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EXHIBIT 10.1
PURCHASE AGREEMENT
BY AND AMONG
THE SELLERS NAMED HEREIN
AND
COLLEGE OAK INVESTMENTS, INC.
January 16, 2006
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is entered into this 16th day of
January, 2006 by and among Rex Energy Royalties Limited Partnership, a Delaware
limited partnership ("Rex Royalties"), PennTex Resources, L.P. a Texas limited
partnership ("PennTex Resources"), PennTex Resources Illinois, Inc., a Delaware
corporation ("PennTex Illinois"), Douglas Oil & Gas Limited Partnership, a
Delaware limited partnership ("Douglas O&G"), Douglas Westmoreland Limited
Partnership, a Delaware limited partnership ("Douglas Westmoreland"), Midland
Exploration Limited Partnership, a Delaware limited partnership ("Midland"), Rex
Energy Operating Corp., a Delaware corporation ("Rex Energy"), Rex Energy
Wabash, LLC, a Delaware limited liability company ("Rex Wabash"), Lance T.
Shaner, an individual residing in State College, Pennsylvania ("Shaner"), and
Benjamin W. Hulburt, an individual residing in State College, Pennsylvania
("Hulburt") (Rex Royalties, PennTex Resources, PennTex Illinois, Douglas O&G,
Douglas Westmoreland, Midland, Rex Energy, Rex Wabash, Shaner and Hulburt being
sometimes referred to hereinafter individually as a "Seller" and in the
aggregate as "Sellers"), and College Oak Investments, Inc., a Nevada corporation
(the "Buyer") on the other.
The Buyer and the Sellers are referred to individually as a "Party" and
collectively herein as the "Parties."
This Agreement contemplates a transaction in which the Buyer will purchase
the Acquired Assets (and assume the liabilities related thereto) of the Sellers
as described herein in return for the cash consideration described herein.
This Agreement also contemplates the transfer and issuance of shares of
the Common Stock, $0.001 par value, of the Buyer ("Buyer Common Stock") to
certain executive officers and principals of Rex Energy pursuant to that certain
Stock Agreement in substantially the form set forth on Exhibit A (the "Stock
Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. Definitions. In addition to the other capitalized terms defined
throughout this Agreement, the following terms will have the following meanings:
"Acquired Assets" means all of the right, title, and interest that the
Sellers possess and have the right to transfer in and to the following: (a) the
Oil and Gas Assets, (b) the 50% membership interest in New Albany-Indiana, LLC,
a Delaware limited liability company ("New Albany"), (c) rights under the Aurora
Purchase Agreement, (d) all of the outstanding shares of capital stock of Rex
Energy and all properties of Rex Energy other than Excluded Assets that are not
otherwise described herein as Acquired Assets, (e) all of the outstanding shares
of capital stock of PennTex Illinois and all properties of PennTex Illinois
other than Excluded Assets that are not otherwise described herein as Acquired
Assets, and (f) the corporate, financial, tax and legal records of PennTex
Illinois and Rex Energy (provided that the other Sellers shall be entitled to
copies of and access to such records as reasonably requested), and provided,
however, that the Acquired Assets shall not include (i) except with respect to
Rex Energy, PennTex Illinois and New Albany, the articles of incorporation,
bylaws, certificates of formation, partnership agreements, regulations, members'
agreements, qualifications to do business as a foreign entity, arrangements with
registered agents relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, stock transfer books, blank stock
certificates, and other documents relating to the organization, maintenance and
existence of the Sellers, (ii) any Cash, (iii) any Excluded Assets, or (iv) any
of the rights of the Sellers under this Agreement (or under any other agreement
between the Sellers (or any of them) on the one hand and the Buyer on the other
hand entered into on or after the date of this Agreement).
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
ss.1504(a) or any similar group defined under a similar provision of state,
local, or foreign law.
"Assumed Liabilities" means:
(a) all debts, liabilities, obligations, claims, Taxes, costs and expenses
of the Sellers, whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due (including, without
limitation, any of the foregoing arising under, out of or in connection with any
actual or threatened action, suit or proceeding, any order or consent decree of
any Governmental Authority, any award of any arbitrator, or any law, regulation,
contract, commitment or undertaking), (i) to the extent arising out of or
attributable to the ownership, use, construction, maintenance or operation of
any of the Acquired Assets on or subsequent to their applicable Effective Time,
(ii) arising out of or attributable to the plugging, abandonment or removal
(including any remediation in connection therewith), or any obligation to plug,
abandon or remove (including any remediation in connection therewith), any Well,
platform, pipeline, facilities, equipment, fixtures or other property located on
the Acquired Assets, (iii) arising out of or attributable to any Environmental,
Health and Safety Requirement with respect to the Acquired Assets or any
Environmental, Health and Safety Requirement arising out of or attributable to
the ownership, use, construction, maintenance or operation of any of the
Acquired Assets, regardless of whether such debts, liabilities, claims, costs
and expenses arose or arise before, on or after the Effective Time, and (iv)
arising out of or attributable to any injury, death or damage to person or
property occurring on the Acquired Assets or on the lands covered thereby (or
any adjacent lands or any pooled or unitized lands) or in connection with any
operations or activities relating thereto to the extent arising out of or
attributable to the use, construction, maintenance or operation of any of the
Acquired Assets, regardless of whether such debts, liabilities, claims, costs
and expenses arose or arise before or after the Effective Time; and
(b) (i) all liabilities and obligations of the Sellers under their
Employee Benefit Plans, (ii) all liabilities and obligations of the Sellers
under the agreements, contracts, leases, licenses, and other arrangements
referred to in the definition of Acquired Assets but not included in clauses (i)
through (iv), inclusive, of sub-section (a) above (e.g., the Aurora Purchase
Agreement, the New Albany joint venture agreement and other governing documents
in connection therewith);(iii) all liabilities and obligations of the Sellers
for sales and use taxes arising in connection with the consummation of the
transactions contemplated hereby (excluding any Income Taxes payable by the
Sellers); (iv) all liabilities and obligations of the Sellers to indemnify any
Person (including any of the Seller Owners) by reason of the fact that such
Person was a director, officer, employee, partner, member or agent of the
Sellers or was serving at the request of the Sellers as a partner, trustee,
director, officer, employee, member or agent of another entity (whether such
indemnification is for judgments, damages, penalties, fines, costs, amounts paid
in settlement, losses, expenses, or otherwise and whether such indemnification
is pursuant to any statute, charter document, bylaw, agreement, or otherwise);
and (v) other liabilities and obligations of the Sellers set forth in Schedule
1(b)(vi) of the Sellers' Disclosure Schedule.
(c) Notwithstanding any provision contained herein to the contrary, the
Assumed Liabilities shall not include any liability resulting from any breach or
non-fulfillment of any representation, warranty, covenant or agreement on the
part of Sellers (or any of them) contained in this Agreement, the Stock
Agreement or under any other agreement between the Sellers on the one hand and
the Buyer on the other hand entered into on or after the date of this Agreement.
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"Aurora Purchase Agreement" means that certain purchase agreement dated as
of November 15, 2005 by and between New Albany and Aurora Energy, Ltd.
"Boe" means a total volume of crude oil, condensate, natural gas liquids,
and natural gas expressed in barrels, calculated on the basis that six thousand
cubic feet of natural gas equals one barrel.
"Buyer" has the meaning set forth in the preface above.
"Buyer Common Stock" has the meaning set forth in the preface above.
"Buyer's Disclosure Schedule" has the meaning set forth in Section 4
below.
"Buyer Stock Option Plans" has the meaning set forth in Section 4(g)
below.
"Buyer Stock Options" means those certain outstanding stock options of
Buyer as set forth on Schedule 4(g) of Buyer's Disclosure Schedule and any
additional stock options granted subsequent to the date of this Agreement in
accordance with the terms of this Agreement.
"Cash" means cash and cash equivalents (including marketable securities
and short term investments).
"Closing," have the meaning set forth in Section 2(c) below.
"Closing Date," shall have the meaning set forth in Section 2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the respective Parties that is not already generally available to
the public.
"Contracts" shall have the meaning set forth in the definition of "Oil and
Gas Assets" herein.
"Convertible Notes" shall mean the (i) $350,000 of original principal
amount of 10% convertible notes of the Buyer due April 2006 and (ii) $2,375,000
of original principal amount of 10% convertible Notes of Buyer due May 2007.
"Effective Time" shall mean 7:00 a.m., U.S. Eastern Time, on the first day
of the month in which the Closing takes place; provided that, with respect to
occurrences, prorations and allocations with respect to any particular Acquired
Asset, the Effective Time shall be 7:00 a.m., local time, at the location of
such Acquired Asset on such date.
"Employee Benefit Plan" means any "employee benefit plan" (as such term is
defined in ERISA ss.3(3)) and any other employee benefit plan, program or
arrangement of any kind.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
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"Environmental, Health and Safety Requirements" shall mean all existing
and future federal, state, local and foreign statutes, regulations, and
ordinances concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances or wastes.
"Equipment" shall have the meaning set forth in the definition of "Oil and
Gas Assets" herein.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single employer
with the Sellers for purposes of Code ss.414.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Assets" shall mean the following:
(a) the right to retain copies (but not the originals) of the Records;
(b) all Cash and all deposits, checks, funds and accounts receivable of
the Sellers with respect to any period of time prior to the respective Effective
Time;
(c) all (i) oil, gas and other hydrocarbons produced from or attributable
to the Acquired Assets with respect to all periods prior to the respective
Effective Time, (ii) oil, gas and other hydrocarbons attributable to the
Acquired Assets which, at the respective Effective Time, are in storage, within
processing plants, in pipelines or otherwise held in inventory, and (iii)
proceeds from or of such oil, gas and other hydrocarbons;
(d) any claims of the Sellers or any of them for refund of or loss
carry-forwards with respect to (i) Taxes attributable to any period prior to the
respective Effective Time or (ii) any Taxes attributable to the Excluded Assets;
(g) all corporate, financial, tax and legal records of the Sellers other
than PennTex Illinois and Rex Energy; provided that Buyer shall be entitled to
copies of or access to such records as reasonably requested;
(h) all rights, titles, claims and interests of the Sellers, or any of the
Sellers, or any Affiliate of any Seller (i) under any policy or agreement of
insurance or indemnity or (ii) to any insurance or condemnation proceeds or
awards;
(i) that certain tract of undeveloped land and all structures and fixtures
thereon and easements and rights appurtenant thereto owned by Douglas O&G
described in Exhibit B; and
(j) if the required consents of the limited partners of Midland to sale of
the interests of Midland in the Acquired Assets as elsewhere described in this
Agreement is not obtained by February 15, 2006 as provided for in Section 3(b)
below, the interests of Midland in such Acquired Assets shall be included in the
Excluded Assets and shall not be sold or conveyed by Sellers to Buyer.
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"Financing" and "Financing Amount" shall have the respective meanings set
forth in Section 5(k) (i) hereof.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Governmental Authority" means (i) the United States of America, (ii) any
state, county, parish, municipality or other governmental subdivision within the
United States of America, and (iii) any court or any governmental department,
commission, board, bureau, agency or other instrumentality of the United States
of America or of any state, county, municipality or other governmental
subdivision within the United States of America.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Hedging Arrangement" means a derivative transaction within the coverage
of Statement of Financial Accounting Standards No. 133, as amended, including
any swap transaction, option, warrant, forward purchase or sale transaction,
futures transaction, cap transaction, floor transaction or collar transaction
relating to oil or natural gas or related hydrocarbons.
"Hydrocarbons" shall have the meaning set forth in the definition of "Oil
and Gas Assets" set forth herein.
"Income Tax" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Knowledge" means actual knowledge without independent investigation.
"Leases" shall have the meaning set forth in the definition of "Oil and
Gas Assets" herein.
"New Albany" shall have the meaning set forth in the definition of
"Acquired Assets" above.
"Oil and Gas Assets" means:
(a) All of the Sellers' oil and gas leases, oil, gas and mineral leases,
subleases and other leaseholds, mineral fee interests, fee interests in oil, gas
or other hydrocarbons in place, overriding royalties, royalties, back-in
interests, net profits interests, carried interests, and other interests in oil,
gas or other minerals, and real property and improvements and fixtures thereon,
including without limitation those described on Exhibit C attached hereto
(collectively, the "Leases"), and any and all oil, gas, water, CO2 or injection
wells thereon, including the interests in the wells shown on Exhibit D attached
hereto (the "Wells").
(b) All pooled, communitized or unitized acreage which includes all or a
part of any Lease or includes any Well (the "Units"), and all tenements,
hereditaments and appurtenances belonging to the Leases and Units, including,
but not limited to, those Units described on Exhibit E attached hereto;
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(c) All personal property, structures, and facilities on, in or under the
Leases and the Wells or used or useful in connection therewith including,
without limitation all materials, equipment, buildings, structures, machinery,
flowlines, gathering lines and systems, gas and water pipelines, fixtures,
facilities (including pipeline facilities), compressors, wellhead equipment and
facilities, central production facilities, saltwater disposal wells and
facilities, geological data, geophysical data (2-D and 3-D) and other items (the
"Equipment" and, together with the Units, Leases and Wells, the "Properties");
(d) All presently existing agreements, contracts, and instruments by which
the Oil and Gas Assets are bound, to the extent applicable to the Properties,
including but not limited to, area of mutual interest agreements, joint
operating agreements, unitization agreements, pooling and communitization
agreements, declarations and orders, leases, permits, rights-of-way, easements,
rights of way, servitudes and other estate licenses, options, orders, joint
venture agreements, farmin and farmout agreements, exchange agreements,
transportation agreements, agreements for the sale and purchase of oil, gas,
other liquid or gaseous hydrocarbons, and /or other minerals, or any of them or
any combination thereof ("Hydrocarbons") and processing and transportation
agreements, to the extent applicable to the Properties or the production of
Hydrocarbons from the Properties, provided that "Contracts" shall not include
the instruments constituting Sellers' chain of title to the Leases (subject to
such proviso, the "Contracts")];
(e) All surface fee interests, easements, permits, licenses, servitudes,
rights-of-way, surface leases and other surface rights appurtenant to, and used
or held for use in connection with the Properties; and
(f) All of the following, to the extent related to the Properties, or used
or held for use in connection with the maintenance or operation thereof and to
the extent such are assignable or transferable by the Sellers without
restriction under applicable law or any existing contracts, instruments or
agreements (and without payment by the Sellers): all technical information,
including, but not limited to, all geological, geochemical and geophysical
information, geographic and structural geological maps, well logs and related
analyses and correlations, paleontological data, stratigraphic studies and data
pertaining to permeability or porosity, seismic and gravitational data and
production records, engineering and geological data, consultants' studies or
reports regarding any of the foregoing and any and all interpretative analyses
of the foregoing; copies of all bonds, all original books, records, files,
documents (including accounts payable and receivable, accounting records,
Leases, deeds, and Contracts); all title information (including, but not limited
to, lease files, land files, well files, division order files, agreement files,
gas sales, gathering and processing files, title opinions, abstracts, evidence
that rentals, royalties and other payments due under the Leases and the
Contracts have been paid, evidence that Taxes have been paid, maps and surveys,
lease records and data sheets), computer-sensible copies of all of the Sellers'
computer records regarding such information; and all plans for exploration and
development, applications, inspection reports, environmental impact statements,
assessments and studies, permits, licenses, orders, consents, notices,
correspondence and other statements and instruments pertaining to Environmental,
Health and Safety Requirements and related environmental surface and subsurface
matters, and requirements that have been filed with or supplied to or by any
Governmental Authority (the "Records").
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" and "Parties" have the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
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"Permitted Encumbrances" means any or all of the following:
(a) All leases, unit agreements, pooling agreements, operating agreements,
production sales contracts, division orders and other contracts, agreements and
instruments applicable to the Leases
(b) Lessors' royalties and any overriding royalties, reversionary
interests and other burdens (and any liens or security interests created by law
or reserved in instruments creating such interests to secure payment of same);
(c) Any (i) undetermined or inchoate liens or charges constituting or
securing the payment of expenses which were incurred incidental to maintenance,
development, production or operation of the Leases or for the purpose of
developing, producing or processing oil, gas or other hydrocarbons therefrom or
therein and (ii) materialman's, mechanics', repairman's, employees',
contractors', operators' or other similar liens, security interests or charges
for liquidated amounts arising in the Ordinary Course of Business incidental to
construction, maintenance, development, production or operation of the Acquired
Assets or the production or processing of oil, gas or other hydrocarbons
therefrom, that are not delinquent and that will be paid in the Ordinary Course
of Business or, if delinquent, that are being contested in good faith;
(d) Liens for Taxes not yet delinquent or, if delinquent, that are being
contested in good faith in the Ordinary Course of Business;
(e) Liens or security interests created by law or reserved in oil, gas
and/or mineral leases for royalty, bonus or rental or for compliance with the
terms of the Acquired Assets;
(e) All preferential or preference rights and similar interests with
respect to the transfer of any Acquired Assets ("Preference Rights");
(f) All consents, approvals, authorizations or permits of, or filing with
or notification to, any Person which is required to be obtained, made or
complied with for or in connection with any sale, assignment, transfer or
encumbrance of any Acquired Asset or any interest therein, other than any
consent or approval of or filing with any Governmental Authority in connection
with the assignment of any Acquired Asset ("Transfer Requirements"); provided
that "Transfer Requirements" shall not include required consents of or filings
with any Governmental Authority in connection with the assignment of any federal
or state leases or any interest therein as contemplated in Section 5(l) hereof.
(g) Any easements, rights-of-way, servitudes, permits, licenses, surface
leases and other rights with respect to operations to the extent such matters do
not interfere in any material respect with the Sellers' operations with respect
to the Acquired Assets burdened thereby;
(h) Any obligations, prohibitions, restrictions, terms or provisions
similar to those contained in or under any A.A.P.L. Model Form Operating
Agreement, or other Operating Agreement shown of record affecting any of the Oil
and Gas Assets;
(i) All agreements and obligations relating to (1) imbalances with respect
to the production, transportation or processing of natural gas, (2) calls or
purchase options on oil, gas or other minerals exercisable at current fair
market prices or the posted prices of such purchaser, or (3) processing rights
or commitments;
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(j) All royalties, overriding royalties, net profits interests, carried
interests, reversionary interests and other burdens affecting the Oil and Gas
Assets;
(k) All obligations by virtue of a prepayment, advance payment or similar
arrangement under any contract for the sale of gas production, including by
virtue of "take or pay" or similar provisions, to deliver gas produced from or
attributable to the Acquired Assets after the applicable Effective Time without
then or thereafter being entitled to receive full payment therefor;
(l) All liens, security interests, charges, encumbrances, contracts,
agreements, instruments, obligations, defects, irregularities and other matters
affecting any Acquired Asset which individually or in the aggregate are not such
as to interfere materially with the operation, value or use of such Acquired
Asset;
(m) Rights reserved to or vested in any Governmental Authority to control
or regulate any of the Wells, Units or Leases included in the Acquired Assets
and all applicable laws, rules, regulations and orders of such authorities;
(n) The terms and conditions of all Contracts and agreements relating to
the Acquired Assets, including, without limitation, exploration agreements, gas
sales contracts, processing agreements, farmins, farmouts, operating agreements,
area of mutual interest agreements, and right-of-way agreements;
(o) Rights of reassignment requiring notice and/or the reassignment (or
granting an opportunity to receive a reassignment) of a leasehold interest to
the holders of such reassignment rights prior to surrendering or releasing such
leasehold interest; and
(p) All consents and approvals of or filings with the United States
Department of Interior, the Minerals Management Service or other applicable
Governmental Authorities in connection with the assignments of the Acquired
Assets contemplated by Section 5(l) hereof.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a Governmental Authority (or any
department, agency or political subdivision thereof).
"Preference Rights" shall have the meaning as set forth in the definition
of "Permitted Encumbrances" above.
"Properties" shall have the meaning set forth in the definition of "Oil
and Gas Assets" hereinabove.
"Purchase Price" has the meaning set forth in Section 2(d) below.
"Records" shall have the meaning set forth in the definition of "Oil and
Gas Assets" hereinabove.
"Subsidiary" means any corporation, partnership, limited liability company
or other legal entity with respect to which a specified Person (or a Subsidiary
thereof) owns a majority of the common stock or similar equity interests or has
the power to vote or direct the voting of sufficient securities or equity
interests to elect a majority of the directors or the similar governing body of
the entity.
"SEC" has the meaning set forth in Section 4(h) below.
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"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" has the meaning set forth in the preface above.
"Sellers' Disclosure Schedule" has the meaning set forth in Section 3
below.
"Sellers' Representative" has the meaning set forth in Section 7.
"September 10-QSB" means the Buyer's Quarterly Report on Form 10-QSB for
the quarterly period ended September 30, 2005 filed with the SEC pursuant to
section 13 or 15(d) of the Exchange Act.
"Stock Agreement" has the meaning set forth in the preface above.
"Tax" means any federal, state, local, or foreign income, gross receipts,
windfall profits, license, environmental (including taxes under Code ss.59A),
capital stock, franchise, profits, withholding, social security,, unemployment,
real property, personal property, sales, use, transfer, registration,
value-added, alternative or add-on minimum tax, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Transfer Requirements" shall have the meaning as set forth in the
definition of "Permitted Encumbrances" hereinabove.
"Units" shall have the meaning set forth in the definition of "Oil and Gas
Assets" hereinabove.
"Wells" shall have the meaning set forth in the definition of "Oil and Gas
Assets" hereinabove.
2. Transactions.
(a) Purchase and Sale of Acquired Assets. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Sellers, and
the Sellers agree to sell, transfer, convey, and deliver to the Buyer, the
Acquired Assets at the Closing for the consideration specified below in this
Section 2.
(b) Assumption of Liabilities. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to assume and become responsible for all of
the Assumed Liabilities at the Closing. The Buyer will not assume or have any
responsibility, however, with respect to any other obligation or liability of
the Sellers not included within the definition of Assumed Liabilities.
(c) The Closing. The closing of the transactions contemplated hereunder
(the "Closing") shall take place at the offices of Sellers in State College,
Pennsylvania, commencing at 9:00 a.m., Pennsylvania time, on the later to occur
of the following: (A) May 1, 2006; or (B) the third business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby with respect to the Closing
(other than conditions with respect to actions the respective Parties will take
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at such Closing itself); provided that the Closing may take place on such other
date and at such other place as the Parties may mutually determine. Such date of
the Closing is referred to herein as the "Closing Date." However,
notwithstanding the foregoing, the Closing Date shall under no circumstances be
later than June 30, 2006.
