SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): December 22, 2017

 

VIKING ENERGY GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

000-29219

 

98-0199508

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

1330 Avenue of the Americas

Suite 23A

New York, NY

 

10019

(Address of principal executive offices)

 

(Zip Code)

 

(212) 653-0946

(Registrant’s telephone number, including area code)

 

______________________________________________

(Former name or former address, if changed since last report)

 

Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 
 
 
Explanatory Note

 

As previously disclosed in the Current Report on Form 8-K filed on November 13, 2017 by Viking Energy Group, Inc., a Nevada corporation (the “Corporation”), the Corporation entered into a Membership Interest Purchase Agreement (the “Agreement”) with Black Rhino, LP, a Delaware limited partnership (the “Seller”), on November 10, 2017. This Current Report on Form 8-K is being filed to disclose various matters in connection with the completion of the transactions under the Agreement.

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On December 22, 2017, the Corporation, the Seller and Petrodome Energy, LLC, a Texas limited liability company (“Petrodome Energy”), entered into Amendment No. 2 to the Agreement to include Petrodome Hamilton Ranch, LLC, a Texas limited liability company (“Hamilton Ranch”), and Petrodome San Patricio, LLC, a Texas limited liability company (“San Patricio”), as companies to be acquired, to update certain exhibits to the Agreement, and to make other changes described therein (the “Second Amendment”). The foregoing description of the Second Amendment is qualified by reference to the full text of the Second Amendment, which is attached hereto as Exhibit 2.3 and incorporated by reference into this Item 1.01.

 

The Agreement, as amended by the First Amendment (defined below) and the Second Amendment, is referred to herein as the “Acquisition Agreement.” Pursuant to the Acquisition Agreement, the Corporation agreed to purchase from the Seller (the “Acquisition”) all of the issued and outstanding membership interests in Petrodome Energy and each of its subsidiaries described in the Acquisition Agreement (the “Acquired Companies” and each, an “Acquired Company”).

 

On December 22, 2017, in connection with the closing of the Acquisition, Petrodome Energy and each of the Acquired Companies other than Hamilton Ranch and San Patricio (collectively, the “Borrowers”) entered into a Term Loan Agreement (the “Loan Agreement”), dated December 22, 2017, by and among the Borrowers, 405 Petrodome LLC, as administrative agent (the “Agent”), and 405 Petrodome LLC and Cargill, Incorporated, as lenders (collectively, the “Lenders”).

 

The Loan Agreement provides for a funded term loan in the amount of $8.0 million at a 6.0% original issue discount, which results in an original principal amount of approximately $8.5 million (the “Term Loan”). The Borrowers also paid an upfront fee equal to 1.0% of the Term Loan amount. The maturity date of the Term Loan is December 22, 2019 (the “Maturity Date”). On the closing date, approximately $5.2 million of the Term Loan was funded into a capital expenditures account controlled by the Agent (the “CapEx Account”). The release of funds from the CapEx Account to the Borrowers is subject to the satisfaction, in the Agent’s sole discretion, of several conditions related to the Borrowers’ operations and development prospects. The full amount of the Term Loan bears interest at the following rates: (i) 12-Month LIBOR plus 9.875% per annum until June 30, 2018; (ii) 12-Month LIBOR plus 11.375% per annum until December 31, 2018 and (iii) 12-Month LIBOR plus 12.875% per annum until December 31, 2019. If there is an event of default, the interest rate under the Term Loan increases by an additional 2.0% per annum. Interest is payable in kind monthly during the first three months while the Term Loan is outstanding, and payable in cash monthly on the first business day of each calendar month thereafter. Principal payments are due on the Term Loan as follows: $75,000 per month for the first six months commencing on June 1, 2018, and $125,000 per month thereafter. The remaining balance of the Term Loan is due and payable on the Maturity Date.

 

Pursuant to the Loan Agreement, the Borrowers also conveyed a 2.5% over-riding royalty interest in all of their interests in certain oil and gas leases to the Agent. Subject to certain conditions: (i) on the twelve month anniversary of the effective date of the Loan Agreement, fifty percent of the over-riding royalty interest conveyed to the Agent will revert back to the Borrowers, and (ii) on the twelve month anniversary of the date the Term Loan is paid in full, twenty five percent of the over-riding royalty interest conveyed to the Agent will revert back to the Borrowers. At any time within the twenty four months following the date the Term Loan is paid in full, the Borrowers also have an option to purchase the remaining twenty-five percent of the over-riding royalty interests conveyed to the Agent on the terms and conditions specified in the Loan Agreement.

 

 
2
 
 

 

The Loan Agreement contains various affirmative covenants that require the Borrowers to, among other things, maintain adequate records; provide the Agent with financial statements, reserve reports, and other financial information; provide notice of certain events; hedge production volumes; reimburse the Agent and Lenders for certain expenses in connection with the Loan Agreement; maintain insurance and provide the Agent with access to meetings of the Borrowers’ governing body or the governing body of their managers. The Loan Agreement contains various negative covenants that limit the ability of the Borrowers to, among other things, incur additional indebtedness; grant certain liens; engage in certain asset acquisitions and dispositions; make certain loans; make or declare certain dividends or distributions; issue additional equity interests other than common equity; engage in certain changes in their organizational structure; engage in certain transactions with affiliates; make certain capital expenditures; amend their organizational documents or form or acquire additional subsidiaries.

 

The Loan Agreement also contains covenants that require the maintenance of specified financial ratios or conditions as follows:

 

 

· Current Ratio : Commencing as of the closing of any fiscal month on or after May 31, 2018, the Borrowers may not allow the ratio of current assets to current liabilities to be less than 1.00 to 1.00.

 

 

 

 

· PDP Collateral Coverage : The Borrowers may not allow the PDP Collateral Coverage percentage to be less than: (i) seventy percent on and after May 31, 2018; (ii) sixty-five percent on and after November 30, 2018; (iii) sixty percent on and after May 31, 2019 and (iv) fifty-five percent on and after November 30, 2019. The PDP Collateral Coverage percentage is: (a) the positive difference of: (i) the balance under the Loan Agreement as of the relevant date, minus (ii) the amount of cash in the CapEx Account as of the relevant date, divided by (b) the PV-10 value of the Borrowers’ proved developed producing reserves (using adjusted strip prices on the relevant date applied to the proved developed producing reserves of the Borrowers on a consolidated basis).

 

 

 

 

· Proved Reserve Coverage : The Borrowers may not allow, as of May 31, 2018, and each November 30th and May 31st thereafter, the positive difference of: (a) the difference of: (i) the balance under the Loan Agreement as of the relevant date, minus (ii) the amount of cash in the CapEx Account, as of the relevant date, to be more than (b) fifty percent of the PV-10 value of proved reserves (using adjusted strip prices on the relevant date applied to the proved resources of the Borrowers on a consolidated basis). Only twenty percent of the PV-10 value of proved undeveloped reserves are included for purposes of calculating the PV-10 value of proved reserves.

 

The Loan Agreement contains customary representations and warranties and events of default. Events of default include, among other things, payment defaults; breaches of representations and warranties; covenant defaults; cross-defaults and cross-acceleration to certain indebtedness; the attachment of levies and garnishments; certain events of bankruptcy and insolvency; certain final and non-appealable judgments; actual or asserted failure of any security document supporting the Loan Agreement; payment of subordinated indebtedness and a change of control. If such an event of default occurs, the Lenders would be entitled to take various actions, including the acceleration of amounts due under the Term Loan and all actions permitted to be taken by a secured creditor.

 

Obligations under the Loan Agreement are secured by mortgages on the oil and gas leases of the Borrowers, a security agreement covering all assets of each Borrower, and a pledge by the Corporation of all of the membership interests of Petrodome Energy, and by Petrodome Energy of all of the membership interests in each Borrower.

 

The foregoing description of the Loan Agreement is qualified by reference to the full text of the Loan Agreement, which is attached hereto as Exhibit 10.1 and incorporated by reference into this Item 1.01.

 

 
3
 
 

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

On December 22, 2017, the Corporation completed the Acquisition. The aggregate purchase price for the Acquisition consisted of: (i) a $3.2 million cash payment to the Seller (reflecting a $3.0 million cash payment adjusted for closing date purchase price adjustments), funded with borrowings under the Term Loan; (ii) the issuance to the Seller of 2,000,000 shares of the Corporation’s common stock, $0.001 par value per share (the “Share Consideration”); and (iii) a grant to the Seller of a 1.5% over-riding royalty interest in (a) all existing oil and gas leases associated with the Acquired Companies, and (b) all new oil and gas wells drilled on certain prospects identified by the Seller in the Acquisition Agreement, which expire on October 31, 2020. The purchase price is subject to post-closing adjustments.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The description of the Loan Agreement, Term Loan and the borrowings thereunder set forth in Item 1.01 and Item 2.01 above are incorporated by reference into this Item 2.03.

 

Item 3.02 Unregistered Sales of Equity Securities.

 

The description of the issuance of the Share Consideration to the Seller set forth in Item 2.01 above is incorporated by reference into this Item 3.03. The issuance of the Share Consideration was made in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), as there was no general solicitation and the issuance did not involve a public offering.

 

Item 7.01 Regulation FD Disclosure.

 

On December 26, 2017, the Corporation issued a press release announcing the closing of the Acquisition and the Loan Agreement, a copy of which is attached hereto as Exhibit 99.1 and is incorporated by reference into this Item 7.01.

 

The information in this Item 7.01, including Exhibit 99.1, is being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of Section 18 of the Exchange Act, and shall not be incorporated by reference in any filing under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing.

 

Item 8.01 Other Events.

 

On November 30, 2017, the Corporation and the Seller entered into Amendment No. 1 to the Agreement to extend the deadline for certain title benefit and defect notices until December 4, 2017 (the “First Amendment”). The foregoing description of the First Amendment is qualified by reference to the full text of the First Amendment, which is attached hereto as Exhibit 2.2 and incorporated by reference into this Item 8.01.

 

 
4
 
 

 

Item 9.01 Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired.

 

The Corporation will file any financial statements required by this Item not later than 71 days after the date on which this Form 8-K is required to be filed.

 

(b) Pro Forma Financial Information.

 

The Corporation will file any financial statements required by this Item not later than 71 days after the date on which this Form 8-K is required to be filed.

 

(d) Exhibits:

 

Exhibit No.

 

Description

 

2.1#

 

Membership Interest Purchase Agreement, dated November 10, 2017, by and among Viking Energy Group, Inc. and Black Rhino, LP.

2.2

 

First Amendment to Membership Interest Purchase Agreement, dated November 30, 2017, by and among Viking Energy Group, Inc. and Black Rhino, LP.

2.3#

 

Second Amendment to Membership Interest Purchase Agreement, dated December 22, 2017, by and among Viking Energy Group, Inc., Black Rhino, LP and Petrodome Energy, LLC.

10.1

 

Term Loan Agreement, dated December 22, 2017, by and among the Borrowers listed therein, 405 Petrodome LLC, as Administrative Agent, and 405 Petrodome LLC and Cargill, Incorporated, as Lenders.

99.1

 

Press release dated December 26, 2017.

 

# The Corporation agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request

 

 
5
 
 

 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

2.1#

 

Membership Interest Purchase Agreement, dated November 10, 2017, by and among Viking Energy Group, Inc. and Black Rhino, LP.

2.2

 

First Amendment to Membership Interest Purchase Agreement, dated November 30, 2017, by and among Viking Energy Group, Inc. and Black Rhino, LP.

2.3#

 

Second Amendment to Membership Interest Purchase Agreement, dated December 22, 2017, by and among Viking Energy Group, Inc., Black Rhino, LP and Petrodome Energy, LLC.

10.1

 

Term Loan Agreement, dated December 22, 2017, by and among the Borrowers listed therein, 405 Petrodome LLC, as Administrative Agent, and 405 Petrodome LLC and Cargill, Incorporated, as Lenders.

99.1

 

Press release dated December 26, 2017.

 

# The Corporation agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request

 

 
6
 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

VIKING ENERGY GROUP, INC.

 

 

(Registrant)

 

 

 

 

Date: December 29, 2017

By:

/s/ James A. Doris

 

Name:

James A. Doris

 

 

Title:

President and Chief Executive Officer

 

 

 

7

 

EXHIBIT 2.1

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

BETWEEN

 

BLACK RHINO, LP

 

AS SELLER,

 

AND

 

VIKING ENERGY GROUP, INC.

 

AS PURCHASER

 

Effective November 1, 2017

 

 
 
 
 


TABLE OF CONTENTS
 

 

Page

 

ARTICLE 1 PURCHASE OF PURCHASED INTERESTS; PURCHASE PRICE

2

 

 

 

 

Section 1.1

Purchase of Purchased Interests .

2

 

Section 1.2

Purchase Price .

2

 

Section 1.3

Effective Time; Proration of Costs and Revenues .

2

 

Section 1.4

Closing Statement and Closing Payment.

4

 

Section 1.5

Purchase Price Adjustment.

4

 

Section 1.6

Adjustments for Tax Purposes .

5

 

Section 1.7

Allocation of Purchase Price .

5

 

Section 1.8

Deposit; Application of Deposit .

5

 

 

 

 

 

ARTICLE 2 TITLE MATTERS

6

 

Section 2.1

Acquired Companies’ Title .

6

 

Section 2.2

Certain Definitions .

6

 

Section 2.3

Definition of Permitted Encumbrances .

7

 

Section 2.4

Notice of Title Defects; Defect Adjustments .

9

 

Section 2.5

Consents to Assignment; Preferential Rights to Purchase .

12

 

Section 2.6

Casualty or Condemnation Loss.

12

 

Section 2.7

Limitations on Applicability .

13

 

 

 

 

 

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER

13

 

Section 3.1

Disclaimers .

13

 

Section 3.2

Seller Representations .

15

 

Section 3.3

Organization and Authority of the Acquired Companies .

16

 

Section 3.4

Capitalization of the Acquired Companies .

17

 

Section 3.5

Compliance with Laws .

17

 

Section 3.6

Financial Statements .

18

 

Section 3.7

Material Contracts .

19

 

Section 3.8

Employment .

19

 

Section 3.9

Employee Benefit Plans .

21

 

Section 3.10

Litigation .

22

 

Section 3.11

Taxes and Assessments .

22

 

Section 3.12

Outstanding Capital Commitments .

24

 

Section 3.13

Insurance .

24

 


 

-i-

 
 


TABLE OF CONTENTS

(continued)

 

 

 

Page

 

Section 3.14

Environmental Matters .

24

 

Section 3.15

Equipment .

25

 

Section 3.16

Intellectual Property .

25

 

Section 3.17

Related Party Transactions .

25

 

Section 3.18

Delivery of Hydrocarbons.

26

 

Section 3.19

Royalties.

26

 

Section 3.20

Imbalances .

26

 

Section 3.21

Suspended Proceeds .

26

 

Section 3.22

Hedges; Calls .

26

 

Section 3.23

Payout Status .

26

 

Section 3.24

Plugging and Abandonment .

26

 

Section 3.25

Bonds .

27

 

Section 3.26

Non-Consent Operations .

27

 

Section 3.27

Wells .

27

 

Section 3.28

Leases .

27

 

Section 3.29

Sufficiency of Assets and Equipment .

27

 

Section 3.30

Property Expenses .

27

 

Section 3.31

AMI .

27

 

Section 3.32

Consents and Preferential Purchase Rights .

28

 

Section 3.33

Condemnation .

28

 

Section 3.34

Reserve Reports .

28

 

Section 3.35

Accredited Investor; Investment Purpose .

28

 

Section 3.36

Restricted Securities

28

 

Section 3.37

Information Available to Seller .

28

 

Section 3.38

Land and Legal Costs .

29

 

 

 

 

 

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER

29

 

Section 4.1

Disclaimers .

29

 

Section 4.2

Existence and Qualification .

29

 

Section 4.3

Power .

30

 

Section 4.4

Authorization and Enforceability .

30

 

Section 4.5

No Conflicts .

30

 

  
 

-ii-

 
 

 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

Section 4.6

Liability for Brokers’ Fees .

30

 

Section 4.7

Litigation .

30

 

Section 4.8

Independent Investigation .

31

 

Section 4.9

Bankruptcy .

31

 

Section 4.10

Qualification .

31

 

Section 4.11

Consents.

31

 

Section 4.12

Investor Status .

31

 

Section 4.13

Knowledgeable Company.

32

 

Section 4.14

Breach on Date Hereof.

32

 

 

 

 

 

ARTICLE 5 COVENANTS OF THE PARTIES

32

 

Section 5.1

Access .

32

 

Section 5.2

Government Reviews .

32

 

Section 5.3

Notification of Breaches .

33

 

Section 5.4

Operation of Business .

33

 

Section 5.5

Indemnity Regarding Access .

35

 

Section 5.6

Tax Matters .

35

 

Section 5.7

Suspended Proceeds .

37

 

Section 5.8

Affiliate Contracts; Intercompany Liabilities.

37

 

Section 5.9

Replacement of Bonds, Letters of Credit and Guarantees .

37

 

Section 5.10

Cooperation with Financial Statements.

37

 

Section 5.11

Delivery and Maintenance of Records.

38

 

Section 5.12

No Solicitation.

39

 

Section 5.13

Confidentiality .

39

 

Section 5.14

Non-Solicitation.

39

 

Section 5.15

Further Assurances.

40

 

Section 5.16

Excluded Entities .

40

 

Section 5.17

Notification of Breaches.

41

 

Section 5.18

Assignment of Overriding Royalty Interests .

41

 

Section 5.19

Reimbursement of Land and Legal Costs .

42

 

 

 

 

 

ARTICLE 6 CONDITIONS TO CLOSING

42

 

Section 6.1

Conditions of Seller to Closing .

42

 

Section 6.2

Conditions of Purchaser to Closing .

43

 


 

-iii-

 
 

 

TABLE OF CONTENTS

(continued)

 

 

Page

 

ARTICLE 7 CLOSING

44

 

Section 7.1

Time and Place of Closing .

44

 

Section 7.2

Obligations of Seller at Closing .

45

 

Section 7.3

Obligations of Purchaser at Closing .

46

 

Section 7.4

Closing Payment; Post-Closing Purchase Price Adjustments.

46

 

ARTICLE 8 TERMINATION

48

 

Section 8.1

Termination .

48

 

Section 8.2

Effect of Termination .

48

 

ARTICLE 9 POST-CLOSING OBLIGATIONS; INDEMNIFICATION; LIMITATIONS; DISCLAIMERS AND WAIVERS

49

 

Section 9.1

Assumption and Indemnification .

49

 

Section 9.2

Indemnification Actions .

52

 

Section 9.3

Limitation on Actions .

54

 

Section 9.4

Waiver of Trade Practices Acts .

55

 

Section 9.5

Tax Treatment of Indemnification Payments .

56

 

ARTICLE 10 MISCELLANEOUS

56

 

Section 10.1

Counterparts .

56

 

Section 10.2

Notice .

56

 

Section 10.3

Sales or Use Tax Recording Fees and Similar Taxes and Fees.

58

 

Section 10.4

Expenses

58

 

Section 10.5

Governing Law and Venue .

58

 

Section 10.6

Jurisdiction; Waiver of Jury Trial .

58

 

Section 10.7

Captions .

59

 

Section 10.8

Waivers .

59

 

Section 10.9

Assignment .

59

 

Section 10.10

Entire Agreement .

60

 

Section 10.11

Amendment .

60

 

Section 10.12

No Third-Party Beneficiaries .

60

 

Section 10.13

Public Announcements .

60

 

Section 10.14

Invalid Provisions.

60

 

Section 10.15

References.

61

 

Section 10.16

Construction.

61

 

Section 10.17

Specific Performance

61

 

Section 10.18

Limitation on Damages.

62

 

Section 10.19

Legal Representation.

62

 

ARTICLE 11 DEFINITIONS

63


 

-iv-

 
 

 

EXHIBITS

 

Exhibit A

Leases

Exhibit A-1

Wells

Exhibit A-2

[Reserved]

Exhibit B

Contracts

Exhibit B-1

Surface Contracts

Exhibit C

Persons with Knowledge

Exhibit D

Form of Assignment of Purchased Interests

Exhibit E

[Reserved]

Exhibit F

Form of Release

Exhibit G

Form of Resignation

Exhibit H

[Reserved]

Exhibit I

Form of Overriding Royalty Interest Assignment

Exhibit J

Plats of New Prospects

 

SCHEDULES

 

Schedule 1.7

Allocation of Purchase Price

Schedule 2.2(c)

Liens, Encumbrances, Defects and Irregularities

Schedule 2.3(c)

Contested Taxes

Schedule 2.3(d)

Contested Liens

Schedule 3.2

Seller Representations

Schedule 3.3

Organization and Qualification

Schedule 3.4

Capitalization of Acquired Companies

Schedule 3.5

Compliance with Laws

Schedule 3.6

Financial Statements

Schedule 3.7

Material Contracts

Schedule 3.8

Employment

Schedule 3.9

Employee Benefit Plans

Schedule 3.10

Litigation

Schedule 3.11

Taxes and Assessments

Schedule 3.12

Outstanding Capital Commitments

Schedule 3.13

Insurance

Schedule 3.14

Environmental Matters

Schedule 3.16

Intellectual Property

Schedule 3.17

Related Party Transactions

Schedule 3.18

Delivery of Hydrocarbons

Schedule 3.20

Imbalances

Schedule 3.21

Suspended Proceeds

Schedule 3.22

Hedges; Calls

Schedule 3.23

Payout Status

Schedule 3.24

Plugging and Abandonment

Schedule 3.25

Bonds

Schedule 3.28

Certain Leases

Schedule 3.31

AMI

Schedule 3.32

Consents and Preferential Purchase Rights

Schedule 3.38

Land and Legal Costs

Schedule 5.4

Operation of Business

Schedule 7.2(g)

Individuals to Resign

Schedule 7.2(h)

Consents

Schedule 7.4

Closing Statement Example

 
 

-v-

 
 

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

This Membership Interest Purchase Agreement (the “ Agreement ”), is executed on November 10, 2017 (“ Execution Date ”) by and between Black Rhino, LP, a Delaware limited partnership (“ Seller ”) and Viking Energy Group, Inc., a Nevada corporation, (“ Purchaser ”). Purchaser and Seller may each be referred to herein as a “ Party ”, and collectively as the “ Parties ”. Capitalized terms used herein shall have the meanings ascribed to them in this Agreement as such terms are identified and/or defined in Article 11 hereof.

 

RECITALS:

 

WHEREAS, Southport Holdings, LLC, a Texas limited liability company (the “ Initial Member ”), was the initial sole member of Petrodome Energy, LLC, a Texas limited liability company (“ Parent ”);

 

WHEREAS, pursuant to the Parent Assignments, the Initial Member assigned its Membership Interests in Parent to Seller;

 

WHEREAS, Seller owns all of the issued and outstanding Membership Interests in Parent;

 

WHEREAS, Parent owns all of the issued and outstanding Membership Interests of Petrodome Around the Horn, LLC, a Louisiana limited liability company (“ PAH ”), Petrodome Bayou Choctaw, LLC, a Louisiana limited liability company (“ PBC ”), Petrodome East Creole, LLC, a Louisiana limited liability company (“ PEC ”), Petrodome EC, LLC, a Texas limited liability company (“ PE ”), Petrodome Louisiana Pipeline, LLC, a Louisiana limited liability company (“ PLP ”), Petrodome Napoleonville, LLC, a Louisiana limited liability company (“ PN ”), Petrodome Pintail, LLC, a Louisiana limited liability company (“ PP ”), Petrodome St. Gabriel II, LLC, a Louisiana limited liability company (“ PSG ”), Petrodome Maurice, LLC, a Texas limited liability company (“ PM ”), Petrodome Pheasant Blessing, LLC, a Texas limited liability company (“ PPB ”), Petrodome Rio Ranch, LLC, a Texas limited liability company (“ PRR ”), Petrodome Buckeye, LLC, a Texas limited liability company (“ PB ”), Petrodome Bloomington, LLC, a Texas limited liability company (“ PBL ”), Petrodome Dietzel, LLC, a Texas limited liability company (“ PD ”), Petrodome Liberty, LLC, a Texas limited liability company (“ PL ”), Petrodome Thunderbolt, LLC, a Texas limited liability company (“ PT ”), Petrodome Quail Ridge, LLC, a Texas limited liability company (“ PQR ”), Petrodome Lone Star, LLC, a Texas limited liability company (“ PLS ”), Petrodome Wharton, LLC, a Texas limited liability company (“ PW ”), Petrodome Operating, LLC, a Texas limited liability company (“ PO ”), and Petrodome Pineville, LLC a Mississippi limited liability company (“ PPN ” and, together with Parent, PAH, PBC, PEC, PE, PLP, PN, PP, PSG, PM, PPB, PRR, PB, PBL, PD, PL, PT, PQR, PLS, PW, and PO, the “ Acquired Companies ” and each an “ Acquired Company ”);

 

WHEREAS, Seller has agreed to sell to Purchaser, and Purchaser has agreed to purchase, all of the issued and outstanding Membership Interests in Parent (the “ Purchased Interests ”) upon the terms and subject to the conditions set forth herein;

 
 
1
 
 

 

WHEREAS, the Parties have agreed to take certain actions in connection with the transactions described above upon the terms and subject to the conditions set forth herein; and

 

WHEREAS, the Parties hereto desire to set forth the terms pursuant to which the transactions described above shall be consummated.

 

NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound by the terms hereof, agree as follows:

 

ARTICLE 1

 

PURCHASE OF PURCHASED INTERESTS; PURCHASE PRICE

 

Section 1.1 Purchase of Purchased Interests .

 

At the Closing, and upon the terms and subject to the conditions of this Agreement, Seller agrees to sell and convey to Purchaser (free and clear of all Liens) and Purchaser agrees to purchase, acquire, accept and pay for all of the Purchased Interests. Seller hereby waives any and all restrictions on transfer with respect to the transfer of the Purchased Interests by Seller to Purchaser pursuant to this Agreement, including any and all rights of first refusal and other restrictions on transfer contained in any Organizational Documents of the Parent or otherwise existing.

 

Section 1.2 Purchase Price .

 

The Purchase Price for the Purchased Interests (the “ Purchase Price ”) shall be Three Million and No/100s Dollars ($3,000,000.00), subject to adjustment pursuant to Section 1.5 and Section 7.4 .

 

Section 1.3 Effective Time; Proration of Costs and Revenues .

 

(a) Possession of the Purchased Interests shall be transferred from Seller to Purchaser at the Closing, but the financial benefits and obligations of the Acquired Companies shall be transferred effective as of 12:01 A.M., Central Standard Time, on November 1, 2017 (“ Effective Time ”), as further set forth in this Agreement.

 

(b) Except as accounted for in the adjustments to the Purchase Price made under Section 1.5 and Section 7.4 , (i) Purchaser shall be entitled to all production from or attributable to the Properties on and after the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits (excluding the Adjusted Purchase Price and all other consideration due to Seller hereunder) earned with respect to the Assets on or after the Effective Time, and shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred from and after the Effective Time, and (ii) Seller shall be entitled to all production from or attributable to the Properties prior to the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits (excluding adjustments and other amounts due to Purchaser hereunder) earned with respect to the Assets prior to the Effective Time, and shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred prior to the Effective Time. “Earned” and “incurred”, as used in this Agreement, shall be interpreted in accordance with GAAP and COPAS standards, as implemented by Seller in the ordinary course of business consistent with past practice. For purposes of allocating production (and accounts receivable with respect thereto), under this Section 1.3(b) , (i) liquid Hydrocarbons shall be deemed to be “from or attributable to” the Leases, Units and Wells when they pass through the inlet flange of the pipeline connecting into the storage facilities into which they are transported from the lands covered by the applicable Lease, Unit or Well, or if there are no storage facilities, when they pass through the LACT meter or similar meter at the entry point into the pipelines through which they are transported from such lands and (ii) gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Leases, Units and Wells when they pass through the delivery point sales meters or similar meters at the entry point into the pipelines through which they are transported from such lands. The Parties shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings or gauging and strapping data is not available.

 
 
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(c) As used herein, “ Property Costs ” means (i) all costs attributable to the ownership or operation of the Assets (including costs of insurance and ad valorem, property, severance, production and similar Taxes based upon or measured by the ownership or operation of the Assets or the production of Hydrocarbons therefrom, but excluding any other Taxes), (ii) capital expenditures incurred in the ownership or operation of the Assets in the ordinary course of business, (iii) where applicable, such costs and capital expenditures charged in accordance with the relevant operating agreement, unit agreement, pooling agreement, pre-pooling agreement, pooling order or similar instrument, or if none, charged to the Assets on the same basis as charged on the date of this Agreement, and (iv) overhead costs charged to the Assets under the relevant operating agreement, unit agreement, pooling agreement, pre-pooling agreement, pooling order or similar instrument by unaffiliated third parties, or if none, charged to the Assets on the same basis as charged on the Execution Date. The costs, expenses and expenditures in (i) through (iv) shall be in accordance with the limitations in Section 5.4 . “Property Costs” shall exclude liabilities, losses, costs, and expenses attributable to (i) claims, investigations, administrative proceedings or litigation directly or indirectly arising out of or resulting from actual or claimed personal injury or death, property damage or violation of any Law (including private rights or causes of action under any Law), (ii) curing or attempting to cure or remedy any Title Defect and other title claims (including claims that the Leases have terminated), (iii) obligations to plug wells, dismantle facilities, close pits and restore the surface or seabed around such wells, facilities and pits, (iv) obligations to cure, address or remediate any contamination of groundwater, surface water, soil or Equipment under applicable Environmental Laws, (v) obligations to furnish make-up gas according to the terms of applicable gas sales, gathering or transportation contracts, (vi) gas balancing obligations and similar obligations arising from Imbalances, (vii) obligations to pay working interests, royalties, overriding royalties or other interests held in suspense, (viii) amounts that would be subject to indemnification by the Seller in Section 9.1(c) , (ix) the costs of obtaining Consents and waivers of Preferential Purchase Rights, and (x) losses arising from Casualty Assets. For the purposes of calculating the adjustments to the Purchase Price under Section 1.5 and Section 7.4 , ad valorem, property and similar Taxes, production, severance and similar Taxes shall be apportioned in accordance with Section 5.6(d) .

 

(d) For purposes of this Agreement, “ Cash ” means, as of the relevant date, all cash and cash equivalents of the Acquired Companies less Suspended Proceeds and less any outstanding checks of the Acquired Companies, determined in accordance with COPAS standards and GAAP. On the Closing Date, Seller shall be permitted to cause the Parent and the Acquired Companies to distribute to Seller all Cash of the Parent or any of the Acquired Companies as of the Effective Time and not withdrawn by or distributed to Seller prior to Closing (such amount the “ Closing Distribution ”).

 
 
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Section 1.4 Closing Statement and Closing Payment.

 

(a) At least two calendar days before the Closing, Seller shall prepare and deliver to Purchaser a statement (the “ Closing Statement ”) setting forth, together with reasonable supporting documentation, its good faith estimate of the amount of the Purchase Price to be delivered at Closing, as adjusted pursuant to Section 1.5 (the “ Adjusted Purchase Price ”) and the amount of the Closing Distribution.

 

(b) The Closing Statement shall be prepared in accordance with GAAP and COPAS.

 

Section 1.5 Purchase Price Adjustment.

 

The Purchase Price for the Purchased Interests shall be adjusted as follows for purposes of calculating the Adjusted Purchase Price, with all such amounts being determined in accordance with GAAP and COPAS standards (with such adjustments being made so as to not give duplicative effect):

 

(a) Reduced by the aggregate amount of the following proceeds received and retained by Seller: proceeds from the sale of Hydrocarbons (net of any royalties, overriding royalties or other burdens on or payable out of production, gathering, processing and transportation costs and any production, severance, sales or excise Taxes not reimbursed to Seller by the purchaser of production) produced from the Properties after the Effective Time;

 

(b) Reduced by the amount of all Property Costs that are attributable to the ownership and operation of the Assets, that are paid by Purchaser on behalf of the Acquired Companies, and incurred prior to the Effective Time.

 

(c) Reduced in accordance with Section 2.5 , by an amount equal to the Allocated Value of those Properties with respect to which Preferential Purchase Rights have been exercised or Consents withheld prior to Closing;

 

(d) Reduced by the Allocated Values of any Properties excluded by Seller pursuant to Section 2.6 ;

 

(e) Increased by the amount equal to the value of all of the Acquired Companies’ inventories of Hydrocarbons produced from or attributable to the Properties that are in storage above the load line or pipeline connection, as applicable, as of the Effective Time (which value shall be computed using the applicable contract price at the Effective Time), less any applicable severance Taxes, royalties and similar burdens; provided, however , that the adjustment contemplated by this paragraph shall be only made to the extent that Seller does not receive and retain the proceeds, or portion thereof, attributable to the sale of such Hydrocarbons;

 
 
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(f) Increased by the aggregate amount of the following proceeds received and retained by Purchaser after the Closing Date: proceeds from the sale of Hydrocarbons (net of any royalties, overriding royalties or other burdens on or payable out of production, gathering, processing and transportation costs and any production, severance, sales or excise Taxes not reimbursed to Seller by the purchaser of production) produced from the Properties prior to the Effective Time; and

 

(g) Increased by the amount of all Property Costs that are attributable to the ownership and operation of the Assets, that are paid by the Seller on behalf of the Acquired Companies, and incurred on or after the Effective Time.

 

Section 1.6 Adjustments for Tax Purposes .

 

Any payments or adjustments made pursuant to Section 1.5 and Section 7.4 shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.

 

Section 1.7 Allocation of Purchase Price .

 

Purchaser has submitted to Seller an allocation of the unadjusted Purchase Price among each of the assets of the Acquired Companies which is set forth on Schedule 1.7 , in compliance with the principles of Section 1060 of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the Treasury regulations thereunder. Purchaser and Seller make no representation or warranty as to the accuracy of such values. The “ Allocated Value ” for any Well equals the portion of the unadjusted Purchase Price allocated to such Well on Schedule 1.7 . Any adjustments to the Purchase Price shall be applied to the amounts set forth in Schedule 1.7 for the particular affected Wells to the extent possible, and if not, shall be applied on a pro rata basis in proportion to the amounts set forth on Schedule 1.7 for all Wells. Seller accepts such Allocated Value for purposes of this Agreement and the transactions contemplated hereby. Seller and Purchaser agree (i) that the Allocated Values, as adjusted pursuant to this paragraph, shall be used by Seller and Purchaser as the basis for reporting asset values and other items for purposes of all federal, state, and local Tax Returns, including Internal Revenue Service Form 8594 and (ii) that neither they nor their Affiliates will take positions inconsistent with the Allocated Values (as adjusted pursuant to this paragraph) in notices to government authorities, in audit or other proceedings with respect to Taxes, in notices to preferential purchase right holders, or in other documents or notices relating to the transactions contemplated by this Agreement without the consent of the other Party.

 

Section 1.8 Deposit; Application of Deposit .

 

If the Closing has not occurred and Purchaser has not waived the condition set forth in Section 6.2(h) in writing on or before 5:00 p.m. CST on December 1, 2017, then, on or before 5:00 p.m. CST December 4, 2017, Purchaser shall deliver a deposit, in cash, in the amount of $100,000 (the “ Deposit ”) to Geiger, Laborde & Laperouse, LLC (“ Escrow Agent ”), by check or wire transfer of immediately available funds to be held in escrow in Escrow Agent’s trust account and disbursed in accordance with this Agreement. If Purchaser is required to deliver the Deposit to the Escrow Agent pursuant to this Section 1.8 , then Purchaser, Seller and Escrow Agent shall enter into a mutually acceptable escrow agreement. At the Closing, the Escrow Agent shall disburse the Deposit to Seller, and the Deposit shall be applied toward the Closing Payment in accordance with Section 7.4(a)(v) . If this Agreement is terminated in accordance with Section 8.1 , then the Escrow Agent shall disburse the Deposit in accordance with Section 8.2(b) of this Agreement.

 
 
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ARTICLE 2

 

TITLE MATTERS

 

Section 2.1 Acquired Companies’ Title .

 

(a) This Article 2 shall to the fullest extent permitted by applicable Law, be the exclusive right and remedy of Purchaser with respect to Title Defects.

 

Section 2.2 Certain Definitions .

 

(a) As used in this Agreement, the term “ Defensible Title ” means that title of an Acquired Company that, as of the Effective Time:

 

(i) Entitles the Acquired Company to receive a share of the Hydrocarbons produced, saved and marketed from any Well (after satisfaction of all royalties, overriding royalties, nonparticipating royalties, net profits interests or other similar burdens on or measured by production of Hydrocarbons) (a “ Net Revenue Interest ”), of not less than the “net revenue interest” share shown in Exhibit A-1 for such Well, except for decreases resulting from reversionary interests, carried interests, horizontal or vertical severances or other matters or changes in interest expressly stated in Exhibit A-1 , in each case, after the Effective Time, decreases in connection with those operations permitted under Section 5.4 in which the Acquired Company may after the Effective Time be a non-consenting party, decreases resulting from the election to ratify or the establishment or amendment of pools or units on or after the Effective Time, and decreases required to allow other working interest owners to make up Imbalances set forth on Schedule 3.20 ;

 

(ii) Obligates the Acquired Company to bear not greater than the “working interest” share shown in Exhibit A-1 of the costs and expenses for the maintenance and development of, and operations relating to, any Well (a “ Working Interest ”), except increases resulting from matters expressly stated in Exhibit A-1 after the Effective Time, increases resulting from contribution requirements with respect to defaulting parties under applicable operating, unit, pooling, pre-pooling or similar agreements after the Effective Time and increases that are accompanied by at least a proportionate increase in the Acquired Company’s Net Revenue Interest; and

 

(iii) Is free and clear of Liens, encumbrances and other defects on title that affect or encumber a Property;

 

in each case excluding, subject to and determined without regard to matters constituting Permitted Encumbrances.

 

 
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(b) As used in this Agreement, the term “ Title Benefit ” shall mean any right, circumstance or condition that operates to increase the Net Revenue Interest of an Acquired Company in any Well above that shown on Exhibit A-1 , without causing a greater than proportionate increase in the Acquired Company’s Working Interest above that shown in Exhibit A-1 ;

 

(c) As used in this Agreement, the term “ Title Defect ” shall mean any Lien, encumbrance, obligation or defect that causes an Acquired Company to not have Defensible Title to an Asset; provided that “Title Defect” shall exclude the following: (1) defects or irregularities arising out of lack of corporate authorization, unless (i) such lack of corporate authorization has resulted in Damages or a Proceeding or (ii) the Purchaser provides affirmative evidence that such corporate action was not authorized and may result in another person's superior claim of title to the relevant Asset; (2) defects or irregularities that have been cured or remedied by the passage of time, including applicable statutes of limitation or statutes for prescription; (3) defects or irregularities in the chain of title consisting of the failure to recite marital status in documents executed before 1979; (4) to the extent not yet triggered, conventional rights of reassignment activated by an intent to abandon or release a lease and requiring notice to the holders of such rights; (5) defects or irregularities due to any failure to reflect in the adjacent county or parish records an Acquired Company’s chain of title to any of the Leases that comprise federal offshore leases; (6) the absence of record title with respect to certain Leases when an Acquired Company’s net revenue interest and working interest in Wells associated with such Leases, as set forth on Exhibit A-1 , is based upon enforceable contractual rights; (7) the absence of title, of record, in an Acquired Company to any rights-of-way currently owned, of record, in the name of the operator of any such rights-of-way; (8) Liens, encumbrances, obligations or defects caused by a failure to obtain any Consent or arising from any Preferential Purchase Rights; (9) any Lien, encumbrance, obligation, defect or irregularity shown on Schedule 2.2(c) , (10) such other immaterial defects or irregularities in title as would normally be waived by prudent Persons engaged in the oil and gas business when purchasing producing properties similar in nature to the Properties, and that do not materially impair the use, operation or value of any portion of the Properties and that do not reduce an Acquired Company’s Net Revenue Interest from that shown in Exhibit A-1 or increase an Acquired Company’s Working Interest above the amount shown in Exhibit A-1 ; and (11) defects based upon a gap in an Acquired Company’s chain of title to a Property, unless such gap is affirmatively shown to exist after a review of the available public and/or county or parish records or the Records or by an abstract of title, title opinion, or landman’s title chain (which documents shall be included in any Title Defect Notice).

 

Section 2.3 Definition of Permitted Encumbrances .

 

As used herein, the term “ Permitted Encumbrances ” means any or all of the following:

 

(a) Royalties, nonparticipating royalty interests, net profits interests and any overriding royalties, reversionary interests, and other burdens to the extent that they do not, individually or in the aggregate reduce an Acquired Company’s Net Revenue Interest below that shown in Exhibit A-1 or increase an Acquired Company’s Working Interest above that shown in Exhibit A-1 without a corresponding increase in the Net Revenue Interest;

 
 
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(b) The terms and provisions of all Leases (including assignments and conveyances in the chain of title to the Leases), Contracts, Surface Contracts, unit agreements, pooling orders or agreements, pre-pooling agreements, operating agreements, production sales contracts, division orders and other contracts, agreements and instruments applicable to the Assets, to the extent that they do not, individually or in the aggregate: (i) reduce an Acquired Company’s Net Revenue Interest below that shown in Exhibit A-1 or increase an Acquired Company’s Working Interest above that shown in Exhibit A-1 without a corresponding increase in the Net Revenue Interest, or (ii) materially interfere with the ownership, development and/or operation of the Assets;

 

(c) Liens for current Taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions, such contested actions being reflected in Schedule 2.3(c) and for which adequate reserves are maintained as Current Liabilities as of the Closing Date in accordance with GAAP;

 

(d) Materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar Liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by Law), or if delinquent, being contested in good faith by appropriate actions, such contested actions being reflected in Schedule 2.3(d) and for which adequate reserves are maintained as Current Liabilities as of the Closing Date in accordance with GAAP;

 

(e) Easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations to the extent that they do not, individually or in the aggregate: (i) reduce an Acquired Company’s Net Revenue Interest below that shown in Exhibit A-1 or increase an Acquired Company’s Working Interest above that shown in Exhibit A-1 without a corresponding increase in Net Revenue Interest, or (ii) materially interfere with the ownership, development and/or operation of the Assets;

 

(f) All rights reserved to or vested in any Governmental Body to control or regulate any of the Assets in any manner and all obligations and duties under all applicable Laws, rules and orders of any such Governmental Body or under any franchise, grant, license or permit issued by any such Governmental Body;

 

(g) Any encumbrance on or affecting the Assets which is expressly assumed, bonded or paid by Seller at or prior to Closing or which is discharged by Seller (in each case at no cost to the Acquired Companies) at or prior to Closing;

 

(h) Liens, obligations, defects, irregularities, or other encumbrances affecting the Assets, which obligations are not yet due and pursuant to which the Acquired Company is not in default, that would be waived by an ordinary prudent operator or company experienced in the acquisition or divestiture of producing properties and which individually and in the aggregate do not (i) reduce an Acquired Company’s Net Revenue Interest below that shown in Exhibit A-1 , or increase an Acquired Company’s Working Interest above that shown in Exhibit A-1 without a corresponding increase in the Net Revenue Interest, or (ii) materially interfere with the ownership, development and/or operation of the Assets;

 
 
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(i) Any matter that was contained in materials made available to Purchaser and uploaded to the Dropbox at least one Business Day prior to the Execution Date; and

 

(j) Consents and Preferential Purchase Rights, to the extent listed on Schedule 3.32.

 

Section 2.4 Notice of Title Defects; Defect Adjustments .

 

(a) To assert a Title Defect, Purchaser must deliver claim notices to Seller (each a “ Title Defect Notice ”) on or before 5:00 p.m. Central Standard Time on the day that is twenty (20) calendar days following the Execution Date (the “ Title Claim Date ”). Each Title Defect Notice shall be in writing and shall include: (i) a description of the alleged Title Defect(s), (ii) the Well(s) affected by the Title Defect (each a “ Title Defect Property ”), (iii) the Allocated Values of each Title Defect Property, (iv) supporting documents (if available) reasonably necessary for Seller (as well as any title attorney or examiner hired by Seller) to verify the existence of the alleged Title Defect(s), and (v) Purchaser’s reasonable estimate of the Title Defect Amount and the computations and information upon which Purchaser’s estimate is based. Purchaser shall be deemed to have waived for all purposes under this Article 2 all Title Defects that were not included in a Title Defect Notice delivered to Seller on or before the Title Claim Date. The failure of a Title Defect Notice to contain item no. 2.4(a)(iv) shall not render such notice void and ineffective if it materially complies with the provisions hereof.

 

(b) Seller shall have the right, but not the obligation, to deliver to Purchaser with respect to each Title Benefit a written notice (a “ Title Benefit Notice ”) asserting such Title Benefit on or before the Title Claim Date. Each Title Benefit Notice shall include (i) a description of the Title Benefit(s), (ii) the Well(s) affected by the Title Benefit (each a “ Title Benefit Property ”), (iii) the Allocated Values of the Title Benefit Property, (iv) supporting documents (if available) reasonably necessary for Purchaser (as well as any title attorney or examiner hired by Purchaser) to verify the existence of the alleged Title Benefit(s), and (v) Seller’s estimate of the Title Benefit Value, and the computations and information upon which Seller’s belief is based. Seller shall be deemed to have waived for all purposes hereunder all Title Benefits that were not included in a Title Benefit Notice delivered to Purchaser on or before the Title Claim Date. The failure of a Title Benefit Notice to contain item no. 2.4(b)(iv) shall not render such notice void and ineffective if it materially complies with the provisions hereof.

 

(c) Remedies for Title Defects.

 

In the event that (i) any Title Defect asserted by Purchaser in accordance with Section 2.4(a) is not waived by Purchaser, then Seller shall, in its sole discretion, elect to:

 

(i) reduce the Purchase Price by the Title Defect Amount pursuant to Section 2.4(g) and Section 7.4 ; or

 
 
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(ii) cause the Acquired Company to transfer to Seller, or its designee, the Property that is associated with such Title Defect, in which event the Purchase Price shall be reduced by an amount equal to the Title Defect Amount pursuant to Section 2.4(e)(iii) and Section 7.4 .

 

(d) Remedies for Title Benefits.

 

In the event that any Title Benefit asserted by Seller in accordance with Section 2.4(b) is not waived by Seller, then:

 

(i) to the extent Purchaser and Seller agree on the Title Benefit Amount as calculated pursuant to Section 2.4(f) , the Purchase Price shall be increased by such amount pursuant to Section 7.4 ; and

 

(ii) to the extent there is no agreement under Section 2.4(d)(i) , the Title Benefit Property or the Title Benefit Amount, as applicable, shall be submitted to arbitration in accordance with Section 2.4(g) .

 

(e) The “ Title Defect Amount ” resulting from a Title Defect shall be determined as follows:

 

(i) The Title Defect Amount with respect to a Title Defect Property shall be determined by taking into consideration the Allocated Value (as set forth on Schedule 1.7 ) of the Title Defect Property, the portion of the Title Defect Property subject to such Title Defect, and the legal effect of such Title Defect on the Title Defect Property affected thereby; provided , however , that: (A) if such Title Defect is the result of Seller's Net Revenue Interest in an Asset being less than the Net Revenue Interest set forth on Exhibit A-1 , and there is a corresponding reduction in the Working Interest, then the Purchaser and Seller agree that the Title Defect Amount attributable thereto shall be an amount equal to the Allocated Value for the relevant Title Defect Property multiplied by the percentage reduction in such Net Revenue Interest as a result of such Title Defect; and (B) if such Title Defect is the result of a Lien and the amount to discharge such Lien is liquidated, then Seller and the Purchaser agree that the Title Defect Amount attributable thereto shall be the amount required to fully discharge such Lien;

 

(ii) If the Title Defect results from any matter not described in Section 2.4(e)(i) , the Title Defect Amount shall be an amount equal to the difference between the value of the Title Defect Property affected by such Title Defect with such Title Defect and the value of such Title Defect Property without such Title Defect (taking into account the portion of the Allocated Value of the Title Defect Property);

 

(iii) If a Property that is associated with such Title Defect is transferred to Seller, or its designee, in accordance with Section 2.4(c)(ii) , then the Title Defect Amount shall be an amount equal to the Allocated Value of the Property so transferred; and

 
 
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(iv) notwithstanding anything to the contrary in this Article 2 , the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of the Title Defect Property.

 

(f) The “ Title Benefit Amount ” resulting from a Title Benefit shall be: if such Title Benefit is the result of Seller's Net Revenue Interest in an Asset being more than the Net Revenue Interest set forth on Exhibit A-1 , and there is a corresponding increase in the Working Interest, then the Purchaser and Seller agree that the Title Benefit Amount attributable thereto shall be an amount equal to the Allocated Value for the relevant Title Benefit Property multiplied by the percentage increase in such Net Revenue Interest as a result of such Title Benefit; provided, however , that if the Title Benefit does not affect the applicable Title Benefit Property throughout its entire life, the Title Benefit Amount shall be reduced to take into account the applicable time period only.

