Document:

Exhibit 10.1

 

Execution Version

FARMOUT AGREEMENT

between

ERHC ENERGY KENYA LIMITED

and

CEPSA KENYA LIMITED

  

Relating to

Block 11A, Kenya

TABLE OF CONTENTS

 

	
CLAUSE 1  DEFINITIONS

	
4

	
 

	
 

	
CLAUSE 2  TRANSFER OF INTEREST

	
8

	
 

	
 

	
CLAUSE 3  CONDITIONS TO TRANSFER

	
10

	
 

	
 

	
CLAUSE 4  CONSIDERATION

	
15

	
 

	
 

	
CLAUSE 5  INTERIM PERIOD

	
22

	
 

	
 

	
CLAUSE 6  REPRESENTATIONS AND WARRANTIES OF THE PARTIES

	
24

	
 

	
 

	
CLAUSE 7  TAX

	
33

	
 

	
 

	
CLAUSE 8  CONFIDENTIALITY

	
35

	
 

	
 

	
CLAUSE 9  NOTICES

	
36

	
 

	
 

	
CLAUSE 10  LAW AND DISPUTE RESOLUTION

	
37

	
 

	
 

	
CLAUSE 11  FORCE MAJEURE

	
39

	
 

	
 

	
CLAUSE 12  DEFAULT

	
39

	
 

	
 

	
CLAUSE 13  GENERAL PROVISIONS

	
41

EXHIBITS:

	
A

	
Joint Operating Agreement – Main Principles

	
B

	
Transitional Agreement – Main Principles

	
C

	
Contract

	
D

	
Deed of Transfer Model Form

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FARMOUT AGREEMENT

THIS AGREEMENT is entered into on the 7th day of October 2013 by and between

ERHC ENERGY KENYA LIMITED, a company registered in Kenya and having its registered office at P.O Box 38649-00623, Nairobi, Kenya (hereinafter referred to as the “Farmor”); and

CEPSA KENYA LIMITED, a company organized and existing under the laws of Kenya and having its registered office at  P.O Box 10643-00100, Nairobi, Kenya (hereinafter referred to as the “Farmee”);

The companies named above, and their respective successors and assignees (if any), may sometimes individually be referred to as “Party” and collectively as the “Parties”.

WHEREAS, ERHC Energy (AGC Profond) Ltd (“ERHC Energy”), an Affiliate of the Farmor, entered into a Production Sharing Contract with the Government of the Republic of Kenya on 28 June 2012 (such agreement, as amended, is hereafter referred to as the “Contract”);

 

WHEREAS, ERHC Energy and the Farmor entered into a transfer agreement on 30 September 2013 wherein ERHC Energy transferred to the Farmor its Participating Interest in the Contract and the Farmor agreed to accept such Participating Interest (such transfer agreement being the “Contract Transfer”);

 

WHEREAS, the Farmor is willing to assign and transfer the Farmout Interest (as defined below) in and under the Contract to the Farmee in accordance with the terms set forth herein and Farmee wishes to acquire the same; and

 

WHEREAS, the Farmor is also willing to assign and transfer the Operatorship (as defined below) to the Farmee and the Farmee wishes to acquire the same;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations set out below and to be performed, the Farmor and Farmee agree as follows:

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CLAUSE 1

DEFINITIONS

 

As used in this Agreement, the following capitalized words and terms shall have the meaning ascribed to them below. Any capitalized term used in this Agreement and not specifically defined in this Agreement shall have the same meaning as in the Contract.

 

	1.1	Affiliate means a legal entity which Controls, or is Controlled by, or which is Controlled by an entity which Controls, a Party; where “Control” means the ownership directly or indirectly of more than fifty percent (50%) of the voting rights in a legal entity or the power, by contract or otherwise, to direct or cause the direction of the management or policies of a legal entity, and “Controls” and “Controlled by” shall be construed accordingly.

 

	1.2	Agreed Interest Rate means interest compounded on a monthly basis, at the rate per annum equal to the one (1) month term, London Interbank Offered Rate (LIBOR rate) for U.S. dollar deposits, as published in London by the Financial Times or if not published, then by The Wall Street Journal, plus one percent (1%), applicable on the first Working Day prior to the due date of payment and thereafter on the first Working Day of each succeeding calendar month.  If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such applicable law.

 

	1.3	Agreement means this Farmout Agreement together with the Exhibits, schedules and other attachments hereto, and any extension, renewal or amendment hereof agreed to in writing by the Parties.

 

	1.4	Appraisal Well has the meaning given to it in Clause 4.1(iii)(b).

 

	1.5	Attributable Costs has the meaning given to it in Clause 4.1(vi).

 

	1.6	Bank Guarantee has the meaning given to it in Clause 4.1(v).

 

	1.7	Carry Obligation has the meaning given to it in Clause 4.1(ii).

 

	
1.8

	Closing Date has the meaning given to it in Clause 3.4.

 

	1.9	Conditions has the meaning given to it in Clause 3.1.

 

	1.10	Consent means the prior written consent of the Government Representative to the transfer of the Farmout Interest and the Operatorship, in accordance with Clause 35(2) of the Contract.

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	1.11	Consent Date means the date on which the Government Representative provides its Consent.

 

	1.12	Contract has the meaning given to it in the Recitals hereto. A copy of the Contract is attached hereto as Exhibit C.

 

	1.13	Contract Area means the area of Petroleum Operations more particularly described in Appendix A to the Contract, as the same may be amended following any relinquishments thereunder or any other amendments thereto.

 

	1.14	Contract Transfer has the meaning given to it in the Recitals hereto.

 

	1.15	Consent Period has the meaning given to it in Clause 3.3(i).

 

	1.16	Consideration has the meaning given to it in Clause 4.1.

 

	1.17	Deed of Novation means the document to be entered into between ERHC Energy and the Farmor wherein ERHC Energy shall transfer by way of novation all its liabilities and obligations pursuant to and in respect of the Contract to the Farmor and the Farmor agrees to accept such liabilities and obligations.

 

	1.18	Deed of Transfer means the document by which the Farmout Interest and the Operatorship is transferred and conveyed to the Farmee or one of its Affiliates by the Farmor as provided hereunder.  The Deed of Transfer Model Form is attached hereto as Exhibit D.

 

	1.19	Defaulting Party has the meaning given to it in Clause 3.3(ii)

 

	1.20	Effective Date means the date of execution of this Agreement.

 

	1.21	EIA Project Report means the environmental impact assessment project report to be carried out by or on behalf of ERHC for the Block and to be submitted to NEMA for NEMA’s approval.

 

	1.22	ERHC Energy has the meaning given to it in the Recitals hereto.

 

	1.23	Exploratory Well has the meaning given to it in Clause 4.1(ii)(b)(1).

 

	1.24	Farm-in Fee has the meaning given to it in Clause 4.1(i).

 

	1.25	Farmor’s Guarantee has the meaning given to it in Clause 2.6(c)

 

	1.26	Farmout Interest means a fifty five percent (55%) Participating Interest in the Contract, representing sixty one point eleven percent (61.11%) of the Farmor’s Participating Interest in the Contract.

 

	1.27	First Attributable Costs has the meaning given to in Clause 4.1(vi).

 

	1.28	First Attributable Costs Letter of Credit means the letter of credit to be provided by the Farmor or an Affiliate to the Farmee to guarantee the repayment to the Farmee of the First Attributable Costs pursuant to Clause 3.3(vi).

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	1.29	Force Majeure has the meaning given to it in Clause 11.

 

	1.30	FTG Survey has the meaning given to it in Clause 4.1(vi)(b).

 

	1.31	Government means the Government of the Republic of Kenya and any political subdivision, agency or instrumentality thereof.

 

	1.32	Government Election has the meaning given to it in Clause 13.1(iv).

 

	1.33	Government Representative means the permanent secretary of the cabinet of the Minister of Energy of the Government or any other Government official authorised to approve the assignment of Farmout Interest under Clause 35(2) of the Contract.

 

	1.34	incurred as used in this Agreement shall be interpreted in accordance with the provisions of the Accounting Procedure attached to the JOA.

 

	1.35	Interim Period means the period commencing on the Effective Date and ending on the Closing Date or the date of the termination of this Agreement, whichever occurs sooner.

 

	1.36	JOA means the Joint Operating Agreement to be entered into between the Parties based substantially on the 2012 AIPN Model Form Joint Operating Agreement and incorporating the JOA Main Principles.

 

	1.37	JOA Main Principles means the main principles for the Joint Operating Agreement as attached hereto as Exhibit A.

 

	1.38	knowledge of a Party refers to the actual knowledge of each of the individuals comprising the management of that Party.

 

	1.39	Laws/Regulations means those laws, statutes, rules and regulations governing activities under the Contract.

 

	1.40	LCIA has the meaning given to it in Clause 10.2(ii).

 

	1.41	Minimum Work and Expenditure Obligations shall mean those work and expenditure obligations detailed in Clause 4 of the Contract.

 

	1.42	NEMA means the National Environment Management Authority of the Government.

 

	1.43	
Non-Transferring Party has the meaning given to it in Clause 13.1(i).

 

	
1.44

	
Operator means the entity designated to conduct operations in the Contract Area in accordance with the terms of the JOA, as referred to in the Contract.

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	1.45	Operator Requirements has the meaning given to it in Clause 2.4(ii).

 

	1.46	Operatorship has the meaning given to it in Clause 2.1(ii).

 

	1.47	Participating Interest  means (i) in relation to the Contract, as to any Party that is a party under the Contract the undivided interest of such party expressed as a percentage of the total interest of all parties in the rights and obligations in and under from the Contract; and (ii) in relation to the JOA, as to any party to the JOA,  the undivided interest of such party expressed as a percentage of the total interest of all parties in the rights and obligations in and under the JOA.

 

	1.48	Past Costs has the meaning given to it in Clause 4.1(iv).

 

	1.49	Parent Company Guarantee has the meaning given to it in Clause 4.1(v).

 

	1.50	Permits means all easements, permits, licences, certificates, servitudes, surface leases, rights-of-way and other rights pertaining to, or used or held for use in connection with the Contract and operations under the JOA.

 

	1.51	Post Closing Termination Right has the meaning given to it in Clause 4.3.

 

	1.52	Records means all Kenyan accounting records, tax records, agreements, documents, computer files and tapes, maps, books, records, accounts, geological, geophysical, reservoir and engineering data, environmental reports, studies and all other files of Farmor relating to the Farmout Interest, the Operatorship and the Contract. This definition shall not include any information, over which legal privilege would extend, Farmor's interpretation of the Records or managerial reports and decision-making documents.

 

	1.53	Retained Interest means the thirty five percent (35%) Participating Interest in the Contract, held by the Farmor after the transfer of the Farmout Interest.

 

	1.54	Rules has the meaning given to it in Clause 10.2(iii).

 

	1.55	Security means any parent company guarantee or any other guarantee which may be provided by a Party in favour of the Government, if so required by the Government, with respect to the discharge of its obligations under the Contract.

 

	1.56	Supplementary Attributable Costs has the meaning given to in Clause 4.1(vi).

 

	1.57	Supplementary Attributable Costs Letter of Credit means an letter of credit to be provided by the Farmor or an Affiliate to the Farmee to guarantee the repayment to the Farmee of any Supplementary Attributable Costs pursuant to Clause 3.3(vi). 

 

	1.58	3D Acquisition has the meaning given to it in Clause 4.1(ii)(b)(2).

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	1.59	Transferring Party has the meaning given to in Clause 13.1(iii).

 

	1.60	Transitional Agreement means the agreement to be entered into between the Parties, based on the Transitional Agreement Main Principles that provides for the conduct of operations between the Closing Date and the end of the Transitional Period.

 

	1.61	Transitional Agreement Main Principles means the main principles for the Transitional Agreement as attached hereto as Exhibit B

 

	1.62	Transitional Period has the meaning set out in Clause 2.5.

 

	1.63	Working Day means a day other than a Saturday, a Sunday or a day on which the banks are closed for business in (i) Nairobi, Kenya; (ii) Houston, Texas; or (iii) Madrid, Spain.

CLAUSE 2

TRANSFER OF INTEREST

  

	
2.1

	
Grant

 

Subject to the satisfaction of the Conditions, in exchange for the Consideration and pursuant to the terms and conditions of this Agreement, the Farmor shall assign and transfer to the Farmee, and the Farmee agrees to accept:

 

		(i)	the Farmout Interest; and

 

		(ii)	the character, rights and obligations of the Operator (such character, rights and obligations being the “Operatorship”).

 

	2.2	Binding Effect

 

The Farmor and the Farmee shall be bound by this Agreement on and from the Effective Date and shall fully perform all of their respective obligations under this Agreement.

 

	2.3	Ownership

 

After the transfer of the Farmout Interest, the Participating Interests in the Contract and the JOA shall be:

 

	
FARMEE (CEPSA)

	
55%  FARMOUT INTEREST

	
 FARMOR (ERHC)

	
35%  RETAINED INTEREST

	
GOVERNMENT

	
10%

	
TOTAL

	
100%

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	2.4	Operatorship

 

		(i)	After the transfer of the Operatorship in accordance with this Agreement, Farmee shall act as the Operator during each Exploration Period under the Contract.

 

		(ii)	The Parties acknowledge that whereas the formal transfer of the Operatorship would be made effective upon the Farmee complying with all of the requirements of Kenyan Laws/Regulations or of the Government to establish a local presence in Kenya to enable it to be the Operator (the “Operator Requirements”), the full transition of the Operatorship to the Farmee and the responsibility for carrying out or directing the exploration work program in the Contract Area would only be complete at the end of the Transitional Period.

 

	2.5	Transitional Period

 

The Parties agree that there will be a period from and including the Closing Date until a date to be agreed between the Parties to allow for the smooth transition of the Operatorship from the Farmor to the Farmee (the “Transitional Period”). The relationship between the Parties concerning the Block and the Petroleum Operations during the Transitional Period and the duration of such Transitional Period shall be governed by the Transitional Agreement.

 

	2.6	Effective Date and Interim Period

 

Notwithstanding the Consent Date and the Transitional Period, as of the Effective Date and during the Interim Period:

 

		(a)	the Farmee shall pay the Past Costs and the Attributable Costs in the manner described in Clause 4;

 

		(b)	the Farmee shall be deemed to own beneficially the fruits deriving from the Farmout Interest and the Operatorship in the same manner and with all of the same economic and legal rights, attributes and benefits, as if the Deed of Transfer had been executed and delivered. The Farmor shall hold such Farmout Interest and the Operatorship in trust for the exclusive benefit of the Farmee until the end of the Transitional Period, and shall exercise due diligence and good faith in taking all reasonable measures necessary to insure that the Farmee receives all economic and legal rights, benefits and attributes to which the Farmee is entitled;

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		(c)	upon receipt of the Consent the Farmee shall provide, to the Government, the Bank Guarantee and the Parent Company Guarantee (as referred to in Clause 4(7) of the Contract) provided that where the Farmor or an Affiliate has previously provided any such guarantee (“Farmor’s Guarantee”) the guarantees provided pursuant hereto by the Farmee shall replace the Farmor’s Guarantee which the Farmor shall then withdraw from the Government; and

 

		(d)	Operations in the Contract Area shall be carried out in the manner provided for in Article 5.

CLAUSE 3

CONDITIONS TO TRANSFER

  

	3.1	Conditions

 

The transfer of the Farmout Interest and the Operatorship is subject to the following conditions:

		(i)	the Parties having obtained the Consent;

 

		(ii)	the Parties having obtained the written consent of the Competition Authority of Kenya to the transfer of the Farmout Interest and the Operatorship;

 

		(iii)	the EIA Project Report having been approved by NEMA and written evidence of such approval having been received by ERHC and provided to CEPSA;

 

		(iv)	the Farmor having provided the Farmee with a full and complete copy of the Deed of Novation; and

 

		 (v)	the Farmor having obtained from the Government and provided to the Farmee either:

		(a)	a letter addressed to ERHC from the Government providing that the Contract is in full force and effect and that there has been no breach of applicable Kenyan Laws/Regulations resulting from the Contract having been in the name of a non-Kenyan registered entity prior to the Contract Transfer or, alternatively, if such breach of applicable Kenyan Laws/Regulations is outstanding that (1) the breach can be remedied or (2) that the Government will waive any further rights of enforcement with regard to such breach; or

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		(b)	a Certificate of Compliance from the Government confirming that as of the date of the Agreement the Farmor has complied with all applicable Kenyan Laws/Regulations with regard to the Contract and that there is no outstanding breach thereof,

provided that any such document obtained by the Farmor shall be reasonably satisfactory to CEPSA, with CEPSA acting reasonably at all times,

with each of the above being a “Condition” and together being the “Conditions”.

Subject to such terms, conditions, and obligations herein as are contingent upon the fulfillment of the Conditions, this Agreement and all the obligations of the Parties hereunder shall be effective as from the Effective Date, including but not limited to (a) the Farmor’s obligation to proceed with the transfer of the Farmout Interest and the Operatorship and (b) the Farmee’s obligation to pay the Past Costs and Attributable Costs as provided herein.

	3.2	Acts to be Performed

 

		(i)	Each Party shall use best endeavours to execute all documents, and do and procure to be done all such acts and things as are reasonably within its power, to ensure the Conditions are satisfied as soon as is reasonably practicable after the Effective Date, provided that with regard to the Condition referred to in Clause 3.1(v) the primary responsibility for obtaining either of the documents referred to therein shall be for the Farmor, subject at all times to the Farmee using its reasonable efforts to cooperate with the Farmor to ensure that the relevant document is received if the Farmor requests such cooperation from the Farmee.

		(ii)	As soon as practicably possible after the Effective Date, the Farmor and the Farmee shall duly execute as required under Kenyan Laws/Regulations those certificates and instruments necessary to formalize the transfer of both the Farmout Interest and the Operatorship, including but not limited to the Deed of Transfer, if required, and any Security, if required by the Government. The duly executed certificates and instruments shall be diligently submitted by the Farmor to the Government requesting the Consent.

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		(iii)	Promptly following the Effective Date the Farmor shall use commercially reasonable efforts to deliver to the Farmee all Records. The Farmor may retain copies of the Records. Use and disclosure of such Records by the Parties shall be subject to the confidentiality provisions set out under Clause 8 of this Agreement and under the JOA.

		(iv)	Each Party shall notify the other immediately upon the satisfaction of any Condition.

	3.3	Termination

 

		(i)	If the Conditions are not satisfied or waived by both Parties within a period of ninety (90) days from the Effective Date, or such longer period as the Parties may mutually agree to (the “Consent Period”), then either Party has the right to terminate this Agreement by giving notice to the other Party, provided that at the end of the Consent Period if either Party is aware that any Condition which has not been granted by the end of the Consent Period is likely to be satisfied within thirty (30) days of the end of the Consent Period and can provide written justification of such to the other Party (including, where appropriate all relevant written correspondence with the Government) the right of termination included in this Clause 3.3(i) shall not apply.

		(ii)	Notwithstanding the above, either Party may terminate this Agreement by notice to the other if the Conditions have not been satisfied as a result of the  failure of that other Party (the “Defaulting Party”) to fulfill in any material respect any undertaking or commitment given by the Defaulting Party in this Agreement, provided that such breach cannot be cured to the satisfaction of the non-defaulting party within a reasonable period from the date of the breach not to exceed forty five (45) days, or the Government has expressly denied Consent for any reason solely attributable to the  Defaulting Party.

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		(iii)	If the Government or any governmental authority imposes conditions for the Consent, including those imposing licence fees, transfer taxes/fees, royalties and bank guarantee requirements, in excess of those which are or have been usually imposed in similar circumstances or which Consent contains unusual or onerous conditions which either Party is not willing to accept, then the affected Party may terminate this Agreement on notice to the other Party without any further obligation or liability to the other Party.

		(iv)	If there are any material changes to the Laws/Regulations prior to the granting of the Consent which would have a material effect on the business of either Party or the Petroleum Operations to be undertaken in the Contract Area, then either Party may terminate this Agreement on notice to the other Party without any further obligation or liability to the other Party.

		(v)	In the event of any termination pursuant to this Clause 3.3 the proposed transfer of the Farmout Interest and the Operatorship shall terminate, shall be rendered void and shall have no force and effect and Farmee shall have no interest whatsoever in the Contract and neither the payment of the Farm-in Fee by the Farmee or the provision of the Bank Guarantee and the Parent Guarantee by the Farmee shall be due.

		(vi)	Provided that upon either Party’s termination of this Agreement in accordance with Clause 3.3 the Farmee is neither a Defaulting Party nor otherwise in breach of its material obligations under this Agreement, the Farmor shall repay both the Past Costs and any of the Attributable Costs paid by the Farmee to the Farmor as of the date of such termination.  In addition to the above, in the event that the Farmor is the Defaulting Party and the Farmee exercises its rights to terminate this Agreement under Clause 3.3(ii), the Farmor shall repay both the Past Costs and any of the Attributable Costs paid by the Farmee to the Farmor as of the date of such termination plus any accrued interest thereon at the Agreed Interest Rate within thirty (30) days of the date of the termination right by wire transfer into the bank account notified in writing by the Farmee to the Farmor.  The Parties agree that to guarantee the refund to the Farmee of the Atributable Costs , the Farmor or an Affiliate shall provide in accordance with Clause 4.2(v):

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		(a)	the First Attributable Costs Letter of Credit for the repayment of the First Attributable Costs; and

		(b)	for the repayment of any Supplementary Attributable Costs, a Supplementary Attributable Costs Letter of Credit.

		(vii)	Notwithstanding the previous provisions of this Clause 3.3, in the event that any Condition is not satisfied or waived, prior to either Party exercising any right to terminate this Agreement, such Party shall provide the other Party an opportunity within forty-five (45) days of receiving such notice of termination to remedy the matter or circumstance being the cause of such non-satisfaction or non-waiver, if such matter or circumstance is capable of such remedy.

	3.4	Satisfaction of Conditions and Closing Date

 

Within five (5) Working Days of the date on which all of the Conditions have been satisfied or waived, the closing of the transfer of the Farmout Interest shall occur at a location to be agreed between the Parties (the date of such closing being the “Closing Date”).  At the Closing Date:

 

		(i)	the Parties shall execute the Deed of Transfer; and

 

		(ii)	the Farmee shall make the payments of the Farm-in Fee.

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CLAUSE 4

CONSIDERATION

 

	4.1	Consideration

 

As total consideration (the “Consideration”) for the transfer of the Farmout Interest and the Operatorship, the Farmee agrees to bear and pay the following:

		(i)	Farm-in Fee

 

The Farmee shall pay to the Farmor or an Affiliate a one-off payment in cash as a farm-in fee in the amount of two million United States Dollars (US$2,000,000) net of any documentary stamp tax, sales, use, real property, goods and services or value added registration taxes, withholding tax or any transfer tax/fees (the “Farm-in Fee”).

	 	(ii)	Carry Obligation

 

The Farmee shall pay and bear a carry obligation (the “Carry Obligation”) of:

		(a)	one hundred percent (100%) of the Farmor’s costs, expenses, expenditure and liabilities during the Initial Exploration Period chargeable to the joint account under the JOA whether subject to the Contract or otherwise which is attributable to Farmor’s Retained Interest;

		(b)	provided that by the end of the Initial Exploration Period the Farmee has neither exercised its Post Closing Termination Right nor any termination right pursuant to the Contract, seventy five percent (75%) of the costs incurred by the Farmor either to:

		(1)	drill one (1) exploration well to a depth of 3,000m (an “Exploratory Well”); or

		(2)	acquire seven hundred and fifty square kilometres (750km2) of 3D seismic data (the “3D Acquisition”),

- 15 -

during the First Additional Exploration Period in accordance with Clause 4(1)(b) of the Contract;

		(c)	provided that (1) no Exploratory Well has been drilled during the First Additional Exploration Period and (2) the Parties have agreed to proceed to a Second Additional Exploration Period, hundred percent (100%) of the costs incurred by Farmor for any Exploratory Well drilled by the Parties during any such Second Additional Exploration Period; and

		(d)	the Farmor’s carry obligations to the Government pursuant to the Contract with regard to the activities referred to in sub-clauses (a) to (c) of this Clause 4.1(ii).

For the avoidance of doubt, the Carry Obligation:

		(1)	shall be nominated only to the Farmor, borne by the Farmee for the Farmor’s costs, expenses, expenditures, liabilities and obligations referred to in paragraphs (a) to (d) of this Clause 4.1(ii) and shall not be borne by the Farmee for costs, expenses, expenditures, liabilities and obligations of any third party, including any third party transferee to whom the Farmor transfer any portion of its Retained Interest;

 

		(2)	shall only apply to activities during the Initial Exploration Period and the First Additional Exploration Period as listed in sub-clauses (a) to (d) of this Clause 4.1(ii); and

 

		(3)	shall not exceed twenty million five hundred thousand United States Dollars (US$20,500,000).

		(iii)	Costs of the Appraisal Well

 

Provided that the Farmee decides at its own discretion, following its analysis and evaluation of the Exploratory Well or the 3D Acquisition, that sufficient hydrocarbons exist to justify:

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		(a)	the declaration of a commercial project pursuant to the Contract; and

 

		(b)	the drilling of an appraisal well (the “Appraisal Well”),

 

the Farmee shall pay one hundred percent (100%) of the costs, expenses, expenditure and liabilities incurred by the Parties for such Appraisal Well.

		(iv)	Past Costs:

 

The Farmee, either directly or through an Affiliate, shall pay to the Farmor or an Affiliate:

 

		(a)	three hundred and ten thousand United States Dollars (US$310,000) representing a refund of the Signature Bonus as referred to in Clause 5(1) of the Contract paid by the Farmor to the Government on the signature of the Contract;

 

		(b)	sixteen thousand and seventy three United States Dollars (US$16,073) representing a refund of the costs of data acquisition incurred by the Farmor prior to the Effective Date;

		(c)	fifty four thousand five hundred and sixty nine United States Dollars (US$54,569) representing a refund of the costs for the surface fees incurred by the Farmor pursuant to Clause 5(2) of the Contract prior to the Effective Date; and

		(d)	one hundred and seventy five thousand United States Dollars (US$175,000) representing a refund of the costs for the Ministry Training Fund incurred by the Contractor under Clause 13(2) of the Contract prior to the Effective Date.

The costs referred to in sub-paragraphs (a) to (d) of this Clause 4.1(iv) shall be the “Past Costs”.

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	 	(v)	Provision of a Bank Guarantee and Parent Company Guarantee

 

The Farmee shall provide the bank guarantee to the Government referred to in Clause 4(7) of the Contract covering fifty percent (50%) of the minimum work and expenditures described in sub-clause 4(1) of the Contract (the “Bank Guarantee”), and provide the parent company guarantee to the Government referred to in Clause 4(7) of the Contract covering fifty percent (50%) of the minimum work and expenditures described in sub-clause 4(1) of the Contract (the “Parent Company Guarantee”).

	 	
(vi)

	
Payment of Attributable Costs

 

Subject at all times to the provisions of Clause 3.3(vi), upon the receipt of the appropriate invoices from the Farmor, the Farmee, either directly or through an Affiliate, shall pay the following to the Farmor or an Affiliate in accordance with Clause 4.2(v):

		(a)	One hundred and five thousand one hundred and eighty-six United States Dollars (US$105,186) representing the payments for the EIA Project Report, including the costs associated with the commissioning of such EIA Project Report, its submission to NEMA, the NEMA license fee, the advertisement to be placed in a Kenyan newspaper notifying the start of the EIA and the stakeholders’ meeting or meetings;

		(b)	Two million twenty four thousand four hundred and sixty United States Dollars (US$2,024,460) representing the costs associated with the contract for the FTG Airborne Geophysical Survey (the “FTG Survey”) for the Block signed with Bellgeo Enterprises Limited;

		(c)	Forty six thousand three hundred and twenty United States Dollars (US$46,320) representing the costs associated with the quality control services for the FTG Survey to be provided by Bridgeporth Limited; and

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		(d)	all costs preapproved by the Farmee and incurred by the Farmor attributable to or arising in carrying out the Contract’s work programme and performing the Contractor’s obligations under the Contract, including the Minimum Work Obligations, provided that the Farmor delivers to the Farmee’s satisfaction, with the Farmee acting reasonably at all times, all of the appropriate documentation justifying the payment of such costs.

