Document:

exhibit10_2.htm

 

 

 

 

 

U.S. ENERGY CORP. ENTERS INTO

DRILLING PARTICIPATION AGREEMENT WITH BRIGHAM EXPLORATION COMPANY

IN THE WILLISTON BASIN

RIVERTON, Wyoming – August 26, 2009 – U.S. Energy Corp. (NASDAQ Capital Market: “USEG”) (“USE” or the “Company”), a natural resources exploration and development company with interests in molybdenum, oil and gas, geothermal, and real
estate assets, today announced that it has entered into a Drilling Participation Agreement (DPA) with Brigham Exploration Company (NASDAQ: BEXP) (“Brigham”) to earn working interests in up to fifteen 1,280 acre spacing units in Brigham’s Rough Rider project area located in Williams and McKenzie Counties of North Dakota.  The terms of the DPA call for the drilling of up to 15 initial Bakken wells in 15 separate 1,280 acre spacing units.  The ultimate number of wells to be
drilled in the units could reach 90.

Under the terms of the DPA, USE has committed to drilling six initial wells (and earning subsequent working interests in six 1,280 acre spacing units) and will have the option to commit to drilling four additional wells (and earning subsequent working interests in four additional 1,280 acre spacing units) after receiving notification of
the initial production (IP) rates from four of the first six initial wells drilled.  If USE elects to drill the four additional wells, it will then have an option to participate and earn working interests in five additional wells and 1,280 acre spacing units after receiving notification of the IP for the fifth and sixth initial wells drilled in the first six well program.  Upon the drilling and completion of the first or initial well in each 1,280 acre spacing unit, USE will earn 36% of Brigham’s
original working interest in the remaining acreage (or drilling locations) in each 1,280 acre unit.  If USE participates in the drilling of the initial wells in all fifteen 1,280 acre spacing units, it will earn working interests in 19,200 gross acres in the Rough Rider project area.

  

  

  

Press Release

August  26, 2009

Page  2 of 5

USE has agreed to participate for 65% of Brigham’s original working interest in each initial well drilled in the first six well program.  Upon receiving a pooled payout of all of the costs and expenses incurred to drill and complete the six initial wells in the six initial 1,280 acre spacing units, USE will assign back 35%
of its 65% of Brigham’s original working interest in the first well in each 1,280 acre spacing unit to Brigham.  Following that, USE will own 42.25% of Brigham’s original working interest in the initial well in each 1,280 acre spacing unit.  If USE elects to participate in the second group of four wells and spacing units, it will also be entitled to a pooled payout similar to the first six well program.  If USE elects to participate in the third group of five wells and
spacing units, it will be entitled to an initial well by initial well per spacing unit payout before a 27.7% back in assignment to Brigham.

The drilling of the first two wells in the first group of six wells has already been commenced by Brigham.  The Brad Olson 9-16 #1H is located in Williams County, North Dakota, approximately one-half mile to the west of the successful Olson 10-15 #1H well completed by Brigham in February 2009.  The Olson 10-15 #1H well
came in at an early 24 hour IP rate of 1433 BOE per day.  Similar to the Olson 10-15 #1H well, the Brad Olson 9-16 #1H is a long lateral well that has already reached a total measured depth of 20,500 feet.  Brigham is now in the process of completing the well utilizing 28 frac stages at intervals of 400 feet.  USE anticipates reporting an IP for the Brad Olson 9-16 #1H well in late September.

The BCD Farms 16-21 #1H well is now drilling forward at a vertical depth of 2,500 feet.  It is also located in Williams County, North Dakota and it too will be a long lateral well (approximately 10,700 feet total vertical depth with a 9,100 foot horizontal lateral).  Brigham anticipates that the BCD Farms 16-21 #1H well
will reach total measured depth by late September and also plans to complete the well with 28 frac stages.  Both the Brad Olson 9-16 #1H and BCD Farms 16-21 #1H wells are targeting the Middle Bakken formation.  All of the initial wells planned to be drilled in the initial 15 well/spacing unit program are anticipated to be completed with a minimum of 28 frac stages.

  

  

  

Press Release

August  26, 2009

Page  3 of 5

The drilling of wells three through six in the first group of six initial wells is anticipated to be completed by late November as Brigham and USE plan to add another rig to the program by mid-September.  The drilling of each well typically takes 30 days while the completion typically takes 21-28 days.  Brigham will
operate all of the wells.  If USE elects to participate in all 15 initial wells and earns subsequent working interests in each 1,280 acre spacing unit, the Company will have earned the rights to drill up to 30 total wells in the Bakken formation and an additional 30 wells in the Three Forks formation, for a total of 60 wells, based on the current spacing in North Dakota.  If the spacing is ultimately increased to three wells per 1,280 acre spacing unit, the potential number of drilling locations
could increase to 90.