 

(g) With respect to Title Defect Notices and Title Benefit Notices provided and received on or before the Title Claim Date, such notices, and the Title Defect Amount and the Title Benefit Amount shall become final unless an objection notice (the “ Objection Notice ”) is provided by the objecting party to the other party within five (5) calendar days of receipt of the Title Defect Notice or Title Benefit Notice, as applicable, setting forth the objecting party’s objection in reasonable detail and indicating each disputed item or amount and the basis for the disagreements therewith. If an Objection Notice is provided within such five (5) calendar day period, Seller and Purchaser shall negotiate in good faith on all Title Defects, Title Benefits, Title Defect Amounts and Title Benefit Amounts for a five (5) calendar day resolution period. To the extent the Seller and Purchaser are unable to agree on a Title Defects, Title Benefits, Title Defect Amounts and Title Benefit Amounts during such five (5) day resolution period, the items shall be exclusively and finally resolved by arbitration pursuant to this Section 2.4(g) . There shall be a single arbitrator, who shall be a title attorney with at least fifteen (15) years’ experience in oil and gas titles in the area where the dispute has arisen as selected by mutual agreement of Purchaser and Seller within fifteen (15) days after the Title Claim Date (or such other time as mutually agreed). Absent such agreement on the selection of the arbitrator, the arbitrator shall be selected by the office of the American Arbitration Association in Houston, Texas (the “ Title Arbitrator ”). The arbitration proceeding shall be held in Houston, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section. The Title Arbitrator’s determination shall be made within thirty (30) days after submission of the matters in dispute and shall be final and binding upon both Parties, without right of appeal. In making his determination, the Title Arbitrator shall be bound by the rules set forth in Sections 2.4(a) , 2.4(b) , 2.4(c) , 2.4(d) , 2.4(e) , 2.4(f) and 2.4(h) and may consider such other matters as in the opinion of the Title Arbitrator are necessary or helpful to make a proper determination. Additionally, the Title Arbitrator may consult with and engage disinterested third Persons to advise the arbitrator, including petroleum engineers. The Title Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Title Defects, Title Benefits, Title Defect Amounts and Title Benefit Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. Each Party shall bear its own legal fees and other costs of presenting its case, and shall bear one-half of the costs and expenses of the Title Arbitrator.

 
 
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(h) Notwithstanding anything herein to the contrary, (y) in no event shall there be any adjustments to the Purchase Price for any individual Title Defect or series of related Title Defects for which the Title Defect Amount does not exceed Fifty Thousand Dollars ($50,000) (the “ Individual Defect Threshold ”); and (z) in no event shall there be any adjustments to the Purchase Price for Title Defects unless the sum of (i) the aggregate amount of all Title Defect Amounts for Title Defects covered by Section 2.4(c)(i) that exceed the Individual Defect Threshold (minus the amount of any Title Benefit Amounts) exceeds a deductible in an amount equal to three percent (3%) of the Purchase Price (the “ Defect Deductible ”), after which point Purchaser shall be entitled to adjustments to the Purchase Price or other available remedies under this Article 2 with respect to all Title Defects in excess of the Defect Deductible, subject to the Individual Defect Threshold.

 

Section 2.5 Consents to Assignment; Preferential Rights to Purchase .

 

Seller shall use commercially reasonable efforts to promptly prepare and send, within five calendar days following the Execution Date hereof (i) notices to the third party holders (excluding Governmental Bodies, which are addressed elsewhere in this Agreement) of any rights to Consent requesting consent or approval for the transactions contemplated by this Agreement, and (ii) notices to the holders of any Preferential Purchase Rights to purchase any Asset requesting waivers of such Preferential Purchase Rights, in each case that would be triggered by the purchase of the Purchased Interests contemplated by this Agreement, and of which Seller has knowledge. The consideration payable for any particular Assets for purposes of Preferential Purchase Rights notices shall be the Allocated Value for such Assets (proportionately reduced if an Asset is only partially affected). Seller shall use commercially reasonable efforts to cause such applicable Consents and waivers of Preferential Purchase Rights (or the exercise thereof) to be obtained and delivered prior to Closing. Purchaser shall cooperate with Seller in seeking to obtain such Consents and waivers of Preferential Purchase Rights. If any Preferential Purchase Right to purchase any Property that would be triggered by the purchase contemplated by this Agreement is exercised prior to Closing, such Property transferred to the exercising third Person as a result of the exercise of such preferential right shall reduce the Purchase Price under Section 1.5(c) and Section 7.4 by the Allocated Value for such Property (proportionately reduced if the Preferential Purchase Right affects only a portion of such Property). Seller shall retain the consideration paid by the third Person pursuant to the exercise of such Preferential Purchase Right; provided, however, the adjustment made under this Section 2.5 for such Property may not be used in meeting the Defect Deductible.

 

Section 2.6 Casualty or Condemnation Loss.

 

If, after the Execution Date of this Agreement but prior to the Closing Date, any portion of the Assets is destroyed by fire or other casualty or is taken in condemnation or under right of eminent domain (such portion of Assets, the “ Casualty Assets ”), and the loss as a result of such individual casualty or taking exceeds twenty five percent (25%) of the Purchase Price, Seller shall elect by written notice to Purchaser prior to Closing either (i) to cause the Casualty Assets to be repaired or restored prior to Closing to at least its condition prior to the applicable casualty, at Seller’s sole cost (without an adjustment to the Purchase Price), as promptly as reasonably practicable (which work may extend after the Closing Date), (ii) unless such casualty or taking is waived by Purchaser, to have the Acquired Company transfer to Seller without warranty the Casualty Assets from the Assets and reduce the Purchase Price by the Allocated Value of the Casualty Assets, or (iii) to include the Casualty Assets in the Assets (unless excluded pursuant to the other provisions of this Agreement) and assign to Purchaser or subrogate Purchaser to all of Seller’s right, title and interest in and to all rights of insurance and other claims against third Persons that arise from or by their terms cover the applicable casualty or taking. If Seller makes an election under (i) or (ii) of the preceding sentence, Seller shall retain all of the aforementioned rights to insurance and other claims against third Persons with respect to the applicable casualty or taking except to the extent the Parties otherwise agree in writing. This Section 2.6 shall not apply to normal wear and tear, gradual structural deterioration of materials, equipment or infrastructure, or any change in condition of the Assets from normal production decline (including the watering out of any Well, collapsed casing or sand infiltration).

 
 
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Section 2.7 Limitations on Applicability .

 

The rights of Purchaser under Section 2.4(a) and of Seller under Section 2.4(b) shall terminate as of the Title Claim Date and be of no further force and effect thereafter, provided there shall be no termination of Purchaser’s or Seller’s rights under Section 2.4 with respect to any bona fide Title Defect properly reported in a Title Defect Notice or bona fide Title Benefit properly reported in a Title Benefit Notice on or before the Title Claim Date. Except as provided in this Article 2 , Purchaser releases, remises and forever discharges the Seller Indemnitees from any and all suits, legal or administrative proceedings, claims, demands, damages, losses, costs, liabilities, interest or causes of action whatsoever, in Law or in equity, known or unknown, which Purchaser might now or subsequently may have, based on, relating to or arising out of, any Title Defect, and Seller releases, remises and forever discharges the Purchaser Indemnitees from any and all suits, legal or administrative proceedings, claims, demands, damages, losses, costs, liabilities, interest or causes of action whatsoever, in Law or in equity, known or unknown, which Seller might now or subsequently may have, based on, relating to or arising out of, any Title Benefit.

 

ARTICLE 3

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

The Seller hereby represents and warrants to the Purchaser, as of the Execution Date, as follows:

 

Section 3.1 Disclaimers .

 
 
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(a) EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN ARTICLE 3 OR IN THE CERTIFICATE OF SELLER TO BE DELIVERED PURSUANT TO SECTION 7.2(B) , AND EXCEPT IN THE EVENT OF FRAUD, (i) SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, STATUTORY, EXPRESS OR IMPLIED, (ii) THE PURCHASER HAS NOT RELIED UPON, AND SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR, ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO THE PURCHASER OR ANY OF ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, OFFICERS, DIRECTORS, MEMBERS, MANAGERS, EQUITY OWNERS, CONSULTANTS, REPRESENTATIVES OR ADVISORS (INCLUDING ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO THE PURCHASER BY ANY EMPLOYEE, AGENT, OFFICER, DIRECTOR, MEMBER, MANAGER, EQUITY OWNER, CONSULTANT, REPRESENTATIVE OR ADVISOR OF SELLER OR ANY OF ITS AFFILIATES), AND (iii) SELLER EXPRESSLY DISCLAIMS, AND THE PURCHASER ACKNOWLEDGES AND AGREES THAT IT HAS NOT RELIED UPON, ANY REPRESENTATION OR WARRANTY, STATUTORY, EXPRESS OR IMPLIED, AS TO (A) TITLE TO ANY OF THE PURCHASED INTERESTS OR THE ASSETS, (B) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE ASSETS, (C) THE QUANTITY, QUALITY OR RECOVERABILITY OF PETROLEUM SUBSTANCES IN OR FROM THE ASSETS, (D) ANY ESTIMATES OF THE VALUE OF THE PURCHASED INTERESTS, THE ACQUIRED COMPANIES, OR THE ASSETS OR FUTURE REVENUES GENERATED BY THE PURCHASED INTERESTS, THE ACQUIRED COMPANIES, OR THE ASSETS, (E) THE PRODUCTION OF PETROLEUM SUBSTANCES FROM THE ASSETS, (F) ANY ESTIMATES OF OPERATING COSTS AND CAPITAL REQUIREMENTS FOR ANY WELL, OPERATION, OR PROJECT, (G) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, (H) THE CONTENT, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY THIRD PARTIES, OR (I) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO THE PURCHASER OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, OFFICERS, DIRECTORS, MEMBERS, MANAGERS, MEMBERSHIP INTEREST OWNERS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO, AND FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, STATUTORY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT, EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN THE CERTIFICATE OF SELLER DELIVERED PURSUANT TO SECTION 7.2(B) , AND EXCEPT IN THE EVENT OF FRAUD, THE PURCHASER SHALL BE DEEMED TO BE OBTAINING THE PURCHASED INTERESTS, THE ACQUIRED COMPANIES, AND THE ASSETS, INCLUDING THE EQUIPMENT, IN ITS PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS AND THAT THE COMPANY HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS THE PURCHASER DEEMS APPROPRIATE.

 

(b) Any representation “to the knowledge of Seller” or “to Seller’s knowledge” is limited to matters within the actual knowledge of the persons set forth on Exhibit C . “Actual knowledge” or “knowledge” for purposes of this Agreement (whether used in reference to the Purchaser or Seller or any other Person) means information actually personally known.

 
 
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(c) Inclusion of a matter on a Schedule to a representation or warranty which addresses matters having a Material Adverse Effect shall not be deemed an indication that such matter does, or may, have a Material Adverse Effect. Matters may be disclosed on a Schedule to this Agreement for purposes of information only. Matters disclosed in each Schedule shall qualify the representation and warranty in which such Schedule is referenced and any other representation and warranty to which the matters disclosed relate (but only if the applicability of such disclosure to such other representation or warranty is readily apparent, based solely on the description in such disclosure).

 

Section 3.2 Seller Representations .

 

(a) Organization and Qualification . Seller is duly formed, validly existing and in good standing under the Laws of its jurisdiction of formation, which is set forth on Schedule 3.2(a) and is duly qualified to do business in every jurisdiction in which it is required to qualify, each of which is set forth on Schedule 3.2(a) , except where for such failures would not have a Material Adverse Effect. Seller has the partnership power and authority to enter into and carry out the terms of this Agreement.

 

(b) Authorization, Power and Enforceability . The execution, delivery and performance of this Agreement, and the performance of the transactions contemplated hereby, have been duly and validly authorized by all necessary action on the part of Seller, including its partners, managers and constituent members. Seller has full capacity and requisite partnership power to enter into and perform this Agreement and consummate the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by Seller (and all documents required hereunder to be executed and delivered by Seller at Closing will be duly executed and delivered by Seller) and this Agreement constitutes, and at the Closing, such documents will constitute, the valid and binding obligations of Seller, enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as to general principles of equity.

 

(c) No Conflicts . Except as set forth on Schedule 3.2(c) , the execution, delivery and performance of this Agreement by Seller, and the transactions contemplated by this Agreement, will not (i) violate any provision of the Organizational Documents of Seller, (ii) result in a material default (with due notice or lapse of time or both) or the creation of any Lien or encumbrance, or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any promissory note, bond, mortgage, indenture, loan or similar financing instrument or any other agreement (including Material Contracts) to which Seller is a party and which affects the Acquired Companies or Assets, (iii) violate any judgment, order, ruling, or decree applicable to Seller as a party in interest or (iv) violate any material Laws applicable to Seller or any of the Assets or Acquired Companies.

 

(d) Capitalization of Seller . Schedule 3.2(d) sets forth a complete and accurate list of each of the record and beneficial holders of Membership Interests in Seller. Except as set forth on Schedule 3.2(d) : (i) there are no outstanding or authorized subscriptions, options, convertible securities, warrants, calls, rights, agreements, understandings or commitments of any kind relating to any Membership Interests in Seller or obligating Seller to issue or sell any Membership Interests or any other interest, or to purchase or otherwise acquire any Membership Interest, security of, or equity interest in, Seller, (ii) there are no voting agreements, voting trusts or other agreements or understandings to which Seller is a party or by which it is bound relating to the voting of any Membership Interests in Seller, and (iii) there are no profit participation or similar rights with respect to the Seller.

 
 
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(e) Title to Acquired Purchased Interests . Seller has good, valid and marketable title to, and sole beneficial ownership of, all of the Purchased Interests, free and clear of all Liens and encumbrances, except those disclosed on Schedule 3.2(e) . Upon the Closing, pursuant to the terms and conditions of this Agreement, the Purchaser will acquire all of the Purchased Interests free and clear of any Liens and encumbrances (other than restrictions imposed by federal or state securities laws).

 

(f) Liability for Brokers’ Fees . Except as set forth on Schedule 3.2(f) , neither Seller nor any Affiliate of Seller (including the Acquired Companies) has incurred any obligation or entered into any agreement for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby for which the Purchaser, any of its Affiliates or any Acquired Company has (or will have) any liability.

 

(g) Litigation . Except as disclosed on Schedule 3.2(g) , there are no actions or pending Proceedings by or against Seller by or before any Governmental Body (including expropriation or forfeiture proceedings) or arbitrator, and to Seller’s knowledge, no such Proceedings have been threatened by or against Seller or any of the Assets or Acquired Companies, including Proceedings that could impair the ability of Seller to consummate the transactions contemplated in this Agreement.

 

(h) Consents and Approvals . Except as disclosed on Schedule 3.2(h) , and except for approvals by Governmental Bodies customarily obtained after the Closing, no authorization, notice, consent, waiver, approval, exemption, franchise, notification, permit, or license of, or filing within, any Governmental Body or any other Person is required to authorize, or is otherwise required by a Governmental Body or any other Person in connection with, the valid execution and delivery by Seller of this Agreement, the transfer of the Purchased Interests to the Purchaser, or the performance by Seller of its other obligations hereunder.

 

(i) Bankruptcy . There are no bankruptcy, reorganization or receivership Proceedings pending, being contemplated by or, to Seller’s knowledge, threatened against Seller or any Affiliate that controls Seller or any entity controlled by Seller.

 

Section 3.3 Organization and Authority of the Acquired Companies .

 

(a) Organization and Qualification . Each of the Acquired Companies is a limited liability company duly organized, validly existing and in good standing under the Laws of its jurisdiction of formation as set forth on Schedule 3.3(a) and is duly qualified to do business as a foreign limited liability company in every jurisdiction in which it is required to qualify by Law, each of which is set forth on Schedule 3.3(a), except where for such failures would not have a Material Adverse Effect. True, correct and complete copies of the Organizational Documents of each of the Acquired Companies, in effect as of the date of this Agreement, have been furnished by Seller to the Purchaser. Except as described in the Recitals or as set forth on Schedule 3.3(a) , there are no subsidiaries of the Acquired Companies and the Acquired Companies do not own Membership Interests, any other type of equity interest or debt interests in any other Person. The Acquired Companies have the limited liability company power and authority to own and operate the Assets and to carry on their business, as now conducted.

 
 
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(b) Authorization and Enforceability . Each of the Acquired Companies has full capacity, requisite power and authority to enter into and perform this Agreement and consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement, and the performance of the transactions contemplated hereby, have been duly and validly authorized by all necessary action on the part of each of the Acquired Companies, its managers and its members.

 

(c) No Conflicts . Except as set forth on Schedule 3.3(c) , the execution, delivery and performance of this Agreement by Seller and Parent, and the transactions contemplated by this Agreement, will not (i) violate any provision of the Organizational Documents of any of the Acquired Companies, except where such violation would not have a Material Adverse Effect, (ii) result in a material default (with due notice or lapse of time or both) or the creation of any Lien or encumbrance, or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any promissory note, bond, mortgage, indenture, loan or similar financing instrument or other agreement (including Material Contracts) to which an Acquired Company is a party and which affects the Assets or such Acquired Company, (iii) violate any judgment, order, ruling, or decree applicable to any of the Acquired Companies as a party in interest or (iv) violate any material Laws applicable to any of the Acquired Companies or any of the Assets.

 

Section 3.4 Capitalization of the Acquired Companies . Schedule 3.4 sets forth a complete and accurate list of each of the record and beneficial holders of Membership Interests in the Acquired Companies. The Purchased Interests constitute 100% of the total issued and outstanding Membership Interests in the Parent. The Purchased Interests have been duly authorized and are validly issued, fully paid and nonassessable and were issued free of any preemptive rights. Except as set forth on Schedule 3.4 : (a) there are no outstanding or authorized subscriptions, options, convertible securities, warrants, calls, rights, agreements, understandings or commitments of any kind relating to any Membership Interests in the Acquired Companies or obligating Seller or any of the Acquired Companies to issue or sell any membership interests (including the Purchased Interests) or any other interest, or to purchase or otherwise acquire any Membership Interest, security of, or equity interest in, any of the Acquired Companies, (b) there are no voting agreements, voting trusts or other agreements or understandings to which any of the Acquired Companies is a party or by which it is bound relating to the voting of any Membership Interests in the respective Acquired Company, and (c) there are no profit participation or similar rights with respect to the Acquired Companies.

 

Section 3.5 Compliance with Laws . Except as disclosed on Schedule 3.5 , and excluding Environmental Laws which are addressed in Section 3.14 :

 

(a) The Acquired Companies and the Assets are in material compliance with all applicable Laws, except any matters which would not have a Material Adverse Effect.

 
 
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(b) No Acquired Company has received any written notice from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential material violation of, or material failure to comply with, any applicable Law or any Governmental Authorization, or any actual, alleged, possible, or potential material obligation on the part of the Acquired Companies to undertake, or to bear all or any portion of the material cost of, any remedial action of any nature, except any matters which would not have a Material Adverse Effect.

 

(c) The material Governmental Authorizations that are required to own and operate the Assets have been obtained, are in full force and effect and, to the Seller’s knowledge, no event has occurred which permits, or after the giving of notice or lapse of time or both would permit, the revocation or termination of any Government Authorization, permit or license, or the imposition of any restrictions as may limit the operations or use of the Assets.

 

(d) To Seller’s knowledge, each third party operator of the Assets has been and currently is operating the Assets in material compliance with the provisions and requirements of all applicable Laws of all Governmental Bodies having jurisdiction with respect to the Assets or the operations, development, maintenance and use thereof.

 

(e) For the avoidance of doubt, this Section 3.5 does not include matters with respect to applicable Environmental Laws, which are addressed in Section 3.14.

 

Section 3.6 Financial Statements .

 

(a) Attached hereto as Schedule 3.6(a) is a true and correct copy of the Financial Statements. The Financial Statements (i) were prepared in accordance with GAAP, (ii) fairly present, in all material respects, the consolidated financial condition and the results of operations, changes in shareholders’ equity, and cash flows of the Acquired Companies as at the respective dates of and for the periods referred to in the Financial Statements, (iii) reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements, and (iv) have been prepared from and are in accordance with the accounting records of the Acquired Companies.

 

(b) Except as set forth in the Interim Balance Sheet or otherwise disclosed on Schedule 3.6(b) , none of the Acquired Companies has any liabilities that were not so reflected, reserved against or described, other than (i) liabilities incurred in the ordinary course of business after the Interim Balance Sheet Date, which are not, individually or in the aggregate, material in amount, and (ii) liabilities incurred in connection with the transactions contemplated hereby that are included within the definition of Transaction Costs.

 

(c) Except as disclosed on Schedule 3.6(c) , since the Interim Balance Sheet Date to the date of this Agreement, (i) neither Seller nor any Acquired Company has taken any action or failed to take any action that would have been in violation of Section 5.4 had such action or failure to take such action occurred after the date of this Agreement and (ii) no event, fact or circumstance occurred that would constitute a Material Adverse Effect.

 
 
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(d) The Hydrocarbon production volumes of the Assets for the years ended December 31, 2015 and 2016 and the ten months ended October 31, 2017, and attached hereto as Schedule 3.6(d) are true and correct in all material respects (limited to the Seller’s knowledge when the Seller is not the operator).

 

Section 3.7 Material Contracts . Schedule 3.7 contains a complete list of the Material Contracts to which any of the Acquired Companies is a party or by which any of the Acquired Companies or the Assets are bound, including all amendments and modifications thereto. Seller has made available to Purchaser a true and correct copy of all such Material Contracts, including all amendments and modifications thereof. With respect to the Material Contracts: (i) all Material Contracts are enforceable against the applicable Acquired Company, and, to Seller’s knowledge, the other parties thereto, and are in effect and have not expired or been terminated; (ii) none of the Acquired Companies is in material breach or material default, and to Seller’s knowledge, 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 such Acquired Company, with respect to the terms of any Material Contract; (iii) to Seller’s knowledge, no other party is in material breach or material default with respect to the terms of any Material Contract 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 such other party, with respect to the terms of any Material Contract; and (iv) none of the Acquired Companies or, to the knowledge of Seller, any other party to any Material Contract has given written notice of any breach or default or any action to terminate, cancel, rescind, or procure a judicial reformation of any Material Contract or any provision thereof.

 

Section 3.8 Employment .

 

(a) Seller has made available to Purchaser a complete and accurate list of the following information for each employee of the Acquired Companies: (i) name, job title, employing entity, original hire date, service date and bonus, if any, paid or payable for calendar years 2016 and 2015, and status as exempt or non-exempt under the FLSA, (ii) accrued and unused vacation and other paid time off as of the Closing Date, (iii) current annualized salary (or rate of pay) and other compensation (including bonus, additional forms of pay, profit-sharing, pension benefits and other compensation for which he or she is eligible), (iv) leave status (including type of leave, duration of leave and expected return date), (v) details of any applicable work permit or visa, (vi) details of any co-employment relationship, and (vii) details of any bonus and other severance amounts that will be due to such employee upon consummation of the transactions contemplated hereby.

 

(b) Except as accrued as a Current Liability on the Interim Balance Sheet, all wages, bonuses and other compensation, if any, due and payable as of the Closing Date to all present and former employees and contractors of the Acquired Companies have been paid in full, or will be paid in full, to such employees and contractors prior to the Closing. The compensation and benefits (including vacation and other paid time off benefits) paid, payable or provided with respect to all employees and contractors of the Acquired Companies have been reflected in the Financial Statements for the periods covered thereby. Except as disclosed on Schedule 3.8(b) , as of the Execution Date, no current or former employee of any of the Acquired Companies is on a disability leave of absence, is receiving disability benefits, or is in an elimination or other waiting period with respect to his or her receipt of disability benefits.

 
 
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(c) None of the Acquired Companies is a party or subject to, nor have they ever been a party or subject to, the terms of any collective bargaining agreement or any other Contract with any labor union or representative of employees, and no such agreements are being negotiated. There are no labor disputes existing or, to the Seller’s knowledge, threatened involving, by way of example, strikes, work stoppages, slowdowns, picketing, or any other interference with work or production, or any other concerted action by employees, and the Acquired Companies have not experienced any material labor difficulties during the last five years. No grievance or other legal action arising out of any collective bargaining agreement or labor relationship including the Acquired Companies exists or is, to the Seller’s knowledge, threatened. There is no question concerning representation as to any collective bargaining representative concerning any employee of the Acquired Companies and no labor union or representative thereof claims to or, to the Seller’s knowledge, is seeking to represent any such employees.

 

(d) Except as set forth on Schedule 3.8(d) , (i) none of the Acquired Companies has entered into any employment, consulting, severance, retention, bonus, change of control, termination pay or similar Contracts with any Person, either express or implied, and (ii) none of the Acquired Companies is currently negotiating, nor do any of the Acquired Companies have any outstanding offer with respect to, any such agreement or matter.

 

(e) No legal proceedings, charges, complaints, grievances, investigations or similar actions have been commenced with respect to the Acquired Companies under any Laws affecting or relating to the employment relationship, and no proceedings, charges, complaints, grievances, investigations, audits or similar actions are, to the Seller’s knowledge, threatened under any such Laws and, to the Seller’s knowledge, no facts or circumstances exist that could give rise to any such proceedings, charges, complaints, grievances, investigations, audits or similar actions. The Acquired Companies are not subject to any order, settlement or consent decree with any present or former employee, employee representative or other Person, including any Governmental Body, relating to claims of discrimination or other claims in respect of employment or labor practices and policies (including practices relating to wage payments, recordkeeping, employment classification or immigration). No Governmental Body has issued a judgment, order, decree or finding with respect to the labor and employment practices (including practices relating to discrimination, wage payments, recordkeeping, employee classification and immigration) of any of the Acquired Companies.

 

(f) The Acquired Companies are, and since the date of their formation have been, in material compliance with all applicable Laws relating to the employment of labor, including labor and employment practices, terms and conditions of employment, wages and hours, overtime payments, FLSA compliance, recordkeeping, employee classification, non-discrimination, employee benefits, employee leave, payroll documents, record retention, equal opportunity, immigration, occupational health and safety, severance, termination or discharge, collective bargaining, the payment of employee welfare and retirement benefits, and the full payment of all required social security contributions and Taxes, and the Acquired Companies are not in violation of any Laws concerning retention or classification of independent contractors. To the Seller’s knowledge, each employee and contractor of the Acquired Companies is lawfully authorized to work in the United States.

 
 
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Section 3.9 Employee Benefit Plans .

 

(a) Except as disclosed on Schedule 3.9(a) , none of the Acquired Companies or any of their respective ERISA Affiliates maintains, sponsors, contributes to or is obligated to contribute to (or has any direct or indirect liability with respect to) (i) any “employee benefit plans,” as defined in Section 3(3) of ERISA (including employee benefit plans, such as foreign plans or plans for directors, which are not subject to the provisions of ERISA (as defined below)), or (ii) any personnel policy, equity option plan, equity appreciation rights plan, restricted equity plan, phantom equity plan, equity based compensation arrangement, simple retirement account plan or arrangement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement, or any other employee benefit plan, agreement, arrangement, program, practice or understanding (the plans, agreements and other matters listed on Schedule 3.9(a) are herein collectively referred to as the “ Employee Benefit Plans ”). True, correct and complete copies of each of the Employee Benefit Plans, and related trusts and services agreements, if applicable, including all amendments thereto, have been made available to Purchaser. There has also been made available to the Purchaser, with respect to each Employee Benefit Plan and to the extent applicable: (A) the most recent annual or other reports filed with each Governmental Body, (B) the insurance contract and other funding agreement, and all amendments thereto, (C) the most recent summary plan description, scheme booklet and all announcements, (D) the most recent audited accounts and actuarial report or valuation required to be prepared under Law and (E) the most recent determination letter, opinion letter or advisory letter issued by the Internal Revenue Service.

 

(b) Each of the Employee Benefit Plans that is intended to be qualified under Section 401(a) of the Code (i) satisfies the requirements of Section 401(a) of the Code, (ii) is maintained pursuant to a prototype document approved by the Internal Revenue Service, for which a separate determination letter is not required, or has received a favorable determination letter from the Internal Revenue Service, (iii) has been amended as required by applicable Law, and (iv) has not been amended or operated in a way that would adversely affect its compliance with Section 401(a) of the Code. Each Employee Benefit Plan has been documented, operated and administered in compliance with its Organizational Documents and applicable Law. The Acquired Companies and their respective ERISA Affiliates have performed all obligations, whether arising by operation of any applicable Law or by contract, required to be performed by it in connection with the Employee Benefit Plans. Each Plan that could be a “nonqualified deferred compensation” arrangement under Section 409A of the Code is in compliance with Section 409A of the Code, and no service provider is entitled to a Tax gross-up or similar payment for any Tax or interest that may be due under Section 409A of the Code.

 

(c) With respect to the Employee Benefit Plans, all required contributions of the Acquired Companies due on or before the Closing Date pursuant to the terms of the Employee Benefit Plans or applicable Law have been timely made or properly accrued on or before the Closing Date. There are no actions, suits or claims pending (other than routine claims for benefits) or, to the Seller’s knowledge, threatened against, or with respect to, any of the Employee Benefit Plans or their assets. There is no matter pending (other than routine qualification determination filings) with respect to any of the Employee Benefit Plans before any Governmental Body. Except as set forth on Schedule 3.9(c) , the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not (i) accelerate the time of payment, funding or vesting of compensation (including equity or equity-based compensation), require any of the Acquired Companies or any of their respective ERISA Affiliates to make a larger contribution to, or pay greater compensatory payments or benefits under, any Employee Benefit Plan than it otherwise would, whether or not some other subsequent action or event would be required to cause such payment or provision to be triggered, (ii) create or give rise to any additional vested rights or service credits under any Employee Benefit Plan, (iii) limit or restrict the right of any of the Acquired Companies to merge, amend or terminate any Employee Benefit Plan; (iv) result in “excess parachute payments” within the meaning of Section 280G(b) of the Code; or (v) require a Tax “gross-up” or other payment to any “disqualified individual” within the meaning of Section 280G(c) of the Code.

 
 
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(d) None of the Acquired Companies or any of their respective ERISA Affiliates contributes to or has any obligation to contribute to, or has at any time within six years prior to the Closing Date contributed to or had an obligation to contribute to, and no Employee Benefit Plan is (i) a multiemployer plan within the meaning of Section 3(37) of ERISA or (ii) a plan subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code. No Employee Benefit Plan is funded through a trust that is intended to be exempt from federal income taxation pursuant to Section 501(c)(9) of the Code. None of the Employee Benefit Plans provides for medical or life insurance benefits to retired or former employees of the Acquired Companies (other than as required under Section 4980B of the Code or similar state law). None of the Acquired Companies or any of their respective ERISA Affiliates has incurred any withdrawal liability with respect to any multiemployer plan or any liability in connection with the termination or reorganization of any multiemployer plan.

 

Section 3.10 Litigation . Except as disclosed on Schedule 3.10 , there are no pending Proceedings by or against any of the Acquired Companies or any of the Assets by or before any Governmental Body (including expropriation or forfeiture proceedings) or arbitrator, and to Seller’s knowledge, no such Proceeding has been threatened against any of the Acquired Companies or any of the Assets, including Proceedings that could impair the ability of Seller to consummate the transactions contemplated in this Agreement.

 

Section 3.11 Taxes and Assessments .

 

(a) All reports, returns, claims for refund, statements (including estimated reports, returns or statements) relating to Taxes and other similar filings, including any schedule or attachment thereto, and including any amendment thereof (the “ Tax Returns ”) required to be filed on or before the Closing Date by or with respect to each Acquired Company have been or will be timely and properly filed by or with respect to the Acquired Companies with the appropriate Governmental Body in all jurisdictions in which such Tax Returns are required to be filed; such Tax Returns are true, correct and complete in all material respects, and all Taxes that are required to have been paid by or with respect to the Acquired Companies, regardless of whether such Taxes were shown on a Tax Return, have been timely and properly paid in full to the appropriate Governmental Body; and all Tax withholding and deposit requirements imposed on or with respect to the Acquired Companies or their employees have been satisfied in full in all respects.

 
 
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(b) There are not currently in effect any extensions of time with respect to the due date for the filing of any Tax Return of or with respect to the Acquired Companies or an agreement for any extension of time or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax of or with respect to the Acquired Companies.

 

(c) There is no written claim against the any of the Acquired Companies for any Taxes, and no assessment, deficiency, or adjustment has been asserted, proposed, or, to the knowledge of the Seller, threatened with respect to any Taxes or Tax Returns of or with respect to the Acquired Companies. There are no Tax audits or administrative Proceedings or lawsuits involving Tax matters against the Acquired Companies or the Seller by any taxing authority. No claim has ever been made in writing by a taxing authority in a jurisdiction in which any of the Acquired Companies do not file Tax Returns that any of the Acquired Companies are or may be required to file a Tax Return in that jurisdiction.

 

(d) There are no Liens (other than Liens for current period Taxes that are not yet due and payable) on any of the assets of the Acquired Companies that are attributable to any Tax liability or payment obligation.

 

(e) Except as set forth on Schedule 3.11 , none of the Assets are held by or are subject to any contractual arrangement between Seller, on the one hand, and any other Person, on the other hand, whether owning undivided interests therein or otherwise, that is classified as a partnership for United States federal tax purposes.

 

(f) None of the Acquired Companies are a party to or bound by any Tax allocation, sharing or indemnity agreements or arrangements with any Person. None of the Acquired Companies have any liability for the Taxes of any Person under Treasury Regulations Section 1.1502-6. In the past four years, none of the Acquired Companies have been a member of an affiliated, consolidated, combined or unitary group filing for federal or state Income Tax purposes. No power of attorney that is currently in force has been granted with respect to any matter relating to Taxes that could affect any of the Acquired Companies.

 

(g) Since the time of its formation, Parent has been taxed as a partnership for U.S. federal income Tax purposes and for purposes of income Tax Laws of all jurisdictions within the United States in which Parent is or has been subject to income Taxes. Each of the Acquired Companies other than Parent is disregarded for U.S. federal, state and local Income Tax purposes since their respective inceptions and no election has ever been made under Treasury Regulation Section 301.7701-3 to treat any such entity as any type of entity other than a disregarded entity for U.S. federal, state and local Income Tax purposes.

 

(h) There is no material property or obligation of the Acquired Companies, including un-cashed checks to vendors, customers, or employees, non-refunded overpayments, or unclaimed subscription balances, that is escheatable or reportable as unclaimed property to any state or municipality under any applicable escheatment or unclaimed property laws.

 

(i) All of the Assets have been properly listed and described on the property tax rolls for the Tax units in which the Assets are located and no portion of the Assets constitutes omitted property for property tax purposes.

 
 
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Section 3.12 Outstanding Capital Commitments . As of the date of this Agreement, there is no individual outstanding authority for expenditure that is binding on the Acquired Companies or Assets, the value of which Seller reasonably anticipates exceeds One Hundred Thousand Dollars ($100,000) chargeable to the Acquired Companies’ interests participating in the operation covered by such authority, other than those disclosed on Schedule 3.12 hereto.

 

Section 3.13 Insurance . Each of the Acquired Companies maintains, and through the Closing Date will maintain, insurance with reputable insurers in such amounts and covering such risks as set forth in Schedule 3.13 . Each of the Acquired Companies, as applicable, have paid all premiums due and payable under, and are otherwise in compliance with, the terms of all such insurance policies or self-insurance programs. Except as disclosed on Schedule 3.13 , (i) there are no outstanding claims under any such policies or binders; and (ii) no written notice of cancellation or non-renewal of any such policy or binder has been received or, to the knowledge of Seller, is forthcoming.

 

Section 3.14 Environmental Matters .

 

(a) Except as set forth on Schedule 3.14(a) , neither Seller nor any of its Affiliates has received written notice from any Person of any actual, threatened or alleged release, disposal, event, condition, circumstance, activity, practice or incident that (i) interferes with or prevents material compliance by Seller or any its Affiliates with any Environmental Laws or the terms of any license or permit issued pursuant thereto or any Contract or (ii) gives rise to or results in, or that would reasonably be expected to give rise to or result in, any material liability (by applicable Law or otherwise) of Seller or any of its Affiliates to any Person.

 

(b) All material reports, studies, written notices from Governmental Bodies, tests, analyses and other documents (i) addressing environmental matters related to the Acquired Companies or the Assets and (ii) in Seller’s or any of its Affiliate’s possession or control have been made available to Purchaser.

 

(c) To Seller’s knowledge, (i) each Acquired Company and any third party operator of the Assets, (A) has been and currently is, in material compliance with the provisions and requirements of all Environmental Laws, and (B) has obtained and is maintaining (including the filing of timely renewal applications) all material Governmental Authorizations that are presently necessary or required under Environmental Laws for the operation of its business as currently conducted, including the ownership, lease and operation of the Assets, and (ii) each Acquired Company and any other operator of the Assets, is not in material default with respect to or breach of any such Governmental Authorization.

 

(d) Except as set forth on Schedule 3.14(d) , no Proceeding by or against any Person or by or before any Governmental Body or arbitrator is pending or, to Seller’s knowledge, threatened against Seller or any of its Affiliates or relating to any Assets with respect to any Environmental Laws or any actual, threatened or alleged release, disposal, event, condition, circumstance, activity, practice or incident concerning any of the Assets.

 
 
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(e) Except as set forth on Schedule 3.14(e) , to Seller’s knowledge, except as would not result in any material Environmental Liability, there has been no release into the environment of any hazardous substances at, to, from or under any property or facility currently or formerly owned, leased or operated by any Acquired Company.

 

(f) No Acquired Company and, with respect to the Assets, neither Seller, any of its Affiliates nor, to Seller’s knowledge, any other Person, has entered into, or is subject to, any outstanding or unresolved incident of non-compliance (INC), order, judgment or decree, or other directive of any Governmental Body, or settlement or agreement with any Person that (i) is based on any alleged violation of or liability under any Environmental Laws or (ii) relates to the future ownership, lease, operation or use of any Assets and/or requires any change in the present condition or operation of any Assets.

 

(g) Notwithstanding anything to the contrary in this Section 3.14 or elsewhere in this Agreement, Seller makes no, and disclaims any, representation or warranty, express or implied, with respect to the presence or absence of NORM, asbestos, mercury, drilling fluids and chemicals, and produced waters and Hydrocarbons in or on the Properties or Equipment in quantities reasonably customary and typical for oilfield operations in the areas in which the Properties and Equipment are located. The representation and warranty in this Section 3.14 constitutes the only representation and warranty with respect to Environmental Laws and no other representation or warranty appearing in this Agreement shall be construed to cover Environmental Laws.

 

Section 3.15 Equipment . The Acquired Companies own or lease all Equipment, free and clear of all Liens.

 

Section 3.16 Intellectual Property .

 

Except as set forth on Schedule 3.16 , neither Seller nor any of the Acquired Companies owns any Intellectual Property related to or used in connection with the ownership or operation of the Assets that is material to Seller’s business, taken as a whole.

 

Section 3.17 Related Party Transactions .

 

(a) Neither Seller nor any Related Party of Seller (other than the Acquired Companies) holds or owns any right, title or interest in or to any of the Assets (other than through their direct or indirect ownership of the Acquired Companies). Neither Seller nor any Related Party of Seller or its Affiliates (other than the Acquired Companies) holds or owns any rights, assets and/or properties that are being used or held for use in connection with the conduct of the business of the Acquired Companies (other than through their direct or indirect ownership of the Acquired Companies).

 

(b) Except as set forth on Schedule 3.17 , neither of the Seller, nor any Related Party of Seller (other than an Acquired Company): (i) is party to any Contract, or (ii) has any interest, directly or indirectly in a supplier, service provider, debtor, lessor or creditor of any Acquired Company, (iii) is owed any amounts by any Acquired Company, or (d) owes any amount to any Acquired Company. Except as set forth on Schedule 3.17 , there are no outstanding notes payable to, accounts receivable from or advances by any Acquired Company to, and no Acquired Company is otherwise a creditor of, Seller or any Related Party of Seller.

 
 
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Section 3.18 Delivery of Hydrocarbons . Except as disclosed on Schedule 3.18 , (a) none of the Acquired Companies is obligated under any contract or agreement containing a take-or-pay, advance payment, prepayment, or similar provision, or under any gathering, transmission, or any other contract or agreement with respect to any of the Assets to sell, gather, deliver, process, or transport any Hydrocarbons without then or thereafter receiving full payment therefor, and (b) none of the Acquired Companies has received any payments for Hydrocarbons which are subject to refund or recoupment out of future production.

 

Section 3.19 Royalties. Except for the items included in the Suspended Proceeds, all material rentals, bonuses, royalties (including shut-in royalties) and other payments due with respect to the Properties that have become due and payable have been paid (limited to the Seller’s knowledge when Seller or one of its Affiliates is not the operator), or if not paid, are being contested in good faith in the normal course of business.

 

Section 3.20 Imbalances . Schedule 3.20 , sets forth all production, pipeline, transportation or processing Imbalances existing with respect to the Assets or the Acquired Companies.

 

Section 3.21 Suspended Proceeds . Except as set forth on Schedule 3.21 , proceeds for the sale of Hydrocarbons from the Properties are being received by the entitled parties in a timely manner and are not being held as Suspended Proceeds for any reason. Schedule 3.21 sets forth a list of all Suspended Proceeds as of the Execution Date, a description of the source of such Suspended Proceeds and the reason they are being held in suspense, the agreement or agreements under which such funds are being held and the name or names of the parties claiming such funds or to whom such funds are allowed.

 

Section 3.22 Hedges; Calls . Except as disclosed on Schedule 3.22 , none of the Acquired Companies has any Hedging Transactions. None of the Acquired Companies is obligated under a call, option to purchase, or similar right to sell any portion of Hydrocarbons from the Properties.

 

Section 3.23 Payout Status . Schedule 3.23 contains a true, correct and complete list of the status of any “payout” balance, as of the date set forth on such schedule, for those Wells subject to a reversion or other adjustment at some level of cost recovery or payout (or passage of time or other event other than termination of a Lease by its terms).

 

Section 3.24 Plugging and Abandonment . Except as set forth on Schedule 3.24 , to Seller’s knowledge there are no Assets where Seller was the operator:

 

(a) that are currently obligated to be plugged, abandoned and/or dismantled pursuant to Law or contract; or

 

(b) that have been plugged, shut in, temporarily abandoned, abandoned and/or dismantled but were not plugged, shut in, temporarily abandoned, abandoned and/or dismantled in compliance in all material respects with all applicable Laws and contracts.

 
 
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Section 3.25 Bonds . Schedule 3.25 sets forth all bonds, letters of credit, guarantees and other forms of financial assurance posted or provided by or on behalf of the Acquired Companies with or to any Governmental Body or third Person with respect to the Assets.

 

Section 3.26 Non-Consent Operations . Except as set forth on Schedule 3.26 , as of the date hereof, no operations are being conducted or have been conducted on the Properties with respect to which Seller or any of the Acquired Companies have elected to be a non-consenting party under the applicable operating agreement.

 

Section 3.27 Wells . Except as set forth on Schedule 3.27 :

 

(a) Exhibit A-1 is a true, correct and complete list of all Wells in which the Acquired Companies have any interest, right or title;

 

(b) To Seller’s knowledge, all Wells have been drilled and completed at legal locations and within the limits permitted by all applicable Leases, Contracts and pooling or unit agreements and are otherwise in compliance with applicable Law;

 

(c) To Seller’s knowledge, no Well is subject to penalties on allowables because of any overproduction or any other violation of Laws; and

 

(d) To Seller’ knowledge, all currently producing Wells are in an operable state of repair adequate to maintain normal operations in accordance with past practices, ordinary wear and tear excepted, and (ii), without limiting the foregoing, do not contain junk or other obstructions which could reasonably be expected to materially interfere with drilling, completion, recompletion, stimulation or other operations on, with respect to or affecting the Properties.

 

Section 3.28 Leases . Exhibit A is a true, correct and complete list of all Leases in which the Acquired Companies have any interest, right or title or are otherwise bound, and Seller has not received notice of an event of default by an Acquired Company that could reasonably be expected to materially adversely affect the ownership, exploration, development, operations or value of a Property.

 

Section 3.29 Sufficiency of Assets and Equipment . Except for oilfield equipment and services that are typically obtained on a contract or rental basis, the Assets and Equipment constitute and include all of the assets necessary for the Acquired Companies operation of their business as it is currently operated.

 

Section 3.30 Property Expenses . Seller or the Acquired Companies have paid timely the Acquired Companies’ share of all costs and expenses (including all bills for labor, materials and supplies used or furnished for use in connection with the Properties, and all Severance Costs and Taxes), attributable to the Properties, or if not paid, are being contested in good faith in the normal course of business.

 

Section 3.31 AMI . Except as set forth on Schedule 3.31 , none of the Properties is subject to (or has related to it) any area of mutual interest agreement. No Property is subject to (or has related to it) any farm-out or farm-in agreement under which any party thereto is entitled to receive assignments not yet made, or could earn additional assignments after Closing.

 
 
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Section 3.32 Consents and Preferential Purchase Rights . Except as disclosed on Schedule 3.32 , no Lease, Well, Asset or any Hydrocarbons produced from any of the foregoing are subject to a Consent or Preferential Purchase Right.

 

Section 3.33 Condemnation . There is no actual or, to Seller’s knowledge, threatened taking (whether permanent, temporary, whole or partial) of any part of the Properties by reason of condemnation or the threat of condemnation.

 

Section 3.34 Reserve Reports . Seller has furnished Purchaser with a true, correct and complete copy of the internally prepared reserve analysis of the Acquired Companies, dated October 13, 2017, with respect to the Properties (the “ Reserve Analysis ”). The Reserve Analysis is true and correct in all material respects.

 

Section 3.35 Accredited Investor; Investment Purpose . Seller is an “accredited investor” within the meaning of Rule 501(a) of Regulation D of the Securities Act, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Stock Consideration. Seller is acquiring the Stock Consideration solely for its own account with an intent for investment purposes, and without a view toward a “distribution” within the meaning of the Securities Act.

 

Section 3.36 Restricted Securities . The Seller understands that the Stock Consideration represents “restricted securities” under the federal securities laws, as the Stock Consideration is being acquired from the Purchaser in a transaction not involving a public offering, and will bear a legend indicating the restricted nature of the securities. Seller understands that the Stock Consideration has not been registered under the Securities Act or any applicable state securities law, and may not be registered in the future, and that the Stock Consideration may not be transferred or sold except pursuant to the registration provisions of the Securities Act and state securities laws, or pursuant to an applicable exemption therefrom. Seller represents that it is familiar with Rule 144 under the Securities Act, and understands the resale limitations imposed on the Stock Consideration. Seller acknowledges that Purchaser has no obligation to register or qualify the Stock Consideration for resale and further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements, including, but not limited to, the time and manner of sale, the holding period of the Stock Consideration, and requirements relating to the Purchaser that are outside of the control of Seller and that the Purchaser may not be able to satisfy.

 

Section 3.37 Information Available to Seller . Seller is aware that the Purchaser files current reports, quarterly reports, annual reports and other information with the Securities and Exchange Commission containing information about the Purchaser, and/or its business, assets, liabilities, financial condition, and operations, and Seller acknowledges that Seller has access to such filings. Seller has had the opportunity to review such information and to meet with the Purchaser and the officers of the Purchaser and/or other representatives to discuss the business, assets, liabilities, financial condition, and operations of the Purchaser, to ask any questions it may have about Purchaser, has received all materials, documents, answers and other information that Seller deems necessary or advisable to evaluate the Purchaser and the Stock Consideration, and has made and relied only upon its own independent examination, investigation, analysis and evaluation of the Purchaser and the Stock Consideration. Seller acknowledges that an investment in the Stock Consideration involves risk, including the risks disclosed in the sections entitled “Risk Factors” in such filings. The Seller has undertaken such due diligence (including a review of the properties, liabilities, books, records and contracts of the Purchaser and relating to the Stock Consideration) as the Seller deems adequate.

 
 
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Section 3.38 Land and Legal Costs . Schedule 3.38 sets forth all land and legal costs of the Parent and the Acquired Companies incurred and paid for during the period from August 1, 2017 through the Effective Time which relate to the New Prospects (the “ Land and Legal Costs ”).

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser represents and warrants to Seller, as of the Execution Date, the following:

 

Section 4.1 Disclaimers .

 

(a) EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN ARTICLE 4 OR IN THE CERTIFICATE OF PURCHASER TO BE DELIVERED PURSUANT TO SECTION 7.3(E) , AND EXCEPT IN THE EVENT OF FRAUD (i) PURCHASER MAKES NO REPRESENTATIONS OR WARRANTIES, STATUTORY, EXPRESS OR IMPLIED, (ii) THE SELLER HAS NOT RELIED UPON, AND PURCHASER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR, ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO THE SELLER OR ANY OF ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, OFFICERS, DIRECTORS, MEMBERS, MANAGERS, EQUITY OWNERS, CONSULTANTS, REPRESENTATIVES OR ADVISORS (INCLUDING ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO THE SELLER BY ANY EMPLOYEE, AGENT, OFFICER, DIRECTOR, MEMBER, MANAGER, EQUITY OWNER, CONSULTANT, REPRESENTATIVE OR ADVISOR OF PURCHASER OR ANY OF ITS AFFILIATES), AND (iii) PURCHASER EXPRESSLY DISCLAIMS, AND THE SELLER ACKNOWLEDGES AND AGREES THAT IT HAS NOT RELIED UPON, ANY REPRESENTATION OR WARRANTY, STATUTORY, EXPRESS OR IMPLIED, AS TO ANY OTHER MATTER THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO THE SELLER OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, OFFICERS, DIRECTORS, MEMBERS, MANAGERS, MEMBERSHIP INTEREST OWNERS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE STOCK CONSIDERATION OR IN EITHER CASE ANY DISCUSSION OR PRESENTATION RELATING THERETO.

