Document:

Exhibit 10.1

AGREEMENT

 
THIS AGREEMENT made as of the 21st
day of June, 2010.
 

BETWEEN:

	
  

 	
  

 	
  

 
	
  

 	
 GUARDIANS OF GOLD INC., a corporation
 incorporated under the laws of Nevada (“Guardian”)

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 - and -

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 NIREK RESOURCES INC. a corporation
 incorporated under the laws of Ontario (“NRI”)

 	
  

 

THE PARTIES AGREE AS FOLLOWS:

INTERPRETATION

Definitions -
Whenever used in this Agreement, unless there is something inconsistent in the
subject matter or context, the following words and terms will have the meanings
set out below:

“Agreement” means this agreement including all attached
schedules, as the same may be supplemented, amended, restated or replaced from
time to time;

“Business Day” means a day other than a Saturday or Sunday or a
day which is a statutory or civic holiday in the City of Toronto;

“Claim” means any claim,
demand, action, cause of action, damage, loss, cost, liability or expense,
including, reasonable legal fees and all costs incurred in investigating or
pursuing any of the foregoing or any proceeding relating to of any of the
foregoing;

“Closing” means the completion of the transactions contemplated
by this Agreement;

“Closing Date” means Day agreed or such other Business Day as
the parties may agree upon;

“Property” means,
collectively, the Ross Mine Property, and the Ross Tailings Deposit; 

Gender and
Number - This Agreement shall be read with all changes of number
and gender as required by the context.

Entire
Agreement - This Agreement, including any Schedules hereto,
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties with respect to the
subject matter hereof and there are no warranties, representations or other
agreements between the parties in connection with the subject matter hereof
except as specifically set forth herein and within such schedules. No
supplement, modification, waiver or termination of this Agreement or any
provisions hereof will be binding unless executed in writing by the parties
hereto. No waiver of any of the provisions of this Agreement will be deemed to
constitute or will constitute a waiver of any other provision (whether or not
similar), nor will such waiver constitute a continuing waiver unless otherwise
expressly provided.

Applicable
Law. The laws of the Province of Ontario and the laws of
Canada applicable therein govern all matters arising under this Agreement.

Calculation
of Time. When calculating the period of time within which or
following which any act is to be done or step taken pursuant to this Agreement,
the first day of the applicable period will be excluded and the day which ends
the period will be included. If the last day of such period is not a Business
Day, the period in question will end on the next Business Day.

Including. Any use of the
terms “including” or “includes” means irrespectively “including without
limitation”, or “includes without limitation”, unless the context otherwise
requires. 

Currency. Unless
otherwise indicated, all dollar amounts referred to in this Agreement are in
US funds. 

Recitals. The
recitals to this Agreement form part of and are incorporated into this
Agreement.

Headings. The
headings in this Agreement are for information purposes only and do not form
part of this Agreement.

 

GOLD WARRANTAND SILVER CERTIFICATE FINANCING
OBLIGATIONS

Gold Warrant Financing Obligation. Subject
to the terms and conditions of this Agreement, Guardian agrees to use its “best
efforts” to deliver up to fifty five thousand (55,000) 

 

 

ounces of gold for the delivery of NRI gold
warrants (the “Warrant”) for a payment of five hundred and fifty dollars
($550.00) US dollars per ounce of gold to Guardian. 

Silver Certificate Financing Obligation. Subject
to the terms and conditions of this Agreement, Guardian agrees to use its “best
efforts” to deliver up to fifty five thousand (55,000) ounces of silver for the
delivery of NRI silver certificate (the “Certificate”) for a payment of seven
dollars ($7.00) US dollars per ounce of silver to Guardian. 

Payment for Gold and Silver. The first
payment of five hundred thousand ($500,000) US dollars shall be due and payable
to Guardian on September 14, 2010. It will be for the equivalent of four hundred
fifty five (455) ounces of gold, to be delivered on or before March 31, 2014,
and the equivalent of thirty-five thousand six hundred seventy nine (35,679)
ounces of silver, to be delivered on or before March 31, 2014. Subsequent
payments will be made after June 30, 2012 for every block amount of gold ounces
and silver ounces delivered to NRI in cash in the amount of five hundred and
fifty ($550.00) US dollars per ounce for the block amount of gold ounces and
seven ($7.00) US dollars per ounce for the block amount of silver ounces. The
payments of funds by NRI shall be made by money order, certified cheque or
wire, or other immediately available funds at the address of Guardian specified
below. In the event that NRI needs an amount of gold less than four hundred
fifty five (455) ounces of gold an amount of silver less than thirty-five
thousand six hundred seventy nine (35,679) ounces of silver, then it will pay a
pro rata portion of the five hundred thousand ($500,000) US dollars in tranches
of fifty thousand ($50,000) US dollars in exchange for forty five and one half
(45.5) ounces of gold and three thousand five hundred sixty eight (3,568)
ounces of silver. In exchange for each such tranche, Guardian will have the
thirty days option to acquire two hundred and fifty thousand shares (250,000)
of common stock of NRI at a price of 0.01 per share. The total number of
options shall not exceed two million (2,000,000) shares.

Issuance of Shares. In addition to
payments to Guardian, pursuant to receipt of the first payment of gold and
silver from Guardian, NRI shall issue to Guardian, or as Guardian may direct,
two million (2,000,000) shares of common stock of NRI. 

 

REPRESENTATIONS AND WARRANTIES
OF NRI

              NRI
represents and warrants to Guardian the following, and acknowledges and
confirms that Guardian is relying thereon in connection with its entering into
of this Agreement and the consummation of the transactions contemplated hereby:

Due
Execution. This Agreement has been duly executed and delivered
by NRI, and this Agreement constitutes a valid and binding obligation of NRI
enforceable against NRI in accordance with its terms except as the enforcement
thereof may be limited by 

bankruptcy laws and other laws of general
application relating to creditors’ rights or general principles of equity for a
period of ten (10) years from date of signing.

Residency. NRI is
not a non-resident of Canada within the meaning of the Income Tax Act (Canada).

Absence of Conflicting Agreements. NRI is
not a party to, bound or affected by or subject to any indenture, mortgage,
lease, agreement, obligation, instrument, charter or by-law provision, statute,
regulation, judgment, decree, license, permit or law which would be violated,
contravened, breached by or under which default would occur or under which any
payment or repayment would be accelerated as a result of the execution and
delivery of this Agreement or the consummation of any of the transactions
provided for in this Agreement.

 

Regulatory Approvals. No
governmental or regulatory authorization, approval, order, consent or filing
from or with any governmental authorities is required to be obtained or made by
NRI in connection with the execution, delivery and performance of this
Agreement or any other documents and agreements to be delivered under the terms
of this Agreement or the performance of NRI’s obligations under this Agreement.

 

Business in Compliance with Laws. The
business of NRI has been conducted and is being conducted in compliance in all
material respects with all applicable laws and regulations of each jurisdiction
in which it carries on business (including, all applicable Canadian and United
States federal, provincial, state, municipal and local environmental
anti-pollution and licensing laws, regulations and other lawful requirements of
any governmental or regulatory body, including, but not limited to relevant
exploration and exploitation permits and concessions) and has not received a
notice of non-compliance, nor knows of, nor has reasonable grounds to know of,
any facts that could give rise to a notice of non-compliance with any such
laws, regulations or permits which would have a material adverse effect on NRI.

 

No Guarantee. NRI acknowledges
that Guardian shall use “best efforts” to supply the gold and silver and has
not guaranteed the delivery of any amount of such gold and/or silver.

REPRESENTATIONS AND WARRANTIES OF GUARDIAN

              Guardian
represents and warrants to NRI the following, and acknowledges and confirms
that NRI is aware of the following conditions that may impinge on the
consummation of the transactions contemplated hereby:

Due Execution. This
Agreement has been duly executed and delivered by Guardian, and this Agreement
constitutes a valid and binding obligation of Guardian enforceable against
Guardian in accordance with its terms except as the enforcement thereof may be
limited by bankruptcy laws and other laws of general application relating to
creditors’ Rights or general principles of equity for a period of ten (10)
years from date of signing.

 

 

Absence of Conflicting Agreements. Guardian
is not a party to, bound or affected by or subject to any indenture, mortgage,
lease, agreement, obligation, instrument, charter or by-law provision, statute,
regulation, judgment, decree, license, permit or law which would be violated,
contravened, breached by or under which default would occur or under which any
payment or repayment would be accelerated as a result of the execution and
delivery of this Agreement or the consummation of any of the transactions
provided for in this Agreement.

Business in Compliance with Laws. The
business of Guardian has been conducted and is being conducted in compliance in
all material respects with all applicable laws and regulations of each
jurisdiction in which it carries on business (including, all applicable
Canadian and United States federal, provincial, state, municipal and local
environmental anti-pollution and licensing laws, regulations and other lawful
requirements of any governmental or regulatory body, including, but not limited
to relevant exploration and exploitation permits and concessions) and has not
received a notice of non-compliance, nor knows of, nor has reasonable grounds
to know of, any facts that could give rise to a notice of non-compliance with
any such laws, regulations or permits which would have a material adverse
effect on Guardian.

Risk Factors. Guardian
acknowledges that, in order for Guardian to meet its obligation to deliver gold
and/or silver to NRI as specified herein, Guardian must attain sufficient financing
to i) do necessary assessments and make specified conditions and improvements
to the Property with the approval of provincial and federal environmental
agencies; ii) successfully scale up its technology to build an operating plant
with capable management and staff that can economically extract tailings and
iii) become an ongoing profitable enterprise.

No Guarantee. Guardian acknowledges
that it this agreement is not and should not be interpretated as a guarantee to
NRI that it will be successful at becoming an operating entity within the time
frame of March 31, 2014 and therefore have the capacity to deliver the gold
and/or silver quantity per its undertaking as indicated herein.

 

TERMINATION

 

Termination at the Option of Guardian. This Agreement
may be terminated by Guardian at is sole discretion without penalty if Guardian
is unable to get all necessary regulatory approvals, including all necessary
environmental approvals, for the construction and operation of the RPR Plant on
the Property on or before June 30, 2011;

 

COVENANTS

 

Covenants
of NRI - NRI covenants and agrees with Guardian that on
Closing, it will deliver or cause to be delivered to Guardian a resolution of
the directors of NRI consenting to the completion of all obligations of NRI
under this Agreement including payment of Guardian for ten (10) years from
date of signing.

 

INDEMNITY

 

Indemnification
by NRI - NRI shall indemnify, defend and hold harmless
Guardian from and against any and all loss suffered or incurred by Guardian as
a direct or indirect result of, or arising in connection with or related in any
manner whatever to:

 

any misrepresentation or
breach of warranty made or given by NRI in this Agreement, or in any document
delivered pursuant to this Agreement; or 

any failure by NRI to observe
or perform any covenant or obligation contained in this Agreement, or in any
document delivered pursuant to this Agreement to be observed or performed by
it.

 

Indemnification
by Guardian - Guardian shall indemnify, defend and hold harmless
NRI from and against any and all loss suffered or incurred by NRI as a direct
or indirect result of, or arising in connection with or related in any manner
whatsoever to any misrepresentation or breach of any warranty made or given by
Guardian in this Agreement, or in any document delivered pursuant to this
Agreement; or

Rights in
Addition - The rights of indemnity set forth herein are in
addition and supplemental to any other rights, actions, claims or causes of
action which may arise in respect of this Agreement and the transactions
contemplated hereby.

 

SURVIVAL

 

Nature, Survival and Limitations. All
representations, warranties and covenants contained in this Agreement on the
part of each of the Parties will not merge on closing and will survive for a
period of 5 years from date of termination of this agreement. If no Claim is
made under this Agreement, prior to the expiry of the survival periods provided
for, against a party for any breach of any representation or warranty made in
this Agreement by such party, such party will have no further liability under
this Agreement with respect to such representation or warranty.

 

GENERAL

Time of the Essence - Time
shall be of the essence hereof.

Assignment - Neither
this Agreement nor any rights or obligations hereunder shall be assignable by
any party without the prior written consent of the other party, which consent
may be unreasonably withheld. 

Enurement - This Agreement is
binding upon and will enure to the benefit of the parties and their respective
heirs, executors, administrators, successors (including, any successor by
reason of the amalgamation of any party) and permitted assigns for ten (10)
years from date of signing. 

Notice - The
parties hereby agree that any notice required or permitted to be given
hereunder shall be in writing and may be given by delivering the same or
mailing the same by registered mail, postage prepaid, addressed:

              In
the case of NRI to:

                        4
King Street West, Suite 1320, Toronto ON M5H 1B6

              In
the case of Guardian to:

                        4
King Street West, Suite 1320, Toronto ON M5H 1B6

Any such notice, if sent by registered mail,
will be deemed to have been received by the addressee on the second (2nd)
Business Day following the day on which such notice was mailed, save during the
absence of or disruption of normal postal service, in which event, on the
second (2nd) Business 

Day following the resumption of normal postal
service. If such notice has been delivered, it will be deemed to be received
when delivered. Any party may change his address for service from time to time
by notice given in accordance with the foregoing and any subsequent notice
shall be sent to the party at his changed address.

