Document:

ex4-1.htm

Exhibit 4.1

 

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

HAMPTON ROADS BANKSHARES, INC.

 

(As electronically amended and restated, effective June 25, 2012)

 

ARTICLE I

 

NAME

 

The name of the Corporation is:

 

Hampton Roads Bankshares, Inc.

 

ARTICLE II

 

PURPOSE

 

The purpose for which the Corporation is organized is to act as a bank holding company and to transact any and all lawful business, not required to be specifically stated in the Articles of Incorporation, for which corporations may be incorporated under the Virginia Stock Corporation Act (the “VSCA”).

 

ARTICLE III

 

CAPITAL STOCK

 

(a) The Corporation shall have the authority to issue 1,000,000,000 shares of Common Stock, par value $0.01 per share (the “Common Stock”), and 1,000,000 shares of Preferred Stock, no par value.

 

(i) As of 11:59 p.m. on April 27, 2011 (the “Effective Time”), a reverse stock split (“Reverse Stock Split”) will occur, a result of which each twenty five (25) shares of issued and outstanding Common Stock of the Corporation (“Old Common Stock”) shall automatically, without further action on the part of the Corporation or any holder of such Common Stock, be reclassified and converted into one (1) share of the Corporation’s Common Stock (“New Common Stock”). The Corporation will not issue fractional shares. The number of shares to be issued to each stockholder will be rounded up to the nearest whole number if, as a result of the Reverse Stock
Split, the number of shares owned by any stockholder would not be a whole number. From and after the Effective Time, Old Certificates shall confer no right upon the holders thereof other than the right to exchange them for the New Certificates pursuant to the provisions hereof.

 

(b) Except as otherwise provided herein, the Board of Directors, by adoption of Articles of Amendment, may determine the preferences, limitations and relative rights, to the extent permitted by the VSCA, of any class of shares of Preferred Stock before the issuance of

 

  

  

  

any shares of that class, or of one or more series within a class before the issuance of any shares of that series. Each class or series shall be appropriately designated by a distinguishing designation prior to the issuance of any share thereof. The Preferred Stock of all series shall have the preferences, limitations and relative rights identical with those of other shares of the same series and, except to the extent otherwise provided in the description of the series, with those of shares of other series in the same class. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall
be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto.

 

(c) Pursuant to the provisions of these Articles of Incorporation and applicable law, 23,266 shares of Preferred Stock, no par value, of the Corporation be and hereby are designated as “Series A Convertible Preferred Stock”, and the number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

 

(i) Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”). The authorized number of shares of Series A Preferred Stock shall be 23,266.

 

(ii) Ranking. The Series A Preferred Stock shall, with respect to rights upon liquidation, winding up or dissolution, rank (i) pari passu to the Series B Preferred Stock (as defined below), (ii) except to the extent otherwise provided in its description, pari passu with any other series of Preferred Stock and (iii) senior and prior in right to the Common Stock.

 

(iii) Dividends. The holders of Series A Preferred Stock are not entitled to receive any dividends from the Corporation.

 

(iv) Liquidation. In the event of liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a “Corporate Event”), the holders of the Corporation’s Series A Preferred Stock, without preference or priority as between such shares or other series of Preferred Stock and on a pari passu basis with the Series B Preferred Stock, shall be entitled to receive from assets available for distribution to shareholders, for each such share held, a sum equal to $100.00 plus the amount of any dividend on such share which has been declared by the Board of Directors but has not yet been paid. Such distribution shall be
considered full payment to the holders of Series A Preferred Stock, and such holders shall not participate with the holders of any other class or series of the Corporation’s capital stock in the distribution of any additional assets of the Corporation.

 

(v) Voting. Shares of Series A Preferred Stock shall be non-voting shares, and holders of Series A Preferred Stock shall have no right to vote on matters submitted to a vote of the Corporation’s shareholders (including any right to a class or series vote as may be contemplated by the VSCA)

 

  

  

  

(vi) Redemption. After January 1, 2009, the Corporation shall have the right and option to redeem all or a portion of the outstanding shares of Series A Preferred Stock at the rate of $100.00 for each one whole share of Series A Preferred Stock. In the case of a redemption of less than all of the then outstanding shares of Series A Preferred Stock, the shares will be redeemed proportionately in such manner as its Board of Directors, at its sole discretion, considers reasonable and appropriate and, when made, the Board of Directors’ determination shall be final, conclusive and binding on all persons, including, without limitation, the
Corporation and the holders of Series A Preferred Stock.

 

(vii) Conversion Rights.

 

(A) The holders of the Series A Preferred Stock shall not be entitled to any right to convert voluntarily their shares of Series A Preferred Stock into shares of the Corporation’s Common Stock.

 

(B) On or after the first business day following the First Closing (as defined in the Second Amended and Restated Investment Agreement, dated as of August 11, 2010, by and among the Corporation, Carlyle Global Financial Services Partners, L.P. and ACMO-HR, L.L.C., as may be amended (the “Investment Agreement”)), the Corporation shall have the right, but not the obligation, to convert in whole but not in part (the “Series A Corporation Conversion Right”) each outstanding share of Series A Preferred Stock into 375 shares of Common Stock, such First Closing to be announced by means of a press release disseminated for publication and publicly filed by the Corporation with the Securities and
Exchange Commission.

 

(C) To exercise a Series A Corporation Conversion Right, the Corporation shall deliver to each holder of record of Series A Preferred Stock an irrevocable written notice (a “Series A Corporation Conversion Notice”) indicating the effective date of the conversion, which date shall be no less than five business days and no more than ten business days after the date of such written notice (the “Series A Corporation Conversion Date”). On the Series A Corporation Conversion Date, all outstanding shares of Series A Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not certificates representing such shares are surrendered to the
Corporation (or to an agent designated by the Corporation), and certificates, if any, previously representing shares of Series A Preferred Stock shall represent only shares of Common Stock into which the shares of Series A Preferred Stock previously represented thereby have been converted pursuant hereto. Upon the occurrence of the conversion of the Series A Preferred Stock pursuant to this Article III(c)(vii), each holder of shares of Series A Preferred Stock shall surrender the certificates of Preferred Stock, if any, representing such holder’s shares to the Corporation, and, as promptly as

 

  

  

  

practicable after receipt thereof, the Corporation shall deliver (or cause an agent designated by the Corporation to deliver) the shares of Common Stock issuable upon such conversion to such holder.

 

(D) The person or persons entitled to receive the shares of Common Stock issuable upon conversion of the Series A Preferred Stock effected by the Corporation’s exercise of the Series A Corporation Conversion Right shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Series A Corporation Conversion Date.

 

(E) No fractional shares of Common Stock shall be issued to any holder of shares of Series A Convertible Stock upon conversion of any shares of the Series A Preferred Stock, and any fractional shares that otherwise would be deliverable to any holder upon such conversion (after taking into account all shares of Series A Preferred Stock held by such holder) will instead be rounded upwards to the nearest whole common share.

 

(F) All Common Stock, which may be issued upon conversion of the Series A Preferred Stock, will, upon issuance, be duly issued, fully paid and non-assessable and free from all taxes, liens, and charges with respect to the issuance thereof.

 

(d) Pursuant to the provisions of these Articles of Incorporation and applicable law, 37,550 shares of Preferred Stock, no par value, of the Corporation be and hereby are designated as “Series B Convertible Perpetual Preferred Stock”, and the number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

 

(i) Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Series B Convertible Perpetual Preferred Stock” (the “Series B Preferred Stock”). The authorized number of shares of Series B Preferred Stock shall be 37,550.

 

(ii) Ranking. The Series B Preferred Stock shall, with respect to rights upon liquidation, winding up or dissolution, rank (i) pari passu to the Series A Preferred Stock, (ii) except to the extent otherwise provided in its description, pari passu with any other series of Preferred Stock and (iii) senior and prior in right to the Common Stock.

 

(iii) Dividends. The holders of Series B Preferred Stock are not entitled to receive any dividends from the Corporation.

 

(iv) Liquidation. In the event of a Corporate Event, the holders of the Corporation’s Series B Preferred Stock, without preference or priority as between such shares or

 

  

  

  

other series of Preferred Stock and on a pari passu basis with the Series A Preferred Stock, shall be entitled to receive from assets available for distribution to shareholders, for each such share held, a sum equal to $100.00 plus the amount of any dividend on such share which has been declared by the Board of Directors but has not yet been paid. Such distribution shall be considered full payment to the holders of Series B Preferred Stock, and such holders shall not participate with the holders of any other class or series of the Corporation’s capital stock in the distribution of any additional assets of the Corporation.

 

(v) Voting. Shares of Series B Preferred Stock shall be non-voting shares, and holders of Series B Preferred Stock shall have no right to vote on matters submitted to a vote of the Corporation’s shareholders (including any right to a class or series vote as may be contemplated by the VSCA).

 

(vi) Redemption. After October 1, 2009, the Corporation shall have the right and option to redeem all or a portion of the outstanding shares of Series B Preferred Stock at the rate of $100.00 for each whole share of Series B Preferred Stock, subject to the prior approval of the Board of Governors of the Federal Reserve System, if necessary. In the case of a redemption of less than all of the then outstanding shares of Series B Preferred Stock, the shares will be redeemed proportionately in such manner as its Board of Directors, at its sole discretion, considers reasonable and appropriate and, when made, the Board of Directors’ determination
shall be final, conclusive and binding on all persons, including, without limitation, the Corporation and the holders of Series B Preferred Stock.

 

(vii) Conversion Rights.

 

(A) The holders of the Series B Preferred Stock shall not be entitled to any right to convert voluntarily their shares of Series B Preferred Stock into shares of the Corporation’s Common Stock.

 

(B) On or after the first business day following the First Closing (as defined in the Investment Agreement, the Corporation shall have the right, but not the obligation, to convert in whole but not in part (the “Series B Corporation Conversion Right”) each outstanding share of Series B Preferred Stock into 375 shares of Common Stock, such First Closing to be announced by means of a press release disseminated for publication and publicly filed by the Corporation with the Securities and Exchange Commission.

 

(C) To exercise a Series B Corporation Conversion Right, the Corporation shall deliver to each holder of record of Series B Preferred Stock an irrevocable written notice (a “Series B Corporation Conversion Notice”) indicating the effective date of the conversion, which date shall be no less than five business days and no more than ten business days after the date of such written notice (the “Series B Corporation Conversion Date”). On the Series B Corporation Conversion Date, all outstanding shares of Series B Preferred Stock shall be converted automatically

 

  

  

  

without any further action by the holders of such shares and whether or not certificates representing such shares are surrendered to the Corporation (or to an agent designated by the Corporation), and certificates, if any, previously representing shares of Series B Preferred Stock shall represent only shares of Common Stock into which the shares of Series B Preferred Stock previously represented thereby have been converted pursuant hereto. Upon the occurrence of the conversion of the Series B Preferred Stock pursuant to this Article III(d)(vii), each holder of shares of Series B Preferred Stock shall surrender the certificates of Preferred Stock, if any, representing such holder’s shares to the Corporation,
and, as promptly as practicable after receipt thereof, the Corporation shall deliver (or cause an agent designated by the Corporation to deliver) the shares of Common Stock issuable upon such conversion to such holder.

 

(D) The person or persons entitled to receive the shares of Common Stock issuable upon conversion of the Series B Preferred Stock effected by the Corporation’s exercise of the Corporation Conversion Right shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Series B Corporation Conversion Date.

 

(E) No fractional shares of Common Stock shall be issued to any holder of shares of Series B Convertible Stock upon conversion of any shares of the Series B Preferred Stock, and any fractional shares that otherwise would be deliverable to any holder upon such conversion (after taking into account all shares of Series B Preferred Stock held by such holder) will instead be rounded upwards to the nearest whole common share.

 

(F) All Common Stock, which may be issued upon conversion of the Series B Preferred Stock, will, upon issuance, be duly issued, fully paid and non-assessable and free from all taxes, liens, and charges with respect to the issuance thereof.

 

(e) Fixed Rate Cumulative Perpetual Preferred Stock, Series C

 

(i) Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series C” (the “Series C Preferred Stock”). The authorized number of shares of Series C Preferred Stock shall be 80,347.

 

(ii) Standard Provisions. The Standard Provisions contained in Schedule A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Certificate of Designations to the same extent as if such provisions had been set forth in full herein.

 

  

  

  

(iii) Definitions. The following terms are used in this Certificate of Designations (including the Standard Provisions in Schedule A hereto) as defined below:

 

(A) “Common Stock” means the common stock, par value $0.625 per share, of the Corporation.

 

(B) “Dividend Payment Date” means February 15, May 15, August 15 and November 15 of each year.

 

(C) “Junior Stock” means the Common Stock and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Series C Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.

 

(D) “Liquidation Amount” means $1,000 per share of Series C Preferred Stock.

 

(E) “Minimum Amount” means $20,086,750.

 

(F) “Parity Stock” means any class or series of stock of the Corporation (other than Series C Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Series C Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively). Without limiting the foregoing, Parity Stock shall include the Corporation’s Series A Preferred Stock and Series B Preferred Stock.

 

(G) “Signing Date” means the Original Issue Date.

 

(iv) Certain Voting Matters. Holders of shares of Series C Preferred Stock will be entitled to one vote for each such share on any matter on which holders of Series C Preferred Stock are entitled to vote, including any action by written consent.

 

(e) Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series C-1

 

Part 1. Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series C-1” (the “Designated Preferred Stock”). The authorized number of shares of Designated Preferred Stock shall be 80,347.

 

Part 2. Standard Provisions. The Standard Provisions contained in Schedule B attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Certificate of Designations to the same extent as if such provisions had been set forth in full herein.

 

  

  

  

Part 3. Definitions. The following terms are used in this Certificate of Designations (including the Standard Provisions in Schedule B hereto) as defined below:

 

(a) “Common Stock” means the common stock, par value $0.625 per share, of the Corporation.

 

(b) “Dividend Payment Date” means February 15, May 15, August 15 and November 15 of each year.

 

(c) “Exchange Value” means, for each share of Designated Preferred Stock, an amount equal to $260.

 

(d) “Exchange Agreement” means the Exchange Agreement, dated as of August 12, 2010, as amended from time to time, between the Company and the United States Department of the Treasury, including all annexes and schedules thereto.

 

(e) “Initial Conversion Price” means, for each share of Designated Preferred Stock, an amount equal to $0.40.

 

(f) “Initial Quarterly Dividend” means $0.11.

 

(g) “Junior Stock” means the Common Stock and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation. For purposes of clarification, the junior subordinated debentures issued by the Corporation in connection with trust preferred securities issued by certain subsidiaries of the Corporation shall not be deemed to be Junior Stock.

 

(h) “Liquidation Amount” means $1,000 per share of Designated Preferred Stock.

 

(i) “Mandatory Conversion Date” means the seventh anniversary of the Original Issue Date.

 

(j) “Minimum Amount” means $20,086,750.

 

(k) “Other Preferred Stock” has the meaning set forth in Section 7(b)(ii).

 

(l) “Other Preferred Stock Conversion” has the meaning set forth in Section 7(b)(ii).

 

(m) “Parity Stock” means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series shall rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively). Without limiting the foregoing, Parity Stock shall include the Corporation’s Series A Preferred Stock and Series B Preferred Stock. For purposes of clarification, the junior subordinated debentures issued
by the Corporation in connection with trust preferred securities issued by certain subsidiaries of the Corporation shall not be deemed to be Parity Stock.

 

  

  

  

(n) “Signing Date” means August 12, 2010.

 

Part 4. Certain Voting Matters. Holders of shares of Designated Preferred Stock shall be entitled to one vote for each such share on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.

 

ARTICLE IV

 

REGISTERED OFFICE AND REGISTERED AGENT

 

The post office address of the registered office shall be 999 Waterside Drive, Suite 200, Norfolk, Virginia 23510 in the City of Norfolk. The registered agent shall be Douglas J. Glenn, who is a resident of Virginia and a director of the Company, and whose business address is the same as the address of the registered office.

 

ARTICLE V

 

NO PREEMPTIVE RIGHTS

 

Except as otherwise set forth in the terms, preferences and rights of any class of series of shares of Preferred Stock hereafter authorized and issued pursuant to Article III(b) of these Articles of Incorporation, no holder of any shares of any class of the Corporation shall have any preemptive of preferential right to purchase or subscribe to (i) any shares of any class of the Corporation whether now or hereafter authorized; (ii) any warrants, rights or options to purchase any shares; or (iii) any securities or obligations convertible into any such shares or into warrants, rights or options to purchase such shares.

 

ARTICLE VI

 

LIMIT ON LIABILITY AND INDEMNIFICATION

 

(a) To the full extent that the VSCA, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors or officers, a director or officer of the Corporation shall not be liable to the Corporation or its shareholders for monetary damages.

 

(b) To the full extent permitted and in the manner prescribed by the VSCA and any other applicable law, the Corporation shall indemnify a director or officer of the Corporation who is or was a party to any proceeding by reason of the fact that he is or was such a director or officer or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.

 

(c) Reference herein to directors, officers, employees or agents shall include former directors, officers, employees and agents and their respective heirs, executors and administrators.

 

  

  

  

ARTICLE VII

 

BOARD OF DIRECTORS

 

(a) Number of Directors. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors, subject to any requirement of action by the Corporation’s shareholders under the VSCA, these Articles of Incorporation or the Corporation’s Bylaws, as each may be amended from time to time. The Board of Directors shall consist of not less than eight (8) nor more than twenty-four (24) persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of
the directors then in office.

 

(b) Classified Board of Directors. The Board of Directors shall be divided into three classes, Class A, Class B and Class C, as nearly equal in number as possible. Directors of the first class (Class A) shall be elected to hold office for a term expiring at the 2002 annual meeting of shareholders, directors of the second class (Class B) shall be elected to hold office for a term expiring at the 2003 annual meeting of shareholders, and directors of the third class (Class C) shall be elected to hold office for a term expiring at the 2004 annual meeting of shareholders. Beginning with the 2002 annual meeting of shareholders, the successors to the class of
directors whose terms shall then expire shall be identified as being of the same class as the directors they succeed and elected to hold office for a term expiring at the third succeeding annual meeting of the shareholders. When and if the number of directors is changed, any newly created directorships or any decrease in directorships shall be apportioned among the classes by the Board of Directors as to make all classes as nearly equal in number as possible.

 

(c) Removal of Directors by Shareholders. Any director elected by the holders of the Corporation’s Common Stock may only be removed by shareholders for cause. For purposes of this Article VII(c), the term “cause” shall mean engaging in willful misconduct or a knowing violation of the criminal law or of any federal or state securities law, including, without limitation, any claim of unlawful insider trading or manipulation of the market for any security.

 

ARTICLE VIII

 

Any (a) amendment to the Corporation’s Articles of Incorporation, (b) plan of merger or exchange, (c) transaction involving the sale of all substantially all of the Corporation’s assets other than in the regular course of business and (d) plan of dissolution shall be so approved upon the vote of a majority of all votes entitled to be cast on such transaction by each voting group entitled to vote on the transaction at a meeting at which a quorum of the voting group is present, and shall not require any greater or other shareholder vote that would otherwise apply under the Virginia Stock Corporation
Act in absence of this provision. However, nothing in this Article VIII shall require a vote of the shareholders to approve any action in circumstances where the Virginia Stock Corporation Act permits the Board of Directors to take action without a shareholder vote.

 

  

  

  

Schedule A

 

STANDARD PROVISIONS

 

Section 1. General Matters. Each share of Series C Preferred Stock shall be identical in all respects to every other share of Series C Preferred Stock. The Series C Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of the Certificate of Designations. The Series C Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.

 

Section 2. Standard Definitions. As used herein with respect to Series C Preferred Stock:

 

(a) “Applicable Dividend Rate” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.

 

(b) “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

 

(c) “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporation’s shareholders.

 

(d) “Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

 

(e) “Bylaws” means the bylaws of the Corporation, as they may be amended from time to time.

 

(f) “Certificate of Designations” means the Certificate of Designations or comparable instrument relating to the Series C Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.

 

(g) “Charter” means the Corporation’s certificate or articles of incorporation, as amended and/or restated from time to time.

 

(h) “Dividend Period” has the meaning set forth in Section 3(a).

 

(i) “Dividend Record Date” has the meaning set forth in Section 3(a).

 

  

  

  

(j) “Liquidation Preference” has the meaning set forth in Section 4(a).

 

(k) “Original Issue Date” means the date on which shares of Series C Preferred Stock are first issued.

 

(l) “Preferred Director” has the meaning set forth in Section 7(b).

 

(m) “Preferred Stock” means any and all series of preferred stock of the Corporation, including the Series C Preferred Stock.

 

(n) “Qualified Equity Offering” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporation’s Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly
announced, on or prior to October 13, 2008).

 

(o) “Share Dilution Amount” has the meaning set forth in Section 3(b).

 

(p) “Standard Provisions” mean these Standard Provisions that form a part of the Certificate of Designations relating to the Series C Preferred Stock.

 

(q) “Successor Preferred Stock” has the meaning set forth in Section 5(a).

 

(r) “Voting Parity Stock” means, with regard to any matter as to which the holders of Series C Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

 

Section 3. Dividends.

 

(a) Rate. Holders of Series C Preferred Stock shall be entitled to receive, on each share of Series C Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Series C Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Series C Preferred Stock, if any. Such dividends shall begin to
accrue and be cumulative from the Original Issue Date, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment

 

  

  

  

Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding,
the next Dividend Payment Date.

 

Dividends that are payable on Series C Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Series C Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

 

Dividends that are payable on Series C Preferred Stock on any Dividend Payment Date will be payable to holders of record of Series C Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not
such day is a Business Day.

 

Holders of Series C Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Series C Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designations).

 

(b) Priority of Dividends. So long as any share of Series C Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed
Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Series C Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Series C Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any
purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution

 

  

  

  

Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a broker-dealer subsidiary of the Corporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a shareholders’ rights plan or any redemption or repurchase of rights pursuant to any shareholders’ rights plan; (v) the
acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with
generally accepted accounting principles in the United States, and as measured from the date of the Corporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

 

When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Series C Preferred Stock and any shares of Parity Stock, all dividends declared on Series C Preferred Stock and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling
within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Series C Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock that
bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Series C Preferred Stock prior to such Dividend Payment Date.

 

Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized

 

  

  

  

committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Series C Preferred Stock shall not be entitled to participate in any such dividends.

 

Section 4. Liquidation Rights.

 

(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Series C Preferred Stock shall be entitled to receive for each share of Series C Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to shareholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to Series C
Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “Liquidation Preference”).

 

(b) Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Series C Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Series C Preferred Stock as to such distribution, holders of Series C Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

 

(c) Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Series C Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Series C Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

 

(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Series C Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

 

Section 5. Redemption.

 

(a) Optional Redemption. Except as provided below, the Series C Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third

 

  

  

  

anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Series C Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends
on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.

 

Notwithstanding the foregoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, the shares of Series C Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any
dividends are actually declared) to, but excluding, the date fixed for redemption; provided that (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the “Minimum Amount” as defined in the relevant certificate of designations for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the “Successor Preferred Stock”) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Series C Preferred
Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).

 

The redemption price for any shares of Series C Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

 

(b) No Sinking Fund. The Series C Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Series C Preferred Stock will have no right to require redemption or repurchase of any shares of Series C Preferred Stock.

 

(c) Notice of Redemption. Notice of every redemption of shares of Series C Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the

 

  

  

  

Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series C Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series C Preferred Stock. Notwithstanding the foregoing, if shares of Series C Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any other similar
facility, notice of redemption may be given to the holders of Series C Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Series C Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

 

(d) Partial Redemption. In case of any redemption of part of the shares of Series C Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Series C Preferred Stock shall be redeemed from time to time. If fewer than all the shares
represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

 

(e) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for
any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

 

(f) Status of Redeemed Shares. Shares of Series C Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Series C Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Series C Preferred Stock).

 

  

  

  

Section 6. Conversion. Holders of Series C Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.

 

Section 7. Voting Rights.

 

(a) General. The holders of Series C Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

 

(b) Preferred Stock Directors. Whenever, at any time or times, dividends payable on the shares of Series C Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Series C Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the
“Preferred Directors” and each a “Preferred Director”) to fill such newly created directorships at the Corporation’s next annual meeting of shareholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of shareholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Series C Preferred Stock have been declared and paid in full at which time such right shall
terminate with respect to the Series C Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Series C Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as
directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Series C Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy
occurred.

 

(c) Class Voting Rights as to Particular Matters. So long as any shares of Series C Preferred Stock are outstanding, in addition to any other vote or consent of shareholders required by law or by the Charter, the vote or consent of the holders of at least 66 2/3% of the shares of Series C Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

 

(i) Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designations for the Series C Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Series C Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

 

  

  

  

(ii) Amendment of Series C Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Series C Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Series C Preferred Stock; or

 

(iii) Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Series C Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Series C Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or
such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Series C Preferred Stock immediately prior to such consummation, taken as a whole; provided, however, that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Series C Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an
increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Series C Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Series C Preferred Stock.

 

(d) Changes after Provision for Redemption. No vote or consent of the holders of Series C Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Series C Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.

 

  

  

  

(e) Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series C Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and
applicable law and the rules of any national securities exchange or other trading facility on which Series C Preferred Stock is listed or traded at the time.

 

Section 8. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Series C Preferred Stock may deem and treat the record holder of any share of Series C Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.

 

Section 9. Notices. All notices or communications in respect of Series C Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Series C Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of Series C Preferred Stock in any manner permitted by such facility.

 

Section 10. No Preemptive Rights. No share of Series C Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

 

Section 11. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

 

Section 12. Other Rights. The shares of Series C Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.

 

  

  

  

Schedule B

 

STANDARD PROVISIONS

 

Section 1. General Matters. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.

 

Section 2. Standard Definitions. As used herein with respect to Designated Preferred Stock:

 

(a) “Affiliate” means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with, such other Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any Person, means the possession, directly or indirectly, of the power to cause the direction of management and/or policies of such Person, whether through the ownership of voting securities by contract or otherwise.

 

(b) “Applicable Dividend Rate” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after December 31, 2013, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after December 31, 2013, 9% per annum.

 

(c) “Appraisal Procedure” means a procedure whereby two independent appraisers, one chosen by the Corporation and one by the Original Designated Preferred Stockholder, shall mutually agree upon the determinations then the subject of appraisal. Each party shall deliver a notice to the other appointing its appraiser within 15 days after the Appraisal Procedure is invoked. If within 30 days after appointment of the two appraisers they are unable to agree upon the amount in question, a third independent appraiser shall be chosen within 10 days thereafter by the mutual consent of such first two appraisers. The decision of the third appraiser so
appointed and chosen shall be given within 30 days after the selection of such third appraiser. If three appraisers shall be appointed and the determination of one appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the determination of such appraiser shall be excluded, the remaining two determinations shall be averaged and such average shall be binding and conclusive upon the Corporation and the Original Designated Preferred Stockholder; otherwise, the average of all three determinations shall be binding upon the Corporation and the Original Designated Preferred Stockholder. The costs of conducting any Appraisal Procedure shall be borne by the Corporation.

 

(d) “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

 

(e) “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporation’s stockholders.

 

  

  

  

(f) “Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

 

(g) “Bylaws” means the bylaws of the Corporation, as they may be amended from time to time.

 

(h) “Capital Stock” means (A) with respect to any Person that is a corporation or company, any and all shares, interests, participations or other equivalents (however designated) of capital or capital stock of such Person and (B) with respect to any Person that is not a corporation or company, any and all partnership or other equity interests of such Person.

