Document:

exv10w16

 

Exhibit 10.16

AMENDED AND RESTATED

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

by and among:

PACIFIC EAST ADVISORS, INC.,

a Delaware corporation;

IMPCO ACQUISITION, LLC.,

a New York limited liability company;

and

INNER MONGOLIA PRODUCTION COMPANY LLC,

a New York limited liability company

Dated as of December 11, 2006

Amended and Restated as of February 12, 2007

 

 

AMENDED AND RESTATED AGREEMENT AND PLAN

OF MERGER AND REORGANIZATION

     THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the
“Agreement”) is made and entered into as of December 11, 2006 (the “Execution
Date”), as amended and restated on February 12, 2007, by and among: Pacific East Advisors,
Inc., a Delaware corporation (“Parent”); IMPCO ACQUISITION, LLC., a New York limited
liability company and a wholly owned subsidiary of Parent (“Merger Sub”); and INNER
MONGOLIA PRODUCTION COMPANY LLC, a New York limited liability company (the “Company”).

RECITALS

     A. The Boards of Directors of Parent, and the Manager of Merger Sub and the Company, deem it
advisable and in the best interest of each entity and its respective stockholders or interest
holders, that Parent and the Company combine in order to advance the long-term business interests
of Parent and the Company.

     B. The strategic combination of Parent and the Company (the “Merger”) shall be
effected in accordance with the New York Limited Liability Company Act (the “NYLLCA”) and
the terms of this Agreement through a transaction in which (i) the Company will merge with and into
Merger Sub (the “LLC Merger”), (ii) Merger Sub will be the surviving entity in the LLC
Merger and will remain a wholly owned limited liability company subsidiary of Parent and will
continue to carry on the business of the Company, and (iii) the interest holders of the Company
will become stockholders of Parent (the Merger and the LLC Merger being herein referred to as the
“Combination”).

     C. The Board of Managers of the Company (i) has unanimously determined that the Combination is
advisable, fair to, and in the best interests of the Company and its interest holders, (ii) has
unanimously determined that this Agreement is advisable and has approved this Agreement, the
Combination and the other transactions contemplated by this Agreement, and (iii) has unanimously
determined to recommend that the interest holders of the Company adopt this Agreement.

     D. The Board of Directors of Parent (i) has unanimously determined that the Combination is
advisable and consistent with and in furtherance of the long-term business strategy of Parent and
is fair to, and in the best interests of, Parent and its stockholders, (ii) has unanimously
approved this Agreement, the Combination and the other transactions contemplated by this Agreement,
and (iii) to the extent required by applicable law, has unanimously determined to recommend that
the stockholders of Parent adopt this Agreement and approve the Combination and the other
transactions contemplated by this Agreement.

     E. Concurrent with the closing of the Merger, Parent shall consummate closing of the merger of
Advanced Drilling Services, LLC (“Advanced Drilling”), a Delaware limited liability
company, with and into DrillCo Acquisition, LLC, a Delaware limited liability company and wholly
owned subsidiary of Parent (the “DrillCo Merger”), pursuant to that certain Amended and
Restated

 

 

Agreement and Plan of Merger and Reorganization, made and entered into on or about the
Execution Date, as amended and restated on even date herewith, by and among Parent, DrillCo
Acquisition, LLC, a Delaware limited liability company and wholly owned subsidiary of Parent, and
Advanced Drilling (the “DrillCo Merger Agreement”).

     F. Immediately prior to the closing of the Merger, Advanced Drilling will issue Class B
Membership Units to the accredited investors who subscribe for Class B Membership Interests of
Advanced Drilling (the “DrillCo Class B Units”) being offered to accredited investors in a
private placement by Advanced Drilling. All of the foregoing DrillCo Class B Units will be issued
and will be outstanding prior to the Merger, and will be exchanged for Parent Series A Preferred
Stock in the DrillCo Merger as set forth in the DrillCo Merger Agreement.

     G. Parent, Merger Sub and Company have entered into an Agreement and Plan of Merger and
Reorganization on the Effective Date (the “Existing Agreement”), and desire to amend and
restate the Existing Agreement in full as set forth herein.

     NOW THEREFORE, for the mutual consideration set out herein, and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows:

AGREEMENT

     A. Amendment of Existing Agreement. Effective and contingent upon execution of this
Agreement by Parent, Merger Sub and Company, the Existing Agreement is hereby amended and restated
in its entirety to read as set forth in this Agreement, and Parent, Merger Sub and Company hereby
agree to be bound by the provisions hereof as the sole Agreement of Parent, Merger Sub and Company
with respect to matters as set forth herein.

     1. Single Integrated Transaction. For U.S. Federal income tax purposes, it is intended
that the transactions contemplated by this Agreement and the DrillCo Merger Agreement constitute
part of a single integrated transaction and are pursuant to a single integrated plan intended to
qualify as a tax-free transaction under Section 351 of the Internal Revenue Code of 1986, as
amended (the “Code”).

     2. Terms of Merger. Immediately following the Effective Time (as defined below),
without condition, Parent shall cause Merger Sub to file with the Secretary of State of the State
of New York a properly executed certificate of merger for the LLC Merger (the “LLC Certificate
of Merger”) conforming to the requirements of the NYLLCA, in a form mutually agreeable to the
parties hereto. The LLC Merger shall become effective at the time the LLC Certificate of Merger is
filed with the Secretary of State of the State of New York.

          (a) Effects of the LLC Merger 

               (1) At the time at which the LLC Merger is filed with the Secretary of State of New York, as
described above (the “Effective Time”), (i) the separate existence of the Merger Sub shall
cease and the Merger Sub shall be merged with and into the Company, with the Company as the
surviving entity in the LLC Merger (Merger Sub and the Company are sometimes referred to below as
the “LLC Constituent Entities” and the Company following the

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LLC Merger is sometimes referred to below as the “Continuing LLC”), and (ii) the
Certificate of Formation and the Amended and Restated Operating Agreement of the Company as in
effect immediately prior to the Effective Time shall be unchanged by the LLC Merger.

               (2) At and after the Effective Time, the Continuing LLC shall possess all the rights,
privileges, powers, and franchises of a public as well as of a private nature, and be subject to
all the restrictions, disabilities, and duties of each of the LLC Constituent Entities; and all
singular rights, privileges, powers, and franchises of each of the LLC Constituent Entities, and
all property, real, personal, and mixed, and all debts due to either of the LLC Constituent
Entities on whatever account, and all other things in action or belonging to each of the LLC
Constituent Entities, shall be vested in the Continuing LLC, and all property, rights, privileges,
powers, and franchises, and all and every other interest shall be thereafter as effectually the
property of the Continuing LLC as they were of the LLC Constituent Entities, and the title to any
real estate vested by deed or otherwise, in either of the LLC Constituent Entities, shall not
revert or be in any way impaired; but all rights of creditors and all liens upon any property of
either of the LLC Constituent Entities shall be preserved unimpaired, and all debts, liabilities,
and duties of the LLC Constituent Entities shall thereafter attach to the Continuing LLC, and may
be enforced against it to the same extent as if such debts and liabilities had been incurred by it.

               (3) At the Effective Time, the Certificate of Incorporation of Parent (the “Parent
Certificate”) shall be amended and restated in its entirety as set forth on Exhibit A
attached hereto.

               (4) At the Effective Time, (i) the Amended and Restated Operating Agreement of the Company, as
existing immediately prior to the Effective Time, shall be and remain the Amended and Restated
Operating Agreement of the Continuing LLC; (ii) the members of the Board of Managers of the Company
holding office immediately prior to the Effective Time shall remain as the members of the Board of
Managers of the Continuing LLC (if on or after the Effective Time a vacancy exists on the Board of
Managers of the Company, such vacancy may thereafter be filled in a manner provided by applicable
law and the Amended and Restated Operating Agreement); and (iii) until the Board of Managers of the
Company shall otherwise determine, all persons who hold offices of the Company at the Effective
Time shall continue to hold the same offices of the Continuing LLC.

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               (5) Upon the terms and subject to the conditions of this Agreement, the Closing (as defined
below) of the Merger will take place (a) at the offices of The Krueger Group, LLP, 5771 La Jolla
Boulevard, La Jolla, California 92037, at 7:00 a.m., California time, on the date that is the
second Business Day after the satisfaction or waiver of the conditions set forth in Sections 7 and
8 hereof, other than conditions which by their terms are to be satisfied at the Closing, or (b)
such other location, date or time as the parties may mutually agree (the “Closing Date”).
For purposes of this Agreement, a “Business Day” shall mean any day that is not a Saturday,
a Sunday or other day on which the office of the California Secretary of State is closed.

          (b) Events Occurring Immediately Prior to the Closing.

               (1) It is currently contemplated that prior to the Merger becoming effective under New York
law, Advanced Drilling shall close a private offering under Regulation D, Rule 506, as promulgated
by the Securities and Exchange Commission (“SEC”) under the Securities Act, pursuant to
which it will issue up to 11,200,000 Class B Units (excluding warrants issuable to Advanced
Drilling’s placement agents) (the “Maximum Offering”) at $1.25 per Class B Unit (the
“Private Placement”). All of the Class B Units issued as part of the Private Placement
shall be included in the membership interests of Advanced Drilling that are outstanding at the time
of the DrillCo Merger and will be converted/exchanged in the DrillCo Merger in accordance with the
terms of the DrillCo Merger Agreement.

               (2) Immediately prior to the Merger becoming effective, on the day of such effectiveness, the
Company shall consummate the Merger under the NYLLCA by filing a Certificate of Merger with the New
York Secretary of State.

          (c) Conversion of Securities in LLC Merger.