 

Section 4.2 Existence and Qualification .

 

Purchaser is a Nevada corporation, organized, validly existing and in good standing under the Laws of the state of Nevada; and Purchaser is duly qualified to do business as a foreign company in every jurisdiction in which it is required to qualify in order to conduct its business except where the failure to so qualify would not have a material adverse effect on Purchaser or its properties.

 
 
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Section 4.3 Power .

 

Purchaser has the full capacity, requisite power and authority to enter into and perform this Agreement and consummate the transactions contemplated by this Agreement.

 

Section 4.4 Authorization and Enforceability .

 

The execution, delivery and performance of this Agreement, and the performance of the transactions contemplated hereby, have been duly and validly authorized by all necessary action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser (and all documents required hereunder to be executed and delivered by Purchaser at Closing will be duly executed and delivered by Purchaser) and this Agreement constitutes, and at the Closing such documents will constitute, the valid and binding obligations of Purchaser, enforceable in accordance with their terms except as such enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as to general principles of equity.

 

Section 4.5 No Conflicts .

 

The execution, delivery and performance of this Agreement by Purchaser, and the transactions contemplated by this Agreement, including without limitation, will not (i) violate any provision of the limited liability company agreement, bylaws, limited partnership agreement or other governing or charter documents of Purchaser, (ii) result in a material default (with due notice or lapse of time or both) or the creation of any lien or encumbrance, or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any promissory note, bond, mortgage, indenture, loan or similar financing instrument to which Purchaser is a party or which affects Purchaser’s assets, (iii) violate any judgment, order, ruling, or regulation applicable to Purchaser as a party in interest or (iv) violate any Laws applicable to Purchaser or any of its assets, except any matters described in clauses (ii), (iii) or (iv) above which would not have a material adverse effect on Purchaser.

 

Section 4.6 Liability for Brokers’ Fees .

 

Neither Purchaser nor any Affiliate of Purchaser has incurred any obligation or entered into any agreement for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby for which Seller, any of its Affiliates or any Acquired Company has (or will have) any liability.

 

Section 4.7 Litigation .

 

As of the Execution Date, there are no actions, suits or proceedings pending, or to Purchaser’s knowledge, threatened in writing before (or that would be before) any Governmental Body or arbitrator against Purchaser or any Affiliate of Purchaser which may impair Purchaser’s ability to perform its obligations under this Agreement if such actions, suits or proceedings are determined adversely.

 
 
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Section 4.8 Independent Investigation .

 

Purchaser is (or its advisors are) experienced and knowledgeable in the oil and gas business and aware of the risks of that business. Purchaser acknowledges and affirms that (i) in making the decision to enter into this Agreement, it has completed and relied solely upon the representations and warranties in this Agreement and its own independent investigation, verification, analysis and evaluation of the Purchased Interests, the Acquired Companies, and the Assets and the judgment and advice of its own legal, land, tax, economic, environmental, engineering, geological and geophysical and other advisors and consultants, and (ii) except for the express representations, warranties, covenants and remedies provided in this Agreement, Purchaser is acquiring the Purchased Interests, the Acquired Companies, and the Assets on an as-is, where-is basis with all faults, and has not relied upon any other representations, warranties, covenants or statements of Seller in entering into this Agreement. Notwithstanding the foregoing, nothing in this Agreement shall limit Purchaser’s remedies for fraud.

 

Section 4.9 Bankruptcy .

 

There are no bankruptcy, reorganization or receivership proceedings pending against, being contemplated by, or, to Purchaser’s knowledge, threatened against Purchaser.

 

Section 4.10 Qualification .

 

The Purchaser is (or, by the Closing Date, will be) qualified, if applicable, under the regulations of the appropriate Governmental Body to own the Purchased Interests and indirectly own the Properties, and operate the Assets, and currently has (or, by the Closing Date, will have) any general or supplemental bonding required of any Governmental Body to own the Purchased Interests and indirectly own the Properties and conduct operations with respect to the Assets operated by Seller or the Acquired Companies as of the Execution Date.

 

Section 4.11 Consents.

 

Except for consents and approvals for the assignment of the Purchased Interests to Purchaser that are customarily and lawfully obtained after the assignment of properties similar to the Purchased Interests, there are no consents, approvals or restrictions on assignment applicable to Purchaser that Purchaser is obligated to obtain or furnish in order to consummate the purchase of the Purchased Interests contemplated by this Agreement and perform and observe the covenants and obligations of Purchaser hereunder.

 

Section 4.12 Investor Status .

 

The Purchased Interests are being acquired by Purchaser for investment purposes only, for Purchaser’s own account and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act. The Purchaser can bear the economic risks attributable to ownership of the Purchased Interests. Further, Purchaser acknowledges that the Purchased Interests have not been registered under the Securities Act or any state or foreign securities laws and that the Purchased Interests may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of unless such transfer, sale, assignment, pledge, hypothecation or other disposition is pursuant to the terms of an effective registration statement under the Securities Act and are registered under any applicable state or foreign securities laws or pursuant to an exemption from registration under the Securities Act and any applicable state or foreign securities laws. The Purchaser understands and acknowledges that neither the Securities and Exchange Commission nor any state or federal agency has passed upon the Purchased Interests or made any finding or determination as to the fairness of an investment in the Purchased Interests or the accuracy or adequacy of the disclosures made to the Purchaser.

 
 
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Section 4.13 Knowledgeable Company.

 

The Purchaser is engaged on an ongoing basis in the oil and gas exploration and production business. The Purchaser has such knowledge and experience in financial and business matters that it is fully capable of evaluating the merits and risks associated with the acquisition of the Purchased Interests.

 

Section 4.14 Breach on Date Hereof.

 

As of the date of this Agreement, Purchaser has no knowledge of any fact that would constitute a material breach by Seller that would serve to substantially adversely affect any representation, warranty or covenant of Seller contained in this Agreement.

 

ARTICLE 5

 

COVENANTS OF THE PARTIES

 

Section 5.1 Access .

 

Seller will give, and will cause the Acquired Companies to give, Purchaser and its representatives access to Seller’s and its Affiliates’ offices, Assets and the Records in Seller’s or any of the Acquired Companies’ possession or control, including the right to copy the Records at Purchaser’s expense, for the purpose of conducting an investigation of the Acquired Companies and the Assets. Such access by Purchaser shall be limited to Seller’s normal business hours, and any weekends and after hours requested by Purchaser that can be reasonably accommodated by Seller, and Purchaser’s investigation shall be conducted in a manner that minimizes interference with the operation of the Acquired Companies and the Assets. All information obtained by and access granted to the Company and its representatives under this Section 5.1 shall be subject to the terms of Section 5.5 and Section 5.13 .

 

Section 5.2 Government Reviews .

 

Each Party shall in a timely manner (a) make all required filings, if any, with and prepare applications to and conduct negotiations with, each Governmental Body as to which such filings, applications or negotiations are necessary or appropriate for such Party to consummate the transactions contemplated hereby, and (b) provide such information as the other Party may reasonably request to make such filings, prepare such applications and conduct such negotiations. Each Party shall cooperate with and use all commercially reasonable efforts to assist the other with respect to such filings, applications and negotiations.

 
 
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Section 5.3 Notification of Breaches .

 

Until the Closing,

 

(a) Purchaser shall notify Seller promptly after Purchaser obtains actual knowledge that any representation or warranty of Seller contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Seller prior to or on the Closing Date has not been so performed or observed in any material respect.

 

(b) Seller shall notify Purchaser promptly after Seller obtains actual knowledge that any representation or warranty of Purchaser contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Purchaser prior to or on the Closing Date has not been so performed or observed in a material respect.

 

If any of Purchaser’s or Seller’s representations or warranties is untrue or shall become untrue in any material respect between the Execution Date and the Closing Date, or if any of Purchaser’s or Seller’s covenants or agreements to be performed or observed prior to or on the Closing Date shall not have been so performed or observed in any material respect, but if such breach of representation, warranty, covenant or agreement shall (if curable) be fully cured by the Closing (or, if the Closing has not occurred, by the Termination Date), then such breach shall be considered not to have occurred for all purposes of this Agreement.

 

 
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Section 5.4 Operation of Business .

 

Except as set forth on Schedule 5.4 , and except as otherwise consented to in writing by Purchaser, until the Closing, Seller shall not, and Seller shall cause the Acquired Companies not to (i) commit to any single operation, or series of related operations, reasonably anticipated by Seller to require future capital expenditures by the owner of the Assets in excess of One Hundred Thousand Dollars ($100,000) (net to the Acquired Company’s interest) or make any capital expenditures related to the Assets in excess of One Hundred Thousand Dollars ($100,000) (net to the Acquired Company’s interest), (ii) terminate, materially amend, execute or extend any material agreements affecting the Assets or the Acquired Companies, including Material Contracts or any contract that would be a Material Contract if entered into as of the date hereof, or waive any material rights thereunder, (iii) fail to maintain current insurance coverage on the Assets and the business of the Acquired Companies in the amounts and of the types presently in force, (iv) transfer, farmout, sell, hypothecate, encumber, create any Lien on, or otherwise dispose of any Assets, except for sales and dispositions of Hydrocarbon production and Equipment made in the ordinary course of business consistent with past practices, (v) plug and abandon any Well or abandon and remove any other equipment or fixtures included in the Assets; (vi) initiate any Proceedings before any Governmental Body pertaining to any of the Assets or the Acquired Companies or settle or compromise any Proceeding by or against any of the Acquired Companies or the Assets, (vii) create, incur or assume any Debt or guarantee any such Debt or make any loan to any Person, except as expressly provided for in this Agreement, (viii) enter into any Hedging Transaction, (ix) make any Debt or equity investment in any other Person or acquire by merger or consolidation or purchase of equity interests or other interests any corporation, partnership, association or any other business organization or division thereof, (x) fail to maintain or operate the Assets or the Acquired Companies in the ordinary course of business consistent with past practice, (xi) acquire any material assets or properties that would otherwise constitute Assets of the Acquired Companies, (xii) (A) increase the compensation or benefits payable or to become payable or potentially payable to any of the managers, directors, officers, employees or consultants of the Acquired Companies, (B) pay or agree to pay to any manager, director, officer or employee, whether past or present, any pension, retirement allowance, or other employee benefit not required by an Employee Benefit Plan existing on the date of this Agreement, (C) enter into any new, or materially amend any existing, employment, consulting, bonus, retention, change of control or severance contract with any manager, director, officer, employee or consultant, (D) establish or become obligated under any collective bargaining agreement or other contract with any labor union or Employee Benefit Plan that was not in existence prior to the date of this Agreement, or amend any Employee Benefit Plan if such amendment would have the effect of enhancing any benefits thereunder, or (E) transfer the employment of any employee of an Acquired Company or hire or engage any Person to be an employee or independent contractor of any Acquired Company or terminate the employment or service relationship of any employee or independent contractor of any Acquired Company, other than where such hiring or termination is in the ordinary course of business, (xiii) change any of the material accounting principles, methods, policies or practices used by the Acquired Companies, (xiv) change, make or rescind any election with respect to Taxes, change its Tax year or other Tax reporting principle or policy, change any method of accounting for Tax purposes, file any amended material Tax Return, consent to any extension or waiver of the limitations period applicable to the assessment or collection of any Taxes, or enter into any closing agreements or settle, resolve, or otherwise dispose of any material Proceeding relating to Taxes (other than the timely payment of Taxes in the ordinary course of business), (xv) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of any Acquired Company, (xvi) issue, grant, repurchase or redeem, or transfer, sell, pledge, dispose of, encumber or grant rights with respect to Purchased Interests or other equity securities of any Acquired Company, (xvii) change or amend the organizational documents of any Acquired Company, (xviii) make any declaration, set aside for payment or pay any dividends or make any distributions (other than dividends and distributions paid by Acquired Companies to other Acquired Companies, and other than distributions to Seller of Cash existing as of the Effective Time), and (xix) commit to do any act prohibited by the foregoing clauses (i)-(xviii). In the event of an emergency, Seller may cause an Acquired Company to take or consent to such action as a prudent operator, or non-operator as the case may be, would take and shall notify the Purchaser of such action promptly thereafter. However, except for emergency action that must be taken in the face of serious risk to life, property, or the environment, Seller has no obligation to cause an Acquired Company to undertake any actions with respect to the Assets that are not required in the course of the normal operation of the Assets consistent with past practices.

 
 
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Purchaser acknowledges that an Acquired Company may own an undivided interest in certain of the Assets and Purchaser agrees that the acts or omissions of the other working interest owners who are not affiliated with the Acquired Company shall not constitute a violation of the provisions of this Article 5 nor shall any action required by a vote of working interest owners constitute such a violation so long as the Acquired Company has voted its interest in a manner consistent with the provisions of this Article 5 .

 

Section 5.5 Indemnity Regarding Access .

 

Purchaser, on behalf of itself and the Purchaser Indemnitees, hereby releases and agrees to indemnify, defend and hold harmless all Seller Indemnitees from and against any and all claims, liabilities, losses, costs and expenses (including court costs, expert fees and reasonable attorneys’ fees), including claims, liabilities, losses, costs and expenses attributable to personal injuries, death, or property damage, arising out of or relating to access to the Assets and the Records by the Purchaser Indemnitees prior to the Closing, and other related activities or information prior to the Closing by Purchaser Indemnitees, EVEN IF CAUSED IN WHOLE OR IN PART FROM THE CONDITION OF THE ASSETS AND/OR THE SOLE, JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY INDEMNIFIED PERSON , UNLESS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SELLER INDEMNITEE.

 

Section 5.6 Tax Matters .

 

(a) Pre-Closing Tax Returns . Except as otherwise provided in Section 5.6(b) , Seller shall prepare or cause to be prepared all Tax Returns required to be filed by the Acquired Companies after the Closing Date for all Pre-Closing Tax Periods (“ Pre-Closing Tax Returns ”). Each such Pre-Closing Tax Return shall be prepared on a basis consistent with past practice of the Acquired Companies except to the extent otherwise required by Law. Seller shall provide the Purchaser with a copy of any such Pre-Closing Tax Return a reasonable number of days prior to the due date for the filing of such Pre-Closing Tax Return (such reasonable period to be not less than thirty (30) days in the case of an income Tax Return) for the Purchaser’s review and reasonable comment. Seller will consider such comments in good faith and will provide such Pre-Closing Tax Return, including any such revisions as the Seller approves, to Purchaser at least three (3) Business Days prior to the due date for the filing of the return. Purchaser will cause such Pre-Closing Tax Return (as revised by the Seller) to be timely filed by the Acquired Companies.

 

(b) Straddle Tax Period Tax Returns . Purchaser shall prepare or cause to be prepared all Tax Returns required to be filed by the Acquired Companies for all Straddle Periods (“ Straddle Tax Returns ”). Such Straddle Tax Returns shall be prepared on a basis consistent with past practice of the Acquired Companies except to the extent otherwise required by Law. Purchaser shall provide Seller with a copy of any such Straddle Tax Return a reasonable number of days prior to the due date for the filing of such Pre-Closing Tax Return (such reasonable period to be not less than thirty (30) days in the case of an income Tax Return) for Seller’s review and reasonable comment. Purchaser will consider such comments in good faith. Purchaser will cause such Straddle Tax Return (including such revisions as Purchaser approves) to be timely filed and will cause the Acquired Companies to timely pay all Taxes shown as due and payable on such Straddle Tax Return. Purchaser will provide a copy of such Straddle Tax Returns, as filed, to Seller.

 
 
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(c) Seller will pay or promptly reimburse Purchaser or the Acquired Companies (as applicable) for all Seller Taxes. “ Seller Taxes ” means any and all (i) Taxes imposed on each of the Acquired Companies, or for which it may otherwise be liable, with respect to (A) any Pre-Closing Tax Period or (B) the portion of any Straddle Period ending prior to the Effective Time (determined in accordance with Section 5.6(d) ); (ii) Taxes of any member of an affiliated, consolidated, combined or unitary group of which any Acquired Company (or any predecessor thereof) is or was a member on or prior to the Effective Time by reason of Treasury Regulation Section 1.1502-6(a) or any analogous or similar state, local or foreign law; or (iii) Taxes of any other Person for which the any of the Acquired Companies is or has been liable as a transferee or successor, by contract or otherwise on or prior to the Effective Time; provided no such Tax will constitute a Seller Tax to the extent such Tax was included in the determination of the Adjusted Purchase Price under Section 1.5 . Purchaser will pay or promptly reimburse Seller for all Taxes imposed on the Acquired Companies that are not Seller Taxes.

 

(d) For purposes of determining Seller Taxes with respect to any Straddle Period of the Acquired Companies, the portion of any Tax for such Straddle Period that is attributable to the portion of such Straddle Period ending prior to the Effective Time shall be:

 

(i) With respect to Taxes that are (A) Income Taxes, (B) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible) (“ Property Taxes ”) or (C) imposed on specific transactions, including payroll taxes, deemed equal to the amount that would be payable if the Taxable year of the Acquired Companies ended with (and included) the Effective Time; provided, that all exemptions, allowances, or deductions for the Straddle Period which are calculated on an annual basis (including, but not limited to, depreciation and amortization deductions) shall be allocated in proportion to the number of days and any portion of a day in such period prior to and including the Effective Time;

 

(ii) With respect to Property Taxes that are attributable to the severance or production of Hydrocarbons, deemed equal to the amount of Property Taxes attributable to severance or production occurring on or prior to the Effective Time; and

 

(iii) With respect to Property Taxes that are ad valorem, real property, personal property or other Property Taxes imposed on a periodic basis, deemed to be the amount of such Taxes for the entire period, multiplied by a fraction the numerator of which is the number of calendar days and any portion of a day in the portion of the period ending on the Effective Time and the denominator of which is the number of calendar days in the entire period. For purposes of this Section 5.6(d)(iii) , ad valorem and real property Taxes assessed for a particular time period shall be deemed “attributable” to such time period, even if such assessment is valued based upon production or other data for prior tax periods.

 

(e) In connection with the preparation of Tax Returns pursuant to this Section 5.6 , audit examinations, any administrative or judicial Proceedings, or the satisfaction of any accounting or Tax requirements relating to the Tax liabilities imposed on any of the Acquired Companies for a Pre-Closing Tax Period or Straddle Period, the Purchaser, on the one hand, and Seller, on the other hand, will cooperate fully with each other, including but not limited to furnishing or making available (during normal business hours), within thirty (30) days of a request, records, personnel (as reasonably required), books of account, or other materials necessary or helpful for the preparation of such Tax Returns, the conduct of audit examinations or the defense of claims by taxing authorities as to the imposition of Taxes. Notwithstanding the above, the control and conduct of any legal or administrative Proceedings concerning any Taxes that is a Third Party Claim shall be governed by Section 9.2 .

 
 
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Section 5.7 Suspended Proceeds .

 

For the avoidance of doubt, at and following Closing, the Acquired Companies shall retain all monies representing the value or proceeds of production removed or sold from the Properties and held by or on behalf of the Acquired Companies for accounts of third Persons from which payment has been suspended (such monies, net of applicable rights of set off or recoupment, being hereinafter called “ Suspended Proceeds ”). The Acquired Companies shall be solely responsible for the proper distribution of such Suspended Proceeds to the Person or Persons which or who are entitled to receive payment of the same.

 

Section 5.8 Affiliate Contracts; Intercompany Liabilities.

 

(a) Except as otherwise expressly provided for in this Agreement, at Closing, unless the Purchaser otherwise elects in writing, Seller shall cause to be terminated (at no cost to the Acquired Companies) all contracts between an Acquired Company, on the one hand, and Seller or an Affiliate of Seller (other than an Acquired Company), on the other.

 

(b) Seller will cause all Debt and other liabilities between Seller or its Related Parties (other than the Acquired Companies) on the one hand and the Acquired Companies on the other hand, to be discharged prior to Closing, except as otherwise expressly provided for in this Agreement. For the avoidance of doubt, any discharge or forgiveness of debt income shall be allocated to the Pre-Closing Tax Period and shall be deemed a Seller Tax for purposes of this Agreement.

 

Section 5.9 Replacement of Bonds, Letters of Credit and Guarantees .

 

The Parties acknowledge that each of the bonds, letters of credit and guarantees, if any, posted by Seller or any Acquired Company with Governmental Bodies and relating to the Assets will remain in place following Closing.

 

Section 5.10 Cooperation with Financial Statements.

 

(a) Seller shall provide reasonable assistance and cooperation to Purchaser in connection with the obligations of Purchaser to prepare and file with the Securities and Exchange Commission (“ SEC ”) the financial information (including any statement of revenues and direct operating expense) of the Acquired Companies (the “ Required Financial Statements ”) required to be included by Purchaser in its current and periodic reports filed under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), including Item 9.01 of Form 8-K, and in registration statements and prospectus supplements filed under the Securities Act of 1933, as amended (the “ Securities Act ”) by providing to Purchaser the relevant financial statements and records, documents and information that is available to Seller regarding the Acquired Companies and their respective Affiliates, and requesting any auditor of the Acquired Companies or Seller (or another mutually agreed upon public accounting firm) to provide such customary reviews, reports, consents, comfort letters and documents that may be required or reasonably necessary in connection therewith; and providing to Purchaser’s employees and independent accountants such access, information and records as they may reasonably request for purposes of the foregoing; provided, however, that in no case shall Seller be required to deliver any reports, documents or other information outside that which Seller prepares (or causes to be prepared) in the ordinary course of business consistent with past practice; provided, further, that, Purchaser shall reimburse all fees and expenses incurred by Seller in connection with the preparation of any such reports, documents or other information.

 
 
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(b) Seller shall execute and deliver or cause to be executed and delivered to Purchaser’s auditors and accountants such certifications and/or representation letters, in form and substance as is reasonably requested by the Purchaser, with respect to the Required Financial Statements, as applicable.

 

(c) For a period of twelve (12) months after Closing, if requested by Purchaser, Seller shall use its commercially reasonable efforts to provide Purchaser with any information available to Seller that is reasonably requested by Purchaser relating to the Seller's ownership of the Purchased Interests, the Acquired Companies or the assets of the Acquired Companies during the Seller's ownership thereof, in each case, to the extent such information is required to be included in any SEC filings. Purchaser shall reimburse all fees and expenses incurred by Seller in connection with such requests.

 

Section 5.11 Delivery and Maintenance of Records.

 

(a) Seller, at Purchaser’s cost, shall use reasonable efforts to deliver the Records in Seller’s possession or control to Purchaser or its designee at the Closing.

 

(b) Purchaser, for a period of four (4) years following the Closing, will (i) retain the Records in accordance with normal practices, (ii) provide Seller, its Affiliates, and its and their officers, employees and representatives with reasonable access to the Records relating prior to the Closing Date during normal business hours and upon prior written notice to the Purchaser, for review and copying at Seller’s expense for tax purposes or for purposes of defending any Third Party Claim made under Article 9 of this Agreement, and (iii) provide Seller, its Affiliates, and its and their officers, employees and legal counsel with reasonable access, during normal business hours and upon prior written notice to the Purchaser, to materials received or produced after Closing relating to any Third Party Claim for indemnification made under Article 9 of this Agreement for review and copying at Seller’s expense (excluding, however, for purpose of this Section 5.11(b) , (x) attorney work product and communications protected by attorney-client privilege and prepared with respect to any such claim being brought by Purchaser, and (y) information subject to a legal restriction or an applicable confidentiality restriction in favor of third Persons).

 
 
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Section 5.12 No Solicitation. Prior to the Closing or earlier termination of this Agreement, Seller shall not, nor permit its Affiliates (including the Acquired Companies) or its representatives to, directly or indirectly, (a) discuss, encourage, negotiate, undertake, initiate, authorize, recommend, propose or enter into, any transaction involving any sale, lease, license, exchange, mortgage, transfer or other disposition, in a single transaction or series of related transactions, of all or a substantial portion of the Assets or the Purchased Interests, whether by merger, consolidation, business combination, purchase or sale of equity interests or other securities, reorganization or recapitalization, loan, issuance of equity interests or other securities or any other transaction, except for the transactions contemplated by the this Agreement (an “ Alternative Transaction ”), (b) facilitate, encourage, solicit or initiate discussions, negotiations or submissions of proposals or offers in respect of an Alternative Transaction, (c) furnish or cause to be furnished, to any Person, any information concerning the Assets or Acquired Companies in connection with an Alternative Transaction or (d) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing with respect to an Alternative Transaction. Upon the execution of this Agreement, Seller shall, and shall cause its Affiliates and its representatives to, immediately cease and cause to be terminated any existing discussions or negotiations with any Persons (other than Purchaser) conducted heretofore with respect to any Alternative Transaction. Seller shall, and shall cause their Affiliates (including the Acquired Companies) to, promptly, and not later than 24 hours after receipt of such proposal, notify Purchaser in writing if any proposal for an Alternative Transaction is received by Seller or their respective Affiliates (including the Acquired Companies), and such notice shall include the terms, parties to and documentation delivered in connection with any such proposed Alternative Transaction.

 

Section 5.13 Confidentiality . From and after the Execution Date, each Party shall, and shall cause its Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective representatives to hold, in confidence any and all information, whether written or oral, concerning the Assets and Acquired Companies and the transactions contemplated by this Agreement, except: (a) as required by applicable securities laws or other Laws or regulations or the applicable rules of any stock exchange having jurisdiction over the Parties or their respective Affiliates, or (b) to the extent that a Party can show that such information (i) is generally available to and known by the public through no fault of such Party, any of its Affiliates or their respective representatives; or (ii) is lawfully acquired by such Party, any of its Affiliates or their respective representatives from and after the date of this Agreement from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If a Party or any of its Affiliates or their respective representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, such Party shall promptly notify the other Party in writing and may disclose, without liability, only that portion of such information which such Party is advised by its counsel in writing is legally required to be disclosed, provided that such Party shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.

 

Section 5.14 Non-Solicitation.

 

(a) For a period of two (2) years commencing on the Closing Date (the “ Restricted Period ”), Seller shall not, and shall not permit any of its Affiliates to, directly or indirectly, hire or solicit any employee of the Acquired Companies or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees; provided, that nothing in this Section 5.14(a) shall prevent Seller or any of its Affiliates from hiring (i) any employee whose employment has been terminated by the Acquired Companies or Purchaser after the Closing Date or (ii) after 180 days from the date of termination of employment, any employee whose employment has been terminated by the employee.

 
 
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(b) During the Restricted Period, Seller shall not, and shall not permit any of its Affiliates to, directly or indirectly, solicit or entice, or attempt to solicit or entice, any clients or customers of the Acquired Companies or potential clients or customers of the Acquired Companies for purposes of diverting their business or services from the Acquired Companies. Seller acknowledges that a breach or threatened breach of this Section 5.14 would give rise to irreparable harm to Purchaser, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by Seller of any such obligations, Purchaser shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).

 

(c) Seller acknowledges that the restrictions contained in this Section 5.14 are reasonable and necessary to protect the legitimate interests of Purchaser and constitute a material inducement to Purchaser to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in this Section 5.14 should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Law. The covenants contained in this Section 5.14 and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.

 

Section 5.15 Further Assurances .

 

After Closing, Seller and Purchaser each agrees to take such further actions and to execute, acknowledge and deliver all such further documents as are reasonably requested by the other party hereto for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement.

 

Section 5.16 Excluded Entities .

 

At or prior to Closing, Seller shall cause Parent to transfer to the Seller or its designee the Excluded Entities.

 
 
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Section 5.17 Notification of Breaches.

 

Until the Closing,

 

(a) Purchaser shall notify Seller promptly after Purchaser obtains actual knowledge that any representation or warranty of Seller or Purchaser contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Seller or Purchaser prior to or on the Closing Date has not been so performed or observed in any material respect.

 

(b) Seller shall notify Purchaser promptly after Seller obtains actual knowledge that any representation or warranty of Purchaser or Seller contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Purchaser or Seller prior to or on the Closing Date has not been so performed or observed in a material respect.

 

If any of Purchaser’s or Seller’s representations or warranties is untrue or shall become untrue in any material respect between the date of execution of this Agreement and the Closing Date, or if any of Purchaser’s or Seller’s covenants or agreements to be performed or observed prior to or on the Closing Date (other than on a specified date) shall not have been so performed or observed in any material respect, but if such breach of representation, warranty, covenant or agreement shall (if curable) be cured by the Closing (or, if the Closing does not occur, by the date set forth in Section 7.1), then such breach shall be considered not to have occurred for all purposes of this Agreement.

 

Section 5.18 Assignment of Overriding Royalty Interests .

 

(a) Upon the Closing, the Acquired Companies will convey to Seller an overriding royalty interest equal to the Overriding Royalty Percentage of all Hydrocarbons if, as, and when produced, saved, and sold from Leases, Units or Wells listed on Exhibit A or Exhibit A-1 ; however, expressly excluding any Leases, Unit or Wells that are located in a New Prospect (the “ Existing ORRI ”). Additionally, upon the Closing, Purchaser, the Parent, the Acquired Companies and any of their respective Affiliates will convey to Seller a term limited overriding royalty interest equal to the Overriding Royalty Percentage of all Hydrocarbons if, as, and when produced, saved, and sold from oil and gas leases or wells in which Purchaser, Parent, one or more Acquired Companies, or one or more of their respective Affiliates directly or indirectly acquires, or has the right to acquire (i) a leasehold interest on lands lying within a New Prospect, (ii) actual drilling operations are commenced on or before October 31, 2020 on a well with a bottom hole location on such lands, or lands unitized therewith, (iii) and such well is capable of producing Hydrocarbons in paying quantities (the “ New ORRI ”). Any New ORRI shall be term limited and extinguish, and be of no further force and effect, after October 31, 2020. Before or on Closing, the Acquired Companies will execute and deliver to Seller a recordable assignment of the Existing ORRI. The Purchaser, Parent or the applicable Acquired Company or Affiliate will execute and deliver to Seller a recordable assignment of the New ORRI after such well is drilled and completed for production, with the effective date of such assignment being the date that actual drilling operations commenced on such well. After termination of a New ORRI, upon request the Seller will deliver a recordable release and relinquishment of such New ORRI. The assignment of the Existing ORRI shall use the form of assignment attached hereto as Exhibit I-1 . The assignment of the New ORRI shall use the form of assignment attached hereto as Exhibit I-2 . The Existing ORRI and the New ORRI shall hereinafter referred to collectively as the “ ORRI ”.

 
 
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(b) The Existing ORRI shall apply to the Wells, Units and Leases and any extensions, renewals, or modifications of any of the Leases. For purposes of this Agreement, the term “renewals” shall include wholly new leases covering the same interest as any Lease acquired by the Parent or the Acquired Companies while the applicable lease remains in full force and effect or within six (6) months after the lapse thereof.

 

(c) Payment and determination of the ORRI shall be made in the same manner and method as payment of the lessor’s royalty under the Lease.

 

(d) If a Lease covers an interest in the lands covered thereby less than the entire mineral estate therein (regardless of whether such lease purports to cover only the lessor's interest therein), then, as to such Lease, the ORRI, insofar only as it affects and applies to production from or allocable to such lands, shall be payable to Seller in the proportion that the mineral interest in such lands actually covered by the relevant lease bears to the entire, undivided mineral estate in such lands. Similarly, if the Parent or an Acquired Company owns less than a one hundred percent (100%) Working Interest in and to any of the Leases, then, as to such Lease, the ORRI shall be payable to Seller in the proportion that the Working Interest in such Lease actually owned by the Parent or the Acquired Company bears to a one hundred percent (100%) Working Interest in and to such Lease.

 

Section 5.19 Reimbursement of Land and Legal Costs .

 

Purchaser shall reimburse to Seller an amount equal to all Land and Legal Costs paid by Seller prior to the Closing Date.

 

ARTICLE 6

 

CONDITIONS TO CLOSING

 

Section 6.1 Conditions of Seller to Closing .

 

The obligations of Seller to consummate the transactions contemplated by this Agreement are subject, at the option of Seller, to the satisfaction on or prior to Closing of each of the following conditions:

 

(a) Representations . (i) The Fundamental Representations of Purchaser shall be true and correct in all respects as of the Execution Date and as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) and (ii) the representations and warranties of Purchaser set forth in Article 4 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date), provided that to the extent such representation or warranty is qualified by its terms by materiality or Material Adverse Effect, such representation and warranty shall be true and correct in all respects;

 
 
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(b) Performance . Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;

 

(c) Pending Litigation . No suit, action or other Proceeding by a third Person (including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement shall be pending before any Governmental Body;

 

(d) Deliveries . Purchaser shall have delivered (or be ready, willing and able to deliver) to Seller the documents and certificates to be delivered by Purchaser under Section 7.3 ; and

 

(e) Payment . Purchaser shall be ready, willing and able to pay the Closing Payment.

 

Section 6.2 Conditions of Purchaser to Closing .

 

The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject, at the option of Purchaser, to the satisfaction on or prior to Closing of each of the following conditions:

 

(a) Representations . The Fundamental Representations and the representation and warranty in clause (ii) of Section 3.6(c) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) and (ii) all other representations and warranties of Seller set forth in Article 3 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct in all material respects on and as of such specified date), provided that to the extent such representation or warranty is qualified by its terms by materiality or Material Adverse Effect, such representation or warranty shall be true and correct in all respects;

 

(b) Performance . Seller shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;

 

(c) Pending Litigation . No suit, action or other proceeding by a third Person (including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement shall be pending before any Governmental Body;

 

(d) Deliveries . Seller shall have delivered (or be ready, willing and able to deliver) to Purchaser the documents and certificates to be delivered by Seller under Section 7.2 ;

 
 
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(e) No Material Adverse Effect . No event, fact or circumstance shall have occurred prior to the Closing that would constitute a Material Adverse Effect;

 

(f) Payment of Indebtedness and Transaction Costs . Seller shall have paid all Debt of the Acquired Companies and Transaction Costs outstanding at Closing;

 

(g) Excluded Entities . The Seller has caused the Parent to transfer to the Seller or its designee the Excluded Entities;

 

(h) Financing . Purchaser shall have obtained financing in such amounts and on such terms and conditions that are, in Purchaser’s discretion, satisfactory to Purchaser to enable it to satisfy its obligations to pay the Purchase Price hereunder;

 

(i) Seismic; Change of Control . Seller shall have delivered, or caused to be delivered, a written amendment, waiver, or termination, in form and substance satisfactory to Purchaser, of each of the following:

 

(i) Section 5 of that certain Master License Agreement, dated August 9, 2010, between FairfiledNodal (Fairfield Industries Incorporated), as Data Owner, and Petrodome Operating, LLC, as Licensee; and

 

(ii) Section V of that certain 2D & 3D Onshore/Offshore Master Seismic Data Participation and Licensing Agreement, dated October 12, 2011, between Seitel Data, Ltd., Seitel Data Corp., Seitel Offshore Corp., and Olympic Seismic, Ltd., collectively as Licensor, and Petrodome Operating, LLC, as Licensee.

 

ARTICLE 7

 

CLOSING

 

Section 7.1 Time and Place of Closing .

 

(a) If the conditions in Article 6 have been satisfied or waived by the Party entitled to satisfaction or waiver thereof (other than the conditions to be satisfied by deliveries at Closing), the transaction as contemplated by this Agreement shall be consummated (the “ Closing ”), unless otherwise agreed to in writing by Purchaser and Seller, at the offices of Seller, or such other location (or by electronic exchange of documents as Seller and Purchaser shall agree), at 10:00 A.M. local time, on (i) December 22, 2017 (the “ Scheduled Closing Date ”) or (ii) if all conditions in Article 6 to be satisfied prior to Closing have not yet been satisfied or waived by such date, on the date following such satisfaction or waiver which Purchaser or Seller specifies to the other upon at least three (3) Business Days’ advance notice (or the earlier of such dates if each Party specifies a date by such notice), subject to the rights of the Parties under Article 8 .

 

(b) The date on which the Closing occurs is herein referred to as the “ Closing Date .”

 
 
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Section 7.2 Obligations of Seller at Closing .

 

At the Closing, upon the terms and subject to the conditions of this Agreement, Seller shall deliver or cause to be delivered to Purchaser the following:

 

(a) the Assignment duly executed by Seller;

 

(b) a certificate duly executed by an authorized officer of Seller, dated as of Closing, certifying on behalf of Seller in such authorized officer’s capacity as an officer of Seller that: (i) the conditions set forth in Section 6.2(a) , Section 6.2(b) and Section 6.2(e) have been satisfied; (ii) true and complete copies of all Organizational Documents of the Acquired Companies are attached thereto; (iii) true and complete copies of all resolutions adopted by the Seller authorizing the execution, delivery and performance of this Agreement and the other documents in connection herewith by Seller are attached thereto; (iv) the names of the officers of Seller authorized to execute on its behalf this Agreement and the other documents in connection therewith; (v) true and complete copies of certificates as of a recent date from the applicable secretary of the state of formation and each other State in which each of the Seller and Acquired Companies conducts business evidencing that Seller, and such Acquired Companies, each is in good standing in such States, as applicable, are attached thereto; and (vi) true and complete copies of all of the Acquired Companies’ bank statements as of the Closing Date, together with a complete and accurate schedule of all checks outstanding as of the Closing Date attached thereto;

 

(c) an executed statement described in Treasury Regulation §1.1445-2(b)(2) certifying that Seller is not a foreign person within the meaning of the Code;

 

(d) payoff letters with respect to each item of Debt and the Transaction Costs (the “ Payoff Letters ”);

 

(e) releases of Liens, other than Permitted Encumbrances, evidencing the discharge and removal of all Liens on any Assets of the Acquired Companies and the Purchased Interests;

 

(f) a release, in the form attached hereto as Exhibit F executed by Seller;

 

(g) written resignations and release of claims to fees or expenses, in the form attached hereto as Exhibit G (the “ Resignation Letters ”), duly executed by of each of the officers and directors/managers of the Acquired Companies listed on Schedule 7.2(g) ;

 

(h) the consents listed on Schedule 7.2(h) , which consents shall be satisfactory in form and substance to Purchaser;

 

(i) executed copies of the assignments of the Existing ORRI; and

 

(j) such other documents and certificates required to be delivered by Seller pursuant to the express terms of this Agreement.

 
 
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Section 7.3 Obligations of Purchaser at Closing .

 

At the Closing, upon the terms and subject to the conditions of this Agreement, Purchaser shall deliver or cause to be delivered to Seller the following:

 

(a) the Closing Payment by wire transfer to the account designated by the Seller;

 

(b) the Assignment, duly executed by Purchaser;

 

(c) a stock certificate issued in the name of the Seller representing the issuance to Seller of two million (2,000,000) shares of common stock of the Purchaser (the “ Stock Consideration ”);

 

(d) such other documents and certificates required to be delivered by Purchaser pursuant to the express terms of this Agreement; and

 

(e) a certificate by an authorized officer of Purchaser, dated as of Closing, certifying on behalf of Purchaser in such authorized officer’s capacity as an officer of the Purchaser that the conditions set forth in Section 6.1(a) and Section 6.1(b) have been satisfied.

 

Section 7.4 Closing Payment; Post-Closing Purchase Price Adjustments.

 

(a) Closing Payment . As used in this Agreement, “ Closing Payment ” means (with any adjustments being made so as to not give duplicative effect): (i) the Adjusted Purchase Price as determined pursuant to Section 1.5 , plus (ii) the Land and Legal Costs, minus (iii) the Title Defect Amount, plus (iv) the Title Benefit Amount, as the Title Defect Amount and Title Benefit Amount, have been finally determined or as agreed upon pursuant to Section 2.4 minus (v) the Deposit, if any, delivered to Escrow Agent by Purchaser prior to the Closing.

 

(b) Post-Closing Statement . As soon as reasonably practicable after the Closing Date, but no later than sixty (60) calendar days after the Closing Date, Purchaser shall prepare and deliver to Seller a statement (the “ Post-Closing Statement ”) which shall contain:

 

(i) a balance sheet of the Acquired Companies on a consolidated basis as of the Effective Time (without giving effect to the transactions contemplated herein); and

 

(ii) Purchaser’s good faith calculation of the Closing Payment, plus or minus an additional amount representing interest as if any such increase or decrease, respectively, accrued interest between the Effective Time and Closing Date at the Agreed Interest Rate ( the “ Adjusted Closing Payment ”).

 

The Adjusted Closing Payment shall be based, to the extent possible, on actual credits, charges, receipts and other items before and after the Effective Time and taking into account all adjustments provided for in Section 1.5 .

 
 
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(c) Examination Period . After receipt of the Post-Closing Statement, Seller shall have thirty calendar days (the “ Review Period ”) to review the Post-Closing Statement and the calculation of the Adjusted Closing Payment. During the Review Period, Seller shall have reasonable access during normal business hours to the books and records of the Purchaser, the personnel of, and work papers prepared by, Purchaser, and to such historical financial information (to the extent in Purchaser's possession) to the extent that they relate to the calculation of the Adjusted Closing Payment as Seller may reasonably request for the purpose of reviewing such calculation, provided, that such access shall be in a manner that does not interfere with the normal business operations of Purchaser or the Acquired Companies.

 

(d) As soon as reasonably practicable but not later than the last day of the Review Period, Seller shall deliver to Purchaser a written report containing any changes that Seller proposes be made to the Post-Closing Statement in reasonable detail, setting forth Seller’s objections to the Adjusted Closing Payment, as applicable, and indicating each disputed item or amount and the basis for Seller’s disagreements therewith (the “ Objection Statement ”). For the avoidance of doubt, the Seller may not object under this Section 7.4 to the Title Defect Amount and Title Benefit Amount as finally determined pursuant to Section 2.4(g) . If Seller fails to deliver the Objection Statement before the expiration of the Review Period, the Post-Closing Statement, and Purchaser’s calculation of each of the Adjusted Closing Payment shall be deemed to have been accepted by Seller. Any item or amount not objected to in the Objection Statement delivered by Seller shall also be deemed to have been accepted by Seller.

 

(e) If Seller delivers the Objection Statement on or before the expiration date of the Review Period, Purchaser and Seller shall negotiate in good faith to resolve such objections within fifteen calendar days after the delivery of the Objection Statement (the “ Resolution Period ”), and, if the same are so resolved within the Resolution Period, the Post-Closing Statement and Adjusted Closing Payment with such changes as may have been agreed in writing by Purchaser and Seller, shall be final and binding.

 

(f) If Seller and Purchaser fail to reach an agreement with respect to all of the matters set forth in the Objection Statement before expiration of the Resolution Period, then any amounts remaining in dispute (“ Disputed Amounts ”) shall be submitted for resolution to the office of an impartial nationally recognized firm of accountants selected by mutual agreement of Purchaser and Seller (the “ Independent Accountant ”) who, acting as experts and not arbitrators, shall resolve the Disputed Amounts only and make any corresponding adjustments to the Adjusted Closing Payment. The parties hereto agree that all adjustments shall be made without regard to materiality. The Independent Accountant resolution of each Disputed Amount must be within the range of values assigned to each such item by Purchaser in the Post-Closing Statement and by Seller in the Objection Statement. Each Party shall each bear its own fees and other costs, and the fees and expenses of the Independent Accountant shall be allocated between Purchaser and Seller in the same proportion that the aggregate amount of unsuccessfully Disputed Amounts submitted by each such Party (as finally determined by the Independent Accountant) bears to the total amount of Disputed Amounts so submitted.

 

(g) Within ten (10) days after the date on which the Parties or the Independent Accountant, as applicable, finally determine the Disputed Amounts, (i) if the Adjusted Closing Payment exceeds the Closing Payment (the amount of such excess, the “ Post-Closing Increase Adjustment ”), then the Purchaser shall pay the Seller the amount by which the Adjusted Closing Payment exceeds the Closing Payment, together with an amount equal to interest as if the Post-Closing Increase Adjustment accrued interest from the Effective Time at the Agreed Interest Rate; (ii) if the Adjusted Closing Payment is less than the Closing Payment (the amount of such deficiency, the “ Post-Closing Decrease Adjustment ”), then Seller shall pay to Purchaser the amount by which the Closing Payment exceeds the Adjusted Closing Payment, together with an amount equal to interest as if the Post-Closing Decrease Adjustment accrued interest from the Effective Time at the Agreed Interest Rate, and (iii) if the Adjusted Closing Payment equals the Closing Payment, then no additional amount shall be due to any Party with respect to this Section 7.4 . All payments made or to be made hereunder to Seller or Purchaser shall be by electronic transfer of immediately available funds to a bank and account specified by the Party in writing to the other Party.

 
 
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(h) Any payments or adjustments made pursuant to this Section 7.4 shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.

 

ARTICLE 8

 

TERMINATION

 

Section 8.1 Termination .

 

Subject to Section 8.2 , this Agreement may be terminated: (i) at any time prior to Closing by the mutual prior written consent of Seller and Purchaser; (ii) by Seller or Purchaser if Closing has not occurred on or before seven (7) calendar days after the Scheduled Closing Date (the “ Termination Date ”); (iii) by Purchaser if any condition set forth in Section 6.2 becomes incapable of being satisfied or (iv) by Seller if any condition set forth in Section 6.1 becomes incapable of being satisfied; provided, however , that termination under clauses (ii), (iii) or (iv) shall not be effective until the Party electing to terminate has delivered one (1) days’ prior written notice to the other Party of its election to so terminate. Notwithstanding the foregoing, if a Party’s failure to perform or observe any of its covenants or obligations under this Agreement has been the cause of, or shall have resulted in, the failure of Closing to occur on or prior to the Termination Date because the conditions to the other Party’s obligation to perform at Closing in Article 6 have not been satisfied, the defaulting Party shall not be entitled to exercise any right of termination under this Section 8.1 .

 

Section 8.2 Effect of Termination .

 

(a) If this Agreement is terminated pursuant to Section 8.1 , except as set forth in this Section 8.2 , this Agreement shall become void and of no further force or effect (except for the provisions of Section 3.2(f) , Section 4.6 , Section 5.5 , Section 5.13 , Section 10.2 , Section 10.4 , Section 10.5 , Section 10.6 , Section 10.7 , Section 10.8 , Section 10.9 , Section 10.10 , Section 10.11 , Section 10.12 , Section 10.13 , Section 10.14 , Section 10.15 , Section 10.16 , Section 10.17 and Section 10.18 , all of which shall continue in full force and effect in accordance with their terms) and Seller shall be free immediately to enjoy all rights of ownership of the Acquired Companies and to sell, transfer, encumber or otherwise dispose of the Purchased Interests to any Person without any restriction under this Agreement. Notwithstanding the preceding sentence, the termination of this Agreement under Section 8.1 shall not relieve any Party from liability to the other Party at Law or in equity for any failure to perform or observe in any material respect any of its agreements or covenants contained herein which are to be performed or observed at or prior to Closing, however; UNDER NO CIRCUMSTANCES SHALL ANY PARTY TO THIS AGREEMENT BE LIABLE FOR ANY SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES OR LIABILITIES ARISING OUT OF ANY ACTUAL, ALLEGED OR INTENTIONAL BREACH OF THIS AGREEMENT, AND NO CLAIM SHALL BE MADE OR AWARDED AGAINST ANY PARTY TO THIS AGREEMENT THEREFOR .

 
 
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(b) If this Agreement is terminated pursuant to Section 8.1(ii) or Section 8.1(iv) , then the Escrow Agent shall disburse the Deposit to Seller. If this Agreement is terminated pursuant to Section 8.1(i) or Section 8.1(iii) (other than as a result of the failure of the condition set forth in Section 6.2(h) ), then the Escrow Agent shall return the Deposit to Purchaser.

 

ARTICLE 9

 

POST-CLOSING OBLIGATIONS; INDEMNIFICATION; LIMITATIONS; DISCLAIMERS AND WAIVERS

 

Section 9.1 Assumption and Indemnification .

 

(a) Without limiting Purchaser’s rights to indemnity under this Article 9 , the Parties acknowledge and agree that the Acquired Companies, from and after Closing, will retain all of their respective obligations and liabilities, known or unknown, regardless of whether such obligations or liabilities arose prior to, on or after the Effective Time.

 

(b) Except for Damages for which Seller is required to indemnify Purchaser Indemnitees under Section 9.1(c) , from and after Closing, Purchaser shall indemnify, defend and hold harmless Seller Indemnitees from and against all Damages incurred or suffered by Seller Indemnitees:

 

(i) caused by, arising out of or resulting from Purchaser’s breach of any of Purchaser’s covenants or agreements contained in this Agreement to be performed after the Closing; and

 

(ii) caused by, arising out of or resulting from any breach of any representation or warranty made by Purchaser contained in Article 4 of this Agreement or in the certificate delivered by Purchaser at Closing pursuant to Section 7.3(e) ; and

 

(iii) caused by, arising out of or resulting from any claims or actions asserted by Persons (including Governmental Bodies) with respect to (1) any condition affecting any Asset that violates or requires remediation under Environmental Law, (2) any operations conducted on such Asset that violate any Environmental Law or (3) any remediation required for an Asset under any Environmental Law, in each case attributable to periods of time prior to, on or after the Effective Time; and

 
 
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(iv) caused by arising out of or resulting from the ownership, use or operations of the Assets prior to, on or after the Effective Time.