Further
Assurances - Each party hereto hereby agrees he will do all such
acts and execute all such further documents, conveyances, deeds, assignments,
transfers and the like, and will cause the doing of all such acts and will
cause the execution of all such further documents as are within its power as
any other party hereto may in writing from time to time reasonably request be
done and/or executed, in order to consummate the transactions contemplated
hereby or as may be necessary or desirable to effect the purpose of this
Agreement or any document, agreement or instrument delivered pursuant hereto
and to carry out their provisions or to better or more properly or fully
evidence or give effect to the transactions contemplated hereby, whether before
or after the Closing.

Counterparts - This
Agreement may be executed one or more counterparts and delivered by electronic
or facsimile transmission, each of which when so executed and delivered will be
deemed to be an original and such counterparts taken together will constitute
one and the same instrument.

THE PARTIES have executed this
Agreement as of the date first above written. 

	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 GUARDIANS OF GOLD INC.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Per:

 	
   /s/
 Ronald Haller

 
	
  

 	
  

 	
  

 	

 

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 NIREK RESOURCES INC.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Per:

 	
   /s/
 Abraham Arnold

 
	
  

 	
  

 	
  

 	

 

 

 

Date
 June 21, 2010ex10-1.htm

  

 

 

  

 

PURCHASE AND SALE AGREEMENT

 

THIS AGREEMENT is dated July 16, 2010, between TRANS ENERGY, INC., Nevada corporation (“TEI”), and PRIMA OIL COMPANY, INC., a Delaware corporation (“Prima,” together with TEI, the “Seller”), and REPUBLIC ENERGY VENTURES, LLC, a Delaware limited liability company (“Buyer”).  For value received, Seller and Buyer agree as follows:

 

ARTICLE I

 

PURCHASE AND SALE

 

1.1. Purchase and Sale.  Subject to the terms of this Agreement, Seller agrees to sell the Properties, as defined in Section 1.2 below, to Buyer and Buyer agrees to purchase the Properties from Seller.

 

1.2. Properties.  The Properties are:

 

(a) the interests described on Exhibit A hereto and an undivided fifty percent (50%) of any additional interest now owned by Seller or its Affiliates in all oil, gas and mineral leases within the definition of “Eligible Leases” as hereinafter defined and the fee mineral interests as described on Exhibit A covering lands within either Marion County, West Virginia (the “Marion County Leases”) or within Tyler County, West Virginia, but only to the extent such leases covering lands within Tyler County, West Virginia, are held by production existing on the Closing Date and excluding those leasehold rights pertaining to the rights to operate or receive production from wellbores producing as of the Closing Date (the “Tyler County Leases”), together with all other rights and interests arising by operation of law or otherwise in connection with the pooling, unitization or communitization of any of the oil, gas and mineral leases described in this paragraph, and as such leases are described in  Exhibit “A” attached hereto (the “Leases”);

 

(b) all overriding royalty interests previously reserved by Seller in assignments of leasehold working interests made by Seller to Buyer pursuant to the terms of that certain Farm-Out and Area of Joint Development Agreement between Seller and Republic Partners VI, LP dated April 4, 2007, accepted May 2, 2007, as amended by First Amendment thereto dated May 12, 2009, by Second Amendment thereto dated August 12, 2009, by letter agreement dated July 31, 2009, by Third Amendment thereto dated September 17, 2009, and Supplement to Third Amendment dated April 14, 2010 (the “AJDA”), insofar as such reserved overriding royalty interests burden the leasehold working interests so assigned by Seller to Buyer (the “Retained ORRI’s”);

 

(c) to the extent assignable or transferable, equivalent interests in all agreements and other rights relating to the Leases, including, without limitation, those listed in Schedule 1.2(c) and any other of the following:  production purchase or sale agreements; net profits agreements; production processing, balancing, compression and transportation agreements; farmout, dry hole, bottom hole, acreage contribution and

 

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(d) operating agreements; area of mutual interest agreements; salt water disposal agreements; unitization and pooling agreements; and claims and causes of action arising after the Closing out of any of the items described in this paragraph (“Contracts”);

 

(e) to the extent assignable or transferable, an undivided 50% of Seller’s interest in all surface interests, rights-of-way, easements, leases, permits, licenses and other similar rights and interests which are held or used in connection with the Leases, including, without limitation, those listed in Schedule 1.2(d) (“Surface Rights”); and

 

(f) copies of all of Seller’s data, records and information relating to the Leases or the Retained ORRI’s, the transfer of which is not prohibited, including, without limitation, geological, geophysical and engineering data and interpretations; production records; land, legal, title and contract files; and revenue, expense and other accounting records for the twelve month period preceding Closing (“Data”).

 

Notwithstanding anything in this Section 1.2 or in the remainder of this Agreement to the contrary, all existing or future easements, surface leases, wellbores, sub-surface leases, equipment, facilities, gathering lines, roads and structures on, over and through the Leases utilized to explore, exploit, market and otherwise operate the wellbores producing as of the Closing Date are reserved unto Seller for its sole use.

 

1.3. Definitions.  As used in this Agreement:

 

“AJDA” has the meaning specified in Section 1.2(b) above.

 

“AJDA Amendment” has the meaning specified in Section 8.1(e).

 

“Affiliate” means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by, or is under common control with such Person.

 

“Agreement” has the meaning specified in the preamble hereof.

 

“Buyer” has the meaning specified in the preamble hereof.

 

“Buyer’s Title Review” has the meaning specified in Section 6.3.

 

“Closing” has the meaning specified in Section 2.1.

 

“Closing Date” has the meaning specified in Section 2.1.

 

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

 

“Contract” has the meaning specified in Section 1.2(c) above.

 

“Conveyance” shall mean a Conveyance and Bill of Sale substantially of the form set forth in Exhibit “B-1”.

 

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“Cumulative Expenses” has the meaning specified in Section 3.3.

 

“Cumulative Revenues” has the meaning specified in Section 3.3.

 

“Defensible Title” means with respect to the Leases and the Retained ORRI’s, such record title and ownership by Seller that:

 

(a) except as set forth on Schedule 4.6, entitles Seller to receive and retain, without reduction, suspension or termination, not less than the percentage set forth in Exhibit “A” as Seller’s “net revenue interest” or “CO NRI” of any future Hydrocarbons produced, saved and marketed from each Lease as set forth in Exhibit “A” through plugging, abandonment and salvage of all wells drilled pursuant to such Lease, and except for changes or adjustments that result from the establishment of units, changes in existing units (or the participating areas therein), or the entry into pooling or unitization agreements after the date hereof unless made in breach of the provisions of Section 6.2;

 

(b) obligates Seller to bear not greater than the percentage set forth in Exhibit “A” as Seller’s “working interest” or “CO WI” of the costs and expenses relating to the maintenance, development and operation of each Lease (including the plugging and abandonment and site restoration with respect to all future wells located thereon or attributable thereto), through plugging, abandonment and salvage of all wells drilled pursuant to such Lease, and except for changes or adjustments that result from the establishment of units, changes in existing units (or the participating areas therein), or the entry into pooling or unitization agreements after the date hereof unless made in breach of the provisions of Section 6.2;

 

(c) is free and clear of all Liens, except Permitted Liens;

 

(d) reflects that all bonuses, royalties, rentals, Pugh clause payments, shut-in gas payments and other payments due with respect to such Lease have been properly and timely paid; and

 

(e) reflects that all consents to assignment, notices of assignment or preferential purchase rights which are applicable to or must be complied with in connection with the transaction contemplated by this Agreement, or any prior sale, assignment or the transfer of such Lease or Retained ORRI’s, have been obtained and complied with.

 

“Eligible Lease” means a Lease which:

 

(a) if not held by production, has a primary term which will not expire prior to January 1, 2012, in the absence of further payments or operations to be paid or performed by the lessee;

 

(b) does not restrict the lessee’s right to use the surface of the lands covered by such Lease in a manner greater than the applicable common law would otherwise restrict such rights;

 

 

 

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(c) does not obligate the lessee to pay a royalty rate greater than 15.625 % of production actually obtained;

 

(d) has a term extending for as long as oil or gas is produced in paying quantities;

 

(e) contains customary pooling rights and the right to extend the Lease by reworking, new drilling, shut-in royalties, or in the event of force majeure conditions;

 

(f) imposes no obligations on the lessee for development or exploration beyond a reasonable obligation to protect against drainage or a continuous drilling or Pugh clause where acreage not within the spacing units for producing wells may be subject to release if a reasonable drilling schedule beyond the primary term is not maintained;

 

(g) does not restrict the lessee’s ability to assign the Lease; and

 

(h) is not a “top lease” and represents the first priority Lease granted by the mineral owner lessor.

 

“Exercise Notice” has the meaning specified in Section 6.9.

 

	
  

	
“Excluded Records” means

 

	
  

	
(a)

	
all corporate, financial, Tax, and legal data and records of Seller that relate to Seller’s business generally and are not predominantly related to the Properties;

 

	
  

	
(b)

	
all geological, geophysical or seismic data, materials or information, including maps, interpretations, records or other technical information related to or based upon any such data, materials or information, and any other asset, data, materials or information the transfer of which is restricted or prohibited under the terms of any third party license, confidentiality agreement or other agreement or the transfer of which would require the payment of a fee or other consideration to any third party and Buyer has not agreed to pay the fee or other consideration, as applicable;

 

	
  

	
(c)

	
all legal records and legal files of Seller that may be protected by attorney-client privilege (exclusive of Leases, title opinions and Contracts in respect of the Properties); and

 

	
  

	
(d)

	
all data and records directly relating to the sale of the Properties, including without limitation, communications with advisors or representatives of Seller and records of negotiations with third parties.

 

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“Governmental Authority” means any federal, state, local or foreign government or governmental regulatory body and any of their respective subdivisions, agencies, instrumentalities, authorities, courts or tribunals.

 

“Hedging Transaction” means any futures, hedge, swap, collar, put, call, floor, cap, option or other contract that is intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons, interest rates, currencies or securities.

 

“Hydrocarbons” means oil, condensate, gas, casinghead gas and other liquid or gaseous hydrocarbons.

 

“Indemnified Party” has the meaning specified in Section 10.2(a).

 

“Indemnifying Party” has the meaning specified in Section 10.2(a).

 

“Injunction” means a temporary restraining order, preliminary or permanent injunction or other order issued by a court of competent jurisdiction, an order of a Governmental Entity having jurisdiction over any party hereto, or any legal restraint or prohibition.

 

“JOA” shall have the meaning specified in Section 3.2(b).

 

“Law” means any federal, state, local or foreign law, statute, rule, ordinance, code or regulation.

 

“Leases” has the meaning specified in Section 1.2(a) above.

 

“Legal Proceeding” means any judicial, administrative or arbitral action, suit, proceeding (public or private), litigation, investigation, complaint, claim or governmental proceeding.

 

“Lien” means any lien, pledge, mortgage, deed of trust, security interest, attachment, right of first refusal, option, easement, covenant, encroachment, or any other adverse claim whatsoever.

 

“Litigation” shall mean the Legal Proceedings, Orders and Official Actions.

 

“Losses” has the meaning specified in Section 10.1(d).

 

“Marian County Leases” has the meaning specified in Section 1.2(a).

 

“Material Adverse Effect” shall mean:

 

(i) As to Buyer, any breach of Buyer’s representations and warranties, which individually or in the aggregate would materially impair Buyer’s ability to consummate the transactions contemplated by this Agreement or prevent the consummation of any of the transactions contemplated hereby.

 

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(j) As to Seller, any breach of Seller’s representations and warranties, which individually or in the aggregate would materially impair Seller’s ability to consummate the transactions contemplated by this Agreement or prevent the consummation of any of the transactions contemplated hereby.

 

“Net Mineral Acres” shall mean the number of gross acres of minerals under a tract multiplied by the percentage of minerals owned by Seller in said tract, with “ownership” for such purposes understood to mean either a fee simple absolute estate, or a fee simple determinable estate under a currently effective oil, gas, and mineral lease.

 

“Net Profits” has the meaning specified in Section 3.3.

 

“Net Royalty Acres” means the number of gross acres subject to the Retained ORRI’s multiplied by the weighted acreage net revenue percentage in such acreage (computed on an 8/8th basis) represented by the Retained ORRI’s.

 

“Official Action” shall mean any domestic or foreign decision, order, writ, injunction, decree, judgment, award or any determination, both as presently existing and effective and as may become effective in the future, by any court, administrative body, or other tribunal.

