EX-2.1 2 a16-17360_1ex2d1.htm EX-2.1

Exhibit 2.1

 

Execution Version

 

 

 

 

STOCK PURCHASE AND SALE AGREEMENT

 

by and among

 

THE SELLERS PARTY HERETO,

 

PDC ENERGY, INC.,

 

KIMMERIDGE ENERGY MANAGEMENT COMPANY GP, LLC

 

and

 

ARRIS PETROLEUM CORPORATION

 

Dated as of August 23, 2016

 

 

 

 



 

TABLE OF CONTENTS

 

ARTICLE I

DEFINITIONS

 

Section 1.1

Definitions

6

 

 

 

ARTICLE II

PURCHASE AND SALE

 

Section 2.1

Agreement to Sell and Purchase

29

Section 2.2

Adjustments to Cash Consideration

29

Section 2.3

Priority of Payments

31

 

 

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE PARTIES

 

 

 

Section 3.1

Representations and Warranties of Sellers

32

Section 3.2

Representations and Warranties of the Company

34

Section 3.3

Representations and Warranties of Buyer

49

Section 3.4

Survival of Representations, Warranties, Covenants and Agreements

50

Section 3.5

Waiver of Representations and Warranties

51

 

 

 

ARTICLE IV

COVENANTS

 

Section 4.1

Conduct of Business by the Company

52

Section 4.2

Conduct of Business by Buyer

55

Section 4.3

Reports

55

Section 4.4

Efforts

55

Section 4.5

Return of Information

56

Section 4.6

Amendment of Schedules

56

Section 4.7

Officers and Directors

56

Section 4.8

Access to Required Information

57

Section 4.9

HSR Act Filings

58

Section 4.10

Financing Cooperation

58

Section 4.11

Termination of Affiliate Obligations

60

Section 4.12

Employee Matters

60

Section 4.13

Pay Off Letters; Release of Indebtedness

62

 

 

 

ARTICLE V

EXAMINATION OF TITLE AND PROPERTIES

 

 

 

Section 5.1

Access

63

Section 5.2

Environmental Property Inspection

63

Section 5.3

Exclusive Remedy

64

Section 5.4

Notice of Title Defects and Title Benefits; Remedies

65

Section 5.5

Title Defect Amount; Title Benefit Amount

65

 



 

Section 5.6

Notice of Environmental Defects; Remedies

67

Section 5.7

Title and Environmental Dispute Resolution

68

Section 5.8

Casualty Loss and Condemnation

68

Section 5.9

Consents

69

 

 

 

ARTICLE VI

TAX MATTERS

 

Section 6.1

Liability for Taxes

69

Section 6.2

Tax Returns

71

Section 6.3

Contest Provisions

72

Section 6.4

Transfer Taxes

72

Section 6.5

Cooperation

73

Section 6.6

No Section 338 Election

73

Section 6.7

Purchase Price Adjustments

73

Section 6.8

Withholding Tax

74

 

 

 

ARTICLE VII

CONDITIONS PRECEDENT TO CLOSING

 

 

 

Section 7.1

Sellers’ and the Company Group’s Conditions

74

Section 7.2

Buyer’s Conditions

75

 

 

 

ARTICLE VIII

CLOSING

 

 

 

Section 8.1

Preliminary Settlement Statement and Closing

77

Section 8.2

Closing Obligations

77

Section 8.3

No Fractional Shares

79

 

 

 

ARTICLE IX

POST-CLOSING RIGHTS AND OBLIGATIONS

 

Section 9.1

Post-Closing Adjustments

79

Section 9.2

Further Assurances

80

Section 9.3

Obtaining Customary Post-Closing Consents

80

 

 

 

ARTICLE X

INDEMNIFICATION

 

 

 

Section 10.1

Buyer’s Indemnity Obligation

80

Section 10.2

Sellers’ Indemnity Obligation

81

Section 10.3

Deductible and Cap

82

Section 10.4

Procedures

83

Section 10.5

Exclusive Remedy

84

Section 10.6

Extent of Indemnification

84

Section 10.7

Losses

84

 

ii



 

Section 10.8

Claimants

85

Section 10.9

Holdback

86

 

 

 

ARTICLE XI

ARBITRATION OF DISPUTED MATTERS

 

Section 11.1

Arbitration

87

Section 11.2

Location

88

Section 11.3

Rules

88

Section 11.4

Jurisdiction of Provisions

88

Section 11.5

Written Decision or Award

88

Section 11.6

Authority of Arbitrator

88

 

 

 

ARTICLE XII

TERMINATION

 

 

 

Section 12.1

Termination

88

Section 12.2

Effect of Termination

89

Section 12.3

Remedies

89

Section 12.4

Confidentiality Agreement

90

 

 

 

ARTICLE XIII

MISCELLANEOUS

 

Section 13.1

Notices

90

Section 13.2

Amendments and Severability

91

Section 13.3

Assignment

91

Section 13.4

Interpretation

92

Section 13.5

Governing Law

92

Section 13.6

Announcements

92

Section 13.7

Entire Agreement

93

Section 13.8

Parties in Interest

93

Section 13.9

Waiver

93

Section 13.10

Conspicuousness of Provisions

93

Section 13.11

Counterparts

93

Section 13.12

Waiver of Jury Trial; Submission to Jurisdiction

93

Section 13.13

Relationship Among Sellers

94

Section 13.14

Specific Enforcement

95

Section 13.15

Releases

96

Section 13.16

Relationship of the Parties

99

 

Exhibits

 

Exhibit A

 

Sellers

Exhibit B-1

 

Leases

 

iii



 

Exhibit B-2

 

Wells

Exhibit B-3

 

Contract Area

Exhibit B-4

 

Applicable Contracts

Exhibit B-5

 

Rights of Way

Exhibit B-6

 

Fee Surface Rights

Exhibit B-7

 

Emission Reduction Credits

Exhibit C

 

Allocated Values

Exhibit D

 

Investment Agreement

Exhibit E

 

Company Capital Stock Allocation

Exhibit F

 

Form of Buyer’s Officer’s Certificate

Exhibit G

 

Form of Stock Power

Exhibit H

 

Form of Sellers’ Officer’s Certificate

Exhibit I

 

Form of Certification of Non-Foreign Status

Exhibit J

 

Capital Budget

Exhibit K

 

Form of the Company’s Officer’s Certificate

 

Schedules

 

 

 

Schedule 1.1(a)

 

Company’s Knowledge Persons

Schedule 1.1(l)

 

Permitted Encumbrances

Schedule 4.1(b)(vi)

 

Planned Transactions

Schedule 4.1(b)(xii)

 

Planned Transactions

Schedule 4.11

 

Termination of Affiliate Obligations

Schedule 4.13

 

Payoff Letters

 

 

 

Sellers Disclosure Schedule

 

 

 

Schedule 3.1(b)(ii)

 

Authority; No Violations

Schedule 3.1(b)(iii)

 

Authority; No Violations

Schedule 3.1(c)

 

Governmental Consents

Schedule 3.1(e)

 

Nonforeign Status

 

 

 

Company Disclosure Schedule

 

 

 

Schedule 3.2(b)(ii)

 

Authority; No Violations

Schedule 3.2(b)(iii)

 

Authority; No Violations

Schedule 3.2(c)

 

Consents

Schedule 3.2(d)

 

Indebtedness

Schedule 3.2(e)

 

Subsidiaries

Schedule 3.2(g)(iii)

 

Absence of Certain Changes or Events

Schedule 3.2(h)(iii)

 

No Undisclosed Liabilities

Schedule 3.2(i)

 

Litigation

Schedule 3.2(k)(i)

 

Employee Plans

Schedule 3.2(k)(ii)

 

Employee Benefit Plan

Schedule 3.2(k)(vi)

 

Acceleration under Employee Plans

Schedule 3.2(k)(vii)

 

280G Matters

 

iv



 

Schedule 3.2(n)(i)(A)

 

Intellectual Property Infringement

Schedule 3.2(n)(i)(E)

 

Intellectual Property

Schedule 3.2(n)(ii)

 

Intellectual Property Infringement as Result of the Transaction

Schedule 3.2(n)(iii)

 

Information Technology

Schedule 3.2(o)

 

Permits

Schedule 3.2(q)

 

Compliance with Laws

Schedule 3.2(r)

 

Insurance

Schedule 3.2(s)(ii)

 

Consents

Schedule 3.2(t)

 

Imbalances

Schedule 3.2(u)

 

Hydrocarbon Sales

Schedule 3.2(w)

 

Applicable Contracts

Schedule 3.2(x)

 

Outstanding Capital Commitments

Schedule 3.2(y)

 

Related Party Transactions

Schedule 3.2(z)

 

Broker’s Fees

Schedule 3.2(cc)

 

Pipelines

Schedule 3.2(dd)

 

Plugging and Abandonment Obligations

Schedule 3.2(ff)

 

Payout Balances

Schedule 3.2(gg)

 

Security Arrangements

Schedule 3.2(hh)

 

Surface Restrictions

Schedule 3.2(jj)

 

Drilling Obligations

Schedule 3.2(kk)

 

Environmental Matters

 

 

 

Buyer Disclosure Schedule

 

 

 

Schedule 3.3(b)(ii)

 

Authority; No Violations

Schedule 3.3(c)

 

Governmental Consents

 

v



 

STOCK PURCHASE AND SALE AGREEMENT

 

This Stock Purchase and Sale Agreement (“Agreement”) is entered into on this 23rd day of August, 2016 (the “Execution Date”) by and among the Persons named on Exhibit A (“Sellers”, and each individually, a “Seller”), PDC Energy, Inc., a Delaware corporation (“Buyer”), Kimmeridge Energy Management Company GP, LLC, a Delaware limited liability company (“Sellers’ Representative”) and Arris Petroleum Corporation, a Delaware corporation (the “Company”).  Buyer, each Seller, Sellers’ Representative and the Company are collectively referred to herein as the “Parties” and each individually referred to herein as a “Party.”

 

W I T N E S S E T H:

 

WHEREAS, Sellers own in the aggregate 100% of the issued and outstanding capital stock of the Company;

 

WHEREAS, the Company and its wholly-owned Subsidiaries own certain interests in oil and gas properties, rights and related assets; and

 

WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, all of the issued and outstanding capital stock of the Company, upon the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual benefits derived and to be derived herefrom by each Party, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I
DEFINITIONS

 

Section 1.1                                    Definitions.  In this Agreement, capitalized terms have the meanings provided in this ARTICLE I, unless defined elsewhere in this Agreement.

 

12-Month Survival Period” has the meaning set forth in Section 3.4(a).

 

125 Plan” has the meaning set forth in Section 4.12(b).

 

299 APSA” means that certain Asset Purchase and Sale Agreement by and among 299 Resources LLC, 299 Production, LLC, 299 Pipeline, LLC, and Buyer, dated as of August 23, 2016.

 

401(k) Plans” has the meaning set forth in Section 4.12(b).

 

AAA” has the meaning set forth in Section 11.1(b).

 

Action” means (a) a lawsuit, arbitration, charge, pending settlement order or other proceeding brought before a Governmental Body or (b) legal, administrative or arbitration proceeding before any Person other than a Governmental Body.

 



 

Affiliate” means, with respect to a specified entity, an entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, the entity specified; provided, however, that for purposes of this Agreement, the Company, on one hand, and 299 Resources, LLC, 299 Production, LLC and 299 Pipeline, LLC, on the other hand, will not be considered “Affiliates.”  For the avoidance of doubt, (a) prior to the Closing, the Company and its Subsidiaries will be considered Affiliates of Sellers and not of Buyer and (b) from and after the Closing, the Company and its Subsidiaries will be considered Affiliates of Buyer and not of Sellers.

 

Agreement” has the meaning set forth in the introductory paragraph hereto.

 

Allocated Value” means, with respect to each Listed Interest, the amount of the Purchase Price allocated to that Listed Interest as set forth on Exhibit C under the column “Allocated Value”.

 

Applicable Contracts” has the meaning set forth in the definition of “Properties”.

 

Arbitrator” has the meaning set forth in Section 11.1(b).

 

Base Purchase Price” has the meaning set forth in Section 2.1(a).

 

Business Day” means any day other than a Saturday, Sunday or a legal holiday on which commercial banks in Denver, Colorado or Houston, Texas are authorized or required to be closed.

 

Buyer” has the meaning set forth in the introductory paragraph hereto.

 

Buyer Common Stock” means shares of Buyer’s common stock, par value $0.01 per share.

 

Buyer Confidentiality Agreement” has the meaning set forth in Section 12.4.

 

Buyer Deliverables” means all documents, certificates and other items required to be delivered by Buyer pursuant to Section 8.2(a).

 

Buyer Disclosure Schedule” has the meaning set forth in Section 3.3.

 

Buyer Fundamental Representations” has the meaning set forth in Section 3.4(c).

 

Buyer Indemnified Parties” has the meaning set forth in Section 10.2(a).

 

Buyer Material Adverse Effect” means a change, event, circumstance, development, state of facts, or condition that, individually or in the aggregate with any other event or events, materially impairs, prevents or delays Buyer’s timely consummation of the Transactions.

 

Buyer Notes” means the 7.75% Senior Notes of Buyer due 2022 issued pursuant to an Indenture dated as of October 3, 2012 between Buyer and The Bank of New York Mellon, as trustee.

 



 

Buyer Return” has the meaning set forth in Section 6.2(b).

 

Buyer Revolving Credit Facility” means the Third Amended and Restated Credit Agreement dated as of May 21, 2013, among Buyer, Riley Natural Gas Company, as Guarantor, JP Morgan Chase Bank, N.A., as Administrative Agent and certain lenders party thereto, as amended to the Execution Date.

 

Buyer’s Auditor” has the meaning set forth in Section 4.8(b).

 

Buyer’s Environmental Review” has the meaning set forth in Section 5.2(a).

 

Capital Budget” has the meaning set forth in Section 4.1(a)(ii).

 

Cash Consideration” has the meaning set forth in Section 2.1(a).

 

Casualty Loss” has the meaning set forth in Section 5.8.

 

Claims” has the meaning set forth in Section 13.15(b).

 

Class A Common Stock” has the meaning set forth in Section 3.2(d).

 

Class B Common Stock” has the meaning set forth in Section 3.2(d).

 

Closing” has the meaning set forth in Section 8.1(b).

 

Closing Amount” means the Cash Consideration (a) adjusted (upward or downward) as provided in Section 2.2, using for such adjustment amounts the best information then available, and (b) less the Deposit (as provided in Section 2.1(d)).

 

Closing Date” has the meaning set forth in Section 8.1(b).

 

COBRA” has the meaning set forth in Section 3.2(k)(ix).

 

Code” means the Internal Revenue Code of 1986, as amended.

 

Company” has the meaning set forth in the introductory paragraph hereto.

 

Company Capital Stock” has the meaning set forth in Section 3.2(d).

 

Company Charter” means the Company’s Third Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on August 24, 2015, including the Designation of Rights, Preferences, Privileges and Restrictions of Senior Preferred Stock attached thereto as Exhibit A.

 

Company Claims” has the meaning set forth in Section 13.15(a).

 

Company Common Stock” has the meaning set forth in Section 3.2(d).

 



 

Company Credit Facility” means the Credit Agreement, dated as of July 25, 2016, among the Company, the Lenders from time to time party thereto and Texas Capital Bank, National Association, as Administrative Agent and Letter of Credit Issuer, as amended to the Execution Date.

 

Company Deliverable” means all documents, certificates and other items required to be delivered by Sellers and Sellers’ Representative pursuant to Section 8.2(b), Section 8.2(c) and Section 8.2(d) to which the Company is a party.

 

Company Disclosure Schedule” has the meaning set forth in Section 3.2.

 

Company Financial Statements” has the meaning set forth in Section 3.2(f)(i).

 

Company Fundamental Representations” has the meaning set forth in Section 3.4(b).

 

Company Group” means the Company and its Subsidiaries.

 

Company Material Adverse Effect” means a change, event, circumstance, development, state of facts, or condition that, individually or in the aggregate with any other event or events, (a) materially impairs, prevents or delays Sellers’ timely consummation of the Transactions or would reasonably be expected to do so or (b) has or would reasonably be expected to have a material adverse effect on the Properties or the ownership, use, operation or value thereof, taken as a whole, or the business, condition (financial or otherwise), stockholders’ equity or results of operations of the Company Group, taken as a whole; provided, however, that, for purposes of clause (b), Company Material Adverse Effect shall not include changes, events, circumstances, developments, states of fact or conditions resulting from:  (i) general changes in the prices of Hydrocarbons; (ii) any declines in Well performance due to natural causes; (iii) general changes in the industry in which any member of the Company Group participates or is engaged; (iv) general changes in economic or political conditions, or financial markets; (v) changes in conditions or developments generally applicable to the oil and gas industry in Texas; (vi) failure alone to meet internal or analyst projections or forecasts or estimates of revenues, earnings or other financial metrics for any period (provided, that the underlying reasons for such failure shall be taken into account in determining whether there has been a Company Material Adverse Effect); (vii) acts of God, including hurricanes and storms, acts or failures to act of Governmental Bodies (where not caused by the willful or negligent acts of the Company Group or any of its Affiliates); (viii) civil unrest or similar disorder or terrorist acts; (ix) changes in applicable Laws or interpretations thereof by any Governmental Body, including any changes in the deductibility of drilling, completion or operating costs or other taxes; or (x) performance of this Agreement and the Transactions in compliance with the express terms hereof, including compliance with express covenants set forth herein; provided, further, that in the case of sub-clauses (i), (ii), (iii), (iv), (v), (vii), (viii) and (ix) of clause (b), any such changes, events, circumstances, developments, states of fact or conditions may be taken into account in determining whether a Company Material Adverse Effect has occurred if such change, event, circumstance, development, state of facts or condition has (A) affected the Company Group and other similarly situated companies that participate or engage in the same industry and in the same locations as the Properties are situated and (B) had a disproportionately adverse effect on the

 



 

Company Group, as compared to other similarly situated companies participating or engaged in the same industry and in the same locations as the Properties are situated.

 

Company Plans” has the meaning set forth in the definition of “Employee Plan”.

 

Company Preferred Stock” has the meaning set forth in Section 3.2(d).

 

Company Released Parties” has the meaning set forth in Section 13.15(a).

 

Company Releasing Parties” has the meaning set forth in Section 13.15(b).

 

Company Reserve Reports” has the meaning set forth in Section 3.2(l).

 

Company Senior Preferred Stock” has the meaning set forth in Section 3.2(d).

 

Confidentiality Agreements” has the meaning set forth in Section 12.4.

 

Consent” means any consents to assignment or other similar restrictions on assignment or change of control, in each case, that would be applicable in connection with the consummation of the Transaction by Sellers.

 

Customary Post-Closing Consent” has the meaning set forth in Section 3.2(s)(ii).

 

D&O Indemnified Party” has the meaning set forth in Section 4.7.

 

Defect Deadline” has the meaning set forth in Section 5.1(a).

 

Defect Response Date” has the meaning set forth in Section 5.4(b).

 

Defensible Title” means such record title of the Company Group in the Properties that, as of the Effective Time, Execution Date, Defect Deadline, and Closing Date:

 

(a)                                 entitles the Company Group to a Net Revenue Interest with respect to a Well or Lease not less than the Net Revenue Interest set forth on Exhibit C for such Well or Lease, throughout the productive life of (i)  such Well with respect to any of the Target Depth for such Well or (ii) such Lease with respect to any of the Target Depths for such Lease, as applicable, except, in each case, for changes or adjustments that result from (A) the establishment of units or changes in existing units (or the participating areas therein) after the Execution Date, (B) operations conducted as permitted or required by Section 4.1 after the Execution Date, (C) any Imbalances or (D) operations for which the Company Group from and after the Execution Date became a non-consenting owner as permitted or required by Section 4.1;

 

(b)                                 obligates the Company Group to bear a Working Interest with respect to a Well or Lease not more than the Working Interest set forth on Exhibit C for such Well or Lease (unless such increase in the Working Interest is accompanied by a proportionate increase in the Net Revenue Interest for such Well or Lease set forth on Exhibit C), throughout the productive life of (i) such Well with respect to any of the Target Depths for such Well or (ii) such Lease

 



 

with respect to any of the Target Depths for such Lease, as applicable, in each case except for changes or adjustments that result from (A) the establishment of units or changes in existing units (or the participating areas therein) after the Execution Date, (B) operations conducted as permitted or required by Section 4.1 after the Execution Date, (C) any Imbalances or (D) contribution requirements with respect to co-owners under applicable operating agreements who are in default or elect, after the Execution Date, not to participate in a proposed operation;

 

(c)                                  with respect to a Lease identified on Exhibit C, with respect to any Target Depth for such Lease, throughout the productive life of such Lease (subject to compliance with terms and conditions of such Lease), entitles the Company Group to at least the Net Mineral Acres described on Exhibit C for such Lease for such Target Depth;

 

(d)                                 with respect to all Leases identified on Exhibit C, with respect to any Target Depth, throughout the productive life of such Lease (subject to compliance with terms and conditions of such Lease), entitles the Company Group to at least 56,800 Net Mineral Acres when taken together with Leases (as defined in the 299 APSA) acquired pursuant to the 299 APSA;

 

(e)                                  with respect to a Lease identified on Exhibit C, the primary term of such Lease does not expire prior to the date set forth on Exhibit C for such Lease, unless the term of such Lease is being perpetuated by the production of Hydrocarbons in paying quantities or other operations or other terms of the such Lease; or

 

(f)                                   in the case of all Properties, is free and clear of any outstanding and enforceable Encumbrance (except for and subject to the Permitted Encumbrances).

 

Deposit” has the meaning set forth in Section 2.1(d).

 

Disputed Environmental Matter” has the meaning set forth in Section 5.7.

 

Disputed Matter” has the meaning set forth in Section 5.7.

 

Disputed Title Matter” has the meaning set forth in Section 5.7.

 

DOJ” has the meaning set forth in Section 4.9.

 

ED Purchase Price Adjustment Amount” has the meaning set forth in Section 5.6(b)(i).

 

Effective Time” means July 1, 2016, at 7:00 a.m. Central Time.

 

EKS&H” has the meaning set forth in Section 3.2(f)(i)(A).

 

Employee Plan” means each “employee benefit plan” (as defined in Section 3(3) of ERISA), each severance, incentive or bonus, deferred compensation, profit sharing, retirement, welfare, stock purchase, stock option or equity incentive plan, employment, change in control, retention or fringe benefit contract, program or arrangement and each other employee benefit plan, program or arrangement, in any case, that is (a) sponsored, maintained or contributed to by any member of the Company Group or to which any member of the Company Group is required

 



 

to make payments or has any obligation or liability (direct, indirect, contingent or otherwise and including any such plan or other arrangement previously maintained by the Company Group) other than any Insperity Plan (as defined below) (collectively, the “Company Plans”), or (b) maintained or sponsored by Insperity, Inc. or an Affiliate of Insperity, Inc. (“Insperity”) pursuant to that certain Client Service Agreement, dated as of October 22, 2013, between Insperity PEO Services, L.P. and the Company (the “Insperity Agreement”), but excluding any plans sponsored by the Company and maintained by Insperity (such Company sponsored employer plans shall be Company Plans) (collectively, the “Insperity Plans”).

 

Encumbrance” means any lien, mortgage, security interest, pledge, charge, obligation, encumbrance or defect.

 

Environmental Deductible” has the meaning set forth in Section 5.6(c).

 

Environmental Defect” means any event, condition, or circumstance relating to any of the Properties that (a) constitutes a violation of any Environmental Law, (b) requires remediation, reporting, corrections, or responses under Environmental Laws, (c) constitutes a Release into the environment of Hazardous Substances in violation of Environmental Law, or (d) is otherwise an Environmental Liability.

 

Environmental Defect Amount” means, with respect to each Environmental Defect, the estimated Median Cost Response, net to the Company Group’s interest, of remediation for such Environmental Defect.

 

Environmental Defect Property” has the meaning set forth in Section 5.6(b).

 

Environmental Indemnity Agreement” has the meaning set forth in Section 5.6(b)(ii).

 

Environmental Laws” means all national, state, tribal, municipal and local laws, statutes, ordinances, permits, orders, court decisions, directives, rules and regulations issued or enacted by any Governmental Body having jurisdiction pertaining to (a) the prevention of pollution, (b) protection of the environment, or (c) health and safety as affected by Hazardous Substances, including the federal Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act, as amended, the Resources Conservation and Recovery Act, as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the federal Oil Pollution Act, as amended, the Emergency Planning and Community Right-to-Know Act, as amended, the Hazardous Materials Transportation Act, as amended, and comparable state and local Laws.

 

Environmental Liabilities” means any Liabilities incurred or imposed pursuant to any (a) claim, suit, order, notice of violation or responsibility, directive (including requirements embodied in Environmental Laws), injunction, judgment or similar ruling or act (including settlements) by any Governmental Body to the extent arising out of any alleged violation of, or remedial obligation under, any Environmental Law or (b) claim or cause of action by a Governmental Body or other Person for personal injury, death, property damage, damage to natural resources, remediation or payment or reimbursement of response costs, or similar costs or

 



 

expenses to the extent arising out of a Release of any Hazardous Substances, or any violation of, or any remediation obligation under, any Environmental Laws.

 

Environmental Notice” means a written notice with respect to any Environmental Defect that includes (a) a description and explanation of the matter constituting the alleged Environmental Defect and the Properties affected thereby, (b) the Allocated Value of each Property (if applicable) affected thereby, and Buyer’s estimate of the Environmental Defect Amount with respect to such Environmental Defect (and the computations upon which Buyer’s belief is based) and (c) supporting documents (which shall be governed by the terms of the Seller Confidentiality Agreement) that may be reasonably necessary for Sellers’ Representative to verify the existence of the Environmental Defect or Buyer’s quantification of an alleged Environmental Defect Amount.

 

Environmental Review Defect Properties” has the meaning set forth in Section 5.2(a).

 

Environmental Threshold” has the meaning set forth in Section 5.6(c).

 

ERISA” means the Employee Retirement Income Security Act of 1974.

 

ERISA Affiliates” means any corporation or trade or business (regardless of whether incorporated) that is or in the past six years has been treated with the Company as a single employer or under common control within the meaning of Section 414 of the Code.

 

Escrow Account” means the escrow account established by the Escrow Agreement.

 

Escrow Agent” means JPMorgan Chase Bank, N.A.

 

Escrow Agreement” means the escrow agreement to be entered into by Escrow Agent, Buyer and Sellers’ Representative in substantially the form of the Escrow Agreement dated July 26, 2016 between the Escrow Agent, Buyer, and Kimmeridge Energy Management Company, LLC and containing such terms regarding the escrow of Holdback Shares as mutually agreed by Escrow Agent, Buyer and Sellers’ Representative.

 

Escrowed Funds” has the meaning set forth in Section 2.1(c).

 

Exchange Act” means the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder.

 

Excluded Taxes” means (a) any Taxes to the extent of the amount taken into account as a liability or reserve for Taxes in the determination of the adjustment to the Cash Consideration under ARTICLE II or any other adjustment to the Purchase Price under this Agreement, (b) any Taxes that result from any actual or deemed election under Section 338 or 336 of the Code or any similar provisions of state, local or foreign law on the purchase of the Shares or the deemed purchase of shares of any Subsidiary or that result from Buyer, any Affiliate of Buyer, the Company or any Subsidiary engaging in any activity or transaction that would cause the transactions contemplated by this Agreement to be treated as a purchase or sale of assets of the Company or any Subsidiary for Tax purposes, (c) any Taxes imposed on the Company or any Subsidiary as a result of transactions occurring on the Closing Date that are properly allocable

 



 

(based on, among other relevant factors, factors set forth in Treas. Reg. § 1.1502-76(b)(1)(ii)(B)) to the portion of the Closing Date after the Closing, (d) any Taxes imposed on the Company or any of its Subsidiaries with respect to any period on or after the Effective Time, (e) any Tax payable to Buyer under Article VI, that together with any indemnity payment under Article X, exceeds the Indemnity Cap, and (f) any reduction of any Tax Attribute.

 

Execution Date” has the meaning set forth in the introductory paragraph hereto.

 

Fair Market Value” means an amount equal to $62.84.

 

FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

Final Settlement Date” has the meaning set forth in Section 9.1.

 

Final Settlement Statement” has the meaning set forth in Section 9.1.

 

Financing” means any debt or equity financing under which Buyer (either directly or through any of its Subsidiaries) receives proceeds that are sufficient to enable Buyer to consummate the Transactions in accordance with the terms of this Agreement.

 

Financing Sources” means the entities that have committed to provide or may commit to provide, or otherwise entered into agreements with any of Buyer or any of its Affiliates in connection with, the Financing, including any parties (other than Buyer or any of its Affiliates) to the agreements executed in connection with the Financing, any joinder agreements and fee letters (including the definitive agreements executed in connection with the Financing) and their respective successors and assigns.

 

FTC” has the meaning set forth in Section 4.9.

 

Governmental Body” means any instrumentality, subdivision, court, administrative agency, commission, official or other governmental body of the United States or any other country or any state, municipality, locality or other government or political subdivision thereof, or any quasi-governmental or private body exercising any administrative, executive, judicial, legislative, police, regulatory, taxing, importing or other governmental or quasi-governmental body.

 

Governmental Consent” means any consent, approval, Order or authorization of, or registration, declaration or filing with, notice to or license or permit from, any Governmental Body.

 

Hazardous Substance” means (a) any petrochemical or petroleum products, oil, radioactive materials, radon gas, asbestos in any form that is or could become friable, and dielectric fluid which may contain levels of polychlorinated biphenyls, (b) any chemicals, materials or substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “hazardous constituents,” “restricted hazardous materials,” “extremely hazardous substances,” “toxic substances,” “contaminants,” “pollutants,” “toxic pollutants” or words of similar meaning and regulatory effect under any applicable

 



 

Environmental Law and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law.

 

Hedge Contract” means any contract with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

 

Holdback Amount” means an amount equal to (a) $57,426,348.73 in cash plus (b) the Holdback Shares.

 

Holdback Shares” means 456,925 fully paid and nonassessable shares of Buyer Common Stock.

 

HSR Act” has the meaning set forth in Section 3.3(b)(ii).

 

Hydrocarbons” means oil, gas, well gas, casinghead gas, condensate, or other liquid or gaseous hydrocarbons and all components of any of them (including liquids and products produced from any of them).

 

Imbalance” means over-production or under-production or over-deliveries or under-deliveries, as applicable, on account of (a) any imbalance at the wellhead between the amount of Hydrocarbons produced from a Well and allocable to the interests of the Company Group therein and the shares of production from the relevant Well that are actually taken by or delivered to or for the account of the Company Group and (b) any marketing imbalance between the amount of Hydrocarbons required to be delivered by or to the Company Group under any Applicable Contracts relating to the purchase and sale, gathering, transportation, storage, treating, processing, or marketing of Hydrocarbons and the Hydrocarbons actually delivered by or to the Company pursuant to any such Applicable Contracts.

 

Income Taxes” means any Tax based upon or measured by gross or net income, and franchise taxes based upon income, capital, Properties or operations.

 

Indebtedness” means, without duplication: (a) all obligations (including the principal amount thereof and, if applicable, the accreted amount thereof and the amount of accrued and unpaid interest thereon) of a Person, whether or not represented by bonds, debentures, notes or other securities (and whether or not convertible into any other security), for the repayment of money borrowed, whether owing to banks, to financial institutions, on equipment capital leases or otherwise; (b) all deferred liabilities of such Person for the payment of the purchase price of property or assets purchased (other than current accounts payable that were incurred in the ordinary course of business); (c) all obligations of such Person to pay rent or other amounts under a lease which is required to be classified as a capital lease or a liability on a balance sheet prepared in accordance with GAAP, consistently applied; and (d) all outstanding reimbursement obligations of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person.

 



 

Indemnity Cap” has the meaning set forth in Section 10.3.

 

Indemnity Deductible” has the meaning set forth in Section 10.3.

 

Information Technology” means each of the tangible or digital databases, computer software programs, computer hardware, and telecommunications systems owned, licensed or leased by the Company or any of its Subsidiaries, that is, whether individually or in operation together with others, material to the business of the Company or any of its Subsidiaries, including any such databases, computer software programs, computer hardware or telecommunications systems, the absence of which would be reasonably likely to cause a disruption (other than a de minimis disruption) to the operations of the Company or any of its Subsidiaries as presently conducted and a replacement or substantially functionally equivalent database or computer software program is not immediately available pursuant to a shrink-wrap or click-wrap license, or, in the instance of computer hardware or telecommunications systems, through purchase, license, or lease.  “Intellectual Property” is expressly excluded from “Information Technology.”

 

Insperity” has the meaning set forth in the definition of “Employee Plan”.

 

Insperity Agreement” has the meaning set forth in the definition of “Employee Plan”.

 

Insperity Plans” has the meaning set forth in the definition of “Employee Plan”.

 

Intellectual Property” means the following, and all rights arising out of or associated therewith, throughout the world: (a) all inventions and discoveries, invention disclosures, patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, non-provisionals, continuations and continuations-in-part thereof, including any utility and design patents, industrial designs, and equivalent or similar statutory rights in inventions; (b) all copyrights, copyright registrations and applications therefor, and all other rights corresponding thereto, including moral rights; (c) trademarks, service marks, logos, slogans, designs, product configurations, trade dress, trade names, domain names and registrations thereof, corporate names, assumed names, and all registrations and applications for registration thereof, and the goodwill associated therewith; and (d) all trade secrets and confidential information regarding confidential information, know-how, software (other than software that is available pursuant to a shrink-wrap or click-wrap license), improvements, trade secrets, technology, technical data, customer information, supplier information, manufacturer information, blueprints, drawings, manuals, rights in databases, and all documentation relating to the foregoing.

 

Interim Period” has the meaning set forth in Section 4.1(a).

 

Investment Agreement” means the Investment Agreement substantially in the form attached hereto as Exhibit D, by and among Buyer, Sellers and each of the other Investors (as defined therein).

 

Knowledge” of a particular fact or matter by a Person means such Person is actually aware of that fact or matter or would have become actually aware of such fact or matter had such Person conducted reasonable due inquiry of Persons with direct supervisory responsibility for the fact or matter.  When used in Section 3.1, the phrase “to the knowledge of Sellers” or any similar

 



 

phrase means the Knowledge of the specific Seller making such representation, and when used in Section 3.2, the phrase “to the knowledge of Sellers,” the phrase “to the knowledge of the Company” or any similar phrase means the Knowledge of the individuals set forth on Schedule 1.1(a).

 

Lands” has the meaning set forth in the definition of “Properties”.

 

Law” means any statute, law, ordinance, regulation, rule or Order of any Governmental Body, including any Environmental Law.

 

Lease Burdens” means the royalties, non-participating royalties, overriding royalties, production payments, reversionary interests, convertible interests, net profits interests and all other similar interests and burdens upon, measured by, or payable out of production burdening a Lease.

 

Leases” has the meaning set forth in the definition of “Properties”.

 

Liabilities” has the meaning set forth in Section 10.1.

 

Limited Representations” has the meaning set forth in Section 5.3.

 

Liquidation Preference” has the meaning set forth in the Company Charter.

 

Listed Interests” means each Well and/or Lease set forth on Exhibit C.

 

Material Company Insurance Policies” has the meaning set forth in Section 3.2(r).

 

Material Contracts” has the meaning set forth in Section 3.2(w)(ii).