 

(i) “Certificate of Designations” means the Certificate of Designations or comparable instrument relating to the Designated Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.

 

(j) “Change of Control” means the occurrence of one of the following:

 

(i) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” becomes the “beneficial owner” (as these terms are defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the Capital Stock of the Corporation that is at the time entitled to vote by the holder thereof in the election of the Board of Directors (or comparable body); or

 

(ii) the first day on which a majority of the members of the Board of Directors are not Continuing Directors.

 

(k) “Change of Control Effective Date” has the meaning set forth in Section 10(a).

 

(l) “Charter” means the Corporation’s certificate or articles of incorporation, articles of association, or similar organizational document.

 

(m) “Common Stock Issuance” has the meaning set forth in Section 11(d).

 

(n) “Common Stock Offering” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of Common Stock (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to the Signing Date).

 

(o) “Company Material Adverse Effect” means a material adverse effect on the business, results of operation or financial condition of the Corporation and its consolidated subsidiaries taken as a whole; provided, however, that Company Material Adverse Effect shall not be deemed to include: (i) the effects of (A) changes after the date of the filing of the Certificate of Designations in general business, economic or market conditions (including changes generally in prevailing interest rates, credit availability and liquidity, currency exchange rates and price levels or
trading volumes in the United States or foreign securities or credit

 

  

  

  

markets), or any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, in each case generally affecting the industries or geographic areas in which the Corporation and its subsidiaries operate, (B) changes or proposed changes after the date of the filing of the Certificate of Designations in United States generally accepted accounting principles or regulatory accounting requirements, or authoritative interpretations thereof, (C) changes or proposed changes after June 30, 2010 in securities, banking and other laws of general applicability or related policies or interpretations of Governmental Entities (in the case of each of these clauses (A), (B) and (C),
other than changes or occurrences to the extent that such changes or occurrences have or would reasonably be expected to have a materially disproportionate adverse effect on the Corporation and its consolidated subsidiaries taken as a whole relative to comparable U.S. banking or financial services organizations), (D) changes in the market price or trading volume of the Common Stock or any other equity, equity-related or debt securities of the Corporation or its consolidated subsidiaries (it being understood and agreed that the exception set forth in this clause (D) does not apply to the underlying reason giving rise to or contributing to any such change); (E) actions or omissions of the Corporation or any Corporation Subsidiary expressly required by the terms of the Exchange Agreement, or (ii) the occurrence of those circumstances described in Schedule B to the
Exchange Agreement.

 

(p) “Continuing Directors” means, as of any date of determination, any member of the Board of Directors who (i) was a member of the Board of Directors on the Original Issue Date or (ii) was nominated for election or elected to the Board of Directors with the approval of a majority of the Continuing Directors who were members of the Board of Directors at the time of such new director’s nomination or election.

 

(q) “Conversion Date” means any date on which shares of Designated Preferred Stock are converted as set forth in this Certificate of Designations.

 

(r) “Conversion Price” means the Initial Conversion Price, subject to adjustment as set forth in Section 11 of this Certificate of Designations.

 

(s) “Conversion Rate” means for each share of Designated Preferred Stock, the Exchange Value divided by the Conversion Price, subject to adjustment as set forth in Section 11 of this Certificate of Designations.

 

(t) “Convertible Securities” has the meaning set forth in Section 11(c).

 

(u) “Depositary” means The Depository Trust Company or its nominee or any successor depositary appointed by the Corporation.

 

(v) “Dividend Period” has the meaning set forth in Section 3(a).

 

(w) “Dividend Record Date” has the meaning set forth in Section 3(a).

 

(x) “Early Conversion” has the meaning set forth in Section 7(a).

 

(y) “Early Conversion Date” has the meaning set forth in Section 7(c).

 

(z) “Equity Investor” has the meaning set forth in Section 7(b)(iii).

 

  

  

  

(aa) “Equity Raise” has the meaning set forth in Section 7(b)(iii).

 

(bb) “Equity Raise Issuance” has the meaning set forth in Section 11(c).

 

(cc) “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

(dd) “Ex-Dividend Date” means, in respect of a dividend or distribution to holders of Common Stock, the first date on which a sale of the Common Stock does not automatically transfer the right to receive the relevant dividend or distribution from the seller of the Common Stock to its buyer.

 

(ee) “Fair Market Value” means, with respect to any security or other property, the fair market value of such security or other property as determined by the Board of Directors, acting in good faith. For so long as the Original Designated Preferred Stockholder holds the Designated Preferred Stock or any portion thereof, it may object in writing to the Board of Directors’ calculation of fair market value within 10 days of receipt of written notice thereof. If the Original Designated Preferred Stockholder and the Corporation are unable to agree on fair market value during the 10-day period following the delivery of the Original
Designated Preferred Stockholder’s objection, the Appraisal Procedure may be invoked by either party to determine Fair Market Value by delivering written notification thereof not later than the 30th day after delivery of the Original Designated Preferred Stockholder’s objection.

 

(ff) “Governmental Entities” means all United States and other governmental, regulatory or judicial authorities.

 

(gg) “Liquidation Preference” has the meaning set forth in Section 4(a).

 

(hh) “Market Price” means, with respect to the Common Stock, on any given date, the average VWAP for the 5 consecutive Trading Day-period ending on the Trading Day immediately preceding such given date. “Market Price” shall be determined without reference to after hours or extended hours trading. If the Common Stock is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be (i) in the event that any portion of the Designated Preferred Stock is held by the Original Designated Preferred
Stockholder, the fair market value per share of the Common Stock as determined in good faith by the Original Designated Preferred Stockholder or (ii) in all other circumstances, the fair market value per share of the Common Stock as determined in good faith by the Board of Directors in reliance on an opinion of a nationally recognized independent investment banking corporation retained by the Corporation for this purpose and certified in a resolution to the holder(s) of Designated Preferred Stock. For the purposes of determining the Market Price of the Common Stock on the “Trading Day” preceding, on or following the occurrence of an event, (i) that Trading Day shall be deemed to commence immediately after the regular scheduled closing time of trading on the NYSE or, if trading is closed at an earlier time, such earlier time and (ii) that Trading Day shall end
at the next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last Trading Day preceding a specified event and the closing time of trading on a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing time).

 

  

  

  

(ii) “NASDAQ” means NASDAQ Stock Market LLC.

 

(jj) “NYSE” means the New York Stock Exchange.

 

(kk) “Ordinary Cash Dividends” means a regular quarterly cash dividend on shares of Common Stock out of surplus or net profits legally available therefor (determined in accordance with generally accepted accounting principles in effect from time to time), provided that Ordinary Cash Dividends shall not include any cash dividends paid subsequent to the Original Issue Date to the extent the aggregate per share dividends paid on the outstanding Common Stock in any quarter exceed the Initial Quarterly Dividend, as adjusted for any stock split, stock dividend, reverse stock split,
reclassification or similar transaction.

 

(ll) “Original Designated Preferred Stockholder” means the United States Department of the Treasury and any successor or assign that is an Affiliate of the United States Department of the Treasury. Any actions specified to be taken by the Original Designated Preferred Stockholder hereunder may only be taken by such Person and not by any other holder of Designated Preferred Stock.

 

(mm) “Original Issue Date” means the date on which shares of Designated Preferred Stock are first issued.

 

(nn) “Permitted Transactions” has the meaning set forth in Section 11(d).

 

(oo) “Per Share Fair Market Value” has the meaning set forth in Section 11(e).

 

(pp) “Person” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

 

(qq) “Preferred Director” has the meaning set forth in Section 13(b).

 

(rr) “Preferred Stock” means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.

 

(ss) “Pro Rata Repurchase” means any purchase of shares of Common Stock by the Corporation or any Affiliate thereof pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any other offer available to substantially all holders of Common Stock, in the case of both (A) or (B), whether for cash, shares of Capital Stock of the Corporation, other securities of the Corporation, evidences of indebtedness of the Corporation or any other Person or any other property (including, without limitation, shares of Capital Stock, other
securities or evidences of indebtedness of a subsidiary), or any combination thereof, effected while the Designated Preferred Stock is outstanding. The “Effective Date” of a Pro Rata Repurchase shall mean the date of acceptance of shares of Common Stock for purchase or exchange by the Corporation under any tender or exchange offer which is a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata Repurchase that is not a tender or exchange offer.

 

  

  

  

(tt) “Regulatory Approvals” with respect to the holder of the Designated Preferred Stock, means, to the extent applicable and required to permit the conversion of the Designated Preferred Stock for Shares and to own such Shares without such holder being in violation of any applicable law, rule or regulation, including, without limitation, the Bank Holding Company Act of 1956, as amended, and the Change in Bank Control Act of 1978, as amended, and the receipt of any necessary approvals and authorizations of, filings and registrations with, notifications to, or expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other applicable laws and the rules and regulations thereunder.

 

(uu) “Regulatory Event” means, with respect to the Corporation, that (i) the Federal Deposit Insurance Corporation or any other governmental authority shall be appointed as conservator or receiver for the Corporation; (ii) the Corporation shall have been considered in “troubled condition” for the purposes of 12 U.S.C. Sec. 1831i or any regulation promulgated thereunder; (iii) the Corporation shall qualify as “Undercapitalized,” “Significantly Undercapitalized,” or “Critically Undercapitalized” as those terms are defined in 12 C.F.R. Sec, 208.43; or (iv) the Corporation
shall have become subject to any formal or informal regulatory action requiring the Corporation to materially improve its capital, liquidity or safety and soundness.

 

(vv) “Share Dilution Amount” has the meaning set forth in Section 3(b).

 

(ww) “Shares” means the shares of the Corporation’s Common Stock issuable upon conversion of the Designated Preferred Stock.

 

(xx) “Special Distribution” means a distribution on the Common Stock of:

 

(i) rights, options or warrants (other than pursuant to a shareholder rights plan) entitling holders of Common Stock to purchase, for a period of 45 calendar days or less, shares of Common Stock at a price less than the average Market Price of the Common Stock for the 10 consecutive Trading Days immediately preceding the declaration date for such distribution; or

 

(ii) cash or other assets, debt securities or rights to purchase the Corporation’s securities (other than pursuant to a shareholder rights plan or a dividend or distribution on the Common Stock in shares of Common Stock), which distribution has a per share value as determined by the Board of Directors exceeding 10% of the Market Price of the Common Stock on the Trading Day preceding the declaration date for such distribution.

 

(yy) “Specified Corporate Transaction” has the meaning set forth in Section 9(a).

 

(zz) “Standard Provisions” mean these Standard Provisions that form a part of the Certificate of Designations relating to the Designated Preferred Stock.

 

(aaa) [Reserved.]

 

(bbb) “Trading Day” means (A) if the shares of Common Stock are not traded on any national or regional securities exchange or association or over-the-counter market, a Business

 

  

  

  

Day or (B) if the shares of Common Stock are traded on any national or regional securities exchange or association or over-the-counter market, a Business Day on which such relevant exchange or quotation system is scheduled to be open for business and on which the shares of Common Stock (i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market for any period or periods aggregating one half hour or longer; and (ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the shares of Common Stock.

 

(ccc) [Reserved.]

 

(ddd) “Valuation Date” has the meaning set forth in Section 11(d).

 

(eee) “Voting Parity Stock” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Sections 13(a) and 13(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

 

(fff) “VWAP” means the volume-weighted average trading price of a share of Common Stock as reported by Bloomberg LP.

 

Section 3. Dividends.

 

(a) Rate. Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of funds legally available therefor, cumulative cash dividends (subject to Section 6(e) below) with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred
Stock, if any. Such dividends shall begin to accrue and be cumulative from the Original Issue Date, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date shall be postponed to the next day that is a Business Day and no additional dividends shall accrue as a result of that postponement. The period from and
including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date.

 

Dividends that are payable on Designated Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

 

  

  

  

Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date shall be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or
not such day is a Business Day.

 

Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designations).

 

(b) Priority of Dividends. So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed
Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any
purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a broker-dealer subsidiary of the Corporation of Capital Stock of the Corporation for resale pursuant to an offering by the Corporation of such Capital Stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior
Stock or Parity Stock for the beneficial ownership of any other Persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding

 

  

  

  

obligations entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with generally accepted accounting principles in the United States, and as measured from the date of the Corporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any
stock split, stock dividend, reverse stock split, reclassification or similar transaction.

 

When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Designated Preferred Stock and any shares of Parity Stock, all dividends declared on Designated Preferred Stock and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date
falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock
that bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation shall provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.

 

Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.

 

Section 4. Liquidation Rights.

 

(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior
to

 

  

  

  

Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “Liquidation Preference”).

 

(b) Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

 

(c) Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

 

(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

 

Section 5. Redemption.

 

(a) Optional Redemption. The Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) (A) the Liquidation Amount per share or (B) if redeemed on or after the first Dividend Payment Date falling on or after the second anniversary of the Original Issue Date, the greater of (1) the Liquidation Amount per share and
(2) the product of the Conversion Rate and the average of the Market Prices per share of Common Stock over the 20 consecutive Trading Day period beginning on the Trading Day after the notice of redemption is given as provided in Section 5(c) below and (ii) except as otherwise provided below, any accrued and unpaid dividends to, but excluding, the date fixed for redemption (including, if applicable, as provided in Section 3(a) above, dividends on such amount), regardless of whether any dividends are actually declared; provided that the aggregate redemption price of the Designated Preferred Stock redeemed pursuant to this paragraph may not exceed an amount equal to the sum of (x) any aggregate gross proceeds of not less than the Minimum Amount received by the Corporation from one or more Common Stock Offerings and (y) any net increase to the
Corporation’s retained earnings after the Original Issue Date above the Corporation’s retained earnings

 

  

  

  

reflected in its most recent publicly available balance sheet on or prior to the Original Issue Date; and provided further that the minimum number of shares of Designated Preferred Stock redeemed by the Corporation upon any such redemption shall be at least equal to the lesser of (x) all shares of Designated Preferred Stock then outstanding and (y) 25% of the number of shares of Designated Preferred Stock issued on the Original Issue Date.

 

The redemption price for any shares of Designated Preferred Stock shall be payable in cash on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

 

(b) No Sinking Fund. The Designated Preferred Stock shall not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock shall have no right to require redemption or repurchase of any shares of Designated Preferred Stock.

 

(c) Notice of Redemption. Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares of Designated Preferred Stock to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days (or in the event of a redemption on or after the first Dividend Payment Date falling on or after the second anniversary of the Original Issue Date, at least 25 Trading Days) and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be
conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through the Depositary or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price (or the manner of calculation thereof); and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

 

(d) Partial Redemption. In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares
represented by any certificate are redeemed or converted, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

 

  

  

  

(e) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in such notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares of Designated Preferred Stock called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then,
notwithstanding that any certificate for any share of Designated Preferred Stock so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all Designated Preferred Stock so called for redemption, all shares of Designated Preferred Stock so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares of Designated Preferred Stock shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares of Designated Preferred Stock so called for redemption
shall look only to the Corporation for payment of the redemption price of such shares of Designated Preferred Stock.

 

(f) Status of Redeemed Shares. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

 

Section 6. General Conversion Provisions.

 

(a) Conversion by Holders; Approvals. Holders of Designated Preferred Stock shall have the right, at their option, to convert, at any time and from time to time, all or any portion of the Designated Preferred Stock (but in no event less than one share of the Designated Preferred Stock), into a number of Shares equal to the product of the then-applicable Conversion Rate and the number of shares of Designated Preferred Stock surrendered for conversion in accordance with the terms and conditions of this Certificate of Designations (which, in the event of a Specified Corporate Transaction or a Change of Control, shall include the provisions of
Sections 9 and 10, respectively); provided, however, notwithstanding anything in this Certificate of Designations to the contrary, holders of Designated Preferred Stock shall not be entitled to convert shares of Designated Preferred Stock until the converting holder has first received any applicable Regulatory Approvals; provided, further, notwithstanding anything in this Certificate of Designations to the contrary, the Designated Preferred Stock may not be converted until the Corporation shall first have obtained, to the extent required by applicable law or regulation or necessary in order to comply with any requirement of any securities exchange on which
the Shares are listed or traded, all stockholder approvals required to effect the conversion and completed all other actions necessary to effect the conversion.

 

  

  

  

(b) Effectiveness of Conversion. If any notice of conversion has been duly given in accordance with the procedures set forth in Sections 7, 8, 9 and 10 below, then, effective immediately (notwithstanding that any certificate for any Designated Preferred Stock to be converted has not been surrendered for conversion) prior to 5:00 p.m., New York City time, on the applicable Conversion Date, holders of Designated Preferred Stock whose shares of Designated Preferred Stock are to be converted shall cease to have any rights to such shares of Designated Preferred Stock (including with respect to dividends) subject to the right of any such holders to
receive any accrued and unpaid dividends to the Conversion Date on such shares of Designated Preferred Stock and any other payments to which they are otherwise entitled pursuant to the terms hereof.

 

(c) No Rights as Holders of Common Stock Prior to Conversion. The person or persons entitled to receive the Shares issuable upon conversion shall be treated for all purposes as the record holder(s) of such Shares as of 5:00 p.m., New York City time, on the applicable Conversion Date notwithstanding that the stock transfer books of the Corporation may then be closed or certificates representing such Shares may not be actually delivered on such date, provided that in the event of a conversion pursuant to Section 9 or 10 below, the holder(s) of Designated Preferred Stock has complied with
Section 9(c) or 10(c), respectively. No allowance or adjustment, except as set forth in Section 11, shall be made in respect of dividends payable to holders of Common Stock of record as of any date prior to such Conversion Date. Prior to the applicable Conversion Date, Shares issuable upon conversion of Designated Preferred Stock shall not be deemed outstanding for any purpose, and holders of Designated Preferred Stock shall have no rights with respect to the Common Stock (including voting rights, rights to respond to tender offers for the Common Stock and rights to receive any dividends or other distributions on the Common Stock) by virtue of holding shares of Designated Preferred Stock.

 

(d) Delivery of Shares and Cash. The Corporation shall deliver to the holders of Designated Preferred Stock that have been converted the Shares and any amount of cash to which such holders are entitled on or prior to the third Trading Day immediately following the applicable Conversion Date. If fewer than all the shares of Designated Preferred Stock represented by any certificate are converted, a new certificate shall be issued representing the unconverted shares of Designated Preferred Stock without charge to the holder thereof.

 

(e) Accrued and Unpaid Dividends. Upon a conversion of any shares of Designated Preferred Stock as set forth in Sections 6, 7, 8, 9 and 10, the holders of such shares shall receive all accrued and unpaid dividends on such shares in cash out of funds legally available therefor or, at the option of the Corporation, in substitute in whole or in part for such cash, in fully paid and nonassessable shares of Common Stock legally available for such purpose to, but excluding, the applicable Conversion Date. Accrued and unpaid dividends paid in shares of Common Stock shall be paid by delivering to each holder of Designated Preferred Stock entitled thereto
a number of shares of Common Stock determined by dividing the total amount of the cash payment of accrued and unpaid dividends that would otherwise be payable to such holder (rounded to the nearest whole cent) by the Market Price on the second Trading Day preceding the applicable Conversion Date. The issuance of any such shares of Common Stock in such amount shall constitute full payment of all accrued and unpaid dividends that would otherwise have been payable. The Board of Directors of the Corporation shall determine the form of payment of accrued and unpaid dividends with respect to any conversion and such election shall be set forth in the applicable notice provided to holders of the Designated Preferred Stock by the Corporation as set forth in Sections 7, 8, 9 and 10 below.

 

  

  

  

(f) Dividends Accrued after Record Date. Any accrued and unpaid dividends payable on shares of Designated Preferred Stock to be converted on a Conversion Date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder of record of such shares on such Dividend Record Date, but rather shall be paid to the holder of such shares on such Conversion Date.

 

(g) Notices by the Corporation. Every notice required to be given by the Corporation pursuant to Section 7, 8, 9 or 10 below shall be given by first class mail, postage prepaid, addressed to the holders of record of the Designated Preferred Stock at their respective last addresses appearing on the books of the Corporation and shall contain the information required by Section 7, 8, 9 or 10 hereof, as applicable. Any notice by the Corporation mailed within the time period specified in Section 7, 8, 9 or 10 below shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give
such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for conversion shall not affect the validity of the proceedings for the conversion of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through the Depositary or any other similar facility, any notice by the Corporation may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility.

 

(h) Conversion Procedures by Holder. To effect a conversion, a holder of the Designated Preferred Stock shall: (i) with respect to a conversion pursuant to Section 6, 9 or 10, complete and manually sign the conversion notice, if any, provided by the Corporation or, if applicable, the conversion agent appointed by the Corporation, or a facsimile of the conversion notice; (ii) with respect to a conversion pursuant to Section 6, 9 or 10, deliver the completed conversion notice, (iii) with respect to any conversion, deliver the certificated shares of Designated Preferred Stock to be converted to the Corporation or, if applicable,
the conversion agent appointed by the Corporation; and (iv) with respect to any conversion, if required, furnish appropriate endorsements and transfer documents. If a holder’s interest is a beneficial interest in a global certificate representing the Designated Preferred Stock, a holder must comply with the Depositary’s procedures for converting a beneficial interest in a global security.

 

(i) Taxes and Duties. A holder of the Designated Preferred Stock shall not be required to pay any transfer or similar taxes or duties relating to the issuance or delivery of Shares if such holder of the Designated Preferred Stock exercises its conversion rights, but such holder of the Designated Preferred Stock shall be required to pay any transfer or similar tax or duty that may be payable relating to any transfer involved in the issuance or delivery of Shares in a name other than the name of such holder. A certificate representing Shares shall be issued and delivered only after all applicable taxes and duties, if any, payable by the holder of the
Designated Preferred Stock have been paid in full.

 

(j) No Fractional Shares. No fractional shares of Common Stock shall be issued as a result of any conversion of shares of Designated Preferred Stock or the payment of accrued and unpaid dividends on the Designated Preferred Stock in the form of Common Stock. In lieu of

 

  

  

  

any fractional share of Common Stock otherwise issuable in respect of any conversion or payment of accrued and unpaid dividends, the Corporation shall pay an amount in cash (computed to the nearest cent) equal to such fraction of a share of Common Stock multiplied by the Market Price on the second Trading Day immediately preceding the applicable Conversion Date or, in the event of any dividends arising under the Designated Preferred Stock paid in the form of Common Stock, the Dividend Payment Date (unless there are no legally available assets with which to make such cash payment, in which event such cash payment shall be made as soon as possible thereafter). If more than one share of the Designated Preferred Stock is
surrendered for conversion at one time by or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof, including in respect of accrued and unpaid dividends, shall be computed on the basis of the aggregate number of shares of the Designated Preferred Stock so surrendered.

 

(k) Status of Shares Subject to Conversion. Shares of Designated Preferred Stock that are converted in accordance with Sections 6, 7, 8, 9 or 10 shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

 

Section 7. Early Conversion.

 

(a) Conversion at the Option of the Corporation. Subject to Section 7(b), the Corporation shall have the right, at its option to convert, at any time and from time to time, all or any portion of the Designated Preferred Stock (but in no event less than one share of the Designated Preferred Stock), at any time prior to the date that is nine (9) months following the date of the Exchange Agreement (“Early Conversion”), into a number of Shares equal to the product of the then-applicable Conversion Rate and the number of shares of Designated Preferred Stock selected for
conversion; provided, however, notwithstanding anything in this Certificate of Designations to the contrary, holders of Designated Preferred Stock shall not be entitled to convert shares of Designated Preferred Stock until the converting holder has first received any applicable Regulatory Approvals. In addition to the number of Shares issuable upon Early Conversion, the holders of shares of Designated Preferred Stock subject to Early Conversion shall have the right to receive (in cash or shares of Common Stock at the option of the Corporation in accordance with Section 6(e)) any accrued and unpaid dividends on such shares to, but excluding, the Early Conversion Date (including, if applicable, as provided in Section 3(a) above, dividends on such amount), regardless
of whether any dividends are actually declared.

 

(b) Conditions to Early Conversion. The Corporation’s right of conversion set forth in Section 7(a) is subject to the fulfillment (or waiver by the Original Designated Preferred Stockholder with respect to items (ii), (iii), (iv) and (v) below) at or prior to the Early Conversion Date of each of the following conditions:

 

(i) the Corporation shall have requested and received from the Appropriate Federal Banking Agency all requisite approvals of the Early Conversion;

 

  

  

  

(ii) either (i) not less than 100% of the aggregate liquidation value (or liquidation preference as the case may be) of the outstanding shares of Series A Preferred Stock of the Corporation and Series B Preferred Stock of the Corporation (collectively, the “Other Preferred Stock”) shall have been exchanged for shares of Common Stock or (ii) (A) not less than 51% of the aggregate liquidation value (or liquidation preference as the case may be) of the outstanding shares of the Other Preferred Stock shall have been exchanged for shares of Common Stock and (B) the Preferred Stock Amendments (as defined in the Exchange
Agreement) shall have been duly filed with the Commonwealth of Virginia State Corporation Commission and shall be in full force and effect (the satisfaction of either clause (i) or clause (ii) shall be referred to as the “Other Preferred Stock Conversion”); provided, however, that the terms of the Other Preferred Stock Conversion shall be acceptable to the Original Designated Preferred Shareholder in its sole discretion;

 

(iii) the Corporation shall have closed one or more transactions in which investors other than the Original Designated Preferred Stockholder (each, an “Equity Investor”) have collectively provided a minimum aggregate amount of $235 million in gross cash proceeds to the Corporation in exchange for Common Stock (each such investment by an Equity Investor, an “Equity Raise”); provided, however, that the terms of each such Equity Raise (other than the
price per share of Common Stock issued by the Corporation in each such Equity Raise) shall be reasonably acceptable to the Original Designated Preferred Shareholder in its sole discretion;

 

(iv) the Corporation shall have made all applicable adjustments pursuant to Section 11 that are required to be made on or before the Early Conversion Date; and

 

(v) none of the following shall have occurred with respect to the Corporation or any of its subsidiaries:

 

(A) the Corporation or any of its subsidiaries shall have (1) dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) become insolvent or unable to pay its debts or failed or admitted in writing its inability generally to pay its debts as they become due; (3) made a general assignment, arrangement or composition with or for the benefit of its creditors; (4) instituted or have instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition shall have been presented for its winding-up or liquidation, and, in the case of any such
proceeding or petition instituted or presented against it, such proceeding or petition shall have resulted in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation; (5) had a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) sought or shall have become subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) had a secured party take possession of all or substantially all its assets or had a distress, execution, attachment, sequestration or other legal process

 

  

  

  

levied, enforced or sued on or against all or substantially all its assets; (8) caused or shall have been subject to any event with respect to it which, under the applicable laws of any jurisdiction, had an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts;

 

(B) a Governmental Entity in any jurisdiction shall have (1) commenced an action or proceeding against the Corporation or any of its subsidiaries; or (2) issued or entered a temporary restraining order, preliminary or permanent injunction or other order applicable to the Corporation or any of its subsidiaries, which in the case of (1) and (2) shall have had or shall be reasonably expected to have a Company Material Adverse Effect;

 

(C) any fact, circumstance, event, change, occurrence, condition or development shall have occurred that, individually or in the aggregate, shall have had or shall be reasonably likely to have a Company Material Adverse Effect; or

 

(D) any Regulatory Event not otherwise existing on the date hereof.

