Securities Purchase Agreement

 

Spyglass Energy Group, LLC

 

By and Between

 

Nadel and Gussman, LLC,

 

Charles W. Wickstrom,

 

Shane E. Matson,

 

As Sellers

 

And

 

Bandolier Energy, LCC,

 

As Purchaser

 

Effective as of January 1, 2014

 

 

 

 

Table of Contents

 

Section               1. Agreement of Sale and Purchase of the Membership
Interests   1         2. Purchase Price; Closing   1         3. Inspection and
Acceptance of Assets; Disclaimer of Warranties   6         4. Sellers’
Representations And Warranties   6         5. Sellers’ Representations and
Warranties Concerning the Company   7         6. Purchaser’s Representations and
Warranties   13         7. Independent Evaluation; Access   15         8.
Operation of Business   15         9. Other Covenants   17         10.
Conditions to Proceed with Closing   20         11. Actions to be Taken At
Closing   22         12. Expiration of Representations, Warranties and Covenants
  23         13. Release and Indemnification   23         14. Termination of
Agreement   27         15. General Provisions   28         16. Definitions   31

 

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Table of Contents

 

Section               Exhibits, Schedules and Closing Deliverables       Exhibit
A   Sellers, Membership Interests, Distribution Amounts and Sharing Ratios
Exhibit B   Assets, Leases and Wells Exhibit C   Form of Spousal Consent Exhibit
D   Map of Prospect Interests Area Exhibit E   Form of Assignment of Membership
Interests Exhibit F   Company Certificate of Good Standing and Form of
Incumbency Certificate Exhibit G   Form of Disclaimers and Stipulations of
Interest Exhibit H   Form of Transition Services Agreement Exhibit I   Form of
Sellers’ Closing Tax Certificates       Schedule 2(c)(iii)(C)   Oil in the Tanks
Schedule 2(c)(vii)   Preliminary Settlement Statement Schedule 4(b)   Required
Authorizations and Consents Schedule 5(a)   Company Governing Documents Schedule
5(e)   Events Subsequent to Effective Date Schedule 5(h)   Material Agreements
Schedule 5(i)   Litigation Proceedings Schedule 5(k)   Insurance Policies and
Bonds Schedule 5(p)   Preferential Rights and Restrictions on Transfer Schedule
5(u)   Additional Liabilities Schedule 5(v)   Environmental Matters Schedule
5(x)   Equitable and Beneficial Interests Schedule 8(g)   Excluded Assets
Schedule 10(b)(ii)   Sellers’ Closing Certificates Schedule 10(c)(ii)  
Purchaser’s Closing Certificate Schedule 10(c)(iii)   Purchaser’s Evidence of
Insurance and Bonds

 

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SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (“Agreement”) is made and entered into this
___ day of May, 2014 effective as of January 1, 2014 (“Effective Date”), among
the parties identified on Exhibit A (collectively, the “Sellers”, and
individually a “Seller”); Spyglass Energy Group, LLC, an Oklahoma limited
liability company (“Company”); and Bandolier Energy, LLC, a Delaware limited
liability company (“Purchaser”). The Sellers, the Company and the Purchaser are
each sometimes referred to herein as a “Party” and are sometimes collectively
referred to herein as the “Parties”.

 

RECITALS

 

A. The Sellers own all of the issued and outstanding membership interests,
units, warrants, options and any other rights to acquire membership interests in
the Company (collectively, the “Membership Interests”), such Membership
Interests being owned by the Sellers in the respective amounts set forth next to
the Sellers’ names on Exhibit A.

 

B. The Purchaser desires to purchase all, and not less than all, of the
Membership Interests, and the Sellers desire to sell all, and not less than all,
of the Membership Interests for the Aggregate Purchase Price, subject to and in
accordance with the terms and conditions of this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals, the agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1. Agreement of Sale and Purchase of the Membership Interests. Subject to the
terms and conditions contained in Sections 2 and 10 below, the Sellers shall
sell to the Purchaser, and the Purchaser shall purchase from the Sellers, the
Membership Interests as of the Effective Date.

 

2. Purchase Price; Closing.

 

(a) Purchase Price. Subject to the terms and conditions contained in this
Agreement, on the Closing Date, the Purchaser shall pay to the Sellers, in the
aggregate, an amount equal to [***] (the “Aggregate Purchase Price”), subject to
adjustment as provided in Section 2(c). The Aggregate Purchase Price as adjusted
pursuant to Section 2(c) is herein referred to as the “Adjusted Purchase Price”.

 

Certain information in this agreement has been omitted and filed separately with
the Securities and Exchange Commission. [***] indicates that text has been
omitted and is the subject of a confidential treatment request.

 

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(b) Performance Deposit. On or before the date that this Agreement is fully
executed by all Parties, Purchaser shall pay, by wire transfer of immediately
available funds to Sellers’ designated account, the sum of [***] (the
“Performance Deposit”). If the Closing occurs, the Performance Deposit shall be
applied as a credit toward the Preliminary Adjusted Purchase Price on the
Preliminary Settlement Statement. If the Closing does not occur solely as a
result of the breach by Purchaser of the terms of this Agreement and there has
been no breach by Sellers of the terms of this Agreement, the Sellers shall have
the right, as their sole remedy, to retain the Performance Deposit as liquidated
damages (and not as a penalty). The Parties acknowledge and agree that the
actual damages for such a breach would be difficult or impossible to ascertain
with reasonable certainty, and that the Performances Deposit would be a
reasonable liquidated damages amount. If the closing does not occur for any
other reason (other than Purchaser’s breach), the Performance Deposit shall be
immediately returned to Purchaser.

 

Certain information in this agreement has been omitted and filed separately with
the Securities and Exchange Commission. [***] indicates that text has been
omitted and is the subject of a confidential treatment request.

 

(c) Adjustments to Aggregate Purchase Price. The Aggregate Purchase Price shall
be adjusted to arrive at the Adjusted Purchase Price according to this Section
2(c) without duplication.

 

(i) For the purposes of this Agreement:

 

(A) “Property Costs” means all capital expenses pertaining to the Assets
(including costs incurred subsequent to the Effective Date and prior to the
Closing Date for drilling, developing, completing, equipping and plugging and
abandoning Wells), insurance costs, other expenses, joint interest billings,
lease operating expenses, lease rental and maintenance costs, royalties,
overriding royalties, leasehold payments, severance Taxes, drilling expenses,
workover expenses, geological, geophysical and any other exploration or
development expenditures chargeable under applicable operating agreements or
other agreements consistent with the standards established by the Council of
Petroleum Accountants Society that are attributable to the maintenance and
operation of the Assets; provided, however, that for purposes of this Agreement,
the following costs shall not be included in this calculation: the Lease Bonus
Payment made to the BIA for and on behalf of the Osage Tribe on January 27,
2014, in the amount of $[***].

 

Certain information in this agreement has been omitted and filed separately with
the Securities and Exchange Commission. [***] indicates that text has been
omitted and is the subject of a confidential treatment request.

 

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(B) For purposes of allocating production (and proceeds and accounts receivable
with respect thereto) to the Assets, under this Section 2(c), (1) the term
“incurred” shall be interpreted in accordance with Council of Petroleum
Accountants Society standards, except as otherwise specified herein, (2) liquid
Hydrocarbons shall be deemed to be “from or attributable to” the Assets when
they pass through the pipeline connecting into the storage facilities into which
they are run; and (3) gaseous Hydrocarbons shall be deemed to be “from or
attributable to” the Assets when they pass through the royalty measurement
meters, delivery point sales meters or custody transfer meters on the gathering
lines or pipelines through which they are transported (whichever meter is
closest to the well).

 

(ii) Proration of Costs and Revenues.

 

(A) All proceeds from the sale of any production of Hydrocarbons from or
attributable to the Assets prior to the Effective Date (net of (A) all amounts
payable as royalties, overriding royalties, net profits interests and other
similar burdens on or measured by production; and (B) all applicable severance
Taxes) shall be the property of the Sellers, and in the event the Company
receives any of those proceeds after the Closing (or before the Closing if the
Aggregate Purchase Price has not been adjusted therefor), Purchaser will cause
the Company to remit those proceeds to Sellers within 45 days after such
receipt, or the Aggregate Purchase Price shall be increased by such amount if
received prior to Closing. All proceeds from the sale of any production of
Hydrocarbons from or attributable to the Assets on or subsequent to the
Effective Date (net of (1) all amounts payable as royalties, overriding
royalties, net profits interests and other similar burdens on or measured by
production; and (2) all applicable severance Taxes shall be the property of the
Company for the benefit of Purchaser, and in the event Sellers receive any of
those proceeds after the Closing (or before the Closing if the Aggregate
Purchase Price has not be adjusted therefor), Sellers will remit those proceeds
to the Company for the benefit of the Purchaser within 45 days after such
receipt, or the Aggregate Purchase Price shall be reduced by such amount if
received prior to Closing.

 

(B) The Company shall be responsible for all costs and expenses that are
attributable to the Assets, including without limitation Property Costs,
incurred prior to the Effective Date, and the Aggregate Purchase Price shall be
decreased by those costs and expenses to the extent any of those costs and
expenses are not paid by the Company or the Sellers before the Closing.
Purchaser shall be responsible for all costs and expenses that are attributable
to the Assets, including without limitation Property Costs incurred on or after
the Effective Date, and the Aggregate Purchase Price shall be increased by those
costs and expenses to the extent any of those costs and expenses are paid by the
Company or the Sellers before the Closing.

 

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(iii) Upward Adjustments. In addition to the adjustments called for in Section
2(c)(ii) above, the Aggregate Purchase Price shall be adjusted upward by the
following:

 

(A) an amount equal to (1) all direct and actual expenses attributable to the
Assets, including without limitation Property Costs, incurred by or for the
benefit of the Company, (2) all royalties, overriding royalties, net profit
interests and similar burdens on or measured by production, and (3) all
applicable severance Taxes, in each case attributable to the Assets from and
after the Effective Date that were paid by the Company or the Sellers;

 

(B) an amount equal to all prepaid expenses (including pre-paid bonuses,
rentals, cash calls and advances to operators for expenses not yet incurred,
prepaid Taxes, and scheduled payments) attributable to the ownership or
operation of the Assets from and after the Effective Date that were incurred and
paid by the Company or the Sellers, and;

 

(C) an amount equal to the value of all oil in the storage tanks for the Wells
at the Effective Date, calculated and as set forth in Schedule 2(c)(iii)(C); and

 

(D) any other amount expressly provided for in this Agreement or otherwise
agreed to in writing by the Parties.

 

(iv) Downward Adjustments. In addition to the adjustments called for in Section
2(c)(ii) above, the Aggregate Purchase Price shall be adjusted downward by the
following:

 

(A) an amount equal to (1) all direct and actual expenses attributable to the
Assets, including without limitation Property Costs, incurred and by the
Company, (2) all royalties, overriding royalties, net profit interests and
similar burdens on or measured by production, and (3) all applicable severance
Taxes, in each case attributable to the Assets prior to the Effective Date that
were paid by the Purchaser;

 

(B) an amount equal to all prepaid expenses (including pre-paid bonuses,
rentals, cash calls and advances to operators for expenses not yet incurred,
prepaid Taxes, and scheduled payments) attributable to the ownership or
operation of the Assets prior to the Effective Date that were incurred and paid
by the Purchaser, and;

 

(C) any other amount expressly provided in this Agreement or otherwise agreed to
in writing by the Parties.

 

(v) Other Adjustments. The Aggregate Purchase Price may also be adjusted by the
written agreement of the Parties with respect to the costs, expenses and
revenues associated with the Excluded Assets between the Effective Date and the
Closing Date.

 

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(vi) Performance Deposit. The Adjusted Purchase Price shall be adjusted
downwards as provided in Section 2(b) to give effect to the Performance Deposit
having been previously paid by Purchaser.