(d) Purchase Price. At the Closing, the Buyer shall purchase and the
respective Sellers shall sell and convey to the Buyer the Acquired Assets, for
(A) $73,169,999 payable in U.S. Dollars by wire transfer or delivery of other
immediately available funds as instructed by the Sellers and (B) the "New Albany
Consideration" as defined hereinafter. As used herein, "Sellers' New Albany
Investment" means the total investment of Sellers, as of the Closing Date, in
Sellers' 50% membership interest in New Albany, including, without duplication,
(i) Sellers' cost of such membership interest (which, as of the date of this
Agreement, does not exceed $1,755,000), (ii) Sellers' 50% share as a member of
New Albany of the cost (the "Aurora Purchase Cost") of purchasing oil and gas
properties pursuant to the Aurora Purchase Agreement (including, without
limitation, oil and properties purchased pursuant to options granted under the
Aurora Purchase Agreement), (iii) Sellers' 50% share as a member of New Albany
of the cost of additional oil and gas leases purchased by New Albany pursuant to
the option to be granted to New Albany by virtue of Section 1.3 of the Aurora
Purchase Agreement (which includes an option to purchase approximately 12,100
acres to date) ("Additional Lease Costs"), and (iv), and Sellers' 50% share as a
member of New Albany of the costs (collectively "Exploration Costs") of
conducting seismic or other exploratory activities on and drilling, completing,
reworking, equipping, or abandoning wells on oil and gas properties referenced
in the foregoing clause (ii) or (iii) or other costs of exploring or developing
such oil and gas properties. Sellers have been informed that Buyer intends to
sell in a private placement (the "Private Placement") prior to February 1, 2006,
(i) shares of Buyer Common Stock and/or (ii) debt securities of Buyer ("Buyer
Debt Securities") convertible into shares of Buyer Common Stock (with the total
number, if any, of shares of Buyer Common Stock thus sold plus the total number,
if any, of shares of Buyer Common Stock into which Buyer Debt Securities thus
sold may be converted, together with any shares of Buyer Common Stock issued to
Buyer's placement agent or shares of Buyer Common Stock into which warrants
issued to Buyer's placement agent may be converted, not to exceed 11,000,000
shares) to obtain funds required to Buyer to pay Buyer's 50% share as a member
of New Albany of the New Aurora Purchase Cost, Additional Lease Costs,
Exploration Costs and working capital. The percentage of the total proceeds
received by Buyer in the Private Placement from the sale of Buyer Common Stock
and/or Buyer Debt Securities that is received for the sale of Buyer Common Stock
is herein called the "Stock Percentage," and the percentage of such total
proceeds that is received for the sale of Buyer Debt Securities is herein called
the "Debt Percentage." The "New Albany Consideration" shall be the total of the
following:
(i) A number (if any) of shares of Buyer Common Stock (to be issued
in such name or names as Sellers direct) equal to the Stock Percentage of
the Sellers' New Albany Investment divided by the "Per-Share Price" as
below defined. The "Per-Share Price" means the price per share received by
Buyer for the shares (if any) of Buyer Common Stock sold in the Private
Placement. If registration rights are granted to purchasers of Buyer
Common Stock (or to the purchasers of Buyer Debt Securities convertible in
Buyer Common Stock) in the Private Placement, registration rights shall be
granted to Sellers with respect to shares of Buyer Common Stock included
in the New Albany Consideration (including shares of Buyer Common Stock
which may acquired pursuant to Buyer Debt Securities convertible into
Buyer Common Stock) as provided below.
Plus
(ii) A principal amount (if any) of debt securities of Buyer ("New
Albany Debt Securities") (to be issued in such name or names as Sellers
direct) equal to the Debt Percentage of the Sellers' New Albany
10
Investment, bearing interest and payable in the same manner as and
otherwise corresponding to the substantive terms and provisions of and
granting the rights (including, without limitation, rights of conversion
to Buyer Common Stock) of Buyer Debt Securities (if any) sold in the
Private Placement. If Buyer Debt Securities sold in the Private Placement
are secured, the New Albany Debt Securities included in the New Albany
Consideration shall likewise be secured on the same terms and on a
proportionately equal basis by the same security securing Buyer Debt
Securities.
The cash consideration described in clause (A) above plus the New Albany
Consideration is referred to as the "Purchase Price." In the event that
registration rights are granted to purchasers of Buyer Common Stock (or to the
purchasers of Buyer Debt Securities convertible in Buyer Common Stock) in the
Private Placement, Sellers shall be entitled to the following "piggy-back"
registration rights: If at any time commencing on Closing Date and expiring five
(5) years hereafter, the Buyer proposes to register any of its securities under
the Securities Act (other than in connection with a Form S-8), then the Buyer
shall afford each of the Sellers the opportunity to include for sale in such
registration statement, the shares of Buyer Common Stock (including shares of
Buyer Common Stock which may acquired pursuant to Buyer Debt Securities
convertible into Buyer Common Stock) acquired by the Seller as part of the New
Albany Consideration. Sellers agree that, if requested by the placement agent in
the Closing Placement, they will agree to lock-up (the terms of such lock-up
shall be reasonable a customary for offerings similar to the Closing Placement)
all of the Buyer Common Stock included in the New Albany Consideration
(including shares of Buyer Common Stock which may acquired pursuant to Buyer
Debt Securities convertible into Buyer Common Stock) for period not to exceed
one (1) year, provided, however, that in no event shall Rex Energy II Limited
Partnership be required to agree to lock-up any its share of the New Albany
Consideration. The Sellers agree that in no event will Rex Energy II Limited
Partnership's interest in Sellers' New Albany Investment be more than 40%.
(e) Deliveries at the Closing. At each Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 6(a) below; (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in Section 6(b)
below; (iii) the Sellers will execute, acknowledge (if appropriate), and deliver
to the Buyer, (A) instruments of transfer and conveyance of the Oil and Gas
Assets, together with all special federal assignment forms as may be required by
law to be executed in connection with the conveyance of specific Oil and Gas
Assets; provided that the terms and provisions of the such instruments of
conveyance shall control as to any conflict between such instrument of
conveyance and any such special assignment forms; (B) assignments and bills of
sale (including real property and personal property transfer documents and
instruments), and such other instruments of sale, transfer, conveyance, and
assignment as the Buyer and its counsel reasonably may request; (C) certificates
evidencing all of the shares of capital stock of Rex Energy and PennTex Illinois
accompanied by stock powers duly endorsed blank; and (D) such other documents
and instruments necessary to transfer title in and to the applicable Acquired
Assets to the Buyer; (iv) Douglas O&G will assign the natural gas Hedging
Arrangements held by Douglas O&G to Buyer and Buyer will assume and provide any
required security for such Hedging Arrangements; (v) the Buyer will execute,
acknowledge (if appropriate), and deliver to the Sellers such instruments of
transfer and assumption as the Sellers and its counsel reasonably may request;
and (vi) the Buyer will deliver to the Sellers the Purchase Price specified in
Section 2(d) above.
(f) Adjustments to Purchase Price.
(i) As part of the Buyer's due diligence, the Buyer, at Buyer's sole
cost and expense, shall engage the Ralph E. Davis petroleum engineering
firm to review those certain reserve reports of Netherland, Sewell &
Associates dated as of June 1, 2005 (together with the underlying
11
documentation, the "NS Reports"), true and correct copies of which are
attached hereto as Exhibit F. If the report of such firm (the "Buyer's
Report") concludes that the amount of total oil and natural gas reserves
in place under the properties covered by the NS Reports (excluding the
non-Illinois and Indiana Properties) as of June 1, 2005, was lower than
the amount of such reserves (converting in each case all volumes of
natural gas to Boe's) reflected in the NS Reports as of June 1, 2005 by
more than 10%, then the Buyer must deliver the Buyer's Report to the
Sellers no later than sixty (60) days following the execution of this
Agreement.
(A) Upon delivery of the Buyer's Report to Sellers, Sellers
shall have ten (10) business days to notify the Buyer in writing
whether Sellers (i) agree with Buyer's Report or (ii) disagree with
Buyer's Report (the "Disagreement Notice") and the grounds for such
disagreement. Failure of the Sellers to notify the Buyer within said
10-day time period shall constitute acceptance by Sellers of the
Buyer's Report.
(B) Upon receipt of a timely Disagreement Notice from the
Sellers, Buyer and Sellers shall attempt in good faith to resolve
any disagreements with respect to discrepancies between the NS
Reports and the Buyer's Report. If, after ten (10) business days,
the Buyer and the Sellers have not satisfactorily resolved any
disagreements, then Rex Energy and the Buyer shall use their best
efforts to select a third independent engineering firm to review the
NS Report, using the same parameters set forth above. If, by that
date that is fifteen (15) business days following the date that
Buyer and Sellers commenced to resolve their disagreements regarding
the NS Reports and the Buyer's Report, Rex Energy and the Buyer
shall not have selected such a third independent engineering firm,
then Netherland, Sewell & Associates and the Ralph E. Davis firm
shall mutually select a third independent engineering firm to review
the NS Report, applying the same parameters set forth above. The
report of this third independent engineering firm shall be binding
on the Buyer and the Sellers.
(C) If Buyer shall have timely delivered a Buyer's Report to
Sellers, then, in the event (i) Sellers agree with the Buyer's
Report, (ii) fail to deliver a timely Disagreement Notice to Buyer
or (iii) the report of the third independent engineering firm
indicates an amount of total oil and natural gas reserves that is
lower than the amount of reserves reflected in the NS Report as of
June 1, 2005 (converting in each case all volumes of natural gas to
Boe's) and such discrepancy is in excess of 10%, then the cash
portion of the Purchase Price shall be reduced by $3,658,500 (unless
this Agreement is terminated pursuant to sub-paragraph (D) below).
(D) If such discrepancy is greater than 15%, then Buyer shall
have the right to terminate this Agreement by giving written notice
to the other within ten days after occurrence of the event described
in clause (i) or (ii) of sub-paragraph 2(f)(i)(C) above or receipt
of the report of the third engineering firm referred to in clause
(iii) of sub-paragraph 2(f)(i)(C) above.
(E) The Parties each acknowledge that the NS Reports reflect
oil and gas reserves for properties of Penn-Tex Resources located
outside of the States of Illinois and Indiana (the "Non-Illinois and
Indiana Properties") and that the Non-Illinois and Indiana
Properties were sold and transferred by PennTex Resources to a third
party in October 2005. The parties acknowledge that the Acquired
Assets to be purchased by the Buyer from PennTex Resources consists
of Oil and Gas Assets located in the states of Illinois and Indiana
and that there will be no adjustment to the Purchase Price for
discrepancies in the NS Reports resulting from the sale of the
Non-Illinois and Indiana Properties.
12
(ii) Within sixty (60) days after the Closing, Sellers and Buyer
shall effect a post-closing accounting pursuant to which Buyer will
account to Sellers for and pay over or assign and transfer (or cause Rex
Energy or PennTex Illinois to pay over or assign or transfer) to Sellers
(other than Rex Energy or PennTex Illinois, and as Sellers may direct):
(A) any Cash of any of Sellers in existence at the Effective
Time that is in the possession of Buyer (or of Rex Energy or PennTex
Illinois);
(B) all deposits, checks, funds, and accounts receivable of
Sellers included in the Excluded Assets and any proceeds of collection
thereof received by or in the possession of Buyer (or received by or in
the possession of Rex Energy or PennTex Illinois);
(C) all proceeds of sale and accounts receivable for sale of
oil, gas and other hydrocarbons produced from or attributable to the Oil
and Gas Assets prior to the Effective Time (including, without limitation,
all such substances in storage, within processing plants, in pipelines or
otherwise held in inventory at the Effective Time) that are included in
the Excluded Assets and that have been received or are held by Buyer (or
by Rex Energy or PennTex Illinois); and
(D) any other Excluded Assets held by or in the possession or
control of Buyer (or of Rex Energy or PennTex Illinois);
and pursuant to which:
(E) Sellers (other than Rex Energy or PennTex Illinois) shall
reimburse Buyer (or Rex Energy or PennTex Illinois) for any costs or
expenses (excluding any Assumed Liabilities) incurred by Rex Energy or
PennTex Illinois or any of the other Sellers in the Ordinary Course of
Business prior to the Effective Time that have been paid by Buyer or by
Rex Energy or PennTex Illinois after the Effective Time, and Sellers
(other than Rex Energy and PennTex Illinois) shall assume liability for
any unpaid costs or expenses (excluding any Assumed Liabilities) incurred
by Rex Energy or PennTex Illinois in the Ordinary Course of Business prior
to the Effective Time; and
(F) Buyer shall reimburse Sellers (other than Rex Energy or
PennTex Illinois, and as Sellers may direct) for any Assumed Liabilities
(including, without limitation, costs or expenses, including prepaid costs
or expenses, arising out of or attributable to the ownership, use,
construction, maintenance or operation of the Oil and Gas Assets on or
subsequent to the Effective Time) that have been paid by Sellers (other
than Rex Energy or PennTex Illinois).
The post-closing accounting will not, of course, relieve the
respective Sellers other than Rex Energy or PennTex Illinois from
liability and responsibility for their unpaid obligations incurred prior
to the Effective Time that are not included in the Assumed Liabilities and
will not relieve Buyer from liability and responsibility for unpaid
Assumed Liabilities. Within forty-five (45) days after the Closing Date,
Buyer and Rex Energy and PennTex Illinois shall provide the other Sellers
with all information in their possession relating to items to be dealt
with in the post-closing accounting, and the Sellers other than Rex Energy
and PennTex Illinois shall provide to Buyer all information in their
possession relating to items to be dealt with in the
13
post-closing accounting; and the post-closing accounting shall be effected
at 9:00 am in the offices of Sellers described in Section 2(c) on the
sixtieth day following the Closing Date (or on the next succeeding
business day if such day is a Saturday, Sunday or holiday), or at such
other place, date or time as Sellers (other than Rex Energy and PennTex
Illinois) and Buyer shall agree.
(iii) The Purchase Price shall be increased for actual costs and
expenses incurred by Sellers during the period commencing on the execution
of this Agreement and ending on the Closing Date, in connection with the
drilling, re-working, completing, re-completing and equipping of wells (or
similar capital expenditures), which is required by the terms of any
existing Contracts to which any Seller is a party or proposed by a third
party in situations where a Seller has a right to participate and Sellers
believe that the participation in such project will be in the best
interests of Buyer following the applicable Closing, provided, however,
that the Purchase Price will not be increased by more than $400,000 for
adjustments pursuant to this clause (iii) unless the Sellers shall have
obtained the Buyer's prior written consent for the aggregate of such
expenses to be incurred exceeding $400,000. The amount of any increase in
the purchase price pursuant to this sub-paragraph that can be determined
as of the Closing Date shall be paid by Buyer to Sellers (in immediately
available funds as specified in Section 2(d) above) at the Closing; any
additional amount of such increase determined after the Closing Date shall
be paid by Buyer to Sellers incident to the post-closing accounting
provided for in paragraph 2(f)(ii) above.
(iv) If the cost of terminating the Hedging Arrangements held by
Sellers (other than Douglas O&G) pursuant to Section 5(g) below exceeds
$6,000,000, Buyer shall have the option to (i) increase the Purchase Price
by the amount of such excess cost above $6,000,000 or (ii) assume such
Hedging Arrangements and decrease the Purchase Price by $5,000,000. In the
event that Buyer elects to assume any Hedging Arrangements, Buyer shall
take all necessary actions required to assume such Hedging Arrangements
and shall be responsible for any security deposits, letters of credit or
other similar security arrangements which may be required to assume such
Hedging Arrangements.
(v) If the required consents of the limited partners of Midland to
sale of the interests of Midland in the Acquired Assets is not obtained by
February 15, 2006 as described in Section 3(b) below, the cash portion of
the Purchase Price described in Section 2(d) above shall be reduced by
$1,185,479.
(iv) The cash portion of the Purchase Price described in Section
2(d) above may be reduced by virtue of Reduction Amounts pursuant to and
to the extent, if any, provided for in Section 6(a)(xiii) below (if this
Agreement is not terminated pursuant to said Section 6(a)(xiii)).
(g) Employment Agreements. Concurrently with the Closing, Rex Energy will
enter into three-year employment agreements (except in the case with Lance T.
Shaner, who shall be employed as the Interim Chief Executive Officer for a term
of one-year) with each of the individuals listed on Exhibit G hereto, which
agreements shall contain provisions, terms and conditions substantially in the
form of agreement attached as Exhibit H hereto; provided, however, that the
employment agreement of Lance T. Shaner shall contain such additional
provisions, terms and conditions as are reasonably necessary to recognize and
permit his continued service as Chairman and Chief Executive Officer of Shaner
Hotel Group, L.P., Shaner SPE Associates LP, Jelms Hotel Company LP, Shaner
Select Hotels I Limited Partnership, Shaner Pittsburg Hotel LP (including all
general partners of the aforementioned limited partnerships), Shaner Energy,
Inc., Shaner Cable, Inc., Shaner Development Corp., all similar present and
future businesses and activities and all current and future family trusts and
family corporations.
14
(h) New Buyer Stock Option Plan. Following the Closing, the Buyer shall
establish a Buyer Stock Option Plan for the issuance of incentive or
non-qualified stock options to directors, officers, and employees and shall take
all necessary actions to register with the SEC the common shares underlying the
options to be granted under such plan, including, without limitation, the filing
of a registration statement under the Securities Act on Form S-8.
(i) Change in Management. Effective upon the Closing, the Buyer shall
amend its bylaws (and if deemed necessary or advisable by the Sellers in their
reasonable discretion, the Buyer's articles of incorporation) to provide that
Lance T. Shaner shall be appointed Chairman of the Board of Directors of the
Buyer and the Buyer's Board of Directors shall adopt a resolution increasing the
size of such Board of Directors to nine (9) persons. Initially, the Board of
Directors of the Buyer shall consist of (A) three (3) designees of Mr. Shaner
(such designees to be Mr. Shaner, Thomas F. Shields, and Benjamin W. Hulburt),
(B) three (3) designees of Messrs. Gaines and Damson (such designees to include
Messrs. Gaines and Damson) and (C) three (3) individuals mutually chosen by
Messrs. Shaner, Hulburt, Shields, Damson, Gaines and the third Damson/Gaines
designee. As a condition to such three (3) individuals being chosen, each of
them must qualify as an "independent director" in accordance with the standards
set forth in Rule 10A-3 promulgated by the SEC under the Exchange Act. In
addition, Buyer will use its best efforts to designate individuals meeting the
independence requirements of the listing standards of the American Stock
Exchange, or such other national securities exchange or quotation system upon
which it is anticipated the Buyer's Common Shares will be listed or quoted. No
later than thirty (30) days prior to the Closing Date, the Buyer and Sellers
shall each provide the other with written notice of their respective proposed
nominees to the Board of Directors.
(j) Renamed Entities. As soon as practicable after the date of this
Agreement, the Buyer shall be renamed Baseline Oil & Gas Corp. As soon as
practicable following the Closing, the Buyer shall be renamed Rex Energy
Corporation.
(l) Relocation of Headquarters. As soon as practicable following the
Closing, the Buyer will (i) relocate its headquarters to State College,
Pennsylvania and (ii) amend its Bylaws to provide that the headquarters of Buyer
will remain in State College, Pennsylvania for a minimum of five (5) years,
unless decided otherwise by an affirmative vote of not less than seventy-five
percent (75%) of the members of the entire Board of Directors of Buyer at the
time of such vote.
3. Representations and Warranties of the Sellers. It is understood and
agreed that neither Shaner nor Hulburt shall be considered to be a "Seller" for
the purposes of Sections 3(a) through 3(t) of this Section 3 and neither of them
join in or shall have any liability or responsibility for or in connection with
the representations and warranties made by the other Sellers that are contained
in Sections 3(a) through 3(t) of this Section 3. The only representations that
Shaner or Hulburt are making with respect to the subject matter of this
Agreement are contained in Section 3(v) below.
Subject in all respects to the foregoing, the respective Sellers, each
severally and with respect only to itself or its interests in the Acquired
Assets as more fully provided in Section 9(a), represent and warrant to the
Buyer that the statements contained in this Section 3 are correct and complete
as of the date of this Agreement and will be correct and complete as of each
Closing Date (as though made then and as though such Closing Date were
substituted for the date of this Agreement throughout this Section 3), except as
set forth in the Sellers' disclosure schedule accompanying this Agreement and
initialed by the Parties (the "Sellers' Disclosure Schedule"). The Sellers'
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 3.
15
(a) Organization of the Sellers. Each Seller is a corporation, limited
partnership or limited liability company, as the case may be, duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
organization. Each Seller is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership of its properties
(including the Acquired Assets to be sold by it) and the operation of its
business make such qualification necessary.
(b) Authorization of Transactions. The Sellers have full power and
authority (including full entity power and authority) to execute and deliver
this Agreement and to perform their obligations hereunder. Without limiting the
generality of the foregoing, the board of directors, general partners,
shareholders or managers of the Sellers, as the case may be, have duly
authorized the execution, delivery, and performance of this Agreement by the
Sellers. This Agreement constitutes a valid and binding agreement of each of the
Sellers enforceable against the Sellers (wherever applicable) in accordance with
its terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power of a court to
deny enforcement of remedies generally based upon public policy. Notwithstanding
the foregoing provisions of this Section 3(b), Sellers have informed Buyer that
consent of the limited partners of Midland is required to authorize or permit
sale of the Acquired Assets owned by Midland. Sellers will seek in good faith to
obtain such consents, but if the required consents of the limited partners of
Midland have not been obtained by the February 15, 2006, the interests owed by
Midland in the Acquired Assets shall be excluded from the Acquired Assets and
included in the Excluded Assets, this Agreement shall be construed and applied
as if Midland had never been a Party hereto, and the cash portion of the
Purchase Price shall be reduced by $1,185,479 as provided for in paragraph
2(f)(iv) above.