 

“Option,” “Option Assets,” “Option Closing,” and “Option Term” shall have the meanings specified in Section 6.9.

 

“Order” means any order, judgment, Injunction, ruling, writ, award, decree, statute, law, ordinance, rule or regulation.

 

“Override Conveyance” shall mean an Overriding Royalty Assignment substantially of the form set forth in Exhibit B-2.

 

“Permit” means any permit, license, certificate (including a certificate of occupancy) registration, authorization, application, filing, notice, qualification, waiver of any of the foregoing or approval of a Governmental Authority.

 

“Permitted Liens” means:  (i) Liens for Taxes that are not yet due and payable or that are being contested in good faith by appropriate proceedings, (ii) operators’ liens and statutory liens, for taxes, assessments, labor and materials, where payment is not due (or that, if delinquent, are being contested in good faith); (iii) operating agreements, unit agreements, unitization and pooling designations and declarations, gathering and transportation agreements, processing agreements, gas, oil and liquids purchase, sale and exchange agreements and other contracts, agreements and installments that do not have a Material Adverse Effect or unreasonably interfere with the operation of the Properties; (iv) statutory or regulatory authority of governmental agencies; (v) easements, surface leases and rights, plat restrictions, pipelines, grazing, logging, canals, ditches, reservoirs, telephone lines, power lines, railways and similar encumbrances that do not unreasonably interfere with the operation of the Properties; (vi) liens, charges, encumbrances and irregularities in the chain of title which, because of remoteness in or passage of time, statutory cure periods, marketable title acts or other similar reasons, have not materially affected or interrupted, and are not reasonably expected to materially affect or interrupt, the

 

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claimed ownership of the party or the receipt of production revenues from the Properties affected thereby; and (vii) other liens set forth in Schedule 4.6.

 

“Person” means any natural person, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority, or other entity.

 

“Pooling Defect Lease” shall have the meaning specified in Section 6.3(c)(iii).

 

“Pooling Title Defect” shall have the meaning specified in Section 6.3(c)(iii).

 

“Purchase Price” has the meaning specified in Section 3.1.

 

“Related Contract” means that certain Purchase and Sale Agreement dated the same date as this Agreement between Buyer and Sancho Oil and Gas Corporation.

 

“Retained ORRI’s” has the meaning specified in Section 1.2(b) above.

 

“Sancho Leases” means the oil, gas and mineral leases subject to the Related Contract.

 

“Sancho Option Interest” has the meaning specified in Section 3.3.

 

“Schedule” means a disclosure schedule provided by Seller to Buyer pursuant to this Agreement.

 

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

 

“Seller” has the meaning specified in the preamble hereof.

 

“Subsidiaries” means, with respect to any Person, each entity as to which such Person (either alone or through or together with any other Subsidiary) (i) owns beneficially or of record or has the power to vote or control, 50% or more of the voting securities of such entity or of any class of equity interests of such entity the holders of which are ordinarily entitled to vote for the election of the members of the Board of Directors or other persons performing similar functions, (ii) in the case of partnerships, serves as a general partner, (iii) in the case of a limited liability company, serves as a managing member or owns a majority of the equity interests or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof.

 

“Surface Rights” has the meaning specified in Section 1.2(d) above.

 

“Tax” or “Taxes” means all income, profits, franchise, gross receipts, capital, sales, use, withholding, value added, ad valorem, transfer, employment, social security, disability, occupation, asset, property, severance, documentary, stamp, excise and other taxes, duties and similar governmental charges or assessments imposed by or on behalf of any Governmental Authority and any interest, fines, penalties or additions relating to any such tax, duty, charge or assessment.

 

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“Tax Return” means any return, report, information statement, or similar statement required to be filed with respect to any Taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax.

 

“Title Defect Amount” has the meaning specified in Section 6.3(c).

 

“Title Defect Notice” has the meaning specified in Section 6.3(b).

 

“Title Defect Property” has the meaning specified in Section 6.3(b).

 

“Title Defect” has the meaning specified in Section 6.3.

 

“Title Objection Period” has the meaning specified in Section 6.3(b).

 

“Tyler County Leases” has the meaning specified in Section 1.2(a), subject to modification as provided in Section 3.3 for the purposes expressed therein.

 

ARTICLE II

 

CLOSING

 

2.1. Closing.  The Closing of the transactions contemplated hereby (the “Closing”) shall take place at the offices of Buyer at 10:00 a.m., Central Time, on July 15, 2010, or such other place or date as the parties hereto may mutually agree (the “Closing Date”).

 

2.2. Proceedings at Closing.  All proceedings to be taken and all documents to be executed and delivered by all parties at the Closing shall be deemed to have been taken and executed simultaneously, and no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken, executed and delivered.

 

ARTICLE III

 

SALE AND PURCHASE CONSIDERATION

 

3.1. Amount of Consideration.  The total purchase price to be paid by Buyer to Seller in consideration of the Properties (the “Purchase Price”) shall be the sum of:

 

(a) The product of $5,500.00 times the number of full or partial Net Mineral Acres leased by the Marion County Leases, proportionately reduced to the interest in such Leases conveyed to Buyer at Closing, and subject to adjustment as provided in Section 6.3.

 

(b) The product of $4,000.00 times the number of full or partial Net Mineral Acres leased by the Tyler County Leases, proportionately reduced to the interest in such Leases conveyed to Buyer at Closing and subject to adjustment as provided in Section 6.3.

 

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(c) The sum of $9,000,000.00, proportionately reduced on a Net Royalty Acre basis to the extent that any portion of the Retained ORRI’s are subject to Title Defects as provided in Section 6.3 hereunder.

 

For the purpose of the multiplication to be performed in the above calculations, partial Net Mineral Acres shall be expressed as the decimal percentage of a full Net Mineral Acre they represent.

 

3.2. Form of Consideration.

 

(a) The lesser of (a) the total amount of the Purchase Price or (b) Twenty-Three Million Five Hundred Thousand Dollars ($23,500,000.00) shall be paid to Seller at Closing in immediately available funds.

 

(b) To the extent that the Purchase Price exceeds the sum of Twenty-Three Million Five Hundred Thousand Dollars ($23,500,000.00), Seller will be provided with a credit in the amount of such excess toward future joint interest billings to Seller pursuant to the Joint Operating Agreement referenced in paragraph 3 of the AJDA (the “JOA”).  Such credit shall be applied dollar for dollar to offset the next joint interest billings under the JOA until such credit is exhausted; provided, however, that such credit may not be utilized for joint interest billings with regard to the Whipkey 1H or Whipkey 2H Wells.

 

3.3. Additional Contingent Consideration.

 

As additional contingent consideration for the sale of the Properties, Buyer shall pay over to Seller, if, as and when received, 20% of any “Net Profits” (defined below) realized by Buyer or its Affiliates from the ownership, production, operation, sale or disposition of the Tyler County Leases, including for such purposes, the remaining 50% interest of Sancho Oil and Gas Corporation (in addition to the 50% interest to be purchased by Buyer pursuant to the Related Contract) in the Sancho Leases (the “Sancho Option Interest”, to the extent that Seller purchases the Sancho Option Interest.  For purposes hereof, “Net Profits” shall be defined as any excess of “Cumulative Revenues” over “Cumulative Expenses.”  “Cumulative Revenues” shall be defined as all cash revenues received by Buyer or its Affiliates from its ownership in the Tyler County Leases, whether as production revenues, sales proceeds, or otherwise. “Cumulative Expenses” shall mean the Purchase Price consideration paid by Buyer hereunder for the Tyler County Leases plus the amount of all other cumulative costs incurred by Buyer or its Affiliates in connection with the geological and seismic evaluation, drilling, development, completion, operations or sale of the Tyler County Leases.  In the event of a sale or other transfer of any of the Tyler County Leases or interests therein by Buyer to a party which is unaffiliated with Buyer in an arms-length transaction, such Net Profits interest of Seller shall terminate as to that interest in the Tyler County Lease(s) so sold or conveyed, but the cash consideration received by Buyer or its Affiliates from such sale shall be included in the computation of “Cumulative Revenues” for purposes hereof.  The obligation to pay contingent consideration pursuant to this Section 3.3 shall survive the Closing.

 

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Upon Seller’s acquisition of the Sancho Option Interest, Seller shall automatically assume the remaining obligations of Sancho pursuant to Section 6.3 (except for the obligations arising under Section 6.3(c)(iii)) of the Related Contract.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller hereby represents and warrants to Buyer:

 

4.1. Organization and Good Standing.  Seller is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.  Seller is not a “foreign person” within the meaning of Section 1445 of the Code.

 

4.2. Authorization of Agreement.  The execution and delivery of this Agreement by Seller and the performance of the transactions contemplated herein by Seller have been, or will be prior to Closing, duly authorized by all necessary action, and no other action on the part of Seller is (or will be) necessary to authorize this Agreement or consummate the transactions contemplated hereby.  This Agreement has been duly and validly executed and delivered by Seller and constitutes a valid and binding obligation of Seller and is enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization and similar laws affecting creditors generally and by the availability of equitable remedies.

 

4.3. Conflicts, Consents of Third Parties.  Neither the execution and delivery by Seller of this Agreement nor consummation or performance by Seller of the transactions contemplated hereby to be consummated or performed by Seller will:  (a) violate any Law, (b) violate the certificate of organization or bylaws of Seller, (c) violate any Order to which Seller is a party or by which Seller is bound, (d) breach the provisions of any contract or agreement to which Seller is a party, or (e) require any consent from, authorization or approval or other action by, notice to or declaration, filing or registration with any Governmental Authority except for governmental consents and approvals that are customarily obtained after Closing.

 

4.4. Brokers.  Seller has not paid or become obligated to pay any fee or commission to any broker, finder or intermediary in connection with the transactions contemplated hereby for which the Buyer shall have any liability following the Closing.

 

4.5. Litigation.  As of the date of this Agreement there is no suit, action or proceeding pending, or, to the knowledge of Seller, threatened against or affecting Seller or its interest in the Properties that is reasonably likely to have a Material Adverse Effect on Seller or the transactions contemplated in this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Seller that is reasonably likely to have a Material Adverse Effect on Seller.

 

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4.6. Title to Properties.  Except as set forth in Schedule 4.6, Seller has Defensible Title to the interests in the Leases and Retained ORRI’s set forth on Exhibit A other than with respect to Title Defects that are dealt with pursuant to Section 6.3.

 

4.7. Taxes and Assessments.  Seller has caused to be timely filed all material Tax returns relating to the Properties the failure to pay which could result in the placement of a Lien on all or a portion of the Properties.  Seller has paid or caused to be paid all ad valorem, property, and similar Taxes, except those being contested in good faith and disclosed to Buyer in writing.  Seller has not received written notice of any pending claim against Seller from any applicable taxing authority for assessment of Taxes with respect to the Properties.  There are no audits of Seller by any applicable taxing authority with respect to Taxes attributable to the Properties.  Except for statutory liens for property taxes and ad valorem taxes, there are no tax liens on or with respect to the Properties.

 

4.8. Compliance with Laws.  To the knowledge of Seller, Seller is in possession of all material Permits necessary to own, lease and operate its Properties and to carry on its business with respect to the Properties as it is now being conducted, except where the failure to be in possession of any of the Permits would not have a Material Adverse Effect and there is no action, proceeding or, to the knowledge of Seller, investigation pending or threatened regarding suspension or cancellation of any of the Permits.  Except as disclosed in Schedule 4.8, Seller is not in conflict with, or in default or violation of, (a) any Law to which any of the Properties is bound or subject or (b) any of the Permits, except where such conflict, default or violation would not have a Material Adverse Effect.

 

4.9. Forward Sales.  Seller is not obligated by virtue of a take or pay payment, advance payment or other similar payment (other than royalties, overriding royalties and similar arrangements reflected on Exhibit “A”), to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Leases at some future time without receiving payment therefor at or after the time of delivery.

 

4.10. Hydrocarbon Sales.

 

(a) Except for Hydrocarbon sales contracts with a term not greater than ninety (90) days, no Hydrocarbons produced from the Properties are subject to a sales contract or other agreement relating to the marketing of Hydrocarbons, and no person has any call upon, option to purchase or similar rights with respect to such Properties or the rights therefrom, except for third party operator rights under operating agreements covering the Properties.

 

(b) With respect to the Properties, Seller has the ability and right to obtain access to, produce, treat, transport, process, or otherwise market Hydrocarbons from the Leases and Retained ORRI’s without the need for any additional agreements.

 

4.11. Consents and Preferential Purchase Rights.  Except as listed on Schedule 4.11, none of the Leases or the Retained ORRI’s are subject to any preferential rights to purchase or restrictions on assignment or required third-party consents to assignment which may be

 

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4.12. applicable to the transactions contemplated by this Agreement, except for governmental consents and approvals of assignments that are customarily obtained after Closing.

