Parent Common Stock or Company Capital Stock occurring after the date hereof and
prior to the Effective Time.
2.7 Dissenting Shares. No stockholders of any Company Capital Stock shall have
dissenters’ rights under the NRS (pursuant to the exemption set forth in Section 92A.390 of the
NRS), and the Company shall not take any action that would allow the stockholders of any Company
Capital Stock to have dissenters’ rights in connection with the Merger.
2.8 Exchange Procedures.
(a) Parent Common Stock; Cash. On the Closing Date, Parent shall deposit with the
Exchange Agent for exchange in accordance with this Article 2: (i) the Aggregate Stock
Consideration, or if applicable, the Aggregate Stock Consideration as Adjusted for Parent Stock
Price, or if applicable, Aggregate Stock Consideration as Adjusted for Working Capital Shortfall;
(ii) the Aggregate Cash Consideration, if any; and (iii) the Aggregate Fractional Share Cash
Amount.
(b) Exchange Procedures. As soon as practicable after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a certificate or
certificates who immediately prior to the Effective Time represented outstanding shares of Company
Capital Stock (the “Certificates”) outstanding shares of Company Capital Stock represented
by book-entry (“Book-Entry Shares”) and whose shares were converted into shares of Parent
Common Stock pursuant to Section 2.6, (i) a letter of transmittal in customary form (which shall
specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent or, in the case of Book-Entry Shares,
upon adherence to the procedures set forth therein, which shall be in such form and have such other
provisions as Parent may reasonably specify); and (ii) instructions for use in effecting the
surrender of the Certificates or, in the case of Book-Entry Shares, the surrender of such shares,
in exchange for certificates or Book-Entry Shares representing shares of Parent Common Stock and
the right to receive any Aggregate Cash Consideration plus any cash for fractional shares as
provided herein. Upon surrender of a Certificate or Book-Entry Shares for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly completed and validly executed in accordance with the instructions
thereto, the holder of such Certificate or Book-Entry Shares shall be entitled to receive in
exchange therefor a certificate or Book-Entry Shares representing the number of whole shares of
Parent Common Stock and any respective pro rata portion of the Aggregate Cash Consideration, if
applicable, plus any respective Fractional Share Cash Amount pursuant to Section 2.6 to which such
holder is entitled pursuant to Section 2.6, and the Certificate or Book-Entry Shares so surrendered
shall be canceled. Until surrendered, each outstanding Certificate and each outstanding Book-Entry
Share that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed
from and after the Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the amount of cash and the number of full shares of Parent Common
Stock into which such shares of
Company Capital Stock shall have been so converted.
- 17 -
(c) Distributions With Respect to Unexchanged Shares of Company Capital Stock.
No dividends or other distributions with respect to Parent Common Stock declared or made after the
Effective Time and with a record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate or Book-Entry Share with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate or such Book-Entry Share shall
surrender such Certificate or, if a Book-Entry Share, completed the letter of transmittal to the
Exchange Agent in accordance with Section 2.8(b). Subject to applicable Law, following surrender
of any such Certificate or Book-Entry Share, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such whole shares of
Parent Common Stock.
(d) Transfers of Ownership. If any certificate for shares of Parent Common Stock is
to be issued pursuant to the Merger in a name other than that in which the Certificate surrendered
in exchange therefor is registered, it will be a condition of the issuance thereof that the
Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and
that the Person requesting such exchange will have paid to Parent or any agent designated by it any
transfer or other Taxes required by reason of the issuance of a certificate for shares of Parent
Common Stock in any name other than that of the registered holder of the Certificate surrendered,
or established to the satisfaction of Parent or any agent designated by it that such Tax has been
paid or is not payable.
2.9 No Further Ownership Rights in Company Capital Stock. All shares of Parent Common
Stock issued upon the surrender for exchange of shares of Company Capital Stock in accordance with
the terms hereof (including any cash paid in respect thereof) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there
shall be no further registration of transfers on the records of the Company of shares of Company
Capital Stock that were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates or Book-Entry Shares are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article 2.
2.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have
been lost, stolen or destroyed, the Exchange Agent shall issue certificates representing such
shares of Parent Common Stock in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof; provided, however, that Parent or the
Exchange Agent may, in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to provide an indemnity or deliver a bond
in such sum as it may reasonably direct as indemnity against any claim that may be made against
Parent or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
2.11 Taking of Necessary Action; Further Action. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out the purposes of this Agreement or
to vest the Surviving Corporation with full right, title and possession to all assets, property,
rights,
privileges, powers and franchises of the Company, the officers and directors of the Surviving
Corporation shall be fully authorized to take, and shall take all such lawful and necessary action.
- 18 -
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that, as of the date of
this Agreement, except as specifically set forth in the disclosure schedule attached as
Schedule 1 hereto (the “Company Disclosure Schedule”):
3.1 Organization, Standing and Power. Each of the Target Companies is a corporation
duly organized, validly existing and in good standing under the Laws of its state of incorporation
and has all requisite corporate power and authority to own, operate and lease its properties and to
carry on its business as now conducted and as proposed to be conducted. Each of the Target
Companies is qualified to do business as a foreign corporation, and is in good standing, under the
Laws of all jurisdictions where the nature of its business requires such qualification and where
the failure to be so qualified or in good standing would have a Material Adverse Effect on the
Company. The Company has made available to Parent complete and correct copies of each of the
Target Companies’ (i) Articles of Incorporation and Bylaws, which Articles of Incorporation and
Bylaws are in full force and effect and have not been amended, corrected, restated or superseded in
any way; (ii) minutes of all directors’ and stockholders’ meetings, all of which are complete and
accurate as of the date hereof; (iii) stock certificate books and all other records of the Target
Companies, which collectively correctly set forth the record ownership of all outstanding shares of
capital stock and all rights to purchase capital stock of the Target Companies, as applicable; and
(iv) form of stock certificates, plans and agreements and rights to purchase shares of capital
stock of any Target Company. Each of the Target Companies is not in violation, and has not taken
any action in violation, of any provisions of its Articles of Incorporation or Bylaws. Each of the
Target Companies is in possession of all Approvals required by applicable Law to be obtained and
held by it that are necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted.
3.2 Capital Structure.
(a) The authorized and issued capital stock of the Company consists of:
(i) Preferred Stock. 20,000,000 shares of preferred stock, $1.00 par value, 1,000,000
of which have been designated Series A 8% Convertible Preferred Stock (the “Company Series A
Preferred Stock”), and 100,000 of which have been designated as Series B Convertible Preferred
Stock (the “Company Series B Preferred Stock”, and together with the Company Series A
Preferred Stock, the “Company Preferred Stock”). There are issued and outstanding 207,833
shares of Company Series A Preferred Stock and 43,000 shares of Company Series B Preferred Stock.
Each outstanding share of Company Series A Preferred Stock is convertible into 0.1538461 shares of
Company Common Stock, and each outstanding share of Company Series B Preferred Stock is convertible
into 0.4672897 shares of Company Common
Stock.
- 19 -
(ii) Common Stock. 100,000,000 shares of Company Common Stock, $0.001 par value (the
“Company Common Stock”), of which, at the date hereof, 41,340,584 shares are issued and
outstanding.
(iii) Options. Except for the Company Warrants, there are no outstanding Options to
acquire shares of any Company Capital Stock.
(iv) Warrants. There are Company Warrants issued and outstanding to acquire 777,380
shares of Company Common Stock. There are no other outstanding Company Warrants to acquire any
other Company Capital Stock.
(v) Other Rights. There are no other outstanding shares of Company Capital Stock or
any other right to receive or purchase equity securities or securities convertible, exercisable or
exchangeable for equity securities of the Company.
(b) All outstanding shares of Company Capital Stock are, and any shares of Company Capital
Stock issuable upon the exercise of any Company Warrants (subject to receipt of the exercise price
as provided therein) will be, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Company’s Articles of Incorporation or Bylaws or any
agreement to which the Company is a party or by which the Company may be bound. All outstanding
Company securities have been issued in compliance with applicable federal and state securities
Laws. Other than as described herein, there are no options, warrants, calls, conversion rights,
commitments or agreements of any character to which the Company is a party or by which the Company
may be bound that do or may obligate the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the Company’s Capital Stock or that do or may obligate the
Company to grant, extend or enter into any such option, warrant, call, conversion right, commitment
or agreement.
(c) Section 3.2(c) of the Company Disclosure Schedule contains a complete and accurate list of
the holders of record of outstanding Company Series A Preferred Stock, Company Series B Preferred
Stock, Company Warrants, and the number of such securities held by each such holder, including the
addresses of such holders. Such Section 3.2(c) of the Company Disclosure Schedule identifies the
vesting schedule, applicable legends, exercise price and repurchase rights or other risks of
forfeiture of any outstanding security listed therein.
(d) All Company Warrants have been issued in accordance with all federal and state securities
Laws. The Company does not have in effect any stock appreciation rights plan and no stock
appreciation rights are outstanding. None of the outstanding Company Warrants permit any
accelerated vesting or exercisability of those warrants or the shares of Company Common Stock
subject to those warrants by reason of the Merger or any other transactions contemplated by this
Agreement, and the terms of the outstanding agreements for the Company Warrants each permit the
Parent’s assumption of those warrants as warrants to purchase Parent Common Stock as provided in
Section 2.6(e) of this Agreement, without the consent or approval of the holders of those warrants,
the Company’s stockholders, or otherwise, and without any accelerated vesting of those Company
Warrants or the underlying shares. True
and complete copies of all agreements and instruments relating to the Company Warrants have
been made available to Parent, and such agreements and instruments have not been amended, modified
or supplemented, and there are no agreements to amend, modify or supplement such agreements or
instruments in any case from the form made available to Parent. No unvested shares of Company
Capital Stock shall vest on an accelerated basis by reason of the Merger or any transactions
contemplated by this Agreement.
- 20 -
(e) Except for any restrictions imposed by applicable state and federal securities Laws or set
forth in Section 3.2(e) of the Company Disclosure Schedule, there is no right of first refusal,
co-sale right, right of participation, right of first offer, registration right option or other
restriction on transfer applicable to any shares of Company Capital Stock.
(f) The Company is not a party or subject to any agreement or understanding, and, to the
Company’s knowledge, there is no agreement or understanding between or among any Persons that
affects or relates to the voting or giving of written consent with respect to any outstanding
security of the Company.
(g) The holders of Company Capital Stock shall not have any dissenters’ rights in connection
with the Merger under the NRS. Neither the Company nor any Company Representative has taken, or
will take, any action that would allow any holder of Company Capital Stock to be entitled to
dissenters’ rights under the NRS or otherwise in connection with the Merger.
3.3 Subsidiaries.
(a) The Company has no Subsidiaries except for the corporations and entities identified in
Section 3.3(a) of the Company Disclosure Schedule.
(b) Neither the Company nor any of its Subsidiaries has agreed nor is obligated to make nor is
bound by any written, oral or other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense, insurance policy, benefit
plan, commitment or undertaking of any nature, as of the date hereof or as may hereafter be in
effect under which it may become obligated to make, any future investment in or capital
contribution to any other Person. Except as set forth in Section 3.3(b) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries directly or indirectly owns any equity or
similar interest in or any interest convertible into, or exchangeable or exercisable for, any
equity or similar interest in, any Person.
3.4 Authority.
(a) Subject only to the requisite approval of the Merger and this Agreement by the
stockholders of the Company, the Company has all requisite corporate power and authority to enter
into this Agreement, to execute, deliver and perform its obligations hereunder, and to consummate
the transactions contemplated hereby. The execution and delivery of this Agreement, the
performance by the Company of its obligations hereunder 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’s Board of Directors, and no other action on the part of the Company’s Board of
Directors is required to authorize the execution, delivery and
performance of this Agreement and the consummation by the Company of the transactions
contemplated hereby. This Agreement has been duly and validly executed and delivered by the
Company, and assuming the due authorization, execution and delivery hereof by Parent and Merger
Sub, constitutes a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, or other similar Laws affecting the enforcement of creditors’ rights generally, and
except that the availability of equitable remedies is subject to the discretion of the court before
which any proceeding therefor may be brought.
- 21 -
(b) The execution, delivery and performance of this Agreement does not, and the performance
and consummation of the transactions contemplated hereby will not, conflict with or result in any
material violation of any Law applicable to the Company, its Subsidiaries, its Assets and
Properties or its Subsidiaries’ Assets and Properties, or conflict with or result in any conflict
with, breach or violation of or default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation, forfeiture or acceleration of any obligation
or the loss of a material benefit under, or result in the creation of a Lien on any of the Assets
and Properties of the Company or its Subsidiaries pursuant to (i) any provision of the Articles of
Incorporation or Bylaws of the Company or its Subsidiaries; or (ii) any Company Contract to which
the Company or any of the Company’s Subsidiaries is a party or by which the Company, its
Subsidiaries, any of its Assets and Properties or any of its Subsidiaries’ Assets and Properties
may be bound or affected.
(c) No Approval is required to be obtained by the Company in connection with the execution,
delivery and performance of this Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except the requisite approval of the Merger and this Agreement by
the stockholders of the Company and the Approvals set forth in Section 3.4(c) of the Company
Disclosure Schedule.
