Document:

Exhibit 10.8

 

Execution
Copy

 

STOCK PURCHASE AGREEMENT

 

BY AND BETWEEN

 

ROCK
ENERGY RESOURCES, INC.

 

AND

 

PERM
ENERGY ADVISORS, INC.

 

 

TABLE OF CONTENTS

 

ARTICLE I

 

DEFINITIONS

 

	
  Section 1.1

  	
   

  	
  Definitions

  	
  1

  
	
  Section 1.2

  	
   

  	
  Accounting
  Procedures and Interpretation

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  
	
   

  	
   

  	
   

  	
   

  
	
  SALE AND
  PURCHASE

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 2.1

  	
   

  	
  Sale and
  Purchase

  	
  7

  
	
  Section 2.2

  	
   

  	
  Second
  Tranche

  	
  8

  
	
  Section 2.3

  	
   

  	
  Third
  Tranche

  	
  9

  
	
  Section 2.4

  	
   

  	
  Closing

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  
	
   

  	
   

  	
   

  	
   

  
	
  REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.1

  	
   

  	
  Existence

  	
  11

  
	
  Section 3.2

  	
   

  	
  Capitalization
  and Valid Issuance of Purchased Shares

  	
  11

  
	
  Section 3.3

  	
   

  	
  Company SEC
  Documents

  	
  12

  
	
  Section 3.4

  	
   

  	
  No Material
  Adverse Change

  	
  13

  
	
  Section 3.5

  	
   

  	
  Litigation

  	
  13

  
	
  Section 3.6

  	
   

  	
  No Breach

  	
  13

  
	
  Section 3.7

  	
   

  	
  Authority

  	
  14

  
	
  Section 3.8

  	
   

  	
  Compliance
  with Laws

  	
  14

  
	
  Section 3.9

  	
   

  	
  Permits

  	
  14

  
	
  Section 3.10

  	
   

  	
  Reserve
  Engineers

  	
  15

  
	
  Section 3.11

  	
   

  	
  Information
  Underlying Reserve Report

  	
  15

  
	
  Section 3.12

  	
   

  	
  Validity of
  Contracts and Easements

  	
  15

  
	
  Section 3.13

  	
   

  	
  Title to
  Assets

  	
  15

  
	
  Section 3.14

  	
   

  	
  Oil and Gas
  Operations

  	
  16

  
	
  Section 3.15

  	
   

  	
  Environmental

  	
  16

  
	
  Section 3.16

  	
   

  	
  Approvals

  	
  16

  
	
  Section 3.17

  	
   

  	
  Investment
  Company Status

  	
  16

  
	
  Section 3.18

  	
   

  	
  Offering

  	
  16

  
	
  Section 3.19

  	
   

  	
  No Default

  	
  16

  
	
  Section 3.20

  	
   

  	
  Certain Fees

  	
  16

  
	
  Section 3.21

  	
   

  	
  Internal
  Accounting Controls

  	
  16

  
	
  Section 3.22

  	
   

  	
  Material
  Agreements

  	
  16

  
	
  Section 3.23

  	
   

  	
  Insurance

  	
  16

  
	
  Section 3.24

  	
   

  	
  Taxes

  	
  16

  
	
  Section 3.25

  	
   

  	
  Acknowledgment Regarding Purchase of
  Purchased Common Stock

  	
  16

  

 

 

	
  ARTICLE IV

  
	
   

  
	
  REPRESENTATIONS
  AND WARRANTIES OF PERM

  
	
   

  
	
  Section 4.1

  	
   

  	
  Valid
  Existence

  	
  16

  
	
  Section 4.2

  	
   

  	
  Authorization,
  Enforceability

  	
  16

  
	
  Section 4.3

  	
   

  	
  No Breach

  	
  16

  
	
  Section 4.4

  	
   

  	
  Investment

  	
  16

  
	
  Section 4.5

  	
   

  	
  Nature of
  PERM

  	
  16

  
	
  Section 4.6

  	
   

  	
  Receipt of
  Information; Authorization

  	
  16

  
	
  Section 4.7

  	
   

  	
  Restricted
  Securities

  	
  16

  
	
  Section 4.8

  	
   

  	
  Certain Fees

  	
  16

  
	
  Section 4.9

  	
   

  	
  Legend

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  
	
   

  	
   

  	
   

  	
   

  
	
  COVENANTS

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.1

  	
   

  	
  Subsequent
  Public Offerings

  	
  16

  
	
  Section 5.2

  	
   

  	
  Non-Disclosure;
  Interim Public Filings

  	
  16

  
	
  Section 5.3

  	
   

  	
  Taking of
  Necessary Action

  	
  16

  
	
  Section 5.4

  	
   

  	
  Use of
  Proceeds

  	
  16

  
	
  Section 5.5

  	
   

  	
  Tax
  Information

  	
  16

  
	
  Section 5.6

  	
   

  	
  No Dividends

  	
  16

  
	
  Section 5.7

  	
   

  	
  Access to
  Company Information and Property

  	
  16

  
	
  Section 5.8

  	
   

  	
  Company
  Insurance Minimums

  	
  16

  
	
  Section 5.9

  	
   

  	
  Corporate
  Governance Policies

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  
	
   

  	
   

  	
   

  	
   

  
	
  CLOSING
  CONDITIONS AND DELIVERIES

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 6.1

  	
   

  	
  Conditions
  to Initial Closing and Subsequent Purchases

  	
  16

  
	
  Section 6.2

  	
   

  	
  Company
  Deliveries

  	
  16

  
	
  Section 6.3

  	
   

  	
  PERM
  Deliveries

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  
	
   

  	
   

  	
   

  	
   

  
	
  INDEMNIFICATION,
  COSTS AND EXPENSES

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 7.1

  	
   

  	
  Indemnification
  by Company

  	
  16

  
	
  Section 7.2

  	
   

  	
  Indemnification
  by PERM

  	
  16

  
	
  Section 7.3

  	
   

  	
  Indemnification
  Procedure

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  
	
   

  	
   

  	
   

  	
   

  
	
  MISCELLANEOUS

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.1

  	
   

  	
  Interpretation
  of Provisions

  	
  16

  

 

ii

 

	
  Section 8.2

  	
   

  	
  Survival of
  Provisions

  	
  16

  
	
  Section 8.3

  	
   

  	
  No Waiver;
  Modifications in Writing

  	
  16

  
	
  Section 8.4

  	
   

  	
  Binding
  Effect; Assignment

  	
  16

  
	
  Section 8.5

  	
   

  	
  Communications

  	
  16

  
	
  Section 8.6

  	
   

  	
  Removal of
  Legend

  	
  16

  
	
  Section 8.7

  	
   

  	
  Entire
  Agreement

  	
  16

  
	
  Section 8.8

  	
   

  	
  Governing
  Law

  	
  16

  
	
  Section 8.9

  	
   

  	
  Execution in
  Counterparts

  	
  16

  
	
  Section 8.10

  	
   

  	
  Obligations
  Limited to Parties to Agreement

  	
  16

  
	
  Section 8.11

  	
   

  	
  Expenses

  	
  16

  

 

iii

 

STOCK PURCHASE AGREEMENT

 

This STOCK
PURCHASE AGREEMENT, dated as of March 31, 2008 (this “Agreement”), is made by and between ROCK ENERGY
RESOURCES, INC., a Delaware corporation (the “Company”), and PERM ENERGY
ADVISORS, INC., a Delaware corporation (“PERM”).

 

WHEREAS, the Company desires to issue and
sell to PERM, and PERM desires to purchase from the Company, 30% of the Fully
Diluted Capital Stock of the Company (as measured after the last and final
Closing pursuant to this Agreement) for total consideration of $40,000,000 upon
the terms and subject to the conditions set forth herein; and

 

WHEREAS, the Company and the Purchasers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by the provisions of Section 4(2) of the Securities Act and
Regulation D, as promulgated by the U.S. Securities and Exchange Commission
(the “Commission”) under the Securities Act; and

 

WHEREAS, the Company has agreed to provide PERM with certain
registration rights with respect to the Purchased Shares acquired pursuant to
this Agreement; and

 

WHEREAS, simultaneously with the execution of this Agreement, the
Parties are entering into the Registration Rights Agreement and the Warrant.

 

NOW THEREFORE,
in consideration of the mutual covenants and agreements set forth herein and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and PERM hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1     
Definitions.   As used in this
Agreement, and unless the context requires a different meaning, the following
terms have the meanings indicated:

 

“Action” against a Person means any lawsuit,
action, proceeding, investigation, inquiry, complaint or litigation before any
Governmental Authority, mediator or arbitrator.

 

“Affiliate” means, with respect to a specified
Person, any other Person, whether now in existence or hereafter created,
directly or indirectly controlling, controlled by or under direct or indirect
common control with such specified Person. 
For purposes of this definition, “control” (including, with correlative
meanings, “controlling”, “controlled by” and “under common
control with”) means the power to direct or cause the direction of the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.

 

“Agreement” shall have the meaning specified in
the introductory paragraph.

 

 

“Basic Documents” means, collectively, this
Agreement, the Registration Rights Agreement, the Warrant, the Voting Agreement
and any and all other agreements or instruments executed and delivered by the
Parties to evidence the execution, delivery and performance of this Agreement,
and any amendments, supplements, continuations or modifications thereto.

 

“Business
Day” means any day other than a Saturday, Sunday or a holiday on which The
OTC Bulletin Board is closed.

 

“Closing” shall have the meaning specified in Section 2.4.

 

“Closing Date” shall have the meaning specified
in Section 2.4.

 

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

 

“Commission” shall have the meaning specified in
the recitals.

 

“Common
Stock” means the common stock of the Company currently traded on the OTC
Bulletin Board.

 

“Common Stock Per Share Price” means $1.68.

 

“Company”
shall have the meaning specified in the opening paragraph.

 

“Company
Certificate of Incorporation” means the Company’s certificate of
incorporation filed with the Secretary of State of the State of Delaware, as in
effect at the time of this Agreement.

 

“Company
Bylaws” means the Company’s bylaws, as in effect at the time of this
Agreement.

 

“Company Financial Statements” shall have the
meaning specified in Section 3.3.

 

“Company
Governing Documents” shall mean the Company Certificate of Incorporation,
the Company Bylaws and or other similar organizational documents.

 

“Company Material Adverse Effect” means any
material and adverse effect on (i) the assets, liabilities, financial
condition, business, operations, prospects or affairs of the Company, taken as
a whole, other than those occurring as a result of general economic or
financial conditions or other developments that are not unique to and do not
have a material disproportionate impact on the Company but also affect other
Persons who participate in or are engaged in the lines of business of which the
Company participates or is engaged, (ii) the ability of the Company, taken
as a whole, to carry on its business as its business is conducted as of the
date hereof or to meet its obligations under the Basic Documents on a timely
basis or (iii) the ability of the Company to consummate the transactions
under any Basic Document.

 

“Company Related Parties” shall have the meaning
specified in Section 7.2.

 

“Company SEC Documents” shall have the meaning
specified in Section 3.3.

 

2

 

“Company
Securities” shall have the meaning specified in Section 5.1.

 

“Contracts”
means the Company’s right, title and interest in and to all farm out
agreements, utilization agreements, pooling agreements, unit declarations, gas
sales or purchase contracts, operating agreements and contracts attributable to
the Oil and Gas Properties or other agreements and instruments (including all
amendments thereto and any agreements settling claims asserted thereunder) to
the extent and only to the extent that the same (i) relate, pertain or are
incidental to the Oil and Gas Properties and (ii) are material to the
value, use or operation of the Oil and Gas Properties.

 

“Deciding
Arbitrator” shall have the meaning specified in Section 2.2(d).

 

“Disagreement
Notice” shall have the meaning specified in Section 2.2(c).

 

“Easements”
means the Company’s non-exclusive right to use lands, tenements, appurtenances,
surface leases, easements, permits, licenses, servitudes and rights-of-way in
any way appertaining, belonging, affixed or incidental to or used in connection
with the ownership or operation of the Oil and Gas Properties.

 

“Environmental
Laws and Regulations” means all Law of any Governmental Authority relating
to pollution, nuisance, natural resources or the protection of health and
safety (relating to exposure to Hazardous Materials), the environment,
(including emissions, discharges, Releases, or threatened Releases of any
Hazardous Material; and the manufacture, processing, distribution, use,
coverage, disposal, transportation, storage or handling of any Hazardous
Material) in effect as of the date hereof including, without limitation, (i) the
Federal Clean Air Act, 42 U.S.C. §§ 7401 et seq.; (ii) the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601 et
seq.; (iii) the Federal Emergency Planning and Community Right-to-Know
Act, 42 U.S.C. §§ 1101 et seq.; (iv) the Federal Insecticide, Fungicide
and Rodenticide Act, 7 U.S.C. §§ 136 et seq.; (v) the Federal Water
Pollution Control Act, 33 U.S.C. §§ 1251 et seq.; (vi) the Solid Waste
Disposal Act, 42 U.S.C. §§ 6901 et seq.; (vii) the Safe Drinking Water
Act, 42 U.S.C. §§ 300f et seq.; and (viii) the Toxic Substances Control
Act, 15 U.S.C. §§ 2601 et seq..

 

“Exchange Act” means the Securities Exchange Act
of 1934, as amended from time to time, and the rules and regulations of
the Commission promulgated thereunder.

 

“Fully Diluted Capital Stock” means, as of the
date of determination, (i)  all shares of the Company’s Common Stock
outstanding as of such date, assuming the conversion and/or exercise of all
shares of convertible debt, preferred stock, warrants, options or other
securities (collectively, “Other Securities”)
of the Company outstanding as of such date into the maximum number of shares of
Common Stock into which such Other Securities are directly or indirectly
convertible or exercisable, and further assuming that the maximum number of
shares authorized and reserved for issuance under the Company’s equity
incentive plans are issued and outstanding as of such date, and (ii) all
such shares which the Company is obligated to issue pursuant to agreements or
commitments in effect as of such date.

 

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

 

3

 

“Governmental Authority” means, with respect to
a particular Person, the country, state, county, city and political
subdivisions in which such Person or such Person’s Property is located or that
exercises valid jurisdiction over any such Person or such Person’s Property,
and any court, agency, department, commission, board, bureau or instrumentality
of any of them and any monetary authorities that exercise valid jurisdiction
over any such Person or such Person’s Property. 
Unless otherwise specified, all references to Governmental Authority
herein shall mean a Governmental Authority having jurisdiction over, where applicable,
the Company or any of its Property or PERM.

 

“Hazardous
Materials” means any hazardous, infectious or toxic substance, chemical,
pollutant, contaminant, emission or waste which is regulated or requires
removal, remediation or reporting under any Environmental Laws and Regulations.
Hazardous Materials include, without limitation, anything which is: (i) defined
as a “pollutant” pursuant to 33 U.S.C. § 1362(6) as of the date of this
Agreement; (ii) defined as a “hazardous waste” pursuant to 42 U.S.C. §
6921 as of the date of this Agreement; (iii) defined as a “regulated
substance” pursuant to 42 U.S.C. § 6991 as of the date of this Agreement; (iv) defined
as a “hazardous substance” pursuant to 42 U.S.C. § 9601(14); (v) defined
as a “pollutant or contaminant” pursuant to 42 U.S.C. § 9601(33) as of the date
of this Agreement; (vi) petroleum; (vii) asbestos; and (viii) polychlorinated
biphenyl.

 

“Hydrocarbon
Interests” means all rights, titles, interests and estates now owned or
hereafter acquired by the Company in and to oil and gas leases, oil, gas and
mineral leases (including subleases), oil, gas and casinghead gas leases, or
other liquid or gaseous hydrocarbon leases, mineral fee or lease interests,
other oil, gas and mineral leasehold fee or term interests, farm outs,
overriding royalty and royalty interests, net profits interests, net revenue
interests, carried interests, oil payments, production payment interests and
similar mineral interests, including any reserved, reversionary or residual
interest of whatever nature.

 

“Indemnified Party” shall have the meaning
specified in Section 7.3.

 

“Indemnifying Party” shall have the meaning
specified in Section 7.3.

 

“Initial
Closing” shall be on the date of, and immediately prior to, the Resale
Registration Statement becoming effective.

 

“Law” means any federal, state, local or foreign
order, writ, injunction, judgment, settlement, award, decree, statute, law, rule or
regulation.

 

“Lien” means any interest in Property securing
an obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute or
contract, and whether such obligation or claim is fixed or contingent, and
including the lien or security interest arising from a mortgage, encumbrance,
pledge, security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes.