 

Median Cost Response” means the response required or allowed under Environmental Laws that addresses the identified condition in the manner commensurate with the median cost (considered as a whole, taking into consideration any material negative impact such response may have on the operations of the relevant Properties and any potential material additional costs or liabilities that may likely arise as a result of such response) that is consistent with applicable cleanup objectives under relevant Environmental Laws as compared to any other response that is required or allowed under Environmental Laws.  The Median Cost Response shall not include (a) the costs of Buyer’s and/or its Affiliates’ employees, project manager(s) or attorneys, (b) expenses for matters that are costs of doing business, e.g., those costs that would ordinarily be incurred in the day-to-day operations of the Properties, or in connection with permit renewal/amendment activities, maintenance on active RCRA waste management units, and operation and oversight of active RCRA waste management units, (c) overhead costs of Buyer and/or its Affiliates, and/or (d)  costs or expenses incurred in connection with remedial or corrective action that is designed to achieve standards that are more stringent than those required for similar facilities or that fail to reasonably take advantage of applicable risk reduction or risk assessment principles allowed under applicable Environmental Laws.

 

NASDAQ” means the NASDAQ Global Select Market.

 



 

Net Mineral Acres” means, as computed separately with respect to each Lease, (a) the number of gross acres in the Lands covered by such Lease, multiplied by (b) the undivided percentage interest in the Hydrocarbons produced from the Target Depth for such Lease under the Lands covered by such Lease, multiplied by (c) the Company Group’s undivided Working Interest in such Lease with respect to the Target Depth for such Lease; provided, however, that, if items (b) and/or (c) vary as to different areas (including depths) of such Lands covered by such Lease, a separate calculation shall be done for each such area.

 

Net Revenue Interest” means the interest (expressed as a percentage or decimal fraction), in and to all the Hydrocarbons produced and saved or sold from or allocated to the relevant Well or Lease after giving effect to all Lease Burdens.

 

Offering Documents” has the meaning set forth in Section 4.10(a).

 

Order” means any judgment, order, consent order, injunction, decree or writ of or with any Governmental Body.

 

Ordinary Course” means the ownership or operation of the Properties as a reasonably prudent person, in a good and workmanlike manner, with all due diligence and dispatch, and in accordance with good oilfield practice.

 

Outside Date” has the meaning set forth in Section 12.1(a).

 

Party” and “Parties” have the meanings set forth in the introductory paragraph hereto.

 

Pay Off Letter” has the meaning set forth in Section 8.2(b)(vi).

 

Permits” has the meaning set forth in the definition of “Properties”.

 

Permitted Encumbrance” means:

 

(a)                                 all Lease Burdens affecting the Company Group’s Net Revenue Interest in any Listed Interest, if the net cumulative effect of such burdens does not operate to (i) reduce the Net Revenue Interest of the Company Group in any Well or Lease, with respect to the Target Depth for such Well or Lease, to less than the Net Revenue Interest for such Well or Lease as set forth in Exhibit C, (ii) increase the Working Interest of the Company Group in any Well or Lease, with respect to the Target Depth for such Well or Lease, to greater than the Working Interest for such Well or Lease as set forth in Exhibit C (unless the Company Group’s Net Revenue Interest with respect to such Well or Lease, with respect to the Target Depth for such Well or Lease, is greater than the Net Revenue Interest for such Well or Lease as set forth in Exhibit C, in the same or greater proportion as such increase in such Working Interest) or (iii) reduce the Net Mineral Acres in any Lease, with respect to the Target Depth for such Lease, to less than the Net Mineral Acres for such Lease as set forth on Exhibit C;

 

(b)                                 all rights to consent by, required notices to, approvals of, filings with, or other actions by Governmental Bodies in connection with the assignment of the Properties to Buyer that are customarily obtained subsequent to the assignment of properties similar to the Properties, including Customary Post-Closing Consents;

 



 

(c)                                  all non-consent penalties applied against the interest of the Company Group in any Listed Interest arising prior to the Effective Time, which are identified and taken into account in the calculation of the Working Interest and Net Revenue Interest shown on Exhibit C with respect to such Listed Interest;

 

(d)                                 all easements, rights-of-way, covenants, restrictions, servitudes, permits, surface leases, sub-surface leases, grazing rights, logging rights, mining rights and other similar rights (including rights in respect of surface operations) in the Leases, and canals, ditches, reservoirs, pipelines, utility lines, power lines, railways, streets, roads, alleys, highways, and other structures on, over, through or under the Leases, that do not (i) materially detract from the value of or materially interfere with the uses or ownership of the Properties subject thereto or affected thereby (as currently used or owned) or (ii) operate to (A) reduce the Net Revenue Interest of the Company Group in any Well or Lease, throughout the productive life of such Well or Lease, with respect to the Target Depth for such Well or Lease, to less than the Net Revenue Interest for such Well or Lease as set forth in Exhibit C, (B) increase the Working Interest of the Company Group in any Well or Lease, throughout the productive life of such Well or Lease, with respect to the Target Depth for such Well or Lease, to greater than the Working Interest for such Well or Lease as set forth in Exhibit C (unless the Company Group’s Net Revenue Interest with respect to such Well or Lease, with respect to the Target Depth for such Well or Lease, is greater than the Net Revenue Interest for such Well or Lease as set forth in Exhibit C, in the same or greater proportion as such increase in such Working Interest) or (C) reduce the Net Mineral Acres in any Lease, throughout the productive life of such Lease, with respect to the Target Depth for such Lease, to less than the Net Mineral Acres for such Lease as set forth on Exhibit C;

 

(e)                                  all terms and conditions of the Material Contracts, all Leases, and all Unit Interests, that, in each case, do not operate to (i) reduce the Net Revenue Interest of the Company Group in any Well or Lease, with respect to the Target Depth for such Well or Lease, throughout the productive life of such Well or Lease, to less than the Net Revenue Interest for such Well or Lease as set forth in Exhibit C, (ii) increase the Working Interest of the Company Group in any Well or Lease, throughout the productive life of such Well or Lease, with respect to the Target Depth for such Well or Lease, to greater than the Working Interest for such Well or Lease as set forth in Exhibit C (unless the Company Group’s Net Revenue Interest with respect to such Well or Lease, with respect to the Target Depth for such Well or Lease, is greater than the Net Revenue Interest for such Well or Lease as set forth in Exhibit C, in the same or greater proportion as such increase in such Working Interest) or (iii) reduce the Net Mineral Acres in any Lease, with respect to the Target Depth for such Lease, throughout the productive life of such Lease, to less than the Net Mineral Acres for such Lease as set forth on Exhibit C;

 

(f)                                   all rights of reassignment upon the surrender, expiration or abandonment of any Lease, excepting circumstances where such rights have already been triggered as of the Execution Date;

 

(g)                                  all liens for Taxes or assessments not yet due or not yet delinquent or, if delinquent, that are being contested in good faith;

 

(h)                                 all applicable Laws and rights reserved to or vested in any Governmental Body (i) to control or regulate any Property in any manner, (ii) by the terms of any right, power, grant

 



 

or Permit, or by provision of Law, to terminate such right, power, grant or Permit or to purchase, condemn, expropriate or recapture or to designate a buyer of any of the Properties, (iii) to use the Properties in any manner or (iv) to enforce any obligations or duties owed to any Governmental Body with respect to any Permit;

 

(i)                                     liens, mortgages and other encumbrances, if any, to be released prior to or at the Closing;

 

(j)                                    any encumbrance or loss of title resulting from the Company Group’s or Sellers’ conduct of business after the Execution Date as specifically required by or otherwise in compliance with this Agreement;

 

(k)                                 zoning and planning ordinances and municipal regulations;

 

(l)                                     vendors, carriers, warehousemen’s, repairmen’s, mechanic’s, workmen’s, materialmen’s, construction or other like liens arising by operation of Law in the Ordinary Course or incident to the construction or improvement of any Property, in each case, in respect of obligations that are not yet due in the Ordinary Course or, if due, that are (i) being contested in good faith by appropriate proceedings by or on behalf of the Company Group, and (ii) identified on Schedule 1.1(l);

 

(m)                             all liens created under any Leases or Material Contracts or by operation of Law not yet due or not yet delinquent or, if delinquent, that are being contested in good faith in the normal course of business;

 

(n)                                 all liens, mortgages and other encumbrances under the Company Credit Facility to be released prior to or at Closing;

 

(o)                                 all preferential purchase rights with respect to which notice has been properly served in accordance with the terms of the preferential right instrument and the time period for asserting such rights have expired without an exercise of such rights; and

 

(p)                                 liens and encumbrances created under deeds of trust, mortgages, and similar instruments by the lessor under a Lease covering the lessor’s surface and mineral interests in the land covered thereby provided that this clause shall not apply to any (i) (A) Well, (B) a Lease that covers more than five Net Mineral Acres, or (C) any Lease that covers lands which as of the Execution Date are being used by the Company Group for surface operations or (ii) such lien or encumbrance perfected after the recordation of the affected Lease or otherwise contractually subordinated thereto.

 

Person” means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Body or any other entity.

 

Phase I Activities” means a Phase I Environmental Site Assessment pursuant to ASTM Standard Practice E1527-13 for Environmental Site Assessments: Phase I Environmental Site Assessment Process, with modifications to expand the scope as agreed to by Sellers’ Representative, such consent not to be unreasonably withheld, conditioned, or delayed.

 



 

Phase II Environmental Assessment” means an intrusive investigation which collects original samples of soil, groundwater, other environmental media, indoor air or building materials to analyze for quantitative values of contaminants of concern for purposes of identifying any Recognized Environmental Condition or any Historical Recognized Environmental Condition (as such terms are defined in ASTM Standard Practice E1527-13 for Environmental Site Assessments: Phase I Environmental Site Assessment Process).

 

Pipeline Facilities” means all equipment, machinery, fixtures, and other tangible personal property and improvements located on or used or held for use in connection with any gathering, transportation, flow, disposal, production, or other type of pipeline located in, on, or under the Subject Oil and Gas Interests, together with all surface leases, permits, rights-of-way, licenses, easements, rights to any interstate gas taps, and other surface rights agreements that are primarily related to the use, ownership, or operation of such pipelines.

 

Post-Effective Time Tax Period” means any Tax Period beginning at or after the Effective Time and the portion of any Straddle Period beginning at the Effective Time.

 

Pre-Effective Time Tax Period” means any Tax Period ending before the Effective Time and the portion of any Straddle Period ending immediately prior to the Effective Time.

 

Preliminary Settlement Statement” has the meaning set forth in Section 8.1(a).

 

Pro Rata Portion” means (a) with respect to a Seller’s allocable share of any indemnification obligation, Seller Tax, Purchase Price adjustment or other payment obligation of Sellers under this Agreement, the amount by which such Seller’s portion of the Base Purchase Price would have been reduced under Section 2.3 if the Base Purchase Price had been reduced by the total amount of such indemnification obligation, Seller Tax, Purchase Price adjustment or other payment obligation of Sellers and (b) with respect to a Seller’s allocable share of any consideration or other payment to be made to Sellers under this Agreement, the amount to which such Seller would have been entitled with respect to such consideration or other payment under Section 2.3 if the Base Purchase Price had been increased by the amount of such consideration or other payment.

 

Production Taxes” means Severance Taxes and Property Taxes.

 

Properties” means all of the assets of the Company Group, including, without limitation, all of the Company Group’s right and title to, and interest in the following assets and properties:

 

(a)                                 (i) the oil, gas and/or mineral leases and fee interests described on Exhibit B-1, including any ratifications, extensions and amendments thereof (as so limited, the “Leases”) and (ii) the lands covered by the Leases (the “Lands”), including (A) all properties and rights incident to the Leases and Lands and (B) any fee mineral interest, fee royalty interests, oil, gas and/or mineral leases, royalties, overriding royalties, production payments and net profits interests covering or arising out of the Lands, in each case, together with any and all leasehold interests and other rights, titles and interests of the Company Group in and to any pooled acreage, communitized acreage or units arising on account of the Leases or the Lands having been pooled, communitized or unitized into such units (the “Unit Interests”);

 



 

(b)                                 all oil wells and gas wells, water injection wells and other injection or disposal wells, temporarily abandoned and permanently plugged and abandoned wells, and all other wells of every nature and kind located on or attributable to the Leases, the Lands or the Unit Interests, including all of the wells described on Exhibit B-2 (the “Wells”, and, together with the Lands, the Leases, and the Unit Interests, the “Subject Oil and Gas Interests”);

 

(c)                                  without limitation of the foregoing, any of the Company Group’s interest in oil and gas leases covering lands in the area shown on Exhibit B-3;

 

(d)                                 all agreements and contracts described on Exhibit B-4 (all such contracts and agreements, the “Applicable Contracts”);

 

(e)                                  all easements, rights-of-way, servitudes, surface use agreements, surface leases and similar rights, obligations and interests that are primarily related to the use, ownership or operation of any of the Subject Oil and Gas Interests or any of the Tangible Property (the “Rights of Way”), including those described on Exhibit B-5;

 

(f)                                   all permits, water rights (including water withdrawal, storage, discharge, treatment, injection and disposal rights), licenses, registrations, consents, Orders, approvals, variances, exemptions, waivers, franchises, rights and other authorizations issued by any Governmental Body that are primarily related to the use, ownership or operation of any of the Subject Oil and Gas Interests or any of the Tangible Property that may be transferred under applicable Law (the “Permits”);

 

(g)                                  all rolling stock, equipment, machinery, fixtures, and other real, immovable, personal, movable and mixed property that is located on the Leases or the Lands and primarily used (or held for use) in connection with the use, ownership or operation of the Subject Oil and Gas Interests, including flow lines, pipelines, gathering, treatment, processing and storage systems, produced and fresh water pipelines, salt water disposal wells, gas lift systems, well pads, caissons, tank batteries, compressors, equipment inventory (other than any equipment inventory consumed in the Ordinary Course prior to the Closing) (collectively, the “Tangible Property”);

 

(h)                                 all of the data, including any geophysical or other seismic or related technical data, files, records, maps and information, whether held in hard copy or electronic format, in the Company Group’s possession or control that are primarily related to any of the assets and properties described in this definition, including all land, title and contract files and operations, accounting, environmental, production and Tax records with respect to such properties and assets but only to the extent not subject to legal privilege of an un-affiliated third-Person or contractual restrictions on disclosure or transfer (provided, however, that Sellers shall, and shall cause the Company Group to, use commercially reasonable efforts to (i) provide such files, records and data to Buyer in a manner that preserves such legal privilege or (ii) obtain a waiver of such contractual restriction) and only to the extent related to the Properties (the “Records”);

 

(i)                                     [Intentionally omitted.]

 

(j)                                    the fee surface rights in the lands described in Exhibit B-6;

 



 

(k)                                 the emission reduction credits, emission offsets or similar credits (whether under voluntary or mandatory programs) held by the Company Group that are related to local, state or federal air quality Laws, regulations or plans, as described in Exhibit B-7;

 

(l)                                     all rights, claims, and causes of action (including warranty and similar claims, indemnity claims, and defenses) whether arising before, on, or after the Effective Time to the extent such rights, claims, and causes of action relate to any of the Properties.

 

(m)                             all claims for refunds of, and any loss or credit carryovers or similar items with respect to, any Production Taxes that are for the benefit of Buyer under Section 6.1; and

 

(n)                                 all trade credits, accounts, receivables, instruments, general intangibles and other proceeds, benefits, income or revenues attributable to any of the Properties and properties described in this definition.

 

Property Taxes” means all ad valorem, real property, personal property, and all other Taxes and similar obligations, and any penalties, additions to Tax, and interest levied or assessed thereon, assessed against the Properties or based upon or measured by the ownership of the Properties, but not including Income Taxes, Severance Taxes, or Transfer Taxes.

 

Purchase Price” has the meaning set forth in Section 2.1(a).

 

Purchased Company Group” has the meaning set forth in Section 13.15(a).

 

RCRA” means the Resource Conservation and Recovery Act of 1976, as amended.

 

Records” has the meaning set forth in the definition of “Properties”.

 

Related Entities” has the meaning set forth in Section 13.15(a).

 

Release” means to release, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or through the environment.

 

Releasor” has the meaning set forth in Section 13.15(f).

 

Report Preparers” has the meaning set forth in Section 3.2(l).

 

Representatives” means, with respect to any Person, such Person’s managers, directors, officers, employees, agents, accountants, landmen, engineers, legal or financial advisors, or any representatives of such accountants, legal, or financial advisors.

 

Required Information” means all customary financial and other pertinent information regarding the Company Group and its Properties as Buyer determines is reasonably necessary in order to consummate the Financing (provided, however, that Buyer shall use its commercially reasonably efforts to limit the need for, and/or scope of, historical financial statements that the Company Group has not previously created), which information may include: (a)  any information reasonably necessary for the preparation of the Offering Documents being used for the Financing; (b) any information reasonably necessary for a shelf takedown from Buyer’s

 



 

existing registration statement on Form S-3 under the Securities Act; and (c) to the extent the Company Group retains or has retained auditors or independent reservoir engineers, drafts of customary comfort letters (including customary “negative assurances”) by such auditors and independent reservoir engineers that such auditors and independent reservoir engineers are prepared to issue upon completion of customary procedures in connection with any such syndication or offering of securities contemplated as part of the Financing; provided, however, that in no event shall the Company Group be required to provide any pro forma adjustments or other information regarding Buyer’s capital structure or intended use of the Properties.

 

Required Investor Return” has the meaning set forth in the Company Charter.

 

Retained Employee” has the meaning set forth in Section 4.12(a).

 

Rights of Way” has the meaning set forth in the definition of “Properties”.

 

Rules” has the meaning set forth in Section 11.1(b).

 

Scheduled Closing Date” has the meaning set forth in Section 8.1(b).

 

SEC” means the United States Securities and Exchange Commission.

 

Securities Act” means the Securities Act of 1933 and the rules and regulations promulgated thereunder.

 

Security Arrangements” has the meaning set forth in Section 3.2(gg).

 

Seller” and “Sellers” have the meanings set forth in the introductory paragraph hereto.

 

Seller Allocation Schedule” has the meaning set forth in Section 2.1(a).

 

Seller Claims” has the meaning set forth in Section 3.15(b).

 

Seller Confidentiality Agreement” has the meaning set forth in Section 12.4.

 

Seller Deliverables” means all documents, certificates and other items required to be delivered by Sellers and Sellers’ Representative pursuant to Section 8.2(b), Section 8.2(c) and Section 8.2(d).

 

Seller Disclosure Schedule” has the meaning set forth in Section 3.1.

 

Seller Fundamental Representations” has the meaning set forth in Section 3.4(a).

 

Seller Indemnified Parties” has the meaning set forth in Section 10.1.

 

Seller Material Adverse Effect” means a change, event, circumstance, development, state of facts, or condition that, individually or in the aggregate with any other event or events, materially impairs, prevents or delays Sellers’ timely consummation of the Transactions.

 

Seller Released Parties” has the meaning set forth in Section 13.15(b).

 



 

Seller Releasing Parties” has the meaning set forth in Section 13.15(a).

 

Seller Taxes” means (a) all Taxes imposed on the Company or any Subsidiary pursuant to Treas. Reg. § 1.1502-6 or similar provision of state or local law solely as a result of the Company or any Subsidiary having been a member of a consolidated, unitary or combined (or similar) tax group for any Tax Period that ends on or before the Closing Date, (b) Taxes imposed on the Company or any of its Subsidiaries for any Pre-Effective Time Tax Period, (c) any Taxes resulting from a breach of any representation or warranty set forth in Section 3.2(j) or a breach by any Seller (or the Company Group prior to Closing) of any covenant relating to Taxes set forth in this Agreement and (d) any reasonable out-of-pocket expenses incurred by Buyer in connection with the determination, settlement or litigation of any of the Taxes described in clauses (a) through (c) above; provided, however, that Seller Taxes shall not include Excluded Taxes.

 

Sellers’ Representative” has the meaning set forth in the introductory paragraph hereto.

 

Severance Taxes” means all extraction, production, excise, net proceeds, severance, windfall profit and all other Taxes and similar obligations, and any penalties, additions to Tax, and interest levied or assessed thereon, with respect to the Properties that are based upon or measured by the production of Hydrocarbons or the receipt of proceeds therefrom, but not including Property Taxes, Income Taxes, and Transfer Taxes.

 

SOL Survival Period” has the meaning set forth in Section 3.4(a).

 

Specified Liabilities” means all Liabilities resulting from, based upon, or resulting from: (a) ownership, development, exploration, operation or maintenance of the Properties prior to the Effective Time or the production, transportation, processing and marketing of Hydrocarbons from the Properties prior to the Effective Time, in each case of this clause (a) other than Environmental Liabilities; (b) the gross negligence or willful misconduct of any Seller or such Seller’s Affiliates or the Company Group or their respective Affiliates with respect to the operation of the Properties prior to Closing; (c) any personal injury or death occurring on or attributable to the Company Group’s interest in the Properties prior to Closing; (d) those actions, suits, proceedings, or litigation relating to the Properties and for which any Seller or any member of the Company Group has been served prior to the Execution Date, including any matters described on Schedule 3.2(i) of the Company Disclosure Schedule; (e) any civil fines or penalties or criminal sanctions imposed on Sellers or the Company Group as a result of any pre-Closing violation of Law in connection with the Properties; (f) any Liabilities that are the result of any off-site transport or disposal, or arrangement for transport or disposal, of any Hazardous Substances from the Company Group’s interest in the Properties prior to Closing; (g) any Company Group member’s or such Company Group member’s Affiliates’ responsibilities under ERISA applicable to employees; and (h) any Company Group member’s or such Company Group member’s Affiliates’ employment relationship with the employees of any Company Group member or its Affiliates.

 

Stock Consideration” has the meaning set forth in Section 2.1(a).

 



 

Straddle Period” means any taxable year or period beginning on or before and ending after the Effective Time.

 

Subject Oil and Gas Interests” has the meaning set forth in the definition of “Properties”.

 

Subsidiary” means, with respect to a specified entity, (a) in the case of a corporation or limited liability company, 50% or more of the capital stock or membership interests, as applicable, the holders of which are regularly entitled to vote for the election of directors or managers, is owned directly or indirectly by such entity, or (b) in the case of a trust, partnership or other entity, a trust, partnership or entity of which such specified entity owns directly or indirectly 50% or more of the beneficial interest or equity.

 

Supporting Documentation” means for a particular Title Defect, (a) if the basis is derived from any document, a copy of such document (or pertinent part thereof) or (b) if the basis is derived from any gap in the Company Group’s chain of title, the recorded documents preceding and following the gap or a run sheet or other evidence showing such gap, or (c) if the basis is not as described in clauses (a) and (b), then reasonable, written documentation.

 

Survival Period” means, with respect to any representation and warranty, the SOL Survival Period or the 12-Month Survival Period, whichever is applicable to such representation and warranty.

 

Tangible Property” has the meaning set forth in the definition of “Properties”.

 

Target Depth” (a) for each Well listed on Exhibit B-2, the depth or depths, as the case may be, from which such Well is completed as of the Execution Date, as described on Exhibit B-2 for such Well and (b) for each Lease listed on Exhibit C, the depth or depths described on Exhibit C for such Lease.

 

Tax” (and, with correlative meaning, “Taxes”) means any federal, state, local or foreign net income, gross income, gross receipts, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value-added, transfer or stamp tax, or any other similar tax, custom, duty, governmental fee or other like assessment or charge imposed by and payable to any Governmental Body, including any interest, penalty or addition thereto.

 

Tax Attributes” means, with respect to any Tax, any net operating loss carryovers, net capital loss carryovers, credits and similar Tax items of any Person, provided that “Tax Attributes” shall not include Tax basis.

 

Tax Period” means any period prescribed by any Governmental Body for which a Tax Return is required to be filed or a Tax is required to be paid.

 

Tax Proceeding” has the meaning set forth in Section 6.3.

 



 

Tax Return” means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including any information return, claim for refund, amended return or declaration of estimated Tax.

 

TD Purchase Price Adjustment Amount” has the meaning set forth in Section 5.4(b).

 

Third-Party Claim” has the meaning set forth in Section 10.4(a).

 

Title Benefit” means any right, circumstance or condition that operates to (a) increase the Net Revenue Interest of the Company Group in any Well or Lease, with respect to the Target Depth for such Well or Lease, to an amount above the Net Revenue Interest set forth on Exhibit C with respect to such Well or Lease, (b) obligate the Company Group to bear a Working Interest in any Well, with respect to the Target Depth for such Well, that is less than the Working Interest set forth on Exhibit C with respect to such Well, or (c) increase the Net Mineral Acres in any Lease, with respect to the Target Depth for such Lease, to greater than the Net Mineral Acres for such Lease as set forth on Exhibit C.

 

Title Benefit Amount” has the meaning set forth in Section 5.5(b).

 

Title Deductible” has the meaning set forth in Section 5.4(c).

 

Title Defect” means any Lease Burden or Encumbrance, other than a Permitted Encumbrance, that alone or in combination with other Lease Burdens or Encumbrances (other than Permitted Encumbrances) renders the Company Group’s title to be less than Defensible Title; provided, however, that the following shall not constitute Title Defects: (a) defects based solely on references to a recorded document(s) if such document(s) is not in the Company Group’s files if such information is otherwise of public record or in Buyer’s possession, (b) defects arising out of lack of corporate or other entity authorization or defects in the execution, delivery, acknowledgment, or approval of any instrument, unless Buyer provides affirmative evidence that the action was not authorized and results in a third Person’s actual and superior claim of title, (c) defects based on the failure to record Leases issued by any Governmental Body in the real property, conveyance or other records of the county in which such Lease is located, as long as such Leases are properly recorded with the applicable Governmental Body, (d) defects or irregularities in the chain of title consisting of the failure to recite marital status in documents, unless Buyer provides affirmative evidence that such defects or irregularities have resulted in another Person’s actual and superior claim of title to the affected Listed Interest, (e) defects arising from any change in applicable Law after the Execution Date, (f) defects that have been cured by applicable Laws of limitation or prescription, including adverse possession and the doctrine of laches, (g) defects arising from prior oil and gas leases relating to the Leases that are not surrendered of record and are more than 10 years past the end of their primary terms, unless Buyer provides affirmative evidence that any such Lease is still valid, (h) defects based on alleged gaps in production that occurred prior to January 1, 1995, (i) defects arising solely out of a lack of survey, overlapping survey, or lack of metes and bounds descriptions, unless a survey is expressly required by applicable Law, (j) defects arising out of mortgages or liens that are unenforceable under applicable statutes of limitations, and (k) defects related to lack of pooling or unitization clauses in any lease or instrument, provided that any

 



 

defect related to pooling without the requisite authority to do so shall constitute a Title Defect for all purposes hereunder.

 

Title Defect Amount” has the meaning set forth in Section 5.5(a).

 

Title Defect Property” has the meaning set forth in Section 5.4(b).

 

Title Notice” means a written notice with respect to any Title Defect or Title Benefit, as applicable, that includes (a) a description and explanation of the Title Defect or Title Benefit, as applicable, and the Listed Interest affected thereby, (b) copies of Supporting Documentation and (c) the Allocated Value of the Listed Interest affected by such Title Defect or Title Benefit, as applicable, and Buyer’s or Sellers’ Representative’s, as applicable, estimate of, with respect to any Title Defect, the Title Defect Amount, and with respect to any Title Benefit, the Title Benefit Amount, and the computations upon which Buyer’s or Sellers’ Representative’s, as applicable, belief is based.

 

Title Threshold” has the meaning set forth in Section 5.4(c).

 

Transactions” means the transactions contemplated by this Agreement and the other documents and instruments to be delivered hereunder.

 

Transaction Liabilities” means (i) all fees, costs and expenses (including all legal fees and expenses, all fees and expenses payable to any investment banking firm, broker or finder, and all fees and expenses of any audit firm or accountants) that have been incurred by the Company Group in connection with this Agreement or the Transactions, (ii) all amounts due to third parties and all other costs incurred by the Company Group, in each case in connection with the Transactions including, without limitation, any amounts owing in connection with the obtaining of any Consent (it being understood that Transaction Liabilities shall not include payments or re-licensing fees required as a result of the Transactions under seismic licenses and similar licenses of geological or geophysical assets) but excluding Transfer Taxes, (iii) any costs, expenses or other obligations owing by the Company Group under or related to the Letter Agreement dated August 5, 2016 between Arris Delaware Basin, LLC and Rosetta Resources Operating LP as a result of the completion of the Closing hereunder, (iv) any liability incurred by the Company Group by reason of Section 280G or Section 4999 of the Code as a result of the Transactions and (v) the aggregate amount of cash bonuses, severance payments or any other payments paid (or accrued for) by the Company Group to current or former Company Group employees upon and as a result of consummation of the Transactions (for clarity, such amount would not include annual cash performance bonuses authorized by the Company’s Board of Directors in the Ordinary Course), in each case except for any fees, costs, expenses or payments that Buyer has otherwise expressly agreed to pay under this Agreement.

 

Transfer Taxes” means all transfer, sales, gross receipts, use, real property transfer, documentary, stamp and other similar Taxes, and recording fees.

 

Unit Interests” has the meaning set forth in the definition of “Properties”.

 

Wells” has the meaning set forth in the definition of “Properties”.

 



 

Working Interest” means the percentage of costs and expenses associated with the exploration, drilling, development, operation and abandonment of any Well or Lease required to be borne with respect thereto.

 

ARTICLE II
PURCHASE AND SALE

 

Section 2.1                                    Agreement to Sell and Purchase.

 

(a)                                 On the terms and subject to the conditions hereof, at the Closing, Sellers shall sell, transfer and deliver to Buyer, and Buyer shall purchase from Sellers, all of the outstanding capital stock of the Company, in accordance with the allocation to be set forth on a schedule to be delivered to Buyer one day prior to Closing (the “Seller Allocation Schedule”) for (i) an aggregate cash purchase price of $525,264,742 (the “Cash Consideration”), payable as set forth in Section 8.2(a) and subject to adjustment as provided in Section 9.1, and (ii) 5,390,478 fully paid and nonassessable shares of Buyer Common Stock (subject to adjustment as provided in Section 2.1(b), the “Stock Consideration” and such Stock Consideration, together with the Cash Consideration, the “Base Purchase Price,” and, as such price may be adjusted under this Agreement, the “Purchase Price”).

 

(b)                                 If, from the Execution Date until the Closing, the outstanding shares of Buyer Common Stock shall have been changed into a different number of shares or a different class by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or a stock dividend thereon shall be declared with a record date within said period, the Stock Consideration shall be appropriately adjusted.

 

(c)                                  Upon the execution and delivery hereof, Buyer and Sellers’ Representative shall provide joint written instructions to the Escrow Agent to release the Fund (as defined in the Escrow Agreement) to Sellers’ Representative (the “Escrowed Funds”).

 

(d)                                 Upon the execution and delivery hereof, Buyer shall deliver to Sellers’ Representative, as a deposit towards the Cash Consideration, immediately available funds in an amount equal to Fifty-Seven Million Four Hundred Twenty-Six Thousand Three Hundred Forty-Eight and 73/100 Dollars ($57,426,348.73) less the amount of the Escrowed Funds (the “Deposit”).  The Deposit shall be credited towards the Cash Consideration at the Closing, as set forth in ARTICLE VIII.  If this Agreement is terminated prior to the Closing, then Sellers’ Representative shall refund the Deposit to Buyer or retain the Deposit on behalf of Sellers in accordance with ARTICLE XIII.  Sellers’ Representative will hold the Deposit pending the application thereof in accordance with the preceding sentence, and invest the proceeds thereof only in cash equivalent money market funds or other highly rated liquid securities.

 

Section 2.2                                    Adjustments to Cash Consideration.  The Cash Consideration shall be adjusted as follows:

 

(a)                                 The Cash Consideration shall be adjusted upward by the following (without duplication of any amounts):

 



 

(i)                                     to the extent that there are any Imbalances as of the Effective Time, if the net of such Imbalances is an overdelivery imbalance (that is, at the Effective Time, the Company Group has delivered more gas to the pipeline than the pipeline has redelivered for the Company Group and there is no corresponding set off under the terms of the gas purchase contracts and agency agreements related to the applicable pipeline), then the Cash Consideration shall be adjusted upward by (A) $1.50 times (B) the net overdelivery imbalance in Mmbtus (in the event such publication shall cease to be published, the Parties shall select a comparable publication); and

 

(ii)                                  any other amount provided for elsewhere in this Agreement or otherwise mutually agreed upon by Sellers’ Representative and Buyer.

 

(b)                                 The Cash Consideration shall be adjusted downward by the following (without duplication of any amounts):

 

(i)                                     to the extent that there are any Imbalances as of the Effective Time, if the net of such Imbalances is an underdelivery imbalance (that is, at the Effective Time, the Company Group has delivered less gas to the pipeline than the pipeline has redelivered for the Company Group and there is no corresponding set off under the terms of the gas purchase contracts and agency agreements related to the applicable pipeline), then the Cash Consideration shall be adjusted downward by (A) $1.50 times (B) the net underdelivery imbalance in Mmbtus (in the event such publication shall cease to be published, the Parties shall select a comparable publication);

 

(ii)                                  an amount equal to the aggregate of the TD Purchase Price Adjustment Amount and ED Purchase Price Adjustment Amount;

 

(iii)                               the aggregate amount of any Indebtedness under clause (a) of the definition thereof owing by the Company Group as of the Effective Time, except for Indebtedness under the Company Credit Facility to the extent such amount is less than $50,000,000;

 

(iv)                              the absolute value as at the Effective Time of the positive difference between Company Group current assets (as determined in accordance with GAAP) minus Company Group current liabilities (as determined in accordance with GAAP), which, for purposes of this Section 2.2(b)(iv), the Parties agree shall be $8,059,101.00;

 

(v)                                 the aggregate amount of all Transaction Liabilities;

 

(vi)                              the aggregate amount of Sellers Taxes to the extent not taken into account for purposes of the calculations set forth in Section 2.2(b)(iv); and

 

(vii)                           any other amount provided for elsewhere in this Agreement or otherwise mutually agreed upon by Sellers’ Representative and Buyer.

 

(c)                                        Sellers’ Pro Rata Allocation. Buyer acknowledges that ownership of the Company Capital Stock is not uniform among Sellers.  Each Seller’s share of the Base Purchase Price will be set forth in the Seller Allocation Schedule.  Each Seller shall be entitled to and

 



 

shall receive its portion of the Base Purchase Price (as reduced by the aggregate amount of adjustments and costs to be borne by Sellers pursuant to this Section 2.2) in accordance with the priority of payments set forth in Section 2.3.  Notwithstanding anything contained in this Agreement to the contrary, proceeds to Sellers from the transactions contemplated hereby, including cash and Buyer Common Stock shall be distributed by Sellers’ Representative in the order and priority set forth in Section 2.3.  All purchase price adjustments, Seller Taxes and other payments due hereunder by a Seller shall be paid by Sellers’ Representative from proceeds from this transaction.  Sellers’ Representative may reserve from distribution such amounts as may be necessary to pay any purchase price adjustment, Seller Tax or other payment due by a Seller hereunder.  Buyer Common Stock shall be distributed to Sellers, pro rata, based on Sellers’ Representative’s good faith estimate of the total amount to be distributed to each Seller.

 

Section 2.3                                    Priority of Payments.

 

(a)                                       All cash to be paid by Buyer hereunder, including the Deposit (including any amount retained by Sellers pursuant to and in accordance with Section 12.3), the Closing Amount and any final settlement adjustment amount set forth in the Final Settlement Statement that is payable to Sellers, shall be paid by Buyer to Sellers’ Representative, and Buyer shall have no obligation to make any such payment directly to any Seller other than Sellers’ Representative, and shall have no liability in respect of any further distributions of such amounts to Sellers by Sellers’ Representative. All Buyer Common Stock to be issued and delivered by Buyer hereunder, including the Stock Consideration, shall be issued and delivered by Buyer to each Seller in accordance with the amounts set forth on a schedule to be delivered by Sellers’ Representative to Buyer one day before such Buyer Common Stock is required to be issued and delivered.