3.5 SEC Documents; Financial Statements; Books and Records. The Company has filed
with the SEC all forms and other documents (including exhibits and other information incorporated
therein) required to be filed by it since January 1, 2007 (the “Company SEC Documents”). As
of their respective dates, the Company SEC Documents complied in all material respects with the
requirements of the Securities Act, the Exchange Act and SOX, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Documents, and none of the Company
SEC Documents contained any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company Financial Statements were
prepared in accordance with GAAP applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the SEC) and fairly present, and the financial statements to be
filed by the Company with the SEC after the date of this Agreement will fairly present, in
accordance with applicable requirements of GAAP (in the case of the unaudited statements, subject
to normal, recurring adjustments), the consolidated financial position of the Target Companies as
of their respective dates and the consolidated results of operations, the consolidated cash flows
and consolidated changes in stockholders’ equity of the Target Companies for the periods presented
therein; each of such statements (including the related notes, where applicable) complies, and the
financial statements to be filed by the Company with
the SEC after the date of this Agreement will comply, with applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been, and the financial statements
to be filed by the Company with the SEC after the date of this Agreement will be, prepared in
accordance with GAAP consistently applied during the periods involved, except as indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The books and
records of the Target Companies have been, and are being, maintained in accordance with GAAP and
any other applicable legal and accounting requirements and reflect only actual transactions. Xxx,
Xxxxxxxx & Xxxxxxx, L.L.P is an independent public accounting firm with respect to the Company and
has not resigned or been dismissed as independent public accountants of the Company.
- 22 -
3.6 Payables; Receivables.
(a) Section 3.6(a) of the Company Disclosure Schedule sets forth an aging of accounts payable
of the Company in the aggregate and by creditor (for the periods 0-30 days, 30-90 days and greater
than 90 days, if applicable) as of February 28, 2009.
(b) Section 3.6 (b) of the Company Disclosure Schedule sets forth an aging of accounts
receivable of the Company in the aggregate and by debtor (for the periods 0-30 days, 30-90 days and
greater than 90 days as of February 28, 2009); provided however, that disclosure of debts owed by
any single debtor that, in the aggregate, do not exceed $1,000 need not be included. All accounts
and notes receivable (the “Accounts”) reflected on the Company Financial Statements are,
taken as a whole, (i) valid, genuine and existing; (ii) subject to no defenses, setoffs or
counterclaims; and (iii) current (not more than ninety (90) days past due) and collectable in the
ordinary course of business, net of reserves less any applicable trade discounts. Except for
Permitted Liens or as set forth in Section 3.6(b) of the Company Disclosure Schedule, no Person has
any Lien on such Accounts or any part thereof; no agreement for deduction, free goods, discount or
other deferred price or quantity adjustment has been made with respect to any of such Accounts; and
to the Company’s knowledge, no customer of the Company with an Account balance exceeding $10,000 is
involved in voluntary or involuntary bankruptcy proceedings or is otherwise insolvent or has
notified the Company that such customer will not pay its Account.
3.7 Compliance with Laws. Each of the Target Companies is in compliance and has
conducted its business and operations, with respect to the Oil and Gas Interests for which any of
the Target Companies is the operator (the “Operated Oil and Gas Interests”), so as to
comply with all applicable Laws. Each of the Target Companies is in compliance and has conducted
its business and operations, other than with respect to the Operated Oil and Gas Interests, so as
to comply with all applicable Laws, except where the failure to have so complied or conducted such
business would not have a Material Adverse Effect on the Company. There are no Orders (whether
rendered by a court or administrative agency or by arbitration) and, to the Company’s knowledge, no
basis currently exists for any Orders against the Company, its Subsidiaries, any of its Assets and
Properties or any of its Subsidiaries’ Assets and Properties, and none are pending or, to the
knowledge of the Company, threatened. Neither the Company nor any of its Subsidiaries has received
any written or oral notice from any Governmental Entity of any violation of Laws that has not been
resolved. Each of the Target Companies has all permits, licenses,
orders, authorizations, registrations,
- 23 -
concessions, certificates, approvals and other instruments of
any Governmental Entity (the “Government Licenses”) (each of which is in full force and
effect) necessary for the conduct of its Operated Oil and Gas Interests, and each of the Target
Companies is in compliance with the terms, condition, limitations, restrictions, standards,
prohibitions, requirements and obligations of such Government Licenses. Each of the Target
Companies has all Government Licenses (each of which is in full force and effect) (the
“Remaining Government Licenses”) necessary for the conduct of its business, not including
the Operated Oil and Gas Interests, except where the failure to have, or to have maintained in full
force and effect, any such Remaining Governmental License would not have a Material Adverse Effect
on the Company, and each of the Target Companies is in compliance with the terms, conditions,
limitations, restrictions, standards, prohibitions, requirements and obligations of such Remaining
Government Licenses, except where the failure to be in compliance would not have a Material Adverse
Effect on the Company. Each of the Target Companies has made all filings and registrations and the
like necessary or required by Law to be filed by such Target Company to conduct its Operated Oil
and Gas Interests. Each of the Target Companies has made all filings and registrations and the
like necessary or required by Law to be filed by such Target Company to conduct its business other
than its Operated Oil and Gas Interests, except where the failure to have so filed would not have a
Material Adverse Effect on the Company. There is not now pending, or, to the Company’s knowledge,
is there threatened, any Action or Proceeding against any Target Company before any Governmental
Entity with respect to the Government Licenses for the Operated Oil and Gas Interests, nor is there
any issued or outstanding written or oral notice, order or complaint with respect to the violation
by any Target Company of the terms of any such Government License or any rule or regulation
applicable thereto. There is not now pending, or, to the Company’s knowledge, is there threatened,
any Action or Proceeding against any Target Company before any Governmental Entity with respect to
the Remaining Government Licenses, nor is there any issued or outstanding written or oral notice,
order or complaint with respect to the violation by any Target Company of the terms of any
Remaining Government License or any rule or regulation applicable thereto, which if resolved
adversely to any Target Company would have a Material Adverse Effect on the Company.
3.8 No Defaults. Neither the Company nor any of its Subsidiaries is, and has not
received oral or written notice that it is or would be with the passage of time (x) in violation of
any provision of its Articles of Incorporation or Bylaws; or (y) in default or violation of (a) any
term, condition or provision of any Order applicable to it, or (b) any term or condition of any
agreement, note, mortgage, indenture, contract, lease, instrument, Law or Permit to which it is a
party or by which the Company, its Subsidiaries or their respective Assets and Properties may be
bound and there does not exist, to the knowledge of the Company, any facts that constitute an event
of default on the part of the Company or its Subsidiaries under any of the foregoing.
3.9 Litigation. There is no Action or Proceeding pending or, to the Company’s
knowledge, threatened against the Company, its Subsidiaries, any of the Company or its
Subsidiaries’ officers, employees or directors that could have a Material Adverse Effect on the
Company. Except as disclosed in Section 3.9 of the Company Disclosure Schedule, there is no Action
or Proceeding by the Company or its Subsidiaries pending or which the Company or any of its
Subsidiaries intends to initiate. The Company has not been advised by its legal counsel that any
basis exists for any Action or Proceeding against the Company or any of its officers, employees or
directors that could have a Material Adverse Effect on the Company.
- 24 -
3.10 Conduct in the Ordinary Course. Since December 31, 2008, the Company has
conducted its business in the ordinary course and there has not occurred:
(a) Any Material Adverse Effect on the Company not reflected in the Company Financial
Statements, including any Liabilities or obligations, other than changes in the ordinary course of
business;
(b) Any damage, destruction or loss, whether covered by insurance or not, that individually or
in the aggregate would have a Material Adverse Effect on the Company;
(c) Any declaration, setting aside or payment or other distribution in respect of any Company
Capital Stock, or, except as set forth in Section 3.10(c) of the Company Disclosure Schedule, any
direct or indirect redemption, purchase or other acquisition of any Company Capital Stock by the
Company;
(d) Any approval or action to put into effect any general increase in any compensation or
benefits payable to any class or group of employees of any Target Company, any increase in the
compensation or benefits payable or to become payable by any Target Company to any of its
directors, officers or employees or any bonus, service award, percentage compensation or other
benefit paid, granted or accrued to or for the benefit of any employee, the adoption of any
amendment to the exercisability or vesting of any employee stock warrants or option (including any
of the Company Warrants) or the vesting of any unvested shares of Company Common Stock or, except
as set forth in Section 3.10(c) of the Company Disclosure Schedule, the authorization of any cash
payments in exchange for such options or unvested shares, or the adoption of any other amendment in
any employee benefit plan or compensation commitment or any severance agreement or employment
contract to which any employee is a party;
(e) Any Lien created or suffered by any Target Company with respect to any of its Assets and
Properties, except Permitted Liens;
(f) Any (A) incurrence, assumption or guarantee by any Target Company of any debt for borrowed
money other than trade indebtedness incurred in the ordinary course of business consistent with
past practice; (B) waiver or compromise by it of a valuable right or of a debt owed to it greater
than $10,000; (C) satisfaction or discharge of any Lien or payment of any obligation by it, other
than in the ordinary course of business consistent with past practice; (D) issuance or sale of any
securities convertible into or exchangeable for debt securities of any Target Company; or (E)
issuance or sale of options or other rights to acquire from any Target Company, directly or
indirectly, debt securities of any Target Company or any securities convertible into or
exchangeable for any such debt securities;
(g) Any entry into, amendment of, relinquishment, termination or nonrenewal by any Target
Company of any contract, lease, commitment or other right or obligation other than in the ordinary
course of business consistent with past practice and with a contractual value of less than $10,000;
- 25 -
(h) Any transfer or grant of a right of any Target Company’s Intellectual
Property other than non-exclusive licenses granted in the ordinary course of business
consistent with past practice;
(i) Any resignation or termination of employment of any employee; and, except as set forth in
Section 3.10(i) of the Company Disclosure Schedule, the Company does not know of the impending
resignation or termination of employment of any such employee;
(j) Any making of any loan, advance or capital contribution to, or investment in, any Person
other than advances made in the ordinary course of business consistent with past practice of the
Company; or
(k) Any agreement or arrangement made by the Company to take any action which, if taken prior
to the date hereof, would have made any representation or warranty set forth in this Section 3.10
untrue or incorrect as of the date when made.
3.11 Absence of Undisclosed Liabilities. There are no liabilities of the Company or
any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, which would be required to be disclosed in a balance sheet (or in the
notes thereto) prepared in accordance with GAAP that, individually or in the aggregate have had, or
are reasonably likely to have, or result in, a Material Adverse Effect on the Company, other than
(a) liabilities disclosed in the Company Financial Statements; and (b) liabilities under this
Agreement or disclosed herein.
3.12 Complete Disclosure. The copies of all instruments, agreements, other documents
and written information delivered by the Company or its professional advisors to Parent or its
counsel and accountants are and will be complete copies (as contained in the Books and Records) as
of the date of delivery thereof.
3.13 Certain Agreements. Except as set forth on Section 3.13 of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will:
(a) result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any employee, former employee
or service provider of the Company under any Company Employee Plans (defined below in Section 3.14)
or otherwise;
(b) materially increase any compensation or other benefits payable under any Company Employee
Plans; or
(c) result in the acceleration of the time of payment or vesting of any such benefits
including the Company Warrants and any other instrument evidencing capital stock issued to any
service provider of the Company. Except as set forth on Section 3.13 of the Company Disclosure
Schedule, no payment or benefit that will be made by the Company to any employee prior to, at time
of, or after Closing, will be characterized as an “excess parachute payment” within the meaning of
Section 280G(b)(1) of the Code.
- 26 -
3.14 Employee Benefit Plans.
(a) Section 3.14(a) of the Company Disclosure Schedule lists, with respect to the Company, any
Subsidiary of the Company and any trade or business (whether or not incorporated) that is treated
as a single employer with the Company (an “ERISA Affiliate”) within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), (ii) each loan
to a non-officer employee, loans to officers and directors, (iii) any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance or termination pay,
medical, dental, vision care, disability, sick pay, vacation, holiday or sabbatical pay, employee
relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iv) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or arrangements, (v) other
fringe or employee benefit plans, programs or arrangements that apply to senior management of the
Company and that do not generally apply to all employees, and (v) any current or former employment
or executive compensation or severance agreements, written or otherwise, as to which unsatisfied
obligations of the Company of greater than $10,000 remain for the benefit of, or relating to, any
present or former employee, consultant or director of the Company (collectively, the “Company
Employee Plans”).
(b) The Company has made available to Parent a copy of each of the Company Employee Plans.
The Company has no Company Employee Plans that are subject to ERISA reporting requirements and has
no Company Employee Plans that are intended to be qualified under Section 401(a) of the Code.
(c) Each Company Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), and the Company and each Subsidiary have performed all obligations
required to be performed by them under each Company Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of the Company is
threatened, against or with respect to any Company Employee Plan.
(d) With respect to each Company Employee Plan, the Company and each of its Subsidiaries have
complied with (i) the applicable health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the regulations (including proposed
regulations) thereunder, (ii) the applicable requirements of the Family Medical and Leave Act of
1993 and the regulations thereunder, and (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996 and the regulations (including proposed regulations)
thereunder.
(e) Except as set forth on Section 3.14(e) of the Company Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not (i) entitle any current or
former employee or other service provider of the Company or any Company Subsidiary to severance
benefits or any other payment, except as expressly provided in this Agreement; or (ii) accelerate
the time of payment or vesting (including any Company Warrant), or increase the amount of
compensation due any such employee or service provider. No payment or benefit that will or may be
made or provided by the Company to any current or former employee or other service provider of the
Company will constitute an “excess parachute
payment” within the meaning of Section 280G(b)(1) of the Code.
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(f) The Company does not currently maintain, sponsor, participate in or contribute to, nor has
it ever maintained, established, sponsored, participated in, or contributed to, any pension plan
(within the meaning of Section 3(2) of ERISA) that is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 4.12 of the Code.
(g) No Target Company or other ERISA Affiliate is a party to, or has made any contribution to
or otherwise incurred any obligation under, any “multiemployer plan” as defined in Section 3(37) of
ERISA.