 

EVEN IF SUCH DAMAGES ARE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF SELLER INDEMNITEES OR ANY INDEMNIFIED PERSON.

 

(c) From and after Closing, the Seller shall indemnify, defend and hold harmless Purchaser Indemnitees from and against all Damages incurred or suffered by Purchaser Indemnitees (the “ Seller Indemnity Obligations ”):

 

(i) caused by, arising out of or resulting from any breach asserted during the applicable survival period of any of Seller’s covenants or agreements contained in this Agreement to be performed after the Closing;

 

(ii) caused by, arising out of or resulting from any breach asserted during the applicable survival period of any representation or warranty made by Seller contained in Article 3 of this Agreement or in the certificate delivered by Seller at Closing pursuant to Section 7.2(b) ;

 

(iii) caused by, arising out of or resulting from: (A) any Property that has been transferred to Seller in accordance with Section 2.4(c)(ii) , and (B) any Casualty Assets that have been transferred to the Seller pursuant to Section 2.6 ;

 

(iv) caused by, arising out of or resulting from any Seller Taxes;

 

(v) caused by, arising out of the Excluded Entities;

 

(vi) caused by, arising out of or resulting from any Debt of the Acquired Companies as of the Closing Date that was not paid at Closing; and

 

(vii) caused by, arising out of or resulting from any Transaction Costs.

 

(d) Notwithstanding anything to the contrary contained in this Agreement, except for the rights of the Parties under Section 1.5 , Section 5.5 , Section 7.4 , and Section 10.17 from and after Closing this Section 9.1 contains the Parties’ exclusive remedy against each other with respect to breaches of this Agreement, including breaches of the representations and warranties contained in Article 3 and Article 4, the covenants and agreements contained in this Agreement and the affirmations of such representations, warranties, covenants and agreements contained in the certificates delivered by the Parties at Closing pursuant to Sections 7.2(b) or 7.3(e) , as applicable. Except for the remedies contained in this Article 9 and for the rights of the Parties under Section 1.5 , Section 5.5 , Section 7.4 , and Section 10.17 , from and after Closing, Purchaser (on behalf of itself, each of the other Purchaser Indemnitees and their respective insurers and successors in interest) and Seller (on behalf of itself, each of the Seller Indemnitees and their respective insurers and successors in interest) each releases, remises and forever discharges the Seller Indemnitees or the Purchaser Indemnitees, as applicable, from any and all suits, legal or administrative proceedings, claims, remedies, demands, damages, losses, costs, liabilities, interest, or causes of action whatsoever, in Law or in equity, known or unknown, which such Persons might now or subsequently may have, based on, relating to or arising out of this Agreement, the ownership, use or operation of the Assets, or the condition, quality, status or nature of the Assets or the Acquired Companies, including rights to contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and under other Environmental Laws, breaches of statutory or implied warranties, nuisance or other tort actions, rights to punitive damages and common law rights of contribution, rights under agreements between Seller and any Persons who are Affiliates of Seller, and rights under insurance maintained by Seller or any person who is an Affiliate of Seller (other than the Acquired Companies), EVEN IF CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT, BUT EXCLUDING WILLFUL MISCONDUCT), OF ANY RELEASED PERSON . Notwithstanding anything in this Agreement to the contrary, nothing in this Agreement shall relieve a Party from liability, or limit a Party’s remedies, for actual fraud.

 
 
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(e) “ Damages ”, for purposes of this Agreement, shall mean the amount of any actual liability, loss, cost, diminution in value, expense, claim, demand, notice of violation, investigation by any Governmental Body, administrative proceeding, payment, charge, obligation, fine, penalty, deficiency, award or judgment incurred or suffered by any Indemnified Party arising out of or resulting from the indemnified matter, including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity; provided, however , that no Purchaser Indemnitee or Seller Indemnitee shall be entitled to indemnification under this Section 9.1 for (i) Damages to the extent resulting from or increased by the actions or omissions of any Purchaser Indemnitee or Seller Indemnitee, respectively, after the Closing Date, or (ii) Damages that constitute special, exemplary, punitive, indirect or consequential damages (other than special, exemplary, punitive, indirect or consequential damages claimed by third parties).

 

(f) Notwithstanding any other provision of this Agreement or a document to be delivered hereto to the contrary, any claim for indemnity to which a Seller Indemnitee or Purchaser Indemnitee is entitled must be asserted by and through Seller or Purchaser, as applicable.

 

(g) The amount of any Damages for which an Indemnified Party is entitled to indemnity under Article 9 shall be reduced by the amount of insurance proceeds actually realized by the Indemnified Party or its Affiliates with respect to such Damages (net of any collection costs and excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Party or its Affiliates). Upon the request of the Indemnifying Party, the Indemnified Party shall provide the Indemnifying Party with information reasonably sufficient to allow the Indemnifying Party to calculate the amount of the indemnity payment as reduced by realized insurance proceeds in accordance with this Agreement. An Indemnified Party shall use commercially reasonable efforts to mitigate damages in respect of any Damages for which it is seeking indemnification and shall use commercially reasonable efforts to avoid costs or expenses associated with such Damages and, if such costs and expenses cannot be avoided, to minimize the amount thereof.

 

(h) The right to indemnification payment, reimbursement or other remedy based upon any such representation, warranty, covenant or obligation will not be affected by any investigation (including any environmental investigation or assessment) conducted or any knowledge acquired at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of, or compliance with, such representation, warranty, covenant or obligation.

 
 
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Section 9.2 Indemnification Actions .

 

All claims for indemnification under Section 9.1 shall be asserted and resolved as follows:

 

(a) For purposes of this Article 9 , the term “ Indemnifying Party ” when used in connection with particular Damages shall mean the Party having an obligation to indemnify another Person or Persons with respect to such Damages pursuant to this Article 9 , and the term “ Indemnified Party ” when used in connection with particular Damages shall mean the Person or Persons having the right to be indemnified with respect to such Damages by another Party pursuant to this Article 9 , subject to Section 9.1(f) .

 

(b) To make a claim for indemnification under Article 9 , an Indemnified Party shall notify the Indemnifying Party of its claim under this Section 9.2 , including the specific details of and specific basis under this Agreement for its claim (the “ Claim Notice ”). In the event that the claim for indemnification is based upon a claim by a third Person against the Indemnified Party (a “ Third Party Claim ”), the Indemnified Party shall provide its Claim Notice promptly after the Indemnified Party has actual knowledge of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 9.2 shall not relieve the Indemnifying Party of its obligations under Section 9.1 except to the extent such failure materially adversely affects the Indemnifying Party’s ability to obtain resolution of the Third Party Claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.

 

(c) In the case of a claim for indemnification based upon a Third Party Claim, the Indemnifying Party shall have fifteen (15) calendar days from its receipt of the Claim Notice to notify the Indemnified Party whether it admits or denies its liability to indemnify the Indemnified Party against such Third Party Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized, prior to and during such fifteen (15) calendar day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party, all costs of which shall be included as Damages in respect of such claim for indemnification. The failure to provide notice to the Indemnified Party shall be deemed to be denial of liability, except as may be provided in a subsequent notice from the Indemnifying Party to the Indemnified Party.

 
 
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(d) If the Indemnifying Party admits its liability to indemnify, it shall have the right and obligation to diligently defend, at its sole cost and expense, the Third Party Claim, and shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate, at the sole cost of the Indemnifying Party, in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, at its sole cost without any right of reimbursement, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 9.2(d) . Irrespective of whether the Indemnified Party elects to participate in contesting a Third Party Claim subject to this Section 9.2(d) in accordance with the foregoing sentence, the Indemnifying Party at its sole cost and expense shall provide to the Indemnified Party the following information with respect to the Third Party Claim: all filings made by any party; all written communications exchanged between any parties to the extent available to the Indemnifying Party and not subject to a restriction on disclosure to the Indemnified Party; and all orders, opinions, rulings or motions. The Indemnifying Party shall deliver the foregoing items to the Indemnified Party promptly after they become available to the Indemnifying Party. An Indemnifying Party shall not, without the written consent of the Indemnified Party (which shall not be unreasonably withheld, conditioned or delayed), (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto that does not include an unconditional written release of the Indemnified Party from all liability in respect of such Third Party Claim or (ii) settle any Third Party Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages paid by the Indemnifying Party or covered fully by the indemnity).

 

(e) If the Indemnifying Party does not admit its liability to indemnify or admits its liability but fails to diligently prosecute or settle the Third Party Claim in accordance with Section 9.2(d) , then the Indemnified Party shall have the right to defend against the Third Party Claim at the sole cost and expense of the Indemnifying Party, with counsel of the Indemnified Party’s choosing, subject to the right of the Indemnifying Party to admit its liability and assume the defense of the Third Party Claim at any time prior to settlement or final determination thereof. If the Indemnifying Party has not yet admitted its liability for a Third Party Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any proposed payment or settlement, whether whole or partial, and the Indemnifying Party shall have the option for ten (10) days following receipt of such notice to (i) admit in writing its liability for the Third Party Claim or portion thereof and (ii) if liability is so admitted, approve, in its reasonable judgment, the proposed payment or settlement. If Indemnifying Party fails to respond and admit in writing its liability during such ten (10) day period, the Indemnifying Party will be deemed to have admitted liability and approved such proposed payment or settlement.

 

(f) In the case of a claim for indemnification not based upon a Third Party Claim, the Indemnifying Party shall have thirty (30) days from its receipt of the Claim Notice to (i) cure or remedy the Damages complained of (if capable of being cured), (ii) admit its liability to indemnify for such Damages or (iii) dispute the claim for such Damages. If the Indemnifying Party does not notify the Indemnified Party within such 30-day period that it has cured or remedied the Damages or that it disputes the claim for such Damages, the Indemnifying Party shall be deemed to have disputed the claim for such Damages.

 
 
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(g) Purchaser shall have the right, as a method of recovery by Purchaser Indemnitees for indemnifiable Damages pursuant to this Article 9 to offset against and reduce the outstanding balance of the ORRI payable to Seller pursuant to this Agreement.

 

Section 9.3 Limitation on Actions .

 

(a) All representations and warranties of Seller contained herein shall survive for a period of twelve (12) months after the Closing Date and expire thereafter; provided, however , (1) that the representations and warranties of Seller contained in Section 3.11 shall survive until the expiration of the applicable statute of limitations period, (2) the representations and warranties of Seller contained in Section 3.14 shall survive for a period of sixty (60) days after the Closing Date, and (3) the Seller’s Fundamental Representations shall survive for a period of two (2) years after the Closing Date. All representations and warranties of Purchaser contained herein shall survive for a period of twelve (12) months; provided, however , that the Purchaser’s Fundamental Representations shall survive for a period of two (2) years after the Closing Date. The covenants and other agreements of Seller and Purchaser set forth in this Agreement to be performed on or before Closing shall expire upon the Closing and each other covenant and agreement of Seller and Purchaser shall survive the Closing until fully performed in accordance with its terms and expire thereafter. The affirmations of representations, warranties, covenants and agreements contained in the certificate delivered by each Party at Closing pursuant to Section 7.2(b) and Section 7.3(e) , as applicable, shall survive the Closing as to each representation, warranty covenant and agreement so affirmed for the same period of time that the specific representation, warranty, covenant or agreement survives the Closing pursuant to this Section 9.3 , and shall expire thereafter. Representations, warranties, covenants and agreements shall terminate and be of no further force and effect after the respective date of their expiration, after which time no claim may be asserted thereunder by any Person, provided that there shall be no termination of any bona fide claim asserted pursuant to this Agreement with respect to such a representation, warranty, covenant or agreement prior to its expiration or termination date.

 

(b) Purchaser’s indemnities in Section 9.1(b)(i) and Section 9.1(b)(ii) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification, except in each case as to matters for which a specific written claim for indemnity has been delivered to the Indemnifying Party on or before such termination date. Purchaser’s indemnities in Section 5.5 and Section 9.1(b)(iii) shall continue without time limit. Seller’s indemnities in Section 9.1(c)(i) and Section 9.1(c)(ii) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification, except in each case as to matters for which a specific written claim for indemnity has been delivered to the Indemnifying Party on or before such termination date. Seller’s indemnities in Section 9.1(c)(iii) , Section 9.1(c)(iv) , Section 9.1(c)(v) , Section 9.1(c)(vi) and Section 9.1(c)(vii) shall continue without time limit.

 

(c) Notwithstanding anything to the contrary contained elsewhere in this Agreement, except for the adjustments to the Purchase Price under Section 1.5 and Section 7.4 and any payments in respect thereof:

 
 
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(i) Seller shall not be required to indemnify any Person under Section 9.1(c)(ii) for any individual liability, loss, cost, expense, claim, award or judgment that does not exceed Fifty Thousand Dollars ($50,000);

 

(ii) Subject to Section 9.3(c)(i) , Seller shall not have any liability for indemnification under Section 9.1(c)(ii) until and unless the aggregate amount of the liability for all Damages for which Claim Notices pursuant to Section 9.1(c)(ii) are timely delivered by Purchaser exceeds a deductible amount equal to three percent (3%) of the Purchase Price (the “ Indemnity Deductible ”), after which point the Purchaser (or Purchaser Indemnitees) shall be entitled to claim Damages pursuant to Section 9.1(c)(ii) in excess of the Indemnity Deductible; and

 

(iii) Seller shall not be required to indemnify Purchaser and Purchaser Indemnitees, for aggregate Damages pursuant Section 9.1(c)(ii) in excess of twenty-five (25%) of the Purchase Price; provided, however, that Seller shall not be required to indemnify Purchaser and Purchaser Indemnitees for aggregate Damages caused by, arising out of or resulting from any breach any representation or warranty made by Seller contained in Section 3.14 of this Agreement in excess of ten percent (10%) of the Purchase Price.

 

Notwithstanding the foregoing, the limitations set forth in Section 9.3(c)(i) , Section 9.3(c)(ii) and Section 9.3(c)(iii) shall not apply to breaches of Fundamental Representations, the related representations and warranties in the certificate delivered by Seller at Closing pursuant to Section 7.2(b) or to any Damages arising out of or based on fraud. Neither Party shall be required to indemnify the other Party for aggregate Damages in excess of the Purchase Price, except for Damages arising out of or based on fraud.

 

Section 9.4 Waiver of Trade Practices Acts .

 

(a) It is the intention of the Parties that Purchaser’s rights and remedies with respect to this transaction and with respect to all acts or practices of Seller, past, present or future, in connection with this transaction shall be governed by legal principles other than the Texas Deceptive Trade Practices-Consumer Protection Act, Subchapter E of Chapter 17, Sections 17.41 et seq., of the Texas Business and Commerce Code, as amended (the “ Acts ”). As such, Purchaser hereby waives the applicability of the Acts to this transaction and any and all duties, rights or remedies that might be imposed by the Acts, whether such duties, rights and remedies are applied directly by the Acts itself or indirectly in connection with other statutes. Purchaser acknowledges, represents and warrants that it is purchasing the goods and/or services covered by this Agreement for commercial or business use and not for personal, family, and household purposes; that Purchaser has knowledge and experience in financial and business matters that enable it to evaluate the merits and risks of a transaction such as this; and that Purchaser is not in a significantly disparate bargaining position with Seller.

 

(b) Purchaser expressly recognizes that the price for which Seller has agreed to perform its obligations under this Agreement has been predicated upon the inapplicability of the Acts and this waiver of the Acts. Purchaser further recognizes that Seller, in determining to proceed with the entering into of this Agreement, has expressly relied on this waiver and the inapplicability of the Acts.

 
 
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(c) Compliance with Express Negligence Test . THE PARTIES AGREE THAT THE OBLIGATIONS OF THE INDEMNIFYING PARTY TO INDEMNIFY THE INDEMNIFIED PARTY SHALL BE WITHOUT REGARD TO THE NEGLIGENCE OR STRICT LIABILITY OF THE INDEMNIFIED PARTY, WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE, PASSIVE, JOINT, CONCURRENT, OR SOLE, EXCEPT TO THE EXTENT SUCH DAMAGES WERE OCCASIONED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY OR ANY OFFICER, DIRECTOR, OR EMPLOYEE OR AGENT THEREOF, IT BEING THE PARTIES’ INTENTION THAT DAMAGES ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY OR THE OFFICERS, DIRECTORS, OR EMPLOYEES OR AGENTS THEREOF NOT BE COVERED BY THE INDEMNIFICATIONS IN THIS AGREEMENT . The foregoing is a specifically bargained for allocation of risk among the Parties, which the Parties agree and acknowledge satisfies the express negligence rule and conspicuousness requirement under Texas law.

 

Section 9.5 Tax Treatment of Indemnification Payments .

 

All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.

 

ARTICLE 10

 

MISCELLANEOUS

 

Section 10.1 Counterparts .

 

This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement. Delivery of an executed counterpart signature page by facsimile or electronic transmittal (PDF) is as effective as executing and delivering this Agreement in the presence of other Parties to this Agreement.

 

Section 10.2 Notice .

 

All notices that are required or may be given pursuant to this Agreement shall be sufficient in all respects if given in writing and delivered personally, by facsimile or by registered or certified mail, postage prepaid, as follows:

 

If to Seller:

Prior to November 20, 2017:  Black Rhino, LP

4203 Yoakum Blvd., Suite 200

Houston, TX 77006

Attention: Mark Russell

Fax: 713-524-2898

 
 
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From and after November 20, 2017:

Black Rhino, LP

3 Greenway Plaza

10 th Floor

Houston, TX 77046

Attention: Mark Russell

Fax: 713-524-2898

 

with a copy to (which shall not constitute notice) :

 

Gieger, Laborde & Laperouse, LLC

5151 San Felipe Street, Suite 750

Houston, TX 77056

Attention: Andrew M. Adams

Telephone: 832-255-6000

Fax: 832-255-6001

and

The Araiza Law Firm, P.C.

1401 Oxford Street

Houston, TX 77008

Attention: Steve A. Araiza

Telephone: 713-547-5711

 

If to Purchaser:                                     Viking Energy Group, Inc.

1330 Avenue of the Americas, Ste. 23A

New York, NY 10019

Attention: James A. Doris

Telephone: 613-246-1919

Fax: 646-356-7034

 

with a copy to (which shall not constitute notice) :

 

Fishman Haygood, LLP

201 St. Charles Avenue, 46 th Floor

New Orleans, LA 70170

Attention: Maureen Brennan Gershanik

Telephone: 504-586-5278

Fax: 504-586-5250

 

Either Party may change its address for notice by notice to the other in the manner set forth above. All notices shall be deemed to have been duly given (i) when transmitted to the Party to which such notice is addressed by confirmed facsimile transmission, or (ii) at the time of receipt by the Party to which such notice is addressed. Notwithstanding the foregoing, delivery by Seller or Purchaser (as applicable) of a Title Defect Notice, Title Benefit Notice or Closing Statement or Post-Closing Statement, or a response to any of the foregoing, shall be deemed to have been duly given to the other Party when (i) transmitted via electronic mail to the address(es) of the representative(s) of such Party named above that were previously furnished to the delivering Party, and (ii) the delivering Party has provided notice to the other Party of such electronic mail pursuant to the previous sentence.

 
 
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Section 10.3 Sales or Use Tax Recording Fees and Similar Taxes and Fees . Purchaser shall bear any sales, use, excise, real property transfer, gross receipts, goods and services, registration, capital, documentary, stamp or transfer Taxes, recording fees and similar Taxes and fees incurred and imposed upon, or with respect to, the property transfers or other transactions contemplated by this Agreement (the “ Transfer Taxes ”). The Purchaser will determine, and Seller agrees to cooperate with the Purchaser in determining Transfer Taxes, if any, that are due in connection with the sale of the Purchased Interests, and the Purchaser agrees to pay any such tax to the applicable taxing authority when due. Seller shall cooperate with the Purchaser in connection with establishing any applicable exemption to such Transfer Taxes and in the preparation of any Tax Returns and other related documentation with respect to such Transfer Taxes (including exemption certificates). If such transfers or transactions are exempt from any such Taxes or fees upon the filing of an appropriate certificate or other evidence of exemption, the Purchaser will timely furnish to the Seller such certificate or evidence.

 

Section 10.4 Expenses

 

Except as provided in Section 10.3 , all expenses incurred by Seller or, prior to Closing, the Acquired Companies in connection with or related to the authorization, preparation or execution of this Agreement, the Assignment delivered hereunder and the Exhibits and Schedules hereto and thereto, and all other matters related to the Closing, including all fees and expenses of counsel, accountants and financial advisers employed by Seller or, prior to Closing, the Acquired Companies and all Transaction Costs, shall be borne solely and entirely by Seller, and all such fees and expenses incurred by the Purchaser shall be borne solely and entirely by the Purchaser.

 

Section 10.5 Governing Law and Venue .

 

This Agreement and the legal relations between the Parties shall be governed by and construed in accordance with the Laws of the State of Texas without regard to principles of conflicts of Law that would direct the application of the Law of another jurisdiction. The venue for any action brought under this Agreement shall be Harris County, Texas.

 

Section 10.6 Jurisdiction; Waiver of Jury Trial .

 

EACH PARTY CONSENTS TO PERSONAL JURISDICTION IN ANY ACTION BROUGHT IN THE UNITED STATES FEDERAL COURTS LOCATED WITHIN HARRIS COUNTY, TEXAS (OR, IF JURISDICTION IS NOT AVAILABLE IN THE UNITED STATES FEDERAL COURTS, TO PERSONAL JURISDICTION IN ANY ACTION BROUGHT IN THE STATE COURTS LOCATED IN HARRIS COUNTY, TEXAS) WITH RESPECT TO ANY DISPUTE, CLAIM OR CONTROVERSY ARISING OUT OF OR IN RELATION TO OR IN CONNECTION WITH THIS AGREEMENT, AND EACH OF THE PARTIES AGREES THAT ANY ACTION INSTITUTED BY IT AGAINST THE OTHER WITH RESPECT TO ANY SUCH DISPUTE, CONTROVERSY OR CLAIM (EXCEPT TO THE EXTENT A DISPUTE, CONTROVERSY, OR CLAIM ARISING OUT OF OR IN RELATION TO OR IN CONNECTION WITH THE DETERMINATION OF A TITLE DEFECT AMOUNT OR TITLE BENEFIT AMOUNT PURSUANT TO SECTION 2.4(G) , OR THE DETERMINATION OF THE ADJUSTED PURCHASE PRICE OR ADJUSTED CLOSING PAYMENT PURSUANT TO SECTION 7.4(F) IS REFERRED TO AN EXPERT PURSUANT TO THOSE SECTIONS) WILL BE INSTITUTED EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION (OR, IF JURISDICTION IS NOT AVAILABLE IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, THEN EXCLUSIVELY IN THE STATE COURTS LOCATED IN HARRIS, COUNTY, TEXAS). THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANOTHER IN ANY MATTER WHATSOEVER ARISING OUT OF OR IN RELATION TO OR IN CONNECTION WITH THIS AGREEMENT. IN ADDITION, EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION IN THE RESPECTIVE JURISDICTIONS REFERENCED IN THIS SECTION.

 
 
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Section 10.7 Captions .

 

The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

 

Section 10.8 Waivers .

 

Any failure by any Party or Parties to comply with any of its or their obligations, agreements or conditions herein contained may be waived in writing, but not in any other manner, by the Party or Parties to whom such compliance is owed. No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. Except as expressly provided in this Agreement, the failure of any Party to assert any of its rights under this Agreement shall not constitute a waiver of any such rights.

 

Section 10.9 Assignment .

 

No Party shall assign all or any part of this Agreement, nor shall any Party assign or delegate any of its rights or duties hereunder, without the prior written consent of the other Party and any assignment or delegation made without such consent shall be void provided that (i) the Purchaser may assign its rights to acquire the Purchased Interests at Closing to an Affiliate of the Purchaser and (ii) the Purchaser may collaterally assign any of its rights under this Agreement to its lenders, in either case so long as the Purchaser remains liable for its duties and obligations hereunder. This Agreement shall inure to the benefit of, and be binding on and enforceable by and against, the Parties and their respective successors and permitted assigns. Notwithstanding the foregoing, nothing in this Agreement shall prohibit a Party from selling or disposing of an interest in the Assets after Closing to another Person, subject to the other terms of this Agreement and all applicable agreements, instruments, obligations, covenants and burdens binding on the Assets, provided that such sale or disposition shall not relieve the selling or disposing Party of any covenant or obligation under this Agreement or any document or instrument delivered hereunder.

 
 
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Section 10.10 Entire Agreement .

 

This Agreement and the documents to be executed hereunder and the Exhibits and Schedules attached hereto, constitute the entire agreement between the Parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof.

 

Section 10.11 Amendment .

 

(a) This Agreement may be amended or modified only by an agreement in writing executed by both Parties.

 

(b) No waiver of any right under this Agreement shall be binding unless executed in writing by the Party to be bound thereby.

 

Section 10.12 No Third-Party Beneficiaries .

 

Nothing in this Agreement shall entitle any Person other than Purchaser and Seller to any claims, cause of action, remedy or right of any kind, except the rights expressly provided to the Persons described in Article 9 .

 

Section 10.13 Public Announcements .

 

Prior to Closing, the Parties acknowledge and agree that no press release or other public announcement, or public statement or comment in response to any inquiry, or other disclosure that is reasonably expected to result in a press release or public announcement, relating to the subject matter of this Agreement shall be issued or made by Seller or Purchaser, or their respective Affiliates, without the joint written approval of Seller and Purchaser, each of which may withhold its approval in its sole discretion; provided that, a press release or other public announcement, or public statement or comment in response to any inquiry, made without such joint approval shall not be in violation of this Section if it is made in order for the disclosing Party or any of its Affiliates to comply with applicable Laws or stock exchange rules or regulations or applicable debt instruments and provided it is limited to those disclosures that are required to so comply and a Party may make without joint approval corrective disclosures of previously disclosed information. Notwithstanding the foregoing, this Section 10.13 shall not restrict either Party from complying with any disclosure requirements of Governmental Bodies that are applicable to the transfer of the Purchased Interests or of the operation of the Assets.

 

Section 10.14 Invalid Provisions .

 

If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future Laws effective during the term hereof, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.

 
 
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Section 10.15 References .

 

In this Agreement:

 

(a) References to any gender includes a reference to all other genders;

 

(b) References to the singular includes the plural, and vice versa;

 

(c) Reference to any Article or Section means an Article or Section of this Agreement;

 

(d) Reference to any Exhibit or Schedule means an Exhibit or Schedule to this Agreement, all of which are incorporated into and made a part of this Agreement;

 

(e) References to $ or Dollars means United States Dollars.

 

(f) Unless expressly provided to the contrary, “hereunder”, “hereof”, “herein” and words of similar import are references to this Agreement as a whole and not any particular Section or other provision of this Agreement;

 

(g) “Include” and “including” shall mean include or including without limiting the generality of the description preceding such term; and

 

(h) If the date specified in this Agreement for giving notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date that is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day which is a Business Day.

 

Section 10.16 Construction .

 

Each of Seller and Purchaser has had substantial input into the drafting and preparation of this Agreement and has had the opportunity to exercise business discretion in relation to the negotiation of the details of the transaction contemplated hereby. This Agreement is the result of arm’s-length negotiations from equal bargaining positions.

 

Section 10.17 Specific Performance

 

The Parties agree that irreparable damage for which monetary damages, even if available, would not be an adequate remedy, would occur if any provision of this Agreement were not performed in accordance with the terms hereof (including failing to take such actions as are required hereunder in order to consummate the transaction contemplated hereby) and that the Parties shall be entitled to an injunction, specific performance and other equitable relief to prevent breaches (or threatened breaches) of this Agreement and to enforce specifically the performance of the terms and provisions hereof, this being in addition to any other remedy to which the Parties are entitled at law or in equity. Any Party seeking an injunction to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement shall not be required to provide any bond or other security in connection with any such order or injunction.

 
 
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Section 10.18 Limitation on Damages.

 

NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NONE OF PURCHASER, SELLER OR ANY OF THEIR RESPECTIVE AFFILIATES OR INDEMNITEES SHALL BE ENTITLED TO EITHER PUNITIVE, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH OF PURCHASER AND SELLER, FOR ITSELF AND ON BEHALF OF ITS AFFILIATES AND INDEMNITEES, HEREBY EXPRESSLY WAIVES ANY RIGHT TO PUNITIVE, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT TO THE EXTENT AN INDEMNIFIED PARTY IS REQUIRED TO PAY PUNITIVE, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES TO A THIRD PERSON THAT IS NOT AN INDEMNIFIED PARTY. FOR THE AVOIDANCE OF DOUBT, AS USED IN THIS AGREEMENT, “CONSEQUENTIAL DAMAGES” SHALL MEAN ONLY THOSE REMOTE OR SPECULATIVE DAMAGES THAT DO NOT DIRECTLY ARISE FROM THE BREACH OF REPRESENTATION, WARRANTY OR COVENANT.

 

Section 10.19 Legal Representation .

 

(a) In any dispute or proceeding arising under or in connection with this Agreement or the transactions contemplated hereby following the Closing, Seller will have the right, at its election, to retain Gieger, Laborde & Laperouse L.L.C. and/or The Araiza Law Firm, P.C. (together, the “ Law Firms ”) to represent it in such matter. The Purchaser, for itself and the Acquired Companies and for their respective successors and assigns, hereby waives any conflicts of interest arising from such representation and consents to such representation in any such matter, and acknowledges that such waiver is voluntary, has been carefully considered and made after consultation with counsel.

 

(b) All communications involving attorney-client confidences between Seller, its Affiliates or the Acquired Companies and the Law Firms in the course of the negotiation, documentation and consummation of the transactions contemplated hereby and any attendant attorney client privilege, attorney work product protection and expectation of client confidentiality with respect thereto shall be deemed to belong solely to Seller and its Affiliates (and not the Acquired Companies) and shall not be deemed to have been waived even if inadvertently disclosed. Accordingly, the Acquired Companies shall in no event have access to any such communications, or to the related files or work product of the Law Firms arising out of or related to the negotiation, documentation and consummation of the transactions contemplated hereby.

 
 
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ARTICLE 11

 

DEFINITIONS

 

Acquired Companies ” and “ Acquired Company ” has the meaning set forth in the recitals of this Agreement.

 

Acts ” has the meaning set forth in Section 9.4(a) .

 

Adjusted Closing Payment ” has the meaning set forth in Section 7.4(b)(ii) ..

 

Adjusted Purchase Price ” has the meaning set forth in Section 1.4(a) .

 

Affiliates ” with respect to any Person, means any Person that directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of this Agreement and notwithstanding anything herein to the contrary, prior to Closing, the Acquired Companies shall be considered Affiliates of Seller, and from and after Closing, the Acquired Companies shall be considered Affiliates of Purchaser and not Seller.

 

Affiliate Contracts ” has the meaning set forth in the definition of “Material Contracts” .

 

Agreed Interest Rate ” shall mean simple interest computed at the rate of the prime interest rate as published in the Wall Street Journal

 

Agreement ” has the meaning set forth in the preamble of this Agreement.

 

Allocated Value ” has the meaning set forth in Section 1.7 .

 

Alternative Transaction ” has the meaning set forth in Section 5.12.

 

Assets ” means all of the Acquired Companies’ right, title, interest and estate, real or personal, recorded or unrecorded, movable or immovable, tangible or intangible, in and to the Leases, Lands, Wells, Units, Properties, Equipment, Contracts, Surface Contracts and Records.

 

Assignment ” means the document which transfers the Purchased Interests, a form of which is attached as Exhibit D .

 

Business Day ” means each calendar day except Saturdays, Sundays, and Federal holidays for which banking institutions in the State of Texas are open for normal business hours.

 

Cash ” has the meaning set forth in Section 1.3(d) .

 

Casualty Assets ” has the meaning set forth in Section 2.6 .

 

Claim Notice ” has the meaning set forth in Section 9.2(b) .

 

Closing ” has the meaning set forth in Section 7.1(a) .

 

Closing Date ” has the meaning set forth in Section 7.1(b) .

 

Closing Distribution ” has the meaning set forth in Section 1.3(d) .

 
 
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Closing Statement ” has the meaning set forth in Section 1.4(a) .

 

Closing Payment ” has the meaning set forth in Section 7.4(a) .

 

Code ” has the meaning set forth in Section 1.7 .

 

Consent ” means any approval, waiver or right to consent required to be obtained from a third party in connection with an assignment, offer, transfer, conveyance, change of control, or other similar transactions, that, if not obtained or waived in connection with the transactions contemplated by this Agreement, would result in an obligation to pay liquidated damages or a termination, Lien, charge or encumbrance on the Acquired Company’s title to an Asset, Property, Well or Contract.

 

Contracts ” means all contracts, agreements and instruments (whether written or oral) by which the Assets or the Acquired Companies are bound, or to which the Assets or Acquired Companies are subject, but in each case only to the extent applicable to the Assets or the Acquired Companies, including those agreements and instruments identified on Exhibit B . The term “Contracts” excludes the Leases and the Surface Contracts.

 

Control(s) ” means the ability to, directly or indirectly, direct, manage or dictate the actions of, or determine the management of the entity in question by any method, including without limitation, by the election of the Board of Directors or other governing body of such entity, by having the ability to exercise control over a majority number of members of such governing body or through Ownership of, or the exercise of voting or consensual rights with respect to, the common stock, voting securities or other interests held in such entity.

 

COPAS ” means the Council of Petroleum Accountants Society standards using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the Acquired Companies’ Financial Statements for the most recent fiscal year end.

 

Current Liabilities ” means the sum of (x) all accounts payable, accrued expenses, and other current liabilities of the Acquired Companies as of the relevant date plus (y) all Severance Costs (whether incurred before, on or after the relevant date), as determined in accordance with COPAS standards and GAAP, except that “Current Liabilities” shall not include (i) Income Tax liabilities, (ii) Debt, (iii) asset retirement obligations, (iv) obligations to pay or distribute Suspended Proceeds or (v) Transaction Costs.

 

Damages ” has the meaning set forth in Section 9.1(e) .

 

Debt ” means, of any Person at any date and without duplication, (i) all indebtedness of such Person for borrowed money, whether current, short-term or long-term and whether secured or unsecured, including loans, deferred consideration for the purchase of assets, ownership interests, businesses or other property or services (other than deferred consideration for the purchase of assets, ownership interests, businesses or other property or services) and any lease obligations that are required to be capitalized under GAAP, (ii) any other indebtedness of such Person which is evidenced by a bond (other than surety, performance, bid, appeal and other similar types of bonds), promissory note, debenture or similar instrument (including a deed of trust or mortgage given in connection with the acquisition of, or exchange for, any property or assets), (iii) all indebtedness of the type referred to in the clauses (i) or (ii) of third Persons guaranteed, directly or indirectly, by such Person or as to which such Person has an obligation, contingent or otherwise, including but not limited to bank debt, bank fees, shareholder debt and vendor debt, that is substantially the economic equivalent of a guarantee, including, in each case above, any interest accrued thereon and prepayment or similar penalties and expenses which would be payable if such liability were paid in full as of the Closing, (iv) capital obligations and leases, (v) obligations for deferred purchase price of assets, properties or services, (vi) all obligations under facilities for the discount or sale of accounts receivable, (vii) all obligations required to be classified as long term liabilities under GAAP, (viii) all obligations for reworking operations incurred prior to the Effective Time, and (ix) any amendment, renewal, extension, revision or refunding of any of the foregoing Debt. Debt shall be determined without taking into account the transactions taking place on the Closing Date pursuant to the terms of this Agreement; provided that “Debt” shall not include any asset retirement obligations.

 
 
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Defect Deductible ” has the meaning set forth in Section 2.4(h) .

 

Defensible Title ” has the meaning set forth in Section 2.2(a) .

 

Disputed Amounts ” has the meaning set forth in Section 7.4(f) .

 

Dropbox ” means the ShareFile datasite folder maintained by Seller entitled “Petrodome”.

 

Effective Time ” has the meaning set forth in Section 1.3(a) .

 

Employee Benefit Plans ” has the meaning set forth in Section 3.9(a) .

 

Environmental Laws ” means all Laws addressing pollution or protection of the environment or natural resources, or with respect to exposure to hazardous substances, worker or public health, including Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq . (“ CERCLA ”); the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. (“ RCRA ”); the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq . (the “ Clean Water Act ”); the Clean Air Act, 42 U.S.C. § 7401 et seq . the Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq .; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629 (“ TSCA ”); the Oil Pollution Act, 33 U.S.C. § 2701 et seq .; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq .; and the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; and all regulations implementing the foregoing. Notwithstanding the foregoing, the phrase “violation of Environmental Laws” and words of similar import used in the Agreement shall mean, as to any given Asset, the violation of or failure to meet specific objective requirements or standards that are clearly applicable to such Asset under applicable Environmental Laws. The phrase does not include good or desirable operating practices or standards that may be employed or adopted by other oil or gas well operators or recommended by a Governmental Body.

 

Environmental Liabilities ” shall mean any and all environmental response costs (including costs of remediation), corrective action costs (including costs of pollution control equipment), Damages, natural resource damages, settlements, consulting fees, expenses, penalties, fines, orphan share, prejudgment and post-judgment interest, court costs, attorneys’ fees, and other liabilities or obligations (i) arising under any Environmental Law which is attributable to the ownership or operation of the Assets, or (ii) resulting from any Proceeding by a Governmental Body or other Person for personal injury, property damage, damage to natural resources, remediation or response costs to the extent arising out of any actual or alleged violation of or remediation obligation under any Environmental Law or release or threatened release of, exposure to, hazardous substances to the extent attributable to the operations of the Acquired Companies or the ownership, lease or operation of the Assets, provided that Environmental Liabilities excludes any of the foregoing liabilities to the extent caused by or relating to NORM or otherwise disclosed in any Schedule.

 
 
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Equipment ” means all equipment, machinery, fixtures and other tangible personal property and improvements and used or held for use in connection with the operation of the Assets, including any wells, tanks, boilers, buildings, fixtures, injection facilities, saltwater disposal facilities, compression facilities, pumping units and engines, flow lines, pipelines, gathering systems, gas and oil treating facilities, machinery, power lines, telephone and telegraph lines, roads, and other appurtenances, improvements and facilities.

 

Exchange Act ” has the meaning set forth in Section 5.10(a) .

 

Excluded Entities ” means any entity owned by Parent or an Acquired Company other than the Acquired Companies.

 

Execution Date ” has the meaning set forth in the preamble of this Agreement.

 

Family Member ” means with respect to a Person, any spouse, any natural or adoptive sibling or any spouse thereof, and any lineal ascendant or descendant (natural or adoptive) of any of the foregoing.

 

Financial Statements ” means (a) audited financial statements in respect of the Acquired Companies on a consolidated basis for a periods ending December 31, 2015 and December 31, 2016 and (b) the Interim Balance Sheet, together with the related consolidated statements of operations, stockholder’s equity and cash flows for the periods then ended, including in each case the notes thereto, together with the reports thereon.

 

FLSA ” means the Fair Labor Standards Act and the regulations promulgated thereunder, as amended.

 

Fundamental Representations ” means, with respect to Seller, the representations and warranties in Section 3.2(a) , Section 3.2(b) , Section 3.2(c)(i) , Section 3.2(d) , Section 3.2(f) , Section 3.2(i) , Section 3.3(a) , Section 3.3(b) , Section 3.3(c)(i) , and Section 3.4 , with respect to the Purchaser, the representations and warranties in Section 4.2 , Section 4.3 , Section 4.4 , Section 4.5(i), and Section 4.6 .

 

GAAP ” means United States generally accepted accounting principles applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the Acquired Companies’ Financial Statements for the most recent fiscal year end.

 
 
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Governmental Authorizations ” means any approval, authorization, grant of authority, consent, order, qualification, permit, water right (including water withdrawal, storage, discharge, treatment, injection and disposal rights), license, variance, exemption, franchise, concession, certificate, filing or registration, or any waiver of the foregoing, or any notice, statement or other communication required to be filed with or delivered to any Governmental Body.

 

Governmental Body ” means any federal, state, local, municipal, or other governments; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; and any court or governmental tribunal.

 

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

 

Hydrocarbons ” means oil, gas, condensate and other gaseous and liquid hydrocarbons or any combination thereof, including scrubber liquid inventory and ethane, propane, isobutene, nor-butane and gasoline inventories (excluding tank bottoms), and sulphur and other minerals extracted from or produced from the foregoing hydrocarbons.

 

Imbalance ” means any over-production, under-production, over-delivery, under-delivery or similar imbalance of Hydrocarbons produced from or allocated to the Assets, regardless of whether such imbalance arises at the platform, wellhead, pipeline, gathering system, transportation system, processing plant or other location.

 

Income Taxes ” means any income, franchise and similar Taxes.

 

Indemnified Party ” has the meaning set forth in Section 9.2(a) .

 

Indemnifying Party ” has the meaning set forth in Section 9.2(a) .

 

Indemnitee ” means a Purchaser Indemnitee or Seller Indemnitee, as applicable.

 

Indemnity Deductible ” has the meaning set forth in Section 9.3(c)(ii) .

 

Independent Accountant ” has the meaning set forth in Section 7.4(f) .

 

Individual Defect Threshold ” has the meaning set forth in Section 2.4(h) .

 

Initial Member ” has the meaning set forth in the recitals to this Agreement.

 

Intellectual Property ” means all of the following: (i) trademarks (including recipe names), trade names, trade dress, service marks, logos and business names together with all registrations and renewals thereof and applications for registration therefor; (ii) copyrights (including publications, website content, digital images and photographs), copyright registrations and renewals thereof, recordings, mask works and mask work registrations, and applications therefor and all other rights corresponding thereto; (iii) inventions (whether or not patented or patentable), patent applications, patents, and all reissues, divisions, renewals, extensions, continuations, continuations in part, and revisions thereof, and improvements thereto; (iv) computer software, including all source code, object code, firmware, development tools, files, records and data, all media on which any of the foregoing is recorded, all Internet addresses, sites, online business processes, social media accounts and content, and domain names and (v) rights of publicity and commercial exploitation.

 
 
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Interim Balance Sheet ” means an internally prepared balance sheet of the Acquired Companies, on a consolidated basis, as of the Interim Balance Sheet Date.

 

Interim Balance Sheet Date ” means October 31, 2017.

 

Land and Legal Costs ” has the meaning set forth in Section 5.19 .

 

Lands ” means the lands covered by the Leases or the lands pooled, unitized, communitized or consolidated therewith.

 

Law Firms ” has the meaning set forth in Section 10.19 .

 

Laws ” means all laws (including common law) statutes, rules, regulations, ordinances, orders, and codes of Governmental Bodies.

 

Leases ” means all of the oil and gas leases; oil, gas and mineral leases; subleases and other leaseholds; carried interests; mineral fee interests; overriding royalty interests; reversionary rights, farmout rights; options; and other properties and interests described on Exhibit A .

 

Lien ” means any lien, mortgage, privilege, security agreement, pledge, charge, or encumbrance of any kind.

 

Material Adverse Effect ” means any event, fact or circumstance, that, individually or taken as a whole, has or could reasonably be expected to result in any adverse effect on the business, assets, ownership, operation, prospects, financial condition, liquidity, or value of the Acquired Companies, which is material to the ownership, operation or value of the Acquired Companies, taken as a whole, or that would reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement; provided , however , that “Material Adverse Effect” shall not include general changes in industry or economic conditions, changes in Laws or in regulatory policies, changes or conditions resulting from civil unrest or terrorism or acts of God or natural disasters, change or conditions resulting from the failure of a Governmental Body to act or omit to act pursuant to Law or changes or conditions that are cured or eliminated by Closing at Seller’s expense, but only insofar as the items in this provision do not disproportionately affect the Acquired Companies as compared to the oil and gas industry in the United States.

 

Material Contract ” means:

 

(a) each Contract that involves performance of services (other than as an employee) or delivery of goods or materials by or to Seller or any Acquired Company of an amount or value in excess of $100,000 determined on an annual basis, net to the interest of Seller or any Acquired Company;

 
 
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(b) each Contract that was not entered into in the ordinary course of business and that involves expenditures or receipts of Seller or any Acquired Company in excess of $100,000 determined on an annual basis, net to the interest of Seller or any Acquired Company;

 

(c) each joint venture, partnership and other Contract (however titled) involving a sharing of profits, losses, costs or liabilities by Seller or any Acquired Company with any other Person and Contracts providing for commissions based on sales or purchases of or by Seller or any Acquired Company;

 

(d) each Contract containing covenants that in any way purport to restrict the business activity of Seller or any Acquired Company or any Affiliate of Seller or any such Acquired Company or limit the freedom of Seller or any Acquired Company or any Affiliate of Seller or any Acquired Company to engage in any line of business or to compete with any Person;

 

(e) all area of mutual interest, farmout, farmin, development agreements or similar Contracts under which Seller or any of the Acquired Companies has any remaining performance obligations;

 

(f) all joint operating agreements, unit agreements or similar Contracts under which Seller or any of the Acquired Companies has any remaining performance obligations

 

(g) all Contracts that concern the purchase and sale, exchange, marketing, gathering, transportation, compression, processing or treating of Hydrocarbons or similar Contracts relating to or included in the Properties that are operated by Seller or an Acquired Company and that are (i) not terminable without penalty on 30 or less days’ notice or (ii) can be reasonably expected to result in aggregate monthly revenues to Seller or the Acquired Companies of more than $100,000 net to the interest of Seller or the Acquired Company (based solely on the terms thereof and without regard to any expected increase in volumes or revenues) during the current or any subsequent calendar year;

 

(h) all leases (other than a Lease) under which Seller or any Acquired Company is the lessor or the lessee of real or personal property which lease (i) cannot be terminated by Seller or such Acquired Company without penalty or payment upon sixty or less days’ notice or (ii) involves an annual base rental of more than $100,000;

 

(i) all Contracts (other than the organizational documents of Seller or the Acquired Companies) granting any Person registration, purchase or sale rights with respect to any Membership Interests or other equity securities of Seller or any of the Acquired Companies;

 

(j) all Debt, bonds, letters of credit, guaranties and similar instruments issued by, or evidencing any Debt of, any Acquired Company, and required by contract or applicable Law to be posted or otherwise tendered in order to own and/or operate any of the Assets;

 
 
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(k) all Contracts of each Acquired Company relating to the employment or engagement of any Person that cannot be terminated at the will of the Acquired Company that is a party to such Contract without liability to such Acquired Company;

 

(l) any Contract or commitment to which Seller or any Acquired Company is a party or is bound containing Consent requirement or Preferential Purchase Right;

 

(m) any Contract between Seller or an Affiliate of Seller (other than the Acquired Companies) and any Acquired Company (“Affiliate Contracts”);

 

(n) all seismic or geophysical Contracts;

 

(o) any contract the expiration or termination of which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and is not of a type otherwise required to be disclosed;

 

(p) all Contracts that provide for the indemnification of a third party or any Person by the Acquired Companies or the assumption of any Tax or Environmental Liability; and

 

(q) each written amendment, supplement and modification in respect of any of the foregoing.

 

Membership Interests ” means (i) the equity ownership rights in a business entity, whether a corporation, company, joint stock company, limited liability company, general or limited partnership, joint venture, bank, association, trust, trust company, land trust, business trust, sole proprietorship or other business entity or organization, and whether in the form of capital stock, ownership unit, limited liability company interest, limited or general partnership interest or any other form of ownership, and (ii) also includes all Membership Interest Equivalents.

 

Membership Interest Equivalents ” means all rights, warrants, options, convertible securities or indebtedness, exchangeable securities or other instruments, or other rights that are outstanding and exercisable for or convertible or exchangeable into, directly or indirectly, any Membership Interest at the time of issuance or upon the passage of time or occurrence of some future event, and all contractual arrangements giving any Person a right to receive benefits or exercise rights similar to those enjoyed by or accruing to the holder of any Membership Interest.

 

Net Revenue Interest ” has the meaning set forth in Section 2.2(a)(i) .

 

New Prospects ” means the following prospects: W. Ridge Prospect, Lafayette Parish, Louisiana; Midland and N. Midland Prospects, Acadia Parish, Louisiana; and Saint Paul Prospect, Saint Patricio County, Texas; North Pasture Prospect, Saint Patricio County, Texas; W. Sinton Prospect, Saint Patricio County, Texas; and NW Sinton Prospect, Saint Patricio County, Texas. The lands lying within the New Prospects are shown on the plats attached as Exhibit J .

 
 
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NORM ” means naturally occurring radioactive material.

 

Objection Notice ” has the meaning set forth in Section 2.4(g) .

 

Objection Statement ” has the meaning set forth in Section 7.4(d) .

 

Organizational Documents ” means (a) in the case of a Person that is a corporation, its articles or certificate of incorporation and its by-laws, regulations shareholders agreement, or similar governing instruments required by the laws of its jurisdiction of formation or organization; (b) in the case of a Person that is a partnership, its articles or certificate of partnership, formation or association, and its partnership agreement (in each case, limited, limited liability, general or otherwise); (c) in the case of a Person that is a limited liability company, its articles or certificate of formation or organization, and its limited liability company agreement or operating agreement; and (d) in the case of a Person that is none of a corporation, partnership (limited, limited liability, general or otherwise), limited liability company or natural person, its governing instruments as required or contemplated by the laws of its jurisdiction of organization.