Brigham recently announced the completion of two of its multi-staged fraced wells in North Dakota, the Strobeck 27-34 #1H well which was completed in the Three Forks formation in Mountrail County, North Dakota and the Anderson 28-33 #1H which was completed in the Bakken formation also in Mountrail County, North Dakota.  These
two long lateral wells, which are not included in the DPA, came in at early 24 hour IP flow rates of 2021 BOE per day (Strobeck 27-24 #1H) and 2154 BOE per day (Anderson 28-33 #1H).  The Strobeck well was completed with 20 frac stages and the Anderson well was completed with 24 frac stages.

USE expenditures are anticipated to approximate $17.6 million for the first six initial well program based on its, Brigham’s and other working interest partner’s anticipated participation in the currently identified spacing units.  If working interest owners other than Brigham and USE do not participate in the wells
then that amount could increase.  In the second groups of 4 and 5 wells that USE could elect to participate in respectively, Brigham will have the option to participate at a range of 15-50% in those wells.  Prior to USE’s election to participate in those well groups, Brigham must notify USE of its participation percentage.  If Brigham participates 15% in those well groups, USE can participate for 85% of Brigham’s original working interest.  If Brigham participates
50% in those well groups, USE can participate for 50% of Brigham’s original working interest.  Each participation amount for both Brigham and USE will be subject to dilution or expansion based on other working interest owners’ participation in the initial wells and/or subsequent wells in each 1,280 acre spacing unit.

  

  

  

Press Release

August  26, 2009

Page  4 of 5

“We are delighted to be teaming up with one of the best and most technologically advanced operators in the Bakken oil field”, stated Mark Larsen, President of U.S. Energy.  “Brigham has proven itself to be one of the premier companies in the Williston Basin through the advancement of their multi-stage frac completions
and their consistent improvement of production rates.  We look forward to a long term relationship with Brigham and developing low cost reserves well into the future,” he added.

“Our patient search for a sound investment in oil and gas has now come to light with todays announcement,” stated Keith Larsen, CEO of U.S. Energy Corp.  “At a time when natural gas appears to be poised for an extended period of low prices our main focus has been to expand our oil production and reserves.  This
agreement does just that by providing us with the potential to rapidly expand our oil production and increase our reserves by participating with an experienced operator that has a track record of lowering its finding and development costs.  Furthermore, I am confident that our drilling schedule for the balance of 2009 will allow us to reach our corporate production goal of 7,000 MCFED or approximately 1,200 BOED by year end,” he added.

SMH Capital, an independent investment banking firm based in Houston, Texas acted as financial advisor to USE for this transaction.

* * * * *

Note Regarding BOE

In this press release, BOEs are derived by converting gas to oil in the ratio of one barrel of oil to six thousand cubic feet of gas (1 bbl:6 Mcf). Barrel of oil equivalent ("BOE") amounts may be misleading, particularly if used in isolation. A BOE conversion ratio of 1 bbl of oil to 6 Mcf of natural gas is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not represent a value of equivalency at the well head.

About Brigham Exploration

Brigham Exploration Company is a leading independent exploration and production company that applies 3-D seismic imaging and other advanced technologies to systematically explore for and develop onshore domestic oil and natural gas reserves. For more information about Brigham Exploration, please visit its website at www.bexp3d.com
or contact Investor Relations at 512-427-3444.

About U.S. Energy Corp.

U.S. Energy Corp. is a diversified natural resource company with interests in molybdenum, oil and gas, geothermal and real estate assets.  The Company is headquartered in Riverton, Wyoming, and its common stock is listed on The NASDAQ Capital Market under the symbol “USEG”.

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Press Release

August  26, 2009

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Disclosure Regarding Mineral Resources Under SEC and Canadian Regulations; and Forward-Looking Statements

The Company owns or may come to own stock in companies which are traded on foreign exchanges, and may have agreements with some of these companies to acquire and/or develop the Company’s mineral properties.  An example is Sutter Gold Mining Inc.  These other companies are subject to the reporting
requirements of other jurisdictions.

United States residents are cautioned that some of the information available about our mineral properties, which is reported by the other companies in foreign jurisdictions, may be materially different from what the Company is permitted to disclose in the United States.

This news release includes statements which may constitute “forward-looking” statements, usually containing the words “believe,” “estimate,” “project,” “expect," or similar expressions.  Forward looking statements in this release
relate to, among other things, USE’s drilling of wells pursuant to the terms of the DPA, its ownership interests in those wells and the costs it expects to incur in drilling those wells.  There is no assurance that any of the wells USE drills under the terms of the DPA with Brigham will have results similar to those referenced in this press release or that any of the wells drilled with Brigham will be productive at all. These statements
are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.  Factors that would cause or contribute to such differences include, but are not limited to, future trends in mineral prices, the availability of capital, competitive factors, and other risks including those described in the Company’s
filings with the SEC, which are incorporated herein by reference.  By making these forward-looking statements, the Company undertakes no obligation to update these statements for revision or changes after the date of this release.