3.15 Employee Matters. Each of the Target Companies is in compliance with all
applicable Laws respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment practices, and is not
engaged in any unfair labor practice. Each of the Target Companies has withheld all amounts
required by Law or by agreement to be withheld from the wages, salaries, and other payments to
employees; and is not liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing. None of the Target Companies is liable for any payment to any
trust or other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or obligations for employees
(other than routine payments to be made in the normal course of business and consistent with past
practice). There are no pending claims against any Target Company for any amounts under any
workers compensation plan or policy or for long term disability. Neither the Company nor any of
its Subsidiaries has any obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There are no strikes or labor disputes or controversies pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened, between the Company or any of
its Subsidiaries and any of their respective employees, which controversies have or would
reasonably be expected to result in an Action or Proceeding before any agency, court or tribunal,
foreign or domestic. Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or other labor union contract nor does the Company nor any of its Subsidiaries
know of any activities or proceedings of any labor union to organize any such employees. No
employees of the Company have given notice to the Company, nor is the Company otherwise aware, that
any such employee intends to terminate his or her employment with the Company, except as disclosed
in Section 3.10(i) of the Company Disclosure Schedule.
3.16 Major Contracts.
(a) As of the date of this Agreement, neither the Company nor any of its Subsidiaries is a
party to or bound by any contract, arrangement, commitment or understanding (whether written or
oral) that (i) is a “material contract” (as described in Item 601(b)(10) of Regulation S-K of the
SEC) to be performed after the date of this Agreement that has not been filed or incorporated by
reference, if so required, in the Company SEC Documents, or (ii) except as disclosed in Section
3.16(a) of the Company Disclosure Schedule, materially restricts the conduct of any line of
business by the Company. Each contract, arrangement, commitment or understanding of the type
described in clause (i) of this Section 3.16(a), whether or not set forth in the Company Disclosure
Schedule or in the Company SEC Documents, is referred to herein as
a “Company Contract” (for purposes of clarification, each “material contract” (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of
this Agreement, whether or not filed with the SEC, is a Company Contract).
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(b) (i) Each Company Contract is valid and binding on the Company and any of its Subsidiaries
that is a party thereto, as applicable, and in full force and effect (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws
relating to or affecting creditors’ rights generally, and general equitable principles (whether
considered in a proceeding in equity or at law)); (ii) the Company and each of its Subsidiaries has
in all material respects performed all obligations required to be performed by it to date under
each Company Contract, except where such noncompliance, either individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on the Company; and (iii)
neither the Company nor any of its Subsidiaries has received written notice of the existence of any
event or condition that constitutes, or, after notice or lapse of time or both, will constitute, a
material default on the part of the Company or any of its Subsidiaries under any such Company
Contract, except where such default, either individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect on the Company.
3.17 Oil and Gas Operations.
(a) All xxxxx included in the Oil and Gas Interests of the Company have been drilled and (if
completed) completed, operated and produced in accordance with generally accepted oil and gas field
practices and in compliance in all respects with applicable oil and gas leases and applicable Laws,
rules and regulations, except where any failure or violation could not reasonably be expected to
have a Material Adverse Effect on the Company; and
(b) Proceeds from the sale of Oil and Gas produced from the Company’s Oil and Gas Interests
are being received by the Target Companies in a timely manner and are not being held in suspense
for any reason (except in the ordinary course of business).
3.18 Taxes. Except as otherwise provided for or identified in Section 3.18 of the
Company Disclosure Schedule:
All Tax returns, statements, reports and forms (including without limitation estimated Tax
returns and reports and information returns and reports) required to be filed with any Tax
authority with respect to any taxable period ending on or before the Closing Date, by or on behalf
of any of the Target Companies (collectively, the “Company Returns”), have been or will be
properly completed and filed when due (including any extensions of such due date), and all amounts
shown to be due thereon on or before the Closing Date (other than Taxes that are not yet due and
payable or that are being contested in good faith by appropriate proceedings and for which adequate
reserves have been established in the applicable financial statements) have been or will be paid on
or before such date. The Company Financial Statements fully accrue all actual and contingent
liabilities for all unpaid Taxes with respect to all periods (or portions of such periods) through
December 31, 2008 and the Target Companies have not and will not incur any Tax liability greater
than $10,000 more than the amount reflected on the Company Financial Statements (whether or not
reflected as payable on any Tax return that has been filed) with respect to such periods (or
portions of such periods). The Target Companies have not and will not incur any Tax liability for
periods (or portions of periods)
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after December 31, 2008 through the Closing Date other than
in the ordinary course of business. The Target Companies have withheld and paid to the applicable
financial institution or Tax authority all amounts required to be withheld. The Target Companies
have not been granted any extension or waiver of the limitations period applicable to any Company
Returns. There is no claim, audit, action, suit, proceeding, or investigation now pending or, or
to the Company’s knowledge, threatened against or with respect to any Target Company in respect of
any Tax or assessment. No notice of deficiency or similar document of any Tax authority has been
received by the Company, and there are no liabilities for Taxes (including liabilities for
interest, additions to Tax and penalties thereon and related expenses) with respect to the issues
that have been raised (and are currently pending) by any Tax authority that could, if determined
adversely to any Target Company, adversely affect the liability of any Target Company for Taxes.
Neither the Company nor any person on behalf of the Company has entered into or will enter into any
agreement or consent pursuant to Section 341(f) of the Code. None of the Target Companies is a
party to any joint venture, partnership or other arrangement or contract that could be treated as a
partnership for federal income tax purposes. There is no agreement, contract or arrangement to
which any Target Company is a party that could, individually or collectively, result in the payment
of any amount or the provision of any benefit that would not be deductible by reason of Section 404
of the Code. None of the Target Companies is a party to or bound by any Tax indemnity, Tax sharing
or Tax allocation agreement (whether written or unwritten or arising under operation of federal Law
as a result of being a member of a group filing consolidated Tax returns, under operation of
certain state Laws as a result of being a member of a unitary group, or under comparable Laws of
other states or foreign jurisdictions) that includes a party other than a Target Company nor does
any Target Company owe any amount under any such agreement. The Company has previously provided or
made available to Parent true and correct copies of all the Company Returns filed through the date
of this Agreement. The Company will make available to Parent all Company Returns filed after the
date of this Agreement, all work papers with respect to Company Returns, and all Tax opinions and
memoranda with respect to Taxes owed or potentially owed by the Company, all other Tax data and
documents reasonably requested by Parent. Except as may be required as a result of the
consummation of the transactions set forth herein, none of the Target Companies has been and or
will be required to include any material adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax Laws as a result of transactions, events or accounting methods employed prior
to the consummation of the transactions set forth herein. For purposes of this Agreement, the
following terms have the following meanings: “Tax” (and, with correlative meaning,
“Taxes” and “Taxable”) means any and all taxes including, without limitation, (i)
any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, value added, net worth, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a “Tax Authority”) responsible for the imposition of any such
tax (domestic or foreign), (ii) any liability for the payment of any amounts of the type described
in (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for
any Taxable period or as the result of being a transferee or successor and (iii) any liability for
the payment of any amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other person.
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3.19 Intellectual Property. There are no material trademarks, trade names, patents,
service marks, brand names, computer programs, databases, industrial designs, copyrights or other
intangible property (the “Intellectual Property”) that are necessary for the operation, or
continued operation, of the business of Company or any of its Subsidiaries or for the ownership and
operation, or continued ownership and operation, of any of their Assets and Properties, for which
the Company or any of its Subsidiaries do not hold valid and continuing authority in connection
with the use thereof. Except as set forth in Section 3.19 of the Company Disclosure Schedule, the
businesses of the Company and its Subsidiaries, as presently conducted, do not conflict with,
infringe or violate any intellectual property rights of any other Person, except where any such
conflict, infringement or violation could not reasonably be expected to have a Material Adverse
Effect on the Company.
3.20 No Governmental Regulation. Neither the Company nor any of its Subsidiaries is
subject to regulation under the Federal Power Act, the Interstate Commerce Act, the Investment
Company Act of 1940 or any state public utilities Laws.
3.21 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon any Target Company or that has or could reasonably be
expected to have the effect of prohibiting or impairing any business practice of any Target
Company, any acquisition of property by any Target Company, or the continuation of the business of
any Target Company as currently conducted or as currently proposed to be conducted.
3.22 Title to Properties.
(a) Oil and Gas Interests. The Company and its Subsidiaries (individually or
collectively) have Defensible Title to the Oil and Gas Interests of the Company included or
reflected in the Company’s Ownership Interests. Each Oil and Gas Interest included or reflected in
the Company’s Ownership Interests entitles the Target Companies (individually or collectively) to
receive not less than the undivided net revenue interest set forth in (or derived from) the
Ownership Interests of the Company of all Oil and Gas produced, saved and sold from or attributable
to such Oil and Gas Interest, and the portion of the costs and expenses of operation and
development of such Oil and Gas Interest through plugging, abandonment and salvage of such Oil and
Gas Interest, that is borne or to be borne by the Target Companies (individually or collectively)
is not greater than the undivided working interest set forth in (or derived from) the Company’s
Ownership Interests (unless such increase is accompanied by a proportional increase in the
associated net revenue interest).
(b) Real Property. Other than Oil and Gas Interests (to the extent characterized as
“real property” under applicable state Law), none of the Target Companies owns any real property.
(c) Leases Schedule. All of the existing real property leases of the Target Companies
(excluding Oil and Gas Interests) are listed in Section 3.22(c) of the Company Disclosure Schedule
and have been made available previously to Parent.
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(d) Title to Assets. Except for title to any Intellectual Property, which is covered
by Section 3.19 above, and title to Oil and Gas Interests, which is covered in Section
3.22(a) above, each of the Target Companies has good and marketable title to all of its
properties, interests in properties and assets, real and personal, reflected in the Company
Financial Statements or acquired after the date of the most recent Company Financial Statements
(the “Financial Statement Date”) (except properties, interests in properties and assets
sold or otherwise disposed of since the Financial Statement Date in the ordinary course of business
consistent with past practice), or with respect to leased Assets and Properties (excluding Oil and
Gas Interests), free and clear of all Liens of any kind or character, except Permitted Liens.
(e) Tangible Personal Property. Each of the Target Companies is in possession of and
has good title to, or has valid leasehold interests in or valid rights under contract to use, all
tangible personal Assets and Property (not including any Oil and Gas Interests) used in the conduct
of its business, including all tangible personal Assets and Property (not including any Oil and Gas
Interests) reflected on the Company Financial Statements and tangible personal Assets and Property
acquired since the Financial Statement Date, other than Assets and Property disposed of since such
date in the ordinary course of business consistent with past practice. All such tangible personal
Assets and Property (not including any Oil and Gas Interests) are free and clear of all Liens,
except Permitted Liens, and are adequate and suitable in all material respects for the conduct by
the Target Companies of their businesses as presently conducted, and are in good working order and
condition in all material respects, ordinary wear and tear excepted, and the use of such tangible
personal Assets and Property (not including any Oil and Gas Interests) complies in all material
respects with all applicable Laws.
3.23 Environmental Matters. Except as would not be reasonably expected to result in a
Material Adverse Effect on the Company:
(a) Each of the Target Companies has conducted its business and operated its Assets and
Properties, and is conducting its business and operating its Assets and Properties, in compliance
with all Environmental Laws;
(b) None of the Target Companies has been notified orally or in writing by any Governmental
Entity or other third party that any of the operations or Oil and Gas Interests of any of the
Target Companies is the subject of any investigation or inquiry by any Governmental Entity or other
third party that pertain or relate to (i) any 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) any Hazardous Material, (ii) violations of any
Environmental Law, or (iii) personal injury or property damage claims relating to a release or
threatened release of any Hazardous Material;
(c) None of the Target Companies and, to the knowledge of the Company, no other Person has
filed any written notice under any federal, state or local Law indicating that (i) any of the
Target Companies is responsible for the improper release into the environment, or the improper
storage or disposal, of any Hazardous Material (including storage or disposal at offsite
locations), or (ii) any Hazardous Material is improperly stored or disposed of upon any property
currently or formerly owned, leased or operated by any of the Target Companies;
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(d) None of the Target Companies has any liability in excess of $50,000 per occurrence or
series of related occurrences or $100,000 in the aggregate in connection with
(i) the release or threatened release into the environment at, beneath or on any property now
or previously owned, leased or operated by any of the Target Companies, (ii) any obligations under
or violations of Environmental Laws, or (iii) the use, release, storage or disposal of any
Hazardous Material;
(e) None of the Target Companies has received any oral or written claim, complaint, notice,
inquiry or request for information involving any matter which remains unresolved with respect to
any alleged violation of any Environmental Law or regarding potential liability under any
Environmental Law 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 any of the Target Companies;
(f) No property now or previously owned, leased or operated by any of the Target Companies 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;
(g) To the knowledge of the Company, none of the Target Companies is transporting, has
transported, or is arranging or has arranged for the transportation of any Hazardous Material to
any location that is listed on the National Priorities List pursuant to CERCLA, on the CERCLIS, or
on any similar federal or state list or that is the subject of federal, state or local enforcement
actions or other investigations that may lead to claims in excess of $1,000,000 per occurrence or
series of related occurrences, or $5,000,000 in the aggregate against any of the Target Companies
for removal or remedial work, contribution for removal or remedial work, damage to natural
resources or personal injury, including claims under CERCLA;
(h) To the knowledge of the Company, none of the Target Companies owns or operates any
underground storage tanks or solid waste storage, treatment and/or disposal facilities;
(i) To the knowledge of the Company, no friable asbestos, asbestos containing materials or
polychlorinated biphenyls are present on or at any property or facility owned, leased or operated
by any of the Target Companies, other than the gas processing plants and associated gathering
systems listed on the Company Disclosure Schedule;
(j) None of the Target Companies is operating, or required to be operating, any of its
properties or facilities under any compliance or consent order, decree or agreement issued or
entered into under, or pertaining to matters regulated by, any Environmental Law;
(k) The Company has provided or made available to Parent copies of all environmental audits,
assessments and evaluations of any of the Target Companies or any of their Assets or Properties;
and
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(l) With respect to Permits under Environmental Laws, (i) all such Permits, required to be
obtained by any Target Company under Environmental Laws that are necessary to the operations of
each of the Target Companies have been obtained and are in full force and effect, and the Company
has not been advised by its legal counsel that any basis exists for the revocation or suspension of
any such Permits or other Approvals; (ii) to the Company’s
knowledge, no Environmental Laws impose any obligation upon Parent or Merger Sub, as a result
of any transaction contemplated hereby, requiring prior notification to any Governmental Entity of
the transfer or any Permit or other Approval that is necessary to the operations of the Target
Companies; (iii) all facilities constructed by each Target Company were constructed and have been
operated in accordance with the representations and conditions made or set forth in the Permit
applications and the Permits for the Target Companies, in each case where a Target Company is the
named holder of the Permit; and (iii) each of the Target Companies’ facilities that is operated by
a Target Company has at all times been operated in material compliance with such Permits and at the
production levels or emission levels specified in such Permits.