 

Overriding Royalty Hydrocarbons ” means the Hydrocarbons produced, saved, and sold from the Leases, Units and Wells and attributable to the ORRI.

 

Overriding Royalty Percentage ” means a percentage equal to one and one-half percent (1.5%), as the same may be adjusted pursuant to Section 5.18(e) .

 

Ownership ” means direct or indirect rights in, or legal title to, greater than fifty percent of (i) the outstanding common stock or voting securities, (ii) equity interests, (iii) economic interests, (iv) voting power, (v) management, or (vi) interest in profits.

 

PAH ” has the meaning set forth in the recitals of this Agreement.

 

Parent ” has the meaning set forth in the recitals of this Agreement.

 

Parent Assignments ” means, collectively, the: (1) Assignment of Interest in Limited Liability Company, dated September 1, 2011, by and between the Initial Member and Petrodome Incentive Partners, LLC, (2) Assignment of Interest in Limited Liability Company, dated September 1, 2011, by and between the Initial Member and Southport Investments, LP, (3) Assignment of Interest in Limited Liability Company, dated September 1, 2011, by and between the Initial Member and Marco, LP, (4) Assignment of Interest in Limited Liability Company, dated September 1, 2011, by and between the Initial Member and Black Rhino, LP, (5) Assignment of Membership Interest effective October 29, 2017, by and between Petrodome Incentive Partners, LLC and Black Rhino, LP, (6) Assignment of Membership Interest effective October 29, 2017, by and between Southport Investments, LP and Black Rhino, LP., and (7) Assignment of Membership Interest effective October 29, 2017, by and between Marco, LP and Black Rhino, LP.

 

Party ” or “ Parties ” has the meaning set forth in the preamble of this Agreement.

 

Payoff Letters ” has the meaning set forth in Section 7.2(d) .

 
 
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PB ” has the meaning set forth in the recitals of this Agreement.

 

PBC ” has the meaning set forth in the recitals of this Agreement.

 

PBL ” has the meaning set forth in the recitals of this Agreement.

 

PD ” has the meaning set forth in the recitals of this Agreement.

 

PE ” has the meaning set forth in the recitals of this Agreement.

 

PEC ” has the meaning set forth in the recitals of this Agreement.

 

Permitted Encumbrances ” has the meaning set forth in Section 2.3 .

 

Person ” means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, government or agency or subdivision thereof or any other entity.

 

PL ” has the meaning set forth in the recitals of this Agreement.

 

PLS ” has the meaning set forth in the recitals of this Agreement.

 

PM ” has the meaning set forth in the recitals of this Agreement.

 

PN ” has the meaning set forth in the recitals of this Agreement.

 

PO ” has the meaning set forth in the recitals of this Agreement.

 

Post-Closing Decrease Adjustment ” has the meaning set forth in Section 7.4(g) .

 

Post-Closing Increase Adjustment ” has the meaning set forth in Section 7.4(g) .

 

Post-Closing Statement ” has the meaning set forth in Section 7.4(b) .

 

PP ” has the meaning set forth in the recitals of this Agreement.

 

PPB ” has the meaning set forth in the recitals of this Agreement.

 

PPN ” has the meaning set forth in the recitals of this Agreement.

 

PQR ” has the meaning set forth in the recitals of this Agreement.

 

Preferential Purchase Rights ” means any option, right of first refusal, or preferential rights to purchase that would result in a payment of a liquidated damages or a termination of the Acquired Company’s title to an Asset, Property, Well or Contract if not obtained in connection with the transactions contemplated by this Agreement, and any other third-party purchase rights, which are applicable to the transactions contemplated by this Agreement.

 

Pre-Closing Tax Period ” means any Tax period ending on or before the Effective Time.

 
 
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Pre-Closing Tax Return ” has the meaning set forth in Section 5.6(a) .

 

Proceedings ” means all proceeding, litigation, actions, claims, suits, investigations, demands, notices and written inquiries by or before any arbitrator or Governmental Body.

 

Properties ” and “ Property ” means the Units, together with the Leases, Lands and Wells, or in cases when there is no Unit, the Leases together with the Lands and Wells.

 

Property Costs ” has the meaning set forth in Section 1.3(c) .

 

Property Taxes ” has the meaning set forth in Section 5.6(d)(i) .

 

PRR ” has the meaning set forth in the recitals of this Agreement.

 

PSG ” has the meaning set forth in the recitals of this Agreement.

 

PT ” has the meaning set forth in the recitals of this Agreement.

 

Purchase Price ” has the meaning set forth in Section 1.2 .

 

Purchased Interests ” has the meaning set forth in the recitals of this Agreement.

 

Purchaser ” has the meaning set forth in the preamble of this Agreement.

 

Purchaser Indemnitees ” means Purchaser, its Affiliates (including the Acquired Companies after the Closing), and the officers, directors, managers, members, stockholders, general or limited partners, employees, agents, representatives, advisors, subsidiaries, successors and assigns of Purchaser or its Affiliates.

 

PW ” has the meaning set forth in the recitals of this Agreement.

 

Records ” means all lease files; land files; well files; gas and oil sales contract files; gas processing files; division order files; abstracts; title opinions; land surveys; non-confidential logs; maps; engineering data and reports; and files and all other books, records, data, files, maps and company and accounting records to the extent related to the Acquired Companies or the Assets, or used or held for use in connection with the maintenance or operation thereof, but excluding: records relating to the offer, negotiation or consummation of the sale of the Purchased Interests.

 

Related Party ” means any Person in which a specified Person owns any material economic interest, and any other Affiliate or Family Member of such specified Person.

 

Required Financial Statements ” has the meaning set forth in Section 5.10(a) .

 

Resignation Letters ” has the meaning set forth in Section 7.2(f) .

 

Resolution Period ” has the meaning set forth in Section 7.4(e) .

 
 
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Restricted Period ” has the meaning set forth in Section 5.14(a) .

 

Review Period ” has the meaning set forth in Section 7.4(c) .

 

Scheduled Closing Date ” has the meaning set forth in Section 7.1(a) .

 

Securities Act ” has the meaning set forth in Section 5.10(a) .

 

Seller ” has the meaning set forth in the preamble of this Agreement.

 

Seller Indemnitees ” shall mean Seller, its Affiliates, and the officers, directors, managers, members, stockholders, general or limited partners, employees, agents, representatives, advisors, subsidiaries, successors and assigns of Seller or its Affiliates.

 

Seller Indemnity Obligations ” has the meaning set forth in Section 9.1(c) .

 

Seller Taxes ” has the meaning set forth in Section 5.6(c) .

 

Severance Costs ” means any costs payable or reimbursable by any Acquired Company in connection with or relating to the termination or retention of employment or service of any employee or other service provider of the Acquired Companies or their Affiliates on, prior to or in connection with the Closing (including any retention payments, severance, notice, pay in lieu of notice, or termination payments and benefits and any related Social Security, Medicare, state disability, unemployment and similar Taxes with respect thereto).

 

Straddle Period ” means any Tax period that begins on or before the Effective Time and ends after the Effective Time.

 

Straddle Tax Returns ” has the meaning set forth in Section 5.6(b) .

 

Surface Contracts ” means all 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.

 

Suspended Proceeds ” has the meaning set forth in Section 5.7 .

 

Tax Returns ” has the meaning set forth in Section 3.11(a) .

 

Taxes ” means all federal, state, local, and foreign income, profits, franchise, sales, use, ad valorem, property, severance, production, excise, stamp, documentary, real property transfer or gain, gross receipts, goods and services, registration, capital, transfer, or withholding taxes or other governmental fees or charges imposed by any taxing authority, including any interest, penalties or additional amounts which may be imposed with respect thereto.

 

Termination Date ” has the meaning set forth in Section 8.1 .

 

Third Party Claim ” has the meaning set forth in Section 9.2(b) .

 

Title Arbitrator ” has the meaning set forth in Section 2.4(g) .

 
 
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Title Benefit ” has the meaning set forth in Section 2.2(b) .

 

Title Benefit Amount ” has the meaning set forth in Section 2.4(f) .

 

Title Benefit Notice ” has the meaning set forth in Section 2.4(b) .

 

Title Benefit Property ” has the meaning set forth in Section 2.4(b) .

 

Title Claim Date ” has the meaning set forth in Section 2.4(a) .

 

Title Defect ” has the meaning set forth in Section 2.2(c) .

 

Title Defect Amount ” has the meaning set forth in Section 2.4(e) .

 

Title Defect Notice ” has the meaning set forth in Section 2.4(a) .

 

Title Defect Property ” has the meaning set forth in Section 2.4(a) .

 

Transaction Costs ” means all fees and expenses that have been incurred by Seller or the Acquired Companies prior to Closing in connection with the sale of the Acquired Companies and/or the consummation of transactions contemplated by this Agreement, including, without limitation, brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby. Transaction Costs shall include the unpaid fees and expenses of the Seller’s and the Acquired Companies’ financial and legal advisors (if any).

 

Transfer Taxes ” has the meaning set forth in Section 10.3 .

 

Units ” means any pools or units which include any portion of the Lands or all or a part of any Leases or any Wells.

 

Wells ” means all oil, gas, water, CO2, disposal or injection wells located on the Lands, whether producing, shut-in, plugged or abandoned, and including the wells shown on Exhibit A-1 .

 

Working Interest ” has the meaning set forth in Section 2.2(a)(ii) .

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 
 
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IN WITNESS WHEREOF, this Agreement has been signed by each of the Parties on the date first above written.

 

SELLER

 

BLACK RHINO, LP

By: Black Rhino (GP), LLC,

  a Delaware limited liability company,

  its General Partner

 

 

 

 

By:

/s/ Darla Tollefson

 

Name:

Darla Tollefson

 

Title:

Manager

 

 

PURCHASER

 

VIKING ENERGY GROUP, INC.

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

Name:

James A. Doris

 

 

Title:

President and Chief Executive Officer

 

 

[Signature page to Membership Interest Purchase Agreement]

 

 

76

 

EXHIBIT 2.2

 

FIRST AMENDMENT TO THE

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

This First Amendment to the Membership Interest Purchase Agreement, dated as of November 30, 2017 (this “ Amendment ”), is entered into by and between Black Rhino, LP, a Delaware limited partnership (the “ Seller ”), and Viking Energy Group, Inc., a Nevada corporation (the “ Purchaser ” and, together with Seller, the “ Parties ” and each a “ Party ”).

 

WHEREAS, the Parties have entered into that certain Membership Interest Purchase Agreement, effective November 1, 2017 (as heretofore amended, supplemented or modified, the “ Agreement ”);

 

WHEREAS, Section 10.11 of the Agreement provides that the Agreement may be amended or modified by an agreement in writing executed by both Parties; and

 

WHEREAS, the Parties desire to amend the Agreement to extend the deadline to deliver Title Defect Notices and Title Benefit Notices to on or before 5:00 p.m., Central Standard Time, on December 4, 2017.

 

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

 

1. Definitions . Capitalized terms used and not defined in this Amendment have the meanings assigned to them in the Agreement.

 

2. Amendment to the Agreement . The term “ Title Claim Date ” in the Agreement is hereby amended to 5:00 p.m., Central Standard Time, on December 4 , 2017. All references to Title Claim Date in the Agreement shall refer the Title Claim Date, as amended by this Amendment.

 

3. Effect of the Amendment . Except as expressly modified by this Amendment, all of the terms and provisions of the Agreement remain in full force and effect and are hereby ratified and confirmed by the Parties. On and after the date hereof, each reference in the Agreement to “Agreement,” “hereunder,” “hereof,” “hereto,” “herein” and words of similar import, and each reference to the Agreement in any other agreements, documents or instruments executed and delivered pursuant to, or in connection with, the Agreement, will mean and be a reference to the Agreement as amended by this Amendment.

 

 
 
 
 

 

4. Miscellaneous .

 

(a) Governing Law . This Amendment shall be governed by and construed and interpreted in accordance with the Laws of the State of Texas, without giving effect to the conflicts of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of Texas.

 

(b) Captions . The section titles (and the titles of other subdivisions of this Amendment) and headings in this Amendment are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Amendment.

 

(c) Electronic Signatures; Counterparts . This Amendment may be executed by electronic transmission of signatures by any Party (i.e., portable document format or similar method) and such signature shall be deemed binding for all purposes hereof, without delivery of an original signature being thereafter required. This Amendment may be executed in one or more counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document.

 

(d) Amendment and Modification . This Amendment may be amended, modified or supplemented only by written agreement of the Parties hereto.

 

[Signature Page Follows]

 

 
2
 
 

 

IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first written above.

 

SELLER

 

BLACK RHINO, LP

 

 

 

By:

Black Rhino (GP), LLC,

a Delaware limited liability company,

its General Partner

 

 

 

 

 

By:

/s/ Darla Tollefson

 

Name:

Darla Tollefson

 

Title:

Manager

 

 

 

 

 

PURCHASER

 

 

 

 

 

 

VIKING ENERGY GROUP, INC.

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

Name:

James A. Doris

 

Title:

President and Chief Executive Officer

 

 

[Signature Page to the First Amendment to the

Membership Interest Purchase Agreement]

 

3

 

EXHIBIT 2.3

 

SECOND AMENDMENT TO

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

This Second Amendment to Membership Interest Purchase Agreement, dated as of December 22, 2017 (this “ Amendment ”), is entered into by and between Black Rhino, LP, a Delaware limited partnership (“ Seller ”), and Viking Energy Group, Inc., a Nevada corporation (the “ Purchaser ” and, together with Seller, the “ Parties ” and each a “ Party ”).

 

RECITALS

 

A. The Parties have entered into that certain Membership Interest Purchase Agreement, effective November 1, 2017, as amended by that certain First Amendment to Membership Interest Purchase Agreement, dated effective November 30, 2017 (the “ Agreement ”).

 

B. Section 10.11 of the Agreement provides that the Agreement may be amended or modified by an agreement in writing executed by both Parties.

 

C. Parent has formed Petrodome Hamilton Ranch, LLC, a Texas limited liability company (“ PHR ”) and Petrodome San Patricio, LLC, a Texas limited liability company (“ PSP ” and together with PHR, the “ Additional Acquired Companies ”).

 

D. Parent owns all of the issued and outstanding Membership Interests in the Additional Acquired Companies (the “ Additional Company Interests ”) and desires to distribute and assign all of the Additional Company Interests to Seller.

 

E. Following such distribution and assignment, Seller desires to sell all of the Additional Company Interests to Purchaser.

 

F. Subsequent to the execution of the MIPA, PO entered into the following agreements: (i) Termination Agreement dated effective December 19, 2017, by and between Seitel Data, Ltd., as Licensor, and PO, as Licensee, and (ii) Letter Agreement dated December 19, 2017, by and between Fairfield Industries Incorporated d/b/a FairfielNodal and PDO (collectively, the “ Seismic License Termination Agreements ”).

 

G. The Seismic License Termination Agreements terminated the following Material Contracts: (i) 2D & 3D Onshore/Offshore Master Seismic Data Participation and Licensing Agreement dated effective October 12, 2011, by and between PO and Seitel Data, Ltd., and (ii) Master License Agreement dated August 9, 2010, and its supplements, by and between PO and Fairfield Industries Incorporated d/b/a FairfieldNodal (collectively, the “ Seismic License Agreements ”).

 

H. Subsequent to the execution of the MIPA, the Additional Acquired Companies entered into the Leases set forth opposite such Additional Acquired Company on Exhibit A attached hereto (“ Additional Leases ”), and additional information has become available regarding certain Leases and Wells, shown on Exhibits A and A-1 attached hereto.

 

 
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I. The Parties desire to amend the Agreement to reflect (i) the formation of the Additional Acquired Companies by Parent, (ii) the distribution of the Additional Company Interests by Parent to Seller, (ii) the termination of the Seismic License Agreements, (iii) the additional information regarding certain Leases and Wells, and (iv) the execution of the Additional Leases.

 

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

 

1. Definitions . Capitalized terms used and not defined in this Amendment have the meanings assigned to them in the Agreement.

 

2. Distribution and Assignment of Additional Company Interests . Parent hereby intervenes and distributes and assigns the Additional Company Interests to Seller.

 

3. Definition of Purchased Interests . Notwithstanding anything to the contrary in the Agreement, the definition of “ Purchased Interests ” is hereby amended to mean: (a) all of the issued and outstanding Membership Interests in the Parent, and (b) all of the issued and outstanding Membership Interests in the Additional Acquired Companies.

 

4. Definition of Acquired Companies . Each Additional Acquired Company shall be treated as an Acquired Company for all purposes of the Agreement. The Agreement is hereby amended to add the Additional Acquired Companies to the defined terms “ Acquired Company ” and “ Acquired Companies ”.

 

5. Schedule 3.3(a). Schedule 3.3(a) is hereby amended by inserting the following additional information, in addition to the other information set forth therein:

 

Acquired Company

Jurisdiction

Petrodome Hamilton Ranch, LLC

Texas

Petrodome San Patricio, LLC

Texas

 

6. Schedule 3.4. Schedule 3.4 is hereby amended by inserting the following additional information, in addition to the other information set forth therein:

 

Acquired Company

Holders of Membership Interests

Petrodome Hamilton Ranch, LLC

Petrodome Energy, LLC—100%

Petrodome San Patricio, LLC

Petrodome Energy, LLC—100%

 

 
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7. Section 9.3(a). Section 9.3(a) is hereby amended by inserting the following immediately after the last sentence therein.

 

“Notwithstanding anything to the contrary in this Section 9.3(a), all representations and warranties of Seller contained herein with respect to the Additional Acquired Companies shall survive for a period of sixty (60) days after the Closing Date.”

 

8. Consent Pursuant to Section 5.4. For purposes of Section 5.4 of the Agreement, Purchaser hereby provides it written consent solely with respect to:

 

(a) the formation of the Additional Acquired Companies;

 

(b) the termination of the Seismic License Agreements; and

 

(c) the execution of the Additional Leases and the Additional Material Contracts by the Additional Acquired Companies.

 

9. Leases and Wells . Exhibit A and Exhibit A-1, that were attached to the Agreement upon the Execution Date, are hereby replaced with the Exhibit A and Exhibit A-1 attached to and made a part of this Amendment.

 

10. Effect of the Amendment . Except as expressly modified by this Amendment, all of the terms and provisions of the Agreement remain in full force and effect and are hereby ratified and confirmed by the Parties. On and after the date hereof, each reference in the Agreement to “Agreement,” “hereunder,” “hereof,” “hereto,” “herein” and words of similar import, and each reference to the Agreement in any other agreements, documents or instruments executed and delivered pursuant to, or in connection with, the Agreement, will mean and be a reference to the Agreement as amended by this Amendment.

 

11. Miscellaneous .

 

(a) Governing Law . This Amendment shall be governed by and construed and interpreted in accordance with the Laws of the State of Texas, without giving effect to the conflicts of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of Texas.

 

(b) Captions . The section titles (and the titles of other subdivisions of this Amendment) and headings in this Amendment are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Amendment.

 

(c) Electronic Signatures; Counterparts . This Amendment may be executed by electronic transmission of signatures by any Party (i.e., portable document format or similar method) and such signature shall be deemed binding for all purposes hereof, without delivery of an original signature being thereafter required. This Amendment may be executed in one or more counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document.

 

(d) Amendment and Modification . This Amendment may be amended, modified or supplemented only by written agreement of the Parties hereto.

 

[Signature Page Follows]

 

 
3
 
 

 

IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first written above.

 

 

 

SELLER

 

 

 

 

BLACK RHINO, LP

 

By:

Black Rhino (GP), LLC,

a Delaware limited liability company,

its General Partner

 

By:

/s/ Darla Tollefson

 

Name:

Darla Tollefson

 

Title:

Manager

 

PURCHASER

VIKING ENERGY GROUP, INC.

 

By:

/s/ James A. Doris

 

Name:

James A. Doris

 

Title:

President and Chief Executive Officer

 

[Signature Page to Second Amendment to

Membership Interest Purchase Agreement]

 

 
4
 
 

 

IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first written above.

 

 

COMPANY

 

 

 

 

 

PETRODOME ENERGY, LLC

 

 

By:

/s/ Robert G. Wonish

 

Name:

Robert G. Wonish

 

Title:

President and Chief Operating Officer

 

 

[Signature Page to Second Amendment to

Membership Interest Purchase Agreement]

 

5

 

EXHIBIT 10.1

 

 

 

 

TERM LOAN AGREEMENT

 

among

 

PETRODOME AROUND THE HORN, LLC,

PETRODOME BAYOU CHOCTAW, LLC,

PETRODOME BLOOMINGTON, LLC,

PETRODOME BUCKEYE, LLC,

PETRODOME DIETZEL, LLC,

PETRODOME EAST CREOLE, LLC,

PETRODOME EC, LLC,

PETRODOME ENERGY, LLC,

PETRODOME LIBERTY, LLC,

PETRODOME LONE STAR, LLC,

PETRODOME LOUISIANA PIPELINE, LLC,

PETRODOME MAURICE, LLC,

PETRODOME NAPOLEONVILLE, LLC,

PETRODOME OPERATING, LLC,

PETRODOME PHEASANT BLESSING, LLC,

PETRODOME PINEVILLE, LLC,

PETRODOME PINTAIL, LLC, PETRODOME QUAIL RIDGE, LLC,

PETRODOME RIO RANCH, LLC,

PETRODOME ST. GABRIEL II, LLC,

PETRODOME THUNDERBOLT, LLC, and

PETRODOME WHARTON, LLC

as initial Co-Borrowers

 

and

405 PETRODOME LLC,

as Administrative Agent

 

and

 

THE LENDERS SIGNATORY HERETO

 

December 22, 2017

 
 

SENIOR SECURED TERM LOAN OF $8,510,638

 

 

 

TABLE OF CONTENTS

 

Page

ARTICLE I DEFINITIONS AND INTERPRETATION

2

1.1

Terms Defined Above

2

1.2

Additional Defined Terms

2

1.3

Undefined Financial Accounting Terms

21

1.4

References

22

1.5

Articles and Sections

22

1.6

Number and Gender

22

1.7

Incorporation of Schedules and Exhibits

22

1.8

Negotiated Transaction

22

 

ARTICLE II TERMS OF FACILITY

22

2.1

Term Loan

22

2.2

Use of Loan Proceeds

23

2.3

Repayment of Term Loans

23

2.4

Reserved.

24

2.5

Outstanding Amounts

24

2.6

Taxes and Time, Place, and Method of Payments

24

2.7

Pro Rata Treatment; Adjustments

27

2.8

Voluntary Prepayments

28

2.9

Mandatory Prepayments

28

2.10

Loans to Satisfy Obligations of Borrowers

28

2.11

General Provisions Relating to Interest

29

2.12

Reserved.

30

2.13

Reserved.

30

2.14

Security Interest in Accounts; Right of Offset

30

2.15

Illegality

30

2.16

Regulatory Change

30

2.17

Power of Attorney

31

2.18

Keepwell

31

2.19

Joint and Several Liability

32

2.20

Overriding Royalty Interest

32

2.21

Increase in Term Loan

32

2.22

Availability of Capital Expenditures.

34

  

ARTICLE III CONDITIONS

35

3.1

Initial Funding

35

  

ARTICLE IV REPRESENTATIONS AND WARRANTIES

38

4.1

Due Authorization

38

4.2

Existence

39

4.3

Valid and Binding Obligations

39

4.4

Security Documents

39

4.5

Title to Property

39

 

 
- i -
 
 

 

4.6

Scope and Accuracy of Financial Statements

39

4.7

No Material Adverse Effect or Default

39

4.8

No Material Misstatements

39

4.9

Liabilities, Litigation and Restrictions

40

4.10

Authorizations; Consents

40

4.11

Compliance with Laws

40

4.12

ERISA

40

4.13

Environmental Laws

40

4.14

Compliance with Federal Reserve Regulations

41

4.15

Investment Company Act Compliance

41

4.16

Proper Filing of Tax Returns; Payment of Taxes Due

41

4.17

Refunds

41

4.18

Gas Contracts

41

4.19

Intellectual Property

41

4.20

Casualties or Taking of Property

42

4.21

Location of Borrowers

42

4.22

Subsidiaries

42

4.23

Compliance with Anti-Terrorism Laws

42

4.24

Identification Numbers

43

4.25

Solvency

43

4.26

Petrodome PSA

43

4.27

Related Party Transactions

43

4.28

Ownership of Property

43

4.29

Plugged and Abandoned and Non-Producing Oil and Gas Properties

43

 

ARTICLE V AFFIRMATIVE COVENANTS

44

5.1

Maintenance and Access to Records

44

5.2

Monthly Unaudited Financial Statements and Compliance Certificates

44

5.3

Annual Audited Financial Statements and Compliance Certificate

44

5.4

Reserve Reports; LOE Reports; Production Reports; Payables Aging; Additional Development Plans and Financial Projections

45

5.5

Title Opinions; Title Defects; Mortgaged Properties

46

5.6

Notices of Certain Events

46

5.7

Letters in Lieu of Transfer Orders or Division Orders

47

5.8

Commodity Hedging

47

5.9

Tax Returns

47

5.10

Additional Information

47

5.11

Compliance with Laws

48

5.12

Payment of Assessments and Charges

48

5.13

Maintenance of Existence or Qualification and Good Standing

48

5.14

Payment of Notes; Performance of Obligations

48

5.15

Further Assurances; Post-Closing Obligations

48

5.16

Initial Expenses of Agent

48

5.17

Subsequent Expenses of Agent and Lenders

49

5.18

Maintenance and Inspection of Properties

50

5.19

Maintenance of Insurance

50

5.20

Environmental Indemnification

50

 

 
- ii -
 
 

 

5.21

General Indemnification

 

51

 

5.22

Evidence of Compliance with Anti-Terrorism Laws

 

51

 

5.23

Board and Management Meetings

 

51

 

5.24

Maximum Permitted Monthly General and Administrative Expense Allocation

 

51

 

5.25

Material Contracts

 

52

 

5.26

Credit Policies

 

52

 

5.27

DACA Accounts

 

52

 

5.28

Lockbox Account

 

52

 

5.29

Other Financial Reporting Obligations

 

52

 

5.30

Additional Collateral; Other Deliveries

 

52

 

 

 

 

 

ARTICLE VI NEGATIVE COVENANTS

 

52

 

6.1

Indebtedness

 

52

 

6.2

Contingent Obligations

 

53

 

6.3

Liens

 

53

 

6.4

Sales of Assets

 

53

 

6.5

Leasebacks

 

53

 

6.6

Sale or Discount of Receivables

 

53

 

6.7

Loans or Advances

 

53

 

6.8

Investments

 

54

 

6.9

Dividends and Distributions

 

54

 

6.10

Issuance of Equity; Changes in Corporate Structure

 

54

 

6.11

Transactions with Affiliates and Certain Other Person

 

54

 

6.12

Lines of Business

 

55

 

6.13

Plan Obligation

 

55

 

6.14

Anti-Terrorism Laws

 

55

 

6.15

Amendment of Material Contracts

 

55

 

6.16

Provisions of Commodity Hedge Agreements

 

55

 

6.17

Maintenance of Commodity Hedge Agreements

 

55

 

6.18

Deposit Accounts

 

55

 

6.19

Development Plan

 

55

 

6.20

Reserved

 

56

 

6.21

Current Ratio

 

56

 

6.22

PDP Collateral Coverage

 

56

 

6.23

Proved Reserves Coverage

 

56

 

6.24

Capital Expenditures

 

56

 

6.25

Capital Leases

 

56

 

6.26

Amendments to Organizational Documents

 

56

 

6.27

Additional Subsidiaries

 

57

 

6.28

Equity Raise

 

57

 

6.29

Negative Pledge Agreements

 

57

 

6.30

Material Accounting Changes

 

57

 

 

 

 

 

ARTICLE VII EVENTS OF DEFAULT

 

57

 

7.1

Enumeration of Events of Default

 

57

 

7.2

Remedies

 

59

 

  
 
- iii -
 
 

 

ARTICLE VIII THE AGENT

61

8.1

Appointment

61

8.2

Delegation of Duties

61

8.3

Exculpatory Provisions

61

8.4

Reliance by Agent

62

8.5

Notice of Default

62

8.6

Non-Reliance on Agent and Other Lenders

63

8.7

Indemnification

63

8.8

Restitution

64

8.9

Agent in Its Individual Capacity

64

8.10

Successor Agent

64

8.11

Applicable Parties

64

8.12

Releases

65

 

ARTICLE IX MISCELLANEOUS

65

9.1

Assignments; Participations

65

9.2

Survival of Representations, Warranties, and Covenants

66

9.3

Notices and Other Communications

67

9.4

Parties in Interest

68

9.5

Rights of Third Parties

68

9.6

Renewals; Extensions

68

9.7

No Waiver; Rights Cumulative

68

9.8

Survival Upon Unenforceability

68

9.9

Amendments; Waivers

69

9.10

Controlling Agreement

69

9.11

Disposition of Collateral

69

9.12

Governing Law

69

9.13

Dispute Resolution

69

9.14

Jurisdiction and Venue

72

9.15

Integration

72

9.16

Waiver of Punitive and Consequential Damages

72

9.17

Counterparts

72

9.18

USA Patriot Act Notice

73

9.19

Tax Shelter Regulations

73

9.20

Contribution and Indemnification

73

 

 
- iv -
 
 

 

LIST OF SCHEDULES

 

Schedule 1.2A

Development Plan

S-1.2A-i

Schedule 1.2C

Percentage Shares

S-1.2C-i

Schedule 2.2

Use of Loan Proceeds

S-2.2-i

Schedule 3.1(g)

Direction Letters

S-3.1(g)-i

Schedule 3.1(p)

Certain Agreements

S-3.1(p)-i

Schedule 4.5

Liens

S-4.5-i

Schedule 4.6

Accounts Payable

S-4.6-i

Schedule 4.9

Liabilities and Litigation

S-4.9-i

Schedule 4.10

Authorizations; Consents

S-4.10-i

Schedule 4.13

Environmental Disclosures

S-4.13-i

Schedule 4.17

Refunds

S-4.17-i

Schedule 4.18

Gas Contracts

S-4.18-i

Schedule 4.22

Subsidiaries

S-4.22-i

Schedule 4.24

EIN, Jurisdiction of Formation and Location

S-4.24-i

Schedule 4.27

Related Party Transactions

S-4.27-i

Schedule 4.28

Ownership of Property

S-4.28-i

Schedule 5.2

Budget

S-5.2-i

Schedule 6.18

Deposit Accounts

S-6.18-i

 

LIST OF EXHIBITS

 

 

 

 

Exhibit A

Form of Note

A-i

Exhibit B

Form of Compliance Certificate

B-i

Exhibit C

Form of Assignment Agreement

C-i

Exhibit D

Form of Pledge Agreement

D-i

Exhibit E

Form of Security Agreement

E-i

Exhibit F

Form of Texas Deed of Trust

F-i

Exhibit G

Form of Louisiana Mortgage

G-i

Exhibit H

Form of Mississippi Mortgage

H-i

Exhibit I

Form of Assignment of ORRI (Texas)

I-i

Exhibit J

Form of Assignment of ORRI (Louisiana)

J-i

Exhibit K

Form of Assignment of ORRI (Mississippi)

K-i

Exhibit L

Form of Deposit Account Control Agreement

L-i

 

 

- v -

 
 

 

TERM LOAN AGREEMENT

 

This TERM LOAN AGREEMENT is made and entered into effective December 22, 2017, by and among PETRODOME AROUND THE HORN, LLC (“ Horn ”), a Louisiana limited liability company, PETRODOME BAYOU CHOCTAW, LLC (“ Choctaw ”), a Louisiana limited liability company, PETRODOME BLOOMINGTON, LLC (“ Bloomington ”), a Texas limited liability company, PETRODOME BUCKEYE, LLC (“ Buckeye ”), a Texas limited liability company, PETRODOME DIETZEL, LLC (“ Dietzel ”), a Texas limited liability company, PETRODOME EAST CREOLE, LLC (“ East Creole ”), a Louisiana limited liability company, PETRODOME EC, LLC (“ EC ”), a Texas limited liability company, PETRODOME ENERGY, LLC (“ Petrodome Energy ”), a Texas limited liability company, PETRODOME LIBERTY, LLC (“ Liberty ”), a Texas limited liability company, PETRODOME LONE STAR, LLC (“ Lone Star ”), a Texas limited liability company, PETRODOME LOUISIANA PIPELINE, LLC (“ Pipeline ”), a Texas limited liability company, PETRODOME MAURICE, LLC (“ Maurice ”), a Texas limited liability company, PETRODOME NAPOLEONVILLE, LLC (“ Napoleonville ”), a Louisiana limited liability company, PETRODOME OPERATING, LLC (“ Operating ”), a Texas limited liability company, PETRODOME PHEASANT BLESSING, LLC (“ Pheasant Blessing ”), a Texas limited liability company, PETRODOME PINEVILLE, LLC (“ Pineville ”), a Mississippi limited liability company, PETRODOME PINTAIL, LLC (“ Pintail ”), a Louisiana limited liability company, PETRODOME QUAIL RIDGE, LLC (“ Quail Ridge ”), a Texas limited liability company, PETRODOME RIO RANCH, LLC (“ Rio Ranch ”), a Texas limited liability company, PETRODOME ST. GABRIEL II, LLC (“ St. Gabriel ”), a Texas limited liability company, PETRODOME THUNDERBOLT, LLC (“ Thunderbolt ”), a Texas limited liability company, and PETRODOME WHARTON, LLC (“ Wharton ”), a Texas limited liability company, (each of Horn, Choctaw, Bloomington, Buckeye, Dietzel, East Creole, EC, Petrodome Energy, Liberty, Lone Star, Pipeline, Maurice, Napoleonville, Operating, Pheasant Blessing, Pineville, Pintail, Quail Ridge, Rio Ranch, St. Gabriel, Thunderbolt and Wharton, a “ Borrower ” or “ Co-Borrower ” and, collectively, the “ Borrowers ”), each lender that is a signatory hereto or becomes a party hereto as provided in Section 2.21 and Section 9.1 (individually, together with its successors and assigns, a “ Lender ” and, collectively, together with their respective successors and assigns, the “ Lenders ”), and 405 PETRODOME LLC , a Delaware limited liability company (“ 405 Petrodome ”), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity pursuant to the terms hereof, the “ Agent ”).

 

W I T N E S S E T H:

 

In consideration of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:

 

- 1 -

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

1.1 Terms Defined Above . As used in this Agreement, each of the terms “ Agent ,” “ 405 Petrodome ,”, “ Borrower ,” “ Borrowers ,” “ Co-Borrower ,” “ Lender ,” and “ Lenders ,” shall have the meaning assigned to such term hereinabove.

 

1.2 Additional Defined Terms . As used in this Agreement, each of the following terms shall have the meaning assigned thereto in this Section 1.2 or in Sections referred to in this Section 1.2 , unless the context otherwise requires:

 

AAA ” shall mean the American Arbitration Association.

 

Acquisition Properties ” shall mean the Oil and Gas Properties owned by one or more of the Borrowers as of the Effective Date.

 

Additional Amount ” shall have the meaning set forth for such term in Section 2.6 .

 

Additional Commitment Funds ” shall have the meaning set forth for such term in Section 2.21 .

 

Additional Costs ” shall mean costs which are attributable to the obligation of the Agent or any Lender to maintain the Term Loan, or any reduction in any amount receivable by the Agent or such Lender in respect of any such obligation or any Term Loan, resulting from any Regulatory Change which (a) changes the basis of taxation of any amounts payable to the Agent or such Lender under this Agreement or any Note in respect of any Loan (other than taxes imposed on the overall net income of the Agent or such Lender or its Applicable Lending Office (including franchise or similar taxes) for the Term Loan), (b) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirement (other than the Reserve Requirement utilized in the determination of the LIBO Rate used in any determination of the Contract Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the Agent or such Lender with respect to the Term Loan and Dollar deposits in the London interbank market in connection with the Term Loan, or the Commitment of the Agent or such Lender to maintain the Term Loan, or the London interbank market or (c) imposes any other condition affecting this Agreement or any Note or any of such extensions of credit, liabilities or Commitments, in each case with respect to the Term Loans.

 

Additional Lender ” shall have the meaning set forth for such term in Section 2.21 .

 

 
- 2 -
 
 

 

Adjusted Strip Prices ” shall mean the 12-month average closing settlement price for crude oil and natural gas future contracts for calendar year 2018 and the 12-month average closing settlement price for each of the succeeding four calendar years, as applicable hereunder, in each case as published by NYMEX and, if not already so adjusted in such published prices, adjusted for severance taxes, ad valorem taxes, gathering, transportation and marketing expenses and historical basis differentials.

 

Administrator ” shall have the meaning assigned to such term in Section 9.13 .

 

Affiliate ” shall mean, as to any Person, any other Person directly or indirectly, controls, is controlled by, or under common control with, such Person and includes, as to the Borrowers, any Subsidiary of the Borrowers and any “affiliate” of the Borrowers within the meaning of Rule 12b-2 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with “control,” as used in this definition, meaning possession, directly or indirectly, of the power to direct or cause the direction of management, policies or action through ownership of voting securities, contract, voting trust, or membership in management or in the group appointing or electing management or otherwise through formal or informal arrangements or business relationships.

 

Agent Observer ” shall mean any representative of the Agent designated by the Agent from time to time by written notice to the Borrowers.

 

Agreement ” shall mean this Term Loan Agreement, as it may be amended, supplemented, restated, amended and restated or otherwise modified from time to time.

 

Anti-Terrorism Laws ” shall mean any laws relating to terrorism or money laundering, including Executive Order No. 13224 and the USA Patriot Act.

 

Applicable Lending Office ” shall mean, for each Lender, the lending office of such Lender (or an Affiliate of such Lender) designated on the signature pages hereof or in an Assignment Agreement or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrowers in writing as the office by which its Percentage Share of the Term Loan is to be made and maintained.

 

Applicable Rate ” shall mean (a) from the Closing Date through June 30, 2018, nine and eight hundred seventy-five thousandths percent (9.875%) per annum, (b) from July 1, 2018 through December 31, 2018, eleven and three hundred seventy-five thousandths percent (11.375%) per annum, (c) from January 1, 2019 until June 30, 2019, twelve and eight hundred seventy-five thousandths percent (12.875%) and (d) from July 1, 2019 until December 21, 2019, fourteen and three hundred seventy-five thousandths percent (14.375%).

 

 
- 3 -
 
 

 

Applicable Tax Percentage ” shall mean the highest effective marginal combined rate of federal, state and local income taxes (taking into account the deductibility of state and local taxes for federal income tax purposes) to which any Person holding voting Equity Interests of any Borrower would be subject in the relevant year of determination, taking into account only such Person’s share of income and deductions attributable to its equity ownership interest in such Borrower.

 

Approved Hedge Counterparty ” shall mean any Lender or a counterparty to a Commodity Hedge Agreement with a Borrower or Borrowers approved by the Agent and the Lenders.

 

Arbitration Order ” shall have the meaning assigned to such term in Section 9.13 .

 

Assignment Agreement ” shall mean an Assignment Agreement in substantially the form of Exhibit C , with appropriate insertions or such other form as approved by the Agent.

 

Assignment of ORRI ” shall mean a conveyance of overriding royalty interest, in the form attached hereto as Exhibit D or otherwise in form acceptable the Agent.

 

Base Price ” shall mean $55.00/Bbl for oil and $3.50/Mmbtu for natural gas.

 

Benefited Lender ” shall have the meaning assigned to such term in Section 2.7(c) .

 

Blocked Person ” shall have the meaning assigned to such term in Section 4.23 .

 

Business Day ” shall mean (a) any day other than a Saturday, Sunday, legal holiday for commercial banks under the laws of the State of New York, or any other day when banking is suspended in the State of New York and (b) with respect to all notices, determinations and payments in connection with the LIBO Rate, the term “Business Day” shall mean any day which is a Business Day described in clause (a) and which is also a day for trading by and between banks in Dollar deposits in the London Interbank market.

 

Business Entity ” shall mean a corporation, partnership, joint venture, limited liability company, joint stock association, business trust, or other business entity.

 

 
- 4 -
 
 

 

CapEx Account ” shall mean the deposit account maintained by 405 Petrodome at Citibank in which funds for Capital Expenditures shall be held.

 

Capital Expenditures ” shall have the meaning assigned to such term by GAAP.

 

Capital Lease ” shall (for the avoidance of doubt) have the meaning assigned to such term by GAAP.

 

Change of Control ” shall mean an event or series of events by which James Doris shall cease for any reason to be active in the day to day management of the Borrowers.

 

Closing Date ” shall mean the Effective Date of this Agreement.

 

Collateral ” shall mean the Mortgaged Properties, all of the Equity Interests in the Borrowers, all Property interest secured by any of the Security Documents and any other Property of any Person now or at any time used or intended as security for the payment or performance of all or any portion of the Obligations, and expressly including “as extracted collateral” as defined in the UCC or the Uniform Commercial Code of any other applicable state.

 

Commitment ” shall mean, as to each Lender, its obligations to make its Percentage Share of the Term Loan and maintain its Percentage Share of the Loan Balance.

 

Commodity Exchange Act ” shall mean the Commodity Exchange Act (7 U.S.C. § 1 et seq.).

 

Commodity Hedge Agreement ” shall have the meaning assigned to such term in Section 1a(47) of the Commodity Exchange Act and, if not within the scope of such definition, shall include any crude oil, natural gas or other hydrocarbon floor, collar, cap, swap, price protection or hedge agreements, including any schedules, annexes and supplements thereto and trade confirmations thereunder.

 

Commonly Controlled Entity ” shall mean any Person which is under common control with the Borrowers within the meaning of Section 4001 of ERISA.

 

Compliance Certificate ” shall mean each certificate, substantially in the form attached hereto as Exhibit B , executed by the Financial Officer of the Borrowers and furnished to the Agent from time to time in accordance with the provisions of Section 5.2 or Section 5.3 , as the case may be.

 

 
- 5 -
 
 

 

Contingent Obligation ” shall mean, as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases including Capital Leases, dividends, or other obligations of any other Person (for purposes of this definition, a “ primary obligation ”) in any manner, whether directly or indirectly, including any obligation of such Person, regardless of whether such obligation is contingent, (a) to purchase any primary obligation or any Property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any primary obligation, or (ii) to maintain working or equity capital of any other Person in respect of any primary obligation, or otherwise to maintain the net worth or solvency of any other Person, (c) to purchase Property, securities or services primarily for the purpose of assuring the owner of any primary obligation of the ability of the Person primarily liable for such primary obligation to make payment thereof, or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof, with the amount of any Contingent Obligation being deemed to be equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith.

 

Contract Rate ” shall mean a daily interest rate equal to the per annum interest rate equal to the LIBO Rate for each relevant day plus the Applicable Rate converted to a daily rate on the basis of a year of 360 days and the rate so determined for each relevant day being applied on the basis of actual days elapsed (including the first day, but excluding the last day) during the period for which interest is payable at such rate, but in no event shall any such rate exceed, as to any Lender, the Highest Lawful Rate.

 

Contribution Percentage ” shall mean, for each party obligated to make a payment due pursuant to the provisions of Section 9.20 , the percentage obtained by dividing such party’s Obtained Benefit by the aggregate Obtained Benefits of the Borrowers.

 

Control Account ” shall mean each of the deposit accounts maintained by Petrodome Energy or its Subsidiaries at Wells Fargo Bank, National Association or elsewhere, which deposit accounts shall be subject to a Deposit Account Control Agreement among the account owner, the Agent and Wells Fargo Bank, National Association, or such other financial institution at which a Borrower account is located.

 

Current Assets ” shall mean all assets which would, in accordance with GAAP, be included as current assets on a consolidated balance sheet of the Borrowers as of the date of calculation, after deducting adequate reserves in each case in which a reserve is proper in accordance with GAAP, but excluding deferred tax assets, if any, and non-cash derivative current assets to the extent such positions have not been closed arising from Commodity Hedge Agreements, if any, otherwise included as an asset in preparing such a balance sheet.

 

 
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Current Liabilities ” shall mean the sum of (a) all liabilities which would, in accordance with GAAP, be included as current liabilities on a consolidated balance sheet of the Borrowers as of the date of calculation, (b) payments on other Liabilities pursuant to the provisions of Section 2.3(a) or Section 2.10 , other than the payment of principal due on the Maturity Date and (c) payments on other Liabilities not prohibited by applicable provisions of this Agreement, if any, but excluding from the resulting amount (x) deferred tax obligations, if any, due within one year after the date of determination of such sum, (y) required principal payments in reduction of the Loan Balance and (z) non-cash derivative current liabilities arising from Commodity Hedge Agreements, including those arising from the application of ASC Topic 815, Derivatives and Hedging or ASC Topic 410, Asset Retirement and Environmental Obligations , to extent any of such items (x), (y) or (z) would otherwise be included as a liability in determining such sum.

 

Default ” shall mean any event or occurrence which with the lapse of time or the giving of notice or both would become an Event of Default.

 

Default Rate ” shall mean an interest rate equal to the Contract Rate plus two percent (2%), but in no event shall such rate exceed the Highest Lawful Rate.

 

Deposit Account Control Agreement ” shall mean an agreement among one or more of the Borrowers, the Agent, and a financial institution in which such Borrower maintains an account, providing for immediate or subsequent control of such account by the Agent, for itself and the Lenders, such agreement to be in form and substance acceptable to Agent, in its sole discretion.

 

Development Plan ” shall mean the plan for the development of the Acquisition Properties (or such other Oil and Gas Properties as may be approved by the Agent in its sole discretion) proposed by the Borrower, as updated pursuant to Section 5.4(e) . A copy of the proposed, but unapproved Development Plan as of the Closing Date is attached hereto as Schedule 1.2A .

 

Direction Letters ” shall mean, collectively, letters, in form and substance reasonably satisfactory to the Agent, from the relevant Borrower to all purchasers of production and royalty interest payors directing such payor to remit payment to the Lockbox by mail or to the Lockbox Account by wire transfer.

 

Dispute ” shall have the meaning assigned to such term in Section 9.13 .

 

Dollars ” and “ $ ” shall mean dollars in lawful currency of the United States of America.

 

EBITDA ” shall mean: (a) consolidated net income; plus (b) consolidated interest expense; plus (c) all amounts treated as expenses for depreciation, depletion and the amortization of intangibles of any kind; plus (d) all accrued taxes on or measured by income; plus or minus (e) any gains or losses attributable to writeups or writedowns of assets; plus or minus (g) non-cash share based compensation or recovery amounts.

 

 
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Effective Date ” means the date on which the conditions specified in Section 3.1 are satisfied.

 

Eligible Contract Participant ” shall have the meaning assigned to such term in the Commodity Exchange Act and the regulations thereunder.

 

Environmental Complaint ” shall mean any written or oral complaint, order, directive, claim, citation, notice of environmental report or investigation, or other notice by any Governmental Authority or any other Person with respect to (a) air emissions, (b) spills, releases, or discharges to soils, any improvements located thereon, surface water, groundwater, or the sewer, septic, waste treatment, storage, or disposal systems servicing any Property of the Borrowers, (c) solid or liquid waste disposal, (d) the use, generation, storage, transportation, or disposal of any Hazardous Substance, or (e) other environmental, health, or safety matters affecting any Property of the Borrowers or the business conducted thereon.

 

Environmental Laws ” shall mean (a) the following federal laws as they may be cited, referenced, and amended from time to time: the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Occupational Safety and Health Act, the Oil Pollution Act, the Resource Conservation and Recovery Act, the Superfund Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b) any and all equivalent environmental statutes of any state in which Property of any Borrower is situated, as they may be cited, referenced and amended from time to time; (c) any rules or regulations promulgated under or adopted pursuant to the above federal and state laws; and (d) any other equivalent federal, state, or local statute or any requirement, rule, regulation, code, ordinance, decree, permit, concession, grant, franchise, license, agreement or governmental restrictions or order adopted pursuant thereto, including all common law relating to pollution or the protection of health, safety or the environment or the release of any materials into the environment, including those related to the generation, transportation, treatment, storage, recycling, disposal, handling, or release of Hazardous Substances, air emissions, discharges to waste or public systems and health and safety matters.

 

Equity Interests ” shall mean shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such Equity Interest.

 

 
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Equity Raise ” shall mean the issuance of Equity Interests in the Borrowers and the exercise, for cash, of any warrants issued by the Borrowers and outstanding on the Closing Date.

 

ERISA ” shall mean the Employee Retirement Income Security Act of 1974, and the regulations thereunder and interpretations thereof.

 

Event of Default ” shall mean any of the events specified in Section 7.17.1 .

 

Excess Payments ” shall have the meaning assigned to such term in Section 9.20 .

 

Excluded Swap Obligation ” shall mean, with respect to the Borrowers, any Swap Obligation if, and to the extent that, all or a portion of the grant by the relevant Borrower of a Lien to secure such Swap Obligation is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of the relevant Borrower’s failure, for any reason, to constitute an Eligible Contract Participant at the time the grant of such Lien becomes effective with respect to such Swap Obligation and, if a Swap Obligation arises under a master agreement governing more than one Swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to Commodity Hedge Agreements for which such Lien is or becomes illegal.