 

4.13. Contracts.  All Contracts affecting the Properties are listed on Schedule 1.2(c) attached.  Neither Seller nor any other party is in default under any Contract except for such defaults as would not have a Material Adverse Effect.  There are no Contracts with Affiliates of Seller which will be binding on the Properties after Closing.  None of the Contracts consist of, nor are the Properties subject to any, Hedging Transaction which will be binding on Buyer.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to Seller as follows:

 

5.1. Organization and Good Standing.  Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.  Buyer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby and thereby to be consummated by it.

 

5.2. Authorization of Agreement.  The execution and delivery of this Agreement by Buyer and the performance of the transactions contemplated herein by the Buyer have been duly authorized by all necessary action by the Buyer, and no other action on the part of Buyer is necessary to authorize this Agreement or to consummate the transactions contemplated hereby.  This Agreement has been duly and validly executed and delivered by Buyer and constitutes a valid and binding obligation of Buyer and is enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors generally and by the availability of equitable remedies.

 

5.3. Conflicts, Consents of Third Parties.  Neither the execution and delivery by Buyer of this Agreement nor consummation or performance by Buyer of the transactions contemplated hereby to be consummated or performed by Buyer will: (a) violate any Law, (b) violate the certificate of incorporation or bylaws of Buyer, (c) violate any Order to which Buyer is a party or by which Buyer is bound (d) violate any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, or license applicable to Buyer, (e) any joint venture or other ownership arrangement of Buyer or (f) require any consent from, authorization or approval or other action by, and no notice to or declaration, filing or registration with any Governmental Authority.

 

5.4. No Default.  Except as would not reasonably be expected to have a Material Adverse Effect on Buyer, Buyer is not in default or violation of any term, condition or provision of (a) the certificate of incorporation or bylaws of Buyer, (b) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license to which Buyer is now a party or by which Buyer or any of its properties or assets is bound, or (c) any Order applicable to Buyer.

 

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5.5. Litigation.  As of the date of this Agreement there is no suit, action or proceeding pending, or, to the knowledge of Buyer, threatened against or affecting Buyer that is reasonably likely to have a Material Adverse Effect on Buyer, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority or arbitrator outstanding against Buyer that is reasonably likely to have a Material Adverse Effect on Buyer.

 

5.6. Brokers.  Buyer has not paid or become obligated to pay any fee or commission to any broker, finder or intermediary in connection with the transactions contemplated hereby for which Seller shall have any liability following the Closing.

 

ARTICLE VI

 

ADDITIONAL AGREEMENTS

 

6.1. Further Actions.  At any time from and after the Closing, at the request of a party and without further consideration, each other party shall promptly execute and deliver such further agreements, certificates, instruments and documents and perform such other actions, at no cost to such party, as the requesting party may reasonably request in order to fully consummate the transactions contemplated hereby and carry out the purposes and intent of this Agreement.

 

6.2. Conduct of Business Pending Closing.  Prior to the Closing Date, Seller will (except as consented to in writing by Buyer, such consent not to be unreasonably withheld, or otherwise permitted under this Agreement):

 

(a) not terminate, materially amend, or extend any material Contracts affecting the Properties, or enter into or commit to enter into any new material Contract relating to the Properties, or settle, compromise or waive any material right relating to the Properties,

 

(b) maintain insurance coverage on the Properties in the amounts and of the types presently in force,

 

(c) maintain in full force and effect the Leases, and pay all costs and expenses and perform all material obligations of the owner of the Properties promptly when due,

 

(d) maintain all Permits,

 

(e) not transfer, sell, hypothecate, encumber, or otherwise dispose of any Properties,

 

(f) not grant or create any preferential right to purchase, right of first opportunity or other transfer restriction or requirement with respect to the Properties, and

 

(g) not make any change in any method of accounting or accounting practice or policy with respect to the Properties, except as required by Law.

 

6.3. Title Due Diligence Examination.

 

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6.4. From the date of this Agreement, Seller shall afford to Buyer and Buyer’s authorized representatives reasonable access during normal business hours to the office, personnel and books and records of the Seller other than Excluded Records, in order for Buyer to conduct a title examination as it may in its sole discretion choose to conduct with respect to the Leases in order to determine whether Title Defects (as below defined) exist (“Buyer’s Title Review”); provided, however, that such investigation shall be upon reasonable notice and shall not unreasonably disrupt the personnel and operations of the Seller or impede the efforts of the Seller to comply with its other obligations under this Agreement.  Such books and records shall include all abstracts of title, title opinions, title files, ownership maps, lease files, assignments, division orders, operating records and agreements, well files, financial and accounting records, geological, geophysical and engineering records, in each case insofar as same may now be in existence and in the possession of Seller and relate predominately to title to the Leases.  The cost and expense of Buyer’s Title Review, if any, shall be borne solely by Buyer.

 

(a) If Buyer discovers any Title Defect affecting any of the Leases, Buyer shall notify Seller as soon as reasonably possible, but in all cases prior to the termination of the AJDA (the “Title Objection Period”) of such alleged Title Defect.  To be effective, such notice (“Title Defect Notice”) must (i) be in writing, (ii) be received by Seller prior to the expiration of the Title Objection Period, (iii) describe the Title Defect in reasonable detail (including any alleged variance in the Net Revenue Interest), (iv) identify the specific Lease affected by such Title Defect, and (v) include the value of such Title Defect as determined by Buyer in good faith.  The Lease affected by such alleged Title Defect shall be a “Title Defect Property”.

 

(b) The “Title Defect Amount” shall mean, with respect to a Title Defect Property, the amount by which such Title Defect Property is impaired as a result of the existence of one or more Title Defects, which amount shall not exceed the portion of the Purchase Price attributable to such Lease (based on the Purchase Price formula set forth in Section 3.1) and shall be determined as follows:

 

(i) The Title Defect Amount with respect to a Title Defect Property shall be determined by taking into consideration the portion of the Purchase Price attributable to the Lease subject to such Title Defect (based on the Purchase Price formula set forth in Section 3.1), the portion of the Lease subject to such Title Defect, and the legal effect of such Title Defect on the Lease affected thereby; provided, however, that:  (A) if such Title Defect is in the nature of Seller’s Net Revenue Interest in a Lease being less than the Net Revenue Interest set forth on Exhibit “A” to this Agreement and the Working Interest remains the same, then the Seller and Buyer agree that the Purchase Price shall be reduced in an amount equal to the Purchase Price attributable to the relevant Lease multiplied by the percentage reduction in such net revenue interest as a result of such Title Defect or (B) if such Title Defect is in the nature of a Lien which is undisputed and liquidated in amount, then the Seller and Buyer agree that the Purchase Price shall be reduced in the amount equal to the amount required to fully discharge such Lien; and

 

(ii) If the Title Defect results from any matter not described in this Section 6.3, the Title Defect Amount shall be an amount equal to the difference between

 

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(iii) the value of the Lease affected by such Title Defect with such Title Defect and the value of such Lease without such Title Defect (taking into account the portion of the Purchase Price allocated to the Title Defect Property).

 

(iv) Seller and Buyer acknowledge that several of the Eligible Leases, as shown on Exhibit A, do not satisfy requirement (e) within the definition of “Eligible Lease” (each a “Pooling Title Defect”) and these properties are listed on Schedule 6.3(c)(iii) (each a “Pooling Defect Lease”).  In lieu of the options otherwise provided in Section 6.3(e) below, each Pooling Defect Lease shall be conveyed to Buyer at Closing and the Purchase Price shall be reduced by an amount equal to twenty percent (20%) of the portion of the Purchase Price attributable to such Lease under the formula in Section 3.1.  To the extent the aggregate Purchase Price (after giving effect to such reduction) exceeds Twenty-Three Million Five Hundred Thousand Dollars ($23,500,000.00), the reduction in Purchase Price for Pooling Title Defects shall be applied solely to reduce the portion of the Purchase Price to be satisfied pursuant to Section 3.2(b) hereof.  Seller shall diligently undertake to cure Pooling Title Defects.  After Seller has cured Pooling Title Defects with respect to Pooling Defect Leases aggregating 80% of the Purchase Price originally attributable to all Pooling Defect Leases, then, with respect to Pooling Title Defects which are thereafter cured, Buyer shall increase the credit available to Seller under Section 3.2(b) in the amount of the Purchase Price value of the Pooling Title Defects thereafter cured within thirty (30) days of Seller’s notification and Buyer’s acceptance of such cure, such acceptance not to be unreasonably delayed or withheld.

 

(v) At any time more than two (2) years after the Closing and prior to the expiration of the AJDA, Buyer may give an actual Title Defect Notice to Seller for any Pooling Title Defects remaining uncured, in which event Seller will pay to Buyer the difference between the remaining eighty percent (80%) portion of the Purchase Price originally attributable to all Pooling Defect Leases and the original Purchase Price attributable to each Pooling Defect Lease theretofore cured.  Thereafter subsequent cures of Pooling Title Defects by Seller prior to the termination of the AJDA shall entitle Seller to be paid the original Purchase Price attributable to such cured Pooling Defect Lease under the formula in Section 3.1 in cash by Buyer within 30 days of Buyer’s notification and Seller’s acceptance of such cure, such acceptance not to be unreasonably delayed or withheld.

 

(c) If the amount of the adjustment for each Title Defect, other than a Pooling Title Defect, cannot be determined based on the above criteria, and if the Seller and Buyer cannot otherwise agree on the amount of an adjustment or the parties are unable to agree upon whether a Title Defect exists, either party may elect to resolve the dispute under the arbitration provisions in Section 12.1 of this Agreement.

 

(d) Within sixty (60) days following receipt of a Title Defect Notice, Seller, at its sole option, shall either (a) cure or remove such Title Defect at Seller’s sole cost, or (b) pay in cash to Buyer the Title Defect Amount associated with such Title Defect (the Title Defect Amount shall be determined in accordance with the procedures in Section 6.3(c) above), or (c) repurchase the Lease affected by such Title Defect from Buyer at the

 

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(e) portion of the Purchase Price allocated to such Lease (such Closing shall occur within thirty (30) days after expiration of the sixty (60) day election period provided to Seller).

 

As used in this Section 6.3, “Title Defect” shall mean any particular defect in or failure of Seller’s ownership of any Lease:  (i) that causes Seller to not have conveyed Defensible Title to such Lease to Buyer at Closing or causes a Lease not to be an Eligible Lease and (ii) regarding which a Title Defect Notice has been timely and otherwise validly delivered.

 

(f) To the extent that Seller owns Leases which are not Eligible Leases due to such Lease’s failure to meet the criteria in clause (a) of the definition of Eligible Lease, and has a primary term which will expire prior to January 1, 2012, in the event that Seller and Buyer mutually agree that the primary term of such Lease should be extended to render such Lease an Eligible Lease, the cost of obtaining a renewal or extension of such Lease shall be shared in the proportions of 75% to Buyer and 25% to Seller, notwithstanding any provisions of the AJDA up to the first $2,000 per Net Mineral Acre represented by the Lease being renewed or extended, with any additional costs shared 50% each pursuant to the provisions of the AJDA.

 

(g) Certain of the Leases described on Exhibit A (“Counterpart Leases”) share the same Lease ID number except for the letter at the end of the Lease ID number (A, B, C, D, etc.).  For purposes hereof, the values assigned to the individual leases within a group of Counterpart Leases shall be aggregated and then allocated among the constituent individual leases proportionately on a Net Mineral Acre basis as if title were as represented.

 

6.5. Access to Information.  Upon reasonable notice, Seller shall afford to Buyer’s officers, employees, accountants, counsel and other representatives access, from the date hereof until the termination of the AJDA, to all its books, contracts, commitments, files and records relating to the Properties other than Excluded Records, as well as to its officers and employees and, during such period, Seller shall furnish to Buyer (a) a copy of each material report, schedule, and other document filed or received by it during such period and (b) all other information, other than Excluded Records, concerning the Properties as such other party may reasonably request that is not subject to a confidentiality agreement prohibiting Seller from furnishing.  Buyer agrees that it will not, and will cause its respective representatives not to, use any information obtained pursuant to this Section 6.4 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement.  Buyer shall indemnify, defend and hold harmless the Seller from and against any and all claims, actions, causes of action, demands, assessments, losses, damages, liabilities, judgments, settlements, penalties, costs and expenses (including reasonable attorneys’ fees and expenses), of any nature whatsoever asserted against or suffered by the Seller relating to, resulting from or arising out of examinations or inspections made by Buyer or its representatives pursuant to this Section 6.4.  The foregoing indemnity is not intended to negate any rights or remedies Buyer may have under the remaining provisions hereof.