 

(c) Early Conversion Procedures. In the event of an Early Conversion, the Corporation shall provide notice of such conversion to each holder of Designated Preferred Stock to be converted (such notice, a “Notice of Early Conversion”). Such Notice of Early Conversion shall be mailed at least 30 days and not more than 60 days before the date fixed for conversion (the “Early Conversion Date”); provided,
however, that if the Corporation elects to convert any or all of the Designated Preferred Stock on the Original Issue Date, then the Notice of Early Conversion may be given at any time (but not less than 3 days) prior to the Original Issue Date. The requirement to deliver a Notice of Early Conversion and the timing requirements for such delivery may be waived by each holder of Designated Preferred Stock in its sole discretion. Each Notice of Early Conversion given to a holder shall state:

 

(i) the Early Conversion Date;

 

(ii) the number of shares of Designated Preferred Stock to be converted and, if less than all the shares held by such holder are to be converted, the number of such shares to be converted from such holder;

 

(iii) the Conversion Rate then in effect and whether the Corporation will pay cash or issue shares of Common Stock (calculated in accordance with Section 6(e) above) in respect of accrued and unpaid dividends; and

 

(iv) the place or places where certificates for shares of Designated Preferred Stock are to be surrendered for issuance of certificates representing Shares.

 

(d) Partial Conversion. If the Corporation elects to cause less than all the shares of the Designated Preferred Stock to be converted under this Section 7, the shares of Designated Preferred Stock to be converted shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and

 

  

  

  

equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be converted from time to time pursuant to an Early Conversion.

 

Section 8. Mandatory Conversion.

 

(a) Mandatory Conversion. Each share of Designated Preferred Stock shall mandatorily convert (unless otherwise previously converted) on the Mandatory Conversion Date into a number of Shares determined by dividing the Liquidation Amount by the Market Price on the second Trading Day preceding the Mandatory Conversion Date; provided, however, notwithstanding anything in this Certificate of Designations to the contrary, holders of Designated Preferred Stock shall not be entitled to convert shares of Designated Preferred Stock until the
converting holder has first received any applicable Regulatory Approvals. In addition to the number of Shares issuable upon mandatory conversion, the holders of the shares of Designated Preferred Stock subject to mandatory conversion shall have the right to receive any accrued and unpaid dividends on such shares to, but excluding, the Mandatory Conversion Date (including, if applicable, as provided in Section 3(a) above, dividends on such amount), regardless of whether any dividends are actually declared.

 

(b) Mandatory Conversion Procedures. In the event of a mandatory conversion, the Corporation shall provide notice thereof to each holder of Designated Preferred Stock to be converted (such notice, a “Notice of Mandatory Conversion”). Such Notice of Mandatory Conversion shall be mailed at least 30 days and not more than 60 days before the Mandatory Conversion Date. Each Notice of Mandatory Conversion given to a holder shall state:

 

(i) the Mandatory Conversion Date;

 

(ii) that all outstanding shares of Designated Preferred Stock shall be converted on such date;

 

(iii) the Conversion Rate then in effect and whether the Corporation will pay cash or issue shares of Common Stock (calculated in accordance with Section 6(e) above) in respect of accrued and unpaid dividends; and

 

(iv) the place or places where certificates for shares of Designated Preferred Stock are to be surrendered for issuance of certificates representing Shares.

 

Section 9. Conversion upon a Specified Corporate Transaction.

 

(a) In addition to the right of a holder of Designated Preferred Stock, at such holder’s option, to convert, at any time and from time to time, all or any portion of the Designated Preferred Stock as set forth in Section 6, a holder of Designated Preferred Stock shall have the right, at such holder’s option, to convert all or any portion of such holder’s Designated Preferred Stock into a number of Shares equal to the product of the then-applicable Conversion Rate and the number of shares of Designated Preferred Stock surrendered for conversion upon the following events (each a “Specified Corporate
Transaction”):

 

(i) if the Corporation makes a Special Distribution to all or substantially all holders of Common Stock, at any time after the Corporation has given the notice of such distribution as provided in Section 9(b) below until the earlier of 5:00 p.m., New York City time, on the Business Day preceding the Ex-Dividend Date for such distribution or any announcement by the Corporation that such distribution shall not take place;

 

  

  

  

(ii) if the Corporation adopts a plan relating to the liquidation or dissolution of the Corporation, at any time beginning on the Business Day following the date notice of the Specified Corporate Transaction is given as provided in Section 9(b) below and ending on the date that is 30 calendar days after such date; or

 

(iii) if the Corporation consolidates or merges with or into any other Person, or sells, leases, transfers, conveys or otherwise disposes, in one or a series of related transactions, all or substantially all of its assets and those of its subsidiaries taken as a whole to any Person that results in any reclassification, conversion, exchange or cancellation of outstanding shares of the Capital Stock of the Corporation, other than any merger solely for the purpose of changing the Corporation’s jurisdiction of incorporation and resulting in a reclassification, conversion or exchange of outstanding Shares solely into shares of common stock of the surviving entity, at any time beginning 15 days prior to the date
announced by the Corporation as the anticipated effective date of the transaction and until and including the date which is 15 days after the date that is the actual effective date of such transaction;

 

provided, however, notwithstanding anything in this Certificate of Designations to the contrary, holders of Designated Preferred Stock shall not be entitled to convert shares of Designated Preferred Stock until the converting holder has first received any applicable Regulatory Approvals. In addition to the number of Shares issuable upon conversion in connection with a Specified Corporate Transaction, the holders of shares of Designated Preferred Stock so converted shall have the right to receive any accrued and unpaid dividends on such shares to, but excluding, the Conversion Date (including, if applicable, as provided in Section 3(a) above, dividends on
such amount), regardless of whether any dividends are actually declared.

 

(b) Specified Corporate Transaction Conversion Procedures. In the event of a Specified Corporate Transaction, the Corporation shall provide notice thereof to each holder of Designated Preferred Stock. In the case of a Specified Corporate Transaction contemplated by Section 9(a)(i), such notice shall be mailed at least 30 days prior to the Ex-Dividend Date for such distribution. In the case of a Specified Corporate Transaction contemplated by Section 9(a)(ii), such notice shall be mailed no later than 5 days after the adoption of the plan of liquidation or dissolution. In the case of a Specified Corporate Transaction contemplated by
Section 9(a)(iii), such notice shall be mailed at least 20 days prior to the beginning of the conversion period related to such Specified Corporate Transaction. Each such notice given to a holder shall state, as applicable:

 

(i) a description of the Specified Corporate Transaction, including a description of the type and amount of the distribution to be made or consideration to be received per share of Common Stock;

 

  

  

  

(ii) the Ex-Dividend Date in the case of a Specified Corporate Transaction contemplated by Section 9(a)(i), the date of adoption of the plan in the case of a Specified Corporate Transaction contemplated by Section 9(a)(ii) or the date on which the Specified Corporate Transaction is anticipated to be effective in the case of a Specified Corporate Transaction contemplated by Section 9(a)(iii);

 

(iii) the date by which the Specified Corporate Transaction conversion option must be exercised by a holder of Designated Preferred Stock;

 

(iv) the Conversion Rate then in effect and whether the Corporation will pay cash or issue shares of Common Stock (calculated in accordance with Section 6(e) above) in respect of accrued and unpaid dividends; and

 

(v) the place or places where certificates for shares of Designated Preferred Stock are to be surrendered for issuance of certificates representing Shares.

 

(c) To exercise a Specified Corporate Transaction conversion option, a holder of the Designated Preferred Stock must, no later than 5:00 p.m., New York City time, on the date by which the conversion option upon the Specified Corporate Transaction must be exercised as specified in the Notice of Specified Corporate Transaction delivered under Section 9(b), comply with the procedures set forth in Section 6(h) and indicate that it is exercising its conversion option pursuant to this Section 9.

 

(d) If a holder of the Designated Preferred Stock does not elect to exercise its conversion option pursuant to this Section 9, the shares of Designated Preferred Stock or successor securities held by it shall remain outstanding but the holder of the Designated Preferred Stock shall not thereafter be entitled to convert such holder shares of the Designated Preferred Stock in accordance with this Section 9.

 

Section 10. Conversion upon Change of Control.

 

(a) Change of Control. In addition to the right of a holder of Designated Preferred Stock, at such holder’s option, to convert, at any time and from time to time, all or any portion of the Designated Preferred Stock as set forth in Section 6, a holder of Designated Preferred Stock shall have the right, at such holder’s option, to convert all or any portion of such holder’s Designated Preferred Stock into a number of Shares equal to the product of the then-applicable Conversion Rate and the number of shares of Designated Preferred Stock surrendered for conversion during the period beginning on the Business Day following the
effective date of the Change of Control (the “Change of Control Effective Date”) and ending on the date that is 30 calendar days after the Change of Control Effective Date; provided, however, notwithstanding anything in this Certificate of Designations to the contrary, holders of Designated Preferred Stock shall not be entitled to convert shares of Designated Preferred Stock until the converting holder has first received any applicable Regulatory Approvals. In addition to the number of Shares issuable upon conversion upon a Change of Control, the holders of shares of Designated Preferred Stock so converted shall have the right to receive any accrued and unpaid dividends on such shares to, but excluding, the Conversion Date (including, if applicable, as
provided in Section 3(a) above, dividends on such amount), regardless of whether any dividends are actually declared.

 

  

  

  

(b) Change of Control Conversion Procedures. In the event of a Change of Control, the Corporation shall provide notice thereof to each holder of Designated Preferred Stock. Such notice shall be mailed at least 20 days prior to the date on which the Corporation anticipates consummating the Change of Control (or, if later, within two Business Days after the Corporation becomes aware of a Change of Control). Each such notice given to a holder shall state:

 

(i) a description of the Change of Control;

 

(ii) the date on which the Change of Control is anticipated to be effected or, if known, the Change of Control Effective Date;

 

(iii) the date by which the Change of Control conversion option must be exercised, which shall be 30 calendar days after the Change of Control Effective Date;

 

(iv) the Conversion Rate then in effect and whether the Corporation will pay cash or issue shares of Common Stock (calculated in accordance with Section 6(e) above) in respect of accrued and unpaid dividends; and

 

(v) the place or places where certificates for shares of Designated Preferred Stock are to be surrendered for issuance of certificates representing Shares.

 

(c) To exercise a Change of Control conversion option, a holder of the Designated Preferred Stock must, no later than 5:00 p.m., New York City time, on the date by which the conversion option upon the Change of Control must be exercised as specified in the notice delivered under Section 10(b), comply with the procedures set forth in Section 6(h) and indicate that it is exercising its conversion option pursuant to this Section 10.

 

(d) If a holder of the Designated Preferred Stock does not elect to exercise its conversion option pursuant to this Section 10, the shares of Designated Preferred Stock or successor securities held by it shall remain outstanding but the holder of the Designated Preferred Stock shall not thereafter be entitled to convert such holder’s shares of the Designated Convertible Preferred Stock in accordance with this Section 10.

 

Section 11. Anti-Dilution Adjustments. The Conversion Price and the Conversion Rate shall be subject to adjustment from time to time as follows; provided, that if more than one Subsection of this Section 11 is applicable to a single event, the Subsection shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one Subsection of this Section 11 so as to result in duplication:

 

(a) Stock Splits, Subdivisions, Reclassifications or Combinations. If the Corporation shall (i) declare and pay a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) combine or reclassify the outstanding shares of Common Stock into a smaller number of shares of Common Stock, the Conversion Price in

 

  

  

  

effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted to the number obtained by multiplying the Conversion Price in effect immediately prior to the record or effective date, as the case may be, for the dividend, distribution, subdivision, combination or reclassification giving rise to this adjustment by a fraction (x) the numerator of which shall be the number of shares of Common Stock outstanding at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification, in each case, prior to giving effect to such event, and (y) the
denominator of which shall be the number of shares of Common Stock outstanding immediately after, and solely as a result of, such event.

 

(b) Issuance of Common Stock upon Other Preferred Stock Conversion.

 

(i) Until the date on which the Original Designated Preferred Stockholder no longer holds the Designated Preferred Stock or any portion thereof, (A) if (1) the Other Preferred Stock shall have been converted into Common Stock pursuant to an Other Preferred Stock Conversion and (2) the value of the Other Preferred Stock for purposes of the Other Preferred Stock Conversion (which shall equal $0.40 multiplied by the aggregate number of shares of Common Stock into which the Other Preferred Stock is converted) shall have exceeded 15% of the original principal amount of such Other Preferred Stock, then the consideration per share of Common Stock received by the Corporation in such Other Preferred Stock
Conversion for purposes of Section 11(b)(ii) below shall be deemed to equal the number obtained by dividing (i) the amount equal to 15% of the original principal amount of such Other Preferred Stock by (ii) the number of shares of Common Stock issued by the Corporation in connection with the Other Preferred Stock Conversion.

 

(ii) In the event that, after taking into account the adjustments required pursuant to Section 11(b)(i) above, the Other Preferred Stock shall have been converted into shares of Common Stock at a consideration per share of Common Stock that is less than the Conversion Price in effect immediately prior to the Other Preferred Stock Conversion, then the Conversion Price in effect immediately prior to the Other Preferred Stock Conversion shall be decreased to the number obtained by multiplying such Conversion Price by a fraction (1) the numerator of which shall be the sum of (i) the number of shares of Common Stock of the Corporation outstanding immediately prior to the Other Preferred Stock Conversion
and (ii) the number of additional shares of Common Stock which the aggregate consideration deemed to be received by the Corporation for the total number of shares of Common Stock issued in connection with the Other Preferred Stock Conversion would purchase at the Conversion Price in effect immediately prior to the Other Preferred Stock Conversion, and (2) the denominator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to the Other Preferred Stock Conversion and (ii) the number of shares of Common Stock issued by the Corporation in connection with the Other Preferred Stock Conversion.

 

(iii) Any adjustment made pursuant to this Section 11(b) shall become effective immediately upon the date of the Other Preferred Stock Conversion.

 

  

  

  

(c) Issuances of Common Stock upon an Equity Raise. Until the date on which the Original Designated Preferred Stockholder no longer holds the Designated Preferred Stock or any portion thereof, if the Corporation shall issue or agree to issue shares of Common Stock (or rights or warrants or other securities exercisable or convertible into or exchangeable for shares of Common Stock) (collectively, “Convertible Securities”)) to an Equity Investor pursuant to an Equity Raise (an “Equity Raise Issuance”)
without consideration or at a consideration per share of Common Stock (or having a conversion price per share of Common Stock) that is less than the Conversion Price in effect immediately prior to such Equity Raise Issuance, then the Conversion Price in effect immediately prior to the Equity Raise Issuance shall be decreased to the number obtained by multiplying such Conversion Price by a fraction (A) the numerator of which shall be the sum of (1) the number of shares of Common Stock of the Corporation outstanding immediately prior to the Equity Raise Issuance and (2) the number of additional shares of Common Stock which the aggregate consideration receivable by the Corporation for the total number of shares of Common Stock issued (or into which Convertible Securities may be exercised or converted) in connection with the Equity Raise Issuance would purchase at a
consideration per share of the Conversion Price in effect immediately prior to such Equity Raise Issuance and (B) the denominator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to the Equity Raise Issuance and (2) the number of shares of Common Stock issued (or into which Convertible Securities may be exercised or converted) to the Equity Investor in connection with the Equity Raise Issuance.

 

For purposes of the foregoing, the aggregate consideration receivable by the Corporation in connection with an Equity Raise Issuance shall be deemed to be equal to the sum of the net offering price (including the Fair Market Value of any non-cash consideration and before deduction of any related fees or expenses payable to third parties) of all Common Stock plus the minimum aggregate amount, if any, payable upon exercise or conversion of any such Convertible Securities into shares of Common Stock. Any adjustment made pursuant to this Section 11(c) shall become effective immediately upon the date of the applicable Equity Raise Issuance.

 

(d) Other Issuances of Common Stock. Until the date on which the Original Designated Preferred Stockholder no longer holds the Designated Preferred Stock or any portion thereof, if the Corporation shall issue shares of Common Stock or Convertible Securities other than pursuant to a Permitted Transaction (as defined below) or a transaction for which Sections 11(a), 11(b) or 11(c) apply (a “Common Stock Issuance”) without consideration or at a consideration per share (or having a conversion price per share) that is less than the Conversion Price in effect immediately prior
to such Common Stock Issuance, then the Conversion Price in effect immediately prior to the Common Stock Issuance shall be decreased to the number obtained by multiplying such Conversion Price by a fraction (A) the numerator of which shall be the sum of (1) the number of shares of Common Stock of the Corporation outstanding immediately prior to the Common Stock Issuance and (2) the number of additional shares of Common Stock which the aggregate consideration receivable by the Corporation for the total number of shares of Common Stock issued (or into which Convertible Securities may be exercised or converted) in connection with the Common Stock Issuance would purchase at the Conversion Price in effect immediately prior to such Common Stock Issuance and (B) the denominator of which shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to the Common Stock Issuance and (2) the number of shares of Common Stock issued (or into which Convertible Securities may be exercised or converted) in connection with the Common Stock Issuance.

 

  

  

  

For purposes of the foregoing, the aggregate consideration receivable by the Corporation in connection with a Common Stock Issuance shall be deemed to be equal to the sum of the net offering price (including the Fair Market Value of any non-cash consideration and after deduction of any related expenses payable to third parties) of all such securities plus the minimum aggregate amount, if any, payable upon exercise or conversion of any such Convertible Securities into shares of Common Stock; and “Permitted Transactions” shall mean issuances (i) as consideration for or to fund the acquisition of businesses and/or related assets at Fair
Market Value, (ii) in connection with employee benefit plans and compensation related arrangements in the ordinary course and consistent with past practice approved by the Board of Directors, (iii) in connection with a public or broadly marketed offering and sale of Common Stock or Convertible Securities for cash conducted by the Corporation or its Affiliates pursuant to registration under the Securities Act or Rule 144A thereunder on a basis consistent with capital raising transactions by comparable financial institutions and (iv) in connection with the exercise of preemptive rights on terms existing as of the Original Issue Date. Any adjustment made pursuant to this Section 11(d) shall become effective immediately upon the date of such issuance. For the avoidance of doubt, notwithstanding any other provision hereof, Section 11(d) shall not apply to any
transaction to which Section 11(a), 11(b) or 11(c) applies.

 

(e) Other Distributions. In case the Corporation shall fix a record date for the making of a distribution to all holders of its shares of Common Stock, evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its Common Stock and other dividends or distributions referred to in Section 11(a)), in each such case, the Conversion Price in effect prior to such record date shall be reduced immediately thereafter to the price determined by multiplying the Conversion Price in effect immediately prior to the reduction by the quotient of (x) the Market Price of the Common Stock on the last Trading Day
preceding the first date on which the Common Stock trades in a regular way (including on the principal national securities exchange on which the Common Stock is listed or admitted to trading) without the right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the securities, evidences of indebtedness, assets, cash, rights or warrants to be so distributed in respect of one share of Common Stock (such amount and/or Fair Market Value, the “Per Share Fair Market Value”) divided by (y) such Market Price on such date specified in clause (x); such adjustment shall be made successively whenever such a record date is fixed. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would
be reduced by the per share amount of the portion of the cash dividend that would constitute an Ordinary Cash Dividend. In the event that such distribution is not so made, the Conversion Price then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to distribute such securities, evidences of indebtedness, assets, rights, cash or warrants, as the case may be, to the Conversion Price that would then be in effect and the Conversion Rate if such record date had not been fixed.

 

(f) Certain Repurchases of Common Stock. In case the Corporation effects a Pro Rata Repurchase of Common Stock, then the Conversion Price shall be reduced to the price determined by multiplying the Conversion Price in effect immediately prior to the Effective Date of such Pro Rata Repurchase by a fraction of which the numerator shall be (i) the product of

 

  

  

  

(x) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the Market Price of a share of Common Stock on the Trading Day immediately preceding the first public announcement by the Corporation or any of its Affiliates of the intent to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and of which the denominator shall be the product of (i) the number of shares of Common Stock outstanding immediately prior to such Pro Rata Repurchase minus the number of shares of Common Stock so repurchased and (ii) the Market Price per share of Common Stock on the Trading Day immediately preceding the first public
announcement by the Corporation or any of its Affiliates of the intent to effect such Pro Rata Repurchase. For the avoidance of doubt, no increase to the Conversion Price shall be made pursuant to this Section 11(f).

 

(g) Business Combinations. In case of any Business Combination or reclassification of Common Stock (other than a reclassification of Common Stock referred to in Section 11(a)), the right of a holder of Designated Preferred Stock to receive Shares upon conversion of the Designated Preferred Stock into Shares shall be converted into the right to convert the Designated Preferred Stock to acquire the number of shares of stock or other securities or property (including cash) which the Shares issuable (at the time of such Business Combination or reclassification) upon conversion of the Designated Preferred Stock immediately prior to such Business
Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of a holder of Designated Preferred Stock shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the right of a holder of Designated Preferred Stock to convert the Designated Preferred Stock in exchange for any shares of stock or other securities or property pursuant to this paragraph. In determining the kind and amount of stock, securities or the property receivable upon conversion of the Designated Preferred Stock following the consummation of such Business Combination, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such
Business Combination, then the consideration that a holder of Designated Preferred Stock shall be entitled to receive upon exercise shall be deemed to be the types and amounts of consideration received by the majority of all holders of the shares of Common Stock that affirmatively make an election (or of all such holders if none make an election).

 

(h) Rounding of Calculations; Minimum Adjustments. All calculations under this Section 11 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest one-hundredth (1/100th) of a share, as the case may be. Any provision of this Section 11 to the contrary notwithstanding, no adjustment in the Conversion Price or the Conversion Rate shall be made if the amount of such adjustment would be less than $0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or 1/10th of a share of Common Stock, or more.

 

(i) Timing of Issuance of Additional Common Stock upon Certain Adjustments. In any case in which the provisions of this Section 11 shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the

 

  

  

  

occurrence of such event (i) issuing to the holder of Designated Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Shares issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder of Designated Preferred Stock any amount of cash in lieu of a fractional share of Common Stock; provided, however, that the Corporation upon request shall deliver to such holder of Designated Preferred Stock a due bill or other appropriate instrument
evidencing the right of such holder of Designated Preferred Stock to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment.

 

(j) Other Events. For so long as the Original Designated Preferred Stockholder holds the Designated Preferred Stock or any portion thereof, if any event occurs as to which the provisions of this Section 11 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Corporation, fairly and adequately protect the conversion rights of the Designated Preferred Stock in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and
principles, as shall be reasonably necessary, in the good faith opinion of the Board of Directors, to protect such conversion rights as aforesaid. The Conversion Price or the Conversion Rate shall not be adjusted in the event of a change in the par value of the Common Stock or a change in the jurisdiction of incorporation of the Corporation.

 

(k) Statement Regarding Adjustments. Whenever the Conversion Price or the Conversion Rate shall be adjusted as provided in this Section 11, the Corporation shall forthwith file at the principal office of the Corporation a statement showing in reasonable detail the facts requiring such adjustment and the Conversion Price that shall be in effect and the Conversion Rate after such adjustment, and the Corporation shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each holder of Designated Preferred Stock at the address appearing in the Corporation’s records.

 

(l) Notice of Adjustment Event. In the event that the Corporation shall propose to take any action of the type described in this Section 11 (but only if the action of the type described in this Section 11 would result in an adjustment in the Conversion Price or the Conversion Rate or a change in the type of securities or property to be delivered upon conversion of the Designated Preferred Stock), the Corporation shall give notice to each holder of Designated Preferred Stock, in the manner set forth in Section 11(k), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such
action is to take place. Such notice shall also set forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on the Conversion Price, Conversion Rate and the number, kind or class of shares or other securities or property which shall be deliverable upon conversion of the Designated Preferred Stock. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.

 

  

  

  

(m) Proceedings Prior to Any Action Requiring Adjustment. As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section 11, the Corporation shall take any action which may be necessary, including obtaining regulatory, NYSE, NASDAQ or other applicable national securities exchange or stockholder approvals or exemptions, in order that the Corporation may thereafter validly and legally issue as fully paid and nonassessable all Shares that the holders of Designated Preferred Stock are entitled to receive upon conversion of the Designated Preferred Stock pursuant to this Section 11.

 

(n) Adjustment Rules. Any adjustments pursuant to this Section 11 shall be made successively whenever an event referred to herein shall occur.

 

(o) Other Transactions. Notwithstanding anything to the contrary herein, for the avoidance of doubt, the Conversion Price shall not be subject to adjustment pursuant to this Section 11 as a result of the consummation of the A/B Preferred Exchange (as defined in the Exchange Agreement), the Private Placement (as defined in the Exchange Agreement) and the Rights Offering (as defined in the Exchange Agreement), in each case, at a stated price per share of Common Stock equal to the Purchase Price (as defined in the Exchange Agreement).

 

Section 12. Reservation and Listing of Common Stock. The Corporation hereby covenants that any Shares issued upon the conversion of the Designated Preferred Stock in accordance with this Certificate of Designations shall be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges (other than liens or charges created by a holder of Designated Preferred Stock, income and franchise taxes incurred in connection with the conversion of the Designated Preferred Stock or taxes in respect of any transfer occurring contemporaneously therewith). The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the purpose of providing for the conversion of the Designated Preferred Stock, the aggregate number of shares of Common Stock then issuable upon conversion of the Designated Preferred Stock at any time. The Corporation shall (A) procure, at its sole expense, the listing of the Shares issuable upon conversion of the Designated Preferred Stock at any time, subject to issuance or notice of issuance, on all principal stock exchanges on which the Common Stock is then listed or traded and (B) maintain such listings of such Shares at all times after issuance. The Corporation shall use reasonable best efforts to ensure that the Shares may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange on which the Shares are listed or traded.

 

Section 13. Voting Rights.

 

(a) General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

 

(b) Preferred Stock Directors. Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors

 

  

  

  

(hereinafter the “Preferred Directors” and each a “Preferred Director”) to fill such newly created directorships at the Corporation’s next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated
Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for
directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy occurred.

 

(c) Class Voting Rights as to Particular Matters. So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Charter, the vote or consent of the holders of at least 66 2/3% of the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

 

(i) Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designations for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of Capital Stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

 

(ii) Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 13(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or

 

  

  

  

(iii) Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or
such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;

 

provided, however, that for all purposes of this Section 13(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated
Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation shall not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.

 

(d) Changes after Provision for Redemption or Conversion. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 13(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above or shall have been converted and sufficient Shares shall have been delivered, in each case, pursuant to
Sections 6, 7, 8, 9 or 10 above.

 

(e) Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and
applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.

 

  

  

  

Section 14. Record Holders. To the fullest extent permitted by applicable law, the Corporation, the transfer agent, registrar, dividend disbursing agent and conversion agent may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent, registrar, dividend disbursing agent or conversion agent shall be affected by any notice to the contrary.

 

Section 15. Prohibited Actions. The Corporation agrees that it shall not take any action which would entitle holder(s) of Designated Preferred Stock to an adjustment of the Conversion Price if the total number of shares of Common Stock issuable after such action upon conversion of the Designated Preferred Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon the exercise of all outstanding options, warrants, conversion and other rights, would exceed the total number of shares of Common Stock then authorized by its Charter.

 

Section 16. Notices. All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through the Depositary or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.