 

(vii) Preliminary Settlement Statement. On or before the day that is five
Business Days prior to Closing, Sellers shall deliver to Purchaser a statement
in the form of Schedule 2(c)(vii) (the “Preliminary Settlement Statement”)
setting forth Sellers’ good faith calculations of the adjustments to the
Aggregate Purchase Price set forth in Section 2(c) (the Aggregate Purchase
Price, as so adjusted “Preliminary Adjusted Purchase Price”), prepared in good
faith using the best information reasonably available to Sellers at the Closing
Date, along with such data in Sellers’ possession as is reasonably necessary to
support such calculations. The Preliminary Settlement Statement also shall set
forth Sellers’ designated accounts for purposes of Purchaser’s payment of the
Adjusted Purchase Price. The Parties shall attempt to agree in writing upon the
Adjusted Purchase Price prior to Closing, and in the event the Parties cannot
agree upon the Adjusted Purchase Price prior to Closing, Purchaser shall pay the
Preliminary Adjusted Purchase Price to Sellers at Closing, and the Parties shall
engage in good faith negotiations to agree on the Adjusted Purchase Price. If
the Adjusted Purchase Price is not agreed to by the Parties within 30 days after
the Closing Date, the dispute shall be submitted to arbitration in accordance
with Section 15(f). Within 10 Business Days after final agreement or
determination of the Adjusted Purchase Price, (A) the Purchaser shall pay to the
Sellers, based upon their Sharing Ratios, the amount (if any) by which the
Adjusted Purchase Price exceeds the Preliminary Adjusted Purchase Price paid to
the Sellers at Closing, or (B) the Sellers shall pay, based upon their Sharing
Ratios, the amount (if any) by which the Preliminary Adjusted Purchase Price
paid to the Sellers at Closing exceeds the Adjusted Purchase Price.

 

(d) Closing. The closing of this transaction shall be held at 9:00 a.m. on May
22, 2014, or, if the conditions set forth in Section 10 have not been satisfied
by that date, two Business Days after the date on which the last of the
conditions set forth in Section 10 shall have been satisfied or waived, in the
offices of the Company at 15 East 5th Street, Suite 3400, Tulsa, Oklahoma 74103,
or at such other time, place or method to be mutually agreed upon by the Parties
(the “Closing” or “Closing Date”).

 

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3. Inspection and Acceptance of Assets; Disclaimer of Warranties. Prior to the
execution of this Agreement, Purchaser has been given full access and
opportunity to complete and has completed its due diligence investigation of the
Company and the Assets, including physical and environmental inspections of the
Wells (including without limitation a Phase I Environmental Assessment and
equipment inventory) and to visit with Company personnel, including Matson, who
is an executive officer of Purchaser and who is also a Seller. Matson was
actively involved on behalf of the Company in the development and operation of
the Assets. Matson participated in Purchaser’s due diligence investigation and
also aided Sellers in preparing the Schedules to this Agreement. Except for the
representations, warranties and covenants of the Sellers set forth in Section 4,
and the special warranty of title set forth in Section 9(i), Purchaser
acknowledges that the Assets are being sold “as is, where is” and with all
faults, and Purchaser waives for all purposes all objections associated with the
condition (environmental, physical, contractual or otherwise) of the Assets, and
Purchaser assumes all risks of any kind whatsoever relating to the Assets
including, without limitation, risks of changes in condition to the Assets,
changes in law, and physical and environmental conditions. Purchaser further
acknowledges, except for the representations, warranties and covenants of the
Sellers set forth in Section 4, and the special warranty of title set forth in
Section 9(i), as follows:

 

(a) NEITHER SELLERS, THE COMPANY NOR ANY OF THEIR RESPECTIVE REPRESENTATIVES,
NOR ANY PERSON ACTING ON BEHALF OF SELLERS OR THE COMPANY, HAS MADE, AND SELLERS
AND THE COMPANY HEREBY EXPRESSLY DISCLAIM AND NEGATE, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF ANY OF THE ASSETS
(INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, PATENT OR TRADEMARK
INFRINGEMENT, AND ANY AND ALL OTHER IMPLIED WARRANTIES EXISTING UNDER APPLICABLE
LAW).

 

(b) SELLERS AND THE COMPANY HEREBY EXPRESSLY NEGATE AND DISCLAIM, AND PURCHASER
HEREBY WAIVES AND ACKNOWLEDGES THAT NONE OF THE SELLERS, THE COMPANY, THEIR
RESPECTIVE REPRESENTATIVES, AND NO PERSON ACTING ON BEHALF OF SELLERS OR THE
COMPANY, HAS MADE, AND PURCHASER IS NOT RELYING UPON, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, OR OTHER ASSURANCE RELATING TO (I) THE ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN
OR VERBAL), NOW, HERETOFORE, OR HEREAFTER FURNISHED TO PURCHASER BY OR ON BEHALF
OF SELLERS OR THE COMPANY, OR (II) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES,
DECLINE RATES, GEOLOGICAL OR GEOPHYSICAL DATA OR INTERPRETATIONS, THE QUALITY,
QUANTITY, RECOVERABILITY OR COST OF RECOVERY OF ANY HYDROCARBON RESERVES, ANY
PRODUCT PRICING ASSUMPTIONS, OR THE ABILITY TO SELL OR MARKET ANY HYDROCARBONS
AFTER THE CLOSING.

 

4. Sellers’ Representations And Warranties. Each Seller hereby severally and not
jointly represents and warrants to Purchaser, with respect to
itself/himself/herself, as of the date hereof and at Closing as follows:

 

(a) Organization and Standing. To the extent Seller is a corporation,
partnership, limited liability company, trust or other entity formed under the
laws of any state, Seller is duly organized, validly existing and in good
standing under the laws of the state of its organization and in such other
jurisdictions necessary for the consummation of this Agreement.

 

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(b) Power. Seller has all requisite power and authority to carry on its business
as presently conducted and to enter into and perform its obligations under this
Agreement. The execution and delivery of this Agreement does not, and the
fulfillment of and compliance with the terms and conditions hereof will not,
violate, or be in conflict with, any provision of its governing documents, to
the extent applicable. Except as set forth in Schedule 4(b), Seller is not
required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of, any third party or any governmental
authority in order to execute and deliver this Agreement or consummate the
transactions contemplated hereby, except for such authorizations, consents or
approvals as shall have been obtained or such notices or filings as shall have
been accepted before the Closing Date.

 

(c) Authorization and Enforceability. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite actions of the Seller. This Agreement
constitutes the legal, valid and binding obligation of the Seller and is
enforceable in accordance with its terms, subject, however, to the effects of
bankruptcy, insolvency, reorganization, moratorium and other laws for the
protection of creditors generally, as well as to general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.

 

(d) Title to Membership Interests. Seller owns the Membership Interests
indicated in Exhibit A, and at Closing, will convey to Purchaser good and
marketable title to the Membership Interests free and clear of any and all
liens, mortgages, claims, encumbrances, pledges or security interests and all
other defects of title, adverse claims or other matters whatsoever (other than
those arising under federal and state securities laws).

 

(e) Brokers’ Fees. Seller has not incurred any liability, contingent or
otherwise, for brokers’ or finders’ fees relating to the transactions
contemplated by this Agreement for which the Purchaser or the Company shall have
any responsibility.

 

5. Sellers’ Representations and Warranties Concerning the Company. Each Seller
severally and not jointly represents and warrants to the Purchaser as of the
date hereof and at Closing as follows:

 

(a) Organization and Standing. The Company is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma set forth on Schedule 5(a) is a complete listing of the Certificate or
Articles of Organization and the Operating Agreement of the Company, and all
amendments thereto, copies of which have previously been made available to the
Purchaser.

 

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(b) Power. The Company has all requisite power and authority to carry on its
business as presently conducted and to enter into and perform its obligations
under this Agreement. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement will not:
(i) violate or conflict with any provision of its Certificate or Articles of
Organization or Operating Agreement, as amended from time to time; (ii) violate
or conflict with any judgment, decree, order, statute, rule or regulation as in
effect at the Closing Date to which the Company is subject; or (iii) violate,
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
cancel or receive any payment under, require any notice of consent under, or
result in the imposition of any lien, claim or encumbrance upon any of the
Assets under any agreement, contract, lease, license, instrument or other
arrangement to which the Company is a party, by which the Company is bound or to
which the Assets are subject.

 

(c) Capitalization. All outstanding Membership Interests have been validly
issued, are fully paid and non-assessable, were not issued in violation of the
terms of any contract binding upon the Company and were issued in compliance
with all governing documents of the Company. There are no outstanding
subscriptions, options, warrants, conversion rights, convertible securities,
preemptive rights, preferential rights (contractual or otherwise), “phantom”
stock rights, or agreements, understandings or arrangements of any kind relating
to equity securities, obligating the Company to issue or sell any Membership
Interests now or in the future. At Closing, the Purchaser will acquire all of
the issued and outstanding Membership Interests of the Company.

 

(d) Financial Information. All financial information which has been provided to
Purchaser with respect to the Company has been, and is, true and correct in all
respects, and while not maintained or prepared in accordance with GAAP are
complete and accurate. Other than the Tax Returns and associated work papers,
such financial information is limited to the Assets. Except for lease operating
statements reflecting operating income and expenses for the Assets (which is
reported on an 8/8ths basis), such financial information (including the Tax
Returns) is further limited to the Company’s 39.149128% interest in the Assets
which it owned immediately prior to the Effective Date and prior to acquiring
the remaining aggregate 60.850872% interests of other Persons in and to the
Assets. Purchaser acknowledges that much of the financial information is
comprised of raw data derived from the Company’s accounting records.

 

(e) Events Subsequent to Effective Date. Except as set forth in the financial
information provided to Purchaser or on Schedule 5(e), since the Effective Date
there have not been any changes in the Assets, condition, affairs (financial or
otherwise) or business prospects of the Company, in each case limited to the
Assets, which have had or would be reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect.

 

(f) Legal Compliance. The Company: (i) to the Knowledge of Sellers, is in
compliance with all applicable federal, state, local, tribal or foreign laws
(including statutes, rules, regulations, codes, plans, writs, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) in effect as of the
Closing Date (collectively, “Laws”); (ii) has not received any notice, charge,
claim or action of any filed, commenced or to the Knowledge of Sellers
threatened action alleging any violation of Laws; and (iii) has not received any
notice that any permit, license, certificate of authority, order and approval
of, all federal, state, local, tribal and foreign regulatory bodies required as
of the Closing Date for the Company to carry on its current operations in the
Ordinary Course of Business (collectively, “Permits”) will be terminated or
modified or cannot be renewed in the Ordinary Course of Business, and Sellers
have no Knowledge of any reasonable basis for any such termination, modification
or non-renewal.

 

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(g) Tax Matters. To the Knowledge of Sellers,

 

(i) the Company has filed timely with the appropriate taxing authorities all Tax
Returns required to be filed by the Company; each such Tax Return is true,
correct and complete in all material respects; and all Taxes of the Company that
are due and payable through and including the Effective Date, have been timely
paid in full;

 

(ii) there is no action, suit, proceeding, investigation, audit, claim or
assessment pending or threatened with respect to the Company with respect to a
liability for Taxes or with respect to any Tax Return; no deficiency for any Tax
has been assessed with respect to the Company which has not been paid in full;
and there are no liens for Taxes upon the Assets other than liens for Taxes not
yet due and payable;

 

(iii) the Company has withheld all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, member or other third party;

 

(iv) there are no outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns of the Company;

 

(v) the Company is not a party to, is not bound by, and does not have any
obligation under, any Tax sharing agreement, Tax indemnification agreement or
similar contract or arrangement; the Company does not have any potential
liabilities or obligations to any Person as a result of, or pursuant to, any
such agreement, contract or arrangement; and the Company does not have any
liability for Taxes of another Person by contract or otherwise;

 

(vi) the Company is, and has been since its inception, classified as a
partnership for federal Tax purposes under Treasury Regulations Sections
301.7701-2 and -3, and any comparable provision of applicable law of state and
local jurisdictions that permit such treatment; and

 

(vii) the Sellers shall, at Sellers’s sole cost and expense, cause all state and
federal income Tax Returns for the Company for calendar year 2013 to be timely
filed (as extended), and shall promptly provide copies thereof (together with
all schedules thereto) to the Company. Sellers shall provide Purchaser with
copies of all associated work papers, schedules and accounting records necessary
to support the 2013 Tax Return.