3.24 Insurance. Section 3.24 of the Company Disclosure Schedule lists all insurance
policies and fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of each Target Company, including the amounts of coverage under
each such policy and bond of each Target Company. Each policy listed in Section 3.24 of the
Company Disclosure Schedule is valid and binding and in full force and effect. The insurance
policies listed in Section 3.24 of the Company Disclosure Schedule, (i) in light of the business,
operations and Assets and Properties of the Target Companies are, in the reasonable opinion of the
Company, in amounts and have coverage that are reasonable and customary for Persons engaged in
similar businesses and operations and having similar Assets and Properties; and (ii) are in amounts
and have coverage as required by any contract to which any Target Company is a party or by which
any of its Assets and Properties is bound. None of the Target Companies has been refused any
requested coverage and no material claim made by any Target Company has been denied by the
underwriters of such policies or bonds. All premiums payable under all such policies and bonds
have been paid, and the Target Companies are otherwise in full compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar insurance
coverage). There is no claim pending or, to the knowledge of the Company, threatened under any
such policies or bonds. The Company does not know of any threatened termination of, the
invalidation of any coverage of or material premium increase with respect to, any of such policies.
The Surviving Corporation shall continue to be entitled to the benefit or each insurance policy or
bond upon the consummation of the transactions contemplated hereby.
3.25 Registration Statement; Proxy Statement. None of the information supplied or to
be supplied by the Company specifically for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in connection with the
issuance of the Parent Common Stock in or as a result of the Merger (the “Registration
Statement”) will, at the time the Registration Statement becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the proxy statement/prospectus to
be filed with the SEC by the Company pursuant to Section 6.1(a) hereof (the “Proxy
Statement/Prospectus”) will, at the dates mailed to the stockholders of the Company or at the
times of the stockholders meeting of the Company (the “Company Stockholders’ Meeting”) in
connection with the transactions contemplated hereby and as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and regulations promulgated
by the SEC thereunder. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to
any information supplied by Parent or Merger Sub that is contained in any of the foregoing
documents.
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3.26 Disclosure Controls and Procedures. Since January 1, 2007, the Company has had
in place “disclosure controls and procedures” (as defined in Rules 13a-14(c) and 15d-14(c) of the
Exchange Act) designed and maintained to ensure in all material respects that:
(a) transactions are executed in accordance with management’s general or specific
authorizations,
(b) transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets,
(c) access to assets is permitted only in accordance with management’s general or specific
authorization,
(d) the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences,
(e) all information (both financial and non-financial) required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the SEC, and
(f) all such information is accumulated and communicated to the Company’s management as
appropriate to allow timely decisions regarding required disclosure and to make the certifications
of the Chief Executive Officer and Chief Financial Officer of the Company required under the
Exchange Act with respect to such reports. The Company’s disclosure controls and procedures ensure
that information required to be disclosed by the Company in the reports filed with the SEC under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
3.27 Opinion of Financial Advisor. The Company has been advised by its financial
advisor, Xxxxxxxxxx Securities, Inc., that in its opinion, as of the date of this Agreement, the
Exchange Ratio is fair to the stockholders of the Company from a financial point of view, a signed
copy of which has been, or when available promptly will be, delivered to Parent.
3.28 Board Approval. The Company’s Board of Directors, at a meeting duly called and
held, duly adopted resolutions (a) determining that this Agreement and the transactions
contemplated hereby are advisable to, and in the best interests of, the Company and the
stockholders of the Company; (b) approving this Agreement and the transactions contemplated hereby;
(c) resolving to recommend adoption of this Agreement and approval of the Merger and the other
transactions contemplated hereby by the stockholders of the Company; and (d) directing that the
adoption of this Agreement and the approval of the Merger and the other transactions contemplated
hereby be submitted to the Company’s stockholders for consideration in accordance with this
Agreement, which resolutions, as of the date of this Agreement, have not been subsequently
rescinded, modified or withdrawn in any way.
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3.29 Vote Required. The affirmative vote of a majority of the votes that holders of
the outstanding shares of Company Common Stock and the holders of the Series A Preferred Stock and
the Series B Preferred Stock, voting together with the Company Common Stock, are entitled to vote
with respect to the Merger is the only vote of the holders of any class or series of the Company’s
capital stock necessary to approve this Agreement, the Merger and the transactions contemplated
hereby.
3.30 Personnel. Section 3.30 of the Company Disclosure Schedule lists the names of
all current directors, officers and employees of the Company, setting forth the job title of, and
salary (including bonuses and commissions) payable to each such Person. Except as set forth in
Section 3.30 of the Company Disclosure Schedule, the employment of each of the Company’s employees
is “at will.” Other than personnel in discrete field operations related to the Oil and Gas
Interests, the Company has no agreement with any independent contractors or consultants. Except as
set forth in Section 3.30 of the Company Disclosure Schedule, the Company does not have any
obligation (i) to provide any particular form or period of notice prior to termination, or (ii) to
pay any of such employees any severance benefits in connection with their termination of employment
or service. In addition, no severance pay will become due to any of the Company employees under
the Company agreement, plan or program as a result of the transactions set forth in this Agreement.
3.31 Third-Party Consents. Except as set forth under Section 3.31 of the Company
Disclosure Schedule, no Approval is needed from any third party in order to effect the Merger or
any of the other transactions contemplated hereby or to ensure that the Company’s rights under any
contract, license, agreement, permit, approval or other rights remain in full force and effect
after the consummation of the transactions contemplated hereby.
3.32 Product Warranties; Defects; Liabilities. Each product manufactured, sold,
licensed, leased, or delivered by the Company has been in conformity with all applicable
contractual commitments and all express and implied warranties, if any.
3.33 Related Party Transactions. No employee, officer or director of the Company or
member of his or her immediate family is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them (other than for accrued but
unpaid salary, bonus or travel expenses incurred in the ordinary course of business and consistent
with past practice). Except as set forth in Section 3.33 of the Company Disclosure Schedule, to
the Company’s knowledge, none of such Persons has any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except that the employees,
officers or directors of the Company and members of their immediate families may own stock in
publicly traded companies that may compete with the Company. Except as set forth in Section 3.33
of the Company Disclosure Schedule, no member of the immediate family of any officer or director of
the Company is directly interested in any material contract or agreement with the Company.
3.34 Brokers or Finders; Professional Fees. Except as set forth in Section 3.34 of
the Company Disclosure Schedule, no agent, broker, investment banker or other Person is, or will
be, entitled to any broker’s or finder’s fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement.
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3.35 Imbalances. The Oil and Gas Interests of the Company do not have and are not
burdened by an aggregate net overproductive or underproductive imbalance or transportation
imbalance, which could reasonably be expected to have a Material Adverse Effect on the Company.
3.36 Preferential Purchase Rights. None of the Oil and Gas Interests of the Company
are subject to any preferential purchase or similar right which would become operative as a result
of the transactions contemplated by this Agreement.
3.37 No Tax Partnerships. The Oil and Gas Interests of the Company are not subject to
any tax partnership agreement or provisions requiring a partnership income tax return to be filed
under Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended.
3.38 Royalties. The Target Companies have paid all royalties, overriding royalties
and other burdens on production due by the Target Companies with respect to the Oil and Gas
Interests of the Company, the non payment of which could reasonably be expected to have a Material
Adverse Effect on the Company.
3.39 Representations Complete. None of the representations or warranties made by the
Company in this Agreement or the agreements contemplated hereby, nor any document, written
information, statement, financial statement, schedule (including the Company Disclosure Schedule),
certificate (including any stockholder certificate) or exhibit prepared and furnished or to be
prepared and furnished by the Company or its representatives to Parent or Merger Sub pursuant
hereto or thereto in connection with the transactions contemplated hereby or thereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements or facts contained herein or therein not misleading.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company that, as of the date of this
Agreement, except as set forth in the Parent Disclosure Schedule attached as Schedule 3
(“Parent Disclosure Schedule”):
4.1 Organization, Standing and Power. Each of Parent and Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each of Parent and Merger Sub has the corporate power to own its properties and to
carry on its business as now being conducted and as proposed to be conducted and is duly qualified
to do business and is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on the Parent. Neither Parent nor Merger
Sub is in violation of any of the provisions of its Articles of Incorporation, or Bylaws or
equivalent organizational documents.
4.2 Authority.
(a) Parent and Merger Sub have all requisite corporate power and authority to enter into 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 authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger Sub and, assuming
valid execution and delivery by the Company, constitutes the valid and binding obligation of Parent
and Merger Sub.
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(b) The execution, delivery and performance of this Agreement does not, and the performance
and consummation of the transactions contemplated hereby will not, conflict with or result in any
material violation of any Law applicable to Parent, its Subsidiaries, its Assets and Properties or
its Subsidiaries’ Assets and Properties, or conflict with or result in any conflict with, breach or
violation of or default (with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation, forfeiture or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of a Lien on any of the Assets and Properties of
Parent or its Subsidiaries pursuant to (i) any provision of the Articles of Incorporation or Bylaws
of Parent or its Subsidiaries; or (ii) the Parent Bank Credit Agreement or any other contract to
which Parent or any of Parent’s Subsidiaries is a party or by which Parent, its Subsidiaries, any
of its Assets and Properties or any of its Subsidiaries’ Assets and Properties may be bound or
affected.
(c) Other than the approval of the Board of Directors of Parent received prior to the
execution of this Agreement, no Approval is required to be obtained by Parent in connection with
the execution, delivery and performance of this Agreement by Parent or the consummation by Parent
of the transactions contemplated hereby.
4.3 SEC Documents; Financial Statements. Parent has filed with the SEC all forms and
other documents (including exhibits and other information incorporated therein) required to be
filed by it since January 1, 2007 (the “Parent SEC Documents”). As of their respective
dates, the Parent SEC Documents complied in all material respects with the requirements of the
Securities Act, the Exchange Act and SOX, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Parent SEC Documents, and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Parent Financial Statements were prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of Regulation
S-X of the SEC) and fairly present, and the financial statements to be filed by the Parent with the
SEC after the date of this Agreement will fairly present, in accordance with applicable
requirements of GAAP (in the case of the unaudited statements, subject to normal, recurring
adjustments), the consolidated financial position of the Parent Companies as of their respective
dates and the consolidated results of operations, the consolidated cash flows and consolidated
changes in stockholders’ equity of the Parent Companies for the periods presented therein; each of
such statements (including the related notes, where applicable) complies, and the financial
statements to be filed by the Parent with the SEC after the date of this Agreement will comply,
with applicable accounting requirements and with the published rules and regulations of the SEC
with respect thereto; and each of such statements (including the related notes, where applicable)
has been, and the financial statements to be filed by the Parent with the SEC after the date of
this Agreement will be, prepared in accordance with GAAP consistently applied during the periods
involved, except as indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q. The books and records of the Parent Companies have been, and are
being, maintained in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions. Xxxx + Associates LLP is an independent public
accounting firm with respect to the Parent and has not resigned or been dismissed as independent
public accountants of the Parent.
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4.4 Litigation. There is no Action or Proceeding pending against Parent or any of its
Subsidiaries or, to the knowledge of Parent, threatened against Parent or any of its Subsidiaries
or any of its or their respective officers, employees or directors that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this Agreement; that could have a
material adverse effect on the ability of Parent to consummate the transactions contemplated by
this Agreement; or that could have a Material Adverse Effect on Parent. There is no judgment,
decree or order against Parent or any of its Subsidiaries, or, to the knowledge of Parent, any of
their respective directors or officers (in their capacities as such), that would prevent, enjoin,
alter or materially delay any of the transactions contemplated by this Agreement; that would have a
material adverse effect on the ability of Parent to consummate the transactions contemplated by
this Agreement; or that could have a Material Adverse Effect on Parent.
4.5 Brokers or Finders; Professional Fees. Except as set forth in Section 4.5 of the
Parent Disclosure Schedule, no agent, broker, investment banker or other firm or Person is, or will
be, entitled to any broker’s or finder’s fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement.