For further information on the differences between the reporting limitations of the United States, compared to reports filed in foreign jurisdictions, and also concerning forward-looking statements, please see the Company’s Form 10-K (“Disclosure Regarding Forward-Looking Statements”; “Disclosure
Regarding Mineral Resources under SEC and Canadian Regulation”; and “Risk Factors”); and similar disclosures in the Company’s Forms 10-Q.

* * * * *

For further information, please contact:

Reggie Larsen

Director of Investor Relations

U.S. Energy Corp.

1-800-776-9271

Reggie@usnrg.com

Nick Hurst

The Equicom Group

Investor Relations

1-403-538-4845

nhurst@equicomgroup.comspaaug282009.htm

    STOCK
PURCHASE AGREEMENT

     

    This
STOCK PURCHASE AGREEMENT (this “Agreement”) is made
as of this 28th day of August, 2009 by and between MDI, Inc., a Delaware
corporation, with its principal office at 12500 Network Blvd., Suite 306, San
Antonio, Texas 78249 (the “Company”), and the
undersigned Investor (the “Investor”).

     

    WHEREAS,
the Company desires to issue, in a private placement (the “Offering”),
$1,000,000 in aggregate purchase price of its Common Stock, $.01 par value (the
“Shares”), on
the terms and conditions hereinafter set forth, and the Investor desires to
acquire 4,000,000 Shares, subject to the terms and conditions set forth
herein.

     

    NOW,
THEREFORE, for and in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto do hereby agree as
follows:

     

    
      	
              I.  

            	
              SUBSCRIPTION
      FOR SHARES AND REPRESENTATIONS BY AND COVENANTS OF
  INVESTOR

            

    

     

    1.1 Subject
to the terms and conditions hereinafter set forth, the Investor hereby
subscribes for and agrees to purchase from the Company 4,000,000 Shares at a
price of $0.25 per Share. The Company agrees to sell such Shares to the Investor
for said purchase price. The purchase price is payable by wire transfer of funds
directly by the Investor to the Company on the Closing (as defined
herein).

     

    1.2 Subject
to the terms and conditions hereinafter set forth, the Company agrees to issue
to Investor at the Closing a Warrant to purchase 4,000,000 Shares (the Shares
issuable upon exercise of the Warrant, the “Warrant Shares”), at
an exercise price equal to $0.60 per Share, which shall be appropriately
adjusted for any recapitalizations, stock combinations, stock dividends, stock
splits and the like which occur after the Closing.

     

    1.3 The
Investor recognizes that the purchase of Shares involves a high degree of risk,
including but not limited to risks that (i) the Company will need additional
capital but has no assurance of additional necessary capital; (ii) an investment
in the Company is highly speculative and only investors who can afford the loss
of their entire investment should consider investing in the Company and the
Shares; (iii) an investor may not be able to liquidate his investment; and (iv)
transferability of the securities comprising the Shares is extremely
limited.

     

    1.4 The
Investor represents that he is an “accredited investor” as such term is defined
in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended (the “Act”), and that it/he
is able to bear the economic risk of an investment in the Shares.

     

    1.5 The
Investor acknowledges that he has prior investment experience, including
investment in non-listed and non-registered securities, or he has employed the
services of an investment advisor, attorney or accountant to read all of the
documents furnished or made available by the Company both to him and to all
other prospective investors in the Shares and to evaluate the merits and risks
of such an investment on his behalf, and that he recognizes the highly
speculative nature of this investment.  Such Investor, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the securities comprising
the Shares, and has so evaluated the merits and risks of such
investment.  Such Investor is able to bear the economic risk of an
investment in the Shares and, at the present time, is able to afford a complete
loss of such investment.

     

    1.6 The
Investor hereby represents that he has been furnished by the Company during the
course of this transaction with all information regarding the Company which he
had requested or desired to know; that all documents which could be reasonably
provided have been made available for his inspection and review; that he has
been afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning the terms
and conditions of the Offering, and any additional information which he had
requested.

     

    1.7 The
Investor acknowledges that this offering of Shares may involve tax consequences.
The Investor acknowledges that he must retain his own professional advisors to
evaluate the tax and other consequences of an investment in the
Shares.

     

    1.8 The
Investor acknowledges that this offering of Shares has not been reviewed by the
United States Securities and Exchange Commission (the “SEC”) because of the
Company’s representations that this is intended to be a nonpublic offering
pursuant to Sections 4(2) or 3(b) of the Act. The Investor agrees that he will
not sell or otherwise transfer such securities unless they are registered under
the Act or unless an exemption from such registration is available.

     

    1.9 Such
Investor understands that the Shares are “restricted securities” and have not
been registered under the Act or any applicable state securities law and is
acquiring the Shares as principal for its own account and not with a view to or
for distributing or reselling such Shares or any part thereof, has no present
intention of distributing any of such Shares and has no arrangement or
understanding with any other persons regarding the distribution of such Shares
(this representation and warranty not limiting such Investor’s right to sell the
Shares in compliance with applicable federal and state securities
laws).  Such Investor does not have any agreement or understanding,
directly or indirectly, with any person or entity to distribute any of the
Shares.