 

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(h) Material Agreements. Schedule 5(h) lists: (i) the Concession Agreement and
the Leases; (ii) all agreements and contracts (whether oral or written) with
Persons who are or will be Affiliates of the Company or Affiliates of the
Sellers immediately prior to Closing that will be binding on the Company or the
Assets after Closing; (iii) agreements for the sale or purchase of Hydrocarbons
produced from or attributable to the Assets; (iv) instruments that create any
area of mutual interest, or that materially restrain, limit or impede the
Company’s ability to compete with or conduct its business as currently
conducted, including geographic limitations on the Company’s activities, in each
case limited to the Assets; (v) contracts to which the Company is a party, the
performance of which will involve consideration in excess of $50,000 per year;
or (vi) any other agreement not described in (i) through (v) above the existence
or loss of which has had or would be reasonably likely to have a Material
Adverse Effect on the Company (collectively, the “Material Agreements”).
Additionally, all of the Material Agreements are still in effect and there has
been no notice of termination from any third party or their affiliate. With
respect to each Material Agreement, the Company is not in material breach or
default of the terms and conditions of any Material Agreement.

 

(i) Litigation. Except as set forth on Schedule 5(i) (which are part of the
Retained Liabilities), (A) there is no action, suit, proceeding, hearing, audit,
citation, summons, subpoena, inquiry or investigation of any nature, civil,
criminal, or regulatory, in law or in equity, by or before any court or
quasi-judicial or administrative agency of any jurisdiction or arbitrator
(“Proceeding”) pending, or, to the Knowledge of Sellers, threatened, against,
relating to or naming as a party thereto the Company, any of the Assets or any
of the Company’s members, managers or officers (in their capacities as such),
(B) there is no agreement, order, judgment, decree, injunction or award of any
governmental authority or arbitrator against and/or binding upon the Company,
any of the Assets or any of the Company’s members, managers or officers (in
their capacities as such), and (iii) there is no Proceeding that the Company has
pending against other Persons.

 

(j) Brokers’ Fees. The Company has not incurred any liability, contingent or
otherwise, for brokers’ or finders’ fees relating to the transactions
contemplated by this Agreement for which the Purchaser or the Company shall have
any responsibility.

 

(k) Insurance. Schedule 5(k) describes all contracts of insurance and bonds
maintained by or for the benefit of the Company, which are in full force and
effect, and all premiums due and owing in connection with such policies have
been paid. To the Knowledge of Sellers, the Company has given notice or has
otherwise presented every material claim known to the Company to be covered by
insurance under its insurance policies or contracts in a timely fashion, except
for policies directly related to the Assets and set forth on Schedule 5(k). Each
of the policies will terminate as of the Closing Date, and Purchaser will be
required to have replacement policies in place prior to the Closing.

 

(l) Employee Benefit Plans. The Company has no Benefit Plans, and the Company
has made no agreement with any Person including, but not limited to, any
employee, manager, officer or any Seller, regarding the Tax treatment of the
Membership Interests.

 

10

 

  

(m) Hedging Transactions. The Company has no obligations in respect of any
futures, hedges, swaps, collars, puts, calls, floors, caps, options, forward
sales, forward purchases or other contracts or derivative securities that are
intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of commodities (including, without limitation,
Hydrocarbons), interest rates, currencies or securities with respect to the
Assets or the Wells (collectively, “Hedge Transactions”).

 

(n) Imbalances. There are no aggregate production, pipeline transportation or
processing imbalances or penalties existing with respect to the Wells, and the
Company has not received a deficiency payment under any Hydrocarbon contracts
for which any party has a right to take deficiency Hydrocarbons from the Company
with respect to the Wells, nor has the Company received any payments for
production which are subject to refund or recoupment out of future production
from the Wells.

 

(o) Prepaid Obligations. The Company is not subject to any “take or pay”
arrangement, production payment arrangement, or other agreement or arrangement
which require it to deliver or to suffer the delivery of Hydrocarbons produced
in connection with the Wells or the Assets at some future time (or make a cash
payment in lieu thereof) without then or thereafter receiving full payment
therefor and without deduction or credit on account of such arrangement from the
price that would otherwise be received.

 

(p) Preferential Rights; Restrictions on Transfer. Except as set forth in
Schedule 5(p), there are no preferential rights to purchase or other similar
rights or restrictions on assignment, including requirements for consents from
third parties to assignment, affecting the Assets that would be applicable to,
or required for the consummation of, the transactions contemplated by this
Agreement, and the transactions contemplated by this Agreement will not create
in any individual or entity any option to purchase, preferential right to
purchase or similar rights with respect to the Assets.

 

(q) Calls on Production. There are no calls on production (whether or not
exercised) or other similar marketing restrictions affecting the Wells or the
Assets, nor will the transactions contemplated by this Agreement create any such
calls on production.

 

(r) Operation of Wells. Although the Company owns the Leases and the Wells, the
Company does not operate any of the Wells or any other wells. To the Knowledge
of Sellers, all the Wells have been drilled, operated and produced in accordance
in all material respects with reasonable, prudent oil and gas field practices
and in compliance in all material respects with the applicable Leases and
applicable Law.

 

(s) Proceeds of Production. All of the proceeds from the sale of the Company’s
interest in Hydrocarbons produced from the Wells (net of mineral owner royalty)
are being received by the Company in a timely manner and are not being held in
suspense for any reason.

 

(t) Title to the Leases and the Assets. The Company has Defensible Title to the
Leases and the Assets free and clear of all Liens, except for Permitted
Encumbrances. To the knowledge of Sellers, the Leases and the Concession
Agreement are in full force and effect, the rentals, royalties and other
payments due thereunder have been properly and timely paid and there is no
existing default (or event that, with notice or lapse of time or both, would
become a default) thereunder.

 

11

 

  

(u) No Undisclosed Liabilities. To the Knowledge of Sellers, except for
liabilities incurred or paid (i) after the Effective Date but before the date of
this Agreement; and (ii) after the date of this Agreement that do not violate
Section 8 below, there are no liabilities, debts or obligations of the Company
of any kind, whether accrued, absolute, contingent, inchoate or otherwise (and
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Company giving
rise to any such debt, liability or obligation) including any Taxes which are
due and payable as of the date hereof or any governmental charges or penalties,
interest or fines, except as reflected in the financial information provided to
Purchaser or for liabilities set forth on Schedule 5(u).

 

(v) Environmental Matters. Except as set forth in Schedule 5(v):

 

(i) the Company has complied, and the Company is in compliance, with all
applicable Environmental Laws, which compliance includes the possession of all
permits required under applicable Environmental Laws and compliance with the
terms and conditions thereof and the making and filing with all applicable
governmental authorities of all reports, forms and documents and the maintenance
of all records required to be made, filed or maintained by it under any
Environmental Law;

 

(ii) there are no Environmental Claims pending or threatened against the Company
or any Person whose liability for any Environmental Claim the Company has
retained, assumed or indemnified, either contractually or by operation of Law;

 

(iii) the Company is not subject to any liability or obligation (accrued,
contingent or otherwise) to cleanup, correct, abate or to take any response,
remedial or corrective action under or pursuant to any Environmental Laws,
relating to (A) environmental conditions on, under, or about any of the Wells or
the Assets, including the air, soil, surface water and groundwater conditions
at, on, under, from or near such properties, or (B) the use, management,
handling, transport, treatment, generation, storage, disposal or Release of any
Hazardous Substances, whether on-site on any of the Assets or with respect to
the Assets at any off-site location; and the Company has provided or made
available to Purchaser copies of all studies, assessments, reports, data,
results of investigations or audits, analyses and test results, in the
possession, custody or control of the Company relating to (x) the environmental
conditions on, under or about any of the Assets and (y) any Hazardous Substances
used, managed, handled, transported, treated, generated, stored or Released by
any Person on, under, about or from, any of the Assets;

 

12

 

  

(iv) there are no past or present actions, activities, circumstances,
conditions, events or incidents in violation of Environmental Laws related to
the Assets (including the Release, emission, discharge, presence or disposal of
any Hazardous Substance in violation of Environmental Laws), that would be
reasonably likely to form the basis of any Environmental Claim against the
Company or against any Person whose liability for such Environmental Claim the
Company has retained or assumed either contractually or by operation of law.

 

(w) Employees. The Company has never had any employees and there are no Persons
currently claiming to be an employee of the Company.

 

(x) Equitable Interests. At the Closing, there are no Persons except those
listed on Schedule 5(x), that have a legal or equitable interest in the Assets
including back-ins, overriding royalty interests, and net profit interests in
third parties (including Sellers).

 

(y) Water Injection Wells. To the Knowledge of Sellers, all water injection
wells within the Assets have been properly permitted, drilled, equipped and
operated in accordance with applicable Laws.

 

6. Purchaser’s Representations and Warranties. Purchaser represents and warrants
to Sellers and the Company as of the date hereof and at Closing as follows:

 

(a) Organization and Standing. Purchaser is a limited liability company, formed
under the laws of the state of Delaware, and is duly organized, validly existing
and in good standing under the laws of Delaware and Oklahoma.

 

(b) Power. Purchaser has all requisite power and authority to carry on its
business as presently conducted and to enter into and perform its obligations
under this Agreement. The execution and delivery of this Agreement does not, and
the fulfillment of and compliance with the terms and conditions hereof will not,
violate, or be in conflict with, any provision of its governing documents, as
applicable, or any material provision of any agreement, instrument, decree or
order to which it is a party or by which it is bound. The Purchaser is not
required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of, any third party or any governmental
authority in order to execute and deliver this Agreement or consummate the
transactions contemplated hereby except for such authorizations, consents or
approvals as shall have been obtained or such notices or filings as shall have
been accepted before the Closing Date.

 

(c) Authorization and Enforceability. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite action of the Purchaser. This Agreement
constitutes the legal, valid and binding obligation of the Purchaser, and is
enforceable in accordance with its terms, subject, however, to the effects of
bankruptcy, insolvency, reorganization, moratorium and other laws for the
protection of creditors generally, as well as to general principles of equity,
regardless whether such enforceability is considered in a proceeding in equity
or at law.

 

13

 

  

(d) Absence of Litigation. There is no Proceeding pending, or to the Knowledge
of the Purchaser, threatened, that questions the legality or propriety of the
transactions contemplated by this Agreement or that would reasonably be expected
to prevent, hinder or delay the consummation of the transactions contemplated
hereby.

 

(e) Solvency. As of the Closing Date, the Purchaser will not be insolvent
(either because its financial condition is such that the sum of its debts is
greater than the fair value of its assets or because the present fair salable
value of its assets will be less than the amount required to pay its probable
liability on its debts as they become absolute and matured) and will, in
Purchaser’s opinion, have sufficient working capital to own and operate the
Assets.

 

(f) Financial Ability. As of the Closing Date, the Purchaser will have available
funds in cash or cash equivalents to pay the Aggregate Purchase Price, as
adjusted pursuant to this Agreement, and to effect the transactions contemplated
hereby. In no event shall the receipt by, or the availability of any funds or
financing to, the Purchaser or any of its Affiliates or any other financing be a
condition to the Purchaser’s obligation to consummate the transactions
contemplated by this Agreement.