               (1) By virtue of the LLC Merger and without any further action on the part of the Company or
the Merger Sub or the holders of interests of the Company: (i) each Class A Unit of the Company
then outstanding shall be converted into seventeen (17) fully paid shares of Common Stock of the
Parent for a total aggregate of approximately 5,904,032 fully paid and nonassessable shares of
Common Stock, par value $0.001; AND (ii) each Class B Unit of the Company then issued and
outstanding shall be converted into seventeen (17) fully paid shares of Series A Preferred Stock of
the Parent for a total aggregate of approximately 10,108,952 fully paid and nonassessable shares of
Series A Preferred Stock, par value $0.001.

               (2) On or prior to the Closing Date, Parent shall make available to its transfer agent (the
“Exchange Agent”) for the benefit of the holders of Class A Units and Class B Units of the
Company, a sufficient number of certificates representing Common Stock of Parent and Series A
Preferred Stock of the Parent required to effect the delivery of the aggregate consideration in
Common Stock of Parent and Series A Preferred Stock of the Parent and cash for the payment of
fractional shares set forth below (collectively, the “Share Consideration” and the
certificates representing such aggregate Share Consideration being referred to hereinafter as the
“Stock Merger Exchange Fund”). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Share Consideration out of the Stock Merger Exchange Fund. The Stock
Merger Exchange Fund shall not be used for any other purpose than as set forth herein.

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               (3) No fractional Parent securities shall be issued in the Merger. Each holder of Class A
Units and Class B Units of the Company shall be entitled to receive in lieu of any fractional
Parent securities to which such holder otherwise would have been entitled pursuant to Section
2(c)(1) a cash payment in an amount equal to the product of (i) the fractional interest of a Parent
securities to which such holder otherwise would have been entitled and (ii) the fair market value
of one (1) Parent securities as determined by Parent’s Board of Directors in good faith.

          (d) Other Matters.

               (1) Upon the effectiveness of the LLC Merger, each outstanding option or warrant to purchase
the Company Class A Units and Class B Units, whether or not then exercisable, shall be converted
into an option or warrant to purchase (in substitution for each share of the Company Class A Unit
and Class B Unit subject to the Company option or warrant, as applicable) seventeen (17) shares of
Parent Common Stock or Parent Series A Preferred Stock, as applicable, at a price equal to the
exercise price in effect immediately prior to the LLC Merger. All other terms and conditions of
each the Company option or warrant shall remain the same.

               (2) At the Closing, the number of directors of Parent will be set to three (3). The then
existing sole director of Parent shall then nominate and elect to the Board of Directors of Parent
Frank Ingriselli, Laird Q. Cagan and Elizabeth P. Smith, or such other persons designated by the
Company, and all of the persons serving as directors and officers of Parent immediately prior to
the Closing shall thereafter resign from all of their positions with Parent, effective immediately
after the Closing.

               (3) Upon the effectiveness of the Merger, Parent shall assume and will be bound by the
registration rights agreements previously entered into, or hereafter entered into, between the
Company and the accredited investors who purchase shares of the Company Class B Units. The
registration rights shall be substantially similar to the registration rights agreement entered
into by and among Parent and the purchasers of DrillCo Class B Interests in the Private Placement.
Parent agrees to execute any agreement or other instrument the Company deems necessary to confirm
its agreement to comply with the registration rights granted by the Company to the purchasers of
its Class B Units.

               (4) All stock of the Parent issued in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of Parent Stock, and there
shall be no further registration of transfers on the records of the Parent of shares of Company
membership interests that were outstanding immediately prior to the Effective Time.

     3. Representations of the Company. The Company hereby represents and warrants as
follows, which warranties and representations shall also be true as of the Execution Date:

          (a) Organization, Standing and Authority of the Company. The Company is a duly
organized, validly existing and in good standing under the laws of the State of New York

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with full
corporate power and authority to carry on its business as now conducted and is duly
qualified to do business in any jurisdiction where its ownership or leasing of property or the
conduct of its business requires such qualification, except where the failure to have such
corporate power and authority or to so qualify would not have a Material Adverse Effect on the
Company.

          (b) Authorized and Effective Agreement.

               (1) The Company has all requisite corporate power and authority to enter into and perform all
of its obligations under this Agreement. The execution, delivery and performance of this Agreement
by the Company and the consummation of the Merger and the other transactions contemplated hereby
have been duly authorized by the Managers of the Company, which authorization constitutes all
necessary corporate action in respect thereof and which have not been rescinded, revoked or
otherwise adversely modified.

               (2) This Agreement constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its terms subject, as to enforceability, to bankruptcy,
insolvency and other legal requirements of general applicability relating to or affecting
creditors’ rights and to general equity principles.

               (3) Neither the execution and delivery of this Agreement, nor consummation of the Merger and
the other transactions contemplated hereby, nor compliance by the Company with any of the
provisions hereof shall (i) conflict with or result in a breach of any provision of the Certificate
of Formation or Amended and Restated Operating Agreement (the “Operating Agreement”) of the
Company or (ii) violate any legal requirements applicable to the Company.

               (4) Other than the filing of the LLC Certificate of Merger with the New York Secretary of
State and consent of the holders of Class A and Class B Units of the Company, if required, no
consent, approval or authorization of, or declaration, notice, filing or registration with, any
Government Entity, or any other Person, is required to be made or obtained by the Company on or
prior to the Effective Time in connection with the execution, delivery and performance of this
Agreement and the LLC Merger or the consummation of the transactions contemplated hereby or
thereby.

          (c) Capital Structure of the Company. The issued and outstanding limited liability
company interests of the Company consist of approximately 347,296 Class A Units and approximately
594,644 Class B Units as of the Execution Date. As of the Execution Date, all the outstanding
limited liability company interests of the Company are held by the members free and clear of all
encumbrances. As of the Execution Date and as of the Closing, other than outstanding options to
purchase 49,200 Class A Units, there are and will be no options, warrants, convertible securities
or other rights, agreements, arrangements or commitments relating to the limited liability company
interests of the Company.

          (d) Material Adverse Change. Except as set forth in the Company Disclosure Documents,
there has not been any change in the financial condition, results of operations, prospects or
business which would individually or in the aggregate with any other such changes,

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of the Company except changes arising in the ordinary course of business, which changes would
have a Material Adverse Effect with respect to the Company.

          (e) Litigation. There are no actions, suits or proceedings instituted, pending or, to
its Knowledge, any governmental investigation or proceeding, and, to its Knowledge, no material
litigation, claims, assessments or any governmental proceedings are threatened against the Company.

          (f) Absence of Undisclosed Liabilities. Except as disclosed by the Company to Parent
in its financial statements provided to Parent prior to the Execution Date, the Company does not
have any liability (contingent or otherwise) or Indebtedness that is material to the Company, or
that, when combined with all similar undisclosed liabilities, would be material to the Company,
except for liabilities incurred in the ordinary course of business subsequent to the Execution
Date.

          (g) Tax Matters. The Company has, or by the Closing will have, filed all material
federal tax, governmental and/or related forms and reports (or extensions thereof) due or required
to be filed in the ordinary course of business and has (or will have) paid or made adequate
provisions for all taxes or assessments which have become due as of the Closing.

          (h) Material Contracts. As part of the Company Disclosure Documents, the Company has
previously given Parent copies of or access to all material contracts, commitments and/or
agreements to which the Company is a party, including all contracts covering relationships or
dealings with related parties or affiliates. The Company is not in material breach of, or material
default under any material contract.

          (i) Subsidiary Corporations. The Company has no Subsidiaries, other than as set forth
in the Company Disclosure Documents.

          (j) Minute Books, Financial Records. The Company has made its corporate financial
records, minute books, and other corporate documents and records available for review to present
management of Parent prior to the Closing, during reasonable business hours and on reasonable
notice.

          (k) Disclosure. The Company Disclosure Documents which have been delivered by the
Company to Parent for use in connection with the Merger are true and accurate in all material
respects.

     4. Representations of Parent and Merger Sub. Parent and Merger Sub hereby jointly and
severally represent and warrant to the Company as follows, each of which representations and
warranties shall continue to be true as of the Effective Time:

          (a) Organization, Standing and Authority of Parent. Parent is duly organized, validly
existing and in good standing under the laws of the State of Delaware, with the full corporate
power to own, lease and operate its property and to carry on its business as now being conducted
and is duly qualified to do business and in good standing to do business in any jurisdiction where
the ownership or leasing of the property or the conduct of its business requires such
qualification, except where the failure to so qualify would not have a Material Adverse

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Effect. As of the Execution Date, Parent is not required to be qualified to do business in any
state other than Delaware. Merger Sub is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of New York, and has all necessary
limited liability company power and authority to enter into this Agreement and to carry out its
obligations hereunder and thereunder and to consummate the transactions contemplated hereby and
thereby.

          (b) Capital Structure of Parent.

               (1) As of the Execution Date, Parent’s authorized capital stock consists of (i) 100,000,000
shares of Parent Common Stock, $0.001 par value, of which approximately 468,068 shares are issued
and outstanding, and (ii) and 5,000,000 authorized shares of Preferred Stock, par value $0.001, of
which no shares of Preferred Stock are issued or outstanding. The Merger Sub is a single member LLC
wholly-owned by Parent.

               (2) All outstanding shares of Parent stock are, and shall be at Closing, validly issued, fully
paid and nonassessable. As of the Execution Date and at the Closing, there are and there will be no
existing options, convertible or exchangeable securities, calls, claims, warrants, preemptive
rights, registration rights or commitments of any character relating to the issued or unissued
capital stock or other securities of Parent, other than pursuant to the DrillCo Merger Agreement.
There are no voting trusts, proxies or other agreements, commitments or understandings of any
character to which Parent is a party or by which Parent is bound with respect to the voting of any
capital stock of Parent. There are no outstanding stock appreciation, phantom stock or similar
rights with respect to any capital stock of Parent. There are no outstanding obligations to
repurchase, redeem or otherwise acquire any shares of capital stock of Parent.