 

6.6. Regulatory Approvals.  Each party hereto shall cooperate and use its reasonable best efforts to promptly prepare and file all necessary documentation to effect all necessary

 

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6.7. applications, notices, petitions, filings and other documents, and use all commercially reasonable efforts to obtain (and will cooperate with each other in obtaining) any consent, acquiescence, authorization, order or approval of, and any exemption or non-opposition by, any Governmental Authority required to be obtained or made by Seller or Buyer or any of their respective Affiliates in connection with the transactions contemplated hereby or the taking of any action contemplated by this Agreement.

 

6.8. Agreement to Defend.  In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other legal or administrative proceeding is commenced that questions the validity or legality of the transactions contemplated hereby or seeks damages in connection therewith, the parties hereby agree to cooperate and use their commercially reasonable efforts to defend against and respond thereto.

 

6.9. Consents and Preferential Rights.  Seller shall promptly prepare and send (i) notices to the holders of any required consents to assignment requesting such consents and (ii) notices to the holders of any applicable preferential rights to purchase which are set forth on Schedule 4.11 requesting waivers of such preferential rights to purchase.  The consideration payable under this Agreement for any particular property for purposes of preferential purchase right notices shall be the portion of the Purchase Price attributable to such property.  Seller shall use commercially reasonable efforts to cause such consents and waivers of preferential rights to purchase (or the exercise thereof) to be obtained and delivered prior to Closing.  Buyer shall cooperate with Seller in seeking to obtain such consents and waivers of preferential rights.

 

6.10. Other Actions.  Except as contemplated by this Agreement, neither Seller nor Buyer shall, nor permit any of its Affiliates to, take or agree or commit to take any action that is reasonably likely to result in any of its respective representations or warranties hereunder being untrue in any material respect or in any of the conditions to the transactions contemplated hereby set forth in Article VI not being satisfied.  Each of the parties agrees to use its reasonable best efforts to satisfy the conditions to Closing set forth in this Agreement.

 

6.11. Option Assets.  To the extent that oil, gas and mineral leases or fee mineral interests which would constitute Marion County Leases or Tyler County Leases (a) are owned by Seller or its Affiliates as of the date hereof but are not transferred to Buyer at the Closing due to the fact that they were not identified by Seller to Buyer, or (b) are oil, gas and mineral leases which would constitute Marion County Leases or Tyler County Leases but are not conveyed to Buyer at Closing due to Title Defects which are uncured at Closing (in either case, “Option Assets”), Buyer shall have an exclusive and irrevocable option (the “Option”) to purchase any or all of the such oil, gas and mineral leases or interests therein at the Purchase Price formula contained in Section 3.1, with the consideration payable by increasing the credit to Seller under Section 3.2(b) by the amount of such Purchase Price increase upon assignment and additional contingent consideration due to Seller in the case of Tyler County Leases as provided in Section 3.3.

 

Such Option shall be exercisable by Buyer in whole or in part (as to an undivided 50% interest of Seller in any such Lease) at any time within thirty (30) days after either of Seller or Buyer notifies the other of the existence and identity of the specific Option Assets affected in the case of Option Assets as described in clause (a) of the preceding paragraph or after cure of the

 

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relevant Title Defects in the case of Option Assets as described in clause (b) of the preceding paragraph but in no event after termination of the AJDA (the “Option Term”).  To the extent that the Option has not been exercised as to any of the Option Assets in whole prior to the end of the Option Term, then the rights and obligations set forth in this Section 6.9 shall expire and cease to be of any further force or effect as to those Option Assets.

 

If Buyer elects to exercise the Option in whole or in part at any time during the Option Term with respect to certain Option Assets, Buyer shall deliver a written notice to Seller (the “Exercise Notice”) identifying the Leases it elects to purchase and specifying a date not earlier than ten (10) business days nor later than forty-five (45) business days after the date of such notice for the Closing of the purchase and sale of such Leases (the “Option Closing”).

 

The terms governing the purchase and sale of such Leases shall be substantially the same as the terms governing the purchase and sale pursuant to this Agreement (with such changes as shall have been agreed upon by Seller and Buyer), except that the representations and warranties made by Seller with respect to such Leases shall be modified to reflect the title to such Leases held by Seller.

 

The Option Closing shall be held at the principal office of Buyer, or such other location as may be agreed in writing by Buyer and Seller.  At the Option Closing, Seller shall deliver a conveyance in the form attached hereto as Exhibit B-1 and such other assignments, general conveyances, endorsements, assignments, and other good and sufficient instruments of conveyance as are necessary in order to vest in Buyer all right, title and interest in the Leases that are the subject of the applicable Exercise Notice and Buyer shall acknowledge the increase in the credit available under Section 3.2(b) at the Option Closing.

 

Seller agrees that it shall not, at any time prior to the end of the Option Term, directly or indirectly, sell, transfer, or otherwise dispose of, or enter into any contract or arrangement to sell, transfer, or otherwise dispose of, all or any part of the Option Assets, other than pursuant to the exercise of the Option.

 

ARTICLE VII

 

CONDITIONS TO CLOSING

 

7.1. Buyer’s Conditions.  Unless otherwise waived in writing prior to the Closing, the obligation of Buyer to complete the Closing is subject to fulfillment prior to or at the Closing of each of the following conditions:

 

(a) No Legal Proceeding.  At the Closing, no Legal Proceeding shall be pending or threatened seeking to enjoin or prevent, nor shall an Injunction, Order or Official Action have been issued prohibiting, consummation of the transactions contemplated hereby.

 

(b) Fulfillment of Obligations.  Seller shall have duly performed or complied with all of the obligations and covenants to be performed or to which compliance by Seller is required under the terms of this Agreement at or prior to the Closing Date.

 

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(c) Accuracy of Representations and Warranties.  The representations and warranties of Seller set forth herein shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date.

 

(d) Closing Deliveries.  Seller shall have delivered at or before Closing all of the items listed in Section 8.1.

 

(e) Simultaneous Closing.  Sancho Oil and Gas Corporation shall have performed all of its closing obligations pursuant to the Related Contract.

 

(f) AJDA Amendment.  Sancho Oil and Gas Corporation and Prima Oil Company, Inc. have executed and delivered to Buyer two executed counterparts of the AJDA Amendment.

 

7.2. Seller’s Conditions.  Unless otherwise waived in writing prior to Closing, the obligation of Seller to complete the Closing is subject to fulfillment prior to or at Closing of each of the following conditions.

 

(a) No Legal Proceeding.  At the Closing, no Legal Proceeding shall be pending or threatened seeking to enjoin or prevent, nor shall an Injunction, Order or Official Action have been issued prohibiting, consummation of the transactions contemplated hereby.

 

(b) Fulfillment of Obligations.  Buyer shall have duly performed or complied with all of the obligations and covenants to be performed or to which compliance by Buyer is required under the terms of this Agreement at or prior to the Closing Date

 

(c) Accuracy of Representations and Warranties.  The representations and warranties of Buyer set forth herein shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date.

 

(d) Closing Deliveries.  Buyer shall have delivered at or before Closing all of the items listed in Section 8.2.

 

ARTICLE VIII

 

DELIVERIES AT CLOSING

 

8.1. Deliveries by Seller to Buyer.  At the Closing, Seller shall deliver, or shall cause to be delivered, to Buyer the following:

 

(a) A certificate duly executed by the secretary or any assistant secretary of Seller, dated the Closing Date, (i) attaching and certifying on behalf of the Seller complete and correct copies of resolutions of the board of directors or other governing body of Seller authorizing the execution, delivery and performance by Seller of this Agreement and the transactions contemplated hereby and that such authorizations are in full force and effect and have not been rescinded or amended as of the Closing Date, and

 

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(b) (ii) certifying on behalf of Seller the incumbency and signature of each officer of Seller executing this Agreement or any document delivered in connection with the Closing;

 

(c) A certificate of Seller or duly authorized officer thereof certifying as to those matters set out in Section 7.1(a), (b) and (c) hereof;

 

(d) The Conveyance and Override Assignment in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, duly executed by Seller;

 

(e) Executed statements described in Treasury Regulation 1.1445-2(b)(2) certifying that each Seller is not a foreign person within the meaning of the Code.

 

(f) Two fully executed counterparts of a Fourth Amendment to Farm-out and Area of Joint Development Agreement in the form attached hereto as Exhibit C (the “AJDA Amendment”), amending the AJDA as stated therein.

 

8.2. Deliveries by Buyer to Seller.  At the Closing, in addition to making the payments described in Section 3.2, Buyer shall deliver to each Seller the following:

 

(a) A certificate of a duly authorized representative of Buyer, dated the Closing Date, (i) attaching and certifying on behalf of the Seller complete and correct copies of resolutions of the board of directors or other governing body of Seller authorizing the execution, delivery and performance by Seller of this Agreement and the transactions contemplated hereby and that such authorizations are in full force and effect and have not been rescinded or amended as of the Closing Date, and  (ii) certifying on behalf of Seller the incumbency and signature of each officer of Seller executing this Agreement or any document delivered in connection with the Closing;

 

(b) A certificate of Buyer or duly authorized officer thereof certifying as to those matters set out in Section 7.2(a), (b) and (c) hereof;

 

(c) The Conveyance and Override Assignment duly executed by Buyer on each duplicate original delivered by Seller; and

 

(d) Two fully executed counterparts of the AJDA Amendment.

 

ARTICLE IX

 

TERMINATION

 

9.1. Termination.  This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date:

 

(a) by mutual written consent of the Seller and Buyer;

 

(b) by the Seller or Buyer if any Governmental Authority shall have issued any Injunction or taken any other action permanently restraining, enjoining or otherwise

 

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(c) prohibiting the consummation of the transactions contemplated hereby and such Injunction or other action shall have become final and non-appealable; or

 

(d) by Seller or Buyer if the other shall have failed or refused to Close the transaction contemplated hereby on or before July 31, 2010, or such later date as mutually agreed.

 

9.2. Effect of Termination.  In the event of termination of this Agreement by any party hereto as provided in Section 9.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any party hereto except (i) with respect to this Section 9.2, Section 12.12, and the last sentence of Section 6.4, and (iii) to the extent that such termination results from the willful breach  by a party hereto of any of its representations and warranties or of any of its covenants or agreements contained in this Agreement.

 

ARTICLE X

 

INDEMNIFICATION

 

10.1. Assumption and Indemnification.

 

(a) FROM AND AFTER CLOSING, BUYER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER, ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND REPRESENTATIVES (“SELLER GROUP”) FROM AND AGAINST ALL LOSSES (as defined below in Subsection 10.1(d)) INCURRED OR SUFFERED BY SELLER GROUP:

 

(i) CAUSED BY OR ARISING OUT OF OR RESULTING FROM THE ASSUMED OBLIGATIONS (defined below);

 

(ii) CAUSED BY OR ARISING OUT OF OR RESULTING FROM THE OWNERSHIP, USE OR OPERATION OF THE PROPERTIES, ON OR AFTER THE CLOSING DATE; OR

 

(iii) CAUSED BY OR ARISING OUT OF OR RESULTING FROM ANY BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT MADE BY BUYER CONTAINED IN ARTICLE V OF THIS AGREEMENT.

 

Upon and after Closing, Buyer shall assume and perform all the rights, duties, obligations and liabilities of ownership of the Properties including, without limitation:  (A) a proportionate share of Seller’s express and implied obligations and covenants after the Closing Date under the terms of the Leases, the Contracts, and all other orders, rules and regulations to which the Properties are subject; (B) a proportionate share of responsibility for all royalties, overriding royalties, rentals, shut-in payments and other burdens or encumbrances to which the Properties are subject accruing after the Closing Date; (C) responsibility for compliance with all applicable Laws pertaining to the Properties, and the procurement and maintenance of all permits required by public authorities in connection with the Properties after the Closing Date; and (D) all other obligations assumed by Buyer under this Agreement (the “Assumed Obligations”).  Seller remains

 

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responsible for all costs, expenses and liabilities incurred by Seller in connection with the ownership or operation of the Properties before the Closing Date, except (A) those for which Buyer indemnifies Seller under 10.1(a)(i) or 10.1(a)(iii); or, (B) those arising out of specific matters or claims for which Buyer has received an adjustment to the Purchase Price (the “Retained Obligations”).