 

(b)                                       All such cash and Buyer Common Stock shall be distributed to Sellers in the following order and priority:

 

(i)                                     first, to the holders of Company Senior Preferred Stock, pro rata based on the number of shares of Company Senior Preferred Stock held by each such holder, until each such holder receives an amount of cash or other property hereunder or otherwise in respect of such Company Senior Preferred Stock (including the Fair Market Value of Buyer Common Stock received by such Seller hereunder) equal to the aggregate Liquidation Preference of the Company Senior Preferred Stock held by such holder;

 

(ii)                                  second, to the holders of Class A Common Stock, pro rata based on the number of shares of Class A Common Stock held by each such holder, until each such holder receives an amount of cash or other property hereunder or otherwise in respect of such Class A Common Stock (including the Fair Market Value of Buyer Common Stock received by such Seller hereunder) such that the Required Investor Return has been achieved and paid in full; and

 

(iii)                               third, to the to the holders of Class A Common Stock and Class B Common Stock, pro rata based on the number of shares of Class A Common Stock and Class B Common Stock held by each such holder.

 



 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTIES

 

Section 3.1                                    Representations and Warranties of Sellers.  Except as set forth on the disclosure schedule dated as of the Execution Date and delivered by Sellers to Buyer on or prior to the Execution Date (the “Seller Disclosure Schedule”), each Seller, severally and not jointly, hereby represents and warrants to Buyer, as of the Execution Date and as of the Closing Date, as follows:

 

(a)                                       Organization, Standing and Power.  Such Seller, if an entity, is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.  Such Seller has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified and in good standing to do business in each jurisdiction in which the business it is conducting, or the operation, ownership or leasing of its properties, makes such qualification necessary, other than in such jurisdictions where the failure so to qualify or be in good standing would not be reasonably expected to have, individually or in the aggregate, a Seller Material Adverse Effect.

 

(b)                                       Authority; No Violations.

 

(i)                                     Such Seller has all requisite power and authority to execute and deliver this Agreement and each Seller Deliverable to which it is a party, and to consummate the Transactions and perform its obligations under this Agreement and the Seller Deliverables to which it is a party.  The execution and delivery of this Agreement by such Seller, any Seller Deliverable to which it is a party, and the consummation by such Seller of the Transactions have been duly authorized by all necessary action.  This Agreement and each Seller Deliverable to which such Seller is a party have been or will be duly executed and delivered by such Seller, and, assuming this Agreement constitutes the valid and binding obligation of Buyer, constitutes a valid and binding obligation of such Seller, enforceable in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors’ rights and to general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity.

 

(ii)                                  Except as set forth on Schedule 3.2(s)(ii) of the Company Disclosure Schedule, the execution and delivery of this Agreement and each Seller Deliverable to which such Seller is a party does not and will not, and the consummation of the Transactions will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or acceleration of any material obligation or the loss, suspension, limitation or impairment of a material benefit under, or result in (or give rise to) the creation of any Encumbrance (other than Permitted Encumbrances) or any rights of termination, cancellation, first offer or first refusal, in each case, with respect to any of the properties or assets of such Seller under any provision of (A) the organizational documents of such Seller; (B) any loan or credit contract, note, bond, indenture, security agreement, guarantee, pledge, mortgage, lease or other contract or agreement, permit, franchise or license to which such Seller is a party or by which such Seller or its properties or assets are bound or (C) any Law applicable to such Seller or any of its properties or assets, other than, in the case of clauses (B) and (C), any such violations, defaults, acceleration, losses or Encumbrances that are set forth on Schedule 3.1(b)(ii) of the Seller Disclosure

 



 

Schedule or that would not be reasonably expected to, individually or in the aggregate, have a Seller Material Adverse Effect.

 

(iii)                               Except as set forth on Schedule 3.1(b)(iii) of the Seller Disclosure Schedule, no vote or consent of the holders of the equity interests of such Seller that has not been taken or obtained is necessary to approve this Agreement or the Transactions.

 

(c)                                        Governmental Consents.  No Governmental Consent is required to be obtained by such Seller in connection with the execution and delivery of this Agreement, any Seller Deliverable to which it is a party, or the consummation of the Transactions, except for any such Governmental Consents set forth on Schedule 3.1(c) of the Seller Disclosure Schedule and any such Consent the failure of which to obtain would not be reasonably expected to, individually or in the aggregate, materially impair, prevent or delay such Seller’s timely consummation of the Transactions.

 

(d)                                       The Company Capital Stock.  Such Seller has good and valid title to the shares of Company Capital Stock set forth next to such Seller’s name on Exhibit E, free and clear of all Encumbrances.  Assuming Buyer has the requisite power and authority to be the lawful owner of such shares of Company Capital Stock, upon delivery to Buyer at the Closing of instruments of assignment in respect of such shares of Company Capital Stock, duly executed by such Seller, good and valid title to such shares of Company Capital Stock will pass to Buyer, free and clear of any Encumbrances.  Other than this Agreement, such shares of Company Capital Stock are not subject to any voting trust agreement or other contract or agreement, including any contract restricting or otherwise relating to the voting, dividend rights or disposition of such shares of Company Capital Stock.

 

(e)                                        Nonforeign Status.  Except as set forth on Schedule 3.1(e) of the Seller Disclosure Schedule, such Seller is not a “foreign person” within the meaning of Sections 1445 and 7701 of the Code (i.e., such Seller is not a nonresident alien, foreign corporation, foreign partnership, foreign trust, or foreign estate as those terms are defined in the Code and any regulations promulgated thereunder).

 

(f)                                         Investor Representations.  Each of the representations and warranties made by such Seller in Section 4.05 of the Investment Agreement, each of which is incorporated by reference herein, is true and correct.

 

(g)                                        USA Patriot Act, OFAC and FCPA.

 

(i)                                     To the extent applicable, each Seller is in compliance with (1) the USA PATRIOT Act and (2) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 C.F.R. Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto.  No Seller nor, to such Seller’s knowledge, any director, officer or employee of such Seller, is a Person on the OFAC list of “Specially Designated Nationals and Blocked Persons,” and no such Person is prohibited from receiving or owning the Stock Consideration, or entering into or performing its obligations hereunder or completing the Transactions, under sanctions rules administered by OFAC or other applicable Law.  OFAC does not prohibit, with respect to such

 



 

Seller, the Company from entering into this Agreement or issuing the Stock Consideration to such Seller hereunder. None of the proceeds or consideration to be distributed on or after the Closing under this Agreement, including the Cash Consideration or the Stock Consideration, will, to such Seller’s knowledge, be made available to any Person for the purpose of financing the activities of any Person that are prohibited by any U.S. sanctions administered by OFAC.

 

(ii)                                  Neither Sellers, their Affiliates, nor, to each Seller’s knowledge, its or their respective Representatives has given, loaned, paid, promised, offered or authorized the payments, directly or indirectly through a third Person, of anything of value to any “foreign official,” as defined in the FCPA, to persuade that official to help such Seller, or any other Person, obtain or keep business or to secure some other improper advantage, in each case, on behalf or with respect to (1) any of the operations conducted with respect to the Properties, or (2) the Transactions.

 

(iii)                               The representations in this Section 3.1(g) are the sole representations and warranties made by such Seller with respect to the USA PATRIOT Act, OFAC and FCPA matters.

 

Section 3.2                                    Representations and Warranties of the Company.  Except as set forth on the disclosure schedule dated as of the date of this Agreement and delivered by the Company to Buyer on or prior to the date of this Agreement (the “Company Disclosure Schedule”), each Seller, jointly and severally, hereby represents and warrants to Buyer, as of the Execution Date and as of the Closing Date, as follows:

 

(a)                                       Organization, Standing and Power.  The Company and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the State of Delaware.  The Company and each of its Subsidiaries has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified and in good standing to do business in (i) Texas and (ii) each jurisdiction in which the business it is conducting, or the operation, ownership or leasing of its properties, makes such qualification necessary, other than, solely in the case of this clause (ii), in such jurisdictions where the failure so to qualify or be in good standing would not be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect.  The Company has heretofore made available to Buyer complete and correct copies of the Company Certificate of Incorporation and the Company Bylaws, and complete and correct copies of the equivalent organizational documents of each Subsidiary of the Company, in each case effective as of the date hereof.

 

(b)                                       Authority; No Violations.

 

(i)                                     The Company has all requisite corporate power and authority to execute and deliver this Agreement and each Company Deliverable, and to consummate the Transactions and perform its obligations under this Agreement and each Company Deliverable.  The execution and delivery of this Agreement and each Company Deliverable by the Company and the consummation by the Company of the Transactions have been duly authorized by all necessary corporate action.  This Agreement and each Company Deliverable have been or will be duly executed and delivered by the Company, and, assuming this Agreement constitutes the valid and

 



 

binding obligation of Buyer and each Seller, constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors’ rights and to general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity.

 

(ii)                                  The execution and delivery of this Agreement and each Company Deliverable does not and will not, and the consummation of the Transactions will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or acceleration of any material obligation or the loss, suspension, limitation or impairment of a material benefit under, or result in (or give rise to) the creation of any Encumbrance (other than Permitted Encumbrances) or any rights of termination, cancellation, first offer or first refusal, in each case, with respect to any of the Properties under any provision of (A) the organizational documents of the Company or any of its Subsidiaries; (B) other than the Company Credit Facility, any Applicable Contract or loan or credit contract, note, bond, indenture, security agreement, guarantee, pledge, mortgage, lease or other contract or agreement, permit, franchise or license to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or the Properties are bound or (C) subject to compliance with any filing required under the HSR Act, any Law applicable to the Company or any of its Subsidiaries or any of its Properties or its other assets, other than, in the case of clauses (B) and (C), any such violations, defaults, acceleration, losses or Encumbrances that are set forth on Schedule 3.2(b)(ii) of the Company Disclosure Schedule or that would not be reasonably expected to have, individually or in the aggregate, a Seller Material Adverse Effect.

 

(iii)                               Except as set forth on Schedule 3.2(b)(iii) of the Company Disclosure Schedule, no vote or consent of the holders of the equity interests of the Company that has not been taken or obtained is necessary to approve this Agreement or the Transactions.

 

(c)                                        Governmental Consents.  No Governmental Consent is required to be obtained by the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement, any Company Deliverable, or the consummation of the Transactions, except for (i) any such Governmental Consents set forth on Schedule 3.2(c) or Schedule 3.2(s)(ii) of the Company Disclosure Schedule, (ii) compliance with and filings under the HSR Act and (iii) Customary Post-Closing Consents.

 

(d)                                       Capital Structure.  As of the date of this Agreement, the authorized capital stock of the Company consists of (i) 210,000 shares of common stock, par value $0.001 per share (the “Company Common Stock”), divided into Class A Common Stock (the “Class A Common Stock”) and Class B Common Stock (the “Class B Common Stock”) and (ii) 350,000 shares of preferred stock, par value $0.001 per share (“Company Preferred Stock,” and, together with the Company Common Stock and any other capital stock of the Company, the “Company Capital Stock”), of which 325,000 shares have been designated as Senior Preferred Stock (the “Company Senior Preferred Stock”).  As of the date of this Agreement, (A) 159,796.06 shares of Class A Common Stock are issued and outstanding, (B) 1,879.00 shares of Class B Common Stock are issued and outstanding, (C) 207,181.54 shares of Company Senior Preferred Stock are issued and outstanding, and (D) except as set forth on Schedule 3.2(d) of the Company Disclosure Schedule, no Indebtedness was issued and outstanding (other than the Company

 



 

Credit Facility).  All outstanding shares of Company Capital Stock are validly issued, fully paid and non-assessable and are not subject to any preemptive rights or other statutory rights.  There are no outstanding options, warrants, rights (including preemptive rights), or contracts to which the Company or any Subsidiary thereof is a party or by which it is bound in any case obligating the Company or any Subsidiary thereof to issue, deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed or acquired, additional shares of Company Capital Stock or any Indebtedness other than the Company Credit Facility, or obligating the Company or any Subsidiary thereof to grant, extend or enter into any such option, warrant, call, right, commitment or agreement.  All outstanding equity securities of the Subsidiaries of the Company are owned by the Company, or a direct or indirect wholly-owned Subsidiary of the Company, free and clear of any Encumbrances other than Permitted Encumbrances.  There are no stockholder agreements, voting trusts or other contracts to which the Company is a party or by which it is bound relating to the voting of any shares of Company Capital Stock.  The Company has no joint venture or other similar material equity interests in any Person or obligations, whether contingent or otherwise, to consummate any material additional investment in any Person other than its Subsidiaries.

 

(e)                                        SubsidiariesSchedule 3.2(e) of the Company Disclosure Schedule sets forth, with respect to each Subsidiary of the Company, (i) its name and jurisdiction of organization and (ii) the number of authorized, issued and outstanding equity interests of such Subsidiary and the holder(s) thereof.  All the issued and outstanding equity interests of each of the Company’s Subsidiaries have been duly authorized and are validly issued and, if applicable, fully paid and non-assessable and have not been issued in violation of any preemptive rights, rights of first refusal or similar rights.  The Company holds of record and owns beneficially all of the outstanding equity interests of each its Subsidiaries free and clear of any restrictions on transfer, Encumbrances (other than Permitted Encumbrances), options, warrants or other purchase rights.

 

(f)                                         Financial Statements.

 

(i)                                     The Company has delivered to Buyer the following financial statements and notes (collectively, the “Company Financial Statements”):

 

(A)                               the audited consolidated balance sheet of the Company as at December 31, 2015 and December 31, 2014,  and the related audited consolidated statements of operations, stockholders’ deficit and cash flows of the Company for each year then ended (together with the notes thereto and the report and certification of EKS&H LLP (“EKS&H”) relating thereto); and

 

(B)                               the unaudited consolidated balance sheet of the Company as at June 30, 2016 and the related unaudited consolidated statements of income and cash flows of the Company for the six-months then ended, together with the notes thereto.

 

(ii)                                  The financial statements and notes referenced in Section 3.2(f)(i)(A) present fairly in all material respects the consolidated financial position of the Company as of December 31, 2015 and December 31, 2014, respectively, and the respective consolidated results of operations, stockholders’ deficit and cash flows of the Company for the years then ended.  The

 



 

financial statements and notes referred to in Section 3.2(f)(i)(B) present fairly in all material respects the consolidated position of the Company at June 30, 2016 and the consolidated income and cash flows for the six months then ended. The Company Financial Statements have been prepared in accordance with GAAP, applied on a consistent basis throughout the periods covered; provided, however, that the financial statements referred to in Section 3.2(f)(i)(B) are subject to normal recurring year-end audit adjustments (which are not expected to be material either individually or in the aggregate).

 

(iii)                               The books and records of the Company and its Subsidiaries have been, and are being, maintained in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.  EKS&H 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 and, to the knowledge of Sellers, the independence of EKS&H with respect to the Company has not been challenged or questioned by any Person.

 

(g)                                        Absence of Certain Changes or Events.

 

(i)                                     Since December 31, 2015, there has not been any change, event, circumstance, development, state of facts, or condition that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect.

 

(ii)                                  Since December 31, 2015, the businesses (and properties) of the Company and its Subsidiaries have been conducted (and operated, respectively) in the Ordinary Course of business consistent with past practice.

 

(iii)                               Except as set forth in Schedule 3.2(g)(iii) of the Company Disclosure Schedule, since December 31, 2015, there has not been any change, event, circumstance, development, state of facts, or condition that, if occurring from the date of this Agreement through the Closing Date, would, either individually or in the aggregate, constitute a breach of Section 4.1 (other than any covenants in Section 4.1 relating to notification of certain operational matters to Buyer).

 

(h)                                       No 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, other than (i) liabilities adequately provided for on the balance sheet of the Company dated as of December 31, 2015 (including the notes thereto); (ii) liabilities incurred in the Ordinary Course of business subsequent to December 31, 2015 and prior to the date of this Agreement; (iii) liabilities for fees and expenses incurred in connection with the Transactions that are set forth in Schedule 3.2(h)(iii) of the Company Disclosure Schedule; (iv) Indebtedness incurred under the Company Credit Facility; and (v) liabilities arising after the date of this Agreement and expressly permitted to be incurred under Section 4.1.

 

(i)                                           Litigation.  Except as set out on Schedule 3.2(i) of the Company Disclosure Schedule, (i) there is no action, suit, pending settlement order, or other legal proceeding pending against the Company or any of its Subsidiaries or with respect to the Properties operated by the Company Group before any Governmental Body, arbitrator, or mediator, (ii) neither the

 



 

Company nor any of its Subsidiaries has received written notice of any action, suit, pending settlement order, or other legal proceeding that has been threatened before any Governmental Body, arbitrator, or mediator, and (iii) neither the Company nor any of its Subsidiaries nor any of the Properties operated by a Seller is or are subject to any Order.

 

(j)                                          Taxes.

 

(i)                                     All material Tax Returns required to be filed by or with respect to the Company or any of its Subsidiaries have been duly and timely filed and each such Tax Return is true, correct and complete in all material respects.  All material Taxes owed by the Company or any of its Subsidiaries, or for which the Company or any of its Subsidiaries may be liable, that are or have become due have been paid in full (whether or not such Taxes were shown on any Tax Return).  All material Tax withholding obligations imposed on or with respect to the Company or any of its Subsidiaries have been satisfied.  There are no Encumbrances (other than liens for Taxes or assessments not yet due or not yet delinquent or that are being contested in good faith by appropriate proceedings) on any of the assets of the Company or any of its Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax.

 

(ii)                                  There are no pending claims that have been asserted in writing against the Company or any of its Subsidiaries for any material amount of Taxes, and no assessment, deficiency, or adjustment has been asserted, proposed or threatened in writing with respect to any material amount of Taxes of the Company or any of its Subsidiaries.  No written claim has ever been made by an authority in a jurisdiction where the Company or any of its Subsidiaries, as applicable, does not file Tax Returns or pay Taxes that the Company or any such Subsidiary is or may be subject to taxation in that jurisdiction.

 

(iii)                               There is not in force any waiver or agreement for any extension of time for the assessment of any material Tax of or with respect to the Company or any of its Subsidiaries.

 

(iv)                              Neither the Company nor any of its Subsidiaries will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any Tax Period (or portion thereof) ending after the Closing Date as a result of any (A) change in method of accounting made prior to the Closing under Section 481(c) of the Code (or any corresponding or similar provision of applicable Law relating to Taxes); (B) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of applicable Law relating to Taxes) executed prior to the Closing; (C) intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding provision of national, state, provincial, municipal, local or foreign Tax law); or (D) elections pursuant to Section 108(i) of the Code made on or prior to the Closing Date.

 

(v)                                 Neither the Company nor any of its Subsidiaries has any liability for the Taxes of any Person (other than the Company or any of its Subsidiaries) under Treasury regulations Section 1.1502-6 (or any corresponding provisions of state or local Law), or as a transferee or successor, or by contract (other than a contract the principal subject of which is not Taxes).

 



 

(vi)                              Neither the Company nor any of its Subsidiaries has constituted a “distributing corporation” or a “controlled corporation” in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement, or (B) in a distribution that could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) that includes the transactions contemplated by this Agreement.

 

(vii)                           Neither the Company nor any of its Subsidiaries has entered into or has any filing obligations with respect to, any transaction that constitutes a “reportable transaction” (other than a “loss transaction”), as defined in Section 1.6011-4(b) of the Treasury regulations.

 

(viii)                        No power of attorney that is currently in force has been granted with respect to any matter relating to Taxes that could affect the Company or any of its Subsidiaries after the Closing.

 

(ix)                              Neither the Company nor any of its Subsidiaries is a party to any Tax allocation or Tax sharing agreement, pursuant to which it will have any obligation to make any payments to any Person (other than Buyer or any of its Affiliates) after the Closing.

 

(x)                                 Notwithstanding anything to the contrary in this Agreement, (i) this Section 3.2(j) and Sections 3.1(e) and 3.2(k) are the sole representations or warranties of the Company and Sellers with respect to Tax matters, and nothing in these sections shall cause Sellers to be liable for any Taxes for which Sellers are not expressly liable pursuant to ARTICLE VI (relating to Tax matters), (ii) Sellers and the Company make no representations or warranties, and provide no other assurance, with respect to the amount of any Taxes of the Company or any of its Subsidiaries, or with respect to the availability of any Tax Attributes of the Company or any of its Subsidiaries, on and after the Closing Date, and (iii) Sellers shall have no liability for any Taxes resulting from or arising with respect to any sale of the Company (or any assets thereof) following the Closing Date.

 

(k)                                       Employee Plans.

 

(i)                                     Schedule 3.2(k)(i) of the Company Disclosure Schedule sets forth a complete list of each Employee Plan.

 

(ii)                                  Except as set forth on Schedule 3.2(k)(ii) of the Company Disclosure Schedule, no Company Plan is an “employee benefit plan” (as defined in Section 3(3) of ERISA).

 

(iii)                               With respect to each Company Plan, the Company Group has delivered or made available to Buyer or its representatives true and complete copies of the following materials, to the extent applicable: (A) all current plan documents for each Company Plan or, in the case of an unwritten Company Plan, a written description thereof, (B) current summary plan descriptions, summaries of modifications, annual reports, and summary annual reports with respect to any Company Plan, (C) current trust agreements, insurance contracts, and other documents relating to the funding or payment of benefits under any Company Plan, and (D) any other documents, forms or other instruments relating to any Company Plan reasonably requested by Buyer.  With respect to each Insperity Plan, the Company Group has delivered or made

 



 

available to Buyer or its representatives copies of such plan or a summary plan description or other summary of material terms to the extent it has such documentation, and the Company Group has requested copies of such plan documentation from Insperity if it does not have such documentation.

 

(iv)                              The Company Group has complied in all material respects with its obligations under the Insperity Agreement and the Employee Plans and timely made all payments or other contributions required thereunder.

 

(v)                                 Each Company Plan and, to the knowledge of Sellers, each Insperity Plan and the administration thereof complies in all material respects with its terms and applicable Law, including ERISA and the Code, including, but not limited to, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, and the regulations and related guidance promulgated thereunder.  The Company Group does not owe a penalty or assessable payment for 2015 under Section 4980H of the Code and does not reasonably expect to owe any such penalty or assessable payment for 2016.  Each Company Plan and, to the knowledge of Sellers, each Insperity Plan that is intended to be a “qualified plan” within the meaning of Section 401(a) of the Code is either the recipient of the most recently favorable “on-cycle” favorable determination letter from the IRS or is the subject of an opinion letter from the IRS as to which the adopter is entitled to rely as to the qualified status of such plan under Section 401(a) of the Code, as provided in Revenue Procedures 2011-49, and no amendment has been made nor has any event occurred with respect to any such Employee Plan which would reasonably be expected to cause the loss or denial of such qualification under Code Section 401(a); additionally, each trust created under any such Company Plan or, to the knowledge of Sellers, any such Insperity Plan, is exempt from taxation under Section 501(a) of the Code, and nothing has occurred that has or could reasonably be expected to adversely affect such exemption.  Neither the Company Group nor any of its ERISA Affiliates has sponsored or contributed to or been required to contribute to any (A) defined benefit plan, as defined in Section 3(35) of ERISA, that is subject to Title IV of ERISA, (B) “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA), or (C) plan subject to the minimum funding standards under Section 302 of ERISA or Section 412 of the Code, and neither the Company Group nor any of its ERISA Affiliates has ever contributed to, or ever been obligated to contribute to any such plan.  No Insperity Plan is an “employee benefit plan” subject to Title IV of ERISA.  No proceedings or claims (other than routine claims for benefits) are pending or, to the knowledge of Sellers, threatened, against any Company Plan.  No audit or examination by a Governmental Body is pending or, to the knowledge of Sellers, threatened, with respect to any Company Plan, nor has notice been received of a potential audit or examination of such a plan by a Governmental Body.  To the knowledge of Sellers, no proceedings or claims (other than routine claims for benefits) are pending or threatened against any Insperity Plan.  To the knowledge of Sellers, no audit or examination by a Governmental Body is pending or threatened with respect to any Insperity Plan, nor has notice been received of a potential audit or examination of such a plan by a Governmental Body.  No matters are pending with respect to a Company Plan or, to the knowledge of Sellers, an Insperity Plan, under the Internal Revenue Service Voluntary Correction Program, Audit Closing Agreement Program or similar programs.

 



 

(vi)                              Except as set forth on Schedule 3.2(k)(vi) of the Company Disclosure Schedule or with respect to any arrangement entered into or established by Buyer or any of its Affiliates, neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement (either alone or upon the occurrence of another event) will (A) accelerate the time of payment or vesting, or increase the amount of compensation due, to any current or former employee, co-employee, director or independent contractor of the Company or any of its Affiliates; (B) result in any payment (including severance, change in control or otherwise) becoming due to any employee, co-employee, director or independent contractor of the Company or any of its Affiliates under any Company Plan or, to the knowledge of Sellers, any Insperity Plan; or (C) increase any benefits otherwise payable under any Company Plan or, to the knowledge of Sellers, any Insperity Plan.

 

(vii)                           Except as set forth on Schedule 3.2(k)(vii) of the Company Disclosure Schedule, neither the consummation of the transactions contemplated by this Agreement, either on their own or in combination with any other event, will give rise to the payment of any amount to a service provider or a receipt of any benefit by a service provider that would not be deductible by the Company or any Affiliate by reason of Section 280G of the Code or that would give rise to an excise tax under Section 4999 of the Code.  Each Employee Plan that is a “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code (A) complies in form with Section 409A of the Code and the Treasury Regulations promulgated pursuant to Section 409A of the Code, and (B) does not benefit a service provider (as defined in such Treasury Regulations) who is subject to additional Taxes under Section 409A of the Code as a result of participation in such Employee Plan.  The Company is not a party to, or otherwise obligated under, any Contract, agreement, plan or arrangement that provides for a Tax “gross-up” or similar “make-whole” payments to any Person.

 

(viii)                        (A) Each Company Plan is amendable and terminable unilaterally by the Company at any time without liability or expense as a result thereof (other than for benefits accrued through the date of termination or amendment and reasonable administrative expenses related thereto), (B) to the knowledge of Sellers, the Company’s participation in the Insperity Plan is amendable and terminable unilaterally by the Company at any time without liability or expense as a result thereof (other than for benefits accrued through the date of termination or amendment and reasonable administrative expenses related thereto), and (C) no Company Plan or, to the knowledge of Sellers, Insperity Plan document or agreement, summary plan description or other written communication distributed generally to employees by its terms prohibits the Company from amending or terminating any such Company Plan, or from amending or terminating its participation in any such Insperity Plan, or in any way limits such action.  The investment vehicles used to fund any Company Plan and, to the knowledge of Sellers, any Insperity Plan may be changed at any time without incurring a sales charge, surrender fee or similar expense.  No event has occurred, nor to the knowledge of Sellers, do circumstances exist that could reasonably be expected to result in a material increase in the premium of any Company Plan or, to the knowledge of Sellers, any Insperity Plan.

 

(ix)                              No Company Plan or, to the knowledge of Sellers, no Insperity Plan promises or provides retiree medical, health or life insurance or other retiree welfare benefits to any Person, except as may be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), or other applicable Law, and there has been no

 



 

communication (whether oral or written) by the Company or, to the knowledge of Sellers, Insperity to any Person that could reasonably be expected to promise or guarantee any such retiree medical, health or life insurance or other retiree welfare benefits, except to the extent required by COBRA or other applicable Law.

 

(x)                                 With respect to each Employee Plan that is a group health plan within the meaning of Section 5000(b)(1) of the Code or similar state law, the Company, with respect to each such Company Plan, or Insperity, to the knowledge of Sellers, with respect to each Insperity Plan, is currently in compliance with and has always complied with the applicable continuation requirements for its welfare benefit plans, including COBRA, and no event has occurred with respect to each such Company Plan or, to the knowledge of Sellers, each such Insperity Plan and, to the knowledge of Sellers, no circumstance exists under which Buyer may reasonably be expected to incur any liability, direct or indirect, under the provisions of COBRA or which has resulted or could result in the imposition of a lien upon any of the assets of Company, its Subsidiaries or Buyer.

 

(xi)                              There are no Company Plans that are not subject to United States Law, and no employee of the Company or any of its Subsidiaries who provides services primarily outside of the United States participates in any Company Plan or, to the knowledge of Sellers, any Insperity Plan.

 

(l)                                           Reserve Reports.  The Company has delivered or made available to Buyer true and correct copies of all reports (“Company Reserve Reports”) requested or commissioned by the Company or its Subsidiaries and delivered to the Company or its Subsidiaries in writing estimating the Company’s and its Subsidiaries’ proved oil and gas reserves prepared by any unaffiliated Person (“Report Preparers”), including the Company Reserve Report prepared by Cawley, Gillespie & Associates relating to the Company interests referred to therein as of December 31, 2015. The factual, non-interpretive data supplied to each Report Preparer, by or on behalf of the Company and its Subsidiaries, that was material to such firm’s estimates of proved oil and gas reserves attributable to the oil and gas properties of the Company and its Subsidiaries was, as of the time provided (or as modified or amended prior to the issuance of the applicable Company Reserve Report), accurate, and the Company has no knowledge of any material errors in the assumptions and estimates provided by the Company to any Report Preparer. The oil and gas reserve estimates of the Company and its Subsidiaries furnished to each Report Preparer fairly reflect, in all material respects, the oil and gas reserves of the Company and its Subsidiaries at the dates indicated therein.  Except for changes generally affecting the oil and gas exploration, development and production industry (including changes in commodity prices) and normal depletion by production, there has been no change in respect of the matters addressed in the Company Reserve Reports that has had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

 

(m)                                   Limited Warranty of Title.  Except for Permitted Encumbrances, the Properties are free and clear of any Title Defects arising by, through or under the Company Group or Sellers.

 



 

(n)                                       Intellectual Property.

 

(i)                                     (A) Except as set forth in Schedule 3.2(n)(i)(A) of the Company Disclosure Schedule, or as would not be material to the business of the Company and its Subsidiaries, taken as a whole, the Company and each of its Subsidiaries owns, or is licensed to use (in each case, free and clear of any Encumbrances, other than Permitted Encumbrances), all Intellectual Property used in its business as currently conducted; (B) to the knowledge of Sellers and their Subsidiaries, the Company’s and each of its Subsidiaries’ conduct of its business as currently conducted, including the use of any Intellectual Property by the Company or such Subsidiary, does not infringe on, misappropriate or otherwise violate the rights of any Person and is in accordance with any applicable license pursuant to which the Company or such Subsidiary acquired the right to use any Intellectual Property; (C) to the knowledge of Sellers and its Subsidiaries, no Person is challenging, infringing on, misappropriating or otherwise violating any right of the Company or any of its Subsidiaries with respect to any Intellectual Property owned by the Company or its Subsidiaries; (D) neither the Company nor any of its Subsidiaries has received any written notice or otherwise has knowledge of any pending claim, Order or proceeding with respect to any Intellectual Property used by the Company or any of its Subsidiaries, and to the knowledge of Sellers and its Subsidiaries, no Intellectual Property owned by the Company or any of its Subsidiaries is being used or enforced in a manner that would reasonably be expected to result in the abandonment, cancellation or unenforceability of such Intellectual Property; and (E) Schedule 3.2(n)(i)(E) of the Company Disclosure Schedule sets forth a complete and correct list of all Intellectual Property owned, licensed, or applied for by the Company and its Subsidiaries.

 

(ii)                                  Except as set forth in Schedule 3.2(n)(ii) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is, or as a result of the execution and delivery of this Agreement or the consummation of the Transactions will be (or become, as applicable), in violation of, obligated to pay any fee or other monetary penalty (including any licensing or re-licensing fee) under, or lose any rights pursuant to, any license or other contract to which the Company or any of its Subsidiaries is a party and pursuant to which the Company or any of its Subsidiaries is authorized to use any Intellectual Property.  The Company and its Subsidiaries have taken commercially reasonable steps to maintain in confidence all material trade secrets and confidential information owned or used by the Company or its Subsidiaries. All Persons who have contributed to the development of any material Intellectual Property owned or used (and not licensed from a third Person) by the Company or its Subsidiaries either (A) have been a party to an enforceable written agreement according exclusive ownership of such Intellectual Property to Company or its Subsidiaries or (B) have executed a written assignment granting exclusive ownership of such Intellectual Property to Company or its Subsidiaries.

 

(iii)                               Except as set forth on Schedule 3.2(n)(iii) of the Company Disclosure Schedule, or as would not be material to the business of the Company and its Subsidiaries, taken as a whole, (A) the Company and its Subsidiaries own or have the right to use, and from and after the Closing Date shall own or have the right to use, all Information Technology used in the conduct of the business of the Company and its Subsidiaries in essentially the same manner as presently conducted, (B) the Company and its Subsidiaries have a sufficient number and scope of licenses to any Information Technology such that no use by Company or its Subsidiaries is in breach of any license or infringes any Intellectual Property and (C) all Information Technology licenses are in full force and effect and are the legal, valid and binding obligations of Company

 



 

and its Subsidiaries, none of which are in default or breach thereof, and no party to any such licenses has exercised any right of termination with respect thereto.

 

(o)                                       Permits.  Except as set out on Schedule 3.2(o) of the Company Disclosure Schedule, (i) the Company Group has (and, with respect to non-operated Properties, to the Company’s knowledge, the operator has) obtained all federal, state and local governmental Permits that are required for its ownership and operation of the Properties, (ii) the Company Group has not received any written notice of and to the Company’s knowledge there is no violation with respect to any of the Permits that has not been (or will not be prior to Closing) corrected or settled and (iii) no member of the Company Group has received written notice of any proceeding that has been threatened or is pending that might result in the modification, revocation, termination or suspension of any Permit.

 

(p)                                       No Bankruptcy.  There are no bankruptcy proceedings pending, being contemplated by, or threatened against the Company or any of its Subsidiaries

 

(q)                                       Compliance with Law.  Except as set out on Schedule 3.2(q) of the Company Disclosure Schedule, neither Company nor any of its Subsidiaries have received a written notice of a violation of any Law that has not been (or will not be prior to Closing) corrected or settled.  Except as set out on Schedule 3.2(q) of the Company Disclosure Schedule, each member of the Company Group’s ownership of the Properties, operation of the Properties that are operated by such member of the Company Group, and to such member of the Company’s knowledge, the operation of the Properties operated by a third Person, are currently in compliance in all material respects with the provisions and requirements of all Laws.  This Section 3.2(q) does not relate in any way to (i) the existence or status of any Permits, it being understood and agreed that such matters are covered by and dealt with exclusively in Section 3.2(o) or (ii) matters arising under Environmental Laws, it being understood and agreed that such matters are covered by and dealt with exclusively in Section 3.2(kk).

 

(r)                                          InsuranceScheduled 3.2(r) or the Company Disclosure Schedule sets forth each insurance policy under which the Company or any of its Subsidiaries is an insured or a principal beneficiary of coverage (collectively, the “Material Company Insurance Policies”).  (i) Each Material Company Insurance Policy is in full force and effect and there is no existing default or event that, with the giving of notice or lapse of time or both, would constitute a default by any insured thereunder, (ii) all premiums payable under the Material Company Insurance Policies prior to the date of this Agreement have been duly and timely paid, (iii) no written notice of cancellation, termination, or premium increase has been received with respect to any Material Company Insurance Policy, and (iv) the Company and its Subsidiaries have not received notice that any insurer under any Material Company Insurance Policy is denying liability with respect to a claim thereunder or defending under a reservation of rights clause.