(c) No Conflict or Violation; Oil and Gas Assets Conveyed. Except as
provided with respect to Midland in Section 3(b) above and except for any
exceptions set forth in Section 3(d) (or referenced in Schedule 3(c) of the
Sellers' Disclosure Schedule), neither the execution and delivery of this
Agreement nor the consummation of the transactions and performance of the terms
and conditions contemplated hereby by any Seller will (i) conflict with or
result in a violation or breach of or default under any provision of the
certificate of incorporation, by-laws, limited partnership agreement, members'
agreement, limited liability company agreement or other similar governing
documents of any Seller, as the case may be, (ii) conflict with or result in a
violation or breach of or default under any agreement, indenture or other
instrument under which such Seller is bound and to which any Acquired Asset is
subject, other than such conflicts, breaches, violations or defaults that would
not have a material adverse effect on the financial condition or operations of
the Sellers taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement, or (iii) violate or conflict with
any law, rule or regulation applicable to any Seller except where such violation
or conflict would not have a material adverse effect on the financial condition
of the Sellers taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. To the Knowledge of the
Sellers, the Oil and Gas Assets listed in Exhibits C and D, respectively,
comprise all of the oil and natural gas interests owned by the Sellers.
(d) Consents. Except for (i) consents or approvals of or filings with the
United States Department of Interior, the Minerals Management Service or other
applicable Governmental Authorities in connection with assignments of the
Hydrocarbon Assets as contemplated by Section 2 above, (ii) Preference Rights
and Transfer Requirements, (iii) consents, approvals, authorizations, permits,
filings or notices, the failure of which to obtain or with which to comply will
not have a material adverse effect on the financial condition of the Sellers
taken as a whole or on the ability of the Parties to consummate the transactions
contemplated by this Agreement, (iv) consents of the limited partners of Midland
as described in Section 3(b), and (v) consents, approvals, authorizations,
permits, filings or notices referenced in Schedule 3(d) of the Sellers'
Disclosure Schedule, no consent, approval, authorization or permit of, or filing
with or notification to, any Person is required for or in connection with the
execution and delivery of this Agreement by the Sellers or for or in connection
with the consummation of the transactions and the performance of the terms and
conditions contemplated hereunder by the Sellers.
16
(e) Brokers' Fees. The Sellers have no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(f) Title. Without limiting the Buyer's right to terminate this Agreement
pursuant to Section 6(a)(xii) below, and subject to the special warranty set
forth below, the Sellers make no warranty or representation, express, implied,
statutory or otherwise, with respect to Sellers' title to any of the Acquired
Assets, and Buyer hereby acknowledges and agrees that Buyer's sole remedy for
any defect in title with respect to any of the Acquired Assets shall be to
terminate this Agreement (at Buyer's election) prior to the Closing pursuant to
Section 6(a)(xii) below, which remedy shall cease and shall no longer be
available unless exercised by Buyer in accordance with said Section 6(a)(xii);
and Buyer shall be conclusively deemed to have waived any such defect in title
(whether known or unknown to Buyer) upon the Closing. Except as provided below,
Sellers hereby warrant and represent to Buyer that Sellers' title to the
Acquired Assets is, as of the date of this Agreement, and will be as of each
Closing Date, "Defensible Title". For purposes of this Agreement, a warranty of
"Defensible Title" shall mean a warranty of title to the properties conveyed
against every person whomsoever lawfully claiming or to claim the same or any
part thereof by, through or under any Seller, but not otherwise, subject,
however, to the Permitted Encumbrances; provided, however, that except with
respect to any liability of Sellers for any claim asserted in writing by Buyer
to Seller within two (2) years after the Closing Date for breach of such special
warranty of Defensible Title, such special warranty of Defensible Title shall
cease and terminate at the end of such two (2) year period. EXCEPT AS PROVIDED
ABOVE, THE SELLERS MAKE NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, WITH RESPECT OR IN ANY MANNER RELATING TO SELLERS' TITLE
TO ANY OF THE ACQUIRED ASSETS. ALL PERSONAL PROPERTY, MACHINERY, FIXTURES,
EQUIPMENT AND MATERIALS CONVEYED HEREBY ARE SOLD AND ASSIGNED AND ACCEPTED BY
BUYER, IN THEIR "WHERE IS, AS IS" CONDITION WITHOUT ANY WARRANTIES, EXPRESS OR
IMPLIED OR STATUTORY, OF MARKETABILITY, QUALITY, CONDITION, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR USE AND/OR OTHERWISE, ALL OF WHICH ARE
EXPRESSLY DISCLAIMED.
(g) Subsidiaries. There are no Subsidiaries of any of the Sellers, except
that Rex Wabash owns a 50% limited liability company members' interest in New
Albany. Douglas Westmoreland may be deemed a Subsidiary of Douglas O&G, but
Douglas Westmoreland is not to be considered a "Subsidiary" for the purposes of
this Agreement.
(h) Hart-Scott-Rodino Act Filings. To the Sellers' Knowledge, the
transactions contemplated by this Agreement and the Stock Agreement do not
require any filing under or submission under the Hart-Scott-Rodino Act nor under
any other applicable antitrust or competition law or regulation of any
Governmental Authority having jurisdiction with respect to the transactions
contemplated hereunder and under the Stock Agreement.
(i) Tax Matters.
(i) Each of the Sellers has filed all Income Tax Returns that it was
required to file, and each has paid all Income Taxes shown thereon as
owing, except where the failure to file Income Tax Returns or to pay
Income Taxes would not have a material adverse effect on the financial
condition of the Sellers taken as a whole.
17
(ii) Schedule 3(i) of the Sellers' Disclosure Schedule lists all
Income Tax Returns filed with respect to the Sellers for taxable periods
ended on December 31, 2004. The Sellers will make available to the Buyer
for inspection and copying correct and complete copies of all federal
Income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by any of the Sellers since December 31,
2003.
(iii) None of the Sellers have waived any statute of limitations in
respect of Income Taxes or agreed to any extension of time with respect to
an Income Tax assessment or deficiency.
(iv) None of the Sellers are a party to any Income Tax allocation or
sharing agreement.
(v) To the Knowledge of any of the Sellers, none of the Sellers has
been a member of an Affiliated Group filing a consolidated federal Income
Tax Return.
(vi) Each of PennTex Illinois and Rex Energy have maintained their
status as a "small business corporation" within the meaning of Section
1361(b) of the Internal Revenue Code at all times since their election
effective on March 12, 2004 and January 1, 2005, respectively, they will
be an "S corporation" up to and including the day before the Closing Date,
and the validity of their election of "S corporation" status has not been
challenged by the Internal Revenue Service nor is there any basis for such
challenge.
(j) Intellectual Property. Schedule 3(j) of the Sellers' Disclosure
Schedule identifies the sole registered trade name of the Sellers. There are no
other patents, copyrights, trademarks, service marks or trade names of the
Sellers except any logos, service marks, copyrights, trade names or trademarks
of or associated with Douglas O&G, Douglas Westmoreland,, PennTex Resources and
PennTex Illinois, which intellectual property rights are included in the
Acquired Assets. There are no licenses, agreements or other permission which any
of the Sellers have granted to any third party with respect to any of their
intellectual property.
(k) Contracts. To the Knowledge of each Seller, Schedule 3(k) of the
Sellers' Disclosure Schedule lists all oral and written contracts and other oral
and written agreements to which any of the Sellers is a party, the performance
of which will involve consideration in excess of $25,000, but does not include
any of the Contracts referred to above in the definition of "Oil and Gas
Assets." The Sellers will make available to the Buyer for review and copying a
correct and complete copy of each such contract or other agreement (as they may
have been amended to date) listed in Schedule 3(l) of the Sellers' Disclosure
Schedule.
(l) Powers of Attorney. To the Knowledge of any of the Sellers, there are
no outstanding powers of attorney executed on behalf of any of the Sellers.
(m) Litigation. Except as set forth on Schedule 3(m) of the Sellers'
Disclosure Schedule, there is no litigation, suit, claim, action, proceeding or
investigation pending or, to the Knowledge of the Sellers, threatened against
any Seller, or any of the Acquired Assets, before any Governmental Authority
that (a) has had, or would reasonably be expected to have, a material adverse
effect on the financial condition of the Sellers taken as a whole or on the
ability of the Parties to consummate the transactions contemplated by this
18
Agreement or (b) as of the date hereof seeks to materially delay or prevent the
consummation of the transactions contemplated hereunder. Neither the Sellers nor
any property or asset of the Sellers is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the Knowledge of the Sellers, continuing investigation by, any
Governmental Authority, or any order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority, that would reasonably be
expected, individually or in the aggregate, to prevent or materially delay
consummation of the transactions contemplated hereunder or otherwise prevent or
materially delay the Sellers from performing their obligations under this
Agreement or would reasonably be expected to have a material adverse effect on
the financial condition of the Sellers taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
(n) Employee Benefits.
(i) Schedule 3(n) of the Sellers' Disclosure Schedule lists each
Employee Benefit Plan that any of the Sellers maintains or to which any of
the Sellers contributes.
(A) To the Knowledge of the Sellers, each such Employee
Benefit Plan (and each related trust, insurance contract, or fund)
has been maintained, funded and administered in accordance with the
terms of such Employee Benefit Plan and complies in form and in
operation in all respects with the applicable requirements of ERISA
and the Code, except where the failure to comply would not have a
material adverse effect on the financial condition of the Sellers
taken as a whole.
(B) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been
made to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan. All premiums or other payments which are due have been
paid with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) Each such Employee Benefit Plan which is intended to meet
the requirements of a "qualified plan" under Code ss.401(a) has
received a determination letter from the Internal Revenue Service to
the effect that it meets the requirements of Code ss.401(a).
(D) As of the last day of the most recent prior plan year, the
market value of assets under each such Employee Benefit Plan which
is an Employee Pension Benefit Plan equaled or exceeded the present
value of liabilities thereunder (determined in accordance with then
current funding assumptions).
(ii) With respect to each Employee Benefit Plan that any of the
Sellers or any ERISA Affiliate maintains or has maintained during the
prior six (6) years or to which any of them contributes, or has been
required to contribute during the prior six (6) years:
(A) No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims for
benefits) is pending, except where the action, suit, proceeding,
hearing, or investigation would not have a material adverse effect
on the financial condition of the Sellers taken as a whole.
(B) None of the Sellers has incurred any liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal liability) with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
19
(o) Environmental, Health, and Safety Matters.
(i) To the Knowledge of the Sellers, the Sellers are in compliance
in all material respects with applicable Environmental, Health and Safety
Requirements, except for such non-compliance as would not have a material
adverse effect on the financial condition of the Sellers taken as a whole.
(ii) Except as described on Schedule 3(o) of the Sellers' Disclosure
Schedules, to the Knowledge of the Sellers, the Sellers have not received
any written notice, report or other information regarding any actual or
alleged material violation of Environmental, Health and Safety
Requirements, or any material liabilities or potential material
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective
obligations, relating to the Sellers or their properties or facilities
arising under Environmental, Health and Safety Requirements, the subject
of which would have a material adverse effect on the financial condition
of the Sellers taken as a whole.
(iii) This Section 3(p) contains the sole and exclusive
representations and warranties of the Sellers with respect to any
environmental, health or safety matters concerning the Sellers and the
Acquired Assets, including without limitation any arising under any
Environmental, Health and Safety Requirements.
(p) Financial Statements. Correct and complete copies of the audited
Balance Sheets and Income Statements of each of the Sellers other than PennTex
Illinois as of, and for the fiscal year ended, December 31, 2004 (collectively,
the "Audited Financials"), and an unaudited balance sheet and income statement
of each of the Sellers as of, and for the quarter ended, September 30, 2005 (the
"Stub Financials" and collectively with the Audited Financials, the "Financial
Statements") have been made available to the Buyer. Prior to the Closing Date,
correct and complete copies of audited Balance Sheets and Income Statements of
each of the Sellers as of, and for the fiscal year ended December 31, 2005 (also
herein called ""Audited Financials" and "Financial Statements"), will be made
available to the Buyer The Financial Statements: (i) are or will be consistent
in all material respects with the books and records of the Sellers; (ii) have
been or will be prepared in accordance with GAAP consistently applied (except
that the Stub Financials may not contain footnotes that audited financial
statements would be required to include under GAAP); (iii) reflect and provide
adequate reserves and disclosures in respect of all liabilities of the Sellers,
including all contingent liabilities, as of the respective dates of the
Financial Statements, and (iv) present fairly or will present fairly in all
material respects the financial position of the Sellers at such dates and the
results of operations and cash flows of the Sellers for the periods then ended,
except that the Stub Financials do not reflect the impact of normal recurring
year-end adjustments, which adjustments would not have a material impact on the
financial results reflected in the Stub Financials.
(q) Labor Matters.
(i) No Seller is a party to any contract or collective bargaining
agreement with any labor organization. No organizing effort or question
concerning representation question is pending respecting the employees of
the Sellers, and to the Knowledge of each Seller no such question has been
raised within the preceding three years.
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(ii) To the Knowledge of each Seller, all reasonably anticipated
material obligations of the Sellers, whether arising by operation of law,
contract, past custom or otherwise, for unemployment compensation
benefits, pension benefits, salaries, wages, bonuses and other forms of
compensation payable to the officers, directors and other employees and
independent contractors of the Sellers have been paid or reserved for.
(iii) To the Knowledge of each Seller, there is no basis for any
material claim, grievance, arbitration, negotiation, suit, action or
charge of or by the employees of the Sellers, and no such material charge
or complaint is pending against the Sellers before the National Labor
Relations Board, the Equal Employment Opportunity Commission or any other
federal, state or local agency with jurisdiction over employment matters.
(iv) To the Knowledge of each Seller, the Sellers have withheld and
paid to the appropriate governmental authorities or is withholding for
payment not yet due to such authorities all amounts required to be
withheld from the employees of the Sellers. To the Knowledge of each
Seller, the Sellers are not liable for any arrears of such amounts or
penalties thereon for failure to comply with any of the foregoing. To the
Knowledge of each Seller, Sellers are in compliance in all material
respects with all applicable laws, rules and regulations relating to the
employment of labor, including those relating to wages, hours, collective
bargaining and the payment and withholding of taxes and other amounts as
required by appropriate Governmental Authorities.
(r) Leases. Except as set forth on Schedule 3(t) of Sellers' Disclosure
Schedules, to the Knowledge of each Seller, each Lease is in full force and
effect and not subject to any preferential right to purchase, third party
consent to assignment requirement, right of first refusal, right of first offer,
or similar right of restriction. To the Knowledge of each Seller, no Seller is
in material breach or material default, and there has occurred no event, fact or
circumstance that, with the lapse of time or the giving of notice, or both,
would constitute such a material breach or material default by Sellers, with
respect to any terms of any Lease. No lessor under any Lease has given any
Seller, or to Sellers' Knowledge, threatened to give, notice of any action to
terminate, cancel, rescind, repudiate or procure a judicial reformation of any
Lease or any provision thereof. To the Knowledge of each Seller, Sellers have
correctly made all payments, including, without limitation, royalties, rentals,
shut-in well payments, and other lease maintenance payments, due in respect of
the Leases thereunder.
(s) Contracts. Sellers will make available to Buyer for inspection true
and correct copies of all of the Contracts described on Schedule 3(k), and to
the Knowledge of each Seller there are no other material contracts, agreements,
instruments or documents affecting the Acquired Assets other than the Contracts
described on Schedule 3(k). With respect to the Contracts: (i) to the Knowledge
of each Seller, all Contracts are in full force and effect; (ii) to the
Knowledge of each Seller, no Seller is in material breach or material default,
and there has occurred no event, fact, or circumstance that, with the lapse of
time or the giving of notice, or both, would constitute such a material breach
or material default by any Sellers, with respect to the terms of any Contract;
(iii) to Sellers' Knowledge, no other party is in material breach or material
default with respect to the terms of any Contract; and (iv) no Seller, nor, to
Sellers' Knowledge, any other party to any Contract has given or threatened to
give notice of any action to terminate, cancel, rescind, or procure a judicial
reformation of any Contract or any provisions thereof except as set forth on
Schedule 3(s) of Sellers' Disclosure Schedules.
(t) Permits. To the Knowledge of each Seller, Seller has complied in all
material respects with all laws and Permits relating to the Acquired Assets for
which a Seller serves as the operator, including, without limitation,
environmental laws and laws requiring the provision of surety bonds or other
forms of security or financial assurance with respect to the performance of
operations (including, without limitation, plugging and abandonment operations)
on the Acquired Assets, other than those laws and Permits the failure of which
to comply would not have an adverse effect on the Acquired Assets. To the
21
Knowledge of each Seller, Sellers have all Permits required in connection with
the ownership and operation of the Acquired Assets for which a Seller serves as
the operator (including those required under environmental laws), and have
properly made all filings necessary or appropriate to obtain such Permits, other
than those Permits the failure of which to obtain would not have an adverse
effect on the Acquired Assets. To the Knowledge of each Seller, all such Permits
and filings are in full force and effect. Sellers have not received notice from
any Governmental Authority that any such applicable law, Permit, or filing has
been violated or not complied with by Sellers with respect to the Acquired
Assets.
(u) Disclaimer of other Representations and Warranties. Except as
expressly set forth in this Section 3, the Sellers make no representation or
warranty, express or implied, at law or in equity, in respect of any of its
assets (including, without limitation, the Acquired Assets), liabilities or
operations, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and any such other representations or
warranties are hereby expressly disclaimed. Buyer hereby acknowledges and agrees
that, except to the extent specifically set forth in this Section 3, the Buyer
is purchasing the Acquired Assets on an "as-is, where-is" basis. Without
limiting the generality of the foregoing, the Sellers make no representation or
warranty regarding any assets other than the Acquired Assets, and solely as set
forth herein, or any liabilities other than the Assumed Liabilities, and none
shall be implied at law or in equity.
(v) Representations of Shaner and Hulburt. The representations and
warranties by Shaner and Hulburt contained in this Section 3(v) are "several"
obligations, i.e., the particular maker of such representation is solely
responsible to the extent of any breach or violation thereof. Shaner and Hulburt
hold of record and own beneficially the number of shares of capital stock of Rex
Energy and PennTex Illinois set forth opposite his name in Schedule 3(v) of the
Sellers' Disclosure Schedule, free and clear of any restrictions on transfer
(other than restrictions under this Agreement, the Securities Act and state
securities laws), liens, encumbrances, options, purchase rights, contracts,
claims and demands. Shaner and Hulburt are not a party to any option, warrant,
purchase right, or other contract or commitment that could require such
individual to sell, transfer, or otherwise dispose of any capital stock of Rex
Energy or PennTex Illinois (other than this Agreement). Neither Shaner nor
Hulburt are party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of Rex Energy or
PennTex Illinois.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Sellers that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date was substituted for the date of this Agreement throughout this Section 4),
except as set forth in the Buyer's disclosure schedule accompanying this
Agreement and initialed by the Parties (the "Buyer's Disclosure Schedule"). The
Buyer's Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
(a) Organization of the Buyer. The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada and
has the requisite corporate power and authority to carry on its business as it
is now being conducted. The Buyer is duly qualified to do business and is in
good standing in each jurisdiction in which the ownership of its properties
(including the Acquired Assets to be acquired by it) and the operation of its
business makes such qualification necessary.
22
(b) Authorization of Transactions. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the Board of Directors of the Buyer have duly
authorized the execution, delivery, and performance of this Agreement by the
Buyer, and no authorizations or approvals from the shareholders of the Buyer
with respect to the transaction contemplated under this Agreement are required
by law, the Buyer's articles of incorporation or bylaws or any agreement to
which the Buyer is a party. This Agreement constitutes a valid and binding
agreement of the Buyer enforceable against the Buyer in accordance with its
terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power of a court to
deny enforcement of remedies generally based upon public policy.
(c) No Conflict or Violation. Except for any exceptions set forth in
Section 4(d) (or referenced in Schedule 4(c) of the Buyer's Disclosure
Schedule), neither the execution and delivery of this Agreement nor the
consummation of the transactions and performance of the terms and conditions
contemplated hereby by the Buyer will (i) conflict with or result in a violation
or breach of or default under any provision of its articles of incorporation or
by-laws, (ii) conflict with or result in a violation or breach of or default
under any agreement, indenture or other instrument under which the Buyer is
bound or any of its properties is subject, other than such conflicts, breaches,
violations or defaults that would not have a material adverse effect on the
financial condition of the Buyer or on the ability of the Parties to consummate
the transactions contemplated by this Agreement, or (iii) violate or conflict
with any law, rule or regulation applicable to the Buyer except where such
violation or conflict would not have a material adverse effect on the financial
condition of the Buyer or on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(d) Consents. Except for (i) consents, approvals, authorizations, permits,
filings or notices, the failure of which to obtain or with which to comply will
not have a material adverse effect on the financial condition of the Buyer or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement, and (ii) consents, approvals, authorizations, permits, filings or
notices referenced in Schedule 4(d) of the Buyer's Disclosure Schedule, no
consent, approval, authorization or permit of, or filing with or notification
to, any Person is required for or in connection with the execution and delivery
of this Agreement by the Buyer or for or in connection with the consummation of
the transactions and performance of the terms and conditions contemplated hereby
by the Buyer.
(e) Brokers' Fees. The Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any of the Sellers could
become liable or obligated.
(f) Subsidiaries. Except for New Albany, there are no Subsidiaries of the
Buyer and there has not been any Subsidiary of the Buyer (or any predecessor or
assignor of Buyer) since the date of Buyer's incorporation in February 2004.
Other than as set forth in Schedule 4(f) of the Buyer's Disclosure Schedule, the
Buyer does not directly or indirectly own (and has not, since the date of its
incorporation directly or indirectly owned) any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for any equity
or similar interest in, any corporation, partnership, limited liability company,
joint venture or other business association or entity.
(g) Capitalization.
