MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

between

 

Donald A. Kessel,

 

Robert B. Foss,

 

and

 

U.S. Energy Corp.

 

dated as of

 

March 1, 2020

 

 

 

 

TABLE OF CONTENTS

 

Article I   DEFINITIONS 1         Article II   PURCHASE AND SALE 7 Section 2.01.
  Purchase and Sale 7 Section 2.02.   Purchase Price 7 Section 2.03.  
Transactions to be Effected at the Closing 8 Section 2.04.   Closing 8        
Article III   REPRESENTATIONS AND WARRANTIES OF SELLER 9 Section 3.01.  
Authority of Seller 9 Section 3.02.   Organization, Authority and Qualification
of the Company 9 Section 3.03.   Capitalization 9 Section 3.04.   No
Subsidiaries 10 Section 3.05.   No Conflicts; Consents 10 Section 3.06.  
Financial Statements 10 Section 3.07.   Liabilities 10 Section 3.08.   Absence
of Certain Changes, Events, and Conditions 11 Section 3.09.   Material Contracts
11 Section 3.10.   Title to Assets; Real Property 12 Section 3.11.   Condition
and Sufficiency of Assets 13 Section 3.12.   Intellectual Property 13 Section
3.13.   Inventory 13 Section 3.14.   Accounts Receivable 14 Section 3.15.  
Customers 14 Section 3.16.   Insurance 14 Section 3.17.   Legal Proceedings;
Governmental Orders 15 Section 3.18.   Compliance With Laws; Permits 15 Section
3.19.   Environmental Matters 15 Section 3.20.   Employee Matters 17 Section
3.21.   Taxes 17 Section 3.22.   Books and Records 19 Section 3.23.   Brokers 19
Section 3.24.   Accredited Investor; Investment Intent 19 Section 3.25.   Merits
and Risks of an Investment in the Issued Shares 20 Section 3.26.   Full
Disclosure 20         Article IV   REPRESENTATIONS AND WARRANTIES OF BUYER 20
Section 4.01.   Organization and Authority of Buyer 20 Section 4.02.   No
Conflicts; Consents 20 Section 4.03.   Investment Purpose 21 Section 4.04.  
Brokers 21 Section 4.05.   Legal Proceedings 21         Article V   COVENANTS 21
Section 5.01.   Confidentiality 21 Section 5.02.   Governmental Approvals and
Consents 22

 

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Section 5.03.   Books and Records 22 Section 5.04.   Release 22 Section 5.05.  
Further Assurances 22         Article VI   TAX MATTERS 23 Section 6.01.   Tax
Covenants 23 Section 6.02.   Termination of Existing Tax Sharing Agreements 23
Section 6.03.   Tax Indemnification 23 Section 6.04.   Straddle Period 24
Section 6.05.   Contests 24 Section 6.06.   Cooperation and Exchange of
Information 24 Section 6.07.   Tax Treatment of Indemnification Payments 25
Section 6.08.   Payments to Buyer 25 Section 6.09.   Survival 25 Section 6.10.  
Overlap 25         Article VII   CONDITIONS TO CLOSING 25 Section 7.01.  
Conditions to Obligations of All Parties 25 Section 7.02.   Conditions to
Obligations of Buyer 25 Section 7.03.   Conditions to Obligations of Seller 26  
      Article VIII   INDEMNIFICATION 26 Section 8.01.   Survival 26 Section
8.02.   Indemnification By Seller 26 Section 8.03.   Indemnification By Buyer 27
Section 8.04.   Indemnification Procedures 27 Section 8.05.   Indemnification
Payments 30 Section 8.06.   Tax Treatment of Indemnification Payments 30 Section
8.07.   Effect of Investigation 30 Section 8.08.   Exclusive Remedies 30        
Article IX   MISCELLANEOUS 30 Section 9.01.   Expenses 30 Section 9.02.  
Notices 31 Section 9.03.   Interpretation 31 Section 9.04.   Headings 31 Section
9.05.   Severability 31 Section 9.06.   Entire Agreement 32 Section 9.07.  
Successors and Assigns 32 Section 9.08.   No Third-party Beneficiaries 32
Section 9.09.   Amendment and Modification; Waiver 32 Section 9.10.   Governing
Law; Submission to Jurisdiction; Waiver of Jury Trial 32 Section 9.11.  
Specific Performance 33 Section 9.12.   Counterparts 33

 

ii

 

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

This Membership Interest Purchase Agreement (this “Agreement”), dated as of
March 1, 2020, is entered into between Donald A. Kessel, an individual, and
Robert B. Foss, an individual (collectively, “Seller”, or sometimes each is
referred to herein as “each Seller”), on the one hand, and U.S. Energy Corp., a
Wyoming corporation (“Buyer”), on the other hand.

 

RECITALS

 

WHEREAS, Seller owns all of the issued and outstanding membership interests (the
“Membership Interests”), in New Horizon Resources LLC, a North Dakota limited
liability company (the “Company”); and

 

WHEREAS, Seller wishes to sell to Buyer, and Buyer wishes to purchase from
Seller, the Membership Interests, subject to the terms and conditions set forth
herein;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

Article I
DEFINITIONS

 

The following terms have the meanings specified or referred to in this Article
I:

 

“Action” means any claim, action, cause of action, demand, lawsuit, arbitration,
inquiry, audit, notice of violation, proceeding, litigation, citation, summons,
subpoena or investigation of any nature, civil, criminal, administrative,
regulatory or otherwise, whether at law or in equity.

 

“Affiliate” of a Person means any other Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person. The term “control” (including the terms
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

 

“Agreement” has the meaning set forth in the preamble.

 

“Ancillary Documents” means the Assignment and any other agreement, document,
certificate or instrument required to be executed in connection with this
Agreement and the transactions contemplated hereby.

 

“Assignment” has the meaning set forth in Section 2.03(b)(i).

 

“Annual Financial Statements” has the meaning set forth in Section 3.06.

 

“Balance Sheet” has the meaning set forth in Section 3.06.

 

1

 

 

“Balance Sheet Date” has the meaning set forth in Section 3.06.

 

“Benefit Plan” means any pension, benefit, retirement, compensation, employment,
consulting, profit-sharing, deferred compensation, incentive, bonus, performance
award, phantom equity or other equity, change in control, retention, severance,
vacation, paid time off (PTO), medical, vision, dental, disability, welfare,
Code Section 125 cafeteria, fringe benefit and other similar agreement, plan,
policy, program or arrangement (and any amendments thereto), in each case
whether or not reduced to writing and whether funded or unfunded, including each
“employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or
not tax-qualified and whether or not subject to ERISA, which is or has been
maintained, sponsored, contributed to, or required to be contributed to by the
Company for the benefit of any current or former employee, officer, manager,
retiree, independent contractor or consultant of the Company or any spouse or
dependent of such individual, or under which the Company or any of its ERISA
Affiliates has or may have any Liability, contingent or otherwise .

 

“Business Day” means any day except Saturday, Sunday or any other day on which
commercial banks located in Houston, Texas are authorized or required by Law to
be closed for business.

 

“Buyer” has the meaning set forth in the preamble.

 

“Buyer Indemnitees” has the meaning set forth in Section 8.02.

 

“Cash Consideration” means cash in the amount of $150,000.00.

 

“CERCLA” means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.

 

“Closing” has the meaning set forth in Section 2.04.

 

“Closing Date” has the meaning set forth in Section 2.04.

 

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

 

“Common Stock Consideration” means shares of common stock of the Company, par
value $0.01 per share (“Common Stock”), in the aggregate value of $275,000.00.
For purposes of determining the number of shares of Common Stock to be included
in the Common Stock Consideration, each share of Common Stock shall be valued
based on the volume weighted average price of each share of Common Stock as
traded on the Nasdaq stock market during the 30 trading days immediately prior
to the Closing Date.

 

“Company” has the meaning set forth in the recitals.

 

“Contracts” means all contracts, leases, deeds, mortgages, licenses,
instruments, notes, commitments, undertakings, indentures, joint ventures and
all other agreements, commitments and legally binding arrangements, whether
written or oral.

 

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“Direct Claim” has the meaning set forth in Section 8.04(c).

 

“Disclosure Schedules” means the Disclosure Schedules delivered by Seller and
Buyer concurrently with the execution and delivery of this Agreement.

 

“Dollars or $” means the lawful currency of the United States.

 

“Encumbrance” means any charge, claim, community property interest, pledge,
condition, equitable interest, lien (statutory or other), option, security
interest, mortgage, easement, encroachment, right of way, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.

 

“Environmental Claim” means any Action, Governmental Order, lien, fine, penalty,
or, as to each, any settlement or judgment arising therefrom, by or from any
Person alleging liability of whatever kind or nature (including liability or
responsibility for the costs of enforcement proceedings, investigations,
cleanup, governmental response, removal or remediation, natural resources
damages, property damages, personal injuries, medical monitoring, penalties,
contribution, indemnification and injunctive relief) arising out of, based on or
resulting from: (a) the presence, Release of, or exposure to, any Hazardous
Materials; or (b) any actual or alleged non-compliance with any Environmental
Law or term or condition of any Environmental Permit.

 

“Environmental Law” means any applicable Law, and any Governmental Order or
binding agreement with any Governmental Authority: (a) relating to pollution (or
the cleanup thereof) or the protection of natural resources, endangered or
threatened species, human health or safety, or the environment (including
ambient air, soil, surface water or groundwater, or subsurface strata); or (b)
concerning the presence of, exposure to, or the management, manufacture, use,
containment, storage, recycling, reclamation, reuse, treatment, generation,
discharge, transportation, processing, production, disposal or remediation of
any Hazardous Materials. The term “Environmental Law” includes, without
limitation, the following (including their implementing regulations and any
state analogs): the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976, as
amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901
et seq.; the Federal Water Pollution Control Act of 1972, as amended by the
Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control
Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air
Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§
7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29
U.S.C. §§ 651 et seq.

 

“Environmental Notice” means any written directive, notice of violation or
infraction, or notice respecting any Environmental Claim relating to actual or
alleged non-compliance with any Environmental Law or any term or condition of
any Environmental Permit.

 

3

 

 

“Environmental Permit” means any Permit, letter, clearance, consent, waiver,
closure, exemption, decision or other action required under or issued, granted,
given, authorized by or made pursuant to Environmental Law.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations promulgated thereunder.