 

Excluded Taxes ” means (a) with respect to any and all payments to the Agent, any Lender or any recipient of any payment to be made by or on account of any Obligation, income taxes, branch profits taxes, franchises and excise taxes (to the extent imposed in lieu of net income taxes), and all interest, penalties and liabilities with respect thereto, imposed on the Agent or any Lender, and (b) with respect to Agent, any Lender or any other Person, any Taxes unrelated to the Obligations or this Agreement.

 

Executive Order No. 13224 ” shall mean Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

Facility Amount ” shall mean $30,000,000.

 

Federal Funds Rate ” shall mean, for any day, the rate per annum (rounded upwards to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank on the second Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the second succeeding Business Day as so published on the second succeeding Business Day, and (b) if no such rate is so published on such second succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent on such day on such transactions as determined by the Agent.

 

 
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Financial Officer ” shall mean, for any Business Entity, the chief financial officer, principal accounting officer, treasurer, manager or controller of such Business Entity.

 

Financial Statements ” shall mean statements of the financial condition of the Borrowers on a consolidated basis, as at the point in time and for the period indicated, including all notes thereto, and consisting of at least a balance sheet and related statements of operations, shareholders, members’ or partners’ equity and cash flows and, when required by applicable provisions of this Agreement, to be audited, accompanied by the unqualified certification of a nationally-recognized or regionally-recognized firm of independent certified public accountants or other independent certified public accountants reasonably acceptable to the Agent and footnotes to any of the foregoing, all of which, unless otherwise indicated, shall be prepared in accordance with GAAP consistently applied and in comparative form with respect to the corresponding period of the preceding fiscal year and comparative form with respect to the Budget delivered pursuant to Schedule 5.2 .

 

Foreign Lender ” shall have the meaning assigned to such term in Section 2.6(f) .

 

Funding Request ” shall have the meaning assigned to such term in Section 2.21 .

 

GAAP ” shall mean generally accepted accounting principles established by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants and in effect in the United States of America from time to time.

 

Governmental Authority ” shall mean any nation, country, commonwealth, territory, government, state, county, parish, municipality, or other political subdivision and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government.

 

Hazardous Substances ” shall mean any substance regulated or as to which liability might arise under any applicable Environmental Law including: flammables, explosives, radioactive materials, hazardous wastes, asbestos, or any material containing asbestos, polychlorinated biphenyls (PCBs), radon, infectious or medical wastes, toxic substances or related materials, petroleum, petroleum products, petroleum substances, associated oil or natural gas exploration, production, and development wastes and any components, fractions, or derivatives thereof, or any chemical, compound, material, product, byproduct, substance or waste defined as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “solid waste,” “toxic waster,” “extremely hazardous substance,” or “toxic substances,” “contaminant,” “pollutant,” or words of similar meaning or import found in the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendments and Reauthorization Act, the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, or any other Requirement of Law.

 

 
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Highest Lawful Rate ” shall mean, with respect to any Lender, the maximum non-usurious interest rate, if any (or, if the context so requires, an amount calculated at such rate), that at any time or from time to time may be contracted for, taken, reserved, charged or received under laws applicable to such Lender, as such laws are presently in effect or, to the extent allowed by applicable law, as such laws may hereafter be in effect and which allow a higher maximum non-usurious interest rate than such laws now allow.

 

Hydrocarbon Interests ” means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, farm-outs, net profit interests, carried interests and production payments and similar mineral interests, including any reserved or residual interests of whatever nature.

 

Hydrocarbons ” means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith from a well bore and all products, by-products, and other substances produced in conjunction with such substances, including sulfur, geothermal steam, water, carbon dioxide, helium, and any and all minerals, ores, or substances of value and all products refined or separated therefrom and the proceeds therefrom.

 

Increasing Lender ” shall have the meaning assigned to such term in Section 2.21 .

 

Incremental Agreement ” shall have the meaning assigned to such term in Section 2.21 .

 

Indebtedness ” shall mean, as to any Person, without duplication, (a) all liabilities (excluding capital, surplus, reserves for deferred income taxes, deferred compensation liabilities and other deferred liabilities and credits) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet, (b) all obligations of such Person evidenced by bonds, debentures, promissory notes or similar evidences of indebtedness, (c) all other indebtedness of such Person for borrowed money, (d) all obligations of others, to the extent any such obligation is secured by a Lien on the assets of such Person (whether or not such Person has assumed or become liable for the obligation secured by such Lien), (e) the principal component of all direct or Contingent Obligations of such Person under letters of credit, banker’s acceptances and similar instruments and (f) net obligations of such Person payable with respect to any Commodity Hedge Agreements, except for ordinary course of business settlement payments.

 

 
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Indemnified Taxes ” means Taxes other than Excluded Taxes.

 

Indemnitee ” shall have the meaning assigned to such term in Section 5.20 .

 

Initial Commitment ” has the meaning assigned such term in Section 2.1(a) .

 

Initial Funding ” has the meaning assigned such term in Section 2.1(b) .

 

Insolvency Proceeding ” shall mean application (whether voluntary or instituted by another Person) for or the consent to the appointment of a receiver, trustee, conservator, custodian, or liquidator of any Person or of all or a substantial part of the Property of such Person, or the filing of a petition (whether voluntary or instituted by another Person) commencing a case under Title 11 of the United States of America Code, seeking liquidation, reorganization, or rearrangement or taking advantage of any bankruptcy, insolvency, debtor’s relief, or other similar law of the United States of America, the State of Texas, or any other jurisdiction.

 

Intellectual Property ” shall mean patents, patent applications, trademarks, tradenames, copyrights, technology, know‑how, and processes.

 

Interest Payment Date ” means, with respect to any Term Loan, the first Business Day of each calendar month.

 

Investment ” in any Person shall mean any stock, bond, note or other evidence of Indebtedness, or any other security (other than current trade and customer accounts) of, investment or partnership interest in or loan to, such Person.

 

Liabilities ” shall mean, for the Borrowers on a consolidated basis, all Indebtedness and other liabilities and obligations, whether matured or unmatured, liquidated or unliquidated, primary or secondary, direct or indirect or absolute, fixed or contingent, and whether or not required to be considered for purposes of compliance with GAAP.

 

 
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LIBO Rate ” shall mean, with respect to any period of twelve (12) months following a determination of the Contract Rate, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) that appears on Bloomberg ICE Benchmark Administration LIBOR Rates Page (or the successor thereto if the ICE Benchmark Administration is no longer making a LIBOR rate available) at approximately 11:00 a.m., New York time, on the second Business Day of each month during the relevant twelve (12) month period for Dollar deposits in an amount comparable to the principal amount of the then existing Loan Balance. If such rate does not appear on such screen or service, or such screen or service shall cease to be available, then LIBOR shall be determined by Agent to be the offered rate on such other screen or service that displays an average interest settlement rate for deposits in Dollars (for delivery on such date of calculation) for a term of twelve (12) months as of 11:00 a.m. on the relevant determination date. If neither of the referenced rates is available, then LIBOR for a term of twelve (12) months will be determined by such alternate method as is reasonably selected by Agent.

 

Lien ” shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of such Property, whether such interest is based on common law, statute, or contract, and including, but not limited to, the lien or security interest arising from a mortgage, ship mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt, or a lease, consignment, or bailment for security purposes (other than true leases or true consignments), liens of mechanics, materialmen, and artisans, maritime liens and reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Property which secure an obligation owed to, or a claim by, a Person other than the owner of such Property (for the purpose of this Agreement, the Borrowers shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes).

 

Limitation Period ” shall mean, with respect to any Lender, any period while any amount remains owing on the Note payable to such Lender and interest on such amount, calculated at the Contract Rate, plus any fees or other sums payable to such Lender under any Loan Document and deemed to be interest under applicable law, would exceed the amount of interest which would accrue at the Highest Lawful Rate.

 

Loan Balance ” shall mean, at any point in time, the aggregate outstanding principal balance of the Notes at such time.

 

Loan Documents ” shall mean this Agreement, the Assignment of ORRI, the Notes, the Security Documents and all other documents and instruments now or hereafter delivered pursuant to the terms of or in connection with any of the foregoing, and all renewals and extensions of, amendments and supplements to, and restatements of, any or all of the foregoing from time to time in effect.

 

 
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Lockbox ” shall mean the Post Office Box maintained with or through Citibank, pursuant to the Lockbox Services Agreement between 405 Petrodome and Citibank.

 

Lockbox Account ” shall mean the deposit account maintained by 405 Petrodome at Citibank and associated with the Lockbox.

 

Material Adverse Effect ” shall mean (a) any adverse effect on the business, operations, properties, liabilities or financial condition of the Borrowers, on a consolidated basis, which increases, in any material respect, the risk that any of the Obligations will not be repaid as and when due, (b) any material and adverse effect upon the Collateral, including any material and adverse effect upon the value or impairment of any Borrowers’ or any other Person’s ownership of any material portion of the Collateral, (c) any material adverse effect on the validity or enforceability of any Loan Document or (d) any material adverse effect on the rights or remedies of the Agent or any Lender under an Loan Document.

 

Maturity Date ” shall mean the earlier to occur of (i) the date that is twenty four (24) months from the Closing Date or (ii) the date the Term Loans are accelerated pursuant to this Agreement.

 

Minimum Funding Amount ” shall mean $1,000,000.

 

Minimum Required Commodity Hedge Agreements ” shall mean Commodity Hedge Agreements between one or more of the Borrowers and one or more Approved Hedge Counterparties covering not less than seventy-five percent (75%) of the Borrower’s thirty-six (36) month forward projected oil production based on PDP Reserves set forth in the most recent Reserve Report.

 

Mortgaged Properties ” shall mean all Oil and Gas Properties of the Borrowers subject to a perfected first priority Lien (subject only to Permitted Liens) in favor of the Agent, as security for the Obligations.

 

Notes ” shall mean, collectively, the promissory note or notes executed by the Borrowers and payable to each Lender in the face amount of the Percentage Share of such Lender of the amount of the Term Loan in the form attached hereto as Exhibit A with all blanks in such form completed appropriately, together with all renewals, extensions for any period, increases and rearrangements thereof.

 

NYMEX ” shall mean the New York Mercantile Exchange.

 

 
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Obligations ” shall mean, without duplication of the same amount in more than one category, (a) all Indebtedness of the Borrowers evidenced by the Notes, (b) all other obligations and liabilities of the Borrowers to the Agent or the Lenders, now existing or hereafter incurred, under, arising out of or in connection with any other Loan Document, and (c) amounts owing or to be owing by any Borrowers to any Lender under any Commodity Hedge Agreements between such Borrowers and such Lender (which it is agreed shall rank pari passu with all other items listed in this definition), except Excluded Swap Obligations, and to the extent that any of the foregoing includes or refers to the payment of amounts deemed or constituting interest, only so much thereof as shall have accrued, been earned and which remains unpaid at each relevant time of determination.

 

Obtained Benefit ” shall mean, with respect to any Borrower, the aggregate amount of benefits, both direct and indirect, obtained by the relevant Borrower from the extension of credit to the Borrowers under this Agreement and not repaid by the relevant Borrower.

 

OFAC ” shall mean the Office of Foreign Assets Control of the United States of America Department of the Treasury, or any other any successor Governmental Authority.

 

Oil and Gas Properties ” means (a) Hydrocarbon Interests; (b) the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future unitization, communitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (d) all operating agreements, contracts and other agreements, including production sharing contracts and agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, pipes or wherever else the same my be stored or in transit from time to time, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment, rental equipment or other personal Property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, salt water disposal wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with proceeds from and all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.

 

 
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Operating Account ” shall mean one or more separate deposit accounts, including the Control Account, maintained by one or more of the Borrowers with Wells Fargo Bank, National Association, each of which deposit accounts shall be subject to a Deposit Account Control Agreement with shifting control among the Borrowers, Wells Fargo Bank, National Association and the Agent.

 

Other Taxes ” means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document.

 

ORRI ” shall mean the overriding royalty interest conveyed pursuant to the Assignment of ORRI.

 

PDP ” shall mean Proved Developed Producing Reserves.

 

Percentage Share ” shall mean, as to each Lender, the applicable percentage set forth on Schedule 1.2C .

 

Permitted Liens ” shall mean (a) Liens for taxes, assessments, or other governmental charges or levies not yet due or which (if foreclosure, distraint, sale, or other similar proceedings shall not have been initiated) are being contested in good faith by appropriate proceedings, and such reserve as may be required by GAAP shall have been made therefor, (b) Liens in connection with workers’ compensation, unemployment insurance or other social security (other than Liens created by Section 4068 of ERISA), old-age pension, employee benefits, or public liability obligations which are not yet due or which are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor, (c) Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen, constructors, laborers, landlords or similar Liens arising by operation of law in the ordinary course of business in respect of obligations that are not yet due or which are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor, (d) Liens securing leases of equipment, provided that, as to any particular lease, the Lien covers only the relevant leased equipment and secures only amounts which are not yet due and payable under the relevant lease or are being contested in good faith by appropriate proceedings and such reserve as required by GAAP shall have been made therefor, (e) Liens in favor of the Agent securing the Obligations and other Liens expressly permitted hereunder or in the Security Documents, and (f) Liens securing equipment financed with Indebtedness, provided , however , such Liens shall in all respects be subject and subordinate in priority to the Liens created by the Security Documents.

 

 
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Permitted Tax Distributions ” shall mean, with respect to any Borrower so long as it is taxable as a partnership for United States federal income tax purposes, tax distributions to the partners or members of the relevant Borrower in an aggregate amount that does not exceed, with respect to any period , an amount equal to (a) the product of (i) the Applicable Tax Percentage multiplied by (ii) such Borrower’s federal taxable income, minus (b) to the extent not previously taken into account, any income tax benefit attributable to such Borrower which could be utilized by its partners or members, in the current or any prior year, or portion thereof, from and after the Closing Date (including any tax losses or tax credits), computed at the Applicable Tax Percentage of the year that such benefit is taken into account for purposes of this computation; provided that the computation of distributions under this definition shall also take into account (x) the deductibility of state and local taxes for federal income tax purposes and (y) any difference in the Applicable Tax Percentage resulting from the nature of the taxable income (such as capital gain as opposed to ordinary income, if applicable).

 

Person ” shall mean an individual, corporation, partnership, limited liability company, trust, unincorporated organization, government, any agency or political subdivision of any government or any other form of entity.

 

Petrodome Energy Interests ” shall mean one hundred percent (100%) of the outstanding Equity Interests in Petrodome Energy.

 

Petrodome Management ” shall mean the individuals responsible for managing the operations of the Borrowers, including but not limited to the President, any Vice Presidents, Managers, and the Financial Officer.

 

Petrodome PSA ” shall mean that certain Membership Interest Purchase Agreement, dated November 10, 2017, between Black Rhino, LP and Viking Energy Group, Inc.

 

Plan ” shall mean, at any time, any employee benefit plan which is covered by Title IV of ERISA and in respect of which the Borrowers, or any Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

Principal Office ” shall mean the principal office or account of the Agent in New York, New York, presently located at 405 Lexington Avenue, 59 th Floor, New York, New York 10174 or such other location or account as Agent may designate from time to time.

 

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

 

Proved Developed Producing Reserves ” has the meaning assigned to such term in the SPE/SEC Standards.

 

Proved Reserves ” has the meaning assigned to such term in the SPE/SEC Standards.

 

Proved Undeveloped Reserves ” has the meaning assigned such term in the SPE/SEC Standards.

 

PUD ” shall mean Proved Undeveloped Reserves.

 

PV-10 ” shall mean present value discounted at ten percent (10%).

 

Qualified ECP Borrower ” shall mean, in respect of any Swap Obligation, each Borrower that has total assets exceeding $10,000,000 at the time the relevant grant of any Lien becomes effective with respect to such Swap Obligation or such other Person as constitutes an Eligible Contract Participant and can cause another Person to qualify as an Eligible Contract Participant at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

Register ” shall have the meaning assigned to it in Section 9.1(b).

 

Regulatory Change ” shall mean, with respect to any Lender, the passage, adoption, institution, or amendment of any federal, state, local, or foreign Requirement of Law, or any interpretation, directive, or request (whether or not having the force of law) of any Governmental Authority or monetary authority charged with the enforcement, interpretation, or administration thereof, occurring after the Closing Date and applying to a class of lenders including such Lender; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith, shall in each case be deemed to be a “Regulatory Change”, regardless of the date enacted, adopted or issued and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Regulatory Change”, regardless of the date enacted, adopted or issued.

 

Release of Hazardous Substances ” shall mean any emission, spill, release, disposal, or discharge, except in accordance with a valid permit, license, certificate, or approval of the relevant Governmental Authority, of any Hazardous Substance into or upon (a) the air, (b) soils or any improvements located thereon, (c) surface water or groundwater, or (d) the sewer or septic system, or the waste treatment, storage, or disposal system servicing any Property of the Borrowers.

 

 
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Repurchase Option ” shall have the meaning set forth for such term in Section 2.20 .

 

Required Lenders ” shall mean Lenders whose Percentage Shares total at least fifty one percent (51%).

 

Requirement of Law ” shall mean, as to any Person, the certificate or articles of incorporation and by-laws, the certificate or articles of organization and regulations, operating agreement or limited liability company agreement, the agreement of limited partnership or other organizational or governing documents of such Person, and any applicable law, treaty, ordinance, order, judgment, rule, decree, regulation or determination of an arbitrator, court or other Governmental Authority, including rules, regulations, orders and requirements for permits, licenses, registrations, approvals or authorizations, in each case as such now exist or may be hereafter amended and are applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.

 

Reserve Report ” shall mean each report prepared by LaRoche Petroleum Consultants, Ltd. or such other petroleum engineering firm approved in writing by the Agent, covering the Reserves attributable to the interests of one or more of the Borrowers in Oil and Gas Properties.

 

Reserve Requirement ” means the percentage in effect from time to time under the regulations of any applicable Governmental Authority as the maximum reserve requirement applicable with respect to Eurocurrency liabilities. The LIBO Rate shall be adjusted as of the effective date of any change in the Reserve Requirement.

 

Reserves ” shall mean volumes of Hydrocarbons.

 

Responsible Officer ” shall mean, as to any Business Entity, its President, any of its Vice Presidents, managers, its Financial Officer or any other Person duly authorized, in accordance with the applicable organizational documents, bylaws, operating agreement, regulations or resolutions, to act on behalf of such Business Entity.

 

SEC ” means the Securities and Exchange Commission or any successor Governmental Authority.

 

Security Documents ” shall mean, collectively, (a) the security documents executed and delivered by the Borrowers securing the Term Loan, including but not limited to any deed of trust, mortgage, pledge agreement, security agreement, collateral agreement or Deposit Account Control Agreement and (b) other documents and instruments at any time executed as security for all or any portion of the Obligations, as such instruments may be amended, supplemented, restated or otherwise modified from time to time (for avoidance of doubt, including each Deposit Account Control Agreement with Wells Fargo Bank, National Association or any other depository institution).

 

 
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Solvent ” means, with respect to any Person on any date of determination (after giving effect to the making of the Term Loan and the application of the proceeds thereof and to the provisions of Section 9.20 , if applicable), that on such date (a) the fair value of the assets of such Person is not less than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to pay its debts and liabilities, Contingent Obligations and other commitments as they mature in the ordinary course of business and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s assets would constitute an unreasonably small capital. For purposes of this definition, the amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

 

SPE ” means the Society of Petroleum Engineers.

 

SPE Definitions ” means, with respect to any term, the definition thereof as adopted by the Board of Directors of the SPE.

 

SPE/SEC Standards ” means the more restrictive of the standards and/or definitions, as determined by the Agent, set forth by (a) the SEC and (b) the Society of Petroleum Engineers or the SPE Definitions.

 

Subordinated Indebtedness ” means any sum of money and/or property, whether now owing or otherwise owed by one or more of the Borrowers to (i) any other Borrower, (ii) any manager, member, general partner, limited partner or officer of any Borrower, (iii) Viking Energy Group, Inc., and (iv) any other party directly or indirectly related to any Borrower.

 

Subsidiary ” shall mean, as to any Person, any Business Entity of which shares of stock or other Equity Interests having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other governing body or managers of such Business Entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.

 

 
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Superfund Site ” shall mean those sites listed on the Environmental Protection Agency National Priority List and eligible for remedial action or any comparable state registries or list in any state of the United States of America.

 

Swap ” has the meaning assigned to such term in Section 1a(47) of the Commodity Exchange Act.

 

Swap Obligation ” shall mean, with respect to the Borrowers, any obligation to pay or perform under any agreement, contract or transaction that constitutes a Swap or any rules or regulations promulgated thereunder.

 

Taxes ” means any and all present or future taxes, levies, imposts, duties, fees, deductions, charges or withholdings imposed by any Governmental Authority.

 

Term Loan ” shall mean the loan made by the Lenders to or for the benefit of the Borrowers pursuant to this Agreement.

 

Term Loan Repayment Date ” shall have the meaning assigned to such term in Section 2.3(a) .

 

Transferee ” shall mean any Person to which any Lender has sold, assigned, transferred or granted a participation in any of the Obligations, as authorized pursuant to the provisions of Section 9.1 , and any Person acquiring, by purchase, assignment, transfer or participation, from any such purchaser, assignee, transferee or participant, any part of such Obligations.

 

WI Owner ” shall have the meaning assigned thereto in the applicable Assignment of ORRI.

 

UCC ” shall mean the Uniform Commercial Code as from time to time in effect in the State of New York.

 

USA Patriot Act ” shall mean USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001), as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

1.3 Undefined Financial Accounting Terms . Financial accounting terms used in this Agreement without definition are used herein with the respective meanings assigned thereto in accordance with GAAP at the time in effect.

 

 
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1.4 References . References in this Agreement to Schedule, Exhibit, Article or Section numbers shall be to Schedules, Exhibits, Articles or Sections of this Agreement, unless expressly stated to the contrary. References in this Agreement to “hereby,” “herein,” “hereinafter,” “hereinabove,” “hereinbelow,” “hereof,” “hereunder” and words of similar import shall be to this Agreement in its entirety and not only to the particular Schedule, Exhibit, Article or Section in which such reference appears. Specific enumeration herein shall not exclude the general and, in such regard, the terms “includes” and “including” used herein shall mean “includes, without limitation,” or “including, without limitation,” as the case may be, where appropriate. Except as otherwise indicated, references in this Agreement to statutes, sections or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending, replacing, succeeding or supplementing the statute, section or regulation referred to. References in this Agreement to “writing” include printing, typing, lithography, facsimile reproduction and other means of reproducing words in a tangible visible form. References in this Agreement to agreements and other contractual instruments shall be deemed to include all exhibits and appendices attached thereto and all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement. References in this Agreement to Persons include their respective successors and permitted assigns.

 

1.5 Articles and Sections . This Agreement, for convenience only, has been divided into Articles and Sections; and it is understood that the rights and other legal relations of the parties hereto shall be determined from this instrument as an entirety and without regard to the aforesaid division into Articles and Sections and without regard to headings prefixed to such Articles or Sections.

 

1.6 Number and Gender . Whenever the context requires, reference herein made to the single number shall be understood to include the plural; and likewise, the plural shall be understood to include the singular. Definitions of terms defined in the singular or plural shall be equally applicable to the plural or singular, as the case may be, unless otherwise indicated. Words denoting sex shall be construed to include the masculine, feminine and neuter, when such construction is appropriate; and specific enumeration shall not exclude the general but shall be construed as cumulative.

 

1.7 Incorporation of Schedules and Exhibits . The Schedules and Exhibits attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for all purposes.

 

1.8 Negotiated Transaction . Each party to this Agreement affirms to the others that it has had the opportunity to consult, and discuss the provisions of this Agreement with, independent counsel and fully understands the legal effect of each provision.

 

ARTICLE II

 

TERMS OF FACILITY

 

2.1 Term Loan.

 

(a) Subject to the terms and conditions of this Agreement, each Lender severally agrees to make a Term Loan to the Borrowers on the Effective Date in a principal amount not to exceed the applicable term loan commitment set forth on Schedule 1.2C (the “ Initial Commitment ”) to be funded as provided in the sources and uses statement prepared by Chicago Title Insurance Company, in the manner and for the purposes provided in Section 2.1(b) and Section 2.2 . Notwithstanding anything to the contrary contained herein (and without affecting any other provisions hereof), the funded portion of each Term Loan made on the Effective Date shall be equal to ninety-four percent (94.00%) of the principal amount of such Term Loan (it being agreed that the full principal amount of each such Term Loan shall be the “initial” principal amount of such Term Loan and deemed outstanding on the Effective Date and the Borrowers shall be obligated to repay one hundred percent (100%) of the principal amount of each such Term Loan as provided hereunder).

 

 
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(b) Each Lender shall severally make available to the Agent an amount equal to such Lender’s Applicable Percentage of the Initial Commitment (the “ Initial Funding ”) at an account designated by the Agent by 11:00 a.m. Eastern Standard Time on the Effective Date. The amount so received by the Agent shall, subject to the terms and conditions hereof, be made available to one or more of the Borrowers, as directed by the Borrowers, in immediately available funds. The portion of the Term Loan to be repaid to each Lender shall be evidenced by the Note of such Lender.

 

(c) The failure of any Lender to make the portion of the loan on the Closing Date required to be made by it hereunder shall not relieve any other Lender of its obligation to make the portion of the loan on the Closing Date required to be made by it, and no Lender shall be responsible for the failure of any other Lender to make its portion of the loan on the Closing Date.

 

2.2 Use of Loan Proceeds . Proceeds of the Term Loans shall be: (a) used by Petrodome Energy to acquire the Petrodome Energy Interests (or such other properties as approved by Agent in its sole discretion), (b) to develop the Acquisition Properties pursuant to the Development Plan (or such other properties as approved by Agent in its sole discretion), (c) for the working capital of the Borrowers not otherwise prohibited under applicable provisions of this Agreement and approved by the Agent, and (d) to pay fees and expenses incurred in connection with this Agreement and the other Loan Documents. Schedule 2.2 attached hereto reflects the flow of funds from the proceeds of the Term Loans and the Contribution (as defined below) to be applied on the Closing Date.

 

2.3 Repayment of Term Loans .

 

(a) Principal . The Borrowers shall pay to the Agent, for the account of the Lenders, on the first Business Day of each calendar month beginning July 1, 2018, and continuing on the first day of each calendar month thereafter, or if any such day is not a Business Day, on the immediately succeeding Business Day (each such date being called a “ Term Loan Repayment Date ”), a payment of principal in the amount of: (1) $75,000.00 for the first six (6) payments due hereunder, (2) $125,000.00 for each payment thereafter, and (3) the remainder upon the Maturity Date.

 

(b) Interest . Each Term Loan shall bear interest on the principal amount thereof from the Effective Date, at a rate per annum equal to the Contract Rate (x) in the case of the first three Interest Payments Dates following the Effective Date payable (A) in kind (“ PIK Interest ”) or (B) so long as the Borrowers shall have given the Agent at least three (3) Business Days’ written notice before the applicable Interest Payment Date, in cash and (y) in cash on each Interest Payment Date thereafter. Accrued cash interest on each Term Loan may be paid in cash in arrears on each Interest Payment Date applicable to such Term Loan and any PIK Interest shall increase the principal amount of the Term Loans by the accrued amount of PIK Interest on each Interest Payment Date. Interest on past‑due principal and, to the extent permitted by applicable law, past‑due interest, shall accrue at the Default Rate and shall be payable upon demand by the Agent. While any Event of Default exists or after acceleration, interest shall accrue and the Borrowers shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on any amount payable by the Borrowers hereunder, at a per annum rate equal to the lesser of (A) the Highest Lawful Rate and (B) the Default Rate.

 

 
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2.4 Reserved.

 

2.5 Outstanding Amounts . The outstanding principal balance of the Note of each Lender reflected by the notations of such Lender on its records shall be deemed presumptive evidence of the principal amount owing on such Note. The liability for payment of principal and interest evidenced by each Note shall be limited to principal amounts actually advanced and outstanding pursuant to this Agreement, the original issue discount amount and interest on such amounts calculated in accordance with this Agreement. The Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder and the Contract Rate or other interest rate applicable thereto; (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder; and (iii) the amount of any sum received by the Agent hereunder for the account of the Lenders and each Lender’s share thereof. The entries made in the accounts maintained pursuant to this paragraph shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided that the failure of any Lender or the Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrowers to repay the Term Loan in accordance with their terms. In the event of any conflict between the records maintained by any Lender and the records of the Agent in respect of such matters, the records of the Agent shall control in the absence of manifest error.

 

2.6 Taxes and Time, Place, and Method of Payments .

 

(a) All payments required pursuant to this Agreement or the Notes shall be made without set-off or counterclaim in Dollars and in immediately available funds free and clear of, and without deduction for, any Indemnified Taxes or Other Taxes; provided , however that if any Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased by the amount (the “ Additional Amount ”) necessary so that after making all required deductions (including deductions applicable to additional sums described in this Section 2.6(a) ) the Agent or any Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) each Borrower shall make any such deductions and (iii) each Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. In addition, to the extent not paid in accordance with the preceding sentence, each Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

 

 
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(b) The Borrowers, on a joint and several basis with any other Borrower, shall indemnify the Agent and each Lender for Indemnified Taxes and Other Taxes payable by such Person, provided , however , that no Borrower shall be obligated to make payment to the Agent or any Lender in respect of penalties, interest and other similar liabilities attributable to such Indemnified Taxes or Other Taxes if such penalties, interest or other similar liabilities are attributable to the gross negligence or willful misconduct of the Person seeking indemnification; provided further , that neither any Lender nor the Agent shall be entitled to indemnification for Indemnified Taxes and Other Taxes paid by such Person more than three (3) months prior to the date such Lender or the Agent gives notice and demand thereof to the Borrowers (except that, if the indemnification is based on a Regulatory Change giving rise to such Indemnified Taxes or Other Taxes the effect of which is retroactive, then the three (3) month period referred to above shall be extended to include the period of retroactive effect thereof).

 

(c) If a Lender or the Agent shall become aware that it is entitled to claim a refund from a Governmental Authority in respect of Indemnified Taxes or Other Taxes paid by any Borrower pursuant to this Section 2.6 , including Indemnified Taxes or Other Taxes as to which it has been indemnified by the Borrowers, or with respect to which any Borrower has paid Additional Amounts pursuant to the Loan Documents, it shall promptly notify the relevant Borrower of the availability of such refund claim and, if the Lender or the Agent, as the case may be, determines in good faith that making a claim for refund will not have an adverse effect to its taxes or business operations, it shall, within 10 days after receipt of a request by the Borrowers, make a claim to such Governmental Authority for such refund at the expense of the Borrowers. If a Lender or the Agent receives a refund in respect of any Indemnified Taxes or Other Taxes paid by any Borrower pursuant to the Loan Documents, it shall within 30 days from the date of such receipt pay over such refund to the relevant Borrower (but only to the extent of Indemnified Taxes or Other Taxes paid pursuant to the Loan Documents, including indemnity payments made or Additional Amounts paid, by the relevant Borrower under this Section 2.6 with respect to the Indemnified Taxes or Other Taxes giving rise to such refund), net of all reasonable out of pocket expenses of such Lender or the Agent, as the case may be, and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund).

 

(d) If any Lender or the Agent is or becomes eligible under any applicable law, regulation, treaty or other rule to a reduced rate of taxation, or a complete exemption from withholding, with respect to Indemnified Taxes or Other Taxes on payments made to it by the Borrowers or any of them, such Lender or the Agent, as the case may be, shall, upon the request, and at the cost and expense, of the Borrowers, complete and deliver from time to time any certificate, form or other document demanded by the Borrowers, the completion and delivery of which are a precondition to obtaining the benefit of such reduced rate or exemption, provided that the taking of such action by such Lender or the Agent, as the case may be, would not, in the reasonable judgment of such Lender or the Agent, as the case may be, be disadvantageous or prejudicial to such Lender or the Agent, as the case may be, or inconsistent with its internal policies or legal or regulatory restrictions. For any period with respect to which a Lender or the Agent, as the case may be, has failed to provide any such certificate, form or other document requested by any Borrower, such Lender or the Agent, as the case may be, shall not be entitled to any payment under this Section 2.6 in respect of any Indemnified Taxes or Other Taxes that would not have been imposed but for such failure.

 

 
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(e) Each Lender organized under the laws of a jurisdiction in the United States of America, any State thereof or the District of Columbia (other than Lenders that are corporations or otherwise exempt from United States of America backup withholding Tax) shall (i) deliver to the Borrowers and the Agent, when such Lender first becomes a Lender, upon the written request of the Borrowers or the Agent, two original copies of United States of America Internal Revenue Service Form W-9 or any successor form, properly completed and duly executed by such Lender, certifying that such Lender is exempt from United States of America backup withholding Tax on payments of interest made under the Loan Documents and (ii) thereafter at each time it is so reasonably requested in writing by the Borrowers or the Agent, deliver within a reasonable time two original copies of an updated Form W-9 or any successor form thereto.

 

(f) Each Lender that is organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia (each such Lender, a “ Foreign Lender ”) that is entitled to an exemption from or reduction of withholding Tax under the laws of the jurisdiction in which the Borrowers are located, or any treaty to which such jurisdiction is a party, with respect to payments under the Loan Documents shall deliver to the Borrowers and the Agent, but only at the written request of any Borrower or the Agent, such properly completed and duly executed documentation prescribed by applicable law or reasonably requested by the Borrowers or the Agent as will permit such payments to be made without withholding or at a reduced rate, unless in the good faith opinion of any Foreign Lender such documentation would expose such Foreign Lender to any material adverse consequence or risk. Such documentation shall be delivered by such Foreign Lender on or before the date it becomes a Lender. In addition, each Foreign Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender. Each Lender (and, in the case of a Foreign Lender its lending office), represents that on the Closing Date, payments made hereunder by the Borrowers or the Agent to it would not be subject to United States of America federal withholding tax.

 

(g) Notwithstanding the provisions of Section 2.6(a) , the Borrowers shall not be required to indemnify any Foreign Lender or to pay any Additional Amounts to any Foreign Lender, in respect of United States of America federal withholding tax pursuant to Section 2.6(a)2.6(a) , (i) to the extent that the obligation to withhold amounts with respect to United States of America federal withholding tax existed on the date such Foreign Lender became a Lender; (ii) with respect to payments to a new lending office with respect to such Lender’s Percentage Share of the Loan Balance, but only to the extent that such withholding tax exceeds any withholding tax that would have been imposed on such Lender had it not designated such new lending office; (iii) with respect to a change by such Foreign Lender of the jurisdiction in which it is organized, incorporated, controlled or managed, or in which it is doing business, from the date such Foreign Lender changed such jurisdiction, but only to the extent that such withholding tax exceeds any withholding tax that would have been imposed on such Lender had it not changed the jurisdiction in which it is organized, incorporated, controlled or managed, or in which it is doing business; or (iv) to the extent that the obligation to indemnify any Foreign Lender or to pay such Additional Amounts would not have arisen but for a failure by such Foreign Lender to comply with the provisions of Section 2.6(f) .

 

 
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(h) All payments by any Borrower hereunder shall be deemed received on receipt and may be deemed (at the Agent’s sole discretion) received the next Business Day (including for purposes of calculating interest thereon) the next Business Day following receipt if such receipt is after 2:00 p.m., Eastern Standard or Eastern Daylight Savings Time, as the case may be, on any Business Day, and shall be made to the Agent at the Principal Office. Except as provided to the contrary herein, if the due date of any payment hereunder or under any Note would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension.

 

2.7 Pro Rata Treatment; Adjustments .

 

(a) Except to the extent otherwise expressly provided herein (for the avoidance of doubt, including Section 9.11 ), (i) the borrowing pursuant to this Agreement shall be made from the Lenders pro rata in accordance with their respective Percentage Shares, (ii) each payment by the Borrowers of fees shall be made for the account of the Agent or the Lenders as agreed among them, (iii) each payment in reduction of the Loan Balance shall be made for the account of the Lenders pro rata in accordance with their respective shares of the Loan Balance, (iv) each payment of interest hereunder shall be made for the account of the Lenders pro rata in accordance with their respective shares of the aggregate amount of interest due and payable to the Lenders, and (v) each payment by the Borrowers under Commodity Hedge Agreements with a Lender shall be made only to the Person or Persons entitled thereto.

 

(b) The Agent shall distribute all payments with respect to the Obligations to the Lenders promptly upon receipt in like funds as received. In the event that any payments made hereunder by the Borrowers or one or more of them at any particular time are insufficient to satisfy in full the Obligations due and payable at such time, such payments shall be applied pro rata in accordance with the Lenders’ respective shares of the Loan Balance (i) first, to fees and expenses due pursuant to the terms of this Agreement or any other Loan Document, (ii) second, to accrued interest and (iii) third, to the Loan Balance and any other Obligations pro rata on the basis of the ratio of the amount of all such Obligations then owing to the Agent or the relevant Lender or Affiliate of any Lender, as the case may be, to the total amount of the Obligations then owing.

 

(c) If any Lender (for purposes of this Section 2.7(c) , a “ Benefited Lender ”) shall at any time receive any payment of all or part of its portion of the Obligations, or receive any Collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7.1(f) or Section 7.1(g) or otherwise) in an amount greater than such Lender was entitled to receive pursuant to the terms hereof, such Benefited Lender shall purchase for cash from the other Lenders such portion of the Obligations of such other Lenders, or shall provide such other Lenders with the benefits of any such Collateral or the proceeds thereof, as shall be necessary to cause such Benefited Lender to share the excess payment or benefits of such collateral or proceeds with each of the Lenders according to the terms hereof. If all or any portion of such Excess Payment or Obtained Benefits is thereafter recovered from such Benefited Lender, such purchase shall be rescinded and the purchase price and benefits returned by such Lender, to the extent of such recovery, but without interest. The Borrowers agree that each such Lender so purchasing a portion of the Obligations of another Lender may exercise all rights of payment (including rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. If any Lender ever receives, by voluntary payment, exercise of rights of set-off or banker’s lien, counterclaim, cross-action or otherwise, any funds of any Borrowers to be applied to the Obligations, or receives any proceeds by realization on or with respect to any Collateral, all such funds and proceeds shall be forwarded immediately to the Agent for distribution in accordance with the terms of this Agreement.

 

 
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2.8 Voluntary Prepayments . Subject to applicable provisions of this Agreement, the Borrowers shall have the right, at any time or from time to time, to prepay all or any portion of the Loan Balance without penalty or premium, including by providing written instructions to Agent to apply all or any portion of the balance in the CapEx Account as a prepayment of all or any portion of the Loan Balance, other than the obligation to repay one hundred percent (100%) of the principal amount of each Term Loan pursuant to the Section 2.1(a), which shall not be deemed to be a penalty or premium; provided, however, that (a) the Borrowers shall give the Agent written notice of each such prepayment no less than three (3) Business Days prior to prepayment, (b) the Borrowers shall pay all accrued and unpaid interest on the amounts prepaid, and (c) no such prepayment shall serve to postpone the repayment when due of any Obligation or any installments thereof.

 

2.9 Mandatory Prepayments . In addition to payments in reduction of the Loan Balance provided for in Section 2.3, the Borrowers shall pay to the Agent upon at least one (1) Business Days’ prior written notice, for application to reduce the amount of the payment due at the Maturity Date to repay the then existing Loan Balance in full all proceeds (net of reasonable and customary transaction costs) from (a) the incurrence of any Indebtedness not permitted by the proviso to Section 6.1 (without waiving or modifying in any way remedies available to the Agent or the Lenders as a result of any Event of Default arising from such incurrence of Indebtedness by any one or more of the Borrowers), (b) asset sales (other than the sale of Hydrocarbons or inventory in the ordinary course of business, provided such proceeds are funded into the Lockbox Account), whether or not permitted by the proviso to Section 6.4 (without waiving or modifying in any way remedies available to the Agent or the Lenders as a result of any Event of Default arising from such incurrence of Indebtedness by any one or more of the Borrowers), (c) any insurance claim, except as to any proceeds allowed by the Agent to repair or replace damaged Property giving rise to the relevant insurance claim and (d) an Equity Raise at a time when there exists a Default or an Event of Default or if such Equity Raise causes such Event of Default. Any mandatory prepayment pursuant to this Section 2.9 shall be made without penalty or premium other than the obligation to repay one hundred percent (100%) of the principal amount of each Term Loan pursuant to the Section 2.1(a), which shall not be deemed to be a penalty or premium. No such prepayment made pursuant to this Section 2.9 shall serve to postpone the repayment when due of any Obligation or any installments thereof.

 

2.10 Loans to Satisfy Obligations of Borrowers . Upon the occurrence and during the continuation of a Default or an Event of Default, the Lenders may, but shall not be obligated to, make loans for the benefit of the Borrowers or any of them and apply proceeds thereof to the satisfaction of any condition, warranty, representation or covenant of any Borrowers contained in this Agreement or any other Loan Document. Such loans shall be and shall bear interest at the Contract Rate, subject, however, to the provisions of Section 2.3 regarding the accrual of interest at the Default Rate, which provisions shall be applicable to any loan made for the benefit of one or more of the Borrowers pursuant to the preceding sentence of this Section 2.10.

 

 
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2.11 General Provisions Relating to Interest .

 

(a) It is the intention of the parties hereto to comply strictly with the usury laws of the State of New York and the United States of America. In this connection, there shall never be collected, charged or received on the sums advanced hereunder plus the amount of the original issue discount interest in excess of that which would accrue at the Highest Lawful Rate.

 

(b) Notwithstanding anything herein or in the Notes to the contrary, during any Limitation Period, the interest rate to be charged on amounts evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if any, of the Borrowers for the payment of fees or other charges deemed to be interest under applicable law shall be suspended. During any period or periods of time following a Limitation Period, to the extent permitted by applicable laws of the State of New York or the United States of America, the interest rate to be charged hereunder shall remain at the Highest Lawful Rate until such time as there has been paid to each applicable Lender (i) the amount of interest in excess of that accruing at the Highest Lawful Rate that such Lender would have received during the Limitation Period had the interest rate remained at the otherwise applicable rate and (ii) all interest and fees otherwise payable to such Lender but for the effect of such Limitation Period.

 

(c) If, under any circumstances, the aggregate amounts paid on the Notes or under this Agreement or any other Loan Document include amounts which by law are deemed interest and which would exceed the amount permitted if the Highest Lawful Rate were in effect, the Borrowers stipulate that such payment and collection will have been and will be deemed to have been, to the extent permitted by applicable laws of the State of New York or the United States of America, the result of mathematical error on the part of the Borrowers, the Agent and the Lenders; and the party receiving such excess shall promptly refund the amount of such excess (to the extent only of such interest payments in excess of that which would have accrued and been payable on the basis of the Highest Lawful Rate) upon discovery of such error by such party or notice thereof from the Borrowers. In the event that the maturity of any Obligation is accelerated, by reason of an election by the Lenders or otherwise, or in the event of any required or permitted prepayment, then the consideration constituting interest under applicable laws may never exceed that payable on the basis of the Highest Lawful Rate, and excess amounts paid which by law are deemed interest, if any, shall be credited by the Agent and the Lenders on the principal amount of the Obligations, or if the principal amount of the Obligations shall have been paid in full, refunded to the Borrowers.

 

(d) All sums paid, or agreed to be paid, to the Agent and the Lenders for the use, forbearance and detention of the proceeds of any advance hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term hereof until paid in full so that the actual rate of interest is uniform but does not exceed the Highest Lawful Rate throughout the full term hereof.

 

 
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2.12 Reserved .

 

2.13 Reserved .

 

2.14 Security Interest in Accounts; Right of Offset . As security for the payment and performance of the Obligations, the Borrowers hereby transfer, assign and pledge to the Agent and each Lender (for the pro rata benefit of all Lenders) and grant to the Agent and each Lender (for the pro rata benefit of all Lenders) a security interest in all funds of such Borrower now or hereafter or from time to time on deposit with the Agent or such Lender, with such interest of the Agent and the Lenders to be retransferred, reassigned and/or released at the expense of the Borrowers upon payment in full and complete performance by the Borrowers of all Obligations. All remedies as secured party or assignee of such funds shall be exercisable by the Agent and the Lenders with the oral consent (confirmed promptly in writing) of the Required Lenders upon the occurrence of any Event of Default, regardless of whether the exercise of any such remedy would result in any penalty or loss of interest or profit with respect to any withdrawal of funds deposited in a time deposit account prior to the maturity thereof. Furthermore, the Borrowers hereby grants to the Agent and each Lender (for the pro rata benefit of all Lenders) the right, exercisable at such time as any Obligation shall mature, whether by acceleration of maturity or otherwise, of offset or banker’s lien against all funds of such Borrowers now or hereafter or from time to time on deposit with the Agent or such Lender, regardless of whether the exercise of any such remedy would result in any penalty or loss of interest or profit with respect to any withdrawal of funds deposited in a time deposit account prior to the maturity thereof. If the foregoing provisions conflict with the provisions of any of the Security Documents, the relevant provision of the relevant Security Document shall control.

 

2.15 Illegality . Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to maintain loans bearing interest at a rate determined by the Agent to exceed the Highest Lawful Rate, then the Agent shall charge an interest rate with respect to the Term Loans that will approximate the Contract Rate or Default Rate, as applicable, that was initially agreed to in this Agreement by the parties hereto as reasonably determined by the Agent such that the interest no longer exceeds the Highest Lawful Rate.

 

2.16 Regulatory Change . In the event that by reason of any Regulatory Change or any other circumstance arising after the Closing Date affecting any Lender, such Lender (a) incurs Additional Costs based on or measured by the excess above a level, as prescribed from time to time by any Governmental Authority with jurisdiction, of the amount of a category of deposits or other liabilities of such Lender which included deposits by reference to which the interest rate applicable to the Loan Balance owed to such Lender is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender which includes any loans bearing interest at a rate determined on the basis of the LIBO Rate or (b) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, at the election of such Lender with notice to the Agent and the Borrowers, the obligation of such Lender to maintain loans bearing interest at a rate determined on the basis of the LIBO Rate shall be suspended until such time as such Regulatory Change or other circumstance ceases to be in effect, and the Agent shall charge an interest rate with respect to the Term Loans that will approximate the Contract Rate or Default Rate, as applicable, that was initially agreed to in this Agreement by the parties hereto as reasonably determined by the Agent.

 

 
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2.17 Power of Attorney . The Borrowers hereby designate the Agent as its agent and attorney-in-fact, to act in its name, place and stead solely for the purpose of completing and delivering any and all of the Direction Letters and letters in lieu of transfer or division orders delivered by such Borrowers pursuant to the provisions of Section 3.1(h) or Section 5.75.7 , including completing any blanks contained in such letters and attaching exhibits thereto describing the relevant Collateral. The Borrowers hereby ratify and confirm all that the Agent shall lawfully do or cause to be done by virtue of this power of attorney and the rights granted with respect to such power of attorney. This power of attorney is coupled with the interest of the Agent and the Lenders in the Collateral, shall commence and be in full force and effect as of the Closing Date and shall remain in full force and effect and shall be irrevocable so long as any Obligations (other than Contingent Obligations with respect to which no claim has been made) remain outstanding. The powers conferred on the Agent by this appointment are solely to protect the interests of the Agent and the Lenders under the Loan Documents and Commodity Hedge Agreements with respect to the assignment of production proceeds under certain of the Security Documents and shall not impose any duty upon the Agent to exercise any such powers. The power of attorney under this Section 2.17 is expressly limited to the rights and powers set forth herein and no additional rights or powers are herein created or implied. The Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and shall not be responsible to the Borrowers or any other Person for any act or failure to act with respect to such powers, except for gross negligence or willful misconduct.

 

2.18 Keepwell . Each Qualified ECP Borrower hereby jointly and severally, absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each other Borrower to honor all of its obligations in respect of Swap Obligations constituting a portion of the Obligations; provided , however , that each Qualified ECP Borrower shall only be liable under this Section 2.18 for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 2.18 , or otherwise hereunder or under any other Loan Document, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not of any greater amount. The obligations of each Qualified ECP Borrower under this Section 2.18 shall remain in full force and effect until the Obligations are paid and performed in full. Each Qualified ECP Borrower intends that this Section 2.18 constitute, and this Section 2.18 shall be deemed to constitute, a “keepwell, support or other agreement” for the benefit of each other Borrower for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act. Notwithstanding any other provisions of this Agreement or any other Loan Document, the Obligations owed by any Borrower or secured by any Lien granted by such Borrowers under any Loan Document shall exclude all Excluded Swap Obligations with respect to such Borrower.

 

 
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2.19 Joint and Several Liability . The Borrowers acknowledge and agree that each Borrower shall be jointly and severally liable for all obligations of the Borrowers or any of them hereunder or under any other Loan Document.

 

2.20 Overriding Royalty Interest .

 

(a) The Agent shall execute recordable conveyances in favor of the WI Owner, in form and substance reasonably satisfactory to the Agent.

 

(b) On the date twelve (12) months after the Effective Date (the “ First Reversion Date ”), fifty percent (50%) of the ORRI transferred to Agent under the Assignment of ORRI shall revert back to the WI Owner, provided that the WI Owner has been in compliance with Article IV, Article V and Article VI of this Agreement since the Effective Date and remains in compliance with Article IV, Article V and Article VI of this Agreement on the First Reversion Date.

 

(c) On the date twelve (12) months after the date on which the Term Loan is finally paid-in-full (the “ Payoff Date ”), twenty-five percent (25%) of the ORRI transferred to the Agent under the Assignment of ORRI will revert back to the WI Owner.