(i) The authorized capital stock of the Buyer consists of (i)
140,000,000 shares of Buyer Common Stock, par value $.001 per share
23
("Buyer Common Stock") and (ii) 10,000,000 shares of preferred stock, par
value $.001 per share ("Buyer Preferred Stock"). As of the date of this
Agreement (but prior to issuance of Buyer Common Stock pursuant to the
Stock Agreement), (i) 20,270,000 shares of Buyer Common Stock were issued
and outstanding, all of which were validly issued, fully paid and
nonassessable, (ii) no shares of Buyer Common Stock were held in the
treasury of the Buyer, (iii) no shares of Buyer Common Stock were held by
any Subsidiaries of Buyer, (iv) 13,675,000 shares of Buyer Common Stock
were issuable pursuant to outstanding non-qualified stock options (the
"Buyer Stock Options"), (v) 7,282,500 shares of Buyer Common Stock were
issuable pursuant to the Convertible Notes, and (vi) 475,000 shares of
Buyer Common Stock were issuable pursuant to outstanding warrants. As of
the date of this Agreement, no shares of Buyer Preferred Stock are issued
and outstanding. Except as set forth in this Section 4(g) and Schedule
4(g) of the Buyer's Disclosure Schedule, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements, calls, commitments or rights of any character relating to
the issued or unissued capital stock of the Buyer or obligating the Buyer
to issue or sell any shares of capital stock of, or other equity interests
in, the Buyer or any securities or obligations convertible or exchangeable
into or exercisable for, or giving any person a right to subscribe for or
acquire, any securities of the Buyer, and no securities or obligation
evidencing such rights are authorized, issued or outstanding. Schedule
4(g) of the Buyer's Disclosure Schedule sets forth the following
information with respect to each Buyer Stock Option outstanding as of the
date of this Agreement: (i) the particular plan pursuant to which such
Buyer Stock Option was granted; (ii) the number of shares of Buyer Common
Stock subject to such Buyer Stock Option; (iii) the exercise price of such
Buyer Stock Option; (iv) the date on which such Buyer Stock Option was
granted; (v) the applicable vesting schedule; and (vi) the date on which
such Buyer Stock Option expires. The Buyer has made available to the
Sellers accurate and complete copies of the Convertible Notes and all
outstanding warrants for issuance of Buyer Common Stock and all stock
option plans pursuant to which Buyer has granted Buyer Stock Options that
are currently outstanding and the forms of all stock option agreements
evidencing such Buyer Stock Options. All shares of Buyer Common Stock
subject to issuance as aforesaid, have been duly authorized and reserved,
and upon their issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be validly issued,
fully paid and non-assessable. Except as contemplated in the Stock
Agreement, there are no outstanding contractual obligations of the Buyer
or any of its Affiliates to repurchase, redeem or otherwise acquire any
shares of Buyer Common Stock. All outstanding shares of Buyer Common
Stock, all outstanding Buyer Stock Options, all warrants for issuance of
Buyer Common Stock, and the Convertible Notes have been issued and granted
in compliance with (i) all applicable federal, state and foreign
securities laws and other applicable laws and regulations, and (ii) in the
case of the Buyer Stock Options, all requirements set forth in the
applicable stock option contracts. The Buyer does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have
the right to vote (or convertible into or exercisable for securities
having the right to vote) with its shareholders on any matter. Schedule
4(g) of the Buyer's Disclosure Schedule contains a schedule that
specifies, on a fully-diluted basis as of the Closing Date, all of the
issued and outstanding Buyer capital stock and all shares of Buyer Common
Stock and all other capital stock issued, outstanding or then-issuable
under Buyer Stock Options, the Convertible Notes, all outstanding
warrants, or any other plans or commitments that Buyer will have
outstanding as of the Closing Date, and the respective owners thereof;
provided that shares of Buyer Common Stock, warrants issued to the
placement agent of the Private Offering and/or Buyer Debt Securities
(resulting, collectively, in the issuance or provision for issuance of not
more than a total of 11,000,000 shares of Buyer Common Stock on a fully
diluted basis) may have been issued in the Private Placement as described
in Section 2(d) and except for Buyer Securities to be issued in the
Closing Placements referred to in Section 5(k) hereof, all of which Buyer
Common Stock shall have been issued and granted in compliance with all
applicable federal, state and foreign securities laws and other applicable
laws and regulations and shall be validly issued, fully paid and
non-assessable.
24
(ii) All shares of Buyer Common Stock to be issued or transferred by
the Buyer under the Stock Agreement shall be, upon their issuance or
transfer, duly authorized, validly issued, fully paid and non-assessable.
(iii) No action of the shareholders of the Buyer is required to
enter into, or consummate the transactions contemplated by this Agreement.
The issuance of the shares of Buyer Common Stock under the Stock Agreement
does not and will not require shareholder approval under the rules of any
securities exchange or securities quotation system on which the Buyer
Common Stock is then listed or quoted.
(iv) All offers and sales of Buyer Common Stock and other securities
of the Buyer (including the Convertible Notes and the Buyer Stock Options)
made by the Buyer and its Affiliates have been made in compliance with the
Securities Act, the Exchange Act, all applicable state securities or "Blue
Sky" laws, and, where applicable, the laws or regulations of foreign
jurisdictions. All offers and sales of Buyer Common Stock and other
securities of the Buyer (including Buyer Stock Options) have not been
required to have been registered or qualified under the Securities Act or
the Exchange Act, and have been registered under all applicable state
securities or "Blue Sky" laws or the laws or regulations of any foreign
jurisdictions, and each such offer and sale has qualified for a valid
exemption from registration or qualification under such laws and
regulations, including any rules, regulations or interpretations requiring
offers and sales of securities otherwise exempt from registration to be
"integrated" as one offering and thereby require registration or
qualification thereunder. The offers and sales of Buyer Common Stock
(including Buyer Stock Options) contemplated to be made by the Buyer under
this Agreement and the Stock Agreement (assuming, as to Buyer Common Stock
issued under the Stock Agreement, that the representations and warranties
of the parties other than Buyer set forth in the Stock Agreement regarding
their acquisition of Buyer Common Stock are true and correct), will comply
in all respects with the provisions of the Securities Act, the Exchange
Act, all applicable state securities or "Blue Sky" laws, and, where
applicable, the laws and regulations of all foreign jurisdictions.
(v) The Convertible Notes have been duly authorized, executed,
delivered and paid for in accordance with the terms of their issuance, are
valid and binding obligations of the Buyer, enforceable in accordance with
their terms, subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general principles of equity.
The underlying shares of Buyer Common Stock issuable upon conversion of
the Convertible Notes have been duly authorized and reserved and, when
issued upon conversion of the Convertible Notes in accordance with their
terms, will be validly issued, fully paid and non assessable, and the
issuance of such shares of Buyer Common Stock will not be subject to any
preemptive or similar rights. The offering and sale of the Convertible
Notes (i) did not require the registration or qualification thereof under
the Securities Act or any applicable state securities or "Blue Sky" laws,
nor was any indenture with respect thereto required to be qualified under
the Trust Indenture Act of 1939, as amended, and (ii) were made in
compliance with Section 4(2) of the Securities Act and in accordance with
Regulation D promulgated by the SEC thereunder.
(h) Buyer SEC Filings.
25
(i) The Buyer has filed all forms, statements, reports and documents
required to be filed or, if permissible, furnished by it with the
Securities and Exchange Commission (the "SEC") since the incorporation of
Buyer (collectively, the "Buyer SEC Reports"). The Buyer SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and (ii) did not, at the time they were filed, or,
if amended, as of the date of such amendment, 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 made therein, in the
light of the circumstances under which they were made, not misleading. As
of its filing date, each Buyer SEC Report complied as to form in all
material respects with the applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and no Subsidiary of Buyer is
required to file any form, report or other document with the SEC pursuant
to the Exchange Act.
(ii) Each of the financial statements (including, in each case, any
notes thereto) contained in the Buyer SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto or, in the case
of unaudited statements, as permitted by Form 10-QSB of the SEC) and each
fairly presents, in all material respects, the financial position, results
of operations and cash flows of the Buyer at the respective dates thereof
and for the respective periods indicated therein, except as otherwise
noted therein (subject, in the case of unaudited statements, to normal
year end adjustments of a generally recurring nature).
(iii) Except as and to the extent set forth in the Buyer SEC Reports
filed with the SEC prior to the date hereof, the Buyer has no liability or
obligation of any nature (whether accrued, absolute, contingent or
otherwise), except for (i) their performance obligations under contracts
existing on the date hereof or under applicable laws or regulations, in
each case to the extent arising after the date hereof, (ii) liabilities
and obligations incurred in the Ordinary Course of Business since
September 30, 2005 and (iii) liabilities and obligations which,
individually or in the aggregate, would not reasonably be expected to
prevent or materially delay consummation of the transactions contemplated
herein or otherwise prevent or materially delay the Buyer from performing
its obligations under this Agreement, and which in each case would not
reasonably be expected, individually or in the aggregate, to have a
material adverse effect on the financial condition of the Buyer or on the
ability of the Parties to consummate the transactions contemplated by this
Agreement.
(iv) The Buyer has timely filed all certifications and statements
required by (i) Rule 13a-14 or Rule 15d-14 under the Exchange Act or (ii)
18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
with respect to any Buyer SEC Report and has made such certifications and
statements filed prior to the date hereof available to the Sellers. The
Buyer maintains disclosure controls and procedures required by Rule 13a-15
or Rule 15d-15 under the Exchange Act; such controls and procedures are
effective to ensure that all material information concerning the Buyer and
its Subsidiaries is made known on a timely basis to the individuals
responsible for the preparation of the Buyer's SEC filings and other
public disclosure documents. Schedule 4(h) of the Buyer's Disclosure
Schedule lists, and the Buyer has made available to the Sellers, complete
and correct copies of, all written descriptions of, and all policies,
manuals and other documents promulgating such disclosure controls and
procedures. As used in this Section 4(h), the term "file" shall be broadly
construed to include any manner in which a document or information is
furnished, supplied or otherwise made available to the SEC.
26
(v) The management of the Buyer has disclosed, based on its most
recent evaluation as of the date of this Agreement, to the Buyer's outside
auditors and the audit committee of the Board of Directors of the Buyer
(i) all significant deficiencies and all material weaknesses in the design
or operation of internal control over financial reporting (as defined in
Rule 13a-15 under the Exchange Act) known to the Buyer as of the date of
such evaluation which are reasonably likely to materially and adversely
affect the Buyer's ability to record, process, summarize and report
financial data, and (ii) any fraud, whether or not material, that involved
management or other employees who have a significant role in the Buyer's
internal controls over financial reporting.
(vi) The Buyer maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (3)
access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(vii) There has not occurred any material adverse change, or any
development constituting a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Buyer taken as a whole, from that set forth in the
September 10-QSB.
(viii) Each Buyer SEC Filing complied when so filed in all material
respects with the Exchange Act, the Securities Act and the applicable
rules and regulations of the SEC thereunder.
(ix) The Buyer is not, and after giving effect to the offering and
sale of shares of Buyer Common Stock pursuant to the Stock Agreement or
incident to the private placement referred to in Section 2(d) or the
Closing Placements referred to in Section 5(k) and the application of the
proceeds thereof, will not be, required to register as an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(x) Neither the offer or sale of the shares of Buyer Common Stock
pursuant to the Stock Agreement nor the consummation of the transactions
as contemplated by this Agreement give rise to any rights for or relating
to the registration of shares of Buyer Common Stock or other securities of
the Buyer, except as may be granted incident to the Private Placement
referred to in Section 2(d) or the Closing Placements referred to in
Section 5(k) hereof.
(xi) Except with respect to the issuance on November 23, 2005 of
$2,375,000 in original principal amount of Convertible Notes due May 2007,
subsequent to September 30, 2005, (1) the Buyer and its subsidiaries have
not incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transactions not in the Ordinary
Course of Business; (2) the Buyer has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (3) there has not been
any material change in the capital stock, short-term debt or long-term
debt of the Buyer, except as described in the September 10-QSB.
(xii) The Buyer has prepared and filed with the SEC an information
statement to be sent to its shareholders relating to a meeting of the
Buyer's shareholders to be held to consider the change of the name of the
Buyer to "Baseline Oil & Gas Corp." as contemplated by Section 2 above.
The information statement was not commented on by the SEC and was mailed
to all of the Buyer's shareholders.
27
(i) Absence of Certain Changes or Events. Since September 30, 2005, and
except (i) with respect to the issuance on November 23, 2005, of $2,375,000 in
original principal amount of Convertible Notes due May 2007, and (ii) as
expressly contemplated by this Agreement, the Buyer has conducted its businesses
only in the Ordinary Course of Business and there has not been any adverse
change to the financial condition or results of operations of the Buyer or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement. In addition, since September 30, 2005, and through the date hereof,
the Buyer has not:
(i) declared, set aside, made or paid any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock,
(ii) acquired (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or
any division thereof or, outside the Ordinary Course of Business, any
significant amount of assets;
(iii) disposed of (including, without limitation, by sale of assets
or stock or any other transaction) any material portion of its business or
assets;
(iv) incurred any indebtedness for borrowed money or issued any debt
securities or assumed, guaranteed or endorsed, or otherwise become
responsible for, the material obligations of any Person, or made any
material loans or advances, or granted any material security interest in
any of its assets;
(v) paid, discharged or satisfied any material claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the Ordinary Course of Business; or
(vi) commenced or settled any litigation, suit, claim, action,
proceeding or investigation.
(j) Absence of Litigation. There is no litigation, suit, claim, action,
proceeding or investigation pending or, to the knowledge of the Buyer,
threatened against the Buyer, or any property or asset of the Buyer, before any
Governmental Authority that (a) has had, or would reasonably be expected to
have, a material adverse effect on the financial condition of the Buyer or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement or (b) as of the date hereof seeks to materially delay or prevent the
consummation of the transactions contemplated hereunder. Neither the Buyer nor
any property or asset of the Buyer is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of the Buyer, continuing investigation by, any Governmental
Authority, or any order, writ, judgment, injunction, decree, determination or
award of any Governmental Authority, that would reasonably be expected,
individually or in the aggregate, to prevent or materially delay consummation of
the transactions contemplated hereunder or otherwise prevent or materially delay
the Buyer from performing its obligations under this Agreement or would
reasonably be expected to have a material adverse effect on the financial
condition of the Buyer or on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
28
(k) Hart-Scott-Rodino Act Filings. To the Buyer's knowledge, the
transactions contemplated by this Agreement and the Stock Agreement do not
require any filing under or submission under the Hart-Scott-Rodino Act nor under
any other applicable antitrust or competition law or regulation of any
Governmental Authority having jurisdiction with respect to the transactions
contemplated hereunder and under the Stock Agreement.
(l) Solvency. The Buyer is not now insolvent, nor will the Buyer be
rendered insolvent by the consummation of the transactions contemplated by this
Agreement. In addition, immediately after giving effect to the consummation of
the transactions contemplated by this Agreement (including the Financing), (i)
the Buyer will be able to pay its debts as they become due, (ii) the property of
the Buyer does not and will not constitute unreasonably small capital, and the
Buyer will not have unreasonably small capital and will not have insufficient
capital with which to conduct its present or proposed business and (iii) taking
into account pending and threatened litigation, final judgments against the
Buyer in actions for money damages are not reasonably anticipated to be rendered
at a time when, or in amounts such that, the Buyer will be unable to satisfy any
such judgments promptly in accordance with their terms (taking into account the
maximum probable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered). The cash available
to the Buyer, after taking into account all other anticipated uses of the cash
of the Buyer, will be sufficient to pay all such judgments promptly in
accordance with their terms. As used in this Section 4(l), "insolvent" means,
for any Person, that the sum of the present fair saleable value of its assets
does not and/or will not exceed its debts and other probable liabilities, and
(y) the term "debts" includes any legal liability, whether matured or unmatured,
1iquidated or unliquidated, absolute, fixed or contingent, disputed or
undisputed or secured or unsecured.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents. Each of the Parties will give (and the Sellers
will cause their respective Subsidiaries to give) any notices to third parties,
and the Parties will use their reasonable best efforts to obtain any third party
consents that the Buyer or the Sellers, as the case may be, reasonably may
request in connection with the matters referred to in Sections 3(d) and 4(d)
above. In addition, each of the Parties will give any notices to, make any
filings with, and use its reasonable best efforts to obtain any authorizations,
consents, and approvals of Governmental Authorities in connection with the
matters referred to in Sections 3(d) and 4(d) above.
(c) Operation of Business. Neither the Buyer nor the Sellers will engage
in any practice, take any action, or enter into any transaction outside their
respective Ordinary Course of Business. Without limiting the generality of the
foregoing,
(i) Except as set forth in Schedule 5(c) of the Buyer's Disclosure
Schedule or as expressly contemplated by any other provision of this
Agreement,
(A) the Buyer shall use its best efforts to preserve
substantially intact the business organization of the Buyer,
maintain its business and properties substantially intact, including
its present operations and facilities, keep available the services
29
of the current officers, employees and consultants of the Buyer and
preserve the current relationships of the Buyer with working
interest owners, other royalty owners, operators, suppliers,
purchasers, employees and other persons with which the Buyer has
significant business relations, and
(B) the Buyer shall not, directly or indirectly, do, or
propose to do, any of the following without the prior written
consent of the Sellers:
1. amend or otherwise change its articles of
incorporation or bylaws;
2. issue, sell, pledge, dispose of, grant or encumber,
or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of, (i) any shares of any class of capital stock
of the Buyer, or any Buyer Stock Options, warrants,
convertible securities or other rights of any kind to acquire
any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom
interest), of the Buyer, or (ii) any assets of the Buyer,
except in the Ordinary Course of Business; provided that Buyer
may issue and sell (A) in the Private Placement referred to in
Section 2(d) above (x) shares of Buyer Common Stock, (y)
warrants issued to Buyer's placement agent in connection with
the Private Offering and/or (z) Buyer Debt Securities
convertible into shares of Buyer Common Stock with the total
number, if any, of shares of Buyer Common Stock plus the total
number of shares of Buyer Common Stock into which Buyer Debt
Securities or warrants issued to Buyer's placement agent may
be converted not exceeding 11,000,000 shares on a fully
diluted basis and (B) Buyer Securities in the Closing
Placements referred to in Section 5(k) hereof;
3. declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise,
with respect to any of its capital stock;
4. reclassify, combine, split, subdivide or redeem, or
purchase or otherwise acquire, directly or indirectly, any of
its capital stock;
5. (I) acquire (including, without limitation, by
merger, consolidation, or acquisition of stock or assets or
any other business combination) any corporation, partnership,
limited liability company, other business organization or any
division thereof or any significant amount of assets; (II)
incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise
become responsible for, the obligations of any person, or make
any loans or advances, or grant any security interest in any
of its assets; provided that Buyer may issue and sell (y) in
the Private Placement referred to in Section 2(d) above Buyer
Debt Securities, provided, however, if such Buyer Debt
Securities are convertible into shares of Buyer Common Stock,
the total number of shares of Buyer Common Stock plus the
total number of shares of Buyer Common Stock into which Buyer
Debt Securities or warrants issued to Buyer's placement agent
may be converted, shall not exceed 11,000,000 shares and (z)
Buyer Securities in the Closing Placements referred to in
Section 5(k) hereof; (III) enter into any contract or
agreement other
30
than in the Ordinary Course of Business; (IV) authorize, or
make any commitment with respect to, any capital expenditure
(other than capital expenditures to pay Buyer's 50% share as a
member in New Albany of costs of purchasing oil and gas
properties pursuant to the Aurora Purchase Agreement and
Exploration Costs in connection with such oil and gas
properties as referenced in Section 2(d) above); or (V) enter
into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this
Section 5(c)(i)(5);
6. increase the compensation payable or to become
payable or the benefits provided to its directors, officers or
employees, or grant any severance or termination pay to, or
enter into any employment or severance agreement with, any
director, officer or other employee of the Buyer, or
establish, adopt, enter into or amend any collective
bargaining, bonus, profit-sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee;
7. take any action, other than reasonable and usual
actions in the Ordinary Course of Business, with respect to
its accounting policies or procedures;
8. make, change or revoke any material Tax election,
settle or compromise any Tax liability or consent to any claim
or assessment relating to Taxes or any waiver of the statute
of limitations for any such claim or assessment;
9. pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than in the Ordinary Course of
Business;
10. (I) amend, modify or consent to the termination of
any material contract of Buyer, or amend, waive, modify or
consent to the termination of the Buyer's rights thereunder,
or (II) amend, modify or consent to the termination of any
promissory note, bond, mortgage, indenture, contract,
agreement (oral or written), lease, license, permit, franchise
or other instrument evidencing outstanding indebtedness for
money borrowed and capital lease obligations (or any rights of
the Buyer thereunder);
11. commence or settle any material legal proceedings;
12. fail to make in a timely manner any filings with the
SEC required under the Securities Act or the Exchange Act or
the rules and regulations promulgated thereunder; or
13. announce an intention, enter into any formal or
informal agreement or otherwise make a commitment, to do any
of the foregoing.