 

(g) Investment Representations.

 

(i) The Purchaser is acquiring the Membership Interests purchased hereunder for
its own account with the present intention of holding such securities for
purposes of investment, and the Purchaser has no intention of selling such
securities in a public distribution in violation of the federal securities Laws
or any applicable state securities Laws.

 

(ii) The Purchaser is an “accredited investor” as defined in Rule 501 of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the “Securities Act”).

 

(h) Restriction on Transfers. Purchaser acknowledges that the Membership
Interests are not registered under the Securities Act. Purchaser will not sell,
transfer or otherwise dispose of the Membership Interests in violation of the
Securities Act, the Securities Exchange Act of 1934, as amended, or the rules
promulgated thereunder, including Rule 144 under the Securities Act.

 

(i) Brokers’ Fees. Purchaser has not incurred any liability, contingent or
otherwise, for brokers’ or finders’ fees relating to the transaction
contemplated by this Agreement for which any Seller shall have any
responsibility.

 

14

 

  

7. Independent Evaluation; Access. Purchaser represents and warrants to Sellers
that Purchaser is experienced and knowledgeable in the oil and gas business.
Purchaser is aware of risks associated with the oil and gas business and,
specifically, the Company’s businesses, operations with respect to the Assets
and has formed its own judgment as to the value of the Membership Interests,
independent of the Excluded Assets and Retained Liabilities. Purchaser is
relying upon its own judgment and decision in entering into and consummating the
transactions contemplated by this Agreement. Between the execution date and the
Closing Date, the Sellers shall cause the Company to continue to make available
for Purchaser’s examination all of its files, records, weekly accounts payable
check runs, minute books, information and data regarding the Assets
(collectively, the “Records”). Except as provided in Sections 5(a), 5(d), 5(g),
5(h), 5(u), Purchaser acknowledges and agrees that none of the Company, Sellers
or their respective Affiliates, managers, officers, members, employees, agents
or representatives have made any representations or warranties, express or
implied, written or oral, as to the accuracy of the Records. Except for the
representations and warranties of Sellers contained in this Agreement, no
representations or warranties have been made to Purchaser, including any
estimate with respect to the value of the Assets or reserves or any projections
as to production or other events that could or could not occur in the future. In
entering into this Agreement, Purchaser acknowledges and affirms that it has
relied and will rely solely on the terms, representations and warranties of this
Agreement and upon its independent analysis, evaluation and investigation of,
and judgment with respect to, the business, economic, legal, tax or other
consequences of this transaction including its own estimate and appraisal of the
extent and value of the petroleum, natural gas and other reserves attributable
to the Assets. Except as provided in Section 13(c), no Seller shall have any
liability to Purchaser or its Affiliates, managers, officers, members,
employees, agents or representatives resulting from any use, authorized or
unauthorized, of the Records or other information related to the Company or the
Assets other than as related to Purchaser’s evaluation of the Assets and the
Company for the purpose of acquiring the Membership Interests. Nothing contained
in this Section 7 shall serve to mitigate or modify the operation of Section 3
or the scope or effect of the representations and warranties set forth in
Sections 4 or 5 in any respect. Purchaser has not evaluated the Excluded Assets
or the Retained Liabilities.

 

8. Operation of Business. From the date hereof until the Closing Date, the
Sellers shall not permit the Company to, and the Company will not without the
written consent of Purchaser (which consent shall not be unreasonably withheld,
conditioned or delayed), except as expressly contemplated by this Agreement,
engage in any practice, take any action, or enter into any transaction with
respect to the Assets that is outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, from the date hereof until the Closing
Date, the Company will not without the written consent of Purchaser (which
consent shall not be unreasonably withheld, conditioned or delayed), do any of
the following:

 

(a) amend or otherwise change its Certificate or Articles of Organization or
Operating Agreement or equivalent governing documents;

 

(b) make or commit to make any capital expenditure or group of any capital
expenditures in excess of $25,000 individually or $100,000 in the aggregate (as
used herein, “capital expenditures” means customary and reasonable costs and
expenses incurred by the Company in connection with certain major repairs,
replacements and improvements of the Assets);

 

15

 

  

(c) issue, sell, pledge, exchange, dispose of, grant, lease, mortgage,
hypothecate, encumber or authorize the issuance, sale, pledge, exchange,
disposition, grant, lease, mortgage, hypothecation or encumbrance of (i) any
Membership Interests or any other direct or indirect ownership or participation
interest in the Company, or (ii) any of the Assets, except for (A) sales of
Hydrocarbons in the Ordinary Course of business consistent with past practices,
provided, however, that the Sellers shall be free to sell, transfer or convey
out of the Company to any third party or to themselves the Excluded Assets.

 

(d) acquire (including, without limitation, by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or any division thereof or any material amount of assets;

 

(e) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any individual or entity, or make any loans
or advances;

 

(f) enter into any employment, bonus, finder’s fee, consulting or severance
agreement with, any Person, or establish, adopt, enter into or amend any Benefit
Plan or any employment, termination, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any manager, officer, employee or
consultant;

 

(g) declare, set aside or pay any dividend or make any other distribution in
respect of its Membership Interests, other than (i) distributions of cash and
(ii) the conveyance of the Excluded Assets described in Schedule 8(g);

 

(h) amend in any material respect any Material Agreement or terminate any
Material Agreement prior to the expiration of the term thereof;

 

(i) commence or file any Proceeding; provided that the Company may enter into
any consent or settlement with respect to any Proceeding;

 

(j) pay, discharge or satisfy any material claims, liabilities or obligations
(absolute, accrued, contingent or otherwise) other than in the Ordinary Course
of Business;

 

(k) make, change or rescind any express or deemed election relating to Taxes, or
except as may be required by applicable Law, make any change to any of its Tax
accounting methods, policies or procedures; provided that the Company may enter
into any consent or settlement with respect to any Proceeding relating to Taxes;

 

(l) enter into any new sales contract or supply contract which cannot be
cancelled on 30 days’ prior notice;

 

(m) fail to maintain in full force and effect the existing insurance policies or
insurance policies with substantially comparable terms and coverages covering
the Company and the Assets, except to the extent such policies cease to be
available on commercially reasonable terms (other than bonds or similar
instruments in the ordinary course of business); or

 

(n) commit or agree to any of the foregoing.

 

Each of the Sellers agrees to cause the Company to promptly inform the Purchaser
of any practices, activities or transactions that might require consent by the
Purchaser hereunder and will afford Purchaser reasonable access to any books and
Records necessary for such consent to be made on an informed basis.

 

16

 

  

9. Other Covenants.

 

(a) Transition Services Agreement. NG and Company shall at the Closing execute
and deliver the Transition Services Agreement in the form attached as Exhibit H,
for the purpose of transitioning operations of the Assets to Purchaser in an
orderly manner.

 

(b) Excluded Assets. The Parties acknowledge that it may not be possible for the
Company to complete the distribution and transfer of all the Excluded Assets to
the Sellers (or other Persons entitled thereto) prior to the Closing. The
Excluded Assets, and all rights, titles, interests, claims, revenues, expenses,
liabilities, rights and obligations relating thereto are and shall remain the
sole property and responsibility of the Sellers (including as nominee for other
Persons entitled thereto). The Purchaser, at no cost or liability to Purchaser
or the Company, shall fully cooperate with the Sellers to ensure that the
Company distributes and transfers all the Excluded Assets to the Sellers (or to
other Persons as directed by the Sellers), including without limitation all
property and proceeds thereof received by the Company or the Purchaser after the
Effective Date. The Excluded Assets which have not yet been transferred at the
date of execution of this Agreement are listed in Schedule 8(g).

 

(c) Further Assurances. Subject to the terms and conditions herein provided,
each Party shall take, or cause to be taken, all actions and shall do, or cause
to be done, all things necessary, appropriate or desirable under any applicable
Laws or under applicable governing agreements to consummate and make effective
the transactions contemplated by this Agreement, including using reasonable
efforts to obtain all necessary waivers, consents and approvals. Each Party
shall take, or cause to be taken, all action or shall do, or cause to be done,
all things necessary, appropriate or desirable to cause the covenants and
conditions applicable to the transactions contemplated hereby to be performed or
satisfied as soon as practicable. In addition, if any governmental authority
shall have issued any order, decree, ruling or injunction, or taken any other
action that would have the effect of restraining, enjoining or otherwise
prohibiting or preventing the consummation of the transactions contemplated
hereby, each of the Parties shall use reasonable efforts to have such order,
decree, ruling or injunction or other action declared ineffective as soon as
practicable. With respect to all actions required to be taken by the Company
pursuant to this Agreement (including, without limitation, under Sections 8 and
9), each of the Sellers shall take, or cause to be taken, all action and shall
do, or cause to be done, all things necessary, appropriate or desirable to cause
the Company to take those actions.

 

17

 

 

(d) Employment Matters; Non-Solicitation. No employees of the Company, the
Sellers or their respective Affiliates are to be hired by the Purchaser at the
Closing. Purchaser agrees that for a period of two years following the Closing
Date, Purchaser shall not, nor permit any Person controlled by the Purchaser to,
offer to hire or hire (whether as employees, contractors or consultants to such
Persons) Persons who are at the date of this Agreement employees of the Company,
the Sellers, or their respective Affiliates, managers, officers and members.

 

(e) Confidentiality Obligation. From the date of this Agreement until two years
after the Closing Date, none of the Sellers or their respective Affiliates shall
disclose, and each Seller shall cause its Affiliates, managers, officers,
members, employees, agents and representatives not to disclose, except to the
extent permitted in Section 9(e)(i) or (ii) below, any geological, geophysical,
technical, contractual or other information of any nature or kind (written,
verbal, electronic, digital, or otherwise) consisting of, or involving,
concerning or pertaining in any manner to the Assets (including drilling or
testing operations or results) (“Confidential Information”). Notwithstanding the
foregoing, any Party may make any public disclosure it believes in good faith is
required by applicable law (in which case the disclosing Party will use its
reasonable best efforts to advise the other Parties prior to making the
disclosure).

 

(i) Sellers may disclose Confidential Information to any Person who Sellers have
engaged to represent or assist Sellers in the negotiation or preparation of this
Agreement, or to advise Sellers with respect thereto, and to any employee of
Sellers who is involved in assisting Sellers with respect to the purchase and
sale contemplated by this Agreement, but only if such Person (including legal
counsel) has agreed to a non-disclosure agreement containing the same disclosure
prohibitions as set forth above in this Section 9(e).

 

(ii) Notwithstanding the disclosure prohibitions set forth in Section 9(e)(i),
Sellers shall not be liable for disclosure of any Confidential Information if
the same: (A) is now in or hereafter comes into the public domain without breach
of this Agreement and through no fault of the receiving Party, including any
public disclosure made by Purchaser which it believes in good faith is required
by applicable law; or (B) is properly and lawfully known to any of the Sellers
or their respective Affiliates prior to disclosure hereunder as evidenced by its
written records; or (C) subsequent to disclosure hereunder, is lawfully received
by the Sellers or their respective Affiliates from a third party whose rights
therein are without any restriction to disseminate the Confidential Information;
or (D) is developed by Sellers or their respective Affiliates independently of
and without reference to any Confidential Information as shown by tangible
evidence; or (E) is lawfully required to be disclosed by the disclosing party to
a duly constituted governmental or judicial body, provided that the disclosing
party shall, prior to disclosure, notify the other party of such requirement and
shall use reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded such Confidential Information.