 

“ERISA Affiliate” means all employers (whether or not incorporated) that would
be treated together with the Company or any of its Affiliates as a “single
employer” within the meaning of Section 414 of the Code or Section 4001 of
ERISA.

 

“Financial Statements” has the meaning set forth in Section 3.06.

 

“GAAP” means United States generally accepted accounting principles in effect
from time to time.

 

“Governmental Authority” means any federal, state, local or foreign government
or political subdivision thereof, or any agency or instrumentality of such
government or political subdivision, or any self-regulated organization or other
non-governmental regulatory authority or quasi-governmental authority (to the
extent that the rules, regulations or orders of such organization or authority
have the force of Law), or any arbitrator, court or tribunal of competent
jurisdiction.

 

“Governmental Order” means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.

 

“Hazardous Materials” means: (a) any material, substance, chemical, waste,
product, derivative, compound, mixture, solid, liquid, mineral or gas, in each
case, whether naturally occurring or manmade, that is hazardous, acutely
hazardous, toxic, or words of similar import or regulatory effect under
Environmental Laws; and (b) any petroleum or petroleum-derived products, radon,
radioactive materials or wastes, asbestos in any form, lead or lead-containing
materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.

 

“Indebtedness” means, without duplication and with respect to the Company, all
(a) indebtedness for borrowed money; (b) obligations for the deferred purchase
price of property or services, (c) long or short-term obligations evidenced by
notes, bonds, debentures or other similar instruments, (d) obligations under any
interest rate, currency swap or other hedging agreement or arrangement; (e)
capital lease obligations; (f) reimbursement obligations under any letter of
credit, banker’s acceptance or similar credit transactions; (g) guarantees made
by the Company on behalf of any third party in respect of obligations of the
kind referred to in the foregoing clauses (a) through (f); and (h) any unpaid
interest, prepayment penalties, premiums, costs and fees that would arise or
become due as a result of the prepayment of any of the obligations referred to
in the foregoing clauses (a) through (g).

 

“Indemnified Party” has the meaning set forth in Section 8.04.

 

“Indemnifying Party” has the meaning set forth in Section 8.04.

 

4

 

 

“Insurance Policies” has the meaning set forth in Section 3.16.

 

“Intellectual Property” means any and all rights in, arising out of, or
associated with any of the following in any jurisdiction throughout the world:
(a) issued patents and patent applications (whether provisional or
non-provisional), including divisionals, continuations, continuations-in-part,
substitutions, reissues, reexaminations, extensions, or restorations of any of
the foregoing, and other Governmental Authority-issued indicia of invention
ownership (including certificates of invention, petty patents, and patent
utility models); (b) trademarks, service marks, brands, certification marks,
logos, trade dress, trade names, and other similar indicia of source or origin,
together with the goodwill connected with the use of and symbolized by, and all
registrations, applications for registration, and renewals of, any of the
foregoing; (c) copyrights and works of authorship, whether or not copyrightable,
and all registrations, applications for registration, and renewals of any of the
foregoing; (d) internet domain names and social media account or user names, all
associated web addresses, URLs, websites and web pages, social media sites and
pages, and all content and data thereon or relating thereto; (e) mask works, and
all registrations, applications for registration, and renewals thereof; (f)
industrial designs, and all patents, registrations, applications for
registration, and renewals thereof; (g) trade secrets, know-how, inventions
(whether or not patentable), discoveries, improvements, technology, business and
technical information, databases, data compilations and collections, tools,
methods, processes, techniques, and other confidential and proprietary
information and all rights therein; (h) computer programs, operating systems,
applications, firmware, and other code, including all source code, object code,
application programming interfaces, data files, databases, protocols,
specifications, and other documentation thereof; (i) rights of publicity; and
(j) all other intellectual or industrial property and proprietary rights.

 

“Interim Balance Sheet” has the meaning set forth in Section 3.06.

 

“Interim Balance Sheet Date” has the meaning set forth in Section 3.06.

 

“Interim Financial Statements” has the meaning set forth in Section 3.06.

 

“Knowledge of Seller or Seller’s Knowledge” or any other similar knowledge
qualification, means the actual or constructive knowledge of Seller or any
director, managing member, or manager of the Company, after due inquiry.

 

“Law” means any statute, law, ordinance, regulation, rule, code, order,
constitution, treaty, common law, judgment, decree, other requirement or rule of
law of any Governmental Authority.

 

“Liabilities” has the meaning set forth in Section 3.07.

 

“Losses” means losses, damages, liabilities, deficiencies, Actions, judgments,
interest, awards, penalties, fines, costs or expenses of whatever kind,
including reasonable attorneys’ fees and the cost of enforcing any right to
indemnification hereunder and the cost of pursuing any insurance providers;
provided, however, that “Losses” shall not include punitive damages, except to
the extent actually awarded to a Governmental Authority or other third party.

 

“Material Adverse Effect” means any event, occurrence, fact, condition or change
that is, or could reasonably be expected to become, individually or in the
aggregate, materially adverse to (a) the business, results of operations,
condition (financial or otherwise) or assets of the Company, or (b) the ability
of Seller to consummate the transactions contemplated hereby on a timely basis.

 

5

 

 

“Material Contracts” has the meaning set forth in Section 3.09(a).

 

“Material Customers” has the meaning set forth in Section 3.15(a).

 

“Membership Interests” has the meaning set forth in the recitals.

 

“Organizational Documents” means (a) in the case of a Person that is a
corporation, its articles or certificate of incorporation and its by-laws,
regulations or similar governing instruments required by the laws of its
jurisdiction of formation or organization; (b) in the case of a Person that is a
partnership, its articles or certificate of partnership, formation or
association, and its partnership agreement (in each case, limited, limited
liability, general or otherwise); (c) in the case of a Person that is a limited
liability company, its articles or certificate of formation or organization, and
its limited liability company agreement or operating agreement; and (d) in the
case of a Person that is none of a corporation, partnership (limited, limited
liability, general or otherwise), limited liability company or natural person,
its governing instruments as required or contemplated by the laws of its
jurisdiction of organization.

 

“Permits” means all permits, licenses, franchises, approvals, authorizations,
registrations, certificates, variances and similar rights obtained, or required
to be obtained, from Governmental Authorities.

 

“Permitted Encumbrances” has the meaning set forth in Section 3.10(a).

 

“Person” means an individual, corporation, partnership, joint venture, limited
liability company, Governmental Authority, unincorporated organization, trust,
association, or other entity.

 

“Post-Closing Tax Period” means any taxable period beginning after the Closing
Date and, with respect to any taxable period beginning before and ending after
the Closing Date, the portion of such taxable period beginning after the Closing
Date.

 

“Post-Closing Taxes” means Taxes of the Company for any Post-Closing Tax Period.

 

“Pre-Closing Tax Period” means any taxable period ending on or before the
Closing Date and, with respect to any taxable period beginning before and ending
after the Closing Date, the portion of such taxable period ending on and
including the Closing Date.

 

“Pre-Closing Taxes” means Taxes of the Company for any Pre-Closing Tax Period.

 

“Purchase Price” has the meaning set forth in Section 2.02.

 

“Real Property” means the real property owned, leased or subleased by the
Company, together with all buildings, structures and facilities located thereon.

 

“Release” means any actual or threatened release, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping, abandonment, disposing or allowing to escape or migrate into or through
the environment (including, without limitation, ambient air (indoor or outdoor),
surface water, groundwater, land surface or subsurface strata or within any
building, structure, facility or fixture).

 

6

 

 

“Representative” means, with respect to any Person, any and all directors,
managing members, managers, officers, employees, consultants, financial
advisors, counsel, accountants and other agents of such Person.

 

“Seller” has the meaning set forth in the preamble.

 

“Seller Indemnitees” has the meaning set forth in Section 8.03.

 

“Straddle Period” has the meaning set forth in Section 6.04.

 

“Taxes” means all federal, state, local, foreign and other income, gross
receipts, sales, use, production, ad valorem, transfer, franchise, registration,
profits, license, lease, service, service use, withholding, payroll, employment,
unemployment, estimated, excise, severance, environmental, stamp, occupation,
premium, property (real or personal), real property gains, windfall profits,
customs, duties or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest, additions or penalties with respect
thereto and any interest in respect of such additions or penalties.

 

“Tax Claim” has the meaning set forth in Section 6.05.

 

“Tax Return” means any return, declaration, report, claim for refund,
information return, or statement or other document relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.

 

“Third Party Claim” has the meaning set forth in Section 8.04(a).

 

“Transaction Expenses” means all fees and expenses incurred by the Company or
Seller at or prior to the Closing in connection with the preparation,
negotiation and execution of this Agreement and the Ancillary Documents, and the
performance and consummation of the transactions contemplated hereby and
thereby.

 

Article II
PURCHASE AND SALE

 

Section 2.01. Purchase and Sale. Subject to the terms and conditions set forth
herein, at the Closing, Seller shall sell to Buyer, and Buyer shall purchase
from Seller, all of Seller’s right, title, and interest in and to the Membership
Interests, free and clear of all Encumbrances, for the consideration specified
in Section 2.02.

 

Section 2.02. Purchase Price. The aggregate purchase price for the Membership
Interests shall be $425,000.00 (the “Purchase Price”), payable in the form of:

 

(a) the Cash Consideration and

 

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(b) the Common Stock Consideration.

 

(c) Release of Personnel Guarantees

 

Section 2.03. Transactions to be Effected at the Closing.

 

(a) At the Closing, Buyer shall deliver to Seller:

 

(i) the Cash Consideration by wire transfer of immediately available funds to an
account designated in writing by Seller;

 

(ii) the Common Stock Consideration; and

 

(iii) the Ancillary Documents required to be delivered by Buyer, if any,
including, but not limited to, any and all documentation required to achieve a
complete release of all personal guarantees provided by the Sellers in
furtherance of the business.

 

(b) At the Closing, Seller shall deliver to Buyer:

 

(i) an assignment of the Membership Interests to Buyer in form and substance
satisfactory to Buyer (the “Assignment”), duly executed by Seller;

 

(ii) written resignations, effective as of the Closing Date, of the managers of
the Company, to the extent requested by Buyer;

 

(iii) a certificate pursuant to Treasury Regulations Section 1.1445-2(b) that
Seller is not a foreign person within the meaning of Section 1445 of the Code;

 

(iv) a good standing certificate (or its equivalent) for the Company from the
secretary of state or similar Governmental Authority of the jurisdiction under
the Laws in which the Company is organized;

 

(v) any other Ancillary Documents required to be delivered by Seller; and

 

(vi) such other documents or instruments as Buyer reasonably requests and are
reasonably necessary to consummate the transactions contemplated by this
Agreement.