4.6 Disclosure Controls and Procedures. Since January 1, 2007, the Parent has had in
place “disclosure controls and procedures” (as defined in Rules 13a-14(c) and 15d-14(c) of the
Exchange Act) designed and maintained to ensure in all material respects that
(a) transactions are executed in accordance with management’s general or specific
authorizations,
(b) transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets,
(c) access to assets is permitted only in accordance with management’s general or specific
authorization,
(d) the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences,
(e) all information (both financial and non-financial) required to be disclosed by Parent in
the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC, and
(f) all such information is accumulated and communicated to Parent’s management as appropriate
to allow timely decisions regarding required disclosure and to make the certifications of the Chief
Executive Officer and Chief Financial Officer of Parent required under the Exchange Act with
respect to such reports. Parent’s disclosure controls and procedures
ensure that information required to be disclosed by Parent in the reports filed with the SEC
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms.
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4.7 No Vote Required. No vote of the holders of outstanding shares of the Parent
Common Stock is necessary in order to approve this Agreement, the Merger and the transactions
contemplated hereby, and the approval thereof by the Board of Directors of Parent is the only
approval necessary for the Company to enter into this Agreement and undertake the Merger and the
transactions contemplated herein.
4.8 Interim Operations of Merger Sub. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and has not engaged in any business or
activity (or conducted any operations) of any kind, entered into any agreement or arrangement with
any Person or incurred, directly or indirectly, any liabilities or obligations, except in
connection with its incorporation, the negotiation of this Agreement, the Merger and the
transactions contemplated hereby.
4.9 Compliance with Laws. Parent is in compliance and has conducted its business and
operations so as to comply with all applicable Laws, except where the failure to have so complied
or conducted such business would not have a Material Adverse Effect on Parent. There are no Orders
(whether rendered by a court or administrative agency or by arbitration) and, to Parent’s
knowledge, no basis currently exists for any Orders against Parent, its Subsidiaries, any of its
Assets and Properties or any of its Subsidiaries’ Assets and Properties, and none are pending or,
to the knowledge of Parent, threatened, the existence or imposition of which would have a Material
Adverse Effect on Parent. Neither Parent nor any of its Subsidiaries has received any oral or
written notice from any Governmental Entity of any violation of Laws that has not been resolved.
Parent has all Government Licenses (each of which is in full force and effect) necessary for the
conduct of its business, except where the failure to have, or to have maintained in full force and
effect, any such Government License would not have a Material Adverse Effect on Parent. Parent and
each of its Subsidiaries is in compliance with the terms, conditions, limitations, restrictions,
standards, prohibitions, requirements and obligations of such Government Licenses, except where the
failure to be in compliance would not have a Material Adverse Effect on Parent. Parent and each of
its Subsidiaries has made all filings and registrations and the like necessary or required by Law
to be filed by Parent or such Subsidiary to conduct its business, except where the failure to have
so filed would not have a Material Adverse Effect on Parent. There is not now pending, or, to
Parent’s knowledge, is there threatened, any Action or Proceeding against Parent or any of its
Subsidiaries before any Governmental Entity with respect to the Government Licenses, nor is there
any issued or outstanding written notice, order or complaint with respect to the violation by
Parent or any of its Subsidiaries of the terms of any Government License or any rule or regulation
applicable thereto, which if resolved adversely to Parent or any such Subsidiary would have a
Material Adverse Effect on Parent.
4.10 No Defaults. Neither Parent nor any of its Subsidiaries is, and has not received
oral or written notice that it is or would be with the passage of time (x) in violation of any
provision of its Articles of Incorporation or Bylaws; or (y) in default or violation of (a) any
term, condition or provision of any Order applicable to it, or (b) any term or condition of any
agreement, note, mortgage, indenture, contract, lease, instrument, Law or Permit to which it is a
party or by
which Parent, its Subsidiaries or its respective Assets and Properties may be bound if such
violation or default would cause a Material Adverse Effect on Parent.
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4.11 Conduct in the Ordinary Course. Since December 31, 2008, Parent has conducted
its business in the ordinary course and there has not occurred:
(a) Any Material Adverse Effect on Parent not reflected in Parent Financial Statements,
including any Liabilities or obligations, other than changes in the ordinary course of business;
(b) Any damage, destruction or loss, whether covered by insurance or not, that individually or
in the aggregate would have a Material Adverse Effect on Parent; or
(c) Any agreement or arrangement made by Parent to take any action which, if taken prior to
the date hereof, would have made any representation or warranty set forth in this Section 4.10
untrue or incorrect as of the date when made.
4.12 Absence of Undisclosed Liabilities. There are no liabilities of Parent or any of
its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, which would be required to be disclosed in a balance sheet (or in the
notes thereto) prepared in accordance with GAAP that, individually or in the aggregate have had, or
are reasonably likely to have, or result in, a Material Adverse Effect on Parent, other than (a)
liabilities disclosed in the Parent Financial Statements; and (b) liabilities under this Agreement
or disclosed herein.
4.13 Taxes. Except as have not had or could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Parent:
All Tax returns, statements, reports and forms (including without limitation estimated Tax
returns and reports and information returns and reports) required to be filed with any Tax
authority with respect to any taxable period ending on or before the Closing Date, by or on behalf
of any of the Parent Companies (collectively, the “Parent Returns”), have been or will be
properly completed and filed when due (including any extensions of such due date), and all amounts
shown to be due thereon on or before the Closing Date (other than Taxes that are not yet due and
payable or that are being contested in good faith by appropriate proceedings and for which adequate
reserves have been established in the applicable financial statements) have been or will be paid on
or before such date. The audited consolidated financial statements of the Parent Companies of even
date with the Company Financial Statements (the “Parent Financial Statements”) fully accrue all
actual and contingent liabilities for all unpaid Taxes with respect to all periods (or portions of
such periods) through December 31, 2008 and the Parent Companies have not and will not incur any
Tax liability materially in excess of the amount reflected on the Parent Financial Statements
(whether or not reflected as payable on any Tax return that has been filed) with respect to such
periods (or portions of such periods). The Parent Companies have not and will not incur any Tax
liability for periods (or portions of periods) after December 31, 2008 through the Closing Date
other than in the ordinary course of business. The Parent Companies
have withheld and paid to the applicable financial institution or Tax authority all amounts
required to be withheld. The Parent Companies have not been granted any extension or waiver of the
limitations period applicable to any Parent Returns. There is no claim, audit,
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action, suit,
proceeding, or investigation now pending or, or to Parent’s knowledge, threatened against or with
respect to any Parent Company in respect of any Tax or assessment. No notice of deficiency or
similar document of any Tax authority has been received by Parent, and there are no liabilities for
Taxes (including liabilities for interest, additions to Tax and penalties thereon and related
expenses) with respect to the issues that have been raised (and are currently pending) by any Tax
authority. There is no agreement, contract or arrangement to which any Parent Company is a party
that could, individually or collectively, result in the payment of any amount or the provision of
any benefit that would not be deductible by reason of Section 404 of the Code. None of the Parent
Companies is a party to or bound by any Tax indemnity, Tax sharing or Tax allocation agreement
(whether written or unwritten or arising under operation of federal Law as a result of being a
member of a group filing consolidated Tax returns, under operation of certain state Laws as a
result of being a member of a unitary group, or under comparable Laws of other states or foreign
jurisdictions) that includes a party other than a Parent Company nor does any Parent Company owe
any amount under any such agreement. The Parent has previously provided or made available to
Company true and correct copies of all the Parent Returns filed through the date of this Agreement.
The Parent will make available to Company all Parent Returns filed after the date of this
Agreement, all work papers with respect to Parent Returns, and all Tax opinions and memoranda with
respect to Taxes owed or potentially owed by the Parent, all other Tax data and documents
reasonably requested by the Company. Except as may be required as a result of the consummation of
the transactions set forth herein, none of the Parent Companies has been and or will be required to
include any material adjustment in Taxable income for any Tax period (or portion thereof) pursuant
to Section 481 or 263A of the Code or any comparable provision under state or foreign Tax Laws as a
result of transactions, events or accounting methods employed prior to the consummation of the
transactions set forth herein.
ARTICLE 5.
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement and the Closing,
the Company agrees (unless Parent shall give its prior consent in writing) to carry on its business
in the ordinary course consistent with past practice, to pay its Liabilities and Taxes when due
consistent with the Company’s past practices, to pay or perform other obligations when due
consistent with the Company’s past practices (other than Liabilities, Taxes and other obligations,
if any, contested in good faith through appropriate proceedings), and, to use its reasonable
commercial efforts and institute all policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and preserve its present
relationships with customers, suppliers, distributors, licensors, licensees, independent
contractors and other Persons having business dealings with it, all with the express purpose and
intent of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. Except
as expressly contemplated by this Agreement, none of the Target Companies shall, without the prior
written consent of Parent, take, or agree in writing or otherwise to take, any of the following
actions:
(a) (i) amend its Articles of Incorporation, Bylaws or other organizational documents; (ii)
adjust, split, combine or reclassify any of its outstanding capital stock; (iii) declare, set aside
or pay any dividends or other distributions (whether payable in cash, property or securities) with
respect to its capital stock; (iv) issue, sell or agree to issue or sell any securities or other
equity interests, including its capital stock, any rights, options or warrants to acquire its
capital stock, or securities (other than shares of Company Common Stock issued pursuant to the
exercise of any Company Warrants outstanding on the date of this Agreement); (v) purchase, cancel,
retire, redeem or otherwise acquire any of its outstanding capital stock or other securities or
other equity interests; (vi) merge or consolidate with, or transfer all or substantially all of its
assets to, any other Person (other than the Merger); (vii) liquidate, wind-up or dissolve (or
suffer any liquidation or dissolution); or (viii) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
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(b) (i) acquire any corporation, partnership or other business entity or any interest therein
(other than interests in joint ventures, joint operation or ownership arrangements or tax
partnerships acquired in the ordinary course of business); (ii) sell, lease or sublease, transfer
or otherwise dispose of or mortgage, pledge or otherwise encumber any Oil and Gas Interests of the
Company, or any other assets that have an aggregate value in excess of $50,000 at the time of such
sale, lease, sublease, transfer or disposition (except that this clause shall not apply to the sale
of Oil and Gas in the ordinary course of business); (iii) farm-out any Oil and Gas Interest of the
Company or interest therein; (iv) sell, transfer or otherwise dispose of or mortgage, pledge or
otherwise encumber any securities of any other Person (including any capital stock or other
securities or equity interest in any Company Subsidiary); (v) make any loans, advances or capital
contributions to, or investments in, any Person (other than advances in the ordinary course of
business); (vi) enter into any Company Contract or any other agreement not terminable by any of the
Target Companies upon notice of 90 days or less and without penalty or other obligation; or (vii)
enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing;
(c) (i) incur any indebtedness for borrowed money; (ii) make any capital expenditure in excess
of $10,000 for any individual item or $50,000 in the aggregate, except if the expenditure relates
to a currently existing obligation of the Company or any of its Subsidiaries (all of which are
disclosed in Section 3.3(a) of the Disclosure Schedule) or is necessary to protect human life,
property or the environment in the event of an emergency; (iii) assume, endorse (other than
endorsements of negotiable instruments in the ordinary course of business), guarantee or otherwise
become liable or responsible (whether directly, contingently or otherwise) for the liabilities or
obligations of any other Person; or (iv) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(d) knowingly engage in any practice, knowingly take any action or knowingly permit by
inaction any of the representation and warranties contained in Article 3 to become untrue;
(e) voluntarily resign, transfer or otherwise relinquish any right it has as of the date of
this Agreement, as operator of any Oil and Gas Interest of the Company, except as required by Law,
regulation or contract.
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(f) (i) enter into, or otherwise become liable or obligated under or pursuant to: (1) any
employee benefit, pension or other plan (whether or not subject to ERISA), (2) any other stock
option, stock purchase, incentive or deferred compensation plan or arrangement or other fringe
benefit plan, or (3) any consulting, employment, severance, termination or similar agreement with
any Person; (ii) amend or extend any such plan, arrangement or agreement referred to in clauses
(1), (2) or (3) of clause (i); (iii) except for payments made pursuant to any agreement or
arrangement described in the Company Disclosure Schedule, grant, or otherwise become liable for or
obligated to pay, any severance or termination payment, bonus or increase in compensation or
benefits (other than payments, bonuses or increases that are mandated by the terms of agreements
existing as of the date hereof) to, or forgive any indebtedness of, any employee or consultant of
any of the Target Companies; or (iv) enter into any contract, agreement, commitment or arrangement
to do any of the foregoing; or
(g) Create, incur, assume or permit to exist any Lien on any of its assets, except for
Permitted Liens.
(h) The Target Companies will (i) keep and maintain accurate books, records and accounts; (ii)
maintain in full force and effect the policies or binders of insurance described in the Company
Disclosure Schedules; (iii) pay all Taxes, assessment and other governmental charges imposed upon
any of their Assets or Properties or with respect to their business, income or assets before any
penalty or interest accrues thereon; (iv) pay all material claims (including claims for labor,
services, materials and supplies) that have become due and payable and that by Law have or may
become a Lien upon any of the Assets or Properties prior to the time when any penalty or fine shall
be incurred with respect thereto or any such Lien shall be imposed thereon; (v)comply in all
material respects with the requirements of all applicable Laws and orders of any Governmental
Entity, obtain or take all Governmental Actions necessary in the operation of their businesses, and
comply with and enforce the provisions of all Company Contracts, including paying when due all
rentals, royalties, expenses and other liabilities relating to their businesses or assets;
provided, however, that the Company will not be in violation of this Section 5.1(h) if any of the
Target Companies incurs obligations for penalties and interest in connection with gross production
Tax reporting in the ordinary course of business; and provided further, however, that the Target
Companies may contest the imposition of any such Taxes, assessments and other governmental charges,
any such claim, or the requirements of any applicable Law or order or any Company Contract if done
so in good faith by appropriate proceedings and if adequate reserves are established in accordance
with GAAP.