 

18

 

 

(f) Non-Compete. From the Closing Date until two years after the Closing Date,
none of the Sellers nor their respective Affiliates shall directly or indirectly
obtain or acquire, or cause to be obtained or acquired, any legal or beneficial
interest in the lands set forth on Exhibit D (the “Prospect Interests”), and
Sellers shall cause each of its respective managers, officers, and employees not
to obtain or acquire, or cause to be obtained or acquired, any legal or
beneficial interest therein.

 

(g) Closing Tax Certificate. On the Closing Date, each Seller shall deliver to
the Purchaser a certificate in the form of Exhibit I (the “Closing Tax
Certificate”) signed under penalties of perjury (i) stating that it is not a
foreign person, (ii) providing its taxpayer identification number, and (iii)
providing its address, all pursuant to Section 1445 of the Code.

 

(h) Cooperation on Tax Matters. The Sellers shall, at Sellers’s sole cost and
expense, cause all state and federal income Tax Returns for the Company for
calendar year 2013 to be timely filed (as extended), and shall promptly provide
copies thereof (together with all schedules thereto) to the Company. The Parties
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns and any Proceeding with
respect to Taxes (each, a “Tax Proceeding”). Such cooperation shall include the
retention and (upon the other party’s request) the provision of records and
information that are reasonably relevant to any such Tax Proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Parties
agree (A) to retain all books and records with respect to Tax matters pertinent
to the Company to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Purchaser or the Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other Parties reasonable written notice
prior to transferring, destroying or discarding any such books and records and,
if any other Party so requests, shall allow such Party to take possession of
such books and records. The Purchaser shall not have any liability for adverse
claims that may be asserted on the Company by the Internal Revenue Service for
any Tax Filings made by the Company for periods prior to the Effective Date or
for the Excluded Assets for periods prior to, on or after the Effective Date.

 

(i) Special Warranty of Title by Sellers. Notwithstanding anything to the
contrary herein, Sellers shall warrant and defend title to the Leases and the
Wells against all claims and demands of Persons claiming by, through or under
the Sellers and the Company, but not otherwise.

 

(j) Certain Post-Closing Liabilities.

 

(i) Osage Land and Cattle. The Company is as of the date of execution of this
Agreement engaged in negotiations with Osage Land & Cattle Co. and Osage Buck
Creek, L.L.C. (collectively, “OL&C”), (A) to settle surface damages for
operations conducted by the Company prior to the Effective Date on OL&C’s lands,
and (B) for a Master Surface Use Agreement to govern the Company’s operations on
and after the Effective Date on OL&C’s lands. The Parties covenant and agree
that Sellers shall have the exclusive right and obligation to negotiate
resolution of item (A) above in Sellers’ sole and absolute discretion, and all
obligations and payments related thereto shall be a Retained Liability. The
Parties further covenant and agree that the Buyer, as agent for the Company,
shall have the exclusive right and obligation to negotiate resolution of item
(B) above in the Buyer’s sole and absolute discretion, and all obligations and
payments related thereto shall be the sole responsibility of the Company (and
the Sellers shall have no obligations under this Agreement therefor) without any
adjustment to the Aggregate Purchase Price.

 

19

 

 

(ii) Reed Litigation. The Company is as of the date of execution of this
Agreement a party to certain Proceedings styled (A) Nadel and Gussman, LLC, et
al., Plaintiffs, vs. Jimmie W. Reed, Trustee, et al., Defendants, Case No.
4:13-cv-00570-TCK-TLW, in the United States District Court for the Northern
District of Oklahoma, as on appeal, Case No. 14-5028, in the United States Court
of Appeals for the Tenth Circuit, and (B) Nadel and Gussman, LLC, et al.,
Plaintiffs, vs. Reed Family Ranch LLC, et al., Defendants, Case No.
CV-2014-00016, in the District Court of Osage County, Oklahoma (collectively,
the “Reed Litigation”). The Reed Litigation is a dispute regarding compensation
for surface damages from operations conducted by the Company prior to the
Effective Date on lands owned by the Reed Litigation defendants. A potential
settlement of the Reed Litigation would require the Company to agree that the
settlement payment may be used as evidence of the value of surface damages for
future operations on lands owned by the Reed Litigation defendants. The Parties
covenant and agree that the Sellers shall have the exclusive right and
obligation to settle or litigate the Reed Litigation in the Sellers’ sole and
absolute discretion, so long as such settlement or litigation does not restrict
the future ingress and egress of the Company in and to the Reed Property or
otherwise impose any physical (vs. financial) limitation on its current right to
conduct ongoing or future oil and gas operations on same. All obligations and
payments related to the Reed Litigation shall be a Retained Liability.

 

10. Conditions to Proceed with Closing. The obligation of the Parties to proceed
with Closing shall be subject to the satisfaction or waiver, on or before the
Closing Date, of the following conditions:

 

(a) Conditions to the Parties’ Obligation to Proceed with Closing. The
obligation of the Sellers and the Purchaser to proceed with Closing shall be
subject to the satisfaction or waiver, on or before the Closing Date, of the
following conditions:

 

(i) All authorizations, consents, orders, declarations or approvals of, or
filings with any governmental or regulatory authority, which the failure to
obtain, make or occur would have the effect of making the transactions
contemplated by this Agreement illegal or would have (or would be reasonably
likely to have) a Material Adverse Effect on any of the Company, the Assets or
the Purchaser assuming the transactions contemplated by this Agreement had taken
place, shall have been obtained, made or occurred on or before the Closing Date.

 

20

 

 

(ii) The Company shall have closed the purchase from its joint venture partners
of all working interests in the Assets not owned by the Company prior to the
date of this Agreement, so that the Company shall own 100% of the working
interests in the Assets at the Closing Date and effective immediately prior to
the Effective Date.

 

(b) Conditions to the Purchaser’s Obligation to Proceed with Closing. The
obligation of the Purchaser to proceed with Closing shall be subject to the
satisfaction or waiver, on or before the Closing Date, of the following
conditions:

 

(i) The representations and warranties set forth in Sections 4 and 5 shall be
true and correct in all respects at Closing, and the Company and the Sellers
shall have complied in all material respects with those covenants contained in
this Agreement that are applicable to them.

 

(ii) The Purchaser shall have received from each Seller an unqualified
certificate covering those items addressed in Section 10(b)(i) (each, a
“Seller’s Closing Certificate”).

 

(iii) Each manager and officer of the Company shall have delivered to the
Purchaser a letter of voluntary resignation from such positions with the Company
effective as of the Closing.

 

(iv) None of the Wells nor the other Assets shall have been damaged or destroyed
by any natural event (including, without limitation, any storm, flood,
hurricane, washout, landslide, earthquake, lightning, fire or other act of God)
or other casualty or been taken in condemnation or under right of eminent
domain, except for such destructions, casualties or takings as would not,
individually or in the aggregate, constitute a Material Adverse Change.

 

(v) Except as would not, individually or in the aggregate, constitute a Material
Adverse Change, the Company shall not have received any demand or notice with
respect to any Environmental Claims or non-compliance with Environmental Laws
(“Environmental Defects”); provided, the existence of any of the foregoing,
together with any other Environmental Defects, that would not reasonably be
estimated to represent an aggregate liability equal to or less than $50,000.00,
shall not be deemed to represent a Material Adverse Change solely due to the
estimated cost of such liabilities.

 

(vi) To the extent that any Seller that is an individual or their spouse is
currently a resident or subject to the family, estate or probate laws of any
state that is a community property state, the spouse of such Seller shall have
executed and delivered to the Purchaser a written instrument substantially the
form attached hereto as Exhibit C.

 

21

 

 

(vii) The Purchaser shall have received from the Company a Certificate of Good
Standing from the State of Oklahoma and an Incumbency Certificate from the
Manager of the Company in the form attached as Exhibit F attached hereto.

 

(viii) Except for the Excluded Assets listed in Schedule 8(g), Sellers shall
have conveyed out of the Company all Excluded Assets to the satisfaction of
Purchaser.

 

(ix) Sellers shall have procured executed Disclaimers and Stipulations of
Interest in the form attached as Exhibit G attached hereto from NG, HB&R Oil
Company, LLC, Murfin Drilling Company, Inc., Staghorn Energy, LLC, and the
owners of all overriding royalties and other burdens carved out of the working
interest.

 

(c) Conditions to the Sellers’ Obligation to Proceed with Closing. The
obligation of the Sellers to proceed with Closing shall be subject to the
satisfaction or waiver, on or before the Closing Date, of the following:

 

(i) The representations and warranties set forth in Section 6 shall be true and
correct in all respects at Closing and the Purchaser shall have complied in all
material respects with those covenants contained in this Agreement that are
applicable to it.

 

(ii) The Sellers shall have received from Purchaser an unqualified certificate
covering those items addressed in Section 10(c)(i) (“Purchaser’s Closing
Certificate”).

 

(iii) The Sellers shall have received evidence acceptable to Sellers that
Purchaser has secured for the Company suitable replacements for all contracts of
insurance and bonds listed in Schedule 5(k) effective as of the Effective Date.

 

11. Actions to be Taken At Closing.

 

(a) Sellers’ Actions at Closing. At the Closing, each Seller shall execute,
acknowledge and (upon payment of the Adjusted Purchase Price or Preliminary
Adjusted Purchase Price, as applicable) deliver to the Purchaser the following:

 

(i) An Assignment of Membership Interests in the form of Exhibit E;

 

(ii) Its respective Seller’s Closing Certificate;

 

(iii) Its respective Closing Tax Certificate; and

 

(iv) All other instruments as may be reasonably required to consummate the
agreements of the Parties hereunder, including execution and delivery by NG of
the Transition Services Agreement.

 

22

 

 

(b) Purchaser’s Actions at Closing. At Closing (upon the assignment of all of
the Membership Interests), Purchaser shall execute, acknowledge and deliver to
Sellers the following:

 

(i) Pay to the Sellers, by wire transfers of immediately available funds, the
Adjusted Purchase Price or the Preliminary Adjusted Purchase Price, as
applicable, to the accounts set forth in the Preliminary Settlement Statement;

 

(ii) The Purchaser’s Closing Certificate; and

 

(iii) All other instruments as may be reasonably required to consummate the
agreements of the Parties hereunder including execution and delivery to NG of
the Transition Services Agreement.

 

12. Expiration of Representations, Warranties and Covenants. All
representations, warranties, covenants and indemnities of the Parties contained
herein, and any certificate delivered hereunder, to the extent that such
certificate relates to such representations and warranties concerning the
Assets, shall survive for a period of two years after the Closing Date, except
that (a) the covenants set forth in Sections 8, 9(a), 9(g) and 10 shall expire
at Closing and (b) the representations, warranties, covenants and indemnities
set forth in Section 13(c) with respect to the Excluded Assets and the Retained
Liabilities, the obligation set forth in Section 5(g)(vii), and the obligations
contained in Sections 9(b), (c), (h), (i) and (j) shall survive indefinitely
(the covenants and other agreements which shall survive the Closing being
referred to as the “Surviving Covenants”).

 

13. Release and Indemnification.

 

(a) Release of Sellers. Except for the indemnification obligations of Sellers as
set forth in Section 13(b) and Section 13(c) below, Purchaser hereby releases,
remises, and forever discharges Sellers and their respective Affiliates,
managers, officers, directors, members, employees, agents and representatives
from any and all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, losses, liabilities, diminutions of value, costs and
expenses (including, without limitation, reasonable attorneys’ fees)
(collectively, “Losses”), in law or in equity, known or unknown, which Purchaser
might now or subsequently may have, based on, relating to, or arising out of
this Agreement or any other agreement, contract or instrument contemplated
herein with respect to the Company’s ownership, use, or operation of the Assets,
or the condition, quality, status, or nature of the Assets, INCLUDING RIGHTS TO
CONTRIBUTION OR COST RECOVERY UNDER ALL ENVIRONMENTAL LAWS, BREACHES OF
STATUTORY AND IMPLIED WARRANTIES, NUISANCE OR OTHER TORT ACTIONS, RIGHTS TO
PUNITIVE DAMAGES, COMMON LAW RIGHTS OF CONTRIBUTION, ANY RIGHTS UNDER INSURANCE
POLICIES ISSUED OR UNDERWRITTEN BY SELLER OR ANY OF SELLER’S AFFILIATES (IN EACH
CASE) EVEN IF CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER ACTIVE,
PASSIVE, SIMPLE, SOLE, JOINT OR CONCURRENT), STRICT LIABILITY OR OTHER LEGAL
FAULT OF ANY RELEASED PERSON, INVITEE OR THIRD PERSON, OR BY A PREEXISTING
CONDITION.