 

Section 2.04. Closing. Subject to the terms and conditions of this Agreement,
the purchase and sale of the Membership Interests contemplated hereby shall take
place at a closing (the “Closing”) to be held at 10:00 a.m., Houston, Texas
time, on the date hereof (the “Closing Date”), at the offices of Jackson Walker
L.L.P., 1401 McKinney Street, Suite 1900, Houston, Texas 77010, or remotely by
exchange of documents and signatures (or their electronic counterparts).

 

8

 

 

Article III
REPRESENTATIONS AND WARRANTIES OF SELLER

 

Except as set forth in the correspondingly numbered Section of the Disclosure
Schedules, each Seller, severally and jointly, represents and warrants to Buyer
that the statements contained in this Article III are true and correct as of the
date hereof.

 

Section 3.01. Authority of Seller. Each Seller is an individual. This Agreement
has been duly executed and delivered by each Seller, and (assuming due
authorization, execution, and delivery by Buyer) this Agreement constitutes a
legal, valid and binding obligation of each Seller enforceable against each
Seller in accordance with its terms. When each Ancillary Document to which each
Seller is a party has been duly executed and delivered by such Seller, such
Ancillary Document will constitute a legal and binding obligation of such Seller
enforceable against him in accordance with its terms.

 

Section 3.02. Organization, Authority and Qualification of the Company. The
Company is a limited liability company duly organized, validly existing and in
good standing under the Laws of the state of North Dakota and has full limited
liability company power and authority to own, operate or lease the properties
and assets now owned, operated or leased by it and to carry on its business as
it has been and is currently conducted. Section 3.02 of the Disclosure Schedules
sets forth each jurisdiction in which the Company is licensed or qualified to do
business, and the Company is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the properties owned or leased by it
or the operation of its business as currently conducted makes such licensing or
qualification necessary. All limited liability company actions taken by the
Company in connection with this Agreement and the other Ancillary Documents has
been duly authorized prior to the Closing.

 

Section 3.03. Capitalization.

 

(a) Seller is the record owner of and has good and valid title to the Membership
Interests, free and clear of all Encumbrances. The Membership Interests
constitute 100% of the total issued and outstanding membership interests in the
Company. The Membership Interests have been duly authorized and are validly
issued, fully-paid and non-assessable. Upon consummation of the transactions
contemplated by this Agreement, Buyer shall own all of the Membership Interests,
free and clear of all Encumbrances.

 

(b) The Membership Interests were issued in compliance with applicable Laws. The
Membership Interests were not issued in violation of the Organizational
Documents of the Company or any other agreement, arrangement, or commitment to
which Seller or the Company is a party and are not subject to or in violation of
any preemptive or similar rights of any Person.

 

(c) There are no outstanding or authorized options, warrants, convertible
securities or other rights, agreements, arrangements or commitments of any
character relating to any membership interests in the Company or obligating
Seller or the Company to issue or sell any membership interests (including the
Membership Interests), or any other interest, in the Company. Other than the
Organizational Documents, there are no voting trusts, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
any of the Membership Interests.

 

9

 

 

Section 3.04. No Subsidiaries. The Company does not own, or have any interest in
any shares or have an ownership interest in any other Person as defined in the
definitions.

 

Section 3.05. No Conflicts; Consents. The execution, delivery and performance by
Seller of this Agreement and the Ancillary Documents to which it is a party, and
the consummation of the transactions contemplated hereby and thereby, do not:
(a) conflict with or result in a violation or breach of, or default under, any
provision of the Organizational Documents of Seller or Company; (b) conflict
with or result in a violation or breach of any provision of any Law or
Governmental Order applicable to Seller or the Company; (c) require the consent,
notice or other action by any Person under, conflict with, result in a violation
or breach of, constitute a default or an event that, with or without notice or
lapse of time or both, would constitute a default under, result in the
acceleration of or create in any party the right to accelerate, terminate,
modify or cancel any Contract to which Seller or the Company is a party or by
which Seller or the Company is bound or to which any of their respective
properties and assets are subject (including any Material Contract) or any
Permit affecting the properties, assets or business of the Company; or (d)
result in the creation or imposition of any Encumbrance other than Permitted
Encumbrances on any properties or assets of the Company. No consent, approval,
Permit, Governmental Order, declaration or filing with, or notice to, any
Governmental Authority is required by or with respect to Seller or the Company
in connection with the execution and delivery of this Agreement and the
Ancillary Documents and the consummation of the transactions contemplated hereby
and thereby.

 

Section 3.06. Financial Statements. Complete copies of the Company’s annual
financial statements consisting of the balance sheet of the Company as at
December 31 in each of the years 2018 and 2019 and the related statements of
income and retained earnings, members’ equity and cash flow for the years then
ended (the “Annual Financial Statements”), and unaudited financial statements
consisting of the balance sheet of the Company as at February 29, 2020 and the
related statements of income and retained earnings, members’ equity and cash
flow for the two-month period then ended (the “Interim Financial Statements” and
together with the Annual Financial Statements, the “Financial Statements”) have
been delivered to Buyer. The Financial Statements are based on the books and
records of the Company, and fairly present the financial condition of the
Company as of the respective dates they were prepared and the results of the
operations of the Company for the periods indicated. The balance sheet of the
Company as of December 31, 2019 is referred to herein as the “Balance Sheet” and
the date thereof as the “Balance Sheet Date” and the balance sheet of the
Company as of February 28, 2020 is referred to herein as the “Interim Balance
Sheet” and the date thereof as the “Interim Balance Sheet Date.”

 

Section 3.07. Liabilities. The Company has no liabilities, obligations or
commitments of any nature whatsoever, asserted or unasserted, known or unknown,
absolute or contingent, accrued or unaccrued, matured or unmatured, or otherwise
(“Liabilities”), except (a) those which are adequately reflected or reserved
against in the Balance Sheet as of the Balance Sheet Date, and (b) those which
have been incurred in the ordinary course of business consistent with past
practice since the Balance Sheet Date and which are not, individually or in the
aggregate, material in amount. Without limiting the foregoing, as of the
Closing, (i) all accounts payable received by the Company have been outstanding
less than 60 days, (ii) the aggregate Liabilities, not including any royalty
payments held in suspense, of the Company are less than $20,000.00 and (iii) the
Company has no Indebtedness outside of its existing bank facility as disclosed
in the Disclosure Schedules.

 

10

 

 

Section 3.08. Absence of Certain Changes, Events, and Conditions. Since the
Balance Sheet Date, the Company has operated only in the ordinary course of
business consistent with past practice, and there has not been, with respect to
the Company, (i) any transfer, assignment, sale or other disposition of any of
the assets shown or reflected in the Balance Sheet or (ii) any event, occurrence
or development that has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

 

Section 3.09. Material Contracts.

 

(a) Section 3.09(a) of the Disclosure Schedules lists each of the following
Contracts of the Company (such Contracts, together with all Contracts concerning
the occupancy, management or operation of any Real Property (including without
limitation, brokerage contracts) listed or otherwise disclosed in Section
3.10(b) of the Disclosure Schedules, being “Material Contracts”):

 

(i) each Contract of the Company involving aggregate consideration in excess of
$20,000.00 in 2019;

 

(ii) all Contracts that require the Company to purchase its total requirements
of any product or service from a third party or that contain “take or pay”
provisions;

 

(iii) all Contracts that provide for the indemnification by the Company of any
Person or the assumption of any Tax, environmental or other Liability of any
Person;

 

(iv) all Contracts that relate to the acquisition or disposition of any
business, a material amount of equity or assets of any other Person or any real
property (whether by merger, sale of stock or other equity interests, sale of
assets or otherwise);

 

(v) all broker, distributor, dealer, manufacturer’s representative, franchise,
agency, sales promotion, market research, marketing consulting and advertising
Contracts to which the Company is a party;

 

(vi) except for Contracts relating to trade receivables, all Contracts relating
to indebtedness (including, without limitation, guarantees) of the Company;

 

(vii) all Contracts with any Governmental Authority to which the Company is a
party;

 

(viii) all Contracts that limit or purport to limit the ability of the Company
to compete in any line of business or with any Person or in any geographic area
or during any period of time;

 

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(ix) any Contracts to which the Company is a party that provide for any joint
venture, partnership or similar arrangement by the Company;

 

(x) all Contracts between or among the Company on the one hand and Seller or any
Affiliate of Seller (other than the Company) on the other hand; and

 

(xi) any other Contract that is material to the Company and not previously
disclosed pursuant to this Section 3.09.

 

(b) Each Material Contract is valid and binding on the Company in accordance
with its terms and is in full force and effect. None of the Company or, to
Seller’s Knowledge, any other party thereto is in breach of or default under (or
is alleged to be in breach of or default under), or has provided or received any
notice of any intention to terminate, any Material Contract. No event or
circumstance has occurred that, with notice or lapse of time or both, would
constitute an event of default under any Material Contract or result in a
termination thereof or would cause or permit the acceleration or other changes
of any right or obligation or the loss of any benefit thereunder. Complete and
correct copies of each Material Contract (including all modifications,
amendments, and supplements thereto and waivers thereunder) have been made
available to Buyer.

 

Section 3.10. Title to Assets; Real Property.

 

(a) The Company has good and valid (and, in the case of owned Real Property,
good and marketable fee simple) title to, or a valid leasehold interest in, (i)
all Real Property and personal property and other assets reflected in the Annual
Financial Statements or acquired after the Balance Sheet Date, other than
properties and assets sold or otherwise disposed of in the ordinary course of
business consistent with past practice since the Balance Sheet Date, and (ii)
the assets set forth on Section 3.10(a) of the Disclosure Schedules. All such
properties and assets (including leasehold interests) are free and clear of
Encumbrances except for the following (collectively referred to as “Permitted
Encumbrances”):

 

(i) liens for Taxes not yet due and payable;

 

(ii) mechanics, carriers’, workmen’s, repairmen’s or other like liens arising or
incurred in the ordinary course of business consistent with past practice or
amounts that are not delinquent and which are not, individually or in the
aggregate, material to the business of the Company;

 

(iii) easements, rights of way, zoning ordinances and other similar encumbrances
affecting Real Property which are not, individually or in the aggregate,
material to the business of the Company; or

 

(iv) other than with respect to owned Real Property, liens arising under
original purchase price conditional sales contracts and equipment leases with
third parties entered into in the ordinary course of business consistent with
past practice which are not, individually or in the aggregate, material to the
business of the Company.