 

(d) For the remaining ORRI held by the Agent not subject to sections (a) and (b) of this Section 2.20 , the WI Owner shall have the right to repurchase such ORRI (the “ Repurchase Option ”) at any time during the twenty-four (24) months immediately following the Payoff Date. The purchase price shall be equivalent to one hundred percent (100%) of the PV-10 of the PDP Reserves attributed to such remaining ORRI based on the greater of (a) the Base Price and (b) the Adjusted Strip Price as determined within forty-five (45) days of the notice to the Agent that the WI Owner intends to exercise the Repurchase Option.

 

(e) The provisions of this Section 2.20 shall survive the payment and performance of all Obligations and the termination of this Agreement.

 

2.21 Increase in Term Loan .

 

(a) Subject to the conditions set forth in Section 2.21(b) , the Borrower may, from time to time beginning three (3) months following the Closing Date and ending twenty-one (21) months thereafter, increase the amount of the Term Loan (any such increase “ Additional Commitment Funds ”) by either or both (as determined by the Borrower) requesting an increase in the Commitment of one or more Lenders (an “ Increasing Lender ”) or by causing one or more Persons that at such time is not a Lender to become a Lender (an “ Additional Lender ”) Borrower must provide thirty (30) days prior written notice to the Agent, which will promptly notify the Lenders (each a “ Funding Request ”).

 

 
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(b) Any increase in the Term Loan shall be subject to the following additional conditions:

 

(i) no default or event of default of the terms and conditions of the Term Loan or any of the Loan Documents shall have occurred or be continuing after giving effect to such increase;

 

(ii) the Agent must consent to the increase in Commitments of an Increasing Lender and the addition of any Additional Lender, such consent to be in Agent’s sole discretion;

 

(iii) the Additional Commitment Funds will be used solely for the drilling and completion of additional wells or to fund acquisitions permitted under Section 6.8(a) ;

 

(iv) each Funding Request must be equal to or greater than the Minimum Funding Amount and in multiples of $500,000;

 

(v) the Borrower may submit a Funding Request not more than once per sixty (60) day period;

 

(vi) the Additional Commitment Funds plus the Initial Commitment may not exceed the Facility Amount;

 

(vii) the maturity date of such increase shall be the same as the Maturity Date and the Commitments under the Additional Commitment Funds shall have no mandatory prepayment or commitment reduction other than as provided hereunder; and

 

(viii) the increase shall be on the same terms and pursuant to the same documentation applicable to this Agreement (other than with respect to any arrangement, structuring, upfront or other fees or discounts payable in connection with such Additional Commitment Funds) ( provided that the Applicable Rate may be increased to be consistent with that for such Additional Commitment Funds).

 

(c) Each Increasing Lender or Additional Lender shall execute and deliver to the Borrower and the Agent customary documentation (any such documentation, an “ Incremental Agreement ”) implementing any Additional Commitment Funds, and for any Additional Lender, all documents and information required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations. Upon receipt by the Agent of one or more executed Incremental Agreements increasing the Commitments of Lenders or adding Commitments from Additional Lenders as provided in this Section 2.21 , (i) the Term Loan shall be increased automatically on the effective date set forth in such Incremental Agreements by the aggregate amount indicated in such Incremental Agreements without further action by the Borrower and the Agent, (ii) Schedule 1.2C shall be amended to add such Additional Lender’s Commitment or to reflect the increase in the Commitment of an Increasing Lender, and the Percentage Share of the Lenders shall be adjusted accordingly to reflect the Incremental Increase of each Additional Lender or each Increasing Lender, (iii) the Agent shall distribute to the Borrower and each Lender the revised Schedule 1.2C , (iv) any such Additional Lender shall be deemed to be a party in all respects to this Agreement and any other Credit Documents to which the Lenders are a party, and (v) upon the effective date set forth in such Incremental Agreement, any such Lender party to the Incremental Agreement shall purchase a pro rata portion of the Loan Balance from each of the current Lenders such that each Lender (including any Additional Lender, if applicable) shall hold its respective Percentage Share of the Loan Balance as reflected in the revised Schedule 1.2C required by this Section 2.21 .

 

 
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2.22 Availability of Capital Expenditures. The Borrowers acknowledge and agree that certain proceeds from the Term Loan will be deposited into the CapEx Account and will not be available to Borrowers until they meet certain criteria with respect to such proposed Capital Expenditures, including, but not limited to:

 

(a) Approval of a Development Plan by the Agent, in its sole discretion;

 

(b) Each request for disbursement shall require continued conformity with the Development Plan and the other terms and conditions of this Agreement, as determined by the Agent;

 

(c) With respect to recompleting any existing wells, provide Agent supplement title opinions in form and substance acceptable to Agent in its sole discretion, together with such other information as Agent may reasonably request;

 

(d) With respect to drilling any new wells, provide Agent with drilling title opinions in form and substance acceptable to Agent in it sole discretion, together with such other information as Agent may reasonably request;

 

(e) With respect to the acquisition of any new Oil and Gas Properties or the equity of an entity holding Oil and Gas Properties; provide Agent with mineral title diligence, including oil and gas title opinions, copies of leases, seismic data and such other information or documentation as Agent shall request in its sole discretion;

 

(f) With respect to each Operating Account or any other account owned by a Borrower, deliver a Deposit Account Control Agreement pursuant to Section 5.27(b) ; and

 

(g) No Default or Event of Default shall be continuing.

 

 
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ARTICLE III

 

CONDITIONS

 

3.1 Initial Funding . The obligations of the Agent and the Lenders to enter into this Agreement and to advance the Term Loan on the Closing Date are subject to the satisfaction of the following conditions precedent that (a) all matters incident to the consummation of the transactions contemplated herein shall be satisfactory to the Agent and the Lenders and (b) the Agent shall have received, reviewed and approved the following documents and other items, appropriately executed when necessary and, where applicable, acknowledged by one or more Responsible Officers or other duly authorized representatives of the Borrowers, acting on behalf of the Borrowers, or others as the case may be, all in form and substance reasonably satisfactory to the Agent and dated, where applicable, of even date herewith or a date prior thereto and acceptable to the Agent:

 

(a) this Agreement;

 

(b) the Notes;

 

(c) the Assignment of ORRI;

 

(d) the Security Documents covering all Oil and Gas Properties of the Borrowers, including, without limitation, the Acquisition Properties;

 

(e) the Security Documents establishing first priority Liens (and upon appropriate filing, perfected first priority Liens) in favor or for the benefit of the Agent for the benefit of the Lenders, in and to the Oil and Gas Properties and other Collateral, constituting one hundred percent (100%) of the PV-10 value of the proved, probable and possible reserves and future revenue of such Oil and Gas Properties, as determined by the Agent in its discretion, as reflected in the Reserve Report;

 

(f) the Security Documents covering all assets of the Borrowers as to which a security interest against such assets may be created and perfected under the provisions of the Uniform Commercial Code as adopted and in effect in the applicable state or states of the United States of America, including the Equity Interests in the Borrowers;

 

(g) copies of Direction Letters executed by the relevant Borrower to be sent to each purchaser of production set forth on Schedule 3.1(g) attached hereto on or before the Closing Date;

 

(h) undated Direction Letters and letters in lieu of transfer, in form and substance reasonably satisfactory to the Agent, executed by the relevant Borrower and addressed to each purchaser of production from or attributable to the Mortgaged Properties or transportation fees, with the addresses for payment left blank, authorizing and directing the addressee to make future payments attributable to production from the Mortgaged Properties and/or transportation fee s to such account as the Agent may specify from time to time;

 

(i) Reserved;

 

(j) a copy of the Lockbox Services Agreement between 405 Petrodome and Citibank;

 

(k) Reserved;

 

 
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(l) copies of the organizational documents of the Borrowers, accompanied by a certificate dated the Closing Date issued by the secretary or an assistant secretary or another authorized representative of the Borrowers, to the effect that each such copy is correct and complete;

 

(m) a certificate of incumbency dated the Closing Date, including specimen signatures of all officers or other representatives of the Borrowers, who are authorized to execute Loan Documents on behalf of the Borrowers, such certificate being executed by the secretary or an assistant secretary or another authorized representative of the relevant Borrower;

 

(n) copies of resolutions adopted by the relevant governing body the Borrowers approving the Loan Documents to which the relevant Borrower is a party and authorizing the transactions contemplated herein and therein, accompanied by a certificate dated the Closing Date issued by the secretary or an assistant secretary or another authorized representative of the Borrowers, to the effect that such copies are true and correct copies of resolutions duly adopted at a meeting or by unanimous consent and that such resolutions constitute all the resolutions adopted with respect to such transactions, have not been amended, modified or rescinded in any respect and are in full force and effect as of the date of such certificate;

 

(o) a copy of the proposed, but unapproved Development Plan that, for the avoidance of doubt, delineates all proposed Capital Expenditures to be undertaken for the development of Acquisition Properties for the twelve (12) months from the Closing Date and includes the monthly corporate general and administrative expense budget;

 

(p) copies of executed counterparts of all operating, lease, sublease, royalty, sales, exchange, processing, farmout, bidding, pooling, unitization, communitization and other agreements relating to the Oil and Gas Properties of the Borrowers or any one or more of them, each of which is described on Schedule 3.1(p) attached hereto;

 

(q) copies of executed operating agreements with Operating;

 

(r) joint operating agreements satisfactory to Agent existing as of the Effective Date covering the Oil and Gas Properties;

 

(s) a Reserve Report prepared as of December 1, 2017 confirming that Borrowers own at least $16,000,000 in PDP Reserves;

 

(t) audited financial statements of the Borrowers as at and for the fiscal year ended December 31, 2016 and unaudited financial statements of the Borrowers at October 31, 2017;

 

(u) certificates dated as of a recent date from the appropriate Governmental Authority evidencing the existence or qualification and, if applicable, good standing of the Borrowers in its jurisdiction of organization and in each jurisdiction in which it owns material assets or conducts material operations;

 

 
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(v) for each Borrower, results of searches of the uniform commercial code records of the Secretary of State of the respective state in which the Borrower is organized, such search reports reflecting no Liens, other than Permitted Liens, against Borrowers, or any of the Collateral as to which perfection of a Lien is accomplished by the filing of a financing statement;

 

(w) confirmation, acceptable to the Agent, of title of the Oil and Gas Properties included in the Reserve Report (regardless of whether PV-10 value is attributed thereto), free and clear of Liens other than Permitted Liens, in the aggregate, equal to one hundred percent (100%) of the PV-10 value of the proved, probable and possible reserves and future revenue of such Oil and Gas Properties, as determined by the Agent in its discretion, as reflected in the Reserve Report;

 

(x) evidence that an equity or debt contribution, in an aggregate amount of not less than $1,000,000 (the “ Contribution ”), has been made by Viking Energy Group, Inc. to Petrodome Energy in cash as common units of Petrodome Energy or in the form of Indebtedness, subject to a subordination agreement in form and substance acceptable to Agent in its sole discretion;

 

(y) a certificate or certificates evidencing the insurance coverage required by the provisions of Section 5.19 ;

 

(z) a fully executed copy of the Petrodome PSA with all exhibits and schedules attached thereto and such other documents satisfactory to Agent evidencing closing under the Petrodome PSA, including, without limitation, conveyance instruments conveying the Petrodome Energy Interests to Viking Energy Group, Inc.;

 

(aa) copies of all Commodity Hedge Agreements, in form and substance reasonably acceptable to the Agent and with Approved Hedge Counterparties, establishing the Minimum Required Commodity Hedge Agreements;

 

(bb) payment from the Borrowers or any one or more of them of estimated fees charged by filing officers and other public officials incurred or to be incurred in connection with the filing and recordation of any Security Documents;

 

(cc) the opinions of Fishman Haygood, LLP, Graves Doughtery Hearon & Moody, P.C., and Bradley Arant Boult Cummings LLP, as counsel to the Borrowers for purposes of the transactions which are the subject of this Agreement, in form and substance reasonably satisfactory to the Agent;

 

(dd) a certificate of a Responsible Officer of the Borrowers to the effect that, after giving effect to the transactions which are the subject of this Agreement, all representations and warranties made by the Borrowers in this Agreement or any other Loan Documents in place on the Closing Date are true and correct, in all material respects, as of the Closing Date;

 

(ee) confirmation reasonably acceptable to the Agent that no event or circumstance shall have occurred which could reasonably be expected to have a Material Adverse Effect or adverse change in loan syndication, financial, banking or capital market conditions;

 

 
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(ff) payment of estimated fees and expenses of counsel to the Agent and Approved Hedge Counterparty incurred through the Closing Date and plus an amount estimated for initial post-closing matters;

 

(gg) payment of up an upfront fee in an amount equal to one percent (1%) of the Initial Commitment;

 

(hh) a duly executed W9 tax form (or such other applicable IRS tax form) for each Borrower;

 

(ii) evidence that the environmental condition of Petrodome Energy, LLC and the other Borrowers is acceptable to the satisfaction of the Agent;

 

(jj) subordination of Borrowers’ existing Indebtedness to the satisfaction of the Agent;

 

(kk) completion of background and credit checks on the Borrowers and Petrodome Management to the satisfaction of the Agent;

 

(ll) execution of a subordination agreement in form and substance acceptable to Agent to the extent the Contribution is in the form of Indebtedness; and

 

(mm) such other agreements, documents, instruments, opinions, certificates, waivers, consents, diligence and evidences as the Agent or any Lender may reasonably request.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

To induce the Agent and the Lenders to enter into this Agreement and to induce the Lenders to make the Term Loans, the Borrowers represent and warrant to the Agent and each Lender (which representations and warranties shall survive the delivery of the Notes) that:

 

4.1 Due Authorization . The execution and delivery by the Borrowers of this Agreement and the borrowing hereunder, the execution and delivery by the Borrowers of the Notes, the repayment of the Notes, payment of interest and fees provided for in the Notes and this Agreement, the execution and delivery by each Borrower of the Security Documents to which it is a party and the performance by each Borrower of its obligations under the Loan Documents to which it is a party are within the power of the relevant Borrower, have been duly authorized by all necessary action by the relevant Borrower, and do not and will not (a) require the consent of any Governmental Authority, (b) contravene or conflict with any Requirement of Law, (c) contravene or conflict with any indenture, instrument or other agreement to which the relevant Borrower is a party or by which any Property of the relevant Borrower may be presently bound or encumbered or (d) result in or require the creation or imposition of any Lien in, upon or on any Property of the relevant Borrower under any such indenture, instrument or other agreement, other than under any of the Loan Documents to which it is a party.

 

 
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4.2 Existence . Each Borrower is a corporation, limited liability company or limited partnership, as the case may be, duly organized, legally existing and, if applicable, in good standing under the laws of its jurisdiction of organization and is duly qualified as a foreign corporation, foreign limited partnership, or foreign limited liability company, as the case may be, and, if applicable, is in good standing in all jurisdictions wherein the ownership of Property or the operation of its business necessitates the same, other than those jurisdictions wherein the failure to so qualify would not have a Material Adverse Effect.

 

4.3 Valid and Binding Obligations . All Loan Documents to which a Borrower is a party, when duly executed and delivered by the relevant Borrower, constitute the legal, valid and binding obligations of the relevant Borrower enforceable against such Borrower in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

 

4.4 Security Documents . The provisions of each Security Document executed by the Borrowers are effective to create, in favor of the Agent, a legal, valid and enforceable Lien in all right, title and interest of the relevant Borrower in the Property of such Borrower described therein, which Lien constitutes a first-priority Lien upon filing with the appropriate government office (except as to Permitted Liens) on all right, title and interest of the relevant Borrower in the Property of such Borrower described therein.

 

4.5 Title to Property . Except for such encumbrances, preferential rights, whether vested or otherwise, and Liens (except Permitted Liens) set forth on Schedule 4.5 attached hereto, each Borrower has good and defensible title to all of its material Property, free and clear of all encumbrances, preferential rights, whether vested or otherwise, and Liens (except Permitted Liens) related to the Property.

 

4.6 Scope and Accuracy of Financial Statements . The draft consolidated Financial Statements provided to the Agent in satisfaction of the condition set forth in Section 3.1(t) present fairly (subject to normal year-end audit adjustments) the financial position and results of operations and cash flows of the Borrowers on a consolidated basis, in accordance with GAAP as at the relevant point in time or for the period indicated, as applicable. Schedule 4.6 attached hereto identifies all accounts payable, other than those arising in the ordinary course of business which are not more than 30 day past due, of each Borrower.

 

4.7 No Material Adverse Effect or Default . No event or circumstance has occurred since October 31, 2017, which could reasonably be expected to have a Material Adverse Effect, and no Default has occurred and is continuing.

 

4.8 No Material Misstatements . No information, exhibit, statement or report furnished to the Agent or any Lender by or at the direction of the Borrowers in connection with this Agreement or any other Loan Document contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading as of the date made or deemed made; provided that, with respect to projected financial information, it represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

 

 
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4.9 Liabilities, Litigation and Restrictions . Other than as reflected in the Financial Statements prepared as of December 31, 2016 or as listed on Schedule 4.9 under the heading “Liabilities”, no Borrower has any liabilities, including, without limitation, tax liabilities, direct or contingent, which could reasonably be expected to have a Material Adverse Effect. Except as set forth under the heading “Litigation” on Schedule 4.9 , no litigation or other action of any nature involving any Borrower is pending before any Governmental Authority or, to the best knowledge of each Borrower, threatened against or involving such Borrower which might reasonably be expected to result in any impairment of its ownership of any of its Property or have a Material Adverse Effect.

 

4.10 Authorizations; Consents . Except as expressly contemplated by this Agreement or set forth on Schedule 4.10 attached hereto, no authorization, consent, approval, exemption, franchise, permit or license of, or filing with, any Governmental Authority or any other Person is required to authorize or is otherwise required in connection with the valid execution and delivery by the Borrowers of the Loan Documents to which it is a party or any instrument contemplated hereby, the repayment by the Borrowers of the Notes, payment of interest and fees provided in the Notes and this Agreement or the performance by the Borrowers of the Obligations.

 

4.11 Compliance with Laws . Each Borrower and its Property are in compliance in all material respects with all applicable Requirements of Law, including Environmental Laws and ERISA.

 

4.12 ERISA . None of the Borrowers maintain, nor have any of the Borrowers maintained, any Plan. None of the Borrowers currently contribute to or have any obligation to contribute to or otherwise have any liability with respect to any Plan.

 

4.13 Environmental Laws . Except as disclosed on Schedule 4.13 attached hereto:

 

(a) No Property of the Borrowers (including, but not limited to, the Acquisition Properties) is currently on or has ever been on any federal or state list of Superfund Sites;

 

(b) no Hazardous Substances have been generated, transported and/or disposed of by the Borrowers at a site which was, at the time of such generation, transportation, and/or disposal, or has since become, a Superfund Site;

 

(c) except in accordance with applicable Requirements of Law or the terms of a valid permit, license, certificate or approval of the relevant Governmental Authority, no Release of Hazardous Substances by the Borrowers or from, affecting or related to any Property of the Borrowers (including, but not limited to, the Acquisition Properties) has occurred; and

 

(d) no Environmental Complaint has been received by the Borrowers.

 

 
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4.14 Compliance with Federal Reserve Regulations . No transaction contemplated by the Loan Documents is in violation of any regulations promulgated by the Board of Governors of the Federal Reserve System, including Regulations T, U or X.

 

4.15 Investment Company Act Compliance . None of the Borrowers are, nor is any Borrower directly or indirectly controlled by or acting on behalf of any Person which is, an “investment company” or an “affiliated person” of an “investment company” within the meaning of the Investment Company Act of 1940.

 

4.16 Proper Filing of Tax Returns; Payment of Taxes Due . Each Borrower has duly and properly filed its United States of America income tax returns or income tax information returns, and all other tax returns which are required to be filed by the Borrowers, as applicable, and has paid all taxes, if any, shown as due from the Borrowers, as applicable, except where appropriate extensions have been filed or except such as are being contested in good faith and as to which adequate provisions and disclosures have been made or as could not reasonably be expected to have a Material Adverse Effect. The respective charges and reserves on the books of the Borrowers with respect to Taxes and other governmental charges, if any of such are required by applicable law or GAAP, are adequate, except as could not reasonably be expected to have a Material Adverse Effect.

 

4.17 Refunds . Except as described on Schedule 4.17 , there are no orders of, proceedings pending before, or other requirements of any Governmental Authority which could result in the Borrowers being required to refund any portion of the proceeds received or to be received from the sale of Hydrocarbons constituting part of the Mortgaged Property.

 

4.18 Gas Contracts . Except as described on Schedule 4.18 , (a) none of the Borrowers are obligated, in any material respect, by virtue of any prepayment made under any contract containing a “take-or-pay” or “prepayment” provision or under any similar agreement to deliver Hydrocarbons produced from or allocated to any of the Mortgaged Properties at some future date without receiving full payment therefor within 90 days of delivery and (b) none of Borrowers have produced gas, in any material amount, subject to, and neither the Borrowers nor any of the Mortgaged Properties or other Oil and Gas Properties are subject to, balancing rights of third parties or subject to balancing duties under Requirements of Law, except (i) as to such matters for which the relevant Borrower has, to the extent required by GAAP, established adequate reserves necessary to satisfy such obligations and segregated such reserves from other accounts or (ii) as could not reasonably be expected to have a Material Adverse Effect.

 

4.19 Intellectual Property . Each of the Borrowers owns or is licensed to use all Intellectual Property necessary to conduct all business (financial or otherwise) or operations as such business or operations are currently conducted. No claim has been asserted or is pending by any Person with respect to the use by the Borrowers of any such Intellectual Property or challenging or questioning the validity or effectiveness of any such Intellectual Property; and none of the Borrowers know of any valid basis for any such claim. The use of such Intellectual Property by the relevant Borrower does not infringe on the rights of any Person.

 

 
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4.20 Casualties or Taking of Property . Since October 31, 2017, neither the business nor any Property of any Borrower has been materially and adversely affected as a result of any casualty or taking of Property or cancellation of contracts, permits or concessions by any Governmental Authority.

 

4.21 Location of Borrowers . The principal place of business and chief executive office of each Borrower is located at the address of such Borrower set forth in Section 9.3 or at such other location as such Borrower may have, by proper written notice hereunder, advised the Agent, provided that such other location is within a state in which appropriate financing statements naming such Borrower as debtor and naming Agent as secured party, have been filed, if required by applicable law.

 

4.22 Subsidiaries . Except as set forth on Schedule 4.22 as amended pursuant to Section 6.27, Borrowers have no Subsidiaries.

 

4.23 Compliance with Anti-Terrorism Laws .

 

(a) No Borrower nor any Affiliate of any Borrower is in violation of any Anti-Terrorism Law or knowingly engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

 

(b) No of Borrower nor any Affiliate of any Borrower is any of the following (each a “ Blocked Person ”):

 

 

(i) a Person that is listed in the annex, to, or is otherwise subject to the provisions of, Executive Order No. 13224;

 

 

 

 

(ii) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224;

 

 

 

 

(iii) a Person or entity with which any bank or other financial institution is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

 

 

 

 

(iv) a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224;

 

 

 

 

(v) a Person or entity that is named as a “specially designated national” on the most current list published by OFAC at its official website or any replacement website or other replacement official publication of such list; or

 

 

 

 

(vi) a Person or entity who is affiliated with a Person or entity listed above.

 

 
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(c) None of the Borrowers nor any Affiliate of the Borrowers (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person or (ii) deals in, or otherwise engages in any transaction relating to, any Property or interests in Property blocked pursuant to Executive Order No. 13224.

 

(d) None of the Borrowers nor any Affiliate of the Borrowers are in violation of any rules or regulations promulgated by OFAC or of any economic or trade sanctions administered and enforced by OFAC or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any rules or regulations promulgated by OFAC.

 

4.24 Identification Numbers . The federal employer identification number of each Borrower and its organizational number with appropriate Governmental Authorities are set forth on Schedule 4.24 .

 

4.25 Solvency . Each Borrower is Solvent.

 

4.26 Petrodome PSA . The Petrodome PSA has not been amended or otherwise modified except as disclosed to the Agent in writing. Except as set forth on Schedule 4.9 attached hereto, no litigation or other action of any nature involving the Acquisition Properties is pending before any Governmental Authority and no such litigation or other action is threatened against or involving the Acquisition Properties.

 

4.27 Related Party Transactions . Except as set forth on Schedule 4.27 attached hereto, (i) none of the Borrowers are party to or bound by any agreement, contract, whether written or oral, or other instrument with any person or entity that is controlled by, whether directly or indirectly, or in common control with or by one or more of the members of such Borrower, and (ii) none of the Properties owned by the Borrowers are subject to any agreement that grants an interest in and to such Properties to any person or entity that is controlled by, whether directly or indirectly, or in common control with or by one or more of the members of such Borrower.

 

4.28 Ownership of Property . Except as set forth on Schedule 4.28 attached hereto, Petrodome Management does not own, whether directly or indirectly through one or more intermediaries, any interests in Oil and Gas Properties or other Collateral.

 

4.29 Plugged and Abandoned and Non-Producing Oil and Gas Properties .

 

(a) Horn, East Creole, EC, and St. Gabriel do not own, whether directly or indirectly through one or more intermediaries, any interests in Oil and Gas Properties.

 

(b) The Oil and Gas Properties in which Choctaw and Pintail own interests are non-producing and not otherwise held by production.

 

 
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ARTICLE V

 

AFFIRMATIVE COVENANTS

 

So long as any Obligation remains outstanding or unpaid, the Borrowers shall:

 

5.1 Maintenance and Access to Records . Keep adequate records, in accordance with GAAP, of all of their transactions so that at any time, and from time to time, the Borrowers true and complete financial condition may be readily determined, and promptly following the reasonable request of the Agent or any Lender, make such records available for inspection by the Agent or any Lender and, at the expense of the Borrowers, allow the Agent or any Lender to make and take away copies thereof.

 

5.2 Monthly Unaudited Financial Statements and Compliance Certificates . Deliver to the Agent, on or before the 30th day after the close of each fiscal month, commencing with the month ending December 31, 2017, (a) a copy of the Financial Statements as of the close of the relevant fiscal month and from the first day of the then current fiscal year to the end of the relevant fiscal month, such Financial Statements to be certified by the Financial Officer of the Borrowers as having been prepared by the Borrowers in accordance with GAAP consistently applied and as a fair presentation of the financial condition of the Borrowers, on a consolidated basis, subject to changes resulting from normal year-end audit adjustments, (b) a Compliance Certificate prepared, as to section 2 thereof, as of the close of the relevant fiscal month or quarterly period, as applicable, and executed by the Financial Officer of the Borrowers, and (c) a reconciliation, setting forth in reasonable detail, the variance between the actual financial performance relative to the projections in the form contained in the Budget as set forth Schedule 5.2 attached hereto (each such report being referred to as a “ Budget Variance Report ”), including, without limitation, a reconciliation between the actual and projected cash receipts and disbursements and a written summary of the causes for any material variations for the relevant fiscal month and from the first day of the then current fiscal year to the end of the relevant fiscal month.

 

5.3 Annual Audited Financial Statements and Compliance Certificate . Deliver to the Agent, on or before the 90th day after the close of each fiscal year of the Borrowers, commencing with that ending on December 31, 2017, (a) a copy of the audited Financial Statements as at the close of such fiscal year and for the fiscal year then ended, audited by a mutually acceptable full service accounting firm of regional or national reputation having a dedicated oil and gas audit practice and approved by the Agent in writing, and (b) a Compliance Certificate prepared, as to section 2 thereof, as of the close of the end of the relevant fiscal year.

 

 
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5.4 Reserve Reports; LOE Reports; Production Reports; Payables Aging; Additional Development Plans and Financial Projections .

 

(a) Deliver to the Agent, no later than each June 30th during the term of this Agreement, a Reserve Report, in form satisfactory to the Agent, prepared as of the preceding May 31st, and certified by LaRoche Petroleum Consultants, Ltd. or such other petroleum engineering firm approved in writing by Agent preparing the relevant Reserve Report as fairly and accurately setting forth (i) the PDP, PUD, shut-in, behind-pipe and undeveloped Reserves (separately classified as such) attributable to the Mortgaged Properties and other Oil and Gas Properties of the Borrowers, (ii) the aggregate PV-10 value of the future net income with respect to PDP Reserves attributable to the Mortgaged Properties and other Oil and Gas Properties of the Borrowers, (iii) projections of the annual rate of production, gross income and net income with respect to such PDP Reserves, (iv) information with respect to the “take-or-pay,” “prepayment” and gas-balancing liabilities of the Borrowers with respect to such PDP Reserves and (v) general economic assumptions.

 

(b) Deliver to the Agent, no later than each December 31st during the term of this Agreement, a Reserve Report, in substantially the format of and providing the information provided in the Reserve Report provided pursuant to Section 5.4(a) , prepared as of the preceding November 30th and certified by LaRoche Petroleum Consultants, Ltd. or such other petroleum engineering firm approved in writing by the Agent as fairly and accurately setting forth the information provided therein.

 

(c) Deliver to the Agent, no later than the 30th day following the end of each fiscal month, a report in comparative form to the Budget as set forth on Schedule 5.4 hereto, in form reasonably satisfactory to the Agent, setting forth information as to quantities of production from the Mortgaged Properties, volumes of production sold, volumes of production committed to Commodity Hedge Agreements, pricing, purchasers of production, gross revenues, lease operating expenses, EBITDA and such other information as the Agent or any Lender may request with respect to the relevant monthly period.

 

(d) Deliver to the Agent, no later than the 30th day after the end of each fiscal month, an aging of the accounts payable of the Borrowers, on a consolidated basis, at the end of the relevant monthly period.

 

(e) Deliver to the Agent, no later than December 31st of each year, a Development Plan, in form reasonably acceptable to the Agent, setting forth proposed activities with respect to the Oil and Gas Properties of the Borrowers during the subsequent fiscal year.

 

(f) Deliver to the Agent, no later than December 31st of each year, financial projections for the Borrowers, on a consolidated basis, as at the close of each month of the subsequent fiscal year, which financial projections shall be presented in the form of Financial Statements.

 

(g) Deliver to the Agent, in connection with any proposed Capital Expenditures on any Oil and Gas Property pursuant to the Development Plan, title information including, but not limited to, new or supplemental title opinions with respect to existing oil and gas wells and drilling title opinions with respect to any new well, each prepared by Hameline & Eccleston, LLP or other counsel approved by the Agent, leases, seismic data and landman information, and such other information requested by Agent related to the proposed Capital Expenditure.

 

 
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5.5 Title Opinions; Title Defects; Mortgaged Properties .

 

(a) Promptly upon the request of the Agent, furnish to the Agent title opinions, in form and by counsel reasonably satisfactory to the Agent, or other confirmation of title reasonably acceptable to the Agent, covering Oil and Gas Properties of the relevant Borrower.

 

(b) Promptly, but in any event within 30 days after notice by the Agent of any title defect having a Material Adverse Effect, clear such title defect.

 

(c) Promptly upon the request of the Agent, execute and deliver to the Agent additional Security Documents as necessary to maintain, as Mortgaged Properties, Oil and Gas Properties of the Borrowers the PV-10 value of the Proved Reserves attributable to which, in the aggregate, equals at least one hundred percent (100%) of the total Proved Reserves reflected in the Reserve Report most recently provided to the Agent pursuant to the provisions of Section 5.4 .

 

5.6 Notices of Certain Events . Deliver to the Agent, immediately upon having knowledge of the occurrence of any of the following events or circumstances, a written statement with respect thereto, signed by a Responsible Officer of the Borrowers, and setting forth the relevant event or circumstance and the steps being taken by the relevant Borrower with respect to such event or circumstance:

 

(a) any Default or Event of Default;

 

(b) any default or event of default under any contractual obligation of any Borrower, or any litigation, investigation or proceeding between any Borrower and any Governmental Authority which, in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect;

 

(c) any litigation or proceeding involving any Borrower as a defendant or in which any Property of any Borrower is subject to a claim and in which the amount involved is $25,000 or more and which is not covered by insurance or in which injunctive or similar relief is sought;

 

(d) the receipt by the Borrowers of any Environmental Complaint, which if adversely determined could reasonably be expected to have a Material Adverse Effect;

 

 
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(e) any actual, proposed or threatened testing or other investigation by any Governmental Authority or other Person concerning the environmental condition of, or relating to, any Property of the Borrowers following any allegation of a violation of any Requirement of Law;

 

(f) any Release of Hazardous Substances by the Borrowers or from, affecting or related to any Property of the Borrowers or Property of others adjacent to Property of the Borrowers which could reasonably be expected to have a Material Adverse Effect, except in accordance with applicable Requirements of Law or the terms of a valid permit, license, certificate or approval of the relevant Governmental Authority, or the violation of any Environmental Law, or the revocation, suspension or forfeiture of or failure to renew, any permit, license, registration, approval or authorization which could reasonably be expected to have a Material Adverse Effect;

 

(g) any change in Petrodome Management; and

 

(h) any other event or condition which could reasonably be expected to have a Material Adverse Effect.

 

5.7 Letters in Lieu of Transfer Orders or Division Orders . Promptly upon request by the Agent at any time and from time to time, and without limitation on the rights of the Agent pursuant to the provisions of Section 2.17 , execute such letters in lieu of transfer or division orders, in addition to the letters delivered to the Agent in satisfaction of the condition set forth in Section 3.1(h) , as are necessary or appropriate to transfer and deliver to the remittances of Agent proceeds from or attributable to any of the Mortgaged Property.

 

5.8 Commodity Hedging . Within five (5) Business Days of the Closing Date place in effect and comply, in all material respects, with the provisions of the Minimum Required Commodity Hedge Agreements and, if the daily closing price for WTI is less than $50/bbl for more than nine (9) days during any rolling thirty (30) day period (such occurrence referred to as an “ Additional Hedge Adjustment Event ”), the Borrowers shall hedge additional future production volumes, as determined by the Agent in its sole discretion, within fifteen (15) days after receipt of notice from the Agent specifying the amounts and duration of the future production volumes to be hedged as a result of such Additional Hedge Adjustment Event.

 

5.9 Tax Returns . Furnish to the Agent, promptly upon, but in no event more than thirty (30) days after, each filing of the annual federal income tax return of the Borrowers with the Internal Revenue Service, a copy thereof.

 

5.10 Additional Information . Furnish to the Agent and any Lender, promptly upon the request of the Agent, such additional financial or other information concerning the assets, liabilities, operations and transactions of the Borrowers as the Agent may from time to time reasonably request; and notify the Agent not less than ten (10) Business Days prior to the occurrence of any condition or event that may change the proper location for the filing of any financing statement or other public notice or recording for the purpose of perfecting a Lien in any Property of the Borrowers, including any change in its name or the location of the jurisdiction of organization, principal place of business or chief executive office of the relevant Borrower; and upon the request of the Agent, execute such additional Security Documents as may be necessary or appropriate in connection therewith.

 

 
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5.11 Compliance with Laws . Comply, in all material respects, with all applicable Requirements of Law, including (a) ERISA, (b) Environmental Laws, (c) Anti-Terrorism Laws and (d) all permits, licenses, registrations, approvals and authorizations (i) related to any natural or environmental resource or media located on, above, within, related to or affected by any Property of the Borrowers, (ii) required for the performance of the operations of the Borrowers, or (iii) applicable to the use, generation, handling, storage, treatment, transport, or disposal of any Hazardous Substances; and use its best efforts to cause all employees, agents, contractors, subcontractors and future lessees (pursuant to appropriate lease provisions) of the Borrowers, while such Persons are acting within the scope of their relationship with the relevant Borrower, to comply with all such Requirements of Law as may be necessary or appropriate to enable the relevant Borrower to so comply.

 

5.12 Payment of Assessments and Charges . Pay all Taxes, assessments, governmental charges, rent and other Indebtedness which, if unpaid, might become a Lien against any Property of the Borrowers, except any of the foregoing being contested in good faith and as to which an adequate reserve in accordance with GAAP has been established or unless failure to pay would not have a Material Adverse Effect.

 

5.13 Maintenance of Existence or Qualification and Good Standing . Maintain its corporate, limited liability company or limited partnership, as the case may be, existence or qualification and, if applicable, good standing in its jurisdiction of organization and in all jurisdictions wherein any material Property now owned or hereafter acquired or business now or hereafter conducted by it necessitates same.

 

5.14 Payment of Notes; Performance of Obligations . Pay the Notes according to the reading, tenor and effect thereof, as modified hereby, and do and perform every act and discharge all of the other Obligations.

 

5.15 Further Assurances; Post-Closing Obligations . Promptly upon written request of the Agent, cure any defects in the execution and delivery of any of the Loan Documents to which the relevant Borrower is a party and all agreements contemplated thereby, and execute, acknowledge and deliver to the Agent such other assurances and instruments as shall, in the reasonable opinion of the Agent, be necessary to fulfill the terms of the Loan Documents to which the relevant Borrower is a party. Any failure by Borrowers to timely perform and comply (or to cause any other Person that is an Affiliate to perform and comply) with any of the covenants and requirements as set forth in this Section 5.15 (as determined by Administrative Agent, in its sole but reasonable discretion) shall constitute an Event of Default under Section 7.1(c) of the Credit Agreement.

 

5.16 Initial Expenses of Agent . Upon request by the Agent, promptly reimburse the Agent for, or pay directly to such special counsel, all reasonable fees and expenses of K&L Gates LLP, special counsel to the Agent, or Agent’s other advisors in connection with the preparation of this Agreement and all documentation contemplated hereby, the satisfaction of the conditions precedent set forth herein, the filing and recordation of Security Documents, and the consummation of the transactions contemplated in this Agreement.

 

 
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5.17 Subsequent Expenses of Agent and Lenders . Promptly reimburse:

 

(a) all third party out-of-pocket amounts reasonably expended, advanced or incurred by or on behalf of the Agent (i) to satisfy any obligation of the Borrowers under any of the Loan Documents; (ii) to ratify, amend, restate or prepare additional Loan Documents, as the case may be; (iii) in connection with the filing and recordation of Security Documents; and which amounts shall include all reasonable attorney’s fees, together with interest at the Contract Rate on each such amount from the date of notification by the Agent that the same was expended, advanced or incurred by the Agent until the date it is repaid to the Agent; (iv) in connection with certain back office and administrative services related to the Term Loan provided by Cortland Capital Market Services LLC or such other third party loan servicer as Agent may select from time to time; (v) in connection with all valuation services related to the Term Loan; and (vi) associated with rating agency services, risk mitigation providers and insurance, provided , however , the fees and expenses in connection with (a)(iv) and (a)(vi) shall not exceed $25,000 per year; and

 

(b) following an Event of Default, all out-of-pocket costs and expenses, if any, of the Agent or any of the Lenders (i) to enforce their respective rights under any of the Loan Documents; (ii) to collect the Obligations and (iii) to protect the Properties or business of the Borrowers, which amounts shall be deemed compensatory in nature and liquidated as to amount upon notice to the relevant Borrower by the Agent and which costs and expenses shall include (a) all court costs, (b) reasonable attorneys’ fees, (c) reasonable fees and expenses of auditors and accountants and other professionals incurred to protect the interests of the Agent or the Lenders, (d) fees and expenses incurred in connection with the participation by the Agent and the Lenders as members of the creditors’ committee in any Insolvency Proceeding, (e) fees and expenses incurred in connection with lifting the automatic stay prescribed in §362 Title 11 of the United States of America Code and (f) fees and expenses incurred in connection with any action pursuant to §1129 Title 11 of the United States of America Code all reasonably incurred by the Agent and the Lenders in connection with the collection of any sums due under the Loan Documents, together with interest at the Contract Rate on each such amount from the date of notification that the same was expended, advanced or incurred by the Agent or any Lender until the date it is repaid to the Agent or such Lender, with the obligations under this Section 5.17 surviving the non-assumption of this Agreement in any Insolvency Proceeding and being binding upon the Borrowers and/or a trustee, receiver, custodian or liquidator of the Borrowers appointed in any such case.

 

(c) Notwithstanding any provision to the contrary herein, the Borrowers agree that, upon five (5) Business Days’ notice, the Agent may debit the Borrowers’ account or accounts that are subject to exclusive control by the Agent for any amounts payable pursuant to this Section 5.17 .

 

 
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5.18 Maintenance and Inspection of Properties . Maintain or, to the extent that the right or obligation to do so rests with another Person, exercise commercially reasonable efforts to cause such other Person to maintain all of the tangible Properties of the Borrowers in good repair and condition, ordinary wear and tear excepted; make or, to the extent that the right or obligation to do so rests with another Person, exercise commercially reasonable efforts to cause such other Person to make all necessary replacements thereof and operate such Properties in a good and workmanlike manner; and permit any authorized representative of the Agent, upon prior notice to the Borrowers, to visit and inspect, at reasonable times, any tangible Property of the Borrowers.

 

5.19 Maintenance of Insurance . Maintain or cause to be maintained insurance with respect to its Properties and businesses against such liabilities, casualties, risks and contingencies as is customary in the relevant industry and sufficient to prevent a Material Adverse Effect, all such insurance to be in amounts and from insurers reasonably acceptable to the Agent and name the Agent as an additional insured and loss payee.

 

5.20 Environmental Indemnification . Indemnify and hold the Agent and each of the Lenders and their respective shareholders, officers, directors, employees, agents, advisors, attorneys-in-fact and Affiliates and each trustee for the benefit of the Agent or the Lenders under any Security Document (each of the foregoing an “ Indemnitee ”) harmless from and against any and all claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings and orders, judgments, remedial actions, requirements and enforcement actions of any kind, and all reasonable costs and expenses incurred in connection therewith (including attorneys’ fees and expenses), arising directly or indirectly, in whole or in part, from (a) the presence of any Hazardous Substances on, under, or from any Property of the Borrowers, whether prior to or during the term hereof, (b) any activity carried on or undertaken on any Property of the Borrowers, whether prior to or during the term hereof, and whether by of the Borrowers or any of the predecessors in title, employees, agents, contractors or subcontractors of or any other Person at any time occupying or present on such Property, in connection with the handling, treatment, removal, storage, decontamination, cleanup, transportation or disposal of any Hazardous Substances at any time located or present on or under such Property, (c) any residual contamination on or under any Property of the Borrowers, (d) any contamination of any Property or natural resources arising in connection with the generation, use, handling, storage, transportation or disposal of any Hazardous Substances by of the Borrowers or any employees, agents, contractors or subcontractors of the Borrowers while such Persons are acting within the scope of their relationship with the relevant Borrower, irrespective of whether any of such activities were or will be undertaken in accordance with applicable Requirements of Law or (e) the performance and enforcement of any Loan Document or any other act or omission in connection with or related to any Loan Document or the transactions contemplated thereby, including any such claim, loss, damage, liability, fine, penalty, charge, administrative or judicial proceeding, order, judgment, remedial action, requirement, enforcement action, cost or expense, arising from the negligence (but not the gross negligence or willful misconduct), whether sole or concurrent, of any Indemnitee; with the foregoing indemnity surviving satisfaction of all Obligations and the termination of this Agreement, unless all such Obligations have been satisfied wholly in cash and not by way of realization against any Collateral or the conveyance of any Property in lieu thereof, provided that such indemnity shall not extend to any act or omission by the Agent or any Lender with respect to any Property subsequent to the Agent or any Lender becoming the owner of such Property and with respect to which Property such claim, loss, damage, liability, fine, penalty, charge, proceeding, order, judgment, action or requirement arises subsequent to the acquisition of title thereto by the Agent or any Lender. All amounts due under this Section 5.20 shall be payable on written demand therefor by the Agent.

 

 
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5.21 General Indemnification . Indemnify and hold each Indemnitee harmless from and against any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of, in any way connected with or as a result of (i) the preparation, execution, delivery and administration of this Agreement and the other Loan Documents, the performance by the parties hereto and thereto of their respective obligations hereunder and thereunder and consummation of the transactions contemplated hereby and thereby, (ii) the use of proceeds of the Term Loan, or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, including any such loss, claim, damage, liability or expense arising from the negligence (but not the gross negligence or willful misconduct), whether sole or concurrent, of any Indemnitee; with the foregoing indemnity surviving satisfaction of all Obligations and the termination of this Agreement. For the avoidance of doubt, subsection (i) and subsection (iii) of this Section 5.21 includes the reasonable fees, disbursements and other charges of a single lead counsel for, and special and local counsel as my be required by, the Agent. All amounts due under this Section 5.21 shall be payable on written demand therefor.

 

5.22 Evidence of Compliance with Anti-Terrorism Laws . Deliver to the Agent and any Lender any certification or other evidence requested from time to time by the Agent or such Lender, in their reasonable discretion, confirming compliance by the Borrowers with the provisions of any or all applicable Anti-Terrorism Laws.

 

5.23 Board and Management Meetings . Hold (a) a meeting of the governing body of the Borrower or its manager, as the case may be, at least quarterly and, in connection with each such meeting or any proposed action without a meeting, as the case may be, (i) provide to the Agent reasonable advance notice of the meeting or reasonable advance notice of any proposed action without a meeting, (ii) provide to the Agent, reasonably in advance of the meeting or proposed action without a meeting, copies of all written materials provided to the directors and (iii) so long as the Loan Balance exceeds $100,000 allow the Agent Observer to attend the meeting as a non-voting observer and (b) regular operations meetings of the management team of the Borrower and special meetings of such management team at the reasonable request of the Agent. Any of the meetings held pursuant to this Section 5.23(b) may be held telephonically. Borrower will reimburse the Agent Observer for all reasonable and documented costs and expenses incurred in connection with its participation in any meetings pursuant to this Section 5.23 .

 

5.24 Maximum Permitted Monthly General and Administrative Expense Allocation . Not deduct or receive a monthly general and administrative expense allocation (measured in arrears) in excess of $125,000 per month. For the avoidance of doubt, any and all overhead shall be considered a general and administrative expense for purposes of this Section 5.24 .

 

 
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5.25 Material Contracts . Comply in all material respects with material contracts.

 

5.26 Credit Policies . Maintain written credit policies consistent with standard business practices and in form and substance acceptable to Agent.

 

5.27 DACA Accounts . Within thirty (30) calendars days of the Closing Date, with respect to all Borrowers, deliver one or more Deposit Account Control Agreements with shifting control among Petrodome Energy and the other Borrowers, the Agent and Wells Fargo Bank, National Association or any other financial institution holding an account of one or more Borrowers with respect to each Operating Account or any other account in which any Borrower holds an interest.

 

5.28 Lockbox Account . (a) Remit all payments received by it to the Lockbox Account and (b) direct all account debtors and royalty payors to remit all payments due to Borrowers to the Lockbox Account.

 

5.29 Other Financial Reporting Obligations . Deliver to the Agent any and all annual and quarterly financial reporting information of Viking Energy Group, Inc. as well as any special reporting delivered to its securities regulator no later than three (3) days after such information is delivered to the SEC.

 

5.30 Additional Collateral; Other Deliveries . At the request of the Agent in its sole discretion, deliver to the Agent Security Documents covering all Oil and Gas Properties and other Properties of the Borrowers and establishing perfected first priority Liens in favor or for the benefit of the Agent for the benefit of the Lenders or such other deliveries as the Agent shall reasonably request, including but not limited to new, amendment or otherwise revised Direction Letters and letters in lieu of transfer.

 

ARTICLE VI

 

NEGATIVE COVENANTS

 

So long as any Obligation remains outstanding or unpaid, none of the Borrowers will:

 

6.1 Indebtedness . Create, incur, assume or suffer to exist any Indebtedness, whether by way of loan or otherwise; provided , however , the foregoing restriction shall not apply to (a) the Obligations, (b) unsecured accounts payable incurred in the ordinary course of business, which are not unpaid in excess of forty-five (45) days beyond the invoice date or are being contested in good faith and as to which such reserve as is required by GAAP has been made, (c) Indebtedness of the Borrowers at any time owing by the relevant Borrower under any of the Minimum Required Commodity Hedge Agreements or other Commodity Hedge Agreement with Approved Hedge Counterparties and approved by the Agent, (d) Indebtedness associated with Permitted Liens, and (e) Indebtedness of the Borrowers owing to Viking Energy Group, Inc., provided , however , that such Indebtedness permitted under subsection (e) of this Section 6.1 (i) may not exceed $1,000,000, (ii) shall not be secured, and (iii) shall be subject to a subordination agreement in favor of Agent and the Lenders in form and substance acceptable to Agent in its sole discretion.

 

 
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6.2 Contingent Obligations . Create, incur, assume or suffer to exist any Contingent Obligation; provided, however, the foregoing restriction shall not apply to (a) performance guarantees, performance surety or other bonds or endorsements of items deposited for collection, in each case provided in the ordinary course of business or (b) trade credit incurred or operating leases entered into in the ordinary course of business.

 

6.3 Liens . Create, incur, assume or suffer to exist any Lien on any of its Property, whether now owned or hereafter acquired; provided , however , the foregoing restriction shall not apply to Permitted Liens.