 

23

 

 

(b) Indemnification by Sellers. Each Seller jointly and severally covenants and
agrees that it will indemnify, defend and hold harmless the Purchaser, the
Company and their respective managers, officers, directors, members, employees,
agents, representatives and Affiliates (collectively, the “Purchaser Indemnified
Parties”) from and against all Losses arising directly or indirectly from, as a
result of or in connection with (i) any breach of the representations and
warranties of Sellers that by their terms survive the Closing, (ii) any breach
by Sellers of the Surviving Covenants. In respect of the indemnification
obligation set forth in the immediately preceding sentence, (x) no Seller shall
be liable for any other Seller’s breach of Section 4(d) or the Seller’s Closing
Certificate delivered by any other Seller, or for fraud committed by any other
Seller, (y) the liability of each Seller for all Losses hereunder shall be
limited to the amount labeled “Distribution Amount” on Exhibit A for each Seller
(subject to adjustment to the Aggregate Purchase Price pursuant to Section 2(c))
and (z) the liability of each Seller for all Losses hereunder shall be limited
to the amount of such Losses multiplied by such Seller’s Sharing Ratio. Any
claim for indemnification pursuant to this Section 13(b) based on the breach of
a representation, warranty or Surviving Covenant that survives the Closing for a
finite period must be asserted by the Purchaser or a Purchaser Indemnified Party
on or before the expiration of such finite period for such claim to be
enforceable.

 

(c) Indemnification by the Sellers on the Excluded Assets and Retained
Liabilities. Each Seller jointly and severally covenants and agrees that it will
indemnify, defend, and hold harmless the Purchaser, the Company and their
respective managers, officers, directors, members, employees, agents,
representatives, and Affiliates (collectively the “Purchaser Indemnified
Parties”), from and against all Losses arising directly or indirectly from, as a
result of or in connection with, any of the Excluded Assets and Retained
Liabilities, together with any tax obligation/loss or encumbrance pertaining to
said Excluded Assets and/or Retained Liabilities, with no monetary limit. The
indemnification granted herein shall be without regard to any representation or
warranty or surviving covenant contained elsewhere in this Agreement and this
indemnification is intended to survive the Closing. Further, the Sellers do
hereby indemnify the Purchaser Indemnified Parties from and against any and all
liability for income taxes, interest, late penalties, or other penalties imposed
by the Internal Revenue Service or the State of Oklahoma or any other state
having jurisdiction pertaining to the taxation of the Company and/or its
members, with respect for the Excluded Assets for all time periods prior to, on
or after, the Effective Date.

 

(d) Indemnification by Purchaser. After the Closing Date, the Purchaser agrees
that it will indemnify, defend and hold harmless the Sellers and their
respective Affiliates, managers, officers, directors, employees, agents,
representatives (collectively, the “Seller Indemnified Parties”) from any and
all from and against all Losses arising after the Closing Date as a result of or
in connection with the Assets or the Company, and any Environmental Claims
arising after the Closing relating to the Assets, but in no event will the
Purchaser offer such indemnity to any claim or losses pertaining to the Excluded
Assets and the Retained Liabilities.

 

24

 

 

(e) Certain Limitations on Indemnity Obligations.

 

(i) No claim of Purchaser or any of the Purchaser Indemnified Parties pursuant
to Section 13(b) shall be made hereunder until such claim exceeds an amount
equal to $5,000.00 (each, an “Individual Claim”).

 

(ii) In addition, no claim of Purchaser or any of the Purchaser Indemnified
Parties pursuant to Section 13(b) shall be made hereunder until the total of all
Individual Claims exceeds $100,000 (the “Basket”). If the total amount of all
Individual Claims exceeds the Basket, then Sellers’ obligations under Section
13(b) shall be limited to the amount by which the aggregate amount of such
Individual Claims exceeds the Basket; provided, however, claims of Purchaser or
any of the Purchaser Indemnified Parties pursuant to Section 13(c) above shall
not be subject to the Individual Claim limitation or the Basket.

 

(iii) In addition, the Sellers shall not be required to pay an aggregate amount
to Purchaser or the Purchaser Indemnified Parties pursuant to Section 13(b) in
excess of the Adjusted Purchase Price (the “Indemnity Cap”); provided, however,
none of the limitations set forth in this Section 13(e)(iii) will apply to (A)
claims of Purchaser or any of the Purchaser Indemnified Parties pursuant to
Section 13(c) above or (B) claims based upon fraud of any of the Sellers.

 

(iv) The amount of any indemnification under Section 13(b) or (d) shall be net
of any amounts actually recovered by the indemnified party under insurance
policies.

 

(f) Exclusive Remedy for Breaches of Representations, Warranties and Covenants.
Except as specifically set forth in Section 13(b) and Section 13(c), effective
upon the Closing, in the absence of fraud on the part of a Seller in connection
with the negotiation, execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby (to the extent determined
by a final judgment of a court of competent jurisdiction), the Purchaser, on
behalf of itself and the Purchaser Indemnified Parties, waives any rights or
claims it or any other Purchaser Indemnified Party may have against any Seller,
whether in law or equity (except as relates to adjustments to the Aggregate
Purchase Price in accordance with Section 2(c) and except for the obligations of
Sellers contained in Section 13(c) above) for any Seller’s breach of a
representation or warranty contained in this Agreement and for breaches of any
covenant or other agreement, including, without limitation, claims for
contribution or other rights of recovery arising out of or relating to any
Environmental Laws, claims for breach of contract, breach of implied covenants,
negligent misrepresentation and all other claims for breach of duty. For the
avoidance of doubt, except for fraud, Articles 13 and 14 set forth the exclusive
remedies available to the Purchaser or the Purchaser Indemnified Parties for any
breach by the Sellers of this Agreement.

 

25

 

 

(g) Procedure for Indemnification.

 

(i) Promptly after receipt by an indemnified Party under Section 13(b), (c) or
(d) of a claim for Losses or notice of the commencement of any Proceeding
against it, such indemnified Party shall, if a claim is to be made against an
indemnifying Party under such Section, give notice to the indemnifying Party of
the commencement of such claim. The failure of any indemnified Party to give
notice of a claim shall not relieve the indemnifying Party of its obligations
under this Article 13 except to the extent such failure materially prejudices
the indemnifying Party. A claim for indemnification for any matter not involving
a third-party claim may be asserted by notice to the Party from whom
indemnification is sought.

 

(ii) If any Proceeding referred to in Section 13(g)(i) is brought against an
indemnified Party and it gives notice to the indemnifying Party of the
commencement of such Proceeding, the indemnifying Party shall be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying Party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying Party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), to assume the defense
of such Proceeding with counsel reasonably satisfactory to the indemnified party
and, after notice from the indemnifying Party to the indemnified Party of its
election to assume the defense of such Proceeding, the indemnifying Party shall
not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Article 13 for any fees of other counsel or any
other expenses with respect to the defense of such Proceeding, in each case
subsequently incurred by the indemnified party in connection with the defense of
such Proceeding. If the indemnifying Party assumes the defense of a Proceeding,
no compromise or settlement of such claims may be effected by the indemnifying
Party without the indemnified party’s consent unless (A) there is no finding or
admission of any violation of legal requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified Party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying Party, and (C) the indemnified Party shall have
no liability with respect to any compromise or settlement of such claims
effected without its consent and (D) the indemnified Party is provided a full
and unconditional release of liability.

 

(iii) Notwithstanding the foregoing, if an indemnified Party determines in good
faith that there is a reasonable probability that a Proceeding may adversely
affect it or its Affiliates other than as a result of monetary damages for which
it would be entitled to indemnification under this Agreement, the indemnified
party may, by notice to the indemnifying Party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying Party shall
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).

 

26

 

 

(h) No Waiver of Fraud. NOTHING RELATING TO (I) THE EXPIRATION OF ANY
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT SET FORTH IN THIS AGREEMENT,
(II) THE INDEMNIFICATION PROVISIONS SET FORTH IN THIS AGREEMENT, (III) THE
EXCLUSIVENESS OF ANY REMEDIES UNDER THIS AGREEMENT OR (IV) ANY OTHER MATTER
SHALL BE DEEMED TO BE A WAIVER OF ANY RIGHT OR CLAIM THAT ANY PARTY MAY HAVE
AGAINST ANY OTHER PARTY IN RESPECT OF SUCH PARTY’S FRAUD.

 

14. Termination of Agreement. This Agreement may be terminated as provided
below:

 

(a) by mutual written consent of the Purchaser and a Majority of the Sellers at
any time prior to the Closing;

 

(b) by the Purchaser if the Closing shall not have occurred on or before May 22,
2014, for any reason not attributable to the breach by the Purchaser of any
representations, warranties or covenants contained in this Agreement;

 

(c) by the Purchaser if the Sellers have breached any representation or warranty
in any material respect, the Purchaser has notified the Sellers of the breach,
and the breach has continued without cure for a period of 10 Business Days after
the notice of breach;

 

(d) by the Majority of Sellers if the Closing shall not have occurred on or
before May 22, 2014, for any reason not attributable to the breach by the
Sellers or the Company of any representations, warranties or covenants contained
in this Agreement;

 

(e) by the Majority of Sellers if the Purchaser has breached any representation,
warranty, or covenant contained in this Agreement in any material respect, the
Sellers have notified the Purchaser of the breach, and the breach has continued
without cure for a period of 10 Business Days after the notice of breach;

 

(f) by the Purchaser if the Sellers have not made available to Purchaser all of
the Company’s files and records in accordance with Section 7 above, and the
Purchaser has requested such access in writing; or

 

(g) by the Purchaser if Sellers do not produce the Disclaimers and Stipulations
of Ownership as provided in Section 10(b)(ix).

 

If this Agreement is terminated by mutual written consent of the Purchaser and a
Majority of the Sellers pursuant to Section 14(a), then all rights and
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party. If this Agreement is terminated for any reason
other than that described in Section 14(d) above, Sellers shall immediately
return the Performance Deposit to the Purchaser. If this Agreement is terminated
by Sellers for the reason described in Section 14(e) above, Sellers shall retain
the Performance Deposit and Purchaser shall forfeit all rights thereto.

 

27

 

 

15. General Provisions.

 

(a) Entire Agreement. This Agreement together with the Schedules and Exhibits
contains the entire understanding of the Parties with regard to the subject
matter hereof and no warranties, representations, promises or agreements have
been made between the Parties other than as expressly herein set forth. This
Agreement supersedes any previous agreement or understanding between the Parties
and cannot be modified or amended except in a writing executed by the Purchaser
and the Majority of Sellers.

 

(b) Assignments, Successors and Third Party Beneficiaries. No Party may assign
any of its rights under this Agreement without the prior written consent of all
other Parties, such consent not to be unreasonably withheld. Subject to the
foregoing sentence, upon execution, this Agreement shall be binding and fully
enforceable and shall inure to the benefit of the Parties hereto, their
successors, permitted assigns, personal representatives and heirs. This
Agreement shall not confer any rights or remedies upon any Person other than the
Parties and their respective heirs, personal representatives, successors and
permitted assigns.