               (3) As of the Closing, the shares of Parent Common and Preferred Stock to be issued and
delivered to the holders of Class A and Class B Units of the Company hereunder and in connection
herewith will, when so issued and delivered, constitute duly authorized, validly and legally
issued, fully-paid, nonassessable shares of Parent capital stock, will not be issued in violation
of any preemptive or similar rights and will be issued free and clear of all liens and
encumbrances.

          (c) Authorized and Effective Agreement. Parent and Merger Sub have full corporate
power and corporate authority to execute and deliver this Agreement and, subject to receipt of the
Parent Required Vote (as hereinafter defined) (to the extent such Parent Required Vote is required
by applicable law), to consummate the transactions contemplated hereby. The Board of Directors of
Parent by written consent has (i) determined that this Agreement and the Merger are in the best
interests of Parent and its stockholders and declared this Agreement and the Merger to be
advisable, (ii) approved the Merger, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (iii) recommended that stockholders of
Parent adopt this Agreement and, if required by applicable law, directed that such matter be
submitted for consideration and approval by Parent’s stockholders. Except for the adoption of this
Agreement by the affirmative vote of a majority of the outstanding shares of Parent Common Stock
entitled to vote in accordance with applicable law, if required (the “Parent Required
Vote”), no other corporate proceedings on the part of

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Parent are necessary to approve this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by Parent and Merger Sub
and (assuming due authorization, execution and delivery by the Company) constitutes a valid and
binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in
accordance with its terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar
laws affecting creditors’ rights and remedies generally (the “Bankruptcy and Equity
Exceptions”).

          (d) Taxes. Parent has filed all federal, state, county and local income, excise,
property and other tax, governmental and/or other returns, forms, filings, or reports, which are
due or required to be filed by it prior to the date hereof and have paid or made adequate provision
in the Parent financial statements for the payment of all taxes, fees, or assessments which have or
may become due pursuant to such returns, filings or reports or pursuant to any assessments
received. Parent is not delinquent or obligated for any tax, penalty, interest, delinquency or
charge and there are no tax liens or encumbrances applicable to either corporation.

          (e) Consents and Approvals, No Violation. Neither the execution and delivery of this
Agreement nor the consummation by Parent or Merger Sub of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of its Articles of Incorporation (or
other similar documents) or By-Laws (or other similar documents); (ii) require any consent,
approval, authorization or permit of, or registration or filing with or notification to, any
governmental or regulatory authority, except (A) pursuant to the applicable requirements of the
Securities Act of 1933, and the rules and regulations promulgated thereunder, (B) the filing of
appropriate documents with the relevant authorities of other states in which Parent or Merger Sub
is authorized to do business, (C) as may be required by any applicable state securities or takeover
laws, (D) such filings and consents as may be required under any environmental, health or safety
law or regulation pertaining to any notification, disclosure or required approval triggered by the
Merger or the transactions contemplated by this Agreement, or (E) where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or notification, would not in
the aggregate have a Material Adverse Effect or adversely affect the ability of Parent or Merger
Sub to consummate the transactions contemplated hereby; (iii) result in a violation or breach of,
or constitute (with or without notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration or lien or other charge or encumbrance) under
any of the terms, conditions or provisions of any indenture, note, license, lease, agreement or
other instrument or obligation to which Parent or Merger Sub or any of its assets may be bound,
except for such violations, breaches and defaults (or rights of termination, cancellation or
acceleration or lien or other charge or encumbrance) as to which requisite waivers or consents have
been obtained or which, in the aggregate, would not have a Material Adverse Effect or adversely
affect the ability of Parent or Merger Sub to consummate the transactions contemplated hereby; (iv)
cause the suspension or revocation of any authorizations, consents, approvals or licenses currently
in effect which would have a Material Adverse Effect; or (v) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in this Section 4(e) are duly
and timely obtained or made and the approval of the Merger and the approval of this Agreement by
Parent’s stockholders has been obtained, violate any order, writ, injunction, decree, statute, rule

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or regulation applicable to Parent or Merger Sub or to any of its assets, except for
violations which would not in the aggregate have a Material Adverse Effect or adversely affect the
ability of Parent or Merger Sub to consummate the transactions contemplated hereby.

          (f) No Subsidiaries. Other than the Merger Sub, Parent has no Subsidiaries or
affiliates or has no direct or indirect equity participation or similar interest in any
corporation, partnership, limited liability company, joint venture, trust or other business.

          (g) Material Adverse Change. Other than as disclosed in the Parent Disclosure
Documents, there have not been any changes in the financial condition, results of operations, or
financial condition of Parent or Merger Sub which would individually or in the aggregate with any
other such changes, except changes arising in the ordinary course of business, which changes would
have a Material Adverse Effect with respect to Parent. Parent has (and at the Closing it will have)
disclosed in the Parent Disclosure Documents all events, conditions, and facts materially
affecting, the business, financial condition (including liabilities, contingent or otherwise) or
results of operations of Parent.

          (h) Absence of Undisclosed Liabilities.

               (1) Other than listed on Schedule 4(h) attached hereto, at the Closing,, Parent and
Merger Sub shall have no material assets and will not have any liabilities or Indebtedness of any
kind other than the costs incurred in connection with the Merger or costs incurred in connection
with Parent’s regulatory compliance.

               (2) There is no basis for any assertion against Parent or Merger Sub of any material
liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise and
whether due or to become due, known or unknown, including, without limitation, any liability for
taxes (including e-commerce sales or other taxes), interest, penalties and other charges payable
with respect thereto. Neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will (a) result in any payment (whether severance pay,
unemployment compensation or otherwise) becoming due from Parent or Merger Sub to any Person or
entity, including without limitation any employee, director, officer or affiliate or former
employee, director, officer or affiliate of Parent or Merger Sub, (b) increase any benefits
otherwise payable to any Person or entity, including without limitation any employee, director,
officer or affiliate or former employee, director, officer or affiliate of Parent or Merger Sub, or
(c) result in the acceleration of the time of payment or vesting of any such benefits.

          (i) Litigation. Neither Parent nor Merger Sub is a party to, or the subject of, any
pending litigation, claims, or governmental investigation or proceeding not reflected in the Parent
financial statements, and to the Knowledge of Parent, there are no lawsuits, claims, assessments,
investigations, or similar matters, threatened or contemplated against or affecting Parent or the
management or properties of Parent.

          (j) Minute Books and Records. Except as otherwise indicated in the Parent Disclosure
Documents, the Parent minute books and other corporate records made available to

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the Company prior to the date of this Agreement, are complete and accurate in all material
respects.

          (k) Material Contracts.

               (1) Parent has not breached, nor is there any pending, existing or threatened claim that
Parent has breached, any of the material terms or conditions of any agreements, contracts,
commitments or other documents to which it is a party or by which it is, or its properties are
bound. The execution and performance of this Agreement will not violate any provisions of
applicable law or any agreement to which Parent is subject. Merger Sub has no contracts other than
this Agreement.

               (2) Parent hereby represents and warrants that, except for the DrillCo Merger Agreement and as
otherwise provided in the Parent Disclosure, it is not a party to any material contract or
commitment other than appointment documents with Parent’s transfer agent, and that it has disclosed
to the Company all previous or existing relationships or dealings with related or controlling
parties or affiliates of Parent

               (3) Except for the DrillCo Merger Agreement and as otherwise provided in the Parent Disclosure
Documents, Parent has no material contracts, commitments, arrangements, or understandings relating
to its business, operations, financial condition, prospects or otherwise. For purposes of this
Section 4, “material” means payment or performance of a contract, commitment, arrangement or
understanding which is expected to involve payments in excess of $20,000.

               (4) Except for the DrillCo Merger Agreement, this Agreement and the transactions contemplated
thereby, there are no outstanding contracts, commitments or bids, or services, development, sales
or other proposals of Parent.

               (5) There are no outstanding lease commitments that cannot be terminated without penalty upon
30-days notice, or any purchase commitments of Parent.

          (l) Compliance with Securities Laws.

               (1) There are no outstanding, pending or threatened stop orders or other actions or
investigations relating thereto involving federal and state Securities Laws. To Parent’s Knowledge,
all issued and outstanding shares of Parent’s capital stock were offered and sold in compliance
with federal and state Securities Laws and were not offered, sold or issued in violation of any
preemptive right, right of first refusal or right of first offer and are not subject to any right
of rescission.

               (2) All information regarding Parent and any entity for whose conduct Parent is legally held
responsible which has been provided to the Company in the Parent Disclosure Documents relating to
any document or other communication, disseminated to any former, existing or potential stockholders
of Parent or to the public or filed with The National Association of Securities Dealers, Inc.
(“NASD”) or the SEC or any state securities regulators or authorities is true, complete,
accurate in all material respects, not misleading, and was and is in full compliance with all
Securities Laws and regulations.

11

 

               (3) Parent has timely filed all required documents, reports and schedules with the NASD and
the SEC, and any applicable state or regional securities regulators or authorities. As of their
respective dates, the Parent Disclosure Documents complied in all material respects with the
requirements of the Securities Act, the Exchange Act, the NASD rules and regulations and state and
regional Securities Laws and regulations, as the case may be, and, at the respective times they
were filed. None of the Parent Disclosure Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading.

          (m) Governmental Authorizations: Compliance with Laws.