 

Section 17. No Preemptive Rights. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

 

Section 18. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

 

Section 19. Other Rights. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.snrv8kex101071312.htm

EXHIBIT 10.1

PURCHASE AND SALE AGREEMENT (“PSA”)

 

by and between

 

SUN RIVER ENERGY, INC.

(SELLER)

 

and

KATY RESOURCES ETX, LLC.

(BUYER)

 

Dated July 11, 2012

Effective July 11, 2012

 

 

 

 

 

  

  

  

 

TABLE OF CONTENTS

	  ARTICLE 1 DEFINITIONS	
1

	  
	  	
1.1                 “Accounting Dispute”

	
1

	  
	  	
1.2                 “Accounting Dispute Notice”

	
1

	  
	  	
1.3                 “Accounting Referee”

	
1

	  
	  	
1.4                 “Affiliate”

	
1

	  
	  	
1.5                 “Agreement”

	
1

	  
	  	
1.6                 “Allocated Value”

	
1

	  
	  	
1.7                 “Assets”

	
1

	  
	  	
1.8                 “Assumed Obligations”

	
2

	  
	  	
1.9                 “Basic Documents”

	
2

	  
	  	
1.10               “Business Day”

	
2

	  
	  	
1.11               “Buyer's Credits”

	
2

	  
	  	
1.12               “Buyer Indemnitees”

	
2

	  
	  	
1.13               “Casualty Loss

	
2

	  
	  	
1.14               “Claim Notice”

	
2

	  
	  	
1.15               “Claims”

	
2

	  
	  	
1.16               “Closing”

	
3

	  
	  	
1.17               “Closing Date”

	
3

	  
	  	
1.18               “Closing Deferred Property”

	
3

	  
	  	
1.19               “Confidentiality Agreement”

	
3

	  
	  	
1.20               “Conveyances”

	
3

	  
	  	
1.21               “Cure Period”

	
3

	  
	  	
1.22               “Defect Value”

	
3

	  
	  	
1.23               “Defensible Title”

	
3

	  
	  	
1.24               “Effective Date” or “Effective Time”

	
3

	  
	  	
1.25               “Environmental Defect”

	
3

	  
	  	
1.26               “Environmental Defect Notice Date”

	
3

	  
	  	
1.27               “Environmental Law”

	
3

	  
	  	
1.28               “Environmental Obligations”

	
4

	  
	  	
1.29               “Excluded Assets”

	
4

	  
	  	
1.30               “Final Settlement,” “Final Settlement Date” and “Final Settlement Statement”

	
6

	  
	  	
1.31               “Governmental Entity”

	
6

	  
	  	
1.32               “Hydrocarbons”

	
6

	  
	  	
1.33               “Indemnified Party”

	
6

	  
	  	
1.34               “Indemnifying Party”

	
6

	  
	  	
1.35               “Inventory Hydrocarbons”

	
6

	  
	  	
1.36               “Knowledge”

	
6

	  
	  	
1.37               “Laws” or “Law”

	
6

	  
	  	
1.38               “Leases”

	
6

	  
	  	
1.39               “Liability”

	
7

	  
	  	
1.40               “Material Adverse Effect”

	
7

	  
	  	
1.41               “NORM” shall be as defined in the definition of the “Environmental Defect.”

	
7

	  
	  	

1.42               “Permitted Encumbrances” 

	7	  
	  	
1.43               “Person”

	
7

	  

 

 

  

  

  

 

	  	
1.44               “Plugging and Abandonment Obligations”

	
7

	  
	  	
1.45               “Preferential Purchase Rights”

	
8

	  
	  	
1.46               “Purchase Price”

	
8

	  
	  	
1.47               “Purchase Price Allocation Schedule”

	
8

	  
	  	
1.48               “Purchased Assets”

	
8

	  
	  	
1.49               “Real Property, Personal Property and Incidental Rights”

	
8

	  
	  	
1.50               “Regulated Substances”

	
9

	  
	  	
1.51               “Request Date”

	
9

	  
	  	
1.52               “Retained Obligations”

	
9

	  
	  	
1.53               “Seller Indemnitees”

	
10

	  
	  	
1.54               “Seller's Credits”

	
10

	  
	  	
1.55               “Third Party Claim”

	
10

	  
	  	
1.56               “Third Party Interests”

	
10

	  
	  	
1.57               “Title Defect”

	
10

	  
	  	
1.58               “Title Defect Notice Date”

	
10

	  
	  	
1.59               “Title Defect Property”

	
10

	  
	  	
1.60               “Transfer Requirement”

	
10

	  
	  	
1.61               “Well” or “Wells”

	
10

	  
	  ARTICLE 2 - AGREEMENT TO PURCHASE AND SELL	
11

	  
	  ARTICLE 3 - PURCHASE PRICE AND PAYMENT	
11

	  
	  	
3.1               Purchase Price.

	
11

	  
	  	
3.2               Purchase Price Adjustments

	
11

	  
	  	
3.3               Allocation of Purchase Price.

	
13

	  
	  ARTICLE 4 . - SELLER'S REPRESENTATIONS AND WARRANTIES	
14

	  
	  ARTICLE 5 . - BUYER'S REPRESENTATIONS AND WARRANTIES	
19

	  
	  ARTICLE 6 . - ACCESS TO INFORMATION AND INSPECTIONS	
21

	  
	  	
6.1               Title Files.

	
21

	  
	  	
6.2               Other Files.

	
21

	  
	  	
6.3               Copies.

	
21

	  
	  	
6.4               Confidentiality Agreement

	
21

	  
	  	
6.5               Inspections.

	
22

	  
	  	
6.6               No Warranty or Representation on Seller's Information.

	
22

	  
	  	
6.7               Inspection Indemnity

	
22

	  
	  	
6.8               Amendments to Exhibits.

	
23

	  
	  ARTICLE 7 . - ENVIRONMENTAL MATTERS AND ADJUSTMENTS	
23

	  
	  	
7.1               Environmental Defects Notice

	
23

	  
	  	
7.2               Non-Waiver of Environmental Defects

	
23

	  
	  	
7.3               Remedies for Environmental Defects

	
24

	  
	  ARTICLE 8 . - TITLE DEFECTS AND ADJUSTMENTS	
24

	  
	  	
8.1               Seller’s Title.

	
24

	  
	  	
8.2               Notice of Title Defects.

	
27

	  
	  	
8.3               Title Defect Adjustment.

	
28

	  
	  	
8.4               Environmental Defect and Title Defect Values.

	
29

	  
	  ARTICLE 9 . - OPTION TO TERMINATE	
30

	  
	 	9.1               Option to Terminate for Defects	 30	 
	 	
9.2               Option to Terminate for Defects and Other Matters

	
30

	  

 

 

 

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9.3               Dispute as to Defect Values

	
30

	  
	  ARTICLE 10 . - PREFERENTIAL PURCHASE RIGHTS AND CONSENTS OF THIRD PARTIES 	30 	  
	 	
10.1               Actions and Consents.

	
30

	  
	  ARTICLE 11 . - COVENANTS	
31

	  
	 	
11.1               Covenants of Seller Pending Closing.

	
31

	  
	 	
11.2               Limitations on Seller's Covenants Pending Closing.

	
33

	  
	 	
11.3               Notification of Breaches.

	
33

	  
	  ARTICLE 12 . - CLOSING CONDITIONS	
33

	  
	 	
12.1               Seller's Closing Conditions.

	
33

	  
	 	
12.2               Buyer's Closing Conditions.

	
34

	  
	  ARTICLE 13 . - CLOSING	
35

	  
	 	
13.1               Closing.

	
35

	  
	 	
13.2               Seller's Closing Obligations.

	
35

	  
	 	
13.3               Buyer's Closing Obligations.

	
36

	  
	 	
13.4               Joint Closing Obligations.

	
36

	  
	  ARTICLE 14 - LIMITATIONS ON WARRANTIES  AND REMEDIES/DTPA-WAIVER 	37 	  
	 	
14.1               Limitations on Warranties and Remedies.

	
37

	  
	  ARTICLE 15 . - CASUALTY LOSS AND CONDEMNATION	
38

	  
	  ARTICLE 16 . - TERMINATION	
39

	  
	 	
16.1               Termination.

	
39

	  
	 	
16.2               Effect of Termination.

	
39

	  
	 	
16.3               Remedies.

	
39

	  
	 	
16.4               Limitations on Damages.

	
39

	  
	  ARTICLE 17 . - ASSUMPTION AND INDEMNITY	
40

	  
	 	
17.1               Assumed Obligations.

	
40

	  
	 	
17.2               Buyer's Indemnity.

	
40

	  
	 	
17.3               Seller's Indemnity.

	
40

	  
	 	
17.4               Stipulation Regarding Express Negligence And Fault.

	
41

	  
	 	
17.5               Broker or Finder's Fee.

	
41

	  
	 	
17.6               Indemnification Procedures

	
41

	  
	  ARTICLE 18 . - GAS IMBALANCES	
43

	  
	  ARTICLE 19 . - TRANSITION	
43

	  
	  ARTICLE 20 . - MISCELLANEOUS	
43

	  
	 	
20.1               Receivables and other Excluded Funds.

	
43

	  
	 	
20.2               Public Announcements.

	
43

	  
	 	
20.3               Filing and Recording of Assignments, etc.

	
44

	  
	 	
20.4               Further Assurances and Records.

	
44

	  
	 	
20.5               Notices.

	
45

	  
	 	
20.6               Expenses.

	
46

	  
	 	
20.7               Waiver.

	
46

	  
	 	
20.8               Binding Effect; Assignment.

	
47

	  
	 	
20.9               Taxes.

	
47

	  
	 	
20.10             Audits.

	
48

	  
	 	
20.11             Like-Kind Exchanges.

	
48

	  
	 	
20.12             Governing Law.

	
49

	  

 

 

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20.13             Entire Agreement.

	
49

	  
	 	
20.14             Severability.

	
49

	  
	 	
20.15             Exhibits and Schedules.

	
50

	  
	 	
20.16             Suspended Funds.

	
50

	  
	 	
20.17             Survival.

	
50

	  
	 	
20.18             Subsequent Adjustments.

	
50

	  
	 	
20.19             Counterparts.

	
50

	  
	 	
20.20             Subrogation.

	
51

	  
	 	
20.21             Government Reviews.

	
51

	  
	 	
20.22             Change of Name.

	
51

	  
	 	
20.23             Replacement of Bonds, Letters of Credit and Guarantees.

	
51

	  
	 	
20.24             No Third-Party Beneficiaries.

	
51

	  

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EXHIBITS

	
Exhibit “A”

	
Leases

	
Exhibit “B”

	
Wells

	
Exhibit “C”

	
Right-of Ways, Easements and Surface Estates

	
Exhibit “D”

	
Contracts and Other Agreements

	
Exhibit “E”

	
Excluded Assets

	
Exhibit “F”

	
Allocated Values

	
Exhibit “G”

	
Conveyance, Assignment and Bill of Sale

	
Exhibit “H”

	
Litigation

	
Exhibit “I”

	
Payouts Balances

	
Exhibit “J”

	
Gas and Oil Imbalances

	
Exhibit “K”

	
Consents to Assign, Preferential Rights to Purchase and Burdens

	
Exhibit “L”

	
[Reserved]

	
Exhibit “M”

	
Non-Foreign Affidavit

	
Exhibit “N”

	
Assignments Due Seller

	
Exhibit “O”

	
Assignments Owed By Seller

	
Exhibit “P”

	
Mortgages, Liens and Encumbrances

	
Exhibit “Q”

	
Form of Promissory Note

SCHEDULES

	
Schedule 4(j)

	
Noncompliance/Notices

	
Schedule 4(k)

	
Permits/Defaults

	
Schedule 4(q)

	
AFEs

	
Schedule 4(s)

	
P&A Notices

	
Schedule 4(t)

	
Tax Disputes

	
Schedule 4(u)

	
Seller’s Bonds and Letters of Credit

	
Schedule 4(w)

	
Unassigned Interests

 

 

 

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PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (“Agreement”), dated as of July 11, 2012, is by and between Sun River Energy, Inc., a Colorado corporation(referred to hereinafter as “Seller”), and Katy Resources ETX, LLC, a Delaware limited liability company(“Buyer”).  Seller and Buyer are sometimes referred to herein individually as a “Party” or collectively as “Parties.”

 

R E C I T A L S

 

WHEREAS, Seller owns certain oil and gas leasehold interests and related assets more fully described on the exhibits hereto; and

 

WHEREAS, Seller desires to sell and Buyer desires to acquirethese interests and related assets on the terms and conditions hereinafter provided;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, Seller and Buyer hereby agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

1.1 “Accounting Dispute” shall be as defined in Section 3.2(c).

 

1.2 “Accounting Dispute Notice” shall be as defined in Section 3.2(c).

 

1.3 “Accounting Referee” shall be as defined in Section 3.2(c).

 

1.4 “Affiliate”

 

(a)  shall mean with respect to any Person, a Person that directly or indirectly controls, is controlled by or is under common control with such Person, with control in such context (including, with its correlative meaning, “controlled by” and “under common control with”) meaning the possession, directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise.

 

1.5 “Agreement” shall mean this Purchase and Sale Agreement between Seller and Buyer.

 

1.6 “Allocated Value” shall be as defined in Section 3.3 and as set forth on Exhibit “F.”

 

1.7 “Assets” shall mean the following described assets and properties (except to the extent specifically constituting Excluded Assets):

 

(a) the Leases commencing at the surface of the Earth and extending down to the Topof the Travis Peak Formation (as defined below), LESS AND EXCEPT the wellbore of the Neal Heirs #1 Well—API# 42-365-37706 (the “Well”), all personal property and equipment located thereon or to the extent used and obtained in connection therewith and the right to produce oil and/or gas from same, together with the subsurface rights in and under 40 acres in the form of a square with the Well in the center (provided such wellbore and subsurface rights exclude any rights insofar as they cover the Pettet Formation).

 

 

Purchase and Sale Agreement- Sun River Energy, Inc. and Katy Resources ETX, LLC

  

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As used in this Agreement, “Topof the Travis Peak Formation” means the stratigraphic equivalent of sixthousand fourhundred twenty-sixty feet measured depth (6,426’ MD), as measured on that certain electric log measurement in the Rockwood Resources #1 J K Graves Well, API No. 42-365-30691, of the Andrew J. McGowan Survey, A-426, Panola County, Texas;

 

As used in this Agreement, the “Pettet Formation” means the stratigraphic equivalent of the measured depth interval of 6024’ – 6426’ , as measured on that certain electric log measurement in the Rockwood Resources #1 J K Graves Well, API No. 42-365-30691, of the Andrew J. McGowan Survey, A-426, Panola County, Texas;

 

(b) the Real Property, Personal Property and Incidental Rights;

 

(c) the Inventory Hydrocarbons; and

 

(d) all other rights related to or arising out of the ownerships of the Assets.

 

1.8 “Assumed Obligations” shall mean with respect to the Purchased Assets:

 

(a) the Plugging and Abandonment Obligations arising after the Effective Time;

 

(b) all Environmental Obligations arising after the Effective Time;

 

(c) obligations with respect to gas production, sales or, processing imbalances with third Persons to the extent provided in Article 18;

 

(d) except as otherwise provided in this Agreement, all other Liabilities, Claims, duties, and obligations that arise out of the ownership, operation or use of the Assets after the Effective Time, including, but not limited to, the payment of all operating expenses and capital expenditures relating to the Assets, all Liabilities, duties, and obligations, express or implied, imposed upon Seller under the provisions of the Leases (including, without limitation, the payment of royalties) and any and all assignments, subleases, farmout agreements, participation agreements, joint venture agreements, assignments of overriding royalty, joint operating agreements, easements, rights-of-way, and all other contracts, agreements and instruments affecting the Leases, or the premises covered thereby, whether recorded or unrecorded, whether listed or not on Exhibit “D,” and under all applicable Laws.

 

1.9 “Basic Documents” shall mean Leases, operating agreements; oil, gas, liquid, casinghead gas and condensate purchase, sales, processing, gathering, treatment, compression and transportation agreements; farmout or farmin agreements; joint venture, exploration, limited or general partnership, dry hole, bottom hole, acreage contribution, purchase and acquisition agreements; area of mutual interest agreements; salt water disposal agreements; servicing contracts; easement and/or right-of-way agreements; unitization, communitization or pooling agreements; easements, rights of way, surface leases, permits, licenses, servitudes or other interests appertaining to the Leases and all other executory contracts and agreements to the extent relating to the Assets.

 

 

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1.10 “Business Day” shall mean any day that is not Saturday or Sunday or any other day on which commercial banks are required or authorized by Law to be closed in the City of Dallas, Texas.

 

1.11 “Buyer's Credits” shall be as defined in Section 3.2(a)(ii).

 

1.12 “Buyer Indemnitees” shall be as defined in Section 17.3.

 

1.13 “Casualty Loss" shall be as defined in Article 15.

 

1.14 “Claim Notice” shall be defined in Section 17.7(b).

 

1.15 “Claims”  shall mean all claims, demands, losses, damages, punitive damages, costs, expenses, causes of action and judgments of any kind or character including, without limitation, any interest, penalty, attorneys' fees and other costs and expenses incurred in connection therewith or the defense thereof.

 

1.16 “Closing” shall be as defined in Section 13.1.

 

1.17 “Closing Date” shall be as defined in Section 13.1.

 

1.18 “Closing Deferred Property” shall be as defined in Section 8.3(b).

 

1.19 “Confidentiality Agreement” shall be as defined in Section6.4.

 

1.20 “Conveyances” shall be as defined in Section 8.1(b).

 

1.21 “Cure Period” shall be as defined in Section 8.3(a).

 

1.22 “Defect Value” shall be as defined in Section 8.4.

 

1.23 “Defensible Title” shall be as defined in Section 8.1(d).

 

1.24 “Effective Date” or “Effective Time” shall mean 7:00 a.m., Central Time, on July 11, 2012.

 

1.25 “Environmental Defect” shall mean:

 

(a)           a condition or activity with respect to an Asset that is in violation, or reasonably likely to violate, any Environmental Law, or any surface or mineral lease obligation, or other condition which create Environmental Obligations, whether an express or implied obligation, relating to natural resources, conservation, the environment, or the emission, release, storage, treatment, disposal, transportation, handling or management of industrial or solid waste, hazardous waste, hazardous or toxic substances, chemicals or pollutants, petroleum, including crude oil, natural gas, natural gas liquids, or liquefied natural gas, and any wastes associated with the exploration and production of oil and gas (“Regulated Substances”); or

 

 

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(b)           the presence of Regulated Substances in the soil, groundwater, or surface water in, on, at or under an Asset in any manner or quantity which is required to be remediated by, or requires the delivery of a notice under, Environmental Law or by any applicable action or guidance levels or other standards published by any Governmental Entity with jurisdiction over the Assets, or by a surface or mineral lease obligation, whether an express or implied obligation.

 

Notwithstanding the foregoing, the Parties agree and acknowledge that (i) Buyer will be provided an opportunity to examine the Assets for potential naturally occurring radioactive materials (“NORM”), and any potential obligations with respect to NORM, and (ii) that the presence of NORM on any of the Assets may not be raised by Buyer as the subject of an Environmental Defect, except for any presence in an amount that requires notification or remediation under Environmental Law.

 

1.26 “Environmental Defect Notice Date” shall be as defined in Section 7.1.

 

1.27 “Environmental Law” shall mean any and all federal, state or local Laws entered, issued or made by any Governmental Entity pertaining to pollution, protection of human health or the environment, including the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; 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 Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; and all similar Laws entered, issued or made by any Governmental Entity having jurisdiction over the Assets or the operation thereof, and all amendments to such Laws.

 

1.28 “Environmental Obligations” shall mean all Liabilities, obligations, expenses (including, without limitation, all attorneys' fees), fines, penalties, Claims (including natural resource Claims) of any nature, associated with the Assets, and attributable to or resulting from:

 

(a) pollution or contamination of soil, surface water, groundwater or air, on, in, by, from or under the Assets or lands in the vicinity thereof, and any other contamination of or adverse effect upon the environment;

 

(b) underground injection activities and waste disposal;

 

(c) clean-up responses, remedial, control or compliance costs, including the required cleanup or remediation of spills, pits, lakes, ponds, or lagoons, including any subsurface or surface pollution caused by such spills, pits, lakes, ponds, or lagoons;

 

 

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(d) noncompliance with applicable land use, permitting, surface disturbance(s), licensing or notification requirements, including those in a surface or mineral lease, whether an express or implied obligation;

 

(e) violation of any federal, state or local Environmental Law or land use Law, or surface or mineral lease obligation, whether an express or implied obligation;

 

(f) any other violation which could qualify as an Environmental Defect (without being limited to Assets); and

 

(g) any and all indemnity obligations of Seller with respect to the above, along with any and all Claims against Seller for indemnity with respect to the above, under, pursuant to or arising from any acquisition, purchase and sale or other agreement.

 

1.29 “Excluded Assets” shall mean the following (except to the extent expressly provided elsewhere as being transferred to the Buyer and except to the extent such amounts relate to payments required to be made by Buyer):

 

(a) the Neal Heirs #1 Well—API# 42-365-37706, all personal property and equipment located thereon or used and obtained in connection therewith and the right to produce oil and/or gas from the same from all depths in and under 40 acres in the form of a square with said Neal Heirs #1 Well in the center (except insofar as any of the foregoing cover the Pettet Formation).

 

(b) all corporate, financial, and tax records of Seller, and those records subject to attorney/client privilege; however, Buyer shall be entitled to receive copies of any such records which directly relate to any Assumed Obligations, or which are necessary or appropriate for Buyer's ownership, administration, or operation of the Purchased Assets;

 

(c) (i) all trade credits, accounts receivable, notes receivable and other receivables attributable to the Assets with respect to any period of time prior to the Effective Time; (ii) all deposits, cash, checks in process of collection, cash equivalents and funds attributable to the Assets with respect to any period of time prior to the Effective Time; and (iii) all proceeds, income or revenues accruing with respect to the Assets prior to the Effective Time;

 

(d) all Claims of Seller arising from acts, omissions or events, or damage to or destruction of the Asset(s), occurring prior to the Effective Time; provided, however, Seller shall transfer to Buyer all Claims of Seller against prior owners of the Assets or third Persons associated with or relating to Environmental Obligations that are not Retained Obligations;

 

(e) except as otherwise provided in Article 15, all rights, titles, Claims and interests of Seller relating to the Assets prior to the Effective Time (i) under any policy or agreement of insurance or indemnity, subject to Buyer’s rights of subrogation under Section 20.20 below; (ii) under any bond; or (iii) to any insurance or condemnation proceeds or awards;

 

(f) all Hydrocarbons produced from or attributable to the Assets with respect to all periods prior to the Effective Time, together with all proceeds from or of such Hydrocarbons, except the Inventory Hydrocarbons and the unsold inventory of gas plant products, if any, attributable to the Assets as of the Effective Time;

 

 

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(g) Claims of Seller for refund of or loss carry forwards with respect to (i) production, windfall profit, severance, ad valorem or any other taxes attributable to any period prior to the Effective Time, or (ii) income or franchise taxes;

 

(h) all amounts due or payable to Seller as adjustments or refunds under any contracts or agreements (including take-or-pay Claims) affecting the Assets with respect to any period prior to the Effective Time;

 

(i) all amounts due or payable to Seller as adjustments to insurance premiums related to the Assets with respect to any period prior to the Effective Time;

 

(j) all proceeds, income or revenues accruing (and any security or other deposits made) with respect to the Assets, and all accounts receivable attributable to the Assets that are attributable to the period prior to the Effective Time;

 

(k) all of Seller's intellectual property not exclusively related to the Purchased Assets or necessary for the ownership and operation of the Purchased Assets, including, but not limited to, proprietary computer software, patents, trade secrets, copyrights, names, marks and logos; and

 

(l) allseismic data licensed from third Persons, including reprocessed data, unless the Buyer is willing to pay all third Person transfer fees.

 

1.30 “Final Settlement,” “Final Settlement Date” and “Final Settlement Statement” shall be as defined in Section 3.2(c).

 

1.31 “Governmental Entity” means any federal, state, municipal, domestic or foreign court, tribunal, administrative agency, department, commission, board, bureau or other governmental authority or instrumentality.

 

1.32 “Hydrocarbons” shall mean crude oil, natural gas, casinghead gas, condensate, sulphur, natural gas liquids and other liquid or gaseous hydrocarbons, and shall also refer to all other minerals of every kind and character which may be covered by or included in the Assets.

 

1.33 “Indemnified Party” shall be as defined in Section 17.7(a).

 

1.34 “Indemnifying Party” shall be as defined in Section 17.7(a).

 

1.35 “Inventory Hydrocarbons”  shall mean all merchantable oil and condensate produced from or attributable to the Leases prior to the Effective Time which have not been sold or transferred by Seller and are in storage at the Effective Time.

 

1.36 “Knowledge” means(i) that which a Person is actually aware of and (ii) that which a prudent Person could be expected to discover or otherwise become aware of in the course of conducting a reasonably comprehensive investigation.  If the Person is a corporation or limited liability company, the Knowledge of the corporation’s or limited liability company’s directors or officers (or persons holding similar positions), and if the Person is a limited partnership, the actual knowledge of the directors or officers (or persons holding similar positions) of the general partner of the limited partnership.

 

 

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1.37 “Laws” or “Law” shall mean all statutes, laws, ordinances, regulations, orders, rules, codes, permits, franchises, licenses, certificates, writs, injunctions, or decrees of the United States, any state or commonwealth, any municipality, any foreign country, any territory or possession, or any Governmental Entity.

 

1.38 “Leases” shall mean, all rights, titles, claims and interests owned by Seller (whether now owned or hereafter acquired by operation of law) in and to the oil, gas and/or mineral leases, or the lands covered by said leases, or in lands pooled or unitized with such leases set forth on Exhibit “A,” or which Seller is entitled to receive by reason of any participation, joint venture, farmin, farmout, joint operating agreement, unitization agreement, or other agreement, in and to the oil, gas and/or mineral leases set forth on Exhibit “A,” including all leasehold estates, royalty interests, overriding royalty interests, net revenue interests, executory interests, net profit interests, working interests, reversionary interests, mineral interests, and any other interests of Seller in said oil, gas and/or mineral leases, or lands covered by said leases, it being the intent hereof that the leases, properties and interests and the legal descriptions and depth limitations set forth on Exhibit “A” or in instruments described in Exhibit “A,” includes all of Seller’s right, title and interest in said oil, gas and/or mineral leases, other than the Excluded Assets, including but not limited to those described on Exhibit “A” or in instruments described in Exhibit “A” even though such interests may be incorrectly described in Exhibit “A” or omitted from Exhibit “A.”

 

1.39 “Liability” means any liability (whether asserted or unasserted, whether liquidated or unliquidated, whether known or unknown, and whether due or to become due).

 

1.40 “Material Adverse Effect” means with respect to a Party both before and after giving effect to the transactions contemplated by this Agreement, any change, occurrence or effect, direct or indirect, that could reasonably be expected to have a material adverse effect on the business of that Party, results of operations, assets, condition (financial or otherwise), or ability to satisfy obligations or liabilities (whether absolute or contingent) of that Party; provided, however, a Material Adverse Effect shall not apply to any adverse effect proximately caused by or resulting from any change in conditions generally affecting the industries in which that Party participates or the U.S. economy as a whole, provided that, such change or event does not have a disproportionate impact on that Party.