(i) The Target Companies will at all times preserve and keep in full force and effect their
corporate existence and rights and franchises material to their performance under this Agreement,
except where the failure to do so would not have a Material Adverse Effect on the Company.
(j) The Target Companies will operate, maintain and otherwise deal with the Oil and Gas
Interests of the Company in accordance with good and prudent oil and gas field practices and in
accordance with all applicable oil and gas leases and other contracts and agreements and all
applicable Laws.
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5.2 No Solicitation.
(a) From the date of this Agreement until the first to occur of the Effective Time and the
termination of this Agreement in accordance with Article 9, except as specifically permitted in
Section 5.2(c), Section 5.2(e) or Section 5.2(f)(ii), the Company shall not, nor shall it authorize
or permit any of the Company Subsidiaries or the Company Representatives to, directly or
indirectly: (i) solicit, initiate or knowingly encourage any inquiries, offers or proposals that
constitute, or are reasonably likely to lead to, any Acquisition Proposal; (ii) engage in
discussions or negotiations with, furnish or disclose any information or data relating to the
Company or any of the Company Subsidiaries to, or in response to a request therefor, give access to
the properties, assets or the books and records of the Company or the Company Subsidiaries to, any
Person that has made or, to the knowledge of the Company, may be considering making any Acquisition
Proposal or otherwise in connection with an Acquisition Proposal; (iii) grant any waiver or release
under any standstill or similar contract with respect to any Company Common Stock or any properties
or assets of the Company or the Company Subsidiaries; (iv) approve, endorse or recommend any
Acquisition Proposal; (v) enter into any agreement in principle, arrangement, understanding or
contract relating to any Acquisition Proposal; or (vi) take any action to exempt or make not
subject to any state takeover statute or state Law that purports to limit or restrict Business
Combinations or the ability to acquire or vote shares, any Person (other than Parent and the Parent
Subsidiaries) or any action taken thereby, which Person or action would have otherwise been subject
to the restrictive provisions thereof and not exempt therefrom.
(b) Except as specifically permitted in Section 5.2(c) and Section 5.2(d), the Company shall,
and shall cause each of the Company Subsidiaries and instruct the Company Representatives to,
immediately cease any existing solicitations, discussions, negotiations or other activity with any
Person being conducted with respect to any Acquisition Proposal on the date hereof. The Company
shall promptly inform the Company Representatives who have been engaged or are otherwise providing
assistance in connection with the transactions contemplated by this Agreement of the Company’s
obligations under this Section 5.2.
(c) Notwithstanding anything in this Section 5.2 or elsewhere in this Agreement to the
contrary, prior to obtaining the Required Company Vote, nothing in this Agreement shall prevent the
Company or its Board of Directors from:
(i) after the date of this Agreement, engaging in discussions or negotiations with, or
furnishing or disclosing any information or data relating to, the Company or any of the Company
Subsidiaries or, in response to a request therefor, giving access to the properties, assets or the
books and records of the Company or any of the Company Subsidiaries to, any Person who has made a
bona fide written and unsolicited Acquisition Proposal after the date hereof if the Company’s Board
of Directors determines that such Acquisition Proposal is reasonably likely to result in a Superior
Proposal, but only so long as (x) the Company’s Board of Directors has acted in good faith and
determined (A) after consultation with its financial advisors, that such Acquisition Proposal is
reasonably likely to result in a Superior Proposal and (B) after consultation with its outside
legal counsel, that the failure to take such action is reasonably likely to result in a breach of
its fiduciary obligations to the Company and the stockholders of the Company under applicable Laws;
and (y) the Company (A) enters into a confidentiality agreement with such Person on terms and
conditions no more favorable to such Person than those contained in the Confidentiality Agreement
and (B) has previously disclosed
or concurrently discloses or makes available the same information to Parent as it makes
available to such Person in accordance with Section 5.2(d); and
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(ii) subject to compliance with Section 5.2(c)(i), entering into a definitive agreement with
respect to a Superior Proposal (and taking any action under any state takeover Law in connection
with such Superior Proposal), but only so long as the Company’s Board of Directors, acting in good
faith has (I) approved such definitive agreement, (II) determined, after consultation with its
financial advisors, that such bona fide written and unsolicited Acquisition Proposal constitutes a
Superior Proposal, and (III) determined, after consultation with its outside legal counsel, that
the failure to take such action is reasonably likely to result in a breach of its fiduciary
obligations to the Company and the stockholders of the Company under applicable Laws, and (B) the
Company terminates this Agreement pursuant to, and after complying with all of the provisions of,
Sections 9.1(g) and 9.2(b).
(d) If the Company or any of the Company Subsidiaries or the Company Representatives receives
a request for information from a Person who has made an unsolicited bona fide written Acquisition
Proposal involving the Company and the Company is permitted to provide such Person with information
pursuant to this Section 5.2, the Company will provide to Parent a copy of the confidentiality
agreement with such Person promptly upon its execution and provide to Parent a list of, and copies
of, the information provided to such Person concurrently with its delivery to such Person and
promptly provide Parent with access to all information to which such Person was provided access, in
each case only to the extent not previously provided to Parent.
(e) The Board of Directors of the Company shall not (i) approve, endorse or recommend, or
propose to approve, endorse or recommend, any Superior Proposal or (ii) enter into any agreement in
principle or understanding or a contract relating to a Superior Proposal, unless the Company
terminates this Agreement pursuant to, and after complying with all of the provisions of, Sections
9.1(g) and 9.2(b).
(f) Notwithstanding anything to the contrary in this Section 5.2 or elsewhere in this
Agreement, (i) the Board of Directors of the Company shall be permitted to disclose to the
stockholders of the Company a position with respect to an Acquisition Proposal required by Rule
14e-2(a), Item 1012(a) of Regulation M-A or Rule 14d-9 promulgated under the Exchange Act, (ii) the
Board of Directors of the Company may withdraw, modify or amend its recommendation of the Merger
and this Agreement by the Board of Directors of the Company at any time if it determines, after
consultation with its outside legal counsel, that the failure to take such action is reasonably
likely to result in a breach of its fiduciary obligations to the Company and the stockholders of
the Company under applicable Laws, and (iii) the Board of Directors of the Company may take any
action described in Section 5.2(a)(iii) or (vi) if it determines, after consultation with its
outside legal counsel, that the failure to take such action is reasonably likely to result in a
breach of its fiduciary obligations to the Company and the stockholders of the Company under
applicable Laws.
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ARTICLE 6.
ADDITIONAL AGREEMENTS
6.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board
Recommendations.
(a) As promptly as practicable after the execution of this Agreement, the Company and Parent
shall prepare, and file with the SEC, the Proxy Statement/Prospectus, and Parent shall prepare and
file with the SEC the Registration Statement in which the Proxy Statement/Prospectus shall be
included as a prospectus. Each of Parent and the Company shall provide promptly to the other such
information concerning its business and financial statements and affairs as, in the reasonable
judgment of the providing party or its counsel, may be required or appropriate for inclusion in the
Proxy Statement/Prospectus and the Registration Statement, or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the other’s counsel and auditors
in the preparation of the Proxy Statement/Prospectus and the Registration Statement. Each of the
Company and Parent shall respond to any comments of the SEC, and shall use its respective
commercially reasonable efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and the Company shall cause the Proxy
Statement/Prospectus to be mailed to its stockholders at the earliest practicable time after the
Registration Statement is declared effective by the SEC. As promptly as practicable after the date
of this Agreement, each of the Company and Parent shall prepare and file any other filings required
to be filed by it under the Exchange Act, the Securities Act or any other Federal, foreign or Blue
Sky or related Laws relating to the Merger and the transactions contemplated by this Agreement (the
“Other Filings”). Each of the Company and Parent shall notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government officials and of any
request by the SEC or its staff or any other government officials for amendments or supplements to
the Registration Statement, the Proxy Statement/Prospectus or any Other Filing or for additional
information and shall supply the other with copies of all correspondence between such party or any
of its representatives, on the one hand, and the SEC or its staff or any other government
officials, on the other hand, with respect to the Registration Statement, the Proxy
Statement/Prospectus, the Merger or any Other Filing. Each of the Company and Parent shall cause
all documents that it is responsible for filing with the SEC or other regulatory authorities under
this Section 6.1(a) to comply in all material respects with all applicable requirements of Law.
Whenever any event occurs that is required to be set forth in an amendment or supplement to the
Proxy Statement/Prospectus, the Registration Statement or any Other Filing, the Company or Parent,
as the case may be, shall promptly inform the other of such occurrence and cooperate in filing with
the SEC or its staff or any other government officials, and/or mailing to stockholders of the
Company, such amendment or supplement.
(b) The Proxy Statement/Prospectus shall include the recommendation of the Board of Directors
of the Company in favor of adoption and approval of this Agreement and approval of the Merger
(subject to the terms of Section 6.2 hereof).
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6.2 Meeting of Company Stockholders.
(a) Promptly after the date hereof, the Company shall take all action necessary in accordance
with the NRS and the Company’s Articles of Incorporation, as may be amended, and Bylaws, as may be
amended (the “Company Charter Documents”) to convene the Company Stockholders’ Meeting to
be held as promptly as practicable, for the purpose of voting upon this
Agreement and the Merger. Subject to the terms of Section 6.2(c) hereof, the Company shall use
its commercially reasonable efforts to solicit from its stockholders proxies in favor of the
adoption and approval of this Agreement and the approval of the Merger and shall take all other
action necessary or advisable to secure the vote or consent of its stockholders required by the
rules of the NRS to be obtained. Notwithstanding anything to the contrary contained in this
Agreement, the Company may adjourn or postpone the Company Stockholders’ Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Prospectus/Proxy Statement is
provided to the Company’s stockholders in advance of a vote on the Merger and this Agreement or, if
as of the time for which the Company Stockholders’ Meeting is originally scheduled (as set forth in
the Prospectus/Proxy Statement) there are insufficient shares of Company Common Stock represented
(either in person or by proxy) to constitute a quorum necessary to conduct the business of the
Company Stockholders’ Meeting. The Company shall ensure that the Company Stockholders’ Meeting is
called, noticed, convened, held and conducted, and that all proxies solicited by the Company in
connection with the Company Stockholders’ Meeting are solicited, in compliance with the NRS, the
Company Charter Documents, and all other applicable legal requirements. The Company’s obligation to
call, give notice of, convene and hold the Company Stockholders’ Meeting in accordance with this
Section 6.2(a) shall not be limited to or otherwise affected by the commencement, disclosure,
announcement or submission to the Company of any Acquisition Proposal.
(b) Subject to the terms of Section 6.2(c) hereof: (i) the disinterested members of the Board
of Directors of the Company shall unanimously recommend that the Company’s stockholders vote in
favor of and adopt and approve this Agreement and the Merger at the Company Stockholders’ Meeting
(the “Company Proposal”); (ii) the Prospectus/Proxy Statement shall include a statement to
the effect that the Board of Directors of the Company has recommended that the Company’s
stockholders vote in favor of and adopt and approve the Company Proposal; and (iii) neither the
Board of Directors of the Company nor any committee thereof shall withdraw, amend or modify, or
propose or resolve to withdraw, amend or modify in a manner adverse to Parent, the recommendation
of the Board of Directors of the Company in favor of the Company Proposal. For purposes of this
Agreement, said recommendation of the Board of Directors shall be deemed to have been modified in a
manner adverse to Parent if said recommendation shall no longer be unanimous by the disinterested
members of the Board of Directors.
(c) Notwithstanding the foregoing, nothing in this Agreement shall prevent the Board of
Directors of the Company from withholding, withdrawing, amending or modifying its recommendation in
favor of the Merger and the Company Proposal if (i) a Superior Proposal (as defined in Section 5.2
hereof) is made to the Company and is not withdrawn; (ii) neither the Company nor any of its
representatives shall have violated any of the restrictions set forth in Section 5.2 hereof; and
(iii) the Board of Directors of the Company concludes in good faith, after consultation with its
outside counsel, that, in light of such Superior Proposal, the withholding, withdrawal, amendment
or modification of such recommendation is required in order for the Board of Directors of the
Company to comply with its fiduciary duties to the Company and the Company’s stockholders under
applicable Law; provided, however, that prior to any commencement thereof the Company shall have
given Parent at least seventy two (72) hours notice thereof and the opportunity to meet with the
Company and its counsel.
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6.3 Access to Information.
(a) Between the date of this Agreement and the earlier of the Effective Time or the
termination of this Agreement, upon reasonable notice, the Company shall (i) give Parent, Merger
Sub and their respective officers, employees, accountants, counsel, financing sources and other
agents and representatives full access, during business hours, to all buildings, offices, and other
facilities and to all Books and Records of the Company, whether located on the premises of the
Company or at another location; (ii) permit Parent and Merger Sub to make such inspections as they
may require; (iii) cause its officers to furnish Parent and Merger Sub such financial, operating,
technical and product data, and other information with respect to the business and Assets and
Properties of the Company as Parent and Merger Sub from time to time may reasonably request,
including financial statements and schedules; (iv) allow Parent and Merger Sub the opportunity to
interview such employees and other personnel and Affiliates of the Company with the Company’s prior
written consent, which consent shall not be unreasonably withheld or delayed; and (v) assist and
cooperate with Parent and Merger Sub in the development of integration plans for implementation by
Parent and the Surviving Corporation following the Effective Time; provided, however, that no
investigation pursuant to this Section 6.3(a) shall affect or be deemed to modify any
representation or warranty made by the Company herein. Materials furnished to Parent pursuant to
this Section 6.3(a) may be used by Parent for strategic and integration planning purposes relating
to accomplishing the transactions contemplated hereby.