 

(s)                                         Rights in Third Parties.

 

(i)                                     There are no preferential rights to purchase that are applicable in connection with the Transactions.

 



 

(ii)                                  Except (x) as set out on Schedule 3.2(s)(ii) of the Company Disclosure Schedule and (y) for consents from Governmental Bodies that customarily are obtained following the closing of transactions substantially similar to the Transactions (“Customary Post-Closing Consent”), there are no Consents.  Schedule 3.2(s)(ii) of the Company Disclosure Schedule sets forth a description of the instrument giving rise to such Consent.

 

(t)                                          Imbalances.  To the Company’s knowledge, Schedule 3.2(t) of the Company Disclosure Schedule sets out all Imbalances associated with the Properties as of the date set forth therein.

 

(u)                                       Hydrocarbon Sales.  Except as set forth on Schedule 3.2(u) of the Company Disclosure Schedule and to the extent cancelable without penalty or other material payment on not more than thirty (30) days prior written notice, neither the Company nor its Subsidiaries is obligated by virtue of (i) any prepayment arrangement under any contract or agreement for the sale of Hydrocarbons that contains a “take or pay provision”, (ii) a production payment or (iii) any other arrangement, other than gas balancing arrangements, to deliver Hydrocarbons produced from the Properties at some future time without then or thereafter receiving full payment therefor.

 

(v)                                       Condemnation.  As of the Execution Date, neither the Company nor any of its Subsidiaries has received any written notice of any pending or threatened taking and there is no actual taking (whether permanent, temporary, whole or partial) of any portion of the Properties by reason of condemnation or the threat of condemnation.

 

(w)                                     Applicable Contracts.

 

(i)                                     Except (y) as set forth on Schedule 3.2(w) of the Company Disclosure Schedule or (z) to the extent cancelable without penalty or other material payment on not more than thirty (30) days prior written notice, there are no: (A) contracts for the purchase, sale or exchange of Hydrocarbons, (B) contracts for the gathering, treatment, processing, handling, storage or transportation of Hydrocarbons or any other contracts containing acreage dedications, (C) purchase agreements, farmin or farmout agreements, exploration agreements, participation agreements, contracts that constitute a non-competition agreement or any agreement that purports to restrict, limit or prohibit the manner in which, or the locations in which, any member of the Company Group conducts business (including area of mutual interest agreements), or similar agreements providing for the earning of any equity interest, (D) partnership agreements, joint venture agreements or similar agreements, (E) operating agreements, unit agreements or unit operating agreements, (F) contracts that could be reasonably expected to result in aggregate payments by or revenues to any member of the Company Group in excess of $500,000 per calendar year or in the aggregate over the term of such contract, (G) contracts that constitute a lease under which any member of the Company Group is the lessor or the lessee of any real property (other than a Lease), (H) contracts with any Affiliate of any member of the Company Group, (I) contracts that constitute Hedge Contracts, (J) contracts between the Company or any of its Subsidiaries, on the one hand, and any of their respective officers, directors or principals (or any such Person’s Affiliates), on the other hand, (K) contracts that limit or otherwise restrict in any material respect the Company or any of its Subsidiaries (or, after the Closing Date, will restrict the Company, Buyer or any of their respective Subsidiaries) from (1) engaging or

 



 

competing in any line of business, in any geographical location or with any Person, (2) selling any products or services of or to any other Person or in any geographic region or (3) obtaining products or services from any Person or in any geographic region, or (L) any contract, or group of contracts, the termination or breach of which would reasonably be expected to have a Company Material Adverse Effect and is not disclosed pursuant to clauses (A) through (K) above, in each case of subparts (A) through (L) that will be binding on Buyer or encumber any of the Properties or Company Group after Closing.

 

(ii)                                  With respect to the contracts set forth on Schedule 3.2(w) of the Company Disclosure Schedule and the Applicable Contracts (collectively, the “Material Contracts”): (A) each member of the Company Group is in compliance, in all material respects, with the terms and conditions of the Material Contracts and, to the knowledge of Sellers, each counterparty to the Material Contracts is in compliance, in all material respects, with the terms and conditions of the Material Contracts; (B) no member of the Company Group has received a written notice of default under such Material Contract; and (C) prior to the execution of this Agreement, the Company has made available to Buyer true and complete copies of each Material Contract, including all amendments thereto.

 

(x)                                       Outstanding Capital Commitments.  As of the Execution Date, there are no outstanding contractual commitments to make capital expenditures that are binding on the Properties or the Company Group and which the Company reasonably anticipates will individually require expenditures by the Company Group after Closing in excess of $50,000 (net to the Company Group’s interest), other than those set forth in the Capital Budget or on Schedule 3.2(x) of the Company Disclosure Schedule.

 

(y)                                       Related Party Transactions.  Except as set forth on Schedule 3.2(y) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any contract, agreement, understanding, or arrangement with, or has any liability or obligation to, any officer or director of the Company or any of its Subsidiaries or any direct or indirect holder of the Company Capital Stock or any director, officer or other Affiliate of such Persons or any relative of any of the foregoing.

 

(z)                                        Brokers.  Except for the fees and expenses set forth in Schedule 3.2(z) of the Company Disclosure Schedule, no broker, investment banker, or other Person is entitled to any broker’s, finder’s or other similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the Company or any of its Subsidiaries.

 

(aa)                                Regulatory Matters.  No member of the Company Group (i) is a “natural gas company” engaged in the transportation of natural gas in interstate commerce under the Natural Gas Act of 1938, as amended; and (ii) has operated, or provided services, using any of the Properties in a manner that subjects it, any third Person operator of the Properties or any future owner of the Properties to the jurisdiction of, or regulation by, the Federal Energy Regulatory Commission (A) as a natural gas company under the Natural Gas Act of 1938 (other than pursuant to a certificate of limited jurisdiction as described below), or (B) as a common carrier pipeline under the Interstate Commerce Act; or (iii) holds any general or limited jurisdiction certificate of public convenience and necessity issued by the Federal Energy Regulatory

 



 

Commission other than a blanket sale for resale certificate issued by operation of Law or a blanket certificate issued to permit participation in capacity release transactions.

 

(bb)                                Personal Property and Equipment.  Each member of the Company Group has good title to the personal property, equipment, and fixtures included within the Properties, including inventory Hydrocarbons, free and clear of all Encumbrances other than those to be released at Closing and Permitted Encumbrances.  To the Company’s knowledge, the equipment included within the Properties is adequate in type and in operable condition for the operation of the Properties consistent with the Company Group’s past practices.

 

(cc)                                  Pipelines.  Each member of the Company Group either has the contractual right to use or is the exclusive or non-exclusive legal and beneficial owner of the Pipeline Facilities.  Except as set forth on Schedule 3.2(cc) of the Company Disclosure Schedule, to the Company’s knowledge, the surface on which each Pipeline Facility is located are contiguous, are in full force and effect and are sufficient to access, construct, operate, maintain, and repair the Pipeline Facilities in the Ordinary Course as currently conducted.  Except as set forth on Schedule 3.2(cc) of the Company Disclosure Schedule, to the Company’s knowledge, each Pipeline Facility is located on or beneath land covered by a surface lease, surface permit, surface right-of-way, surface license, surface easement, or other surface rights agreements.

 

(dd)                                Plugging and Abandonment Obligations.  Other than as set forth on Schedule 3.2(dd) of the Company Disclosure Schedule, none of the Wells have been permanently plugged and abandoned and none of the Wells have been plugged and abandoned in a manner that does not comply in all material respects with Laws.

 

(ee)                                  Wells.  (i) With respect to all Wells drilled and completed by a member of the Company Group, and (ii) with respect to all Wells drilled and completed by any Person not a member of the Company Group, to the Company’s knowledge, all such Wells with respect to clauses (i) and (ii) have been drilled and completed within the limits permitted by all applicable Leases or Material Contracts.

 

(ff)                                    Non-Consent Operation; Payout Balances.  No member of the Company Group has elected not to participate in any operation or activity proposed with respect to the Properties which could result in any of any member of the Company Group’s interest in any Properties becoming subject to a reduction, penalty or forfeiture as a result of such election not to participate in such operation or activity, except to the extent reflected in the Net Revenue Interest and Working Interest columns set forth in Exhibit CSchedule 3.2(ff) of the Company Disclosure Schedule sets forth, to the Company’s knowledge, the correct payout balances as of the dates set forth therein for each Well subject to payout.

 

(gg)                                  Security ArrangementsSchedule 3.2(gg) of the Company Disclosure Schedule sets forth all various bonds, letters of credit, guarantees and/or cash deposits (collectively, “Security Arrangements”) posted or entered into by any member of the Company Group in connection with the ownership or operation of the Properties.

 



 

(hh)                                Surface Restrictions.  Except as set forth on Schedule 3.2(hh) of the Company Disclosure Schedule, to the Company’s knowledge, none of the Leases are subject to any restrictions that prohibit access to the surface of the lands covered by the Lease.

 

(ii)                                        Payment of Royalties.  Except for such items that are not yet due or are being held in suspense as permitted pursuant to applicable Law, the Company Group has paid in all material respects all Lease Burdens due by any member of the Company Group with respect to the Properties.

 

(jj)                                      Drilling Obligations.  Except to the extent of those obligations previously fulfilled by any member of the Company Group or any of its predecessors or as set forth on Schedule 3.2(jj) of the Company Disclosure Schedule, none of the Leases or Applicable Contracts contains any express provisions obligating any member of the Company Group to drill any wells on the Properties (other than provisions requiring optional drilling as a condition of maintaining or earning all or a portion of a presently non-producing Lease).

 

(kk)                                Environmental Matters.

 

(i)                                     Except as set forth on Schedule 3.2(kk) of the Company Disclosure Schedule:

 

(A)                               no member of the Company Group has entered into any Order, Permit conditions, or other directives of any Governmental Bodies based on any prior violations of Environmental Laws that relate to the future use of any of the Properties or that require any remediation;

 

(B)                               the Properties and the Company Group’s ownership and operation of the Properties are and, during the surviving periods of all applicable statutes of limitation, have been in compliance in all material respects with applicable Environmental Laws and Permits;

 

(C)                               no member of the Company Group has received any written notice of any claims, demands, suits, investigations, requests for information, orders, or proceedings pending or threatened under Environmental Law against any member of the Company Group with respect to the Properties or its ownership or operation thereof; and

 

(D)                               to the Company’s knowledge there has been no Release of Hazardous Substances on or from the Properties that could reasonably be expected to result in a material liability, Liability, or remediation obligation of the Company (or Buyer following the Closing) under Environmental Laws.

 

(ii)                                  Except as permitted under applicable Laws (including Environmental Laws), no member of the Company Group has disposed of any produced water or Hazardous Substances generated on the Properties, or used on the Properties, at sites off of the Properties.

 



 

(ll)                                        Throughput Fees.  None of the Rights of Way contain any throughput fees payable by Sellers or their Affiliates to the grantors of such Rights of Way or such grantors’ successors or assigns.

 

Section 3.3                                    Representations and Warranties of Buyer.  Except as set forth on the disclosure schedule dated as of the Execution Date and delivered by Buyer to Sellers’ Representative on or prior to the Execution Date (the “Buyer Disclosure Schedule”), Buyer represents and warrants to Sellers as follows:

 

(a)                                       Organization, Standing and Power.  Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Buyer has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified and in good standing to do business in each jurisdiction in which the business it is conducting, or the operation, ownership or leasing of its properties, makes such qualification necessary, other than in such jurisdictions where the failure so to qualify or be in good standing would not be reasonably expected to have, individually or in the aggregate, a Buyer Material Adverse Effect.

 

(b)                                       Authority; No Violations.

 

(i)                                     Buyer has all requisite corporate power and authority to execute and deliver this Agreement and each Buyer Deliverable and to consummate the Transactions and perform its obligations under this Agreement and the Buyer Deliverables.  The execution and delivery of this Agreement and each Buyer Deliverable by Buyer and the consummation by Buyer of the Transactions have been duly authorized by all necessary corporate action.  This Agreement and each Buyer Deliverable has been or will be duly executed and delivered by Buyer, and, assuming this Agreement constitutes the valid and binding obligation of the Company and Sellers, constitutes a valid and binding obligation of Buyer enforceable in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors’ rights and to general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity.

 

(ii)                                  The execution and delivery of this Agreement and each Buyer Deliverable does not and will not, and the consummation of the Transactions will not, result in any violation of, or default (with or without notice or lapse of time, or both) under (A) the organizational documents of Buyer or any of its Subsidiaries; (B) any loan or credit contract, note, bond, indenture, security agreement, guarantee, pledge, mortgage, lease or other contract or agreement, permit, franchise or license to which Buyer or any of its Subsidiaries is a party or by which Buyer or any of its Subsidiaries or properties or assets are bound, including any documents pertaining to the Buyer Revolving Credit Facility or the Buyer Notes; or (C) subject to (1) the filing with the SEC of such reports under the Exchange Act and such other compliance with the Exchange Act and the rules and regulations thereunder as may be required in connection with this Agreement and the Transactions, (2) filings with NASDAQ as may be required in connection with this Agreement and the Transactions, (3) filings that may be required by any applicable state securities or “blue sky” Laws, and (4) compliance with and filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), any Law

 



 

applicable to Buyer or any of its Subsidiaries or any of their respective properties or assets, other than, in the case of clauses (B) and (C), any such violations or defaults (excluding in respect of the Buyer Revolving Credit Facility or indenture under which the Buyer Notes were issued) that are set forth on Schedule 3.3(b)(ii) of the Buyer Disclosure Schedule or that would not be reasonably expected to have, individually or in the aggregate, a Buyer Material Adverse Effect.

 

(iii)                               No vote or consent of the holders of any class or series of capital stock of Buyer is necessary to approve this Agreement, the Investment Agreement, the issuance of the Stock Consideration under this Agreement or the other Transactions.

 

(c)                                        Governmental Consents.  No Governmental Consent is required to be obtained by Buyer in connection with the execution and delivery of this Agreement or the consummation of the Transactions, except for (i) the filing with the SEC of such reports under the Exchange Act and such other compliance with the Exchange Act and the rules and regulations thereunder as may be required in connection with this Agreement and the Transactions; (ii) filings with NASDAQ; (iii) any such Governmental Consents as may be required by any applicable state securities or “blue sky” Laws; (iv) compliance with and filings under the HSR Act; (v) any such Consents set forth on Schedule 3.3(c) of the Buyer Disclosure Schedule; and (vi) any such Consent the failure to obtain of which would not be reasonably expected to have, individually or in the aggregate, a Buyer Material Adverse Effect.

 

(d)                                       Available Funds.  Buyer will have available at the Closing, cash in an aggregate amount sufficient to (i) pay the aggregate Cash Consideration and (ii) perform all of its obligations hereunder and effect the Closing on the terms contemplated by this Agreement.

 

(e)                                  Other Buyer Representations.  Each of the representations and warranties made by Buyer in Section 3.03 (Company SEC Documents), Section 3.04 (Capitalization), Section 3.05 (Stock Options), Section 3.06 (The Purchased Securities), Section 3.07 (No Material Change), Section 3.11 (Legal Proceedings), Section 3.27 (Certain Fees), Section 3.28 (Forward-Looking Statements), Section 3.29 (Statistical Market Data) and Section 3.35 (No Other Registration Rights) of the Investment Agreement, each of which is incorporated by reference herein, is true and correct.

 

Section 3.4                                    Survival of Representations, Warranties, Covenants and Agreements.

 

(a)                                       Other than the representations and warranties made by each Seller in Section 3.1(a) (Organization, Standing and Power), Section 3.1(b) (Authority; No Violations), Section 3.1(d) (The Company Capital Stock), Section 3.1(e) (Nonforeign Status), Section 3.1(f) (Investor Representations) and Section 3.1(g) (USA Patriot Act, OFAC and FCPA) (the “Seller Fundamental Representations”), each of which shall survive the Closing until the end of the statute of limitations applicable thereto (the “SOL Survival Period”) and thereafter be of no force or effect, the representations and warranties made by Sellers shall survive the Closing for a period of twelve (12) months (the “12-Month Survival Period”) and thereafter shall be of no force or effect.  Any claim for any breach of any representation and warranty made by any Seller must be brought on or prior to the end of the applicable Survival Period under the procedures of Section 10.4.

 



 

(b)                                       Other than the representations and warranties made by Sellers in Section 3.2(a) (Organization, Standing and Power), Section 3.2(b) (Authority; No Violations), Section 3.2(d) (Capital Structure), Section 3.2(j) (Taxes) and Section 3.2(z) (Brokers) (the “Company Fundamental Representations”), each of which shall survive the Closing for the SOL Survival Period and thereafter be of no force or effect, the representations and warranties made by Sellers in Section 3.2 shall survive the Closing for the 12-Month Survival Period and thereafter shall be of no force or effect.  Any claim for any breach of any representation and warranty made by Sellers in Section 3.2 must be brought on or prior to the end of the applicable Survival Period under the procedures of Section 10.4.

 

(c)                                        Other than the representations and warranties made by Buyer in Section 3.3(a) (Organization, Standing and Power) and Section 3.3(b) (Authority; No Violations) and, from the Investment Agreement, Section 3.04 (Capitalization), Section 3.05 (Stock Options), Section 3.06 (The Purchased Securities) and Section 3.27 (Certain Fees) (the “Buyer Fundamental Representations”), each of which shall survive the Closing for the SOL Survival Period and thereafter be of no force or effect, the representations and warranties made by Buyer shall survive the Closing for the 12-Month Survival Period and thereafter shall be of no force or effect.  Any claim for any breach of any representation and warranty made by Buyer must be brought on or prior to the end of the applicable Survival Period under the procedures of Section 10.4.

 

(d)                                 Covenants.

 

(i)                                     Each of the covenants and performance obligations of Sellers, the Company and Buyer set forth in this Agreement that are to be performed prior to Closing and the corresponding indemnities set forth in Section 10.1(b) or Section 10.2(b)(ii), as applicable, with respect to such covenants and obligations shall survive the Closing for a period of 12 months and shall thereafter be of no force or effect; and

 

(ii)                                  Each of the other covenants and performance obligations of Sellers, the Company and Buyer set forth in this Agreement and the corresponding indemnities set forth in Section 10.1(b) or Section 10.2(b)(ii), as applicable, with respect to such covenants and obligations shall survive the Closing until fully performed in accordance with the terms and conditions of this Agreement.

 

(e)                                        All indemnities and, subject to Section 3.3(e), agreements contained in this Agreement shall survive the Closing until fully performed in accordance with the terms and conditions of this Agreement.

 

Section 3.5                                    Waiver of Representations and Warranties.  Except for (i) the special warranty of title contained in Section 3.2(m), (ii) the Parties’ rights and obligations under ARTICLE V or ARTICLE X, (iii) actual, intentional fraud, or (iv) the express representations and warranties of each Party contained in this Agreement, the Investment Agreement and any other Buyer Deliverable or Seller Deliverable, no Party makes any other, and expressly disclaims and negates, and each Party hereby waives, any representation or warranty, express, statutory, implied, or otherwise, including with respect to:  (a) the quality, accuracy, completeness or materiality of the data, information and materials furnished (whether electronically, orally, by

 



 

video, in writing, in any data room or by any other medium) at any time to it, its Affiliates and its and their respective Representatives in connection with such Party’s investigation of the Company Group, the Company Capital Stock or the Properties, in the case of Buyer, or Buyer or the Buyer Common Stock, in the case of Sellers, or the Transactions (including with respect to title, costs, expenses, revenues, accounts receivable and accounts payable associated with the Properties or the properties of Buyer, the financial viability or productivity of the Properties or the properties of Buyer, the environmental or physical condition of the Properties or the properties of Buyer and federal, state, local or tribal income or other Tax consequences associated with the Properties or the properties of Buyer); (b) title; (c) the quality, quantity or volume of the reserves, if any, of the Hydrocarbons in or under the Properties or the properties of Buyer, both surface and subsurface; (d) compliance with contracts, including Applicable Contracts, and applicable Laws (including Environmental Laws); (e) the environmental condition of the Properties or the properties of Buyer; (f) absence of defects (latent or patent), safety and state of repair; (g) any warranty of freedom from patent, copyright or trademark infringement; (h) production rates, recompletion opportunities, decline rates and gas balancing information; and (i) merchantability, fitness for a particular purpose, or of conformity to models or samples of materials.  Except for (x) the Parties’ rights and obligations under ARTICLE V or ARTICLE X, (y) actual, intentional fraud, or (z) the express representations and warranties of Sellers contained in this Agreement, the Investment Agreement and any other Buyer Deliverable or Seller Deliverable at the Closing, the Company Capital Stock is sold, and Buyer accepts the Company Capital Stock in each case, “AS IS, WHERE IS AND WITH ALL FAULTS”.  Except for (w) the special warranty of title contained in Section 3.2(m), (x) the Parties’ rights and obligations under ARTICLE V or ARTICLE X, (y) actual, intentional fraud, or (z) the express representations and warranties of Sellers contained in this Agreement, the Investment Agreement or any Seller Deliverable, there are no representations or warranties that extend beyond the face of this Agreement or the Investment Agreement as provided in (and subject to the terms and conditions of) ARTICLE X (Indemnification) and ARTICLE VI (Indemnification) of the Investment Agreement.

 

ARTICLE IV
COVENANTS

 

Section 4.1                                    Conduct of Business by the Company.

 

(a)                                       From and after the Execution Date until the earlier of the Closing and the termination of this Agreement in accordance with ARTICLE XII (the “Interim Period”), except as consented to in writing by Buyer or provided for in this Agreement, the Company shall, and shall cause its Subsidiaries to:

 

(i)                                     cause the Properties to be maintained and operated in a good and workmanlike manner consistent with the manner of maintenance and operations prior to the Execution Date and operate the Properties in the Ordinary Course in compliance with applicable Laws; provided, however, that no member of the Company Group shall be obligated to complete, recomplete, or rework any of the Wells or drill any additional wells;

 

(ii)                                  pay or cause to be paid their proportionate share of all costs and expenses incurred in connection with such operations and the Company will notify Buyer of ongoing

 



 

activities and major capital expenditures in excess of $100,000 per activity on an 8/8ths basis, exclusive of the matters contemplated by the capital budget attached hereto as Exhibit J (such Exhibit J, with any changes or amendments as agreed to by Buyer and Sellers’ Representative in writing, is the “Capital Budget”), and shall consult with Buyer regarding all such matters and operations involving such expenditures;

 

(iii)                               pay, as they become due, all expenses related to the Properties, as would be paid by a reasonably prudent lessee or operator;

 

(iv)                              notify Buyer of any election that any member of the Company Group is required to make under any Applicable Contract, specifying the nature and time period associated with such election, and, if Buyer does not respond to the applicable member of the Company Group within sufficient time to enable such member of the Company Group to timely make such election, then such member of the Company Group shall make such election as would a reasonably prudent lessee or operator; provided, however, that no member of the Company Group shall make any election to go non-consent or to not participate in any operation with respect to the Properties without Buyer’s prior written consent;

 

(v)                                 pay any material Taxes imposed on the Company and any material Production Taxes related to the Assets as such Taxes become due and payable, subject to Sellers’ rights under this Agreement to be reimbursed or indemnified by Buyer for the portion of any Taxes allocable to Buyer pursuant to Section 6.1;

 

(vi)                              maintain insurance coverage on the Properties presently furnished by third parties that are not Affiliates of any member of the Company Group or any Seller in the amounts and of the types presently in force;

 

(vii)                           use commercially reasonable efforts to keep Buyer reasonably apprised of any drilling, re-drilling or completion operations proposed or conducted by the Company Group with respect to the Properties;

 

(viii)                        use commercially reasonable efforts to maintain in full force and effect all Leases that are presently producing in paying quantities; and

 

(ix)                              notify Buyer if any Lease terminates promptly upon learning of such termination.

 

(b)                                       During the Interim Period, except as (w) expressly provided in this Agreement, (x) contemplated by the Capital Budget, (y) required by Law or (z) consented to in writing by Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), the Company shall not, and shall cause its Subsidiaries not to:

 

(i)                                     except for transactions solely among members of the Company Group, split, combine or reclassify any equity interests in any member of the Company Group;

 

(ii)                                  declare or pay any dividend or distribution on the Company Capital Stock, whether in cash, evidence of Indebtedness or other property;

 



 

(iii)                               offer, issue, deliver, grant or sell, or authorize or propose to offer, issue, deliver, grant or sell, any equity interests in any member of the Company Group or any securities convertible into, or any rights, warrants or options to acquire, any such equity interests;

 

(iv)                              amend or propose to amend the organizational documents of any member of the Company Group;

 

(v)                                 consummate, authorize, recommend, propose, or announce an intention to adopt a plan of complete or partial liquidation, dissolution, recapitalization, scheme of arrangement or other reorganization for any member of the Company Group;

 

(vi)                              except for the transactions described on Schedule 4.1(b)(vi), take any action to sell, transfer, farmout, dispose of, distribute, mortgage, encumber, pledge or enter into any agreement or arrangement for the sale, disposition, distribution, mortgage, encumbrance or pledge of, any of the Properties, other than dispositions of worn-out or obsolete equipment and other personal property in the Ordinary Course and of the Hydrocarbons that are produced from the Properties in the Ordinary Course;

 

(vii)                           except as otherwise permitted by this Agreement, enter into any transaction, the effect of which would be to cause the Company Group’s Net Revenue Interest with respect to the production of Hydrocarbons from any Listed Interest to be less than, or the Company Group’s Working Interest with respect to the production of Hydrocarbons from any Listed Interest to be more than, that shown in Exhibit C for such Listed Interest, unless, with respect to any such increase in Working Interest, there is a proportionate increase in the Net Revenue Interest with respect to such Listed Interest;

 

(viii)                        except for (A) emergencies, (B) lease operating expenses incurred in the Ordinary Course, or (C) operations described in Section 4.1(a)(iv) or contemplated in the Capital Budget, enter into any contract or commitment or assume or incur any obligation with respect to the Properties’ operations involving expenditures in excess of $100,000 in the aggregate;

 

(ix)                              relinquish voluntarily its position as operator with respect to any Property;

 

(x)                                 file any Tax Return materially inconsistent with past practice, settle or otherwise compromise any material claim relating to Taxes, enter into any closing agreement or similar agreement relating to a material amount of Taxes, request any ruling or similar guidance with respect to a material amount of Taxes, make any material Tax election, adopt or change any method of Tax accounting with respect to a material amount of Taxes, surrender the right to claim a Tax refund, or consent to any extension or waiver of the limitation period applicable to any Tax proceeding;

 

(xi)                              violate, breach or default under, in any material respect, any Material Contract or Lease;

 

(xii)                           except for the transactions described on Schedule 4.1(b)(xii), enter, or agree to enter, into any agreement that, if in existence as of the Execution Date, would be a Material Contract, or amend or modify any Material Contract;

 



 

(xiii)                        waive, release, assign, settle or compromise any claim, action or proceeding relating to the Properties, other than waivers, releases, assignments, settlements or compromises that involve only the payment of monetary damages not in excess of $100,000 individually or in the aggregate (excluding amounts to be paid under insurance policies);

 

(xiv)                       incur any Indebtedness, other than up to $50,000,000 under the Company Credit Facility; or

 

(xv)                          enter into any agreement to do any of the foregoing prohibited by this Section 4.1.

 

(c)                                        Notwithstanding the foregoing, (i) Buyer acknowledges and agrees that any acts or omissions of the other working interest owners (and operators) of the Properties that the Company does not have any contractual right to control shall not constitute a breach of this Section 4.1 and (ii) Buyer’s consent shall not be required with respect to any action taken by the Company or its Subsidiaries as required by Law or as specifically contemplated by other provisions of this Agreement.

 

Section 4.2                                    Conduct of Business by Buyer.

 

(a)                                 During the Interim Period, except as (i) expressly provided by this Agreement, (ii) required by Law or (iii) consented to in writing by Sellers’ Representative (which consent shall not be unreasonably withheld, conditioned or delayed), Buyer shall not, and shall cause its Subsidiaries not to:

 

(i)                                     except for transactions solely among Buyer and its wholly-owned Subsidiaries or among Buyer’s wholly-owned Subsidiaries (i) declare, set aside or pay dividends on, or make any other distribution with respect of, any outstanding capital stock or, or other equity interests in, Buyer or its Subsidiaries or (ii) split, combine or reclassify any capital stock of, or other equity interest in, Buyer;

 

(ii)                                  enter into or conduct any recapitalizations of Buyer; provided, however, that in no event shall the Financing be considered a recapitalization; or

 

(iii)                               enter into any agreement to do any of the foregoing prohibited by this Section 4.2.

 

Section 4.3                                    Reports.  Subject to Section 4.9, Sellers and Buyer agree to cooperate with each other in connection with the preparation by such Parties of any report to any federal, state or local Governmental Bodies that are required of such Parties as the result of the execution and delivery of this Agreement or the consummation of the Transactions.

 

Section 4.4                                    Efforts.  Subject to Section 4.9, Each Party will use commercially reasonable efforts to take, or to cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and regulations to consummate and make effective the Transactions, including (a) cooperation in determining whether any action by or in respect of, or filing with, any Governmental Body is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in

 



 

connection with the consummation of the Transactions; (b) cooperation in seeking and obtaining any such actions, consents, approvals, or waivers; and (c) the execution of any additional instruments necessary to consummate the Transactions.  Promptly after the Closing, Buyer shall:  (i) actively pursue the approval of all Customary Post-Closing Consents from the applicable Governmental Bodies; (ii) subject to Sellers’ obligations pursuant to Section 5.9, actively pursue all other consents and approvals that may be required in connection with the sale of the Company Capital Stock to Buyer and the assumption of the rights, interests, obligations and liabilities assumed by Buyer hereunder that have not been obtained prior to Closing, at Buyer’s sole cost and expense; and (iii) except as otherwise set forth herein, deliver all notices that may be required in connection with the sale of the Company Capital Stock to Buyer and the assumption of the rights, interests, obligations and liabilities assumed by Buyer hereunder.

 

Section 4.5                                    Return of Information.  In the event of termination of this Agreement, each Party shall promptly comply with its respective obligations under the Confidentiality Agreements regarding the return and destruction of Evaluation Material and Confidential Information (as such terms are defined in the Confidentiality Agreements).

 

Section 4.6                                    Amendment of Schedules.  Buyer agrees that, with respect to the representations and warranties of Sellers contained in this Agreement, Sellers’ Representative shall have the continuing right prior to the Closing to add, supplement or amend the Company Disclosure Schedules to its representations and warranties in ARTICLE III with respect to any matter arising after the Execution Date which, if existing on the Execution Date, would have been required to be set forth or described in such Company Disclosure Schedules.  For all purposes of this Agreement, including for purposes of determining whether Buyer’s closing conditions in Section 7.2 have been fulfilled and for purposes of determining Sellers’ indemnification obligations under Section 10.2(a) and 10.2(b), the Company Disclosure Schedules to Sellers’ representations and warranties contained in this Agreement shall be deemed to include only that information contained therein on the Execution Date and shall be deemed to exclude all information contained in any addition, supplement or amendment thereto.

 

Section 4.7                                    Officers and Directors.

 

(a)                                       Buyer agrees that all rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring prior to the Closing now existing in favor of any present or former manager, director or officer of the Company Group, in their capacities as such (each, a “D&O Indemnified Party”) will remain obligations of the Company Group and will survive the Closing and continue in full force and effect in accordance with their terms.  Buyer shall not, and shall cause its Affiliates not to, without consent of Sellers’ Representative, amend, restate or repeal any organizational documents of any member of the Company Group within six years after the Closing unless such organizational document (after giving effect to such amendment, restatement or repeal and applicable Law) would provide for such Company Group member to indemnify and hold harmless each present and former manager, partner, director and officer of such Company (in each case, when acting in such capacity), against, and advance expenses with respect to, any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or Liabilities incurred in connection with any proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters in connection with acting in such capacity, to at least the

 



 

same extent that such indemnification and advancement of expenses would be provided for under applicable Law or its organizational documents in effect on the Closing Date.

 

(b)                                       For the six-year period commencing on the Closing Date, Buyer shall maintain in full force and effect and continue to honor the Company Group’s obligations thereunder in accordance with the terms thereof, through an extended reporting period endorsement, the Company Group’s current directors’ and officers’ liability insurance covering acts or omissions occurring at or prior to the Closing Date with respect to those persons who are currently (and any directors, managers or officers of the Company or any Subsidiary of the Company who prior to the Closing Date become) covered by the Company’s directors’ and officers’ liability insurance policy on the same terms and scope with respect to such coverage, and amount, for such individuals; provided, however, that the foregoing shall not require Buyer to spend more than 300% of the last annual premium paid by the Company Group prior to the date hereof for such insurance.

 

(c)                                        The Parties hereby acknowledge and agree that, from and after the Closing, each of the present and former partners, managers, directors and officers of any member of the Company Group shall be an express third-party beneficiary of this Section 4.7.  The rights of such partners, managers, directors and officers under this Section 4.7 shall be in addition to any rights such partners, managers, directors and officers may have under the organizational documents of the Company Group or under any applicable contracts or Laws.

 

Section 4.8                                    Access to Required Information.

 

(a)                                       Following the Execution Date, and until the date that is one hundred eighty (180) days following the Closing Date, Sellers agree to, and to cause the Company Group to, make available to Buyer, during normal business hours, any and all existing Required Information in the possession of Sellers relating to the Company Group or the Properties or, prior to the Closing only, in the possession of the Company Group, for the period from the date of incorporation of the Company to the Closing Date that Buyer may reasonably require.

 

(b)                                       Following the Execution Date and until the first anniversary of the Closing Date, Sellers will use their commercially reasonable efforts to cooperate with the independent auditors chosen by Buyer (“Buyer’s Auditor”) in connection with their audit or review of any financial statements of the Company Group that Buyer requires to comply with its tax and financial reporting requirements and audits that may be required by the SEC under the Securities Act and/or the Exchange Act, which cooperation will include reasonable access during normal business hours to Sellers’ and the Company Group’s employees, representatives and agents who were responsible for preparing the financial statements and work papers and other supporting documents used in the preparation of financial statements, as may be reasonably required by Buyer’s Auditor to perform an audit in accordance with generally accepted auditing standards; provided, however, that (i) Buyer must reimburse Sellers, within five (5) Business Days after demand therefor, for any reasonable documented out-of-pocket costs with respect to any costs incurred by Sellers and the Company Group in complying with this provisions of this Section 4.8, and (ii) such requested cooperation does not unreasonably interfere with the ongoing operations of the Company Group or its Affiliates.

 



 

(c)                                  For the avoidance of doubt, prior to Closing, no Tax information shall be required to be provided to Buyer under this Section 4.8 if the provision of such information may result in a waiver of any legal privilege.

 

Section 4.9                                    HSR Act Filings.  Each Party shall as promptly as practicable, but in no event later than 15 Business Days following the execution and delivery of this Agreement, file with the United States Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”) the notification and report form, if any, required for the Transactions and any supplemental information requested in connection therewith pursuant to the HSR Act. Any such notification and report form and supplemental information shall be in substantial compliance with the requirements of the HSR Act.  All filing fees payable under the HSR Act shall be borne and paid 50% by Sellers and 50% by Buyer.  Each Party shall furnish to the other such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing or submission that is necessary under the HSR Act. The Parties shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request.  Each Party shall use its commercially reasonable efforts to obtain any clearance required under the HSR Act for the consummation of the Transactions; provided, however, that Buyer and its Affiliates shall not be required to (i) divest or otherwise dispose of, or hold separate, all or any portion of any property or other asset or the operations of any such property or other asset or (ii) agree or become subject to any limitations on their rights to control, operate or exercise the full rights of ownership of such assets or operations, including, in each case, the assets purchased hereunder and the operations thereof from and after the Closing.