 

“Neutral
Arbitrator” means an arbitrator who would not be subject to
disqualification under Rule No. 19 of the American Arbitration
Association Rules.

 

4

 

“Oil and
Gas Properties” means all of the Company’s Hydrocarbon Interests; personal
property and/or real property now or hereafter pooled or unitized with
Hydrocarbon Interests; currently existing or future unitization, pooling
agreements and declarations of pooled units and the units created thereby
(including all units created under orders, regulations and rules of any
governmental body having jurisdiction) which may affect all or any portion of
the Hydrocarbon Interests; pipelines, gathering lines, compression facilities,
tanks and processing plants; oil wells, gas wells, water wells, injection
wells, platforms, spars or other offshore facilities, casings, rods, tubing,
pumping units and engines, Christmas trees, derricks, separators, gun barrels,
flow lines, gas systems (for gathering, dehydration, treating and compression),
and water systems (for treating, disposal and injection); interests held in
royalty trusts whether currently existing or hereafter created; hydrocarbons in
and under and which may be produced, saved, processed or attributable to the
Hydrocarbon Interests, the lands covered thereby and all hydrocarbons in
pipelines, gathering lines, tanks and processing plants and all rents, issues,
profits, proceeds, products, revenues and other incomes from or attributable to
the Hydrocarbon Interests; tenements, hereditaments, appurtenances and personal
property and/or real property in any way appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests, and all rights, titles, interests and
estates described or referred to above, including any and all real property,
now owned or hereafter acquired, used or held for use in connection with the
operating, working or development of any of such Hydrocarbon Interests or
personal property and/or real property and including any and all surface
leases, rights-of-way, easements and servitudes together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing.

 

“Other Securities” shall have the meaning
specified above in the definition of Fully Diluted Capital Stock.

 

“Party” or “Parties”
means the Company and PERM, individually or collectively, as the case may be.

 

“PERM” shall have the meaning specified in the
introductory paragraph.

 

“PERM Material Adverse Effect” means any
material and adverse effect on (i) the ability of PERM to meet its
obligations under this Agreement or the Registration Rights Agreement on a
timely basis or (ii) the ability of PERM to consummate the transactions
under this Agreement or the Registration Rights Agreement.

 

“PERM Related Parties” shall have the meaning
specified in Section 7.1.

 

“Person” means any individual, corporation,
company, voluntary association, partnership, trust, limited liability company,
unincorporated organization or government or any agency, instrumentality or
political subdivision thereof, or any other form of entity.

 

“Property” means any interest in any kind of
property or asset, whether real, personal or mixed, or tangible or intangible.

 

“Purchased Shares” means the Common Stock to be
issued and sold to PERM pursuant to this Agreement.

 

5

 

“Registration Rights Agreement” means the
Registration Rights Agreement, substantially in the form attached to this
Agreement as Exhibit B, to be entered into simultaneously with the
signing of this Agreement, by and between the Company and PERM.

 

“Release”
means the active or passive spilling, emitting, leaking, pumping, pouring,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the indoor or outdoor environment.

 

“Representatives” of any Person means the
officers, managers, directors, employees, agents and other representatives of
such Person.

 

“Resale
Registration Statement” shall have the meaning specified in the
Registration Rights Agreement.

 

“Reserve
Engineer” shall have the meaning specified in Section 3.10.

 

“Second
Tranche” shall have the meaning specified in Section 2.2(e).

 

“Second
Tranche Bring Down Representation” shall have the meaning specified in Section 2.2(a).

 

“Second
Tranche Business Plan” shall have the meaning specified in Section 2.2(a).

 

“Second
Tranche Share Amount” shall equal an amount of shares of Common Stock equal
to (i) 17,857,143 shares, less (ii) the
number of Purchased Shares purchased by PERM at the Initial Closing.

 

“Securities Act” means the Securities Act of
1933, as amended from time to time, and the rules and regulations of the
Commission promulgated thereunder.

 

“Stockholders” means the holders of Common
Stock.

 

“Subsequent
Purchase Officer’s Certificate” shall have the meaning specified in Section 2.2(a).

 

“Subsidiary” means, as to any Person, any
corporation or other entity of which: (i) such Person or a Subsidiary of
such Person is a general partner or manager; (ii) at least a majority of
the outstanding equity interest having by the terms thereof ordinary voting
power to elect a majority of the board of directors or similar governing body
of such corporation or other entity (irrespective of whether or not at the time
any equity interest of any other class or classes of such corporation or other
entity shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries; or (iii) any corporation or
other entity as to which such Person consolidates for accounting purposes.

 

“Third
Tranche” shall have the meaning specified in Section 2.3(e).

 

6

 

“Third
Tranche Bring Down Representation” shall have the meaning specified in Section 2.3(a).

 

“Third
Tranche Business Plan” shall have the meaning specified in Section 2.3(a).

 

“Third
Tranche Per Share Price” shall equal the lesser of (i) $1.68 and (ii) the
amount obtained by dividing $10,000,000 by the Third Tranche Share Amount.

 

“Third Tranche Share Amount” shall
equal the amount of shares of Common Stock necessary for total Purchased Shares
(i.e., those purchased under Section 2.1, Section 2.2 and Section 2.3)
to equal 30% of the Fully Diluted Capital Stock of the Company (as measured
after the last and final Closing pursuant to this Agreement).

 

“Voting
Agreement” shall mean the Voting Agreement between the Company and the
holders of Common Stock parties thereto, in substantially the form attached as Exhibit C
hereto.

 

“Warrant”
shall mean the warrant to purchase 4,761,905 shares of Common Stock of the
Company at an exercise price of $1.68 per share to be executed simultaneously
with this Agreement, in substantially the form attached as Exhibit D
hereto.

 

Section 1.2             Accounting
Procedures and Interpretation.   Unless otherwise specified in
this Agreement, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters under this Agreement shall be
made, and all financial statements and certificates and reports as to financial
matters required to be furnished to PERM under this Agreement shall be
prepared, in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q promulgated by the
Commission) and in compliance as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto.

 

ARTICLE II

 

SALE AND PURCHASE

 

Section 2.1             Sale and
Purchase.

 

(a)           Upon
the terms and subject to the conditions set forth herein, at the Initial
Closing, PERM agrees to purchase, and the Company agrees to issue and sell to
PERM, (a) the lesser of (i) 8,928,571 shares of Common Stock and (ii) the
amount of shares of Common Stock equal to 9.9% of the Company’s issued and
outstanding Common Stock immediately after PERM purchases said shares, in each
case free and clear of all Liens.

 

(b)           At
the Initial Closing, PERM agrees to pay the Company the Common Stock Per Share
Price for each Purchased Share purchased pursuant to Section 2.1(a).

 

(c)           Common Stock.  The Purchased Shares shall have those rights,
preferences, privileges and restrictions governing the Common Stock as set
forth in the Company Certificate of Incorporation and Company Bylaws.

 

7

 

Section 2.2             Second Tranche.

 

(a)           On
the 120th day after the effectiveness of the Resale Registration Statement
covering the Purchased Shares purchased pursuant to Section 2.1 or such
other date mutually agreed to by the Parties so long as such mutually agreeable
date is after the 60th day following the effectiveness of such Resale
Registration Statement, the Company shall deliver to PERM (i) a
certificate in substantially the form attached hereto as Exhibit E
(the “Subsequent Purchase Officer’s Certificate”) of an officer of the
Company stating that the Company’s closing conditions applicable to the
Closing of the Second Tranche in Section 6.1(c) have been satisfied
(the “Second Tranche Bring Down Representation”) as of the Closing Date
of the Second Tranche and (ii) its proposed business plan outlining the
use of proceeds received from PERM pursuant to the Closing of the Second
Tranche (the “Second Tranche Business Plan”).  The Subsequent Purchase Officer’s Certificate
and the Second Tranche Business Plan shall be accompanied by reasonable
supporting documentation for the statements made therein.

 

(b)           If
the Subsequent Purchase Officer’s Certificate makes the Second Tranche Bring
Down Representation, PERM shall have the right, with its Representatives and accountants,
for 30 days from delivery of the Subsequent Purchase Officer’s Certificate,
together with the accompanying supporting documentation, to review such items
and, during such 30-day period, shall have reasonable access to the books,
records and personnel of the Company for purposes of verifying the accuracy of
the Second Tranche Bring Down Representation.

 

(c)           If
PERM believes that the Second Tranche Bring Down Representation is inaccurate
and as a result does not wish to consummate the subsequent purchase, it shall,
within the 30-day period provided in Section 2.2(b), deliver to the
Company a written notice (a “Disagreement Notice”) setting forth, in
reasonable detail, the reasons for its belief that the Second Tranche Bring
Down Representation is inaccurate.  PERM
shall be deemed to have agreed that the Second Tranche Bring Down
Representation is accurate (i) unless it has timely delivered to the
Company a Disagreement Notice in accordance with the immediately preceding
sentence and (ii) if it has timely so delivered a Disagreement Notice,
except to the extent specified therein.

 

(d)           If
a Disagreement Notice is timely delivered to the Company, the Company and PERM
shall use their good faith efforts to reach agreement on the disputed items or
amounts in order to determine whether the Second Tranche Bring Down
Representation is accurate.  If the
Company and PERM do not resolve all disputed items or amounts within 30 days
after delivery of the Disagreement Notice, then the disputed items and amounts
will be submitted for determination to a Neutral Arbitrator (the “Deciding
Arbitrator”) selected and agreed to by PERM and the Company.  If PERM and the Company cannot agree on the
Deciding Arbitrator, then PERM and the Company shall each select a Neutral
Arbitrator, and those two Neutral Arbitrators shall select the Deciding
Arbitrator.  The Company and PERM may
submit to such Deciding Auditor any facts which they deem relevant to the
determination.  The Company and PERM will
use their respective commercially reasonable efforts to cause such Deciding
Arbitrator to deliver to the Company and PERM a written report stating its
determination within 30 days after such disputed items and amounts are
submitted to such Deciding Arbitrator for determination.  The determination of such Deciding Arbitrator
shall be final and binding upon the Company and PERM for all purposes and shall
not be subject to challenge before any court

 

8

 

of law or
arbitration tribunal.  The Company and
PERM agree that judgment may be entered upon the determination of such Deciding
Arbitrator in any court having jurisdiction over the party against which such
determination is to be enforced.  The
fees and expenses of such Deciding Arbitrator shall be borne one-half by the
Company and one-half by PERM.  Any fees
and expenses of the Company’s and PERM’s own independent public accountants or
legal counsel incurred in connection with their review shall be borne by the
party retaining such independent public accountants or legal counsel.

 

(e)           If
it is finally determined pursuant to this Section 2.2 that the Second
Tranche Bring Down Representation is accurate and PERM approves the Second
Tranche Business Plan in writing, then, on the fifth Business Day next
following such determination and approval at the principal executive offices of
the Company (or at such other time and place as the Company and PERM may
agree), PERM will purchase, and the Company will issue and sell to PERM, an
amount of shares of Common Stock equal to the Second Tranche Share Amount, free
and clear of all Liens, at a per share price equal to the Common Stock Per
Share Price (such purchase being the “Second Tranche”).

 

(f)            Notwithstanding
the provisions of this Section 2.2, the Parties acknowledge and agree that
(i) the purchase and sale of shares pursuant to Section 2.2(e) is
intended to coincide with the Company’s approved use of proceeds from such sale
as outlined in the Second Tranche Business Plan and (ii) the Company shall
have five (5) Business Days from the Closing of the Second Tranche to use
or deploy the proceeds from the Second Tranche in accordance with the Second
Tranche Business Plan.  In the event the
Company cannot, or believes it will not be able to, use or deploy the proceeds
it receives from the Second Tranche within such 5-day period, the Company shall
promptly notify PERM.  Upon such
notification, PERM, in its sole discretion, may elect to postpone the Closing
of the Second Tranche until such time as the Company can comply with such 5-day
requirement.  If, after Closing the
Second Tranche, the Company has not used or deployed the proceeds therefrom
within five (5) Business Days of such Closing, PERM, in its sole discretion,
shall have the right (but not the obligation) to require the Company to return
the money PERM paid for the shares of Common Stock acquired in such Second
Tranche to PERM in exchange for PERM’s return of such shares.

 

Section 2.3             Third Tranche.

 

(a)           On
the later of September 30, 2008 or 120 days after the effectiveness of the
Resale Registration Statement covering the Purchased Shares purchased pursuant
to Section 2.1, the Company shall deliver (i) to PERM another
Subsequent Purchase Officer’s Certificate stating that the Company’s
closing conditions applicable to the Closing of the Third Tranche in Section 6.1(d) have
been satisfied (the “Third Tranche Bring Down Representation”) as of the
Closing Date for the Third Tranche and (ii) its proposed business plan
outlining the use of proceeds received from PERM pursuant to the Closing of
this Third Tranche (the “Third Tranche Business Plan”).  The Subsequent Purchase Officer’s Certificate
and the Third Tranche Business Plan shall be accompanied by reasonable
supporting documentation for the statements made therein.

 

(b)           If
the Subsequent Purchase Officer’s Certificate makes the Third Tranche Bring
Down Representation, PERM shall have the same rights granted in Section 2.2(b) to
review and

 

9

 

verify the
accuracy of the Subsequent Purchaser Officer’s Certificate for 30 days from
delivery of such Subsequent Purchase Officer’s Certificate.

 

(c)           If
PERM believes that the Third Tranche Bring Down Representation is inaccurate
and as a result does not wish to consummate the subsequent purchase, it shall,
within the 30-day period provided in Section 2.3(b), deliver to the
Company a Disagreement Notice setting forth, in reasonable detail, the reasons
for its belief that the Third Tranche Bring Down Representation is inaccurate.  PERM shall be deemed to have agreed that the
Third Tranche Bring Down Representation is accurate (i) unless it has
timely delivered to the Company a Disagreement Notice in accordance with the
immediately preceding sentence and (ii) if it has timely so delivered a
Disagreement Notice, except to the extent specified therein.

 

(d)           If
a Disagreement Notice is timely delivered to the Company, the Company and PERM
shall use their good faith efforts to reach agreement on the disputed items or
amounts in order to determine whether the Third Tranche Bring Down
Representation is accurate.  If the
Company and PERM do not resolve all disputed items or amounts within 30 days
after delivery of the Disagreement Notice, then the disputed items and amounts
will be submitted for determination to a Deciding Arbitrator and resolved in
accordance with the procedures in Section 2.2(d).

 

(e)           If
it is finally determined pursuant to this Section 2.3 that the Third
Tranche Bring Down Representation is accurate and PERM approves the Third
Tranche Business Plan in writing, then, on the fifth Business Day next
following such determination and approval at the principal executive offices of
the Company (or at such other time and place as the Company and PERM may
agree), PERM will purchase, and the Company will issue and sell to PERM, an
amount of shares of Common Stock equal to the Third Tranche Share Amount, free
and clear of all Liens, at a per share price equal to the Third Tranche Per
Share Price (such purchase being the “Third Tranche”).

 

(f)            Notwithstanding
the provisions of this Section 2.3, the Parties acknowledge and agree that
(i) the purchase and sale of shares pursuant to Section 2.3(e) Section 2.2(e)is
intended to coincide with the Company’s approved use of proceeds from such sale
as outlined in the Third Tranche Business Plan and (ii) the Company shall
have five (5) Business Days from the Closing of the Third Tranche to use
or deploy the proceeds from the Third Tranche in accordance with the Third
Tranche Business Plan.  In the event the
Company cannot, or believes it will not be able to, use or deploy the proceeds
it receives from the Third Tranche within such 5-day period, the Company shall
promptly notify PERM.  Upon such notification,
PERM, in its sole discretion, may elect to postpone the Closing of the Third
Tranche until such time as the Company can comply with such 5-day
requirement.  If, after Closing the Third
Tranche, the Company has not used or deployed the proceeds therefrom within
five (5) Business Days of such Closing, PERM, in its sole discretion,
shall have the right (but not the obligation) to require the Company to return
the money PERM paid for the shares of Common Stock acquired in such Third
Tranche to PERM in exchange for PERM’s return of such shares.

 

Section 2.4             Closing.  Subject to the terms and conditions hereof,
the Initial Closing and each subsequent closing of the transactions
contemplated by this Agreement (each a “Closing”) will be held at the
offices of Baker Botts L.L.P., One Shell Plaza, 910 Louisiana,

 

10

 

Houston, Texas 77002 at
such date and time as the Company and PERM may agree to in writing (each a “Closing
Date”).