 

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(v) Liens created under mortgages and similar instruments by the Company’s
existing bank facility as disclosed in the Disclosure Schedules.

 

(b) Section 3.10(b) of the Disclosure Schedules sets forth a description and the
location of each well in which the Company has an interest. With respect to
owned Real Property, Seller has delivered or made available to Buyer true,
complete and correct copies of the deeds and other instruments (as recorded) by
which the Company acquired such Real Property, and copies of all title insurance
policies, opinions, abstracts and surveys in the possession of Seller or the
Company and relating to the Real Property. With respect to leased Real Property,
Seller has delivered or made available to Buyer true, complete and correct
copies of any leases affecting the Real Property. The Company is not a sublessor
or grantor under any sublease or other instrument granting to any other Person
any right to the possession, lease, occupancy, or enjoyment of any leased Real
Property. The use and operation of the Real Property in the conduct of the
Company’s business do not violate in any material respect any Law, covenant,
condition, restriction, easement, license, permit or agreement. No material
improvements constituting a part of the Real Property encroach on real property
owned or leased by a Person other than the Company. There are no Actions pending
nor, to the Seller’s Knowledge, threatened against or affecting the Real
Property or any portion thereof or interest therein in the nature or in lieu of
condemnation or eminent domain proceedings.

 

Section 3.11. Condition and Sufficiency of Assets. The buildings, plants,
structures, furniture, fixtures, machinery, equipment, vehicles and other items
of tangible personal property of the Company are structurally sound, are in good
operating condition and repair, and are adequate for the uses to which they are
being put, and none of such buildings, plants, structures, furniture, fixtures,
machinery, equipment, vehicles and other items of tangible personal property is
in need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The buildings, plants,
structures, furniture, fixtures, machinery, equipment, vehicles and other items
of tangible personal property currently owned or leased by the Company, together
with all other properties and assets of the Company, are sufficient for the
continued conduct of the Company’s business after the Closing in substantially
the same manner as conducted prior to the Closing and constitute all of the
rights, property and assets necessary to conduct the business of the Company as
currently conducted.

 

Section 3.12. Intellectual Property. The Company does not own or license any
Intellectual Property.

 

Section 3.13. Inventory. All inventory of the Company, whether or not reflected
in the Balance Sheet, consists of a quality and quantity usable and salable in
the ordinary course of business consistent with past practice, except for
obsolete, damaged, defective or slow-moving items that have been written off or
written down to fair market value or for which adequate reserves have been
established. All such inventory is owned by the Company free and clear of all
Encumbrances, and no inventory is held on a consignment basis. The quantities of
each item of inventory (whether raw materials, work-in-process or finished
goods) are not excessive, but are reasonable in the present circumstances of the
Company.

 

13

 

 

Section 3.14. Accounts Receivable. The accounts receivable reflected on the
Interim Balance Sheet and the accounts receivable arising after the date thereof
(a) have arisen from bona fide transactions entered into by the Company
involving the sale of goods or the rendering of services in the ordinary course
of business consistent with past practice; (b) constitute only valid, undisputed
claims of the Company not subject to claims of set-off or other defenses or
counterclaims other than normal cash discounts accrued in the ordinary course of
business consistent with past practice; and (c) subject to a reserve for bad
debts shown on the Interim Balance Sheet or, with respect to accounts receivable
arising after the Interim Balance Sheet Date, on the accounting records of the
Company, are collectible in full within 90 days after billing. The reserve for
bad debts shown on the Interim Balance Sheet or, with respect to accounts
receivable arising after the Interim Balance Sheet Date, on the accounting
records of the Company have been determined in accordance with GAAP,
consistently applied, subject to normal year-end adjustments and the absence of
disclosures normally made in footnotes.

 

Section 3.15. Customers

 

(a) Section 3.15(a) of the Disclosure Schedules sets forth (i) each customer who
has paid aggregate consideration to the Company for goods or services rendered
in an amount greater than or equal to $25,000.00 for either of the two most
recent fiscal years (collectively, the “Material Customers”); and (ii) the
amount of consideration paid by each Material Customer during such periods. The
Company has not received any notice, and has no reason to believe, that any of
its Material Customers has ceased, or intends to cease after the Closing, to use
its goods or services or to otherwise terminate or materially reduce its
relationship with the Company.

 

Section 3.16. Insurance. Section 3.16 of the Disclosure Schedules sets forth a
true and complete list of all current policies or binders of fire, liability,
product liability, umbrella liability, real and personal property, workers’
compensation, vehicular, directors’ and officers’ liability, fiduciary liability
and other casualty and property insurance maintained by Seller or its Affiliates
(including the Company) and relating to the assets, business, operations,
employees, officers and managers of the Company (collectively, the “Insurance
Policies”) and true and complete copies of such Insurance Policies have been
made available to Buyer. Such Insurance Policies are in full force and effect
and shall remain in full force and effect following the consummation of the
transactions contemplated by this Agreement. Neither the Seller nor any of its
Affiliates (including the Company) has received any written notice of
cancellation of, premium increase with respect to, or alteration of coverage
under, any of such Insurance Policies. All premiums due on such Insurance
Policies have either been paid or, if due and payable prior to Closing, will be
paid prior to Closing in accordance with the payment terms of each Insurance
Policy. The Insurance Policies do not provide for any retrospective premium
adjustment or other experience-based liability on the part of the Company. All
such Insurance Policies (a) are valid and binding in accordance with their
terms; (b) are provided by carriers who are financially solvent; and (c) have
not been subject to any lapse in coverage. There are no claims related to the
business of the Company pending under any such Insurance Policies as to which
coverage has been questioned, denied or disputed or in respect of which there is
an outstanding reservation of rights. None of Seller or any of its Affiliates
(including the Company) is in default under, or has otherwise failed to comply
with, in any material respect, any provision contained in any such Insurance
Policy. The Insurance Policies are of the type and in the amounts customarily
carried by Persons conducting a business similar to the Company and are
sufficient for compliance with all applicable Laws and Contracts to which the
Company is a party or by which it is bound.

 

14

 

 

Section 3.17. Legal Proceedings; Governmental Orders.

 

(a) There are no Actions pending or, to Seller’s Knowledge, threatened (a)
against or by the Company affecting any of its properties or assets (or by or
against Seller or any Affiliate thereof and relating to the Company); or (b)
against or by the Company, Seller or any Affiliate of Seller that challenges or
seeks to prevent, enjoin or otherwise delay the transactions contemplated by
this Agreement. No event has occurred or circumstances exist that may give rise
to, or serve as a basis for, any such Action.

 

(b) There are no outstanding Governmental Orders and no unsatisfied judgments,
penalties or awards against or affecting the Company or any of its properties or
assets.

 

Section 3.18. Compliance With Laws; Permits.

 

(a) The Company has complied, and is now complying, with all Laws applicable to
it or its business, properties or assets.

 

(b) All Permits required for the Company to conduct its business have been
obtained by it and are valid and in full force and effect. All fees and charges
with respect to such Permits as of the date hereof have been paid in full.
Section 3.18(b) of the Disclosure Schedules lists all current Permits issued to
the Company, including the names of the Permits and their respective dates of
issuance and expiration. No event has occurred that, with or without notice or
lapse of time or both, would reasonably be expected to result in the revocation,
suspension, lapse or limitation of any Permit set forth in Section 3.18(b) of
the Disclosure Schedules.

 

Section 3.19. Environmental Matters.

 

(a) The Company is currently and has been in compliance with all Environmental
Laws and has not, and the Seller has not, received from any Person any: (i)
Environmental Notice or Environmental Claim; or (ii) written request for
information pursuant to Environmental Law, which, in each case, either remains
pending or unresolved, or is the source of ongoing obligations or requirements
as of the Closing Date.

 

(b) The Company has obtained and is in material compliance with all
Environmental Permits (each of which is disclosed in Section 3.19(b) of the
Disclosure Schedules) necessary for the ownership, lease, operation or use of
the business or assets of the Company and all such Environmental Permits are in
full force and effect and shall be maintained in full force and effect by Seller
through the Closing Date in accordance with Environmental Law, and neither
Seller nor the Company is aware of any condition, event or circumstance that
might prevent or impede, after the Closing Date, the ownership, lease, operation
or use of the business or assets of the Company as currently carried out. With
respect to any such Environmental Permits, Seller has undertaken all measures
necessary to facilitate transferability of the same, and neither the Company nor
the Seller is aware of any condition, event or circumstance that might prevent
or impede the transferability of the same, nor have they received any
Environmental Notice or written communication regarding any material adverse
change in the status or terms and conditions of the same.

 

15

 

 

(c) No real property currently owned, operated or leased by the Company is
listed on, or has been proposed for listing on, the National Priorities List (or
CERCLIS) under CERCLA, or any similar state list.

 

(d) Except as disclosed, there has been no Release of Hazardous Materials in
contravention of Environmental Law with respect to the business or assets of the
Company or any real property currently owned, operated or leased by the Company,
and neither the Company nor Seller has received an Environmental Notice that any
real property currently owned, operated or leased in connection with the
business of the Company (including soils, groundwater, surface water, buildings
and other structure located on any such real property) has been contaminated
with any Hazardous Material which could reasonably be expected to result in an
Environmental Claim against, or a violation of Environmental Law or term of any
Environmental Permit by, Seller or the Company.

 

(e) Section 3.19(e) of the Disclosure Schedules contains a complete and accurate
list of all active storage tanks owned or operated by the Company or located on
or in the Real Property.

 

(f) Section 3.19(f) of the Disclosure Schedules contains a complete and accurate
list of all off-site Hazardous Materials treatment, storage, or disposal
facilities or locations used by the Company or Seller and any predecessors as to
which the Company or Seller may retain liability, and none of these facilities
or locations has been placed or proposed for placement on the National
Priorities List (or CERCLIS) under CERCLA, or any similar state list, and
neither Seller nor the Company has received any Environmental Notice regarding
potential liabilities with respect to such off-site Hazardous Materials
treatment, storage, or disposal facilities or locations used by the Company or
Seller.

 

(g) Neither Seller nor the Company has retained or assumed, by contract or
operation of Law, any liabilities or obligations of third parties under
Environmental Law.