 

Section 4.10                             Financing Cooperation.

 

(a)                                 During the Interim Period, upon the request of Buyer, the Company Group shall, and shall use commercially reasonable efforts to cause its Representatives to, cooperate reasonably in connection with the Financing (so long as such requested cooperation does not unreasonably interfere with the conduct of the business of the Company Group), including any offering of securities, requested repayment or refinancing of Indebtedness of Buyer and any SEC filing to be made by Buyer, including, as applicable, by: (i) causing the Company Group’s management teams, with appropriate seniority and expertise, to participate in meetings, due diligence and drafting sessions, rating agency presentations and road shows, if any; (ii) providing Required Information reasonably requested by Buyer or its Financing Sources to the extent in the Company Group’s possession, or obtainable by the Company Group; (iii) assisting at Buyer’s sole expense in the preparation of SEC filings to be made by Buyer, offering memoranda, private placement memoranda, prospectuses, bank confidential information memoranda, rating agency presentations and similar documents (“Offering Documents”); (iv) (A) using reasonable commercial efforts to cause any accountants retained by the Company Group to cooperate with Buyer, including by participating in drafting sessions and accounting due diligence sessions, obtaining the consent of, and customary comfort letters from, such accountants (including by providing customary management letters and requesting legal letters to obtain such consent) in connection with any securities offering by Buyer if necessary or desirable for Buyer’s use of the Company Group’s financial statements, (B)  using reasonable commercial efforts to cause any independent reservoir engineers retained by the Company Group to cooperate with Buyer, including by participating in drafting sessions and reservoir

 



 

engineer due diligence sessions, obtaining the consent of, and customary comfort letters from, such engineers (including, if necessary, by providing customary management letters and requesting legal letters to obtain such consent) in connection with any securities offering by Buyer if necessary or desirable for Buyer’s use of the Company Group’s reserve reports, (C) cooperating with Buyer’s or other relevant independent reservoir engineers in connection with the drafting of any customary comfort letters that such independent engineers may be required to deliver in connection with any securities offering and (D) cooperating with Buyer’s legal counsel in connection with any legal opinions that such legal counsel may be required to deliver in connection with any securities offering as part of the Financing (the fee in respect of which shall be the responsibility of Buyer); (v) cooperating reasonably with any due diligence requests of the Financing Sources, to the extent customary and reasonable; (vi) in connection with any such Financing, provide customary authorization letters authorizing the distribution of information to prospective lenders and containing a customary representation that at the time of the delivery of such authorization letter all written factual information concerning the Properties (other than (A) any projections regarding their future performance, (B) other forward-looking information and (C) information of a general economic or industry nature), that has been made available to the Buyer or any Financing Source by any Seller or any of its representatives on its behalf in connection with the Financing, when taken as a whole, and together with the Sellers’ filings with the SEC, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made; (vii) assisting in the amendment or novation of any of the Company Group’s Hedge Contracts, in each case, on terms that are reasonably requested by Buyer; provided that no obligation of the Company Group under any such amendments or novations shall be effective until the Closing Date; (viii) furnishing promptly all documentation and other information reasonably requested by a Financing Source and required by any Governmental Body under applicable “know your customer” and anti-money laundering rules and regulations, including the PATRIOT Act, to the extent requested at least ten Business Days prior to the Closing Date; (ix) in connection with the Financing, executing and delivering any definitive financing documents, including any necessary pledge and security documents, as reasonably requested by Buyer and otherwise facilitating the pledging of collateral in connection with the Financing, and providing customary title information and title opinions to the extent in the Company Group’s possession or obtainable by the Company Group; provided that no obligation of the Company Group under any such definitive financing documents, including any pledge and security documents, shall be effective until the Closing Date; (x) causing the taking of any corporate, limited liability company or partnership actions, as applicable, by the Company Group reasonably necessary to permit the completion of the Financing; and (xi) seeking to obtain customary payoff letters, lien terminations and releases and instruments of discharge to be delivered at Closing providing for the payoff, discharge and termination on the Closing Date of all Indebtedness under the Company Credit Facility and release of liens contemplated by any repayment or refinancing of such Indebtedness to be paid off, discharged and terminated on the Closing Date; provided that the documents in respect of such arrangements contemplated by this clause (xi) shall not need to be effective until the Closing Date.

 

(b)                                 Notwithstanding the foregoing, (i) none of Sellers, the Company Group nor any of their respective Subsidiaries shall be required to incur any liability in connection with the Financing (including commitment, underwriting or similar fees), (ii) nothing shall require such

 



 

cooperation to the extent it would require any Seller or member of the Company Group to waive or amend any terms of this Agreement and (iii) neither Sellers, the Company Group nor any of their respective Subsidiaries shall be required to take any action or provide access to or disclose information where such Person reasonably determines that such action, access or disclosure would (A) jeopardize attorney-client or other legal privilege, (B) result in the contravention of any applicable requirements of Law or (C) require the board of directors (or similar governing body) of any Seller or the Company Group or any of their respective Subsidiaries to approve any Financing or agreements related thereto. Buyer shall promptly, upon request of Sellers or the Company Group, reimburse Sellers and the Company Group and their respective Subsidiaries, as applicable, for all reasonable out-of-pocket costs incurred by Sellers or the Company Group or their respective Subsidiaries in connection with this Section 4.10.

 

(c)                                  Buyer acknowledges and agrees that its obtaining Financing is not a condition to any of its obligations hereunder. For the avoidance of doubt, if any Financing referred to in this Section 4.10 is not obtained for any reason other than Sellers’ material breach of its obligations hereunder, Buyer shall continue to be obligated to consummate the transactions contemplated by this Agreement, subject to and on the terms contemplated by this Agreement.

 

Section 4.11                             Termination of Affiliate Obligations. On or before the Closing Date, except as set forth on Schedule 4.11, all obligations between the Company or any of the Company’s Subsidiaries, on the one hand, and one or more of their respective Affiliates, on the other hand, including any and all contracts (other than this Agreement and any ancillary agreement contemplated hereby) between any of the Company and any of its Subsidiaries, on the one hand, and one or more of their respective Affiliates, on the other hand, shall be terminated without any obligation on the part of the Company or its Subsidiaries from and after the Closing.

 

Section 4.12                             Employee Matters.

 

(a)                                       Buyer shall have the opportunity to interview the Company Group employees for post-Closing employment opportunities with the Company Group during normal working hours (including onsite interviews) consistent with the operating requirements of the Company Group and applicable Law.  Additionally, to the extent permitted by applicable Law, Buyer may review and retain copies of personnel records maintained by the Company Group or Sellers with respect to the Company Group employees.  No later than ten Business Days prior to the Closing, Buyer shall provide Sellers’ Representative with a list of the Company Group employees who will be terminated by the Company Group on or before the Closing Date.  Sellers shall cause the Company Group to terminate all such employees prior to Closing.  Sellers shall pay all costs associated with their termination, including, but not limited to any severance obligations under the Employee Plans.  All Company Group employees who are not included on such list shall continue employment with the Company Group on and after Closing (each a “Retained Employee”).  Nothing in this Agreement shall create any obligation on the part of Buyer to continue the employment of any Retained Employee for any definite period following the Closing Date, and nothing in this Agreement shall preclude Buyer from altering, amending, or terminating any Employee Plan, or the participation of any of its employees in such plans, at any time.

 



 

(b)                                       Effective as of the Closing Date and contingent upon Closing, the Company Group shall terminate any Employee Plan intended to qualify under Section 401(a) of the Code (each, a “401(k) Plan”) or meet the requirements of Section 125 of the Code (each a “125 Plan”) and has requested that Insperity terminate any such Insperity Plan with respect to the portion of each such plan that is attributable to Company Group employees.  The Company Group will provide Buyer with evidence that the portion of each Employee Plan that is a 401(k) Plan or a 125 Plan that is attributable to Company Group employees has been terminated and that the participation of each Company Group employee in each such 401(k) Plan and 125 Plan has been terminated, as applicable, effective as of the Closing Date and contingent upon Closing, pursuant to any related Insperity notice requirement and resolutions of the board of directors (or similar governing body) of the Company Group.  The form and substance of such notice and resolutions shall be reviewed by Buyer and revised based on the reasonable requests of Buyer.  The Company Group also shall take such other actions in furtherance of terminating the portion of each such 401(k) Plan and 125 Plan that is attributable to Company Group employees as Buyer may reasonably require.

 

(c)                                        The Company Group shall terminate all contracts with Insperity providing for the co-employment of employees of the Company Group, effective as of the Closing Date and contingent upon Closing, including sending all required notices, such that (i) each such contract shall be of no further force or effect upon Closing, without any remaining Liability of any kind on the part of the Company Group or Buyer, (ii) effective as of the Closing Date and contingent upon Closing, any Company Group employee shall be considered solely an employee of the Company Group for all purposes, and (iii) each Company Group employee’s participation in any Employee Plans sponsored by Insperity shall terminate effective as of the Closing Date, contingent upon Closing.

 

(d)                                       Following the Closing Date, Buyer shall use its commercially reasonable efforts to ensure that each Retained Employee shall receive full credit for such employee’s service with the Company Group and any of its predecessors for purposes of eligibility, vesting and benefit accruals, under any Buyer or Company Group employee benefit plans (other than (A) benefit accrual under a buyer employee benefit plan subject to Section 412 of the Code or Title IV of ERISA, and (B) vesting under any Buyer stock plan or Buyer incentive plan) in which any such Retained Employee participates, to the same extent recognized by the Company Group on and before the Closing Date; provided, however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits with respect to the same period of service.  Sellers shall promptly provide Buyer with all data and information reasonably requested by Buyer to provide the Retained Employees with such service credit.

 

(e)                                        Sellers shall be responsible, either directly or through insurance policies maintained by Sellers or Insperity, for all (i) medical, vision, dental and prescription drug claims for expenses incurred by any Retained Employee or his or her dependents, (ii) claims for short-term and long-term disability income benefits incurred by any Retained Employee, and (iii) claims for group life, travel and accident, and accidental death and dismemberment insurance benefits incurred by any Retained Employee, in each case, prior to the Closing. Buyer shall be, responsible for all (A) medical, vision, dental and prescription drug claims for expenses incurred by any Retained Employee or his or her dependents, (B) claims for short-term and long-term disability income benefits incurred by any Retained Employee and (C)

 



 

claims for group life, travel and accident, and accidental death and dismemberment insurance benefits incurred by any Retained Employee, in each case, on or after Closing. Except in the event of any claim for workers compensation benefits, for purposes of this Agreement, the following claims and Liabilities shall be deemed to be incurred as follows: (1) medical, vision, dental and/or prescription drug benefits (including hospital expenses), upon provision of the services, materials or supplies comprising any such benefits and (2) short- and long-term disability, life, accidental death and dismemberment and business travel accident insurance benefits, upon the death, illness, injury or accident giving rise to such benefits. Sellers shall be responsible for all claims for workers compensation benefits that are incurred prior to Closing by any Retained Employee. Buyer shall be responsible for all claims for workers compensation benefits that are incurred on or after the Closing by any Retained Employee. A claim for workers compensation benefits shall be deemed to be incurred when the event giving rise to the claim occurs.

 

(f)                                         Buyer shall take all actions necessary to provide COBRA continuation coverage to all individuals who are M&A Qualified Beneficiaries (within the meaning assigned to such term under Q&A-4 of Treasury Regulation Section 54.4980B-9) with respect to the transactions contemplated under this Agreement for the duration of the period to which such individuals are entitled to such coverage, subject to such beneficiaries paying their premiums under COBRA.

 

(g)                                        Complete copies of the personnel records of all Retained Employees shall continue to be Company Group property on and after the Closing Date.

 

(h)                                       Nothing in this Agreement is intended to confer on any entity or individual who is not a party to this Agreement any rights whatsoever.  This Section 4.12 shall not constitute an amendment to any employee benefit plan maintained by Buyer or any Seller, create any third party beneficiary rights, or inure to the benefit of or be enforceable by, any employee or any person representing the interests of employees.

 

Section 4.13                             Pay Off Letters; Release of Indebtedness.  Sellers will request each holder of Indebtedness set forth on Schedule 4.13 to prepare and deliver to Buyer the Pay Off Letters, no later than five (5) Business Days prior to the Closing Date, setting forth (i) the amounts required to be paid at the Closing to the holder of such Indebtedness pursuant to the terms of such Indebtedness and (ii) the commitment of such creditor to release all liens, if any, which they may hold on any of the Assets immediately upon receipt of all payments validly owing to each holder of Indebtedness as provided for in the Pay Off Letters, which Pay Off Letters will be updated, as necessary, prior to the Closing Date. At the Closing, Sellers shall also provide Buyer evidence reasonably satisfactory to Buyer that upon payment of the amounts set forth in the Pay Off Letters, all liens on the Subject Oil and Gas Interests and the Assets securing the Indebtedness covered by the Pay Off Letters will be removed and released.  No Seller will have liability in respect of the Pay Off Letters for Indebtedness under the Company Credit Facility or the satisfaction of the Indebtedness covered thereby.  Sellers and the Company will also, to the extent requested to do so by Buyer, use commercially reasonable efforts to cooperate with Buyer in procuring the novation of Buyer for the Company under any Company Hedge Contracts that may be outstanding as of the Closing Date.

 



 

ARTICLE V
EXAMINATION OF TITLE AND PROPERTIES

 

Section 5.1                                    Access.

 

(a)                                       From and after the Execution Date until 5:00 p.m., Central time, on November 7, 2016 (the “Defect Deadline”), Sellers and the Company Group shall give Buyer (and any of its Representatives) reasonable access to the Properties (including the Records in the Company Group’s possession), as well as to Sellers’ personnel, if any, that work primarily on the Properties, and to the Company Group’s personnel, solely for the purpose of Buyer’s due diligence investigation of the Properties, but only to the extent that Sellers and the Company Group may do so without violating any confidentiality or other obligations to any third Person and only to the extent that Sellers and the Company Group have the authority to grant such access without breaching any obligation or restriction binding on Sellers or the Company Group, or any of their respective Affiliates.  Such access by Buyer shall be limited to the Company Group’s normal business hours, and Buyer’s investigation shall be conducted in a manner that minimizes interference with the operation of the Properties and at the sole cost and expense of Buyer.

 

(b)                                       Buyer acknowledges that the permission of the operator (if other than any member of the Company Group) or another third Person may be required before Buyer will be able to inspect portions of the Properties and that such permission must be obtained prior to the inspection of such portions.  Sellers and the Company Group shall use commercially reasonable efforts to obtain such permission for Buyer upon Buyer’s written request.  All inspections pursuant to this Section 5.1 shall be conducted at Buyer’s sole cost, risk and expense, and any conclusions made from any such investigation done by Buyer or any of Buyer’s Representatives shall result from Buyer’s own independent review and judgment.  Buyer agrees to comply with (and to cause Buyer’s Representatives to comply with) the rules, regulations and instructions issued by Sellers, the Company Group or any third party operator of the Properties regarding the actions of Buyer (and Buyer’s Representatives) in conducting any inspection pursuant to this Section 5.1.

 

Section 5.2                                    Environmental Property Inspection.

 

(a)                                       From and after the Execution Date, Sellers and the Company Group shall permit Buyer and Buyer’s Representatives, at Buyer’s sole risk, cost and expense, reasonable access to the Properties operated by the Company Group, and to Properties operated by any third-party operator (to the extent Sellers have obtained such operator’s approval for such access, which Sellers shall use reasonable efforts to obtain upon Buyer’s written request), to conduct field inspections for purposes of Buyer’s due diligence investigation of environmental matters relating to the Properties (“Buyer’s Environmental Review”).  In connection with the granting of such access, and except to the extent caused by the gross negligence or willful misconduct of any member of the Seller Indemnified Parties, Buyer agrees that Buyer shall be liable to Sellers and to the Company Group for any and all damage to the Properties arising out of or relating to Buyer’s (or Buyer’s Representatives’) inspection and access to the Properties.  Buyer shall, and shall cause Buyer’s Representatives to, abide by Sellers’ and the Company Group’s (or any of their respective Affiliates’) safety rules, regulations and operating policies of which they are

 



 

informed in writing prior to conducting Buyer’s Environmental Review.  The scope of work comprising Buyer’s Environmental Review shall be limited to Phase I Activities; provided, however, in the event that Buyer’s environmental consultant conducting the Phase I Activities reasonably concludes, based upon the results of the Phase I Activities, that it is necessary to conduct a Phase II Environmental Assessment on certain Properties in order for Buyer to fully assess the environmental condition of the Properties, ascertain the existence of an Environmental Defect, or the Environmental Defect Amount, Buyer may, with Sellers’ Representative’s prior written consent, such consent not to be unreasonably withheld, conditioned, or delayed, conduct such Phase II Environmental Assessment as to those specific Properties.  If Sellers’ Representative denies such consent for any reason, all Properties subject to such request, and all associated Properties, will be deemed uncured Environmental Defect Properties (such Properties are the “Environmental Review Defect Properties”) and the Base Purchase Price will be reduced by the Allocated Values of all such Properties. Buyer shall (i) consult with Sellers’ Representative before conducting any work comprising Buyer’s Environmental Review, (ii) perform its work in conducting Buyer’s Environmental Review in a safe and workmanlike manner and so as to not unreasonably interfere with Sellers’ or the Company Group’s (or any of their respective Affiliates’) operations, (iii) comply with all applicable Laws, and (iv) reasonably promptly and completely restore the Properties to the condition such Properties existed in prior to the Buyer’s Environmental Review and repair any damage thereto resulting from Buyer’s Environmental Review.  Sellers and the Company Group shall have the right to have one or more representatives accompany Buyer at all times during Buyer’s Environmental Review, and Buyer shall give Sellers’ Representative at least forty-eight (48) hours’ notice prior to the start of its work on the Properties, unless Sellers’ Representative waives such requirement.  The Parties agree that all information discovered during Buyer’s Environmental Review shall be governed by the terms of the Seller Confidentiality Agreement (except to the extent such information is required to be provided under this Agreement (e.g., to an Arbitrator pursuant to ARTICLE XI)).

 

(b)                                       BUYER SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS THE SELLER INDEMNIFIED PARTIES, FROM AND AGAINST ANY AND ALL LIABILITIES ARISING OUT OF, RESULTING FROM, BASED ON, ASSOCIATED WITH, OR RELATING TO, IN ANY WAY, THE ACCESS AFFORDED TO BUYER PURSUANT TO THIS ARTICLE V, REGARDLESS OF WHETHER SUCH LIABILITIES ARISE OUT OF OR RESULT FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE SELLER INDEMNIFIED PARTIES, EXCEPTING ONLY LIABILITIES TO THE EXTENT RESULTING FROM THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF ANY OF THE SELLER INDEMNIFIED PARTIES.  THE FOREGOING INDEMNITY SHALL CONTINUE IN FULL FORCE AND EFFECT NOTWITHSTANDING ANY TERMINATION OF THIS AGREEMENT.

 

Section 5.3                                    Exclusive Remedy.  Except for (a) the special warranty of title set forth in Section 3.2(m) and (b) the Company’s representations and warranties under Sections 3.2(o) and 3.2(kk) of this Agreement (clauses (a) and (b) are, collectively, the “Limited Representations”), the rights and remedies of Buyer set forth in this ARTICLE V shall be Buyer’s exclusive rights and remedies with respect to any defect of title (including any Title Defect), any Environmental

 



 

Defect and any Environmental Liability with respect to the Properties, and the provisions of ARTICLE X shall not apply with respect to any defect in title (including any Title Defect), Environmental Defect or Environmental Liability.

 

Section 5.4                                    Notice of Title Defects and Title Benefits; Remedies.

 

(a)                                       If Sellers discover any Title Benefit, or Buyer discovers any Title Defect, then such Party may (but shall have no obligation to) deliver to the other Party, prior to the Defect Deadline, a Title Notice with respect to such Title Benefit or Title Defect, as applicable.  Except for the Limited Representations, Sellers and Buyer shall be deemed to have waived, and neither Buyer nor Sellers, respectively, shall have any liability for, any Title Benefit or Title Defect for which Buyer or Sellers, respectively, has not received a proper Title Notice on or before the Defect Deadline.  For the avoidance of doubt and except for the Limited Representations, if Buyer or Sellers fail to provide a Title Notice which satisfies the requirements set forth in the definition of Title Notice, then the relevant Title Defect(s) or Title Benefit(s), as the case may be, shall be deemed waived.

 

(b)                                       With respect to each Listed Interest for which Buyer has asserted a Title Defect pursuant to a Title Notice (each such Listed Interest, a “Title Defect Property”) that Sellers have not cured (and Buyer has not elected to waive in writing) on or before one (1) day prior to Closing (the “Defect Response Date”), unless a Party chooses to submit a Disputed Title Matter for arbitration pursuant to ARTICLE XI, the Base Purchase Price will be reduced by the aggregate Title Defect Amounts for all such Title Defect Properties (the aggregate amount is the “TD Purchase Price Adjustment Amount”).

 

(c)                                        Notwithstanding anything to the contrary set forth herein, in no event shall there be any remedies provided by Sellers (other than with respect to the special warranty of title set forth in Section 3.2(m)), and Sellers shall not be responsible for, (i) any individual Title Defect for which the Title Defect Amount does not exceed $50,000 (the “Title Threshold”) and (ii) any Title Defect with respect to which the Title Defect Amount exceeds the Title Threshold, unless and until the aggregate of all such Title Defect Amounts that exceed the Title Threshold (excluding any Title Defect Amounts attributable to Title Defects that are cured by Sellers pursuant to Section 5.4(b)), exceeds an amount equal to $11,485,269.75 (the “Title Deductible”), and then only with respect to the amount of such Title Defect Amounts that exceed the Title Deductible; provided, however, the Title Threshold and Title Deductible will not apply to any Title Defects caused by or created by, through, or under the Company Group prior to the Closing Date.

 

(d)                                       With respect to each Lease or Well for which Sellers have asserted a Title Benefit pursuant to a Title Notice, the aggregate of the Title Benefit Amounts shall be offset against any Base Purchase Price reduction due to Title Defects and shall not cause any increase in the Base Purchase Price, it being understood the calculation of the aggregate TD Purchase Price Adjustment Amount shall be net of such aggregate Title Benefit Amounts; provided, however, in no event shall there be any offset against the aggregate TD Purchase Price Adjustment Amount provided by Sellers for any individual Title Benefit in a Lease or Well for which the aggregate Title Benefit Value of all Title Benefits with respect to such Lease or Well does not exceed the Title Threshold or the Title Deductible.

 



 

Section 5.5                                    Title Defect Amount; Title Benefit Amount.

 

(a)                                       The amount by which the Allocated Value of any Listed Interest is reduced as a result of the existence of a Title Defect with respect thereto is the “Title Defect Amount”, which shall be determined in accordance with the following methodology, terms and conditions:

 

(i)                                     if Buyer and Sellers’ Representative agree on the Title Defect Amount, then such amount shall be the Title Defect Amount;

 

(ii)                                  if the Title Defect is a lien or encumbrance that is undisputed and liquidated in amount, then the Title Defect Amount shall be equal to the amount necessary to be paid to remove such encumbrance from the Listed Interest;

 

(iii)                               if the Title Defect represents a decrease in (A) the actual Net Revenue Interest for any Well or Lease, with respect to the Target Depth for such Well or Lease, below (B) the Net Revenue Interest stated on Exhibit C for such Well or Lease (and there is a corresponding decrease in the Working Interest for such Well or Lease below the Working Interest stated on Exhibit C with respect to the Target Depth for such Well or Lease), then the Title Defect Amount shall be the product of (y) the Allocated Value of such Well or Lease multiplied by (z) one (1), minus a fraction, the numerator of which is the actual Net Revenue Interest for such Well or Lease, with respect to the Target Depth for such Well or Lease, and the denominator of which is the Net Revenue Interest for such Well or Lease stated on Exhibit C;

 

(iv)                              if the Title Defect represents a decrease in (A) the actual Net Mineral Acres covered by a Lease (with respect to all of any Target Depth for such Lease) below (B) the Net Mineral Acres for such Target Depth for such Lease stated on Exhibit C, then the Title Defect Amount shall be the product of (x) the Allocated Value of such Lease for such Target Depth multiplied by (y) one (1), minus a fraction, the numerator of which is the actual Net Mineral Acres covered by such Lease (with respect to all of such Target Depth for such Lease) and the denominator of which is the Net Mineral Acres for such Target Depth for such Lease stated on Exhibit C;

 

(v)                                 if the Title Defect represents an obligation or encumbrance upon, or other defect in title to, the Listed Interest of a type not described above (including in the event a Title Defect affects some, but not all, of the associated Target Depth), the Title Defect Amount shall be determined by taking into account the Allocated Value of such Listed Interest, the portion of such Listed Interest affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of such Listed Interest, the values placed upon the Title Defect by Buyer and Sellers’ Representative and such other reasonable factors as are necessary to make a proper evaluation;

 

(vi)                              the Title Defect Amount with respect to any Listed Interest shall be determined without duplication of any costs or losses included in another Title Defect Amount hereunder; and

 

(vii)                           notwithstanding anything to the contrary set forth herein, the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Listed Interest shall not exceed the Allocated Value of such Listed Interest.

 



 

(b)                                 The amount by which the Allocated Value of any Listed Interest is increased as a result of the existence of a Title Benefit with respect thereto is the “Title Benefit Amount”, which shall be determined in accordance with the following methodology, terms and conditions:

 

(i)                                     if Buyer and Sellers’ Representative agree on the Title Benefit Amount, then such amount shall be the Title Benefit Amount;

 

(ii)                                  if the Title Benefit represents an increase in (A) the actual Net Revenue Interest for any Well or Lease, with respect to the Target Depth for such Well or Lease, over (B) the Net Revenue Interest stated on Exhibit C for such Well or Lease (and there is a corresponding increase in the Working Interest for such Well or Lease above the Working Interest stated on Exhibit C with respect to the Target Depth for such Well or Lease), then the Title Benefit Amount shall be the product of (y) the Allocated Value of such Well or Lease multiplied by (z) the result obtained by subtracting one (1) from a fraction, the numerator of which is the actual Net Revenue Interest for such Well or Lease, with respect to the Target Depth for such Well or Lease, and the denominator of which is the Net Revenue Interest for such Well or Lease stated on Exhibit C;

 

(iii)                               if the Title Benefit represents an increase in (A) the actual Net Mineral  Acres covered by a  Lease (with respect all of any Target Depth for such Lease) above (B) the Net Mineral Acres for such Target Depth for such Lease stated on Exhibit C, then the Title Benefit Amount shall be the product of (x) the Allocated Value of such Lease for such Target Depth multiplied by (y) the result obtained by subtracting one (1) from a fraction, the numerator of which is the actual Net Mineral Acres covered by such Lease (with respect to all of such Target Depth for such Lease) and the denominator of which is the Net Mineral Acres for such Target Depth for such Lease stated on Exhibit C; and

 

(iv)                              if the Title Benefit Amount cannot be calculated pursuant to subsections (i), (ii) or (iii) (including in the event a Title Benefit affects some, but not all, of the associated Target Depth), then the Title Benefit Amount shall be determined by taking into account the Allocated Value of the Listed Interest, the legal effect of the Title Benefit, the potential economic effect of the Title Benefit over the life of the Listed Interest, the values placed upon the Title Benefit by Buyer and Sellers’ Representative and such other reasonable factors as are necessary to make a proper evaluation.

 

Section 5.6                                    Notice of Environmental Defects; Remedies.

 

(a)                                 If Buyer discovers any Environmental Defect, then Buyer may (but shall have no obligation to) deliver to Sellers’ Representative, prior to the Defect Deadline, an Environmental Notice with respect to such Environmental Defect.  Except for the Company’s representations and warranties in Sections 3.2(o) and 3.2(kk) of this Agreement, Buyer shall be deemed to have waived, and Sellers shall have no liability for, any Environmental Defect for which Sellers’ Representative has not received an Environmental Notice on or before the Defect Deadline.  Except for the Company’s representations and warranties in Sections 3.2(o) and 3.2(kk) of this Agreement, for the avoidance of doubt, if Buyer fails to provide an Environmental Notice which satisfies the requirements set forth in the definition of Environmental Notice, then the relevant Environmental Defect(s) shall be deemed waived.

 



 

(b)                                 With respect to each Property for which Buyer has asserted an Environmental Defect pursuant to an Environmental Notice (each such Property, an “Environmental Defect Property”) that Sellers have not cured (and Buyer has not elected to waive in writing) on or before the Defect Response Date, unless a Party chooses to submit a Disputed Environmental Matter to arbitration pursuant to ARTICLE XI, Sellers and Buyer shall elect by mutual agreement prior to Closing one of the following options with respect to such Environmental Defect:

 

(i)                                     reduce the Base Purchase Price by the Environmental Defect Amount attributable to such Environmental Defect Properties (the aggregate amount of all such reductions to the Base Purchase Price under this Section 5.6(b)(i), the “ED Purchase Price Adjustment Amount”); or

 

(ii)                                  have Sellers indemnify Buyer against all Liabilities resulting from such Environmental Defect and associated remediation pursuant to an indemnity agreement mutually agreed by the Parties (each, an “Environmental Indemnity Agreement”).

 

(c)                                  Notwithstanding anything to the contrary set forth herein, in no event shall there be any remedies provided by Sellers, and Sellers shall not be responsible for, (i) any individual Environmental Defect for which the Environmental Defect Amount does not exceed $50,000 (the “Environmental Threshold”) and (ii) any Environmental Defect with respect to which the Environmental Defect Amount exceeds the Environmental Threshold, unless and until the aggregate of all such Environmental Defect Amounts that exceed the Environmental Threshold (excluding the amount of Environmental Defect Amounts attributable to Environmental Defects that are cured by Sellers pursuant to Section 5.6(b)), exceeds an amount equal to $11,485,269.75 (the “Environmental Deductible”), and then only with respect to the amount of such Environmental Defect Amounts that exceed the Environmental Deductible.

 

Section 5.7                                    Title and Environmental Dispute Resolution.  If, as of the Closing Date, the Parties cannot agree upon (i) the existence of a Title Defect or Title Benefit, the adequacy of a Title Notice, the adequacy of any Title Defect curative materials submitted to Buyer, the Title Defect Amount with respect to any Title Defect or the Title Benefit Amount with respect to any Title Benefit (each, a “Disputed Title Matter”) or (ii) the existence of an Environmental Defect, the adequacy of an Environmental Notice, the adequacy of any Environmental Defect curative actions taken by Sellers, or the Environmental Defect Amount with respect to any Environmental Defect (each, a “Disputed Environmental Matter” and, together with any Disputed Title Matter, a “Disputed Matter”), then, in each case, the Disputed Matter shall be submitted to arbitration in accordance with the provisions of ARTICLE XI.

 

Section 5.8                                    Casualty Loss and Condemnation.  If, during the Interim Period, all or any portion of the Properties are destroyed or damaged by fire, flood, earthquake, windstorm, theft, vandalism, explosion, blowout, riot, sabotage, accident or other casualty of a similar nature or shall be taken by condemnation or under the right of eminent domain (each, a “Casualty Loss”; provided, however, that any such event that occurs in connection with any action taken pursuant to the Capital Budget or otherwise requested or approved by Buyer in accordance with this Agreement will not be considered a “Casualty Loss” for any purpose hereunder), and the value of such Casualty Losses, individually or in the aggregate, exceeds $200,000, then Buyer will be

 



 

required to close, and Sellers’ Representative may elect (a) to cause the Properties affected by any casualty or taking to be repaired or restored to at least their condition prior to such casualty, at Sellers’ sole cost, as promptly as reasonably practicable (which work may extend beyond the Closing Date), or (b) reduce the Purchase Price by the “reduction in value” to the affected Properties caused by such Casualty Losses (taking into account any Tax benefit as a result of such Casualty Losses); provided, however, that such “reduction in value” shall not exceed the lesser of (i) the Allocated Value, if any, of the affected Properties and (ii) an amount mutually agreed upon by Buyer and Sellers’ Representative as the reasonable cost of repair of such Property.

 

Section 5.9                                    Consents.  No later than 5:00 pm Central time on the date 10 Business Days after the Execution Date, Sellers’ Representative shall deliver notices to the applicable Persons holding Consents requesting that the holders of such Consents (other than Customary Post-Closing Consents) grant their consent, in accordance with the applicable agreements and contracts creating such Consents.  Sellers shall, prior to the Closing, at Sellers’ expense, procure all Consents (other than Customary Post-Closing Consents) necessary to transfer the Company Capital Stock to Buyer other than HSR.

 

ARTICLE VI
TAX MATTERS

 

Section 6.1                                    Liability for Taxes.

 

(a)                                 Each Seller (severally and not jointly) shall be liable for and defend and hold Buyer harmless from, its Pro Rata Portion of Seller Taxes.  Sellers shall be entitled to any refund of (or credit in lieu of a refund of) Seller Taxes, but only to the extent such refund was not taken into account as an asset in the determination of the adjustment to the Cash Consideration under ARTICLE II. Buyer shall, and shall cause its Affiliates to take such steps as may be reasonably available to secure any such refund or credit, including through the filing of amended Tax Returns.  Buyer shall inform Sellers’ Representative shortly after the end of each calendar year as to whether any such refund or credit is, or with the taking of action would be, available.

 

(b)                                 As between Sellers and Buyer, Buyer shall be liable for and pay (or cause to be paid) (i) all Taxes imposed on the Company or any Subsidiary for any Post-Effective Time Tax Period and (ii) Excluded Taxes.

 

(c)                                  Whenever it is necessary to determine the liability for Taxes of the Company or any Subsidiary for the portion of a Straddle Period that ends on or before the Effective Time, and the portion of a Straddle Period that begins after the Effective Time, the determination shall be made by assuming that the Straddle Period consisted of two taxable years or periods, one which ended at the close of June 30, 2016 and the other which began at the beginning of July 1, 2016, and items of income, gain, deduction, loss or credit of the Company or such Subsidiary for the Straddle Period shall be allocated between such two taxable years or periods on a “closing of the books basis” by assuming that the books of the Company or such Subsidiary were closed at the close of June 30, 2016; provided, however, that exemptions, allowances or

 



 

deductions that are calculated on an annual basis, such as depreciation deductions, shall be apportioned between such two taxable years or periods on a daily basis.

 

(d)                                 Severance Taxes shall be deemed attributable to the period during which the production of the Hydrocarbons with respect to such Severance Taxes occurred, and liability therefor shall be allocated to Sellers for any Severance Taxes attributable to any Pre-Effective Time Tax Period, and to Buyer for any Severance Taxes attributable to any Post-Effective Time Tax Period.

 

(e)                                  Property Taxes shall be deemed attributable to the period during which ownership of the applicable Properties gives rise to liability for such Property Taxes, and liability therefor allocated to Sellers for (i) all Tax Periods ending prior to the Effective Time and (ii) the portion of any Straddle Period ending immediately prior to the Effective Time, and to Buyer for (A) all Tax Periods beginning at or after the Effective Time and (B) the portion of any Straddle Period beginning at the Effective Time.  For purposes of determining the allocations described in this Section 6.1(e), Property Taxes pertaining to a Straddle Period shall be allocated between the portion of such Straddle Period ending immediately prior to the Effective Time and the portion of such Straddle Period beginning at the Effective Time by prorating each such Property Tax based on the number of days in the applicable Straddle Period that occur immediately before the date on which the Effective Time occurs, on the one hand, and the number of days in such Straddle Period that occur on or after the date on which the Effective Time occurs, on the other hand.