(ii) Except as set forth in Schedule 5(c)(ii) of the Sellers'
Disclosure Schedule or as expressly contemplated by any other provision of
this Agreement,
31
(A) the Sellers shall use their reasonable best efforts to
preserve substantially intact the business organizations of the
Sellers, maintain their businesses and properties substantially
intact, including their present operations, facilities and working
conditions, keep available the services of their current officers,
employees and consultants and preserve the Sellers' relationships
with their respective mineral interest fee holders, royalty owners,
operators, suppliers, purchasers, employees and other persons with
which the Sellers have significant business relations, and
(B) the Sellers shall not, directly or indirectly, do, or
propose to do, any of the following without the prior written
consent of the Buyer:
1. amend or otherwise change their respective articles
or certificates of incorporation, bylaws, regulations,
partnership agreements or similar organizational documents, as
the case may be;
2. issue, sell, pledge, dispose of, grant or encumber,
or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of, (i) any shares of any equity interests or
equity securities of the Sellers, or warrants, convertible
securities or other rights of any kind to acquire any shares
of such equity interests, or any other ownership interest
(including, without limitation, any phantom interest), of the
Sellers, or (ii) any assets of the Sellers, except in the
Ordinary Course of Business;
3. declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise,
with respect to any of their its capital stock;
4. reclassify, combine, split, subdivide or redeem, or
purchase or otherwise acquire, directly or indirectly, any of
their capital stock or other equity interests;
5. (I) acquire (including, without limitation, by
merger, consolidation, or acquisition of stock or assets or
any other business combination) any corporation, partnership,
limited liability company, other business organization or any
division thereof or any significant amount of assets; (II)
incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise
become responsible for, the obligations of any person, or make
any loans or advances, or grant any security interest in any
of its assets, except with respect to certain indebtedness to
be incurred in connection with a proposed commercial bank
revolving line of credit facility for PennTex Resources,
PennTex Illinois, Douglas O&G and Douglas Westmoreland, for
which Manufacturers and Traders Trust Company is to be lead
agent (the "M&T Loans"), which M&T Loans will be repaid or
otherwise retired by Sellers and all liens and security
interests on Acquired Assets securing such indebtedness shall
be released at Sellers' expense in connection with the
Closing; (III) enter into any contract or agreement other than
in the Ordinary Course of Business, provided, however, that
Rex Energy will be permitted to enter into a lease agreement
with Shaner Brothers, LLC for office space located at 1975
Waddle Road, State College, Pennsylvania (with terms providing
for annual rental payments by Rex Energy not to exceed
$180,000 without the consent of Buyer) and to terminate its
oral month-to-month lease with Shaner Brothers, LLC regarding
32
its current office space located at 1965 Waddle Road, State
College, Pennsylvania;; (IV) authorize, or make any commitment
with respect to, any capital expenditure of the Sellers
exceeding $100,000 (other than capital expenditures to pay Rex
Wabash's 50% share as a member in New Albany of costs of
purchasing oil and gas properties pursuant to the Aurora
Purchase Agreement and Exploration Costs in connection with
such oil and gas properties as referenced in Section 2(d)
above); or (V) enter into or amend any contract, agreement,
commitment or arrangement with respect to any matter set forth
in this Section 5(c)(ii)(5);
6. increase the compensation payable or to become
payable or the benefits provided to its directors, officers or
employees, or grant any severance or termination pay to, or
enter into any employment or severance agreement with, any
director, officer or other employee of the Sellers (provided
that this restriction shall not include the employment of
persons in the ordinary course of business of Sellers on an
"at will" basis), or establish, adopt, enter into or amend any
collective bargaining, bonus, profit-sharing, thrift,
compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or
employee of any of the Sellers;
7. take any action, other than reasonable and usual
actions in the Ordinary Course of Business, with respect to
their accounting policies or procedures;
8. make, change or revoke any material Tax election,
settle or compromise any Tax liability or consent to any claim
or assessment relating to Taxes or any waiver of the statute
of limitations for any such claim or assessment;
9. pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than in the Ordinary Course of
Business;
10. except in connection with the M&T Loans, (I) amend,
modify or consent to the termination of any material contract
of the Sellers, or amend, waive, modify or consent to the
termination of the Sellers' rights thereunder, or (II) amend,
modify or consent to the termination of any promissory note,
bond, mortgage, indenture, contract, agreement (oral or
written), lease, license, permit, franchise or other
instrument evidencing outstanding indebtedness for money
borrowed and capital lease obligations (or any rights of the
Sellers thereunder);
11. commence or settle any material legal proceedings
except as set forth in Schedule 5(c)(ii) of the Sellers'
Disclosure Schedule;
12. except for liens and encumbrances created in
connection with the M&T Loans, sell, pledge or encumber the
Acquired Assets; or
33
13. announce an intention, enter into any formal or
informal agreement or otherwise make a commitment, to do any
of the foregoing;
provided that Sellers shall may distribute Cash or other
Excluded Assets to the shareholders, members or partners of
Sellers at any time or times prior to or at the Closing.
(d) Full Access.
(i) Each of the Sellers will permit representatives of the Buyer to
have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Sellers, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to each of the Sellers and the
Acquired Assets. The Buyer will treat and hold as such any Confidential
Information it receives from any of the Sellers in the course of the
reviews contemplated by Section 2(f) and this Section 5(d)(i), will not
use any of the Confidential Information thereof except in connection with
this Agreement, and, if this Agreement is terminated for any reason
whatsoever, will return to the Sellers all tangible embodiments (and all
copies) of the Confidential Information which are in its possession.
(ii) The Buyer shall permit representatives of the Sellers to have
full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Buyer, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to the Buyer. The Sellers will
treat and hold as such any Confidential Information it receives from the
Buyer in the course of the reviews contemplated by this Section 5(d)(ii)
(except to the extent such Confidential Information is disclosed by the
Buyer to the public), will not use any of the Confidential Information of
the Buyer except in connection with this Agreement, and, if this Agreement
is terminated for any reason whatsoever, will return to the Buyer all
tangible embodiments (and all copies) of the Confidential Information
which are in its possession. but subject in all respects to applicable
law: (A) provide to the Sellers and the representatives of the Sellers
access (at reasonable times upon prior notice to the Buyer) to the
officers, employees, agents, offices and other facilities of the Buyer and
to the books and records thereof; and (B) furnish promptly to the Sellers'
representatives such information concerning the business, properties,
contracts, assets, liabilities, personnel and other aspects of the Buyer
as Sellers or any of their representatives may reasonably request. The
Sellers will treat and hold such information confidential) and will not
use any of such information except in connection with this Agreement, the
Stock Agreement and the transactions contemplated hereunder or thereunder.
(iii) No investigation pursuant to this Section 5(d) shall affect
any representation or warranty in this Agreement made by any Party hereto
or any condition to the obligations of the Parties hereto.
(e) Notice of Developments. Each Party will give prompt written notice to
the other Parties of any development causing a breach of any of its
representations and warranties in Section 3 or Section 4 (as the case may be) or
a violation of any of its covenants set forth in this Agreement. No disclosure
by any Party pursuant to this Section 5(e), however, shall be deemed to amend or
supplement such Party's Disclosure Schedule or to prevent or cure any
misrepresentation or breach of warranty.
(f) Exclusivity. The Sellers will not (and will not cause or permit any of
their Subsidiaries to) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of the Acquired
Assets (including any acquisition structured as a merger, consolidation, or
share exchange); provided, however, that the Sellers and their directors and
34
officers will remain free to participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing to the extent that such actions are consistent with their
fiduciary duties.
(g) Hedging Arrangements. All Hedging Arrangements of Sellers with respect
to the Acquired Assets that are existing as of the date of this Agreement, other
than the natural gas Hedging Arrangements held by Douglas O&G, and any and all
future Hedging Arrangements that Sellers may enter into prior to the Closing
with respect to the Acquired Assets, shall be terminated by the Sellers, at
Sellers' sole cost and expense, on or before the Closing Date; provided that, if
the cost to terminate such Hedging Arrangements exceeds $6,000,000, then, at
Buyer's option, either (i) the Purchase Price shall be increased by the amount,
if any, of the excess above $6,000,000 of the cost of terminating such Hedging
Arrangements or (ii) Buyer shall assume such Hedging Arrangements and the
Purchase Price shall be decreased by $5,000,000, as provided for in Section
2(f). In the event that Buyer elects to assume any Hedging Arrangements, Buyer
shall take all necessary actions required to assume such Hedging Arrangements
and shall be responsible for any security deposits, letters of credit or other
similar security arrangements which may be required to assume such Hedging
Arrangements.
(h) Buyer Form 8-K, Etc. As promptly as practicable after the Closing, but
in any event on or before the fourth (4th) day thereafter, the Buyer shall
prepare and file with the SEC, at Buyer's sole cost and expense, a Form 8-K
disclosing the information required under Item 5.06 of Form 8-K as well as such
other Items of Form 8-K (including Items 2.01, 5.01 and 9.01 thereof), as may be
applicable under the circumstances. Buyer shall provide a draft of such Form 8-K
to Sellers' Representative and its counsel at least two (2) days prior to the
expected filing of such Form 8-K with the SEC. Buyer agrees that it shall make
prior to the filing of such Form 8-K any and all modifications or revisions to
such Form 8-K reasonably requested by the Sellers' Representative and Sellers'
counsel. Such Form 8-K will comply when filed in all material respects with the
requirements of the Exchange Act and the applicable rules and regulations of the
SEC thereunder, and will not, at the time it is filed, 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 made therein, in the
light of the circumstances under which they were made, not misleading. Each
Party shall furnish to the other Party all information concerning it and its
business as the other Party may reasonably request in connection with such
actions and the preparation of such Buyer Form 8-K.
(i) Buyer Board of Directors Composition. Prior to the Closing, Buyer
shall have adopted all resolutions in order to amend its bylaws, and if
reasonably deemed necessary or advisable by the Sellers, to amend its articles
of incorporation, and shall have taken all other corporate or shareholder
actions necessary or advisable to adopt and effect the amendments contemplated
in Section 2(j) hereof and to make all such amendments and resolutions binding
and effective contemporaneously with the Closing.
(j) Employee Benefits Matters. The Buyer will adopt and assume at and as
of the Closing each of the Employee Benefit Plans that the Sellers maintain and
each trust, insurance contract, annuity contract, or other funding arrangement
that the Sellers have established with respect thereto. The Buyer will ensure
that the Employee Benefit Plans treat employment with any of the Sellers prior
to the Closing Date the same as employment with the Buyer from and after the
Closing Date for purposes of eligibility, vesting, and benefit accrual. The
Sellers will transfer (or cause the plan administrators to transfer) at and as
of the Closing all of the corresponding assets associated with the Employee
Benefit Plans maintained by the Sellers that the Buyer is adopting and assuming.
(k) Financing.
35
(i) The Buyer shall use its best efforts to complete a private
placement or private placements (the "Closing Placements," whether one or
more) of securities of Buyer (which may include Buyer Common Stock,
preferred stock and secured, convertible and subordinated debt securities
in such proportions and with such anticipated debt covenants as Sellers
shall approve, with such approval not to be unreasonably withheld) ("Buyer
Securities") that will provide to the Buyer available funds immediately
prior to the Closing Date in an amount (up to a maximum amount of
$87,000,000 but not less than $77,000,000, herein called the "Financing
Amount") that is sufficient to (A) consummate all of the transactions to
be completed by the Buyer contemplated by this Agreement and (B) for its
working capital purposes. Purchasers of Buyer Securities in the Closing
Placements may, in Buyer's discretion be granted customary registration
rights with respect to Buyer Securities under the Securities Act and
applicable state securities or "Blue Sky" laws. The Closing Placements and
offer and sale of Buyer Securities shall be conducted and made in
compliance with the Securities Act, the Exchange Act, and all applicable
state securities or "Blue Sky" laws, and all applicable federal and state
regulations, and, if applicable, the laws or regulations of any foreign
jurisdiction; and each such offer and sale shall qualify for a valid
exemption from registration or qualification under such laws and
regulations, including any rules, regulations or interpretations requiring
offers and sales of securities otherwise exempt from registration to be
"integrated" as one offering and thereby require registration or
qualification thereunder. All disclosure statements and other offering
materials provided to prospective purchasers of Buyer Securities in the
Closing Placements shall be provided to Sellers or Sellers' Representative
at such time reasonably prior to use or dissemination thereof in order to
permit review of such documents by Sellers and their representatives.
Likewise, the qualification of each prospective purchaser as an accredited
investor to whom Buyer Securities may be sold in the Closing Placements
shall be subject to Sellers' prior approval (such approval not to be
unreasonably withheld). Incident to the Closing Placements, Sellers (other
than PennTex Illinois or Rex Energy) or their designees shall purchase or
cause to be purchased and Buyer shall sell and issue to Sellers or their
designees ten percent (10%) of the Buyer Securities sold in the Closing
Placements (inclusive of the Buyer Securities purchased by Sellers and
including 10% of each different type or class of Buyer Securities included
in and sold pursuant to the Closing Placements, if applicable) as provided
for in the Stock Agreement. In the event that Sellers' withhold their
consent to the structure of the Closing Placements or other matters
described in this Section 5(k)(i), Sellers' shall promptly provide written
notice to Buyer of Sellers' refusal to consent (a "Sellers' Objection
Notice"). Any Sellers' Objection Notice shall describe the matter or
matters objected to by Sellers and shall describe in reasonable detail
Sellers' basis for such objection. Upon receipt by the Buyer of a Sellers'
Objection Notice, the Parties shall negotiate in good faith and endeavor
to agree upon the terms and conditions or matters in dispute. If the
parties do not reach an agreement within five (5) days of Sellers'
Objection Notice, the dispute shall be resolved by final, binding
arbitration as hereinafter provided. Within three (3) days after
expiration of such five (5) days period, each of Sellers and Buyers shall
appoint an arbitrator, who shall be (i) in the case of a dispute regarding
debt covenants, a banker experienced in oil and gas lending and (ii) in
the case of any other dispute, an investment banker experienced in oil and
gas investment banking, and shall give notice of such appointment to the
Buyer or Sellers, as applicable. Within three (3) days after the two (2)
arbitrators have been appointed, the two (2) arbitrators shall select a
third arbitrator who shall likewise be (i) in the case of a dispute
regarding debt covenants, a banker experienced in oil and gas lending and
36
(ii) in the case of any other dispute, an investment banker experienced in
oil and gas investment banking. The Parties shall make available to the
arbitrators all relevant information relating to the dispute in question
possessed by each such Party, and the Sellers and Buyer may make written
presentations or, if the arbitrators so direct, oral arguments before the
arbitrators. The decision of at least two (2) of the three (3) arbitrators
as to reasonableness of Sellers' refusal to consent to the matters
described in the Sellers' Objection Notice shall be rendered as soon as
possible, but in no event later than two (2) days following the final
meeting of the board of arbitrators, and shall be final and binding on the
Parties. If more than one dispute arises under this Section 5(k)(i), and
such disputes are not resolved by agreement within the applicable five (5)
day period as provided above, the resolution of all such disputes, if
reasonably possible, shall be submitted to and resolved by a single board
of arbitrators appointed as above provided following giving of the first
Sellers' Objection Notice that is not resolved by agreement.
(ii) Sellers agree to reasonably cooperate with Buyer in connection
with the Closing Placements and Buyer's required filings with the SEC as
they pertain to the transactions contemplated herein. Such reasonable
cooperation shall include, but not be limited to, the preparation and
timely delivery of offering materials and requisite financial statements,
attendance at meetings, presentations to prospective investors and/or
lenders and other assistance as the Buyer may reasonably request prior to
the Closing.
(l) Certain Governmental Consents. The Sellers and the Buyer will use
their reasonable best efforts after the applicable Closing Date to obtain all
approvals and consents from, and make all filings with, the United States
Department of Interior, Minerals Management Service and other applicable
Governmental Authorities that may be required under the terms of (or regulations
specifically applicable to) any leases in connection with the assignment of the
Acquired Assets therein from the Sellers to the Buyer. Until such approvals and
consents are obtained, the respective Sellers shall continue to hold legal title
to such Acquired Assets as nominee for the Buyer. No Seller shall be obligated
to incur any expenses in such Seller's capacity as nominee. The Sellers and the
Buyer shall treat and deal with such Acquired Assets as if full legal and
equitable title to such Acquired Assets had passed from the Sellers to the Buyer
at such Closing.
(m) Further Assurances. The Sellers and the Buyer each agree that, from
time to time, whether before, at or after any Closing Date, each of them will
execute and deliver or cause their respective Affiliates to execute and deliver
such further instruments of conveyance and transfer and take such other action
as may be necessary to carry out the purposes and intents of this Agreement.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Sellers shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Sellers shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section
6(a)(i)-(iii) is satisfied in all respects;
37
(v) the Buyer shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred
to in Sections 3(d) and 4(d) above;
(vi) the Buyer shall have obtained the Financing Amount incident to
closing of the Closing Placements referred to in Section 5(k) above;
(vii) the property inspections and due diligence conducted by Buyer
with respect to the NS Reports shall have met the conditions set forth in
Section 2(f)(i);
(viii) Sellers shall have purchased and paid for in immediately
available funds ten percent (10%) of the Buyer Securities incident to the
Closing Placements referred to in Section 5(k), as provided for in the
Stock Agreement;
(ix) Sellers (except for PennTex Illinois) shall have delivered
complete copies of their Balance Sheets and Income Statements as of, and
for the fiscal years ended, December 31, 2004 and December 31, 2005,
audited by an SEC qualified independent accounting firm and unaudited
balance sheets and income statements as of, and for the quarter ended,
March 31, 2006;
(x) PennTex Illinois shall have delivered complete copies of its
Balance Sheet and Income Statement as of, and for the fiscal year ended,
December 31, 2005 audited by an SEC qualified independent accounting firm
and an unaudited balance sheet and income statement as of, and for the
quarter ended, March 31, 2006;
(xi) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer; and
(xii) In Exhibit D describing the Wells included in the Acquired
Assets, Sellers have included a statement as to Sellers' Net Revenue
Interest as to each Well (i.e., the percentage of total (8/8ths) oil and
gas to be produced from the Well which Sellers are believed to be entitled
to receive and retain after payment or deduction of all outstanding
royalties, overriding royalties, net profits interests and other burdens
or interests owned by parties other than Sellers). Sellers have endeavored
to provide this information as to Sellers' Net Revenue Interests based on
Sellers' records, but it is expressly stipulated and agreed that Sellers
do not and will not represent or warrant that Sellers do, in fact, own or
are entitled to receive or retain the Net Revenue Interest shown in
Exhibit D of oil or gas produced or to be produced from any Well or Wells
or that back-ins, reversionary interests or other deferred interests do
not exist that may reduce Sellers' Net Revenue Interest in oil or gas
produced from any Well or Wells at some time in the future below the Net
Revenue Interest stated in Exhibit D. To the contrary, it is expressly
stipulated and agreed that Sellers shall have no liability for any error,
misstatement, overstatement or erroneous statement of Sellers' Net Revenue
Interest with respect to any Well shown in Exhibit D, and that Buyer's
sole remedy for any overstatement of Sellers' Net Revenue Interest with
respect to any Well shown in Exhibit D shall be to require such reduction,
if any, in the Purchase Price as is provided for hereinafter in this
paragraph. From the date of this Agreement to April 1, 2006, Sellers shall
make available to Buyer and its attorneys and representatives in Sellers'
offices for review and inspection and copying all title information and
material possessed by Sellers with respect to the Acquired Assets,
including, without limitation, title opinions, division orders, Lease,
Well and Unit files, payment and accounting records and other files or
records that may reasonably assist Buyer in determining whether any title
defects or deficiencies exist with respect to any Acquired Assets. If
Buyer determines that title defects or deficiencies or outstanding
interests of third parties exist with respect to any Well that will reduce
the Net Revenue Interest as to such Well as to which Sellers hold
"Commercially Defensible Title" (as herein defined) below the Net Revenue
38
Interest shown in Exhibit D, Buyer may give written notice (a "Title
Defect Notice") to Sellers at any time on or prior to April 1, 2006,
describing such title defect or deficiency or outstanding interest
(collectively, a "Title Deficiency") and specifying the extent, if any, of
the Net Revenue Interest as to such Well (the "Reduced Net Revenue
Interest") to which Buyer has determined Sellers do hold Commercially
Defensible Title, As used herein, "Commercially Defensible Title" to a Net
Revenue Interest as to a Well means a claim of title that in reasonable
probability could be sustained by Sellers in litigation in a court of
competent jurisdiction against adverse claimants asserting claims of title
to oil or gas produced or to be produced from such Well based on the Title
Deficiency described in a Title Defect Notice given with respect to such
Well, based on evidence of Sellers' record title, Sellers' claims of title
by adverse possession or prescription, or other claims of title by Sellers
under applicable principles of law or equity. If Buyer timely gives a
Title Defect Notice with respect to a Well, Sellers may dispute such Title
Defect Notice by giving a notice (a "Dispute Notice") to Buyer within ten
(10) days after receipt of the Title Defect Notice. Failure to give a
Dispute Notice within such ten (10) days period shall constitute agreement
by Sellers that Sellers have Commercially Defensible Title to a Net
Revenue Interest as to such Well equal only to the Reduced Net Revenue
Interest (if any) specified in the Title Defect Notice (which shall be
deemed to be the "Agreed Net Revenue Interest" as to such Well). If
Sellers timely give a Dispute Notice in response to a Title Defect Notice,
the Parties shall endeavor to agree as to the extent, if any, of the Net
Revenue Interest as to such Well as to which Sellers hold Commercially
Defensible Title (the "Agreed Revenue Interest"). If the Parties do not
reach agreement within ten (10) days after Buyer's receipt of the Dispute
Notice, the dispute shall be resolved by final, binding arbitration as
hereinafter provided. Within five (5) days after expiration of such ten
(10) days period, each of Sellers and Buyers shall appoint an arbitrator,
who shall be an attorney experienced in oil and gas title law matters and
give notice of such appointment to the Buyer or Sellers, as applicable.
Within five (5) days after the two (2) arbitrators have been appointed,
the two (2) arbitrators shall select a third arbitrator who shall likewise
be an attorney experienced in oil and gas title law matters. The Sellers
shall make available to the arbitrators all relevant title information
possessed by Sellers, and the Sellers and Buyer may make written
presentations or, if the arbitrators so direct, oral arguments before the
arbitrators. The decision of at least two (2) of the three (3) arbitrators
as to the extent, if any, of the Net Revenue Interest as to the Well as to
which Sellers hold Commercially Defensible Title shall be rendered prior
to the Closing Date and shall be final and binding on the Parties. If the
Net Revenue Interest as determined by the Arbitrators is less than the Net
Revenue Interest as to a Well shown in Exhibit D, such Net Revenue
Interest determined by the arbitrators shall be deemed to be the "Agreed
Net Revenue Interest" as to such Well. If Dispute Notices given as to more
than one Well are not resolved by agreement within the applicable ten (10)
day period as provided above, the resolution of all such Dispute Notices
as to all Wells shall be submitted to and resolved by the single board of
arbitrators appointed as above provided following giving of the first
Dispute Notice that is not resolved by agreement. As to each Well as to
which an Agreed Net Revenue Interest less than the Net Revenue Interest
shown in Exhibit D is determined as hereinabove provided, a "Reduction
Amount" shall calculated equal to:
(i) An amount (the "NS Reports Amount") equal to 70% of the discounted
present value of future oil and/or gas production from the Well reflected
in the NS Reports using a 10% discount factor;
minus
39
(i) An amount equal to a fraction of the NS Reports Amount determined by
multiplying the NS Reports Amount by a fraction having the Agreed Net
Revenue Interest for the Well as its numerator and having the Net Revenue
Interest for the Well shown in Exhibit __ as its denominator.
The total of the Reduction Amounts (if any) determined for all Wells shall be
applied first against any remaining amount of the Sellers' Basket provided for
in Section 8(e)(iii) in excess of claims of the Buyer Indemnified Parties under
Section 8(b) that have been applied toward satisfaction of such Sellers' Basket
and, to the extent so applied, shall reduce or satisfy the Sellers' Basket
available to be credited against claims of the Buyer Indemnified Parties
pursuant to Section 8(e)(iii). The cash portion of the Purchase Price provided
for in Section 2(d) shall be reduced by the amount, if any, of the excess of the
total Reduction Amounts that are not thus credited against the Sellers Basket;
provided that, if the total reduction of the Purchase Price for such Reduction
Amounts would exceed $3,658,499.95, unless Buyer agrees to limit the reduction
of the cash portion of the Purchase Price to $3,658,499.95, Sellers shall have
the right, in Sellers' discretion, to terminate this Agreement by giving a
written notice of termination ("Termination Notice") to Buyer at any time on or
prior to the earlier of (i) ten (10) days after resolution by agreement or
issuance of a final arbitrators award of all Dispute Notices concerning all
Wells or (ii) the Closing Date, in which event this Agreement will terminate and
the Closing will not occur unless Sellers and Buyer thereafter mutually agree to
effect the Closing pursuant to such amendments of this Agreement regarding the
Purchase Price, the Acquired Assets, or other terms of this Agreement as shall
be agreeable and acceptable to each of Sellers and Buyer, each in its or their
sole discretion.