 

1.41 “NORM”shall be as defined in the definition of the “Environmental Defect.”

 

1.42 “Permitted Encumbrances” shall be as defined in Section 8.1(g).

 

1.43 “Person” shall mean any individual, firm, partnership, corporation, limited liability company, joint venture, trust, unincorporated organization or other entity or organization.

 

 

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1.44 “Plugging and Abandonment Obligations” shall mean the responsibility and Liability, including but not limited to Claims for damages and/or other relief, for the following plugging and abandonment obligations related to the Assets, regardless of whether they are attributable to the ownership or operation of the Assets before or after the Effective Time:

 

(a) the necessary and proper plugging, replugging and abandonment of all Wells;

 

(b) the necessary and proper removal, abandonment, and disposal of all platforms, structures, pipelines, equipment, abandoned property and junk located on or comprising part of the Assets;

 

(c) to the extent required by the applicable authorized Governmental Entity and the owners of the property affected, the necessary and proper capping and burying of all associated flow lines located on or comprising part of the Assets;

 

(d) the necessary and proper restoration of the Assets and/or the property covered by the Assets or upon which the Assets are located, both surface, surface water, groundwater, waterbottom and subsurface, to such condition as may be required by applicable Laws or contract;

 

(e) any necessary clean-up or disposal of Assets contaminated by NORM as may be required by applicable Laws or contract;

 

(f) all plugging, abandonment and obligations arising from contractual requirements and demands made by authorized Governmental Entity or Persons claiming an interest in the Assets and/or the property covered by the Assets or upon which the Assets are located; and

 

(g) any and all indemnity obligations of Seller with respect to any of the above, along with any and all Claims against Seller for indemnity with respect to any of the above, under, pursuant to or arising from any acquisition, purchase and sale or other agreement.

 

1.45 “Preferential Purchase Rights” shall mean preferential rights, preemptive rights or contracts, rights of first refusal or other commitments or understandings of a similar nature to which Seller is a party or to which the Assets are subject.

 

1.46 “Purchase Price” shall be as defined in Section 3.1.

 

1.47 “Purchase Price Allocation Schedule” shall be as defined in Section 20.9(a).

 

1.48 “Purchased Assets” shall be defined as the Assets purchased by and sold to the Buyer by the Seller pursuant to the terms of this Agreement.

 

1.49 “Real Property, Personal Property and Incidental Rights”  shall mean all rights, titles, claims and interests of Seller in and to or derived from the following, insofar as the same do not constitute Excluded Assets and are attributable to, appurtenant to, incidental to, or used for the ownership or operation of the Leases or other Assets:

 

 

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(a) all mineral interests and royalty interests, including but not limited to those  described on Exhibit “C” or in instruments described on Exhibit “C”;

 

(b) all easements, rights-of-way, surface leases, permits, licenses, surface estate interests or other interests relating to the use of the surface or subsurface of lands, including but not limited to those described on Exhibit “C,” or in instruments described on Exhibit “C”;

 

(c) all Wells, along with all equipment and other personal property, inventory, spare parts, tools, fixtures, pipelines, dehydration facilities, platforms, tank batteries, appurtenances, and improvements situated upon the Assets or lands pooled or unitized therewith as of or after the Effective Time or used or held for use in connection with the ownership, development or operation of the Assets or the production, treatment, storage, compression, processing or transportation of Hydrocarbons from or in the Wells or the Leases or lands pooled or unitized therewith;

 

(d) all rights pursuant to contracts, agreements, and instruments to the extent attributable to and affecting the Assets in existence as of or after the Effective Time, including all Hydrocarbon sales, purchase, gathering, transportation, treating, marketing, exchange, processing, disposal and fractionating contracts, all unit agreements, orders and decisions of Governmental Entities establishing units, participation agreements, exchange agreements, joint operating agreements, enhanced recovery and injection agreements, farmout agreements and farmin agreements, options, drilling agreements, exploration agreements, assignments of operating rights, working interests, subleases and rights above or below certain footage depths or geological formations, to the extent same are attributable to the Assets, including but not limited to those described on Exhibit “D”, but excluding any contracts, agreements, and/or instruments to the extent transfer is restricted by third-party agreement or applicable law and the necessary consents to transfer are not obtained pursuant to Article 10 and provided that the contracts, agreements and/or instruments shall not include the instruments constituting the Leases;

 

(e) the Basic Documents, including but not limited to all original lease files, land files, well files, production records, division order files (including paysheets and supporting files), abstracts, title opinions, and contract files, insofar as the same are directly related to the Assets, including, without limitation, all geologicalinformation and data, 2-D and 3-D seismic and geophysical information and data (including all proprietary seismic data of Seller, if any, and seismic data licensed from third Persons, including reprocessed data, except to the extent the Buyer is unwilling to pay all third Person transfer fees), interpretive data, technical evaluations, technical outputs, reserve estimates and economic estimates including Seller's proprietary interpretations of same.

 

1.50 “Regulated Substances” shall be as defined in the definition of “Environmental Defect.”

 

1.51 “Request Date” shall be defined in Section 3.2(c).

 

 

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1.52 “Retained Obligations”

 

shall mean all Liabilities, Claims, duties, and obligations that arise out of the ownership, operation or use of the Assets that are not Assumed Obligations, including but not limited to:

 

(a) Claims for personal injury or wrongful death and property damage  occurring or arising prior to the Effective Time;

 

(b) the Plugging and Abandonment Obligations arising prior to the Effective Time;

 

(c) all Environmental Obligations arising prior to the Effective Time

 

(d) responsibility to any Governmental Entity or any Person for any offsite transportation, treatment, storage or disposal by Seller, prior to the Effective Time, of Regulated Substances produced from the Assets, and stored or disposed of, on, in or below any property, including that which forms a part of the Assets, for which and to the extent that remediation is required by any Environmental Law or any applicable lease or other agreement; for purposes of this subpart “(b),” “offsite transportation, treatment, storage or disposal” shall include the seepage, leakage or other migration of Regulated Substances from the property forming part of the Assets to other lands;

 

(e) responsibility and Liability for any investigations, claims, demands, actions, suits, or administrative, legal or arbitration proceedings, and the Claims thereunder, whether actual, threatened or unasserted, relating to or arising from the acts, omissions or otherwise prior to the Effective Time; including, but not limited to,the litigation and threatened litigation listed on Exhibit “H”;

 

(f) except as otherwise provided in this Agreement (including all Assumed Obligations of Buyer), all other Liabilities, Claims, duties, and obligations that arise out of the ownership, operation or use of the Assets prior to the Effective Time, including, but not limited to, the payment of all operating expenses and capital expenditures relating to the Assets, all Liabilities, duties, and obligations, express or implied, imposed upon Seller under the provisions of the Leases (including, without limitation, the payment of royalties) and under all applicable Laws; and

 

(g) obligations with respect to gas production, sales or, processing imbalances with third Persons to the extent provided in Article 18.

 

1.53 “Seller Indemnitees” shall be as defined in Section 17.2.

 

1.54 “Seller's Credits” shall be as defined in Section 3.2(a)(i).

 

1.55 “Third Party Claim” shall be as defined in Section 17.7(b).

 

1.56 “Third Party Interests” shall be as defined in Section 10.1(c).

 

1.57 “Title Defect” shall be as defined in Section 8.1(e).

 

 

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1.58 “Title Defect Notice Date” shall be as defined in Section 8.2.

 

1.59 “Title Defect Property” shall be as defined in Section 8.1(f).

 

1.60 “Transfer Requirement”  means any consent, approval, authorization or permit of, or filing with or notification to, any Person which is required to be obtained, made or complied with for or in connection with any sale, assignment or transfer of any Asset or any interest therein, other than any consent of, notice to, filing with, or other action by Governmental Entity in connection with the sale or conveyance of oil and/or gas leases, surface leases, contracts, agreements or other instruments, if they are not required prior to the assignment or they are customarily obtained subsequent to the sale or conveyance (including consents from federal and state agencies).

 

1.61 “Well” or “Wells”  shall refer to all wells located on the Assets, or lands pooled or unitized therewith, including but not limited to those wells identified on Exhibit“B” attached hereto, whether or not such wells are producing, active or inactive, plugged and abandoned, temporarily abandoned, shut-in, injection wells, disposal wells, water supply wells or otherwise.

 

ARTICLE 2 - AGREEMENT TO PURCHASE AND SELL

 

Subject to the terms and conditions of this Agreement, Seller agrees to sell, convey, transfer, assign, set over and deliver to Buyer and Buyer agrees to purchase and pay for the Assets and to assume only the Assumed Obligations.

 

ARTICLE 3 - PURCHASE PRICE AND PAYMENT

 

3.1 Purchase Price.

 

Subject to adjustment as provided in Section 3.2 set forth below, the purchase price for the Assets (the “Purchase Price”) shall be TWO MILLION DOLLARS ($2,000,000), which shall be credited against the amounts owed by Seller to Buyer under a Promissory Note dated February 7, 2011 and as amended.

 

3.2 Purchase Price Adjustments.

 

(a) The purchase Price for the Assets shall be adjusted as follows (the resulting amount being herein referred to as the “Adjusted Purchase Price”):

 

(i) The Purchase Price shall be increased by an amount equal to the sum of the following amounts (determined without duplication) (“Seller’s Credits”):

 

(A)           the amount of all production expenses, operating expenses and all other expenditures customarily billed under operating agreements(excluding the compensation paid to Seller under Section 11.1(d), below) attributable to the ownership or operation of the Purchased Assets after the Effective Time and paid by Seller prior to the Closing Date in accordance with Section 11.1;

 

 

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(B)           the amountof all reasonable prepaid costs and expenses attributable to the Purchased Assets prior to the Effective Time and which are attributable to the period of time from and after the Effective Time;

 

(C)           the amountof all ad valorem, property, production, excise, severance and similar taxes and assessments (but not including income taxes), which taxes and assessments accrue to the Purchased Assets after the Effective Time, and are paid by Seller;

 

(D)           the amountof any Hydrocarbon underbalances as provided in Article 18; and

 

(E)           any other amountagreed upon by Seller and Buyer in writing prior to Closing.

 

(ii) The Purchase Price shall be adjusted downward by an amount equal to the sum of the following amounts (determined without duplication) (“Buyer’s Credits”):

 

(A)           the collected sales valueof all Hydrocarbons sold by the Seller after the Effective Time, all of which are attributable to the Purchased Assets, and any other monies collected by the Seller with respect to the ownership interest being sold of the Purchased Assets after the Effective Time, but excepting interest income attributable thereto.

 

(B)           the amount of all unpaid ad valorem, property, production, excise, severance and similar taxes and assessments (but not including income taxes), which taxes and assessments accrue to the Purchased Assets prior to the Effective Time, which amount shall, where possible, be computed based upon the tax rate and values applicable to the tax period in question; otherwise, the amount of the adjustment under this paragraph shall be computed based upon such taxes assessed against the applicable portion of the Purchased Assets for the immediately preceding tax period just ended;

 

(C)           an amountequal to any Preferential Purchase Rights or Consents as provided in Article 10;

 

(D)           an amountequal to the value of all Title Defects, as provided in Section8.3.

 

(E)           an amountequal to the value of all Environmental Defects, as provided in Section 7.3;

 

(F)           the amountof any Hydrocarbon overbalances as provided in Article 18; and

 

(H)           any other amountagreed upon by Seller and Buyer in writing prior to Closing.

 

 

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(b) Seller shall prepare and deliver to Buyer, at least five (5) business days prior to Closing, Seller's estimate of the adjusted Purchase Price to be paid at Closing, together with a preliminary statement setting forth Seller's estimate of the amount of each adjustment to the Purchase Price to be made pursuant to Section 3.2(a).  The Parties shall negotiate in good faith and attempt to agree on such estimated adjustments prior to Closing.  In the event any estimated adjustment amounts are not agreed upon prior to Closing, the estimate of the adjusted Purchase Price for purposes of Closing shall be calculated based on Seller's and Buyer's agreed upon estimated adjustments and Buyer’s good faith estimate of any disputed amounts (and any such disputes shall be resolved by the Parties in connection with the resolution of the Final Settlement Statement).

 

(c) Within sixty (60) days after Closing (the “Final Settlement Date”), Seller shall provide to Buyer, for Buyer's concurrence, an accounting (the “Final Settlement Statement”) of the actual amounts of Seller's Credits and Buyer's Credits for the adjustments set out in Section 3.2(a).  Buyer shall have the right for sixty (60) days after receipt of the Final Settlement Statement to audit and take exceptions to such adjustments.  The Parties shall attempt in good faith to expeditiously resolve any disagreements on a best efforts basis.  Those credits agreed upon by Buyer and Seller shall be netted and the final settlement shall be paid as directed hereinbelow, on final adjustment by the Party owing it (the “Final Settlement”).  If Buyer and Seller are unable to agree with respect to the Final Settlement Statement on or before thirty (30) days after Buyer takes exception, then, at the written request of either Seller or Buyer, each of Seller and Buyer shall nominate and commit one of its senior officers to meet at a mutually agreed time and place not later than ten (10) days after the date of receipt by Buyer or Seller, as applicable, of such request (the “Request Date,”) to attempt to resolve same.  If such senior officers have been unable to resolve such Accounting Dispute within a period of thirty (30) days after the Request Date, either Party shall have the right, by written notice (the “Accounting Dispute Notice”) to the other Party to resolve the dispute (the “Accounting Dispute”) by the submission thereof to a nationally recognized independent public accounting firm commonly considered as one of the “Big 4” and reasonably accepted to Seller and Buyer, which firm shall serve as sole arbitrator (the “Accounting Referee”).  Within thirty (30) days of the selection of the Accounting Referee, each of Buyer and Seller shall submit to the Accounting Referee in writing its position with respect to the Accounting Dispute, specifying in reasonable detail the basis for the Accounting Dispute.  The scope of the Accounting Referee’s engagement shall be limited to the resolution of the items described in the Accounting Dispute Notice given in accordance with the foregoing.  The Accounting Referee shall be instructed by the Parties to resolve the Accounting Dispute as soon as reasonably practicable in light of the circumstances but in no event in excess of thirty (30) days following the submission of the Parties’ positions regarding the Accounting Dispute to the Accounting Referee.  The decision and award of the Accounting Referee shall be binding upon the Parties and final and nonappealable to the maximum extent permitted by Law, and decision and award thereon may be entered in a court of competent jurisdiction and enforced by any Party as a final judgment of such court.  Payment of any amount determined to be payable by the Accounting Referee hereunder or by the Parties pursuant to the agreed upon Final Settlement Statement shall be made,within fifteen (15) business days after such determination.  The fees and expenses of the Accounting Referee shall be borne and paid one-half by Seller and one-half by Buyer.

 

 

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(d) Seller is in the process of paying off the creditors who have filed lien affidavits as set forth on Exhibit P hereto, however this may not occur prior to the Closing Date.  If, within two (2) years of the filing of an Affidavit of Lien, the Buyer must pay any of lien claimants in order to prevent a suit to foreclose, Buyer shall increase the amount of the Promissory Note dated February 7, 2011 and as amended by the amount Buyer pays the creditor.

 

3.3 Allocation of Purchase Price.

 

Concurrent with the execution of this Agreement, Buyer shall allocate the unadjusted Purchase Price among each of the Assets, in compliance with the principles of Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury regulations thereunder.  Such allocation of value upon the reasonable approval of the Seller shall be attached to this Agreement as Exhibit “F” (the “Allocated Value”).  On or before fifteen (15) Business Days after the execution of this Agreement Buyer shall provide to Seller a revised Exhibit “F” with an Allocated Value for any remaining Assets which were not addressed at the time of execution of this Agreement and such allocation of value shall upon the reasonable approval of the Seller shall be included in Exhibit “F.”  The Allocated Value for any Asset equals the portion of the unadjusted Purchase Price allocated to such Asset on Exhibit “F”, increased or reduced as described in this Article 3. After Seller and Buyer have agreed on the Allocated Values for the Assets, Seller will be deemed to have accepted such Allocated Values for purposes of this Agreement and the transactions contemplated hereby, but otherwise makes no representation or warranty as to the accuracy of such values. Seller and Buyer agree (i) that the Allocated Values, as adjusted pursuant to the foregoing, shall be used by Seller and Buyer as the basis for reporting asset values and other items for purposes of all federal, state, and local Tax Returns, including without limitation Internal Revenue Service Form 8594 and (ii) that neither they nor their Affiliates will take positions inconsistent with such Allocated Values in notices to Governmental Bodies, in audit or other proceedings with respect to Taxes, in notices to preferential purchase right holders, or in other documents or notices relating to the transactions contemplated by this Agreement. Buyer and Seller further agree that, on or before the Final Settlement Date (or the Closing Date, in the event of a Like-Kind Exchange Transaction), they will mutually agree as to the further allocation of the Allocated Values included in Exhibit “F” as to the relative portion of those values attributable to leasehold costs and depreciable equipment. Seller's allocation of values attributable to leasehold costs and depreciable equipment will be controlling to the extent that Buyer and Seller are unable to agree on the allocation of values attributable to leasehold costs and depreciable equipment.

 

ARTICLE 4 . - SELLER'S REPRESENTATIONS AND WARRANTIES

 

Seller represents and warrants to Buyer as of the date hereof, and the Closing Date that:

 

(a) Seller is duly organized, validly existing, and in good standing under the Laws of the state in which it was formed, and is duly qualified to carry on its business in the jurisdictions where required to do so;

 

 

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(b) Seller has all requisite power and authority to carry on its business as presently conducted, to enter into this Agreement and the other documents and agreements contemplated hereby, and to perform its obligations under this Agreement and the other documents and agreements contemplated hereby. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not violate, nor be in conflict with, any provision of Seller’s governing documents or any agreement or instrument to which it is a party or by which it or the Assets are bound, or any judgment, decree, order, statute, rule or regulation applicable to Seller, except as identified on Schedule 4(b);

 

(c) This Agreement, and all documents and instruments required hereunder to be executed and delivered by Seller at Closing, constitute legal, valid and binding obligations of Seller enforceable in accordance with their respective terms, subject to applicable bankruptcy and other similar Laws of general application with respect to creditors;

 

(d) There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by, or to the Knowledge of Seller threatened against Seller;

 

(e) The execution, delivery and performance of this Agreement, and the transaction contemplated hereunder have been duly and validly authorized by all requisite authorizing action, corporate, partnership or otherwise, on the part of Seller;

 

(f) Neither Seller nor any affiliate of Seller has incurred any obligation or Liability, contingent or otherwise, for brokers' or finders' fees in connection with this Agreement and the transaction provided herein for which Buyer shall have any Liability or responsibility or which shall encumber the Assets;

 

(g) Other than as set forth in Exhibit “H,” there are no investigations, demands, actions, suits, or administrative, legal or arbitration proceedings (including condemnation, expropriation, or forfeiture proceedings) pending or, to the Knowledge of Seller, threatened against Seller or any of its Affiliates, or against or involving any Asset: (i) seeking to prevent the consummation of the transactions contemplated hereby, or (ii) which, individually or in the aggregate, would or could adversely affect the Assets or the transfer of the Assets from Seller to Buyer, including Seller’s title to the Assets, in any material respect;

 

(h) Exhibit “I” contains a complete and accurate list of the status of any “payout” balance (net to the interest of Seller), as of the dates shown in Exhibit “I,” for each Asset that is subject to a reversion or other adjustment at some level of cost recovery or payout;

 

(i) The transfer of the Assets to Buyer will not violate at the Closing Date any covenants or restrictions imposed on Seller by any bank or other financial institution in connection with a mortgage or other instrument, and will not result in the creation or imposition of a lien or security interest on any portion of the Assets or result in the acceleration of any debt of Seller, except as to those mortgages or instruments to be released at Closing as provided in Section 13.2(f)herein;

 

(j) Except as set forth on Schedule 4(j), those Assets operated by Seller or its Affiliates, and, those Assets operated by third Persons to the Knowledge of Seller, are in material compliance with all Laws pertaining to the Assets, and none of Seller or any of its Affiliates has received or has Knowledge of any written notice of any material non-compliance with any such Law;

 

 

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(k) Except as set forth on Schedule 4(k), with respect to those Assets operated by Seller or its Affiliates, Seller has, and with respect to those Assets operated by a third Person to the Knowledge of Seller, such third Person has, all governmental permits necessary for the operation of such Assets, and Seller and its Affiliateare not, and, to the Knowledge of Seller, such third Person is not, in material default under any permit, license or agreement relating to the operation and maintenance of the Assets;

 

(l) Except as set forth on Exhibit “K”, there are no waivers, consents to assign, Transfer Requirements, approvals or similar rights owned by third Persons and required in connection with the conveyance of the Assets from Seller to Buyer;

 

(m) Except as set forth on Exhibit “K,”, there are no Preferential Purchase Rights to which the Assets are subject;

 

(n) No Hydrocarbons produced or to be produced from the Assets are subject to any Hydrocarbon sales, purchase or exchange contracts other than those identified on Exhibit “D” and, no third Person has any call upon, option to purchase, take-or-pay obligations, dedication rights or similar rights with respect to the Hydrocarbons produced or to be produced from Assets, except as described on Exhibit “D”;

 

(o) Except as set forth on Exhibit “J,” there are no Hydrocarbon imbalances with respect to the Assets;

 

(p) All tax returns required to be filed with respect to the Assets have been duly and timely filed, each such tax return is true, correct and complete in all material respects, and all taxes (including, but not limited to, ad valorem, property, production, excise, severance, windfall profit and similar taxes and assessments based on or measured by the ownership of property or the production or removal or hydrocarbons or the receipt of proceeds there from on the Assets) owed with respect to the Assets (whether or not shown on a tax return) have been timely paid in full.  There are no liens for taxes on any of the Assets other than Permitted Encumbrances;

 

(q) Except as reflected on Schedule 4(q)there are no authorities for expenditures or other commitments or obligations to incur capital expenditures outstanding in excess of twenty five thousand dollars ($25,000.00) net to Seller’s interest in the aggregate, in connection with the ownership or operation of the Assets and no such authorities, commitments or obligations shall be incurred after the date hereof except in accordance with Section 11.1;

 

(r) No swap, hedge, forward sale, or similar type transaction, exists that would require delivery of Hydrocarbons produced from the Assets after the Effective Time without being able to then or thereafter receive payment for such Hydrocarbons;

 

(s) Except as reflected on Schedule 4(t), there is no outstanding Claim concerning any property taxes with respect to the Assets and no assessment, deficiency or adjustment has been asserted or proposed with respect thereto, and Seller has not waived any statute of limitations with respect to such taxes or agreed to any extension of time with respect to any such tax assessment or deficiency;

 

 

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(t) Schedule 4(u) lists all bonds and letters of credit maintained by Seller or any of its Affiliates with respect to the Assets that Buyer will be obligated to replace pursuant to Section 20.23 hereof; and

 

(u) Except as provided in Exhibit “P,” there are no mortgages, liens, or other similar encumbrances affecting the Assets other than Permitted Encumbrances; and

 

(v) If any of the interests comprising the Assets were acquired by Seller under farmout, exploration, development, participation and other agreements and Seller has not as of the Closing Date received assignments to such interests (all of which Seller represents are described in Schedule 4(w)), then, with respect to such Assets (regardless of whether or not described in Schedule 4(w)), Seller represents to Buyer (in addition to and not in lieu of other representations provided in this Agreement) that except for consents set forth on Schedule 4(l) and interests which cannot be assigned due to provisions in operating agreements prohibiting assignments of interests which do not meet specified minimum interest requirements, all conditions to earning assignments of record title or operating rights, as the case may be, to such Assets have been fully satisfied by Seller.  As requested by Buyer from time to time, Seller agrees to notify each holder of interests in such Assets (which are the subject of such notice) before Closing that Buyer has purchased the Assets and to direct each such interest holder to make all such assignments of interest in the Assets to Seller.  With respect to any such assignments received by Seller after Closing, Seller agrees to promptly assign such interests to Buyer pursuant to the provisions of this Agreement as if such assignments had been made at Closing.  All such property interests, whether assigned to Buyer by Seller or such third Person, shall be Assets for all purposes of this Agreement.

 

(w) None of the Assets is subject to any mineral reservations or top leases.  There are no unrecorded documents or agreements which may result in impairment or loss of Seller’s ability to convey the Assets.

 

(x) Seller has Defensible Title to the Assets as of the Effective Date, has Defensible Title to the Assets as of the date hereof, and will have Defensible title to the Assets as of the Closing Date.

 

(y) Seller shall not directly or indirectly reserve or retain recorded or unrecorded interests in any of the Assets, and Seller shall not reserve recorded or unrecorded executory rights.

 

(z) Each of the Leases is in full force and effect, and all royalties, rentals, and other payments due thereon by Seller and, to the best of Seller’s Knowledge, by others have been timely and properly paid.  All of the Wells have been drilled and completed within the boundaries of such Leases or within the limits otherwise permitted by contract, pooling or unit agreement and by law, and as of Closing Date the production of oil and gas there from will not have been in excess of the allowable production allocated to such wells.

 

 

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(aa) Seller has not in any respect collected, nor will Seller in any respect collect any proceeds from the sale of oil, condensate and gas from the Assets which are subject to a refund.  Proceeds from the sale of oil, condensate and gas from the Asset are being received in all respects by Seller in a timely manner and are not being held in suspense for any reason.

 

(bb) With respect to the Basic Documents in all respects:  (i) all are in full force and effect and are valid and binding obligations;  (ii) Seller is not currently in material breach or default with respect to any of its obligations under any Basic Document or any regulations incorporated therein or governing same; (iii) all payments (including, without limitation, royalties, delay rentals, shut-in royalties, and joint interest or other billings under unit or operating agreements) due thereunder have been made by Seller;  (iv) to the best of Seller’s Knowledge, no other party to any Basic Document (or any successor in interest thereto) is in breach or default with respect to any of its obligations thereunder;  (v) neither Seller nor any other party to any Basic Document has given or threatened to give notice of any (1) breach by any party or (2) action to terminate, cancel, rescind or procure a judicial reformation of any Basic Document or any provision thereof;  and (vi) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in a breach of, constitute a default under, or result in a violation of the provisions of any Basic Document.

 

(cc) With respect to Leases, unit agreements, pooling agreements, communitization agreements, and other Basic Documents creating interests constituting the Assets, (i) Seller has in all respects fulfilled all requirements for filings, certificates, disclosures of parties in interests, and other similar matters contained in (or otherwise applicable thereto by law, rule or regulation) such Leases or other documents granting or governing the operation or maintenance of the Assets, and Seller is fully qualified to own, hold and exercise such rights under such Leases or other documents;  (ii) there are no objections to drill additional wells or to engage in other development operations, except for obligations arising under offset well provisions and obligations arising under provisions of unit operating agreements which allow the parties thereto to elect whether or not they will participate; however,  to the best of Seller’s Knowledge, there are no current proposals to drill such wells; (iii) there are no limitations as to the depths covered or substances to which such interests purport to apply; (iv) there are no provisions applicable to the Leases or other Basic Documents which increase the royalty provisions (other than those allowing a lessor the right to take in kind) requiring the payment of royalties on any basis other than proceeds actually received by the lessees;  and (vi) the Leases and other interests do not have terms fixed by a certain number of years.