               (1) Up to the Closing, Parent is currently in compliance with, and has complied with, and
Parent has conducted any business previously owned or operated by it in compliance with, all
applicable laws, orders, rules and regulations of all Governmental Entities, including applicable
Securities Laws and regulations and environmental laws and regulations, except where such
noncompliance has and will have, in the aggregate, no Material Adverse Effect on Parent.

               (2) Up to the Closing, Parent has not received notice of any noncompliance with the foregoing,
nor to its Knowledge are there any claims or threatened claims in connection therewith. Parent has
never conducted any operations or engaged in any business transactions whatsoever other than as set
forth in the reports Parent has previously filed with the SEC.

               (3) Assuming all corporate consents and approvals have been obtained and assuming all
applicable appropriate filings and mailings are made by Parent under the Securities Act, the
Exchange Act, with the NASD, and with the Secretary of State of New York, the execution and
delivery by Parent of this Agreement and the closing documents and the consummation by Parent of
the transactions contemplated hereby do not and will not (i) require the consent, approval or
action of, or any filing or notice to, any corporation, firm, Person or other entity or any public,
Governmental Entity or judicial authority (except for such consents, approvals, actions, filing or
notices the failure of which to make or obtain will not in the aggregate have a Material Adverse
Effect on Parent); or (ii) violate any order, writ, injunction, decree, judgment, ruling, law, rule
or regulation of any federal, state, county, municipal, or foreign court or Governmental Entity or
authority applicable to Parent, or its business or assets. Parent is not subject to, or a party to,
any mortgage, lien, lease, agreement, contract, instrument, order, judgment or decree or any other
material restriction of any kind or character which would prevent, hinder, restrict or impair the
continued operation of the business of Parent (or to the Knowledge of Parent, the continued
operation of the business of the Company) after the Closing.

          (n) Ongoing Business. No aspect of Parent’s past or present business, operations or
assets is of such a character as would restrict or otherwise hinder or impair Parent from carrying
on the business of Parent as it is presently being conducted by Parent.

          (o) Required Government Consents, Filings, etc. Except as have been or, prior to the
Closing, will be obtained, no approval, authorization, certification, consent, variance,

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permission, license, or permit to or from, or notice, filing, or recording to or with, any
U.S. Federal, state, or local governmental authorities is necessary for the execution and delivery
of this Agreement and the other agreements and instruments to be executed and delivered by Parent
in connection with the transactions contemplated hereby, or the consummation by Parent of the
transactions contemplated hereby.

          (p) Other Required Consents, Filings, etc. Except as have been or, prior to the
Closing, will be obtained, no approval, authorization, consent, permission, or waiver to or from,
or notice, filing, or recording to or with, any person is necessary for the execution and delivery
of this Agreement and the other agreements and instruments to be executed and delivered in
connection with the transactions contemplated hereby by Parent, or the consummation by Parent of
the transactions contemplated hereby.

          (q) Title to Assets. Parent has good and marketable title to all of its assets, free
and clear of any claims or Encumbrances. “Encumbrance” means any mortgage, charge (whether fixed or
floating), security interest, pledge, right of first refusal, lien (including any unpaid vendor’s
lien), option, hypothecation, title retention or conditional sale agreement, lease, option,
restriction as to transfer or possession, or subordination to any right of any other person.

          (r) Intellectual Property. Parent has no Intellectual Property. The term “Intellectual
Property” includes all patents and patent applications, trademarks, service marks, and trademark or
service mark registrations and applications, trade names, logos, designs, domain names, web sites,
slogans and general intangibles of like nature, together with all goodwill relating to the
foregoing, copyrights, copyright registrations, renewals and applications, software, databases,
technology, trade secrets and other confidential information, know-how, proprietary processes,
formulae, algorithms, models and methodologies, drawings, specifications, plans, proposals,
financing and marketing plans, advertiser, customer and supplier lists and all other information
relating to advertisers, customers and suppliers (whether or not reduced to writing), licenses,
agreements and all other proprietary rights, which relate to Parent or Merger Sub’s business.

          (s) Compliance with Rules.

               (1) Parent at all times has been and is currently in compliance with all Rules applicable to
Parent and/or its business, except where such failure to comply would not have a material adverse
effect on Parent or its operations. “Rule” means any law, statute, rule, regulation, order,
court decision, judgment or decree of any U.S. Federal, state, territorial, provincial or municipal
authority.

               (2) Parent is in material compliance with, and have obtained all Permits and other
authorizations relating to Parent or Merger Sub which are required by any Rule, which has been
enacted to the date of this Agreement, except as would not have a material adverse effect on Parent
or Merger Sub or its operations. No governmental proceeding is pending or threatened to cancel,
amend, modify or fail to renew any such Permit. “Permit” includes any approval,
authorization, concession, grant, certificate of convenience and necessity, qualification, consent,
franchise, license, security clearance, easement, order or other permit issued or granted by any
governmental entity.

13

 

          (t) Disclosures. No representation or warranty by Parent contained in this
Agreement or the Parent Disclosure Documents and no statement contained in any certificate,
schedule or other communication furnished pursuant to or in connection with the provisions hereof
contains or shall contain any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein not misleading. There is no current or prior
event or condition of any kind or character pertaining to Parent that may reasonably be expected to
have a Material Adverse Effect on Parent. Except as specifically indicated elsewhere in this
Agreement, all documents delivered by Parent in connection herewith have been and will be complete
originals, or exact copies thereof.

          (u) Employees. Parent currently has no employees, consultants or independent
contractors. No amounts are due or owed to any previous or current Parent employee, consultant or
independent contractor. There are no oral employment agreements, consulting agreements or other
compensation agreements currently in effect between Parent and any person.

          (v) Broker’s or Finder’s Fees. Parent has not authorized any person to act as broker
or finder or in any other similar capacity in connection with the transactions contemplated by this
Agreement.

          (w) Environmental Matters. Parent, including any corporation to which Parent is a
successor, is in material compliance with all Environmental Laws. Neither Parent nor, to the
Knowledge of Parent, any other Person for whose conduct Parent is or may be held responsible, has
any Environmental Liabilities, or, to the Knowledge of Parent, with respect to any properties and
assets (whether real, personal or mixed) in which Parent (or any predecessor) has or had an
interest, or at any property geologically or hydrologically adjoining any such property or assets.

     5. Closing. The Closing of the transactions contemplated herein shall take place on
such date (the “Closing”) as soon as reasonably practicable following the execution of this
Agreement, subject to the conditions precedent set forth in Sections 7 and 8 hereto, unless
accelerated or extended by the affirmative agreement by all parties.

     6. Actions Prior to Closing.

          (a) Prior to the Closing, the Company on the one hand, and Parent and Merger Sub on the other
hand, shall be entitled to make such investigations of the assets, properties, business and
operations of the other party, and to examine the books, records, tax returns, financial statements
and other materials of the other party as such investigating party deems necessary in connection
with this Agreement and the transactions contemplated hereby. Any such investigation and
examination shall be conducted at reasonable times and under reasonable circumstances, and the
parties hereto shall cooperate fully therein. Until the Closing, and if the Closing shall not
occur, hereafter, each party shall keep confidential and shall not use in any manner inconsistent
with the transactions contemplated by this Agreement, and shall not disclose, nor use for their own
benefit, any information or documents obtained from the other party concerning the assets,
properties, business and operations of such party, unless such information (i) is readily
ascertainable from public or published information, (ii) is received from a third party not under
any obligation to keep such information confidential, or (iii) is required to be disclosed by any
law or order (in which case the disclosing party shall promptly provide

14

 

notice thereof to the other party in order to enable the other party to seek a protective
order or to otherwise prevent such disclosure). If this transaction is not consummated for any
reason, each party shall return to the other all such confidential information, including notes and
compilations thereof, promptly after the date of such termination. The representations and
warranties contained in this Agreement shall not be affected or deemed waived by reason of the fact
that either party hereto discovered or should have discovered any representation or warranty is or
might be inaccurate in any respect.

          (b) Prior to the Closing, the Company, Parent and Merger Sub agree not to issue any statement
or communications to the public or the press regarding the transactions contemplated by this
Agreement without the prior written consent of the other parties. In the event that Parent is
required under federal Securities Law to either (i) file any document with the SEC that discloses
this Agreement or the transactions contemplated hereby, or (ii) to make a public announcement
regarding this Agreement or the transactions contemplated hereby, Parent shall provide the Company
with a copy of the proposed disclosure no less than 48 hours before such disclosure is made and
shall incorporate into such disclosure any reasonable comments or changes that the Company may
request. The parties hereto agree to the issuance of a press release in a form to be agreed upon
by the parties following the Execution Date.

          (c) There shall be no stock dividend, stock split, recapitalization, or exchange of shares
with respect to or rights, options or warrants issued in respect of Parent’s Common or Preferred
Stock after the date hereof and there shall be no dividends or other distributions paid on Parent’s
Common Stock, or shares of Parent capital stock issued, after the date hereof, in each case through
and including the Effective Time. The Company, Parent and Merger Sub shall conduct no business,
prior to the Closing, other than in the ordinary course of business or as may be necessary in order
to consummate the transactions contemplated hereby.

          (d) Prior to the Closing, if requested by Managers of Advanced Drilling and the Company,
Parent shall adopt a new stock option plan or amend its existing stock option plan in the manner
requested by the Managers of Advanced Drilling and the Company.

          (e) Prior to the Closing, the Board of Directors of the Parent and the Manager of Merger Sub
shall approve the Merger, this Agreement, and the transactions contemplated hereby, and shall
approve the resignations of the officers and directors of Parent and Merger Sub, effective as of
the Closing, and take such action as is necessary to appoint the Company nominees to the Parent
Board of Directors and offices effective as of the Closing.