In this Clause 4.1(vi):

	 	(i)	the costs referred to in sub-paragraphs (a) to (c) shall be the “First Attributable Costs”; and

  

	 	(ii)	the costs referred to in sub-paragraph (d) shall be the “Supplementary Attributable Costs”,

with the First Attributable Costs and the Supplementary Attributable Costs together being the “Attributable Costs”.

	
4.2

	
Payments

 

		 (i)	Upon the JOAbecoming effective, the Farmor shall pay or bear the Carry Obligation on the basis of periodic computations of expenditure under the Carry Obligation expressed in cash calls issued by the Farmee to the Farmor according to the procedures established in the JOA. Upon the Farmee becoming the Operator, the Farmee shall periodically issue and send to both Parties the necessary cash calls as required for Joint Operations under the JOA. The cash calls will be borne one hundred percent (100%) by the Farmee, until the Farmee’s obligations with regard to the Carry Obligation have been satisfied. Thereafter, cash calls will be borne by each Party in proportion to their Participating Interest.  Without prejudice to the foregoing, the Party who is the Operator for the time being shall provide the other Party (the “Other Party”), within thirty (30) days of demand by the Other Party, an account of actual expenditure made with regard to the Carry Obligation.

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		(ii)	Payment of the Past Costs shall be made on the Effective Date by wire transfer into the bank account notified in writing by the Farmor to the Farmee.

		(iii)	Payment of the First Attributable Costs shall be made on the Effective Date by wire transfer into the bank account notified in writing by the Farmor to the Farmee.

		(iv)	Payment of the Supplementary Attributable Costs shall be made within ten (10) Working Days of the receipt by the Farmee of the appropriate invoices for such Supplementary Attributable Costs and any other documentation as reasonably requested by the Farmee to the bank account notified in writing by the Farmor to the Farmee, provided that the payment by the Farmee of any Supplementary Attributable Costs, shall be subject to the Farmor or an Affiliate providing to the Farmee a Supplementary Attributable Costs Letter of Credit in accordance with Clause 4.2(v).

		(v)	Payment of the Farm-in Fee shall be made on the Closing Date by wire transfer into the bank account notified in writing by the Farmor to Farmee.

		(vi)	The Farmor or an Affiliate shall provide:

		(a)	the First Attributable Costs Letter of Credit to the Farmee on the Effective Date.

		(b)	for any Supplementary Attributable Costs, a Supplementary Attributable Costs Letter of Credit to the Farmee on the same date that the Farmor provides to the Farmee all appropriate invoices for such Supplementary Attributable Costs and any other documentation as reasonably requested by the Farmee.

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	4.3	Termination Right

 

		(i)	Following the Consent Date, the Farmee shall retain a right, to be exercised at its sole discretion and considering the results of the Petroleum Operations carried out during the Initial Exploration Period to terminate the Agreement at the end of the Initial Exploration Period (the “Post Closing Termination Right”).

		(ii)	If the Farmee exercises its Post Closing Termination Right, or any other right pursuant to the Contract Farmor agrees to repurchase from Farmee, and Farmee agrees to sell, assign, and transfer re-sell to the Farmor the Farmout Interest free of all costs and encumbrances and the Operatorship for US$1.  The Farmee shall bear all income, profits, capital gains, withholding or transfer taxes/fees imposed with regard to the transfer pursuant to this Clause 4.3 of the Farmout Interest and/or the Operatorship.  The Parties further agree  that if Farmee elects to exercise its Post Closing Termination Right and re-sells to Farmor the Farmout Interest and the Operatorship and withdraw entirely from the this Agreement and the JOA after the completion of the Initial Exploration Period, any preemption rights, preferential purchase rights, or similar provisions shall not apply to the Farmout Interest.  Provided that the Farmee has by the date of the exercise of the Post Closing Termination Right complied with the Minimum Work and Expenditure Obligations the Farmee shall have no further liability to the Farmor, and the Farmee shall have no interest whatsoever in the Contract and shall be deemed to have transferred to the Farmor any rights or equitable interest it may have acquired under this Agreement. If the Farmee has not complied with the Minimum Work and Expenditure Obligations at the date of the exercise of the Post Closing Termination Right than it shall indemnify the Farmor for any costs, expenditures, and legal fees that the Farmor may incur to comply with the Minimum Work and Expenditure Obligations pursuant to Clause 4 of the Contract.

	4.4	Apportionment of Liability

 

Except as otherwise provided in this Agreement:

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		(i)	Subject to the Farmee’s obligations under Clause 4, the Farmor shall be liable for all damages, losses, costs, claims, expenses, liabilities and obligations attributable to the Farmout Interest in respect of all periods prior to the Effective Date and the Farmee shall be liable for all such damages, losses, costs, claims, expenses, liabilities and obligations so attributable thereafter, all in accordance with the provisions of the JOA and this Agreement.

 

		(ii)	Subject to the Farmee’s obligations under Clause 4, the Farmor shall be entitled to all income, receipts, rebates and other amounts attributable to the Farmout Interest in respect of the period prior to the Effective Date and the Farmee shall be entitled to all income, receipts, rebates and other amounts so attributable thereafter, all in accordance with the provisions of the JOA and this Agreement.

CLAUSE 5

INTERIM PERIOD

 

	5.1	Farmor Obligations

 

During the Interim Period, the Farmor shall continue to meet all of its material obligations under the Contract, agree to be bound by the terms of the JOA as if the same were in effect and shall comply with the following:

 

		(i)	Material Developments

 

The Farmor shall promptly notify the Farmee and provide details upon the occurrence of: (a) any written notice of default or termination received or given by the Farmor with respect to the Contract, (b) any written notice of any pending or threatened claim, demand, action, suit, inquiry or proceeding related to the Farmor or the Contract, or (c) any event or condition between the Effective Date and the Consent Date that (i) would have a material adverse effect on the business, operations, financial condition or results of operations under the Contract, taken as a whole, or (ii) would render impossible the Farmee’s right to the transfer contemplated herein.

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		(ii)	Material Decisions

The Farmor agrees to consult with the Farmee before the taking of any material decisions under the Contract until the end of the Transitional Period.

 

		(iii)	Contract

 

The Farmor agrees to maintain in full force and effect the Contract, comply fully with its obligations under the Contract and not amend or waive any material rights thereunder without the Farmee’s consent.

	5.2	Mutual Obligations

 

During the Interim Period the Farmee and the Farmor shall comply with each of the following undertakings:

 

		(i)	Each Party, as applicable, agrees to use reasonable endeavors to satisfy, in an expeditious manner, the Conditions.

 

		(ii)	The Parties shall not take any action nor fail to take any action prior to the Consent Date that would result in a breach of any of its representations and warranties under this Agreement.

	5.3	Interim Period Committee

 

During the Interim Period, the Parties shall establish an Interim Period coordination committee, with a maximum of three (3) representatives from each of the Farmor and the Farmee, to coordinate the activities of both Parties hereto in relation to the Contract, the Contract Area and the Operations to be carried out thereon.

	5.4	JOA

 

During the Interim Period, the Parties agree to negotiate in good faith and execute the JOA.

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	5.5	Transitional Agreement

 

During the Interim Period, the Parties agree to negotiate in good faith and execute the Transitional Agreement based upon the Transitional Agreement Main Principles listed in Exhbit B hereto not later than the Closing Date.  Until the execution of the Transitional Agreement, the Parties shall comply with the Transitional Agreement Main Principles.

CLAUSE 6

REPRESENTATIONS AND WARRANTIES OF THE PARTIES

 

	6.1	Farmor’s Representations and Warranties

 

The Farmor makes the following representations and warranties to the Farmee as of the Effective Date:

 

		(i)	Farmor’s Rights

 

The Farmor holds the rights to a ninety percent (90%) undivided Participating Interest in the Contract, free and clear of any liens, claims, burdens or encumbrances, other than the liens, claims, burdens or encumbrances in favour of the Government or according to the terms of the Contract, and applicable Laws/Regulations. The Contract is in full force and effect and no notice of default, termination, or breach under the Contract has been received by the Farmor or, to the knowledge of the Farmor, any other party to the Contract. No event has occurred or failed to occur which constitutes, or which, with the giving of notice or the passage of time or both, would constitute a material default, violation or breach under the Contract. To the knowledge of the Farmor, no other party to the Contract has given or threatened to give notice of any action to alter, terminate or rescind such Contract or to procure a judicial reformation thereof.  The Contract, the Security, relevant Permits, together with applicable Laws/Regulations, contain the entirety of the obligation of the Farmor to the Government, and no other understanding or agreement exists between the Farmor and the Government in relation to the subject matter of the Contract except as otherwise disclosed under this Agreement.

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		(ii)	Documents

 

The Farmor has provided the Farmee with complete and correct copy of the Contract and its appendices. Where the Farmor has provided any translation of a document, the Farmor has done so as a courtesy to the Farmee and the Farmor makes no representation or warranty as to the accuracy of the translation.

		(iii)	Claims and Litigation

 

There are no claims, demands (including any demand under the Security), actions, suits, governmental inquiries, or proceedings pending or to the Farmor’s knowledge threatened in connection with the Contract, which would have an adverse effect upon the consummation of the transactions contemplated by this Agreement.

 

		(iv)	Broker Fees and Payments

 

The Farmee shall not directly or indirectly have any responsibility, liability, or expense as a result of undertakings or agreements of the Farmor for fees, finder’s fees, agent’s commissions, performance payments or other similar forms of compensation in connection with this Agreement.

 

		(v)	Financial and Accounting

 

All books of account and other Records of the Farmor related to the Contract, whether of a financial or accounting nature, have been maintained in accordance with generally accepted accounting principles, procedures and methods.

 

		(vi)	Business

 

To the best of the Farmor’s knowledge, the Farmor’s business with respect to the Contract has been conducted, operated and maintained, in compliance in all material respects with all applicable Laws/Regulations (including those relating to the protection of the environment) and the Contract.

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		(vii)	Authorizations

 

To the best of the Farmor’s knowledge, the Farmor has obtained and is maintaining all authorizations of the Government that are necessary or required in connection with operations under the Contract and the JOA and the Contract has been operated in accordance with the conditions and provisions of all such authorizations and in compliance with all obligations thereunder or imposed thereby, and no notices of violation have been received by the Farmor or, to the Farmor’s knowledge, any third party, and no proceedings are pending or, to the Farmor’s knowledge, threatened that might result in any modification, revocation, termination, or suspension of any such authorizations of the Government or which would require any corrective or remediation action by the Farmor.

 

		(viii)	Intellectual Property

 

The Farmor possesses all necessary rights or licenses to with respect to any intellectual property used by it in operations under the Contract.   The execution of this Agreement and consummation of the transactions contemplated by this Agreement will not affect the validity, continuation, or effectiveness of any such rights or licenses on their present terms. The Farmor has received no notice, and has no knowledge of, any infringements or unauthorized or unlawful use of such intellectual property by the Farmor or any allegation that the Farmor’s use of such intellectual property has infringed similar properties of others.

 

		(ix)	Force Majeure

 

There is no event, condition, or circumstance currently ongoing or present, or reasonably expected, with respect to performance of rights or obligations which constitutes Force Majeure under the Contract.

 

		(x)	No Option or Pre-emption Rights

 

No person has any call upon, option to purchase, or similar right to obtain production from or attributable to the Contract, or to acquire any of the assets which are subject to the Contract from the Farmor, other than such rights as the Government may have pursuant to the Contract and/or Laws/Regulations and the rights of the Farmee pursuant to this Agreement.

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		(xi)	Payments and filings under the Contract

 

All payments, costs and fees required to be paid by the Farmor under the Contract have been made by the Farmor and all regulatory filings and registrations required under the Contract have been made correctly by the Farmor as and when due under the Contract.

 

		(xii)	Tax and customs exemptions

 

To the best of the Farmor’s knowledge, each of the tax and customs exemptions referred to in the letter from the Minister of Finance of the Government to the Minister of Energy of the Government dated 24 December 2012 have been obtained validly and that there are no other tax or customs exemptions to which the Farmor may benefit and any tax due and payable by the Farmor as at the Effective Date has been paid by the Farmor.

 

		(xiii)	Security

 

To the best of the Farmor’s knowledge, no event, condition or circumstances incorporating any threats to the security of the Contract Area, the Operations to be undertaken at the Contract Area, the Farmor’s employees, the Farmor’s consultants, the Farmor’s representative office in Kenya or the equipment or assets at the Contract Area or the Farmor’s representative office has occurred, is currently ongoing or is reasonably likely to occur.

 

		(xiv)	Land

 

To the best of the Farmor’s knowledge, no private land owners have any rights over any part of the Contract Area, no claims exist or are likely to be brought by any third parties with regard to any part of the Contract Area and the Contractor will not need to enter into agreements with private land owners to allow the Petroleum Operations to be undertaken on the Contract Area.

	6.2	Farmee’s Representations and Warranties

 

The Farmee makes the following representations and warranties to the Farmor as of the Effective Date:

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		(i)	Claims and Litigation

 

There are no claims, demands, actions, suits, governmental inquiries, or proceedings pending, or to the Farmee’s knowledge, threatened, against the Farmee which would have an adverse effect upon the consummation of the transactions contemplated by this Agreement.

 

		(ii)	Financing

 

The Farmee has sufficient cash, available lines of credit or other sources of immediately available funds to enable it to fulfill all of its obligations under this Agreement, including its payment obligations under Clause 4.1 hereof, as well as its obligations as a party under the Contract and as a party under the JOA.

 

		(iii)	Technical Capability

 

The Farmee has the technical capability, personnel and resources to fulfill its obligations as Operator.

	6.3	Mutual Representations and Warranties

 

The Parties make the following representations and warranties to each other as of the Effective Date:

 

		(i)	Corporate Authority

 

Each Party is duly organized and validly existing under the laws of the country where it is organized.  To the extent required, each Party is qualified to conduct business in the jurisdiction as necessary to perform the Contract and the JOA. Each Party has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby.  This Agreement has been duly executed and delivered by each Party and constitutes a legal, valid and binding obligation of each Party, enforceable against each Party in accordance with its terms.

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		(ii)	Improper Payments

 

Each Party warrants that it and its Affiliates and any of their respective directors, officers, employees or agents acting on behalf of such Party have not made, offered, or authorized and will not make, offer, or authorize with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether directly or through any other person or entity, to or for the use or benefit of any public official (i.e., any person holding a legislative, administrative or judicial office, including any person employed by or acting on behalf of a public agency, a public enterprise or a public international organization) or any political party or political party official or candidate for office, where such payment, gift, promise or advantage would violate (i) the applicable laws of the United States of America, Spain, and Kenya (ii) the laws of the country of incorporation of such Party or such Party’s ultimate parent company and of the principal place of business of such ultimate parent company; or (iii) the principles described in the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed in Paris on December 17, 1997, which entered into force on February 15, 1999, and the Convention’s Commentaries.  Each Party agrees to (i) maintain adequate internal controls, (ii) properly record and report all transactions, (iii) comply with the laws applicable to it and (iv) respond in reasonable detail to any written notice from the other Party reasonably connected with the above-stated warranty.  No Party is in any way authorized to take any action on behalf of another Party that would result in an inadequate or inaccurate recording and reporting of assets, liabilities or any other transaction, or which would put such Party in violation of its obligations under the laws applicable to the operations under this Agreement.

		(iii)	Other Representations and Warranties

 

The execution, delivery, and performance of this Agreement by each Party, the consummation of the transactions contemplated hereby, and the compliance with the provisions hereof will not, to the best of each Party’s knowledge and belief:

 

(a)            Violate any applicable Laws/Regulations, judgment, decree or award;

 

(b)            Contravene the organization documents of a Party; or

 

(c)            Result in a violation of a term or provision, or constitute a default or accelerate the performance of an obligation under any contract or agreement executed by a Party hereto.

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6.4

	
Repetition of Representations and Warranties

 

All representations and warranties given under this Clause 6 shall be deemed repeated and valid, true and correct as of the Closing Date, and each Party agrees to inform the other Party of any material changes to the facts in the representations and warranties prior to the Closing Date.

	6.5	Disclaimer of Other Representations and Warranties

 

Except for the representations and warranties provided in this Clause, the Farmor and the Farmee make no, and disclaim all liability for any, warranty or representation of any kind, either express, implied, statutory, or otherwise, including, without limitation, any warranty or representation with respect to:

 

		(i)	the accuracy or completeness of any data, reports, Records, projections, information, or materials now, heretofore, or hereafter furnished or made available to the Farmee in connection with this Agreement, and

 

		(ii)	the existence of prospects or their geographical, geological or geophysical characteristics, the existence, quality or recovery rate of hydrocarbons or the future investments, costs and revenues for the development or exploitation of reserves.

 

Furthermore, the Parties acknowledge that the transfer of the Farmout Interest and the Operatorship and the payment of the Consideration are not subject to the results of operations to be carried out during the Interim Period.

	6.6	Limitations

 

The representations and warranties made in Clause 6.1 to Clause 6.3 inclusive shall:

 

		(i)	survive until the expiry of twelve (12) months after the Consent Date and shall thereafter be of no further force and effect except with respect to matters that have been the subject of a bona fide written claim asserted pursuant to this Agreement prior to the expiry of the said twelve (12) month period; and

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		(ii)	not give rise to any claim or claims for damages by a Party except to the extent the aggregate amount of damages claimed by that Party pursuant to this Clause 6.6 exceeds one million United States Dollars (US$1,000,000) and provided that neither Party shall in any circumstances have any liability to the other Party for damages in excess of a sum equal to one hundred percent (100%) of the amount of the Consideration.

6.7            General Indemnity

Subject to Clause 6.5:

 

		(i)	Each Party shall defend, indemnify and hold the other Parties harmless from any and all claims, damages, losses, penalties, costs and expenses arising from or related to, any breach by such Party in respect of the warranties made in Clause 6.3(ii) hereof.  Such indemnity obligation shall survive termination or expiration of this Agreement.

 

		(ii)	The Farmor:

 

		(A)	shall be liable to the Farmee for the Farmee’s losses; and

 

		(B)	as a separate covenant shall indemnify and save Farmee harmless from and against all losses that may be brought against it or which it may otherwise suffer, sustain, pay or incur;

 

as a direct result of or arising out of, resulting from, attributable to, or connected with:

 

		(A)	any misrepresentation or breach of a representation, warranty or covenant of the Farmor contained herein; provided, however, that nothing in this Clause 6.7 shall be construed so as to cause the Farmor to be liable to the Farmee or to indemnify the Farmee or its representatives in connection with any misrepresentation or breach of any such representation, warranty or covenant if and to the extent that the Farmee or its representatives had express knowledge thereof prior to the Closing Date; or

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		(B)	any event of fraud by the Farmor in connection with the transaction;

 

except any losses insofar as they are caused by a breach of the Farmee`s representations, warranties or covenants contained herein for which the Farmee is liable to indemnify the Farmor or by the gross negligence, fraud or wilful misconduct of either the Farmee or any of its representatives.

 

		(iii)	The Farmee:

 

		(A)	shall be liable to the Farmor for the Farmor's losses; and

 

		(B)	as a separate covenant shall indemnify and save the Farmor harmless from and against all losses that may be brought against it or which it may otherwise suffer, sustain, pay or incur;

 

as a direct result of or arising out of, resulting from, attributable to, or connected with:

 

		(A)	any misrepresentation or breach of a representation, warranty or covenant of the Farmee contained herein, provided, however, that nothing in this Clause 6.7 shall be construed so as to cause the Farmee to be liable to the Farmor or to indemnify the Farmor or its representatives in connection with any misrepresentation or breach of such representation, warranty or covenant if and to the extent that the Farmor or its representatives had express knowledge thereof prior to the Closing Date;

 

		(B)	any event of fraud by Farmee in connection with the transaction; and

 

		(C)	the assets, but only to the extent arising or accruing from and after the Closing Date;

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except any losses insofar as they are caused by a breach of the Farmor's representations, warranties or covenants contained herein for which the Farmor is liable to indemnify the Farmee, or by the gross negligence, fraud or wilful misconduct of either the Farmor or its representatives.

 

		(iv)	Except as otherwise provided in Clause 6.7(i), from and after the Consent Date, this Clause 6.7 contains the Parties’ exclusive remedy against each other with respect to breaches of the representations, warranties, covenants, and agreements of the Parties that occur prior to the Consent Date.  Except with regard to the warranties in Clause 6.3(ii), any claim for indemnity hereunder must be made prior to the expiry of twelve (12) months from the Consent Date.

 

		(v)	The indemnity to which each Party is entitled under this Clause 6.7 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 Clause 6.7 by any such Affiliate, director, officer, employee or agent must be brought and administered by the applicable Party to this Agreement.

CLAUSE 7

TAX

 

	
7.1

	
Tax Obligations

 

		(i)	The Farmee shall bear all documentary stamp tax, sales, use, real property, goods and services or value added registration taxes or any transfer tax/fees imposed on the transfer of the Farmout Interest and/or the Operatorship which are not levied on the income, capital gain or profit resulting from the transfer of the Farmout Interest and/or the Operatorship.

 

		(ii)	With the exception of any income, profits, capital gains or withholding taxes imposed on the Farm-in Fee which shall be borne by the Farmee, the Farmor shall bear all income, profits, capital gains or withholding taxes imposed with regard to the transfer of the Farmout Interest and/or the Operatorship.

 

		(iii)	All sums referred to in this Agreement, in whatever currency, are stated exclusive of any taxes.

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		(iv)	Each Party shall be responsible for reporting and discharging its own tax measured by its own profit or income of the Party and the satisfaction of such Party’s share of all contract obligations under the Contract, the JOA and under this Agreement.  Each Party shall protect, defend and indemnify the other Party from any and all loss, cost or liability arising from the indemnifying Party’s failure to report and discharge such taxes or satisfy such obligations.  The Parties intend that all income and all tax benefits (including deductions, depreciation, credits and capitalization) with respect to the expenditures made by the Parties hereunder will be allocated to the Parties based on the share of each tax item actually received or borne by each Party.  If such allocation is not accomplished due to the application of the Laws/Regulations or other Government action, the Parties shall attempt to adopt mutually agreeable arrangements that will allow the Parties to achieve the financial results intended.  The Parties (where one is the Operator) shall, or (where neither is Operator) shall seek to procure that Operator shall, provide each Party, in a timely manner and at such Party’s sole expense, with such information with respect to Joint Operations as such Party may reasonably request for preparation of its tax returns or responding to any audit or other tax proceedings.

 

		(v)	United States Tax Election. If, for United States federal income tax purposes, this Agreement and the operations under this Agreement are regarded as a partnership, the Parties have agreed not to form a tax partnership.  Each Party elects to be excluded from the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle “A” of the United States Internal Revenue Code of 1986, as amended (the “Code”), to the extent permitted and authorized by Section 761(a) of the Code and the regulations promulgated under the Code.  Operator, if it is a U.S. Party, is authorized and directed to execute and file for each Party such evidence of this election as may be required by the Internal Revenue Service, including all of the returns, statements, and data required by United States Treasury Regulations Sections 1.761-2 and 1.6031(a)-1(b)(5) and shall provide a copy thereof to each U.S. Party.  However, if Operator is not a U.S. Party, the Party who holds the greatest Participating Interest among the U.S. Parties shall fulfill the obligations of Operator under this Article.  Should there be any requirement that either Party give further evidence of this election, each Party shall execute such documents and furnish such other evidence as may be required by the Internal Revenue Service or as may be necessary to evidence this election. Neither Party shall give any notice or take any other action inconsistent with the foregoing election.  If any income tax laws of any state or other political subdivision of the United States or any future income tax laws of the United States or any such political subdivision contain provisions similar to those in Subchapter “K”, Chapter 1, Subtitle “A” of the Code, under which an election similar to that provided by Section 761(a) of the Code is permitted, each Party shall make such election as may be permitted or required by such laws.  In making the foregoing election or elections, each U.S. Party states that the income derived by it from operations under this Agreement can be adequately determined without the computation of partnership taxable income. Unless approved by every Non-U.S. Party, no activity shall be conducted under this Agreement that would cause any Non-U.S. Party to be deemed to be engaged in a trade or business within the United States under United States income tax laws and regulations.

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CLAUSE 8

CONFIDENTIALITY

 

	8.1	Each Party agrees that the terms of this Agreement and all information disclosed under this Agreement, except information that is publicly available or lawfully in possession of a Party prior to the date of execution hereof, shall be considered confidential and shall be held confidential on the same terms and for the same period as set out in the JOA.

 

	8.2	All data and information received by the Farmee under the Confidentiality Agreement between the Farmor and Farmee dated 10 October 2012 shall be held on the terms set out in this Clause 8.

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CLAUSE 9

NOTICES

 

All notices authorized or required between the Parties by any of the provisions of this Agreement shall be in writing (in English) and delivered in person or by courier service or by any electronic means of transmitting written communications which provides written confirmation of complete transmission, and properly addressed to the other Party.  Oral communication does not constitute notice for purposes of this Agreement, and, except as hereinabove provided for electronic transmission of written communications, e-mail addresses for the Parties are listed below as a matter of convenience only.  A notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received.  “Received” for purposes of this Clause shall mean actual delivery of the notice to the address of the Party specified hereunder.

If to the Farmor:

Name:  ERHC Energy Kenya  Limited.

Address: c/o ERHC Energy, Inc.

c/5444 Westheimer Road, Ste. 1440

Houston, Texas 77056

USA

Attention:  Sylvan Odobulu

Telephone:  +713 554 3061

Email: slyodobulu@erhc.com

If to the Farmee:

Name: CEPSA Kenya Limited

Address:  c/o Compañía Española de Petróleos, S.A.U

Ribera del Loira, 50

28042 Madrid, Spain

Attention:  Jagoba Cubes

Telephone:  +34 91 337 7355

E-Mail:  jagoba.cubes@cepsa.com

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CLAUSE 10

LAW AND DISPUTE RESOLUTION

 

	
10.1

	
Governing Law

 

The substantive laws of England and Wales, exclusive of any conflicts of laws principles that could require the application of any other law, shall govern this Agreement for all purposes, including the resolution of all disputes between or among Parties.

 

	10.2	Dispute Resolution

 

		(i)	The Parties agree, as a severable and independent arbitration agreement separately enforceable from the remainder of this Agreement, that any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement, including, without limitation, any dispute as to the construction, validity, interpretation, enforceability, or breach of this Agreement, or of any guaranty issued pursuant to or in connection with this Agreement, that cannot be settled through good-faith discussions between the senior management of the Parties shall be exclusively and finally settled by arbitration in accordance with this Clause 10.2.

 

		(ii)	Any Party may submit such a dispute, controversy, or claim to arbitration by notice to the other Party and the administrator for the London Court of International Arbitration (“LCIA”).

 

		(iii)	The arbitration proceedings shall be conducted in London, United Kingdom in the English language in accordance with the Rules of the LCIA as in effect on the date of this Agreement (“Rules”).  The applicable authorities in respect to procedural matters, in order of precedence for purposes of the arbitration, shall be this Agreement, the Rules, and laws of England and Wales.

 

		(iv)	The arbitration shall be heard and determined by three (3) arbitrators.

 

		(v)	Each Party shall appoint an arbitrator of its choice within twenty (20) days of the submission of the notice of arbitration.

 

		(vi)	The Party appointed arbitrators shall in turn appoint a presiding arbitrator for the tribunal within twenty (20) days following the appointment of the second Party appointed arbitrator.

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		(vii)	If any Party fails to appoint its Party appointed arbitrator and/or the Party appointed arbitrators cannot reach agreement on a presiding arbitrator for the tribunal within the applicable period, the LCIA shall act as appointing authority to appoint an independent arbitrator with at least ten (10) years (including at least five (5) years’ experience international) experience in the legal and/or commercial aspects of the petroleum industry.

 

		(viii)	None of the arbitrators shall have been an employee of or consultant to either Party to this Agreement or any of its Affiliates within the five (5) year period preceding the arbitration, or have any financial interest in the dispute, controversy, or claim.

 

		(ix)	The arbitrators shall not be bound by the rules of evidence and civil procedure. If a Party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrators may hear and determine the dispute on evidence produced by the Party that does appear.  The arbitrators shall be required to give written reasons for their decision.

 

		(x)	The award shall be issued in writing within sixty (60) days after the later of the close of the hearing, or the last day for submittal of information or other documents as requested for submittal by the arbitrators.

 

		(xi)	The decision of the majority of the arbitrators shall constitute an award and said award shall be final and binding upon the Parties, and shall be without right of appeal.