 

(dd) With respect to the joint, unit or other operating agreements relating to the Assets: (a) there are no outstanding calls or payments under authorizations for expenditures or payments which are due or which Seller has committed to make which have not been paid; (b) there are no material operations by less than all parties;  (c) there are no operations under the operating agreements with respect to which Seller has become a non-consenting party; and (d) all such agreements are identified on Exhibit “D”.

 

(ee) All agreements which will be applicable to the Assets upon consummation of the transactions contemplated hereby are of the type generally found in the oil and gas industry, do not (individually or in the aggregate) contain unusual provisions which may operate in an adverse manner with respect to the Assets, and are in form and substance considered conventional within the oil and gas industry.

 

 

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(ff) All personal property and fixtures constituting a part of the Assets have been maintained in all respects in a state of repair so as to be adequate for normal operations and are in all material respects in good working order.

 

(gg) The Assets do not include any properties that have been plugged and abandoned or have material clean-up and restoration liabilities associated therewith.  The Assets do not include any Wells, whether or not set forth on Exhibit “B”, shown to be producing or temporarily abandoned, which as of the Effective Date required, in accordance with sound oilfield practice or pursuant to orders of a governmental authority, or which have been AFE’ed for, temporary or permanent plugging and abandonment.  No well constituting a part of the Assets will obligate the owners thereof within one year from the Closing Date to expend funds in excess of $30,000.00 for plugging abandonment costs (including environmental clean-up costs or damages), net of salvage value of existing well equipment.  There are no Wells located on the lands covered by, or attributable to, Leases that have expired.

 

(hh) All material permits, licenses and other authorizations which are required under federal, state and local news with respect to pollution or protection of the environments relating to the Assets have been obtained;   Seller is in compliance in all material respects with such authorizations and laws;  and Seller is not subject to any orders requiring environmental assessment or remediation and has not received notice of any, or discovered any, event reasonably likely to give rise to any material liability based on or related to pollutants, contaminants, or hazardous or toxic materials or wastes from or attributable to the Assets.

 

(ii) No statement, representation or warranty of Seller contained in this Agreement, or any information set forth or contained in the exhibits hereto or furnished by Seller in connection herewith, contains or will contain any untrue statement of a material fact or omits or will omit any material fact necessary to make the statements made not misleading.  Seller has no Knowledge of any matter which materially and aversely affects (or may materially and aversely affect) the operations or conditions of any of the Assets, which has not been set forth in this Agreement or the exhibits hereto.

 

(jj) To the Knowledge of Seller, Seller is not aware of any facts or circumstances that would serve as the basis for a claim by Seller against Buyer based upon a breach of any of the representations and warranties of Buyer contained in this Agreement.  Seller shall be deemed to have waived in full any breach of any of Buyer’s representations and warranties of which Seller has such awareness at the Closing.

 

 

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ARTICLE 5 . - BUYER'S REPRESENTATIONS AND WARRANTIES

 

Buyer represents and warrants to Seller as of the date hereof, and the Closing Date that:

 

(a) Buyer is a corporationduly organized, validly existing, and in good standing under the Laws of the State ofDelaware, and is, or will be as of the Closing Date, duly qualified to carry on its business in those states where it is required to do so, including Texas;

 

(b) Buyer has all requisite power and authority to carry on its business as presently conducted, to enter into this Agreement and the other documents and agreements contemplated hereby, and to perform its obligations under this Agreement and the other documents and agreements contemplated hereby.  The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not violate, nor be in conflict with, any provision of Buyer's articles of incorporation, partnership agreement(s), by-laws or governing documents or any agreement or instrument to which it is a party or by which it is bound, or any judgment, decree, order, statute, rule, or regulation applicable to Buyer;

 

(c) The execution, delivery and performance of this Agreement and the transactions contemplated hereunder have been duly and validly authorized by all requisite authorizing action, corporate, partnership or otherwise, on the part of Buyer;

 

(d) This Agreement, and all documents and instruments required hereunder to be executed and delivered by Buyer at Closing, constitute legal, valid and binding obligations of Buyer enforceable in accordance with their respective terms, subject to applicable bankruptcy and other similar laws of general application with respect to creditors;

 

(e) Neither Buyer nor any affiliate of Buyer has incurred any obligation or Liability, contingent or otherwise, for brokers' or finders' fees in connection with this Agreement and the transaction provided herein for which Seller shall have any Liability or responsibility;

 

(f) Buyer is an experienced and knowledgeable investor and operator in the oil and gas business.  Prior to entering into this Agreement, Buyer was advised by and has relied solely on Seller’s express representations set forth herein and its own expertise and legal, tax, reservoir engineering, accounting, and other professional counsel concerning this Agreement, the Assets and the value thereof;

 

(g) Buyer has, or by Closing will have, the financial resources to close the transaction contemplated by this Agreement, whether by third Person financing or otherwise;

 

(h) Buyer acknowledges the existence of the Claims and suits described in Exhibit “H” and that these Claims and suits are Permitted Encumbrances as set forth in Section 8.1(d).  Buyer further acknowledges that Buyer has, or by Closing will have, legal counsel of its choice fully review those Claims and suits identified on Exhibit “H”;

 

 

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(i) Buyer is acquiring the Assets for its own account for use in its trade or business, and not with a view toward or for sale associated with any distribution thereof, nor with any present intention of making a distribution thereof within the meaning of the Securities Act, and applicable state securities Laws;

 

(j) Buyer is experienced and knowledgeable in the oil and gas business and aware of the risks of that business.  Buyer represents and warrants that (i) as of the execution date of this Agreement it has made all such independent investigation, verification, analysis and evaluation of the Assets as it deems necessary or appropriate to enter into this Agreement, and (ii) it has made all such reviews and inspections of the Assets as it has deemed necessary or appropriate to execute and deliver this Agreement (iii) prior to Closing, it will make further independent investigations, inspections and evaluations of the Assets as it deems necessary or appropriate to consummate the transactions contemplated hereby and (iv) that in making its decision to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer has relied solely upon Seller’s express representations set forth herein and its own independent investigation, verification, analysis and evaluation; and

 

(k) Buyer shall, at Closing, be qualified to own and assume operatorship of federal and state oil, gas and mineral leases in all jurisdictions where the Assets to be transferred to it are located, and the consummation of the transactions contemplated in this Agreement will not cause Buyer to be disqualified as such an owner or operator.  To the extent required by the applicable state and federal government, Buyer shall, at Closing, maintain lease bonds, area-wide bonds or any other surety bonds as may be required by, and in accordance with, such state or federal regulations governing the ownership and operation of such leases.

 

ARTICLE 6 . - ACCESS TO INFORMATION AND INSPECTIONS

 

6.1 Title Files.

 

Promptly after the execution of this Agreement and until the Closing Date, Seller shall permit Buyer and its representatives at reasonable times during normal business hours to examine, in Seller's offices at their actual location, all abstracts of title, title opinions, title files, ownership maps, lease files, assignments, division orders, payout statements, title curative, other title materials and agreements pertaining to the Assets as requested by Buyer, insofar as the same may now be in existence and in the possession of Seller or its Affiliates.  Except as otherwise provided herein, no warranty of any kind is made by Seller as to the information so supplied, and Buyer agrees that any conclusions drawn therefrom are the result of its own independent review and judgment.

 

6.2 Other Files.

 

Promptly after the execution of this Agreement and until the Closing Date, Seller shall permit Buyer and its representatives at reasonable times during normal business hours to examine, in Seller's offices at their actual location, all Basic Documents, production, well, regulatory, engineering and geological information, accounting information, environmental information, inspections and reports, and other information, files, books, records, and data pertaining to the Assets as requested by Buyer, insofar as the same may now be in existence and in the possession of Seller, including economic evaluations and Seller’s proprietary interpretations of same and reserve reports but excepting any such information that is subject to confidentiality agreements or to the attorney/client and work product privileges (provided Seller shall use its reasonable efforts to obtain waivers of any confidentiality restrictions).  The exception as to the attorney/client and work product privilege shall not apply to litigation for which Seller will be responsible for pursuant to Section 17.6 below.  Except as otherwise provided herein, no warranty of any kind is made by Seller as to the information so supplied, and Buyer agrees that any conclusions drawn therefrom are the result of its own independent review and judgment.

 

 

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6.3 Copies.

 

Buyer will be allowed to make copies of the files described in Article 6 at Buyer’s sole cost and expense; provided that, in the sole judgment of Seller, (i) such copying is of a limited nature and, (ii) such copying does not unduly interfere with the conduct of Seller’s operation or business.

 

6.4 Confidentiality Agreement.  All information made available to Buyer pursuant to Article 6 shall be maintained confidential by Buyer until Closing. The information protected by such confidentiality obligation does not include any information that (i) at the time of disclosure is generally available to and known by the public (other than as a result of a disclosure by Buyer), or which after such disclosure comes into the public domain through no fault of Buyer or its representatives, or (ii) is or was available to Buyer on a non-confidential basis, or (iii) is already known to Buyer, as evidenced by Buyer’s written records, at the time of its disclosure by Seller to Buyer.  Buyer may disclose the information or portions thereof to those employees, agents or representatives of Buyer who need to know such information for the purpose of assisting Buyer in connection with its performance of this Agreement. Further, in the event that Buyer is requested or required (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose any of the information, Buyer shall provide Seller with prompt written notice of such request or requirement, so that Seller may seek such protective order or other appropriate remedy as it may desire.  Buyer shall further take reasonable steps to ensure that Buyer's employees, consultants and agents comply with the provisions of this Section 6.4.

 

6.5 Inspections.

 

Promptly after the execution of this Agreement and until Closing, Seller, subject to any necessary third-Person operator approval (which Seller shall use its reasonable efforts to obtain), shall permit Buyer and its representatives at reasonable times and at their sole risk, cost and expense, to conduct reasonable inspections of the Assets for all purposes, including any Environmental Defects.

 

6.6 No Warranty or Representation on Seller's Information.

 

EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE ACCURACY, COMPLETENESS, OR MATERIALITY OF THE INFORMATION, RECORDS, AND DATA NOW, HERETOFORE, OR HEREAFTER MADE AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS OR THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, QUALITY OR QUANTITY OF HYDROCARBON RESERVES, IF ANY, PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS BALANCING INFORMATION, ALLOWABLES OR OTHER REGULATORY MATTERS, POTENTIAL FOR PRODUCTION OF HYDROCARBONS FROM THE ASSETS, OR ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY OTHER MATERIAL FURNISHED TO BUYER BY SELLER.

 

 

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6.7 Inspection Indemnity.  If Buyer exercises rights of access under this Article 6 or otherwise, or conducts examinations or inspections under this Section or otherwise, then (a) such access, examination and inspection shall be at Buyer’s sole risk, cost and expense and Buyer waives and releases all claims against Seller (and its Affiliates and the respective directors, officers, employees, attorneys, contractors, agents and successors and assigns) arising in any way therefrom or in any way connected therewith or arising in connection with the conduct of its directors, officers, employees, attorneys, contractors and agents in connection therewith and (b) Buyer shall indemnify, defend and hold harmless the Seller from any and all claims, actions, causes of action liabilities, damages, losses, costs or expenses (including, without limitation, court costs and attorney’s fees), or liens or encumbrances for labor or materials, arising out of or in any way connected with such matters; provided that such waiver, release and indemnification shall not apply to any representations, warranties or obligations of Seller pursuant to this Agreement.  THE FOREGOING RELEASE AND INDEMNIFICATION SHALL NOT APPLY TO THE EXTENT SUCH CLAIMS, ACTIONS, CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE OUT OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SIMPLE NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF ANY INDEMNIFIED PARTY, OR (ii) STRICT LIABILITY.

 

6.8 Amendments to Exhibits.

 

Seller and Buyer acknowledge that Buyer’s inspection of Seller’s records and files, or further review by Seller, prior to Closing may indicate that some or all of the Exhibits attached to this Agreement were not complete or entirely correct at the time of execution of this Agreement.  Accordingly, Seller and Buyer agree to revise and amend the Exhibits, as needed, so that they will be complete and accurate at Closing and shall be given effect as if made on the Closing Date prior to Closing, in the event Closing occurs.  It is understood, however, that such revisions or amendments shall not otherwise be taken into account in giving effect to (and shall not diminish or affect) any representations, rights, options, conditions, covenants and obligations of the Parties contained in this Agreement as originally executed unless otherwise mutually agreed by the Parties in writing.

 

ARTICLE 7 . - ENVIRONMENTAL MATTERS AND ADJUSTMENTS

 

 

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7.1 Environmental Defects Notice  Upon execution of and pursuant to the terms of this Agreement, Buyer (and Buyer’s environmental consultants) shall have the right, at reasonable times during normal business hours, to conduct its investigation into the status of the physical and environmental condition of the Assets and their compliance with applicable Environmental Laws.  If, in the course of conducting such investigation, Buyer discovers that any Asset is subject to a material Environmental Defect, Buyer may raise such Environmental Defect in the manner set forth hereafter.  For purposes hereof, the term “material” shall mean that the Buyer’s good faith estimate of the cost of remediating any single Environmental Defect (including the payment of any fines, penalties or other claims) exceeds five thousand dollars ($5,000.00), the Parties agreeing that such amount will be a per Environmental Defect deductible rather than a threshold.  No later than 5:00 p.m. Central Time five (5) business days prior to the Closing Date (the “Environmental Defect Notice Date”), Buyer shall notify Seller in writing specifying such Environmental Defects, if any, the Assets affected thereby, and Buyer's good faith estimate of the costs of remediating such defects, together with supporting documentation.  Seller may, but shall be under no obligation to, correct to the satisfaction of Buyer at its own cost and expense such defects on or before the Closing Date, in which case such affected Asset shall be included in the purchase and there shall be no reduction of the Purchase Price therefor.  Prior to Closing, Buyer and Seller shall treat all information regarding any environmental conditions as confidential, whether material or not, and shall not make any contact with any Governmental Entity or third Person (other than Buyer’s representatives, consultants and lenders) regarding same without the written consent of the other Party unless required by Law.

 

7.2 Non-Waiver of Environmental Defects.  If Buyer fails to notify Seller prior to or on the Environmental Defect Notice Date of any Environmental Defects, the Parties shall proceed with Closing but all such defects, whether known or unknown, will be deemed a Retained Obligation and Seller shall retain the risks, Liability and obligations associated with such defects.

 

7.3 Remedies for Environmental Defects  In the event any Environmental Defect, for which notice has been timely given as provided hereinabove, remains uncured as of Closing, Buyer, at its sole option, shall either (i) accept Seller’s agreement prior to Closing to cure or remediate, at Seller’s expense, such Environmental Defect as soon as reasonably possible after Closing and without any reduction to the Purchase Price in a manner acceptable to both Parties, and Seller shall indemnify Buyer with respect to any claims or Liability associated with such Environmental Defect or (ii) reduce the Purchase Price by the amount of the Defect Value as determined pursuant to Section 8.4, subject to application of the five-thousand dollars ($5,000.00) deductible described in Section 7.1or (iii) exclude the Asset impacted by the Environmental Defect from the transactions contemplated herein (such that they are not Purchased Assets)and reduce the Purchase Price by an amount equal to the Allocated Value of such Asset.

 

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ARTICLE 8 . - TITLE DEFECTS AND ADJUSTMENTS

 

8.1 Seller’s Title.

 

(a) Except for the special warranty of title referenced in Section 8.1(b) and without limiting Buyer’s rights to terminate this Agreement pursuant to Article 9 or not purchase the Asset and adjust the Purchase Price by operation of this Article 8, Seller makes no warranty or representation, express, implied, statutory or otherwise, with respect to Seller’s title to any of the Assets and Buyer hereby acknowledges and agrees that Buyer’s sole remedy for any defect of title, including any Title Defect, with respect to any of the Assets (i) before Closing, shall be Buyer’s rights to terminate this Agreement pursuant to Article 9 ornot purchase the Asset and to adjust the Purchase Price to the extent provided in this Article 8 and (ii) after Closing, shall be pursuant to the special warranty of title referenced in Section 8.1(b).

 

(b) The conveyance to be delivered by Seller to Buyer shall be substantially in the form of Exhibit G hereto (the “Conveyance”).  THE CONVEYANCE, SUBJECT TO THE PERMITTED ENCUMBRANCES, SHALL BE MADE WITHOUT WARRANTY OF TITLE, EITHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND WITHOUT RECOURSE, EVEN AS TO THE RETURN OF THE PURCHASE PRICE OR OTHER CONSIDERATION, EXCEPT THAT, SUBJECT TO THE PERMITTED ENCUMBRANCES, SELLER SHALL WARRANT TITLE TO THE ASSETS AGAINST ALL CLAIMS, LIENS, BURDENS AND ENCUMBRANCES ARISING BY, THROUGH OR UNDER SELLER, BUT NOT OTHERWISE.  THE CONVEYANCES SHALL BE MADE WITH FULL SUBSTITUTION AND SUBROGATION TO BUYER IN AND TO ALL COVENANTS AND WARRANTIES BY OTHERS HERETOFORE GIVEN OR MADE TO SELLER WITH RESPECT TO THE ASSETS TO THE EXTENT SUCH MAY BE CONVEYED BY SELLER.

 

(c) Buyer shall not be entitled to protection under Seller’s special warranty of title in the Conveyance against any Title Defect reported under this Article 8.

 

(d) “Defensible Title”

 

subject to and except for the Permitted Encumbrances, shall mean:

 

(i) such title held by Seller that entitles Seller to receive a share of the Hydrocarbons produced, saved and marketed from any Wellidentified in Exhibit “B” throughout the duration of the productive life of such Well (after satisfaction of all royalties, overriding royalties, net profits interests or other similar burdens on or measured by production of Hydrocarbons) (a “Net Revenue Interest”), of not less than the Net Revenue Interest shown in Exhibit “B” for such Well, except decreases in connection with those operations in which Seller may after the Effective Time be a non-consenting co-owner, decreases resulting from the establishment or amendment after the Effective Time of pools or units, and decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under deliveries, and except as stated in such Exhibit “B”.

 

 

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(ii) Such title held by Seller that obligates Seller to bear a percentage of the costs and expenses for the maintenance and development of, and operations relating to, (i) any Wellidentified in Exhibit “B” not greater than the “working interest” shown in Exhibit “B” for such Wellwithout increase throughout the productive life of such Well, except as stated in Exhibit “B” and except increases resulting from contribution requirements with respect to non-consenting co-owners under applicable operating agreements and increases that are accompanied by at least a proportionate increase in Seller’s Net Revenue Interest; and

 

(iii) Is free and clear of liens, encumbrances, obligations, security interests, irregularities, pledges, or other defects.

 

(iv) As to personal property included in the Assets, Seller’s ownership thereof is free and clear of any liens, claims or encumbrances of any kind or character; and

 

(v) As to all other Assets, Seller’s ownership interest (a) is free and clear of any liens, claims or encumbrances of any kind or character; and (b) Seller is not in default under a material provision of any other contract or agreement affecting such Assets..

 

(e) “Title Defect” shall mean (i) any matter which causes Seller to have less than Defensible Title to any of the Assets, or (ii) any matter that causes one or more of the following statements to be untrue, except for Permitted Encumbrances:

 

(i) Seller has not received written notice from any Governmental Entity or any other Person (including employees) claiming any violation of any Law with respect to the Assets;

 

(ii) Seller, or the Operator of an Asset, has complied in all material respects with the provisions and requirements of all orders, regulations and rules issued or promulgated by Governmental Entities having jurisdiction with respect to the Assets and has filed for and obtained all governmental certificates, permits and other authorizations necessary for Seller’s current operation of the Assets other than permits, consents and authorizations required for the sale and transfer of the Assets to Buyer;

 

(iii) Seller has not materially defaulted or materially violated any agreement to which Seller is a party or any obligation to which Seller is bound affecting or pertaining to the Assets other than as disclosed hereunder or on any exhibit attached hereto;

 

(iv) The Leases and all material surface leases, easements and similar surface use agreements attributable to or affecting the Assets are in full force and effect; and

 

(v) All taxes, rentals, royalties, operating costs and expenses, and other costs and expenses related to the Assets which are due from or are the responsibility of Seller have been paid.

 

Notwithstanding the foregoing, imbalances with respect to oil or natural gas shall not be deemed to be Title Defects and shall be governed by Article 18, hereof.

 

 

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(f) “Title Defect Property” shall mean any Asset or portion thereof burdened by a Title Defect.

 

(g) “Permitted Encumbrances” shall mean any of the following matters:

 

(1)           defects in the early chain of title consisting of failure to recite marital status or the omission of succession or heirship proceedings;

 

(2)           defects or irregularities arising out ofuncancelled mortgages, judgments or liens, the inscriptions of which, on their face, have expired has a matter of Law prior to the Effective Time, or prior unreleased oil and gas leases which, on their face, expired more than ten (10) years prior to the Effective Time and have not been maintained in force and effect by production or operations pursuant to the terms of such leases;

 

(3)           operator’s liens for amounts not yet due and payable, or those that are being contested in good faith by Seller in the ordinary course of business;

 

(4)           to the extent any of the following do not materially diminish the value of, or impair the conduct of operations on, any of the Assets and do not decrease the net revenue interest of Seller below that set forth on Exhibit “B” or increase the working interest of Seller above that set forth on Exhibit “B”: (i) easements, rights-of-way, permits, surface leases and other rights in respect of surface operations, pipelines, grazing, hunting, fishing, logging, canals, ditches, lakes, reservoirs or the like, (ii) easements for streets, alleys, highways, pipelines, telephone lines, power lines, railways and other similar rights-of-way, on, over or in respect of property owned or leased by Seller or over which Seller owns rights of way, easements, permits or licenses, and (iii) the terms and conditions of all leases, agreements, orders, instruments and documents pertaining to the Assets;

 

(5)           all lessors’ royalties, overriding royalties, net profits interests, carried interest, production payments, reversionary interests and other burdens on or deductions from the proceeds of production if the net cumulative effect of such burdens or deductions does not reduce the net revenue interest of Seller in any Assets affected thereby to the extent that Seller will not be able to deliver to Buyer, a net revenue interest of at least that reflected on Exhibit “B” of all Hydrocarbons produced, saved and marketed from or attributable to such Well, or impair the right to receive revenues attributable thereto;

 

(6)           Preferential Purchase Rights and required third Person consents to assignments and similar agreements with respect to which waivers or consents are obtained from the appropriate parties, or the appropriate time period for asserting the rights has expired without an exercise of the rights prior to the Closing Date;

 

(7)           all rights to consent by, required notices to, filings with, or other actions by Governmental Entities in connection with the sale or conveyance of oil and gas leases or interests if they are customarily obtained subsequent to the sale or conveyance;

 

 

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(8)           defects or irregularities of title arising out of events or transactions which have been barred by statutes of limitations or by adverse possession;

 

(9)           any encumbrance or other matter having an adverse effect on the value of the Assets of five thousand dollars ($5,000) or less, the Parties agreeing that such amount will be a per Title Defect deductible rather than a threshold;

 

(10)           rights reserved to or vested in any Governmental Entity to control or regulate any of the Assets in any manner, and all applicable Laws;

 

(11)           any encumbrance or other matter (whether or not constituting a Title Defect) expressly waived in writing by Buyer;and

 

(12)           the litigation and threatened litigation, and any Claims thereunder, as listed on Exhibit “H.”

 

8.2 Notice of Title Defects.

 

No later than 5:00 p.m. Central Time five (5) business days prior to the Closing Date (the “Title Defect Notice Date”), Buyer may provide Seller written notice of any Title Defect along with a description of those matters which, in Buyer's reasonable opinion, constitute Title Defects and setting forth in detail Buyer's calculation of the value for each Title Defect.  Seller may elect, at its sole cost and expense, but without obligation, to cure all or any portion of such Title Defects prior to Closing, in a manner acceptable to Buyer, in which case no reduction in the Purchase Price shall be made.  Subject to Buyer’s remedies for a breach of Seller’s obligations, or a breach of the special warranty of title set forth in the Conveyances, any Title Defects not asserted by Buyer on or prior to the Title Defect Notice Date shall be deemed waived by Buyer (which waived defects shall be deemed Permitted Encumbrances), the Parties shall proceed with Closing, Seller shall be under no obligation to correct such defects, and Buyer shall assume the risks, Liability and obligations associated with such defects.

 

8.3 Title Defect Adjustment.

 

(a) In the event any Title Defect, for which notice has been timely given as provided hereinabove, remains uncured as of Closing, Buyer, in its sole discretion, may elect to either (i) accept Seller’s agreement prior to closing to cure such Title Defect by October 31, 2012 (“Cure Period”) and by indemnifying Buyer against any Claims that may arise out of such Title Defect, subject to the provisions of Section 8.3(d)below, with no reduction in the Purchase Price; or (ii) reduce the Purchase Price by an amount equal to the Defect Value as determined pursuant to Section 8.4, subject to application of the five thousanddollars ($5,000.00) deductible or (iii) exclude the portion of the Asset impacted by the Title Defect from the transactions contemplated herein (such that they are not Purchased Assets) and reduce the Purchase Price by an amount equal to the Allocated Value of such portion of such Asset.  Should Seller elect either alternative “(i)” (indemnity) or (ii) (price reduction) in this Section 8.3(a), those Assets affected by the Title Defect shall be transferred to Buyer at Closing.

 

 

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(b) If Seller elects to attempt to cure a Title Defect after Closing, Closing with respect to the portion of the Assets affected by such Title Defect will be deferred (the “Closing Deferred Property”).  Closing with respect to all other Assets will proceed as provided in this Agreement, but the Purchase Price delivered to Seller at such initial Closing shall be reduced by the Allocated Value of the Assets for all Closing Deferred Properties.  If Seller cures any Title Defect within the Cure Period, then the Closing with respect to the Closing Deferred Property for which such Title Defect has been cured will proceed and will be finalized within seven (7) days following the end of the Cure Period.  If Seller fails to cure any Title Defect prior to the expiration of the Cure Period, Buyer shall have the right to elect by written notice to Seller, which notice shall be delivered within seven (7) days after receipt by Buyer of Notice from Seller of such failure to cure any such Title Defect, to waive all of the Title Defects applicable to any Closing Deferred Property (which waived Title Defects shall be deemed Permitted Encumbrances) and proceed to Closing on such Closing Deferred Property.  If Buyer does not elect to waive an existing Title Defect, Seller shall retain the Closing Deferred Property and the Parties shall have no further obligation with respect thereto.  In the event that any such property is retained by Seller and revenue has regularly been paid with respect to such property, without complaint, for a period in excess of two (2) years, then Buyer agrees, except as required by law (i) not to take any action to interfere with such revenue stream, and (ii) to the extent that Buyer becomes payor of such revenue, to pay Seller such revenue upon receipt of an indemnity agreement from Seller.

 

(c) The following provisions shall apply to an election by Seller under the second sentence of Section 8.3(a) to cure a Title Defect by indemnifying Buyer with regard to such Title Defect:

 

(1)           Seller’s indemnity shall be for an indefinite period of time.

 

(2)           Seller shall execute and deliver to Buyer a mutually agreeable form of indemnity agreement with respect to such Title Defect, which shall indemnify Buyer from and against any and all Claims arising from or related to such Title Defect, including, without limitation, the portion of the Purchase Price paid by Buyer for the Assets affected thereby and all capital expenditures and other costs and expenses incurred by Buyer in connection with the ownership, operation and development of the Assets affected thereby.