 

(b) FROM AND AFTER CLOSING, AND EXCEPT AS PROVIDED IN SUBSECTION 10.1(a), SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER AND ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND REPRESENTATIVES AGAINST AND FROM ALL LOSSES INCURRED OR SUFFERED BY BUYER:

 

(i) CAUSED BY OR ARISING OUT OF OR RESULTING FROM THE OWNERSHIP, USE OR OPERATION OF THE PROPERTIES ON OR BEFORE THE CLOSING DATE;

 

(ii) ATTRIBUTABLE TO OR ARISING OUT OF THE ACTIONS, SUITS, OR PROCEEDINGS, IF ANY, SET FORTH ON SCHEDULE 4.5; OR

 

(iii) CAUSED BY OR ARISING OUT OF OR RESULTING FROM ANY BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY SUCH SELLER CONTAINED IN ARTICLE IV OF THIS AGREEMENT

 

(iv) CAUSED BY OR ARISING OUT OF OR RESULTING FROM THE RETAINED OBLIGATIONS.

 

(c) Damages or other claims for Title Defects shall be exclusively handled pursuant to Section 6.3 and are excluded from indemnification under this Article X or otherwise.

 

(d) “Losses”, for purposes of this Article X shall mean the amount of any actual liability, loss, cost, expense, claim, award or judgment incurred or suffered by any Indemnified Party (as defined in Section 10.2) arising out of or resulting from the indemnified matter, including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity; provided, however, that Buyer and Seller shall not be entitled to indemnification under this Section 10.1(d) for, and “Losses” shall not include, (i) loss of profits or other consequential damages suffered by the party claiming indemnification, or (ii) any special or punitive damages (other than indirect, consequential, special or punitive damages suffered by third Persons and payable by an Indemnified Person).

 

(e) The indemnity of each party provided in this Article X shall be for the benefit of and extend to such party’s present and former Affiliates, and its and their respective directors, officers, employees, and agents.  Any claim for indemnity under this Article X by any such Affiliate, director, officer, employee, or agent must be brought and

 

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(f) administered by the applicable party to this Agreement.  No Indemnified Party other than Seller and Buyer shall have any rights against either Seller or Buyer under the terms of this Article X except as may be exercised on its behalf by Buyer or Seller, as applicable, pursuant to this Section 10.1(e).  Seller and Buyer may elect to exercise or not exercise indemnification rights under this Section on behalf of the other Indemnified Parties affiliated with it in its sole discretion and shall have no liability to any such other Indemnified Party for any action or inaction under this Section.

 

(g) Notwithstanding anything to the contrary set forth in this Agreement, Seller shall have no liability to Buyer or its officers, directors, agents, employees and representatives or obligation to indemnify Buyer for any specific matter or claim for which Buyer has received an adjustment to the Purchase Price.

 

10.2. Indemnification Procedures.

 

(a) If any third party asserts any claim against a party to this Agreement which, if successful, would entitle the party to indemnification under this Article X (the “Indemnified Party”), it shall give notice of such claim to the party from whom it intends to seek indemnification (the “Indemnifying Party”) and the Indemnifying Party shall have the right to assume the defense and, subject to Section 10.2(b), settlement of such claim at its expense by representatives of its own choosing acceptable to the Indemnified Party (which acceptance shall not be unreasonably withheld).  The failure of the Indemnified Party to notify the Indemnifying Party of such claim shall not relieve the Indemnifying Party of any liability that the Indemnifying Party may have with respect to such claim, except to the extent that the defense is materially prejudiced by such failure.  The Indemnified Party shall have the right to participate in the defense of such claim at its expense (which expense shall not be deemed to be a Loss), in which case the Indemnifying Party shall cooperate in providing information to and consulting with the Indemnified Party about the claim.  If the Indemnifying Party fails or does not assume the defense of any such claim within 15 days after written notice of such claim has been given by the Indemnified Party to the Indemnifying Party, the Indemnified Party may defend against or, subject to Section 10.2(b), settle such claim with counsel of its own choosing at the expense (to the extent reasonable under the circumstances) of the Indemnifying Party.

 

(b) If the Indemnifying Party does not assume the defense of a claim involving the asserted liability of the Indemnified Party under this Article X, no settlement of such claim shall be made by the Indemnified Party without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.  If the Indemnifying Party assumes the defense of such a claim, (i) no settlement thereof may be effected by the Indemnifying Party without the Indemnified Party’s consent unless (A) there is no finding or admission of any violation of Law or any violation of the rights of any Person and no effect on any other claim that may be made against the Indemnified Party, (B) the sole relief provided is monetary damages that have been paid in full by the Indemnifying Party, and (C) the settlement includes, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party of a release in form and substance reasonably satisfactory to the Indemnified Party,

 

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(c) from all liability in respect of such claim, and (ii) the Indemnified Party shall have no liability with respect to any compromise or settlement thereof effected without its consent.  Notwithstanding anything in this Agreement to the contrary, the Litigation shall not be settled or compromised on any terms and conditions without the prior written consent of Seller’s Representative.

 

10.3. Limits on Indemnification.  Notwithstanding anything to the contrary contained in this Agreement:

 

(a) The respective representations of the Seller and Buyer contained in this Agreement shall survive the Closing, subject to applicable statutes of limitation or repose.

 

(b) Any payments made to Seller or the Buyer pursuant to this Article X shall constitute an adjustment of the Purchase Price for Tax purposes and shall be treated as such by the Buyer and Seller on their Tax Returns.

 

ARTICLE XI

 

TAXES

 

11.1. Cooperation.  Each party shall provide the other party with such cooperation and information as it reasonably may request with respect to the Properties in filing any Tax Return, amended Tax Return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes or participating in or conducting any audit or other proceeding in respect of Taxes.  Each party shall bear its own expenses in complying with the foregoing provisions.

 

11.2. Sales or Use Tax, Recording Fees and Similar Taxes and Fees.  Buyer shall pay its proportionate share of any sales, use, excise, documentary, stamp or transfer Taxes, recording fees and similar Taxes and fees incurred and imposed upon, or with respect to, the property transfers or other transactions contemplated hereby.  If such transfers or transactions are exempt from any such taxes or fees upon the filing of an appropriate certificate or other evidence of exemption, Buyer will timely furnish to Seller such certificate or evidence.

 

ARTICLE XII

 

GENERAL

 

12.1. Arbitration.

 

(a) Except for the right to apply to a court of competent jurisdiction for a temporary restraining order, a preliminary injunction, or other equitable relief to preserve the status quo or prevent irreparable harm, any controversy or failure to agree arising under this Agreement and not resolved by agreement shall be determined by a board of arbitration upon notice of submission given by Buyer to Seller, or vice versa, which notice shall name a qualified, impartial, and independent arbitrator.  Within ten (10) days after the receipt of such notice, the other party or parties shall name a second qualified, impartial and independent arbitrator, or failing to do so, the party giving notice shall name the second arbitrator.  Within twenty-five (25) days after sending the original notice of submission the two arbitrators so appointed shall name the third qualified, independent

 

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(b) arbitrator, or failing to do so, the third arbitrator may be appointed by the American Arbitration Association..

 

(c) The arbitrators selected to act hereunder shall be qualified by education and experience to pass on the particular question in dispute.  The arbitrators shall promptly hear and determine (after due notice of hearing and giving the parties a reasonable opportunity to be heard) the questions submitted, and shall render their decision within sixty (60) days after appointment of the third arbitrator.  If within said period a decision is not rendered by the board, or majority thereof, new arbitrators may be named and shall act hereunder at the election of either Buyer or Seller in like manner as if none has been previously named.

 

(d) The arbitration proceeding shall be held in Kanawha County, West Virginia in accordance with the Commercial Arbitration Rules of the AAA as in effect on the date thereof .

 

(e) The decision of the arbitrators, or the majority thereof, made in writing shall be final, binding and non-appealable upon the parties hereto as to the questions submitted, and Buyer and Seller will abide by and comply with such decision.  The expenses of arbitration, including reasonable compensation of the arbitrators, shall be borne equally by the parties hereto, except that each party shall bear the compensation and expenses of its own counsel, witnesses, and employees.

 

12.2. Amendments.  This Agreement may only be amended by an instrument in writing executed by Buyer and Seller.

 

12.3. Waivers.  The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term, but such waiver shall be effective only if it is in a writing signed by the party entitled to enforce such term and against which such waiver is to be asserted.  Unless otherwise expressly provided in this Agreement, no delay or omission on the part of any party in exercising any right or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right or privilege under this Agreement operate as a waiver of any other right or privilege under this Agreement nor shall any single or partial exercise of any right or privilege preclude any other or further exercise thereof or the exercise of any other right or privilege under this Agreement.

 

12.4. Notices.  Any notice or other communications required or permitted hereunder shall be in writing and shall be sufficiently given (and shall be deemed to have been duly given upon receipt) if sent by overnight mail, registered mail or certified mail, postage prepaid, or by hand, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

 

(a) If to Buyer, to:

 

Republic Energy Ventures, LLC

 

4925 Greenville Avenue, Suite 1050

 

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Dallas, Texas 75206

 

Attn: John Swanson

 

With a copy to:

 

Carrington Coleman Sloman & Blumenthal, LLP

 

901 Main Street, Suite 5500

 

Dallas, Texas 75202

 

Attn:  David G. Drumm, Esq.

 

(b) If to the Seller, to:

 

Trans Energy, Inc.

 

P.O. Box 393

 

St. Marys, West Virginia 26170

 

Attn: John G. Corp, President

 

With a copy to:

 

Burleson Cooke, LLP

 

711 Louisiana Street, Suite 1701

 

Houston, Texas 7002

 

Attn:  Allan R Conge, Esq.

 

12.5. Successor and Assigns, Parties in Interest.  This Agreement shall be binding upon and shall inure solely to the benefit of the parties hereto and their respective successors, legal representatives and permitted assigns.  Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person, other than the parties hereto and their respective successors, legal representatives and permitted assigns, any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement, and no Person shall be deemed a third party beneficiary under or by reason of this Agreement.  Seller waives any preferential rights, “tag-along rights” or similar rights it may have under the AJDA with respect to the assignment by Buyer of its rights under this Agreement to an entity to which Buyer makes a contribution of such rights as a constituent member thereof.

 

12.6. Severability.  If any provision of this Agreement or the application of any such provision to any Person or circumstance, shall be declared judicially to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such provision to the extent necessary to render it valid, legal and enforceable while preserving its intent or, if such modification is not possible, by substituting therefor another provision that is valid, legal and enforceable and that achieves the same objective.

 

12.7. Entire Agreement.  This Agreement (including the Exhibits and Schedules hereto, and the documents and instruments executed and delivered in connection herewith) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether written or oral, among

 

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12.8. the parties or any of them with respect to the subject matter hereof, and there are no representations, understandings or agreements relating to the subject matter hereof that are not fully expressed in this Agreement and the documents and instruments executed and delivered in connection herewith.  All Exhibits and Schedules attached to this Agreement are expressly made a part of, and incorporated by reference into, this Agreement.

 

12.9. Schedules.  Nothing in the Schedules is intended to broaden the scope of any representation or warranty contained in the Agreement or to create any covenant unless clearly specified to the contrary herein.  Any disclosure on one Schedule shall be deemed to be disclosed on all Schedules and under the Agreement.  Inclusion of any item in the Schedules (a) shall be deemed to be disclosure of such item on all Schedules and under the Agreement, (b) does not represent a determination that such item is material nor shall it be deemed to establish a standard of materiality, (c) does not represent a determination that such item did not arise in the ordinary course of business, (d) does not represent a determination that the transactions contemplated by the Agreement require the consent of third parties and (e) shall not constitute, or be deemed to be, an admission to any third party concerning such item.  The Schedules include descriptions of instruments or brief summaries of certain aspects of Seller and the Properties.  The descriptions and brief summaries are not necessarily complete and are provided in the Schedules to identify documents or other materials previously delivered or made available.

 

12.10. Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice-of-law rules that may require the application of the laws of another jurisdiction.  Venue for any proceeding hereunder shall be in the District Court of Kanawha County, West Virginia.

 

12.11. Remedies.  Each of the parties hereto acknowledges and agrees that (i) the provisions of this Agreement are reasonable and necessary to protect the proper and legitimate interests of the other parties hereto, and (ii) the other parties hereto would be irreparably damaged in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties hereto shall be entitled to preliminary and permanent injunctive relief to prevent breaches of the provisions of this Agreement by other parties hereto without the necessity of proving actual damages upon posting of a suitable bond, and to enforce specifically the terms and provisions hereof and thereof, which rights shall be cumulative and in addition to any other remedy to which the parties hereto may be entitled hereunder or at law or equity.

 

12.12. Expenses.  The Seller and Buyer shall each bear their own expenses (including, without limitation, fees and disbursements of counsel, accountants and other experts) incurred by it in connection with the preparation, negotiation, execution, delivery and performance of this Agreement, each of the other documents and instruments executed in connection with or contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby.