 

		(xii)	The award of the arbitrators shall take the form of an order to pay money damages in US Dollars, shall not include consequential, punitive or other special damages, and shall include interest from the date of dispute until paid.

 

		(xiii)	The fees of the arbitrators and costs incidental to arbitration proceedings, including legal expenses of the Parties, shall be borne in accordance with the award of the arbitrators.

 

		(xiv)	Any arbitration award rendered pursuant to this Agreement shall be enforceable in accordance with the provisions of the 1958 Convention on the Enforcement of Foreign Arbitration Awards of the United Nations to which the United States of America and Spain are signatories, and may be entered and confirmed in any court having jurisdiction.

 

		(xv)	Any governmental body, agency, or government-owned entity which is or becomes a Party to this Agreement agrees to waive all sovereign immunity by whatever name or title with respect to disputes, controversies or claims arising out of or in relation to or in connection with this Agreement, including without limitation, the jurisdiction of the arbitration panel, the enforcement and execution of any arbitration decision and award, and the issuance of any attachment or other interim remedy.

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		(xvi)	Privileges protecting attorney-client communications and attorney work product from compelled disclosure or use in evidence, as recognized by the jurisdiction in which each Party’s parent is located, shall apply to and be binding in any arbitration proceeding conducted under this Clause 10.2.

CLAUSE 11

FORCE MAJEURE

 

If as a result of Force Majeure, any Party is rendered unable, wholly or in part, to carry out its obligations under this Agreement, other than the obligation to pay any amounts due, then the obligations of the Party giving such notice, so far as and to the extent that the obligations are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused and for such reasonable period thereafter as may be necessary for the Party to put itself in the same position that it occupied prior to the Force Majeure, but for no longer period.  The Party claiming Force Majeure shall notify the other Parties of the Force Majeure within a reasonable time after the occurrence of the facts relied on and shall keep all Parties informed of all significant developments.  Such notice shall give reasonably full particulars of the Force Majeure and also estimate the period of time which the Party will probably require to remedy the Force Majeure.  The affected Party shall use all reasonable diligence to remove or overcome the Force Majeure situation as quickly as possible in a commercially reasonable manner but shall not be obliged to settle any labor dispute except on terms acceptable to it. All such disputes shall be handled within the sole discretion of the affected Party.  For the purposes of this Agreement, “Force Majeure” shall have the same meaning as given to in the Contract.

CLAUSE 12

DEFAULT

 

	12.1	Default

 

		(i)	If (a) the Farmee fails to pay in whole or in part the amounts due under Clause 4.1 of this Agreement to the Farmor by the applicable dates or (b) the Farmor fails to make the refund of any Past Costs or Attributable Costs to the Farmee pursuant to this Agreement, then either the Farmee or the Farmor as the case may be shall be in default and such amounts so due and payable shall accrue interest from the time of default at the Agreed Interest Rate. At any time after a default, the Party not in default shall have the right to send the Party in default a written notice stating the amount and cause of such default and the Party in default shall have no more than fifteen (15) days after receiving such notice to remedy such default or send a written counter-notice to the Party not in default stating the reasons why it disputes such default.  If the Parties do not reach agreement on the resolution of the default within thirty (30) days after receipt of either such notice, then either Party may refer the dispute to arbitration in accordance with Clause 10.2 hereof.  If the arbitrator determines the existence of the default but does not cause such Party in default to cure the default by payment of the amounts due, then the Party not in default shall be entitled to all remedies that would be available to a non-defaulting party under the JOA, applied mutatis mutandis to this Agreement.

- 39 -

		(ii)	Notwithstanding any other provisions of this Agreement, in no event shall anyParty be liable to the other Party for special, indirect or consequential damages inconnection with this Agreement or with respect to any operations related thereto

	
12.2

	
Re-transfer

 

Without prejudice to the JOA and any other rights available to the Farmor in this Agreement, in the event that the Farmee fails to perform its obligations under Clause 3 and/or 4 herein, the Farmee shall have a period of forty five (45) Working Days from receipt of the Farmor’s written notice of default to cure such default. If the Farmee fails to timely cure the default, then the transfer of the Farmout Interest and the Operatorship pursuant to this Agreement shall not occur. In this event, the Farmee agrees to (a) execute any and all such documents as are necessary to be submitted to the Government in order to reflect the fact that, even if the Parties had previously submitted the request for Consent, the Farmout Interest and the Operatorship is not to be transferred to the Farmee; and (b) diligently undertake all necessary actions and requests to obtain any authorizations of the Government or any other governmental approval which may be required to ensure that the request for Consent is annulled and revoked and consequently have no effect as between the Parties and between the Parties and any third party.

- 40 -

CLAUSE 13

GENERAL PROVISIONS

	13.1	Transfer

 

		(i)	Prior to the Consent Date, other than to an Affiliate, neither Party may assign or transfer its interest and obligations in or under this Agreement without the prior written consent of the other Party (with such non-transferring Party being the “Non-Transferring Party”).

 

		(ii)	Prior to or following the Consent Date, neither Party may assign, transfer or otherwise dispose of, all or part of its Participating Interest to any third party (the “Third Party Transferee”) without the prior written consent of the Non-Transferring Party, provided that:

		(a)	the Non-Transferring Party shall act reasonably at all times;

 

		(b)	such consent of the Non-Transferring Party shall not be refused if the proposed Third Party Transferee satisfies all technical, operational, regulatory (including financial and security regulators) and financial requirements to enable it to comply with its obligations as a Contractor under the Contract and the JOA.

 

Notwithstanding the above, if ERHC wishes to assign, transfer  or otherwise dispose of, all or part of its Participating Interest to a Third Party Transferee that does not satisfy all technical, operational, regulatory (including financial and security regulators) and financial requirements to enable such Third Party Transferee to comply with its obligations as a Contractor under the Contract and the JOA, ERHC shall agree in a document reasonably satisfactory to CEPSA to remain liable for all of the Third Party Transferee’s technical, operational, regulatory (including financial and security regulators) and financial obligations under the Contract and the JOA.

- 41 -

		(iii)	If either Party (the “Transferring Party”) wishes to negotiate with or enter into any agreement with a Third Party Transferee for the assignment, transfer or otherwise disposal of all or part of its Participating Interest, the Non-Transferring Party shall have the right at all times to match any offer made by such Third Party Transferee for the relevant Participating Interest and to have a right of first refusal over the acquisition of such Participating Interest on the same terms as those proposed by the Third Party Transferee to the proposed Transferring Party.  If a Transferring Party transfers any portion of its rights and obligations herein or under the Contract to a Third Party Transferee, any payment and other obligations of the Transferring Party in favour of the Non-Transferring Party shall remain the obligations of the Transferring Party unless the Transferring Party secures an undertaking from Third Party Transferee in favour of the Non-Transferring Party obliging the Third Party Transferee to make such payments and bear such obligations (or in the case of a partial transfer, a pro rata share of such payments and obligations) to the Non-Transferring Party in accordance with the terms of this Agreement.

 

		(iv)	If the Government elects to acquire an additional interest in the Contract pursuant to Clause 28(1) of the Contract (the “Government Election”), the Parties agree that each Party will transfer a portion of their Participating Interest to the Government pro-rata to their Participating Interest as at the Consent Date to ensure that such quantum of additional interest acquired by the Government under the Government Election is satisfied.  Each Party covenants and undertakes hereby that if it seeks to transfer any part of its interest in the Contract after the Consent Date, it will ensure that the transferee shall be bound by an identical provision to relinquish to the Government upon the Government Election such pro-rata portion of the transferred interest as will enable the Government to acquire the additional interest it elects to acquire.

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	13.2	Relationship of Parties

 

The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective.  It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, a mining or other partnership, joint venture or association or (except as explicitly provided in this Agreement) a trust.  This Agreement shall not be deemed or construed to authorize either Party to act as an agent, servant or employee for the other Party for any purpose whatsoever except as explicitly set forth in this Agreement.  In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries except as expressly provided in this Agreement.

 

	
13.3

	
Further Assurances

 

Each of the Parties shall do all such acts and execute and deliver all such documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.

 

	
13.4

	
Waiver

 

No waiver by one Party of any one or more defaults by the other Party in the performance of any provision of this Agreement shall operate or be construed as a waiver of any future default or defaults by the same Party whether of a like or of a different character.  Except as expressly provided in this Agreement, neither Party shall be deemed to have waived, released or modified any of its right under this Agreement unless such Party has expressly stated, in writing, that it does waive, release or modify such right.

 

	
13.5

	
Joint Preparation

 

Each provision of this Agreement shall be construed as though both Parties participated equally in the drafting of the same.  Consequently, the Parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting party shall not be applicable to this Agreement.

 

	
13.6

	
Severance of Invalid Provisions

 

If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.

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13.7

	
Modifications

 

There shall be no modification of this Agreement except by written consent of the Parties.

 

	
13.8

	
Priority of Agreement

 

In the event of any conflict between the provisions of the main body of this Agreement and its Exhibits, the provisions of the main body of the Agreement shall prevail. In the event of any conflict between this Agreement and the JOA, this Agreement shall prevail. In the event of any conflict between this Agreement and the Contract, this Agreement shall prevail unless such would be in violation of the Laws/Regulations or the terms of the Contract.

 

	13.9	
Damages

 

Notwithstanding anything else to the contrary in this Agreement, neither Party shall be liable to the other Party for loss of profits, business interruption, or incidental, consequential, special, or punitive damages, regardless of negligence or fault.

 

	
13.10

	
Interpretation

 

		(i)	Headings. The topical headings used in this Agreement are for convenience only and shall not be construed as having any substantive significance or as indicating that all of the provisions of this Agreement relating to any topic are to be found in any particular Clause.

 

		(ii)	Singular and Plural. Reference to the singular includes a reference to the plural and vice versa.

 

		(iii)	Gender. Reference to any gender includes a reference to all other genders.

 

		(iv)	Clause and Exhibit. Unless otherwise provided, reference to any Clause or any Exhibit is a reference to a Clause or Exhibit of this Agreement.

 

		(v)	“include” and “including” shall be taken to be inclusive and without limiting the generality of the description preceding such term and are used in an illustrative sense and not a limiting sense.

 

	
13.11

	
Counterpart Execution

 

This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes; provided that neither Party shall be bound by this Agreement unless and until both Parties have executed a counterpart. For purposes of assembling all counterparts into one document, the Farmor is authorized to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart.

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13.12

	
Public Announcements

 

No public announcement or statement regarding the terms or existence or this Agreement shall be made without prior written consent of both Parties; provided that, notwithstanding any failure to obtain such approval, neither Party shall be prohibited from issuing or making any such public announcement or statement to the extent it is necessary to do so in order to comply with the applicable laws, rules or regulations of any government, legal proceedings or stock exchange having jurisdiction over such Party or its Affiliates, however, any such required public announcement shall include only that portion of the information which the disclosing Party is advised by written opinion of counsel (including in-house counsel) is legally required to announce.  Such opinion shall be delivered to the other Parties prior to any such public announcement.

 

	
13.13

	
Entirety

 

With respect to the subject matter contained herein, this Agreement (i) is the entire agreement of the Parties; and (ii) supersedes all prior understandings and negotiations of the Parties.

 

	13.14	Rights of Third Parties

 

The Parties to this Agreement do not intend that any term of this Agreement should be enforceable, by virtue of the Contracts (Rights of Third Parties) Act 1999, by any person that is not a Party.

[signing blocks on next page]

- 45 -

IN WITNESS of their agreement, each Party has caused its duly authorized representative to sign this instrument on the date set out in the first sentence of this Agreement.

ERHC ENERGY KENYA LIMITED

	
BY:

	
/s/ Sylvan Odobulu

	
NAME:

	Sylvan Odobulu
	
TITLE:

	Vice President/Controller

CEPSA KENYA LIMITED

	
BY:

	/s/ (illegible)
	
NAME:

	(illegible)
	
TITLE:

	Director

- 46 -

EXHIBIT A

Joint Operating Agreement – Main Principles

(Main principles for the JOA to be executed between the Parties)

As provided in Clause 5.4 of the Agreement the Parties agree to negotiate in good faith and execute no later than the Closing Date a Joint Operating Agreement (“JOA”) based substantially on the 2012 AIPN Model Form International Operating Agreement and including the following Main Principles.

		I.	Scope.

The purpose of the JOA is to establish the respective rights and obligations of the Parties concerning operations and activities under the Contract, including the joint exploration, appraisal, development, production of hydrocarbons (including treatment, storage, and handling of produced hydrocarbons upstream of the delivery Point), the determination of entitlements at the delivery point and decommissioning.

		II.	Term. 

The JOA shall have effect from the Closing Date and shall continue in effect until the following occur: the Contract terminates; all materials, equipment and personal property used in connection with Joint Operations or Exclusive Operations have been disposed of or removed; and final settlement (including settlement in relation to any financial audit carried out pursuant to the Accounting Procedure) has been made. Notwithstanding, certain provisions regarding abandonment obligations, indemnities, applicable law and dispute resolution, liabilities and accounting procedure, shall remain in effect until all obligations have been extinguished and all disputes have been resolved.

		III.	Operator.

		1.	The Farmee shall be designated as Operator under the JOA.

		2.	Operator may resign as Operator at any time by so notifying the other Parties at least one hundred and twenty (120) days prior to the effective date of such resignation.

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		3.	(A) Neither Operator nor any other Indemnitee (as defined below) shall bear (except as a Party to the extent of its Participating Interest share) any damage, loss, cost, expense or liability resulting from performing (or failing to perform) the duties and functions of Operator, and the Indemnitees are hereby released from liability to Non-Operators for any and all damages, losses, costs, expenses and liabilities arising out of, incident to or resulting from such performance or failure to perform, even though caused in whole or in part by a pre-existing defect, or the negligence (whether sole, joint or concurrent), gross negligence, willful misconduct, strict liability or other legal fault of Operator (or any such Indemnitee).

(B)    The Parties shall (in proportion to their Participating Interests) defend and indemnify Operator and its Affiliates, and their respective directors, officers, and employees (collectively, the “Indemnitees”), from any and all damages, losses, costs, expenses (including reasonable legal costs, expenses and attorneys’ fees) and liabilities incident to claims, demands or causes of action brought by or on behalf of any person or entity, which claims, demands or causes of action arise out of, are incident to or result from Joint Operations, even though caused in whole or in part by a pre-existing defect, or the negligence (whether sole, joint or concurrent), gross negligence, willful misconduct, strict liability or other legal fault of Operator (or any such Indemnitee).

(C) Despite (A) or (B), if any Senior Supervisory Personnel of Operator or its Affiliates engage in Gross Negligence / Willful Misconduct that proximately causes the Parties to incur damage, loss, cost, or liability for claims, demands or causes of action referred to in (A) or (B), then, in addition to its Participating Interest share, Operator shall bear all such damages, losses, costs, and liabilities.

	IV.	Operating Committee.

		1.	The Parties will establish an operating committee under the JOA composed of representatives of each Party holding a Participating Interest to provide for the overall supervision and direction of joint operations.  Each Party shall appoint one (1) representative and one (1) alternate representative to serve on the Operating Committee. The Operating Committee may establish such subcommittees, including technical subcommittees, as the Operating Committee may deem appropriate.  The functions of such subcommittees shall be in an advisory capacity or as otherwise determined unanimously by the Parties.  Each Party shall have the right to appoint a representative to each subcommittee.

		2.	Except as otherwise expressly provided in the JOA, all decisions, approvals and other actions of the Operating Committee on all proposals coming before it shall be decided by the affirmative vote of two (2) or more Parties which are not Affiliates then having collectively at least sixty-five percent (65%) of the Participating Interests.

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		3.	(A)If a Joint Operation has been properly proposed to the Operating Committee and the Operating Committee has not approved such proposal in a timely manner, then any Party that voted in favor of such proposal shall have the right to propose an Exclusive Operation involving operations essentially the same as those proposed for such Joint Operation.

(B)    If a Party voted against any proposal which was approved by the Operating Committee and which could be conducted as an Exclusive Operation, then such Party shall have the right not to participate in the operation contemplated by such approval.  If a Party exercises this right of non-consent, the Parties who were not entitled to give or did not give notice of non-consent shall be Consenting Parties as to the operation contemplated by the Operating Committee approval, and shall conduct such operation as an Exclusive Operation.

	V.	Work Programs and Budgets.

		1.	On or before the 28th day of April of each year, Operator shall deliver to the Parties a proposed Work Program and Budget detailing the Joint Operations to be performed for the following Contract Year.  Within Thirty (30) Days of such delivery, the Operating Committee shall meet to consider and to endeavor to agree on a Work Program and Budget. This budget should be approved no later than June 28, at which date WP&B are due to be presented to the Kenyan government

		2.	The Work Program and Budget agreed by the Operating Committee shall include at least that part of the Minimum Work Obligations required to be carried out during the Contract Year in question under the terms of the Contract.  If the Operating Committee is unable to agree on such a Work Program and Budget, then Operator shall choose between the competing proposals, always in the understanding that it must contain at least the operations as are necessary to maintain the Contract in full force and effect, including such operations as are necessary to fulfill the Minimum Work Obligations required for the given Contract Year.

		3.	For the award of all contracts less than or equal to US$500,000 in value, the relevant provisions of the Contract shall apply.  For all contracts valued at more than US$500,000 Operator shall be required to utilize tender procedure.

		4.	(A) Prior to incurring any commitment or expenditure for the Joint Account, which is estimated to be in excess of US$500,000 Operator shall send to each Non-Operator an Authorization For Expenditures (AFE).

(B) Notwithstanding the above, Operator shall not be obliged to furnish an AFE to the Parties with respect to any Minimum Work Obligations, workovers of wells and general and administrative costs that are listed as separate line items in an approved Work Program and Budget.

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(C) All AFEs shall be for informational purposes only.  Approval of an operation in the current Work Program and Budget shall authorize Operator to conduct the operation without further authorization from the Operating Committee.

(D)   For expenditures on any line item of an approved Work Program and Budget, Operator shall be entitled to incur without further approval of the Operating Committee an over expenditure for such line item up to ten percent (10%) of the authorized amount for such line item; provided that the cumulative total of all over expenditures for a Calendar Year shall not exceed five percent (5%) of the total annual Work Program and Budget in question.

	VI.	Exclusive Operations

		1.	No operations may be conducted in furtherance of the Contract except as Joint Operations or as Exclusive Operations.  No Exclusive Operation shall be conducted which conflicts with a previously approved Joint Operation or with a previously approved Exclusive Operation. Operations which are required to fulfill the Minimum Work Obligations must be proposed and conducted as Joint Operations and may not be proposed or conducted as Exclusive Operations.

		2.	(A) A Non-Consenting Party which wishes to reinstate the rights it relinquished shall reimburse in immediately available funds to the Consenting Parties an amount equal to such Non-Consenting Party’s Participating Interest share of all liabilities and expenses that were incurred in the Exclusive Operation and that were not previously paid by such Non-Consenting Party.

(B) In addition, each such Non-Consenting Party shall be liable to pay in immediately available funds to the Consenting Parties an amount equal to the total of:

		(1)	Five hundred percent (500%) of such Non-Consenting Party’s Participating Interest share of all liabilities and expenses that were incurred in any Exclusive Operation relating to the obtaining of the G & G Data; plus

 

		(2)	One thousand percent (1000%) of such Non-Consenting Party’s Participating Interest share of all liabilities and expenses that were incurred in any Exclusive Operation relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Exploration Well or Appraisal Well.

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		3.	If Operator is a Non-Consenting Party to an Exclusive Operation, then Operator may resign as Operator for such Exclusive Operation, and the Consenting Parties shall select a Consenting Party to serve as Operator for such Exclusive Operation only.

	VII.	Default

		1.	Any Party that fails to pay when due its share of joint account charges (including cash calls and interest), or provide when due and maintain any security required of such Party under the Contract or the JOA, or perform its indemnity obligations under the JOA, shall be in default.

		2.	The Agreed Interest Rate applicable to any amount in default shall be an interest compounded on a monthly basis, at the rate per annum equal to the one (1) month term, London Interbank Offered Rate (LIBOR rate) for U.S. dollar deposits, as published in London by the Financial Times or if not published, then by The Wall Street Journal, plus six (6) percentage points, applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding calendar month.  If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such applicable law.

		3.	The defaulting Party may not transfer all or part of its participating interest, except to non-defaulting Parties.

		4.	The Defaulting Party has no right, during the Default Period, to:

		a.	Call or attend Operating Committee or subcommittee meetings;

		b.	Vote on any matter coming before the Operating Committee or any subcommittee;

		c.	Have access to any data or information relating to any operations under the JOA;

		d.	Consent to or reject data trades between the Parties and third parties, nor access any data received in such data trades;

		e.	Consent to or reject any Transfer or otherwise exercise any other rights with respect to Transfers;

		f.	Receive its Entitlement of production; or

		g.	Take assignment of any portion of another Party’s Participating Interest if such other Party is either in default or withdrawing from the JOA and the Contract.

		5.	If a Defaulting Party fails to fully remedy all its defaults by the thirtieth (30th) Day of the Default Period, then, without prejudice to any other rights available to each non-defaulting Party to recover its portion of the Total Amount in Default, at any time afterwards until the Defaulting Party has cured its defaults any non-defaulting Party shall have the option, exercisable in its discretion at any time, to require that the Defaulting Party offer to completely withdraw from the JOA and assign all of its Participating Interest.

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	VIII.	Venture Information – Confidentiality – Intellectual Property.

Each Party will be entitled to receive all Venture Information related to operations in which such Party is a participant.  “Venture Information” means any information and results developed or acquired as a result of joint operations and shall be joint property.  The Parties agree that all information in relation with joint operations shall be considered confidential and shall be kept confidential, and shall not be disclosed during the term of the Contract and for a period of three (3) years afterwards to any person or entity not a Party to the JOA, except conventional disclosures as provided by the AIPN Model Form.  All intellectual property rights in the Venture Information shall be joint property.

	IX.	Transfers of Interest and Change of Control

		1.	A transferee shall have no rights in the Contract or the JOA unless and until:

		(1)	it expressly undertakes in an instrument reasonably satisfactory to the other Parties to perform the obligations of the transferor under the Contract and the JOA in respect of the Participating Interest being transferred and obtains any necessary Government approval for the Transfer and furnishes any guarantees required by the Government or the Contract on or before the applicable deadlines; and

		(2)	each Party has consented in writing to such transfer, which consent may be denied if the transferee fails to establish to the reasonable satisfaction of each Party its financial capability to perform its payment obligations under the Contract and the JOA and its technical capability to contribute to the planning and conduct of Joint Operations.

		2.	No consent shall be required if the transferring Party agrees in a document reasonably satisfactory to the non-Transferring Party to remain liable for all of the Third Party Transferee’s technical, operational, regulatory (including financial and security regulators) and financial obligations under the Contract and the JOA.

		3.	No consent shall be required for a transfer to an Affiliate if the transferring Party agrees in an instrument reasonably satisfactory to the other Parties to remain liable for its Affiliate’s performance of its obligations.

		4.	Transfer shall mean any sale, assignment, encumbrance or other disposition by a Party of any rights or obligations derived from the Contract or the JOA (including the assignment of its Participating Interest and any direct or indirect, total or partial, sale of shares of a Party.), other than its entitlement to production and its rights to any credits, refunds or payments under the JOA.

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		5.	Any Transfer of all or a portion of a Party's Participating Interest, other than a Transfer to an Affiliate or the granting of an Encumbrance, shall be subject to a preferential right to acquire by the other Parties.  Once the final terms and conditions of a transfer have been fully negotiated, the transferor shall disclose all such final terms and conditions as are relevant to the acquisition of the Participating Interest in a notice to the other Parties, which notice shall be accompanied by a copy of all instruments or relevant portions of instruments establishing such terms and conditions.  Each other Party shall have the right to acquire the Participating Interest subject to the proposed Transfer from the transferor on the terms and conditions described if, within thirty (30) days of the transferor's notice, such Party delivers to all other Parties a counter-notification that it accepts such terms and conditions without reservations or conditions. If no Party delivers such counter-notification, the transfer to the proposed transferee may be made, under terms and conditions no more favorable to the transferee than those set forth in the notice to the Parties, provided that the Transfer shall be concluded within one hundred eighty (180) days from the date of the notice plus such additional period as may be required to secure governmental approvals.

	X.	Governing Law and Dispute Resolution.

		1.	The substantive laws of England and Wales, exclusive of any conflicts of laws principles that could require the application of any other law, shall govern the JOA for all purposes, including the resolution of all Disputes between or among Parties.

		2.	The Parties shall engage in good-faith discussions to seek to resolve any dispute by negotiation between Senior Executives. A Senior Executive shall mean any individual who has authority to negotiate the settlement of the Dispute by a Party.

		3.	Any dispute not finally resolved by negotiation shall be resolved through final and binding arbitration in accordance with the Rules of the London Court of International Arbitration.

	XI.	Accounting Procedures.

		1.	Operator shall charge the Joint Account for all costs and expenditures incurred by Operator for the conduct of Joint Operations within the limits of approved Work Programs and Budgets or as otherwise specified in the JOA.

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		2.	The cost of services performed by Operator's Affiliates technical and professional staffs not located within the Country of Operation shall be chargeable to the Joint Account according to the time for such services documented on time sheets. The individual rates shall include salaries and wages of such technical and professional personnel, lost time, governmental assessments, and employee benefits.  Costs shall also include all support costs necessary for such technical and professional personnel to perform such services, such as, but not limited to, rent, utilities, support staff, drafting, telephone and other communication expenses, computer support, supplies, depreciation, and other reasonable expenses.  Examples of such services include the following:

Geological Studies and Interpretation

Seismic Data Processing

Well Log Analysis, Correlation and Interpretation

Laboratory Services

Ecological and Environmental Engineering

Decommissioning (Abandonment) and Reclamation

Well Site Geology

Project Management and Engineering

Source Rock Analysis

Petrophysical Analysis

Geochemical Analysis

Drilling Supervision

Development Evaluation

Project Accounting and Professional Services

Other Data Processing

		3.	Operator shall charge the Joint Account monthly for the cost of indirect services and related office costs of Operator and its Affiliates not otherwise provided in the Accounting Procedure, which represent the cost of general assistance and support services provided by Operator and its Affiliates.  No cost or expenditure included as direct cost shall be included or duplicated as indirect charge.  These charges will not subject to audit other than to verify that the overhead percentages are applied correctly as per the Operating Committee approval.

		4.	Unless exceeded by the minimum assessment mentioned below, the aggregate Year-to-Date indirect charges shall be a percentage of the Year-to-Date expenditures, calculated on the following scale:

Annual Expenditures

	
FIRST US$10,000,000

	 	 	
5

	
%

	
NEXT US$10,000,000

	 	 	
4

	
%

	
IN EXCESS OF US$20,000,000

	 	 	
2

	
%

		5.	A minimum amount of US$120,000 shall be assessed each calendar year calculated from the Effective Date of the JOA and shall be reduced pro rata for periods of less than a year.