     

    1.10 The
Investor understands that although a public market exists for the Shares, Rule
144 (the “Rule”) promulgated
under the Act requires, among other conditions, a one year holding period prior
to the resale (in limited amounts) of securities acquired in a non-public
offering without having to satisfy the registration requirements under the Act.
The Investor understands that the Company makes no representation or warranty
regarding its fulfillment in the future of any reporting requirements under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or
its dissemination to the public of any current financial or other information
concerning the Company, as is required by Rule 144 as one of the conditions of
its availability. The Investor understands and hereby acknowledges that the
Company is under no obligation to register the securities comprising the Shares
under the Act. The Investor consents that the Company may, if it desires, permit
the transfer of the securities comprising the Shares out of his name only when
his request for transfer is accompanied by an opinion of counsel reasonably
satisfactory to the Company that neither the sale nor the proposed transfer
results in a violation of the Act or any applicable state blue sky laws
(collectively “Securities Laws”).
The Investor agrees to hold the Company and its directors, officers and
controlling persons and their respective heirs, representatives, successors and
assigns harmless and to indemnify them against all liabilities, costs and
expenses incurred by them as a result of any misrepresentation made by him
contained herein or any sale or distribution by the undersigned Investor in
violation of any Securities Laws.

     

    1.11 The
Investor acknowledges that he is (a) aware that the United States securities
laws prohibit any person who has material non-public information about a company
from purchasing or selling securities of such company, or from communicating
such information to any other person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell such
securities and (b) familiar with the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”), and the rules and regulations promulgated thereunder, and the
Investor will not use, or cause any third party to use, any such material
non-public information in contravention of such act or any such rules and
regulations, including Rules 10b-5 and 14a-3.

     

    1.12 The
Investor consents to the placement of one or more legends on any certificate or
other document evidencing his Shares stating that they have not been registered
under the Act and setting forth or referring to the restrictions on
transferability and sale thereof.

     

    1.13 The
Investor hereby represents that the address of Investor furnished by him on the
signature page of this Stock Purchase Agreement is the undersigned’s principal
residence if he is an individual or its principal business address if it is a
corporation or other entity.

     

    1.14 If the
undersigned Investor is a partnership, corporation, trust or other entity, such
partnership, corporation, trust or other entity further represents and warrants
that: (i) it is authorized and otherwise duly qualified to purchase and hold the
Shares; and (ii) that this Stock Purchase Agreement has been duly and validly
authorized, executed and delivered and constitutes the legal, binding and
enforceable obligation of the undersigned.

     

    1.15 General
Solicitation.  Such Investor is not purchasing the Shares as a
result of any advertisement, article, notice or other communication regarding
the Shares published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other general
solicitation or general advertisement.

     

    1.16 Short
Sales.  Such Investor has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such
Investor, executed any Short Sales in the securities of the Company (including,
without limitation, any Short Sales involving the Company’s securities) since 4
P.M. (New York Time) on May 28, 2009 which was the time that such Investor was
first contacted regarding an investment in the Company (“Discussion
Time”).  For purposes of this Section, “Short Sales” include,
without limitation, all “short sales” as defined in Rule 3b-3 of the Exchange
Act.  Such Investor covenants that neither it nor any affiliates
acting on its behalf or pursuant to any understanding with it will execute any
Short Sales (i) during the period from the Discussion Time until prior to the
time that the transactions contemplated by this Agreement are first publicly
announced or (ii) at any time after the transactions contemplated by this
Agreement are first publicly announced.

     

    
      	
              II.  

            	
              REPRESENTATIONS
      BY THE COMPANY

            

    

     

    The
Company represents and warrants to the Investor that prior to the consummation
of this Offering and at the date of the closing of this offering (the “Closing Date”),
except as set forth on the Disclosure Schedule attached hereto as Exhibit A (the “Disclosure
Schedule”):

     

    2.1 Organization. Each of
the Company and the Subsidiaries (as hereinafter defined) is a corporation or
limited liability company duly organized, validly existing and in good standing
under the laws of its state or country of organization and has all requisite
corporate or limited liability company power and authority to own and lease its
properties, to carry on its business as currently conducted and as proposed to
be conducted, to execute and deliver the Stock Purchase Agreement and Warrant
(collectively, the “Transaction
Documents”) and to carry out the transactions contemplated by the
Transaction Documents as appropriate and is duly licensed or qualified to do
business as a foreign corporation in each jurisdiction in which the conduct of
its business or ownership or leasing of its properties requires it to be so
qualified.