 

(h) Seller has provided or otherwise made available to Buyer and listed in
Section 3.19(h) of the Disclosure Schedules: (i) any and all environmental
reports, studies, audits, records, sampling data, site assessments, risk
assessments, economic models and other similar documents with respect to the
business or assets of the Company or any currently owned, operated or leased
real property which are in the possession or control of the Seller or Company
related to compliance with Environmental Laws, Environmental Claims or an
Environmental Notice or the Release of Hazardous Materials; and (ii) any and all
material documents concerning planned or anticipated capital expenditures
required to reduce, offset, limit or otherwise control pollution and/or
emissions, manage waste or otherwise ensure compliance with current or future
Environmental Laws (including, without limitation, costs of remediation,
pollution control equipment and operational changes).

 

16

 

 

(i) Neither the Seller nor the Company is aware of or reasonably anticipates any
condition, event or circumstance concerning the Release or regulation of
Hazardous Materials that might, after the Closing Date, prevent, impede or
materially increase the costs associated with the ownership, lease, operation,
performance or use of the business or assets of the Company as currently carried
out.

 

Section 3.20. Employee Matters. The Company has no, and has never had or engaged
any employees has never had any, Benefit Plan or any Liability under any Benefit
Plan.

 

Section 3.21. Taxes.

 

(a) All Tax Returns required to be filed on or before the Closing Date by the
Company have been timely filed. Such Tax Returns are true, complete and correct
in all respects. All Taxes due and owing by the Company (whether or not shown on
any Tax Return) have been timely paid.

 

(b) The Company has withheld and paid each Tax required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, customer, member or other party, and complied with all
information reporting and backup withholding provisions of applicable Law.

 

(c) No claim has been made by any taxing authority in any jurisdiction where the
Company does not file Tax Returns that it is, or may be, subject to Tax by that
jurisdiction.

 

(d) No extensions or waivers of statutes of limitations have been given or
requested with respect to any Taxes of the Company.

 

(e) The amount of the Company’s Liability for unpaid Taxes for all periods
ending on or before February 29, 2020 does not, in the aggregate, exceed the
amount of accruals for Taxes (excluding reserves for deferred Taxes) reflected
on the Financial Statements. The amount of the Company’s Liability for unpaid
Taxes for all periods following the end of the recent period covered by the
Financial Statements shall not, in the aggregate, exceed the amount of accruals
for Taxes (excluding reserves for deferred Taxes) as adjusted for the passage of
time in accordance with the past custom and practice of the Company (and which
accruals shall not exceed comparable amounts incurred in similar periods in
prior years).

 

(f) Section 3.21(f) of the Disclosure Schedules sets forth:

 

(i) the taxable years of the Company as to which the applicable statutes of
limitations on the assessment and collection of Taxes have not expired;

 

(ii) those years for which examinations by the taxing authorities have been
completed; and

 

(iii) those taxable years for which examinations by taxing authorities are
presently being conducted.

 

17

 

 

(g) All deficiencies asserted, or assessments made, against the Company as a
result of any examinations by any taxing authority have been fully paid.

 

(h) The Company is not a party to any Action by any taxing authority. There are
no pending or threatened Actions by any taxing authority.

 

(i) Seller has delivered to Buyer copies of all federal, state, local, and
foreign income, franchise and similar Tax Returns, examination reports, and
statements of deficiencies assessed against, or agreed to by, the Company for
all Tax periods ending on or after December 31, 2017.

 

(j) There are no Encumbrances for Taxes (other than for current Taxes not yet
due and payable) upon the assets of the Company.

 

(k) The Company is not a party to, or bound by, any Tax indemnity, Tax sharing
or Tax allocation agreement.

 

(l) No private letter rulings, technical advice memoranda or similar agreement
or rulings have been requested, entered into, or issued by any taxing authority
with respect to the Company.

 

(m) The Company has not been a member of an affiliated, combined, consolidated
or unitary Tax group for Tax purposes. The Company has no Liability for Taxes of
any Person (other than the Company) under Treasury Regulations Section 1.1502-6
(or any corresponding provision of state, local or foreign Law), as transferee
or successor, by contract or otherwise.

 

(n) Effective on the date of formation, the Company made a valid and timely
election to be treated as a partnership for US federal income tax purposes and
has been so treated in all Tax years since the date of formation.

 

(o) The Company will not be required to include any item of income in, or
exclude any item or deduction from, taxable income for any taxable period or
portion thereof ending after the Closing Date as a result of:

 

(i) any change in a method of accounting under Section 481 of the Code (or any
comparable provision of state, local or foreign Tax Laws), or use of an improper
method of accounting, for a taxable period ending on or prior to the Closing
Date;

 

(ii) an installment sale or open transaction occurring on or prior to the
Closing Date;

 

(iii) a prepaid amount received on or before the Closing Date;

 

(iv) any closing agreement under Section 7121 of the Code, or similar provision
of state, local or foreign Law; or

 

18

 

 

(v) any election under Section 108(i) of the Code.

 

(p) Seller is not a “foreign person” as that term is used in Treasury
Regulations Section 1.1445-2. The Company is not, nor has it been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(a) of the
Code.

 

(q) The Company has not been a “distributing corporation” or a “controlled
corporation” in connection with a distribution described in Section 355 of the
Code.

 

(r) The Company is not, and has not been, a party to, or a promoter of, a
“reportable transaction” within the meaning of Section 6707A(c)(1) of the Code
and Treasury Regulations Section 1.6011-4(b).

 

(s) There is currently no limitation on the utilization of net operating losses,
capital losses, built-in losses, tax credits or similar items of the Company
under Sections 269, 382, 383, 384 or 1502 of the Code and the Treasury
Regulations thereunder (and comparable provisions of state, local or foreign
Law).

 

Section 3.22. Books and Records. The minute books of the Company have been made
available to Buyer, are complete and correct, and have been maintained in
accordance with sound business practices. The minute books of the Company
contain accurate and complete records of all meetings, and actions taken by
written consent of, the members and the managers, and no meeting, or action
taken by written consent, of any such members or managers has been held for
which minutes have not been prepared and are not contained in such minute books.
At the Closing, all of those books and records will be in the possession of the
Company.

 

Section 3.23. Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement or any Ancillary Document based upon
arrangements made by or on behalf of Seller.

 

Section 3.24. Accredited Investor; Investment Intent. Each Seller is an
“accredited investor,” as such term is defined in Regulation D of the Securities
Act of 1933, as amended (the “Securities Act”). Each Seller hereby acknowledges
that the shares of Common Stock included within the Common Stock Consideration
(the “Issued Shares”) are not registered under the Securities Act or registered
or qualified for sale under any applicable securities Law of the United States
or any other country or any state or province of the United States or any other
country. Each Seller is acquiring the Issued Shares for its own account and not
with a view towards distribution of the Issued Shares, in whole or in part, or
of any interest in the Issued Shares, to any other Person, whether by public
distribution or otherwise, in violation of the Securities Act, any applicable
state blue sky Laws or any other applicable securities Laws. Each Seller has
sufficient knowledge and experience in financial and business matters to enable
it to evaluate the risks of investment in the Issued Shares and has the ability
to bear the economic risks of such investment.

 

Section 3.25. Merits and Risks of an Investment in the Issued Shares. Each
Seller understands and acknowledges that: (A) an investment in the Buyer
involves certain risks, (B) neither the Buyer nor any other Person has made any
representation regarding the current or future value of the Buyer or the Issued
Shares, (C) neither the United States Securities and Exchange Commission nor any
federal, state or foreign agency has passed upon the Issued Shares or made any
findings or determination as to the fairness of an investment in the Buyer
through the Issued Shares or the accuracy or adequacy of the disclosures made to
the Sellers, and (D) no representation, warranty or promise has been made
concerning the liquidity or marketability of the Issued Shares.

 

19

 

 

Section 3.26. Full Disclosure. No representation or warranty by Seller in this
Agreement and no statement contained in the Disclosure Schedules to this
Agreement or any certificate or other document furnished or to be furnished to
Buyer pursuant to this Agreement contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained therein, in light of the circumstances in which they are made, not
misleading.

 

Article IV
REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer represents and warrants to Seller that the statements contained in this
Article IV are true and correct as of the date hereof.

 

Section 4.01. Organization and Authority of Buyer. Buyer is a corporation duly
organized, validly existing and in good standing under the Laws of the state of
Wyoming. Buyer has full corporate power and authority to enter into this
Agreement and the Ancillary Documents to which Buyer is a party, to carry out
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Buyer of this
Agreement and any Ancillary Document to which Buyer is a party, the performance
by Buyer of its obligations hereunder and thereunder and the consummation by
Buyer of the transactions contemplated hereby and thereby have been duly
authorized by all requisite corporate action on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer, and (assuming due
authorization, execution, and delivery by Seller) this Agreement constitutes a
legal, valid, and binding obligation of Buyer enforceable against Buyer in
accordance with its terms. When each Ancillary Document to which Buyer is or
will be a party has been duly executed and delivered by Buyer (assuming due
authorization, execution and delivery by each other party thereto), such
Ancillary Document will constitute a legal and binding obligation of Buyer
enforceable against it in accordance with its terms.

 

Section 4.02. No Conflicts; Consents. The execution, delivery and performance by
Buyer of this Agreement and the Ancillary Documents to which it is a party, and
the consummation of the transactions contemplated hereby and thereby, do not and
will not: (a) conflict with or result in a violation or breach of, or default
under, any provision of the Organizational Documents of Buyer; (b) conflict with
or result in a violation or breach of any provision of any Law or Governmental
Order applicable to Buyer; or (c) require the consent, notice or other action by
any Person under any Contract to which Buyer is a party. No consent, approval,
Permit, Governmental Order, declaration or filing with, or notice to, any
Governmental Authority is required by or with respect to Buyer in connection
with the execution and delivery of this Agreement and the Ancillary Documents
and the consummation of the transactions contemplated hereby and thereby.

 

20

 

 

Section 4.03. Investment Purpose. Buyer is acquiring the Membership Interests
solely for its own account for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution thereof. Buyer
acknowledges that the Membership Interests are not registered under the
Securities Act, or any state securities laws, and that the Membership Interests
may not be transferred or sold except pursuant to the registration provisions of
the Securities or pursuant to an applicable exemption therefrom and subject to
state securities laws and regulations, as applicable.

 

Section 4.04. Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement or any Ancillary Document based upon
arrangements made by or on behalf of Buyer.