     7. Conditions Precedent to the Obligations of the Company. All obligations of the
Company under this Agreement are subject to the fulfillment, prior to or as of the Closing and/or
the Effective Time, as indicated below, of each of the following conditions:

          (a) The representations and warranties by or on behalf of Parent and Merger Sub contained in
this Agreement or in any certificate or document delivered pursuant to the provisions hereof or in
connection herewith shall be true and correct in all material respects at and as of the Closing and
Effective Time as though such representations and warranties were made at and as of such time.

15

 

          (b) Parent and Merger Sub shall have performed and complied with all covenants, agreements,
and conditions set forth or otherwise contemplated in, and shall have executed and delivered all
documents required by, this Agreement to be performed or complied with or executed and delivered by
them prior to or at the Closing.

          (c) On or before the Closing, the directors of Parent and the Manager of Merger Sub, and
Parent as interest holder of Merger Sub, and the stockholders of Parent (to the extent the Parent
Required Vote is required by applicable law), shall have approved in accordance with applicable
state corporation law the execution and delivery of this Agreement and the consummation of the
transactions contemplated herein.

          (d) On or before the Closing Date, Parent and Merger Sub shall have delivered certified copies
of resolutions of the sole interest holder and Manager of Merger Sub and of the directors of Parent
approving and authorizing the execution, delivery and performance of this Agreement and authorizing
all of the necessary and proper action to enable Parent and Merger Sub to comply with the terms of
this Agreement, including the election of the Company’s nominees to the Board of Directors of
Parent and all matters outlined or contemplated herein.

          (e) The Merger shall be permitted by applicable state law and otherwise and Parent shall have
sufficient shares of its capital stock authorized to complete the Merger and the transactions
contemplated hereby.

          (f) At the Closing, the number of directors of Parent will be set at three (3), and (A) Frank
Ingriselli, Laird Q. Cagan and Elizabeth P. Smith, or such other persons designated by the Company,
shall be elected to the Board of Directors of Parent, (B) Frank Ingriselli shall be elected the
President and Chief Executive Officer of Parent, (C) Jamie Tseng shall be elected as the Executive
Vice President of Parent, (D) Stephen F. Groth shall be elected Vice President, Chief Financial
Officer and Secretary of Parent, and (E) all of the former directors and officers of Parent shall
resign in writing from their positions as directors and officers of Parent.

          (g) At the Closing, all instruments and documents delivered by Parent or Merger Sub, including
to the Company holders of Class A and Class B Units pursuant to the provisions hereof shall be
reasonably satisfactory to legal counsel for the Company.

          (h) The Company shall have received the reasonable assurance of its certified public
accountants, to the extent it deems necessary, that its financial audit shall be concluded at the
proper time in order to be in full compliance will applicable SEC reporting requirements in
connection with the Merger and the Closing of this transaction.

          (i) Advanced Drilling shall have raised a minimum of $8,000,000 of capital in connection with
its Private Placement under terms and conditions acceptable to the Company.

          (j) The shares of restricted Parent capital stock to be issued to the holders of Company Class
A and Class B Units at Closing will be validly issued, nonassessable and fully paid under New York
corporation law and will be issued in a nonpublic offering in compliance with all federal, state
and applicable Securities Laws.

16

 

          (k) The Company shall have received the advice of its tax advisor, to the extent it deems
necessary, that this transaction is a tax free reorganization as to the Company and all of the
holders of Company Class A and Class B Units.

          (l) The Company shall have received all necessary and required approvals and consents from
required parties and from its holders of Company Class A and Class B Units in connection with the
Closing of this Agreement, including stockholder approval to change the name of Parent to “Pacific
Asia Petroleum, Inc.,” in the State of Delaware and thereafter change the trading symbol of Parent.

          (m) At the Closing, Parent and Merger Sub shall have delivered to the Company an opinion of
Parent’s legal counsel dated as of the Closing to the effect that:

               (1) Parent is a corporation duly organized, validly existing and in good standing under the
laws of the Delaware, and Merger Sub is a limited liability company validly existing and in good
standing under the laws of New York;

               (2) This Agreement has been duly authorized, executed and delivered by Parent and Merger Sub
and is a valid and binding obligation of Parent and Merger Sub enforceable in accordance with its
terms;

               (3) Parent and Merger Sub each through its Board of Directors and stockholders, and interest
holders and Manager, respectively, have taken all corporate action necessary for performance under
this Agreement;

               (4) The documents executed and delivered to the Company and the holders of Company Class A and
Class B Units hereunder are valid and binding in accordance with their terms and vest in the
holders of Company Class A and Class B Units all right, title and interest in and to the shares of
Parent’s Common Stock and Preferred Stock to be issued pursuant to Section 2 hereof, and the shares
of Parent capital stock when issued will be duly and validly issued, fully paid and nonassessable;
and

               (5) Parent and Merger Sub each has the corporate power to execute, deliver and perform under
this Agreement.

          (n) The “Closing” as defined in the DrillCo Merger Agreement of that certain merger
transaction contemplated by the DrillCo Merger Agreement shall close simultaneously with the
Closing of the Merger under this Agreement.

     8. Conditions Precedent to the Obligations of Parent and Merger Sub. All obligations
of Parent and Merger Sub under this Agreement are subject to the fulfillment, prior to or at the
Closing and/or the Effective Time, of each of the following conditions:

          (a) The representations and warranties by the Company contained in this Agreement or in any
certificate or document delivered pursuant to the provisions hereof shall be true and correct in
all material respects at and as of the Closing and the Effective Time as though such
representations and warranties were made at and as of such times.

17

 

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

          (c) The Company shall deliver an opinion of its legal counsel to the effect that:

               (1) The Company is a limited liability company duly organized, validly existing and in good
standing under the laws of the state of its organization;

               (2) This Agreement has been duly authorized, executed and delivered by the Company;

               (3) The Manager and holders of Company Class A and Class B Units have taken all corporate
action necessary for performance under this Agreement; and

               (4) The Company has the corporate power to execute, deliver and perform under this Agreement.

     9. Survival and Indemnification. Notwithstanding any investigation conducted by any
Party hereto or any information any party may receive, all representations, warranties, covenants
and agreements contained in this Agreement (or in any schedule, certificate, document or statement
delivered pursuant hereto) shall survive only until the Closing.

     10. Nature of Representations. All of the parties hereto are executing and carrying
out the provisions of this Agreement in reliance solely on the representations, warranties and
covenants and agreements contained in this Agreement and the other documents delivered at the
Closing and not upon any representation, warranty, agreement, promise or information, written or
oral, made by the other party or any other Person other than as specifically set forth herein.

     11. Documents at Closing. At the Closing, the following documents shall be delivered:

          (a) The Company will deliver, or will cause to be delivered, to Parent the following:

               (1) a certificate executed by the President of the Company to the effect that all
representations and warranties made by the Company under this Agreement are true and correct as of
the Closing and as of the Effective Time, the same as though originally given to Parent or Merger
Sub on said date;

               (2) a certificate from the state of the Company’s organization dated within five business days
of the Closing to the effect that the Company is in good standing under the laws of said state;

               (3) such other instruments, documents and certificates, if any, as are required to be
delivered pursuant to the provisions of this Agreement;

18

 

               (4) an executed copy of the LLC Certificate of Merger for filing in New York;

               (5) certified copies of resolutions adopted by the members and Managers of the Company
authorizing the Merger;

               (6) all other items, the delivery of which is a condition precedent to the obligations of
Parent and Merger Sub, as set forth herein; and

               (7) the legal opinion required by Section 8(d) hereof.

     (b) Parent and Merger Sub will deliver or cause to be delivered to the Company:

               (1) stock certificates representing those securities of Parent to be issued as a part of the
Merger as described in Section 2 hereof;

               (2) a certificate of the President of Parent and Merger Sub, respectively, to the effect that
all representations and warranties of Parent and Merger Sub made under this Agreement are true and
correct as of the Closing, the same as though originally given to the Company on said date;

               (3) certified copies of resolutions adopted by Parent’s Board of Directors and, if applicable,
stockholders, and the Manager of Merger Sub and its members, if applicable, authorizing the Merger
and all related matters;

               (4) certificates from the jurisdiction of incorporation of Parent and organization of Merger
Sub dated within five business days of the Closing Date that each of said corporations is in good
standing under the laws of said state;

               (5) opinion of Parent’s counsel as described in Section 7(m) above;

               (6) such other instruments and documents as are required to be delivered pursuant to the
provisions of this Agreement;

               (7) written resignation of all of the officers and directors of Parent and Merger Sub and
written appointment of the Company nominees as directors and officers; and

               (8) all other items, the delivery of which is a condition precedent to the obligations of the
Company, as set forth in Section 7 hereof.

     12. Consultants’ Fees. Parent and Merger Sub, jointly and severally, represent and
warrant to the Company, and the Company represents and warrants to each of the Parent and Merger
Sub, that none of them, or any party acting on their behalf, has incurred any liabilities, either
express or implied, to any “consultant” “broker” or “finder” or similar Person in connection with
this Agreement or any of the transactions contemplated hereby.

     13. Post-Closing Covenants.

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          (a) Standard and Poor’s. If required for the trading of Parent Common Stock, Parent
shall use its commercially reasonable efforts to apply for listing with Standard and Poor’s
Information Service and Blue Sky filings.

          (b) Stock Listing. As soon as Parent meets the company listing requirements, Parent
shall use all commercially reasonable efforts to cause Parent Common Stock to be listed for trading
on the Over-The-Counter Bulletin Board.

          (c) Confidentiality. Parent hereby agrees that, after the Execution Date and prior to
the Effective Time, it shall not publicly disclose any confidential information of Parent or the
Company, and that they shall not make any public statement or announcement regarding the Merger or
the business, financial condition, prospects or operations of Parent or the Company, without the
prior written consent of the Company.