     

    2.2 Capitalization.  The
authorized capital stock of the Company consists solely of 100,000,000 shares of
Common Stock, par value $0.01 per share, and 2,000,000 shares of preferred
stock, par value $5.00 per share (“Preferred Stock”).  As of August
[__], 2009, 3,563,439 shares of Common Stock were issued and outstanding, 19,535
shares of Preferred Stock were issued and outstanding, no shares of Common Stock
or Preferred Stock were held in the treasury of the Company and 1,000,000 shares
of Common Stock were reserved for issuance upon the exercise of options issued
pursuant to the MDI Option Plans.  The Company has not issued any
capital stock since such date other than pursuant to the exercise of employee
stock options and/or restricted shares under the Company’s stock option plans.
All issued and outstanding shares of the Company are validly issued, fully paid
and nonassessable and have not been issued in violation of the preemptive rights
of any stockholder of the Company. All prior sales by the Company of securities
of the Company were either registered under the Act and applicable state
securities laws or exempt from such registration, and no security holder has any
rescission rights with respect thereto.

     

    2.3 Valid Issuance of Shares,
Etc. The Shares, the Warrant and the Warrant Shares have been duly
authorized, and the Shares and the Warrant Shares, upon issuance pursuant to the
terms hereof and the terms of the Warrant, respectively, will be validly issued,
fully paid and nonassessable and not subject to any encumbrances, preemptive
rights or any other similar contractual rights of the stockholders of the
Company or any other Person. The Company has reserved from its duly authorized
capital stock the number of shares of Common Stock issuable upon execution of
this Agreement and upon exercise in full of the Warrant.

     

    2.4 Subsidiaries and
Investments. Except for the subsidiaries set forth on Schedule 2.4 of the
Disclosure Schedule (the “Subsidiaries”), the
Company has no subsidiaries. The Company does not own, directly or indirectly,
any capital stock or other equity ownership or proprietary interests in any
other corporation, association, trust, partnership, joint venture or other
entity. The Company owns all of the capital stock of the Subsidiaries, and there
are no warranties, options, agreements, convertible securities, preemptive
rights to subscribe for or other commitments pursuant to which any of the
Subsidiaries may become obligated to issue any shares of its capital stock or
any other securities to any person other than the Company. No actions have been
taken by the Company or the Company’s Board of Directors with respect to the
sale or disposition of the stock, ownership interests or assets of the
Subsidiaries.

     

    2.5 Title.  Except
as set forth on the Disclosure Schedule, each of the Company and the
Subsidiaries has good and valid title to all properties and assets, owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except such
as are not materially significant or important in relation to the Company’s and
the Subsidiaries’ business, taken as a whole; except as set forth on the
Disclosure Schedule, all of the material leases and subleases under which each
of the Company and the Subsidiaries is the lessor or sublessor of properties or
assets or under which each of the Company and the Subsidiaries holds properties
or assets as lessee or sublessee are in full force and effect, and neither the
Company nor any Subsidiary is in default in any material respect with respect to
any of the terms or provisions of any of such leases or subleases, and no
material claim has been asserted by anyone adverse to rights of the Company or
any Subsidiary as lessor, sublessor, lessee or sublessee under any of the leases
or subleases mentioned above, or affecting or questioning the right of the
Company or any Subsidiaries to continued possession of the leased or subleased
premises or assets under any such lease or sublease. The Company owns or leases
all such properties as are necessary to its operations as now conducted and to
be conducted, as presently planned.

     

    2.6 Proprietary
Rights.  Each of the Company and the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, trade secrets, processes,
formulations, technology or know-how used or proposed to be used in the conduct
of its business (the “Proprietary Rights”).
Other than as set forth in the Company’s filings with the SEC or the Disclosure
Schedule, neither the Company nor any Subsidiary has received any notice of any
claims, nor does it have any knowledge of any threatened claims, and knows of no
facts which would form the basis of any claim, asserted by any person to the
effect that the sale or use of any product or process now used or offered by the
Company or any Subsidiary or proposed to be used or offered by the Company or
any Subsidiary infringes on any patents or infringes upon the use of any such
Proprietary Rights of another person and, to the best of the Company’s
knowledge, no others have infringed the Company’s or any Subsidiary’s
Proprietary Rights.

     

    2.7 Litigation.  Other
than as set forth in the Company’s filings with the SEC or the Disclosure
Schedule, there is no material action, suit, investigation, customer complaint,
claim or proceeding at law or in equity by or before any arbitrator,
governmental instrumentality or other agency now pending or, to the knowledge of
the Company, threatened against the Company or any Subsidiary the adverse
outcome of which would materially adversely affect the Company’s or any
Subsidiary’s business or prospects. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary is subject to any judgment,
order, writ, injunction or decree of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign which would materially adversely affect the Company’s or any
Subsidiary’s business or prospects.