 

(c) Notices. All notices as may be required by this Agreement shall be deemed
given if delivered personally or sent by electronic mail (with confirmation of
receipt) during normal business hours of the recipient, the next Business Day if
sent by overnight courier, or upon receipt if sent by U.S. Mail to the
respective parties at the addresses set forth below:

 

To Sellers:   See Exhibit A       To Purchaser:   Bandolier Energy, LLC     624
S. Boston Ave., Suite 230     Tulsa, Oklahoma 74119     Attn: Shane E. Matson  
  E-mail: shanematson@gmail.com

 

(d) Severability. In the event that any of the provisions, or portions thereof,
of this Agreement are held to be unenforceable or invalid by any court of
competent jurisdiction, the validity and enforceability of the remaining
provisions, or portions thereof, shall not be affected thereby and effect shall
be given to the intent manifested by the provisions, or portions thereof, held
to be enforceable and valid.

 

(e) Governing Law; Waiver of Jury Trial. This Agreement shall be governed by and
construed under the laws of the State of Oklahoma without regard to its choice
of law provisions that would apply the law of any other state. EACH OF THE
PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

28

 

 

(f) Arbitration of Net Defect Amount Disputes. After Closing, disputes regarding
the Adjusted Purchase Price (“Arbitrable Disputes”) shall be submitted to
binding arbitration conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the “AAA”), as supplemented to
the extent necessary to determine any procedural appeal questions arising under
the Federal Arbitration Act (Title 9 of the United States Code). If there is any
inconsistency between this Section 15(f) and the Commercial Arbitration Rules or
the Federal Arbitration Act, then this Section 15(f) shall control. Arbitration
shall be initiated by the Claimant (as defined below) serving written notice on
the Respondent (as defined below) that the Claimant elects to refer the
Arbitrable Dispute to binding arbitration. Unless otherwise agreed by the
Parties, a single neutral arbitrator will decide the Arbitrable Dispute. The
Parties shall select the arbitrators as follows: the Claimant shall request the
administrator of the Dallas, Texas office of the AAA to provide the Parties with
an arbitrator. The arbitrator must (x) be a neutral person who has never been
officer, director, employee, or consultant or had other business relationships
with the Parties or any of their Affiliates, officers, directors or employees,
and (y) have not less than fifteen (15) years recent experience in the U.S. oil
and gas accounting. The arbitration hearing will be conducted in Tulsa,
Oklahoma, and shall commence as soon as practicable after the selection of the
arbitrator. If the Parties are unable to agree on a single arbitrator, then any
Party may petition the Presiding Judge of the District Court of Osage County,
Oklahoma to appoint an arbitrator. The Parties and the arbitrator shall proceed
diligently and in good faith so that the arbitrator’s determination can be made
as promptly as possible. The arbitrator may consult with and engage
disinterested third parties to advise the arbitrator, including, without
limitation, petroleum engineers, petroleum landmen, and environmental engineers
and consultants, as appropriate. The arbitrator’s determination shall be made in
writing, including findings of fact and conclusions of law, within 45 days after
submission of the matters in dispute. Judgment may be entered on the award, and
the award may be judicially enforced. Except as provided in the Federal
Arbitration Act, the decision of the arbitrator shall be binding on and
non-appealable by the Parties. The arbitrator shall act for the limited purpose
of resolving the specific Arbitrable Disputes and may not award damages, costs
(including attorneys’ fees), interest or penalties with respect to any matter.
Further, the arbitrator shall have no right or authority to grant or award
indirect, consequential, punitive or exemplary damages of any kind. The Parties
shall each bear their own legal fees and other costs of presenting their case.
The Sellers, on the one hand, and the Purchaser, on the other hand, shall each
pay 50% of the fees and expenses of the arbitrator.

 

(g) Counterparts; Facsimile Signatures. This Agreement may be executed in any
number of counterparts and each such counterpart shall be considered an original
and an enforceable agreement. Facsimile and electronic signatures to this
Agreement shall be valid.

 

(h) Notice of Developments. Each Party will give prompt written notice to the
others of any material breach of any of its representations, warranties and
covenants contained herein.

 

29

 

 

(i) Exclusivity. Prior to the earlier to occur of (i) the Closing and (ii) the
termination of this Agreement, Sellers will not (and the Sellers will not cause
or permit the Company or any of its or their representatives, advisors, agents
or controlled affiliates to) intentionally solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any of the Membership Interests of the Company, or assets of the Company
(except for sales permitted pursuant to Section 8) (including any acquisition
structured as a merger, consolidation, share exchange or other business
combination or recapitalization).

 

(j) Other Post-Closing Covenants. After Closing, if any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party. If any Party is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in connection with any transaction on or prior to
the Closing Date involving the Company, each of the other Parties shall
cooperate with it and its counsel in the defense or contest, all at the sole
cost and expense of the contesting or defending Party.

 

(k) Press Releases and Public Announcements. No Party shall issue, or permit the
Company to issue, any press release or make any public announcement relating to
the subject matter of this Agreement prior to the Closing without the prior
written approval of the other Parties, which approval shall not be unreasonably
withheld; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law, or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other
Parties prior to making the disclosure).

 

(l) Expenses. Notwithstanding anything contained herein, all fees, costs, and
expenses for investment advisors, attorneys and accountants retained by the
Sellers or the Company to facilitate the transactions contemplated by this
Agreement shall be paid by the Sellers, respectively based on their pro rata
share of the Aggregate Purchase Price. All fees, costs, and expenses incurred by
the Purchaser in connection with the transactions contemplated by this Agreement
shall be paid by the Purchaser.

 

(m) Limitation of Damages; Enforcement of Agreement. There shall be no liability
under this Agreement for consequential, special, punitive or exemplary damages.
The Parties agree that irreparable damage may occur in the event that any of the
provisions of this Agreement were not performed in accordance with its specific
terms. Accordingly, the Parties agree that each Party may be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
specifically enforce the terms and provisions of this Agreement in any
appropriate court, the foregoing being in addition to (and not to the exclusion
of) any other remedy to which a Party may be entitled at law or in equity.

 

30

 

 

16. Definitions.

 

(a) “AAA” is defined in Section 15(f).

 

(b) “Adjusted Purchase Price” is defined in Section 2(a).

 

(c) “Affiliate” shall mean, when used with respect to a specified Person, any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with the specified Person as of the time or for the
time periods during which such determination is made. For purposes of this
definition “control”, when used with respect to any specified Person, means the
power to direct the management and policies of the Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms “controlling” and “controlled” have the meanings
correlative to the foregoing.

 

(d) “Aggregate Purchase Price” is defined in Section 2(a).

 

(e) “Agreement” is defined in the introductory paragraph.

 

(f) “Arbitrable Dispute” is defined in Section 15(f).

 

(g) “Assets” means all of the Company’s right, title and interest (of whatever
kind or character, whether legal or beneficial, and whether vested or
contingent) in and to the following:

 

(i) all oil, gas and other minerals in and under and that may be produced from
the lands covered by the Concession Agreement and the Leases including, without
limitation, interests in oil, gas and/or mineral leases covering any part of the
lands (and all renewals, extensions, ratifications, and amendments thereof,
together with all rights, interests, and benefits in, derived or carved from, or
appurtenant or attributable to, those leases including royalties, excess
royalties, overriding royalty interests, net profits interests, production
payments, working interests, leasehold cost-bearing interests, and similar
interests), overriding royalty interests, production payments, and net profits
interests in any part of the lands or leases, fee royalty interests, fee mineral
interests, and other interests in oil, gas and other minerals in any part of the
lands, whether the lands are described in Exhibit B or by reference to another
instrument for description, even though the Company’s interests may be
incorrectly described in, or omitted from, Exhibit B;

 

(ii) all the lands described in the Concession Agreement and the Leases;

 

(iii) the oil and gas wells described in Exhibit B and all wells located on a
Lease (or on any acreage spaced, pooled and/or unitized with a Lease) including,
without limitation, (A) all oil, gas or condensate wells and wellbores (whether
producing, not producing or temporarily abandoned); and (B) all water source,
water injection and other injection or disposal wells and systems;

 

(iv) all facilities, pipelines, gathering systems, equipment, fixtures,
inventory, spare parts, tools and other personal property appurtenant to the
wells described in (g) (iii) above and dedicated to operations on a Lease;

 

31

 

 

(v) all surface and subsurface rights, easements, rights-of-way, usage rights,
licenses, leases, and rights of access, ingress and egress pertaining to the
lands covered by the Leases;

 

(vi) the Concession Agreement and all Material Agreements primarily used or
primarily held for use in connection with the production, gathering, treatment,
processing, storage, sale, disposal and other handling of Hydrocarbons or
produced water from the Leases;

 

(vii) all Permits, orders and authorizations issued by governmental authorities,
and any written or oral contract or agreement (including farm-in and farm-out
agreements, participation, exploration and development agreements, drilling
contracts and service agreements, crude oil, condensate and natural gas purchase
and sale, gathering, transportation and marketing agreements, joint operating
agreements, balancing agreements, unitization agreements, Unit operating
agreements; processing agreements, facilities or equipment leases, and other
similar contracts), but only insofar as each (A) affects, covers, includes or
pertains to the Assets, including the ownership, use or exploitation thereof;
and/or (B) provides any right or benefit, or contains or results in any
undertaking, liability or obligation with respect to, the Assets; and

 

(viii) all files, records, and data relating to the Assets described in clauses
(i) through (vii) above, which records shall include: lease records; well
records; division order records; well files; title records (including abstracts
of title, title opinions and memoranda, and title curative documents);
engineering records; geological and geophysical data (including seismic data)
and all technical evaluations, interpretive data and technical data and
information relating to the other Assets; maps; production records; electric
logs; core data; pressure data; decline curves and graphical production curves;
reserve reports; environmental reports and records; appraisals, joint interest
billing decks and other partner details, archeological surveys, surface damage
agreements, right of ways, electrical supply agreements, lease operating
statements and Asset Tax records; provided, however, that all e-mails and other
electronic files on the Company’s servers and networks relating to the items
referenced in this clause (viii) and in clauses (i) through (vii) above, in each
case, shall be excluded.

 

(h) “Basket” is defined in Section 13(e)(ii).

 

(i) “Benefit Plan(s)” means (i) any Pension Plan, Welfare Plan, bonus, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, stock appreciation, phantom stock, retirement, vacation, leave of
absence, severance, salary continuation, disability, death benefit,
hospitalization, medical, dependent care, cafeteria, employee assistance,
scholarship, employment, fringe benefit or other similar agreement, plan,
program, arrangement or understanding (whether or not covered under Section 3(3)
of ERISA and whether or not legally binding) that is sponsored, maintained,
contributed to or required to be contributed to by the Company and as to which
the Company has or may have any obligation or liability, contingent or
otherwise, thereunder to or for current or former partners, employees, directors
or individual consultants and (ii) all employment, consulting, non-competition,
employee non-solicitation, employee loan or other compensation agreements or
arrangements.

 

32

 

 

(j) “Business Day” means any day other than Saturday, Sunday or any other day on
which banks located in the State of Oklahoma are authorized or obligated to
close.

 

(k) “capital expenditures” is defined in Section 8(b).

 

(l) “Claimant” is defined in Section 15(f).

 

(m) “Closing” and “Closing Date” shall have the meaning set forth in Section
2(d).

 

(n) “Closing Tax Certificate” shall have the meaning set forth in Section 9(g).

 

(o) “Code” means the Internal Revenue Code of 1986, as amended.

 

(p) “Company” is defined in the introductory paragraph.