     14. Miscellaneous.

          (a) Further Assurances. At any time, and from time to time, after the Effective Time,
each party will execute such additional instruments and take such action as may be reasonably
requested by the other party to confirm or perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this Agreement.

          (b) Waiver. Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the party (in its sole
discretion) to whom such compliance is owed.

          (c) Termination.

               (1) By Any Party. This Agreement may be terminated at the discretion of any party if
the Closing has not occurred by April 30, 2007 (unless the Closing date is extended with the
consent of both the Company and Parent) for any reason other than the default hereunder by the
terminating party.

               (2) Termination by Mutual Consent. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, before or after gaining requisite stockholder
approval, by the mutual written consent of Parent and the Company.

               (3) Termination by Parent and Merger Sub. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, by action of the Board of
Directors of Parent and Merger Sub if:

               a. any representation or warranty of the Company contained in this Agreement shall not be true
in all material respects when made or, if a representation or warranty relates to a particular
date, shall not be true in all material respects as of such date (provided such breach is capable
of being cured and has not been cured within five (5) business days following receipt by the
breaching Party of notice of the breach) or on and as of the Effective Time as if made on and as of
the Effective Time; or

20

 

               b. the Merger is not approved by the Company’s members contemplated by this Agreement.

               (4) Termination by the Company. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by action of the Managers of the Company if:

               a. any representation or warranty of Parent or Merger Sub contained in this Agreement shall
not be true in all material respects when made or, if a representation or warranty relates to a
particular date, shall not be true in all material respects as of such date (provided such breach
is capable of being cured and has not been cured within five (5) business days following receipt by
the breaching Party of notice of the breach) or on and as of the Effective Time as if made on and
as of the Effective Time; or

               b. the Merger is not submitted to Parent’s stockholders as contemplated by this Agreement
(provided that the Company is not in material breach of the terms of this Agreement and this
Agreement has not otherwise been terminated pursuant to this Section 14(c)).

               (5) Effect of Termination. Except as otherwise expressly provided herein, in the event
of termination of this Agreement by a Party as provided in this Section 14(c), this Agreement shall
forthwith become void and there shall be no liability or obligation on the part of the Parties or
their respective affiliates, officers, managers, members, directors or stockholders, except
(x) with respect to the payment of expenses pursuant to Section 14(l) and (y) to the extent that
such termination results from the breach of a Party of any of its representations or warranties, or
any of its covenants or agreements, in each case, as set forth in this Agreement. In addition, in
the event of termination of this Agreement any materials or documents that have been furnished by
one party to the other in connection with this Agreement or the transactions contemplated hereby
shall be promptly returned by the receiving party, accompanied by all copies of such
documentation, within ten (10) days after (a) the termination of this Agreement or (b) the written
request of the disclosing party.

          (d) Amendment. This Agreement may be amended only in writing as agreed to by all
parties hereto.

          (e) Notices. All notices, requests, demands, claims, and other communications
required or permitted hereunder shall be in writing and shall be deemed given upon receipt if
delivered personally or by recognized commercial delivery service, or mailed by registered or
certified mail (return receipt requested), or sent via facsimile (with acknowledgment of complete
transmission and confirmed in writing by mail simultaneously dispatched) to the parties at the
following addresses (or at such other address for a party as shall be specified by like notice):

21

 

	 	(1)	 	if to Parent or Merger Sub, to:

     Pacific East Advisors, Inc.

     10600 N. De Anza Blvd., Suite 250

     Cupertino, California 95014

     Attention: Laird Q. Cagan

          Telephone No.: (408) 873-0400

          Facsimile No.: (408) 873-0550
	 
	 	 	 	with a copy (which shall not constitute notice) to:
	 	 	 	     Krueger Group, LLP

     5771 La Jolla Boulevard

     La Jolla, California 92037

     Attention: Blair Krueger

          Telephone No.: (858) 729-9997

          Facsimile No.: (858) 729-9995
	 
	 	(2)	 	if to Company, to:

     Inner Mongolia Production Company LLC

     75 South Broadway

     White Plains, New York USA 10601

     Attention: Frank Ingriselli

          Telephone No.: (914) 304-4076

          Facsimile No.: (914) 304-4077
	 
	 	 	 	with a copy (which shall not constitute notice) to:
	 	 	 	     Crone Rozynko, LLP

     101 Montgomery Street, Suite 1950

     San Francisco, California 94104

     Attention: Scott Kline

          Telephone No.: (415) 955-890

          Facsimile No.: (415) 955-8910

          (f) Headings. The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

          (g) Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

          (h) Binding Effect. This Agreement shall be binding upon the parties hereto and inure
to the benefit of the parties, their respective heirs, administrators, executors, successors and
assigns.

          (i) Entire Agreement. This Agreement and the attached Exhibits, is the entire
agreement of the parties covering everything agreed upon or understood in the transaction.

22

 

There are no oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof.

          (j) Time. Time is of the essence.

          (k) Severability. If any part of this Agreement is deemed to be unenforceable, the
balance of the Agreement shall remain in full force and effect.

          (l) Responsibility and Costs. If the Merger is not consummated, all fees, expenses
and out-of-pocket costs, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred by the parties hereto (collectively the
“Transaction Expenses”) shall be borne solely and entirely by the party that has incurred
such costs and expenses, unless the failure to consummate the Merger constitutes a breach of the
terms hereof, in which event the breaching party shall be responsible for all costs of all parties
hereto. If the Merger is consummated, the Company shall be responsible for payment of all
Transaction Expenses incurred by the Company, the Parent and the Merger Sub.

          (m) Applicable Law. This Agreement shall be construed and governed by the internal
laws of the State of Delaware, without reference to principles of conflicts of law.

          (n) Jurisdiction and Venue. Each party hereto irrevocably consents to the
jurisdiction and venue of the state or federal courts located in Santa Clara County, State of
California, in connection with any action, suit, proceeding or claim to enforce the provisions of
this Agreement, to recover damages for breach of or default under this Agreement, or otherwise
arising under or by reason of this Agreement.

          (o) Definitions. As used in this Agreement, the following terms shall have the
meanings set forth below:

               (1) “Company Disclosure Documents” means that certain Confidential Private Placement
Memorandum of Advanced Drilling, to be provided by the Company prior to the Closing, and other
documents provided to Parent by the Company prior to the Effective Time. Any information with
respect to a matter that is disclosed by the Company to the Parent for any purpose in the Company
Disclosure Documents shall be deemed to be disclosed for all purposes hereunder provided that such
information sufficiently identifies the matter in question in all material respects.

               (2) “Parent Disclosure Documents” means all available documents filed by Parent with
the NASD, the SEC or documents otherwise provided by Parent to the Company prior to the Effective
Time.

               (3) “Encumbrance” means, with respect to any Person, any mortgage, deed of trust,
pledge, lien, security interest, charge, claim or other security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title
retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the
effect of, security and any filed financing statement or other notice of any of the foregoing
(whether or not an Encumbrance is created or exists at the time of the filing).

23

 

               (4) “Environmental Law” means any and all applicable Legal Requirements, and without
limiting the foregoing, any regulations, orders, decrees, judgments or injunctions promulgated or
entered into by any Governmental Entity, relating to the preservation or reclamation of natural
resources, or to the management, Release (as hereinafter defined) or threatened Release of
Hazardous Material (as hereinafter defined), including but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq.
(“CERCLA”), the Federal Water Pollution Control Act, 33 U.S.C. §§ 1251 et seq., the Clean
Air Act, 42 U.S.C. § 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2701 et seq., the
Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. § 11001 et. seq., the Safe Drinking Water Act, 42 U.S.C. §
300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801 et seq., and any
similar or implementing state or local law, and all amendments or regulations promulgated
thereunder.

               (5) “Environmental Liabilities” means all claims, demands, causes of action,
liabilities, investigations, judgments, damages, costs and expenses (including, without limitation,
costs of suit, reasonable attorneys’ fees, costs of negotiation, consulting fees and expert fees,
Remedial Action costs, penalties, fines and punitive damages, whether in respect of death, personal
injury, property damage, cleanup and removal expense, cost recovery contribution or compensation),
under Environmental Laws in effect prior to or as of the Closing, which arise from (i) the Release
of Hazardous Materials prior to the Closing at, on, in or under any facilities of the Company, (ii)
any violation by the Company of any Environmental Law in effect at the time of the Closing Date,
due to conditions existing or events occurring prior to the Closing, or (iii) the off-site
treatment, storage or disposal of Hazardous Materials from any of the facilities of the Company at
any time prior to the Closing.

               (6) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

               (7) “GAAP” means generally accepted accounting principles in the United States.

               (8) “Governmental Authorization” means any permit, license, franchise, approval,
consent, permission, confirmation, endorsement, waiver, certification, registration, qualification,
clearance or other authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Entity or pursuant to any Legal Requirement.

               (9) “Governmental Entity” means any nation, state, municipality and any federal,
state, local, foreign, provincial or supranational court or governmental agency, authority,
instrumentality or regulatory body.

               (10) “Hazardous Material” means all explosive or regulated radioactive materials or
substances; petroleum and petroleum products (including crude oil or any fraction thereof);
asbestos or asbestos-containing materials; and any hazardous or toxic materials, wastes or
chemicals designated, defined, listed or regulated as such pursuant to any Environmental Law.

24

 

               (11) “Indebtedness” means indebtedness for borrowed money or the equivalent or
represented by notes, bonds or other similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the balance deferred and unpaid of the purchase
price of any property (other than trade payables constituting current liabilities and Personal
property leases), and including without limitation capital lease obligations, including all accrued
and unpaid interest thereon, and applicable prepayment, breakage or other premiums, fees or
penalties and the costs of discharging such indebtedness, all as determined in accordance with
GAAP.