 

(3)           Seller’s indemnity shall be freely transferable by Buyer to its successors and assigns of the Assets affected by such Title Defect, including without limitation, any lender to Buyer and any Buyer of such Assets, whether directly from Buyer or through any foreclosure proceeding; and

 

(d) Except as provided in Article 9, in the event any adjustment to the Purchase Price is made pursuant to alternative (ii) in the first sentence of Section 8(a) due to a Title Defect raised by Buyer, the Parties shall proceed with Closing and Seller shall be under no obligation to correct such defect.

 

 

 

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8.4 Environmental Defect and Title Defect Values.

 

Upon timely delivery of notice of an Environmental Defect and/or a Title Defect, Buyer and Seller shall in good faith use their reasonable efforts to agree on the validity and value of the claim for the purpose of making any adjustment to the Purchase Price based on the provisions herein (“Defect Value”).  :

 

(a) If the Title Defect is based on a difference in net revenue interest or expense interest from that shown on Exhibit “B” for the affected Assets, then thePurchase Price shall be proportionately reduced.

 

(b) If the Environmental Defect or Title Defect is liquidated in amount (for example, but not limited to, a lien, encumbrance, charge or penalty), then the adjustment to the Purchase Price shall be the sum necessary to be paid to the obligee to remove the defect from the Asset.

 

(c) If the Environmental Defect or Title Defect represents an obligation or burden upon the affected Assets for which the economic detriment is not liquidated but can be estimated with reasonable certainty as agreed to by the Parties, the adjustment to the Purchase Price shall be the sum necessary to compensate Buyer at Closing for the adverse economic effect which the Environmental Defect or Title Defect will have on the affected Assets, taking into account all relevant factors, including, but not limited to, the following:

 

(1)           the Allocated Value of the Assets affected by a Title Defect;

 

(2)           the economic assumptions the Buyer utilized in the determination of the Allocated Value of the Asset, including prices, forecasts, production, reserves, discount factors or other relevant information; and

 

(3)           cost to remediate an Environmental Defect.

 

ARTICLE 9 . - OPTION TO TERMINATE

 

9.1 Option to Terminate for Defects.  If the aggregate of the Defect Values attributable to all Environmental Defects and Title Defects determined pursuant to Articles 7 and 8 and the provisions of Section 9.3 below, shall exceed $300,000.00, then either Buyer or Seller may, at its sole option, terminate this Agreement without any further obligation by giving written notice of termination to the other Party at any time prior to Closing.  In the event of such termination, neither Party shall have any further obligation or Liability hereunder.

 

9.2 Option to Terminate for Defects and Other Matters.  If, prior to Closing the sum of (a) the aggregate Defect Values attributable to all Environmental Defects and Title Defects determined pursuant to Articles 7 and 8 and the provisions of Section 9.3 below, (b) the Allocated Values of all Assets excluded from the transactions contemplated hereby pursuant to Articles 7 and 8, (c) the Allocated Values of all Assets excluded from the transactions contemplated hereby because of the exercise of Preferential Purchase Rights or because the time period for exercising such Preferential Purchase Rights has not expired, (d) the Allocated Values of all Third Party Interests, and (e) the Allocated Values of all Assets affected by Casualty Losses excluded from the transactions contemplated hereby exceeds$800,000.00, then either Buyer or Seller may terminate this Agreement without any further obligation by giving written notice of termination to the other Party at any time prior to Closing.  In the event of such termination, neither Party shall have any further obligation or Liability hereunder.

 

 

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9.3 Dispute as to Defect Values.  In the event of a dispute between Seller and Buyer as to the Defect Value for an Environmental Defect or Title Defect, the Parties shall negotiate in good faith as to estimates of such Defect Value for purposes of this Article 9 only.  Should the Parties be unable to agree on a Defect Value, the Buyer’s good faith estimate of the Defect Value shall be utilized for purposes of this Article 9only.

 

ARTICLE 10 . - PREFERENTIAL PURCHASE RIGHTS AND CONSENTS OF THIRD PARTIES

 

10.1 Actions and Consents.

 

(a) Seller and Buyer agree that each shall use all commercially reasonable efforts to take or cause to be taken all such action as may be necessary to consummate and make effective the transactions provided in this Agreement and to assure that it will not be under any material corporate, legal, or contractual restriction that could prohibit or delay the timely consummation of such transaction.

 

(b) Seller shall notify all holders of (i) Preferential Purchase Rights relating to the Assets, (ii) rights of consent to the assignment or other Transfer Requirements, or (iii) rights of approval to the assignment of the Assets, and of such terms and conditions of this Agreement to which the holders of such rights are entitled.  Seller shall promptly notify Buyer if any Preferential Purchase Rights are exercised, any consents or approvals denied, or if the requisite period has elapsed without said rights having been exercised or consents or approvals having been received.  If prior to Closing, any such Preferential Purchase Rights are timely and properly exercised, the interest or part thereof so affected shall be eliminated from the Assets and thePurchase Price reduced by the portion of the Purchase Price allocated to such interest or part thereof as provided in Exhibit “F.”

 

(c) With respect to any portion of the Assets for which a Preferential Purchase Right has not been asserted or waived prior to Closing or a consent or other approval to assign has not been granted and for which the time for election to exercise such Preferential Purchase Right or to grant such consent or approval has not expired (and Buyer is unwilling to assume the Liability associated with the failure to obtain such consent or approval), Closing with respect to the portion of the Assets subject to such outstanding obligations will be deferred (the “Third Party Interests”). Subject to Section 9.2, Closing with respect to all other Assets will proceed as provided in this Agreement, but thePurchase Price delivered to Seller at Closing will be reduced by the Allocated Value of the Third Party Interests.  In the event that within ninety (90) days after Closing any such Preferential Purchase Right is waived or consent or approval is obtained or the time for election to purchase or to deliver a consent or approval passes (such that under the applicable documents, Seller may sell the affected Third Party Interest to Buyer), then subject to the terms and conditions hereof (including Article 12) the Closing with respect to the applicable portion of the Third Party Interests will proceed promptly. If such waivers, consents or approvals as are necessary are not received by Seller within the applicable ninety (90) day period, Seller shall retain such Third Party Interests and the Parties shall have no further Liability or obligation to each other with respect thereto.

 

 

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(d) If any additional Preferential Purchase Rights are discovered after Closing, or if a Preferential Purchase Rights holder alleges improper notice, then Buyer agrees to cooperate with Seller in giving effect to any such valid Preferential Purchase Rights.  In the event any such valid Preferential Purchase Rights are validly exercised after Closing, Buyer's sole remedy against Seller shall be return by Seller to Buyer of that portion of the Purchase Price allocated under Exhibit “F” to the portion of the Assets on which such rights are exercised and lost by Buyer to such third Person.

 

ARTICLE 11 . - COVENANTS

 

11.1 Covenants of Seller Pending Closing.

 

(a) From and after the date of execution of this Agreement and until the Closing, and subject to Section 11.2 and the constraints of applicable operating and other agreements, Seller shall operate, manage, and administer the Assets as a reasonable and prudent operator and in a good and workmanlike manner consistent with its past practices, and shall carry on its business with respect to the Assets in substantially the same manner as before execution of this Agreement.  Prior to Closing, Seller shall use all reasonable efforts to preserve in full force and effect all Leases, operating agreements, easements, rights-of-way, surface leases, permits, licenses, and agreements which relate to the Assets, and shall perform all obligations of Seller in or under all such agreements relating to the Assets.  Seller shall, except for emergency action taken in the face of serious risk to life, property, or the environment (1) submit to Buyer, for prior written approval, all requests for operating or capital expenditures and all proposed contracts and agreements relating to the Assets which involve individual commitments of more than twenty thousand dollars ($20,000.00) to the 8/8ths interest; (2) consult with, inform, and advise Buyer regarding all material matters concerning the operation, management, and administration of the Assets; (3) obtain Buyer's written approval prior to voting under any operating, unit, joint venture, partnership or similar agreement relating to the Assets; and (4) not approve or elect to go nonconsent as to any proposed well located on the Assets or plug and abandon or agree to plug and abandon any Well without Buyer's prior written approval.  On any matter requiring Buyer's approval under this Section 11.1(a), Buyer shall respond within ten (10) Business Days to Seller's request for approval (unless Seller notifies Buyer that a shorter time to respond is required in which case the Buyer shall respond in the required time), and failure of Buyer to respond to Seller's request for approval within such time shall release Seller from the obligation to obtain Buyer's approval before proceeding on such matter.  With respect to emergency actions taken by Seller in the face of serious risk to life, property, or the environment, without prior approval of Buyer pursuant to the provisions above, Seller will advise Buyer of its actions as promptly as reasonably possible and consult with Buyer as to any further related actions.

 

 

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(b) Seller shall promptly notify Buyer of any threatened or actual Claim before any Governmental Entity and any Claim which relates to the Assets or which is reasonably expected to result in impairment or loss of any material portion of the Assets or which might hinder or impede the operation of the Assets in any material respect.

 

(c) In addition, without the prior written approval of Buyer, Seller agrees to (i) not sell, lease, farmout, transfer, or otherwise dispose of, directly or indirectly, any Assets, except for sales of Hydrocarbons in the ordinary course of business or as reflected on Exhibit “D,” (ii) maintain all insurance with respect to the Assets currently in effect, (iii) remain in material compliance with all Laws with respect to its ownership and operation of the Assets as a reasonably prudent operator, (iv) not amend any material contract or enter into any contract affecting the Assets that would be considered a material contract if in effect as of the date of this Agreement, or (v) not waive or release any material Claim or right with respect to the Assets or settle any Claim with respect to the Assets, except to the extent constituting a Retained Obligation, or the litigation referred to in Section 17.6 below.

 

(d) As compensation for its services as Operator for the period between the Effective Time and the Closing Date with respect to Purchased Assets, Buyer shall pay to Seller an amount equal to Buyer’s share of all overhead charges and operating costs under the applicable Joint Operating Agreement.  Buyer will be entitled to any overhead payments from other working interest owners attributable to the same period.

 

(e) Seller shall cooperate with Buyer and shall execute such documents or instruments as may be reasonably necessary to arrange for the timely transfer to Buyer or re-issuance in the name of Buyer of all permits, licenses, registrations or other approvals required for Buyer’s post-Closing ownership or operation of the Assets, including without limitation those required under or pursuant to Environmental Laws.

 

11.2 Limitations on Seller's Covenants Pending Closing.

 

To the extent Seller is not the operator of any of the Assets, the obligations of Seller in Section 11.1 concerning operations or activities which normally or pursuant to existing contracts are carried out or performed by the operator, shall be construed to require only that Seller use all reasonable efforts (without being obligated to incur any expense or institute any cause of action) to cause the operator of such Assets to take such actions or render such performance as would a reasonable prudent operator and within the constraints of the applicable operating agreements and other applicable agreements.

 

11.3 Notification of Breaches.

 

Until the Closing,

 

(a) Buyer shall notify Seller promptly after Buyer obtains actual knowledge that any representation or warranty of Seller contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Seller prior to or on the Closing Date has not been so performed or observed in any material respect.

 

 

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(b) Seller shall notify Buyer promptly after Seller obtains actual knowledge that any representation or warranty of Buyer contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Buyer prior to or on the Closing Date has not been so performed or observed in any material respect.

 

(c) If any of Buyer’s or Seller’s representations or warranties is untrue or shall become untrue in any material respect between the date of execution of this Agreement and the Closing Date, or if any of Buyer’s or Seller’s covenants or agreements to be performed or observed prior to or on the Closing Date shall not have been so performed or observed in any material respect, but if such breach of representation, warranty, covenant or agreement shall (if curable) be cured by the Closing (or, if the Closing does not occur, by the date set forth in Section 16.1), then such breach shall be considered not to have occurred for all purposes of this Agreement.

 

ARTICLE 12 . - CLOSING CONDITIONS

 

12.1 Seller's Closing Conditions.

 

The obligations of Seller under this Agreement are subject, at the option of Seller, to the satisfaction, at or prior to the Closing, of the following conditions:

 

(a) All representations and warranties of Buyer contained in this Agreement shall be true and accurate in all material respects at and as of the Closing as if such representations and warranties were made at and as of the Closing, and Buyer shall have performed, satisfied and complied with all agreements and covenants required by this Agreement to be performed, satisfied and complied with by Buyer at or prior to the Closing, and Buyer shall have executed and delivered to Seller an officer’s certificate of Buyer confirming the same;

 

(b) The execution, delivery, and performance of this Agreement and the transactions contemplated thereby have been duly and validly authorized by all necessary action, corporate, partnership or otherwise, on the part of Buyer;

 

(c) All necessary consents of and filings with any Governmental Entity relating to the consummation of the transactions contemplated by this Agreement shall have been obtained, accomplished or waived, except to the extent that such consents and filings are normally obtained, accomplished or waived after Closing;

 

(d) As of the Closing Date, no suit, action or other proceeding (excluding any such matter initiated by Seller) shall be pending or threatened before any Governmental Entity seeking to restrain Seller or prohibit the Closing or seeking damages against Seller as a result of the consummation of this Agreement; and

 

(e) Buyer shall have delivered (or be ready, willing and able to deliver) all agreements, instruments and documents which are required by other terms of this Agreement to be executed or delivered by Buyer to Seller prior to or in connection with the Closing.

 

 

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(f) Any waiting period applicable to the consummation of the transaction contemplated by this Agreement under the HSR Act shall have lapsed or terminated (by early termination or otherwise.)

 

(g) Buyer shall have executed and delivered the Participation Agreement with Seller substantially in the forms attached hereto as Exhibit R.

 

(h) From the date of this Agreement through the Closing Date, there shall not have occurred any change in the financial condition, business or operations of Buyer of its subsidiaries, taken as a whole, that would constitute a Material Adverse Effect.

 

12.2 Buyer's Closing Conditions.

 

The obligations of Buyer under this Agreement are subject, at the option of Buyer, to the satisfaction, at or prior to the Closing, of the following conditions:

 

(a) All representations and warranties of Seller contained in this Agreement shall be true and accurate in all material respects at and as of the Closing as if such representations and warranties were made at and as of the Closing, and Seller shall have performed, satisfied and complied with all agreements and covenants required by this Agreement to be performed, satisfied and complied with by Seller at or prior to the Closing, and Seller shall have executed and delivered to Buyer an officer’s certificate of Seller confirming the same;

 

(b) The execution, delivery, and performance of this Agreement and the transactions contemplated thereby have been duly and validly authorized by all necessary action, corporate, partnership or otherwise, on the part of Seller;

 

(c) All necessary consents of and filings with any Governmental Entity relating to the consummation of the transactions contemplated by this Agreement shall have been obtained, accomplished or waived, except to the extent that such consents and filings are normally obtained, accomplished or waived after Closing;

 

(d) As of the Closing Date, no suit, action or other proceeding (excluding any such matter initiated by Buyer) shall be pending or threatened before any Governmental Entity seeking to restrain Buyer or prohibit the Closing or seeking damages against Buyer as a result of the consummation of this Agreement; and

 

(e) Seller shall have delivered (or be ready, willing and able to deliver) all agreements, instruments and documents which are required by other terms of this Agreement to be executed or delivered by Seller to Buyer prior to or in connection with the Closing.

 

(f) Any waiting period applicable to the consummation of the transaction contemplated by this Agreement under the HSR Act shall have lapsed or terminated (by early termination or otherwise.)

 

(g) From the date of this Agreement through the Closing Date, there shall not have occurred any change in the financial condition, business or operations of Seller of its subsidiaries, taken as a whole, that would constitute a Material Adverse Effect.

 

 

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(h) The aggregate of all adjustments to the Purchase Price shall not exceed $100,000.

 

(i) The transactions contemplated herein shall have been approved by the Board of Directors of the Buyer.  Seller acknowledges that such approval will require an agreement, in form and substance acceptable to Buyer’s Board in its sole discretion, between Buyer and Devon Energy Production Company LPthat extends, amends and/or ratifies the Farmout Agreement between Seller and Devon dated October 4, 2010 (as thereafter amended) in a manner that permits Buyer to earn and/or retain the interests that the "Farmee" is or was eligible to earn or retain thereunder.

 

ARTICLE 13 . - CLOSING

 

13.1 Closing.

 

Consummation of the purchase and sale transaction contemplated by this Agreement, (the “Closing”) shall, unless otherwise agreed in writing by Seller and Buyer, be held at the offices of Sellerat 10:00 a.m., local time, on August 31, 2012 or at such earlier date or place as the Parties may agree in writing (herein called “Closing Date”).  Time is of the essence and the Closing Date shall not be extended unless by written agreement of the Parties.

 

13.2 Seller's Closing Obligations.

 

At Closing, Seller shall deliver to Buyer the following:

 

(a) the Conveyance and such other documents as may be reasonably necessary to convey the Purchased Assets to Buyer in accordance with the provisions hereof, executed by Seller;

 

(b) a non-foreign affidavit executed by Seller in the form attached as Exhibit “M”;

 

(c) copies of all applicable waivers, consents, approvals, permits and actions relating to the Purchased Assets obtained;

 

(d) exclusive possession of the Purchased Assets;

 

(e) a certificate of the Secretary or an Assistant Secretary of the Seller, certifying (i) that true and complete copies of the resolutions duly and validly adopted by the board of directors of Seller (as applicable) evidencing the authorization of the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby are attached thereto and are in full force and effect and (ii) to the incumbency of the officers of the Seller executing this Agreement and the instruments contemplated hereby;

 

(f) an executed counterpart of the amendment to the Promissory Note in substantially the same form as Exhibit “Q” attached hereto;

 

(g) any indemnification agreements required by Sections 7 and 8; and

 

 

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(h) Any deliverables set forth in Section 12.2 above.

 

13.3 Buyer's Closing Obligations.

 

At Closing, Buyer shall deliver to Seller the following:

 

(a) Conveyances executed by Buyer,

 

(b) an executed counterpart of the amendment to the Promissory Note in substantially the same form as Exhibit “Q” attached hereto;

 

(c) deliver a certificate of the Secretary or an Assistant Secretary of the Buyer, certifying (i) that true and complete copies of the resolutions duly and validly adopted by the board of directors of Buyer evidencing the authorization of the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby are attached thereto and are in full force and effect and (ii) to the incumbency of the officers of the Buyer executing this Agreement and the instruments contemplated hereby; and

 

(d) Any deliverables set forth in Section 12.1 above.

 

13.4 Joint Closing Obligations.

 

Both Parties at Closing shall execute the following:

 

(a) a Closing Statement evidencing Purchased Assets and all adjustments to the Purchase Price taken into account at Closing.

 

All events of Closing shall each be deemed to have occurred simultaneously with the other, regardless of when actually occurring and each shall be a condition precedent to the other.

 

ARTICLE 14 - LIMITATIONS ON WARRANTIES

 

AND REMEDIES/DTPA- WAIVER

 

14.1 Limitations on Warranties and Remedies.

 

THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT AND IN THE CONVEYANCE ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR OTHER HYDROCARBONS IN OR UNDER THE LEASES, OR THE ENVIRONMENTAL CONDITION OF THE ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THE ITEMS OF PERSONAL PROPERTY, EQUIPMENT, IMPROVEMENTS, FIXTURES AND APPURTENANCES CONVEYED AS PART OF THE ASSETS ARE SOLD HEREUNDER “AS IS, WHERE IS, AND WITH ALL FAULTS” AND NO WARRANTIES OR REPRESENTATIONS OF 

 

 

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ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, ARE GIVEN BY OR ON BEHALF OF SELLER.  IT IS UNDERSTOOD AND AGREED THAT PRIOR TO CLOSING BUYER SHALL HAVE INSPECTED THE ASSETS FOR ALL PURPOSES AND SHALL HAVE SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, AND THAT BUYER ACCEPTS SAME IN ITS “AS IS, WHERE IS AND WITH ALL FAULTS” CONDITION, SUBJECT TO BUYER’S RIGHTS HEREUNDER.  EXCEPT FOR THE LIMITED WARRANTY OF TITLE SET FORTH IN THE CONVEYANCE AND THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, BUYER HEREBY WAIVES ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, OR CONFORMITY TO SAMPLES.

 

BUYER ACKNOWLEDGES THAT THIS EXPRESS WAIVER IS A MATERIAL AND INTEGRAL PART OF THIS SALE AND THE CONSIDERATION THEREOF; AND BUYER ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT TO THE ATTENTION OF BUYER AND EXPLAINED IN DETAIL AND THAT BUYER HAS VOLUNTARILY AND KNOWINGLY CONSENTED TO THIS WAIVER FOR THE ABOVE DESCRIBED PROPERTY.  THE WAIVERS INCLUDED IN THIS SECTION 14.1 ARE NOT INTENDED TO ALTER OR LIMIT REPRESENTATIONS AND WARRANTIES CONTAINED ELSEWHERE IN THIS AGREEMENT OR IN RELATED CONVEYANCE DOCUMENTS.

 

The above is subject to the other terms and conditions of this Agreement.

 

14.2 Waiver of Trade Practices Acts.

 

(a) It is the intention of the parties that Buyer's rights and remedies with respect to this transaction and with respect to all acts or practices of Seller, past, present or future, in connection with this transaction shall be governed by legal principles other than the Texas Deceptive Trade Practices--Consumer Protection Act, Tex. Bus. & Com. Code Ann. § 17.41 et seq. (the “DTPA”).  As such, Buyer hereby waives the applicability of the DTPA to this transaction and any and all duties, rights or remedies that might be imposed by the DTPA, whether such duties, rights and remedies are applied directly by the DTPA itself or indirectly in connection with other statutes; provided, however, Buyer does not waive § 17.555 of the DTPA.  Buyer acknowledges, represents and warrants that it is purchasing the goods and/or services covered by this Agreement for commercial or business use; that it has assets of $5 million or more according to its most recent financial statement prepared in accordance with generally accepted accounting principles; that it has knowledge and experience in financial and business matters that enable it to evaluate the merits and risks of a transaction such as this; and that it is not in a significantly disparate bargaining position with Seller.

 

(b) Buyer expressly recognizes that the price for which Seller has agreed to perform its obligations under this Agreement has been predicated upon the inapplicability of the DTPA and this waiver of the DTPA.  Buyer further recognizes that Seller, in determining to proceed with the entering into of this Agreement, has expressly relied on this waiver and the inapplicability of the DTPA.

 

 

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ARTICLE 15 . - CASUALTY LOSS AND CONDEMNATION

 

If, prior to the Closing, all or any portion of the Assets are destroyed by fire or other casualty or if any portion of the Assets shall be taken by condemnation or under the right of eminent domain (all of which are herein called “Casualty Loss” and limited to property damage or taking only), Buyer shall have the option either (i) to delete that portion of the Assets which is subject to the Casualty Loss from the Assets, and the Purchase Price shall be reduced by the value allocated to the deleted Asset as set out in Exhibit “F,” or (ii) for Buyer to proceed with the purchase of such Assets, notwithstanding any such destruction or taking (without reduction of the Purchase Price) in which case Seller shall pay, at the Closing, to Buyer all sums paid to Seller by third Persons by reason of the destruction or taking of such Assets and shall assign, transfer and set over unto Buyer all insurance proceeds received by Seller as well as all of the right, title and interest of Seller in and to any Claims, unpaid proceeds or other payments from third Persons arising out of such destruction or taking.  If the Allocated Value of that portion of the Assets affected by the Casualty Loss as shown on Exhibit “F” exceeds $250,000.00, Buyer and Seller shall each have the right to terminate this Agreement upon written notification to the other, the transaction shall not close and thereafter neither Buyer nor Seller shall have any Liability or further obligations to the other hereunder.  Prior to Closing, Seller shall not voluntarily compromise, settle or adjust any amounts payable by reason of any Casualty Loss without first obtaining the written consent of Buyer.

 

ARTICLE 16 . - TERMINATION

 

16.1 Termination.

 

This Agreement may be terminated at any time prior to Closing: (i) by the mutual prior written consent of Seller and Buyer; (ii) by the Buyer or Seller pursuant to Section 9.1 and 9.2 and Article 15; or (iii) by Seller or Buyer, if Closing has not occurred on or beforeAugust 31, 2012.

 

16.2 Effect of Termination.

 

If this Agreement is terminated pursuant to Section 16.1, this Agreement shall become void and of no further force or effect (except for the provisions of Sections 4(f), 5(f), 6.6, 6.7, 14.1, 14.2, 20.2, 20.12, 20.13 and20.24of this Agreement all of which shall continue in full force and effect) and Seller shall be free immediately to enjoy all rights of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any party without any restriction under this Agreement.  Notwithstanding anything to the contrary in this Agreement, the termination of this Agreement under Section16.1(iii) shall not relieve any party from liability for any willful or negligent failure to perform or observe in any material respect any of its agreements or covenants contained herein which are to be performed or observed at or prior to Closing.  In the event this Agreement terminates under Section 16.1(iii) because a party has willfully or negligently failed to perform or observe in any material respect any of its agreements or covenants contained herein which are to be performed at or prior to Closing, then the other party shall be entitled to all remedies available at law or in equity and shall be entitled to recover court costs and attorneys’ fees in addition to any other relief to which such party may be entitled.

 

 

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16.3 Remedies.

 

The prevailing Party in any legal proceeding brought under or to enforce this Agreement shall be additionally entitled to recover court costs and reasonable attorneys' fees from the non-prevailing Party.

 

16.4 Limitations on Damages.

 

Notwithstanding any other provision contained elsewhere in this Agreement to the contrary, the Parties acknowledge that this Agreement does not authorize one Party to sue for or collect from the other Party its own punitive damages, or its own consequential or indirect damages in connection with this Agreement and the transactions contemplated hereby and each Party expressly waives for itself and on behalf of its Affiliates, any and all Claims it may have against the other Party for such damages in connection with this Agreement and the transactions contemplated hereby.

 

ARTICLE 17 . - ASSUMPTION AND INDEMNITY

 

17.1 Assumed Obligations.

 

Upon and after Closing, Buyer shall own the Purchased Assets and be responsible for the Assumed Obligations and Buyer's indemnity obligations hereunder.  Buyer agrees to assume and pay, perform, fulfill and discharge all Assumed Obligations and Buyer’s indemnity obligations.  Prior to Closing, Seller shall own the Assets and after Closing shall continue to own the Excluded Assets and any Assets not included in Purchased Assets.  Seller shall remain liable for any Liabilities, Claims duties and obligations that are not Assumed Obligations, including but not limited to the Retained Obligations and Seller’s indemnity obligations hereunder.  Seller agrees to assume and pay, perform, fulfill and discharge such duties, obligations and Liabilities, all Retained Obligations and Seller’s indemnity obligations.