(b) Conditions to Obligation of the Sellers. The obligation of the Sellers
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Sellers a certificate to
the effect that each of the conditions specified above in Section
6(b)(i)-(iii) is satisfied in all respects;
(v) the Buyer shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred
to in Sections 3(d) and 4(d) above;
(vi) the Buyer shall have obtained the Financing Amount incident to
closing of the Closing Placements referred to in Section 5(k) above;
(vii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Sellers; and
40
(viii) Buyer shall have issued the Buyer Securities to be purchased
by Sellers incident to the Closing Placements described in Section 5(k),
as provided for in the Stock Agreement, and such Buyer Securities shall be
validly issued, fully paid, and non-assessable.
The Sellers may waive any condition specified in this Section 6(b) if they
execute a writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Any of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Sellers may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement pursuant to Section
2(f)(i)(D) hereof;
(iii) the Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing in the event (A)
the Sellers have within the previous ten (10) business days given the
Buyer any notice pursuant to Section 5(e) above and (B) the development
that is the subject of the notice has had or is reasonably likely to have
a material adverse effect upon the operations or the financial condition
of the Sellers taken as a whole;
(iv) the Buyer may terminate this Agreement by giving written notice
to the Sellers at any time prior to the Closing (A) in the event any of
the Sellers has breached any representation, warranty, or covenant of the
Sellers contained in this Agreement in any material respect, the Buyer has
notified the Sellers of such breach, and the breach has continued without
cure for a period of 30 days after the notice of such breach or (B) if the
Closing shall not have occurred on or before June 30, 2006, by reason of
the failure of any condition precedent under Section 6(a) hereof (unless
the failure results primarily from the Buyer breaching any representation,
warranty, or covenant of the Buyer contained in this Agreement);
(v) the Sellers may terminate this Agreement by any of the Sellers
giving written notice to the Buyer at any time prior to the Closing in the
event (A) the Buyer has within the previous ten (10) business days given
the Sellers any notice pursuant to Section 5(e) above and (B) the
development that is the subject of the notice has had or is reasonably
likely to have a material adverse effect upon the operations or the
financial condition of the Buyer;
(vi) the Sellers may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, any of the Sellers
have notified the Buyer of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach or (B) if
the Closing shall not have occurred on or before June 30, 2006, by reason
of the failure of any condition precedent under Section 6(b) hereof
(unless the failure results primarily from the Sellers breaching any
representation, warranty, or covenant of the Sellers contained in this
Agreement); and
(vii) The Sellers may terminate this Agreement by giving a
Termination Notice pursuant to Section 6(a)(xiii) at any time on or prior
to the applicable date specified in said Section 6(a)(xiii).
41
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 7(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 5(d) above shall survive
termination.
8. Survival of Representations and Warranties; Indemnification.
(a) Survival of Representations and Warranties. The representations and
warranties set forth in this Agreement, in any Exhibit or Schedule hereto and in
any certificate or instrument delivered in connection herewith shall survive for
a period of twelve (12) months after the Closing Date or with respect only to
representations and warranties regarding Taxes, ERISA matters, and environmental
matters shall survive for a period of twenty-four (24) months after the Closing
Date (the "Warranty Period") and shall thereupon terminate and expire and shall
be of no further force or effect thereafter whatsoever, except (i) with respect
to any claim, written notice of which shall have been delivered to Buyer or the
Sellers, as the case may be, in accordance with this Section 8 and prior to the
end of the Warranty Period, such claim shall survive the termination of such
Warranty Period for as long as such claim is unsettled, and (ii) with respect to
any litigation which shall have been commenced to resolve such claim on or prior
to such date.
(b) Indemnification by the Sellers. The Sellers (except for Shaner and
Hulburt, who shall have no liability or obligation to the Buyer or any Buyer
Indemnified Party hereunder and shall not, for purposes of the Seller's
obligations to indemnify hereunder, be deemed "Sellers") shall indemnify Buyer
and each of the directors, officers, employees and Affiliates of Buyer, and each
of their successors and assigns (individually, a "Buyer Indemnified Party"), and
hold them, and each of them, harmless from, against and in respect of any and
all costs, losses, claims, liabilities (including for Taxes), fines, penalties,
damages (other than special, consequential or punitive damages) and expenses
(including interest, if any, imposed in connection therewith, court costs and
reasonable fees and disbursements of counsel) (collectively, "Damages") incurred
by any of them resulting from: (i) any claim, liability, obligation or expense
arising out of or related to the operation of the Acquired Assets prior to the
applicable Effective Time (except for such claims, liabilities, obligations,
costs or expenses that have been expressly assumed by the Buyer hereunder,
including the Assumed Liabilities and such liabilities and obligations for which
the Buyer has agreed hereunder to be responsible) and (ii) any breach of any
representation or warranty in this Agreement or the non-fulfillment in any
material respect of any agreement, covenant or obligation by the Sellers made in
this Agreement (including without limitation any Exhibit or Schedule hereto and
any certificate or instrument delivered in connection herewith). As more fully
provided in Section 9(a), the indemnification obligations of the respective
Sellers hereunder shall be several and not joint, and shall obligate each Seller
with respect only to itself or its own actions or omissions or representations
or warranties or interests in the Acquired Assets.
(c) Indemnification by the Buyer. The Buyer shall indemnify each Seller
and each of the shareholders, directors, partners, employees, Affiliates and
"associates" (as that term is defined in Rule 405 promulgated by the SEC under
the Securities Act) of the Sellers (individually a "Seller Indemnified Party")
and hold them, and each of them, harmless from, against and in respect of any
and all Damages incurred by such Seller Indemnified Party resulting from (i) any
claim, liability, obligation or expense arising out of or related to the
operation of the Acquired Assets on or after the applicable Effective Time and
(ii) any misrepresentation, breach of any representation or warranty in this
Agreement or the non-fulfillment in any material respect of any agreement,
covenant or obligation by Buyer made in this Agreement (including without
limitation any Exhibit or Schedule hereto and any certificate or instrument
delivered in connection herewith).
42
(d) Sole and Exclusive Remedy. The sole and exclusive remedy and recourse
of the Buyer Indemnified Parties against the Sellers with respect to or directly
relating to the matters set forth in Section 8(b) hereof shall be pursuant to
this Section 8. The sole and exclusive remedy and recourse of the Seller
Indemnified Parties against the Buyer with respect to or directly relating to
the matters set forth in Section 8(c) hereof shall be pursuant to this Section
8.
(e) Limitations on Indemnification.
(i) The Seller Indemnified Parties shall not be entitled to assert
any claim for indemnification under this Section 8 unless and until such
time as all claims of the Seller Indemnified Parties for indemnification
hereunder exceed $1,000,000 (the "Buyer's Basket") in the aggregate, at
which time any and all claims of the Seller Indemnified Parties for
indemnification in excess of the Buyer's Basket may be asserted; provided,
however, that the Buyer's Basket shall not be applicable to any Damages
attributable to (A) any breach by the Buyer of any of its obligations
under Section 2(e) hereof, or (B) any failure of the Buyer to pay or
otherwise satisfy any part of the Assumed Liabilities or any other
obligations or liabilities of the Sellers that the Buyer has agreed to
assume and be responsible for under the terms of this Agreement.
(ii) Notwithstanding anything to the contrary contained in this
Section 8, in no event will any Seller be liable to the Buyer or any Buyer
Indemnified Party under this Section 8 or otherwise (A) in an amount in
excess of the amounts shown on Schedule 8(e) of the Sellers' Disclosure
Schedule with respect to each Seller individually, and $36,585,000 with
respect to all of the Sellers in the aggregate, or (B) for any incidental,
consequential or other special damages, including, without limitation,
lost profits.
(iii) The Buyer Indemnified Parties shall not be entitled to assert
any claim for indemnification under this Section 8 unless and until such
time as all claims of the Buyer Indemnified Parties for indemnification
hereunder exceed $1,000,000 (the "Sellers' Basket") in the aggregate, at
which time any and all claims of the Buyer Indemnified Parties for
indemnification in excess of the Sellers' Basket may be asserted;
provided, however, that the Sellers' Basket shall not be applicable to any
Damages attributable to any breach by the Sellers of any of their
obligations under Section 2(e) hereof.
(iv) Notwithstanding anything to the contrary contained in this
Section 8, in no event will the Buyer be liable to the Sellers or any
Seller Indemnified Party under this Section 8 or otherwise (A) in an
amount in excess of $15,000,000, or (B) for any incidental, consequential
or other special damages, including, without limitation, lost profits.
(v) Notwithstanding any provision to the contrary contained in this
Agreement, no Seller shall have any liability to the Buyer hereunder to
the extent that the existence of such liability, breach, or falsity of any
representation upon which such liability would be based is disclosed in
any of the contracts, certificates and documents referred to in this
Agreement, the Exhibits attached hereto or in the Sellers' Disclosure
Schedules accompanying herewith, or otherwise disclosed in a written
notice to Buyer prior to the Closing Date.
(f) Right to Defend. If the facts giving rise to any such indemnification
shall involve any actual claim or demand by any third party against a Buyer
Indemnified Party or Seller Indemnified Party (referred to herein as an
"Indemnified Party"), then the Indemnified Party will give prompt written notice
of any such claim to the indemnifying party, which notice shall set forth in
reasonable detail the nature, basis and amount of such claim (the "Notice of
Third Party Claim"). It is a condition precedent to the applicable indemnifying
party's obligation to indemnify the applicable Indemnified Party for such claim
that such Indemnified Party timely provide to such indemnifying party the
applicable Notice of Third Party Claim, provided that the failure to provide
such Notice of Third Party Claim shall only relieve such indemnifying party of
its or his obligation to indemnify for such claim only to the extent that such
43
indemnifying party has been prejudiced by such Indemnified Party's failure to
give the Notice of Third Party Claim as required. The indemnifying party
receiving such Notice of Third Party Claim may (without prejudice to the right
of any Indemnified Party to participate at its own expense through counsel of
its own choosing) undertake the defense of such claims or actions at its expense
with counsel chosen and paid by its giving written notice (the "Election to
Defend") to the Indemnified Party within thirty (30) days after the date the
Notice of Third Party Claim is deemed received; provided, however, that the
indemnifying party receiving the Notice of Third Party Claim may not settle such
claims or actions without the consent of the Indemnified Party, which consent
will not be unreasonably withheld or delayed, except if the sole relief provided
is monetary damages to be borne solely by the indemnifying party; and, provided
further, if the defendants in any action include both the indemnifying party and
the Indemnified Party, and the Indemnified Party shall have reasonably concluded
that counsel selected by the indemnifying party has a conflict of interest
because of the availability of different or additional defenses to the parties,
the Indemnified Party shall cooperate in the defense of such claim and shall
make available to the indemnifying party pertinent information under its control
relating thereto, but the Indemnified Party shall have the right to its own
counsel and to control its defense and shall be entitled to be reimbursed for
all reasonable costs and expenses incurred in such separate defense. In no event
will the provisions of this Section reduce or lessen the obligations of the
parties under this Section, if prior to the expiration of the foregoing thirty
(30) day notice period, the Indemnified Party furnishing the Notice of Third
Party Claim responds to a third party claim if such action is reasonably
required to minimize damages or avoid a forfeiture or penalty or because of any
requirements imposed by law. If the indemnifying party receiving the Notice of
Third Party Claim does not duly give the Election to Defend as provided above,
then it will be deemed to have irrevocably waived its right to defend or settle
such claims, but it will have the right, at its expense, to attend, but not
otherwise to participate in, proceedings with such third parties; and if the
indemnifying party does duly give the Election to Defend, then the Indemnified
Party giving the Notice of Third Party Claim will have the right at its expense,
to attend, but not otherwise to participate in, such proceedings. The parties to
this Agreement will not be entitled to dispute the amount of any damages
(including reasonable attorney's fees and expenses) related to such third party
claim resolved as provided above.
(g) Subrogation. If the Indemnified Party receives payment or other
indemnification from the indemnifying party hereunder, the indemnifying party
shall be subrogated to the extent of such payment or indemnification to all
rights in respect of the subject matter of such claim to which the Indemnified
Party may be entitled, to institute appropriate action against third parties for
the recovery thereof, including under any insurance policies, and the
Indemnified Party agrees to assist and cooperate in good faith with the
indemnifying party and to take any action reasonably required by such
indemnifying party, at the expense of such indemnifying party, in enforcing such
rights.
9. Miscellaneous.
(a) Nature of Certain Obligations. The covenants of each of the Sellers to
the Buyers contained in this Agreement and the representations and warranties of
each of the Sellers in Section 3 above (excluding as to Shaner and Hulburt
representations or warranties in Sections 3(a) through 3(t), both inclusive, who
shall have no liability therefor) are several obligations, representations and
warranties and are made by each Seller with respect only to that Seller and its
business and affairs and interest in the Acquired Assets. This means that such
particular Seller making the representation, warranty, or covenant (and no other
Seller) will be solely responsible to the extent provided in Section 8 above for
44
any actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, taxes, liens, losses, expenses, and fees, including court costs and
reasonable attorneys' fees and expenses that the Buyer may suffer as a result of
any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Parties;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Parties prior to making
such disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: 1965 Waddle Road
Attention: Christopher K. Hulburt
State College, Pennsylvania 16803
Copy to: Fulbright & Jaworski L.L.P.
Attention: Uriel Dutton
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
If to the Buyer: College Oak Investments, Inc
3 Park Avenue - 16th Floor
Attn: Richard M. Cohen, CFO
New York, New York 10016
Copy to: Eaton & Van Winkle LLP
Attention: Matthew S. Cohen
3 Park Avenue - 16th Floor
New York, New York 10016
45
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the Commonwealth of Pennsylvania without
giving effect to any choice or conflict of law provision or rule (whether of the
Commonwealth of Pennsylvania or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the Commonwealth of
Pennsylvania.
(j) Consent to Jurisdiction. Each of the parties to this Agreement hereby
(a) consents to the jurisdiction of any United States District Court for the
Western District of Pennsylvania or, if such court does not have jurisdiction
over such matter, the Court of Common Pleas of the Commonwealth of Pennsylvania
of Centre County and (b) irrevocably agrees that all actions or proceedings
arising out of or relating to this Agreement shall be litigated in such court.
Each party accepts for itself and in connection with its properties, generally
and unconditionally, the exclusive jurisdiction and venue of the aforesaid
courts and waives any defense of forum nonconveniens or any similar defense, and
irrevocably agrees to be bound by any non-appealable judgment rendered thereby
in connection with this Agreement.
(k) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(l) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(m) Expenses. Subject to Section 9(p)(v) hereof, the Buyer, on the one
hand, and the Sellers, on the other hand, will bear their own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(n) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
46
word "including" shall mean including without limitation. All references in this
Agreement to a "Section," "subsection," "Exhibit" or "Schedule" shall be to a
Section, subsection, Exhibit or Schedule of this Agreement, as the case may be,
unless the context requires otherwise. References to "ss.," herein shall mean a
Section or subsection of this Agreement. Unless the context otherwise requires,
the words "this Agreement," "hereof," "hereunder," "herein," "hereby," or words
of similar import shall refer to this Agreement as a whole and not to a
particular Section, subsection, clause or other subdivision hereof. Whenever the
context requires, the words used herein shall include the masculine, feminine
and neuter gender, and the singular and the plural.
(o) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(p) Certain Tax Matters.
(i) Sellers other than Rex Energy or PennTex Illinois shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for
Rex Energy and Penn Tex Illinois required by the Code and Income Tax
Regulations for all periods ending on or prior to the Closing Date that
are filed after the Closing Date. Sellers shall permit Buyer to review and
comment on each such Tax Return described in the preceding sentence prior
to filing. To the extent permitted by applicable law, Sellers shall
include any income, gain, loss, deduction or other tax items for such
periods on their Tax Returns in a manner consistent with the Schedule K-1s
prepared by or for Rex Energy and Penn Tex Illinois for such periods.
(ii) Buyer and Sellers shall cooperate fully, as and to the extent
reasonably requested by the other Party, in connection with the filing of
Tax Returns pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records
and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder.
(iii) The Buyer and the Sellers further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
Governmental Authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including,
but not limited to, with respect to the transactions contemplated hereby).
(iv) All tax sharing agreements or similar agreements with respect
to or involving the Sellers shall be terminated at the Closing and, after
the Closing, the Sellers shall not be bound thereby or have any liability
thereunder.
(v) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred
in connection with the transactions contemplated by this Agreement shall
be paid by Buyer when due, and Buyer or Sellers will, at their own
expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration
and other Taxes and fees, and, if required by applicable law, the Sellers
will join in the execution of any such Tax Returns and other
documentation.
47
(q) Bulk Transfer Laws. The Buyer acknowledges that the Sellers will not
comply with the provisions of any bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
(r) Appointment Of Sellers' Representative. Each Seller hereby constitutes
and appoints Lance T. Shaner as its true and lawful attorney-in-fact, agent and
representative (the "Sellers' Representative"), with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to negotiate and sign all amendments to this Agreement and all other
documents in connection with the transactions contemplated by this Agreement,
including without limitation those instruments called for by this Agreement and
all waivers, consents, instructions, authorizations and other actions called
for, contemplated or that may otherwise be necessary or appropriate in
connection with this Agreement or any of the foregoing agreements or
instruments, granting unto the Sellers' Representative full power and authority
to do and perform each and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as such Seller might or could do in
person, hereby ratifying and confirming all that the Sellers' Representative, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof, including without limitation the power and authority to deliver and
convey such Seller's portion of the Acquired Assets in accordance with the terms
hereof, to receive and give receipt for all consideration due such Seller
pursuant to this Agreement and to receive all notices, requests and demands that
may be made under and pursuant to this Agreement. Should the Sellers'
Representative be unable or unwilling to serve or to appoint his successor to
serve in such Shareholder's stead, and unless the Sellers shall appoint a
successor to serve in his stead, such Sellers shall be deemed to be represented
by Benjamin W. Hulburt. The Buyer shall be entitled to rely and protected in
relying on the authority, actions and decisions of the Sellers' Representative,
and Buyer will have no liability to and shall be held harmless by any and all of
the Sellers and their successors and assigns with respect to any matter arising
out of, either directly or indirectly, the Buyer's good faith reliance upon such
authority, actions or decisions of the Sellers' Representative.
(s) This Agreement is being executed in multiple counterparts, and each
counterpart that is executed by any Party shall be deemed an original, with all
such counterparts to be constitute one Agreement. It shall not be necessary that
any single counterpart hereof be executed by all the Parties, and this Agreement
shall be and become effective when each Party has executed some counterpart
hereof, whether the same or different than any counterpart executed by any other
Party or Parties.
[Signatures Follow.]
48
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
COLLEGE OAK INVESTMENTS, INC.
By: /s/ Carey G. Birmingham
-------------------------------
Name: Carey G. Birmingham
Title: President
49
SELLERS:
REX ENERGY ROYALTIES LIMITED PARTNERSHIP
By: Douglas Oil & Gas Limited Partnership, its general partner
By: Rex Energy LLC, its general partner
By: /s/ Lance T. Shaner
-------------------------
Name: Lance T. Shaner
Title: Chairman
PENNTEX RESOURCES, L.P.
By: Penn Tex Energy, Inc., its general partner
By: /s/ Lance T. Shaner
----------------------------
Name: Lance T. Shaner
Title: Chairman
PENNTEX RESOURCES ILLINOIS, INC.
By: /s/ Lance T. Shaner
-------------------------------
Name: Lance T. Shaner
Title: Chairman
DOUGLAS OIL & GAS LIMITED PARTNERSHIP
By: Rex Energy LLC, its general partner
By: /s/ Lance T. Shaner
----------------------------
Name: Lance T. Shaner
Title: Chairman
DOUGLAS WESTMORELAND LIMITED PARTNERSHIP
By: Rex Energy LLC, its general partner
By: /s/ Lance T. Shaner
----------------------------
Name: Lance T. Shaner
Title: Chairman
MIDLAND EXPLORATION LIMITED PARTNERSHIP
By: Douglas Oil & Gas Limited Partnership, its general partner
By: Rex Energy LLC, its general partner
By: /s/ Lance T. Shaner
-------------------------
Name: Lance T. Shaner
Title: Chairman
50
REX ENERGY OPERATING CORP.
By: /s/ Lance T. Shaner
-------------------------------
Name: Lance T. Shaner
Title: Chairman
REX ENERGY WABASH, LLC
By: /s/ Lance T. Shaner
-------------------------------
Name: Lance T. Shaner
Title: Chairman
LANCE T. SHANER
/s/ Lance T. Shaner
- -----------------------------------
Lance T. Shaner
BENJAMIN W. HULBURT
/s/ Benjamin W. Hulburt
- -----------------------------------
Benjamin W. Hulburt
51
EXHIBIT H
BASELINE OIL & GAS CORP.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into effective as
of ____________, 2006 (the "Effective Date"), by and between Baseline Oil & Gas
Corp., a Nevada corporation (the "Corporation") with its principal place of
business located at 1965 Waddle Road, State College, Pennsylvania 16803 and
[Executive's Name] (the "Executive").
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") desires to retain Executive as the [President][Chief Operating
Officer][General Counsel][Chief Financial Officer][Vice President] of the
Corporation and to encourage Executive's attention and dedication to the
Corporation as a member of the Corporation's senior management, in the best
interests of the Corporation and its shareholders.
WHEREAS, Executive is willing to commit himself to serve the Corporation
in accordance with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties contained in this Agreement, and
intending to be legally bound hereby, the parties to this Agreement agree as
follows:
1. Definitions. The following definitions apply for purposes of this
Agreement:
(a) "Board of Directors" or "Board" means the Board of Directors of
the Corporation.
(b) "Cause" means a finding by the Board of Directors that any of
the following conditions exist:
(i) The Executive's willful failure to perform his material
duties under this Agreement (other than as a result of his
Disability) if such failure is not substantially cured within
thirty (30) days after written notice of such failure is
provided to the Executive.
(ii) The Executive's willful breach of his fiduciary duty or
duty of loyalty to the Corporation which is injurious to the
financial condition or the business reputation of the
Corporation.