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents
and warrants to PERM, on and as of the date of this Agreement and on and as of
each Closing Date, as follows:

 

Section 3.1             Existence.  The Company: 
(i) is a corporation duly organized, validly existing and in good
standing under the Law of the state or other jurisdiction of its incorporation
or organization; (ii) has all requisite power and authority, and has all
material governmental licenses, authorizations, consents and approvals,
necessary to own, lease, use and operate its Properties and carry on its
business as its business is now being conducted as described in the Company SEC
Documents and as will be conducted for the foreseeable future, except where the
failure to obtain such licenses, authorizations, consents and approvals would
not reasonably be expected to have a Company Material Adverse Effect.  The Company is not in default in the
performance, observance or fulfillment of any provision of the Company
Governing Documents.  The Company is duly
qualified or licensed and in good standing as a foreign limited partnership,
limited liability company or corporation, as applicable, and is authorized to
do business in each jurisdiction in which the ownership or leasing of its
respective Properties or the character of its respective operations makes such
qualification necessary, except where the failure to obtain such qualification,
license, authorization or good standing would not reasonably be expected to
have a Company Material Adverse Effect.

 

Section 3.2             Capitalization
and Valid Issuance of Purchased Shares.

 

(a)           The
Purchased Shares shall have those rights, preferences, privileges and
restrictions governing the Common Stock as set forth in the Company Certificate
of Incorporation and the Company Bylaws.

 

(b)           As
of the date of this Agreement, (i) the issued and outstanding Common Stock
of Company consist of 63,474,496 shares. An additional 510,000 shares of Common
Stock are issuable pursuant to the Company’s issued and outstanding
warrants.   All outstanding shares of
Common Stock have been duly authorized and validly issued in accordance with
applicable Law and the Company Governing Documents and are fully paid and
nonassessable.

 

(c)           The
Company has no equity compensation plans that contemplate the issuance of
Common Stock (or securities convertible into or exchangeable for Common
Stock).  Except as set forth on Schedule
3.2(c), there is no indebtedness having the right to vote (or convertible into
or exchangeable for securities having the right to vote) on any matters on
which the Stockholders may vote are issued or outstanding.  There are no outstanding or authorized (i) except
as disclosed in Section 3.2(b), options, warrants, preemptive rights,
subscriptions, calls or other rights, convertible or exchangeable securities,
agreements, claims or commitments of any character obligating the Company or
any of its Subsidiaries to issue, transfer or sell any Common Stock or other
equity interests in the Company or any of its Subsidiaries or securities
convertible

 

11

 

into or
exchangeable for such Common Stock or other equity interests, (ii) obligations
of the Company to repurchase, redeem or otherwise acquire any Common Stock or
equity interests in the Company or any such securities or agreements listed in
clause (i) of this sentence or (iii) except as contemplated by this
Agreement, voting trusts or similar agreements to which the Company is a party
with respect to the voting of the equity interests of the Company.  There are no restriction upon the voting or
transfer of, any Common Stock or other equity interests of the Company pursuant
to any other agreement or instrument to which any of such Persons is a party or
by which any one of them may be bound. 
Neither the execution of this Agreement, nor the issuance of the
Purchased Shares as contemplated by this Agreement gives rise to any rights for
or relating to the registration of any securities of the Company, other than
pursuant to the Registration Rights Agreement.

 

(d)           The
Company does not own, directly or indirectly, any equity or debt securities of
any corporation, partnership, limited liability company, joint venture,
association or other entity.

 

(e)           The
offer and sale of the Purchased Shares have been, or prior to each Closing
Date, will be duly authorized by the Company pursuant to the Company Governing
Documents and, when issued and delivered to PERM against payment therefor in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable and will be free of any and all Liens and restrictions on
transfer, other than restrictions on transfer under the Company Governing
Documents, this Agreement or the Registration Rights Agreement and under
applicable state and federal securities laws and other than such Liens as are
created by PERM (or its Affiliates as authorized by PERM).  No approval from the board of directors of
the Company or the stockholders of the Company is required in connection with
the Company’s issuance and sale of the Purchased Shares to PERM other than
those that have been, or will be prior to the Initial Closing, obtained or
waived.

 

Section 3.3             Company SEC Documents.  Since January 2, 2008, the Company has
filed timely with the Commission all forms, registration statements, reports,
schedules and statements required to be filed by it under the Exchange Act or
the Securities Act (all such documents filed on or prior to the date of this
Agreement, collectively, the “Company SEC Documents”).  The Company SEC Documents, including, without
limitation, any audited or unaudited financial statements and any notes thereto
or schedules included therein (the “Company Financial Statements”), at
the time filed (in the case of registration statements, solely on the dates of
effectiveness) (except to the extent corrected by a subsequently filed the
Company SEC Document filed prior to the date hereof) (i) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein (in the case of any prospectus, in light of the circumstances under
which they were made) not misleading, (ii) complied as to form in all
material respects with the applicable requirements of the Exchange Act and the
Securities Act, as applicable, (iii) in the case of the Company Financial
Statements, complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of
the Commission with respect thereto, (iv) in the case of the Company
Financial Statements, were prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q
of the Commission) and (v) in the case of the Company Financial
Statements, fairly present (subject in the case of unaudited statements to
normal, recurring and year-end audit adjustments)

 

12

 

in all material respects the consolidated financial position of the
Company and its Subsidiaries as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended.  Malone & Bailey, P.C. is an
independent registered public accounting firm with respect to the Company and
has not resigned or been dismissed as independent registered public accountants
of the Company as a result of or in connection with any disagreement with the
Company on a matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.

 

Section 3.4             No Material Adverse Change.  Except as set forth in or contemplated by the
Company SEC Documents, the Company has conducted its business in the ordinary
course, consistent with past practice, and there has been no (i) change
that has had or would reasonably be expected to have a Company Material Adverse
Effect (ii) acquisition or disposition of any material assets by the
Company or any contract or arrangement therefor, otherwise than for fair value
in the ordinary course of business, (iii) material change in the Company’s
accounting principles, practices or methods or (iv) incurrence of material
indebtedness.

 

Section 3.5             Litigation.  Except as set forth in the Company SEC
Documents, there is no Action pending or, to the knowledge of the Company,
threatened against the Company or any of its respective officers, directors or
Properties, as applicable, that (a) questions the validity of this
Agreement or the Registration Rights Agreement or the right of the Company to
enter into this Agreement or the Registration Rights Agreement or to consummate
the transactions contemplated hereby and thereby or (b) (individually or
in the aggregate) would reasonably be expected to result in a Company Material
Adverse Effect.

 

Section 3.6             No Breach.  The execution, delivery and performance by
the Company of the Basic Documents to which it is party and compliance by the
Company with the terms and provisions hereof and thereof, and the issuance and
sale by the Company of the Purchased Shares, do not and will not (a) assuming
the accuracy of the representations and warranties of PERM contained herein and
their compliance with the covenants contained herein, violate any provisions of
any Law, governmental permit, determination or award having applicability to
the Company or any of its respective Properties, (b) conflict with or
result in a violation or breach of any provision of the Company Governing
Documents of the Company or organizational documents of any of the Company’s
Subsidiaries, (c) require any consent, approval or notice under or result
in a violation or breach of or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any contract, agreement, instrument,
obligation, note, bond, mortgage, license, or loan or credit agreement to which
the Company is a party or by which the Company or any of its respective
Properties may be bound, or (d) result in or require the creation or
imposition of any Lien upon or with respect to any of the Properties now owned
or hereafter acquired by the Company, except in the cases of clauses (a), (c) and
(d) where any such violation, default, breach, termination, cancellation,
failure to receive consent approval or notice, or acceleration with respect to
the foregoing provisions of this Section 3.6 would not, individually or in
the aggregate, be reasonably likely to result in a Company Material Adverse
Effect.

 

Section 3.7             Authority.  The Company has all necessary power and
authority to execute, deliver and perform its obligations under the Basic
Documents; and the execution, delivery and performance by the Company of the
Basic Documents has been or will be on each

 

13

 

Closing Date duly authorized by all necessary action on its part; and
the Basic Documents constitute the legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, except as such enforceability
may be limited by bankruptcy, insolvency, fraudulent transfer and similar laws
affecting creditors’ rights generally or by general principles of equity
including principles of commercial reasonableness, fair dealing and good faith.

 

Section 3.8             Compliance with Laws.  The Company is not in violation of any
judgment, decree or order or any Law applicable to the Company, except as would
not, individually or in the aggregate, have a Company Material Adverse Effect.  The Company possesses all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct its businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the
aggregate, a Company Material Adverse Effect, and the Company has not received
any notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit, except where such potential
revocation or modification would not have, individually or in the aggregate, a
Company Material Adverse Effect.  Neither
the Company, nor any director, officer, agent, employee or other person acting
on behalf of the Company has, in the course of its actions for, or on behalf
of, the Company (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds; (iii) violated
or is in violation of any provision of the U.S. Foreign Corrupt Practices Act
of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

Section 3.9             Permits.  The Company possesses
all certificates, authorizations or permits issued by the appropriate local,
state or federal regulatory agencies or bodies necessary to conduct the
business currently conducted by it or to be conducted immediately
following each Closing, except for such certificates, authorizations or permits
which, (i) are of the type that are to be obtained in the ordinary course
of business and the Company reasonably believe will be obtained, or (ii) if
not obtained, would not, singly or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect. The Company has not received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which would reasonably be expected to have
a Company Material Adverse Effect. The continuation, validity and effectiveness
of all such certificates, authorizations and permits will not be adversely
affected by the transactions contemplated by this Agreement or the other Basic
Documents.

 

Section 3.10           Reserve Engineers.  RPS Scottia is the Company’s only reserve
engineer (the “Reserve Engineer”). 
No information has come to the attention of the Company that could
reasonably be expected to cause the Reserve Engineer to withdraw its Reserve
Report.

 

Section 3.11           Information Underlying
Reserve Report.  The
information underlying the estimates of the Company’s proved reserves that was
supplied to the Reserve Engineer for the purposes of preparing its Reserve
Report(s) and estimates of the proved reserves that form part of the
assets which are set forth in the Reserve Report(s), including production,
costs of operation, and, to the knowledge of the Company, future operations and
sales of production, was

 

14

 

true and correct in all material respects on the dates such information
was provided, and such information was supplied and prepared in accordance with
customary industry practices. Other than normal production of the reserves,
product price fluctuations, and fluctuations of demand for such products, and
except as disclosed in the Reserve Report(s), the Company is not aware of any
facts or circumstances that would result in a materially adverse change in the
reserves in the aggregate, or the aggregate present value of the future net
cash flows therefrom, as reflected in the Reserve Report(s).

 

Section 3.12           Validity of Contracts and
Easements.  All Contracts and
Easements related to the Oil and Gas Properties are in full force and effect,
are valid and subsisting and cover the entire estates or rights that they
purport to cover and contain no provision that prevents the Company from
managing and operating, or causing the management and operations of, the Oil and
Gas Properties. The Company has performed all material obligations required to
be performed by it to date under the Contracts and Easements.  To the knowledge of the Company, no event has
occurred, which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default by any third party
under any Contract or Easement which, singly or in the aggregate, could
reasonably be expected to have a Company Material Adverse Effect on the
Company.

 

Section 3.13           Title to Assets.

 

(a)           The
Company has defensible title to the Oil and Gas Properties.

 

(b)           With
respect to all real property and buildings held under lease by the Company (A) such
leases are in full force and effect and constitute valid and binding obligations
of the Company; (B) there have not been and there currently are not any
defaults by the Company thereunder except for such defaults as would not,
singly or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect; (C) to the knowledge of the Company, no event has
occurred, which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default thereunder by any
Company entitling the lessor to terminate the lease; and (D) the
continuation, validity and effectiveness of all such leases under the current
rentals and other current terms thereof will not be adversely affected by the
transactions contemplated by this Agreement or the other Basic Documents.

 

Section 3.14           Oil and Gas Operations. 
To the knowledge of the Company and the directors and officers (and
employees with responsibility for oil and gas operational matters) of the
Company, all wells included in the Oil and Gas Properties have been drilled and
(if completed) completed, operated and produced in accordance with generally
accepted oil and gas field practices and in compliance in all material respects
with applicable oil and gas leases, pooling and unit agreements, and Law except
where the failure to take any such action or comply would not have a Company
Material Adverse Effect on the Company or the affected assets.  Proceeds from the sale of oil, gas and other
hydrocarbons produced from the Oil and Gas Properties are being received by the
Company in a timely manner and are not being held in suspense for any reason
(except for amounts held in suspense in the ordinary course of business).

 

Section 3.15           Environmental.  Except as would not, singly or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect:

 

15

 

(a)           The
operations and activities of the Company are in compliance with all applicable
Environmental Laws and Regulations.

 

(b)           The
Company has obtained and is in compliance with all requirements, permits,
licenses and other authorizations which are required with respect to its
operations, under all applicable Environmental Laws and Regulations.

 

(c)           There
is no civil, criminal, administrative or other action, suit, demand, claim, hearing,
notice of violation, proceeding, investigation, notice or demand pending,
received, or, to the knowledge of the Company, threatened against the Company
relating in any way to any applicable Environmental Laws and Regulations, which
has not been abated.

 

(d)           To
the knowledge of the Company, no real property currently owned, leased or
operated by the Company has been placed on the National Priorities List of
hazardous waste sites by the U.S. Environmental Protection Agency and no real
properties previously owned, leased or operated by the Company is currently
identified on this list.

 

(e)           No
underground tanks exist or, to the knowledge of the Company, have existed on
any real property now or previously owned, leased, operated or utilized by the
Company or their predecessors.

 

(f)            The
Company has made available to PERM all internal and external environmental
studies, reports, audits and assessments and all correspondence on substantial
environmental matters related to the Company’s properties in possession of the
Company.

 

(g)           No
Hazardous Materials have been Released at, on, under or from any property
currently owned, operated or to the knowledge of the Company, previously owned
(directly or indirectly) or operated by the Company for which remedial or corrective
action may be required under applicable Environmental Laws and Regulations.

 

Section 3.16           Approvals.  Except as contemplated by this Agreement or
as required by the Commission in connection with the Company’s obligations
under the Registration Rights Agreement, no authorization, consent, approval,
waiver, license, qualification or written exemption from, nor any filing,
declaration, qualification or registration with, any Governmental Authority or
any other Person is required in connection with the execution, delivery or
performance by the Company of any of the Basic Documents to which it is a
party, except (i) for such consents, approvals and waivers as have been
obtained or (ii) where the failure to receive such authorization, consent,
approval, waiver, license, qualification or written exemption from, or to make
such filing, declaration, qualification or registration would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.

 

Section 3.17           Investment Company Status.  The Company is not now, and after the sale of
the Purchased Shares and the application of the net proceeds from such sale
will not be, and is not controlled by or under common control with, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.

 

Section 3.18           Offering.  Assuming the accuracy of the representations
and warranties of PERM contained in this Agreement, the sale and issuance of
the Purchased Shares pursuant to

 

16

 

this Agreement are exempt from the
registration requirements of the Securities Act, and neither the Company nor
any authorized Representative acting on its behalf has taken or will take any
action hereafter that would cause the loss of such exemption.

 

Section 3.19           No Default.  The Company is not (i) in violation of
its certificate of incorporation or other organizational or charter documents, (ii) in
default and no event has occurred which, with notice or lapse of time or both,
would become a default under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a debt or other obligation of the Company) to which the Company is
a party or by which any property or asset of the Company is bound or affected
which default would, singly or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect, or (iii) in violation of any Law to
which the Company is subject (including, without limitation, federal and state
securities Law and regulations), or by which any property or asset of the
Company is bound or affected, which violation would, singly or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect. To
the knowledge of the Company, no third party to any agreement, credit facility,
debt or other instrument (evidencing a debt or other obligation of the Company)
to which the Company is a party or by which it is bound or to which its
properties is subject, is in default under any such agreement, which default
would, singly or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.

 

Section 3.20           Certain Fees.  No fees or commissions will be payable by the
Company to brokers, finders or investment bankers with respect to the sale of
any of the Purchased Shares or the consummation of the transactions
contemplated by this Agreement.

 

Section 3.21           Internal Accounting
Controls.  The Company
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.

 

Section 3.22           Material Agreements.  The Company has provided PERM with, or
made available to PERM directly or indirectly through the Company SEC
Documents, correct and complete copies of all material agreements (as defined
in Section 601(b)(10) of Regulation S-K promulgated by the
Commission) and of all exhibits to the Company SEC Documents, including
amendments to or other modifications of pre-existing material agreements,
entered into by the Company.