 

12.13. Release of Information; Confidentiality.  The parties shall cooperate with each other in releasing information concerning this Agreement and the transactions contemplated hereby.  No press releases or other public announcements concerning the transactions contemplated by this Agreement shall be made by any party without prior consultation with and

 

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12.14. written consent of each other party, except for any legally required communication by any party and then only with prior consultation and at least 12 hours notice together with copies of all drafts of the proposed text, prior to the time the communication is made public.  Neither party shall disclose, without the prior written consent of the other party, the economic terms of the transaction effected hereby, or the terms and provisions of this Agreement, except as  may be required by law.

 

12.15. Certain Construction Rules.  The article and section headings contained in this Agreement are for convenience of reference only and shall in no way define, limit, extend or describe the scope or intent of any provisions of this Agreement.  Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.  In addition, as used in this Agreement, unless otherwise provided to the contrary, (a) all references to days, months or years shall be deemed references to calendar days, months or years and (b) any reference to a “Section,” “Article,” or “Schedule” shall be deemed to refer to a section or article of this Agreement or an Exhibit or Schedule attached to this Agreement.  The words “hereof”, “herein”, and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.  Unless otherwise specifically provided for herein, the term “or” shall not be deemed to be exclusive.

 

12.16. Counterparts.  This Agreement may be executed (including by facsimile transmission) in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one instrument binding on all the parties, notwithstanding that all the parties are not signatories to the original or the same counterpart.

 

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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written.

 

BUYER:

 

REPUBLIC ENERGY VENTURES, LLC,

 

a Delaware limited liability company

 

By:                                                                       

 

Name:                                                                       

 

Title:                                                                       

 

 

SELLER:

 

TRANS ENERGY, INC.,

 

a Nevada corporation

 

By:                                                                       

 

Name:                                                                       

 

Title:                                                                       

 

 

PRIMA OIL COMPANY, INC.,

 

a Delaware corporation

 

By:                                                                       

 

Name:                                                                       

 

Its:                                                                                 

 

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EXHIBIT A

 

Description of Properties

 

 

 

 

 

   
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EXHIBIT B-1

 

CONVEYANCE, ASSIGNMENT, AND BILL OF SALE

 

This CONVEYANCE, ASSIGNMENT AND BILL OF SALE (“Conveyance”) is executed this ___ day of __________, 2010, by TRANS ENERGY, INC., a Nevada corporation, and PRIMA OIL COMPANY, INC., a Delaware corporation (referred to collectively herein as “Assignor”) and Republic Energy Ventures, LLC, a Delaware limited liability company (herein called “Assignee”), having as its address 4925 Greenville Avenue, Suite 1050, Dallas, Texas, 75206.  Assignor and Assignee each may be referred to in this Conveyance individually as a “Party” and collectively as the “Parties.”

 

BACKGROUND

 

Pursuant to that certain Agreement of Sale and Purchase, dated __________ ___, 2010, (as amended, supplemented or otherwise modified from time to time, the “Agreement”), by and between Assignor and Assignee, Assignor has agreed to grant, transfer, bargain, sell, convey, assign and deliver the Properties (as defined below) to Assignee, and Assignee has agreed to purchase and acquire such Properties from Assignor.

 

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

 

ARTICLE I

 

GRANTING AND RESERVATION CLAUSES; WARRANTY; HABENDUM CLAUSE

 

1.1. Grant.  For Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which hereby each Party acknowledges, Assignor has granted, transferred, bargained, sold, conveyed, assigned and delivered, and does hereby grant, transfer, bargain, sell, convey, assign and deliver to Assignee, all of the following described properties, rights and interests:

 

(a) The respective undivided Working Interests or “CO WI’s” (as these terms are hereinafter defined) and Net Revenue Interests or “CO NRI’s” (as these terms are hereinafter defined) in, together with an equivalent share of Assignor’s other rights, titles and interests in and to, the oil, gas and/or mineral leases, leasehold interests, and overriding royalty interests, described in Exhibit A hereto and any rights and interests attributable to any of the foregoing interests by virtue of any pooling, unitization, communalization, operating or other agreements (and in and to any ratifications and/or amendments to such leases, whether or not such ratifications or amendments are described in Exhibit A) (collectively the “Leases”); and

 

(b) An equivalent share of the rights, titles and interests of Assignor in and to all contracts and agreements relating to the Leases including but not limited to production sales contracts, operating agreements, unit agreements, processing agreements, transportation agreement, and other contracts and agreements which relate to any of the

 

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(c) Leases, to the extent and only to the extent, such rights, titles and interests are attributable to the Leases (collectively the “Contracts”); and

 

(d) An equivalent share of the rights, titles and interests of Assignor in and to all rights of way, easements, surface leases, and other rights of surface use which relate to any of the Leases to the extent and only to the extent such rights are attributable to the Leases (collectively, the “Surface Interests”); and

 

(e) Copies of all of Assignor’s files, records, documents, correspondence and data pertaining to the interests described in subsections (a), (b), and (c) of this Section 1.1, including lease files, land files, well files, contract files, division order files, title opinions, engineering files, geological, geophysical and seismic records, plats, surveys, maps, cross-sections, production records, electric logs, cuttings, cores, core data, pressure data, decline and production curves, well files and all related matters, but excluding any interpretive information pertaining to economic or reserve forecasts (collectively, “Records”).

 

The Leases, Contracts, Surface Interests, and Records are herein sometimes collectively called the “Properties” and each is a “Property”.  For purposes hereof, the terms (x) “Net Revenue Interest” (or “NRI)” means the  undivided interest in Hydrocarbons produced from or attributable to the applicable well, oil and gas lease or mineral lease, or other acreage, after deducting all lessor’s royalties, overriding royalties, production payments, and other interests or burdens on Hydrocarbons produced therefrom, expressed as a percentage or a decimal; and (y) “Working Interest” (or “WI”) means that share of the costs, expenses, burdens, and obligations of any type or nature attributable to Assignor’s interest in the applicable well, oil and gas lease or mineral lease, or other acreage, expressed as a percentage or a decimal.  The Property conveyed herein shall not include any interest in personal property of the Assignor that might be located on or affixed to the lands covered by a Lease.  Personal property located on or affixed to the lands covered by the Leases is expressly excluded from this Conveyance.  Notwithstanding anything in this Conveyance to the contrary, all leasehold rights pertaining to the rights to operate or receive production from wellbores producing on the date hereof, and all easements, surface leases, wellbores, sub-surface leases, equipment, facilities, gathering lines, roads and structures pertaining thereto are reserved to Assignor for its sole benefit.

 

1.2. Warranty of Title.  Assignor does hereby bind itself and its successors and assigns to warrant and forever defend all and singular title to the Properties against the claims and demands of all parties or persons claiming or to claim the same, or any part thereof, by, through or under Assignor, but not otherwise.

 

1.3. Habendum.  TO HAVE AND TO HOLD the Properties, together with all and singular the rights and appurtenances thereto in any wise belonging, unto Assignee and its successors and assigns forever.

 

ARTICLE II

 

MISCELLANEOUS

 

2.1. Assumption.  Assignee hereby assumes and agrees to be bound by all of Assignor’s obligations under the Leases and Contracts from and after the date hereof.

 

Conveyance, Assignment and Bill of SalePage 2

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2.2. Agreement.  The delivery of this Conveyance shall not affect, enlarge, diminish, or otherwise impair any of the other representations, warranties, covenants, conditions, assumptions, indemnities, terms, or provisions of the Agreement, and all of the other representations, warranties, covenants, conditions, assumptions, indemnities, terms, and provisions contained in the Agreement shall survive the delivery of this Conveyance to the extent, and in the manner, set forth in the Agreement; provided, however, that it is understood and agreed that all warranties or covenants set forth in this Conveyance are independent of (and in addition to) any warranties or covenants set forth in the Agreement.

 

2.3. Further Assurances.  The Parties agree to take all such further actions and to execute, acknowledge, and deliver all such further documents as are necessary or useful to more effectively convey, transfer to or vest in Assignee the Properties or to better enable Assignee to realize upon or otherwise enjoy any of the Properties or to carry into effect the intent and purposes of the Agreement and this Conveyance.

 

2.4. Successors and Assigns.  The provisions of this Conveyance shall bind and inure to the benefit of Assignor and Assignee and their respective successors and assigns.

 

2.5. GOVERNING LAW.  THIS CONVEYANCE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WEST VIRGINIA AS TO ITS EFFECT ON CONVEYING TITLE TO REAL PROPERTY IN THE STATE OF WEST VIRGINIA, BUT OTHERWISE IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION.

 

2.6. Exhibits.  All exhibits and schedules attached hereto are hereby made a part hereof and incorporated herein by this reference.  References in such exhibits and schedules to instruments on file in the public records are notice of such instruments for all purposes.  Unless provided otherwise, all recording references in such exhibits and schedules are to the appropriate records (the real property records, oil and gas records, or other appropriate records) of the counties in which the Property is located.

 

2.7. Captions.  The captions and article and section numbers in this Conveyance are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Conveyance.

 

2.8. Counterparts.  This Conveyance may be executed in one or more originals, but all of which together shall constitute one and the same instrument.  To facilitate recordation and to avoid unduly burdening the public records, in any particular counterpart of this Conveyance portions of the Exhibits attached hereto which describe property situated in counties other than the county in which such counterpart is to be recorded may have been omitted.  An executed original of this Conveyance containing complete copies of all Exhibits is being filed of record in Tyler County, West Virginia.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

Conveyance, Assignment and Bill of Sale Page 3

 

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This Conveyance is executed on the date set forth above.

 

ASSIGNOR:

 

TRANS ENERGY, INC.,

 

a Nevada corporation

 

By:                                                                       

 

Name:                                                                       

 

Its:                                                                       

 

 

PRIMA OIL COMPANY, INC.,

 

a Delaware corporation

 

By:                                                                       

 

Name:                                                                       

 

Its:                                                                       

 

 

ASSIGNEE:

 

REPUBLIC ENERGY VENTURES, LLC,

 

a Delaware limited liability company

 

By:                                                                       

 

Name:                                                                       

 

Its:                                                                                 

 

Conveyance, Assignment and Bill of Sale Page 4

 

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THE STATE OF TEXAS                                                      §

 

 §

 

COUNTY OF DALLAS                                           §

 

This instrument was acknowledged before me on this _____ day of ___________, 2010, by ________________, as _______________ of Republic Energy Ventures, LLC, a Delaware limited liability company, on behalf of said limited liability company.

 

 

Notary Public, State of Texas

 

My Commission Expires: ___________

 

Conveyance, Assignment and Bill of Sale Page 5

 

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THE STATE OF ______                                           §

 

§

 

COUNTY OF ______                                           §

 

This instrument was acknowledged before me on this _____ day of _______________, 2010, by _______________________, as ____________________ of Trans Energy, Inc., a Nevada corporation, on behalf of such corporation.

 

 

Notary Public, State of ________

 

Conveyance, Assignment and Bill of Sale Page 6

 

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THE STATE OF ______                                           §

 

§

 

COUNTY OF ______                                           §

 

This instrument was acknowledged before me on this _____ day of _______________, 2010, by _______________________, as ____________________ of Prima Oil Company, Inc., a Delaware corporation, on behalf of such corporation.

 

 

Notary Public, State of ________

 

 

Conveyance, Assignment and Bill of Sale Page 7

 

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EXHIBIT A

 

Attached to and made a part of that certain Conveyance, Assignment and Bill of Sale by and among Assignee and Assignor, and dated ____________.  Unless provided otherwise, all Volume and Page references below are to the land title records (real property records, oil & gas records or other appropriate records) of the county indicated.  References in the chart below to any well(s) or unit(s) are not intended as a limitation or restriction on the interests conveyed in any oil, gas or mineral leases, fee interests or other Properties that may relate to such well(s) or unit(s).

 

 

 

Conveyance, Assignment and Bill of Sale Exhibit B-1

 

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OVERRIDING ROYALTY ASSIGNMENT

 

THE STATE OF WEST VIRGINIA                                   § 

 

COUNTY OF WETZEL                                                      §

 

This Overriding Royalty Assignment (“Assignment”) is executed as of this 16th day of July, 2010 by Trans Energy, Inc., a Nevada corporation (herein called “Assignor”), and Republic Energy Ventures, L.L.C., a Delaware limited liability company (herein called “Assignee”), having an address of 4925 Greenville Avenue, Suite 1050, Dallas, Texas 75206.  Assignor and Assignee each may be referred to in this Assignment individually as a “Party” and collectively as the “Parties.”

 

Background

 

Pursuant to that certain Agreement of Sale and Purchase dated July 16, 2010 (as amended, supplemented or otherwise modified from time to time, the “Agreement”), by and between Assignor and Assignee, Assignor has agreed to grant, transfer, bargain, sell, convey, assign and deliver the Properties (as defined below) to Assignee, and Assignee has agreed to purchase and acquire such Properties from Assignor.