     

    2.8 Non-Defaults;
Non-Contravention.  The execution and delivery of the
Transaction Documents and consummation of the transactions contemplated herein
or therein will not result in a violation of or constitute a default in the
performance or observance of any obligation, nor result in or give to any person
any right of payment or reimbursement, termination, cancellation, modification
or acceleration of, or result in the creation or imposition of any lien upon any
of the assets or properties of the Company or any Subsidiaries (i) under its
Certificate of Incorporation, or its By-laws, or any indenture, mortgage,
contract, material purchase order or other agreement or instrument to which the
Company or any Subsidiary is a party or by which it or its property is bound or
affected or (ii) with respect to any material order, writ, injunction or decree
of any court of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, and
there exists no condition, event or act which constitutes, nor which after
notice, the lapse of time or both, could constitute a default under any of the
foregoing, which in either case would have a material adverse effect on the
business, financial condition or prospects of the Company or any Subsidiary. To
the knowledge of the Company, neither the Company nor any Subsidiary is in
violation of or default under any of (i) or (ii) above.

     

    2.9 Taxes.  Each
of the Company and the Subsidiaries has filed all federal, state, local and
foreign tax returns which are required to be filed by it and all such returns
are true and correct in all material respects. Each of the Company and the
Subsidiaries has paid all taxes pursuant to such returns or pursuant to any
assessments received by it or which it is obligated to withhold from amounts
owing to any employee, creditor or third party. Each of the Company and the
Subsidiaries has properly accrued all taxes required to be accrued. Neither the
Company nor any Subsidiary has waived any statute of limitations with respect to
taxes or agreed to any extension of time with respect to any tax assessment or
deficiency.

     

    2.10 Compliance With Laws;
Licenses, Etc.  Other than as set forth in the Company’s
filings with the SEC and the Disclosure Schedule, neither the Company nor any
Subsidiary has received notice of any violation of or noncompliance with any
federal, state, local or foreign, laws, ordinances, regulations and orders
applicable to its business which has not been cured, the violation of, or
noncompliance with which, would have a materially adverse effect on the business
or operations of the Company or any Subsidiary. To the knowledge of the Company,
each of the Company and the Subsidiaries has all licenses and permits and other
governmental certificates, authorizations and permits and approvals
(collectively, “Licenses”) required
by every federal, state and local government or regulatory body for the
operation of its business as currently conducted and the use of its properties,
except where the failure to be licensed would not have a material adverse effect
on the business of the Company or any Subsidiary. The Licenses are in full force
and effect and no violations are or have been recorded in respect of any License
and no proceeding is pending or threatened to revoke or limit any
thereof.

     

    2.11 Authorization of Agreement,
Etc.  The Company has the necessary corporate power and
authority to enter into the Transaction Documents and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby.  The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly and validly approved
by the Board of Directors of the Company. No other corporate proceedings are
necessary to authorize the execution, delivery and performance of the
Transaction Documents by the Company, and the consummation by the Company of the
transactions contemplated hereby and thereby.  The Transaction
Documents have been duly and validly executed and delivered by the Company and
constitute legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their terms.

     

    2.12 Exemption from
Registration.  Assuming the accuracy of the information
provided by the Investor in connection with this Stock Purchase Agreement, the
offer and sale of the Shares pursuant to the terms of this Stock Purchase
Agreement are exempt from the registration requirements of the Act and the rules
and regulations promulgated thereunder (the “Regulations”). To the
knowledge of the Company, the Company is not disqualified from the exemption
under Regulation D by virtue of the disqualifications contained in Rule 505(b
)(2)(iii) or Rule 507 promulgated thereunder.

     

    2.13 Brokers.  Neither
the Company nor any of its officers, directors, employees or stockholders has
employed any broker or finder in connection with the transactions contemplated
by this Stock Purchase Agreement.

     

    2.14 Title to
Shares.  The Shares and Warrant Shares when issued and
delivered will be validly issued and outstanding, fully paid and nonassessable.
When certificates representing the securities comprising the Shares and Warrant
Shares shall have been duly delivered to the Investor and payment shall have
been made therefor, the Investor shall have good and valid title to the Shares
and Warrant Shares free and clear of all liens, encumbrances and claims
whatsoever (with the exception of claims arising or through the acts of the
Investor and except as arising from applicable federal and state securities
laws), and the Company shall have paid all taxes, if any, in respect of the
original issuance thereof.

     

    2.15 Right of First
Refusal.  No person, firm or other business entity is a party
to any agreement, contract or understanding, written or oral entitling such
party to a right of first refusal with respect to the Company.

     

    2.16 Securities Exchange Act
Compliance.  To the knowledge of the Company, the Company has
filed with the SEC on a timely basis all filings required of a company whose
securities have been registered under the Exchange Act. All information
contained in such filings is true, accurate and complete in all material
respects. The Company shall use its best efforts to maintain the registration of
its Common Stock under the Exchange Act and to make all filings thereunder on a
timely basis. For the purpose of this paragraph, filings pursuant to Rule 12b-25
of the Exchange Act shall be deemed timely.

     

    2.17 Sarbanes-Oxley.  To
the knowledge of the Company, the Company is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Closing Date.

     

    2.18 Registration
Rights.  No person has any right to cause the Company to effect
the registration under the Act of any securities of the Company.