 

Section 4.05. Legal Proceedings. There are no Actions pending or, to Buyer’s
knowledge, threatened against or by Buyer or any Affiliate of Buyer that
challenge or seek to prevent, enjoin or otherwise delay the transactions
contemplated by this Agreement.

 

Article V
COVENANTS

 

Section 5.01. Confidentiality. Unless otherwise required by applicable Law or
stock exchange requirements, no party to this Agreement shall make any public
announcements in respect of this Agreement or the transactions contemplated
hereby or otherwise communicate with any news media without the prior written
consent of the other party (which consent shall not be unreasonably withheld,
conditioned or delayed). From and after the Closing, Seller shall, and shall
cause its Affiliates to, hold, and shall use its reasonable best efforts to
cause its or their respective Representatives to hold, in confidence any and all
information, whether written or oral, concerning the Company, except to the
extent that Seller can show that such information (a) is generally available to
and known by the public through no fault of Seller, any of its Affiliates or
their respective Representatives; or (b) is lawfully acquired by Seller, any of
its Affiliates or their respective Representatives from and after the Closing
from sources which are not prohibited from disclosing such information by a
legal, contractual or fiduciary obligation. If Seller or any of its Affiliates
or their respective Representatives are compelled to disclose any information by
judicial or administrative process or by other requirements of Law, Seller shall
promptly notify Buyer in writing and shall disclose only that portion of such
information which Seller is advised by its counsel in writing is legally
required to be disclosed, provided that Seller shall use reasonable best efforts
to obtain an appropriate protective order or other reasonable assurance that
confidential treatment will be accorded such information.

 

Section 5.02. Governmental Approvals and Consents.

 

(a) Each party hereto shall, as promptly as possible, (i) make, or cause or be
made, all filings and submissions required under any Law applicable to such
party or any of its Affiliates; and (ii) use reasonable best efforts to obtain,
or cause to be obtained, all consents, authorizations, orders and approvals from
all Governmental Authorities that may be or become necessary for its execution
and delivery of this Agreement and the performance of its obligations pursuant
to this Agreement and the Ancillary Documents. Each party shall cooperate fully
with the other party and its Affiliates in promptly seeking to obtain all such
consents, authorizations, orders, and approvals. The parties hereto shall not
willfully take any action that will have the effect of delaying, impairing or
impeding the receipt of any required consents, authorizations, orders and
approvals.

 

21

 

 

(b) If any consent, approval, or authorization necessary to preserve any right
or benefit under any Contract to which the Company is a party is not obtained
prior to the Closing, Seller shall, subsequent to the Closing, cooperate with
Buyer and the Company in attempting to obtain such consent, approval or
authorization as promptly thereafter as practicable. If such consent, approval
or authorization cannot be obtained, Seller shall use its reasonable best
efforts to provide the Company with the rights and benefits of the affected
Contract for the term thereof, and, if Seller provides such rights and benefits,
the Company shall assume all obligations and burdens thereunder.

 

Section 5.03. Books and Records. In order to facilitate the resolution of any
claims made by or against or incurred by Buyer or the Company after the Closing,
or for any other reasonable purpose, for a period of three years following the
Closing, Seller shall:

 

(a) retain the books and records (including personnel files) of Seller which
relate to the Company and its operations for periods prior to the Closing; and

 

(b) upon reasonable notice, afford the Representatives of Buyer or the Company
reasonable access (including the right to make, at Buyer’s expense,
photocopies), during normal business hours, to such books and records;

 

provided, however, that any books and records related to Tax matters shall be
retained pursuant to the periods set forth in Article VI.

 

Section 5.04. Release. Each Seller, on behalf of itself and its Affiliates,
hereby unconditionally and irrevocably releases and forever discharges,
effective as of the Closing, to the fullest extent applicable Law permits, the
Company from any and all debts, liabilities, obligations, claims, demands,
Actions or causes of action, suits, judgments or controversies of any kind
whatsoever based on any agreement or understanding or act or failure to act
(including any act or failure to act that constitutes ordinary or gross
negligence or reckless or willful, wanton misconduct), misrepresentation,
omission, transaction, fact, event or other matter occurring prior to the
Closing (whether at law or in equity or otherwise, foreseen or unforeseen,
matured or unmatured, known or unknown, accrued or not accrued).

 

Section 5.05. Further Assurances. Following the Closing, each of the parties
hereto shall, and shall cause their respective Affiliates to, execute and
deliver such additional documents, instruments, conveyances and assurances and
take such further actions as may be reasonably required to carry out the
provisions hereof and give effect to the transactions contemplated by this
Agreement.

 

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Article VI
TAX MATTERS

 

Section 6.01. Tax Covenants.

 

(a) Without the prior written consent of Buyer, Seller shall not, to the extent
it may affect, or relate to, the Company, make, change or rescind any Tax
election, amend any Tax Return or take any position on any Tax Return, take any
action, omit to take any action or enter into any other transaction that would
have the effect of increasing the Tax liability or reducing any Tax asset of
Buyer or the Company in respect of any Post-Closing Tax Period. Seller agrees
that Buyer is to have no liability for any Tax resulting from any action of
Seller, the Company, its Affiliates or any of their respective Representatives,
and agrees to indemnify and hold harmless Buyer (and, after the Closing Date,
the Company) against any such Tax or reduction of any Tax asset.

 

(b) All transfer, documentary, sales, use, stamp, registration, value added and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement and the Ancillary Documents (including any real
property transfer Tax and any other similar Tax) shall be borne and paid by
Seller when due. Seller shall, at its own expense, timely file any Tax Return or
other document with respect to such Taxes or fees.

 

(c) Without limiting Seller’s indemnification obligations hereunder, unless
otherwise determined by Buyer with respect to a Pre-Closing Tax Period, Buyer
shall prepare, or cause to be prepared, all Tax Returns required to be filed by
the Company after the Closing Date (whether relating to a Pre-Closing Tax Period
or a Post-Closing Tax Period). The preparation and filing of any such Tax Return
of the Company shall be exclusively within the control of Buyer, and Seller
shall cooperate with Buyer in connection with such preparation and filing, as
reasonably requested by Buyer.

 

Section 6.02. Termination of Existing Tax Sharing Agreements. Any and all
existing Tax sharing agreements (whether written or not) binding upon the
Company shall be terminated as of the Closing Date. After such date none of the
Company, Seller nor any of Seller’s Affiliates and their respective
Representatives shall have any further rights or liabilities thereunder.

 

Section 6.03. Tax Indemnification. Seller shall indemnify the Company, Buyer,
and each Buyer Indemnitee and hold them harmless from and against (a) any Loss
attributable to any breach of or inaccuracy in any representation or warranty
made in Section 3.21; (b) any Loss attributable to any breach or violation of,
or failure to fully perform, any covenant, agreement, undertaking or obligation
in Article VI; (c) all Taxes of the Company or relating to the business of the
Company for all Pre-Closing Tax Periods; (d) all Taxes of any member of an
affiliated, consolidated, combined or unitary group of which the Company (or any
predecessor of the Company) is or was a member on or prior to the Closing Date
by reason of a liability under Treasury Regulation Section 1.1502-6 or any
comparable provisions of foreign, state or local Law; and (e) any and all Taxes
of any person imposed on the Company arising under the principles of transferee
or successor liability or by contract, relating to an event or transaction
occurring before the Closing Date. In each of the above cases, together with any
out-of-pocket fees and expenses (including attorneys’ and accountants’ fees)
incurred in connection therewith. Seller shall reimburse Buyer for any Taxes of
the Company that are the responsibility of Seller pursuant to this Section 6.03
within ten Business Days after payment of such Taxes by Buyer or the Company.

 

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Section 6.04. Straddle Period. In the case of Taxes that are payable with
respect to a taxable period that begins before and ends after the Closing Date
(each such period, a “Straddle Period”), the portion of any such Taxes that are
treated as Pre-Closing Taxes for purposes of this Agreement shall be:

 

(a) in the case of Taxes (i) based upon, or related to, income, receipts,
profits, wages, capital or net worth, (ii) imposed in connection with the sale,
transfer or assignment of property, or (iii) required to be withheld, deemed
equal to the amount which would be payable if the taxable year ended with the
Closing Date; and

 

(b) in the case of other Taxes, deemed to be the amount of such Taxes for the
entire period multiplied by a fraction the numerator of which is the number of
days in the period ending on the Closing Date and the denominator of which is
the number of days in the entire period.

 

Section 6.05. Contests. Buyer agrees to give written notice to Seller of the
receipt of any written notice by the Company, Buyer or any of Buyer’s Affiliates
which involves the assertion of any claim, or the commencement of any Action, in
respect of which an indemnity may be sought by Buyer pursuant to this Article VI
(a “Tax Claim”); provided, that failure to comply with this provision shall not
affect Buyer’s right to indemnification hereunder. Buyer shall control the
contest or resolution of any Tax Claim; provided, however, that Buyer shall
obtain the prior written consent of Seller (which consent shall not be
unreasonably withheld or delayed) before entering into any settlement of a claim
or ceasing to defend such claim; and, provided further, that Seller shall be
entitled to participate in the defense of such claim and to employ counsel of
its choice for such purpose, the fees and expenses of which separate counsel
shall be borne solely by Seller.

 

Section 6.06. Cooperation and Exchange of Information. Seller and Buyer shall
provide each other with such cooperation and information as either of them
reasonably may request of the other in filing any Tax Return pursuant to this
Article VI or in connection with any audit or other proceeding in respect of
Taxes of the Company. Such cooperation and information shall include providing
copies of relevant Tax Returns or portions thereof, together with accompanying
schedules, related work papers and documents relating to rulings or other
determinations by tax authorities. Each of Seller and Buyer shall retain all Tax
Returns, schedules and work papers, records and other documents in its
possession relating to Tax matters of the Company for any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations of the taxable periods to which such Tax Returns and other documents
relate, without regard to extensions except to the extent notified by the other
party in writing of such extensions for the respective Tax periods. Prior to
transferring, destroying or discarding any Tax Returns, schedules and work
papers, records and other documents in its possession relating to Tax matters of
the Company for any taxable period beginning before the Closing Date, Seller or
Buyer (as the case may be) shall provide the other party with reasonable written
notice and offer the other party the opportunity to take custody of such
materials.