(iii) The Executive's conviction for a felony offense under
the laws of the United States or any state thereof.
(iv) Willful breach by the Executive of any restrictive
covenant contained in Sections 12 and 13 of this Agreement.
For purposes of this definition, no act or failure to act will
be deemed "willful" unless effected by the Executive not in
1
good faith and without a reasonable belief that his action or
failure to act was in or not opposed to the Corporation's best
interests.
(c) "Change in Control" means and shall be deemed to have occurred
if:
(i) any "person" as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Corporation, any trustee or
other fiduciary holding securities under any employee benefit
plan of the Corporation, or any entity owned, directly or
indirectly, by the shareholders of the Corporation in
substantially the same proportions as their ownership of the
voting securities of the Corporation), including a "group" as
defined in Section 13(d)(3) of the Exchange Act, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, or any successor rule or regulation thereto as
in effect from time to time), directly or indirectly, of
securities representing 50% or more of the combined voting
power of the Corporation's then outstanding securities;
(ii) during any 12-month period (not including any period
prior to the date of this Agreement), individuals who at the
beginning of such period constitute the Board of Directors,
and any new director (other than a director designated by a
person who has entered into an agreement with the Corporation
to effect a transaction described in clause (i) or (iii) of
this paragraph) whose election by the Board of Directors or
nomination for election by the Corporation's shareholders was
approved by a vote of at least majority of the directors then
still in office who either were directors at the beginning of
such 12-month period or whose election or nomination for
election was previously approved, cease for any reason to
constitute at least a majority of the Board of Directors;
(iii) any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Corporation, any
trustee or other fiduciary holding securities under any
employee benefit plan of the Corporation, or any entity owned,
directly or indirectly, by the shareholders of the Corporation
in substantially the same proportions as their ownership of
the voting securities of the Corporation), including a "group"
as defined in Section 13(d)(3) of the Exchange Act, acquires
(or has acquired during the 12-month period ending on the date
of the most recent acquisition by such person or persons)
ownership of stock of the corporation possessing 35% or more
of the combined voting power of the Corporation's then
outstanding securities; or
(iv) any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, acquires (or has
acquired during the 12-month period ending on the date of the
most recent acquisition by such person or persons) assets from
the Corporation that have a total gross fair market value
equal to or more than 40% of the total gross fair market value
of all of the assets of the Corporation immediately prior to
such acquisition or acquisitions; provided, however, that
transfer in the ownership of a substantial portion of the
Corporation's assets to an entity controlled by the
Corporation does not constitute a Change in Control. For this
purpose, gross fair market value means the value of the assets
of the Corporation, or the value of the assets being disposed
of, determined without regard to any liabilities associated
with such assets.
2
If any of the events enumerated in clause (i) through (iv)
occur, the Corporation's Board of Directors shall determine in good faith the
effective date of the Change in Control resulting therefrom for purposes of this
Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Corporation" means Baseline Oil & Gas Corp.
(f) "Disability" means the Executive (x) is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months or (y) is, by reason of
any medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months, receiving income replacement benefits for a period of not less
than three months under an accident and health plan covering employees of the
Corporation. Any question as to the existence of a physical or mental impairment
which would give rise to the Disability of the Executive under clause (x) upon
which the Executive and the Corporation cannot agree will be determined by a
qualified independent physician selected by the Executive and reasonably
acceptable to the Corporation (or, if the Executive is unable to make a
selection, the selection of the physician will be made by any adult member of
his immediate family). The physician's written determination to the Corporation
and to the Executive will be final and conclusive for all purposes of this
Agreement.
(g) "Good Reason" means:
(i) A material diminution in the Executive's responsibilities,
duties, title, reporting responsibilities within the business
organization, status, role or authority which is not restored
within thirty (30) days after written notice of such
diminution is provided to the Corporation.
(ii) [Removal of the Executive from, or failure to re-elect
the Executive to, the Board of Directors of the Corporation].
[Note: Only for Executives who are also members of the Board].
(iii) The taking of any action by the Corporation which would
require the Executive to move his residence from the State
College, Pennsylvania area in order to allow the Executive to
provide the services required to be performed by the Executive
under this Agreement.
(iv) A breach by the Corporation of any of the material terms
of this Agreement if such breach is not substantially cured
within thirty (30) days after written notice of such breach is
provided to the Corporation.
(h) "Termination In Connection With A Change In Control" means any
of the following events occurring within one (1) year following, or, directly or
indirectly, in connection with, or in anticipation of a Change in Control:
(i) a termination of Executive's employment by the Corporation
for any reason other than Cause;
3
(ii) a termination of Executive's employment by the Executive
for Good Reason;
(iii) a termination of Executive's employment by Executive
because any successor to the Corporation's operations or
assets (whether acquired by merger, sale, consolidation or
otherwise) ("Successor") fails to:
a. appoint the Executive to a position with the
Successor having the same responsibilities, duties,
title, reporting responsibilities within the business
organization, status, role and authority the Executive
now holds with the Corporation;
b. acknowledge and assume, in writing, this Agreement at
the time of the Change in Control; or
c. acknowledge and assume, in writing, any
indemnification agreement with the Executive or by-law
provisions regarding indemnification which are in effect
at the time of the Change in Control.
(i) "Termination Payment Commencement Date" shall mean with respect
to a payment required hereunder
(i) if the Board of Directors (or its delegate) determines in
its sole discretion that as of the date of the Executive's
termination the Executive is a "specified employee" (as
defined in Section 409A(a)(2)(B)(i) of the Code, and
Department of Treasury regulations and other interpretive
guidance issued thereunder) as of the date of the Executive's
termination and that Section 409A of the Code applies with
respect to such payment, the first business day following the
six-month anniversary of the date of the Executive's
Termination; or
(ii) if the Board of Directors (or its delegate) determines in
its sole discretion that the Executive is not such a
"specified employee" as of the date of the Executive's
termination or that Section 409A of the Code does not apply
with respect to such payment, within 30 days following the
date of the Executive's termination.
The period commencing on the Executive's date of termination
and ending on the six-month anniversary of such date is referred to herein as
the "Six-Month Delay Period".
2. Employment; Duties.
(a) Subject to the terms and conditions set forth in this Agreement,
the Corporation hereby agrees to employ the Executive, and the Executive hereby
accepts employment as [President] [Chief Operating Officer] [General Counsel] [
Chief Financial Officer] [Vice President] of the Corporation, subject to the
provisions of the by-laws of the Corporation in respect of the duties and
responsibilities assigned from time to time by the Board of Directors to the
[President] [Chief Operating Officer] [General Counsel] [ Chief Financial
Officer] [Vice President] of the Corporation, and subject also at all times to
the control of the Board of Directors. The Executive will perform those duties
and discharge those responsibilities as are commensurate with his position, and
4
as the Board of Directors may from time to time reasonably direct that are
commensurate with his position. The Executive agrees to perform his duties and
discharge his responsibilities in a faithful manner and to the best of his
ability and to use all reasonable efforts to promote the interests of the
Corporation. The Executive may not accept other gainful employment except with
the prior consent of the Board of Directors of the Corporation. To the extent
the Executive performs services for any affiliate or subsidiary of the
Corporation, the Executive shall be entitled to compensation for such services
in amounts approved by the Board of Directors. With the prior consent of the
Board of Directors of the Corporation, the Executive may become a director,
trustee or other fiduciary of other corporations, trusts or entities; provided,
however, that the Executive may, without the consent of the Board of Directors,
become a trustee of any trust established by the Executive for estate planning
purposes. The Executive may be involved in charitable, civic and religious
organizations so long as they do not materially interfere with the performance
of the Executive's duties hereunder. The Executive shall be entitled to make and
manage personal investments, provided such investments and any activities
undertaken in connection therewith do not violate any restrictive covenants in
Sections 12 or 13 of this Agreement.
(b) The Executive agrees and acknowledges that, in connection with
his employment relationship with the Corporation, Executive owes fiduciary
duties to the Corporation and its shareholders and will act in accordance with
the standards set forth in the Code of Conduct of the Corporation. In keeping
with the Executive's fiduciary duties to the Corporation, the Executive agrees
that he shall not, directly or indirectly, become involved in any conflict of
interest, or upon discovery of a conflict, allow the conflict to continue, in
each case, the Corporation's Code of Conduct provides. Notwithstanding the
foregoing, the Corporation acknowledges and agrees that the Executive may,
without the need of consent from the Board of Directors of the Corporation,
continue to serve and perform his fiduciary duties as an officer of Rex Energy
II, LLC, Rex Energy II Limited Partnership, Rex Energy II Alpha Limited
Partnership, Rexguard LLC or Shaner & Hulburt Capital Partners Limited
Partnership.
3. Compensation.
(a) Base Salary. During the term of the Executive's employment under
this Agreement, the Executive will receive a base salary of ________________
($_______) per year, payable in accordance with the Corporation's normal payroll
practices. On an annual basis, the Board of Directors will, in good faith,
review the base salary of the Executive to consider appropriate increases (but
not decreases) therein. If the Executive dies during the period of his
employment under this Agreement, employment for any part of the month of his
death will be considered employment for the entire month.
(b) Annual Cash Bonuses. During the term of the Executive's
employment under this Agreement, the Executive will be entitled to receive an
annual cash bonus calculated pursuant to performance standards developed by the
Corporation's compensation committee in consultation with the Chief Executive
Officer of the Corporation, as such standards are in effect from time to time.
The Board of Directors of the Corporation, in its discretion, may award bonuses
to the Executive in addition to those provided for above, as it may from time to
time determine.
(c) Withholding. The Corporation will deduct or withhold from all
salary and bonus payments, and from all other payments made to the Executive
pursuant to this Agreement, all amounts that may be required to be deducted or
withheld under any applicable Social Security contribution, income tax
withholding or other similar law now in effect or that may become effective
during the term of this Agreement.
4. Other Benefits And Terms. During the term of the Executive's employment
under this Agreement, the Executive will be entitled to the following other
benefits and terms:
5
(a) The Executive will be entitled to participate in the
Corporation's (or Rex Energy Operating Corp.'s) health and medical benefit
plans, any pension, profit sharing and retirement plans, and any insurance
policies or programs from time to time generally offered to executive officers
who are employed by the Corporation (or Rex Energy Operating Corp.). These
plans, policies and programs are subject to change at the sole discretion of the
Corporation(or Rex Energy Operating Corp., if applicable).
(b) The Executive will be entitled to any other fringe benefit from
time to time generally offered to all or substantially all senior executives
employed by the Corporation (or Rex Energy Operating Corp.). The Executive will
be entitled to a monthly vehicle allowance in the amount of $400 per month
payable in accordance with the Corporation's normal payroll practices.
(c) The Executive shall be entitled to receive long-term incentive
or equity-based compensation awards, in each case on substantially similar terms
and conditions no less favorable than awards made to the other senior executive
officers of the Corporation (or Rex Energy Operating Corp.). These awards shall
be commensurate with the awards normally granted to the similarly situated
executive officers of other public companies similar in size and character to
the Corporation. These awards may be granted pursuant to the terms of an
equity-based compensation plan of the Company or otherwise.
(d) The Corporation will pay on behalf of or reimburse the Executive
for personal legal and financial advice for matters related to the Executive's
employment with the Corporation or his ownership of securities of the
Corporation; provided, however that such amount shall not exceed $10,000 in any
fiscal year.
5. Vacations. The Executive will be entitled to four (4) weeks of paid
vacation each calendar year. Unused vacation in any year may not be carried over
to subsequent years.
6. Reimbursement For Expenses. The Corporation will reimburse the
Executive for reasonable expenses which the Executive may from time to time
incur on behalf of the Corporation in the performance of his responsibilities
and duties including, but not limited to, licensing fees, membership dues in
trade and business organizations and attendance at trade and business
conferences; provided, Executive provides satisfactory evidence of such expenses
as required under the Corporation's normal reimbursement policies.
7. Period Of Employment. Subject to the provisions of this Section, the
period of employment of the Executive under this Agreement will be three (3)
years and shall be deemed to begin on _____________ and continue until
_____________ (the "Initial Term"). Upon the expiration of the Initial Term, the
period of employment will be automatically extended for additional one-year
periods thereafter, unless either party provides 120 days' prior written notice
to the other that it does not wish to extend the Executive's employment beyond
its then present term.
Notwithstanding the foregoing:
(a) The Executive's employment will automatically terminate upon the
death or Disability of the Executive. The foregoing is subject to the duty of
the Corporation to provide reasonable accommodation under the Americans with
Disabilities Act.
(b) The Corporation may, at its sole option, terminate the
Executive's employment at any time and for any reason by delivering written
notice to the Executive.
6
(c) The Executive, at his sole option, may terminate his employment
for Good Reason by providing written notice to the Corporation at least sixty
(60) days prior to the effective date of the termination of employment specified
in the notice.
(d) The Executive, at his sole option, may terminate his employment
absent Good Reason by providing written notice to the Corporation at least
ninety (90) days prior to the effective date of the termination of employment
specified in the notice.
Any notice of termination of employment given by a party must specify the
particular termination provision of this Agreement relied upon by the party and
must set forth in reasonable detail the facts and circumstances that provide a
basis for the termination.
8. Benefits Upon Termination. The Corporation will provide the following
benefits upon the termination of the Executive's employment with the
Corporation.
(a) Upon Termination By The Corporation Other Than For Cause Or By
The Executive With Good Reason. Upon the Executive's termination of his
employment for Good Reason or the Corporation's termination of the Executive's
employment for other than Cause, the Corporation will provide the following:
(i) Salary And Fringe Benefits. The Executive will receive his
salary and fringe benefits, including medical and health
insurance ("Fringe Benefits") through the effective date of
termination of employment. The Executive will also receive (i)
his annual base salary, (ii) his full Fringe Benefits in
effect on the date of notice of termination for a period of
twenty-four (24) months beginning with the month next
following the month during which his employment terminates or
the balance of the Initial Term, whichever is the longer
period. Such Fringe Benefits shall be provided at the
Corporation's expense. If the Executive dies during this
period, dependent health or medical Fringe Benefits will be
provided at the Corporation's expense for the balance of the
period.
(ii) Bonus. The Executive will receive a bonus payment equal
to the sum of (A) 200% of his base salary in effect in the
year of the termination of his employment or an amount equal
to 10% of his base salary in effect in the year of termination
multiplied by each full month remaining in the Initial Term,
whichever is the greater amount, plus (B) an amount determined
by multiplying 100% of his base salary by a fraction, the
numerator of which is the number of full and partial calendar
months in the calendar year that precede the date of the
termination of his employment and the denominator of which is
12 (less any amounts paid as a bonus earned in the fiscal year
that contains the Executive's date of termination) , plus (c)
an amount equal to the unpaid portion of any bonus earned for
any fiscal year prior to the year in which his employment
terminates.
(iii) Accrued Vacation. The Executive will receive payment for
accrued but unused vacation, which payment will be equitably
prorated based on the period of active employment for that
portion of the calendar year in which the Executive's
termination of employment becomes effective.
(iv) Stock Options. Under any outstanding stock option
agreement evidencing stock options granted to the Executive,
as of the effective date of the Executive's termination of
employment, (x) such stock options to the extent not yet
7
vested shall vest, and (y) Executive shall have the right to
exercise such options until the later of the expiration date
of the options or the one year anniversary of the effective
date of the Executive's termination of employment.
(b) Upon Termination By The Executive Absent Good Reason Or By The
Corporation For Cause. Upon the Executive's termination of employment absent
Good Reason or by the Corporation for Cause, the Corporation will provide the
following:
(i) Salary, Bonus And Fringe Benefits. The Executive will
receive his salary and Fringe Benefits through the effective
date of termination of employment and the unpaid portion of
any bonus earned for a prior year.
(ii) Accrued Vacation. The Executive will receive payment for
accrued but unused vacation, which payment will be equitably
prorated based on the period of active employment for that
portion of the calendar year in which the Executive's
termination of employment becomes effective.
(c) Upon Termination For Disability. Upon termination of the
Executive's employment because of Disability, the Corporation will provide the
following:
(i) Salary And Fringe Benefits. The Executive will receive his
salary and Fringe Benefits through the effective date of
termination of employment. The Executive will also receive his
annual base salary and Fringe Benefits, as in effect on the
date immediately before the Disability, for a period of 18
months commencing with the month following the month during
which his employment terminates, reduced by any payments made
to Executive during this 18-month period under the disability
benefit plans of the Corporation (or Rex Energy Operating
Corp.) then in effect or under the Social Security disability
insurance program. All Fringe Benefits provided under this
clause (i) shall be provided at the Corporation's expense. If
the Executive dies during the 18-month period, his salary
payments under this subsection will continue be paid to his
estate for the balance of the 18-month period and any
dependent health or medical Fringe Benefits will be provided
at the Corporation's expense in each case for the balance of
the 18-month period.
(ii) Bonus. The Executive will receive a bonus payment equal
to an amount determined by multiplying 100% of his base salary
by a fraction the numerator of which is the number of full and
partial calendar months in the calendar year that precede the
date of the termination of his employment and the denominator
of which is 12, plus an amount equal to the unpaid portion of
any bonus earned for any fiscal year prior to the year in
which his employment terminates.
(iii) Accrued Vacation. The Executive will receive payment for
accrued but unused vacation, which payment will be equitably
prorated based on the period of active employment for that
portion of the calendar year in which the Executive's
termination becomes effective.
(iv) Stock Options. Under any outstanding stock option
agreement evidencing stock options granted to the Executive,
as of the effective date of the Executive's termination of
8
employment because of Disability, (x) such stock options to
the extent not yet vested shall vest, and (y) Executive shall
have the right to exercise such options until the later of the
expiration date of the options or the one year anniversary of
the effective date of the Executive's termination of
employment.
(d) Upon Termination For Death. Upon termination of the Executive's
employment because of his death, the Corporation will provide the following:
(i) Salary And Fringe Benefits. The Executive's salary and
Fringe Benefits through the effective date of termination of
employment. The Executive's estate will also receive his
annual base salary as in effect on the date immediately prior
to his date of death, for a period of 18 months. Any dependent
health or medical Fringe Benefits will be provided at the
Corporation's expense for the 18-month period following the
month in which the Executive dies.
(ii) Bonus. The Executive's successor as provided in Section
14 will receive a bonus payment equal to an amount determined
by multiplying 100% of his base salary by a fraction the
numerator of which is the number of full and partial calendar
months in the calendar year that precede the date of the
termination of his employment and the denominator of which is
12, plus an amount equal to the unpaid portion of any bonus
earned for any fiscal year prior to the year in which his
employment terminates.
(iii) Accrued Vacation. The Executive's successor as provided
in Section 14 will receive payment for accrued but unused
vacation, which payment will be equitably prorated based on
the period of active employment for that portion of the
calendar year in which the Executive died.
(iv) Stock Options. Under any outstanding stock option
agreement evidencing stock options granted to the Executive,
as of the effective date of the Executive's termination of
employment, (x) such stock options to the extent not yet
vested shall vest, and (y) Executive shall have the right to
exercise such options until the later of the expiration date
of the options or the one year anniversary of the effective
date of the Executive's termination of employment.
(e) Upon Termination In Connection With A Change In Control. Upon
the Executive's Termination in Connection With A Change In Control, the
Executive will be entitled to the following:
(i) Salary And Fringe Benefits. The Executive's salary and
Fringe Benefits through the effective date of termination of
employment. The Executive will also receive an amount equal to
two (2) times the sum of the Executive's annual base salary or
an amount equal to the sum of the remaining payments of base
salary for the balance of the Initial Term in each case at the
rate in effect on the date of such termination, whichever is
greater. The Executive and his dependents will also receive
Fringe Benefits as in effect on the date of such termination
for a continuing period of twenty-four (24) months following
the date of such termination or for the remaining balance of
the Initial Term, whichever shall be the longer period. All
Fringe Benefits provided under this clause (i) shall be
provided at the Corporation's expense.
9
(ii) Bonus. The Executive will receive a bonus payment equal
to the sum of (A) 200% of his base salary in effect in the
year of the Termination in Connection With a Change in Control
or an amount equal to 10% of his base salary in effect in the
year of the Termination in Connection with a Change in Control
multiplied by each full month remaining in the Initial Term,
whichever is the greater amount, plus (B) an amount determined
by multiplying 100% of his base salary by a fraction the
numerator of which is the number of full and partial calendar
months in the calendar year that precede the date of such
termination and the denominator of which is 12, plus (C) an
amount equal to the unpaid portion of any bonus earned for any
fiscal year prior to the year in which his employment
terminates.
(iii) Accrued Vacation. The Executive will receive payment for
accrued but unused vacation, which payment will be equitably
prorated based on the period of active employment for that
portion of the calendar year in which the Termination in
Connection With a Change in Control occurs.
(iv) Expenses. For a twenty-four (24) month period following
the effective date of the Termination in Connection With A
Change in Control, the Corporation will promptly pay or
reimburse the Executive for expenses, in an aggregate amount
not to exceed 5% of the Executive's annual base salary, at the
rate in effect on the date of such termination, incurred by
the Executive for outplacement services, which may include
consultants, reasonable travel, rental of an office off the
Corporation's premises, secretarial support, and photocopying,
telephone, and other miscellaneous office expenses.
(v) Plan Benefits. The Executive will be fully vested in his
accrued benefit under any qualified or non-qualified pension
or profit sharing plan maintained by the Corporation,
provided, however, if the terms of such plan do not permit
acceleration of full vesting, the Executive will receive a
cash payment in an amount equal to the value of the accrued
benefit which was not so vested.
(vi) Stock Options. Under any outstanding stock option
agreement evidencing stock options granted to the Executive,
as of the effective date of the Executive's termination of
employment, (x) such stock options to the extent not yet
vested shall vest, and (y) Executive shall have the right to
exercise such options until the later of the expiration date
of the options or the one year anniversary of the effective
date of the Executive's termination of employment.
(f) Reduction In Fringe Benefits. Medical and health Fringe Benefits
under this Section will be reduced to the extent of any medical and health
fringe benefits provided by and available to the Executive from any subsequent
employer.
(g) Time of Payment
(i) Termination Of Employment Because Of Disability or Death.
The bonus and vacation payments provided for in Sections 8(c)
or (d) will be made in one lump sum within ten (10) business
days following the effective date of the Executive's
termination of employment because of Disability or death, as
applicable.
10
(ii) Termination of Employment Absent Good Reason or For
Cause. Payments provided for in Section 8(b) shall be paid in
one lump sum payment on the effective date of the Executive's
termination of employment absent Good Reason or for Cause.