 

Section 3.23           Insurance.  The Company is insured against such losses
and risks and in such amounts as the Company believes to be prudent for its
businesses.  The Company does not have
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business.

 

17

 

Section 3.24           Taxes. 
The Company has, in respect of its business, filed all tax
returns required to be filed other than those tax returns the failure of which
to file would not have or be reasonably expected to have, singly or in the
aggregate, a Company Material Adverse Effect. 
Such tax returns are true, correct and complete.  The Company has paid in full all taxes shown
to be due on such tax returns.  The
Company  has not received any written
notice of deficiency or assessment from any taxing authority with respect to
liabilities for taxes of the Company, which have not been fully paid or finally
settled, unless being contested in good faith through appropriate proceedings
and for which adequate reserves are presented in the Company SEC Documents.

 

Section 3.25           Acknowledgment Regarding Purchase of Purchased
Common Stock.  The Company acknowledges and agrees that (i) PERM is participating in the
transactions contemplated by this Agreement and the other Basic Documents at
the Company’s request and
the Company has concluded
that such participation is in the Company’s best interest and is consistent with the Company’s objectives and (ii) PERM is
acting solely in the capacity of an arm’s length purchaser.  The Company further acknowledges that PERM is not acting
nor has acted as an advisor, agent or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the other Basic Documents and any advice given by
PERM or any of its respective Representatives in connection with this Agreement
or the other Basic Documents is merely incidental to PERM’s purchase of the
Purchased Shares.  The Company further represents that the Company’s decision to enter into this Agreement
has been based solely on the independent evaluation of the transactions
contemplated hereby by the Company and its Representatives.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF PERM

 

PERM
represents and warrants to the Company on and as of the date of this Agreement
and on and as of each Closing Date, as follows:

 

Section 4.1             Valid
Existence.  PERM (i) is
duly organized, validly existing and in good standing under the Law of its
jurisdiction of organization and (ii) has all requisite power, and has all
material governmental licenses, authorizations, consents and approvals,
necessary to own its Properties and carry on its business as its business is
now being conducted, except where the failure to obtain such licenses,
authorizations, consents and approvals would not have and would not reasonably
be expected to have a PERM Material Adverse Effect.

 

Section 4.2             Authorization,
Enforceability.  PERM has all
necessary power and authority to execute, deliver and perform its obligations
under this Agreement and the Registration Rights Agreement and to consummate
the transactions contemplated thereby, and the execution, delivery and
performance by PERM of this Agreement and the Registration Rights Agreement has
been duly authorized by all necessary action on the part of PERM; and each of
this Agreement and the Registration Rights Agreement constitute the legal,
valid and binding obligations of PERM, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent transfer and similar laws affecting

 

18

 

creditors’ rights generally or by general principles of equity,
including principles of commercial reasonableness, fair dealing and good faith.

 

Section 4.3             No Breach.  The execution, delivery and performance by
PERM of this Agreement and the Registration Rights Agreement to which it is a
party and all other agreements and instruments in connection with the
transactions contemplated by this Agreement and the Registration Rights
Agreement to which it is a party, and compliance by PERM with the terms and
provisions hereof and thereof and the purchase of the Purchased Shares by PERM
do not and will not (a) violate any provision of any Law, governmental
permit, determination or award having applicability to PERM or any of its
Properties, (b) conflict with or result in a violation of any provision of
the organizational documents of PERM or (c) require any consent (other
than standard internal consents), approval or notice under or result in a
violation or breach of or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under (i) any note, bond, mortgage, license, or loan or
credit agreement to which PERM is a party or by which PERM or any of its
Properties may be bound or (ii) any other such agreement, instrument or
obligation, except in the case of clauses (a) and (c) where such
violation, default, breach, termination, cancellation, failure to receive
consent or approval, or acceleration with respect to the foregoing provisions
of this Section 4.3 would not, individually or in the aggregate, have a
PERM Material Adverse Effect.

 

Section 4.4             Investment.  The Purchased Shares are being acquired for
PERM’s own account, or the accounts of clients for whom PERM exercises
discretionary investment authority, not as a nominee or agent, and with no
present intention of distributing the Purchased Shares or any part thereof, and
PERM has no present intention of selling or granting any participation in or
otherwise distributing the same in any transaction in violation of the
securities Law of the United States of America or any state, without prejudice,
however, to PERM’s right at all times to sell or otherwise dispose of all or
any part of the Purchased Shares under a registration statement under the
Securities Act and applicable state securities Law or under an exemption from
such registration available thereunder (including, if available, Rule 144
promulgated thereunder).  If PERM should
in the future decide to dispose of any of the Purchased Shares, PERM
understands and agrees (a) that it may do so only (i) in compliance
with the Securities Act and applicable state securities Law, as then in effect,
or pursuant to an exemption therefrom or (ii) in the manner contemplated
by any registration statement pursuant to which such securities are being
offered, and (b) that stop-transfer instructions to that effect will be in
effect with respect to such securities. 
Notwithstanding the foregoing, PERM may at any time enter into one or
more total return swaps with respect to PERM’s Purchased Shares with a third
party provided that such transactions are
exempt from registration under the Securities Act.

 

Section 4.5             Nature of
PERM.  PERM represents and
warrants to, and covenants and agrees with, the Company that (a) it is an “accredited
investor” within the meaning of Rule 501 of Regulation D promulgated by
the Commission pursuant to the Securities Act and (b) by reason of its
business and financial experience it has such knowledge, sophistication and
experience in making similar investments and in business and financial matters
generally so as to be capable of evaluating the merits and risks of the
prospective investment in the Purchased Shares, is able to bear the economic
risk of such investment and, at the present time, would be able to afford a
complete loss of such investment.

 

19

 

Section 4.6             Receipt of
Information; Authorization. 
PERM acknowledges that it has (a) had access to the Company SEC
Documents and (b) been provided a reasonable opportunity to ask questions
of and receive answers from Representatives of the Company.

 

Section 4.7             Restricted
Securities.  PERM understands
that the Purchased Shares it is purchasing are characterized as “restricted
securities” under the federal securities Law inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such Law and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances.  In this connection, PERM
represents that it is knowledgeable with respect to Rule 144 of the
Commission promulgated under the Securities Act.

 

Section 4.8             Certain Fees.  No fees or commissions will be payable by
PERM to brokers, finders or investment bankers with respect to the sale of any
of the Purchased Shares or the consummation of the transactions contemplated by
this Agreement.  The Company will not be
liable for any such fees or commissions.

 

Section 4.9             Legend.  It is understood that the certificates
evidencing the Purchased Shares will initially bear the following legend:  “These securities have not been registered
under the Securities Act of 1933, as amended. 
They may not be sold, offered for sale, pledged (except in connection
with a bona fide margin account or other loan or financing arrangement secured
by these securities) or hypothecated in the absence of a registration statement
in effect with respect to the securities under such Act or pursuant to an
exemption from registration thereunder and, in the case of a transaction exempt
from registration, unless sold pursuant to Rule 144 under such Act or the
issuer has received documentation reasonably satisfactory to it that such
transaction does not require registration under such Act.”

 

ARTICLE V

 

COVENANTS

 

Section 5.1             Subsequent
Public Offerings.  Without the
written consent of PERM, from the date of this Agreement until the consummation
of the Third Tranche in accordance with Section 2.3, the Company shall not
grant, issue or sell any Common Stock, or other equity or voting securities of
the Company (“Company Securities”), any securities convertible into or
exchangeable therefor or take any other action that may result in the issuance
of any of the foregoing, other than the issuance of the Purchased Shares.  The Company shall not, and shall cause its
directors, officers and Affiliates not to, sell, offer for sale or solicit
offers to buy any security (as defined in the Securities Act) that would be
integrated with the sale of the Purchased Shares in a manner that would require
the registration under the Securities Act of the sale of the Purchased Shares
to PERM.

 

Section 5.2             Non-Disclosure;
Interim Public Filings.  The
Company shall, as soon as practicable following execution of this Agreement,
issue a press release acceptable to PERM disclosing all material terms of the
transactions contemplated herein and in the other Basic Documents.  Following the Closing Date, the Company shall
file a Current Report on Form 8-K with the Commission (the “Form 8-K
Filing”) describing the terms of the transactions

 

20

 

contemplated by this Agreement and the other Basic Documents and
including as exhibits to the Form 8-K this Agreement and the other Basic
Documents, in the form required by the Exchange Act.  Thereafter, the Company shall timely file any
filings and notices required by the Commission or applicable Law with respect
to the transactions contemplated hereby. 
The Company and the PERM shall consult with each other in issuing any
press releases or otherwise making public statements or filings and other
communications with the Commission or any regulatory agency with respect to the
transactions contemplated hereby, and neither Party shall issue any such press
release or otherwise make any such public statement, filing or other
communication without the prior consent of the other, except if such disclosure
is required by Law, in which case the disclosing Party shall promptly provide
the other Party with prior notice of such public statement, filing or other
communication.  Notwithstanding the
foregoing, the Company shall not publicly disclose the name of PERM, or include
the name of PERM in any press release, without the prior written consent of
PERM except to the extent PERM’s name is included in this Agreement as filed as
an exhibit to the 8-K Filing and the press release referred to in the first
sentence above.

 

Section 5.3             Taking of
Necessary Action.  Each of the
Parties hereto shall use its commercially reasonable efforts promptly to take
or cause to be taken all action and promptly to do or cause to be done all
things necessary, proper or advisable under applicable Law and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the other Basic Documents.  Without
limiting the foregoing, the Company and PERM will use its commercially
reasonable efforts to make all filings and obtain all consents of Governmental
Authorities that may be necessary or, in the reasonable opinion of PERM or the
Company, as the case may be, advisable for the consummation of the transactions
contemplated by this Agreement and the other Basic Documents.

 

Section 5.4             Use of
Proceeds.  The Company shall
use the collective proceeds from the sale of the Purchased Shares to finance
the growth and expansion of the Company’s exploration, development and
production of oil and gas properties under current commitments in Texas and
California as outlined in the Business Plan attached hereto as Exhibit H.
Notwithstanding the foregoing, at the Closing of the Second Tranche and Third
Tranche, the Company shall provided the Second Tranche Business Plan and Third
Tranche Business Plan, respectively, for approval by PERM in accordance with Article II.  Any material deviation from an approved
business plan requires the prior written approval of PERM.  The Company shall not use any portion of the
collective proceeds from the sale of Purchased Shares to pay down any of its
indebtedness.

 

Section 5.5             Tax
Information.  The Company
shall cooperate with PERM and provide PERM with any reasonably requested tax
information related to their ownership of the Purchased Shares.

 

Section 5.6             No
Dividends.  The Company shall
not declare or paid any dividend or other distribution to holders of the
Company’s equity interests from the time this Agreement is executed until the
Third Tranche is consummated.

 

Section 5.7             Access to Company
Information and Property. 
From and after the Initial Closing for so long as PERM holds 9% of the
issued and outstanding Common Stock, the Company shall deliver to PERM, upon
request and not without request, audited annual and 

 

21

 

un-audited quarterly and monthly financial statements, annual budgets
and other information that may be reasonably requested by PERM.  If available to it, the Company shall provide
such requested information to PERM within 72 hours of PERM’s written request
for such information.  The Company hereby
agrees that PERM or its Representatives may visit and inspect the Properties of
the Company, including its corporate and financial records, and discuss the Company’s
business and finances with the officers of the Company during normal business
hours following reasonable notice to the Company by PERM.

 

Section 5.8             Company
Insurance Minimums.  From and
after the Initial Closing for so long as PERM holds at least 10% of the issued
and outstanding Common Stock, the Company shall maintain at least $10,000,000
of life insurance on Rocky V. Emery. 
Additionally, the Company shall maintain adequate amounts of general
liability insurance, business continuity insurance and other insurance coverage
as determined by PERM.

 

Section 5.9             Corporate Governance
Policies.  Prior to the
Closing of the Second Tranche and thereafter for so long as PERM holds at least
9% of the issued and outstanding Common Stock, the Company shall adopt and keep
effective corporate governance policies that comply with the American Stock
Exchange’s Corporate Governance 
Requirements listed in Part 8 of the AMEX Company Guide.

 

ARTICLE VI

 

CLOSING CONDITIONS AND DELIVERIES

 

Section 6.1             Conditions to Initial
Closing and Subsequent Purchases.

 

(a)           Mutual Conditions. 
The respective obligation of each Party to consummate the purchase and
issuance and sale of the Purchased Shares shall be subject to the satisfaction
on or prior to the Closing Date at each Closing, as applicable, of each of the
following conditions (any or all of which may be waived by a particular Party
on behalf of itself in writing, in whole or in part, to the extent permitted by
applicable Law):

 

(i)            no Law shall have been
enacted or promulgated, and no action or investigation shall have been taken,
by any Governmental Authority of competent jurisdiction that temporarily,
preliminarily or permanently restrains, precludes, enjoins or otherwise
prohibits the consummation of the transactions contemplated by this Agreement
or makes the transactions contemplated by this Agreement illegal; and

 

(ii)           there shall not be
pending any Action by any Governmental Authority seeking to restrain, preclude,
enjoin or prohibit the transactions contemplated by this Agreement.

 

(b)           PERM’s Conditions to the Initial Closing.  The obligation of PERM to consummate the
purchase of its Purchased Shares shall be subject to the satisfaction on or
prior to the Closing Date at the Initial Closing of each of the following
conditions (any or all of which may be waived by PERM on behalf of itself in
writing, in whole or in part, to the extent permitted by applicable Law):

 

22

 

(i)            the Commission shall
have notified the Company of its willingness to declare the Resale Registration
Statement effective within 75 days of the date it was originally filed;

 

(ii)           the Company shall have
performed and complied with the covenants and agreements contained in this
Agreement that are required to be performed and complied with by the Company;

 

(iii)          the representations and
warranties of the Company contained in this Agreement that are qualified by
materiality or Company Material Adverse Effect shall be true and correct when
made and as of such Closing Date, and all other representations and warranties
of the Company shall be true and correct in all material respects when made and
as of such Closing Date, in each case as though made at and as of such Closing
Date (except that representations made as of a specific date shall be required
to be true and correct as of such date only);

 

(iv)          the Company shall have
entered into employment agreements, one-year non-compete agreements and
non-solicitation and non-disclosure agreements, all of which are reasonably
acceptable to PERM, with all of its key employees (key employees to be mutually
determined by the Parties in good faith); and

 

(v)           the Company shall have
delivered, or caused to be delivered, to PERM at the Closing, the Company’s
closing deliveries described in Section 6.2(a) of this Agreement.

 

(c)           PERM’s Conditions to Closing the Second Tranche.  The obligation of PERM to consummate the
purchase of its Purchased Shares in the Second Tranche shall be subject to the
satisfaction on or prior to the Closing Date of the Second Tranche of each of
the following conditions (any or all of which may be waived by PERM on behalf
of itself in writing, in whole or in part, to the extent permitted by applicable
Law):

 

(i)            the Company shall have
performed and complied with the covenants and agreements contained in this
Agreement that are required to be performed and complied with by the Company;

 

(ii)           the representations and
warranties of the Company contained in this Agreement that are qualified by
materiality or Company Material Adverse Effect shall be true and correct when
made and as of such Closing Date, and all other representations and warranties
of the Company shall be true and correct in all material respects when made and
as of such Closing Date, in each case as though made at and as of such Closing
Date (except that representations made as of a specific date shall be required
to be true and correct as of such date only);

 

(iii)          the Company shall have
delivered, or caused to be delivered, to PERM at the Closing, the Company’s
closing deliveries described in Section 6.2(b) of this Agreement;

 

23

 

(iv)          the Parties shall have
consummated and closed the purchase and sale of the Purchased Shares pursuant
to Section 2.1 at the Initial Closing;

 

(v)           the Company shall have
adopted the corporate governance policies specified in Section 5.9; and

 

(vi)          with regard to the
Company’s board of directors (the “Board”), (A) the size of the
Board shall have been increased from nine (9) directors to ten (10) directors,
(B) a majority of the Company’s Board shall be composed of independent
directors, (C) one representative of PERM, chosen by PERM in its sole
discretion, shall be designated, appointed and elected to the Board and (D) one
independent observer, selected by PERM in its sole discretion, shall have the
right to attend and observe Board meetings.