 

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Section 6.07. Tax Treatment of Indemnification Payments. Any indemnification
payments pursuant to this Article VI shall be treated as an adjustment to the
Purchase Price by the parties for Tax purposes, unless otherwise required by
Law.

 

Section 6.08. Payments to Buyer. Any amounts payable to Buyer pursuant to this
Article VI shall be satisfied by payment from Seller through wire transfer of
immediately available funds.

 

Section 6.09. Survival. Notwithstanding anything in this Agreement to the
contrary, the provisions of Section 3.21 and this Article VI shall survive for
the full period of all applicable statutes of limitations (giving effect to any
waiver, mitigation or extension thereof) plus 60 days.

 

Section 6.10. Overlap. To the extent that any obligation or responsibility
pursuant to Article VIII may overlap with an obligation or responsibility
pursuant to this Article VI, the provisions of this Article VI shall govern.

 

Article VII
CONDITIONS TO CLOSING

 

Section 7.01. Conditions to Obligations of All Parties. The obligations of each
party to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing, of the following
condition: no Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Governmental Order which is in effect and has the effect
of making the transactions contemplated by this Agreement illegal, otherwise
restraining or prohibiting consummation of such transactions or causing any of
the transactions contemplated hereunder to be rescinded following completion
thereof.

 

Section 7.02. Conditions to Obligations of Buyer. The obligations of Buyer to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment or Buyer’s waiver, at or prior to the Closing, of each of the
following conditions:

 

(a) No Action shall have been commenced against Buyer, Seller or the Company,
which would prevent the Closing. No injunction or restraining order shall have
been issued by any Governmental Authority, and be in effect, which restrains or
prohibits any transaction contemplated hereby.

 

(b) Seller shall have duly executed and delivered the Assignment to Buyer.

 

(c) Buyer shall have received resignations of the managers of the Company, to
the extent requested by Buyer.

 

(d) Seller shall have delivered to Buyer a certificate pursuant to Treasury
Regulations Section 1.1445-2(b) that Seller is not a foreign person within the
meaning of Section 1445 of the Code.

 

(e) Seller shall have delivered to Buyer a good standing certificate (or its
equivalent) for the Company from the secretary of state or similar Governmental
Authority of the jurisdiction under the Laws in which the Company is organized.

 

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(f) The other Ancillary Documents shall have been executed and delivered by the
parties thereto and true and complete copies thereof shall have been delivered
to Buyer.

 

(g) Seller shall have delivered to Buyer such other documents or instruments as
Buyer reasonably requests and are reasonably necessary to consummate the
transactions contemplated by this Agreement.

 

Section 7.03. Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment or Seller’s waiver, at or prior to the Closing, of each of the
following conditions:

 

(a) No injunction or restraining order shall have been issued by any
Governmental Authority, and be in effect, which restrains or prohibits any
material transaction contemplated hereby.

 

(b) The Ancillary Documents to which Buyer is a party, if any, shall have been
executed and delivered by Buyer.

 

(c) Buyer shall have delivered to Seller the Purchase Price.

 

Article VIII
INDEMNIFICATION

 

Section 8.01. Survival. Subject to the limitations and other provisions of this
Agreement, the representations and warranties contained herein (other than any
representations or warranties contained in Section 3.21 which are subject to
Article VI) shall survive the Closing and shall remain in full force and effect
until the date that is one year from the Closing Date; provided, that the
representations and warranties in Section 3.01, Section 3.02, Section 3.03,
Section 3.04, Section 3.05, Section 3.07, Section 3.10, Section 3.19, Section
3.20, Section 3.23, Section 3.23, Section 3.24, Section 3.25, Section 4.01,
Section 4.02, and Section 4.04 shall survive indefinitely. All covenants and
agreements of the parties contained herein (other than any covenants or
agreements contained in Article VI which are subject to Article VI) shall
survive the Closing indefinitely or for the period explicitly specified therein.
Notwithstanding the foregoing, any claims asserted in good faith with reasonable
specificity (to the extent known at such time) and in writing by notice from the
non-breaching party to the breaching party prior to the expiration date of the
applicable survival period shall not thereafter be barred by the expiration of
the relevant representation or warranty and such claims shall survive until
finally resolved.

 

Section 8.02. Indemnification By Seller. Subject to the other terms and
conditions of this Article VIII, each Seller, jointly and severally, shall
indemnify and defend each of Buyer and its Affiliates (including the Company)
and their respective Representatives (collectively, the “Buyer Indemnitees”)
against, and shall hold each of them harmless from and against, and shall pay
and reimburse each of them for, any and all Losses incurred or sustained by, or
imposed upon, the Buyer Indemnitees based upon, arising out of, with respect to
or by reason of:

 

(a) any inaccuracy in or breach of any of the representations or warranties of
Seller contained in this Agreement or in any certificate or instrument delivered
by or on behalf of Seller pursuant to this Agreement (other than in respect of
Section 3.21, it being understood that the sole remedy for any such inaccuracy
in or breach thereof shall be pursuant to Article VI), as of the date such
representation or warranty was made or as if such representation or warranty was
made on and as of the Closing Date (except for representations and warranties
that expressly relate to a specified date, the inaccuracy in or breach of which
will be determined with reference to such specified date);

 

26

 

 

(b) any breach or non-fulfillment of any covenant, agreement or obligation to be
performed by Seller pursuant to this Agreement (other than any breach or
violation of, or failure to fully perform, any covenant, agreement, undertaking
or obligation in Article VI, it being understood that the sole remedy for any
such breach, violation or failure shall be pursuant to Article VI);

 

(c) any Third Party Claim arising out of or resulting from the business or
operation of the Company prior to the Closing; or

 

(d) any Transaction Expenses or Indebtedness of the Company outstanding as of
the Closing.

 

Section 8.03. Indemnification By Buyer. Subject to the other terms and
conditions of this Article VIII, Buyer shall indemnify and defend each of Seller
and its Affiliates and their respective Representatives (collectively, the
“Seller Indemnitees”) against, and shall hold each of them harmless from and
against, and shall pay and reimburse each of them for, any and all Losses
incurred or sustained by, or imposed upon, the Seller Indemnitees based upon,
arising out of, with respect to or by reason of:

 

(a) any inaccuracy in or breach of any of the representations or warranties of
Buyer contained in this Agreement or in any certificate or instrument delivered
by or on behalf of Buyer pursuant to this Agreement, as of the date such
representation or warranty was made or as if such representation or warranty was
made on and as of the Closing Date (except for representations and warranties
that expressly relate to a specified date, the inaccuracy in or breach of which
will be determined with reference to such specified date); or

 

(b) any breach or non-fulfillment of any covenant, agreement or obligation to be
performed by Buyer pursuant to this Agreement (other than Article VI, it being
understood that the sole remedy for any such breach thereof shall be pursuant to
Article VI).

 

Section 8.04. Indemnification Procedures. The party making a claim under this
Article VIII is referred to as the “Indemnified Party,” and the party against
whom such claims are asserted under this Article VIII is referred to as the
“Indemnifying Party.”

 

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(a) Third Party Claims. If any Indemnified Party receives notice of the
assertion or commencement of any Action made or brought by any Person who is not
a party to this Agreement or an Affiliate of a party to this Agreement or a
Representative of the foregoing (a “Third Party Claim”) against such Indemnified
Party with respect to which the Indemnifying Party is obligated to provide
indemnification under this Agreement, the Indemnified Party shall give the
Indemnifying Party reasonably prompt written notice thereof, but in any event
not later than 30 calendar days after receipt of such notice of such Third Party
Claim. The failure to give such prompt written notice shall not, however,
relieve the Indemnifying Party of its indemnification obligations, except and
only to the extent that the Indemnifying Party forfeits rights or defenses by
reason of such failure. Such notice by the Indemnified Party shall describe the
Third Party Claim in reasonable detail, shall include copies of all material
written evidence thereof and shall indicate the estimated amount, if reasonably
practicable, of the Loss that has been or may be sustained by the Indemnified
Party. The Indemnifying Party shall have the right to participate in, or by
giving written notice to the Indemnified Party, to assume the defense of any
Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying
Party’s own counsel, and the Indemnified Party shall cooperate in good faith in
such defense; provided, that if the Indemnifying Party is Seller, such
Indemnifying Party shall not have the right to defend or direct the defense of
any such Third Party Claim that (x) is asserted directly by or on behalf of a
Person that is a supplier or customer of the Company, or (y) seeks an injunction
or other equitable relief against the Indemnified Party. In the event that the
Indemnifying Party assumes the defense of any Third Party Claim, subject to
Section 8.04(b), it shall have the right to take such action as it deems
necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to
any such Third Party Claim in the name and on behalf of the Indemnified Party.
The Indemnified Party shall have the right to participate in the defense of any
Third Party Claim with counsel selected by it subject to the Indemnifying
Party’s right to control the defense thereof. The fees and disbursements of such
counsel shall be at the expense of the Indemnified Party, provided, that if in
the reasonable opinion of counsel to the Indemnified Party, (A) there are legal
defenses available to an Indemnified Party that are different from or additional
to those available to the Indemnifying Party; or (B) there exists a conflict of
interest between the Indemnifying Party and the Indemnified Party that cannot be
waived, the Indemnifying Party shall be liable for the reasonable fees and
expenses of counsel to the Indemnified Party in each jurisdiction for which the
Indemnified Party determines counsel is required. If the Indemnifying Party
elects not to compromise or defend such Third Party Claim, fails to promptly
notify the Indemnified Party in writing of its election to defend as provided in
this Agreement, or fails to diligently prosecute the defense of such Third Party
Claim, the Indemnified Party may, subject to Section 8.04(b), pay, compromise,
defend such Third Party Claim and seek indemnification for any and all Losses
based upon, arising from or relating to such Third Party Claim. Seller and Buyer
shall cooperate with each other in all reasonable respects in connection with
the defense of any Third Party Claim, including making available (subject to the
provisions of Section 5.01) records relating to such Third Party Claim and
furnishing, without expense (other than reimbursement of actual out-of-pocket
expenses) to the defending party, management employees of the non-defending
party as may be reasonably necessary for the preparation of the defense of such
Third Party Claim.