 

17.2 Buyer's Indemnity.

 

BUYER AGREES TO INDEMNIFY, DEFEND AND HOLD SELLER AND SELLER’S AFFILIATES AND EACH OF THEIR SHAREHOLDERS, MEMBERS, EMPLOYEES, OFFICERS, DIRECTORS AND REPRESENTATIVES (“SELLER INDEMNITEES”) HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS WITH RESPECT TO ALL LIABILITIES AND OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES AND OBLIGATIONS CAUSED BY, RELATED TO, ATTRIBUTABLE TO, OR ARISING OUT OF (i) THE ASSUMED OBLIGATIONS OR (ii) BUYER’S MATERIAL BREACH OF ITS REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 5AND ANY MATERIAL BREACH OF ITS COVENANTS OR OBLIGATIONS UNDER THIS AGREEMENT. THE DEFENSE AND INDEMNITY OBLIGATIONS PROVIDED BY THIS SECTION SHALL APPLY REGARDLESS OF THE SOLE OR PARTIAL OR COMPARATIVE OR CONCURRENT OR OTHER FAULT, NEGLIGENCE OR STRICT, PRE-EXISTING OR OTHER LIABILITY ON THE PART OF SELLER.  ADDITIONALLY, THE DEFENSE AND INDEMNITY OBLIGATIONS PROVIDED BY THIS SECTION SHALL APPLY REGARDLESS OF THE NATURE OF THE OBLIGATIONS OF SELLER, BE THEY IN TORT, CONTRACT, QUASI-CONTRACT, STATUTORY, OR OTHERWISE.

 

 

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17.3 Seller's Indemnity.

 

SELLER AGREES TO INDEMNIFY, DEFEND AND HOLD BUYER AND BUYER’S AFFILIATES AND EACH OF THEIR PARTNERS, SHAREHOLDERS, MEMBERS, EMPLOYEES, OFFICERS, DIRECTORS AND REPRESENTATIVES (“BUYER INDEMNITEES”) HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS WITH RESPECT TO ALL LIABILITIES AND OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES AND OBLIGATIONS CAUSED BY, RELATED TO, ATTRIBUTABLE TO, OR ARISING OUT OF (i) THE RETAINED OBLIGATIONS, OR (ii) SELLER’S BREACH OF ITS REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 4 AND ANY BREACH OF ITS COVENANTS OR OBLIGATIONS UNDER THIS AGREEMENT.  THE DEFENSE AND INDEMNITY OBLIGATIONS PROVIDED BY THIS SECTION SHALL APPLY REGARDLESS OF THE SOLE OR PARTIAL OR COMPARATIVE OR CONCURRENT OR OTHER FAULT, NEGLIGENCE OR STRICT, PRE-EXISTING OR OTHER LIABILITY ON THE PART OF BUYER.  ADDITIONALLY, THE DEFENSE AND INDEMNITY OBLIGATIONS PROVIDED BY THIS SECTION SHALL APPLY REGARDLESS OF THE NATURE OF THE OBLIGATIONS OF BUYER, BE THEY IN TORT, CONTRACT, QUASI-CONTRACT, STATUTORY, OR OTHERWISE.

 

17.4 Stipulation Regarding Express Negligence And Fault.

 

THE PARTIES HERETO BOTH AGREE AND STIPULATE THAT THEY HAVE ACTUAL KNOWLEDGE OF ALL INDEMNITY PROVISIONS HEREIN, THAT THEY ARE FAMILIAR WITH THE EXPRESS NEGLIGENCE TEST, THAT THIS DEFENSE AND INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE TEST, THAT THE PARTIES CLEARLY INTEND TO TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE’S NEGLIGENCE, FAULT AND OTHER LIABILITIES AND OBLIGATIONS AS SET FORTH ABOVE TO THE OTHER PARTY, AND THAT THESE INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.

 

17.5 Broker or Finder's Fee.

 

Each Party hereby agrees to indemnify and hold the other Party harmless from and against any Claim for a brokerage or finder's fee or commission in connection with this Agreement or the transactions contemplated by this Agreement to the extent such Claim arises from or is attributable to the actions of such indemnifying Party or its Affiliates, including, without limitation, any and all losses, damages, attorneys' fees, costs and expenses of any kind or character arising out of or incurred in connection with any such Claim or defending against the same.

 

 

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17.6 Litigation.

 

Seller shall retain responsibility and Liability for the litigation and threatened litigation listed on Exhibit “H,” and the Claims thereunder.

 

17.7 Indemnification Procedures

 

.  All Claims for indemnification (an “Indemnity Claim”) under this Agreement shall be asserted and resolved as follows:

 

(a) For purposes of this Section 17.7, the term “Indemnifying Party” shall mean the Party having an obligation to indemnify the other Party and its related parties pursuant to this Article 17, and the term “Indemnified Party” shall mean the Party having the right to be indemnified by the other Party pursuant to this Article 17.

 

(b) To make an Indemnity Claim under this Article 17, an Indemnified Party shall notify the Indemnifying Party in writing of its Indemnity Claim, including the basis under this Agreement for its Indemnity Claim (the “Claim Notice”).  In the event that the Indemnity Claim is based upon a claim by a unaffiliated third Person against the Indemnified Party (a “Third Party Claim”), the Indemnified Party shall provide its Claim Notice promptly after the Indemnified Party has Knowledge of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 17.7(b) shall not relieve the Indemnifying Party of its indemnification obligations under this Article 17 except to the extent (and then only to such extent) such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Third Party Claim or otherwise materially prejudices the Indemnifying Party's ability to defend against the Third Party Claim.

 

(c) In the case an Indemnity Claim based upon a Third Party Claim, the Indemnifying Party shall have thirty (30) days from its receipt of the Claim Notice to notify the Indemnified Party whether it admits or denies its Liability to defend the Indemnified Party against such Third Party Claim at the sole cost and expense of the Indemnifying Party.  The Indemnified Party is authorized, prior to and during such thirty (30) day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party so long as such pleading is not prejudicial to the Indemnifying Party.

 

(d) If the Indemnifying Party admits its Liability, it shall have the right and obligation to diligently defend, at its sole cost and expense, the Third Party Claim.  The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof.  If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Third Party Claim which the Indemnifying Party elects to contest.  The Indemnified Party may (at its sole costs and expense) participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 17.7.  An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the Indemnified Party from all Liability in respect of such Third Party Claim or (ii) settle any Third Party Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).

 

 

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(e) If, within the 30-day period after its receipt of the Claim Notice, the Indemnifying Party does not admit its Liability or admits its Liability with respect to but fails to diligently prosecute or settle, the Third Party Claim, then the Indemnified Party shall have the right to defend against the Third Party Claim at the sole cost and expense of the Indemnifying Party, with counsel of the Indemnified Party's choosing, subject to the right of the Indemnifying Party to admit its Liability and assume the defense of the Third Party Claim at any time prior to settlement or final determination thereof.  If the Indemnifying Party has not yet admitted its Liability for a Third Party Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any proposed settlement and the Indemnifying Party shall have the option for ten (10) days following receipt of such notice to (i) admit in writing its Liability for the Third Party Claim and (ii) if Liability is so admitted, reject, in its reasonable judgment, the proposed settlement.

 

ARTICLE 18 . - GAS IMBALANCES

 

Up to the Final Settlement Date, Seller and Buyer shall in good faith use their reasonable efforts to update (to the Effective Time) the gas imbalance volume amounts listed on Exhibit “J.”  If, prior to the Final Settlement Date, either Party hereto notifies the other Party hereto that the volumes set forth in Exhibit “J” are incorrect, then Buyer or Seller will pay the other on the Final Settlement Date, as appropriate, an amount equal to $3.00 per net mmbtu variance from the net imbalance shown on Exhibit “J.”  Subject to such adjustment on the Final Settlement Date, as of the Closing Buyer agrees to assume all Liability and obligation for gas production imbalances (whether over or under) attributable to the Purchased Assets to the extent, and only to the extent, reflected on Exhibit “J” (which liability and obligation shall be deemed Assumed Obligations).  To the extent not reflected on Exhibit “J” Seller shall assume all Liability and obligation for gas production imbalances (whether over or under) attributable to the Assets to the extent (i) incurred prior to the Effective Time and (ii) not reflected on Exhibit “J” (which liability and obligation shall be deemed Retained Obligations) Except as set forth in this Article 18, in assuming this Liability at Closing, Buyer shall not be obligated to make any additional payment over the Purchase Price to Seller, and Seller shall not be obligated to refund any of said price to reimburse Buyer for any over-balances existing at the time of sale.

 

ARTICLE 19 . - TRANSITION

 

Except as prohibited by Law or applicable contracts, upon ClosingBuyer shall replace Sun River Operating, Inc.as Operator of the Assets (or portions thereof) operated by Seller (or its designee).  Seller shall use reasonable commercial efforts (which efforts shall not require Seller to incur any monetary or non-monetary obligations) to assist and cooperate with Buyer in connection with Buyer’s efforts replace Sun River Operating, Inc. as Operator of all Assets (or portions thereof) operated by Seller (or its designee).  Notwithstanding the above, it is recognized that there is no assurance or representation given (i) by Seller that Buyer shall succeed Seller as operator (or its designee) of any Wells and/or Leases in which other parties own interests and (ii) by Buyer that Seller or Sun River Operating, Inc., shall remain or become operator of any or all of the Assets.

 

 

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ARTICLE 20 . - MISCELLANEOUS

 

20.1 Receivables and other Excluded Funds.

 

Buyer shall be under no obligation to collect on behalf of Seller any receivables or other funds included in the Excluded Assets and described in Section 1.29(c) of the definition of Excluded Assets.

 

20.2 Public Announcements.

 

The Parties hereto agree that prior to Closing, each Party may publicly disclose the principal terms of this Agreement following its execution, provided that prior to making any public announcement or statement with respect to the transaction(s) contemplated by this Agreement, the Party desiring to make such public announcement or statement shall consult with the other Party hereto and exercise its best efforts to (i) agree upon the text of a joint public announcement or statement to be made by both Parties; or (ii) obtain written approval of the other Party hereto to the text of a public announcement or statement to be made solely by Seller or Buyer, as the case may be.  Nothing contained in this paragraph shall be construed to require either Party to obtain approval of the other Party hereto to disclose information with respect to the transaction contemplated by this Agreement to any Governmental Entity to the extent (i) required by applicable Law; or (ii) necessary to comply with disclosure requirements of the New York Stock Exchange or other recognized exchange or over the counter, and applicable securities Laws.

 

20.3 Filing and Recording of Assignments, etc.

 

Buyer shall be solely responsible for all filings and the prompt recording of assignments and other documents related to the transfer of the Assets as contemplated hereunder, and for all fees connected therewith, including the fees charged by any regulatory authority in connection with the change of operator, and Buyer shall furnish certified copies of all such filed and/or recorded documents to Seller.  Seller shall not be responsible for any loss to Buyer because of Buyer's failure to file or record documents correctly or promptly.  Buyer shall promptly file all appropriate forms, declarations or bonds with federal and state agencies relative to its assumption of operations and Seller shall cooperate with Buyer in connection with such filings.  Buyer shall also comply with all notice provisions contained in the Leases or otherwise applicable to the transfer of the Assets.

 

 

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20.4 Further Assurances and Records.

 

(a) After the Closing, each of the Parties will execute, acknowledge and deliver to the other such further instruments, and take such other action, as may be reasonably requested in order to more effectively assure to said Party all of the respective properties, rights, titles, interests, estates, and privileges intended to be assigned, delivered or inuring to the benefit of such Party in consummation of the transactions contemplated hereby.  Without limiting the foregoing, in the event the Exhibits and Schedules incorrectly or insufficiently describe or reference a property or an interest intended to be conveyed hereby as described in the definitions of “Leases” or “Real Property, Personal Property and Incidental Rights,” Seller agrees to, within twenty (20) days of Seller’s receipt of Buyer’s written request, together with supporting documentation reasonably satisfactory to Seller, correct such Exhibit and/or execute an amended assignment or other appropriate instruments necessary to transfer the property or interest intended to be conveyed hereby to Buyer.

 

(b) In the event that title to any of the Assets is incorrectly or unintentionally held by Seller or its parent or any of its Affiliates, Sellershall cause its parent or any of its Affiliates to take such further actions and execute, acknowledge and deliver all such further documents as are reasonably requested by the other for carrying out the purposes of this Agreement and consummation of the transactions contemplated hereby.

 

(c) Buyer agrees to maintain the files and records of Seller that are acquired pursuant to this Agreement for three (3) years after Closing.  Buyer shall provide Seller and its representatives reasonable access to and the right to copy such files and records for the purposes of (i) preparing and delivering any accounting provided for under this Agreement and adjusting, prorating and settling the charges and credits provided for in this Agreement; (ii) complying with any Law affecting the Assets prior to the Closing Date; (iii) preparing any audit of the books and records of any third Persons relating to the Assets prior to the Closing Date, or responding to any audit related to the Assets prepared by such third Persons; (iv) preparing tax returns; (v) responding to or disputing any tax audit related to the Assets; or (vi) asserting, defending or otherwise dealing with any Claim or dispute under this Agreement or as to the Assets.

 

(d) To the extent not obtained or satisfied as of Closing, Seller agrees to continue to use all reasonable efforts and to cooperate with Buyer's efforts to obtain for Buyer (i) access to files, records and data relating to the Assets in the possession of third parties; and (ii) access to Wells operated by third Persons for purposes of inspecting same; provided, however that Seller shall not have any obligation under this paragraph to incur any cost or expense in connection with its actions hereunder.

 

(e) The Assets identified in Sections1.49(d) and 1.49(e) of the definition of “Real Property, Personal Property and Incidental Rights” shall be made available to Buyer within ten (10) business days after the Closing Date at a location to be specified by Seller.  Any reproduction, transportation, postage, or delivery costs from Seller's offices shall be at Buyer's sole cost, risk and expense

 

 

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(f) Buyer shall comply with all current and subsequently amended Laws applicable to the Assets and shall promptly obtain and maintain all permits required by Governmental Entities in connection with the Assets.

 

(g) Seller shall use its all reasonable efforts to obtain the assignments described in Exhibit “K” prior to Closing.

 

(h) Buyer and Seller hereby agree that each party shall notify the other of its receipt, after the Closing Date, of any instrument, notification or other document affecting the Assets while owned by such other party.

 

20.5 Notices.

 

Except as otherwise expressly provided herein, all communications required or permitted under this Agreement shall be in writing and may be given by personal delivery, facsimile, email, US mail (postage prepaid), or nationally recognized delivery service, and any communication hereunder shall be deemed to have been duly given and received when actually delivered to if during normal business hours (or upon the next business day, if not during normal business hours) the address of the Parties to be notified as set forth below and addressed as follows:

 

If to Seller, as follows:

 

	 	
Sun River Energy, Inc.

	 	
5646 Milton Street

	 	
Suite 130

	 	
Dallas, Texas 75206

	 	
Attention:

	
Stuart Newsome

	 	
Telephone:

	
(214) 369-7300

	 	
Facsimile:

	
(214) 369-7301

	 	
Email:

	
snewsome@snrv.com

 

 

If to Buyer, as follows:

 

	 	
 
Katy Resources ETX, LLC

	 	
 
Attn: Chuck Yates

	 	
 
Kayne Anderson Capital Advisors

	 	 
717 Texas Avenue, Suite 3100

	 	
 
Houston, Texas 77002

	 	
Telephone:

	
(713) 655-7354

	 	
Facsimile:

	
(713) 655-7355

	 	
Email:

	
cyates@kaynecapital.com

 

  

Any Party may, by written notice so delivered to the other, change the address to which delivery shall thereafter be made.

 

 

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20.6 Expenses.

 

Seller shall bear and pay all legal fee incurred by Seller in the creation and negotiation of this Agreement and the Participation Agreement.  Buyer shall bear and pay all fees, costs and expenses (including legal fees and accounting fees) that have been incurred or that are incurred by or on behalf of Buyer in connection with the transactions contemplated by this Agreement and the Participation Agreement.  Buyer shall bear and pay (i) all state or local government sales, transfer, gross proceeds, or similar taxes incident to or caused by the transfer of the Assets to Buyer, (ii) all documentary, transfer and other state and local government taxes incident to the transfer of the Assets to Buyer; and (iii) all filing, recording or registration fees for any assignment or conveyance delivered hereunder.

 

20.7 Waiver.

 

Except as otherwise expressly provided in this Agreement, (i) any of the terms, provisions, covenants, representations, warranties or conditions hereof may be waived only by a written instrument executed by the Party waiving compliance, and (ii) the failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect such Party's right to enforce the same.  No waiver by any Party of any condition, or of the breach of any term, provision, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, provision, covenant, representation or warranty.

 

20.8 Binding Effect; Assignment.

 

Subject to the other provisions of this Section 20.8, all the terms, provisions, covenants, obligations, indemnities, representations, warranties and conditions of this Agreement shall inure to the benefit of, and be binding upon, and shall be enforceable by, the Parties hereto and their respective successors and assigns.  This Agreement may not be assigned or transferred by Buyer or Seller to any other Person, without the prior, express and written consent of the other Party, and such consent may be withheld for any reason, including convenience.  Any attempt to assign this Agreement by Buyer or Seller over the objection or without the express written consent of the other Party shall be absolutely void.  In the event, after Closing, Buyer sells, assigns or otherwise transfers all or a portion of the Assets, this Agreement shall remain in effect between Buyer and Seller as to all the Assets regardless of such sale, assignment or transfer (and Buyer shall not be thereby released, but shall remain obligated hereunder).  Any sale, assignment or other transfer of the Leases or other Assets shall also contain such other language as is necessary to satisfy the terms and provisions of such Leases or the agreements applicable to such Assets.

 

20.9 Taxes.

 

(a) Seller and Buyer recognize that an IRS Form 8594, Asset Acquisition Statement, will be filed by Seller and Buyer, Seller and Buyer agree that the adjusted Purchase Price shall be allocated among the Assets for tax purposes in accordance with an allocation schedule which shall be prepared by Buyer and delivered to Seller within ten (10) days following the determination of the adjusted Purchase Price (the “Purchase Price Allocation Schedule”) as set forth in Section 3.3.  The Purchase Price Allocation Schedule shall be revised to take into account adjustments to the Purchase Price and any indemnification payments.  Any dispute arising in connection with the Purchase Price Allocation Schedule shall be resolved pursuant to procedures comparable to the procedures applicable under Section 3.2(c).  Seller and Buyer shall use the Purchase Price Allocation Schedule in reporting this transaction to the applicable taxing authorities, including IRS Form 8594 and any other information returns and supplements thereto required to be filed under Section 1060 of the Internal Revenue Code of 1986 as amended and neither Seller nor Buyer shall file any tax return or otherwise take any position for tax purposes that is inconsistent with the Purchase Price Allocation Schedule.

 

 

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(b) Seller shall cause all items of income, gain, loss, deduction and credit with respect to the Assets through the Effective Date to be reflected on the federal income tax return of Seller (or if Seller is an entity disregarded as separate from its owner, on the federal income tax return of its owner).  For tax purposes, all such items shall be allocated to the period up to and including the Effective Date, and to the period after the Effective Date, by closing the books as of end of the Effective Date.

 

(c) Seller shall be responsible for all state, local and federal property, ad valorem, excise, severance, and other similar taxes attributable to or arising from the ownership or operation of the Assets prior to the Effective Time.  Buyer shall be responsible for all property, severance and other similar taxes attributable to or arising from the ownership or operation of the Assets on and after the Effective Time.  Any Party which pays such taxes for the other Party shall be entitled to prompt reimbursement upon evidence of such payment.  Each Party shall be responsible for its own federal and state income taxes, if any, as may result from this transaction.

 

(d) Seller acquired the Assets for use or consumption, and Seller has not been engaged, nor held itself out as being engaged, in selling similar property on a repeated or continuing basis.  The Assets constitute an identifiable segment of the Seller’s business within the meaning of Texas Comptroller's Sales Tax Rule 34 Tex. Admin. Code § 3.316(d) and accordingly, it is Seller’s opinion that the sale of the Assets (other than any motor vehicles) is exempt from Texas sales and use tax as an occasional sale pursuant to Texas Tax Code 151.304(b)(2).

 

20.10 Audits.

 

It is expressly understood and agreed that Seller retains its right to receive its proportionate share of the proceeds attributable to the Assets from any audits relating to activities prior to the Effective Time, and Seller shall likewise pay its share of any costs attributable to the Assets and attributable to the period prior to the Effective Time resulting from any such audits.

 

 

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20.11 Like-Kind Exchanges.

 

Each Party consents to the other Party's assignment of its rights and obligations under this Agreement to its Qualified Intermediary (as that term is defined in Section 1.1031(k)-l(g)(4)(v) of the Treasury Regulations) and/or to its Qualified Exchange Accommodation Titleholder (as that term is defined in Rev. Proc. 2007-37 issued effective September 15, 2000) in connection with effectuation of a like-kind exchange, in whole or in part, as provided in Section 1031 of the Code and the Treasury Regulations thereto, and if applicable, Rev. Proc. 2000-37, 2000-2 C.B. 308 (Sept. 18, 2000), as amended by Rev. Proc. 2004-51, 2004-33 I.R.B. 294 (Jul. 20, 2004) (a “Like-Kind Exchange Transaction”).

 

However, Seller and Buyer acknowledge and agree that any assignment of this Agreement to a Qualified Intermediary or Qualified Exchange Accommodation Titleholder does not release either Party from any of its respective Liabilities and obligations to the other Party under this Agreement.  If requested by the other Party, each Party agrees to cooperate with the other Party (to the extent reasonable) to attempt to structure the transaction as a Like-Kind Exchange Transaction.  If a Like-Kind Exchange Transaction occurs, the Parties recognize that IRS Form 8824, Like-Kind Exchanges, will be required to be filed, and each Party consents to the filing of such Form and will fully cooperate, to the extent necessary, with the other Party in filing such Form.

 

20.12 Governing Law.

 

THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH DETERMINATIONS.  VENUE FOR ANY LEGAL PROCEEDING ARISING FROM THIS AGREEMENT SHALL BE IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION OR A STATE DISTRICT COURT OF COMPETENT JURISDICTION IN DALLAS COUNTY, TEXAS.  THE PARTIES CONSENT TO PERSONAL JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION OR A STATE DISTRICT COURT OF COMPETENT JURISDICTION IN DALLAS COUNTY, TEXAS FOR ANY LEGAL PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT, AGREE THAT THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION OR A STATE DISTRICT COURT OF COMPETENT JURISDICTION IN DALLAS COUNTY, TEXAS SHALL BE DEEMED TO BE A CONVENIENT FORUM AND AGREE NOT TO ASSERT (BY WAY OR MOTION, AS A DEFENSE OR OTHERWISE) THAT SUCH LEGAL PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF SUCH LEGAL PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT MATTER OF THIS AGREEMENT MAY NOT BEEN ENFORCED IN OR BY SUCH COURT.

 

 

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20.13 Entire Agreement.

 

This Agreement embodies the entire agreement between the Parties and replaces and supersedes all prior agreements, arrangements and understandings related to the subject matter hereof, whether written or oral.  No other agreement, statement, or promise made by any Party, or to any employee, officer or agent of any Party which is not contained in this Agreement shall be binding or valid.  This Agreement may be supplemented, altered, amended, modified or revoked by a writing only, signed by the Parties hereto.  The headings herein are for convenience only and shall have no significance in the interpretation hereof.  The Parties stipulate and agree that this Agreement shall be deemed and considered for all purposes, as prepared through the joint efforts of the Parties, and shall not be construed against one Party or the other as a result of the preparation, submittal or other event of negotiation, drafting or execution thereof.

 

20.14 Severability.

 

If any provision of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, that provision will be deemed modified to the extent necessary to make it valid and enforceable, and if it cannot be so modified, it shall be deemed deleted and the remainder of the Agreement shall continue and remain in full force and effect.

 

20.15 Exhibits and Schedules.

 

All Exhibits and Schedules attached to this Agreement, and the terms of those Exhibits which are referred to in this Agreement, are made a part hereof and incorporated herein by reference.

 

20.16 Suspended Funds.

 

At Closing, Seller shall transfer to Buyer all funds, if any, held by Seller in suspense owing to third Persons on account of the sale of Hydrocarbons from the Assets, together with all information in the possession of Seller identifying the funds.  Buyer upon receipt of, and to the extent of, the funds shall assume all responsibility for the payment thereof to third Persons entitled to the same.  Buyer shall indemnify and hold Seller harmless for Claims and Liabilities relating to or arising out of Buyer’s payment, mispayment or failure to make payments of any such funds; except to the extent caused by Seller’s negligence or intentional misconduct, including payments based upon information provided by Seller.  Seller shall indemnify and hold Buyer harmless for Claims and Liabilities related to payment, mispayment, failure to make payments and wrongfully withheld suspended funds attributable to the period of time prior to the Effective Time.  Notwithstanding anything the contrary set forth herein, the terms of this Section 20.16 shall survive the Closing.

 

20.17 Survival.

 

(a) Representations and Warranties.  All of the representations, and warranties of or by the Parties to this Agreement shall survive indefinitely.

 

 

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20.18 Subsequent Adjustments.

 

Regardless of the date set for the Final Settlement, Buyer and Seller agree that their intent is to allow for the earliest practical forwarding of revenue and reimbursement of expenses between them, and Seller and Buyer recognize that either may receive funds or pay expenses after the Final Settlement Date which is properly the property or obligation of the other.  Therefore, upon receipt of net proceeds or payment of net expenses due to or payable by the other Party hereto, whichever occurs first, Seller or Buyer, as the case may be, shall submit a statement to the other Party hereto showing the relevant items of income and expense with supporting documentation. Payment of any net amount due by Seller or Buyer, as the case may be, on the basis thereof shall be made within ten (10) days of receipt of the statement.

 

20.19 Counterparts.

 

This Agreement may be executed in any number of counterparts, and each and every counterpart shall be deemed for all purposes one (1) agreement.

 

20.20 Subrogation.

 

To the fullest extent allowed by Law and the applicable agreements with third Persons, Seller grants Buyer a right of subrogation in all Claims or rights Seller may have against third Persons to the extent they relate to the Assumed Obligations.

 

20.21 Government Reviews.

 

The Parties have determined that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), does not apply to this transaction.

 

20.22 Change of Name.

 

As promptly as practicable, but in any case within ninety (90) days after the Closing Date, or after transfer of operations, whichever is later, Buyer shall use its commercially reasonable best efforts to eliminate the name “Sun River Energy, Inc.” and any variants of this name from the Assets acquired pursuant to this Agreement and, except with respect to such grace period for eliminating existing usage, shall have no right to use any logos, trademarks or trade names belonging to Seller or any of its Affiliates.

 

20.23 Replacement of Bonds, Letters of Credit and Guarantees.

 

The Parties understand that none of the bonds, letters of credit and guarantees, if any, posted by Seller with Governmental Entities and relating to the Assets may be transferable to Buyer.  Within fifteen (15) Business Days following Closing, Buyer shall obtain, or cause to be obtained in the name of Buyer, replacements for such bonds, letters of credit and guarantees, to the extent such replacements are necessary to permit the cancellation of the bonds, letters of credit and guarantees posted by Seller or to consummate the transactions contemplated by this Agreement.

 

 

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20.24 No Third-Party Beneficiaries.

 

Nothing in this Agreement shall entitle any Person other than Buyer and Seller to any Claims, remedy or right of any kind, except as to those rights expressly provided to Seller Indemnitees and Buyer Indemnitees (provided, however, any Indemnity Claim hereunder on behalf of a Seller Indemnitee or a Buyer Indemnitee must be made and administered by a Party to this Agreement).

 

 

[Signature Page to Follow]

 

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

 

SELLER:

 

Sun River Energy, Inc.

By:_/s/ Donal R. Schmidt, Jr.

Name:           Donal R. Schmidt, Jr.

Title:           President & CEO

BUYER:

 

Katy Resources ETX, LLC

 

By:           /s/ Chuck Yates

Name:           Chuck Yates

Title:           Manager

 

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