 

(d)           PERM’s Conditions to Closing the Third Tranche.  The obligation of PERM to consummate the
purchase of its Purchased Shares in the Third Tranche shall be subject to the
satisfaction on or prior to the Closing Date of the Third Tranche of each of
the following conditions (any or all of which may be waived by PERM on behalf of
itself in writing, in whole or in part, to the extent permitted by applicable
Law):

 

(i)            the Company shall have
performed and complied with the covenants and agreements contained in this
Agreement that are required to be performed and complied with by the Company;

 

(ii)           the representations and
warranties of the Company contained in this Agreement that are qualified by
materiality or Company Material Adverse Effect shall be true and correct when
made and as of such Closing Date, and all other representations and warranties
of the Company shall be true and correct in all material respects when made and
as of such Closing Date, in each case as though made at and as of such Closing
Date (except that representations made as of a specific date shall be required
to be true and correct as of such date only);

 

(iii)          the Company shall have
delivered, or caused to be delivered, to PERM at the Closing, the Company’s
closing deliveries described in Section 6.2(b) of this Agreement; and

 

(iv)          the Parties shall have
consummated and closed the Second Tranche.

 

(e)           Company’s Conditions. 
The obligation of the Company to consummate the sale of the Purchased
Shares to PERM shall be subject to the satisfaction on or prior to each Closing
Date of the following conditions with respect to PERM (which may be waived by
the Company in writing, in whole or in part, to the extent permitted by
applicable Law):

 

(i)            PERM shall have
performed and complied with the covenants and agreements contained in this
Agreement in all material respects that are required to be performed and
complied with by PERM on or prior to the Closing Date;

 

(ii)           the representations and
warranties of PERM contained in this Agreement that are qualified by
materiality or PERM Material Adverse Effect shall be true and

 

24

 

correct when made and as of the
Closing Date and all other representations and warranties of PERM shall be true
and correct in all material respects when made and as of the Closing Date, in
each case as though made at and as of the Closing Date (except that
representations made as of a specific date shall be required to be true and
correct as of such date only); and

 

(iii)          PERM
shall have delivered, or caused to be delivered, to the Company at the Closing,
PERM’s closing deliveries described in Section 6.3 of this Agreement.

 

Section 6.2             Company
Deliveries.

 

(a)           At
the Initial Closing, subject to the terms and conditions of this Agreement, the
Company will deliver, or cause to be delivered, to PERM:

 

(i)            the Purchased Shares
purchased at the Closing by delivering a certificate (bearing the legend set
forth in Section 4.9) evidencing such Purchased Shares at the Closing, all
free and clear of any Liens, encumbrances or interests of any other party;

 

(ii)           opinions addressed to
PERM from outside legal counsel to the Company, dated the Closing Date,
substantially similar in substance to the form of opinions attached to this
Agreement as Exhibit A;

 

(iii)          the Voting Agreement in
substantially the form attached to this Agreement as Exhibit C,
which shall have been duly executed by the Company;

 

(iv)          the Stockholder
Agreement in substantially the form attached to this Agreement as Exhibit F,
which shall have been duly executed by the parties thereto;

 

(v)           a certificate of the
Secretary of the Company dated as of the Closing Date, as to certain matters;

 

(vi)          certificates, dated as
of a recent date, of good standing of the Company under the laws of the State
of Delaware and each foreign jurisdiction in which the Company is qualified or
licensed to do business as a foreign corporation; and

 

(vii)         such other certificates
and documents relating to the matters contemplated by this Agreement and the
other Basic Documents as PERM shall reasonably require.

 

(b)           At
each subsequent Closing to the Initial Closing, subject to the terms and
conditions of this Agreement, the Company will deliver, or cause to be
delivered, to PERM:

 

(i)            the Purchased Shares
purchased at each such Closing by delivering a certificate (bearing the legend
set forth in Section 4.9) evidencing such Purchased Shares at such
Closing, all free and clear of any Liens, encumbrances or interests of any
other party;

 

(ii)           opinions addressed to
PERM from outside legal counsel to the Company, dated as of each such Closing
Date, substantially similar in substance to the form of opinions attached to
this Agreement as Exhibit A;

 

25

 

(iii)          a certificate of the
Secretary of the Company dated as each such Closing Date, as to certain
matters; and

 

(iv)          certificates, dated as
of a recent date, of good standing of the Company under the laws of the State
of Delaware and each foreign jurisdiction in which the Company is qualified or
licensed to do business as a foreign corporation.

 

Section 6.3             PERM Deliveries.

 

(a)           At
the Initial Closing, subject to the terms and conditions of this Agreement,
PERM will deliver, or cause to be delivered, to the Company:

 

(i)            payment to the Company
for the Purchased Shares purchased at the Closing by wire transfer(s) of
immediately available funds to an account designated by the Company in writing
at least three (3) Business Days (or such shorter period as shall be
agreeable to all Parties hereto) prior to the Closing;

 

(ii)           the Voting Agreement in
substantially the form attached to this Agreement as Exhibit C,
which shall have been duly executed by PERM; and

 

(iii)          the Stockholder
Agreement in substantially the form attached to this Agreement as Exhibit F,
which shall have been duly executed by the parties thereto.

 

(b)           At
each subsequent Closing to the Initial Closing, subject to the terms and
conditions of this Agreement, PERM will deliver, or cause to be delivered, to
the Company payment for the Purchased Shares purchased at the applicable
Closing by wire transfer(s) of immediately available funds to an account
designated by the Company in writing at least three (3) Business Days (or
such shorter period as shall be agreeable to all Parties hereto) prior to the
Closing.

 

ARTICLE  VII

 

INDEMNIFICATION, COSTS AND EXPENSES

 

Section 7.1             Indemnification
by Company.  The Company
agrees to indemnify PERM and its Representatives (collectively, “PERM
Related Parties”) from, and hold each of them harmless against, any and all
actions, suits, proceedings (including any investigations, litigation or
inquiries), demands and causes of action, and, in connection therewith, and
promptly upon demand, pay and reimburse each of them for all reasonable costs,
losses, liabilities, damages or expenses of any kind or nature whatsoever,
including, without limitation, the reasonable fees and disbursements of counsel
and all other reasonable expenses incurred in connection with investigating,
defending or preparing to defend any such matter that may be incurred by them
or asserted against or involve any of them as a result of, arising out of or in
any way related to the breach of any of the representations, warranties or
covenants of the Company contained herein; provided that
such claim for indemnification is made prior to the expiration of such
representation or warranty; provided further,
that no PERM Related Party shall be entitled to recover special, consequential
(including lost profits) or punitive damages. 
Notwithstanding anything to the contrary, consequential damages shall
not be deemed to include diminution in

 

26

 

value, which is specifically included in damages covered by PERM
Related Parties indemnification.

 

Section 7.2             Indemnification
by PERM.  PERM agrees to
indemnify the Company and its Representatives (collectively, “Company
Related Parties”) from, and hold each of them harmless against, any and all
actions, suits, proceedings (including any investigations, litigation or
inquiries), demands and causes of action, and, in connection therewith, and
promptly upon demand, pay or reimburse each of them for all reasonable costs,
losses, liabilities, damages or expenses of any kind or nature whatsoever,
including, without limitation, the reasonable fees and disbursements of counsel
and all other reasonable expenses incurred in connection with investigating,
defending or preparing to defend any such matter that may be incurred by them
or asserted against or involve any of them as a result of, arising out of or in
any way related to the breach of any of the representations, warranties or
covenants of PERM contained herein; provided
that such claim for indemnification relating to a breach of any representation
or warranty is made prior to the expiration of such representation or warranty;
and provided further, that no
Company Related Party shall be entitled to recover special, consequential
(including lost profits) or punitive damages. 
Notwithstanding anything to the contrary, consequential damages shall
not be deemed to include diminution in value, which is specifically included in
damages covered by Company Related Parties indemnification.

 

Section 7.3             Indemnification
Procedure.  Promptly after any
Company Related Party or PERM Related Party (hereinafter, the “Indemnified
Party”) has received notice of any indemnifiable claim hereunder, or the
commencement of any action, suit or proceeding by a third person that the
Indemnified Party believes in good faith is an indemnifiable claim under this
Agreement, the Indemnified Party shall give the indemnitor hereunder (the “Indemnifying
Party”) written notice of such claim or the commencement of such action,
suit or proceeding, but failure to so notify the Indemnifying Party will not
relieve the Indemnifying Party from any liability it may have to such
Indemnified Party hereunder except to the extent that the Indemnifying Party is
materially prejudiced by such failure. 
Such notice shall state the nature and the basis of such claim to the
extent then known.  The Indemnifying
Party shall have the right to defend and settle, at its own expense and by its
own counsel who shall be reasonably acceptable to the Indemnified Party, any
such matter as long as the Indemnifying Party pursues the same diligently and
in good faith.  If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in all commercially reasonable respects in
the defense thereof and the settlement thereof. 
Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party’s possession
or control.  Such cooperation of the
Indemnified Party shall be at the cost of the Indemnifying Party.  After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability; provided,
however, that the Indemnified Party
shall be entitled (i) at its expense, to participate in the defense of
such asserted liability and the negotiations of the settlement thereof and (ii) if
(A) the Indemnifying Party has failed to assume the defense or employ
counsel reasonably acceptable to the Indemnified Party or (B) if the

 

27

 

defendants in any such action include both the Indemnified Party and
the Indemnifying Party and counsel to the Indemnified Party shall have
concluded that there may be reasonable defenses available to the Indemnified
Party that are different from or in addition to those available to the
Indemnifying Party or if the interests of the Indemnified Party reasonably may
be deemed to conflict with the interests of the Indemnifying Party, then the
Indemnified Party shall have the right to select one separate counsel and to
assume such legal defense and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the Indemnifying Party as
incurred.  Notwithstanding any other
provision of this Agreement, the Indemnifying Party shall not settle any
indemnified claim without the consent of the Indemnified Party, unless the
settlement thereof imposes no liability or obligation on, involves no admission
of wrongdoing or malfeasance by, and includes a complete release from liability
of, the Indemnified Party.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1             Interpretation
of Provisions.   Article,
Section, Schedule and Exhibit references are to this Agreement, unless
otherwise specified.  All references to
instruments, documents, contracts and agreements are references to such instruments,
documents, contracts and agreements as the same may be amended, supplemented
and otherwise modified from time to time, unless otherwise specified.  The word “including” shall mean “including
but not limited to.”  Whenever any party
has an obligation under the Basic Documents, the expense of complying with that
obligation shall be an expense of such party unless otherwise specified.  Whenever any determination, consent or
approval is to be made or given by PERM under this Agreement, such action shall
be in PERM’s sole discretion unless otherwise specified in this Agreement.  If any provision in the Basic Documents is
held to be illegal, invalid, not binding or unenforceable, such provision shall
be fully severable and the Basic Documents shall be construed and enforced as
if such illegal, invalid, not binding or unenforceable provision had never
comprised a part of the Basic Documents, and the remaining provisions shall
remain in full force and effect.  The
Basic Documents have been reviewed and negotiated by sophisticated parties with
access to legal counsel and shall not be construed against the drafter.

 

Section 8.2             Survival of
Provisions.  The
representations and warranties set forth in Sections 3.1, 3.2, 3.6 through 3.9,
3.12 through 3.22, 3.24 and 4.1 through 4.8 shall survive the execution and
delivery of this Agreement and each Closing indefinitely, and the other
representations set forth in this Agreement shall survive for a period of eight
(8) months following the last Closing Date.  The covenants made in this Agreement or any
other Basic Document shall survive the closing of the transactions described
herein and remain operative and in full force and effect regardless of
acceptance of any of the Purchased Shares and payment therefor or repurchase
thereof.  All indemnification obligations
of the Company and PERM pursuant to Article VII of this Agreement shall
remain operative and in full force and effect unless such obligations are
expressly terminated in writing by the Parties referencing the particular Article or
Section, regardless of any purported general termination of this Agreement.

 

28

 

Section 8.3             No Waiver; Modifications in Writing.

 

(a)           Delay.  No failure or
delay on the part of any Party in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any right, power or remedy.  The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to a
Party at law or in equity or otherwise.

 

(b)           Specific Waiver. 
Except as otherwise provided in this Agreement or in the Registration
Rights Agreement, no amendment, waiver, consent, modification or termination of
any provision of any Basic Document shall be effective unless signed by each of
the Parties or each of the original signatories thereto affected by such
amendment, waiver, consent, modification or termination.  Any amendment, supplement or modification of
or to any provision of any Basic Document, any waiver of any provision of this
Agreement or any other Basic Document and any consent to any departure by the
Company or PERM from the terms of any provision of any Basic Document shall be
effective only in the specific instance and for the specific purpose for which
made or given.  Except where notice is
specifically required by this Agreement, no notice to or demand on any Party in
any case shall entitle any Party to any other or further notice or demand in
similar or other circumstances.

 

Section 8.4             Binding Effect;
Assignment.

 

(a)           Binding Effect.  This Agreement shall be binding upon the
Company, PERM and their respective successors and permitted assigns.  Except as expressly provided in this
Agreement, this Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the Parties to this Agreement and as
provided in Article VII, and their respective successors and permitted
assigns.

 

(b)           Assignment of Purchased
Shares.  All or any portion of
PERM’s Purchased Shares purchased pursuant to this Agreement may be sold,
assigned or pledged by PERM, subject to compliance with applicable securities
Law and the Registration Rights Agreement. 
PERM shall provide the Company with notice of any such sale, assignment
or pledge.

 

(c)           Assignment of Rights.  PERM may assign all or any portion of its
rights and obligations under this Agreement without the consent of the Company (i) to
any Affiliate of PERM or (ii) in connection with a total return swap or
similar transaction with respect to the Purchased Shares purchased or to be
purchased by PERM, and in each case the assignee shall be deemed to be a party
hereunder with respect to such assigned rights or obligations and shall agree
to be bound by the provisions of this Agreement.  Except as expressly permitted by this Section 8.4(c),
such rights and obligations may not otherwise be transferred except with the
prior written consent of the Company (which consent shall not be unreasonably
withheld), in which case the assignee shall be deemed to be a party hereunder
with respect to such assigned rights or obligations and shall agree to be bound
by the provisions of this Agreement. 
PERM shall provide the Company with prior notice of any such assignment.

 

Section 8.5             Communications.  All notices and demands provided for
hereunder shall be in writing and shall be given by regular mail, registered or
certified mail, return receipt

 

29

 

requested, facsimile, air courier
guaranteeing overnight delivery, electronic mail or personal delivery to the
following addresses:

 

	
  (a)

  	
  If to PERM Energy Advisors, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  245 Park Avenue

  
	
   

  	
   

  	
  39th Floor

  
	
   

  	
   

  	
  New York, New York 10167

  
	
   

  	
   

  	
  Attention:
  Paul Caldwell

  
	
   

  	
   

  	
  Facsimile:
  212.672.1828

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy
  to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Baker Botts
  L.L.P.

  
	
   

  	
   

  	
  98 San
  Jacinto Boulevard

  
	
   

  	
   

  	
  Suite 1500

  
	
   

  	
   

  	
  Austin,
  Texas 78701

  
	
   

  	
   

  	
  Attention:
  Laura L. Tyson, Esq.

  
	
   

  	
   

  	
  Facsimile:
  512.322.8377

  
	
   

  	
   

  	
   

  
	
  (b)

  	
  If to Rock Energy Resources, Inc.:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  10375
  Richmond, Suite 2100

  
	
   

  	
   

  	
  Houston,
  Texas 77042

  
	
   

  	
   

  	
  Attention:
  Rocky Emery

  
	
   

  	
   

  	
  Facsimile:
  713.954.3611

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy
  to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  10375
  Richmond, Suite 2100

  
	
   

  	
   

  	
  Houston,
  Texas 77042

  
	
   

  	
   

  	
  Attention:
  Tom Elliot

  
	
   

  	
   

  	
  Facsimile:
  713.954.3611

  
				

 

or to such
other address as the Company or PERM may designate in writing.  All notices and communications shall be
deemed to have been duly given:  at the
time delivered by hand, if personally delivered; upon actual receipt if sent by
registered or certified mail, return receipt requested, or regular mail, if
mailed; when receipt acknowledged, if sent via facsimile; and upon actual
receipt when delivered to an air courier guaranteeing overnight delivery or via
electronic mail.