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EXHIBIT B

Transitional Agreement – Main Principles

(Main principles for the Transitional Agreement to be executed between the Parties)

The transitional agreement (the “Agreement”) between ERHC Energy Kenya Limited (“ERHC” or the “Farmor”) and CEPSA Kenya Limited (“CEPSA” or the “Farmee”) developing the relationship between them concerning the Block and the Petroleum Operations from the Consent Date (as defined in the Farmout Agreement between the Parties, as defined below) shall include, and be based upon, the following main principles:

	i)	The overriding principle on which the Agreement will be based shall be need for each of CEPSA and ERHC (the “Parties”) to work together to ensure the smooth transition of CEPSA’s Participating Interest in the project and the Operatorship to CEPSA, with ERHC providing all reasonable assistance and advice to CEPSA in Kenya that CEPSA may reasonably require to ensure that:

		(a)	the Contract’s Work Programme obligations can be complied with;

		(b)	any planned work and Operations are not delayed or interrupted; and

		(c)	CEPSA is able to comply with its Operator obligations

	ii)	The services to be provided during the Transitional Period by the Farmor to the Farmee (the “Services”).  These Services shall include the following:

		(a)	assistance on the acquisition and interpretation of 1,000 km2 or more of gravity and magnetic data (pursuant to the FTG Contract to be signed with Bell Geospace) if such activity is not completed by the Closing Date; and

		(b)	assistance on the acquisition of 1,000 km/line of 2D seismic data either during the period from January to March 2014 or during the first 2014 weather window;

		(c)	the undertaking and acquisition of any EIA licenses and reports required under Kenyan legislation to enable the project to proceed, pursuant to the EIA Contract to be signed with Africa Renaissance Solutions Ltd, as well as assistance on the acquisition of any further EIA reports that may be required pursuant to the applicable Laws/Regulations of Kenya; and

- 55 -

		(d)	general assistance concerning the development of CEPSA’s physical presence in Kenya from the Consent Date, including all reasonable assistance and advice on the employment and contracting of personnel, procurement processes, contact and correspondence with Kenyan authorities, contracting of services etc.

	iii)	Services shall be provided by Farmor in substantially the same way and with the same level of care and effort as used by the Farmor in the twelve (12) months previous to the Consent Date;

	iv)	The Services shall be provided for a period of twelve (12) months from the Consent Date (such period being the “Transitional Period”), notwithstanding the fact that both Parties shall use their reasonable endeavours to ensure that the Operations are transitioned out from ERHC to CEPSA (thereby ending the Transitional Period) as soon as possible after the Consent Date;

	v)	A procedure shall be put in place allowing for the extension of the Transitional Period, if such extension is deemed necessary by both Parties;

	vi)	CEPSA may terminate all or any of the Services at any time during the Transitional Period by giving notice to ERHC five (5) business days prior to the planned date of termination;

	vii)	Termination by either Party if the other Party is:

		(a)	in material default of any provision of the Agreement; or

		(b)	is dissolved, liquidated or declared insolvent or bankrupt;

	viii)	ERHC shall take all the reasonable steps, and ERHC shall give CEPSA all assistance as may be reasonably necessary, to take all the steps necessary to enable CEPSA to comply with any Kenyan regulatory and corporate requirements as to the setting up and good operations of CEPSA’s Kenyan office (or other physical presence) to enable it to act as the Operator for the purposes of the Contract and the JOA, if such requirements have not been completed prior to the Consent Date.  Those requirements on which CEPSA may require the assistance of ERHC would include all those needed to enter into sub-contracts, procurement contracts, engineering and construction contracts or environmental reports and assessments;

- 56 -

	ix)	Both Parties will cooperate on the provision of the Services, including the exchange of data, documentation and IT;

	x)	ERHC shall invoice CEPSA for the Services, according to a costs and invoicing procedure (which shall include a dispute resolution process), provided that ERHC shall notify CEPSA promptly when the estimated costs for the Services have been exceeded;

	xi)	Procedures on data ownership and access;

	xii)	No liability for indirect damages;

	xiii)	Standard provisions such as tax payments, compliance with law and regulations, notices, contact details, dispute resolution process, governing law and jurisdiction.

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EXHIBIT C 

Contract

- 58 -

EXHIBIT D

Deed of Transfer Model Form

 

 

DEED OF ASSIGNMENT

 

between

 

ERHC ENERGY KENYA LIMITED

 

and

 

CEPSA KENYA LIMITED

- 59 -

THIS DEED OF ASSIGNMENT is made is made on             2013 between:

	(1)	ERHC ENERGY KENYA LIMITED, a company registered in accordance with the laws of Kenya under registration number CPR/2012/86952  (ERHC);

	(2)	CEPSA KENYA LIMITED, a company registered in accordance with the laws of Kenya under registration number CPR/2013/113607 (CEPSA).

WHEREAS

	A.	EHRC is the sole Contractor in a production sharing contract between ERHC and the Government of the Republic of Kenya covering Block 11 A in the north western region of Kenya dated 28th June, 2012.

	B.	ERHC has agreed to transfer and assign to CEPSA fifty five per cent (55%) of its rights as the Contractor in the Block 11 A PSC and operatorship of Block 11 A.

	C.	The Cabinet Secretary of the Ministry of Energy of Kenya has in a letter dated [∆] given his consent to the execution of this Deed of Assignment.

IT IS AGREED AS FOLLOWS:

	1.	DEFINITIONS AND INTERPRETATION

	1.1	Definitions

Unless the context otherwise requires, the words and expressions defined in the PSC shall bear the same meanings ascribed to them in the PSC wherever used in this Deed (including recitals to this Deed).

	1.1.1	Business Day means [∆];

	1.1.2	Cabinet Secretary in the Ministry of Energy (formerly Minister) is the senior most civil servant and accounting officer in the Ministry of Information Communications and Technology;

	1.1.3	PSC means production sharing contract between ERHC and the Government of the Republic of Kenya covering Block 11 A dated 28th June, 2012;

	1.1.4	Parties means the parties to this Agreement.

	1.2	Interpretation

	1.2.1	In addition to the definitions in clause 1.1, unless the context requires otherwise:

	1.2.1.1	the singular includes the plural and vice versa;

	1.2.1.2	a person includes reference to a body corporate or other legal entity;

	1.2.1.3	any written law includes that law as amended or re-enacted from time to time;

	1.2.1.4	any agreement or other document includes that agreement or other document as varied or replaced from time to time;

	1.2.1.5	a clause is to the relevant clause of this agreement;

	1.2.1.6	any party includes that party’s successors and assigns.

	1.3	Clause headings are inserted for convenience only and shall be ignored in construing this agreement.

NOW THIS DEED WITNESSETH THAT

	2.	With effect from [∆], ERHC hereby assigns to CEPSA an undivided fifty five per cent (55%) Participating Interest in all the rights and interests and by way of novation transfers all its liabilities and obligations pursuant to and in respect of the PSC (the “Transferred Interest”) to hold the same and subject to performance and observance by CEPSA of the terms and conditions contained in the PSC and on the part of the Contractor therein described to be performed and observed, in so far as they relate to the Transferred Interest.

Page 2

	3.	ERHC confirms that the rights and privileges of the Government of Kenya under the PSC shall not be prejudiced by the provisions of this Deed of Assignment.

	4.	ERHC and CEPSA jointly and severally covenant with and in favour of the Minister that they will perform and observe the terms and conditions contained in the PSC and on the part of the Contractor therein described to be performed and observed.

	5.	For the purpose of this Deed of Assignment, all notices shall be sent to the following addresses:

	5.1	If to ERHC

[∆]

Tel: [∆]

E-mail: [∆]

Attention: [∆]

	5.2	If to CEPSA

[∆]

Tel: [∆]

E-mail: [∆]

Attention: [∆]

	6.	This Deed of Assignment may be executed in any number of counterparts with the same effect as if the signatures on the counterparts were upon a single engrossment of this Deed of Assignment provided that this Deed of Assignment shall not be effective until all the counterparts have been executed.

	7.	The construction, validity and performance of this Deed of Assignment shall be governed by the Laws of Kenya and each party hereby submits to the non-exclusive jurisdiction of the Kenyan Courts.

Page 3

IN WITNESS WHEREOF the parties hereunto affixed their respective common seals the day and year first above written.

	
THE COMMON SEAL OF ERHC

	
)

	
WAS HEREUNTO

	
)

	
AFFIXED IN THE PRESENCE OF:

	
)

		
)

		
)

	
DIRECTOR

	
)

		
)

		
)

		
)

	
DIRECTOR/SECRETARY

	
)

	
THE COMMON SEAL OF CEPSA

	
)

	
WAS HEREUNTO

	
)

	
AFFIXED IN THE PRESENCE OF:

	
)

		
)

		
)

	
DIRECTOR

	
)

		
)

		
)

		
)

	
DIRECTOR/SECRETARY

	
)

Page 4

CONSENT

By executing this Deed of Assignment, the Cabinet Secretary of the Ministry of Energy does on behalf of the Government of Kenya consent and approve to the assignment of the Transferred Interest by ERHC to CEPSA in accordance with the provisions of the PSC.

APPROVED BY THE MINISTRY OF ENERGY:

 

	
 

	
 

	
Cabinet Secretary

	
 

	
 

	
 

	
 

	
 

	
Date

	
 

 

 

Page 5EXHIBIT NO.: 10.9 

To Form S-1 Registration Statement

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

THIS MEMBERSHIP
INTEREST PURCHASE AGREEMENT (this “Agreement”) is made and entered into on the 28th day of January, 2014
(the “Execution Date”), by and among SUPERIOR DRILLING PRODUCTS, LLC, a Utah limited liability company (the
“Buyer”), HARD ROCK SOLUTIONS, INC., a Texas corporation (“HRSI”), Hard
Rock Solutions, LLC, a Utah limited liability company (the “Company”) and James
D. Isenhour, an individual (“Mr. Isenhour”
or the “Stockholder”). The Buyer, HRSI, the Company and the Stockholder are sometimes hereinafter referred
to collectively as the “Parties” or individually as a “Party”.

 

WITNESSETH:

 

WHEREAS, the Stockholder
owns one hundred percent (100%) of the issued and outstanding common stock, no par value, of HRSI, which is its sole class of issued
and outstanding stock (the “HRSI Stock”);

 

WHEREAS, HRSI is the
sole member of the Company and owner of all of the issued and outstanding membership interests of the Company (“Interests”);

 

WHEREAS, the Stockholder,
as owner of HRSI, and HRSI, as the sole member of the Company, deem it advisable and in the best interests of HRSI and the Company,
respectively, for HRSI to transfer all of its business and certain of its assets including without limitation its name, and all
of its customer contracts, Inventory (as defined herein), Work In Progress (as defined herein) and other specified assets as set
forth in Section 3.12 hereof, except for HRSI’s defined benefit plan or the Excluded Assets (as defined herein), to the Company;

 

WHEREAS, as a condition
precedent to the transactions contemplated by this Agreement, on or prior to the execution of the Escrowed Documents (as defined
herein) and the deposit of same into escrow, HRSI will transfer all of its business and certain of its assets including without
limitation its name, and all of its customer contracts, Inventory (as defined herein), Work In Progress (as defined herein) and
other specified assets as set forth in Section 3.12 hereof, except for HRSI’s defined benefit plan or the Excluded Assets
(as defined herein), into the Company pursuant to that certain Bill of Sale (as defined herein);

 

WHEREAS, the Buyer
desires to purchase all of the Interests, and HRSI desires to sell to the Buyer, all of the Interests, on the terms and conditions
and for the consideration set forth in this Agreement;

 

NOW, THEREFORE, for
and in consideration of the mutual covenants, agreements, representations and warranties contained in this Agreement, and other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Parties hereby
agree as follows:

 

    	 

    	 

    

  

ARTICLE I

CERTAIN DEFINITIONS

 

As used herein, the
following terms shall have the following meanings:

 

1.1          Affiliate.
The term “Affiliate” or “Affiliates” of a Person shall mean, with respect to that Person, a Person who
directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, or
is acting as agent on behalf of, or as an officer or director of, that Person. As used in the definition of Affiliate, the term
“control” (including the terms “controlling,” “controlled by,” or “under common control
with”) means the possession, direct or indirect, of the power to direct, cause the direction of, or influence the management
and policies of a Person, whether through the ownership of voting securities, by contract, through the holding of a position as
a director or officer of such Person, or otherwise.

 

1.2          Asset
Transfer. The term “Asset Transfer” shall have the meaning set forth in Section 2.3 hereof.

 

1.3          Assignee.
The term “Assignee” shall mean Superior Drilling Products, Inc., a Utah corporation, or any other Affiliate of Buyer,
as determined by Buyer, which will be the party to consummate the IPO and as such, may be assigned this Agreement and the transactions
contemplated hereby from Buyer.

 

1.4          Assumed
Liability. The term “Assumed Liability” shall have the meaning set forth in Section 2.6 hereof.

 

1.5          Bill
of Sale. The term “Bill of Sale” shall mean that certain Bill of Sale agreement between HRSI and the Company in
substantially the form attached hereto as Exhibit A, pursuant to which the Asset Transfer will be made from HRSI
to the Company.

 

1.6          Business.
 The term “Business” shall mean the current or proposed business of HRSI, and when the Asset Transfer takes place,
the Company consisting of the design, manufacture, fabrication, sale
and rental of wellbore tools consisting of reaming and hole opening tools, and all ancillary services reasonably related thereto.

 

1.7          Buyer.
 The term “Buyer” shall have the meaning set forth in the recitals to this Agreement.

 

1.8          Buyer
Accounts Receivable. The term “Buyer Accounts Receivable” shall mean any accounts receivable generated by the Company
on and after the Closing Date.

 

1.9          Buyer
Fundamental Representations. The term “Buyer Fundamental Representations” shall have the meaning set forth in Section
7.1(b) hereof.

 

1.10        Buyer
Parties. The term “Buyer Parties” shall have the meaning set forth in Section 7.2 hereof.

 

1.11        Cap.
The term “Cap” shall have the meaning set forth in Section 7.2(a) hereof.

 

    	2

    	 

    

  

1.12        Cash
Consideration. The term “Cash Consideration” shall mean Twelve Million Five Hundred Thousand and No/100 Dollars
($12,500,000.00) to be paid to HRSI by Buyer at Closing.

 

1.13        Closing.
 The term “Closing” shall mean when the Escrow Agent has delivered the Cash Consideration and a set of Escrowed
Documents to HRSI and delivered a set of Escrowed Documents to Buyer.

 

1.14        Closing
Certificate. The term “Closing Certificate” shall mean a certificate, in substantially the form attached hereto
as Exhibit J, duly executed by an officer of any Party hereto certifying that such Party’s covenants, conditions,
schedules, and representations and warranties are true and correct as of the Closing Date.

 

1.15        Closing
Date.  The term “Closing Date” shall have the meaning set forth in Section 6.1 hereof.

 

1.16        Code.
The term “Code” means the Internal Revenue Code of 1986, as amended, and any reference to any particular Code section
shall be interpreted to include any revision of or successor to that section regardless of how numbered or classified.

 

1.17        Company.
 The term “Company” shall have the meaning set forth in the recitals to this Agreement.

 

1.18        Company
Accounts Receivable. The term “Company Accounts Receivable” shall mean any accounts receivable generated by the
Company prior to the Closing Date.

 

1.19        Company
Legal Opinion. The term “Company Legal Opinion” shall mean that certain legal opinion of Myatt Brandes & Gast
PC law firm on behalf of the Company and the Stockholder to be delivered at Closing in substantially the form attached hereto as
Exhibit B.

 

1.20        Confidential
Information. The term “Confidential Information” shall mean (i) any and all information or material (in any form,
whether tangible, intangible, oral, written or electronically encoded) including, but not limited to, trade secrets, secret processes,
know-how, customer lists, formulae, or other technical data (collectively the “Information”) provided to one
Party by the other, (ii) the existence, subject matter and principals involved in any and all discussions between the Parties and
as between a Party and another Person, as hereinafter defined, whether such discussion be formal or informal in nature (collectively
the “Discussions”); (iii) any and all notes, summaries, reports, memorandums, and the like, or any other compilation
thereof which contain any Information or materials relating to the Discussions (collectively the “Notes”); and
(iv) any and all new or different information or material (in any form, whether tangible, intangible, oral, written or electronically
encoded) which is generated, developed or created as a result of the Parties’ Discussions (collectively the “New
Information”). The Information, Discussions, Notes and New Information shall hereinafter collectively be referred to
as “Confidential Information.”

 

    	3

    	 

    

  

1.21        Consulting
Agreement. The term “Consulting Agreement” means that certain Consulting Agreement to be entered into by and between
the Company and Mr. Isenhour, in substantially the form attached hereto as Exhibit C, and to be effective at Closing.

 

1.22        Continued
Rent. The term “Continued Rent” shall have the meaning set forth in Section 2.6 hereof.

 

1.23        Contracts.
The term “Contracts” shall have the meaning set forth in Section 3.10 hereof.

 

1.24        Current
Assets. The term “Current Assets” shall mean the sum of the consolidated balances of cash, Company Accounts Receivable,
prepaid expenses and any other current asset, other than Inventory (i.e., assets which will be amortized or expensed or received
in cash within one year from the Closing Date). For the avoidance of doubt, Current Assets shall not include deferred tax assets.

 

1.25        Current
Liabilities. The term “Current Liabilities” shall mean the sum of the consolidated balances of accounts payable,
accrued payrolls, accrued payroll taxes, accrued health care benefits and other current liabilities (i.e., liabilities which will
be included in income or paid in cash within one year from the Closing Date). For the avoidance of doubt, Current Liabilities shall
not include deferred tax liabilities.

 

1.26        Customers
and Suppliers List. The term “Customers and Suppliers List” shall have the meaning set forth in Section 3.28 hereof.

 

1.27        Employee.
 The term “Employee” means any employee of the Company who as of the Closing Date is employed or otherwise performs
work or provides services in connection with the operation of the Business, including those, if any, on disability, sick leave,
layoff or leave of absence, who, in accordance with the Company’s applicable policies would be eligible to return to active
status.

 

1.28        Environmental
Protection Laws.  The term “Environmental Protection Laws” shall mean all federal, state, local and foreign laws,
statutes, regulations having the force and effect of law, permits, court decrees, judgments, injunctions and written orders concerning
(i) public health and safety relating to exposure of humans to toxic or hazardous substances, or (ii) pollution or protection of
the environment or natural resources, including, without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (“CERCLA”) (42 U.S.C. §9601 et seq.); the Hazardous Materials Transportation Act (49 U.S.C. §1801
et seq.); the Resource Conservation and Recovery Act (“RCRA”) (42 U.S.C. §6901 et seq.); the Clean Water Act (33
U.S.C. §1251 et seq.); the Safe Drinking Water Act (14 U.S.C. §1401 et seq.); the Toxic Substances Control Act (15 U.S.C.
§2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §136 et seq.); the Clean Air Act (42
U.S.C. §7401 et seq.); the Emergency Planning and Community Right-to-Know Act (42 U.S.C. §§ 11001-11005, 11021-11023,
and 11041-11050); and all comparable state laws; in each case including the regulations promulgated thereunder and as supplemented
or amended from time to time.

 

    	4

    	 

    

  

1.29        Equipment.
The term “Equipment” shall have the meaning set forth in Section 3.12 hereof.

 

1.30        Escrow
Agent. The term “Escrow Agent” shall mean U.S. Bancorp.

 

1.31        Escrow
Agreement. The term “Escrow Agreement” shall mean that certain Escrow Agreement by and among all the Parties hereto
and the Escrow Agent in substantially the form attached hereto as Exhibit D.

 

1.32        Escrowed
Documents. The term “Escrowed Documents” shall mean this Agreement, the HRSI Consents, the Buyer Consents, the
Note, the Consulting Agreement, the Noncompetition Agreements, the Bill of Sale, the Security and Pledge Agreement, the IP Assignments,
the Company Legal Opinion, the Closing Certificates, the UCC-1 Financing Statement-Colorado, the UCC-1 Financing Statement-Utah,
the USPTO Security Interest Forms, the original membership interests certificates, if certificated, with a separate membership
interest transfer power and all other agreements and obligations contemplated hereby.

 

1.33        Escrow
Signing Date. The term “Escrow Signing Date” shall mean the date the Escrowed Documents shall be signed by the
Parties thereto and the originals are delivered to the Escrow Agent, which shall be no later than three (3) business days before
the effective date of the IPO.

 

1.34        Excluded
Assets. The term “Excluded Assets” shall have the meaning set forth in Section 3.12 hereof.

 

1.35        Execution
Date. The term “Execution Date” shall have the meaning set forth in the recitals hereof.

 

1.36        Extension
Payments. The term “Extension Payments” shall have the meaning set forth in Section 6.1 hereof.

 

1.37        Financial
Statements.  The term “Financial Statements” shall have the meaning set forth in Section 3.14 hereof.

 

1.38        GAAP.
The term “GAAP” means United States generally accepted accounting principles consistently applied throughout the periods
covered thereby, as in effect from time to time.

 

1.39        Government
Official. The term “Government Official” includes, (i) any officer, employee or agent of any government (including
any government of any country or any political subdivision within a country) or of any department, agency or instrumentality (including
any business or corporate entity owned or managed by a government, such as a national oil company or subsidiary thereof) thereof,
or any Person acting in an official capacity or performing public duties or functions on behalf of any such government, department,
agency or instrumentality, (ii) any political party or official thereof, (iii) any candidate for public office, or (iv) any officer,
employee or agent of a public international organization, including, but not limited to, the United Nations, the International
Monetary Fund or the World Bank.

 

    	5

    	 

    

  

1.40        HRSI
Stock. The term “HRSI Stock” shall have the meaning set forth in the recitals of this Agreement.

 

1.41        Indebtedness.
The term “Indebtedness” means (i) all obligations for borrowed money and all obligations issued in substitution
for or exchange of obligations for borrowed money, (ii) all obligations evidenced by any note, bond, debenture or other debt
security, (iii) all obligations for the deferred purchase price of property or services with respect to which a Person is
liable, contingently or otherwise, as obligor or otherwise, (iv) any commitment by which a Person assures a creditor against
loss (including, without limitation, contingent reimbursement liability with respect to letters of credit), (v) any indebtedness
guaranteed in any manner by a Person (including, without limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any liabilities under capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, including, without limitation, any lease termination payments or charges, (vii) any indebtedness secured
by a Lien on a Person’s assets, (viii) any unsatisfied obligation for “withdrawal liability” to a “multiemployer
plan” as such terms are defined under ERISA, (ix) any amounts currently owed to any Person under any noncompetition,
consulting or similar arrangements, (x) any change-of-control or similar payment or increased cost which is triggered in whole
or in part by the transactions contemplated by this Agreement, (xi) any liability of the Company under deferred compensation
plans, phantom stock plans, bonus plans, or for severance payments or similar arrangements made payable in whole or in part as
a result of the transactions contemplated herein, (xii) any off-balance sheet financing of the Company, (xiii) the gross
amount paid or payable with respect to any employee bonus or retention arrangement or other compensation payable to any Person
as a result of the announcement or consummation or the transactions contemplated by this Agreement, and (xiv) any accrued
and unpaid interest on, and any prepayment premiums, penalties or similar contractual charges in respect of, any of the foregoing
obligations computed as though payment is being made in respect thereof on the Closing Date.

 

1.42        Indemnitor.
The term “Indemnitor” shall have the meaning set forth in Section 7.2(d) hereof.

 

1.43        Indemnitee.
The term “Indemnitee” shall have the meaning set forth in Section 7.2(d) hereof.

 

1.44        Independent
Contractors. The term “Independent Contractors” means those persons that perform services directly for the benefit
of HRSI, or when the Asset Transfer takes place, the Company, for the benefit of or connected to the Business.

 

1.45        IP
Assignments. The term “IP Assignments” shall mean those certain assignment documents to evidence the assignment
of patent applications and a trademark from HRSI to the Company, all in substantially the forms attached hereto as Exhibit
I, to be filed with the USPTO upon Closing.

 

    	6

    	 

    

  

1.46        IPO.
The term “IPO” shall mean consummation of that certain initial public offering whereby all of Assignee’s securities
are publicly registered on a recognized United States national securities exchange and some of Assignee’s securities are
sold to various Persons for an amount of no less than $20,000,000.

 

1.47        Intellectual
Property. The term “Intellectual Property” shall have the meaning set forth in Section 3.13 hereof.

 

1.48        Inventory.
The term “Inventory” means raw materials, Work In Progress (as defined herein) and finished goods inventory.

 

1.49        IRS.
 The term “IRS” shall mean the Internal Revenue Service or any successor United States governmental agency thereto.

 

1.50        Knowledge.
The term “Knowledge” shall mean the actual knowledge of the Person or entity, and what each Person or entity should
have known based upon due inquiry or based upon that Person’s position with the entity.

 

1.51        Laws.
The term “Laws” shall have the meaning set forth in Section 3.19 hereof.

 

1.52        Leased
Real Property. The term “Leased Real Property” shall have the meaning set forth in Section 3.24 hereof.

 

1.53        Lien(s).
The term “Lien” means any mortgage, pledge, security interest, encumbrance, claim, lien or charge of any kind (including,
without limitation, any conditional sale or other title retention agreement or lease in the nature thereof) or any agreement to
file any of the foregoing, any sale of receivables with recourse, and any filing or agreement to file a financing statement as
debtor under the Uniform Commercial Code or any similar statute.

 

1.54        Losses.
The term “Losses” shall have the meaning set forth in Section 7.2 hereof.

 

1.55        Material
Adverse Effect. The term “Material Adverse Effect” means any event, circumstance, condition, change, occurrence
or effect that individually or in the aggregate with all other events, circumstances, conditions, changes, occurrences and effects,
has or could reasonably be expected to have a material adverse effect upon the assets, liabilities, business, financial condition
or operating results of the Company or that could reasonably be expected to prevent or materially delay or impair the ability of
the Company to consummate the transactions contemplated by this Agreement.

 

1.56        Mrs.
Isenhour. The term “Mrs. Isenhour” shall mean Julia Isenhour, an individual and the spouse of the Stockholder.

 

1.57        Noncompetition
Agreement-Mr. Isenhour. The term “Noncompetition Agreement-Mr. Isenhour” means that certain Noncompetition Agreement
to be entered into by and among Buyer, HRSI, the Company and Mr. Isenhour, in substantially the form attached hereto as Exhibit
E, and to be effective at Closing.

 

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1.58        Noncompetition
Agreement-Mrs. Isenhour. The term “Noncompetition Agreement-Mrs. Isenhour” means that certain Noncompetition Agreement
to be entered into by and among Buyer, HRSI, the Company and Mrs. Isenhour, in substantially the form attached hereto as Exhibit
F, and to be effective at Closing.

 

1.59        Noncompetition
Agreements.         The term “Noncompetition Agreements” shall mean
and collectively refer to the Noncompetition Agreement-Mr. Isenhour and the Noncompetition Agreement-Mrs. Isenhour.

 

1.60        North
Dakota Lease.  The term “North Dakota Lease” shall mean that certain month-to-month lease arrangement between the
current landlord of the property located at 6666 141st Avenue NW, Williston, North Dakota and HRSI.

 

1.61        Note.
The term “Note” shall mean that certain subordinated promissory note in the principal amount of Twelve Million Five
Hundred Thousand and No/00 Dollars ($12,500,000.00) to be executed by Buyer for the benefit of HRSI, in substantially the form
attached hereto as Exhibit G, and to be effective at Closing.

 

1.62        Permitted
Liens. The term “Permitted Liens” means (i) Liens that are set forth on Schedule 1.62 attached hereto, (ii)
Liens for Taxes not delinquent or the validity of which is being contested in good faith by appropriate proceedings and as to which
adequate reserves have been established on the Company’s Financial Statements in accordance with GAAP, and (iii) statutory
landlord’s, mechanic’s, carrier’s, workmen’s, repairmen’s or other similar Liens arising or incurred
in the ordinary course of business for immaterial amounts which are not yet due and payable.

 

1.63        Person
or Persons.  The term “Person” or “Persons” means an individual(s), a corporation(s), a partnership(s),
an association(s), a limited liability company(ies), a joint stock company(ies), a trust(s), an incorporated or unincorporated
organization(s), or a government or political subdivision(s) thereof.

 

1.64        Plans.
The term “Plans” shall have the meaning set forth in Section 3.31.1 hereof.

 

1.65        Pre-Closing
Taxes. The term “Pre-Closing Taxes” shall have the meaning set forth in Section 7.5(c).

 

1.66        Purchase
Price.  The term “Purchase Price” is $25,000,000.00, consisting of the (i) Cash Consideration and (ii) the Note.

 

1.67        Real
Property Leases. The term “Real Property Leases” shall have the meaning set forth in Section 3.24 hereof.

 

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1.68        Regulated
Substance or Regulated Substances. The term “Regulated Substance” or “Regulated Substances” shall mean
any chemical or substance subject to or regulated under any Environmental Protection Laws, including, without limitation, any “pollutant
or contaminant” or “hazardous substance” as those terms are defined in CERCLA, any “hazardous waste”
as that term is defined in RCRA, and any other hazardous or toxic wastes, substances, or materials, petroleum (including crude
oil and refined and unrefined fractions thereof), polychlorinated biphenyls (“PCBs”), infectious waste, special
waste, pesticides, fungicides, solvents, herbicides, flammables, explosives, asbestos and asbestos-containing material, and radioactive
materials, whether injurious by themselves or in combination with other materials.