     

    2.19 Warrants, Preemptive Rights,
Etc.  Except as set forth in the Company’s filings with the SEC
and the Disclosure Schedule, there are not, nor will there be immediately after
the Closing (as hereinafter defined), any outstanding warrants, options (except
options issued pursuant to, or upon conversion of any option issued pursuant to,
the Company’s employee stock option plan, agreements, convertible securities,
preemptive rights to subscribe for or other commitments pursuant to which the
Company is, or may become, obligated to issue any shares of its capital stock or
other securities of the Company and this Offering will not cause any
anti-dilution adjustments to such securities or commitments.

     

    2.20 Financial
Statements.  The Company’s Form 10-K for the year ended
December 31, 2008 contains the Company’s (i) Balance Sheets at December 31, 2008
(the “Balance Sheet
Date”), (ii) Statements of Operations for each of the last two years
ending December 31, 2007 and December 31, 2008, and (iii) Statements of Cash
Flow for each of the last two years ending December 31, 2007 and December 31,
2008 (hereinafter referred to collectively as the “Financial
Statements”). The Financial Statements have been prepared in conformity
with generally accepted accounting principles consistently applied and show all
material liabilities, absolute or contingent, of the Company required to be
recorded thereon and present fairly the financial position and results of
operations of the Company as of the dates and for the periods
indicated.

     

    2.21 Absence of
Changes.  Other than as set forth in the Company’s filings with
the SEC and the Disclosure Schedule, since the Balance Sheet Date, neither the
Company nor any Subsidiary has incurred any liabilities or obligations, direct
or contingent, not in the ordinary course of business, or entered into any
transaction not in the ordinary course of business, which is material to the
business of the Company and the Subsidiaries, taken as a whole, and there has
not been any change in the capital stock of, or any incurrence of long-term debt
by, the Company or any Subsidiary, or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any Subsidiary, or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company or any Subsidiary, and neither the Company nor any Subsidiary has become
a party to, and neither the business nor the property of the Company or any
Subsidiary has become the subject of, any material litigation whether or not in
the ordinary course of business.

     

    
      	
              III.  

            	
              CLOSING

            

    

     

    3.1 Closing.  The
closing of the transaction contemplated hereby (the “Closing”) shall take
place at the offices of the Company on or before September 4, 2009. At the
Closing, payment for the Shares issued and sold by the Company shall be made
against delivery of (i) certificates representing the Shares and (ii) the
Warrant.

     

    3.2 Conditions to Investor’s
Obligations.  The obligations of the Investor hereunder will be
subject to the accuracy of the representations and warranties of the Company
herein contained as of the date hereof and as of the Closing Date, and to the
performance by the Company of its obligations hereunder and to the following
additional conditions:

     

    (a) Due Qualification or
Exemption. (i) The offering contemplated by this Stock Purchase Agreement
will become qualified or be exempt from qualification under applicable state
securities laws not later than the Closing Date, and (ii) at the Closing Date no
stop order suspending the sale of the Shares shall have been issued, and no
proceeding for that purpose shall have been initiated or
threatened;

     

    (b) Compliance with
Agreements. The Company will have complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder at
or prior to the Closing; and

     

    (c) Corporate Action. The
Company will have taken all necessary corporate action, including, without
limitation, obtaining the approval of the Company’s board of directors, for the
execution and delivery of the Stock Purchase Agreement and Warrant, and the
performance by the Company of its obligations hereunder and thereunder, and the
offering contemplated hereby.

     

    (d) Legal Opinion. The
Investor shall have received from the General Counsel of the Company an opinion
addressed to Investor, in substantially the form of Exhibit B
hereto.

     

    (e) Acquisition of Almana
Networks International, Inc. All conditions to the closing (other than
the effectiveness of this Agreement) of that certain Stock Purchase Agreement,
dated as of August, 2009, by and among the Company and the other signatories
thereto shall have been met or waived.

     

    (f) Appointment of Chief
Transition Officer. The Board of Directors of the Company shall have
taken all action such that, effective at the Closing, John Linton shall be
appointed as the Company’s Chief Transition Officer, who shall report directly
to the Board of Directors, and by whom all actions taken by officers on behalf
of the Company must be approved.

     

    (g) Appointment of Board
Members. The Board of Directors of the Company and the Company shall have
taken all necessary action such that immediately following the Closing, the size
of the Company’s Board of Directors shall be eight, and the Company’s Board of
Directors shall consist of James Power, Carlo Loi, Peter Knepper, Collier
Sparks, and four directors nominated by the Investor (the “Investor Directors”).
The Board of Directors of the Company shall have taken all necessary action such
that immediately following the Closing, the Company’s Nominating Committee shall
consist of three members at least two of which are Investor Directors (as
defined below).

     

    
      	
              IV.  

            	
              TERMS
      OF INVESTMENT

            

    

     

    4.1 Expenses of
Offering.  The Company shall, at the Closing, pay the
reasonable and actual fees and expenses of Investor, including but not limited
to, the reasonable and actual out of pocket attorneys’ fees and expenses of
Andrews Kurth LLP, outside legal counsel to the Investor, incurred in connection
with the proposed Offering.