 

Section 8.6             Removal of
Legend.  In connection with a
sale under an effective registration statement or in reliance on Rule 144,
PERM shall deliver a Certificate of Subsequent Sale in substantially the form
attached hereto as Exhibit G to the Company.  Upon the Company’s receipt of a Certificate
of Subsequent Sale, the Company shall direct the transfer agent to exchange
share certificates bearing a restrictive legend for share certificates without
the legend (or a credit for such shares to book-entry accounts maintained by
the transfer agent), including the legend referred to in Section 4.9, and
the Company shall bear all costs associated

 

30

 

with any legal opinion required by the transfer agent in connection
therewith.  The Company will promptly
substitute one or more replacement certificates without the legend at such time
as the Resale Registration Statement becomes effective.  After PERM or its permitted transferees have
held Purchased Shares for over one year and such Purchased Shares bear a
restrictive legend referred to in Section 4.9, the Company agrees to
cooperate with PERM to effect the removal of the legend described in Section 4.9
from the shares regardless of whether the request is made in connection with a
sale or otherwise, so long as PERM or its permitted transferee provides to the
Company any information it deems necessary to determine that the legend is no
longer required under the Securities Act or applicable state laws, including a
certification that the holder is not an affiliate of the Company and the length
of time the shares have been held.

 

Section 8.7             Entire
Agreement.  This Agreement and
the other Basic Documents are intended by the Parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the Parties hereto and thereto in respect of the
subject matter contained herein and therein. 
There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein or therein with respect to the
rights granted by the Company or PERM set forth herein or therein.  This Agreement and the other Basic Documents
supersede all prior agreements and understandings between the Parties with
respect to such subject matter.

 

Section 8.8             Governing
Law.  This
Agreement will be construed in accordance with and governed by the Law of the
State of Texas.

 

Section 8.9             Execution in
Counterparts.  This Agreement
may be executed in any number of counterparts and by different Parties hereto
in separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.

 

Section 8.10           Obligations
Limited to Parties to Agreement. 
Each of the parties hereto covenants, agrees and acknowledges that no
Person other than PERM and the Company shall have any obligation hereunder and
that, notwithstanding that PERM may be a corporation, partnership or limited
liability company, no recourse under this Agreement or the Registration Rights
Agreement or under any documents or instruments delivered in connection
herewith or therewith shall be had against any former, current or future
director, officer, employee, agent, general or limited partner, manager,
member, stockholder or Affiliate of PERM or the Company or any former, current
or future director, officer, employee, agent, general or limited partner,
manager, member, stockholder or Affiliate of any of the foregoing, whether by
the enforcement of any assessment or by any legal or equitable proceeding, or
by virtue of any applicable Law, it being expressly agreed and acknowledged
that no personal liability whatsoever shall attach to, be imposed on or
otherwise be incurred by any former, current or future director, officer,
employee, agent, general or limited partner, manager, member, stockholder or
Affiliate of PERM or the Company or any former, current or future director, officer,
employee, agent, general or limited partner, manager, member, stockholder or
Affiliate of any of the foregoing, as such, for any obligations of PERM and the
Company under this Agreement or the other Basic Documents or any documents or
instruments delivered in connection herewith or therewith or for any claim
based on, in respect of or by reason of such obligation or its creation.

 

31

 

Section 8.11           Expenses.  The Company shall pay the reasonable (a) due
diligence fees of PERM and (b) up to $100,000 of the legal fees of Baker
Botts L.L.P., counsel to PERM, incurred in connection with the negotiation,
execution, delivery and performance of this Agreement and the other Basic
Documents and the transactions contemplated hereby and thereby.  If any action at law or equity is necessary
to enforce or interpret the terms of any Basic Document, the prevailing Party
shall be entitled to reasonable attorney’s fees, costs and necessary
disbursements in addition to any other relief to which such Party may be
entitled.

 

The
remainder of this page is intentionally left blank.

 

32

 

IN WITNESS WHEREOF,
the Parties hereto execute this Agreement, effective as of the date first above
written.

 

 

	
   

  	
  ROCK
  ENERGY RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Rocky V.
  Emery

  
	
   

  	
   

  	
  Name: Rocky
  V. Emery

  
	
   

  	
   

  	
  Title:
  Chairman and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PERM
  ENERGY ADVISORS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul A.
  Caldwell

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title: 

  

 

 

STOCK PURCHASE AGREEMENT – SIGNATURE PAGE

 

 

Schedule
3.2(c)

 

Indebtedness

 

1.             Loan Agreement, dated
as of June 24, 2005, by and among Rock Energy Partners Operating, LP,
Castletop Capital Properties, L.P. and Doug Erwin; as amended by the First
Amendment to Loan Agreement dated as of November 29, 2005; as amended by
the Second Amendment to Loan Agreement dated June 5, 2006.

 

2.             Secured Promissory
Note, dated November 29, 2005, by and between Rock Energy Partners
Operating, LP and Castletop Capital Properties, L.P.

 

3.             Secured Promissory Note,
dated November 29, 2005, by and between Rock Energy Partners Operating, LP
and Doug Erwin.

 

4.             Secured Demand
Promissory Note, dated as of June 5, 2006, by and between Rock Energy
Partners Operating LP and Castletop Capital Properties, L.P.Exhibit 10.9

 

 

REGISTRATION RIGHTS AGREEMENT

 

BY AND BETWEEN

 

ROCK ENERGY RESOURCES, INC.

 

AND

 

PERM ENERGY ADVISORS, INC.

 

 

 

TABLE
OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
  ARTICLE I
  DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Definitions

  	
  1

  
	
  Section 1.2

  	
  Registrable Securities

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE II
  REGISTRATION RIGHTS

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Registration

  	
  3

  
	
  Section 2.2

  	
  Excluded Securities Registration

  	
  6

  
	
  Section 2.3

  	
  Piggyback Rights

  	
  6

  
	
  Section 2.4

  	
  Underwritten Offering

  	
  7

  
	
  Section 2.5

  	
  Sale Procedures

  	
  8

  
	
  Section 2.6

  	
  Cooperation by Holders

  	
  12

  
	
  Section 2.7

  	
  Expenses

  	
  12

  
	
  Section 2.8

  	
  Indemnification

  	
  12

  
	
  Section 2.9

  	
  Rule 144 Reporting

  	
  15

  
	
  Section 2.10

  	
  Failure to Timely File Required Documents with the Commission

  	
  15

  
	
  Section 2.11

  	
  Transfer or Assignment of Registration Rights

  	
  15

  
	
  Section 2.12

  	
  Limitation on Subsequent Registration Rights

  	
  16

  
					

 

	
  ARTICLE III MISCELLANEOUS

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Communications

  	
  16

  
	
  Section 3.2

  	
  Successor and Assigns

  	
  16

  
	
  Section 3.3

  	
  Aggregation of Purchased Shares

  	
  16

  
	
  Section 3.4

  	
  Recapitalization, Exchanges, Etc. Affecting the Common Stock

  	
  16

  
	
  Section 3.5

  	
  Specific Performance

  	
  17

  
	
  Section 3.6

  	
  Counterparts

  	
  17

  
	
  Section 3.7

  	
  Headings

  	
  17

  
	
  Section 3.8

  	
  Governing Law

  	
  17

  
	
  Section 3.9

  	
  Severability of Provisions

  	
  17

  
	
  Section 3.10

  	
  Entire Agreement

  	
  17

  
	
  Section 3.11

  	
  Amendment

  	
  17

  
	
  Section 3.12

  	
  No Presumption

  	
  17

  
	
  Section 3.13

  	
  Obligations Limited to Parties to Agreement

  	
  18

  
	
  Section 3.14

  	
  Interpretation

  	
  18

  

 

 

i

 

REGISTRATION
RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”)
is made and entered into as of March 31, 2008 by and between ROCK ENERGY RESOURCES, INC., a
Delaware corporation (the “Company”), and PERM ENERGY ADVISORS, INC. a
Delaware corporation (“PERM”).

 

WHEREAS, this Agreement is made in connection with the
issuance and sale of the Purchased Shares pursuant to the Stock Purchase
Agreement, dated as of March 31, 2008, by and between the Company and
PERM (the “Purchase Agreement”);

 

WHEREAS, the Company has agreed to provide the
registration and other rights set forth in this Agreement for the benefit of
PERM pursuant to the Purchase Agreement; and

 

WHEREAS, it is a condition to the obligations of PERM and the Company under the
Purchase Agreement that this Agreement be executed and delivered and that a
Resale Registration Statement for the Purchased Shares becomes effective.

 

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

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1             Definitions.  Capitalized terms used herein without
definition shall have the meanings given to them in the Purchase
Agreement.  The terms set forth below are
used herein as so defined:

 

“Agreement” has the meaning specified therefor
in the introductory paragraph.

 

“Company” has the meaning specified therefor in
the introductory paragraph.

 

“Effectiveness Period” has the meaning
specified therefor in Section 2.1(a)(i) of this Agreement.

 

“Excluded
Securities” has the meaning specified therefor in Section 2.1(e) of
this Agreement.

 

“Excluded
Securities Registration Statement” means a registration statement
registering the Excluded Securities.

 

“Excluded
Securities Registration Statement Filing Date” has the meaning specified
therefor in Section 2.2(a) of this Agreement.

 

“File Date” means the date the Resale
Registration Statement was originally filed.

 

1

 

“Holder” means the record holder of any
Registrable Securities.

 

“Included Registrable Securities” has the
meaning specified therefor in Section 2.3(a) of this Agreement.

 

“Initial Resale Registration Statement” has the
meaning specified therefor in Section 2.1(a)(i) of this Agreement.

 

“Liquidated Damages” has the meaning specified
therefor in Section 2.1(d) of this Agreement.

 

“Liquidated Damages Event” has the meaning
specified therefor in Section 2.1(d) of this Agreement.

 

“Liquidated Damages Multiplier” means the
product of $1.68 times the number of Purchased Shares.

 

“Losses” has the meaning specified therefor in Section 2.8(a) of
this Agreement.

 

“Managing Underwriter” means, with respect to
any Underwritten Offering, the book-running lead manager of such Underwritten
Offering.

 

“Opt Out Notice” has the meaning specified therefor
in Section 2.3(a) of this Agreement.

 

“Other Holders” has the meaning specified
therefor in Section 2.3(b).

 

“PERM” has the meanings specified therefor in the
introductory paragraph of this Agreement.

 

“PERM Underwriter Registration Statement” has
the meaning specified therefor in Section 2.5(o) of this Agreement.

 

“Purchase Agreement” has the meaning specified
therefor in the recitals of this Agreement.

 

“Registrable Securities” means:  (i) the Purchased Shares, (ii) any
Common Stock issued as Liquidated Damages pursuant to this Agreement and (iii) any
Common Stock issued upon exercise of the Warrant, all of which Registrable
Securities are subject to the rights provided herein until such rights
terminate pursuant to the provisions hereof.

 

“Registration Deadline” means 75 days from the
File Date.

 

“Registration Expenses” has the meaning
specified therefor in Section 2.7(a) of this Agreement.

 

“Resale Registration Statement” means
collectively the Initial Resale Registration Statement and any Subsequent
Resale Registration Statement.

 

2

 

“S-3 Shelf Registration Statement” has
the meaning specified therefor in Section 2.1(b) of this Agreement.

 

“Selling Expenses” has the meaning specified
therefor in Section 2.7(a) of this Agreement.

 

“Selling Holder” means a Holder who is selling
Registrable Securities pursuant to a registration statement.

 

“Subsequent Resale Registration Statement” has
the meaning specified therefor in Section 2.1(a)(ii) of this
Agreement.

 

“Underwritten Offering” means an offering
(including an offering pursuant to a Registration Statement) in which shares of
Common Stock are sold by the Company to an underwriter on a firm commitment
basis for reoffering to the public or an offering that is a “bought deal” with
one or more investment banks.

 

Section 1.2             Registrable Securities.  Any Registrable Security will cease to be a
Registrable Security when:  (a) a
registration statement covering such Registrable Security has been declared
effective by the Commission and PERM has sold or disposed of such Registrable
Security pursuant to such effective registration statement; (b) PERM has
sold or disposed of such Registrable Security pursuant to any section of Rule 144
(or any similar provision then in force) under the Securities Act; or (c) such
Registrable Security is held by the Company.

 

ARTICLE II

 

REGISTRATION
RIGHTS

 

Section 2.1             Registration.

 

(a)           Registration.

 

(i)            Deadline To File and Go Effective.  As soon as practicable following the signing
of the Purchase Agreement, and in any event within 10 Business Days thereafter,
the Company shall prepare and file a registration statement under the
Securities Act to permit the resale of the Purchased Shares to be acquired by
PERM at the Initial Closing from time to time, including as permitted by Rule 415
under the Securities Act (or any similar provision then in force) (the “Initial
Resale Registration Statement”).  The
Company shall use its commercially reasonable efforts to cause the Commission
to notify the Company of the Commission’s willingness to declare the Initial Resale Registration
Statement effective as soon as practicable, but in any event within 75 days
after the File Date. Compliance with the provisions of this Section 2.1(a)(i) is
a condition to PERM’s obligation to acquire the portion of the Purchased Shares
to be acquired at the Initial Closing.

 

(ii)           As soon as practicable following each subsequent Closing
under the Purchase Agreement, and in any event no later than 15 Business Days
after the Closing related to the Second Tranche and the Third Tranche, as
contemplated in the Purchase

 

3

 

Agreement, the Company shall prepare
and file a registration statement under the Securities Act to permit the resale
of the Purchased Shares acquired by PERM at each subsequent Closing from time
to time, including as permitted by Rule 415 under the Securities Act (or
any similar provision then in force) (each a “Subsequent Resale Registration
Statement”).  The Subsequent Resale
Registration Statement with respect to the Second Tranche Purchased Shares
shall also permit the resale of the shares of Common Stock underlying the
Warrant.  The Company shall use its
commercially reasonable efforts to cause the Commission to declare the Subsequent Resale Registration Statements
effective by the Registration Deadline.

 

(iii)          Each
Resale Registration Statement filed pursuant to this Section 2.1 shall be
on such appropriate registration form of the Commission as shall be selected by
the Company.  The Company will use its
commercially reasonable efforts to cause each Resale Registration Statements
filed pursuant to this Section 2.1 to be continuously

effective under the Securities Act until the date which all Registrable
Securities registered thereunder have ceased to be Registrable Securities
pursuant to Section 1.2 (the “Effectiveness Period”).  Each Resale Registration Statement, when
declared effective (including the documents incorporated therein by reference)
shall comply as to form with all applicable requirements of the Securities Act
and the Exchange Act and shall not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.

 

(b)           S-3 Registration Statement.  If the Company becomes eligible to use Form
S-3 or such other short-form registration statement form under the Securities
Act, the Company shall promptly give notice of such eligibility to the Holders
and may (unless the Holders reasonably object) or shall, at the request of the
Holders, promptly convert the Resale Registration Statement on Form S-1 to
a registration statement on Form S-3 or such other short-form registration
statement by means of a post-effective amendment or otherwise (the “S-3
Shelf Registration Statement”) for the resale of any then existing
Registrable Securities unless any Holder with Registrable Securities registered
under the Resale Registration Statement notifies the Company within 10 Business
Days of receipt of the Company notice that such conversion would interfere with
its distribution of Registrable Securities already in progress and provides a
reasonable explanation therefor, in which case the Company will delay the
conversion of the Resale Registration Statement for a reasonable time after
receipt of the first such notice, not to exceed 30 days in the aggregate, for
all Holders requesting such suspension (unless the Company, at such time as the
conversion from Form S-1 to Form S-3 or such other short-form
registration statement may occur, would otherwise be required to amend the Resale
Registration Statement and require that Holders suspend sales).  Upon the effectiveness of the S-3 Shelf
Registration Statement, all references to the Resale Registration Statements in
this Agreement shall then automatically be deemed to be a reference to the S-3
Shelf Registration Statement.

 

(c)           Delay Rights.  Notwithstanding anything to the contrary
contained herein, the Company may, upon written notice to any Selling Holder
whose Registrable Securities are included in the Initial Resale Registration
Statement or any Subsequent Resale Registratin Statement, suspend such Selling
Holder’s use of any prospectus which is a part of the Resale Registration
Statement (in which event the Selling Holder shall discontinue sales of the
Registrable Securities pursuant to the Resale Registration Statement, but such
Selling Holder

 

4

 

may settle any such sales of Registrable Securities)
if (i) the Company is pursuing an acquisition, merger, reorganization,
disposition or other similar transaction and the Company determines in good
faith that the Company’s ability to pursue or consummate such a transaction
would be materially adversely affected by any required disclosure of such
transaction in the Resale Registration Statement or (ii) the Company has
experienced some other material non-public event the disclosure of which at
such time, in the good faith judgment of the Company, would materially
adversely affect the Company; provided,
however, in no event shall PERM
be suspended for a period that exceeds an aggregate of 60 days in any 365-day
period.  Upon disclosure of such
information or the termination of the condition described above, the Company
shall provide prompt notice to the Selling Holders whose Registrable Securities
are included in the Resale Registration Statement, shall promptly terminate any
suspension of sales it has put into effect and shall take such other actions to
permit registered sales of Registrable Securities as contemplated in this
Agreement.