 

1.69        Rental
Equipment. The term “Rental Equipment” shall have the meaning set forth in Section 3.12 hereof.

 

1.70        SEC.
The term “SEC” shall mean the United Stated Securities and Exchange Commission.

 

1.71        Securities
Act. The term “Securities Act” shall mean the Securities Act of 1933, as amended.

 

1.72        Security
and Pledge Agreement. The term “Security and Pledge Agreement” shall mean that certain Security and Pledge Agreement
to be entered into by and between the Company and HRSI, in substantially the form attached hereto as Exhibit H, and
to be effective at Closing.

 

1.73        Seller
Fundamental Representations. The term “Seller Fundamental Representations” shall have the meaning set forth in
Section 7.1(b) hereof.

 

1.74        Stockholder.
 The term “Stockholder” shall mean the person specified in the recitals to this Agreement.

 

1.75        Stockholder
Parties. The term “Stockholder Parties” shall have the meaning set forth in Section 7.2(b) hereof.

 

1.76        Stockholder
Taxes. The term “Stockholder Taxes” means any and all Taxes imposed on the Company or HRSI for which the Company
or HRSI may otherwise be liable (a) for any pre-Closing period and for the portion of any Straddle Period ending on the Closing
Date (determined in accordance with Section 7.5); (b) resulting from a breach of the representations and warranties set forth in
Sections 3 and 4 (determined without regard to any materiality or knowledge qualifiers or any schedule items) or covenants set
forth in Section 7; (c) of any member of any consolidated group of which any of the Company (or any predecessor including HRSI)
is or was a member on or prior to the Closing Date by reason of Treasury Regulation § 1.1502-6(a) or any analogous or similar
foreign, state or local law; (d) of any other Person for which the Company or HRSI has been, is or will be liable as a transferee
or successor, by contract or otherwise; (e) that are social security, medicare, unemployment or other employment or withholding
Taxes owed as a result of any payment made to the Stockholder or HRSI pursuant to this Agreement or any other agreement; (f) that
are Transfer Taxes; and (g) any and all adjustments pursuant to Section 481 of the Code relating to a change in method of accounting
by the Company or HRSI prior to Closing.

 

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1.77        Straddle
Period. The term “Straddle Period” means any Tax period beginning on or before and ending after the Closing Date.

 

1.78        Straddle
Tax Return. The term “Straddle Tax Return” shall have the meaning set forth in Section 7.5(c) hereof.

 

1.79        Subsidiary
or Subsidiaries. The term “Subsidiary” or “Subsidiaries” means with respect to any Person (the “Owner”),
any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation’s
or other Person’s board of directors or similar governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other interest having such power only upon the happening
of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries; when used without reference to
a particular Person, “Subsidiary” or “Subsidiaries” means a Subsidiary or Subsidiaries of HRSI or when
the Asset Transfer takes place, the Company.

 

1.80        Tax
or Taxes. The term “Tax” or “Taxes” means any and all taxes, charges, fees, levies or other assessments,
including, without limitation, any net or gross income, alternative or add-on minimum, gross receipts, capital gains, excise, real
or personal property, sales, withholding, ad valorem, social security, occupation, use, severance, environmental, license, net
worth, payroll, employment, franchise, value added, excise stamp, occupation, premium, environmental, windfall profits, transfer
and recording taxes, custom, duty, escheat, unclaimed property or fees and charges, imposed by the IRS or any other Taxing Authority
(whether domestic or foreign including, without limitation, any state, county, local or foreign government or any subdivision or
taxing agency thereof (including a United States possession)), whether computed on a separate, consolidated, unitary, combined
or any other basis; and such term shall include any interest, whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments.

 

1.81        Taxing
Authority. The term “Taxing Authority” means any Governmental Officer responsible for the imposition of
any Tax.

 

1.82        Tax
Returns. The term “Tax Returns” means any report, return, document, declaration, claim or refund, or other information
or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including,
without limitation, information returns, schedules or attachments thereto and documents (i) with respect to or accompanying payments
of estimated Taxes or (ii) with respect to or accompanying requests for the extension of time in which to file any such report,
return, document, declaration or other information, including any schedule or attachment thereto and any amendment thereof.

 

1.83        Threshold.
The term “Threshold” shall have the meaning set forth in Section 7.2(a) hereof.

 

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1.84        Transferred
Assets.  The term “Transferred Assets” shall have the meaning set forth in Section 3.12 hereof.

 

1.85        Transfer
Taxes. The term “Transfer Taxes” shall mean any and all excise, sales, use, transfer (including real property transfer
or gains), stamp, documentary, filing, recordation and other similar Taxes (but excluding income taxes resulting from the sale),
if any, resulting from, relating to, or arising out of the transactions contemplated by this Agreement.

 

1.86        UCC-1
Financing Statement-Colorado. The term “UCC-1 Financing Statement-Colorado” shall mean that certain UCC-1 financing
statement in substantially the form attached hereto as Exhibit K-1, to be filed with the Secretary of State of Colorado
upon Closing in order to perfect the security interest granted by the Company to HRSI as set forth in the Security and Pledge Agreement.

 

1.87        UCC-1
Financing Statement-Utah. The term “UCC-1 Financing Statement-Utah” shall mean that certain UCC-1 financing statement
in substantially the form attached hereto as Exhibit K-2, to be filed with the Secretary of State of Utah upon Closing
in order to perfect the security interest granted by the Company to HRSI as set forth in the Security and Pledge Agreement.

 

1.88        USPTO.
The term “USPTO” shall mean the United States Patent & Trademark Office located in Washington, D.C.

 

1.89        USPTO
Security Interest Forms. The term “USPTO Security Interest Forms” shall mean those certain forms to be filed with
the USPTO in order to record a security interest in the patents and trademark that are being assigned by HRSI to the Company pursuant
to the IP Assignments, in substantially the forms attached hereto as Exhibit L.

 

1.90        Vehicle
Titles. The term “Vehicle Titles” shall mean any title evidencing the transfer of ownership from HRSI or Stockholder
to Buyer of any of the vehicles listed on Schedule 3.12(a) and pursuant to the Asset Transfer as set forth in Section 2.3.

 

1.91        Work
in Progress. The term “Work in Progress” shall mean the total dollar amount of all bona-fide jobs or work orders
of the Company, which are supported by proper customer purchase orders or work orders and accompanying documentation, whether completed
or not, which have not been billed or are used in the work or manufacturing process towards finishing any products or tools for
any job or work, computed by adding the following: (i) the costs of all materials used in all of such jobs or work orders; and
(ii) the cost of all labor used in performing such jobs or work orders.

 

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ARTICLE II

PURCHASE OF MEMBERSHIP
INTERESTS; ALLOCATED ASSETS

 

2.1          Sale
of Interests.  Subject to the terms and conditions set forth in this Agreement, HRSI agrees to sell, convey, transfer, assign
and deliver to the Buyer, and the Buyer agrees to purchase from HRSI, on the Closing Date, the Interests owned by HRSI, all such
Interests to be free and clear of all liens, claims or encumbrances.

 

2.2          Purchase
Price. Upon the terms and subject to the conditions contained herein, at Closing, the aggregate consideration for the sale,
transfer, assignment, conveyance and delivery of the Interests shall be an amount equal to (i) the Cash Consideration and (ii)
the executed Note. The Cash Consideration shall be paid by the Buyer to HRSI, by wire transfer of immediately available funds to
the account(s) designated by the Escrow Agent at Closing.

 

2.3          Transfer
of Assets. On or prior to the Escrow Signing Date, (i) HRSI shall transfer, assign, convey and deliver to the Company all of
the Transferred Assets as set forth in Section 3.12 hereof, except for HRSI’s defined benefit plan and the Excluded Assets,
free and clear of any Liens, other than Permitted Liens pursuant to the Bill of Sale; and (ii) Stockholder shall transfer, assign,
convey and deliver to the Company those Transferred Assets that Stockholder individually holds title to as set forth on Schedule
3.12(d) (the “Asset Transfer”). Upon Closing, the Company shall file the IP Assignments with the USPTO.

 

2.4          Allocation.
Pursuant to the Asset Transfer, the Company shall be allocated, free and clear of any and all Liens, other than Permitted Liens,
all of Stockholder’s or HRSI’s rights, title and interest in the Transferred Assets, including properties and rights
owned or held by or on behalf of Stockholder or HRSI, of every nature and description, both tangible and intangible, real or personal,
wherever such Transferred Assets are situated, whether or not reflected on the books and records of the Company, other than the
Excluded Assets (collectively, the “Allocated Assets”).

 

2.5          Purchase
Price Allocation. The Parties acknowledge and agree that the purchase and sale of the Interests pursuant to this Agreement
will be treated as a purchase and sale of the Allocated Assets for federal income tax purposes pursuant to Section 7.5 (h) (and
for purposes of any applicable state taxes that follow the federal income tax treatment). HRSI and the Buyer shall each file or
cause to be filed IRS Form 8594 (Asset Acquisition Statement) for its taxable year that includes the Closing Date in a manner consistent
with the allocation set forth on Schedule 2.5. In the event that any adjustment is required to be made to the asset allocation
set forth on Schedule 2.5 as a result of any adjustment to the consideration paid hereunder (and for this purpose, any payments
from one Party to the other under this Agreement after the Closing Date shall be treated as an adjustment to the consideration
paid hereunder), the Parties agree to consult in good faith on such adjustment and how such adjustment should be reflected in the
allocation hereunder. HRSI and the Buyer further agree not to take any Tax position inconsistent with any such allocation in connection
with (a) any examination of their respective Tax Returns or any refund claims; or (b) any litigation, investigations or other proceedings
involving any of their respective Tax Returns, except as required following a final determination by the IRS or a court of competent
jurisdiction or upon the consent of the other Party (not to be unreasonably conditioned or delayed).

 

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2.6          Assumption
of North Dakota Lease. Subject to the exceptions and exclusions of this Section 2.6, HRSI shall continue to pay rent on the
North Dakota Lease for the first full complete month after the Closing Date (the “Continued Rent”). Buyer shall
assume and agree to perform and pay, without duplication, HRSI for any obligation under the North Dakota Lease that may arise from
the Closing Date and thereafter (the “Assumed Liability”). With respect to the foregoing, the Parties agree
that in the event the Closing occurs and the Interests have been transferred to Buyer, the Company shall reimburse HRSI for the
Continued Rent within thirty (30) days thereafter. The Parties hereby acknowledge and agree that the Assumed Liability shall in
no way include any other debts, liabilities or obligations, whether accrued, absolute, contingent or otherwise, in contract or
in tort, of the Business, the Stockholder, HRSI, or when the Asset Transfer takes place the Company, including but not limited
to the Current Liabilities.

 

ARTICLE III

REPRESENTATIONS
AND WARRANTIES OF

THE STOCKHOLDER, HRSI AND THE COMPANY

 

As of the Execution
Date, the Escrow Signing Date and through the Closing Date, the Stockholder, HRSI and the Company, jointly and severally, represent
and warrant to Buyer the following:

 

3.1          Organization
and Good Standing of HRSI and the Company. The Company is a limited liability company duly organized, validly existing and
in good standing under the laws of the State of Utah. HRSI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas. The Company and HRSI are duly qualified to do business as foreign entities in all
states in which the nature of its business requires such qualification. The Company has and will have full corporate power and
authority to own, operate and lease each of its assets and the Transferred Assets in the manner currently owned, operated and leased
by it.

 

3.2          Equity;
Capital Stock of HRSI and Interests of the Company.

 

(i)          Schedule
3.2(i) sets forth the number of shares of HRSI Stock outstanding or subject to issuance upon the exercise of outstanding, unexercised,
vested stock options or warrants. Schedule 3.2(i) sets forth (a) all the issued and outstanding capital stock and securities
convertible into HRSI Stock and the holders thereof, and (b) all of the holders of the HRSI Stock. Except as set forth on Schedule 3.2(i),
there are no outstanding subscriptions, options, convertible securities, warrants or calls of any kind issued or granted by, or
binding upon, HRSI to purchase or otherwise acquire or to sell or otherwise dispose of any security of or equity interest in any
of HRSI.

 

(ii)         Schedule
3.2(ii) sets forth the percentage of Interests outstanding or subject to issuance upon the exercise of outstanding, unexercised,
vested options or warrants. Schedule 3.2(ii) sets forth (a) all the issued and outstanding percentage of membership interests
and securities convertible into Interests and the holders thereof, and (b) all of the holders of the Interests. Except as set forth
on Schedule 3.2(ii), there are no outstanding subscriptions, options, convertible securities, warrants or calls of
any kind issued or granted by, or binding upon, the Company to purchase or otherwise acquire or to sell or otherwise dispose of
any security of or equity interest in any of the Company.

 

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3.3          Authorization.
HRSI has full corporate power and authority under its certificate of formation and Bylaws, and HRSI’s Board of Directors
and the Stockholder have taken all necessary action to authorize each of them, to execute and deliver this Agreement and the Exhibits
and Schedules hereto, to consummate the transactions contemplated herein and to take all actions required to be taken by it pursuant
to the provisions hereof, and each of this Agreement and the Exhibits hereto constitutes the valid and binding obligation of HRSI
enforceable in accordance with its terms. The Company has full corporate power and authority under its certificate of formation
and Operating Agreement, and the Company’s Board of Managers and HRSI have taken all necessary action to authorize each of
them, to execute and deliver this Agreement and the Exhibits and Schedules hereto, to consummate the transactions contemplated
herein and to take all actions required to be taken by it pursuant to the provisions hereof, and each of this Agreement and the
Exhibits hereto constitutes the valid and binding obligation of the Company enforceable in accordance with its terms.

 

3.4          Non-Contravention.
Neither the execution and delivery of this Agreement or any documents executed in connection herewith, nor the consummation of
the transactions contemplated herein or therein, does or will violate, conflict with, result in a breach of or require notice or
consent under any law, the formation documents or governing documents of the Company or HRSI or any provision of any agreement
or instrument to which the Company or HRSI is a party.

 

3.5          Consents
and Approvals.  Except as disclosed on Schedule 3.5 (the “HRSI Consents”), no consent, approval or
authorization of, or filing or registration with, any governmental or regulatory authority, or any other Person, is required to
be made or obtained by the Company, HRSI or the Stockholder in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby.

 

3.6          Valid
and Binding Obligations.  Upon the execution and delivery hereof, this Agreement will constitute the legal, valid, and binding
obligation of the Company, HRSI and the Stockholder, enforceable in accordance with its terms, except as limited by bankruptcy
laws, insolvency laws, and other similar laws affecting the rights of creditors generally.

 

3.7          Validity.
There are no pending, or to the Knowledge of Stockholder, HRSI and the Company, threatened, judicial or administrative actions,
proceedings or investigations which question the validity of this Agreement or any action taken or contemplated by the Stockholder,
the Company or HRSI in connection with this Agreement.

 

3.8          Litigation.
Except as set forth on Schedule 3.8, there is no investigation, claim or proceeding or litigation of any type pending
or, to the Stockholder’s, the Company’s and HRSI’s Knowledge, threatened: (i) involving the Company or HRSI;
or (ii) that might reasonably be expected to have a Material Adverse Effect on the Company or HRSI, and there is no judgment, order,
writ, injunction or decree of any court, government or governmental agency, or arbitral tribunal (i) against or involving the Company
or HRSI, or (ii) that might reasonably be expected to have a Material Adverse Effect on the Company or HRSI.

 

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3.9          Continuity
Prior to Closing Date.  Since January 1, 2013 and up to the Closing Date, HRSI, and when the Asset Transfer takes place, the
Company has and will conduct the Business in the usual and customary manner and in the ordinary course of business, consistent
with its historical practice and, except as set forth on Schedule 3.9, there has not been:

 

(i)          any
sale, lease, distribution, transfer, mortgage, pledge or subjection to Lien of the Transferred Assets, except sales or other dispositions
of (i) inventory and obsolete or surplus equipment in the ordinary and usual course of business or sales or (ii) assets involving
consideration in excess of $10,000, individually, or $25,000, in the aggregate;

 

(ii)         any
material transaction by HRSI or the Company not in the ordinary and usual course of business that involves consideration in excess
of $25,000;

 

(iii)        any
material damage, destruction or loss to the Transferred Assets whether or not covered by insurance that exceeds $25,000 in the
aggregate;

 

(iv)        a
termination, or to the Stockholder’s, HRSI’s or the Company’s Knowledge, a threatened termination, or material
modification, in each case not in the ordinary course of business, of any material contract, or relationship of HRSI, or when the
Asset Transfer takes place, the Company, with any customer or supplier;

 

(v)         any
change in accounting methods or principles or the application thereof or any change in policies or practices with respect to items
affecting working capital except to the extent that such changes were mandated by applicable accounting standards;

 

(vi)        any
delay or reduction in capital expenditures in contemplation of this Agreement or otherwise, or any failure to continue to make
capital expenditures in the ordinary course of business consistent with past practice;

 

(vii)       any
acceleration of shipments, sales or orders or other similar action in contemplation of this Agreement or otherwise not in the ordinary
course of business consistent with past practice;

 

(viii)      the
execution of any consulting arrangement or similar document or agreement;

 

(ix)         any
waiver of any rights that, singly or in the aggregate, are material to HRSI, or when the Asset Transfer takes place, the Company
or the financial condition or results of operation of HRSI, or when the Asset Transfer takes place, the Company;

 

(x)          any
labor strikes, union organizational activities or other similar occurrence; or any contract or commitment to do or cause to be
done any of the foregoing.

 

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Additionally, since January
1, 2013, HRSI, or when the Asset Transfer takes place, the Company has not made any payments to any Independent Contractors (including
rent or lease payments) other than payments as compensation in the ordinary course of business.

 

3.10       Contracts
and Commitments. Schedule 3.10 lists all agreements, leases, commitments, contracts, undertakings or understandings
to which HRSI, or when the Asset Transfer takes place, the Company is a party, including but not limited to trademark, trade name,
trade secret, software, technology, or patent license agreements, service agreements, lease, purchase or sale agreements, supply
agreements, distribution or distributor agreements, purchase orders, customer orders and equipment rental agreements that are either
material to HRSI, or when the Asset Transfer takes place, the Company or involve consideration with a value of $25,000 or more
(collectively, the “Contracts”). HRSI, or when the Asset Transfer takes place, the Company is not in breach
of or default under and HRSI, or when the Asset Transfer takes place, the Company has not received any communication claiming that
HRSI, or when the Asset Transfer takes place, the Company is in breach of or in default under any agreement, lease, contract or
commitment, including but not limited to the Contracts. Each Contract is a valid, binding and enforceable agreement of HRSI, or
when the Asset Transfer takes place, the Company and the other Persons thereto. There has not occurred any breach or default under
any Contract on the part of the other Persons thereto, and no event has occurred, which with the giving of notice or the lapse
of time, or both, would constitute a default under any Contract. Except as set forth on Schedule 3.10, there is no dispute
between the parties to any Contract as to the interpretation thereof or as to whether any party is in breach or default thereunder,
and no party to any Contract has indicated its intention to, or suggested it may evaluate whether to, terminate any Contract. Except
as set forth on Schedule 3.10 hereto, HRSI, or when the Asset Transfer takes place, the Company is not a party to any
covenant or obligation of any nature limiting the freedom of HRSI, or when the Asset Transfer takes place, the Company to compete
in any line of business after the Closing.

 

3.11       Taxes.
 Except as set forth in Schedule 3.11 hereto:

 

(i)          All
Tax Returns that are required to be filed by any Laws (taking into account all extensions) for any period ending on or before the
Closing Date for, by, on behalf of or with respect to HRSI, or when the Asset Transfer takes place, the Company, have been or will
be timely filed with the appropriate foreign, federal, state and local authorities. All such Tax Returns as so filed disclose all
Taxes required to be paid for the periods covered thereby. All such Tax Returns are true and correct in all material respects.
All Taxes shown to be due and payable on such Tax Returns or related to such Tax Returns have been timely paid in full;

 

(ii)         All
such Tax Returns and the information and data contained therein have been, in all material respects, properly and accurately compiled
and completed, fairly presented in all material respects the information purported to be shown therein, and reflect all material
liabilities for Taxes for the periods covered by such Tax Returns;

 

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(iii)        None
of such Tax Returns are now under audit or examination by any foreign, federal, state or local authority and there are no agreements,
waivers or other arrangements providing for an extension of time with respect to the assessment or collection of any Tax or deficiency
of any nature against HRSI, or when the Asset Transfer takes place, the Company, or their properties, or with respect to any such
Tax Return, or any suits or other actions, proceedings, disputes, investigations or claims now pending or threatened against HRSI,
or when the Asset Transfer takes place, the Company or its properties with respect to any Tax, or any matters under discussion
with any foreign, federal, state or local authority relating to any Tax, or any claims for any additional Tax asserted by any such
authority;

 

(iv)        All
Taxes due and required to be paid by HRSI, or when the Asset Transfer takes place, the Company, on or before the Closing (whether
or not shown on a Tax Return) or assessed and due and required to be paid by HRSI, or when the Asset Transfer takes place, the
Company, on or before the Closing Date, have been timely paid in full;

 

(v)         Tax
Returns for the period prior to the Closing that are due after the Closing and are the responsibility of HRSI, or when the Asset
Transfer takes place, the Company will be timely filed and any Taxes due thereunder will be paid in full in a timely manner;

 

(vi)        All
withholding Tax and Tax deposit requirements imposed on HRSI, and when the Asset Transfer takes place, the Company or their properties
for any and all periods prior to and including the Closing Date have been timely withheld and to the extent required have been
or will be satisfied in full on or before the Closing Date;

 

(vii)       All
state and local employment and unemployment Taxes that HRSI, or when the Asset Transfer takes place, the Company has been required
to withhold have been properly withheld and remitted to the proper Taxing Authority;

 

(viii)      HRSI,
or when the Asset Transfer takes place, the Company has made adequate provision for the payment in full of any and all unpaid Taxes
of the Business for any and all periods or portions thereof ending on or before the Closing Date;

 

(ix)         Neither
HRSI, or when the Asset Transfer takes place, the Company, has made any payments, is obligated to make any payments, or is a party
to any agreement that under certain circumstances could obligate it to make any payments that will be deductible under Section 280G
(relating to parachute payments) of the Code;

 

(x)          Neither
HRSI, and when the Asset Transfer takes place, nor the Company is a party to any tax allocation or tax sharing agreement;

 

(xi)         Neither
HRSI, and when the Asset Transfer takes place, nor the Company (i) has been a member of an affiliated group filing a consolidated
federal income Tax Return (other than a group the common parent of which is the Company), or (ii) has liability for Taxes of any
Person (other than any Subsidiaries) under Treasury Regulations § 1.1502-6 (or any similar provision of foreign, state or
local law), as a transferee or successor, by contract, or otherwise;

 

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(xii)        There
are no Liens for Taxes (other than for current Taxes not yet due and payable) upon any assets of HRSI, and when the Asset Transfer
takes place, the Company;

 

(xiii)       Neither
HRSI, and when the Asset Transfer takes place, nor the Company has been a “United States real property holding corporation”
within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code;

 

(xiv)      Neither
HRSI, and when the Asset Transfer takes place, nor the Company has made an election, and is not required, to treat any of its assets
as tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code or under any
comparable provision of foreign, state or local Tax law;

 

(xv)       Neither
HRSI, and when the Asset Transfer takes place, nor the Company has filed a consent pursuant to the collapsible corporation provisions
of Section 341(f) of the Code (or any corresponding provision of foreign, state or local law) or agreed to have Section 341(f)(2)
of the Code (or any corresponding provision of state or local law) apply to any disposition of any asset of HRSI, and when the
Asset Transfer takes place, the Company;

 

(xvi)      Neither
HRSI, and when the Asset Transfer takes place, nor the Company has requested or received any ruling from any foreign, federal,
state or local authority, or signed any binding agreement with any such authority (including, without limitation, any advance pricing
agreement), nor taken any action that would impact the amount of Tax liability of HRSI, and when the Asset Transfer takes place,
the Company after the Closing Date;

 

(xvii)     The
amount accrued for Taxes by HRSI, and when the Asset Transfer takes place, the Company, if any, is sufficient for the payment of
all Taxes from the period ending on or before the Closing Date; and

 

(xviii)    Neither
HRSI, and when the Asset Transfer takes place, nor the Company has entered into a listed or reportable transaction as defined in
Section 6707A of the Code.

 

(xix)       HRSI
(and any predecessor of HRSI) has been a validly electing Subchapter S corporation within the meaning of Sections 1361 and 1362
of the Code since January 1, 2012 and HRSI will be a Subchapter S corporation up to and including the day before the Closing Date.
HRSI shall not take or allow any action that would result in the termination of HRSI’s status as a validly electing Subchapter
S corporation prior to or on the Closing Date.

 

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(xx)        Neither
HRSI, and when the Asset Transfer takes place, nor the Company has potential liability for any Tax under Section 1374 of the Code
except as set forth in Schedule 3.11. Neither HRSI, and when the Asset Transfer takes place, nor the Company has, in the
past ten (10) years, acquired assets from another corporation in a transaction in which HRSI’s, and when the Asset Transfer
takes place, the Company’s tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the transferor.

 

(xxi)       There
is no material property or obligation of HRSI, and when the Asset Transfer takes place, the Company, including uncashed checks
to vendors, customers or employees, nonrefunded overpayments, or unclaimed subscription balance, that is escheatable or reportable
as unclaimed property to any state or municipality under any applicable escheatment or unclaimed property laws.

 

(xxii)      HRSI,
and when the Asset Transfer takes place, nor the Company, has disclosed on its Tax Returns all positions taken therein that could
give rise to understatement of Tax within the meaning of Section 6662 of the Code.

 

(xxiii)     There
is no action, suit, proceeding, claim, audit, or investigation pending or, to the Knowledge of HRSI, and when the Asset Transfer
takes place, the Company, threatened, against or with respect to HRSI or the Company.

 

(xxiv)    Neither
HRSI, and when the Asset Transfer takes place, nor the Company, owns any interest in real property in any jurisdiction in which
a Tax is imposed on the transfer of a controlling or beneficial interest in an entity that owns any interest in real property;

 

(xxv)     No
claim, inquiry, or assertion has been made by any Taxing Authority in any jurisdiction where HRSI, and when the Asset Transfer
takes place, the Company, has not previously filed Tax Returns that HRSI, and when the Asset Transfer takes place, the Company,
may be subject to taxation (or liable for a Tax) in that jurisdiction;

 

(xxvi)    For
federal income Tax purposes, when the Asset Transfer takes place, the Company will be, from formation, an entity whose existence
is not separate from its owner (HRSI), i.e., it is disregarded, and no contrary election has been made.

 

3.12       Title
to Assets. Other than the Excluded Assets and the Plans, Schedule 3.12(a) is a list of all Stockholder’s,
HRSI’s, and when the Asset Transfer takes place, the Company’s tangible personal property including the fixtures, furnishings,
furniture, equipment other than Rental Equipment (the “Equipment”), motor vehicles, tools, supplies, spare parts,
computers, printers, software, files, books, records, and all other tangible personal property owned by Stockholder or HRSI, and
when the Asset Transfer takes place, the Company, or used by HRSI, and when the Asset Transfer takes place, the Company, in connection
with the conduct of the Business and which were transferred from HRSI or the Stockholder to the Company pursuant to Section 2.3
hereof (the “Transferred Assets”). Attached as Schedule 3.12(b) is a list of HRSI’s, and when the
Asset Transfer takes place, the Company’s excluded assets including but not limited to all Current Assets (the “Excluded
Assets”). Attached as Schedule 3.12(c) is a list of HRSI’s, and when the Asset Transfer takes place, the
Company’s equipment that is leased (the “Rental Equipment”). Except as set forth in Schedule 3.12(d)
or except with respect to Permitted Liens, HRSI, and when the Asset Transfer takes place, the Company has good and indefeasible
title to all of the Transferred Assets that are used or needed in the Business, free and clear of all Liens, other than Permitted
Liens.