(iii) Termination of Employment For Good Reason, Other Than
For Cause Or In Connection With A Change In Control. If the
Board of Directors (or its delegate) determines in its sole
discretion that Section 409A of the Code applies with respect
to an amount payable to or on behalf of the Executive (or his
dependents) under Sections 8(a), (b) or (c), then such amount
payable to or on behalf of the Executive for each calendar
month during the 24-month period following the Executive's
termination of employment (the "Payment Period") shall be paid
in monthly installments on the last business day of the
calendar month following such month; provided, however, that
if the Board of Directors (or its delegate) also determines in
its sole discretion that the Executive is a "specified
employee" as of the date of the Executive's termination, any
such amount(s) payable during the Six-Month Delay Period shall
be paid in a lump sum on the Termination Payment Commencement
Date, and for each calendar month during the Payment Period
thereafter shall be paid in monthly installments on the last
business day of the calendar month following such month. In
addition, if the Board of Directors (or its delegate)
determines in its sole discretion that Section 409A of the
Code applies to any health or medical Fringe Benefit that is
to be provided to Executive (or his dependents) pursuant to
Sections 8(b) or (e) and that the Executive is a "specified
employee" as of the date of the Executive's termination, such
Fringe Benefit shall not be provided during the Six-Month
Delay Period; provided, however, that, Executive and his
dependent shall be eligible to participate in and may elect to
receive continued coverage under the Corporation's (or Rex
Energy Operating, Corp.'s, if applicable) health and medical
plans in which he previously participated in accordance with
the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") or any successor law during the Six-Month
Delay Period, and the Corporation shall reimburse Executive on
the Termination Payment Commencement Date the total amount of
COBRA premiums Executive (or his dependents) paid during such
period; provided, further, that thereafter, for the remainder
of the Payment Period, the Corporation shall provide the
Executive with the health and medical Fringe Benefits he would
have originally been provided if he were not classified as a
"specified employee" and Section 409A did not apply to the
provision of such benefits.
(h) Indemnity. For a three (3) year period following the date of the
Executive's termination of employment regardless of reason, the Corporation will
continue any indemnification agreement with the Executive and any directors' and
officers' liability insurance insuring the Executive at the date of such
termination. At the Executive's request, the Corporation will cause a
certificate of insurance, in a form satisfactory to the Executive, verifying
this coverage to be provided to the Executive on an annual basis.
9. Additional Payments.
11
(a) Notwithstanding anything in this Agreement or any other
agreement to the contrary, in the event it is determined that any payments or
distributions (including, without limitation, the vesting of an option or other
non-cash benefit or property or the forgiveness of any indebtedness) by the
Corporation or any affiliate (as defined under the Securities Act of 1933, as
amended, and the regulations thereunder) thereof or any other person to or for
the benefit of the Executive, whether paid or payable pursuant to the terms of
this Agreement, or pursuant to any other agreement or arrangement with the
Corporation or any such affiliate ("Payments"), would be subject to the excise
tax imposed by Section 4999 of the Code, or any successor provision, or any
interest or penalties with respect to the excise tax (the excise tax, together
with any interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive will be entitled to receive an additional
payment from the Corporation (a "Gross-Up Payment") in an amount that after
payment by the Executive of all taxes (including, without limitation, any
interest or penalties imposed with respect to such taxes and any Excise Tax)
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The amount
of the Gross-Up Payment will be calculated by the Corporation's independent
accounting firm, engaged immediately prior to the event that triggered the
payment, in consultation with the Corporation's outside legal counsel. For
purposes of making the calculations required by this Section, the accounting
firm may make reasonable assumptions and approximations concerning applicable
taxes and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code, provided that the accounting
firm's determinations must be made with substantial authority (within the
meaning of Section 6662 of the Code). The Gross-Up Payment will be paid on the
Executive's last day of employment or on the occurrence of the event that
results in the imposition of the Excise Tax, if later. If the precise amount of
the Gross-Up Payment cannot be determined on the date it is to be paid, an
amount equal to the best estimate of the Gross-Up Payment will be made on that
date and, within 10 days after the precise calculation is obtained, either the
Corporation will pay any additional amount to the Executive or the Executive
will pay any excess amount to the Corporation, as the case may be. If
subsequently the Internal Revenue Service (the "IRS") claims that any additional
Excise Tax is owing, an additional Gross-Up Payment will be paid to the
Executive within 30 days of the Executive providing substantiation of the claim
made by the IRS. After payment to the Executive of the Gross-Up Payment, the
Executive will provide to the Corporation any information reasonably requested
by the Corporation relating to the Excise Tax, the Executive will take those
actions as the Corporation reasonable requests to contest the Excise Tax,
cooperate in good faith with the Corporation to effectively contest the Excise
Tax and permit the Corporation to participate in any proceedings contesting the
Excise Tax. The Corporation will bear and pay directly all costs and expenses
(including any interest or penalties on the Excise Tax), and indemnify and hold
the Executive harmless, on an after-tax basis, from all such costs and expenses
related to such contest. Should it ultimately be determined that any amount of
an Excise Tax is not properly owed, the Executive will refund to the Corporation
the related amount of the Gross-Up Payment.
(b) The Corporation has issued shares (the "Shares") to Executive
pursuant to a certain Stock Agreement dated as of January 16, 2006. The
Corporation and Executive intended to effect a completed transfer of the Shares
and, thereby, make any taxable gain attributable to the Shares eligible for
long-term capital gains treatment (after the Shares have been held for one
year). Accordingly, if after the first anniversary of the issuance of the Shares
it is finally determined that a taxable gain on such shares is subject to tax at
ordinary income tax rates, then the Corporation shall pay to the Executive (or
any permitted transferee of Executive), a "Gross-Up Payment" in an amount such
that, after payment by the Executive (or such permitted transferee) of all taxes
imposed upon the Gross-Up Payment, the Executive (or such permitted transferee)
retains an amount of the Gross-Up Payment equal to the difference, if any,
between (x) the federal and state income tax rate for long-term capital gain
items and (y) the federal and state income tax rate for ordinary income items
(at the highest marginal tax bracket applicable to the Executive or such
permitted transferee), as in effect on the date of the sale multiplied by such
taxable gain.
12
(c) If any Gross-Up Payment required pursuant to this Section 9 is
determined by the Board of Directors (or its delegate) to be subject to Section
409A of the Code, such payment shall be made as follows:
(i) if such Gross-Up Payment is made due to a Change in
Control (i.e., such payment or provision is made without
taking into account Executive's termination), then the
Corporation shall pay such Gross-Up Payment on the date of the
Change in Control or, if later, as soon as administratively
practicable following the accounting firm's determination
described in Section 9(a);
(ii) if such Gross-Up Payment is made on or after, and due to,
Executive's termination, then the Corporation shall pay such
Gross-Up Payment incurred during the Six-Month Delay Period in
a lump sum on the Termination Payment Commencement Date, and
for each calendar month thereafter in which such a Gross-Up
Payment becomes due in monthly installments on the last
business day of the calendar month following the month such
payment becomes due; and
(iii) if such Gross-Up Payment is due to a subsequent IRS
claim that an additional Excise Tax is owed or due under
Section 9(c), then the Corporation shall pay such Gross-Up
Payment no later than March 15th of the calendar year
following the calendar year in which the alleged obligation of
Executive, as reflected by Executive's receipt of a claim by
the IRS, is received by Executive or it is finally determined
that a taxable gain on the Shares described in Section 9(c) is
subject to tax at ordinary income tax rates; and
(iv) notwithstanding Sections 9(c)(i) or (ii), if a Gross-Up
Payment due under Section 9 is paid due to a Change in Control
or on or after, and due to, the Executive's termination, such
payment will be considered a distribution payable on the date
of the Change in Control or the Executive's date of
Termination, respectively, as permitted under Section 409A and
proposed Treasury Regulation ss. 1.409-3(d) (because such
payment was not administratively practicable due to events
beyond the control of the Executive) and, as such, shall be
made as soon as administratively practicable (but in no event
shall it be made later than the end of the first calendar year
in which the payment becomes administratively practicable).
10. Non-exclusivity of Rights. Except as otherwise specifically provided,
nothing in this Agreement will prevent or limit the Executive's continued or
future participation in any benefit, incentive, or other plan, practice, or
program provided by the Corporation and its affiliates and for which the
Executive may qualify. Any amount of vested benefit or any amount to which the
Executive is otherwise entitled under any plan, practice, or program of the
Corporation will be payable in accordance with the plan, practice, or program,
except as specifically modified by this Agreement.
11. No Obligation To Seek Other Employment. The Executive will not be
obligated to seek other employment or to take other action to mitigate any
amount payable to him under this Agreement and, except as provided in Section
8(f), amounts owed to him hereunder shall not be reduced by amounts he may
receive from another employer.
13
12. Confidentiality. During the course of his employment, the Executive
will have access to confidential information relating to the lines of business
of the Corporation, its trade secrets, marketing techniques, technical and cost
data, information concerning customers and suppliers, and other valuable and
confidential information relating to the business operations of the Corporation
not generally available to the public (the "Confidential Information"). The
parties hereby acknowledge that any unauthorized disclosure or misuse of the
Confidential Information could cause irreparable damage to the Corporation. The
parties also agree that covenants by the Executive not to make unauthorized use
or disclosures of the Confidential Information are essential to the growth and
stability of the business of the Corporation. Accordingly, the Executive agrees
to the confidentiality covenants set forth in this Section. The Executive agrees
that, except as required by his duties with the Corporation as he reasonably
determines or as authorized by the Corporation in writing, he will not use or
disclose to anyone at any time, regardless of whether before or after the
Executive ceases to be employed by the Corporation, any of the Confidential
Information obtained by him in the course of his employment with the
Corporation. The Executive shall not be deemed to have violated this Section 12
by disclosure of Confidential Information that at the time of disclosure (a) is
publicly available or becomes publicly available through no act or omission of
the Executive, or (b) is disclosed as required by court order or as otherwise
required by law, on the condition that notice of the requirement for such
disclosure is given to the Corporation prior to make any disclosure. The
Executive agrees that since irreparable damage could result from his breach of
the covenants in this Section, in addition to any and all other remedies
available to the Corporation, the Corporation will have the remedies of a
restraining order, injunction or other equitable relief to enforce the
provisions thereof. The Executive consents to jurisdiction in Centre County,
Pennsylvania on the date of the commencement of any action for purposes of any
claims under this Section. In addition, the Executive agrees that the issues in
any action brought under this Section will be limited to claims under this
Section, and all other claims or counterclaims under other provisions of this
Agreement will be excluded.
13. Non-competition. In consideration of the compensation and other
benefits to be paid to the Executive under and in connection with this
Agreement, the Executive agrees that, beginning on the date of this Agreement
and continuing until the Covenant Expiration Date (as defined in subsection (b)
below), he will not, directly or indirectly, for his own account or as agent,
employee, officer, director, trustee, consultant, partner, stockholder or equity
owner of any corporation or any other entity (except that he may passively own
securities constituting less than 5% of any class of securities of a public
company), or member of any firm or otherwise, (i) engage or attempt to engage,
in the Restricted Territory (as defined in subsection (d) below), in any
business activity which is directly or indirectly competitive with the business
conducted by the Corporation or any Affiliate at the Reference Date (as defined
in subsection (c) below), (ii) employ or solicit the employment of any person
who is employed by the Corporation or any Affiliate at the Reference Date or at
any time during the six-month period preceding the Reference Date, except that
the Executive will be free to employ or solicit the employment of any such
person whose employment with the Corporation or any Affiliate has terminated for
any reason (without any interference from the Executive) and who has not been
employed by the Corporation or any Affiliate for at least six months, (iii)
canvass or solicit business in competition with any business conducted by the
Corporation or any Affiliate at the Reference Date from any person or entity who
during the six-month period preceding the Reference Date was a customer of the
Corporation or any Affiliate or from any person or entity which the Executive
has reason to believe might in the future become a customer of the Corporation
or any Affiliate as a result of marketing efforts, contacts or other facts and
circumstances of which the Executive is aware, (iv) willfully dissuade or
discourage any person or entity from using, employing or conducting business
with the Corporation or any Affiliate or (v) intentionally disrupt or interfere
with, or seek to disrupt or interfere with, the business or contractual
relationship between the Corporation or any Affiliate and any supplier who
during the six-month period preceding the Reference Date shall have supplied
components, materials or services to the Corporation or any Affiliate.
14
Notwithstanding the foregoing, the restrictions imposed by this
Section: (i) shall not in any manner be construed to prohibit, directly or
indirectly, the Executive from serving as an employee or consultant of the
Corporation or any Affiliate or for any entity referred to in Section 2(b) of
this Agreement, and (ii) shall not apply if the termination of the Executive's
employment was a (A) Termination in Connection With A Change In Control, (B) a
Termination By the Corporation Other Than For Cause or (C) By the Executive with
Good Reason, or occurs by reason of expiration of the term of this Agreement
(which term includes any extension period pursuant to the operation of Section 7
hereof) or occurs after the expiration of the term of this Agreement (which term
includes any extension period pursuant to the operation of Section 7 hereof).
For purposes of this Agreement, the following terms have the
meanings given to them below:
(a) "Affiliate" means any joint venture, partnership or subsidiary
now or hereafter directly or indirectly owned or controlled by the Corporation.
For purposes of clarification, an entity shall not be deemed to be indirectly or
directly owned or controlled by the Corporation solely by reason of the
ownership or control of such entity by shareholders of the Corporation.
(b) "Covenant Expiration Date" means the date which is 365 days
after the Termination Date.
(c) "Reference Date" means (A) for purposes of applying the
covenants set forth in this Section at any time prior to the Termination Date,
the then current date, or (B) for purposes of applying the covenants set forth
in this Section at any time on or after the Termination Date, the Termination
Date.
(d) "Restricted Territory" means anywhere within a two (2) mile
radius of any Area of Mutual Interest or oil or gas producing property in which
the Corporation or its Affiliates has an ownership or leasehold interest as of
the Reference Date.
(e) "Termination Date" means the date of termination of the
Executive's employment with the Corporation; provided however that the
Executive's employment will not be deemed to have terminated so long as the
Executive continues to be employed or engaged as an employee or consultant of
the Corporation or any Affiliate, even if such employment or engagement
continues after the expiration of the term of this Agreement.
14. Successors. This Agreement is personal to the Executive and may not be
assigned by the Executive other than by will or the laws of descent and
distribution. This Agreement will inure to the benefit of and be enforceable by
the Executive's legal representatives or successors in interest. Notwithstanding
any other provision of this Agreement, the Executive may designate a successor
or successors in interest to receive any amounts due under this Agreement after
the Executive's death. If he has not designated a successor in interest, payment
of benefits under this Agreement will be made to his spouse, if surviving, and
if not surviving, to his estate. A designation of a successor in interest must
be made in writing, signed by the Executive, and delivered to the Employer
pursuant to Section 18. Except as otherwise provided in this agreement, if the
Executive has not designated a successor in interest, payment of benefits under
this Agreement will be made to the Executive's estate. This Section will not
supersede any designation of beneficiary or successor in interest made by the
Executive or provided for under any other plan, practice, or program of the
Employer. This Agreement will inure to the benefit of and be binding upon the
Corporation and its successors and assigns. The Corporation will require any
15
successor (whether direct or indirect, by acquisition of assets, merger,
consolidation or otherwise) to all or substantially all of the operations or
assets of the Corporation or any successor and without regard to the form of
transaction used to acquire the operations or assets of the Corporation, to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no succession had
taken place. As used in this Agreement, "Corporation" means the Corporation and
any successor to its operations or assets as set forth in this Section that is
required by this clause to assume and agree to perform this Agreement or that
otherwise assumes and agrees to perform this Agreement.
15. Benefit Claims. In the event the Executive or his legal
representatives or beneficiaries, as the case may be, and the Corporation
disagree as to their respective rights and obligations under this Agreement, and
the Executive or his legal representatives or beneficiaries are successful in
establishing, privately or otherwise, that his or their position is
substantially correct, or that the Corporation's position is substantially wrong
or unreasonable, or in the event that the disagreement is resolved by
settlement, the Corporation will pay all costs and expenses, including counsel
fees, which the Executive or his legal representatives or beneficiaries may
incur in connection therewith directly to the provider of the services or as may
otherwise be directed by the Executive or his legal representatives or
beneficiaries. Except, and only to the extent, a court of competent jurisdiction
determines that the amount of any payments provided for hereunder are not
required, the Corporation will not delay or reduce the amount of any such
payment or setoff or counterclaim against any such amount; it is the intention
of the Corporation and the Executive that the amounts payable to the Executive
or his legal representatives or beneficiaries hereunder will continue to be paid
in all events in the manner and at the times herein provided. All payments made
by the Corporation hereunder will be final and the Corporation will not seek to
recover all or any part of any portion of any payments hereunder for any reason
except if, and only to the extent that, a court of competent jurisdiction
determines that such payments were not required hereunder.
16. Failure, Delay or Waiver. No course of action or failure to act by the
Corporation or the Executive will constitute a waiver by the party of any right
or remedy under this Agreement, and no waiver by either party of any right or
remedy under this Agreement will be effective unless made in writing.
17. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such a manner as to be enforceable under applicable law.
However, if any provision of this Agreement is deemed unenforceable under
applicable law by a court having jurisdiction, the provision will be
unenforceable only to the extent necessary to make it enforceable without
invalidating the remainder thereof or any of the remaining provisions of this
Agreement.
18. Notice. All written communications to parties required hereunder must
be in writing and (a) delivered in person, (b) mailed by registered or certified
mail, return receipt requested, (such mailed notice to be effective 4 days after
the date it is mailed) or (c) sent by facsimile transmission, with confirmation
sent by way of one of the above methods, to the party at the address given below
for the party (or to any other address as the party designates in a writing
complying with this Section, delivered to the other party):
16
If to the Corporation:
Baseline Oil & Gas Corp.
Attention: Chief Executive Officer
General Counsel
1965 Waddle Road
State College, Pennsylvania 16803
Telecopier: (814) 278-7826
with a copy to:
If to the Executive:
with a copy to:
19. Acceleration of Vesting and Exerciseability. The Corporation and
Executive acknowledge that, unless this Agreement expressly provides otherwise,
the terms of Executive's option, share unit and other long-term incentive award
agreements govern the acceleration of vesting and exerciseability and other
rights comprising Executive's awards.
20. Publicity. Executive agrees that the Corporation and its affiliates
may use, and hereby grants the Corporation and its affiliates the nonexclusive
and worldwide right to use, Executive's name, picture, likeness, photograph,
signature or any other attribute of Executive's persona (collectively "Persona")
in any media for any advertising, publicity or other purpose at any time, either
during or subsequent to his employment by the Corporation. Executive agrees that
the use of his Persona will not result in any invasion or violation of any
privacy or property rights Executive may have; and Executive agrees that he will
receive no additional compensation for the use of his Persona. Executive further
agrees that any negatives, prints or other material for printing or reproduction
purposes prepared in connection with the use of his Persona by the Corporation
or its affiliates shall be and are the sole property of the Corporation or its
affiliates.
21. Employee Handbooks. The Corporation may in its sole and unilateral
discretion establish, amend, maintain and distribute policies, employee manuals
or personnel policy manuals. Executive agrees to adhere to and follow all rules,
regulations and policies of the Corporation set forth in such policies and
manuals as they now exist or may hereafter be amended or modified. Executive
understands and agrees that such policies and manuals are not part of the
contractual terms of this Agreement and do not constitute a separate contract.
Rather, such policies and manuals are only general policies and guidelines of
the Corporation. In the event of any conflicts or inconsistencies in the terms
of any such policies and manuals of the Corporation and this Agreement, this
Agreement shall control.
22. Miscellaneous. This Agreement (a) may not be amended, modified or
terminated orally or by any course of conduct pursued by the Corporation or the
Executive, but may be amended, modified or terminated only by a written
agreement duly executed by the Corporation and the Executive, (b) is binding
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upon and inures to the benefit of the Corporation and the Executive and each of
their respective heirs, representatives, successors and assignees, except that
the Executive may not assign any of his rights or obligations pursuant to this
Agreement, (c) except as provided in Sections 4 and 10 of this Agreement,
constitutes the entire agreement between the Corporation and the Executive with
respect to the subject matter of this Agreement, and supersedes all oral and
written proposals, representations, understandings and agreements previously
made or existing with respect to such subject matter, including, but not limited
to, any prior employment agreement between the Executive and [Douglas Oil & Gas
Limited Partnership] or [Rex Energy Operating Corp.], and (d) will be governed
by, and interpreted and construed in accordance with, the laws of the
Commonwealth of Pennsylvania, without regard to principles of conflicts of law.
23. Deferred Compensation. This Agreement is intended to meet the
requirements of Section 409A of the Code and may be administered in a manner
that is intended to meet those requirements and shall be construed and
interpreted in accordance with such intent. To the extent that an award or
payment, or the settlement or deferral thereof, is subject to Section 409A of
the Code, except as the Board of Directors and Executive otherwise determine in
writing, the award shall be granted, paid, settled or deferred in a manner that
will meet the requirements of Section 409A of the Code, including regulations or
other guidance issued with respect thereto, such that the grant, payment,
settlement or deferral shall not be subject to the excise tax applicable under
Section 409A of the Code. Any provision of this Agreement that would cause the
award or the payment, settlement or deferral thereof to fail to satisfy Section
409A of the Code shall be amended (in a manner that as closely as practicable
achieves the original intent of this Agreement) to comply with Section 409A of
the Code on a timely basis, which may be made on a retroactive basis, in
accordance with regulations and other guidance issued under Section 409A of the
Code. In the event additional regulations or other guidance is issued under
Section 409A of the Code or a court of competent jurisdiction provides
additional authority concerning the application of Section 409A with respect to
the payments described hereunder, then the provisions regarding such payments
shall be amended to permit such payments to be made at the earliest time allowed
under such additional regulations, guidance or authority that is practicable and
achieves the original intent of this Agreement.
24. Multiple Counterparts. This Agreement may be executed in one or more
counter parts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Any party may execute
this Agreement by facsimile signature and the other party shall be entitled to
rely on such facsimile signature as evidence that this Agreement has been duly
executed by such party. Any party executing this Agreement by facsimile
signature shall immediately forward to the other party an original page by
overnight mail.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BASELINE OIL & GAS CORP.
By:
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Name:
Title:
[EXECUTIVE NAME]
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