 

(d)           Liquidated Damages.  If (i) the Holders shall be prohibited
from selling their Registrable Securities under the Resale Registration
Statement as a result of a suspension pursuant to Section 2.1(c) of
this Agreement in excess of the periods permitted therein or (ii) the
Resale Registration Statement is filed and declared effective but, during the
Effectiveness Period, shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded by a post-effective
amendment to the Resale Registration Statement, a supplement to the prospectus
or a report filed with the Commission pursuant to Sections 13(a), 13(c), 14 or
l5(d) of the Exchange Act (an event under either (i) or (ii) being
a “Liquidated Damages Event”), then, until the suspension is lifted or a
post-effective amendment, supplement or report is filed with the Commission and
declared effective, but not including any day on which a suspension is lifted
or such amendment, supplement or report is filed and declared effective, if
applicable, the Company shall pay to the Holders of such Registrable
Securities, as liquidated damages and not as a penalty, 0.25% of the Liquidated
Damages Multiplier per 30-day period for the first 60 days following any such
Liquidated Damages Event, increasing by an additional 0.25% of the Liquidated
Damages Multiplier per 30-day period for each subsequent 60 days, up to a
maximum of 1.0% of the Liquidated Damages Multiplier per 30-day period (the “Liquidated
Damages”).  The Liquidated Damages
payable pursuant to the immediately preceding sentence shall be payable within
ten (10) Business Days of the end of each such 30-day period.  Any Liquidated Damages shall be paid to PERM
in cash or immediately available funds; provided,
however, if the Company certifies
that it is unable to pay Liquidated Damages in cash or immediately available
funds because such payment would result in a breach under any of the Company
Parties’ credit facilities or other indebtedness filed as exhibits to the
Company SEC Documents, then the Company may pay the Liquidated Damages in kind
in the form of the issuance of additional shares of Common Stock.  Upon any issuance of shares of Common Stock
as Liquidated Damages, the Company shall promptly prepare and file an amendment
to the Resale Registration Statement prior to its effectiveness or include on
any later filed Resale Registraton Statement such shares of Common Stock issued
as Liquidated Damages as additional Registrable Securities.  The determination of the number of shares of
Common Stock to be issued as Liquidated Damages shall be equal to the amount of
Liquidated Damages divided by $1.68 per share of Common Stock.

 

(e)           Excluded Securities.  In the event the Company is required, for any
reason, to exclude any of the Purchased Shares from the Resale Registration
Statements (the “Excluded

 

5

 

Securities”), such Excluded Securities
shall be registered on the Excluded Securities Registration Statement as
provided in Section 2.2.

 

Section 2.2             Excluded Securities Registration.

 

(a)           Deadline To Go Effective.  Within seven months after the Commission has
declared the Resale Registration Statement effective wherein shares became
Excluded Securities (the “Excluded Securities Registration Statement Filing
Date”), the Company shall prepare and file the Excluded Securities
Registration Statement.  The Company
shall use its commercially reasonable efforts to cause the Excluded Securities
Registration Statement to become effective no later than the Registration
Deadline.  The Company will use its
commercially reasonable efforts to cause the Excluded Securities Registration
Statement to be continuously effective under the Securities Act during the
Effectiveness Period.  The Excluded
Securities Registration Statement when declared effective (including the
documents incorporated therein by reference) will comply as to form in all
material respects with all applicable requirements of the Securities Act and
the Exchange Act and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.

 

(b)           Failure To File.  If the Excluded Securities Registration
Statement is not filed before the Excluded Securities Registration Statement
Filing Date, then the Holder shall be entitled to Liquidated Damages with
respect to the Excluded Securities held by the Holder and not then included in
an effective Piggyback Registration Statement, for the period beginning on the
day after Excluded Securities Registration Statement Filing Date and lasting to
but excluding the day the Excluded Securities Registration Statement is filed.

 

Section 2.3             Piggyback Rights.

 

(a)           Participation.  If the Company proposes to (i) file a
prospectus supplement to an effective shelf registration statement with respect
to an Underwritten Offering of Common Stock, (ii) register any Common
Stock for its own account for sale to the public in an Underwritten Offering or
(iii) register any shares of Common Stock on behalf of any other person
for the sale of Common Stock in an Underwritten Offering, then, as soon as
practicable following the engagement of counsel by the Company to prepare the
documents to be used in connection with an Underwritten Offering, but not less
than three Business Days prior to the filing of (x) the prospectus
supplement relating to such Underwritten Offering pursuant to Rule 424(b) under
the Securities Act (if no preliminary prospectus supplement is used) or (y) such
registration statement, as the case may be, then the Company shall give notice
(including, but not limited to, notification by electronic mail) of such
proposed Underwritten Offering to the Holders and such notice shall offer the
Holders the opportunity to include in such Underwritten Offering such number of
Registrable Securities (the “Included Registrable Securities”) as each
such Holder may request in writing; provided,
however, that if the Company has
been advised by the Managing Underwriter that the inclusion of Registrable
Securities for sale for the benefit of the Holders will have a material adverse
effect on the price, timing or distribution of the Common Stock in the
Underwritten Offering, then the amount of Registrable Securities to be offered
for the accounts of Holders shall be determined based on the provisions of Section 2.3(b) of
this Agreement.  The notice required to
be provided in this Section 2.3(a) to Holders shall be

 

6

 

provided on a Business Day pursuant to Section 3.1
hereof and receipt of such notice shall be confirmed by such Holder.  Each such Holder shall then have three Business
Days after receiving such notice to request inclusion of Registrable Securities
in the Underwritten Offering, except that such Holder shall have one Business
Day after such Holder confirms receipt of the notice to request inclusion of
Registrable Securities in the Underwritten Offering in the case of a “bought
deal” or “overnight transaction” where no preliminary prospectus is used.  If no request for inclusion from a Holder is
received within the specified time, such Holder shall have no further right to
participate in such Underwritten Offering. 
If, at any time after giving written notice of its intention to
undertake an Underwritten Offering and prior to the closing of such
Underwritten Offering, the Company shall determine for any reason not to undertake
or to delay such Underwritten Offering, the Company may, at its election, give
written notice of such determination to the Selling Holders and, (x) in
the case of a determination not to undertake such Underwritten Offering, shall
be relieved of its obligation to sell any Included Registrable Securities in
connection with such terminated Underwritten Offering, and (y) in the case
of a determination to delay such Underwritten Offering, shall be permitted to
delay offering any Included Registrable Securities for the same period as the
delay in the Underwritten Offering.  Any
Selling Holder shall have the right to withdraw such Selling Holder’s request
for inclusion of such Selling Holder’s Registrable Securities in such offering
by giving written notice to the Company of such withdrawal up to and including
the time of pricing of such offering. 
Notwithstanding the foregoing, any Holder may deliver written notice (an
“Opt Out Notice”) to the Company requesting that such Holder not receive
notice from the Company of any proposed Underwritten Offering; provided that such Holder may later revoke any such notice.

 

(b)           Priority of Rights.  If the Managing Underwriter or Underwriters
of any proposed Underwritten Offering of Common Stock included in an Underwritten
Offering involving Included Registrable Securities advises the Company that the
total amount of Common Stock intend to include in such offering exceeds the
number that can be sold in such offering without being likely to have a
material adverse effect on the price, timing or distribution of the Common
Stock offered or the market for the Common Stock, then the Common Stock to be
included in such Underwritten Offering shall include the number of shares of
Common Stock that such Managing Underwriter or Underwriters advises the Company
can be sold without having such adverse effect, with such number to be
allocated (i) first, pro rata among the Selling Holders, and (ii) second,
pro rata among any other Persons who have been or are granted registration
rights on or after the date of this Agreement (“Other Holders”) who have
requested participation in the Underwritten Offering.  All participating Selling Holders shall have
the opportunity to share pro rata that portion of such priority allocable to
any Selling Holder(s) not so participating.  As of the date of execution of this
Agreement, there are no other Persons with Registration Rights relating to
Common Stock.

 

Section 2.4             Underwritten Offering.

 

(a)           Request by Holders.  At any time more after the Resale Registration
Statements have been declared effective upon the written request of one or more
Holders, the Company shall engage underwriters and enter into an underwriting
agreement in customary form with the Managing Underwriter or underwriters,
which shall include, among other provisions, indemnities to the effect and to
the extent provided in Section 2.8, and shall take all such other
reasonable actions as are requested by the Managing Underwriter in order to
expedite or facilitate the

 

7

 

registration and disposition of the Registrable
Securities; provided, however, such Holders reasonably anticipate
gross proceeds from such offering of at least twenty million dollars
($10,000,000), in the aggregate (determined by multiplying the number of
Registrable Securities owned by the average of the closing price for Common
Stock for the ten (10) trading days preceding the date of such
request).  The Company shall be required
to cause appropriate officers of the Company to participate in a “road show” or
similar marketing effort being conducted by such underwriter with respect to
such Underwritten Offering only if the Holders reasonably anticipate gross
proceeds from such Underwritten Offering of at least twenty million dollars
($20,000,000) (determined by multiplying the number of Registrable Securities
owned by the average of the closing price for Common Stock for the ten (10) trading
days preceding the date of such request).

 

(b)           General Procedures.  In connection with any Underwritten Offering
under this Agreement, the Company shall be entitled to select the Managing
Underwriter or Underwriters each of which must be a nationally recognized
firm.  In connection with an Underwritten
Offering contemplated by this Agreement in which a Selling Holder participates,
each Selling Holder and the Company shall be obligated to enter into an
underwriting agreement that contains such representations, covenants,
indemnities and other rights and obligations as are customary in underwriting
agreements for firm commitment offerings of securities.  No Selling Holder may participate in such
Underwritten Offering unless such Selling Holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting
agreement.  Each Selling Holder may, at
its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters also be made to and for such Selling Holder’s benefit and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement also be conditions precedent to
its obligations.  No Selling Holder shall
be required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding such Selling Holder and its ownership of the securities being
registered on its behalf, its intended method of distribution and any other
representation required by Law.  If any
Selling Holder disapproves of the terms of an underwriting, such Selling Holder
may elect to withdraw therefrom by notice to the Company and the Managing
Underwriter; provided, however, that such withdrawal may only be
made up to and including the time of pricing of such Underwritten
Offering.  No such withdrawal or abandonment
shall affect the Company’s obligation to pay Registration Expenses.

 

Section 2.5             Sale Procedures.  In connection with its obligations under this
Article II, the Company will, as expeditiously as possible:

 

(a)           prepare and file with the Commission
such amendments and supplements to the Resale Registration Statement and the
prospectus used in connection therewith as may be necessary to keep the Resale
Registration Statement effective for the Effectiveness Period and as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by the Resale Registration Statement;

 

8

 

(b)           if a prospectus supplement will be
used in connection with the marketing of an Underwritten Offering from the
Resale Registration Statement and the Managing Underwriter at any time shall
notify the Company in writing that, in the sole judgment of such Managing
Underwriter, inclusion of detailed information to be used in such prospectus
supplement is of material importance to the success of the Underwritten
Offering of such Registrable Securities, use its commercially reasonable
efforts to include such information in such prospectus supplement;

 

(c)           furnish to each Selling Holder (i) as
far in advance as reasonably practicable before filing the Resale Registration
Statement or any other registration statement contemplated by this Agreement or
any supplement or amendment thereto, upon request, copies of reasonably
complete drafts of all such documents proposed to be filed (including exhibits
and each document incorporated by reference therein to the extent then required
by the rules and regulations of the Commission), and provide each such
Selling Holder the opportunity to object to any information pertaining to such
Selling Holder and its plan of distribution that is contained therein and make
the corrections reasonably requested by such Selling Holder with respect to
such information prior to filing the Resale Registration Statement or such
other registration statement or supplement or amendment thereto, and (ii) such
number of copies of the Resale Registration Statement or such other
registration statement and the prospectus included therein and any supplements
and amendments thereto as such Persons may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities
covered by such Resale Registration Statement or other registration statement;

 

(d)           if applicable, use its commercially
reasonable efforts to register or qualify the Registrable Securities covered by
the Resale Registration Statement or any other registration statement
contemplated by this Agreement under the securities or blue sky laws of such
jurisdictions as the Selling Holders or, in the case of an Underwritten
Offering, the Managing Underwriter, shall reasonably request; provided, however,
that the Company will not be required to qualify generally to transact business
in any jurisdiction where it is not then required to so qualify or to take any
action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;

 

(e)           promptly notify each Selling Holder
and each underwriter of Registrable Securities, at any time when a prospectus
relating thereto is required to be delivered by any of them under the
Securities Act, of (i) the filing of the Resale Registration Statement or
any other registration statement contemplated by this Agreement or any
prospectus or prospectus supplement to be used in connection therewith, or any
amendment or supplement thereto, and, with respect to such Resale Registration
Statement or any such other registration statement or any post-effective
amendment thereto, when the same will become effective; and (ii) any
written comments from the Commission with respect to any filing referred to in
clause (i) and any written request by the Commission for amendments or
supplements to the Resale Registration Statement or any other registration
statement or any prospectus or prospectus supplement thereto;

 

(f)            immediately notify each Selling
Holder and each underwriter of Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of (i) the happening of any event as a result of which the prospectus
or prospectus

 

9

 

supplement contained in the Resale Registration
Statement or any other registration statement contemplated by this Agreement,
as then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; (ii) the issuance or threat of issuance by the Commission of any
stop order suspending the effectiveness of the Resale Registration Statement or
any other registration statement contemplated by this Agreement, or the
initiation of any proceedings for that purpose; or (iii) the receipt by
the Company of any notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the applicable
securities or blue sky laws of any jurisdiction.  Following the provision of such notice, the
Company agrees to as promptly as practicable amend or supplement the prospectus
or prospectus supplement or take other appropriate action so that the
prospectus or prospectus supplement does not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing and to take such other action as is necessary to
remove a stop order, suspension, threat thereof or proceedings related thereto;

 

(g)           upon request, furnish to each Selling
Holder copies of any and all transmittal letters or other correspondence with
the Commission or any other governmental agency or self-regulatory body or
other body having jurisdiction (including any domestic or foreign securities
exchange) relating to such offering of Registrable Securities;

 

(h)           in the case of an Underwritten
Offering, furnish upon request, (i) an opinion of counsel for the Company
and a letter of like kind both dated the date of the closing under the
underwriting agreement, and (ii) a “cold comfort” letter, dated the date
of the applicable registration statement or the date of any amendment or
supplement thereto and a letter of like kind dated the date of the closing
under the underwriting agreement, in each case, signed by the independent
public accountants who have certified the Company’s financial statements
included or incorporated by reference into the applicable registration
statement.  Each of the opinion and the “cold
comfort” letter shall be in customary form and covering substantially the same
matters with respect to such registration statement (and the prospectus and any
prospectus supplement included therein) as are customarily covered in opinions
of issuer’s counsel and in accountants’ letters delivered to the underwriters
in Underwritten Offerings of securities and such other matters as such
underwriters or Selling Holders may reasonably request;

 

(i)            otherwise use its commercially
reasonable efforts to comply with all applicable rules and regulations of
the Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
promulgated thereunder;

 

(j)            make available to the appropriate
representatives of the Managing Underwriter and Selling Holders access to such
information and Company personnel as is reasonable and customary to enable such
parties to establish a due diligence defense under the Securities Act; provided, however,
that the Company need not disclose any such information to any such
representative unless and until such representative has entered into or is
otherwise subject to a confidentiality agreement with the Company satisfactory
to the Company;

 

10

 

(k)           cause all such Registrable Securities
registered pursuant to this Agreement to be listed on each securities exchange
on which similar securities issued by the Company are then listed;

 

(l)            use its commercially reasonable
efforts to cause the Registrable Securities to be registered with or approved
by such other governmental agencies or authorities as may be necessary by
virtue of the business and operations of the Company to enable the Selling
Holders to consummate the disposition of such Registrable Securities;

 

(m)          provide a transfer agent and registrar
for all Registrable Securities covered by such registration statement not later
than the effective date of such registration statement; and

 

(n)           enter into customary agreements and
take such other actions as are reasonably requested by the Selling Holders or
the underwriters, if any, in order to expedite or facilitate the disposition of
such Registrable Securities.