               (12) “Legal Requirement” shall mean any federal, state, local, provincial, foreign,
international, multinational or other statute, law, treaty, rule, regulation, guideline,
administrative order, directives, ordinance, constitution or principle of common law (or any
interpretation thereof by a Governmental Entity).

               (13) “Material Adverse Effect” means:

          (a) with respect to the Company, an effect that would be materially adverse: (i) to the
business, results of operation or financial condition of the Company; (ii) to the Company’s ability
to perform any of its material obligations under this Agreement or to consummate the Merger; or
(iii) to the ability of the Continuing LLC or Parent to conduct the business of the Company
following the Effective Time or the ability of the Company to exercise full rights of ownership of
the Company or its assets or business; or

          (b) with respect to Parent, an effect that would be materially adverse: (i) to the business,
results of operation, or financial conditions of Parent and its Subsidiaries, considered as a
whole; or (ii) to Parent’s ability to perform any of its material obligations under this Agreement
or to consummate the Merger; or (iii) to the ability of the Continuing LLC or Parent to conduct the
business of the Company following the Effective Time or the ability of Parent to exercise full
rights of ownership of the Company or its assets or business;

provided, however, that in determining whether a Material Adverse Effect has
occurred there shall be excluded any action or omission of the Company or Parent taken with the
prior written consent of Parent or the Company, as applicable, in contemplation of the Merger.

               (14) “Party” or “Parties” means either, or collectively, Parent, Merger Sub or
the Company.

               (15) “Person” means any individual and any corporation, partnership, limited liability
company, firm, trust, or other business entity and any Governmental Entity.

               (16) “Remedial Action” shall mean (a) “remedial action” as such term is defined in
CERCLA and (b) all other action required by any Governmental Entity to respond to a release or
threatened release of Hazardous Material.

               (17) “Securities Act” means the Securities Act of 1933, as amended.

               (18) “Securities Laws” means the Securities Act; the Exchange Act; the Investment
Company Act of 1940, as amended; the Investment Advisers Act of 1940, as

25

 

amended; the Trust Indenture Act of 1939, as amended; the rules and regulations of the
Securities and Exchange Commission promulgated thereunder; and the blue sky and other Legal
Requirements of any state that are applicable to the purchase and sale of securities generally.

               (19) “Subsidiary” or “Subsidiaries” means with respect to any party, any
corporation, company, partnership or other organization, whether incorporated or unincorporated,
which is consolidated with such party for financial reporting purposes.

               (20) In addition, the following terms shall be interpreted as set forth below:

               a. The words “hereof,” “herein,” “hereby” and “hereunder” and/or words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any particular
provisions of this Agreement.

               b. Terms defined in the singular shall have a comparable meaning when used in the plural, and
vice-versa.

               c. References to the “Knowledge” of an entity shall refer to the actual personal knowledge of
the directors and officers of the entity, and the knowledge of any fact or matter which any Person
would have following inquiries of those employees and directors or former employees and directors
of the entity of whom such persons would reasonably believe would have actual knowledge of such
matters presented.

               d. References to an “Exhibit” or to a “Schedule” are, unless otherwise specified, to one of
the Exhibits or Schedules attached to or referenced in this Agreement. The reference to an
“Article” or “Section” is, unless otherwise specified, to one of the Articles or Sections of this
Agreement.

26

 

     IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above
written.

	 	 	 	 	 	 	 	 	 	 	 
	PACIFIC EAST ADVISORS, INC.
a Delaware corporation	 	 	 	IMPCO ACQUISITION, LLC,
a New York limited liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	/s/ Dale Walter	 	 	 	By:	 	/s/ Dale Walter	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Dale Walter,	 	 	 	 	 	Dale Walter,	 	 
	 
	 	Chairman, President and Chief
Executive Officer	 	 	 	 	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	INNER MONGOLIA PRODUCTION COMPANY LLC,
a New York limited liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	By:	 	/s/ Frank C. Ingriselli	 	 
	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	Frank C. Ingriselli,	 	 
	 
	 	 	 	 	 	 	 	Manager, President and
Chief
Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 

27

 

EXHIBIT A

PARENT CERTIFICATE

Intentionally Omitted

28

 

Amendment No 1. to the Amended and Restated Plan of Merger and Reorganization

INNER MONGOLIA PRODUCTION COMPANY, LLC

     This Amendment No. 1 to Amended and Restated Plan of Merger and Reorganization (“Amendment”)
is executed as of the 20th day of April, 2007, by and among: Pacific East Advisors, Inc., a
Delaware corporation (“Parent”), IMPCO Acquisition, LLC., a New York limited liability company and
a wholly-owned subsidiary of Parent (“Merger Sub”) and INNER MONGOLIA PRODUCTION COMPANY, LLC, a
New York limited liability company (the “Company”).

WITNESSETH:

     WHEREAS, Parent, Merger Sub and the Company entered into a certain Agreement and Plan of
Merger and Reorganization (the “Merger Agreement”) dated December 5, 2006, and as amended and
restated on February 12, 2007, concerning the merger of the Company with and into Merger Sub (such
agreement, as so amended and restated, is hereinafter referred to as the “Agreement”); and

     WHEREAS, Parent, Merger Sub and the Company desire to amend and modify the Merger Agreement;

     NOW, THEREFORE, Parent, Merger Sub and Company hereby agree as follows:

	 	1.	 	Section 2(b)(1) of the Merger Agreement is amended and restated in its
entirety, effective as of the date hereof, to provide as follows:

“(1) It is currently contemplated that prior to the Merger becoming
effective under New York law, Advanced Drilling shall close a private
offering under Regulation D, Rule 506, as promulgated by the Securities and
Exchange Commission (“SEC”) under the Securities Act, pursuant to
which it will issue up to 13,600,000 Class B Units (excluding warrants
issuable to Advanced Drilling’s placement agents) (the “Maximum
Offering”) at $1.25 per Class B Unit (the “Private Placement”).
All of the Class B Units issued as part of the Private Placement shall be
included in the membership interests of Advanced Drilling that are
outstanding at the time of the DrillCo Merger and will be
converted/exchanged in the DrillCo Merger in accordance with the terms of
the DrillCo Merger Agreement.”

	 	2.	 	Except to the extent modified hereby, the Merger Agreement shall remain in full
force and effect.

Signature Pages Follow

-1-

 

     IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date and
year first referenced above.

	 	 	 	 	 	 	 	 	 	 	 
	PACIFIC EAST ADVISORS,
INC.

a Delaware corporation	 	 	 	IMPCO ACQUISITION, LLC,

a New York limited liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Dale Walter
 

Dale Walter,

Chairman, President and Chief Executive
Officer
	 	 	 	By:
	 	/s/ Dale Walter
 

Dale Walter,

President and Chief Executive Officer
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	INNER MONGOLIA PRODUCTION COMPANY LLC,

a New York limited liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Frank C. Ingriselli
 

Frank Ingriselli,

Manager, President and Chief Executive
Officer
	 	 

-2-exv10w17

 

Exhibit
10.17

December 1,
2006

Mr. Michael McTeigue, CFO

ADVANCED DRILLING SERVICES, LLC

10600 N. De Anza Blvd. Suite 250

Cupertino, CA 95014

Dear Mr. McTeigue,

          We are pleased that Advanced Drilling Services, LLC, a Delaware limited liability company.
(the “Company”) desires to continue to engage Cagan McAfee Capital Partners, LLC, a California
limited liability company (“CMCP”) as its nonexclusive management advisor to the Company (the
“Advisory Services”). We look forward to working with you and your management team, and have set
forth below the agreed upon terms of our involvement. This Agreement shall supersede and terminate
any prior agreements by and between the Company and CMCP.

1. Scope of Engagement

As discussed, we will undertake certain services on behalf of the Company, including the
anticipated services of Laird Cagan as a member of the Board of Directors.

2. Fees and Expenses.

For our advisory services beginning with the signing of the Agreement and Plan of Merger
and Reorganization (“Merger Agreement”), by and among Pacific East Advisors, Inc., a
Delaware limited liability company (the “Parent”), DrillCo Acquisition, LLC, a Delaware
limited liability company and wholly-owned subsidiary of Parent, to be executed in the
next few days, the Company will pay monthly to CMCP, in arrears, a cash fee of $9,500
per month and reimbursement of direct out-of-pocket expenses incurred on behalf of the
Company and with its prior approval, and additionally for actual legal fees incurred in
connection with this Agreement up to $50,000. These expense shall accrue and not be
payable until the Closing of the Merger Agreement, as defined therein.

3. Use of Information; Financing Matters.

	 	(a)	 	The Company recognizes and confirms that CMCP in acting pursuant to
this engagement after the consummation of the Merge Agreement, will be using
publicly available information and information in reports and other materials
provided by others, including, without limitation, information provided by or on
behalf of the Company, and that CMCP does not assume responsibility for and may
rely, without independent verification, on the accuracy and completeness of any
such publicly available information. The Company agrees to furnish or cause to be
furnished to CMCP all necessary or appropriate information for use in its

 

 

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	 	 	 	engagement and hereby represents and warrants that any information relating to the
Company or transaction that is furnished to CMCP by or on behalf of the Company
will be true and correct in all material respects and not misleading.

	 	(b)	 	CMCP recognizes and confirms that Company, in acting pursuant to this
engagement, may be providing material non-public information to CMCP, and that CMCP
assumes responsibility that no such material non-public information shall be
communicated or divulged to any other party without the express written consent of
Company and that any recipient of such material non-public information shall not
trade in the securities of the Company until such information is either public or
rendered moot.
	 