 

(f)                                   To the extent the actual amount of Production Tax is not determinable at the time an adjustment to the Base Purchase Price is to be made with respect to such Production Tax pursuant to Section 2.2 and/or Section 9.1, as applicable, (i) the Parties shall utilize the most recent information available in estimating the amount of such Production Tax for purposes of such adjustment, and (ii) upon the later determination of the actual amount of such Production Tax, timely payments will be made from one Party to the other to the extent necessary to cause each Party to bear the amount of such Production Tax that is allocable to such Party under this Section 6.1.

 

(g)                                  Buyer shall be entitled to all rights to any refunds of Production Taxes allocable to Buyer pursuant to this Section 6.1 regardless of when received.  Sellers shall be entitled to all rights to any refunds of Production Taxes allocable to Sellers pursuant to this Section 6.1.  If a Party or any of its Affiliates receives a refund of Production Taxes to which the other Party is entitled pursuant to this Section 6.1, such receiving Party shall forward to the other Party the amount of such refund within thirty (30) days after such refund is received, net of any reasonable costs or expenses incurred by such receiving Party in procuring such refund. If any payment pursuant to this Section 6.1 is subsequently reduced or disallowed, the Party receiving such payment shall indemnify and hold harmless the Party making such payment (and its Affiliates) from and against any Loss that is attributable to such reduction or disallowance.

 

(h)                                 All indemnities under this Section 6.1 and ARTICLE X shall be calculated on an after-tax basis taking into account all reductions in federal, state, local and foreign Taxes (including estimated Taxes) realized by the indemnified party as a result of the event giving rise to such indemnity. All calculations shall be made at the time of the relevant indemnification

 



 

payment using reasonable assumptions (as agreed to by the indemnifying Party and indemnified Party) and present value concepts (using a discount rate equal to the applicable federal rate in effect at the time of the indemnified event using semi-annual compounding); provided, however, that Buyer shall not be required to disclose to Sellers the Tax Returns of Buyer or its Affiliates in support of any calculation of the after tax amount of any indemnity, but upon Sellers’ Representative’s request, such Tax Returns shall be provided to an independent, nationally recognized, accounting firm that is acceptable to both Parties that will review such Tax Return and inform the Parties whether the calculation by Buyer is consistent with such Tax Returns, without disclosing such Tax Returns to Sellers (the fees of the accounting firm shall be shared equally between the Parties).

 

(i)                                     Notwithstanding anything to the contrary herein, Sellers and Buyer agree that Sellers make no representation, warranty, and provide no other assurance or indemnity, with respect to the amount of any Tax Attributes of the Company or any Subsidiary, or with respect to the availability on and after the Closing Date of any Tax Attribute of the Company or any of its Subsidiaries.

 

Section 6.2                                    Tax Returns.

 

(a)                                       Sellers’ Representative shall prepare or cause to be prepared and file or cause to be filed all Tax Returns of the Company and its Subsidiaries that are due (taking into account all extensions properly obtained) on or before the Closing Date.

 

(b)                                       Buyer shall prepare or cause to be prepared and file or cause to be filed when due (taking into account all extensions properly obtained) all other Tax Returns that are required to be filed by or with respect to the Company or any Subsidiary (each such Tax Return, a “Buyer Return”).  All Buyer Returns that relate to a Pre-Effective Time Tax Period shall be prepared and filed in a manner consistent with past practice unless otherwise required by applicable Law and, on such Tax Returns, no position shall be taken, election made or method adopted that is inconsistent with positions taken, elections made or methods used in preparing and filing similar Tax Returns in prior periods unless otherwise required by Law.  With respect to any such Buyer Return, not less than 60 days prior to the due date for such Buyer Return, taking into account extensions (or, if such due date is within 60 days following the Closing Date, as promptly as practicable following the Closing Date), Buyer shall provide Sellers’ Representative with a draft copy of such Tax Return and a statement (with which Buyer shall make available to Sellers’ Representative supporting schedules and information), certifying the amount of Tax shown on such Buyer Return that is allocable to Sellers pursuant to Section 6.1 and any amount that Buyer reasonably believes Sellers could have an indemnification obligation for pursuant to this ARTICLE VI (which statement shall also include a list of any positions taken, elections made or methods used (if any) that are inconsistent with prior practice), for Sellers’ Representative’s review and comment.  Such Buyer Return and statement shall be final and binding on Sellers, unless, within 30 days after the date of receipt by Sellers’ Representative of such Buyer Return and statement, Sellers’ Representative delivers to Buyer a written request for explanation of any items on or changes to such Buyer Return or statement.  If Sellers’ Representative delivers such request, then Sellers’ Representative and Buyer shall undertake in good faith to resolve the issues raised in such request prior to the due date (including any extension thereof) for filing such Buyer Return.  Buyer shall make such changes and revisions to such Buyer Returns as

 



 

requested by Sellers’ Representative to the extent such changes and revisions relate to Taxes allocable to the Pre-Effective Time Tax Period, provided that such changes and revisions are consistent with applicable Law, but only to the extent such changes and revisions relate to items that, if not changed as requested by Sellers’ Representative, could result in an indemnification obligation of Sellers pursuant to this ARTICLE VI.  If Sellers’ Representative and Buyer are unable to resolve any issue by the earlier of (i) ten (10) days after the date of receipt by Buyer of the request for changes and (ii) ten (10) days prior to the due date (including any extension thereof) for filing of the Buyer Return in question, then Sellers’ Representative and Buyer shall jointly engage a mutually agreed upon independent accounting firm to determine the correct treatment of the item or items in dispute, which accounting firm shall be required to decide only if the position of the Sellers’ Representative or the position of Buyer shall be accepted.  Each of Sellers, on the one hand, and Buyer, on the other hand, shall bear and pay one half of the fees and other costs charged by the independent accounting firm with respect to the matters set forth in this Section 6.2(b).  The determination of the independent accounting firm shall be final and binding on both Sellers and Buyer.

 

(c)                                        None of Buyer or any Affiliate of Buyer shall (or shall cause or permit the Company or any of its Subsidiaries to) make or change any Tax election, amend, refile or otherwise modify (or grant an extension of any statute of limitation with respect to) any Tax Return relating in whole or in part to the Company or any of its Subsidiaries with respect to any taxable year or period ending on or before the Closing Date or with respect to any Straddle Period without the prior written consent of Sellers’ Representative (which consent shall not be unreasonably withheld, conditioned or delayed), or take any other action that would increase any Tax liability or reduce any Tax benefit in respect of any taxable year or period ending on or before the Closing Date or any Straddle Period (provided that Buyer shall be permitted to amend Straddle Period Tax Returns if required by applicable Law, but only if Buyer provides the Sellers’ Representative a draft of such amended Tax Return and the statement described in Section 6.2(b), and the procedures and covenants set forth in Section 6.2(b) shall apply with respect to resolving disputes and filing such Tax Return).

 

Section 6.3                                    Contest Provisions.  Buyer shall promptly notify Sellers’ Representative in writing upon receipt by Buyer, or any of its Affiliates of notice of any pending or threatened federal, state, local or foreign Tax audits, proceedings, litigation, adjustments or assessments relating to any Tax Period ending on or before the Effective Time or any Straddle Period or relating to a Tax for which Sellers may be liable pursuant to this Agreement (“Tax Proceeding”).  Notwithstanding anything else to the contrary in ARTICLE X, Sellers’ Representative  shall have the sole right to represent the Company’s and each Subsidiary’s interests in any Tax Proceeding relating to a Tax Period ending on or before the Effective Time or any Straddle Period if such Tax Proceeding is reasonably likely to adversely affect Sellers, and to employ counsel of Sellers’ Representative’s choice at Sellers’ expense; provided, however, that Buyer and its representatives shall be permitted, at Buyer’s expense, to be present at, and participate in, any such Tax Proceeding.  Neither Buyer nor any Affiliate of Buyer shall be entitled to settle, either administratively or after the commencement of litigation, any claim for Taxes which could reasonably adversely affect Sellers relating to any Tax Period ending on or before the Effective Time or to any Straddle Period or relating to a Tax for which Sellers would be liable pursuant to this Agreement without the prior written consent of Sellers’ Representative  (which consent shall not be unreasonably withheld, conditioned or delayed).

 



 

Section 6.4                                    Transfer Taxes.  Notwithstanding any requirement of Law, and notwithstanding anything else to the contrary in this Agreement, all Transfer Taxes required to be paid in connection with the sale or transfer of the capital stock of the Company pursuant to this Agreement shall be paid 50% by Sellers and 50% by Buyer. The Party responsible under Law for filing the Transfer Tax returns shall timely file all Tax Returns required to be filed and pay the applicable Transfer Taxes, with the other Party paying its share of the Transfer Taxes to the Party filing the Tax Return no later than three (3) Business Days prior to the due date for filing the applicable Tax Return (taking into account all extensions). The Party filing the Tax Return shall provide the other Party a copy of the receipt or other evidence of payment of the Transfer Taxes that were paid.  Each Party’s preparation of any Tax Returns for Transfer Taxes shall be subject to the other Party’s (which, in the case of Sellers, is the Sellers’ Representative’s) prior approval, which approval shall not be unreasonably withheld, conditioned or delayed. Sellers and Buyer shall reasonably cooperate with each other to share information reasonably needed for the preparation and filing of Tax Returns and other documentation relating to Transfer Taxes as may be required by applicable Law and to mitigate, reduce or eliminate any Transfer Taxes required to be paid in connection with the sale or transfer of the capital stock of the Company pursuant to this Agreement.

 

Section 6.5                                    Cooperation.  After the Closing Date, each Seller and Buyer shall (and shall cause their respective Affiliates to):

 

(a)                                 assist the other Party in preparing or reviewing any Tax Returns which such other Party is responsible for preparing and filing or entitled to review in accordance with Section 6.2, and in connection therewith, provide the other Party with any necessary powers of attorney;

 

(b)                                 cooperate fully in preparing for, complying with, or defending against, any Tax Proceeding regarding any Tax Returns or Taxes of the Company and its Subsidiaries or with respect to the Properties;

 

(c)                                  make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of the Company and its Subsidiaries or with respect to the Properties;

 

(d)                                 furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax audit or information request with respect to the Company and its Subsidiaries or with respect to the Properties; and

 

(e)                                  timely provide any power of attorney or other similar form necessary for the defense of any Tax Proceeding.

 

Section 6.6                                    No Section 338 Election.  Sellers and Buyer agree that, without the prior written consent of Sellers’ Representative, Buyer shall not make nor cause or permit to be made any election under Section 338 or Section 336 of the Code or under any applicable similar provision of state or foreign Law with respect to the Company or any of its Subsidiaries.

 

Section 6.7                                    Purchase Price Adjustments.  Buyer and Sellers agree to report any adjustment to the Purchase Price under ARTICLES II and IX and any indemnity payment under

 



 

ARTICLES VI and X as an adjustment to the Purchase Price for federal, state, local and foreign income Tax purposes, unless otherwise required by a final determination, as defined in section 1313 of the Code.

 

Section 6.8                                    Withholding Tax.  Buyer shall be entitled to withhold from the Cash Consideration paid to each Seller that is set forth on Schedule 3.1(e) of the Seller Disclosure Schedule any U.S. federal tax required by Law (it being understood that the withheld amount shall be determined based on both the Cash Consideration and Stock Consideration), provided that at least ten (10) Business Days prior to the Closing Date, Buyer provides the Sellers’ Representative a written schedule setting forth the estimated amount of such withholding tax. The Parties shall negotiate in good faith any disagreements as to the amount of the withholding tax. Buyer shall promptly pay to the applicable Tax authority all amounts of Tax withheld from the Purchase Price and shall provide the Sellers’ Representative with a formal receipt and IRS Form 8288-A or other acceptable record of such payment. Any amount withheld under this Section 6.8 shall be treated as though it was paid to the applicable Seller, such Seller shall have no claim against the other Sellers for such withheld amount, and such Seller shall not have any claim against Buyer for the withheld amount provided it was promptly paid to the applicable Tax authority. The Parties shall use commercially reasonable efforts to cooperate with one another to reduce such amounts to the extent permitted by Law, which cooperation may, at the request of the applicable Seller, include a request from the United States Internal Revenue Service for a withholding certificate under Treasury Regulations § 1.1445-3.

 

ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING

 

Section 7.1                                    Sellers’ and the Company Group’s Conditions.  The obligations of Sellers and the Company Group at the Closing are, at their option, subject to the satisfaction at or prior to the Closing of the following conditions:

 

(a)                                       (i) The Buyer Fundamental Representations shall be true and correct in all respects at and as of the Closing Date (other than (A) representations and warranties that refer to a specified date, which need only be true and correct in all respects as of such specified date and (B) representations and warranties from the Investment Agreement incorporated herein pursuant to Section 3.3(e) and included in the Buyer Fundamental Representations, which, to the extent directly affected by the occurrence of the Financing, only need to be true and correct after giving effect to the Financing, as applicable) and (ii) all other representations and warranties of Buyer set forth in Section 3.3 shall be true and correct in all respects (in each case, without giving effect to any materiality, material, or Buyer Material Adverse Effect standard or qualification) at and as of the Closing Date (other than (A) representations and warranties that refer to a specified date, which need only be true and correct in all respects as of such specified date, and (B) representations and warranties from the Investment Agreement incorporated herein pursuant to Section 3.3(e), which, to the extent directly affected by the occurrence of the Financing, only need to be true and correct after giving effect to the Financing, as applicable), except, solely in the case of this clause (ii), to the extent that the failure of such representations and warranties to be true and correct in all respects have not had and would not reasonably be expected to have a Buyer Material Adverse Effect.

 



 

(b)                                       Buyer shall have performed, or complied with, in all material respects, the agreements and covenants required by this Agreement to be performed and satisfied by Buyer prior to or at the Closing.

 

(c)                                        No Order issued by any Governmental Body or arbitrator restraining or prohibiting the consummation, in whole or in part, of the Transactions shall be in effect.

 

(d)                                       Buyer shall have delivered (or shall be ready, willing and able to deliver) to Sellers’ Representative all of the Buyer Deliverables.

 

(e)                                        (i) The conditions to closing in the 299 APSA shall have been satisfied or waived in accordance with their terms and the parties thereto shall have indicated that they are ready, willing and able to consummate the transactions contemplated thereby and (ii) (A) the representations and warranties set forth in Article III of the Investment Agreement shall be true and correct in all material respects at and as of the Closing Date (other than such representations and warranties that refer to a specified date, which need only be true and correct in all material respects as of such specified date), (B) the Company (as defined in the Investment Agreement) shall have performed, or complied with, in all material respects, the agreements, covenants and delivery obligations required by the Investment Agreement to be performed and satisfied by the Company (as defined in the Investment Agreement) prior to or at the Closing, and (C) the Company (as defined in the Investment Agreement) shall have executed and delivered to the Investors (as defined in the Investment Agreement) a counterpart of the Investment Agreement.

 

(f)                                         The sum (without duplication) of (i) the TD Purchase Price Adjustment Amount, (ii) the ED Purchase Price Adjustment Amount, (iii) the sum of all uncured Casualty Losses under Section 5.8, and (iv) the sum of the TD Purchase Price Adjustment Amount, the ED Purchase Price Adjustment Amount, the RC Purchase Price Adjustment, the PR Purchase Price Adjustment, all uncured Casualty Losses, and all Allocated Values of all Environmental Review Excluded Properties (in each case of this clause (iv), as defined in the 299 APSA), shall be less than twenty percent (20%) of the sum of (A) the Base Purchase Price and (B) the Base Purchase Price (as defined in the 299 APSA).

 

(g)                                        Any waiting period (and any extension thereof) under the HSR Act applicable to Transactions shall have expired or been terminated, or clearance shall otherwise have been granted by the relevant Governmental Bodies.

 

Section 7.2                                    Buyer’s Conditions.  The obligations of Buyer at the Closing are, at its option, subject to the satisfaction at or prior to the Closing of the following conditions:

 

(a)                                 (i) The Seller Fundamental Representations shall be true and correct in all respects at and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct in all respects as of such specified date), and (ii) all other representations and warranties of Sellers set forth in Section 3.1 shall be true and correct in all respects (in each case, without giving effect to any materiality, material, or Seller Material Adverse Effect standard or qualification) at and as of the Closing (other than representations and warranties that refer to a specified date, which need only be true and correct in all respects as of such specified date), except, solely in the case of this clause (ii), to the

 



 

extent that the failure of such representations and warranties to be true and correct in all respects have not had and would not reasonably be expected to have a Seller Material Adverse Effect.

 

(b)                                       (i) The Company Fundamental Representations shall be true and correct in all respects at and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct in all respects as of such specified date), and (ii) all other representations and warranties of Sellers regarding the Company Group set forth in Section 3.2 shall be true and correct in all respects (in each case, without giving effect to any materiality, material, or Company Material Adverse Effect standard or qualification) at and as of the Closing (other than representations and warranties that refer to a specified date, which need only be true and correct in all respects as of such specified date), except, solely in the case of this clause (ii), to the extent that the failure of such representations and warranties to be true and correct in all respects have not had and would not reasonably be expected to have a Company Material Adverse Effect;

 

(c)                                        (i) The Company Group shall have performed, or complied with, in all material respects, the agreements and covenants required by this Agreement to be performed and satisfied by the Company Group prior to or at the Closing and (ii) Sellers shall have performed, or complied with, in all material respects, the agreements and covenants required by this Agreement to be performed and satisfied by Sellers prior to or at the Closing.

 

(d)                                       No Order issued by any Governmental Body or arbitrator restraining or prohibiting the consummation, in whole or in part, of the Transactions shall be in effect.

 

(e)                                        Sellers’ Representative shall have delivered (or shall be ready, willing and able to deliver) to Buyer all of the Seller Deliverables.

 

(f)                                         (i) The conditions to closing in the 299 APSA shall have been satisfied or waived in accordance with their terms and the parties thereto shall have indicated that they are ready, willing and able to consummate the transactions contemplated thereby and (ii) (A) the representations and warranties set forth in Article IV of the Investment Agreement shall be true and correct in all material respects at and as of the Closing Date (other than such representations and warranties that refer to a specified date, which need only be true and correct in all material respects as of such specified date), (B) the Investors (as defined in the Investment Agreement) shall have performed, or complied with, in all material respects, the agreements, covenants and delivery obligations required by the Investment Agreement to be performed and satisfied by the Investors (as defined in the Investment Agreement) prior to or at the Closing, and (C) the Investors (as defined in the Investment Agreement) shall have executed and delivered to the Company (as defined in the Investment Agreement) a counterpart of the Investment Agreement.

 

(g)                                        The sum (without duplication) of (i) the TD Purchase Price Adjustment Amount, (ii) the ED Purchase Price Adjustment Amount, (iii) the sum of all uncured Casualty Losses under Section 5.8, and (iv) the sum of the TD Purchase Price Adjustment Amount, the ED Purchase Price Adjustment Amount, the RC Purchase Price Adjustment, the PR Purchase Price Adjustment, all uncured Casualty Losses, and all Allocated Values of all Environmental Review Excluded Properties (in each case of this clause (iv), as defined in the 299 APSA), shall be less

 



 

than twenty percent (20%) of the sum of (A) the Base Purchase Price and (B) the Base Purchase Price (as defined in the 299 APSA).

 

(h)                                       Since the Execution Date, there shall not have occurred and be continuing any Company Material Adverse Effect within the meaning of clause (b) of the definition thereof.

 

(i)                                           Any waiting period (and any extension thereof) under the HSR Act applicable to Transactions shall have expired or been terminated, or clearance shall otherwise have been granted by the relevant Governmental Bodies.

 

ARTICLE VIII
CLOSING

 

Section 8.1                                    Preliminary Settlement Statement and Closing.

 

(a)                                       Preliminary Settlement Statement.  With respect to each of the items listed in Section 2.2, Sellers shall prepare (based on the best information then available to Sellers) and deliver to Buyer, on or before five Business Days before the Closing Date, a settlement statement (the “Preliminary Settlement Statement”) setting forth the Closing Amount, each adjustment used to determine the Closing Amount, and the calculation of each adjustment.

 

(b)                                       Closing.  The purchase by Buyer and the sale by Sellers of the shares of Company Capital Stock contemplated by this Agreement (the “Closing”) shall take place at the offices of Sidley Austin LLP, 1000 Louisiana Street, Suite 6000, Houston, TX 77002, at 10:00 a.m., local time, on the later to occur of (i) December 6, 2016, (ii) such other date as Buyer and Sellers’ Representative may agree in writing, or (iii) if the conditions set forth in Sections 7.1(f) or 7.2(g) have not been satisfied as of December 6, 2016, then the earlier of (A) the date that is two (2) Business Days after the date upon which such conditions have been satisfied or waived or (B) the Outside Date (the date set forth in either (i), (ii), or (iii), as applicable, is the “Scheduled Closing Date”), or, if all conditions in ARTICLE VII to be satisfied prior to the Closing have not yet been satisfied or waived by such date, within two (2) Business Days of such conditions having been satisfied or waived (except for any conditions that by their nature can only be satisfied on the Closing Date, but subject to the satisfaction of such conditions or waiver by the Party entitled to waive such conditions).  The date on which the Closing occurs is the “Closing Date”.

 

Section 8.2                                    Closing Obligations.  At the Closing the following events shall occur, each being a condition precedent to the others and each being deemed to have occurred simultaneously with the others:

 

(a)                                 Buyer shall deliver (or cause to be delivered):

 

(i)                                     to Sellers’ Representative, by direct bank deposit or wire transfer in same day funds, in accordance with the written instructions of Sellers’ Representative (to be provided to Buyer in the Preliminary Settlement Statement), an amount equal to the sum of each Seller’s Pro Rata Portion of the Closing Amount less the Holdback Amount, together with any amounts payable pursuant to Section 8.3;

 



 

(ii)                                  subject to Section 8.3 and pursuant to the terms and conditions of the Investment Agreement, to each Seller a number of shares of Buyer Common Stock equal to the sum of such Seller’s Pro Rata Portion of the Stock Consideration as set forth in the Seller Allocation Schedule less such Seller’s Pro Rata Portion of the Holdback Shares;

 

(iii)                               to the Escrow Agent the cash portion of the Holdback Amount;

 

(iv)                              instructions to Buyer’s transfer agent to deliver the Holdback Shares to the Escrow Agent within three (3) Business Days of the Closing;

 

(v)                                 the Preliminary Settlement Statement; and

 

(vi)                              the following additional items, all of which shall be duly executed and acknowledged, where required, by an authorized signatory of Buyer or, if applicable, an Affiliate of Buyer:

 

(A)                               a certificate in the form set forth on Exhibit F;

 

(B)                               the Investment Agreement substantially in the form attached hereto as Exhibit D;

 

(C)                               any other agreements, instruments and documents which are required by other terms of this Agreement to be executed and/or delivered by Buyer at Closing.

 

(b)                                       Each Seller shall deliver (or cause to be delivered) to Buyer the following items, all of which shall be duly executed and acknowledged, where required, by an authorized signatory of such Seller or, if applicable, an Affiliate of such Seller:

 

(i)                                     with respect to each share of Company Capital Stock set forth opposite the name of such Seller on the Seller Allocation Schedule, certificates representing such shares (to the extent such shares are certificated), duly endorsed in blank or accompanied by stock powers duly endorsed in blank in proper form for transfer. Immediately after the Closing, Buyer shall affix the appropriate transfer tax stamps, if any, on the form set forth on Exhibit G;

 

(ii)                                  the Preliminary Settlement Statement;

 

(iii)                               the Investment Agreement;

 

(iv)                              a certificate in the form set forth on Exhibit H;

 

(v)                                 except as set forth on Schedule 3.1(e) of the Seller Disclosure Schedule, a certificate in the form set forth on Exhibit I;

 

(vi)                              from each Person set forth on Schedule 4.13 a pay off letter, in the form and substance satisfactory to Buyer in its reasonable discretion (each, a “Pay Off Letter”), addressed to Buyer signed by such creditor;

 



 

(vii)                           resignations of each manager, director and officer of the Company and each of its Subsidiaries, and any individuals holding powers of attorney from the Company Group; and

 

(viii)                        any other agreements, instruments and documents which are required by other terms of this Agreement to be executed and/or delivered by Seller at Closing.

 

(c)                                  Sellers’ Representative shall deliver (or cause to be delivered) to Buyer, which shall be duly executed and acknowledged, where required, by an authorized signatory of Sellers’ Representative:

 

(i)                                     the Seller Allocation Schedule; and

 

(ii)                                  any other agreements, instruments and documents which are required by other terms of this Agreement to be executed and/or delivered by Sellers’ Representative at Closing.

 

(d)                                       The Company shall deliver (or cause to be delivered) to Buyer, which shall be duly executed and acknowledged, where required, by an authorized signatory of the Company a certificate in the form set forth on Exhibit K.

 

Section 8.3                                    No Fractional Shares.  No certificates or scrip representing fractional shares of Buyer Common Stock shall be issued to any Seller pursuant to Section 8.2(a)(ii), and such fractional share interests shall not entitle the owner thereof to vote or to any rights of a holder of Buyer Common Stock.  In lieu of any such fractional shares, each Seller that would otherwise be entitled to such fractional shares shall be entitled to an amount in cash, without interest, rounded to the nearest cent, equal to the product of (A) the amount of the fractional share interest in a share of Buyer Common Stock to which such holder is entitled under Section 8.2(a)(ii) (or would be entitled but for this Section 8.3) and (B) the Fair Market Value.  Such amount of cash, if any, to be paid to a Seller in lieu of any fractional share interests in Buyer Common Stock, shall be paid by Buyer to such Seller in accordance with Section 8.2(a).

 

ARTICLE IX
POST-CLOSING RIGHTS AND OBLIGATIONS

 

Section 9.1                                    Post-Closing Adjustments.  Within 60 days following the Closing Date, Sellers’ Representative shall prepare and deliver to Buyer, in accordance with this Agreement and generally accepted accounting principles, a statement (the “Final Settlement Statement”) setting forth any necessary revisions to the Base Purchase Price adjustments set forth in the Preliminary Settlement Statement and showing the calculation of such adjustments, which may include adjustments to give effect to Section 6.1 to the extent not taken into account (or not correctly taken into account) in the adjustment described in Section 2.2(b)(iv).  Within thirty (30) days of receipt of the Final Settlement Statement, Buyer shall deliver to Sellers’ Representative a written report containing any changes that Buyer proposes be made to the Final Settlement Statement.  Buyer and Sellers’ Representative shall negotiate in good faith and undertake to agree with respect to the amounts due pursuant to such Final Settlement Statement no later than thirty (30) days after Buyer’s submission of its written report hereunder to Sellers’ Representative (the date upon which such agreement is reached shall be herein called the “Final

 



 

Settlement Date”).  Within seven (7) days after the Final Settlement Date Buyer shall pay to each Seller its Pro Rata Portion of the final settlement adjustment amount set forth in the Final Settlement Statement, or each Seller, severally, shall pay to Buyer its Pro Rata Portion of the final settlement adjustment amount set forth in the Final Settlement Statement, as the case may be, in each case immediately available funds in accordance with each the payee’s written instructions (to be provided at least two (2) Business Days prior to the date such payment is to be made).  Any disputed items that cannot be resolved by the mutual agreement of Sellers’ Representative and Buyer shall be removed from the Final Settlement Statement and submitted to arbitration to a mutually agreeable arbitrator selected by Sellers’ Representative and Buyer and resolved as if such disputed item was a Disputed Matter in accordance with the procedures set forth in ARTICLE XI.  Notwithstanding anything to the contrary set forth herein, there shall be no further Base Purchase Price adjustments pursuant to Section 2.2 for any item not included in the Final Settlement Statement delivered by Sellers’ Representative (or Buyer’s written report, if any, delivered with respect thereto) in accordance with the provisions of this Section 9.1.

 

Section 9.2                                    Further Assurances.  From and after the Closing, at the request of Sellers’ Representative but without further consideration, Buyer will execute and deliver or use commercially reasonable efforts to cause to be executed and delivered such other instruments of conveyance and take such other actions as Sellers’ Representative reasonably may request to effect the Transactions.  From and after the Closing, at the request of Buyer but without further consideration, Sellers shall execute and deliver or use commercially reasonable efforts to cause to be executed and delivered such other instruments of conveyance and take such other actions as Buyer reasonably may request to effect the Transactions.

 

Section 9.3                                    Obtaining Customary Post-Closing Consents.  Buyer shall be responsible for obtaining Customary Post-Closing Consents applicable to the Transactions and all costs and fees associated therewith.

 

ARTICLE X
INDEMNIFICATION

 

Section 10.1                             Buyer’s Indemnity Obligation.  If the Closing shall occur, then effective from and after the Closing, subject to the limitations set forth in Section 3.4 (Survival of Representations, Warranties, Covenants and Agreements), this ARTICLE X and otherwise herein, Buyer and its successors and assigns shall be responsible for, shall pay, and will DEFEND, INDEMNIFY and HOLD HARMLESS, subject to the procedures under Section 10.4, each Seller and its Affiliates, and all of its and their respective equity holders, partners, members, directors, officers, managers, employees, agents and other representatives (collectively, the “Seller Indemnified Parties”) from and against any and all claims, Actions, causes of actions, payments, charges, interest assessments, judgments, assessments, liabilities, losses, damages, supplemental environmental projects, penalties, fines, interest, or costs and expenses (including expenses of investigating, preparing or defending the foregoing), including any reasonable fees of attorneys, experts, consultants, accountants and other professional representatives and legal or other expenses incurred in connection therewith and including liabilities, costs, losses and damages for personal injury, illness or death, property damage, contracts claims, torts or otherwise (collectively, “Liabilities”), arising out of, resulting from, based on, associated with, or relating to:

 



 

(a)                                 any breach by Buyer of Buyer’s representations or warranties set forth in this Agreement; or

 

(b)                                 any breach by Buyer of Buyer’s covenants set forth in this Agreement;

 

provided, however, that in no event shall Buyer have any obligation to provide indemnification for any matters to the extent already accounted for in the Preliminary Settlement Statement or the Final Settlement Statement as an upward adjustment to the Cash Consideration.

 

Section 10.2                             Sellers’ Indemnity Obligation.

 

(a)                                       If the Closing shall occur, then effective from and after the Closing, subject to the limitations set forth in Section 3.4 (Survival of Representations, Warranties, Covenants and Agreements), this ARTICLE X and otherwise herein, each Seller, and its respective successors and assigns, shall be responsible for, and will DEFEND, INDEMNIFY and HOLD HARMLESS, subject to the procedures under Section 10.4, Buyer and its Affiliates, and all of its and their respective equity holders, partners, members (excluding, in each case, such equity holders, partners or members that are equity holders, partners or members of Buyer or any of its Affiliates solely by virtue of their holding publicly traded shares, units or partnership interests), directors, officers, managers, employees, agents and other Representatives (collectively, the “Buyer Indemnified Parties”) from and against any and all Liabilities arising out of, resulting from, based on, associated with, or relating to any breach by such Seller of such Seller’s representations and warranties set forth in Section 3.1;

 

provided, however, that in no event shall Sellers have any obligation to provide indemnification for any matters under this Section 10.2(a) to the extent already accounted for in the Preliminary Settlement Statement or the Final Settlement Statement as a downward adjustment to the Cash Consideration or to the extent that Buyer was indemnified under ARTICLE VI or for Excluded Taxes; provided further that if Buyer satisfies any indemnifiable Liability under this Section 10.2(a) from the Holdback Amount, then the Seller that made the representation or warranty underlying such Liability shall reimburse the other Sellers for the total amount of such Liability, which reimbursement will be distributed to the other Sellers based on each other Seller’s Pro Rata Portion of such reimbursement.  Notwithstanding anything in the foregoing proviso to the contrary, the foregoing proviso is intended only to define the relative rights of the Sellers, and nothing set forth in the foregoing proviso is intended to or shall impair any obligations of the Sellers, jointly and severally, to indemnify Buyer in accordance with, and subject to, this Article X.

 

(b)                                       If the Closing shall occur, then effective from and after the Closing, subject to the limitations set forth in Section 3.4 (Survival of Representations, Warranties, Covenants and Agreements), this ARTICLE X and otherwise herein, Sellers jointly and severally (except for purposes of Section 10.2(b)(i), which shall be severally and not jointly) (subject to Section 10.9(a)), and their respective successors and assigns shall be responsible for, shall pay, and will DEFEND, INDEMNIFY and HOLD HARMLESS, subject to the procedures under Section 10.4, the Buyer Indemnified Parties from and against any and all Liabilities arising out of, resulting from, based on, associated with, or relating to:

 



 

(i)                                     any breach by any Seller of Sellers’ representations and warranties set forth in this Agreement (other than those described in Section 10.2(a));

 

(ii)                                  any breach by the Company, any Seller or Sellers’ Representative of the covenants of any member of the Company Group, any Seller or Sellers’ Representative set forth in this Agreement;

 

(iii)                               Actions or other Third-Party Claims commenced prior to the date which is 12 months from the Closing Date arising from the Specified Liabilities that are less than an amount equal to the Indemnity Cap; and

 

(iv)                              Actions or other Third-Party Claims arising from the Transaction Liabilities;

 

provided, however, that in no event shall Sellers have any obligation to provide indemnification for any matters under this Section 10.2(b) to the extent already accounted for in the Preliminary Settlement Statement or the Final Settlement Statement as a downward adjustment to the Cash Consideration or to the extent that Buyer was indemnified under ARTICLE VI or for Excluded Taxes; provided further that to the extent that any Seller shall be required to indemnify Buyer for any Liabilities in excess of its Pro Rata Portion of such Liabilities, then such Seller shall be reimbursed by each other Seller for such other Seller’s Pro Rata Portion of such Liabilities.  Notwithstanding anything in the foregoing proviso to the contrary, the foregoing proviso is intended only to define the relative rights of the Sellers, and nothing set forth in the foregoing proviso is intended to or shall impair any obligations of the Sellers, jointly and severally, to indemnify Buyer in accordance with, and subject to, this Article X.

 

Section 10.3                             Deductible and Cap.  Sellers shall not have any obligation or liability for indemnification under Section 10.2(a) or 10.2(b)(i) (except for breaches of the Seller Fundamental Representations and the Company Fundamental Representations) for any individual indemnity claim against Sellers, the amount of which does not exceed $100,000, unless and until the aggregate of all such individual indemnity claims exceeding such threshold against Sellers exceeds an amount equal to $5,742,634.87 (the “Indemnity Deductible”), and then only with respect to the amount of such indemnity claims against Sellers that exceed the Indemnity Deductible, when taken together on a cumulative basis with any amounts payable to Buyer under Section 6.1 or any obligation or liability for indemnification under Section 10.2(b)(iii), that are less than an amount equal to $86,139,523.10 (the “Indemnity Cap”); provided, however, that notwithstanding the fact that Section 3.2(j) (Taxes) is a Company Fundamental Representation, the Indemnity Cap shall apply to any breach of the representations and warranties set forth in Section 3.2(j) (Taxes).  In no event will (i) Sellers be liable for indemnification payments (other than such payments resulting from (x) breach of Seller Fundamental Representations or Company Fundamental Representations (excluding Section 3.2(j) (Taxes)), (y) Actions or Third Party Claims arising from the Transaction Liabilities or (z) any breach by the Company, any Seller or Sellers’ Representative of the covenants of any member of the Company Group, any Seller or Sellers’ Representative set forth in this Agreement (excluding Seller Taxes)) in an aggregate amount greater than the Indemnity Cap and (ii) any

 



 

Seller ever be liable for indemnification payments to Buyer under this Agreement in an aggregate amount exceeding such Seller’s Pro Rata Portion.