 

(o)           The Company agrees that, if PERM
could reasonably be deemed to be an “underwriter,” as defined in Section 2(a)(11)
of the Securities Act, in connection with the registration statement in respect
of any registration of the Company’s securities of PERM pursuant to this
Agreement, and any amendment or supplement thereof (any such registration
statement or amendment or supplement a “PERM Underwriter Registration
Statement”), then the Company will cooperate with PERM in allowing PERM to
conduct customary “underwriter’s due diligence” with respect to the Company and
satisfy its obligations in respect thereof. 
In addition, at PERM’s request, the Company will furnish to PERM, on the
date of the effectiveness of a PERM Underwriter Registration Statement and
thereafter from time to time on such dates as PERM may reasonably request, (i) a
letter, dated such date, from the Company’s independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to PERM, and (ii) an opinion, dated as of such date,
of counsel representing the Company for purposes of such PERM Underwriter
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, including a standard “10b-5” opinion for such offering,
addressed to PERM.  The Company will also
permit legal counsel to PERM to review and comment upon any such PERM
Underwriter Registration Statement at least five Business Days prior to its
filing with the Commission and all amendments and supplements to any such PERM
Underwriter Registration Statement within a reasonable time period prior to
their filing with the Commission and not file any PERM Underwriter Registration
Statement or amendment or supplement thereto in a form to which PERM’s legal counsel
reasonably objects.

 

(p)           Each Selling Holder, upon receipt of
notice from the Company of the happening of any event of the kind described in Section 2.5(f) of
this Agreement, shall forthwith discontinue disposition of the Registrable
Securities until such Selling Holder’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.5(f) of
this Agreement or until it is advised in writing by the Company that the use of
the prospectus may be resumed, and has received copies of any additional or
supplemental filings incorporated by reference in the prospectus, and, if so
directed by the Company, such Selling Holder will, or will request the managing
underwriter or underwriters, if any, to deliver to the Company (at the Company’s
expense) all copies in their possession or control, other than permanent file
copies

 

11

 

then in such Selling Holder’s possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.

 

(q)           If requested by PERM,
the Company shall:  (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as PERM
reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including information with respect to
the number of Registrable Securities being offered or sold, the purchase price
being paid therefor and any other terms of the offering of the Registrable
Securities to be sold in such offering; (ii) as soon as practicable make
all required filings of such prospectus supplement or post-effective amendment
after being notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and (iii) as soon as practicable,
supplement or make amendments to the Resale Registration Statement.

 

Section 2.6             Cooperation by
Holders.  The Company shall
have no obligation to include in the Resale Registration Statement Common Stock
of a Holder, or in an Underwritten Offering pursuant to Section 2.3 of
this Agreement, Common Stock of a Selling Holder who has failed to timely
furnish such information that, in the opinion of counsel to the Company, is
reasonably required in order for the registration statement or prospectus
supplement, as applicable, to comply with the Securities Act.

 

Section 2.7             Expenses.

 

(a)           Certain Definitions.  “Registration Expenses” means all
expenses incident to the Company’s performance under or compliance with this
Agreement to effect the registration of Registrable Securities on the Resale
Registration Statement pursuant to Section 2.1 hereof or an Underwritten
Offering covered under this Agreement, and the disposition of such securities,
including, without limitation, all registration, filing, securities exchange
listing fees, all registration, filing, qualification and other fees and
expenses of complying with securities or blue sky laws, fees of FINRA, transfer
taxes and fees of transfer agents and registrars, all word processing,
duplicating and printing expenses and the fees and disbursements of counsel and
independent public accountants for the Company, including the expenses of any
special audits or “cold comfort” letters required by or incident to such
performance and compliance.  “Selling
Expenses” means all underwriting fees, discounts and selling commissions
allocable to the sale of the Registrable Securities.

 

(b)           Expenses.  The Company will pay all reasonable
Registration Expenses as determined in good faith, including, in the case of an
Underwritten Offering, whether or not any sale is made pursuant to such
Underwritten Offering.  In addition,
except as otherwise provided in Section 2.8 hereof, the Company shall not
be responsible for legal fees incurred by Holders in connection with the
exercise of such Holders’ rights hereunder. 
Each Selling Holder shall pay all Selling Expenses in connection with
any sale of its Registrable Securities hereunder.

 

Section 2.8             Indemnification.

 

(a)           By the Company.  In the event of an offering of any
Registrable Securities under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless each Selling Holder thereunder, its
directors and officers, and each underwriter, pursuant to the 

 

12

 

applicable underwriting agreement with such
underwriter, of Registrable Securities thereunder and each Person, if any, who
controls such Selling Holder or underwriter within the meaning of the
Securities Act and the Exchange Act, and its directors and officers, against
any losses, claims, damages, expenses or liabilities (including reasonable
attorneys’ fees and expenses) (collectively, “Losses”), joint or
several, to which such Selling Holder, director, officer, underwriter or
controlling Person may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such Losses (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Resale Registration Statement or any other registration statement
contemplated by this Agreement, any preliminary prospectus, free writing
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in light
of the circumstances under which they were made) not misleading, and will
reimburse each such Selling Holder, its directors and officers, each such
underwriter and each such controlling Person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such Loss or actions or proceedings; provided,
however, that the Company will
not be liable in any such case if and to the extent that any such Loss arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in strict conformity with information
furnished by such Selling Holder, its directors or officers or any underwriter
or controlling Person in writing specifically for use in the Resale
Registration Statement or such other registration statement, or prospectus
supplement, as applicable.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Selling Holder, its directors or officers or any
underwriter or controlling Person, and shall survive the transfer of such
securities by such Selling Holder.

 

(b)           By Each Selling Holder.  Each Selling Holder agrees severally and not
jointly to indemnify and hold harmless the Company, its directors and officers,
and each Person, if any, who controls the Company within the meaning of the
Securities Act or of the Exchange Act, and its directors and officers, to the
same extent as the foregoing indemnity from the Company to the Selling Holders,
but only with respect to information regarding such Selling Holder furnished in
writing by or on behalf of such Selling Holder expressly for inclusion in the
Resale Registration Statement or any preliminary prospectus or final prospectus
included therein, or any amendment or supplement thereto; provided, however,
that the liability of each Selling Holder shall not be greater in amount than
the dollar amount of the proceeds (net of any Selling Expenses) received by
such Selling Holder from the sale of the Registrable Securities giving rise to
such indemnification.

 

(c)           Notice.  Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party other than under this Section 2.8.  In any action brought against any indemnified
party, it shall notify the indemnifying party of the commencement thereof.  The indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such

 

13

 

indemnified party and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 2.8 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with
counsel so selected; provided, however, that, (i) if the
indemnifying party has failed to assume the defense or employ counsel
reasonably acceptable to the indemnified party or (ii) if the defendants
in any such action include both the indemnified party and the indemnifying
party and counsel to the indemnified party shall have concluded that there may
be reasonable defenses available to the indemnified party that are different
from or additional to those available to the indemnifying party, or if the
interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, then the indemnified party shall have
the right to select one separate counsel and to assume such legal defense and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other reasonable expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.  Notwithstanding any other
provision of this Agreement, no indemnified party shall settle any action
brought against it with respect to which it is entitled to indemnification
hereunder without the consent of the indemnifying party, unless the settlement
thereof imposes no liability or obligation on, and includes a complete and
unconditional release from all liability of, the indemnifying party.  Notwithstanding any other provision of this
Agreement, no indemnifying party shall settle any action brought against an
indemnified party with respect to which it is entitled to indemnification
hereunder without the consent of the indemnified party, unless the settlement
thereof imposes no liability or obligation on, and includes a complete and
unconditional release from all liability of, the indemnified party.

 

(d)           Contribution.  If the indemnification provided for in this Section 2.8
is held by a court or government agency of competent jurisdiction to be
unavailable to any indemnified party or is insufficient to hold it harmless in
respect of any Losses, then each such indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Loss in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of such indemnified party on the other in connection with the
statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations; provided,
however, that in no event shall
such Selling Holder be required to contribute an aggregate amount in excess of
the dollar amount of proceeds (net of Selling Expenses) received by such
Selling Holder from the sale of Registrable Securities giving rise to such
indemnification.  The relative fault of
the indemnifying party on the one hand and the indemnified party on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact has been made by, or relates to, information supplied
by such party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.  The parties hereto agree that
it would not be just and equitable if contributions pursuant to this paragraph
were to be determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to herein.  The amount paid by an
indemnified party as a result of the Losses referred to in the first sentence
of this paragraph shall be deemed to include any legal and other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any Loss which is the subject of this paragraph.  No person guilty of fraudulent 

 

14

 

misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who is
not guilty of such fraudulent misrepresentation.

 

(e)           Other Indemnification.  The provisions of this Section 2.8 shall
be in addition to any other rights to indemnification or contribution that an
indemnified party may have pursuant to law, equity, contract or otherwise.

 

Section 2.9             Rule 144 Reporting.  With a view to making available the benefits
of certain rules and regulations of the Commission that may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its commercially reasonable efforts to:

 

(a)           make and keep public information
regarding the Company available, as those terms are understood and defined in Rule 144
under the Securities Act, at all times from and after the date hereof;

 

(b)           file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at all times from and after the date
hereof; and

 

(c)           so long as a Holder owns any
Registrable Securities, furnish, unless otherwise not available at no charge by
access electronically to the Commission’s EDGAR filing system, to such Holder
forthwith upon request a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such Holder to sell any such securities without
registration.

 

Section 2.10           Failure to Timely File
Required Documents with the Commission.

 

If the Company fails for any reason to comply with the
provisions of Section 2.9 during the period beginning on the date which is
six months from the date the Purchased Shares are acquired under the Purchase
Agreement and ending one year from the date thereof, then the Company shall pay
each Holder Liquidated Damages for those days in excess of five days in the
aggregate on which such Holder is unable to sell its Purchased Shares pursuant
to Rule 144 under the Securities Act. 
Any such amounts shall be paid as liquidated damages and not as a
penalty.

 

The Liquidated Damages shall accrue on a daily basis
and shall be paid to each Holder within five Business Days of end of the month
in which it accrues.  The Liquidated
Damages Amount imposed hereunder shall be made to the Holders in immediately
available funds.

 

Section 2.11           Transfer or Assignment of
Registration Rights.  The
rights to cause the Company to register Registrable Securities granted to PERM
by the Company under this Section 2.11 may be transferred or assigned by
one or more Holders to one or more transferee(s) or assignee(s) of
such Registrable Securities; provided,
however, that (a) the
Company is given written notice prior to any said transfer or assignment,
stating the name and address of each such transferee and identifying the
securities with respect to which such registration rights are being 

 

15

 

transferred or assigned, and (b) each such
transferee assumes in writing responsibility for its portion of the obligations
of PERM under this Agreement.

 

Section 2.12           Limitation on Subsequent
Registration Rights.  From and
after the date hereof, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any current or future holder of any securities of the
Company that would allow such current or future holder to require the Company
to include securities in any registration statement filed by the Company on a
basis that is senior in any way to the piggyback rights granted to PERM
hereunder.

 

ARTICLE III

 

MISCELLANEOUS

 

Section 3.1             Communications.  All notices and other communications provided
for or permitted hereunder shall be made in writing by facsimile, electronic
mail, courier service or personal delivery:

 

(a)           if to PERM, at 245 Park Avenue, 39th
Floor, New York, New York 10167, Attn: Paul Caldwell (facsimile: 212.672.1828),
notice of which is given in accordance with the provisions of this Section 3.1;

 

(b)           if to a transferee of PERM, to such
Holder at the address provided pursuant to Section 2.11 hereof; and

 

(c)           if to the Company, at 10375 Richmond,
Suite 2100, Houston, Texas 77042, Attn: Rocky Emery (facsimile:
713.954.3611), notice of which is given in accordance with the provisions of
this Section 3.1.

 

All such notices and communications shall be deemed to
have been received:  at the time
delivered by hand, if personally delivered; when receipt acknowledged, if sent
via facsimile or electronic mail; and when actually received, if sent by
courier service or any other means.

 

Section 3.2             Successor and Assigns.  This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties,
including subsequent Holders of Registrable Securities to the extent permitted
herein.

 

Section 3.3             Aggregation of Purchased
Shares.  All Purchased Shares
held or acquired by Persons who are Affiliates of one another shall be
aggregated together for the purpose of determining the availability of any rights
under this Agreement.

 

Section 3.4             Recapitalization, Exchanges, Etc.
Affecting the Common Stock.  The
provisions of this Agreement shall apply to the full extent set forth herein
with respect to any and all Common Stock of the Company or any successor or
assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for or in
substitution of, the Registrable Securities, and shall be appropriately
adjusted

 

16

 

for combinations, stock splits, recapitalizations and
the like occurring after the date of this Agreement.

 

Section 3.5             Specific Performance.  Damages in the event of breach of this
Agreement by a party hereto may be difficult, if not impossible, to ascertain,
and it is therefore agreed that each such Person, in addition to and without
limiting any other remedy or right it may have, will have the right to an
injunction or other equitable relief in any court of competent jurisdiction,
enjoining any such breach, and enforcing specifically the terms and provisions
hereof, and each of the parties hereto hereby waives any and all defenses it
may have on the ground of lack of jurisdiction or competence of the court to
grant such an injunction or other equitable relief.  The existence of this right will not preclude
any such Person from pursuing any other rights and remedies at law or in equity
which such Person may have.

 

Section 3.6             Counterparts.  This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but
one and the same Agreement.

 

Section 3.7             Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

Section 3.8             Governing Law.  The Laws of the State of Texas shall govern
this Agreement.

 

Section 3.9             Severability of Provisions.  Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting or impairing the
validity or enforceability of such provision in any other jurisdiction.

 

Section 3.10           Entire Agreement.  This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. 
There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein with respect to the rights granted
by the Company set forth herein.  This
Agreement and the Purchase Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.

 

Section 3.11           Amendment.  This Agreement may be amended only by means
of a written amendment signed by the Company and the Holders of a majority of
the then outstanding Registrable Securities; provided,
however, that no such amendment
shall materially and adversely affect the rights of any Holder hereunder
without the consent of such Holder.

 

Section 3.12           No Presumption.  If any claim is made by a party relating to
any conflict, omission or ambiguity in this Agreement, no presumption or burden
of proof or persuasion shall be implied by virtue of the fact that this
Agreement was prepared by or at the request of a particular party or its
counsel.

 

17

 

Section 3.13           Obligations Limited to Parties to Agreement.  Each of the Parties hereto covenants, agrees and acknowledges that no
Person other than PERM (and their permitted assignees) and the Company shall
have any obligation hereunder and that, notwithstanding that PERM may be a
corporation, partnership or limited liability company, no recourse under this
Agreement or under any documents or instruments delivered in connection
herewith or therewith shall be had against any former, current or future
director, officer, employee, agent, general or limited partner, manager,
member, stockholder or Affiliate of PERM or any former, current or future
director, officer, employee, agent, general or limited partner, manager,
member, stockholder or Affiliate of any of the foregoing, whether by the
enforcement of any assessment or by any legal or equitable proceeding, or by
virtue of any applicable Law, it being expressly agreed and acknowledged that
no personal liability whatsoever shall attach to, be imposed on or otherwise be
incurred by any former, current or future director, officer, employee, agent,
general or limited partner, manager, member, stockholder or Affiliate of PERM
or any former, current or future director, officer, employee, agent, general or
limited partner, manager, member, stockholder or Affiliate of PERM, as such,
for any obligations of PERM under this Agreement or the Purchase Agreement or
any documents or instruments delivered in connection herewith or therewith or
for any claim based on, in respect of or by reason of such obligation or its
creation.

 

Section 3.14           Interpretation.  Article and Section references are
to this Agreement, unless otherwise specified. 
All references to instruments, documents, contracts and agreements are
references to such instruments, documents, contracts and agreements as the same
may be amended, supplemented and otherwise modified from time to time, unless
otherwise specified.  The word “including”
shall mean “including but not limited to”. 
Whenever any determination, consent or approval is to be made or given
by PERM under
this Agreement, such action shall be in PERM’s sole discretion unless otherwise specified.

 

The remainder of this page is intentionally
left blank.

 

18

 

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

 

 

	
   

  	
  ROCK ENERGY RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Rocky V. Emery

  
	
   

  	
   

  	
  Name: Rocky V. Emery

  
	
   

  	
   

  	
  Title: Chairman and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PERM ENERGY ADVISORS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul A. Caldwell

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

19

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