 

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(b) Settlement of Third Party Claims. Notwithstanding any other provision of
this Agreement, the Indemnifying Party shall not enter into settlement of any
Third Party Claim without the prior written consent of the Indemnified Party,
except as provided in this Section 8.04(b). If a firm offer is made to settle a
Third Party Claim without leading to liability or the creation of a financial or
other obligation on the part of the Indemnified Party and provides, in customary
form, for the unconditional release of each Indemnified Party from all
liabilities and obligations in connection with such Third Party Claim and the
Indemnifying Party desires to accept and agree to such offer, the Indemnifying
Party shall give written notice to that effect to the Indemnified Party. If the
Indemnified Party fails to consent to such firm offer within ten days after its
receipt of such notice, the Indemnified Party may continue to contest or defend
such Third Party Claim and in such event, the maximum liability of the
Indemnifying Party as to such Third Party Claim shall not exceed the amount of
such settlement offer. If the Indemnified Party fails to consent to such firm
offer and also fails to assume defense of such Third Party Claim, the
Indemnifying Party may settle the Third Party Claim upon the terms set forth in
such firm offer to settle such Third Party Claim. If the Indemnified Party has
assumed the defense pursuant to Section 8.04(a), it shall not agree to any
settlement without the written consent of the Indemnifying Party (which consent
shall not be unreasonably withheld or delayed).

 

(c) Direct Claims. Any Action by an Indemnified Party on account of a Loss which
does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by
the Indemnified Party giving the Indemnifying Party reasonably prompt written
notice thereof, but in any event not later than 30 days after the Indemnified
Party becomes aware of such Direct Claim. The failure to give such prompt
written notice shall not, however, relieve the Indemnifying Party of its
indemnification obligations, except and only to the extent that the Indemnifying
Party forfeits rights or defenses by reason of such failure. Such notice by the
Indemnified Party shall describe the Direct Claim in reasonable detail, shall
include copies of all material written evidence thereof and shall indicate the
estimated amount, if reasonably practicable, of the Loss that has been or may be
sustained by the Indemnified Party. The Indemnifying Party shall have 30 days
after its receipt of such notice to respond in writing to such Direct Claim.
During such 30 day period, the Indemnified Party shall allow the Indemnifying
Party and its professional advisors to perform a reasonable investigation of the
matter or circumstance alleged to give rise to the Direct Claim, and whether and
to what extent any amount is payable in respect of the Direct Claim. If the
Indemnifying Party does not so respond within such 30 day period, the
Indemnifying Party shall be conclusively deemed to have agreed to the
correctness of the Direct Claim. If the Indemnifying Party timely delivers an
objection to the Direct Claim or seeks additional information regarding the
Direct Claim, and if such claim or claims described therein shall not have been
resolved or compromised between the Indemnifying Party and the Indemnified Party
within 30 days from the date of delivery of such objection or request for
additional information, then the Indemnified Party shall be free to pursue such
remedies as may be available to the Indemnified Party on the terms and subject
to the provisions of this Agreement.

 

(d) Tax Claims. Notwithstanding any other provision of this Agreement, the
control of any claim, assertion, event or proceeding in respect of Taxes of the
Company (including, but not limited to, any such claim in respect of a breach of
the representations and warranties in Section 3.21 hereof or any breach or
violation of or failure to fully perform any covenant, agreement, undertaking or
obligation in Article VI) shall be governed exclusively by Article VI hereof.

 

29

 

 

Section 8.05. Indemnification Payments.

 

(a) Once a Loss is agreed to, or deemed to have been agreed to, by the
Indemnifying Party or finally adjudicated to be payable, the Indemnifying Party
shall satisfy its obligations within five Business Days of such agreement or
adjudication by wire transfer of immediately available funds.

 

(b) Any Losses payable to a Buyer Indemnitee pursuant to this Article VIII shall
be satisfied by payment from Seller through wire transfer of immediately
available funds.

 

Section 8.06. Tax Treatment of Indemnification Payments. All indemnification
payments made under this Agreement shall be treated by the parties as an
adjustment to the Purchase Price for Tax purposes, unless otherwise required by
Law.

 

Section 8.07. Effect of Investigation. The representations, warranties and
covenants of the Indemnifying Party, and the Indemnified Party’s right to
indemnification with respect thereto, shall not be affected or deemed waived by
reason of any investigation made by or on behalf of the Indemnified Party
(including by any of its Representatives) or by reason of the fact that the
Indemnified Party or any of its Representatives knew or should have known that
any such representation or warranty is, was or might be inaccurate or by reason
of the Indemnified Party’s waiver of any condition set forth in Section 7.02 or
Section 7.03, as the case may be.

 

Section 8.08. Exclusive Remedies. Subject to Section 9.11, the parties
acknowledge and agree that their sole and exclusive remedy with respect to any
and all claims (other than claims arising from fraud, criminal activity or
willful misconduct on the part of a party hereto in connection with the
transactions contemplated by this Agreement) for any breach of any
representation, warranty, covenant, agreement or obligation set forth herein or
otherwise relating to the subject matter of this Agreement, shall be pursuant to
the indemnification provisions set forth in Article VI and this Article VIII. In
furtherance of the foregoing, each party hereby waives, to the fullest extent
permitted under Law, any and all rights, claims and causes of action for any
breach of any representation, warranty, covenant, agreement or obligation set
forth herein or otherwise relating to the subject matter of this Agreement it
may have against the other parties hereto and their Affiliates and each of their
respective Representatives arising under or based upon any Law, except pursuant
to the indemnification provisions set forth in Article VI and this Article VIII.
Nothing in this Section 8.08 shall limit any Person’s right to seek and obtain
any equitable relief to which any Person shall be entitled or to seek any remedy
on account of any party’s fraudulent, criminal or intentional misconduct.

 

Article IX
MISCELLANEOUS

 

Section 9.01. Expenses. Except as otherwise expressly provided herein, all costs
and expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses.

 

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Section 9.02. Notices. All notices, requests, consents, claims, demands, waivers
and other communications hereunder shall be in writing and shall be deemed to
have been given (a) when delivered by hand (with written confirmation of
receipt); (b) when received by the addressee if sent by a nationally recognized
overnight courier (receipt requested); (c) on the date sent by facsimile or
e-mail of a PDF document (with confirmation of transmission) if sent during
normal business hours of the recipient, and on the next Business Day if sent
after normal business hours of the recipient or (d) on the third day after the
date mailed, by certified or registered mail, return receipt requested, postage
prepaid. Such communications must be sent to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.02):

 

If to Seller:

 

If to Buyer:

with a copy to:

 

Section 9.03. Interpretation. For purposes of this Agreement, (a) the words
“include,” “includes” and “including” shall be deemed to be followed by the
words “without limitation”; (b) the word “or” is not exclusive; and (c) the
words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this
Agreement as a whole. Unless the context otherwise requires, references herein:
(x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles
and Sections of, and Disclosure Schedules and Exhibits attached to, this
Agreement; (y) to an agreement, instrument or other document means such
agreement, instrument or other document as amended, supplemented and modified
from time to time to the extent permitted by the provisions thereof and (z) to a
statute means such statute as amended from time to time and includes any
successor legislation thereto and any regulations promulgated thereunder. This
Agreement shall be construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting an instrument or
causing any instrument to be drafted. The Disclosure Schedules and Exhibits
referred to herein shall be construed with, and as an integral part of, this
Agreement to the same extent as if they were set forth verbatim herein.

 

Section 9.04. Headings. The headings in this Agreement are for reference only
and shall not affect the interpretation of this Agreement.

 

Section 9.05. Severability. If any term or provision of this Agreement is
invalid, illegal, or unenforceable in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other term or provision of
this Agreement or invalidate or render unenforceable such term or provision in
any other jurisdiction. Upon such determination that any term or other provision
is invalid, illegal or unenforceable, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.

 

Section 9.06. Entire Agreement. This Agreement and the Ancillary Documents
constitute the sole and entire agreement of the parties to this Agreement with
respect to the subject matter contained herein and therein, and supersede all
prior and contemporaneous understandings and agreements, both written and oral,
with respect to such subject matter. In the event of any inconsistency between
the statements in the body of this Agreement and those in the Ancillary
Documents, the Exhibits and Disclosure Schedules (other than an exception
expressly set forth as such in the Disclosure Schedules), the statements in the
body of this Agreement will control.

 

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Section 9.07. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Neither party may assign its rights or obligations
hereunder without the prior written consent of the other party, which consent
shall not be unreasonably withheld or delayed. No assignment shall relieve the
assigning party of any of its obligations hereunder.

 

Section 9.08. No Third-party Beneficiaries. Except as provided in Section 6.03
and Article VIII, this Agreement is for the sole benefit of the parties hereto
and their respective successors and permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other Person or
entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.

 

Section 9.09. Amendment and Modification; Waiver. This Agreement may only be
amended, modified, or supplemented by an agreement in writing signed by each
party hereto. No waiver by any party of any of the provisions hereof shall be
effective unless explicitly set forth in writing and signed by the party so
waiving. No waiver by any party shall operate or be construed as a waiver in
respect of any failure, breach or default not expressly identified by such
written waiver, whether of a similar or different character, and whether
occurring before or after that waiver. No failure to exercise, or delay in
exercising, any right, remedy, power or privilege arising from this Agreement
shall operate or be construed as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power, or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power, or privilege.

 

Section 9.10. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

 

(a) This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Texas without giving effect to any choice or
conflict of law provision or rule (whether of the State of Texas or any other
jurisdiction).

 

(b) ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA
OR THE COURTS OF THE STATE OF TEXAS IN EACH CASE LOCATED IN THE CITY OF HOUSTON
AND COUNTY OF HARRIS, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF
PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET
FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER
PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION
OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR
CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

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(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT, THE ASSIGNMENT, THE OTHER ANCILLARY DOCUMENTS IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
ASSIGNMENT, THE OTHER ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT
(A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER
IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS
OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10(c).

 

Section 9.11. Specific Performance. The parties agree that irreparable damage
would occur if any provision of this Agreement were not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy to which they
are entitled at law or in equity.

 

Section 9.12. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall be deemed
to be one and the same agreement. A signed copy of this Agreement delivered by
facsimile, e-mail or other means of electronic transmission shall be deemed to
have the same legal effect as delivery of an original signed copy of this
Agreement.

 

[signature page follows]

 

33

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above by their respective officers thereunto duly
authorized.

 

  SELLER:       /s/ Donald A. Kessel   Donald A. Kessel       /s/ Robert B. Foss
  Robert B. Foss

 

  BUYER:         U.S. ENERGY CORP.         By: /s/ Ryan Smith   Name: Ryan Smith
  Title: Chief Executive Officer

 

[Signature Page to Membership Interest Purchase Agreement]