 

Section 10.4                             Procedures.

 

(a)                           In order for a Person to be entitled to any indemnification provided for under this ARTICLE X in respect of, arising out of or involving a claim made by any Person against the indemnified party (a “Third-Party Claim”), such indemnified party must notify the indemnifying party (which in the case of Sellers, shall be Sellers’ Representative) in writing of the Third-Party Claim promptly after receipt by such indemnified party of written notice of the Third-Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually and materially prejudiced as a result of such failure.

 

(b)                                 If a Third-Party Claim is made against an indemnified party, the indemnifying party shall be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the indemnifying party; provided, however, that the indemnifying party shall not be entitled to assume the defense of any Third-Party Claim if (i) the indemnified party shall have one or more legal or equitable defenses available to it which are different from or in addition to those available to the indemnifying party, and, in the reasonable opinion of the indemnified party, counsel for the indemnifying party could not adequately represent the interests of the indemnified party because such interests could be in conflict with those of the indemnifying party, (ii) such Third-Party Claim involves injunctive or other non-monetary relief (provided, however, that if such Third-Party Claim includes a request for injunctive or other non-monetary relief, the indemnifying party may assume the defense of such Third-Party Claim so long as the indemnified party has joint control of the defense of the portion of such Third-Party Claim relating to the request for injunctive or other non-monetary relief) or (iii) the indemnifying party shall not have assumed the defense of such Third-Party Claim in a timely fashion (but in any event within 30 days of written notice of such Third-Party Claim). If the indemnifying party assumes such defense, the indemnified party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense. The indemnifying party shall be liable for the fees and expenses of counsel employed by the indemnified party for any period during which the indemnifying party has not assumed the defense thereof. If the indemnifying party chooses to defend or prosecute a Third-Party Claim, the indemnifying party shall keep the indemnified party reasonably apprised of the status of the Third-Party Claim and shall furnish the indemnified party with copies of all notices and documents (including court papers) received by the indemnifying party relating to the Third-Party Claim, and the indemnified party shall use its commercially reasonable efforts to cooperate (at the indemnifying party’s sole cost and expense) in the defense or prosecution thereof. If the indemnifying party assumes the defense of a Third-Party Claim, the indemnifying party shall not admit any liability with respect to, or settle, compromise or discharge, such Third-Party Claim without the indemnified party’s prior written consent; provided, however, that the indemnified party shall agree to any settlement, compromise or discharge of a Third-Party Claim that the indemnifying party may recommend and that by its terms obligates the indemnifying party to pay the full amount of the liability in connection with such Third-Party Claim, which releases the indemnified party completely and unconditionally from all liability in connection

 



 

with such Third-Party Claim and that would not otherwise adversely affect the indemnified party.

 

(c)                                  In the event any indemnified party should have a claim against any indemnifying party under this ARTICLE X that does not involve a Third-Party Claim being asserted against or sought to be collected from such indemnified party, the indemnified party may make such claim directly against any indemnifying party by delivering written notice of such claim to the indemnifying party. If the indemnifying party does not notify the indemnified party within 10 Business Days following its receipt of such notice that the indemnifying party disputes its liability to the indemnified party under this ARTICLE X, such claim specified by the indemnified party in such notice shall be conclusively deemed a liability of the indemnifying party under this ARTICLE X and the indemnifying party shall pay the amount of such liability to the indemnified party on demand or, in the case of any notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of such claim (or such portion thereof) becomes finally determined.

 

(d)                                 No Person shall be entitled to indemnification under Section 10.1 or Section 10.2 unless it shall have given the Party from which indemnity is sought written notice of the Liabilities for which it seeks indemnification (which notice may be, in the case of Third-Party Claims, notice under Section 10.4(a), and in the case of direct claims, notice under Section 10.4(c)) within the applicable Survival Period.

 

Section 10.5                             Exclusive Remedy.  If the Closing occurs, except (a) as expressly provided in this Agreement with respect to Title Defects and Environmental Defects, (b) as set forth in the special warranty contained in Section 3.2(m), (c) as contained in any Environmental Indemnity Agreement, (d) as contained in the Investment Agreement, or (e) in the case of actual, intentional fraud, the indemnity obligations set forth in this Agreement shall be the exclusive monetary remedies for the Parties for the breach of any representation, warranty or covenant set forth in this Agreement or any claim arising out of, resulting from or related to the Transactions.

 

Section 10.6                             Extent of Indemnification.  THE INDEMNIFICATION PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LIABILITIES IN QUESTION AROSE OUT OF OR RESULTED FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY SELLER INDEMNIFIED PARTY OR BUYER INDEMNIFIED PARTY, EXCEPTING ONLY LIABILITIES TO THE EXTENT RESULTING FROM THE WILLFUL MISCONDUCT OF ANY SELLER INDEMNIFIED PARTY OR BUYER INDEMNIFIED PARTY.

 

Section 10.7                             Losses.

 

(a)                                       In the event a Party is obligated to make payments to the Buyer Indemnified Parties or Seller Indemnified Parties, as the case may be, pursuant to this ARTICLE X, any such amounts shall be net of any (i) insurance proceeds realized by and paid to such indemnified party in respect of or related to the event, cause or condition giving rise to such indemnification obligation, and (ii) amounts actually recovered by such indemnified party from third Persons

 



 

with respect to such event, cause or condition giving rise to such indemnification obligation, in any case, after giving effect to any expenditures to obtain such payments and any applicable deductible or retention and resulting retrospective premium adjustment.

 

(b)                                       Notwithstanding anything to the contrary in this ARTICLE X, for purposes of determining the amount of damages incurred or suffered with respect to a breach of representation or warranty, and for purposes of determining whether or not a breach of representation or warranty has occurred, any reference to “material,” “materiality,” “Seller Material Adverse Effect,” “Company Material Adverse Effect” or “Buyer Material Adverse Effect” in the applicable representation or warranty will be disregarded for purposes of this ARTICLE X only.

 

(c)                                        IN NO EVENT SHALL ANY PARTY HAVE ANY LIABILITY UNDER THIS ARTICLE X FOR ANY (I) EXEMPLARY OR PUNITIVE DAMAGES OR (II) SPECULATIVE OR REMOTE DAMAGES, UNLESS IN EACH CASE SUCH DAMAGES ARE REQUIRED TO BE PAID BY AN INDEMNIFIED PARTY TO A THIRD PARTY THAT IS NOT AN AFFILIATE OF THE INDEMNIFIED PARTY.

 

(d)                                       Notwithstanding anything to the contrary contained in this Agreement, a claim for indemnity may be made by a Party under this ARTICLE X in respect of any breach of any representation, warranty or covenant set forth in this Agreement despite the fact that such Party had knowledge prior to the execution and delivery of this Agreement or prior to the Closing, as the case may be, of the breach of such representation, warranty or covenant.  In furtherance of the foregoing, each of Buyer and Sellers are entitled to rely upon, and shall be deemed to have relied upon, all representations, warranties and covenants of any other Party set forth in this Agreement which are made in favor of Buyer or Sellers, as applicable, and the rights of the Buyer Indemnified Parties and the Seller Indemnified Parties under this ARTICLE X shall not be affected, notwithstanding (i) the making of this Agreement, (ii) any investigation or examination conducted by or on behalf of a Party with respect thereto, or (iii) the Closing hereunder.

 

(e)                                        Buyer and Sellers agree to report each indemnification payment made in respect of a Liability as an adjustment to the Base Purchase Price for federal income Tax purposes.

 

(f)                                         Each of the Parties acknowledges that indemnification obligations under this Agreement and the Investment Agreement may overlap, and agree that any claim for indemnification may be made under this Agreement or the Investment Agreement; provided, however, that no Party may obtain duplicative indemnification or other recovery under such agreements.

 

Section 10.8                             Claimants.  Any claim for indemnity under this ARTICLE X by any current or former Affiliate, stockholder, member, officer, director, employee, agent, lender, advisor, Representative, accountant, attorney, or consultant of any Party must be brought and administered by the applicable Party to this Agreement.  No indemnified party other than Sellers and Buyer shall have any rights against either Sellers or Buyer under the terms of this ARTICLE X except as may be exercised on its behalf by Buyer or Sellers, as applicable, pursuant to this ARTICLE X. Sellers and Buyer may elect to exercise or not exercise indemnification rights under this ARTICLE X on behalf of the other Seller Indemnified Parties

 



 

and Buyer Indemnified Parties, respectively, affiliated with it in its sole discretion and shall have no liability to any such other indemnified party for any action or inaction under this Section 10.8.

 

Section 10.9                             Holdback.

 

(a)                                       Any amounts due to Buyer Indemnified Parties for any obligation or liability for indemnification under Section 10.2(a) or (b)(i) (except for breaches of Seller Fundamental Representations or Company Fundamental Representations) shall be satisfied solely from the Holdback Amount, provided that all indemnifiable Liabilities under this Article X or Article VI will be satisfied first from the Holdback Amount, and the several nature of Sellers’ representations and warranties and indemnification obligations shall not affect Buyer’s right to collect the total amount of any Liabilities from which indemnification is provided hereunder from the Holdback Amount; provided, however, that, subject to Section 10.3, Buyer may seek payment for any other indemnifiable Liabilities directly from each Seller severally, as to its Pro Rata Portion of the indemnified Liability if such indemnified Liability arises pursuant to a breach of a representation or warranty set forth in Section 3.2, or if such indemnified Liability arises pursuant to a breach of a representation or warranty set forth in Section 3.1, the entire amount of such Liability.

 

(b)                                       In the event Sellers’ Representative does not dispute any claim for indemnification made by Buyer, at Buyer’s written election, Sellers’ Representative and Buyer shall provide written instructions to the Escrow Agent in accordance with the Escrow Agreement to disburse to Buyer the amount of the undisputed claim.  In the event Sellers’ Representative does dispute any claim for indemnification made by Buyer, then upon final determination of liability (or a settlement between the applicable Parties) with respect to such claim, at Buyer’s written election, Sellers’ Representative and Buyer shall provide written instructions to the Escrow Agent to disburse to Buyer the amount determined by such final determination or settlement to be due and which amount is then remaining in the Escrow Account.

 

(c)                                        On the date that is six months from and after the Closing Date, Buyer and Sellers’ Representative shall instruct the Escrow Agent to release to Sellers’ Representative the lesser of (i) the difference between the then existing amount of the Holdback Amount and the aggregate amount of all unsatisfied claims for indemnification that Buyer has made in good faith on or before such date and which are to be satisfied (in whole or in part) from the Holdback Amount, and (ii) $14,356,587.18 (it being understood that as of such release, the “Holdback Amount” will be deemed to be the amounts remaining in the Escrow Account) and all of the Holdback Shares.  Any amount remaining in the Escrow Account for such unsatisfied claims described in clause (i) of the previous sentence shall remain in escrow until a final determination of liability (or a settlement between the Parties) with respect to such claims is made under this Agreement.

 

(d)                                       On the date that is 12 months from and after the Closing Date, Buyer and Sellers’ Representative shall instruct the Escrow Agent to release to Sellers’ Representative the difference between the then existing amount of the Holdback Amount and the aggregate amount of all unsatisfied claims for indemnification that Buyer has made in good faith on or before such date and which are to be satisfied (in whole or in part) from the Holdback Amount.  Any

 



 

amount remaining in the Escrow Account for such unsatisfied claims described in the previous sentence shall remain in escrow until a final determination of liability (or a settlement between the Parties) with respect to such claims is made under this Agreement.

 

ARTICLE XI
ARBITRATION OF DISPUTED MATTERS

 

Section 11.1                             Arbitration.

 

(a)                                 All Disputed Matters shall be determined by arbitration and governed by this ARTICLE XI.

 

(b)                                       With respect to any Disputed Title Matter, Buyer and Sellers’ Representative shall select a mutually agreeable single arbitrator, who shall be a title attorney with at least ten (10) years’ experience in oil and gas titles involving properties in the regional area in which the Properties are located, within fifteen (15) days following the Closing Date.  With respect to any Disputed Environmental Matter, Buyer and Sellers’ Representative shall select a mutually agreeable single arbitrator, who shall be an environmental consultant with at least ten (10) years’ experience, within fifteen (15) days following the Closing Date.  If Buyer and Sellers’ Representative have not selected a mutually agreeable arbitrator in accordance with the provisions and deadlines set forth in this Section 11.1(b), then such arbitrator shall be chosen in accordance with the Commercial Arbitration Rules (“Rules”) of the American Arbitration Association (“AAA”) (the arbitrator selected in accordance with this Section 11.1(b), the “Arbitrator”).

 

(c)                                        The Arbitrator’s determination shall be made within twenty (20) days after submission of the Disputed Matters to the Arbitrator and shall be binding on and non-appealable by the Parties.

 

(d)                                       In making his determination with respect to any Disputed Matter, the Arbitrator shall be bound by the rules set forth in ARTICLE V and, subject to the foregoing, may consider such other matters as in the opinion of the Arbitrator are necessary to make a proper determination; provided, however, that with respect to any Disputed Matter related to any Title Defect Amount, Title Benefit Amount or Environmental Defect Amount, the Arbitrator shall not award Buyer (or Sellers, if applicable) a greater amount than the amount claimed by Buyer (or Sellers, if applicable) in its Title Notice or Environmental Notice, as applicable.

 

(e)                                        With respect to any Disputed Matter, the Arbitrator shall act as an expert for the limited purpose of determining such specific Disputed Matter, and, unless the Disputed Matter relates to a Title Defect Amount, a Title Benefit Amount or an Environmental Defect Amount, may not award damages, interest or penalties to either Party with respect to any Disputed Matter.  Notwithstanding the immediately preceding sentence, the Arbitrator may, however, award reasonable costs, including attorney fees and fees and expenses associated with the Arbitrator, to the Party determined by the Arbitrator to be the prevailing Party in the arbitration of any Disputed Matter.  Within ten (10) days after the Arbitrator delivers written notice to Buyer and Sellers’ Representative of such award, (A) Buyer shall pay to each Seller its Pro Rata Portion of the amount, if any, so awarded by the Arbitrator to Sellers and (B) each Seller,

 



 

severally and jointly, shall pay to Buyer its Pro Rata Portion of the amount, if any, so awarded by the Arbitrator to Buyer.

 

Section 11.2                             Location.  Any arbitration hearing, legal proceeding or action to enforce arbitration or otherwise shall be held in Houston, Texas, unless another place is determined to be mutually acceptable to the Arbitrator and the Parties.

 

Section 11.3                             Rules.  The Arbitrator shall settle all Disputed Matters in accordance with the Rules to the extent such Rules do not conflict with the terms of this Agreement.

 

Section 11.4                             Jurisdiction of Provisions.  The Arbitrator shall not have jurisdiction or authority to add to, detract from or alter in any way the provisions of this Agreement.  Pending the final decision of the Arbitrator of any Disputed Matter, all Parties will proceed diligently with performance of all contractual obligations, including the payment of all sums not in dispute, required by this Agreement.  Notwithstanding the foregoing, the Parties reserve the right to apply to any court of competent jurisdiction for the purpose of obtaining security or other provisional relief to satisfy or effectuate an eventual arbitration award, including attachment and injunctive relief.  The commencement of any action for such relief in aid of arbitration shall not constitute a waiver of the right to arbitration nor shall it prejudice in any way the right to proceed to arbitration.

 

Section 11.5                             Written Decision or Award.  The written decision or award of the Arbitrator shall be final and binding upon the Parties and the Parties shall abide by and comply with such decision and a judgment may be rendered upon such decision or award in a court of competent jurisdiction.  Unless apportioned otherwise by the Arbitrator under Section 11.1 or 11.6, Buyer, on the one hand, and Sellers, on the other hand, shall equally bear the cost of the services and expenses of the Arbitrator and all other costs of the arbitration proceedings.

 

Section 11.6                             Authority of Arbitrator.  The Arbitrator shall be authorized to consider only issues that this Agreement expressly requires to be submitted to arbitration.  The Arbitrator shall have the authority to determine whether the Arbitrator is authorized by this Agreement to consider a matter submitted for arbitration.  If the Arbitrator concludes that he has no such authority, he shall cease consideration of that matter and so notify both Parties.  The Arbitrator shall have the authority to equitably apportion the costs and expenses of any arbitration between Buyer, on the one hand, and Sellers, on the other hand.  The Arbitrator shall have no authority to award incidental, indirect, special, consequential (including lost profits or other consequential or business interruption damages or any other damages not measured by actual damages), multiple, statutory, punitive or exemplary damages with respect to any Disputed Matters.  This limitation of losses and damages shall apply to any arbitration no matter when the proceeding is initiated and shall survive the termination of this Agreement without limit.

 

ARTICLE XII
TERMINATION

 

Section 12.1                             Termination.  This Agreement and the Transactions may only be terminated on or before the Closing and only:

 



 

(a)                                       by either Buyer or Sellers’ Representative if the Closing has not occurred on or before December 31, 2016, or such later date as shall be mutually agreed to in writing by Buyer and Sellers’ Representative (“Outside Date”);

 

(b)                                       by Sellers’ Representative, if any condition set forth in Section 7.1(a), (b), (d) or (e)(ii) is not satisfied (or waived in writing by Sellers’ Representative) as of the Scheduled Closing Date;

 

(c)                                        by Buyer, if any condition set forth in Section 7.2(a), (b), (c), (e) or (f)(ii) is not satisfied (or waived in writing by Buyer) as of the Scheduled Closing Date; or

 

(d)                                       by the mutual written agreement of Buyer and Seller;

 

provided, however, that no Party shall be entitled to terminate this Agreement under Section 12.1(a), (b) or (c) if such Party is, at such time, in material breach of any covenants or agreements hereunder to be performed or observed by such Party.

 

Section 12.2                             Effect of Termination.  Without limiting Sellers’ and Buyer’s respective remedies and rights in regard to the Deposit under Section 12.3, in the event of termination of this Agreement by Sellers’ Representative, on the one hand, or Buyer, on the other hand, pursuant to Section 12.1, written notice thereof shall forthwith be given by the terminating Party to the other Party, and this Agreement shall thereupon terminate; provided, however, Section 3.5, Section 5.2(b), Section 10.6, this ARTICLE XII and ARTICLE XIII will survive the termination of this Agreement and will remain in full force and effect.  If this Agreement is terminated as provided herein all filings, applications and other submissions made to any Governmental Body shall, to the extent practicable, be withdrawn from the Governmental Body to which they were made.

 

Section 12.3                             Remedies.

 

(a)                                       Sellers’ Remedies.  Notwithstanding anything to the contrary set forth herein, upon Buyer’s breach of any representation, warranty, covenant or agreement contained in this Agreement such that Sellers’ Representative would be entitled to terminate this Agreement pursuant to Section 12.1(b), Sellers’ Representative may terminate this Agreement and obtain and retain the Deposit as its sole and exclusive remedy, including against the Financing Sources, as liquidated damages.  It is expressly stipulated by the Parties that the actual amount of damages resulting from any such termination would be difficult, if not impossible, to determine accurately because of the unique nature of this Agreement, the unique nature of the Properties, the uncertainties of applicable commodity markets and differences of opinion with respect to such matters, and that the liquidated damages provided for herein are a reasonable estimate by the Parties of such damages.

 

(b)                                       Buyer’s Remedies.  Notwithstanding anything to the contrary set forth herein, upon Sellers’ or the Company’s breach of any representation, warranty, covenant or agreement contained in this Agreement such that Buyer would be entitled to terminate this Agreement pursuant to Section 12.1(c), Buyer, at its sole option, may either (i) enforce specific performance of this Agreement or (ii) (A) terminate this Agreement, (B) receive back the entirety of the Deposit, in which case Sellers’ Representative and Sellers will pay to Buyer the

 



 

full Deposit within 10 Business Days following termination of this Agreement, and (C) then, subject to Section 13.8, pursue whatever legal rights and remedies may be available to Buyer (it being understood and agreed that, subject to Section 13.8, the termination of this Agreement pursuant to Section 12.1 shall not limit or impair any legal rights or remedies that Buyer may have with respect to a breach by Sellers of this Agreement).

 

(c)                                        Termination Without Breach.  In the event that this Agreement is terminated under Section 12.1 under circumstances other than those described in Section 12.3(a) or (b), Buyer shall be entitled to receive back the entirety of the Deposit, in which case Sellers’ Representative and Sellers will pay to Buyer the full Deposit within 10 Business Days following termination of this Agreement, and the Parties will have no obligation or liability to one another hereunder other than as set forth in Section 12.2, this Section 12.3 and the Confidentiality Agreements.

 

Section 12.4                             Confidentiality Agreements.  The Parties acknowledge and agree that that certain Confidentiality Agreement dated as of July 22, 2016, by and between Buyer, the Company, Kimmeridge Energy Management, LLC, and 299 Resources covering Buyer’s confidential information (the “Buyer Confidentiality Agreement”) and that certain Confidentiality Agreement dated as of May 20, 2016 by and between Buyer and Kimmeridge Energy Management Company, LLC covering Sellers’ confidential information (the “Seller Confidentiality Agreement,” together with the Buyer Confidentiality Agreement, the “Confidentiality Agreements”) shall remain in effect following the Execution Date and any termination of this Agreement in accordance with this ARTICLE XII; provided, however, that if the Closing shall occur, then the Seller Confidentiality Agreement shall terminate as of the Closing and be of no further force and effect thereafter; provided further, however, that nothing contained in this Section 12.4 or in the Seller Confidentiality Agreement shall prevent Buyer from sharing confidential information with a Financing Source.  Each Seller hereby ratifies, confirms, and adopts the Seller Confidentiality Agreement as though it were a party to the Seller Confidentiality Agreement.

 

ARTICLE XIII
MISCELLANEOUS

 

Section 13.1                             Notices.  All notices and communications required or permitted under this Agreement shall be in writing and shall be sufficiently given, effective upon receipt, if (a) personally delivered in writing, (b) mailed by registered or certified mail, postage prepaid, or bonded overnight carrier, or (c) sent by electronic mail with a PDF of the notice or other communication attached (with the original sent by U.S. mail or an overnight carrier the same day such electronic mail is sent):

 

Buyer:                                                                                                           PDC Energy, Inc.

1775 Sherman St, Suite 3000

Denver, CO 80203

Email:                                    lance.lauck@pdce.com

Attn:                                            Lance Lauck

 

with a copy (which shall not constitute notice) to:

 



 

PDC Energy, Inc.

1775 Sherman St, Suite 3000

Denver, CO 80203

Email:                                    Nicole.Martinet@pdce.com

Andrew.Fiske@pdce.com

Attn:                                            Nicole Martinet

Andrew Fiske

 

with a copy (which shall not constitute notice) to:

 

Davis Graham & Stubbs LLP

1550 17th Street, Suite 500

Denver, CO 80202

Email:                                    Kristin.Lentz@dgslaw.com

Greg.Danielson@dgslaw.com

Sam.Niebrugge@dgslaw.com

Attn:                                            Kristin Lentz

Greg Danielson

Sam Niebrugge

 

Sellers:                                                                                                          Kimmeridge Energy Exploration Fund III, LP
c/o Kimmeridge Energy Management Company LLC
400 Madison Avenue, Suite 14C
New York, New York 10017
Email:  henry.makansi@ kimmeridge energy.com
Attn:  Henry Makansi

 

with a copy (which shall not constitute notice) to:

 

Sidley Austin LLP
1000 Louisiana St., Suite 6000
Houston, Texas 77002
Email:  irotter@sidley.com
Attn:  Irving Rotter

 

Any Party may, by written notice so delivered to the other Party in accordance with this Section 13.1, change the address or individual to which delivery of any communication or notice under this Agreement shall be made to such Party.

 

Section 13.2                             Amendments and Severability.  Except with respect to the addresses under Section 13.1, this Agreement may not be amended, modified or waived, except by an instrument in writing executed, by Buyer and Sellers’ Representative in the case of amendment or modification, or, in the case of a waiver, by the Party to whom the obligation waived was owed.  The invalidity of any one or more provisions of this Agreement shall not affect the validity of this Agreement as a whole, and in case of any such invalidity, this Agreement shall be construed as if the invalid provision had not been included herein.

 



 

Section 13.3                             Assignment.  No Party may assign this Agreement or any of its rights or interests under this Agreement, or delegate any of its obligations or liabilities under this Agreement, without the prior written consent of the other Parties, which consent may be withheld in each such Party’s sole and absolute discretion and may be conditioned on the receipt of a written assumption of such obligations from the delegate.  Any purported assignment or delegation in violation of this Section 13.3 is void.

 

Section 13.4                             Interpretation.

 

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

 

(b)                                       Construction.  Unless the context requires otherwise:  (i) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine and neuter; (ii) references to Articles, Sections, Exhibits and Schedules refer to Articles, Sections, Exhibits and the Seller Disclosure Schedule or Company Disclosure Schedule or Buyer Disclosure Schedule, as applicable, of this Agreement; (iii) references to Laws refer to such Laws as they may be amended from time to time, and references to particular provisions of a Law include any corresponding provisions of any succeeding Law; (iv) references to money refer to legal currency of the United States of America; (v) the word “including” shall mean “including, without limitation”; and (vi) all capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms.

 

(c)                                        Exhibits and Schedules.  All Exhibits and Schedules attached to or referred to in this Agreement are incorporated into and made a part of this Agreement.  Any matter disclosed on any Schedule shall be deemed disclosed on all Schedules where such information is relevant to the extent that the relevance of such disclosure to other sections of this Agreement is reasonably apparent on its face.

 

(d)                                       Not to be Construed Against Drafter.  The Parties acknowledge that they have had an adequate opportunity to review each and every provision contained in this Agreement and to submit the same to legal counsel for review and comment, including the waivers and indemnities contained herein.  Based on such review and consultation, the Parties agree with each and every term contained in this Agreement.  Based on the foregoing, the Parties agree that the rule of construction that a contract be construed against the drafter, if any, shall not be applied in the interpretation and construction of this Agreement.

 

(e)                                        Time for Performance.  If any time period hereunder expires on, or the date for or deadline for performance of any obligations or delivery of any notice hereunder falls on, a day which is not a Business Day, unless otherwise provided for herein, then the date of expiration of any such time period, or the date for or deadline for performance of any such obligation or delivery of any such notice hereunder, shall be extended to the next Business Day.

 

Section 13.5                             Governing Law.  This Agreement shall be governed by and construed under the Laws of the State of Texas, excluding any choice of law rules which may direct the application of the Laws of another jurisdiction.

 



 

Section 13.6                             Announcements.  Notwithstanding anything to the contrary in the Confidentiality Agreements, upon the execution and delivery of this Agreement, Buyer may not issue any press release or other public announcement announcing the Transactions without the prior consent of Sellers’ Representative, which consent will not be unreasonably withheld, conditioned or delayed (provided, however, Buyer may make such disclosures of this Agreement as may be required by applicable Laws or the applicable rules or regulations of any Governmental Body or stock exchange; provided, further, in each case, before making any such disclosure, Buyer shall reasonably consult with Sellers’ Representative).

 

Section 13.7                             Entire Agreement.  This Agreement, the Investment Agreement and the Confidentiality Agreements shall constitute the entire understanding among the Parties with respect to the subject matter hereof, superseding all negotiations, prior discussions and prior agreements and understandings relating to such subject matter, whether oral or written.

 

Section 13.8                             Parties in Interest.  This Agreement shall be binding upon, and shall inure to the benefit of, the Parties and their respective successors and permitted assigns.  Except with respect to Section 5.2(b), Section 13.12 (with respect to the Financing Sources) and ARTICLE X, nothing contained in this Agreement, express or implied, is intended to confer upon any other Person (other than the Parties, and their respective successors and permitted assigns) any benefits, rights or remedies.

 

Section 13.9                             Waiver.  Except as set forth in Section 13.2, the failure of a Party to insist on the strict performance of any provision of this Agreement or to exercise any right, power or remedy upon a breach thereof shall not constitute a waiver of any provisions of this Agreement or limit such Party’s right thereafter to enforce any provision or exercise any right.

 

Section 13.10                      Conspicuousness of Provisions.  The Parties acknowledge and agree that the provisions contained in this Agreement that are set out in “bold” and/or all CAPITAL LETTERS or SMALL capital letters satisfy the requirement of the “express negligence rule” and any other requirement at law or in equity that provisions contained in a contract be conspicuously marked or highlighted.

 

Section 13.11                      Counterparts.  This Agreement may be executed by the Parties in any number of counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute one and the same instrument.  Facsimile and electronic (i.e., pdf transmission) signature pages shall constitute original signature pages hereunder.

 

Section 13.12                      Waiver of Jury Trial; Submission to Jurisdiction.

 

(a)                                       SUBJECT TO THE PROVISIONS OF ARTICLE XI, THE PARTIES IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION BASED ON, RELATED TO, OR ARISING OUT OF (IN WHOLE OR IN ANY PART IN ANY WAY) THIS AGREEMENT.

 

(b)                                       SUBJECT TO THE PROVISIONS OF ARTICLE XI, WITH RESPECT TO ANY ACTION, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE DISTRICT COURT FOR HARRIS COUNTY, TEXAS OR THE UNITED

 



 

STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION SHALL BE HEARD AND DETERMINED IN SUCH TEXAS STATE OR FEDERAL COURT.  EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSES OF LACK OF JURISDICTION, IMPROPER VENUE OR AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION.  THE PARTIES FURTHER AGREE, TO THE EXTENT PERMITTED BY LAW, THAT A FINAL AND UNAPPEALABLE JUDGMENT AGAINST ANY OF THEM IN ANY ACTION CONTEMPLATED ABOVE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT, A CERTIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND AMOUNT OF SUCH JUDGMENT. EACH OF THE PARTIES HERETO HEREBY AGREES IT WILL NOT BRING OR SUPPORT ANY ACTION AGAINST ANY FINANCING SOURCE, OR ANY OF ITS REPRESENTATIVES, IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY DISPUTE ARISING OUT OF OR RELATING IN ANY WAY TO THE FINANCING OR THE PERFORMANCE THEREOF, IN ANY FORUM OTHER THAN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, OR, IF UNDER APPLICABLE LAW EXCLUSIVE JURISDICTION IS VESTED IN THE FEDERAL COURTS, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK (AND APPELLATE COURTS THEREOF), AND THAT THE PROVISIONS OF SECTION 13.12(A) RELATING TO THE WAIVER OF JURY TRIAL SHALL APPLY TO ANY SUCH ACTION.

 

Section 13.13                      Relationship Among Sellers.

 

(a)                                       Each Seller hereby appoints Sellers’ Representative as the sole representative of such Seller to act as the agent and on behalf of such Seller for all purposes under this Agreement, including for the purposes of:  (i) acceptance of any payments hereunder or under any agreement or instrument to be delivered under this Agreement and delivery of wire instructions to Buyer in connection therewith; (ii) preparation and review of the Preliminary Settlement Statement and Final Settlement Statement; (iii) delivering any funds hereunder or under any agreement or instrument to be delivered to Sellers under this Agreement; provided, however, that Sellers’ Representative may withhold from distributions of the Closing Amount such amount determined by Sellers’ Representative in its reasonable judgment as a reserve to cover potential payment obligations of Sellers as may be reflected in the Final Settlement Statement and any amounts that a Seller may be required to reimburse to the other Sellers pursuant to the final proviso of Section 10.2(a); (iv) determining whether the conditions to closing in ARTICLE VII (Conditions Precedent to Closing) have been satisfied and supervising the Closing, including waiving any such condition if Sellers’ Representative, in its sole discretion, determines that such waiver is appropriate; (v) taking any action that may be necessary or desirable, as determined by Sellers’ Representative in its sole discretion, in connection with the termination hereof in accordance with ARTICLE XII (Termination) ) or in connection with any matters related to Tax under ARTICLE VI (Tax Matters); (vi) taking any and all actions that may be necessary or desirable, as determined by Sellers’ Representative in its sole discretion, in connection with the amendment hereof in accordance with Section 13.2

 



 

(Amendments and Severability); (vii) accepting notices on behalf of such Seller in accordance with Section 13.1 (Notices); (viii) taking any and all actions that may be necessary or desirable, as determined by Sellers’ Representative in its sole discretion, in connection with the payment of the costs and expenses incurred with respect to the Company or such Seller in accordance with this Agreement; (ix) delivering or causing to be delivered to Buyer at the Closing any Seller Deliverables; (x) executing and delivering, in Sellers’ Representative’s capacity as the representative of such Seller, any and all notices, documents or certificates to be executed by Sellers’ Representative, on behalf of such Seller, in connection with this Agreement, agreement or instrument to be delivered under this Agreement and the Transactions; (xi) granting any consent or approval on behalf of such Seller under this Agreement; and (xii) taking any and all other actions and doing any and all other things provided in or contemplated by this Agreement or any agreement or instrument to be delivered under this Agreement and performed by such Seller or by Sellers’ Representative on behalf of such Seller.  As the representative of Sellers, Sellers’ Representative shall act as the agent for all Sellers and shall have authority to bind each Seller in accordance with this Agreement, and Buyer may rely on such appointment and authority until the receipt of notice of the appointment of a successor upon five Business Days’ prior written notice to Buyer.

 

(b)                                       Each Seller hereby appoints Sellers’ Representative as such Seller’s true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, in such Seller’s name, place and stead, in any and all capacities, in connection with the Transactions and granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection with the sale of such Seller’s Company Capital Stock and the other Transactions as fully to all intents and purposes as such Seller might or could do in person.

 

(c)                                        Sellers’ Representative shall not have any liability to Buyer for any breach of this Agreement by any Seller, and Buyer shall not have any liability to Sellers’ Representative or any Seller for any actions taken by Sellers’ Representative or any Seller.  Buyer and its Affiliates and their respective Representatives shall be entitled to deal exclusively with Sellers’ Representative on all matters relating to this Agreement, and shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed, and on any other action taken or purported to be taken, on behalf of any Seller by Sellers’ Representative, as fully binding upon such Seller.

 

(d)                                       Sellers’ Representative’s costs and expenses reasonably incurred in connection with acting as Sellers’ Representative hereunder shall be reimbursed to Sellers’ Representative by Sellers.

 

Section 13.14                      Specific Enforcement.  Sellers acknowledge that if any of the provisions of this Agreement were not performed by it in accordance with their specific terms, irreparable damage to Buyer would occur, no adequate remedy at Law would exist and damages would be difficult to determine, and Buyer shall be entitled to specific performance of the terms hereof and immediate injunctive relief, without the necessity of proving the inadequacy of money damages as a remedy, in addition to any other remedy available at law or in equity.  Buyer acknowledges that if any of the provisions of this Agreement required to be performed by it from and after the Closing were not performed by it in accordance with their specific terms, irreparable damage to

 



 

Sellers would occur, no adequate remedy at law would exist and damages would be difficult to determine, and Sellers shall be entitled to specific performance of such terms and immediate injunctive relief, without the necessity of proving the inadequacy of money damages as a remedy, in addition to any other remedy available at law or in equity.

 

Section 13.15                      Releases.