(b) Between the date of this Agreement and the earlier of the Effective Time or the
termination of this Agreement, upon reasonable notice, the Parent shall (i) give the Company and
its respective officers, employees, accountants, counsel, financing sources and other agents and
representatives full access, during business hours, to all buildings, offices, and other facilities
and to all Books and Records of the Parent and Merger Sub, whether located on the premises of the
Parent or at another location; (ii) permit the Company to make such inspections as it may require;
(iii) cause its officers to furnish the Company such financial, operating, technical and product
data, and other information with respect to the business and Assets and Properties of the Parent
and Merger Sub as the Company from time to time may reasonably request, including financial
statements and schedules; and (iv) allow the Company the opportunity to interview such employees
and other personnel and Affiliates of the Parent with the Parent’s prior written consent, which
consent shall not be unreasonably withheld or delayed; provided, however, that no investigation
pursuant to this Section 6.3(b) shall affect or be deemed to modify any representation or warranty
made by the Parent or Merger Sub herein.
6.4 Confidentiality. The parties acknowledge that Parent and Company have previously
executed a Mutual Non-Disclosure and Non-Circumvention Agreement, dated as of December 18, 2008
(the “Confidentiality Agreement”), which Confidentiality Agreement shall continue in full
force and effect in accordance with its terms.
6.5 Expenses. Subject to Section 9.2(b) of this Agreement, whether or not the Merger
is consummated, all fees and expenses incurred in connection with the Merger including all legal,
accounting, financial, advisory, consulting and all other fees and expenses of third parties
(“Third Party Expenses”) incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions contemplated
hereby, shall be the
obligation of the respective party incurring such fees.
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6.6 Public Disclosure. Unless otherwise required by applicable Law (including federal
and state securities Laws) prior to the Effective Time, no disclosure (whether or not in response
to any inquiry) of the existence of any subject matter of, or the terms and conditions of, this
Agreement shall be made by the Company unless approved by Parent prior to release, acting
reasonably; provided, however, that the Company shall be permitted to disclose to its customers and
other working interest owners in the Company’s Oil and Gas Interests those terms and conditions
that have been previously disclosed by Parent or the Company in any public announcement or press
release.
6.7 Approvals. Each of Parent and the Company shall use all commercially reasonable
efforts required to obtain all Approvals required of it from Governmental Entities to consummate
the Merger, and the Company shall use all commercially reasonable efforts required to obtain
Approvals from or under any of the Company Contracts or other agreements as may be required in
connection with the Merger (all of which Approvals with respect to the Company are set forth in the
Company Disclosure Schedule), so as to preserve all rights of and benefits to the Company
thereunder and Parent shall provide the Company with such assistance and information as is
reasonably required to obtain such Approvals.
6.8 Notification of Certain Matters. The Company shall give prompt notice to Parent,
and Parent shall give prompt notice to the Company, of (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which is likely to cause any representation or warranty
of the Company, Parent or Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate at or prior to the Closing Date; and (ii) any failure of the Company, Parent or Merger
Sub, as the case may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 6.8 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
6.9 Voting Agreement/Irrevocable Proxies. The Company shall cause Xxxxxxx Xxxx, Xxxxx
Xxxxxxx, Xxxxx Xxxxxxxx, Xxxxxx Xxxxxxxx and Xxxxxxx Xxxxxxx to execute and deliver to Parent a
Voting Agreement (including Irrevocable Proxy) in the form of Exhibit A hereto concurrently
with the execution of this Agreement.
6.10 Affiliate Agreement. Section 6.10 of the Company Disclosure Schedule contains a
complete and accurate list of those persons who may be deemed to be, in the Company’s reasonable
judgment, “affiliates” of the Company within the meaning of Rule 145 promulgated under the
Securities Act (each, a “Company Affiliate” and collectively, the “Company
Affiliates”). The Company shall provide Parent with such information and documents as Parent
reasonably requests for purposes of reviewing such list. Parent shall be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to be received by a
Company Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Parent Common Stock, consistent with the terms of any
applicable Lock-Up Agreement.
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6.11 Indemnification.
(a) From and after the Effective Time, Parent shall assume, and shall cause the Surviving
Corporation to fulfill and honor in all respects, the obligations of the Company pursuant to any
indemnification agreements between the Company and its directors and officers in effect immediately
prior to the Effective Time (the “Indemnified Parties”) and any indemnification provisions
under the Company Charter Documents as in effect on the date hereof. The Articles of Incorporation
and Bylaws of the Surviving Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as those contained in the
Company Charter Documents as in effect on the date hereof, which provisions will not be amended,
repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who, immediately prior to the
Effective Time, were directors, officers, employees or agents of the Company, unless such
modification is required by applicable Law.
(b) At or prior to the Effective Time, Parent will purchase a policy of directors’ and
officers’ insurance, or a “tail” policy under the Company’s existing directors’ and officers’
insurance policy, in either case that (i) provides a minimum coverage level of $10,000,000, (ii)
has an effective term of six (6) years from the Effective Time, (iii) covers only those persons who
are currently covered by the Company’s directors’ and officers’ insurance policy in effect as of
the date hereof and only for actions and omissions occurring on or prior to the Effective Time, and
(iv) contains terms and conditions (including, without limitation, coverage amounts) that are no
less favorable in the aggregate than the terms and conditions of the Company’s existing directors’
and officers’ insurance policy in effect as of the date hereof; provided, however, that in no event
shall the Parent or the Surviving Corporation be required to expend pursuant to this Section
6.11(b) more than an amount per year equal to 150% of current annual premiums paid by the Company
for such insurance and, in the event the cost of such coverage shall exceed that amount, the Parent
or the Surviving Corporation shall purchase as much coverage as possible for such amount.
(c) This Section 6.11 is intended for the irrevocable benefit of, and to grant third party
rights to, the Indemnified Parties and shall be binding on all successors and assigns of Parent,
the Company and the Surviving Corporation. Each of the Indemnified Parties shall be entitled to
enforce the covenants contained in this Section 6.11.
(d) In the event that Parent or the Surviving Corporation or any of its successors or assigns
(i) consolidates with or merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its Assets and Properties to any Person, then, and in each such case, proper
provision shall be made so that the successors and assigns of Parent and the Surviving Corporation,
as the case may be, assume the obligations set forth in this Section 6.11.
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6.12 Reasonable Efforts and Further Assurances. Each of the parties to this Agreement
shall use its commercially reasonable efforts to effectuate the transactions contemplated hereby
and to fulfill and cause to be fulfilled the conditions to closing under this Agreement; provided,
however, that Parent shall not be obligated to consent to or accept any divestiture or operational
limitation in connection with the Merger or to make any material payment or material commercial
concession to any third party as a condition to obtaining any required Third-Party Consent or
approval of any third party. Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other instruments and do and
perform such other acts and things as may be necessary or desirable for effecting completely the
consummation of this Agreement and the transactions contemplated hereby.
6.13 Listing of Additional Shares. Prior to the Effective Time, Parent shall file
with the NASDAQ Stock Market a Notification Form for Listing of Additional Shares with respect to
the shares of Parent Common Stock issuable upon conversion of the Company Capital Stock in the
Merger and upon exercise of the Assumed Warrants.
6.14 Notices. The Company shall give all notices and other information required to be
given to the employees of the Company under any employment agreement or other applicable Law in
connection with the transactions provided for in this Agreement.
6.15 Blue Sky Laws. Parent shall take such steps as may be necessary to comply with
the securities and blue sky Laws of all jurisdictions that are applicable to the issuance of the
Parent Common Stock in connection with the Merger. The Company shall use its best efforts to
assist Parent as may be necessary to comply with the securities and blue sky Laws of all
jurisdictions that are applicable in connection with the issuance of Parent Common Stock.
6.16 Parent Board of Directors. At the Effective Time, Parent shall cause one
additional Director as selected by the then existing members of the Company’s Board of Directors,
and approved by Parent (such approval not to be unreasonably withheld), to be elected to the board
of directors of Parent. This individual will have experience in the oil and gas industry apart
from any oil and gas industry experience that he or she may have had as an employee or director of
the Company. Parent shall nominate that individual for election for a one year term by Parent’s
stockholders at the Parent’s 2009 Annual Meeting of Stockholders. If a Company director candidate
is not identified and accepted by Parent by March 31, 2009, then the director candidate will not be
accepted or appointed to the Parent’s board of directors until after Parent’s 2009 Annual Meeting
of Stockholders, at which time the director candidate will be so accepted and appointed, and Parent
will nominate that individual for election to a one year term by the Parent’s stockholders at
Parent’s 2010 Annual Meeting of Stockholders.
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6.17 Working Capital Statement. Within five (5) Business Days before the scheduled
Closing Date, Company will prepare, or cause to be prepared, and deliver to Parent an unaudited
statement (the “Pre-Closing Working Capital Statement”), which shall set forth the
Company’s calculation of Working Capital as of the date five (5) Business Days before the scheduled
Closing Date (the “Pre-Closing Working Capital”). The Pre-Closing Working Capital
Statement shall be prepared in accordance with GAAP applied on a basis consistent with Company’s
preparation of its consolidated balance sheet and in accordance with the formula set forth on
Schedule 4 attached hereto. Upon receipt from the Company, Parent shall have two (2)
Business Days to review the Pre-Closing Working Capital Statement (the “Review Period”). If
Parent disagrees with Company’s computation of the Pre-Closing Working Capital, Parent may, on or
prior to the last day of the Review Period, deliver a notice to Company (the “Notice of
Objection”), which sets forth its objections to Company’s calculation of Pre-Closing Working
Capital; provided, however, that the Notice of Objection shall include only objections based on (i)
non-compliance with the standards set forth in Schedule 4 or in this Section 6.17 for the
preparation of the Pre-Closing Working Capital Statement and (ii) mathematical errors in the
computation of the Pre-Closing
Working Capital. Any Notice of Objection shall specify those items or amounts with which
Parent disagrees, together with a detailed written explanation of the reasons for disagreement with
each such item or amount, and shall set forth Parent’s calculation of the Pre-Closing Working
Capital based on such objections. To the extent not set forth in the Notice of Objection, Parent
shall be deemed to have agreed with Company’s calculation of all other items and amounts contained
in the Pre-Closing Working Capital Statement. Unless Parent delivers the Notice of Objection to
Company within the Review Period, Parent shall be deemed to have accepted Company’s calculation of
Pre-Closing Working Capital and the Pre-Closing Working Capital Statement shall be final,
conclusive and binding. If the Parent delivers the Notice of Objection to the Company within the
Review Period, the Parent and the Company shall, during the two (2) days following such delivery or
any mutually agreed extension thereof, use their commercially reasonable efforts in good faith to
reach agreement on the disputed items and amounts in order to determine the amount of Pre-Closing
Working Capital. In the event of any unresolved, good faith dispute, then the Parent and the
Company shall split the difference equally and reduce the Pre-Closing Working Capital by 50% of the
total disputed amount; provided, however, if such disputed amount equals or exceeds $250,000 and
the parties are unable to resolve the dispute, then the parties agree to extend the Closing Date
for a period of thirty (30) days and submit the calculation of the Pre-Closing Working Capital to a
mutually agreeable independent public accounting firm (the “Independent Accountants”) for
resolution applying the principles, policies and practices referred to in this Section 6.17 and
Schedule 4. If issues are submitted to the Independent Accountants for resolution, Parent
and the Company shall furnish or cause to be furnished to the Independent Accountants such work
papers and other documents and information relating to the disputed issues as the Independent
Accountants may request and are available to that party or its agents and shall be afforded the
opportunity to present to the Independent Accountants any material relating to the disputed issues
and to discuss the issues with the Independent Accountants. The determination by the Independent
Accountants, as set forth in a notice to be delivered to both Parent and the Company within fifteen
(15) Business Days of the submission to the Independent Accountants of the issues remaining in
dispute, shall be final, binding and conclusive on the parties and shall be used in the calculation
of the Final Working Capital. Parent and the Company will each bear fifty percent (50%) of the
fees and costs of the Independent Accountants for such determination. “Final Working
Capital” means the Pre-Closing Working Capital (i) as shown in the Pre-Closing Working Capital
Statement delivered by Company to Parent pursuant to this Section 6.17, if no Notice of Objection
with respect thereto is timely delivered by Parent to the Company; or (ii) if a Notice of Objection
is so delivered, (A) as agreed by the Parent and Company pursuant to this Section 6.17, or (B) in
the absence of such agreement, (I) as calculated in accordance with this Section 6.17 if the
disputed amount is less than $250,000, or (II) as determined by the Independent Accountants, if the
disputed amount is equal to or greater than $250,000.
6.18 Section 16 Matters. Prior to the Closing Date, Parent and the Company, and their
respective Boards of Directors, shall use their commercially reasonable efforts to take all actions
to cause any dispositions of Company Common Stock (including derivative securities with respect to
Company Common Stock) or acquisitions of Parent Common Stock (including derivative securities with
respect to Parent Common Stock) resulting from the transactions contemplated hereby by each
individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act to be
exempt from Section 16(b) of the Exchange Act under Rule 16b-3 promulgated under the Exchange Act
in accordance with the terms and conditions set forth in that certain No-Action Letter, dated
January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP.
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ARTICLE 7.
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The respective
obligations of each party to this Agreement to effect the Merger shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) Governmental and Regulatory Approvals. Approvals from any Governmental Entity (if
any) necessary for the consummation of the Merger shall have been obtained.