 

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3.13       Trademarks,
Trade Names and Intellectual Property. Schedule 3.13 contains an accurate and complete list of: (i) all patents
and pending patent applications owned by Stockholder and/or HRSI, and when the Asset Transfer takes place, the Company, directly
or indirectly, used or needed in the Business and all invention memoranda owned by Stockholder and/or HRSI, and when the Asset
Transfer takes place, the Company used or needed in the Business, (ii) all registered United States and foreign trademarks, service
marks, trade names and logos owned or used by Stockholder and/or HRSI, and when the Asset Transfer takes place, the Company, and
all registrations thereof, (iii) all unregistered United States and foreign trademarks, trade names and logos used by Stockholder
and/or HRSI, and when the Asset Transfer takes place, the Company, and (iv) all registered United States and foreign copyright
registrations owned by Stockholder and/or HRSI, and when the Asset Transfer takes place, the Company. Stockholder and/or HRSI,
and when the Asset Transfer takes place, the Company owns all rights in the patents and registrations listed in Schedule 3.13
without any claim or right of joint ownership or separate ownership by any third party. Stockholder and HRSI, and when the Asset
Transfer takes place, the Company has the right to use all copyrights, trademarks, trade names, logos, patents, pending patent
applications and invention memoranda referred to herein. There is no pending or, to the Knowledge of Stockholder or HRSI, threatened,
action or claim that would impair any such right. Stockholder and HRSI, and when the Asset Transfer takes place, the Company has
not received any request for indemnity or defense of any claim based in whole or in part on a claim that the products infringe
or violate any patent rights, copyrights, trade secret rights, intellectual property rights, or other rights of any third party.
The patents listed on Schedule 3.13 are valid and enforceable and, except as identified on Schedule 3.13, are
not infringed by any third party. The trademark, service mark, trade name and copyright registrations in Schedule 3.13
are valid and enforceable and to the Knowledge of Stockholder, HRSI and the Company, are not infringed by any third party. Neither
Stockholder nor HRSI, or any of their Affiliates, and when the Asset Transfer takes place, the Company is in breach of and has
not received any communication claiming that Stockholder or HRSI, and when the Asset Transfer takes place, nor the Company is in
breach of any license. All rights, title and interest in the intellectual property identified on Schedule 3.13 (the “Intellectual
Property”) shall be assigned by HRSI to the Company prior to Closing and the Company shall continue to own all rights,
title and interest in such Intellectual Property until the Note is paid in full; provided however, that the Company shall pledge
the Intellectual Property to HRSI to secure Buyer’s obligations under the Note, as more fully set forth in the Security and
Pledge Agreement. Pursuant to the foregoing and to effectuate such security interests, upon Closing, HRSI shall file the UCC-1
Financing Statement-Colorado with the Secretary of State of Colorado, the UCC-1 Financing Statement-Utah with the Secretary of
State of Utah and the USPTO Security Interest Forms with the USPTO.

 

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3.14       Financial
Statements. (i) A copy of the financial statements of HRSI as of and for the audited years ended December 31, 2011 and
2012, (ii) the financial statements of HRSI as of and for the unaudited quarters ended September 30, 2013 and (iii) each month
ended thereafter through November 30, 2013, have previously been delivered to Buyer (the “Financial Statements”),
and are true, accurate and complete, were prepared in accordance with commercially reasonable accounting principles applied on
a consistent basis and fairly present the financial condition and results of operations of HRSI, except that they lack footnotes
and are subject to normal year-end audit adjustments that will not be material.  Additionally, the Financial Statements shall
include each month ended after November 30, 2013 including the audited year ended December 31, 2013 through April 30, 2014, and
shall be delivered to Buyer promptly when such Financial Statements are prepared in accordance with the foregoing. The financial
statements of the Company when the Asset Transfer takes place, shall be the same in all material respects as the most recent Financial
Statements of HRSI except for any Excluded Assets that are not transferred pursuant to the Asset Transfer and except that the Company
shall not have any liabilities as of the time of the Escrow Signing Date and as of the Closing Date.

 

3.15       Condition
of Assets. Except as disclosed on Schedule 3.15, as of the Closing Date, all of the Transferred Assets, including but
not limited to, the Equipment, Rental Equipment and Inventory, are in good, serviceable condition and fit for the particular purposes
for which they are used in the Business, subject only to normal maintenance requirements and normal wear and tear reasonably expected
in the ordinary course of business.

 

3.16       Liabilities.
Except as set forth in Schedule 3.16 or in the Financial Statements and notes thereto referred to in Section 3.14,
there is no existing, contingent or, to the Knowledge of HRSI and the Company, threatened, liability, obligation, Lien or claim
of any nature (absolute, accrued, contingent or otherwise) that relates to or has been or may be asserted against HRSI, and when
the Asset Transfer takes place, the Company, other than Permitted Liens or liabilities arising after the dates of the Financial
Statements in the ordinary course of business consistent with past practice.

 

3.17       Employees
and Related Matters.

 

(i)          Schedule 3.17.1(a)
is a complete list of all (a) employees of HRSI, and when the Asset Transfer takes place, the Company, none of which employees
of HRSI will be transferred to or otherwise employed by the Company in connection with this Agreement or the Asset Transfer and
Schedule 3.17.1(b) is a complete list of all (b) Independent Contractors.

 

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(ii)         Except
as set forth in Schedule 3.17.2, no employee or Independent Contractor has made any claim or, to the Knowledge of HRSI or
the Company, has any basis for any action or proceeding against HRSI or the Company, arising out of any statute, ordinance regulation
or common law relating to discrimination in employment or employment practices, harassment, occupational health and safety standards
or worker’s compensation. Without limiting the generality of the foregoing, no notice has been received by HRSI or the Company
of any complaint filed by any of the employees or Independent Contractors against any of HRSI or the Company claiming that HRSI
or the Company has violated any applicable employee or human rights or similar legislation in the jurisdictions in which the Company
conducts business or of any complaints or proceedings of any kind involving HRSI or the Company or, to the Knowledge of HRSI or
the Company, any of the employees of HRSI or the Company before the National Labor Relations Board or other administrative body.
There are no outstanding orders, charges or complaints against HRSI or the Company under the Occupational Health and Safety Act
(or any applicable health and safety legislation in the jurisdictions in which the Company conducts business). All levies, assessments
and penalties made against HRSI or the Company pursuant to the workers’ compensation and employer liability laws of every
jurisdiction in which HRSI or the Company now conducts or has ever conducted business have been paid by HRSI or the Company and
neither HRSI nor the Company has been reassessed under any such legislation since HRSI’s or the Company’s inception.

 

(iii)        Except
as accrued in the Financial Statements, no employee, Independent Contractor, consultant or agent has made or, to the Knowledge
of HRSI or the Company, has any basis for making any claim (whether under law, any employment or consulting agreement or otherwise)
against HRSI or the Company on account of or for (i) overtime pay, other than overtime for the current payroll period, (ii) wages
or salary for any period other than the current payroll period, (iii) vacation time off, sick time or pay in lieu of any of the
foregoing, other than that earned in respect of the current year, or (iv) any violation of any statute, ordinance or regulation
relating to minimum wages or other fair labor standards.

 

(iv)        Except
for remuneration paid to employees, Independent Contractors, consultants and agents in the usual and ordinary course of business
and made at current rates of remuneration (which rates have not been increased since December 31, 2012, except as set forth on
Schedule 3.17.4) and except as disclosed in Schedule 3.17.4, no payments have been made or authorized since December
31, 2012 by HRSI or the Company to officers, directors or employees of HRSI or the Company.

 

(v)         Neither
HRSI, and when the Assets Transfer takes place, nor the Company is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor organization, U.S. or foreign, and to the Knowledge of
HRSI or the Company, there are no organizational efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of HRSI or the Company. There is no labor strike or labor disturbance pending or,
to the Knowledge of HRSI or the Company, threatened, against HRSI or the Company, and neither HRSI nor the Company has experienced
a work stoppage.

 

(vi)        Except
as set forth in Schedule 3.17.6, there are no outstanding written employment contracts, sales, services or consulting agreements,
or any bonus arrangements with any employee or Independent Contractor, past or present, of HRSI or the Company, nor are there any
outstanding oral contracts of employment which are not terminable at will by HRSI or the Company in accordance with applicable
law.

 

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3.18       No
Material Change. There has been no change in the Business, prospects, results of operations, assets or financial position of
HRSI or the Company from December 31, 2012, which has had or can reasonably be expected to have a Material Adverse Effect, and
no event has occurred which could reasonably be expected to lead to or cause such a change.

 

3.19       Compliance
with Laws.  Neither HRSI nor the Company is in violation of any provision of any law, decree, order, regulation, license, permit,
consent, approval, authorization or qualification or order (“Laws”), including, without limitation, those relating
to health, the environment or hazardous substances, and neither HRSI nor the Company has received any notice of any alleged violation
of such Laws.

 

3.20       Insurance.
With respect to HRSI or the Company’s insurance, (i) HRSI or the Company has heretofore delivered to Buyer a list and copies
of all insurance policies of HRIS or the Company or relating to the conduct of the Business of HRSI or the Company, (ii) such policies
are in full force and effect and neither HRSI nor the Company is in default under any of them, (iii) Neither HRSI nor the Company
has been denied insurance coverage in the past three (3) years nor suffered any lapse in coverage, (iv) the insurance coverage
of HRSI or the Company is of a kind and type routinely carried by corporations of similar size engaged in similar lines of business,
and (v) neither HRSI nor the Company has any self-insurance or co-insurance programs.

 

3.21       Government
Licenses, Permits and Related Approvals. Schedule 3.21 hereto sets forth a list of all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities required for the conduct of business by HRSI or
the Company, all of which are in full force and effect and are not being violated.

 

3.22       Safety
Reports. Schedule 3.22 sets forth a complete listing of all injury reports, worker’s compensation reports
and claims, safety citations and reports and OSHA reports involving HRSI or the Company since HRSI’s or the Company’s
inception.

 

3.23       Transactions
with Certain Persons. Except as set forth on Schedule 3.23, neither HRSI nor the Company has, directly or indirectly,
purchased, leased or otherwise acquired any property or obtained any services from, or sold, leased or otherwise disposed of any
property or furnished any services to, or otherwise dealt with (except with respect to remuneration for services rendered as a
director, officer or employee of HRSI or the Company), in the ordinary course of business or otherwise, any Stockholder, member
or any Affiliate thereof. Except as set forth on Schedule 3.23, neither HRSI nor the Company owes any amount to, or
has any contract with or commitment to, any of its Affiliates, the Stockholder, members or any directors, officers, employees or
consultants (other than compensation for current services not yet due and payable and reimbursement of expenses arising in the
ordinary course of business not in excess of $10,000 in the aggregate), and none of such Persons owes any amount to HRSI or the
Company.

 

    	23

    	 

    

  

3.24       Leased
Real Property. Schedule 3.24 attached hereto contains a complete list of all real property leased or subleased (as lessee
or lessor) by HRSI or the Company (the “Leased Real Property”). Neither HRSI nor the Company is in breach or
default of any Leased Real Property, and no event has occurred which, with notice or lapse of time or both, would constitute such
a breach or default or permit termination, modification or acceleration under the Leased Real Property; provided however, that
neither HRSI nor the Company has a written lease agreement on any Leased Real Property. HRSI, or when the Asset Transfer takes
place, the Company has a verbal lease on the North Dakota Lease that may or may not be assignable, and neither HRSI nor the Company
makes any representation with regard to the assignability or assumability of the North Dakota Lease.

 

3.25       Intentionally
Omitted.

 

3.26       Names
and Locations. Except as set forth on the attached Schedule 3.26, during the three-year period prior to the execution
and delivery of this Agreement, none of HRSI or the Company nor any of its predecessors have used any name or names under which
they have invoiced account debtors, maintained records concerning its assets or otherwise conducted business. Except for Company’s
equipment leased to third parties in the ordinary course of business, all of the tangible assets and properties of HRSI or the
Company is located at the locations set forth on the Schedule 3.26.

 

3.27       Warranties.
 All products sold and services rendered by HRSI or the Company have been in conformity in all respects with all applicable
contractual commitments and all express and implied warranties, and there is no reasonable basis for any liability for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against it giving rise to any such
liability for replacement or repair thereof or curing or providing additional services or other damages in connection therewith
in excess of any warranty reserve specifically established with respect thereto and included on the Financial Statements or to
be included on the books of HRSI or the Company as of the Closing Date. No services rendered by HRSI or the Company are subject
to any guaranty, warranty or other indemnity materially beyond the applicable standard terms and conditions of such sale, lease
or service (including as a result of any course of conduct between HRSI or the Company and any Person or as a result of any statements
in any of HRSI’s or the Company’s product, service or promotional literature). Neither HRSI nor the Company has received
any notice of any claims for (and the Stockholder, HRSI and Company have no Knowledge of any threatened claims for) and HRSI or
the Company has not had any extraordinary product returns, product recalls, warranty obligations or additional services relating
to any of its products or services.

 

3.28       Customers
and Suppliers. Schedule 3.28 attached hereto sets forth (a) a list of all customers of HRSI or the Company, and (b)
a list of all suppliers of HRSI or the Company, for the full calendar years ending 2011 and 2012 and for the last seven (7) months
ended July 31, 2013 (collectively, the “Customers and Suppliers List”). Neither HRSI nor the Company has received
any notice from any customer of HRSI or the Company to the effect that, and HRSI or the Company does not have any reason to believe
that, such customer will stop, materially decrease the rate of, or materially change the terms (whether related to payment, price
or otherwise) with respect to, buying materials, products or services from HRSI or the Company (whether as a result of the consummation
of the transactions contemplated hereby or otherwise). Neither HRSI nor the Company has received any notice from any supplier to
HRSI or the Company to the effect that, and neither HRSI nor the Company has reason to believe that, such supplier will stop, materially
decrease the rate of, or materially change the terms (whether related to payment, price or otherwise) with respect to, supplying
materials, products or services to HRSI or the Company (whether as a result of the consummation of the transactions contemplated
hereby or otherwise).

 

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3.29       Indebtedness.
Neither HRSI nor the Company is subject to nor will be subject to any Indebtedness through the Closing Date. There are no outstanding
powers of attorney executed on behalf of HRSI or the Company and neither HRSI nor the Company is a guarantor or otherwise liable
for any Indebtedness of any other Person, firm or corporation other than endorsements for collection in the ordinary course of
business.

 

3.30       Employee
Benefits. 

 

3.30.1   Except
as set forth on Schedule 3.30.1, the Independent Contractors of HRSI and when the Asset Transfer takes place, the
Company, are not entitled to participate in or receive any benefits from any type of the following plans: bonus, deferred and
incentive compensation, profit sharing, pension, retirement, vacation, sick leave, leave of absence, hospitalization, severance,
fringe benefit plans, arrangements or agreements, “employee pension benefit plans” as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or any “employee welfare
benefit plans” as defined in Section 3(1) of ERISA, which HRSI maintains, to which HRSI contributes or has an obligation
to contribute, in which HRSI’s employees are participants or with respect to which HRSI has any liability or reasonable
expectation of liability (individually a “Plan” and collectively the “Plans”). Except as
set forth in Schedule 3.30.1, HRSI is not subject to any legal, contractual, equitable or other obligation (nor have
they any formal plan or commitment, whether legally binding or not) to enter into any form of compensation or employment agreement
or to establish any employee benefit plan of any nature, including (without limitation) any pension, profit sharing, welfare,
post-retirement welfare, stock option, stock or cash award, non-qualified deferred compensation or executive compensation plan,
policy or practice or to modify or change any existing Plan. For purposes of this Section 3.30, all references to HRSI shall
be deemed to refer to HRSI and any trade or business, whether or not incorporated, which together with HRSI would be deemed or
treated as a “single employer” within the meaning of Section 414 of the Code or ERISA Section 4001. With
respect to each Plan disclosed on Schedule 3.30.1, if any, HRSI has made available to Buyer a true and correct copy of each of
the following, as applicable:

 

(i)          the
current plan document (including all amendments adopted since the most recent restatement) and its most recently prepared summary
plan description and all summaries of material modifications prepared since the most recent summary plan description, and all material
Independent Contractor communications relating to such plan;

 

(ii)         annual
reports or Section 6039D of the Code information returns (IRS Form 5500 Series), including financial statements, since HRSI’s
inception;

 

(iii)        all
contracts relating to any plan with respect to which HRSI may have any liability, including, without limitation, each related trust
agreement, insurance contract, service provider contract, subscription or participation agreement, or investment management agreement
(including all amendments to each such document);

 

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(iv)        the
most recent IRS determination letter or other opinion letter with respect to the qualified status under Section 401(a) of
the Code of such plan or under Section 501(c)(9) of the Code of the related trust; and

 

(v)         actuarial
reports or valuations for the last two (2) years.

 

3.30.2  
There has been no breach or violation of or default under any Plan that will subject HRSI, the Company, or such Plan to any
Taxes, penalties or claims. Each Plan is in compliance with the provisions of all applicable laws, rules and regulations,
including, without limitation, ERISA and the Code, and each Plan intended to be qualified under Section 401 of the Code
has been maintained in compliance with, and currently complies with, all qualification requirements of the Code in form and
operation, including, but not limited to, requirements with respect to leased employees, as defined in Section 414(n) of
the Code. Other than claims for benefits in the ordinary course, there is no material claim pending, or, to the Knowledge of
HRSI or the Stockholder, threatened, involving any Plan by any Person against such Plan. No Plan is subject to ongoing audit,
investigation or other administrative proceeding of the IRS, the Department of Labor or any other governmental agency, and no
Plan is the subject of any pending application for administrative relief under any voluntary compliance program of the IRS,
the Department of Labor or any other governmental entity.

 

3.30.3   None
of the Plans (i) is subject to Title IV of ERISA or the minimum funding requirements of Section 412 of the Code or Section 302
of ERISA, (ii) is a plan of the type described in Section 4063 of ERISA or Section 413(c) of the Code, (iii) is a “multiemployer
plan” (as defined in Section 3(37) of ERISA), or (iv) provides for medical or other insurance benefits to current or
future retired employees or former employees of HRSI (other than as required for group health plan continuation coverage under
Section 4980B of the Code or applicable state law). No under-funded pension plan subject to Section 412 of the Code has
been terminated by or transferred out of HRSI. HRSI has not participated in or contributed to, or had an obligation to contribute
to, any multiemployer plan (as defined in ERISA Section 3(37)) and has no withdrawal liability with respect to any multiemployer
plan. There has been no transaction that is prohibited under Section 4975 of the Code or Section 406 of ERISA and not
exempt under Section 4975 of the Code or Section 408 of ERISA, respectively, in relation to any Plans.

 

3.30.4   Except
as set forth in Schedule 3.30.4, no Independent Contractor of HRSI shall accrue or receive additional benefits, service
or accelerated rights to payment of benefits under any Plan or become entitled to severance, termination allowance or similar payments
as a result of the transactions contemplated by this Agreement.

 

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3.30.5   Except
as set forth in Schedule 3.30.5, HRSI has the right to, in any manner, and without the consent of any Independent Contractor,
employee, beneficiary or dependent, employees’ organization, or other Person, terminate, modify or amend any Plan (or their
participation in any such Plan) at any time sponsored, maintained or contributed to by HRSI, effective as of any date before, on
or after the Closing Date except to the extent that any retroactive amendment would be prohibited by Section 204(g) of ERISA
or would adversely affect a vested accrued benefit or a previously granted award under any such plan not subject to Section 204(g)
of ERISA.

 

3.30.6   Schedule 3.30.6
sets forth a complete list of every employment, consulting or other services agreement or arrangement to which HRSI or the Company
is a party, and HRSI and the Company have made available to Buyer a true and correct copy of each such agreement or arrangement.

 

3.30.7   Neither
HRSI nor the Company is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, and to the Knowledge of HRSI and the Company, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or threatened.

 

3.30.8   Neither
HRSI nor the Company has received any written complaint of any unfair labor practice or other unlawful employment practice or any
written notice of any material violation of any federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives; and there are no unfair labor practice charges or other employee related complaints against HRSI or the Company
pending or, to the Knowledge of HRSI and the Company, threatened, before any governmental authority.

 

3.31       Environmental
Matters. 

 

3.31.1   As
used in this Agreement, the term “release” and “threatened release” have the meanings specified in CERCLA,
and the terms “solid waste” and “disposal” (or “disposed”) have the meanings specified in RCRA;
provided, however, that (i) to the extent the laws of any jurisdiction applicable to the Company or any of its properties
or assets establish a meaning for “release,” “solid waste” or “disposal” which is broader than
that specified in either CERCLA or RCRA, such broader meaning shall apply in such jurisdiction.

 

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3.31.2   Except
as listed on Schedule 3.31.2 hereto, (i) to the Knowledge of Stockholder, HRSI and the Company, none of the operations
of HRSI or the Company is the subject of federal, state or local investigation evaluating whether any remedial action is needed
to respond to a release of any Hazardous Substance into the environment; (ii) to the Knowledge of Stockholder, HRSI and the
Company, neither HRSI nor the Company has filed, or received notice that any other Person has filed, any notice under any federal,
state or local law indicating that HRSI or the Company is responsible for the release into the environment or the improper storage
of any Hazardous Substance or solid waste or that any such substance or waste has been released or is improperly stored upon any
property of HRSI or the Company; (iii) there is not any liability or contingent liability in connection with any violation
of Laws or in connection with the release or threatened release into the environment or the improper storage of any Hazardous Substance;
(iv) all notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the
operations of the business of HRSI or the Company or any predecessor to HRSI or the Company, including, without limitation, present
or past treatment, storage, disposal or release of a Hazardous Substance or solid waste into the environment, have been duly obtained
or filed, and HRSI and the Company are in compliance with the terms and conditions of all such notices, permits, licenses and similar
authorizations; (v) there has been no release or threatened release of any Hazardous Substances on, to or from any of the properties
or assets of HRSI or the Company; (vi) HRSI and the Company are in compliance with Laws; and (vii) nothing exists that could
reasonably be expected to create an obligation or liability of HRSI or the Company under Laws, and there are no storage tanks or
other containers on or under any of the properties or assets of HRSI or the Company from which Hazardous Substances may be released
into the surrounding environment; (viii) there have been no environmental investigations, studies, audits, reviews or other
analyses conducted by or which are in the possession of HRSI or the Company regarding any facility or property owned, operated
or leased by HRSI or the Company that have not been provided to Buyer; and (ix) no claims are pending or, to the Knowledge of HRSI
and the Company, threatened by third parties against HRSI or the Company with respect to HRSI or the Company or against HRSI or
the Company alleging liability for exposure to Hazardous Substances.

 

3.32       Inventory.
All Inventory of HRSI, and when the Asset Transfer takes place, the Company, whether or not reflected in the Financial Statements,
consists of a quality and quantity usable and salable in the ordinary course of business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to net realizable value on the Financial Statements
or on the accounting records of HRSI, and when the Asset Transfer takes place, the Company as of the Closing Date, as the case
may be. All Inventories not written off have been priced at the lower of cost or net realizable value on a first in, first out
basis. The quantities of each item of Inventory (whether raw materials, Work-In-Progress, or finished goods) are not excessive,
but are reasonable in the present circumstances of HRSI or the Company and consistent with past practices.

 

3.33       Broker
Involvement. None of HRSI, the Company or any Stockholder has hired, retained or dealt with any broker or finder in connection
with the transactions contemplated by this Agreement.

 

3.34       Disclosure.
All Schedules to this Agreement are complete and accurate. No representation or warranty by HRSI, the Company or any Stockholder
in this Agreement, or in any Schedule or Exhibit to this Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit a material fact necessary to make the statements therein not misleading. Any disclosure contained in
a Schedule shall be deemed to qualify and apply to only that Schedule.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER

 

As of the Execution
Date and through the Closing Date, the Stockholder (jointly and severally) represents and warrants to Buyer the following:

 

4.1          Status.
Mr. Isenhour is a natural person.

 

4.2          Authorization.
The Stockholder has full power and authority to execute and deliver this Agreement and the Exhibits and Schedules hereto, to consummate
the transactions contemplated herein and to take all actions required to be taken by him pursuant to the provisions hereof, and
each of this Agreement and the Exhibits and Schedules hereto constitutes the valid and binding obligation of the Stockholder enforceable
in accordance with its terms except as may be limited by applicable bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditor’s rights generally and except for the limitations imposed by general principles
of equity.

 

4.3          Title
to Company Stock and Interests. The Stockholder owns beneficially and of record all of the HRSI Stock, free and clear of all
Liens, and such shares are not subject to any agreements or understandings with respect to the voting or transfer of the HRSI Stock.
HRSI owns beneficially and of record all of the Interests, free and clear of all Liens, and such shares are not subject to any
agreements or understandings with respect to the voting or transfer of the Interests. At and prior to Closing, there will be no
outstanding subscriptions, options, convertible securities, warrants or calls of any kind issued or granted by, or binding upon,
HRSI or any Stockholder to purchase or otherwise acquire or to sell or otherwise dispose of any security of or equity interest
in any of HRSI or the Company.

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE BUYER

AND ITS ASSIGNEE,
IF ANY

 

The Buyer represents
and warrants that:

 

5.1          Organization.
 As of the Execution Date, Buyer is a limited liability company duly organized, validly existing and in good standing under
the laws of the State of Utah and has all necessary corporate power to enter into this Agreement; provided however,
that in the event, Buyer assigns this Agreement to its Assignee before the Closing Date, the foregoing representation and warranty
shall not be valid as to the new Assignee and therefore, the Parties hereby agree that in such event, Buyer shall not be in breach
of this Section 5.1; provided further however, that in such event, Assignee shall represent and warrant to the provisions
contained in Sections 5.1 through 5.8 at such time. Pursuant to the foregoing, as of the Execution Date and through the Closing
Date, Buyer and its Assignee, if any, are duly qualified to do business as a foreign entity in all states in which the nature of
its business requires such qualification. 

 

5.2          Authority.
 The Buyer has the right, power, legal capacity, and authority to execute, deliver and perform this Agreement, and no approvals
or consents of any Persons or other entities not previously obtained are necessary in connection herewith.

 

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5.3          Consents
and Approvals.  Except as disclosed on Schedule 5.3 (the “Buyer Consents”), no consent, approval or authorization
of, or filing or registration with, any governmental or regulatory authority, or any other Person, is required to be made or obtained
by the Buyer in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions
contemplated hereby.

 

5.4          Valid
and Binding Obligations.  Upon the execution and delivery hereof, this Agreement will constitute the legal, valid, and binding
obligation of the Buyer or its Assignee, if any, enforceable in accordance with its terms, except as limited by bankruptcy laws,
insolvency laws, and other similar laws affecting the rights of creditors generally.

 

5.5          Validity.
There are no pending or, to the Knowledge of the Buyer, threatened judicial or administrative actions, proceedings or investigations
which question the validity of this Agreement or any action taken or contemplated by the Buyer in connection with this Agreement.

 

5.6          Broker
Involvement. Except as disclosed on Schedule 5.6, Buyer has not hired, retained or dealt with any broker or finder in
connection with the transactions contemplated by this Agreement.

 

5.7          Investment
Only.

 

5.7.1     All
of the Interests being acquired pursuant to this Agreement are being acquired by the Buyer for its own account, not as a nominee
or agent, and not with a view to its distribution within the meaning of Section 2(11) of the Securities Act. The Buyer has no present
intention of selling, granting any participation in, or otherwise distributing any such Interests. By executing this Agreement,
the Buyer further represents and warrants that the Buyer does not have any contract, undertaking, agreements, or arrangements with
any Person to sell, transfer, or grant participations to such Person or to any third person, with respect to any of the Interests
acquired pursuant to this Agreement.

 

5.7.2     The
Buyer understands that the Interests have not been and will not be registered under the Securities Act and therefore may not be
resold without compliance with the requirements of the Securities Act and any applicable state securities laws. The Buyer acknowledges
that the transfer of the Interests from HRSI to the Buyer is exempt from registration under the Securities Act, and that HRSI,
the Company’s and each of the Stockholder’s reliance on such exemption is predicated on the Buyer’s representations
set forth herein.

 

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5.7.3     The
Buyer represents that it is able to bear the economic risk of an investment in the Interests and can afford to sustain a total
loss of such investment and either (i) has such knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in the Company, or (ii) together with senior executives of the Company
with whom it has consulted, has such knowledge and experience in financial and business matters concerning the Company that it
is capable of evaluating the merits and risks of the proposed investment in the Company. The Buyer further represents that it has
had an adequate opportunity to ask questions and receive answers from HRSI, the Company and the Stockholder concerning any and
all matters relating to the transactions described herein including, without limitation, the background and experience of the current
and proposed officers and directors of HRSI, the Company, the operation of the Business, the properties, prospects, and financial
condition of HRSI and the Company, and to obtain additional information necessary to verify the accuracy of any information furnished
to the Buyer or to which the Buyer has had access. The Buyer has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction.