 

By the terms of those certain Assignments and Bill of Sale listed on Exhibit A, attached hereto and incorporated herein by reference (the “Subject Assignments”), Assignor has assigned to Assignee undivided 50% working interests with corresponding 40% net revenue interests in and to the various oil, gas and mineral leases and wellbores therein described and as described on Exhibit B attached hereto and incorporated herein by reference.

 

It was and is the intent of Assignor and Assignee that the difference between the 40% net revenue interest assigned to Assignee and the net revenue interest attributable to Assignor’s working interest in such leases and wellbores immediately prior to giving effect to the Subject Assignments (proportionately reduced to the 50% working interest assigned to Assignee) was retained as an overriding royalty interest burdening the 50% working interest assigned to Assignee, and such reserved interests are referred to herein as the “Retained ORRI’s.”

 

NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

ARTICLE I

 

GRANTING AND RESERVATION CLAUSES; WARRANTY; ADDENDUM CLAUSE

 

1.1. Grant.  For Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which each Party hereby acknowledges, Assignor has granted, transferred, bargained, sold, conveyed, assigned and delivered, and does hereby grant, transfer, bargain, sell, convey, assign and deliver to Assignee the Retained ORRI’s as herein defined, and herein sometimes collectively called the “Properties,” and each Retained ORRI is a “Property.”

 

OVERRIDING ROYALTY ASSIGNMENT

 

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1.2. Warranty of Title.  Assignor does hereby bind itself and its successors and assigns to warrant and forever defend all and singular title to the Properties against the claims and demands of all parties or persons claiming or to claim the same, or any part thereof, by, through or under Assignor, but not otherwise.

 

1.3. Habendum.  TO HAVE AND TO HOLD the Properties, together with all and singular the rights and appurtenances thereto in any wise belonging, unto Assignee and its successors and assigns forever.

 

ARTICLE II

 

MISCELLANEOUS

 

2.1. Assumption.  Assignee hereby assumes and agrees to be bound by all of Assignor’s obligations under the Leases and Contracts from and after the date hereof.

 

2.2. Agreement.  The delivery of this Conveyance shall not affect, enlarge, diminish, or otherwise impair any of the other representations, warranties, covenants, conditions, assumptions, indemnities, terms, or provisions of the Agreement, and all of the other representations, warranties, covenants, conditions, assumptions, indemnities, terms, and provisions contained in the Agreement shall survive the delivery of this Conveyance to the extent, and in the manner, set forth in the Agreement; provided, however, that it is understood and agreed that all warranties or covenants set forth in this Conveyance are independent of (and in addition to) any warranties or covenants set forth in the Agreement.

 

2.3. Further Assurances.  The Parties agree to take all such further actions and to execute, acknowledge, and deliver all such further documents as are necessary or useful to more effectively convey, transfer to or vest in Assignee the Properties or to better enable Assignee to realize upon or otherwise enjoy any of the Properties or to carry into effect the intent and purposes of the Agreement and this Conveyance.

 

2.4. Successors and Assigns.  The provisions of this Conveyance shall bind and inure to the benefit of Assignor and Assignee and their respective successors and assigns.

 

2.5. GOVERNING LAW.  THIS CONVEYANCE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WEST VIRGINIA AS TO ITS EFFECT ON CONVEYING TITLE TO REAL PROPERTY IN THE STATE OF WEST VIRGINIA, BUT OTHERWISE IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION.

 

2.6. Exhibits.  All exhibits and schedules attached hereto are hereby made a part hereof and incorporated herein by this reference.  References in such exhibits and schedules to instruments on file in the public records are notice of such instruments for all purposes.  Unless provided otherwise, all recording references in such exhibits and schedules are to the appropriate records (the real property records, oil and gas records, or other appropriate records) of the counties in which the Property is located.

 

 

OVERRIDING ROYALTY ASSIGNMENT

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2.7. Captions.  The captions and article and section numbers in this Conveyance are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Conveyance.

 

2.8. Counterparts.  This Conveyance may be executed in one or more originals, but all of which together shall constitute one and the same instrument.  To facilitate recordation and to avoid unduly burdening the public records, in any particular counterpart of this Conveyance portions of the Exhibits attached hereto which describe property situated in counties other than the county in which such counterpart is to be recorded may have been omitted.  An executed original of this Conveyance containing complete copies of all Exhibits is being filed of record in Tyler County, West Virginia.

 

WITNESS THE EXECUTION HEREOF, as of the date first written above.

 

ASSIGNOR:

 

TRANS ENERGY, INC.,

 

a Nevada corporation

 

By:                                                            

 

Name:                                                            

 

Its:                                                                       

 

 

ASSIGNEE:

 

REPUBLIC ENERGY VENTURES, LLC,

 

a Delaware limited liability company

 

By:                                                                       

 

Name:                                                                       

 

Title:                                                                       

 

 

OVERRIDING ROYALTY ASSIGNMENT

884040v.13

  

  

  

THE STATE OF ______                                             § 

 

COUNTY OF _________                                           §

 

This instrument was acknowledged before me on the ___ day of _______, 2010, by ________________, the ________________ of Trans Energy, Inc., a Nevada corporation, on behalf of such corporation.

 

 

Notary Public, State of _______

 

My Commission Expires: _________

 

 

THE STATE OF ______                                             § 

 

COUNTY OF _________                                           §

 

This instrument was acknowledged before me on the ___ day of _______, 2010, by ________________, the ________________ of Republic Energy Ventures, LLC, a Delaware limited liability company, on behalf of such limited liability company.

 

 

Notary Public, State of _______

 

My Commission Expires: _________

 

 

 

OVERRIDING ROYALTY ASSIGNMENT

884040v.13

  

  

  

EXHIBIT A

 

to Overriding Royalty Assignment

 

	
1.  

	
Assignment and Bill of Sale dated effective June 16, 2008, from Trans Energy, Inc. to Republic Partners VII, LLC recorded in Volume 94A, Page 427, Instrument 82767, as corrected by Correction Assignment and Bill of Sale recorded in Volume 98A, Page 508, Instrument 87990 of the Official Records of Wetzel County, West Virginia.

 

	
2.  

	
Assignment and Bill of Sale dated effective July 21, 2008, from Trans Energy, Inc. to Republic Partners VII, LLC recorded in Volume 95A, Page 1, Instrument 83699, as corrected by Correction Assignment and Bill of Sale recorded in Volume 98A, Page 510, Instrument 87991 of the Official Records of Wetzel County, West Virginia.

 

	
3.  

	
Assignment dated effective December 1, 2008, from Trans Energy, Inc. to Republic Partners VI, LP recorded in Volume 98A, Page 512, Instrument 87816 of the Official Records of Wetzel County, West Virginia.

 

 

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EXHIBIT C

 

Form of AJDA Amendment

 

FOURTH AMENDMENT TO FARMOUT AND

 

AREA OF JOINT DEVELOPMENT AGREEMENT

 

This Fourth Amendment to Farmout and Area of Joint Development Agreement (this “Amendment”), executed this ___ day of July, 2010, is executed by Trans Energy, Inc., a Nevada corporation (“TE”), Sancho Oil and Gas Corporation, Prima Oil Company, Inc., and Republic Partners VI, LP, a Texas limited partnership (“RE”) to amend that certain Farmout and Area of Joint Development Agreement by and between TE and RE dated April 4, 2007, accepted May 2, 2007, as amended by First Amendment to Farmout and Area of Joint Development Agreement executed May 12, 2009 (the “First Amendment”), and as amended by Second Amendment to Farmout and Area of Joint Development Agreement dated August12, 2009, by letter amendment dated July 31, 2009, and by Third Amendment to Farmout and Area of Joint Development Agreement dated September 17, 2009, and Supplement to Third Amendment dated April 14, 2010 (the “AJDA”), as follows:

 

1. The “Joint Development Area” is expanded to consist of the entirety of Wetzel, Marshall, Monongalia, Marion and Tyler Counties, West Virginia, and Greene County, Pennsylvania.  Each and every well drilled within the “Joint Development Area” as so amended will count as a well for purposes of fulfilling the development programs within the relevant years of the development phase pursuant to paragraph 7 of the AJDA.  The JOA attached as Exhibit C to the AJDA shall cover a contract area equivalent to such expanded “Joint Development Area.”  An additional memorandum pursuant to Section 12(h) of the AJDA shall be executed and recorded to reflect such expansion of the Joint Development Area.

 

2. RE’s assignee, Republic Energy Ventures, LLC, will be acquiring 50% of TE’s and its affiliates’ interest in certain leases in Marion and Tyler Counties, West Virginia, pursuant to Purchase and Sale Agreements between TE and RE of even date herewith.  Such interest shall be treated as if jointly acquired by TE and RE under Section 8 of the AJDA pursuant to paragraph 3 of the First Amendment.

 

3. TE consents to the assignment of all rights of RE in the AJDA and all associated acreage and other assets to Republic Energy Ventures, LLC, a Delaware limited liability company, effective immediately after the effectiveness of this Amendment, and TE waives all preferential rights and tag-along rights in connection with such assignment.  Upon assumption by Republic Energy Ventures, LLC of all obligations of RE under the AJDA, RE shall be released from all further obligations under the AJDA.

 

4. The second year development program for the calendar year 2010 shall include the Whipkey 1H and 2H wells and those of the five (5) additional wells listed on Exhibit A hereto which TE is able to obtain valid drilling permits for, with commercially reasonable efforts, by a date to allow sufficient time to build locations and move equipment in to spud prior to December 31, 2010.  To the extent that TE is unable, despite the use of commercially reasonable efforts, to obtain valid drilling permits for any of such five wells within such time,

 

884040v.13

  

  

  

5. then the number of wells within the second year drilling program for 2010 will be reduced by such number of wells as to which the drilling permits were delayed and the well(s) did not spud prior to December 31, 2010, or the parties may agree to substitute wells to be part of the second year development program.

 

6. At any time on or after eighteen (18) months from the date hereof (or prior thereto if the sale is made at net acreage values equal or more than the “Threshold Amounts” as hereinafter defined), upon a sale by RE of all or part of its interest within the AJDA, RE shall be entitled to designate its purchaser or its purchaser’s nominee to succeed TE as operator for all existing or future wells located on the acreage transferred.

 

7. Paragraph 9 of the AJDA is amended to provide that a sale of equity or ownership interests in a party to the AJDA will be considered as a sale of interests by such party in the Joint Development Area for purposes of applying the right of first refusal and tag-along provisions of paragraph 9.

 

8. For purposes hereof, the “Threshold Amounts” are $12,000.00 per acre for acreage in Marshall County, West Virginia; $11,000.00 per acre for acreage in Wetzel County, West Virginia; $8,500.00 per acre for acreage in Marion County, West Virginia; and $8,800.00 per acre for acreage in Tyler County, West Virginia.

 

9. The AJDA is amended to replace each occurrence therein of “below the top of the Huran/Rhinestreet formation” or words of similar import with “below 650 feet above the top of the Onondaga.”

 

WITNESS THE EXECUTION HEREOF, as of the date first written above.

 

TRANS ENERGY, INC.,

 

a Nevada corporation

 

By:                                                            

 

Name:                                                            

 

Its:                                                                       

 

 

SANCHO OIL AND GAS CORPORATION,

 

a West Virginia corporation

 

By:                                                            

 

Name:                                                            

 

Its:                                                                       

 

 

884040v.13

  

  

  

PRIMA OIL COMPANY, INC.,

 

a Delaware corporation

 

By:                                                            

 

Name:                                                            

 

Its:                                                                       

 

 

REPUBLIC PARTNERS VI, LP,

 

a Texas limited partnership

 

By:       Republic Partners VI GP, LLC,

 

a Texas limited liability company,

 

its general partner

 

By:                                                      

 

John D. Swanson, President

 

 

884040v.13

  

  

  

SCHEDULE 1.2(c)

 

[List of Contracts]

 

Gas Gathering Agreement entered into the 20th day of November, 2009, effective, however, as of November 1, 2009, by and between Caiman Eastern Midstream LLC and Trans Energy, Inc.

 

 Schedule 1.2(c)

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SCHEDULE 1.2(d)

 

[Surface Rights]

 

None.

 

 Schedule 1.2(d)

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SCHEDULE 4.6

 

[Approved Title Exceptions]

 

Reservation by Sancho Oil and Gas Corporation of “Shallow Rights” as defined in that Partial Assignment of Oil and Gas Leases (Deep Rights Only) from Sancho Oil and Gas Corporation to Seller dated July __, 2010.

 

 Schedule 4.6

884040v.13

  

  

  

SCHEDULE 4.8

 

[Violations of Law]

 

None.

 

 Schedule 4.8

884040v.13

  

  

  

SCHEDULE 4.11

 

[Consents and Preferential Rights]

 

None.

 

Schedule 4.11

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SCHEDULE 6.3(c)(iii)

 

 

Schedule 6.3(c)(iii)

884040v.13

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