(b) No Injunctions or Regulatory Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other Order issued by any court of competent
jurisdiction or Governmental Entity or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect; nor shall there be any action taken,
or any Law or Order enacted, entered, enforced or deemed applicable to the Merger or the other
transactions contemplated by the terms of this Agreement that would prohibit the consummation of
the Merger or which would permit consummation of the Merger only if certain divestitures were made
by Parent or if Parent were to agree to limitations on its business activities or operations. No
Governmental Entity shall have notified either party to this Agreement that it intends to commence
proceedings to restrain or prohibit the transactions contemplated hereby or force rescission,
unless such Governmental Entity shall have withdrawn such notice and abandoned any such proceedings
prior to the time which otherwise would have been the Closing Date.
(c) Stockholder Approval. The Merger shall have been approved by the requisite vote
of the Company’s stockholders in accordance with the NRS and the Company’s Charter Documents.
(d) Securities Law Matters. The Registration Statement shall have been declared
effective by the SEC under the Securities Act and shall be effective at the Effective Time, and no
stop order suspending such effectiveness shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend such effectiveness shall have been initiated and be continuing,
and all necessary approvals under state securities Laws relating to the issuance or trading of the
Parent Common Stock to be issued in the Merger shall have been received.
(e) Stock Exchange Listing. The shares of Parent Common Stock to be issued in the
Merger and upon exercise of the Company Warrants shall have been authorized for listing on the
NASDAQ Stock Market, subject to official notice of issuance.
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7.2 Additional Conditions to Obligations of the Company. The obligations of the
Company to consummate the Merger and the other transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing of each of the following conditions, any of
which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each of the representations and warranties made
by Parent and Merger Sub in this Agreement shall be true and correct in all material respects (if
not qualified by materiality) and in all respects (if qualified by materiality) when made and on
and as of the Closing Date as though such representation or warranty was made on and as of the
Closing Date; provided, however, that any representation or warranty made as of a specified date
earlier than the Closing Date shall also have been true and correct in all material respects (if
not qualified by materiality) and in all respects (if qualified by materiality) on and as of such
earlier date.
(b) Performance. Parent and Merger Sub shall have performed and complied in all
material respects with each agreement, covenant and obligation required by this Agreement to be so
performed or complied with by Parent or Merger Sub on or before the Closing Date.
(c) Officers’ Certificates. Parent and Merger Sub shall have delivered to the Company
certificates, dated the Closing Date and executed by their respective President and/or Chief
Financial Officers, substantially in the forms set forth in Exhibit D-1 hereto, and
certificates, dated the Closing Date and executed by the Secretary of Parent and Merger Sub,
substantially in the forms set forth in Exhibit D-2 hereto.
(d) No Material Adverse Change. From the date of this Agreement through the Closing,
there shall not have occurred any change in the condition (financial or otherwise), operations,
business, properties or prospects of any of Parent Company that would have or would be reasonably
likely to have a Material Adverse Effect on the Parent.
(e) Borrowing Base. The Parent Bank Credit Agreement shall have a revolving credit
facility in full force and effect with a borrowing base thereunder of not less than $40 million.
(f) Parent Closing Stock Price. The Parent Closing Stock Price shall not be less than
$3.00.
7.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger and the other transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. Each of the representations and warranties made
by the Company in this Agreement shall be true and correct in all material respects (if not
qualified by materiality) and in all respects (if qualified by materiality) when made and on and as
of the Closing Date as though such representation or warranty was made on and as of the Closing
Date, without regard to any updated disclosure set forth on the Company Disclosure Schedule after
date hereof; provided, however, that any representation or warranty made as of a specified date
earlier than the Closing Date shall also have been true and correct in all material respects (if
not qualified by materiality) and in all respects (if qualified by materiality) on and as of such
earlier date.
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(b) Performance. The Company shall have performed and complied with in all material
respects each agreement, covenant and obligation required by this Agreement to be
so performed or complied with by the Company on or before the Closing Date.
(c) Officers’ Certificates. The Company shall have delivered to Parent a certificate,
dated the Closing Date and executed by its President and Chief Financial Officer, substantially in
the form set forth in Exhibit E-1 hereto, and a certificate, dated the Closing Date and
executed by the Secretary of the Company, substantially in the form set forth in Exhibit
E-2 hereto.
(d) No Material Adverse Change. From the date of this Agreement through the Closing,
there shall not have occurred any change in the condition (financial or otherwise), operations,
business, properties or prospects of any of the Target Companies that would have or would be
reasonably likely to have a Material Adverse Effect on the Company.
(e) Third Party Consents. Parent shall have been furnished with evidence satisfactory
to it that the Company has obtained the Approvals listed in Section 3.31 of the Company Disclosure
Schedule except for those Approvals that Parent has identified in writing to the Company that it
will not require to be received.
(f) Lock-Up Agreements. Parent shall have received an executed Lock-Up Agreement in
the form attached hereto as Exhibit F for each of the stockholders set forth in Section
7.3(f) of the Company Disclosure Schedule.
(g) FIRPTA Compliance. The executed statement in the form of Exhibit C hereto
for purposes of satisfying Parent’s obligations under Treasury Regulation Section 1.1445-2(c)(3)
shall have been delivered by the Company to Parent and shall continue to be in full force and
effect.
ARTICLE 8.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Notwithstanding any right of Parent, Merger Sub or the Company (whether or not exercised) to
investigate the affairs of Parent, Merger Sub or the Company (whether pursuant to Section 6.3 or
otherwise) or a waiver by Parent or the Company of any condition to Closing set forth in Article 7,
each party shall have the right to rely fully upon the representations, warranties, covenants and
agreements of the other party contained in this Agreement or in any instrument delivered pursuant
to this Agreement. None of the representations or warranties contained in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the consummation of the Merger.
ARTICLE 9.
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual agreement of the Company, Parent and Merger Sub;
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(b) by Parent, Merger Sub or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Mountain Time) on August 31, 2009; provided, however, that the
right to terminate this Agreement under this clause 8.1(b)(i) shall not be available to any party
whose failure to fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date or if such party is otherwise in
breach of this Agreement or any other condition contemplated hereby; (ii) there shall be a final
nonappealable Order of any Governmental Entity in effect preventing consummation of the Merger; or
(iii) there shall be any Law or Order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity that would make consummation of the Merger illegal;
(c) by Parent and Merger Sub, if there shall be any action taken, or any Law or Order enacted,
promulgated or issued or deemed applicable to the Merger, by any Governmental Entity or regulatory
authority, that would: (i) prohibit Parent’s or the Merger Sub’s ownership or operation of all or
any portion of the business of the Company or (ii) compel Parent or Merger Sub to dispose of or
hold separate all or a portion of the Assets and Properties of the Company as a result of the
Merger;
(d) by Parent, if there has been a material breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the Company and the Company has not cured
such breach within five (5) business days after notice of such breach is delivered to the Company;
provided, however, that, no cure period shall be required for a breach that by its nature cannot be
cured;
(e) by the Company if there has been a material breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Parent or Merger Sub and Parent
has not cured such breach within five (5) business days after notice of such breach is delivered to
the Parent; provided, however, that no cure period shall be required for a breach that by its
nature cannot be cured;
(f) by Parent or the Company, if the Company Proposal shall not have been approved by the
requisite votes of the Company’s stockholders in accordance with the NRS at the Company Stockholder
Meeting or by written consent;
(g) by the Company, if the Company has received a Superior Proposal in accordance with Section
5.2(c) and paid the termination fee to Parent in accordance with Section 9.2(b); or
(h) by the Company, if the Parent Closing Stock Price is less than $3.00 per share.
9.2 Effect of Termination.
(a) In the event of a valid termination of this Agreement as provided in Section 9.1, this
Agreement shall forthwith become void and, subject to Section 9.2(b), there shall be no liability
or obligation on the part of Parent, Merger Sub, the Company, or their respective officers,
directors or stockholders or Affiliates; provided, however, that each party shall remain liable for
any breaches of this Agreement prior to its termination; and provided further, however, that the
provisions of Sections 6.5, 6.6, and 9.2 and of Article 10 shall remain
in full force and effect and survive any termination of this Agreement.
(b) In the event of a termination of this Agreement by Parent pursuant to Section 9.1(d) or by
the Company pursuant to Section 9.1(g), the Company shall pay to Parent a termination fee in the
amount of Three Hundred Thousand Dollars ($300,000).
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9.3 Amendment. Except as is otherwise required by applicable Law after the
stockholders of the Company approve the Merger and this Agreement, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, Parent, Merger Sub
and the Company may, to the extent legally allowed, (a) extend the time for the performance of any
of the obligations of the other party hereto; (b) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered pursuant hereto; and
(c) waive compliance with any of the agreements, covenants or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of such party.
ARTICLE 10.
MISCELLANEOUS PROVISIONS
10.1 Notices. All notices, requests and other communications hereunder must be in
writing and will be deemed to have been duly given only if delivered personally against written
receipt or by facsimile transmission against facsimile confirmation or mailed by prepaid first
-class certified mail, return receipt requested, or mailed by overnight courier prepaid, to the
parties at the following addresses or facsimile numbers:
If to Parent or Merger Sub to:
Double Eagle Petroleum Co.
0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attn: Chief Financial Officer
with a copy to:
Xxxxxx Xxxxx LLP
0000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx Xxxxxxxxx, Esq.
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If to the Company to:
Petrosearch Energy Corporation
000 Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attn: Chief Financial Officer
with a copy to:
Akin Gump Xxxxxxx Xxxxx & Xxxx LLP
0000 Xxxxxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxx III, Esq.
All such notices, requests and other communications will (i) if delivered personally to the address
as provided in this Section, be deemed given upon delivery; (ii) if delivered by facsimile
transmission to the facsimile number as provided for in this Section, be deemed given upon
facsimile confirmation; (iii) if delivered by mail in the manner described above to the address as
provided for in this Section, be deemed given on the earlier of the third Business Day following
mailing or upon receipt; and (iv) if delivered by overnight courier to the address as provided in
this Section, be deemed given on the earlier of the first Business Day following the date sent by
such overnight courier or upon receipt (in each case regardless of whether such notice, request or
other communication is received by any other Person to whom a copy of such notice is to be
delivered pursuant to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving notice specifying
such change to the other party hereto.
10.2 Entire Agreement. This Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter hereof and thereof and contains the sole and
entire agreement between the parties hereto with respect to the subject matter hereof and thereof.
10.3 Further Assurances; Post-Closing Cooperation. At any time or from time to time
prior to the Closing, the parties shall execute and deliver to the other party such other documents
and instruments, provide such materials and information and take such other actions as the other
party may reasonably request to consummate the transactions contemplated by this Agreement and
otherwise to cause the other party to fulfill its obligations under this Agreement and the
transactions contemplated hereby. Each party agrees to use commercially reasonable efforts to
cause the conditions to its and the other party’s obligations to consummate the Merger to be
satisfied.
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10.4 Third Party Beneficiaries. The terms and provisions of this Agreement are
intended solely for the benefit of each party hereto and their respective successors or permitted
assigns, and it is not the intention of the parties to confer third-party beneficiary rights,
and this Agreement does not confer any such rights upon any other Person other than any Person
entitled to indemnity under Section 6.11.
10.5 No Assignment; Binding Effect. Neither this Agreement nor any right, interest or
obligation hereunder may be assigned (by operation of Law or otherwise) by any party without the
prior written consent of the other party and any attempt to do so will be void. Subject to the
preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by
the parties hereto and their respective successors and assigns.
10.6 Headings. The headings and table of contents used in this Agreement have been
inserted for convenience of reference only and do not define or limit the provisions hereof.
10.7 Invalid Provisions. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future Law, and if the rights or obligations of any
party hereto under this Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.
10.8 Governing Law. This Agreement shall be governed by and construed in accordance
with the domestic Laws of the State of
Maryland, without giving effect to any choice of Law or
conflict of Law provision or rule (whether of the State of
Maryland or any other jurisdiction) that
would cause the application of the Laws of any jurisdiction other than the State of
Maryland.
10.9 Construction. The parties hereto agree that this Agreement is the product of
negotiation between sophisticated parties and individuals, all of whom were represented by counsel,
and each of whom had an opportunity to participate in and did participate in, the drafting of each
provision hereof. Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a fair and reasonable
construction without regard to the rule of contra preferentum.
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10.10 Counterparts. This Agreement may be executed in any number of counterparts,
each of which will be deemed an original, but all of which together will constitute one and the
same instrument.
10.11 Specific Performance; Remedies Cumulative. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It is agreed that
the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the United States or
any state having jurisdiction, this being in addition to any other remedy to which they are
entitled at law or
in equity. All remedies, either under this Agreement or by Law or otherwise afforded, will be
cumulative and not alternative.
10.12 Withholding. Notwithstanding anything to the contrary in this Agreement, the
Exchange Agent and Parent shall be entitled to take any steps necessary to withhold any amounts
required by Law to be withheld from the transfer and distribution of shares and cash pursuant to
this Agreement.
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IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this Agreement to be signed by
their duly authorized representatives, all as of the date first written above.
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DOUBLE EAGLE PETROLEUM CO. |
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PETROSEARCH ENERGY CORPORATION |
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By:
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/s/ Xxxxxx Xxxxxx
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By:
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/s/ Xxxxx Xxxxxxx |
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Name: Xxxxxx Xxxxxx
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Name: Xxxxx Xxxxxxx
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Title: Chief Financial Officer
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Title: Chief Financial Officer |
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DBLE ACQUISITION CORPORATION |
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By:
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/s/ Xxxxxx Xxxxxx |
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Name: Xxxxxx Xxxxxx
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Title: Chief Financial Officer |
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