 

(q) “Concession Agreement” means the Lease Acquisition and Exploration
Agreement, made and entered into as of September 21, 2005, by and between the
Osage Tribe of Indians of Oklahoma and the Company as approved by Tribal
Resolution No. 31-1240, as amended from time to time.

 

(r) “Confidential Information” is defined in Section 9(e).

 

(s) “Defensible Title” means, as to an Asset, such title of the Company that:
(i) is deducible of record from the records of the county in which the property
is located, and in the case of tribal leases, from the records of the applicable
office of the Bureau of Indian Affairs; and (ii) is free and clear of liens and
material encumbrances and defects, except for Permitted Encumbrances.

 

(t) “Distribution Amount” is set forth in Exhibit A.

 

(u) “Effective Date” means January 1, 2014.

 

(v) “Environmental Claim” means any claim, demand, suit, action, cause of
action, proceeding, investigation or notice to the Company by any Person or
entity alleging any potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, personal injuries, or penalties) arising out of, based on, or
resulting from (i) the presence, or Release into the environment, of any
Hazardous Substance at any location, whether or not owned, leased, operated or
used by the Company, and (ii) circumstances forming the basis of any violation,
or alleged violation, of any applicable Environmental Law.

 

(w) “Environmental Defect” has the meaning provided in Section 10(b)(v).

 

33

 

 

(x) “Environmental Laws” means all applicable federal, state or local laws,
statutes, codes, ordinances, permits, licenses, rules, regulations and common
law in effect as of the date hereof, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the environment or to the emission, discharge,
release, threatened release, use, treatment, storage, disposal, transportation
or handling of pollutants, contaminants or industrial, toxic or hazardous
substances, wastes or materials. Environmental Laws include, but are not limited
to: the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, the Resource Conservation and Recovery Act, the Toxic Substances Control
Act, the Clean Water Act, the Clean Air Act, the Federal Water Pollution Control
Act, the Oil Pollution Control Act, the Endangered Species Act, and the Safe
Drinking Water Act, as such acts may have been amended or supplemented from time
to time, the state and local counterparts or equivalents of all such acts, and
all rules, regulations and orders adopted under any such statutes.

 

(y) “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.

 

(z) “Excluded Assets” means all real and personal property of the Company which
is not an Asset as defined herein and all rights, titles, liabilities and
interests related thereto. In particular, all cash held by or for the benefit of
the Company derived from production from the Assets for periods prior to the
Effective Date shall remain the property of the Sellers.

 

(aa) “from and attributable” is defined in Section 2(c)(i)(B).

 

(bb) “Hazardous Substance” means (i) chemicals, pollutants, contaminants,
wastes, toxic and hazardous substances, and oil and petroleum products, (ii) any
substance that is or contains asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum or petroleum-derived substances or wastes,
chlorides, radon gas or related materials or lead or lead-based paint or
materials, (iii) any substance, material or waste that requires investigation,
removal or remediation under any Environmental Law, or is defined, listed or
identified as hazardous, toxic or otherwise dangerous under any Environmental
Laws or (iv) any substance that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous.

 

(cc) “Hedge Transactions” is defined in Section 5(m).

 

(dd) “Hydrocarbons” means oil, bitumen and products derived therefrom, synthetic
crude oil, petroleum, natural gas, natural gas liquids, coal bed methane, and
any and all other substances produced in association with any of the foregoing,
whether liquid, solid, or gaseous.

 

(ee) “incurred” is defined in Section 2(c)(i)(B).

 

(ff) “Indemnity Cap” is defined in Section 13(e)(iii).

 

34

 

 

(gg) “Individual Claim” is defined in Section 13(e)(i).

 

(hh) “IRS” means the Internal Revenue Service.

 

(ii) “Knowledge of Sellers” of a fact or matter means the knowledge of any of
the Sellers, or an employee of Sellers (including, without limitation, Matson)
who has devoted substantial attention to matters of such nature during the
ordinary course of his employment with the Sellers.

 

(jj) “Laws” is defined in Section 5(f).

 

(kk) “Leases” means the Oil and Gas Leases issued pursuant to the Concession
Agreement and described in Exhibit B.

 

(ll) “Lien” means any lien, mortgage, pledge, security interest,
clouds-on-title, options, or imperfections of title.

 

(mm) “Losses” is defined in Section 13(a).

 

(nn) “Majority of Sellers” means Sellers representing greater than fifty percent
(50%) of the voting Membership Interests.

 

(oo) “Material Adverse Change” means any actions, suits, arbitrations,
proceedings, facts, circumstances, events, conditions or developments that,
individually or in the aggregate, have had or would be reasonably likely to have
a Material Adverse Effect.

 

(pp) “Material Adverse Effect” means any material adverse effect on the
business, operations, assets, financial condition or business prospects of the
Person referenced, taken as a whole, which shall exceed $50,000, except for (i)
any such effects resulting from changes affecting the United States economy,
financial and capital markets or the oil and gas industry in general, or (ii)
changes in the prices generally paid for oil, natural gas or equivalents.

 

(qq) “Material Agreements” is defined in Section 5(h).

 

(rr) “Matson” means Shane E. Matson.

 

(ss) “Membership Interests” is defined in the recitals.

 

(tt) “NG” means Nadel and Gussman, LLC.

 

(uu) “OL&C” is defined in Section 9(j)(i).

 

(vv) “Ordinary Course of Business” means in the ordinary course of business
consistent with past custom and practice.

 

(ww) “Party” and “Parties” shall have the meaning provided in the introductory
paragraph.

 

35

 

 

(xx) “Pension Plan(s)” means any “employee pension benefit plan as such term is
defined in Section 3(2) of ERISA (whether or not covered by Section 3(20 of
ERISA).

 

(yy) “Performance Deposit” shall have the meaning set forth in Section 2(b).

 

(zz) “Permit” shall have the meaning set forth in Section 5(f).

 

(aaa) “Permitted Encumbrances” means, with respect to any Asset, any and all of
the following, in regard to (i), (ii) and (iii) below only insofar as such were
in effect on or before the Effective Date (whether or not filed of record): (i)
royalties, overriding royalties, production payments, reversionary interests,
convertible interests, net profits interests and similar burdens encumbering an
Asset; (ii) consents to assignment and similar contractual provisions affecting
transfer of the Asset, provided that such consents, if applicable, have been
obtained prior to Closing; (iii) preferential rights to purchase and similar
contractual provisions affecting the Asset, provided that such preferential
rights, if applicable, have expired or been waived prior to Closing; (iv) rights
reserved to or vested in a governmental authority having jurisdiction to control
or regulate the Asset, and all applicable Laws of such governmental authorities;
(v) easements, rights-of-way, servitudes, sub-surface leases, equipment,
pipelines, and utility lines on, over and through the Asset, provided that they
do not materially interfere with the operation of the Asset in the manner such
operations were conducted as of the Closing; (vi) terms and conditions of
unitization, communitization, and pooling agreements, and any other similar
agreements affecting the Asset; (vii) terms and conditions of governmental
licenses and Permits affecting the Asset; (viii) Liens for Taxes or assessments
not yet delinquent or, if delinquent, being contested in good faith in the
Ordinary Course of Business; (ix) Liens of operators, mechanics and materialmen
relating to obligations not yet delinquent or, if delinquent, being contested in
good faith in the Ordinary Course of Business; (x) Liens created by surface
owners that do not materially interfere with the use or ownership of the Assets;
(xi) zoning Laws, restrictions, surface usage covenants and restrictions, and
building and other land use Laws; and (xii) all other Liens, contracts,
obligations, defects and irregularities affecting the Assets, provided that the
cumulative effect of such items does not materially interfere with the
ownership, operation, value or use of the Asset affected thereby and that would
not be considered material when applying general standards in the oil and gas
industry.

 

(bbb) “Person” means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or governmental authority.

 

(ccc) “Phase I Environmental Assessment” means an assessment of the Company’s
compliance with Environmental Laws consisting of examination of the Company’s
files and public documents, interviews of personnel of the Company and of other
appropriate persons, visual inspection of Company’s property, and NORM and
asbestos surveys.

 

(ddd) “Preliminary Adjusted Purchase Price” is defined in Section 2(c)(vii).

 

36

 

 

(eee) “Preliminary Settlement Statement” is defined in Section 2(c)(vii).

 

(fff) “Proceeding” is defined in Section 5(i).

 

(ggg) “Property Costs” is defined in Section 2(c)(i)(A).

 

(hhh) “Prospect Interests” mean all the lands depicted on Exhibit D.

 

(iii) “Purchaser” is defined in the introductory paragraph.

 

(jjj) “Purchaser’s Closing Certificate” is defined in Section 10(c)(ii).

 

(kkk) “Purchaser Indemnified Parties” is defined in Section 13(b).

 

(lll) “Records” is defined in Section 7.

 

(mmm) “Reed Litigation” is defined in Section 9(j)(ii).

 

(nnn) “Release” means any release, disposal, discharge, injection, spill, leak,
pumping, dumping, emission, escape, dispersal, leaching, migration or placing
into, through or upon the environment, including any land, soil, surface water,
ground water or air.

 

(ooo) “Respondent” is defined in Section 15(f).

 

(ppp) “Retained Liabilities” means all Losses arising out of, incident to or in
connection with the ownership, operation, use, exploitation or maintenance of
any of the Excluded Assets and, except as provided in Section 9(j), all costs,
expenses and liabilities relating in any way to the matters set forth on
Schedule 5(i).

 

(qqq) “Securities Act” is defined in Section 6(g)(ii).

 

(rrr) “Sellers” is defined in the introductory paragraph.

 

(sss) “Seller Indemnified Parties” is defined in Section 13(d).

 

(ttt) “Seller’s Closing Certificate” is defined in Section 10(b)(ii).

 

(uuu) “Sharing Ratio” shall be as set forth in Exhibit A.

 

(vvv) “Surviving Covenants” is defined in Section 12.

 

(www) “Tax” or “Taxes” means any and all taxes, including any interest, fines,
penalties or other additions to tax that may become payable in respect thereof,
imposed by any federal, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes, payroll
and employee withholding taxes, unemployment insurance taxes, social security
taxes, severance taxes, license charges, taxes on stock, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers’ compensation and other obligations
of the same or of a similar nature to any of the foregoing.

 

37

 

 

(xxx) “Tax Proceeding” is defined in Section 9(h).

 

(yyy) “Tax Return” means any report, return (including any information return),
declaration, statement, bill, schedule, claim for refund or written information
required to be supplied to a federal, state, local or foreign taxing authority
in connection with Taxes, including any amendments thereof or any schedule or
attachment thereto.

 

(zzz) “Transition Services Agreement” is defined in Section 9(a).

 

(aaaa) “Welfare Plan(s)” means any employee welfare benefit plan” as such term
is defined in Section 3(1) of ERISA (whether or not covered by Section 3(1) of
ERISA).

 

(bbbb) “Wells” means all wells for the purpose of discovering or producing
Hydrocarbons or disposing of fluids produced in connection with the production
of Hydrocarbons located on the Leases, including the Wells described on Exhibit
B.

 

[Signatures Appear On Following Pages]

 

38

 

 

IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as of
the date first set forth above.

 

PURCHASER: BANDOLIER ENERGY, LLC       By: /s/ Shane E. Matson   Name: Shane E.
Matson   Title: President

 

SELLERS: NADEL AND GUSSMAN, LLC         By: Nadel and Gussman Management, LLC,  
  Its Manager

 

  By: /s/ James F. Adelson     James F. Adelson, Manager

 

    /s/ Charles Wickstrom     CHARLES W. WICKSTROM

 

    /s/ Shane E. Matson     SHANE E.MATSON

 

COMPANY: SPYGLASS ENERGY GROUP, LLC         By: Nadel and Gussman Management,
LLC,     its Manager

 

  By: /s/ James F. Adelson     James F. Adelson, Manager

 

39