 

(a)                                 Effective as of the Closing, each Seller, severally and not jointly, on behalf of itself and, except for the Company and its Subsidiaries, for each of its direct and indirect Affiliates, Subsidiaries, subdivisions, successors, predecessors, shareholders, partners, members, managers and assigns, and their present and former officers, directors, legal representatives, employees, agents, and attorneys and other professionals, and their heirs, executors, administrators, trustees, successors and assigns (collectively, “Seller Releasing Parties”), hereby irrevocably releases and forever discharges and covenants not to sue: (w) Buyer, the Company, or any of their respective direct or indirect Subsidiaries or Affiliates (collectively, the “Purchased Company Group”), (x) each of the present and former directors, managers and officers of each member of the Purchased Company Group, (y) each of the respective direct and indirect parent companies, Affiliates, Subsidiaries, subdivisions, successors, predecessors, affiliated management companies, funds or vehicles advised directly or indirectly by any such affiliated management companies, shareholders, members, managers, partners and assigns (collectively with respect to any Person, the Persons in this clause (y), the “Related Entities”) of any member of the Purchased Company Group, and (z) each of the present and former Related Entities, officers, directors, managing and executive directors, managers or members of the boards of managers, partners, legal representatives, managers, employees, agents, professional and financial advisors and sub-advisors, investment bankers, accountants, attorneys and other professionals of the Persons identified in clauses (x) and (y) immediately above, and the family members, estates, assets, trusts, heirs, executors, administrators, trustees, successors and assigns of the Persons identified in clauses (w), (x), (y) and (z) immediately above (collectively all of the foregoing released Persons in this Section 13.15(a), the “Company Released Parties”) of and from any and all claims, causes of action, suits, remedies, debts, liabilities, losses, demands, rights, obligations, damages, expenses, attorneys’ or other professionals’ fees whatsoever then existing or thereafter arising, whether based on or sounding in or alleging (in whole or in part) tort, contract, negligence, strict liability, contribution, subrogation, respondeat superior, violations of federal or state securities Laws, breach of fiduciary duty, any other legal theory or otherwise, whether individual, class, direct or derivative in nature, liquidated or unliquidated, fixed or contingent, whether at law or in equity, whether based on federal, state or foreign Law or right of action, foreseen or unforeseen, matured or unmatured, known or unknown, disputed or undisputed, accrued or not accrued, or otherwise (collectively, “Company Claims”), that the Seller Releasing Parties have, had or can, shall or may now or hereafter have against the Company Released Parties, from the beginning of time up to and through the Closing, that arise out of, relate to, or are in any way connected with such Seller’s past or present interest in the equity interests or debt of the Company or any of its Affiliates, including any act or omission of, or transaction, negotiation, agreement, performance or failure to perform, breach, default, circumstance or other occurrence involving, any Company Released Party related to:

 



 

(i)                                     any investment by any Seller Releasing Party or equity or debt interest of any Seller Releasing Party in any member of the Purchased Company Group (including any act or omission of, or transaction, negotiation, agreement, performance or failure to perform, breach, default, circumstance or other occurrence involving any Company Released Party with respect to the acquisition, arrangement, negotiation, holding, or disposition of any such investment); and

 

(ii)                                  any disclosure made or not made by any Company Released Party to any Person arising out of or related to the items in clause (i) immediately above.

 

(b)                                       Effective as of the Closing, each of Buyer and the Company, severally and not jointly, on behalf of itself and, except for any Seller Related Entity, for each of its direct and indirect Affiliates, Subsidiaries, subdivisions, successors, predecessors, shareholders, partners, members, managers and assigns, and their present and former officers, directors, legal representatives, employees, agents, and attorneys and other professionals, and their heirs, executors, administrators, trustees, successors and assigns (collectively, the “Company Releasing Parties”), hereby irrevocably releases and forever discharges and covenants not to sue: (w) each Seller, (x) each of the present and former directors and officers of each Seller and the direct or indirect Subsidiaries or Affiliates thereof, (y) each of the Related Entities of the Persons identified in clause (w), and (z) each of the present and former Related Entities, officers, directors, managing and executive directors, managers or members of the boards of managers, partners, legal representatives, managers, employees, agents, professional and financial advisors and sub-advisors, investment bankers (including the Financing Sources), accountants, attorneys and other professionals of the Persons identified in clauses (x) and (y) immediately above, and the family members, estates, assets, trusts, heirs, executors, administrators, trustees, successors and assigns of the Persons identified in clauses (w), (x), (y) and (z) immediately above (collectively all of the foregoing released Persons in this Section 13.15(b), the “Seller Released Parties”) of and from any and all claims, causes of action, suits, remedies, debts, liabilities, losses, demands, rights, obligations, damages, expenses, attorneys’ or other professionals’ fees whatsoever then existing or thereafter arising, whether based on or sounding in or alleging (in whole or in part) tort, contract, negligence, strict liability, contribution, subrogation, respondeat superior, violations of federal or state securities Laws, breach of fiduciary duty, any other legal theory or otherwise, whether individual, class, direct or derivative in nature, liquidated or unliquidated, fixed or contingent, whether at law or in equity, whether based on federal, state or foreign Law or right of action, foreseen or unforeseen, matured or unmatured, known or unknown, disputed or undisputed, accrued or not accrued, or otherwise (collectively, “Seller Claims” and, together with Company Claims, “Claims”), that the Company Releasing Parties have, had, or can, shall or may now or hereafter have against the Seller Released Parties, from the beginning of time up to and through the Closing, that arise out of, relate to, or are in any way connected with such Seller’s past or present interest in the equity interests or debt of the Company or any of its Affiliates, including any act or omission of, or transaction, negotiation, agreement, performance or failure to perform, breach, default, circumstance or other occurrence involving, any Seller Released Party related to:

 

(i)                                     any investment by any Seller Released Party or equity or debt interest of any Seller Released Party in any member of the Purchased Company Group (including any act or omission of, or transaction, negotiation, agreement, performance or failure to perform, breach,

 



 

default, circumstance or other occurrence involving any Seller Released Party with respect to the acquisition, arrangement, negotiation, holding, or disposition of any such investment); and

 

(ii)                                  any disclosure made or not made by any Seller Released Party to any Person arising out of or related to the items in clause (i) immediately above.

 

(c)                                        Notwithstanding anything to the contrary contained in this Section 13.15, the Company Released Parties will remain liable to the Seller Releasing Parties, with respect to the liabilities and obligations, if any, they may have to the Seller Releasing Parties, (i) pursuant to this Agreement, or any other agreement or document executed or delivered pursuant to or in connection with this Agreement, (ii) for any Seller Releasing Party that is or was an employee of the Company or its Subsidiaries, for any and all matters relating to such person’s employment with the Company or its Subsidiaries, and (iii) any rights any Seller Releasing Party may have to indemnification or advancement or reimbursement of expenses under any D&O policy or pursuant to the organizational documents of the Company or any of its Subsidiaries or Employee Plan or related trust thereof (in each case, as amended from time to time).

 

(d)                                       Notwithstanding anything to the contrary contained in this Section 13.15, the Seller Released Parties will remain liable to the Company Releasing Parties, with respect to the liabilities and obligations, if any, they may have to the Company Releasing Parties (i) pursuant to this Agreement, or any other agreement or document executed or delivered pursuant to or in connection with this Agreement, (ii) for any Seller Released Party that is or was an employee of the Company or its Subsidiaries, for any and all matters relating to such person’s employment with the Company or its Subsidiaries and (iii) for any obligations or liabilities of any Seller Released Party as an indemnified party relating to its right to indemnification or advancement or reimbursement of expenses under any D&O policy or pursuant to the organizational documents of the Company or any of its Subsidiaries or Employee Plan or related trust thereof (in each case, as amended from time to time).

 

(e)                                        Notwithstanding anything to the contrary contained in this Section 13.15, no Seller Releasing Party or Company Releasing Party is waiving or being required to waive any Claim with respect to any actual and intentional fraud by any other Person, or any right that cannot be waived under applicable Law, and nothing contained in this Section 13.15 will be construed as an admission by any Seller Releasing Party or Company Releasing Party of any liability of any kind to any Person.

 

(f)                                   Each of the undersigned, as a Seller Releasing Party or a Company Releasing Party (each, a “Releasor”), on behalf of himself, herself or its itself and each other Seller Releasing Party or Company Releasing Party, as applicable, that is a Related Entity of such Releasor, hereby waives any and all rights under Section 1542 of the Civil Code of California, and any similar Law, rule, provision or statute of Delaware, New York or any other jurisdiction, which states in full (or otherwise in substance) as follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR

 



 

HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

 

Each Releasor, on behalf of himself, herself or itself and each other Seller Releasing Party or Company Releasing Party, as applicable, that is a Related Entity of such Releasor, hereby knowingly and willingly waives the provisions of Section 1542 of the Civil Code of California and any similar Law, rule, provision or statute of Delaware, New York or any other jurisdiction that operates to bar the release of unknown claims, and acknowledges and agrees that this waiver is an essential and material term of this release and this Agreement.  In particular, each Releasor, on behalf of himself, herself or itself and each other Seller Releasing Party or Company Releasing Party, as applicable, that is a Related Entity of such Releasor, hereby acknowledges that it has reviewed this Release with its legal counsel, and each Releasor understands and acknowledges the significance and consequences of this Release and, in particular, of the waiver provided in this Section 13.15(f).

 

(g)                                        Notwithstanding any other provision of this Section 13.15, the provisions of this Section 13.15 shall not release Sellers’ Representative, or any of its officers, directors, employees or agents from any liability with respect to a breach of its obligations under this Agreement and any document executed in connection herewith.

 

Section 13.16                      Relationship of the Parties.  This Agreement shall not create and it is not the purpose or intention of the Parties to create any partnership, mining partnership, joint venture, general partnership, or other partnership relationship and none shall be inferred, and nothing in this Agreement shall be construed to establish a fiduciary relationship between the Parties for any purpose.

 

[Signature Page Follows]

 



 

IN WITNESS WHEREOF, Buyer has executed this Agreement as of the Execution Date.

 

 

BUYER:

 

 

 

PDC Energy, Inc.

 

 

 

 

 

By:

/s/ Barton R. Brookman, Jr.

 

Name:

Barton R. Brookman, Jr.

 

Title:

President and Chief Executive Officer

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

SELLERS:

 

 

 

Kimmeridge Energy Exploration Fund II, LP

 

 

 

 

 

By:

Kimmeridge Energy Management Company

 

 

GP, LLC, its general partner

 

 

 

 

 

 

By:

/s/ Benjamin Dell

 

 

 

Benjamin Dell

 

 

 

Manager

 

 

 

 

 

Kimmeridge Energy Net Profits Interest Fund

 

 

II, LP

 

 

 

 

 

 

 

By:

Kimmeridge Energy Management Company

 

 

GP, LLC, its general partner

 

 

 

 

 

 

By:

/s/ Benjamin Dell

 

 

 

Benjamin Dell

 

 

 

Manager

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

Camino Resources, LLC

 

 

 

 

 

By:

/s/ Richard F. Aurand

 

 

Richard F. Aurand

 

 

Manager

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

William Marsh Rice University

 

 

 

 

 

By:

/s/ Ronald E. Long

 

 

Name: Ronald E. Long

 

 

Title: Associate Treasurer

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

G LTP LLC

 

 

 

 

 

By:

/s/ Claire E. Fefer

 

 

Name:

Claire E. Fefer

 

 

Title:

Investment Manager

 

 

 

DUMAC, Inc.

 

 

 

Authorized Agent

 

 

 

 

 

By:

/s/ David R. Shumate

 

 

Name:

David R. Shumate

 

 

Title:

Executive Vice President

 

 

 

DUMAC, Inc.

 

 

 

Authorized Agent

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

G ERP LLC

 

 

 

 

 

By:

/s/ Claire E. Fefer

 

 

Name:

Claire E. Fefer

 

 

Title:

Investment Manager

 

 

 

DUMAC, Inc.

 

 

 

Authorized Agent

 

 

 

 

 

 

 

 

 

By:

/s/ David R. Shumate

 

 

Name:

David R. Shumate

 

 

Title:

Executive Vice President

 

 

 

DUMAC, Inc.

 

 

 

Authorized Agent

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

G JBD LLC

 

 

 

 

 

By:

/s/ Claire E. Fefer

 

 

Name:

Claire E. Fefer

 

 

Title:

Investment Manager

 

 

 

DUMAC, Inc.

 

 

 

Authorized Agent

 

 

 

 

 

 

 

 

 

By:

/s/ David R. Shumate

 

 

Name:

David R. Shumate

 

 

Title:

Executive Vice President

 

 

 

DUMAC, Inc.

 

 

 

Authorized Agent

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

G HSP LLC

 

 

 

 

 

By:

/s/ Claire E. Fefer

 

 

Name:

Claire E. Fefer

 

 

Title:

Investment Manager

 

 

 

DUMAC, Inc.

 

 

 

Authorized Agent

 

 

 

 

 

 

 

 

 

By:

/s/ David R. Shumate

 

 

Name:

David R. Shumate

 

 

Title:

Executive Vice President

 

 

 

DUMAC, Inc.

 

 

 

Authorized Agent

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

Aberdeen Energy & Resources Partners III, L.P.

 

 

 

 

 

By:

/s/ Arthur Man

 

 

Name:

Arthur Man

 

 

Title:

Vice President of the managing member of

 

 

 

Aberdeen Energy & Resources Partners

 

 

 

III, L.P.’s general partner

 

 

 

 

 

 

 

 

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

 

PCT Partners, LLC

 

 

 

 

 

By:

/s/ Christopher Zafiriou

 

 

Name:

Christopher Zafiriou

 

 

Title:

Managing Director,

 

 

 

Glenmede Trust Company

 

 

 

Trustee for PCT Partners, LLC

 

 

 

 

 

 

 

 

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

Glenmede Private Investment Fund VIII, LLC

 

 

 

 

 

 

 

By:

/s/ Kenneth B. Trippe

 

 

Name:

Kenneth B. Trippe

 

 

Title:

Director

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

Glenmede Private Investment Fund VIIIB, LLC

 

 

 

 

 

 

 

By:

/s/ Kenneth B. Trippe

 

 

Name:

Kenneth B. Trippe

 

 

Title:

Director

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

TCS Private Equity III, L.L.C. — Series 23

 

 

 

 

 

By: TCS Capital Management Group, Series Manager

 

 

 

 

 

 

By:

/s/ Theodore G. Schwartz

 

Name: Theodore G. Schwartz

 

Title: President of THREE PI, Inc., its sole member

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

University of Virginia Investment Management Company

 

 

 

 

 

 

 

By:

/s/ Jason M. Love

 

 

Name:

Jason M. Love

 

 

Title:

Managing Director

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

Jayhawk Investments, LLC

 

 

 

 

 

By: Nadel and Gussman Managment, LLC, its Manager

 

 

 

 

 

 

By:

/s/ James F. Adelson

 

 

Name:

James F. Adelson

 

 

Title:

Manager

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 


 


 

 

SCHF (M) ECI, L.P.

 

 

 

 

 

 

 

By:

/s/ Keith Johnson

 

 

Name:

Keith Johnson

 

 

Title:

Managing Member

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

SCHF CIF, L.P./CIF 2014-A Series

 

 

 

 

 

 

 

By:

/s/ Keith Johnson

 

 

Name:

Keith Johnson

 

 

Title:

Managing Member

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

/s/ Richard F. Aurand

 

Richard F. Aurand

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

/s/ Peter G. Moreland

 

Peter G. Moreland

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

Arris Class A Holdings, LLC

 

 

 

 

 

 

By:

Kimmeridge Energy Management Company GP, LLC, its manager

 

 

 

 

 

 

 

 

 

 

By:

/s/ Benjamin Dell

 

 

 

Benjamin Dell

 

 

 

Manager

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

LUKOIL Europe Holdings B.V.

 

 

 

 

 

 

By:

/s/ Robert Gulla

 

 

Robert Gulla

 

 

Director

 

 

 

 

By:

/s/ Rumoldus de Schutter

 

 

Rumoldus de Schutter

 

 

Director

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

COMPANY:

 

 

 

Arris Petroleum Corporation

 

 

 

 

 

 

 

By:

/s/ Richard F. Aurand

 

Name: Richard F. Aurand

 

Title: Chief Financial Officer

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

 

SELLERS’ REPRESENTATIVE:

 

 

 

Kimmeridge Energy Management Company GP, LLC

 

 

 

 

 

 

 

By:

/s/ Benjamin Dell

 

 

Benjamin Dell

 

 

Manager

 

 

[Signature Page to Stock Purchase and Sale Agreement]

 



 

EXHIBIT D

 

FORM OF INVESTMENT AGREEMENT

 

This INVESTMENT AGREEMENT (this “Agreement”), is entered into as of [  ], 2016 (the “Closing Date”) by and between PDC Energy, Inc., a Delaware corporation (the “Company”), and each of the Investors identified on Schedule 2.01 of this Agreement (collectively, the “Investors” and each individually, an “Investor”).  This Agreement shall be deemed to have been entered into simultaneously with the closings of the transactions contemplated by that certain Stock Purchase and Sale Agreement by and among the sellers party thereto, Arris Petroleum Corporation (“Arris”), Kimmeridge Energy Management Company GP, LLC (“Kimmeridge Energy”) and the Company (the “Acquisition Agreement”).  The Acquisition Agreement was entered into on August 23, 2016 (the “Acquisition Agreement Date”).

 

RECITALS

 

WHEREAS, pursuant to the Acquisition Agreement, the sellers party thereto have agreed to sell to the Company, and the Company has agreed to purchase from such sellers, all of the issued and outstanding capital stock of Arris, subject to the terms and conditions set forth therein (the “Acquisition”);

 

WHEREAS, pursuant to that certain Asset Purchase and Sale Agreement, by and among 299 Resources, LLC, 299 Pipeline, LLC, 299 Production, LLC (collectively,  the “299 Sellers”), Kimmeridge Energy and the Company, dated August 23, 2016 (the “299 Asset Purchase Agreement”), the 299 Sellers have agreed to sell and assign to the Company, and the Company has agreed to purchase and assume from the 299 Sellers, certain specified assets and liabilities, subject to the terms and conditions set forth therein (the “299 Asset Acquisition”);

 

WHEREAS, as part of the consideration payable by the Company in the Acquisition, the Company has agreed to sell to the Investors, and the Investors have agreed to purchase from the Company, the Purchased Securities (as defined below) on the terms and subject to the conditions set forth in this Agreement;

 

WHEREAS, as part of the consideration payable by the Company in the 299 Asset Acquisition, the Company has agreed to sell to the 299 Sellers, and the 299 Sellers have agreed to purchase from the Company, shares of Common Stock on the terms and subject to the conditions set forth in the 299 Investment Agreement;

 

WHEREAS, the Company has agreed to provide to each Investor the registration and other rights set forth in this Agreement with respect to the Purchased Securities; and

 

WHEREAS, the Company and each Investor desire to set forth certain agreements herein.

 



 

AGREEMENTS

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties to this Agreement hereby agree as follows:

 

ARTICLE I
DEFINITIONS

 

Section 1.01          Definitions.  As used in this Agreement, the following terms have the following meanings:

 

299 Investment Agreement” means that certain Investment Agreement, by and among the 299 Sellers and the Company, dated the date hereof.

 

299 Asset Acquisition” has the meaning set forth in the Recitals of this Agreement.

 

299 Asset Purchase Agreement” has the meaning set forth in the Recitals of this Agreement.

 

Acquisition” has the meaning set forth in the Recitals of this Agreement.

 

Acquisition Agreement” has the meaning set forth in the preamble to this Agreement.

 

Acquisition Agreement Date” has the meaning set forth in the preamble to this Agreement.

 

Actions” has the meaning set forth in Section 3.11 of this Agreement.

 

Affiliate” means, with respect to a specified Person, any other Person, whether now in existence or hereafter created, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person.  For purposes of this definition, “control” (including, with correlative meanings, “controlling”, “controlled by” and “under common control with”) shall mean the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

 

Agreement” has the meaning set forth in the preamble to this Agreement.

 

Beneficially Own” means, with respect to any securities, having “beneficial ownership” of such securities for purposes of Rule 13d-3 under the Exchange Act (or any successor statute or regulation).

 

Blackout and Delay Events” has the meaning set forth in Section 8.04 of this Agreement.

 

Board of Directors” means the board of directors of the Company.

 

2



 

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in Denver, Colorado or New York, New York are authorized or required by Law or executive order to close.

 

Bylaws” means the bylaws of the Company, as amended from time to time prior to the date hereof.

 

Certificate of Incorporation” means the Certificate of Incorporation of the Company, as amended from time to time prior to the date hereof.

 

Closing” has the meaning set forth in Section 2.02 of this Agreement.

 

Closing Date” has the meaning set forth in the preamble to this Agreement.

 

Code” means the Internal Revenue Code of 1986, as amended.

 

Common Stock” means shares of the Company’s common stock, par value $.01 per share, and any shares of Common Stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporate reorganization).

 

Company” has the meaning set forth in the preamble to this Agreement.

 

Company Financial Statements” has the meaning set forth in Section 3.03 of this Agreement.

 

Company Organizational Documents” means the Certificate of Incorporation and the Bylaws.

 

Company Related Parties” has the meaning set forth in Section 6.02 of this Agreement.

 

Company SEC Documents” has the meaning set forth in Section 3.03 of this Agreement.

 

Company Stock Plans” has the meaning set forth in Section 3.04 of this Agreement.

 

Confidentiality Agreements” has the meaning set forth in the Acquisition Agreement.

 

Contract” means any contract, agreement, indenture, note, bond, mortgage, deed of trust, loan, instrument, lease, license, commitment or other arrangement, understanding, undertaking, commitment or obligation, whether written or oral.

 

Controlled Group” has the meaning set forth in Section 3.20 of this Agreement.

 

Credit Facility” has the meaning set forth in Section 3.04 of this Agreement.

 

Director” means any member of the Board of Directors.

 

Drilling Partnership” has the meaning set forth in Section 3.01 of this Agreement.

 

3



 

Environmental Law” has the meaning set forth in Section 3.19(a) of this Agreement.

 

Effectiveness Period” has the meaning set forth in Section 8.02 of this Agreement.

 

Equity Compensation Plans” has the meaning set forth in Section 3.07 of this Agreement.

 

ERISA” has the meaning set forth in Section 3.20 of this Agreement.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder.

 

Expected Effectiveness Date” has the meaning set forth in Section 8.02 of this Agreement.

 

Expected Filing Date” has the meaning set forth in Section 8.02 of this Agreement.

 

Fundamental Representations” means (a) with respect to the Company, the representations and warranties set forth in Section 3.01 (Organization and Good Standing), Section 3.02 (Due Authorization; Valid Execution and Delivery; Enforceability), Section 3.04 (Capitalization), Section 3.06 (The Purchased Securities), Section 3.08 (No Violation or Default) with respect to charter or bylaws or similar organizational documents and any Law or judgment or order of any arbitrator, Section 3.09 (No Conflicts) with respect to charter or bylaws or similar organizational documents and any Law or judgment or order of any arbitrator and Section 3.27 (Certain Fees) and (b) with respect to an Investor, the representations and warranties set forth in Section 4.01 (Existence), Section 4.02 (Authorization; Enforceability), Section 4.03 (No Conflicts) with respect to charter or bylaws or similar organizational documents and any Law or judgment or order of any arbitrator and Section 4.05(a) and 4.05(d) (Unregistered Securities).

 

GAAP” means generally accepted accounting principles in the United States of America as of the date hereof.

 

Governmental Authority” means, with respect to a particular Person, any state, county, city and political subdivision of the United States in which such Person or such Person’s Property is located or which exercises valid jurisdiction over any such Person or such Person’s Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them that exercises valid jurisdiction over any such Person or such Person’s Property.  Unless otherwise specified, all references to Governmental Authority herein with respect to the Company shall mean a Governmental Authority having jurisdiction over the Company, its Subsidiaries or any of their respective Properties.

 

Grant Date” has the meaning set forth in Section 3.05 of this Agreement.

 

Holder” means the record holder of any Transfer Restricted Securities.

 

Holders’ Representative” has the meaning set forth in Section 8.05(b) of this Agreement.

 

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Initiating Holder” has the meaning set forth in Section 8.05(k) of this Agreement.

 

Investor” has the meaning set forth in the preamble to this Agreement.

 

Investor Related Parties” has the meaning set forth in Section 6.01 of this Agreement.

 

IRS” means the United States Internal Revenue Service.

 

Kimmeridge Energy” has the meaning set forth in the preamble to this Agreement.

 

Law” means any applicable federal, state or local order, writ, injunction, judgment, settlement, award, decree, statute, law (including common law), rule or regulation.

 

Lock-Up Period” has the meaning set forth in Section 7.02 of this Agreement.

 

Losses” means actual losses, claims, damages, liabilities, taxes, expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses), judgments, fines, penalties and amounts paid in settlement.

 

Material Adverse Effect” has the meaning set forth in Section 3.01 of this Agreement.

 

Minimum Underwritten Offering Amount” has the meaning set forth in Section 8.05(k) of this Agreement.

 

Money Laundering Laws” has the meaning set forth in Section 3.24 of this Agreement.

 

Nasdaq” means the Nasdaq Global Select Market or any other principal stock exchange or market upon which the Common Stock may trade.

 

Person” means any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or Governmental Authority.

 

Piggyback Notice” has the meaning set forth in Section 8.03(a) of this Agreement.

 

Piggyback Registration” has the meaning set forth in Section 8.03(a) of this Agreement.

 

Piggyback Request” has the meaning set forth in Section 8.03(a) of this Agreement.

 

Plan” has the meaning set forth in Section 3.20 of this Agreement.

 

Property” or “Properties” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible (including intellectual property rights).

 

Purchased Securities” means an aggregate of 5,390,478 shares of Common Stock.

 

Registration Statement” has the meaning set forth in Section 8.02 of this Agreement.

 

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Representatives” means, with respect to a specified Person, the officers, directors, managers, employees, agents, counsel, accountants, investment bankers, and other representatives of such Person and, when used with respect to each  Investor, also includes each Investor’s direct and indirect stockholders, partners, members, subsidiaries, parent companies and other Affiliates.

 

Sanctions” has the meaning set forth in Section 3.25 of this Agreement.

 

Sanctioned Country” has the meaning set forth in Section 3.25 of this Agreement.

 

SEC” means the United States Securities and Exchange Commission.

 

Secondary Securities” has the meaning set forth in Section 8.05(k) of this Agreement.

 

Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder.

 

Selling Holder” means a Holder who is selling Transfer Restricted Securities pursuant to a Registration Statement.

 

Short Sales” means all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and forward sale Contracts, options, puts, calls, short sales, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements, and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers.

 

Stock Options” has the meaning set forth in Section 3.05 of this Agreement.

 

Subsidiary” means, with respect to any Person, any corporation or other entity of which: (a) such Person or a Subsidiary of such Person is a general partner or manager; (b) at least a majority of the outstanding equity interest having by the terms thereof ordinary voting power to elect a majority of the board of directors or similar governing body of such corporation or other entity (irrespective of whether or not at the time any equity interest of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries; or (c) any corporation or other entity as to which such Person consolidates for accounting purposes.

 

Threshold Amount” has the meaning set forth in Section 6.03 of this Agreement.

 

Transaction Documents” means collectively, this Agreement and the Acquisition Agreement.

 

Transfer Restricted Securities” has the meaning set forth in Section 8.01 of this Agreement.

 

Underwritten Offering” has the meaning set forth in Section 8.05(k) of this Agreement.

 

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Underwritten Offering Notice” has the meaning set forth in Section 8.05(k) of this Agreement.

 

ARTICLE II
AGREEMENT TO SELL AND PURCHASE

 

Section 2.01          Sale and Purchase.  Subject to the terms and conditions of this Agreement and the Acquisition Agreement, at the Closing, the Company hereby agrees to issue to each Investor the number of Purchased Securities set forth opposite such Investor’s name on Schedule 2.01 of this Agreement.

 

(a)           Consideration. The Purchased Securities shall be issued to each Investor as Stock Consideration (as defined in the Acquisition Agreement) to pay a portion of the Purchase Price (as defined in the Acquisition Agreement) for the assets described in the Acquisition Agreement.

 

Section 2.02          Closing.  Pursuant to the terms of this Agreement, the consummation of the issuance of the Purchased Securities hereunder shall occur simultaneously with both (a) the execution of this Agreement and (b) the closing of the transactions contemplated by the Acquisition Agreement (the “Closing”). The parties to this Agreement agree that the Closing may occur via delivery of electronic copies of the Transaction Documents and the closing deliverables contemplated hereby and thereby. Unless otherwise provided herein, all proceedings to be taken and all documents to be executed and delivered by all parties to this Agreement at the Closing will be deemed to have been taken and executed simultaneously, and no proceedings will be deemed to have been taken nor documents executed or delivered until all have been taken.

 

Section 2.03          Company Closing Deliverables.  Upon the terms and subject to the conditions of this Agreement, at or prior to the Closing, the Company shall deliver (or cause to be delivered) to each Investor each of the following:

 

(a)           a certificate or certificates representing such Investor’s Purchased Securities and the Common Stock shall be delivered using customary book-entry procedures, and meeting the requirements of the Company Organizational Documents, registered in such name(s) as such Investor has designated (which shall be limited to such Investor and its Affiliates), free and clear of any liens, security interests, pledges, charges, encumbrances, mortgages and restrictions other than transfer restrictions under applicable federal and state securities Laws and this Agreement;

 

(b)           a certificate of the Secretary or Assistant Secretary of the Company dated as of the Closing Date, certifying as to and attaching: (i) the Certificate of Incorporation, as filed with the Delaware Secretary of State, which shall be in full force and effect, (ii) the Bylaws, (iii) resolutions of the Board of Directors authorizing and approving the Transaction Documents and the transactions contemplated thereby, including the issuance of the Purchased Securities to each Investor, and (iv) the incumbency of the officers executing the Transaction Documents;

 

(c)           a certificate of the Secretary of State of the State of Delaware evidencing the good standing of the Company as of that date;

 

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(d)           an Officer’s Certificate substantially in the form attached to this Agreement as Exhibit A; and

 

(e)           evidence the Company has filed a notification of listing of the Common Stock included in the Purchased Securities with Nasdaq and an e-mail from a representative of Nasdaq confirming that Nasdaq’s review of the Listing of Additional Shares form has been completed.

 

Section 2.04          Investor Closing Deliverables.  Upon the terms and subject to the conditions of this Agreement, at Closing, each such Investor shall deliver (or cause to be delivered) to the Company a duly completed and executed IRS Form W-9 (or, in the case of an Investor that is a non-U.S. person, a duly completed and executed IRS Form W-8BEN, W-8BEN-E, W-8ECI, W-8IMY or W-8EXP, as applicable).

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Investors, as of the Closing Date, as follows:

 

Section 3.01          Organization and Good Standing.  Each Subsidiary of the Company is listed on Exhibit B hereto and each drilling partnership of the Company is listed on Exhibit C hereto (each, a “Drilling Partnership” and collectively, the “Drilling Partnerships”); provided that none of the Drilling Partnerships shall, for purposes of this Agreement, constitute a Subsidiary of the Company. The Company, its Subsidiaries and the Drilling Partnerships have been duly organized or formed and are validly existing and in good standing under the laws of their respective jurisdictions of organization or formation, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all organizational power and authority necessary to own or hold their respective Properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified, in good standing or have such power or authority would not, individually or in the aggregate, have a material adverse effect on the business, properties, management, financial position, stockholders’ equity, results of operations or prospects of the Company, its Subsidiaries and the Drilling Partnerships taken as a whole or on the performance by the Company of its obligations under this Agreement (a “Material Adverse Effect”). The Company does not own or control, directly or indirectly, any Person other than its Subsidiaries listed in Exhibit B hereto and the Drilling Partnerships listed on Exhibit C hereto.

 

Section 3.02          Due Authorization; Valid Execution and Delivery; Enforceability.  The Company has full corporate right, power and authority to execute and deliver this Agreement and each other Transaction Document and to perform its obligations hereunder and thereunder, and all action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and each other Transaction Document and the consummation by it of the transactions contemplated hereby and thereby has been duly and validly taken.  This Agreement has been duly authorized, executed and delivered by the Company.  When duly executed and delivered by the parties thereto in accordance with their terms, each of the Transaction Documents will constitute the legal, valid and binding obligations of the Company, enforceable

 

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in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer and similar Laws affecting creditors’ rights generally or by general principles of equity.

 

Section 3.03          Company SEC Documents.  The Company has filed or furnished with the SEC all reports, schedules, forms, statements and other documents (including exhibits) required to be filed or furnished by it under the Exchange Act or the Securities Act since the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (all such documents collectively, the “Company SEC Documents”).  The Company SEC Documents, including any audited or unaudited financial statements and any notes thereto or schedules included therein (the “Company Financial Statements”), at the time filed or furnished (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, (iii) complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, (iv) 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 Form 10-Q of the SEC) and (v) fairly present (subject in the case of unaudited statements to normal, recurring and year-end audit adjustments) in all material respects the consolidated financial position of the business of Company as of the dates thereof and the consolidated results of its operations and cash flows for the periods then ended.  The pro forma financial information and the related notes thereto included in the Company SEC Documents have been prepared in accordance with the applicable requirements of the Securities Act and the Exchange Act, as applicable, and the assumptions underlying such pro forma financial information are reasonable and are set forth in the Company SEC Documents.

 

Section 3.04          Capitalization.  The authorized capital stock of the Company is as set forth in the Company SEC Documents.  As of the Acquisition Agreement Date, (i) 47,169,690 shares of Common Stock were issued and outstanding, (ii) no shares of preferred stock of the Company were issued and outstanding, and (iii) 830,264 shares of Common Stock were authorized and available for issuance under the stock-based compensation plans of the Company (the “Company Stock Plans”). All the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Company SEC Documents, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its Subsidiaries, or any Contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company, or any of its Subsidiaries, any such convertible or exchangeable securities or any such rights, warrants or options, except for awards granted from time to time in the ordinary course of business under the Equity Compensation Plans (as defined below); to the best knowledge of the Company and after due inquiry, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in any Drilling Partnership, or any Contract, commitment, agreement, understanding or arrangement of any kind relating to

 

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the issuance of any equity interest in the Drilling Partnerships, any such convertible or exchangeable securities or any such rights, warrants or options; the capital stock of the Company conforms in all material respects to the description thereof contained in the Company SEC Documents; and all the outstanding shares of capital stock or other equity interests of each of its Subsidiaries and, to the best knowledge of the Company after due inquiry, each Drilling Partnership owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party, except for liens, charges, encumbrances, security interests, restrictions on voting or transfer or other claims disclosed in the Company SEC Documents, including pursuant to the Third Amended and Restated Credit Agreement dated as of May 21, 2013, as amended, among the Company, the guarantor parties thereto, the lender parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Facility”).

 

Section 3.05          Stock Options.  With respect to the stock options (the “Stock Options”) granted pursuant to the  Company Stock Plans, (i) each Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies, (ii) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective (the “Grant Date”) by all necessary corporate action, including, as applicable, approval by the Board of Directors (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each such grant was made in accordance with the terms of the Company Stock Plans, the Exchange Act and all other applicable laws and regulatory rules or requirements, including the rules of the Nasdaq and any other exchange on which Company securities are traded, and (iv) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company and disclosed in the Company’s filings with the SEC in accordance with the Exchange Act and all other applicable Laws.  The Company has not knowingly granted, and there is no and has been no policy or practice of the Company of granting, Stock Options prior to, or otherwise coordinating the grant of Stock Options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their results of operations or prospects.

 

Section 3.06          The Purchased Securities.  The Purchased Securities to be issued an