 

5.7.4     The
Buyer will not sell or otherwise transfer the Interests without registration of such securities under the Securities Act or an
exemption therefrom, and fully understands and agrees that it must bear the economic risk of its purchase for an indefinite period
of time because, among other reasons, the Interests have not been registered under the Securities Act or under the securities laws
of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless the Interests are subsequently
registered under the Securities Act and under the applicable state securities laws or unless an exemption from such registration
is available in the opinion of counsel for the holder. The Buyer is aware that an exemption from the registration requirements
of the Securities Act pursuant to Rule 144 promulgated thereunder is not presently available, and that even if an exemption under
Rule 144 were available, Rule 144 permits only routine sales of securities in limited amounts in accordance with all of the terms
and conditions of Rule 144.

 

5.8          Disclosure.
No representation or warranty by Buyer in this Agreement or in any Schedule or Exhibit to this Agreement, or in any statement
or certificate or other document furnished to HRSI or Stockholder, contains or will contain any untrue statement of a material
fact or omits or will omit a material fact necessary to make the statements therein not misleading. Any disclosure contained in
a schedule shall be deemed to qualify and apply to any other section and incorporated by reference into any other schedule if the
relevance of such disclosure to such other section or schedule is reasonably apparent from the terms of such disclosure.

 

ARTICLE VI

CONDITIONS TO CLOSING

 

6.1          Time
and Place of Closing.  Delivery of the Cash Consideration to HRSI, the transfer of the Interests to the Buyer, and the release
and delivery of all Escrowed Documents by the Escrow Agent shall take place at such location as mutually agreed upon by the Parties
or via a virtual closing (“Closing”). Buyer must deliver the Cash Consideration to Escrow Agent by the Closing
Date, or the Extended Closing Date, if applicable, as those terms are defined below.

 

6.1.1     Closing
Date. Closing is currently contemplated to occur via a virtual closing, within five (5) business days after the effective date
of the IPO (“Closing Date”). The Closing Date is currently anticipated to occur on the later of:

 

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(a)          90
days after the date on which HRSI has delivered to Hein and Associates (the “Auditor”): (i) HRSI’s 2011
and 2012 final financial statements with complete footnotes, and (ii) HRSI’s September 30, 2013 financial statements (together,
the “HRSI Financial Statement Deliveries” (such date being hereinafter referred to as the the “IPO
Processing Period”); or

 

(b)          such
later date as provided for under Section 6.1.2 if Buyer has properly extended the Closing Date; or

 

(c)          such
other date as the Parties may agree upon in writing signed by all Parties.

 

6.1.2     Extension;
Payments.  If the Closing has not occurred by expiration of the IPO Processing Period, then Buyer may unilaterally extend the
Closing Date for up to an additional six (6) weeks (each an “Extended Closing Date”) by paying HRSI an amount
of Ten Thousand And No/00 Dollars ($10,000) per week (the “Extension Payments”). In that case, Buyer must wire
each Extension Payment to HRSI by each Extended Closing Date in order to extend Closing another week. However, if any of HRSI,
the Company, and/or Stockholder are in material breach of any of their respective representations, warranties, covenants or obligations,
and the Closing has not occurred, Buyer shall be entitled to extend the Closing Date without having to make Extension Payments
until such material breach is cured (also, an “Extended Closing Date”). In addition, if the Securities and Exchange
Commission (“SEC”) will not declare the IPO effective until audited December 31, 2013 financial statements for
HRSI are provided to the SEC, then HRSI, the Company and Stockholder, agree to cooperate and work with the Auditor to prepare and
deliver those financial statements to the Auditor as promptly as is commercially reasonable, so long as the Buyer continues to
pay a weekly Extension Payment through the Extended Closing Date, as partial consideration for delivery of those financial statements
to the Auditor.

 

6.1.3     Termination
for Non-Payment.  If the Buyer has not delivered to Escrow Agent the Cash Consideration or made an applicable Extension Payment
to HRSI by the Closing Date, or an Extended Closing Date, as the case may be, then subject to Section 8.1, this Agreement
shall terminate and the purchase and sale of the Interests will be cancelled. Upon such termination,

 

(a)  HRSI
shall be permitted to retain all Extension Payments, if any, as a break-up fee and in full liquidation of any and all damages that
may have been incurred by HRSI, the Company and Stockholder, so long as none of HRSI, the Company and/or Stockholder are in material
breach of any representations, warranties, covenants or obligations contained in the Agreement or the Intellectual Property Protection
Agreement; or

 

(b)  If
HRSI, the Company and/or Stockholder are in material breach of any representations, warranties, covenants or obligations, contained
in the Agreement or the Intellectual Property Protection Agreement, then any Extension Payments paid by Buyer up to and including
the date of such breach shall be refunded by HRSI to Buyer.

 

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6.2          Escrow.
Prior to the Closing Date and subject to the terms and conditions of the Escrow Agreement, the Escrowed Documents shall be fully
executed by the applicable Parties and delivered to the Escrow Agent on the Escrow Signing Date.

 

6.3          Stockholder’s,
HRSI’s and the Company’s Deliveries.  At the Closing, the Escrow Agent, on behalf of HRSI, the Company and the
Stockholder, or HRSI, the Company or the Stockholder, as applicable, shall deliver or cause to be delivered to Buyer, the following:

 

6.3.1      Any
certificates evidencing the Interests, if any, together with irrevocable membership interest transfer powers, duly authorized and
executed by the record holder of the Interests;

 

6.3.2      Such
consents, waivers, estoppel letters or similar documentation as the Buyer shall reasonably request in connection with the transfer
of the Interests;

 

6.3.3      the
Noncompetition Agreements;

 

6.3.4      the
Consulting Agreement;

 

6.3.5      the
HRSI Consents;

 

6.3.6      the
Bill of Sale;

 

6.3.7      the
Company Legal Opinion;

 

6.3.8      the
Security and Pledge Agreement;

 

6.3.9      the
IP Assignments;

 

6.3.10    Certified
resolutions of the Board of Directors and the Stockholder of HRSI and the Board of Managers of the Company granting to the President
or other duly authorized officer of the Company the authority to execute this Agreement, and any other transaction documents, together
with an incumbency certificate;

 

6.3.11    a
Closing Certificate;

 

6.3.12    the
Vehicle Titles; and

 

6.3.13    All
other items required to be delivered hereunder or as may be requested or which are necessary or would reasonably facilitate consummation
of the transactions contemplated hereby.

 

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In addition, HRSI and
the Stockholder will put Buyer into full possession and enjoyment of the Company, the Business and the Transferred Assets immediately
upon the occurrence of the Closing.

 

6.4          Buyer’s
Deliveries.  At the Closing, Escrow Agent, on behalf of Buyer, or Buyer, as applicable, will deliver or cause to be delivered
to HRSI, the following:

 

6.4.1      the
Cash Consideration;

 

6.4.2      the
Note;

 

6.4.3      the
Noncompetition Agreements;

 

6.4.4      the
Consulting Agreement;

 

6.4.5      the
Buyer Consents;

 

6.4.6      the
Security and Pledge Agreement;

 

6.4.7      Certified
resolutions of the Board of Directors of the Buyer granting to the President or other duly authorized officer of Buyer the authority
to execute this Agreement, and any other transaction documents, together with an incumbency certificate;

 

6.4.8      a
Closing Certificate;

 

6.3.14    the
completed UCC-1 Financing Statement-Colorado;

 

6.3.15    the
completed UCC-1 Financing Statement-Utah;

 

6.4.9      the
completed USPTO Security Interest Forms; and

 

6.4.10    All
other items required to be delivered hereunder or as may be reasonably requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby.

 

6.5          Further
Assurances.  At and after the Closing, each of the Parties shall take all appropriate action and execute all documents of any
kind which may be reasonably necessary or desirable to carry out the transactions contemplated hereby. The Stockholder and/or HRSI,
as applicable, at any time at or after the Closing, will execute, acknowledge and deliver any further membership interest certificates,
membership interest powers, bills of sale, assignments and other assurances, documents and instruments of transfer, reasonably
requested by the Buyer, and will take any other action consistent with the terms of this Agreement that may reasonably be requested
by the Buyer, for the purpose of assigning and confirming to the Buyer all of the Interests sold it hereunder, or if necessary,
any of the Transferred Assets.

 

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6.6          Condition
of Each Party’s Obligations to Close. The obligations of each Party under this Agreement are subject to the fulfillment,
at or prior to Closing, of the following conditions (unless waived in writing by all Parties):

 

6.6.1      No
Order. No governmental agency shall have enacted, issued, promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making the transactions contemplated hereby, this Agreement
or any of the Escrowed Documents illegal or otherwise prohibiting consummation of the transactions contemplated hereby.

 

6.6.2      No
Claims. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall
be in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental agency seeking any
of the foregoing be pending.

 

6.7          Conditions
to Buyer’s Obligations. Buyer’s obligations to close the transactions contemplated
under this Agreement are subject to the fulfillment, at or prior to Closing, of the following conditions (unless waived in writing
by Buyer):

 

6.7.1      Representations
and Warranties. The representations and warranties of Seller, the Company and the
Stockholder contained in this Agreement are true and correct in all material respects as of the Escrow Signing Date and the Closing
as if made on and as of the Closing Date except (i) as otherwise contemplated by this Agreement, (ii) in respects that do not have
a Material Adverse Effect on the transactions provided for in this Agreement, and HRSI, the Company and the Stockholder each have
delivered to Buyer a Closing Certificate, dated as of the Escrow Signing Date and the Closing Date, confirming the foregoing.

 

6.7.2      Covenants.
HRSI, the Company and the Stockholder have each performed and complied with all material covenants
or conditions required by this Agreement to be performed and complied with by HRSI, the Company and the Stockholder prior to the
Escrow Signing Date and the Closing. HRSI, the Company and the Stockholder shall have delivered to Buyer a Closing Certificate
signed by each of them, dated as of the Escrow Signing Date and the Closing Date, confirming such performance or compliance.

 

6.7.3      Consents.
HRSI, the Company and the Stockholder have obtained all consents and approvals necessary to the execution, delivery, and performance
of this Agreement by each of them, except for such consents or approvals the lack of which does not have a Material Adverse Effect
on the benefits of the transactions provided for in this Agreement.

 

6.7.4      Transferred
Assets. Title to all of the Transferred Assets has been transferred from HRSI to the Company, and all documents evidencing
completion of that transfer have been delivered to the Escrow Agent by the Escrow Signing Date.

 

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6.7.5      Resignations.
The Company’s current officers and directors have each resigned their positions effective as of the Closing Date.

 

6.7.6      Additional
Documents. HRSI, the Company and the Stockholder shall have delivered (or caused to be delivered) to Buyer each of the documents,
instruments, agreements and other items contemplated in this Agreement, including each item required to be delivered in accordance
with Section 6.3.

 

6.8          Conditions
to Obligations of HRSI, the Company and the Stockholder. The obligations of HRSI, the Company
and the Stockholder to close the transactions contemplated under this Agreement are subject to the fulfillment, at or prior to
Closing, of the following conditions (unless waived in writing by HRSI, the Company or the Stockholder):

 

6.8.1      Representations
and Warranties. The representations and warranties of Buyer contained in this Agreement are true and correct in all material
respects as of the Escrow Signing Date and the Closing as if made on and as of the Closing Date except (i) as otherwise contemplated
by this Agreement, or (ii) in respects that do not have a Material Adverse Effect on the transactions provided for in this Agreement,
and Buyer has delivered to HRSI, the Company and the Stockholder a Closing Certificate of an authorized officer, dated as of the
Escrow Signing Date and the Closing Date, confirming the foregoing.

 

6.8.2      Covenants.
Buyer has performed and complied with all material covenants or conditions required by this Agreement to be performed and complied
with by it prior to the Escrow Signing Date and the Closing. Buyer has delivered to HRSI, the Company and the Stockholder a Closing
Certificate of an authorized officer, dated as of the Escrow Signing Date and the Closing Date, confirming such performance or
compliance.

 

6.8.3      Consents.
The Buyer has obtained all consents and approvals necessary to its execution, delivery, and performance of this Agreement.

 

6.8.4      Purchase
Price. Buyer has delivered the Purchase Price to HRSI and HRSI has received confirmation of such delivery.

 

6.8.5      Additional
Documents. Buyer shall have delivered (or caused to be delivered) to HRSI, the Company and the Stockholder each of the documents,
instruments, agreements and other items contemplated in this Agreement, including each item required to be delivered in accordance
with Section 6.4.

 

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ARTICLE VII

SURVIVAL; INDEMNIFICATION;

ADDITIONAL AGREEMENTS AND COVENANTS
OF THE PARTIES

 

7.1          Survival
of Representations and Warranties. The representations and warranties in this Agreement and the Schedules attached hereto or
in any writing delivered by any Party to another Party in connection with this Agreement shall survive the Closing as follows:

 

(a)          the
representations and warranties in Sections 3.11 or 3.31 shall terminate when the applicable statutes of limitations with respect
to the liabilities in question expire (after giving effect to any extensions or waivers thereof), plus thirty (30) days;

 

(b)          the
representations and warranties in Sections 3.1-3.3, 3.6, the last sentence of 3.12, 3.33 and 4.1-4.3 (collectively the “Seller
Fundamental Representations”), and 5.1, 5.2, 5.4 and 5.6 (collectively, the “Buyer Fundamental Representations”
shall survive perpetually; and

 

(c)          all
other representations and warranties in Article III, Article IV or Article V of this Agreement and the Schedules attached hereto
or in any writing delivered by any Party to another Party in connection with this Agreement shall terminate on the date that is
two (2) years after the Closing Date; provided however, that any representation or warranty in respect of which indemnity
may be sought under Section 7.2 below, and the indemnity with respect thereto, shall survive the time at which it would otherwise
terminate pursuant to this Section 7.1 if notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall
have been given to the Party against whom such indemnity may be sought prior to such time (regardless of when the Losses in respect
thereof may actually be incurred). The representations and warranties in this Agreement and the schedules attached hereto or in
any writing delivered by any Party to another Party in connection with this Agreement shall survive for the periods set forth in
this Section 7.1 and shall in no event be affected by any investigation, inquiry or examination made for or on behalf of any Party,
or the Knowledge of any Party’s officers, directors, Stockholder, employees or agents or the acceptance by any Party of any
certificate hereunder.

 

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7.2    Indemnification.

 

(a)          Indemnification
by HRSI and the Stockholder. HRSI and the Stockholder jointly and severally shall indemnify Buyer and its Affiliates (including
the Company after the Closing), stockholders, managers, officers, directors, employees, agents, partners, representatives, successors
and assigns (collectively, the “Buyer Parties”) and save and hold each of them harmless against and pay on behalf
of or reimburse such Buyer Parties as and when incurred for any loss, liability, demand, claim, action, cause of action, cost,
damage, deficiency, Tax, penalty, fine or expense, whether or not arising out of third-party claims (including interest, penalties,
reasonable attorneys’ fees and expenses and all amounts paid in investigation, defense or settlement of any of the foregoing)
(collectively, “Losses”), which any such Buyer Party may suffer, sustain or become subject to, as a result of,
in connection with, relating or incidental to or by virtue of: (i) any breach by HRSI, the Company or the Stockholder of any representation
or warranty made by HRSI, the Company or the Stockholder in this Agreement or any of the 

Schedules attached hereto, or in any of the certificates or other instruments or documents furnished by HRSI, the Company or
the Stockholder pursuant to this Agreement; (ii) any nonfulfillment or breach of any covenant, agreement or other provision by
HRSI, the Company and the Stockholder under this Agreement or any of the Schedules attached hereto; (iii) any Taxes of HRSI or
the Company with respect to any Tax year or portion thereof ending on or before the Closing Date as determined in accordance with
Section 7.5 hereof; (iv) any liabilities of HRSI or the Company to any of its Affiliates or any of the Stockholder; (v) any personal
property damage caused by goods or products which are leased or sold, or services rendered by HRSI or the Company before the Closing
Date; and (vi) HRSI’s or the Company’s operation of the Business prior to the Closing Date. Notwithstanding anything
contained herein to the contrary, other than the Seller Fundamental Representations and Section 3.29, HRSI and the Stockholder
shall not be liable for a breach of any of the representations and warranties described in Section 7.1 unless the aggregate of
all Losses relating thereto for which HRSI and the Stockholder would, but for this proviso, be liable exceeds on a cumulative basis
an amount equal to Fifty Thousand and No/100 ($50,000.00) (the “Threshold”) and then HRSI and the Stockholder
shall be liable for all of the Losses including the amount of the Threshold; and provided further that HRSI’s and the Stockholder’s
aggregate liability for all breaches of representations and warranties other than those described in Sections 7.1(a) and 7.1(b),
shall in no event exceed the full Purchase Price amount (the “Cap”). Notwithstanding anything to the contrary
set forth in this Agreement, nothing in this Agreement (including this Section 7.2(a)) shall limit or restrict any of the Buyer
Parties’ right to maintain or recover any amounts in connection with any action or claim based upon a breach of any Seller
Fundamental Representations, fraud or intentional misrepresentation.

 

(b)          Indemnification
by Buyer. Buyer shall indemnify Stockholder and HRSI and its agents, partners, representatives, successors and assigns (collectively,
the “HRSI Parties”) and save and hold each of them harmless against and pay on behalf of or reimburse such Parties
as and when incurred for any Losses which any such HRSI Party may suffer, sustain or become subject to, as a result of, in connection
with, relating or incidental to or by virtue of: (i) any breach by the Buyer of any representation or warranty made by the Buyer
in this Agreement or any of the Schedules attached hereto, or in any of the certificates or other instruments or documents furnished
by the Buyer pursuant to this Agreement; and (ii) any nonfulfillment or breach of any covenant, agreement or other provision by
the Buyer under this Agreement or any of the Schedules attached hereto; provided that other than the Buyer Fundamental Representations,
Buyer shall not have any liability under clause (i) above for a breach of any of its representations described in Section 7.1(b)
or unless the aggregate of all Losses relating thereto for which Buyer would, but for this proviso, be liable exceeds on a cumulative
basis an amount equal to the Threshold and then Buyer shall be liable for all of the Losses including the amount of the Threshold;
and provided, further that Buyer’s aggregate liability under clause (i) above shall in no event exceed the Cap other
than these described in Sections 7.1(b). Notwithstanding anything to the contrary set forth in this Agreement, nothing in this
Agreement (including this Section 7.2(b)) shall limit or restrict any of the Stockholder Parties’ right to maintain or recover
any amounts in connection with any action or claim based upon a breach of any Buyer Fundamental Representations, fraud or intentional
misrepresentation.

 

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(c)          Manner
of Payment. Except as otherwise provided herein, any indemnification of the Buyer Parties by HRSI and the Stockholder pursuant
to this Section 7.2 shall be first offset by the remaining balance of the Note, if any, within ten (10) days after the determination
thereof. If the Note has been paid in full, then any indemnification of the HRSI Parties or the Buyer Parties, as the case may
be, pursuant to this Section 7.2 shall be effected by wire transfer of immediately available funds from such applicable HRSI Party
or Buyer Party, as the case may be, to an account(s) designated by the receiving Party within ten (10) days after the determination
thereof.

 

(d)          Defense
of Third-Party Claims. Any Person making a claim for indemnification under this Section 7.2 (an “Indemnitee”)
shall notify the indemnifying Party (an “Indemnitor”) of the claim in writing promptly after receiving written
notice of any action, lawsuit, proceeding, investigation or other claim against it (if by a third party), describing the claim,
the amount thereof (if known and quantifiable) and the basis thereof; provided that the failure to so notify an Indemnitor
shall not relieve the Indemnitor of its obligations hereunder except to the extent that (and only to the extent that) such failure
shall have caused the damages for which the Indemnitor is obligated to be greater than such damages would have been had the Indemnitee
given the Indemnitor prompt notice hereunder. Any Indemnitor shall be entitled to participate in the defense of such action, lawsuit,
proceeding, investigation or other claim giving rise to an Indemnitee’s claim for indemnification at such Indemnitor’s
expense, and at its option (subject to the limitations set forth below) shall be entitled to assume the defense thereof by appointing
a recognized and reputable counsel reasonably acceptable to the Indemnitee to be the lead counsel in connection with such defense;
provided further, that:

 

(i)          the
Indemnitee shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose;
provided that the fees and expenses of such separate counsel shall be borne by the Indemnitee;

 

(ii)         the
Indemnitor shall not be entitled to assume control of such defense (unless otherwise agreed to in writing by the Indemnitee) and
shall pay the fees and expenses of counsel retained by the Indemnitee if (1) the claim for indemnification relates to or arises
in connection with any criminal proceeding, action, indictment, allegation or investigation; (2) the Indemnitee reasonably believes
an adverse determination with respect to the action, lawsuit, investigation, proceeding or other claim giving rise to such claim
for indemnification would be materially detrimental to or materially injure the Indemnitee’s reputation or future business
prospects; (3) the claim seeks an injunction or equitable relief against the Indemnitee; (4) the Indemnitee has been advised by
counsel that a reasonable likelihood exists of a conflict of interest between the Indemnitor and the Indemnitee; (5) the claim
involves environmental matters with a reasonable expectation that the claim, if successful, will exceed the Cap, in which case
the Indemnitee and Indemnitor shall have joint control and management authority over the resolution of such claim (including hiring
legal counsel and environmental consultants, conducting environmental investigations and cleanups, negotiating with governmental
agencies and third parties and defending or settling claims and actions); provided that the Indemnitee shall keep the Indemnitor
apprised of any major developments relating to any environmental claim; or (6) upon petition by the Indemnitee, the appropriate
court rules that the Indemnitor failed or is failing to vigorously prosecute or defend such claim; and

 

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(iii)        if
the Indemnitor shall control the defense of any such claim, the Indemnitor shall obtain the prior written consent of the Indemnitee
before entering into any settlement of a claim or ceasing to defend such claim if, pursuant to or as a result of such settlement
or cessation, injunctive or other equitable relief will be imposed against the Indemnitee or if such settlement does not expressly
and unconditionally release the Indemnitee from all liabilities and obligations with respect to such claim, without prejudice.

 

(e)          Certain
Waivers; etc. Except as specifically provided below, HRSI hereby agrees that it shall not make any claim for indemnification
against Buyer, the Company or any of its respective Affiliates by reason of the fact HRSI is or was a shareholder, director, officer,
employee or agent of the Company or any of its Affiliates or is or was serving at the request of the Company or any of its Affiliates
as a partner, trustee, director, officer, employee or agent of another entity (whether such claim is for judgments, damages, penalties,
fines, costs, amounts paid in settlement, losses, expenses or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement or otherwise) with respect to any action, suit, proceeding, complaint, claim or demand brought by any
of the Buyer Parties against HRSI or the Stockholder pursuant to this Agreement or applicable law or otherwise, and HRSI and the
Stockholder hereby acknowledge and agree that they shall not have any claim or right to contribution or indemnity from the Company
or any of its Affiliates with respect to any amounts paid by them pursuant to this Agreement or otherwise. Effective upon the Closing,
HRSI and the Stockholder hereby irrevocably waives, releases and discharges the Company and its Affiliates from any and all liabilities
and obligations to them of any kind or nature whatsoever, whether in their capacity as a shareholder, officer or director of the
Company or any of their Affiliates or otherwise (including in respect of any rights of contribution or indemnification, but excluding
compensation otherwise payable as an employee of the Company, as applicable, for periods after the Company’s last regularly
scheduled pay period), in each case whether absolute or contingent, liquidated or unliquidated, known or unknown, and whether arising
under any agreement or understanding (other than this Agreement and any of the other agreements executed and delivered in connection
herewith) or otherwise at law or equity, and HRSI and the Stockholder agree that they shall not seek to recover any amounts in
connection therewith or thereunder from the Company or any of its Affiliates. In no event shall the Company or any of its Affiliates
have any liability whatsoever to HRSI or the Stockholder for any breaches of the representations, warranties, agreements or covenants
of the Company hereunder, and in any event HRSI or the Stockholder may not seek contribution from the Company or any of its Affiliates
in respect of any payments required to be made by HRSI or the Stockholder pursuant to this Agreement. Notwithstanding anything
to the contrary contained herein, nothing in this Agreement (including this Section 7.2(e)) shall prohibit HRSI or the Stockholder
from making a claim for indemnification against Buyer or any of its Affiliates (other than the Company) if it results from an action
or claim based upon fraud or intentional misrepresentation.

 

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7.3          Litigation
Support. In the event and for so long as HRSI or the Stockholder actively are contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand in connection with (i) any transaction contemplated under
this Agreement, or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date involving the Company, each of the Parties will reasonably
cooperate with them and their counsel in the contest or defense, reasonably make available their personnel, and provide such testimony
and access to their books and records as shall be reasonably necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending HRSI or the Stockholder. Nothing contained herein, shall negate or mitigate against
the representations and warranties made by HRSI, the Company or the Stockholder contained herein.

 

7.4          Confidential
Information. Each Party agrees, on behalf of itself and its Affiliates, not to divulge, communicate, use to the detriment of
the other Party or its Affiliates or for the benefit of any other person any Confidential Information, except with respect to any
information that is required to be disclosed in the IPO under applicable securities laws; provided however, that Buyer agrees to
apply for, but with no guarantee that the SEC will grant, the confidential treatment of any such commercially sensitive information
that the Stockholder reasonably requests to be kept as confidential. Notwithstanding the foregoing, HRSI, Company and Mr. Isenhour
acknowledge and agree that the Financial Statements together with any audited financial statements and other ancillary information
being prepared by Buyer’s auditing firm with respect to the books and records of HRSI and Company may be utilized by Buyer
and its Affiliates for all purposes reasonably contemplated and necessary for the IPO to be consummated. Furthermore, notwithstanding
the foregoing, if any Party or its Affiliates are compelled to disclose any Confidential Information to any tribunal, regulatory
or governmental authority or agency or else stand liable for contempt or suffer other censure and penalty, such Party or its Affiliates
may disclose such information without any liability hereunder, upon furnishing the other Party at least ten (10) days prior written
notice, if possible under the circumstances. The Parties acknowledge that a remedy at law for any breach or threatened breach of
this Section 7.4 will be inadequate and that the Parties shall be entitle to specific performance, injunctive relief, and any other
remedies available to it for such breach or threatened breach. If a bond is required to be posted in order for a non-breaching
Party to secure an injunction, then the Parties stipulate that a bond in the amount of One Thousand and No/100 Dollars ($1,000.00)
will be sufficient and reasonable in all circumstances to protect the right of the Parties with regard to this Section 7.4.

 

7.5          Tax
Matters.

 

(a)          Transfer
Taxes. HRSI and Buyer shall each be responsible for one-half (1/2) of the payment of all Transfer Taxes, if any, resulting
from, relating to, or arising out of the transactions contemplated by this Agreement. Buyer and HRSI shall cooperate in good faith
to minimize, to the extent permissible under applicable Laws, the amount of any such Transfer Taxes. HRSI will, at its own expense,
file all necessary Tax Returns and other documentation with respect to such Transfer Taxes, and Buyer will, and will cause HRSI
to, join in the execution of any such Tax Returns and documentation.

 

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(b)          Tax
Periods Beginning Before and Ending After the Closing Date. Buyer shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of the Company which begin before the Closing Date and end after the Closing Date (“Straddle
Tax Returns”). Any portion of any Tax which must be paid in connection with the filing of a Straddle Tax Return, to the
extent attributable to any period or portion of a period ending on or before the Closing Date, shall be referred to herein as “Pre-Closing
Taxes.” If the Pre-Closing Taxes involve a period which begins before and ends after the Closing Date, such Pre-Closing
Taxes shall be calculated as though the taxable year of the Company terminated as of the close of business on the Closing Date;
provided, however, that in the case of a Tax not based on income, receipts, proceeds, profits or similar items, Pre-Closing
Taxes shall be equal to the amount of Tax for the taxable period multiplied by a fraction, the numerator of which shall be the
number of days from the beginning of the taxable period through the Closing Date and the denominator of which shall be the number
of days in the taxable period. All determinations necessary to give effect to the foregoing allocations shall be made in a manner
consistent with prior practice of the Company.