	 	(c)	 	CMCP further acknowledges that by the very nature of its relationship
with the Company it may, from time to time, have knowledge of or access to material
non-public information (as such term is defined by the Securities Exchange Act of
1934, as amended). CMCP hereby agrees and covenants that: 1) CMCP will not make any
purchases or sales in the stock of the Company based on such information; 2) CMCP
will utilize its commercially reasonable efforts to safeguard and prevent the
dissemination of such information to third parties unless authorized in writing by
the Company to do so as may be necessary in the performance of its services under
this Agreement; and 3) CMCP will not, in any way, utilize or otherwise include such
information, in actual form or in substantive content, in its analysis for,
preparation of or release of any CMCP literature or other communication(s) relating
to the Company, including, but not limited to: research reports, press releases,
publications, letters to investors and telephone or other personal communication(s)
with potential or current investors.
	 
	 	(d)	 	CMCP agrees that its services shall not include: (1) the preparation of
any offering or descriptive materials regarding the Company; (2) any legal, tax,
financial, accounting advise; (3) participation in presentations or negotiations
about the Company or the Company’s securities; (4) making any recommendations
concerning the Company’s securities; (5) structuring any equity transaction, making
any recommendations, or assessing the value of the Company’s securities; (f) any
involvement in the sale of securities that would trigger broker-dealer registration
obligation under state or federal law.

4. Certain Acknowledgements.

The Company acknowledges that CMCP has been retained by the Company, and that the Company’s
engagement of CMCP is as an independent contractor. Neither this engagement, nor the delivery
of any advice in connection with this engagement, is intended to confer rights upon any
persons not a party hereto (including security holders, employees or creditors of the Company)
as against CMCP or our affiliates or their respective directors, officers, agents and
employees. The Company acknowledges that CMCP may make investments in or act as advisor to
Companies that later become strategic partners or customers of the Company. CMCP shall advise
Company of such relationships prior to initiation of any negotiations. CMCP acknowledges that
it is not a broker-dealer and in its performance under this agreement CMCP shall not be
engaged in any activity which would require it to register as a broker-dealer under state or
federal law.

 

 

CMCP: ADS Advisory

Page 3 of 6

5. Indemnity.

CMCP and the Company have agreed to the indemnification set forth in entered into a separate
letter agreement attached hereto as Exhibit A, providing for the indemnification of CMCP by
the Company and of the Company by CMCP in connection with CMCP’s engagement hereunder, the
terms of which are incorporated into this agreement in their entirety.

6. Term of Engagement.

CMCP’s engagement shall commence upon the signing of the Merger Agreement (the “Effective
Date”) and shall continue for three (3) years after the Effective Date, and then monthly
thereafter unless terminated as provided below. It is expressly agreed that following the
expiration or termination of this agreement, CMCP shall be entitled to receive any fees as
described above that have accrued prior to such expiration or termination but are unpaid, as
well as reimbursement for expenses as set forth herein.

7. Miscellaneous.

This agreement shall inure to the benefit of and be binding upon the parties hereto and their
respective executors, administrators, successors and assigns; provided,
however, that neither party may assign their duties hereunder without the prior
written consent of the other. Notwithstanding the foregoing, however, in the event that the
Merger Agreement is consummated, this Agreement shall not be terminated and the Company agrees
to use best effort to ensure that the Parent is and shall be bound by the provisions of this
Agreement. This agreement is governed by the laws of the State of California, without regard
to conflicts of law principles, and will be binding upon and inure to the benefit of the
Company and CMCP and their respective successors and assigns. In the event of a dispute
between the Company and CMCP related to this Agreement, including without limitation any claim
for breach of contract, professional negligence, or breach of fiduciary duty shall be
determined, settled and resolved by confidential arbitration in San Francisco, California. Any
and all questions as to whether or not an issue constitutes a dispute or other matter
arbitrable under this section shall themselves be settled by arbitration in accordance with
this section. The arbitration shall be conducted pursuant to the procedures set forth in the
California Code of Civil Procedure Section 1280, et seq. Section 1283.05, thereof, authorizing
discovery as applicable to any such arbitration. Any award shall be final, binding and
conclusive upon the parties, and a judgment rendered thereon may be entered in any court
having jurisdiction thereof. By signing this Agreement, all parties confirm that they have
read and understand this provision, and voluntarily agree to binding arbitration. In doing so,
all parties voluntarily give up important constitutional rights to trial by judge or jury, as
well as rights to appeal. This agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one and the same
agreement.

 

 

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We are pleased to accept this engagement and look forward to working with you on this matter.
Please confirm that the foregoing is in accordance with your understanding of our agreement by
signing and returning to us a copy of this letter.

	 	 	 	 	 
	 	Very truly yours,

CAGAN MCAFEE CAPITAL PARTNERS, LLC

 	 
	 	By:  	/s/ Eric A. McAfee
 	 
	 	 	Eric A. McAfee 	 
	 	 	Managing Director 	 
	 

Accepted and agreed to as of the date set forth above:

	 	 	 	 	 
	ADVANCED DRILLING SERVICES, LLC.	 	 
	 
	 	 	 	 
	By

	 	/s/ Michael McTeigue	 	 
	 

	 	 

Michael McTeigue, CFO
	 	 

 

 

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Page 5 of 6

INDEMNIFICATION AGREEMENT

In consideration for the agreement of Cagan McAfee Capital Partners, LLC (“CMCP”) to act on behalf
of Advanced Drilling Service, LLC. (the “Company”) pursuant to the attached Engagement Letter
effective as of December 2006, the Company agrees (the “Indemnitor”) to indemnify and hold harmless
CMCP, its affiliates, and each of their respective directors, officers, agents, shareholders,
consultants, employees and controlling persons (within the meaning of the Securities Act of 1933)
(CMCP and each such other person or entity are hereinafter referred to as an “Indemnified Person”),
to the extent lawful, from and against any losses, claims, damages, expenses and liabilities or
actions in respect thereof (collectively, “Losses”), as they may be incurred (including reasonable
legal fees and other expenses as incurred in connection with investigating, preparing, defending,
paying, settling or compromising any third party Losses, whether or not in connection with any
pending or threatened litigation in which any Indemnified Person is a named party) to which any of
them may become subject (including in any settlement effected with the Indemnitor’s consent) and
which are related to or arise out of any act, omission, disclosure (written or oral), transaction
or event arising out of, contemplated by, or related to the Engagement Letter. The Indemnitor will
not, however, be responsible under the foregoing provisions with respect to any Losses to an
Indemnified Person to the extent that a court of competent jurisdiction shall have determined by a
final judgment that such Losses resulted primarily from actions taken or omitted to be taken by
such Indemnified Person due to his gross negligence, bad faith, breach of this Engagement Letter or
willful misconduct. If multiple claims are brought against CMCP in an arbitration, with respect to
at least one of which indemnification is permitted under applicable law and provided for under this
agreement, any arbitration award shall be conclusively deemed to be based on claims as to which
indemnification is permitted and provided for, except to the extent the arbitration award expressly
states that the award, or any portion thereof, is based solely on a claim as to which
indemnification is not available. No indemnified Party shall settle, compromise or otherwise
dispose of any action for which indemnification is claimed hereunder without the written consent of
the Indemnitor. No expenses shall be forwarded to any Indemnified Party unless such party agrees in
writing to reimburse the Indemnitor for such forwarded expenses in the event it is determined that
such Indemnified Party was not entitled to indemnification hereunder.

If the indemnity referred to in this agreement should be, for any reason whatsoever, unenforceable,
unavailable or otherwise insufficient to hold each Indemnified Person harmless, the Indemnitor
shall pay to or on behalf of each Indemnified Person contributions for Losses so that each
Indemnified Person ultimately bears only a portion of such Losses as is appropriate to reflect the
relative benefits received by and the relative fault of each such Indemnified Person, respectively,
on the one hand and the Indemnitor on the other hand in connection with the transaction; provided,
however, that in no event shall the aggregate contribution of all Indemnified Persons to all Losses
in connection with any transaction exceed the amount of any fees actually received by CMCP pursuant
to the Engagement Letter. The relative fault of each Indemnified Person and the Indemnitor shall be
determined by reference to, among other things, whether the actions or omissions to act were by
such Indemnified Person or the Indemnitor and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such action to omission to act.

The Indemnitor also agrees that no Indemnified Person shall have any liability to the Indemnitor or
its affiliates, directors, officers, employees, agents or shareholders, directly or indirectly,
related to or arising out of the Engagement Letter, except Losses incurred by the Indemnitor which
a court of competent jurisdiction shall have determined by a final judgment to have

 

 

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resulted primarily from actions taken or omitted to be taken by such Indemnified Person due to its
breach, gross negligence, bad faith or willful misconduct. In no event, regardless of the legal
theory advanced, shall Company or Indemnified Person be liable for any consequential, indirect,
incidental or special damages of any nature. The Indemnitor agrees that without CMCP’s prior
written consent (which consent shall not be unreasonably withheld) it shall not settle, compromise
or consent to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding related to the Engagement Letter unless the settlement, compromise or consent also
includes an express unconditional release of all Indemnified Persons from all liability and
obligations arising therefrom.

The obligations of the Indemnitor referred to above shall be in addition to any rights that any
Indemnified Person may otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any Indemnified Person and the
Indemnitor. It is understood that these obligations of the Indemnitor will remain operative
regardless of any termination or completion of CMCP’s services.

	 	 	 	 	 	 	 	 	 
	Cagan McAfee Capital Partners, LLC:

	 	/s/ Eric A. McAfee
	 	Date:
	 	12/1/06	 	 
	 

	 	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Advanced Drilling Services, LLC:

	 	/s/ Michael McTeigue
	 	Date:
	 	12/1/06

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