     

    4.2 The
Investor hereby authorizes and directs the Company to deliver the securities to
be issued to such Investor pursuant to this Stock Purchase Agreement to the
address indicated herein.

     

    4.3 The
Investor acknowledges that at such time, if ever, as any of the Shares are
registered, sales of such Shares will be subject to state securities laws,
including those of states which may require any securities sold therein to be
sold through a registered broker­-dealer or in reliance upon an exemption
from registration.

     

    
      	
              V.  

            	
              MISCELLANEOUS

            

    

     

    5.1 Any
notice or other communication given hereunder shall be deemed sufficient if in
writing and sent by registered or certified mail, return receipt requested,
addressed to the Company, at its registered office, 12500 Network Blvd., Suite
306, San Antonio, Texas 78249, Attention: Chief Executive Officer, and to the
Investor at his address indicated on the signature page of this Stock Purchase
Agreement. Notices shall be deemed to have been given on the date of mailing,
except notices of change of address, which shall be deemed to have been given
when received.

     

    5.2 Except to
the extent required by applicable laws, rules, regulations or stock exchange
requirements, neither (i) the Company, the Subsidiaries or any of their
affiliates nor (ii) Investor or any of its affiliates shall, without the written
consent of the other, make any public announcement or issue any press release
with respect to the transactions contemplated by this Agreement. In no event
will either (i) the Company, the Subsidiaries or any of their Affiliates or (ii)
Investor or any of its Affiliates make any public announcement or issue any
press release with respect to the transactions contemplated by this Agreement
without consulting with the other party, to the extent feasible, as to the
content of such public announcement or press release.

     

    5.3 The
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company pursuant to all applicable securities laws, including the Exchange Act.
At any time if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Investor and make publicly available in
accordance with paragraph (c) of Rule 144 such information as is required for
the Investor to sell the Shares and the Warrant Shares under Rule 144. The
Company further covenants that it will take such further action as Investor may
reasonably request to satisfy the provisions of Rule 144 applicable to the
issuer of securities relating to transactions for the sale of securities
pursuant to Rule 144.

     

    5.4 The
Company agrees to reserve from its duly authorized capital stock the total
number of Shares issuable upon execution of this Agreement and upon the exercise
in full of the Warrant.

     

    5.5 The
Company agrees to place the funds sent by Investor to purchase the Shares (the
“Investor
Funds”) in a segregated bank account. The Investor Funds may not be
spent, encumbered or otherwise removed from this segregated bank account without
the prior consent of the Company’s Board of Directors as constituted after the
Closing, including the consent of each of the Investor Directors. The Chief
Transition Officer of the Company shall have sole signatory power over such
segregated bank account.

     

    5.6 The
Company agrees to take all actions necessary to set an annual meeting of the
shareholders of the Company, the date of which shall be within sixty days of the
date of Closing.

     

    5.7 Unless
the Investor in Shares has given his approval, this Stock Purchase Agreement
shall not be changed, modified or amended and may not be discharged except by
performance in accordance with its terms.

     

    5.8 This
Stock Purchase Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives, successors
and assigns. This Stock Purchase Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter hereof and merges and
supersedes all prior discussions, agreements and understandings of any and every
nature among them.

     

    5.9 Notwithstanding
the place where this Stock Purchase Agreement may be executed by any of the
parties hereto, the parties expressly agree that all the terms and provisions
hereof shall be construed in accordance with and governed by the laws of the
State of Texas.

     

    5.10 This
Stock Purchase Agreement may be executed in counterparts. Upon the execution and
delivery of this Stock Purchase Agreement by the Investor, this Stock Purchase
Agreement shall become a binding obligation of the Investor with respect to the
purchase of Shares as herein provided; subject, however, to the right hereby
reserved to the Company to enter into the same agreements with other Investors
and to add and/or to delete other persons as Investors.

     

    5.11 The
holding of any provision of this Stock Purchase Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Stock Purchase Agreement, which shall remain in full force and
effect.

     

    5.12 It is
agreed that a waiver by either party of a breach of any provision of this Stock
Purchase Agreement shall not operate, or be construed, as a waiver of any
subsequent breach by that same party.

     

    5.13 The
parties agree to execute and deliver all such further documents, agreements and
instruments and take such other and further action as may be necessary or
appropriate to carry out the purposes and intent of this Stock Purchase
Agreement.

     

    5.14 Whenever
the context of this Stock Purchase Agreement requires, the gender of all words
herein shall include the masculine, feminine, and neuter, and the number of all
words herein shall include the singular and plural.

     

    

     

    (Signature(s) on following
page.)

     

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

    

    

    Signature
of Investor

    

    

    

    Printed
Name of Investor

    

    

    

    Address
of Investor

    

    

    

    Taxpayer
Identification Number

    

    

    Company:

    MDI,
INC.

    

    

    ________________________

    By:           J.
Collier Sparks

    Title:                      President
and CEO

    Date:                      August                      ,
2009

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