 

(c)          Payment
of Taxes. With respect to Tax Returns for the Company for a Straddle Period, Buyer shall provide HRSI with a copy of such completed
Tax Returns and a statement (with which the Buyer will make available supporting schedules and information) certifying the amount
of Tax shown on such Tax Return that is allocable to HRSI at least fifteen (15) days prior to the due date (including any extension
thereof) for filing of such Tax Return. For a Straddle Period, HRSI shall immediately pay Buyer the portion set forth on the Tax
Returns allocable to HRSI. HRSI shall not be responsible for Taxes for pre-Closing periods due to the post-Closing utilization
of different depreciation methods and useful lives for income Tax reporting and financial reporting implemented by Buyer. With
respect to any Tax Return which Buyer is to prepare and file under this Section 7.5, Buyer shall make the Tax Return and related
Tax work papers available for review by HRSI.

 

(d)          Cooperation
on Tax Matters.

 

(i)          The
Parties shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax
Returns pursuant to this Section 7.5 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall
include signing any Tax Returns, amended Tax Returns, claims or other documents necessary to settle any Tax controversy, the retention
and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information
and explanation of any material provided hereunder. Buyer agrees to retain all books and records with respect to Tax matters pertinent
to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by HRSI, any extensions thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any relevant taxing authority and to give HRSI reasonable written notice prior to transferring, destroying
or discarding any such books and records.

 

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(ii)         HRSI
shall have the right to participate in and to direct Buyer in respect of any Tax proceeding to the extent it (a) relates to a pre-Closing
taxable year or a Pre-Closing Tax of the Company and (b) could increase HRSI’s liability hereunder; provided, however,
that Buyer shall not be required to follow the HRSI’s direction in any case in which the consequence could reasonably be
expected to increase the Tax liability of, or otherwise have an adverse effect on, the Company or Buyer for which HRSI would have
no obligation to indemnify in full. HRSI shall have no right to require the Company to settle or compromise any such proceeding,
but Buyer agrees to settle upon terms proposed by HRSI if and to the extent Buyer reasonably determines that doing so will not
increase the Tax liability of, or otherwise have an adverse effect on, the Company or Buyer.

 

(iii)        Buyer
and HRSI further agree, upon reasonable request by the other, to use their commercially reasonable best efforts to obtain any certificate
or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any
Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).

 

(e)          Apportionment
of Taxes. The Parties do not anticipate that the Company will have any material Tax liabilities relating to Pre-Closing Taxes,
but for the avoidance of doubt, the Parties agree that any Taxes and Tax liabilities with respect to the income, assets or activities
of the Company that relate to a taxable year or other taxable period beginning before and ending after the Closing Date will be
apportioned between the pre-Closing Tax period and the post-Closing Tax period as follows: (a) in the case of Taxes other
than income Taxes and sales and use Taxes, on a per diem basis and (b) in the case of Taxes based on income, receipts, or
wages, as determined from the books and records of the Company, between pre-Closing and post-Closing Tax periods as though the
taxable years of the Company terminated at the close of business on the Closing Date, and based on standard accounting methods.
HRSI will be liable for the payment of all Taxes of the Company that are attributable to any pre-Closing Tax period, whether shown
on any original return or amended return for the period referred to therein.

 

(f)          Tax
Return Expenses. HRSI will be responsible for all costs and expenses incurred in connection with the preparation and filing
of all Tax Returns of HRSI, and of any Tax Returns required to be filed by or with respect to the Company for any pre-Closing Tax
period.

 

(g)          Amended
Returns. HRSI will not cause, or permit to be filed, any amended Tax Return of the Company without the prior written consent
of Buyer, which consent will not be unreasonably withheld.

 

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(h)          Income
Tax Treatment of the Transactions Hereunder. The Parties agree that for federal and applicable state and local income tax purposes,
the transactions contemplated by this Agreement should be treated as follows: (i) the Allocated Assets (subject to certain liabilities)
to the Company by operation of the Asset Transfer as set forth in this Agreement should be disregarded, since the Company is initially
an entity whose existence apart from its owner (HRSI) is disregarded; (ii) HRSI’s sale of the Interests to Buyer should be
treated, pursuant to Revenue Ruling 99-5, as a sale of an undivided 100% interest in the assets of the Company to Buyer. The Parties
agree to treat the transactions contemplated by this Agreement in accordance with this Section 7.5(h) for all income Tax
purposes, and not to take any contrary position except upon a final determination to the contrary by the relevant Taxing Authority.
If any Tax Authority disagrees with this treatment or proposes to do so, the Parties will consult with each other in good faith
to determine how to respond to such disagreement or proposed disagreement, and shall keep each other reasonably informed of the
progress of any discussions with such Tax Authority.

 

7.6          Use
of Names. HRSI and the Stockholder agree that from and after the Closing
Date, HRSI and the Stockholder shall not use the following URL address or any similar address with respect to the Company’s
name: http://www.hardrocksolutionsinc.com/ nor shall HRSI or the Stockholder use “Hard Rock Solutions”, “Hard
Rock”, or any derivative of such names, or any other name used by the Company or its Affiliates (or any name deceptively
similar to any such names) in any business enterprise or in any commercial relationship that would in any way, directly or indirectly,
be connected to the Business. To evidence the foregoing, on or before the Closing Date, HRSI and Stockholder agree to file a Certificate
of Amendment in the State of Texas, and in any other states where HRSI is qualified to do business, for HRSI to change its name
so that it does not violate this Section 7.6, and HRSI and Stockholder shall cooperate with Buyer so Buyer can simultaneously,
if it so elects, qualify Company to do business in such states under the “Hard Rock Solutions” name.

 

7.7          HRSI’s
Assistance. HRSI covenants and agrees that upon reasonable request by one or more of Buyer or the Company, HRSI will make one
of its representatives or agents available for assistance from time to time with corporate matters, including without limitation,
legal disputes involving the Company and any employees, former employees, third party contactors, vendors, customers, suppliers
or the like. HRSI will be reimbursed by the Company for any reasonable out-of-pocket expenses incurred by HRSI in connection with
such assistance but shall not be entitled to receive any other compensation therefore.

 

7.8          Access
and Information.

 

(a)          Until
the Closing, HRSI and the Company shall afford to Buyer and its representatives (including accountants, counsel and financing sources)
reasonable access to all properties, books, records, and Tax Returns of the Company and all other information with respect to the
Business, together with the opportunity to make copies of such books, records and other documents and to discuss the business of
the Company with such directors, officers and counsel for the Company as Buyer may reasonably request for the purposes of familiarizing
itself with the Company and HRSI.

 

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(b)          The
information and cooperation to be provided to Buyer pursuant to this Section 7.8 shall not affect or otherwise diminish
or obviate in any respect, or affect Buyer’s right to rely upon, any of the representations, warranties, covenants or agreements
of HRSI, the Stockholder and the Company contained in this Agreement.

 

7.9          Notification
of Certain Matters. HRSI shall give prompt notice to Buyer of (a) the occurrence, or failure to occur, of any event that has
caused any representation or warranty of HRSI, the Company or the Stockholder contained in this Agreement to be untrue or inaccurate
in any material respect, and (b) the failure of HRSI, the Stockholder or the Company to comply with or satisfy in any material
respect any covenant to be complied with by it hereunder. No such notification shall affect the representations or warranties of
the Parties hereto or the conditions to their respective obligations hereunder.

 

7.10       Exclusivity.
During the period while this Agreement remains in effect:

 

(a)          HRSI,
the Stockholder and the Company shall not, and the Stockholder shall require each of HRSI’s, the Stockholder’s and
the Company’s respective officers, directors, employees, representatives and agents not to, directly or indirectly, (i) initiate,
solicit, encourage or otherwise facilitate any inquiry, proposal, offer or discussion with any Person (other than Buyer) concerning
any merger, reorganization, consolidation, recapitalization, business combination, liquidation, dissolution, share exchange, sale
of equity interests, sale of material assets or similar business transaction involving the Company; (ii) furnish any non public
information concerning the Business or the Company to any Person (other than Buyer, HRSI’s, the Company’s or the Stockholder’s
Affiliates, HRSI’s, the Stockholder’s or the Company’s legal counsel, accountants or other advisors or as may
be required by law or required to be disclosed to any governmental authority in connection with any dispute, audit, controversy,
or investigation with or by such governmental authority); or (iii) engage in discussions or negotiations with any Person (other
than Buyer) concerning any such transaction described in clause (i) above.

 

(b)          HRSI
and Stockholder shall immediately notify any Person with which discussions or negotiations of the nature described in Section
7.10(a)(i) above were pending that HRSI or the Stockholder, as applicable, is terminating such discussions or negotiations.
Furthermore, if HRSI or the Stockholder receives any inquiry, proposal or offer of the nature described in Section 7.10(a)(i)
above, HRSI or the Stockholder shall promptly inform such Person that HRSI, the Stockholder and the Company are parties to a binding
agreement with an undisclosed third party and therefore cannot engage in any discussions or negotiations.

 

7.11       Conduct
of Business. Except as expressly required or permitted by the terms of this Agreement, between the Execution Date and the earlier
to occur of (i) termination of this Agreement pursuant to Article VIII or (ii) the Closing, unless Buyer has otherwise consented
in writing, HRSI, and when the Asset Transfer takes place, the Company shall:

 

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(a)          operate
the Business only in the ordinary course of business, to the extent consistent with such operation, and use its best efforts to:
(i) preserve the Business’s present business organization intact; (ii) keep available the services of the employees of HRSI
or the Company; (iii) preserve all material business relationships with customers, suppliers, and others having business dealings
with HRSI or the Company; (iv) keep all of the Transferred Assets of HRSI or the Company in good working order and repair, ordinary
wear and tear excepted; and (v) maintain in full force and effect all of the existing casualty, liability, and other insurance
of the Business through the Closing Date in amounts not less than those in effect on the date hereof;

 

(b)          maintain
the books and records and accounts of the Business in the usual, regular and ordinary manner and on a basis consistent with past
practices;

 

(c)          give
to Buyer, and its counsel, accountants and other representatives, upon reasonable notice, and with a representative of HRSI or
the Company present, reasonable access during normal business hours to all of the personnel, books, Tax Returns, contracts, commitments
and other records of HRSI or the Company related thereto, including in the areas of detailed financial testing, human resources,
Taxes and environmental, and furnish to Buyer and its representatives all such additional documents, financial information and
information with respect to HRSI or the Company as Buyer or its representatives may reasonably request;

 

(d)          not
take any action or fail to take any action permitted by this Agreement with the knowledge that such action or failure to take such
action would result in any of the conditions to the Closing set forth in Article VI not being satisfied;

 

(e)          not
materially amend, modify or terminate any Contract, lease or agreement of HRSI or the Company or relating to the Business;

 

(f)          not
make any increase in, or any commitment to increase, the compensation or benefits payable to any Independent Contractor other than
in the ordinary course of business;

 

(g)          not
dispose of any of the Transferred Assets used in connection with the Business other than in the ordinary course of business or
incur any debt with respect to the Business other than in the ordinary course of business;

 

(h)          not
make or change any election related to Taxes, adopt or change any accounting method or change any accounting period for Tax purposes,
file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating to HRSI or the Company,
surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax
claim or assessment relating to HRSI or the Company, or take any other similar action relating to the filing of any Tax Return
of the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action
would have the effect of increasing the Tax liability of HRSI or the Company for any period ending after the Closing Date or decreasing
any Tax attribute of HRSI or the Company existing on the Closing Date;

 

(i)          not
hire or terminate any employee at the level of vice president or above;

 

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(j)          not
take any significant corporate actions including any merger, consolidation, other business combination, reorganization, recapitalization,
sale or purchase of ownership interests, spin-off, liquidation, joint ventures, or making loans to or other investments in another
entity;

 

(k)          not
consummate any sale, lease or other disposition of Transferred Assets having a fair market value in excess of $200,000, in one
transaction or a series of related transactions;

 

(l)          not
make any capital expenditures (including, without limitation, payments with respect to capitalized leases, as determined in accordance
with GAAP), that exceed $100,000 in the aggregate annually;

 

(m)          not
enter into any agreement, arrangement or other commitments (i) obligating the Business to expend amounts in excess of $100,000
in the aggregate annually, or (ii) not in the ordinary course of business;

 

(n)          not
enter into any real estate lease with greater than $100,000 of annual rental/lease expense or a term of greater than two (2) years;

 

(o)          not
enter into any employment arrangements providing for payments in any year of $100,000 or more;

 

(p)          not
approve or engage in any transaction that would materially affect the regulatory or tax status of the Business, except for changes
required by applicable law;

 

(q)          not
initiate or settle any litigation, arbitration or other legal proceeding, which involve or may involve the Business and could lead
to an exposure in excess of $100,000;

 

(r)          not
enter into the ownership, active management or operation of any material line of business other than as conducted by the Business
as of the Execution Date;

 

(s)          not
directly or indirectly engage in any material transaction, or enter into any arrangement, with any officer, director, manager,
shareholder or other Affiliate of HRSI or the Company;

 

(t)          not
make any material change in the manner in which the Business extends discounts or credits to customers or otherwise deals with
customers; or make any material change in the manner in which the Business markets its products or services;

 

(u)          not
change in any material manner the principal activities that the Business engages in;

 

(v)         not
incur any Indebtedness;

 

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(w)          consult
with Buyer as to any decisions, issues or concerns that HRSI or the Company in good faith could reasonably expect Buyer to have
an interest and desire to have input in due to the operation of the Business being for the account of Buyer as of the Execution
Date upon the consummation of Closing; or

 

(x)          not
agree in writing or otherwise to take any of the foregoing actions.

 

7.12       Company
Accounts Receivable. Buyer shall cause the Company to utilize commercially reasonable efforts to collect any and all Company
Accounts Receivable generated by sales by HRSI or the Company before the Closing Date. All collections of accounts receivable from
a customer shall be applied to the oldest accounts first, unless a customer indicates the specific account it is paying, in which
event payment shall be applied to that account. Buyer, the Company, the Stockholder and HRSI agree that they will not influence
account specification pursuant to the preceding sentence. Nothing contained herein, however, shall prohibit Buyer Accounts Receivable
from being paid by a customer prior to any of the Company Accounts Receivable if there are commercially reasonable reasons to do
so. Notwithstanding anything to the contrary contained herein, Buyer shall not be required to institute litigation against any
customer in order to collect Company Accounts Receivable, and in the event Stockholder or HRSI institutes litigation against any
customer, HRSI or the Stockholder, as the case may be, hereby agrees to give Buyer at least ten (10) business days prior written
notice before filing any such suit.

 

7.13       Schedule
Updates.  Notwithstanding anything to the contrary contained herein, if necessary, each of the Parties hereto shall have the
right and obligation to promptly update any of their schedules and provide a Closing Certificate of any such update to the other
Parties from the Execution Date to the Closing Date. In addition, HRSI and the Company shall promptly furnish Buyer an update to
the Financial Statements, if any, and an update to the Customers and Suppliers List, if any, when they become available between
the Execution Date and up to the Closing Date. No Party shall be considered in breach of this Agreement regardless of changes to
the Schedules between the Execution Date and up to the Closing Date, so long as such changes in such Schedules are evidenced in
a Closing Certificate and do not result from a violation by HRSI, the Stockholder and the Company pursuant to Section 3.34
or by Buyer pursuant to Section 5.8.

 

7.14       Effect
of Investigation. The right to indemnity and all other remedies based on any representation, warranty, covenant or obligation
of an Indemnitor contained in or made pursuant to this Agreement shall not be affected by any investigation conducted with respect
to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the Closing, with respect to
the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation.

 

ARTICLE VIII

TERMINATION

 

8.1          Termination
Events. This Agreement may be terminated at any time prior to the Closing only as follows:

 

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(a)          by
the mutual written consent of all Parties hereto;

 

(b)          by
Buyer if there has been a material misrepresentation or a breach of warranty or a breach of a covenant in any case by HRSI, the
Stockholder or the Company in the representations and warranties or covenants of any of them set forth in this Agreement, which
in the case of any breach of covenant has not been cured, if curable, within five (5) business days after written notification
of such breach by Buyer to HRSI, the Stockholder or the Company.

 

(c)          by
Stockholder or HRSI if there has been a material misrepresentation or a breach of warranty or a breach of a covenant by
the Buyer Parties in the representations and warranties or covenants of the Buyer Parties set forth in this Agreement, which in
the case of any breach of covenant has not been cured, if curable, within five (5) business days after written notification of
such breach by Stockholder or HRSI to the Buyer;

 

(d)          by
Buyer, HRSI or Stockholder if the transactions contemplated by this Agreement have not been consummated by the Closing Date, except
with respect to the election by Buyer to extend such date up to the Extended Closing Date if Buyer has made the Extension Payments
to HRSI as set forth in Section 6.1 hereof;

 

(e)          by
Buyer if HRSI, the Stockholder or the Company amends the Schedules hereto between the Execution Date and the Closing and such amendment
has or is reasonably likely to have a Material Adverse Effect on the transactions contemplated hereby; or

 

(f)          by
Buyer if the IPO is not successfully consummated on or before the Closing Date.

 

provided, however,
that the Party electing termination pursuant to Sections 8.1(b) and (c) is not in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement. In the event of the termination of this Agreement by either Party
pursuant to this Section 8.1 written notice of such termination (describing in reasonable detail the basis for such
termination) shall immediately be delivered to the other Party.

 

8.2          Effect
of Termination. Each of Buyer’s, Stockholder’s and HRSI’s right of termination under Section 8.1
is in addition to any other rights any Party may have under this Agreement or otherwise, and the exercise of a right of termination
will not be an election of remedies. If this Agreement is terminated pursuant to Section 8.1, all further obligations
of the Parties under this Agreement will terminate; provided, however, that if this Agreement is terminated by a Party because
of the breach of the Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations
under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this
Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired.

 

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8.3          Specific
Performance. The Parties agree that if any of the provisions of this Agreement are not performed in accordance with their specific
terms or are otherwise breached, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult
to determine, and that the Parties shall be entitled to specific performance of the terms of this Agreement and immediate injunctive
relief, without the necessity of providing the inadequacy of money damages as a remedy, in addition to any other remedy at law
or in equity. Notwithstanding the foregoing, neither HRSI, the Stockholder nor the Company shall be permitted to seek specific
performance in the event the IPO is not successfully consummated within the time set forth herein in which event the Buyer shall
not have any liability to HRSI, the Stockholder or the Company other than its payment of the Extension Payments, if any paid, and
to the extent provided in Section 6.1.

 

ARTICLE IX

MISCELLANEOUS

 

9.1          Modification
of Agreement.  This Agreement may be amended or modified only in writing signed by all of the Parties.

 

9.2          Notices.
 All notices, consents, demands or other communications required or permitted to be given pursuant to this Agreement shall
be deemed sufficiently given when delivered personally or telefaxed with confirmation during regular business hours during a business
day to the appropriate location described below, or three (3) business days after posting thereof by United States first-class,
registered or certified mail, return receipt requested, with postage and fees prepaid and addressed as follows:

 

	IF TO BUYER:	SUPERIOR DRILLING PRODUCTS, LLC
	 	Attn: Troy Meier
	 	2221 N. 3250 W.
	 	Vernal, Utah 84078
	 	Fax:  (435) 789-0595
	 	Email:  troy@teamsdp.com
	 	 
	WITH COPY TO: 	Ewing & Jones, PLLC
	 	Attn: Randolph Ewing
	 	6363 Woodway, Suite 1000
	 	Houston, Texas 77057
	 	Fax: (713) 590-9601
	 	Email: rewing@ewingjones.com
	 	 
	IF TO HRSI	 
	OR THE COMPANY:	HARD ROCK SOLUTIONS, INC.
	 	c/o James D. Isenhour and Julia Isenhour
	 	4817 Country Farms Drive
	 	Windsor, Colorado 80528
	 	Fax:  (970) 225-2696
	 	Email:  jimisenhour@comcast.net

 

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	WITH COPY TO:	Myatt Brandes & Gast PC
	 	Attention:  Robert W. Brandes, Jr.
	 	and Ramsey D. Myatt
	 	323 S. College Avenue, Suite 1
	 	Fort Collins, CO 80524
	 	Fax:  (970) 482-3038
	 	Email:  rmyatt@mbglawfirm.com

 

Any Party at any time by furnishing notice
to the other Parties in the manner described above may designate additional or different addresses for subsequent notices or communications.

 

9.3          Severability.
 The invalidity or unenforceability of any provision of this Agreement shall not invalidate or affect the enforceability of
any other provision of this Agreement.

 

9.4          Entire
Agreement; Binding Effect.  This Agreement, together with the agreements described herein, constitutes the entire contract
between the Parties hereto, and no Party shall be liable or bound to another in any manner by any warranties, representations or
guaranties except as specifically set forth herein or in writing delivered in connection herewith which specifically refers to
this Agreement. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the Parties hereto.

 

9.5          Waiver.
 No delay in the exercise of any right under this Agreement shall waive such rights. Any waiver, to be enforceable, must be
in writing.

 

9.6          Governing
Law; Venue.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO, WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF COLORADO OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF COLORADO. THE PARTIES AGREE THAT THE STATE
AND FEDERAL COURTS LOCATED IN DENVER COUNTY, COLORADO SHALL BE THE EXCLUSIVE JURISDICTION TO TRY ANY DISPUTES BETWEEN THE PARTIES.

 

9.7          Assignment.
 HRSI may not assign this Agreement or any of its interest herein without the prior written consent of the Buyer. Any attempted
assignment by HRSI of its rights or obligations without such consent shall be null and void. Buyer shall have the right to assign
any of the Escrowed Documents and any other agreements and obligations contemplated hereby to its designated Assignee. Reference
to any of the Parties in this Agreement shall be deemed to include the successors and assigns of such Party.

 

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9.8          Headings.
 Headings in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

9.9          Remedies.
 If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing Party
or Parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law or equity. The rights and remedies granted herein
are cumulative and not exclusive of any other right or remedy granted herein or provided by law.

 

9.10       Rights
and Liabilities of Parties.  Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than the Parties and their respective successors and assigns, nor is
anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any Party to this
Agreement, nor shall any provision give any third person any right of subrogation or action over or against any Party to this Agreement.

 

9.11       Counterparts.
 This Agreement may be executed in multiple counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.

 

9.12       Drafting.
Each of the Parties hereto acknowledge that each Party was actively involved in the negotiation and drafting of this Agreement
and that no law or rule of construction shall be raised or used in which the provisions of this Agreement shall be construed in
favor or against any Party hereto because one is deemed to be the author thereof.

 

9.13       Expenses.
Except as otherwise provided herein, Stockholder, HRSI and the Buyer shall each pay all of their own respective fees, costs
and expenses (including fees, costs and expenses of legal counsel, investment bankers, brokers and other representatives and consultants)
incurred in connection with the negotiation of this Agreement, the performance of their obligations hereunder and the consummation
of the transactions contemplated hereby; provided however, that Buyer shall pay all respective fees, costs and expenses of the
Escrow Agent. For the avoidance of doubt, under no circumstances shall the Company incur any expenses in connection with this Agreement,
the performance of its obligations hereunder and the consummation of the transactions contemplated hereby.

 

9.14       Further
Assurances. In the event that at any time after the Closing any further action is necessary or desirable to carry out the purposes
of this Agreement, each of the Parties hereto will take such further action (including the execution and delivery of such further
instruments and documents) as any other Party hereto reasonably may request. Stockholder and HRSI acknowledge and agree that, from
and after the Closing, Buyer will be entitled to possession of all documents, books, records (including Tax records), agreements
and financial data of any sort relating to HRSI or the Company. Neither Stockholder nor HRSI shall in any manner take any action
which is designed, intended or might be reasonably anticipated to have the effect of discouraging customers, suppliers, lessors,
licensors and other business associates from maintaining the same business relationships with HRSI or the Company and their Affiliates
at any time after the date of this Agreement as were maintained with the Company and its Affiliates prior to the date of this Agreement.

 

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9.15       Delivery
by Facsimile or in PDF Format. This Agreement and any signed agreement or instrument entered into in connection with this Agreement,
and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or in PDF format, shall
be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal
effect as if it were the original signed version thereof delivered in person. At the request of any Party hereto or to any such
agreement or instrument, each other Party hereto or thereto shall re-execute original forms thereof and deliver them to all other
Parties. No Party hereto or to any such agreement or instrument shall raise the delivery of an agreement or signature by facsimile
machine or in PDF format as a defense to the formation of a contract and each such Party forever waives any such defense.

 

9.16       No
Third-Party Beneficiaries. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to
any Person other than the Parties hereto and their respective permitted successors and assigns, any rights or remedies under or
by reason of this Agreement, such third parties specifically including employees and creditors of the Company.

 

9.17       Schedules.
Nothing in any Schedule attached hereto shall be adequate to disclose an exception to a representation or warranty made in this
Agreement unless such Schedule identifies the exception with particularity and describes the relevant facts in reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not
be adequate to disclose an exception to a representation or warranty made in this Agreement, unless the representation or warranty
has to do with the existence of the document or other item itself. No exceptions to any representations or warranties disclosed
on one Schedule shall constitute an exception to any other representations or warranties made in this Agreement unless the exception
is disclosed as provided herein on each such other applicable Schedule or cross-referenced in such other applicable section or
Schedule.

 

SIGNATURE PAGE FOLLOWS

 

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EXECUTED AND DELIVERED
EFFECTIVE as of the Execution Date.

 

	 	BUYER:
	 	 
	 	SUPERIOR DRILLING PRODUCTS, LLC
	 	 
	 	/s/ Troy Meier
	 	Troy Meier, President
	 	 
	 	HRSI:
	 	 
	 	HARD ROCK SOLUTIONS, INC.
	 	 
	 	/s/ James D. Isenhour
	 	James D. Isenhour, President
	 	 
	 	COMPANY:
	 	 
	 	HARD ROCK SOLUTIONS, LLC
	 	 
	 	/s/ James D. Isenhour
	 	James D. Isenhour, President
	 	 
	 	STOCKHOLDER:
	 	 
	 	/s/ James D. Isenhour
	 	JAMES D. ISENHOUR

 

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LIST OF SCHEDULES

 

	Schedule 1.62	Permitted Liens
	Schedule 2.5	Purchase Price Allocation
	Schedule 3.2(i)	Equity; Capital Stock
	Schedule 3.2(ii)	Equity; Capital Stock
	Schedule 3.5	Consents and Approvals
	Schedule 3.8	Litigation
	Schedule 3.9	Continuity Prior to Closing Date
	Schedule 3.10	Contracts
	Schedule 3.11	Taxes
	Schedule 3.12(a)	Transferred Assets
	Schedule 3.12(b)	Excluded Assets
	Schedule 3.12(c)	Rental Equipment
	Schedule 3.12(d)	Title to Assets
	Schedule 3.13	Trademarks, Trade Names and Intellectual Property
	Schedule 3.15	Condition of Assets and Inventory
	Schedule 3.16	Liabilities
	Schedule 3.17.1(a)	Employees and Related Matters
	Schedule 3.17.1(b)	Employees and Related Matters
	Schedule 3.17.2	Employees and Related Matters
	Schedule 3.17.4	Employees and Related Matters
	Schedule 3.17.6	Employees and Related Matters
	Schedule 3.21	Government Licenses, Permits and Related Approvals
	Schedule 3.22	Safety Reports
	Schedule 3.23	Transactions with Certain Persons
	Schedule 3.24	Leased Realty
	Schedule 3.26	Names and Locations
	Schedule 3.28	Customers and Suppliers List
	Schedule 3.30.1	Employee Benefits
	Schedule 3.30.4	Employee Benefits
	Schedule 3.30.5	Employee Benefits
	Schedule 3.30.6	Employee Benefits
	Schedule 3.31.2	Environmental Matters
	Schedule 5.3	Consents and Approvals
	Schedule 5.6	Broker Agreement

 

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LIST OF EXHIBITS

 

	Exhibit A	Bill of Sale
	Exhibit B	Company Legal Opinion
	Exhibit C	Consulting Agreement
	Exhibit D	Escrow Agreement
	Exhibit E	Noncompetition Agreement-Mr. Isenhour
	Exhibit F	Noncompetition Agreement-Mrs. Isenhour
	Exhibit G	Note
	Exhibit H	Security and Pledge Agreement
	Exhibit I	IP Assignments
	Exhibit J	Closing Certificate
	Exhibit K-1	UCC-1 Financing Statement-Colorado
	Exhibit K-2	UCC-1 Financing Statement-Utah
	Exhibit L	USPTO Security Interest Forms

 

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