 

6.4 Sales of Assets . Sell, transfer or otherwise dispose of, any of its Property, whether now owned or hereafter acquired, or enter into any agreement to do so; provided , however , the foregoing restriction shall not apply to (a) the sale of Hydrocarbons or inventory in the ordinary course of business, provided that no contract for the sale of Hydrocarbons shall obligate the relevant Borrower to deliver Hydrocarbons produced from any of its Oil and Gas Properties at some future date without receiving full payment therefor within sixty (60) days of delivery, (b) the sale or other disposition of Property destroyed, lost, worn out, damaged or having only salvage value or no longer used or useful in the business in which it is used and not exceeding $25,000 in the aggregate, for Borrowers on a consolidated basis, during any calendar year, (c) the sale, transfer or other disposition of Property from the Borrowers to any other Borrowers or direct obligor hereunder, (d) sales or other dispositions of Property not constituting Collateral and not exceeding $25,000 in the aggregate, for the Borrowers on a consolidated basis, during any calendar year, or (e) sales or other dispositions of Property, the proceeds of which are used to pay the Obligations in full in cash.

 

6.5 Leasebacks . Enter into any agreement to sell or transfer any Property and thereafter rent or lease as lessee such Property or other Property intended for the same use or purpose as the Property sold or transferred.

 

6.6 Sale or Discount of Receivables . Except to minimize losses on bona fide debts previously contracted, discount or sell with recourse, or sell for less than the greater of the face or market value thereof, any of its notes receivable or accounts receivable.

 

6.7 Loans or Advances . Make or agree to make or allow to remain outstanding any loans or advances to any Person; provided , however , the foregoing restriction shall not apply to (a) advances or extensions of credit in the form of accounts receivable incurred in the ordinary course of business and on terms customary in the relevant industry, (b) loans or advances by the relevant Borrower to any of the other Borrower or (c) other loans or advances not exceeding $25,000, in the aggregate for the Borrowers on a consolidated basis, at any time outstanding. Notwithstanding the forgoing, the Borrowers shall not make any advance or loan to or for the benefit of, whether directly or otherwise, to: (i) any Person directly or indirectly related to any Borrower or (ii) any officer or manager of such Borrower, without the express written consent of the Agent.

 

 
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6.8 Investments . Make or acquire Investments in, or purchase or otherwise acquire all or substantially all of the assets of, any Person; provided , however , the foregoing restriction shall not apply to (a) the purchase or acquisition of Oil and Gas Properties, pipelines and gathering systems or other Property related thereto or related to farm-out, farm-in, joint operating, joint venture or area of mutual interest agreements or other similar arrangements which are usual and customary in the oil and gas exploration and production business located within the geographic boundaries of the United States of America (including, the federal Outer Continental Shelf), provided that the Agent must consent in writing prior to any purchase or acquisition under this Section 6.8(a) , (b) Investments in the form of (i) debt securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof, with maturities of no more than one year, (ii) commercial paper of a domestic issuer rated at the date of acquisition at least P-2 by Moody’s Investor Service, Inc. or A-2 by Standard & Poor’s Corporation and with maturities of no more than one year from the date of acquisition or (iii) repurchase agreements covering debt securities or commercial paper of the type permitted in this Section 6.8 , or (iv) certificates of deposit, demand deposits, eurodollar time deposits, overnight bank deposits and bankers’ acceptances, with maturities of no more than one year from the date of acquisition, issued by or acquired from or through any Lender or any bank or trust company organized under the laws of the United States of America or any state thereof and having capital surplus and undivided profits aggregating at least $100,000,000, (c) other short-term Investments similar in nature and degree of risk to those described in clause (b) of this proviso to this Section 6.8 , (d) Investments in money-market funds sponsored or administered by Persons acceptable to the Agent and which funds invest in short-term Investments similar in nature and degree of risk to those described in clause (b) of this proviso to this Section 6.8 , or (e) evidences of loans or advances not prohibited by the provisions of Section 6.7 .

 

6.9 Dividends and Distributions . Declare, pay or make, whether in cash or Property of the relevant Borrower, any dividend or distribution on, or purchase, redeem or otherwise acquire for value, any of its Equity Interests other than dividends and distributions paid (a) in additional shares of Equity Interests, so long as such additional shares of Equity Interests do not have any redemption rights or cash payments, (b) pursuant to and in accordance with stock option plans or other benefit plans for management, employees or consultants of the relevant Borrower, so long as such additional shares of Equity Interests do not have any redemption rights or cash payments or (c) so long as no Default or Event of Default exists or would reasonably be expected to result in a Default or Event of Default, as a Permitted Tax Distribution.

 

6.10 Issuance of Equity; Changes in Corporate Structure . Issue or agree to issue any Equity Interests other than common Equity Interests; enter into any transaction of consolidation, merger or amalgamation; or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution).

 

6.11 Transactions with Affiliates and Certain Other Person . Directly or indirectly, enter into any transaction (including the sale, lease or exchange of Property or the rendering of service) with any of its Affiliates or with any Person directly or indirectly related to any Borrower or any manager or officer of such Borrower (other than transactions entered into in the normal course of business between the Borrowers and any other Borrower not otherwise prohibited hereunder), other than: (a) upon fair and reasonable terms no less favorable than could be obtained in an arm’s length transaction with a Person which was not an Affiliate and (b) upon terms approved by the Agent in writing.

 

 
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6.12 Lines of Business . Engage in any line of business other than those in which the relevant Borrower is engaged as of the Closing Date.

 

6.13 Plan Obligation . Assume or otherwise become subject to an obligation to contribute to or maintain any Plan or acquire any Person which has at any time had an obligation to contribute to or maintain any Plan.

 

6.14 Anti-Terrorism Laws . Conduct any business or engage in any transaction or dealing with any Blocked Person, including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person; deal in, or otherwise engage in any transaction relating to, any Property or interests in Property blocked pursuant to Executive Order No. 13224; engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate (i) any of the prohibitions set forth in Executive Order No. 13224 or the USA Patriot Act or (ii) any prohibitions set forth in the rules or regulations issued by OFAC or any sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers based on United States of America foreign policy.

 

6.15 Amendment of Material Contracts . Amend, supplement, restate or otherwise modify, in any material respect, any material contract to which the relevant Borrower is a party, including, without limitation, any Development Plan or joint operating agreement, without express written consent from the Agent.

 

6.16 Provisions of Commodity Hedge Agreements . Enter into or maintain in effect any Commodity Hedge Agreement containing any provision obligating the relevant Borrower to provide to the relevant Approved Hedge Counterparty any collateral, margin, letter of credit or any other form of security or credit support for the obligations, contingent or otherwise, of the relevant Borrower thereunder.

 

6.17 Maintenance of Commodity Hedge Agreements . Enter into any Commodity Hedge Agreement, whether with an Approved Hedge Counterparty or another Person, other than the Minimum Required Commodity Hedge Agreements or liquidate or terminate any of Minimum Required Commodity Hedge Agreements.

 

6.18 Deposit Accounts . Establish or maintain funds on deposit in a deposit account with any financial institution other than (a) the Lockbox Account, (b) the CapEx Account, (c) the Control Account or (d) other Operating Accounts (including deposit accounts used to maintain funds in suspense or royalties due to third-parties) as described on Schedule 6.18 attached hereto.

 

6.19 Development Plan . Amend the general administrative and expense budget or target development locations of the most recent Development Plan without the prior written consent of the Agent.

 

 
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6.20 Reserved.

 

6.21 Current Ratio . Allow, as of the close of any fiscal month, commencing with that ending May 31, 2018, the ratio of Current Assets to Current Liabilities to be less than 1.00 to 1.00.

 

6.22 PDP Collateral Coverage . Allow, as of each of the dates indicated in the table below in this Section 6.22 , (a) the positive difference of (i) the Loan Balance as of the relevant date minus (ii) the amount of cash in the CapEx Account as of the relevant date, divided by (b) the PV-10 value of the PDP Reserves (using Adjusted Strip Prices on the relevant date applied to the PDP Reserves of the Borrowers, on a consolidated basis), as reflected in the Reserve Report provided to the Agent pursuant to the provisions of Section 5.4 , to be more than the percentage indicated in the table below for the relevant date:

 

Date

 

Percentage

May 31, 2018

 

70%

November 30, 2018

 

65%

May 31, 2019

 

60%

November 30, 2019 and thereafter

 

55%

 

6.23 Proved Reserves Coverage . Allow, as of May 31, 2018 and each November 30th and May 31st thereafter, the positive difference of (a) the difference of (i) the Loan Balance as of the relevant date minus (ii) the amount of cash in the CapEx Account, as of the relevant date, to be more than (b) fifty percent (50%) of the PV-10 value of Proved Reserves (using Adjusted Strip Prices on the relevant date applied to the Proved Reserves of the Borrowers, on a consolidated basis) as reflected in the most recent Reserve Report provided to the Agent pursuant to the provisions of Section 5.24 , provided, that only twenty percent (20%) of the PV-10 value of PUD shall be included for purposes of calculating the PV-10 value of Proved Reserves.

 

6.24 Capital Expenditures . Make or commit or agree to make, in any fiscal quarter, Capital Expenditures that would cause Capital Expenditure made or committed or agreed to in the relevant fiscal quarter to exceed the amount set forth in the Development Plan for such fiscal quarter by more than ten percent (10%). For purposes of this Section 6.24 , Capital Expenditures may be made by purchase or by Capital Lease and include costs associated with the exploration and development of Oil and Gas Properties. This Section 6.24 does not apply to any Capital Expenditure required by law or legally mandated by a safety, environmental or regulatory agency having authority over the Borrowers.

 

6.25 Capital Leases . Create, incur, assume or suffer to exist any Capital Lease in excess of $50,000 in the aggregate in any calendar year.

 

6.26 Amendments to Organizational Documents . Without the prior written consent of the Agent, alter, amend or modify its certificate of formation, limited liability company, agreement, articles of incorporation, by-laws, or any other similar organizational document.

 

 
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6.27 Additional Subsidiaries . Form or acquire any Subsidiary without the prior written consent of the Agent. In the event that the Agent provides such prior written consent to any formation or acquisition of any Subsidiary, the Borrower shall contemporaneously with such formation, cause such Subsidiary to (a) become a Co-Borrower by delivering to the Agent a duly executed amendment to the Agreement or such other document as the Agent shall deem appropriate for such purpose, (b) grant a security interest in all Collateral of the type described in the Security Documents subject to the exceptions specified therein, including all Oil and Gas Properties, owned by such Subsidiary by delivering to the Agent a duly executed supplement to the Security Documents or such other document as the Agent shall deem appropriate for such purpose, (c) deliver to the Agent such opinions, documents and certificates referred to in Section 3.1 as may reasonably be requested by the Agent, (d) deliver to the Agent such original certificated Equity Interests or other certificates evidencing the Equity Interests of such Subsidiary, together with stock or other transfer powers duly executed in blank, (e) deliver to the Agent such updated Schedules to the Loan Documents as requested by the Agent with respect to such Subsidiary, and (f) deliver to the Agent such other documents as may be reasonably requested by the Agent, all in form, content and scope reasonably satisfactory to the Agent.

 

6.28 Equity Raise . Without the prior written consent of the Agent, use any proceeds from an Equity Raise to redeem or repay any Subordinated Indebtedness or to declare, pay or make any dividend or distribution.

 

6.29 Negative Pledge Agreements . Will not create, incur, assume or suffer to exist any contract, agreement or understanding (other than this Agreement, the Security Documents, agreements with respect to purchase money Indebtedness or Capital Leases secured by Permitted Liens, but then only with respect to the Property that is the subject of such Capital Lease or purchase money Indebtedness), that in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property in favor of the Agent and the Lenders.

 

6.30 Material Accounting Changes . Change the last day of its fiscal year from December 31 of each year, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 and September 30 of each year, respectively. Make (without the consent of the Agent) any material change in its accounting treatment and reporting practices except as required by GAAP.

 

ARTICLE VII

 

EVENTS OF DEFAULT

 

7.1 Enumeration of Events of Default . Any of the following events shall constitute an Event of Default:

 

(a) default shall be made in the payment when due of any installment of principal or interest under this Agreement or the Notes or in the payment when due of any fee or other sum payable under any Loan Document to which the relevant Borrower is a party and such default shall continue unremedied for five (5) days, except such amounts due on the Maturity Date, for which no such grace period shall apply;

 

 
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(b) default shall be made by the Borrowers in the due observance or performance of any of its obligations under the Loan Documents, and, as to compliance with the obligations of the Borrowers under Article V (other than Section 5.14 ), and such default shall continue for five (5) days after the earlier of notice thereof to the relevant Borrower or Borrowers by the Agent or knowledge thereof by the relevant Borrower or any of the other Borrowers;

 

(c) any representation or warranty made by the Borrowers in any of the Loan Documents to which the relevant Borrower is a party proves to have been untrue in any material respect or any representation, statement (including Financial Statements), certificate, including the perfection certificate, or data furnished or made to the Agent or any Lender in connection herewith proves to have been untrue in any material respect as of the date the facts therein set forth were stated or certified;

 

(d) default shall be made by any Borrower (as principal or guarantor or other surety) in the payment or performance of any bond, debenture, note or other Indebtedness in excess of $50,000 in the aggregate as to the relevant Borrower or under any credit agreement, loan agreement, indenture, promissory note or similar agreement or instrument executed in connection with any of the foregoing, and such default shall remain unremedied for five (5) days in excess of the period of grace, if any, with respect thereto;

 

(e) the levy against any significant portion of the Property of the Borrowers, or any execution, garnishment, attachment, sequestration or other writ or similar proceeding in an amount in excess of $50,000 as to the relevant Borrower which is not permanently dismissed or discharged within sixty (60) days after the levy;

 

(f) any Borrower shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of it or all or a substantial part of its assets, (ii) file a voluntary petition commencing an Insolvency Proceeding, (iii) make a general assignment for the benefit of creditors of all or substantially all of its assets, (iv) be unable, or admit in writing its inability, to pay its debts generally as they become due or (v) file an answer admitting the material allegations of a petition filed against it in any Insolvency Proceeding;

 

(g) an order, judgment or decree shall be entered against any Borrower by any court of competent jurisdiction or by any other Governmental Authority, on the petition of a creditor or otherwise, granting relief in any Insolvency Proceeding or approving a petition seeking reorganization or an arrangement of its debts or appointing a receiver, trustee, conservator, custodian or liquidator of it or all or any substantial part of its assets, and such order, judgment or decree shall not be dismissed or stayed within thirty (30) days;

 

(h) a final and non-appealable order, judgment or decree shall be entered against any Borrower for money damages and/or Indebtedness due in an amount in excess of $50,000, and such order, judgment or decree shall not be dismissed or stayed within 60 days or is not fully covered by insurance;

 

(i) any charges are filed or any other action or proceeding is instituted by any Governmental Authority against any Borrower under the Racketeering Influence and Corrupt Organizations Statute (18 U.S.C. §1961 et seq .), the result of which could be the forfeiture or transfer of any material Property of the relevant Borrower subject to a Lien in favor of the Agent without (i) satisfaction or provision for satisfaction of such Lien or (ii) such forfeiture or transfer of such Property being expressly made subject to such Lien;

 

 
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(j) no Borrower shall have (i) concealed, removed or diverted, or permitted to be concealed, removed or diverted, any part of its Property, with intent to hinder, delay or defraud its creditors or any of them, (ii) made or suffered a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law with intent to hinder, delay or defraud its creditors, (iii) made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid with intent to hinder, delay or defraud its creditors or (iv) shall have suffered or permitted, while insolvent, any creditor to obtain a Lien upon any of its Property through legal proceedings or distraint which is not vacated within sixty (60) days from the date thereof;

 

(k) any Security Document shall for any reason not, or cease to, create valid and perfected first‑priority Liens against the Property of the Borrower which is a party thereto purportedly covered thereby, except to the extent permitted by this Agreement;

 

(l) any Borrower contests in any manner the validity or enforceability of any provision of any Loan Document to which it is a party, or denies that it has any liability under any Loan Document to which it is a party;

 

(m) any Borrower purports to revoke, terminate or rescind any Loan Document or any provision of any Loan Document;

 

(n) any Borrower pays, in cash or otherwise, any portion of any Subordinated Indebtedness not expressly permitted pursuant to the terms of a subordination agreement in favor of the Agent; or

 

(o) a Change of Control occurs.

 

7.2 Remedies .

 

(a) Upon the occurrence of an Event of Default specified in Section 7.1(f) or Section 7.1(g) , immediately and without notice, all Obligations shall automatically become immediately due and payable, without presentment, demand, protest, notice of protest, default or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity or other notice of any kind, except as may be provided to the contrary elsewhere herein, all of which are hereby expressly waived by the Borrowers.

 

(b) Upon the occurrence of any Event of Default other than those specified in Section 7.1(f) or Section 7.1(g) , the Agent may, and upon the request of the Required Lenders shall, by notice in writing to any Borrower, declare all Obligations immediately due and payable, without presentment, demand, protest, notice of protest, default or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity or other notice of any kind, except as may be provided to the contrary elsewhere herein, all of which are hereby expressly waived by each Borrower.

 

 
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(c) Upon the occurrence of any Event of Default, the Lenders, with the oral consent of the Required Lenders (confirmed promptly in writing), and the Agent, in accordance with the terms hereof, may, in addition to the foregoing in this Section 7.2 , exercise any or all of their rights and remedies provided by law or pursuant to the Loan Documents.

 

(d) Should the Obligations under the Loan Documents become immediately due and payable in accordance with any of the preceding subsections of this Section 7.2 , the Agent shall be entitled to proceed against the Collateral.

 

(e) Upon the occurrence of any Event of Default, the Agent shall be authorized and entitled, in its sole and uncontrolled discretion, to withdraw all cash in the Lockbox Account on a daily basis to be applied against the Loan Balance pursuant to Section 7.2(f) until such time as no Event of Default exists under any of the preceding subsections of this Section 7.2 .

 

(f) Proceeds received by the Agent from realization against the Collateral and any other funds received by the Agent from any Borrower when an Event of Default has occurred and is continuing shall be applied pro rata (i) first, to fees and expenses due pursuant to the terms of this Agreement, any other Loan Document or any Commodity Hedge Agreement with a Lender, (ii) second, to accrued interest on the Obligations under the Loan Documents or any Commodity Hedge Agreement with a Lender and (iii) third, to the Loan Balance and any other Obligations then due and payable, pro rata in accordance with the ratio of the Loan Balance or such other Obligations, as the case may be, to the sum of the Loan Balance and such other Obligations. Notwithstanding the foregoing, amounts received from any Borrower that is not an Eligible Contract Participant shall not be applied to any Excluded Swap Obligations owing to a Lender, it being understood that in the event any amount is applied to the Obligations other than Excluded Swap Obligations as a result of this sentence, the Agent shall make such adjustments as it determines are appropriate pursuant to this sentence, from amounts received from Eligible Contract Participants to ensure, as nearly as possible, that the proportional aggregate recoveries with respect to the Obligations described in the preceding sentence of this subsection (f) of this Section 7.2 by Lenders that are the holders of any Excluded Swap Obligations are the same as the proportional aggregate recoveries with respect to other Obligations pursuant to the preceding sentence of this subsection (e) of this Section 7.2 .

 

 
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ARTICLE VIII

 

THE AGENT

 

8.1 Appointment . Each Lender hereby designates and appoints the Agent as the agent of such Lender under this Agreement and the other Loan Documents to which the Agent is a party or under which the Agent is granted any right or remedy. Each Lender authorizes the Agent, as the agent for such Lender, to take such action on behalf of such Lender under the provisions of this Agreement or the other Loan Documents to which the Agent is a party or under which the Agent is granted any right or remedy and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement or the other Loan Documents to which the Agent is a party or under which the Agent is granted any right or remedy, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or in any other Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy, the Agent shall not have any duties or responsibilities except those expressly set forth herein or in any other Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy or any fiduciary relationship with any Lender; and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent shall be read into this Agreement or any other Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy or otherwise exist against the Agent.

 

8.2 Delegation of Duties . The Agent may execute any of its duties under this Agreement and the other Loan Documents to which the Agent is a party or under which the Agent is granted any right or remedy by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to any Lender for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

 

8.3 Exculpatory Provisions . Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) required to initiate or conduct any litigation or collection proceedings hereunder, except with the concurrence of the Required Lenders and contribution by each Lender of its Percentage Share of costs reasonably expected by the Agent to be incurred in connection therewith, (b) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy (except for gross negligence or willful misconduct of the Agent or such Person) or (c) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by any Borrower or any Responsible Officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy or for any failure of any Borrower to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy, or to inspect the Properties, books or records of the Borrowers.

 

 
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8.4 Reliance by Agent . The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrowers), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless and until a written notice of assignment, negotiation or transfer thereof shall have been received by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and contribution by each Lender of its Percentage Share of costs reasonably expected by the Agent to be incurred in connection therewith. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents to which the Agent is a party or under which the Agent is granted any right or remedy in accordance with a request of the Required Lenders. Such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders and all future holders of the Notes. In no event shall the Agent be required to take any action that exposes the Agent to liability or that is contrary to any Loan Document to which the Agent is a party or under which the Agent is granted any right or remedy or applicable Requirement of Law.

 

8.5 Notice of Default . The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Agent has received written notice from a Lender or the Borrowers referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.” In the event that the Agent receives such a notice, the Agent shall promptly give notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Agent shall have received such directions, subject to the provisions of Section 7.2 , the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. In the event that the officer of the Agent primarily responsible for the lending relationship with the Borrowers or any Responsible Officer of any Lender primarily responsible for the lending relationship with the Borrowers becomes aware that a Default or Event of Default has occurred and is continuing, the Agent or such Lender, as the case may be, shall use its good faith efforts to inform the other Lenders or the Agent, as the case may be, promptly of such occurrence. Notwithstanding the preceding sentence, failure to comply with the preceding sentence shall not result in any liability to the Agent or any Lender.

 

 
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8.6 Non-Reliance on Agent and Other Lenders . Each Lender expressly acknowledges that neither the Agent nor any other Lender nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representation or warranty to such Lender and that no act by the Agent or any other Lender hereafter taken, including any review of the affairs of the Borrowers, shall be deemed to constitute any representation or warranty by the Agent or any Lender to any other Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, condition (financial and otherwise) and creditworthiness of the Borrowers and the value of the Properties of the Borrowers and has made its own decision to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, condition (financial and otherwise) and creditworthiness of the Borrowers and the value of the Properties of the Borrowers. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial and otherwise) or creditworthiness of the Borrowers or the value of the Properties of the Borrowers which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.

 

8.7 Indemnification . Each Lender agrees to indemnify the Agent and its officers, directors, employees, agents, attorneys-in-fact and Affiliates (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so), ratably according to the Percentage Share of such Lender, from and against any and all liabilities, claims, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind whatsoever which may at any time (including any time following the payment and performance of all Obligations and the termination of this Agreement) be imposed on, incurred by or asserted against the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates in any way relating to or arising out of this Agreement or any other Loan Document, or any other document contemplated or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates under or in connection with any of the foregoing, including any liabilities, claims, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements imposed, incurred or asserted as a result of the negligence, whether sole or concurrent, of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. The agreements in this Section 8.7 shall survive the payment and performance of all Obligations and the termination of this Agreement.

 

 
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8.8 Restitution . Should the right of the Agent or any Lender to realize funds with respect to the Obligations be challenged and any application of such funds to the Obligations be reversed, whether by Governmental Authority or otherwise, or should the Borrowers otherwise be entitled to a refund or return of funds distributed to the Lenders in connection with the Obligations, the Agent or such Lender, as the case may be, shall promptly notify the Lenders of such fact. Not later than Noon, Eastern Standard or Eastern Daylight Savings Time, as the case may be, of the Business Day following such notice, each Lender shall pay to the Agent an amount equal to the ratable share of such Lender of the funds required to be returned to the Borrowers entitled to such funds. The ratable share of each Lender shall be determined on the basis of the percentage of the payment all or a portion of which is required to be refunded originally distributed to such Lender, if such percentage can be determined, or, if such percentage cannot be determined, on the basis of the Percentage Share of such Lender. The Agent shall forward such funds to the relevant Borrower or to the Lender required to return such funds. If any such amount due to the Agent is made available by any Lender after Noon, Eastern Standard or Eastern Daylight Savings Time, as the case may be, of the Business Day following such notice, such Lender shall pay to the Agent (or the Lender required to return funds to the relevant Borrower, as the case may be) for its own account interest on such amount at a rate equal to the Federal Funds Rate for the period from and including the date on which restitution to the relevant Borrower is made by the Agent (or the Lender required to return funds to the relevant Borrower, as the case may be) to but not including the date on which such Lender failing to timely forward its share of funds required to be returned to the relevant Borrower shall have made its ratable share of such funds available.

 

8.9 Agent in Its Individual Capacity . Lender serving as the Agent hereunder and its Affiliates may make loans to, accept deposits from, and generally engage in any kind of business with the Borrowers or any of them as though such Lender were not the agent hereunder. With respect to any Note issued to the Lender serving as the agent, such Lender shall have the same rights and powers under this Agreement as a Lender and may exercise such rights and powers as though it were not the agent hereunder. The terms “Lender” and “Lenders” shall include the Agent in its individual capacity as a Lender.

 

8.10 Successor Agent . The Agent may resign as Agent upon ten days’ notice to the Lenders and the Borrowers. If the Agent shall resign as Agent under this Agreement and the other Loan Documents, Required Lenders shall appoint from among the Lenders or Affiliates of Lender a successor agent for the Lenders, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent. The term “Agent” shall mean such successor agent effective upon its appointment. The rights, powers and duties of the former Agent as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After the removal or resignation of any Agent hereunder as Agent, the provisions of this Article VIII and those of any Section of this Agreement relating to the Agent, including Section 5.16 , Section 5.17 , Section 5.21 , Section 5.22 and Section 8.7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents.

 

8.11 Applicable Parties . The provisions of this Article VIII are solely for the benefit of the Agent and the Lenders, and none of the Borrowers shall have any rights as a third party beneficiary or otherwise under any of the provisions of this Article VIII . In performing functions and duties hereunder and under the other Loan Documents, the Agent shall act solely as the agent of the Lenders and does not assume, nor shall it be deemed to have assumed, any obligation or relationship of trust or agency with or for the Borrowers or any legal representative, successor or assign of the Borrowers.

 

 
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8.12 Releases . Each Lender hereby authorizes the Agent to release any Collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents. Each Lender hereby authorizes the Agent to execute and deliver to the Borrowers or any of them, at the sole cost and expense of the Borrowers, any and all releases of Liens, termination statements, assignments or other documents reasonably requested by the Borrowers in connection with any sale or other disposition of Property to the extent such sale or other disposition is permitted by the terms of the Loan Documents.

 

ARTICLE IX

 

MISCELLANEOUS

 

9.1 Assignments; Participations .

 

(a) None of the Borrowers may assign any of its rights or obligations under any Loan Document without the prior written consent of the Agent and the Lenders.

 

(b) With the consent of the Agent and, so long as there exists no Default or Event of Default, the Borrowers (which shall not be unreasonably withheld in either case), any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement pursuant to an Assignment Agreement. Any such assignment shall be in the amount of at least $25,000 (or any whole multiple of $25,000 in excess thereof), unless the relevant assignment is to an affiliate of the assigning Lender or is an assignment of the entire Commitment of the assigning Lender. The assignee shall pay to the Agent, if requested by the Agent, a transfer fee in the amount of $2,500 for each such assignment. Any such assignment shall become effective upon receipt by the Agent of all documentation and other information with respect to the assignee that is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the USA Patriot Act, the execution and delivery to the Agent of the Assignment Agreement and recordation by the Agent in the Register in accordance with this Section 9.1(b) . Promptly following receipt of an executed Assignment Agreement, the Agent shall send to the Borrowers a copy of such executed Assignment Agreement. Promptly following receipt of such executed Assignment Agreement, the Borrowers shall execute and deliver, at their own expense, new Notes to the assignee and, if applicable, the assignor, in accordance with their respective interests, whereupon the prior Notes of the assignor and, if applicable, the assignee, shall be canceled and returned to the Borrowers. Upon the effectiveness of any assignment pursuant to this Section 9.1(b) , the assignee will become a “Lender,” if not already a “Lender,” for all purposes of the Loan Documents, and the assignor shall be relieved of its obligations hereunder to the extent of such assignment. If the assignor no longer holds any rights or obligations under this Agreement, such assignor shall cease to be a “Lender” hereunder, except that its rights under Section 5.17 , Section 5.21, Section 5.22 and Section 8.7 , shall not be affected. On the last Business Day of each month during which an assignment has become effective pursuant to this Section 9.1(b) , the Agent shall update the Register to show all such assignments effected during such month and will promptly provide a copy thereof to the Borrowers and each Lender. Agent, acting for this purpose as a non-fiduciary agent of Borrowers, shall maintain at one of its offices located in the Unites States of America a copy of each Assignment Agreement delivered to it and a Register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount and stated interest of the Term Loan owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive and the Borrowers, Agent and the Lenders shall treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, in the absence of manifest error. Notwithstanding anything to the contrary, any assignment of any Loan shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by any Borrower, Agent and any Lender, at any reasonable time and from time to time upon reasonable prior written notice. This Section 9.1(b) shall be construed so that the Term Loans are at all times maintained in “registered form” within the meanings of Sections 163(f), 871(h)(2) and 881(c)(2) of the IRC and any related regulations (and any successor provisions).

 

 
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(c) Each Lender may, without the consent of the Borrower, transfer, grant or assign participations in all or any portion of its interests hereunder to any Person pursuant to this Section 9.1(c) , provided that such Lender shall remain a “Lender” for all purposes of this Agreement and the Transferee of such participation shall not constitute a “Lender” hereunder. In the case of any such participation, the participant shall not have any rights under any Loan Document, the rights of the participant in respect of such participation to be against the granting Lender as set forth in the agreement with such Lender creating such participation, and all amounts payable by the Borrowers hereunder shall be determined as if such Lender had not sold such participation. Each agreement creating a participation must include an agreement by the participant to be bound by the provisions of Section 8.3 , Section 8.6 and Section 8.7 .

 

(d) The Agent or any Lender may furnish any information concerning the Borrowers in the possession of the Agent or such Lender from time to time to assignees and participants and prospective assignees and participants.

 

(e) Notwithstanding anything in this Section 9.1 to the contrary, any Lender which is a national or state bank may assign and pledge all or any of its Notes or any interest therein to any Federal Reserve Bank or the Department of the Treasury of the United States of America as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve System or such Federal Reserve Bank. No such assignment or pledge shall release the assigning or pledging Lender from its obligations hereunder.

 

(f) Notwithstanding any other provisions of this Section 9.1 , no transfer or assignment of the interests or obligations of any Lender or grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrowers to file a registration statement with the Securities and Exchange Commission or any successor Governmental Authority or qualify the Term Loans under the “Blue Sky” laws of any state.

 

9.2 Survival of Representations, Warranties, and Covenants . All representations and warranties of the Borrowers and all covenants and agreements herein made by the Borrowers shall survive the execution and delivery of the Notes and shall remain in force and effect so long as any Obligation is outstanding.

 

 
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9.3 Notices and Other Communications . Except as to oral notices expressly authorized herein, if any, which oral notices shall be promptly confirmed in writing, all notices, requests and communications hereunder shall be in writing (including by facsimile or electronic mail). Unless otherwise expressly provided herein, any such notice, request, demand or other communication shall be deemed to have been duly given or made when delivered personally, or, in the case of delivery by mail, when deposited in the mail, certified mail with return receipt requested, postage prepaid, in the case of facsimile notice, when receipt thereof is acknowledged orally or by written confirmation report or, in the case of electronic mail, when sent and no undeliverable notification is received, addressed as follows:

 

(a) if to the Agent, to:

 

405 Petrodome LLC

 

405 Lexington Avenue

59th Floor

New York, New York 10174

Attention: Greg White

E-mail: gwhite@arenaco.com

 

With an email copy to:

 

reporting@arenaco.com, arenaagency@cortlandglobal.com, and gpaulsen@arenaco.com

 

And a copy to:

 

K&L Gates LLP

1717 Main Street

Suite 2800

Dallas, TX 75201

Attention: Michael Cuda

E-mail: michael.cuda@klgates.com

 

(b) if to any Lender, to the Applicable Lending Office, including, without limitation, each email address of such Lender appearing below such Lender’s Applicable Lending Office.

 

(c) if to any Borrower, to:

 

Petrodome Energy, LLC

4200 Montrose Boulevard, Suite 410

Houston, Texas 77006

Attention: Robert G. Wonish

Email: bob@petrodomeenergy.com

 

 
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With a copy to:

 

Viking Energy Group, Inc.

1330 Avenue of the Americas, Suite 23A

New York, New York 10019

Attention: James A. Doris

Email: jdoris@vikingenergygroup.com

 

Any party may, by proper written notice hereunder to the others, change the individuals or addresses to which such notices to it shall thereafter be sent.

 

9.4 Parties in Interest . Subject to the restrictions on changes in structure set forth in Section 6.10 and other applicable restrictions contained herein, all covenants and agreements herein contained by or on behalf of the Borrowers, the Agent or the Lenders shall be binding upon and inure to the benefit of the relevant Borrower, the Agent or the Lenders, as the case may be, and their respective legal representatives, successors and assigns.

 

9.5 Rights of Third Parties . Except as provided in Section 9.4 , all provisions herein are imposed solely and exclusively for the benefit of the Agent, the Lenders and the Borrowers and no other Person shall have any right, benefit, priority or interest hereunder or as a result hereof or have standing to require satisfaction of provisions hereof in accordance with their terms.

 

9.6 Renewals; Extensions . All provisions of this Agreement relating to the Notes shall apply with equal force and effect to each promissory note hereafter executed which in whole or in part represents a renewal or extension of any part of the Indebtedness of the Borrowers under this Agreement, the Notes or any other Loan Document.

 

9.7 No Waiver; Rights Cumulative . No course of dealing on the part of the Agent or the Lenders or their officers or employees, nor any failure or delay by the Agent or the Lenders with respect to exercising any of their rights under any Loan Document shall operate as a waiver thereof. The rights of the Agent and the Lenders under the Loan Documents shall be cumulative and the exercise or partial exercise of any such right shall not preclude the exercise of any other right. The making of the Term Loans shall not constitute a waiver of any of the covenants, warranties or conditions of the Borrowers contained herein. In the event any of the Borrowers are unable to satisfy any such covenant, warranty or condition, the making of the Term Loans shall not have the effect of precluding the Agent or the Lenders from thereafter declaring such inability to be an Event of Default as hereinabove provided.

 

9.8 Survival Upon Unenforceability . In the event any one or more of the provisions contained in any of the Loan Documents or in any other instrument referred to herein or executed in connection with the Obligations shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of any Loan Document or of any other instrument referred to herein or executed in connection with such Obligations.

 

 
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9.9 Amendments; Waivers . Neither this Agreement nor any provision hereof may be amended, waived, discharged or terminated orally, except by an instrument in writing signed by the Agent and the party against whom enforcement of the amendment, waiver, discharge or termination is sought. Subject to the preceding sentence, any provision of this Agreement or any other Loan Document may be amended or modified by the Borrowers and the Required Lenders or waived by the Required Lenders; provided that, notwithstanding any provision of this Agreement to the contrary, (a) no amendment, modification or waiver which extends the Maturity Date, forgives the principal amount of any Indebtedness of the Borrowers outstanding under this Agreement or interest thereon or fees owing under this Agreement, releases any guarantor of such Indebtedness, releases all or substantially all of the Property of the Borrowers subject to the Security Documents, reduces the interest rate applicable to the Loan Balance or the fees payable to the Lenders generally, delays the payment of interest, fees or principal payments, reduces any principal payments, makes changes to the pro rata application of payments or disbursement to the Lenders, affects this Section 9.9 or modifies the definition of “Required Lenders” shall be effective without the unanimous written consent of all Lenders and the Agent; (b) no amendment, modification or waiver which increases the Percentage Share of any Lender shall be effective without the written consent of such Lender and the Agent; and (c) no amendment, modification or waiver which modifies the rights, duties or obligations of the Agent shall be effective without the written consent of the Agent.

 

9.10 Controlling Agreement . In the event of a conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control.

 

9.11 Disposition of Collateral . Notwithstanding any term or provision, express or implied, in any of the Security Documents, the realization, liquidation, foreclosure or any other disposition on or of any or all of the Property of the Borrowers subject to the Security Documents shall be in the order and manner and determined in the sole discretion of the Agent; provided, however, that in no event shall the Agent violate applicable law or exercise rights and remedies other than those provided in such Security Documents or otherwise existing at law or in equity.

 

9.12 Governing Law . This Agreement and the Notes shall be deemed to be contracts made under and shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to principles thereof relating to conflicts of law.

 

9.13 Dispute Resolution . This Section 9.13 contains a jury waiver, a class action waiver and an arbitration provision. READ CAREFULLY.

 

(a) THIS DISPUTE RESOLUTION PROVISION SHALL SUPERSEDE AND REPLACE ANY PRIOR “JURY WAIVER,” “JUDICIAL REFERENCE,” “CLASS ACTION WAIVER,” “ARBITRATION,” “DISPUTE RESOLUTION” OR SIMILAR ALTERNATIVE DISPUTE AGREEMENT OR PROVISION BETWEEN OR AMONG THE PARTIES HERETO RELATING TO THE TRANSACTION WHICH IS THE SUBJECT OF THIS AGREEMENT.

 

 
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(b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES ITS RIGHTS TO A TRIAL BEFORE A JURY IN CONNECTION WITH ANY CLAIM, DISPUTE OR CONTROVERSY WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EACH OF THE FOREGOING, A “ DISPUTE ”), AND, EXCEPT AS PROVIDED BELOW IN THIS SECTION 9.13 , DISPUTES SHALL BE RESOLVED BY A JUDGE SITTING WITHOUT A JURY. IF A COURT DETERMINES THAT THIS PROVISION IS NOT ENFORCEABLE FOR ANY REASON AND AT ANY TIME PRIOR TO TRIAL OF THE DISPUTE, BUT NOT LATER THAN THIRTY (30) DAYS AFTER ENTRY OF THE ORDER DETERMINING THIS PROVISION IS UNENFORCEABLE, ANY PARTY HERETO SHALL BE ENTITLED TO MOVE THE COURT FOR AN ORDER COMPELLING ARBITRATION AND STAYING OR DISMISSING SUCH LITIGATION PENDING ARBITRATION (AN “ ARBITRATION ORDER ”). IF PERMITTED BY APPLICABLE LAW, EACH PARTY ALSO WAIVES THE RIGHT TO LITIGATE IN COURT OR AN ARBITRATION PROCEEDING ANY DISPUTE AS A CLASS ACTION, EITHER AS A MEMBER OF A CLASS OR AS A REPRESENTATIVE, OR TO ACT AS A PRIVATE ATTORNEY GENERAL.

 

(c) IF A DISPUTE ARISES, AND ONLY IF A JURY TRIAL WAIVER IS NOT PERMITTED BY APPLICABLE LAW OR RULING BY A COURT, ANY PARTY MAY REQUIRE THAT THE DISPUTE BE RESOLVED BY BINDING ARBITRATION BEFORE A SINGLE ARBITRATOR. BY AGREEING TO ARBITRATE A DISPUTE, EACH PARTY HERETO GIVES UP ANY RIGHT THAT PARTY MAY HAVE TO A JURY TRIAL AS WELL AS OTHER RIGHTS THAT PARTY WOULD HAVE IN COURT THAT ARE NOT AVAILABLE OR ARE MORE LIMITED IN ARBITRATION, SUCH AS THE RIGHTS TO DISCOVERY AND TO APPEAL.

 

ARBITRATION SHALL BE COMMENCED BY FILING A PETITION WITH, AND IN ACCORDANCE WITH THE APPLICABLE ARBITRATION RULES OF, THE AAA (THE “ ADMINISTRATOR ”) AS SELECTED BY THE INITIATING PARTY. IF THE PARTIES TO THE DISPUTE AGREE, ARBITRATION MAY BE COMMENCED BY APPOINTMENT OF A LICENSED ATTORNEY WHO IS SELECTED BY THE PARTIES TO THE DISPUTE AND WHO AGREES TO CONDUCT THE ARBITRATION WITHOUT AN ADMINISTRATOR. DISPUTES INCLUDE MATTERS (I) RELATING TO A DEPOSIT ACCOUNT, APPLICATION FOR OR DENIAL OF CREDIT, ENFORCEMENT OF ANY OF THE OBLIGATIONS ANY PARTY HERETO HAS TO ANY OF THE OTHER PARTIES HERETO, COMPLIANCE WITH APPLICABLE LAWS AND/OR REGULATIONS, PERFORMANCE OF SERVICES PROVIDED UNDER ANY AGREEMENT BY ANY PARTY HERETO, (II) BASED ON OR ARISING FROM AN ALLEGED TORT OR (III) INVOLVING ANY PARTY’S EMPLOYEES, AGENTS, AFFILIATES OR ASSIGNS, DISPUTES DO NOT, HOWEVER, INCLUDE THE VALIDITY, ENFORCEABILITY, MEANING OR SCOPE OF THIS ARBITRATION PROVISION AND SUCH MATTERS MAY BE DETERMINED ONLY BY A COURT. IF A THIRD PARTY IS A PARTY TO A DISPUTE, EACH PARTY HERETO CONSENTS TO INCLUDING THE THIRD PARTY IN THE ARBITRATION PROCEEDING FOR RESOLVING THE DISPUTE WITH THE THIRD PARTY. VENUE FOR THE ARBITRATION PROCEEDING SHALL BE AT A LOCATION DETERMINED BY MUTUAL AGREEMENT OF THE PARTIES THERETO OR, ABSENT SUCH AN AGREEMENT, IN THE CITY AND STATE WHERE THE AGENT IS HEADQUARTERED.

 

 
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IF A COURT ISSUES AN ARBITRATION ORDER, ALL PARTIES TO THE DISPUTE THAT DID NOT SEEK THE ARBITRATION ORDER SHALL COMMENCE ARBITRATION. THE PARTY HERETO THAT SOUGHT THE ARBITRATION ORDER MAY COMMENCE ARBITRATION, BUT SHALL HAVE NO OBLIGATION TO DO SO, AND SHALL NOT IN ANY WAY BE ADVERSELY PREJUDICED BY INITIATING OR PARTICIPATING IN LITIGATION OR ELECTING NOT TO COMMENCE ARBITRATION. THE ARBITRATOR SHALL (I) HEAR AND RULE ON APPROPRIATE DISPOSITIVE MOTIONS FOR JUDGMENT ON THE PLEADINGS, FOR FAILURE TO STATE A CLAIM OR FOR FULL OR PARTIAL SUMMARY JUDGMENT, (II) RENDER A DECISION AND ANY AWARD APPLYING APPLICABLE LAW, (III) GIVE EFFECT TO ANY LIMITATIONS PERIOD IN DETERMINING ANY DISPUTE OR DEFENSE, (IV) ENFORCE THE DOCTRINES OF COMPULSORY COUNTERCLAIM, RES JUDICATA AND COLLATERAL ESTOPPEL, IF APPLICABLE, (V) WITH REGARD TO MOTIONS AND THE ARBITRATION HEARING, APPLY RULES OF EVIDENCE GOVERNING CIVIL CASES AND (VI) APPLY THE LAW OF THE STATE SPECIFIED IN THE AGREEMENT GIVING RISE TO THE DISPUTE. FILING OF A PETITION FOR ARBITRATION SHALL NOT PREVENT ANY PARTY FROM (I) SEEKING AND OBTAINING FROM A COURT OF COMPETENT JURISDICTION (NOTWITHSTANDING ONGOING ARBITRATION) PROVISIONAL OR ANCILLARY REMEDIES, INCLUDING INJUNCTIVE RELIEF, PROPERTY PRESERVATION ORDERS, FORECLOSURE, EVICTION, ATTACHMENT, REPLEVIN, GARNISHMENT AND/OR THE APPOINTMENT OF A RECEIVER, (II) PURSUING NON-JUDICIAL FORECLOSURE OR (III) AVAILING ITSELF OF ANY SELF-HELP REMEDIES, SUCH AS SETOFF AND REPOSSESSION. THE EXERCISE OF SUCH RIGHTS SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT TO SUBMIT ANY DISPUTE TO ARBITRATION.

 

JUDGMENT UPON AN ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION, EXCEPT THAT, IF THE ARBITRATION AWARD EXCEEDS $50,000, ANY PARTY TO THE RELEVANT DISPUTE SHALL BE ENTITLED TO A DE NOVO APPEAL OF THE AWARD BEFORE A PANEL OF THREE ARBITRATORS. TO ALLOW FOR SUCH APPEAL, IF THE AWARD (INCLUDING THE ADMINISTRATOR’S, THE ARBITRATOR’S AND ATTORNEY’S FEES AND COSTS) EXCEEDS $50,000, THE ARBITRATOR WILL ISSUE A WRITTEN, REASONED DECISION SUPPORTING THE AWARD, INCLUDING A STATEMENT OF AUTHORITY AND ITS APPLICATION TO THE DISPUTE. A REQUEST FOR DE NOVO APPEAL MUST BE FILED WITH THE ARBITRATOR WITHIN THIRTY (30) DAYS FOLLOWING THE DATE OF THE ARBITRATION AWARD. IF SUCH A REQUEST IS NOT MADE WITHIN THAT TIME PERIOD, THE ARBITRATION DECISION SHALL BECOME FINAL AND BINDING. ON APPEAL, THE ARBITRATORS SHALL REVIEW THE AWARD DE NOVO, MEANING THAT THEY SHALL REACH THEIR OWN FINDINGS OF FACT AND CONCLUSIONS OF LAW, RATHER THAN DEFERRING IN ANY MANNER TO THE ORIGINAL ARBITRATOR. APPEAL OF AN ARBITRATION AWARD SHALL BE PURSUANT TO THE RULES OF THE ADMINISTRATOR OR, IF THE ADMINISTRATOR HAS NO SUCH RULES, THEN THE AAA ARBITRATION APPELLATE RULES SHALL APPLY.

 

ARBITRATION UNDER THIS PROVISION CONCERNS A TRANSACTION INVOLVING INTERSTATE COMMERCE AND SHALL BE GOVERNED BY THE FEDERAL ARBITRATION ACT, 9 U.S.C. § 1 ET SEQ. THIS ARBITRATION PROVISION SHALL SURVIVE ANY TERMINATION, AMENDMENT OR EXPIRATION OF THIS AGREEMENT. IF THE TERMS OF THIS PROVISION VARY FROM THE ADMINISTRATOR’S RULES, THIS ARBITRATION PROVISION SHALL CONTROL.

 

(d) EACH PARTY HERETO (I) CERTIFIES THAT NO ONE HAS REPRESENTED TO SUCH PARTY THAT ANY OTHER PARTY WOULD NOT SEEK TO ENFORCE JURY AND CLASS ACTION WAIVERS IN THE EVENT OF SUIT, AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS, AGREEMENTS AND CERTIFICATIONS IN THIS SECTION 9.13 .

 

 
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THE BORROWERS HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE AGENT OR ANY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION 9.13 ARE A MATERIAL INDUCEMENT FOR THE AGENT AND EACH OF THE LENDERS TO ENTER INTO THIS AGREEMENT.

 

9.14 Jurisdiction and Venue . All actions or proceedings with respect to, arising directly or indirectly in connection with, out of, related to or from this Agreement or any other Loan Document may be litigated, at the sole discretion and election of the Agent, in courts having situs in New York, New York County, New York. In such regard, each Borrower hereby submits to the jurisdiction of any local, state or federal court located in New York, New York County, New York, and hereby waives any rights it may have to transfer or change the jurisdiction or venue of any litigation brought against it by the Agent or any Lender in accordance with this Section 9.14 .

 

9.15 Integration . This Agreement and the other Loan Documents constitute the entire agreement among the parties hereto and thereto with respect to the subject hereof and thereof and shall supersede any prior agreement among the parties hereto and thereto, whether written or oral, relating to the subject matter hereof and thereof, including any term sheet or summary of principal terms provided to the Borrowers by 405 Petrodome LLC, the Agent or any Lender. Furthermore, in this regard, this Agreement and the other Loan Documents represent, collectively, the final agreement among the parties hereto and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of such parties. There are no unwritten oral agreements among such parties.

 

9.16 Waiver of Punitive and Consequential Damages . Each Borrower, the Agent and each Lender hereby knowingly, voluntarily, intentionally and irrevocably (a) waives, to the maximum extent it may lawfully and effectively do so, any right it may have to claim or recover, in any Dispute based hereon or directly or indirectly at any time arising out of, under or in connection with the Loan Documents or any transaction contemplated thereby or associated therewith, before or after maturity, any special, exemplary, punitive or consequential damages, or damages other than, or in addition to, actual damages and (b) acknowledge that it has been induced to enter into this Agreement, the other Loan Documents and the transactions contemplated hereby and thereby by, among other things, the mutual waivers and certifications contained in this Section 9.16 .

 

9.17 Counterparts . For the convenience of the parties, this Agreement may be executed in multiple counterparts and by different parties hereto in separate counterparts, each of which for all purposes shall be deemed to be an original, and all such counterparts shall together constitute but one and the same Agreement. In this regard, each of the parties hereto acknowledges that a counterpart of this Agreement containing a set of counterpart execution pages reflecting the execution of each party hereto shall be sufficient to reflect the execution of this Agreement by each party hereto.

 

 
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9.18 USA Patriot Act Notice . Each Lender and the Agent (for itself and not on behalf of any Lender) hereby notifies each Borrower that, pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that identifies each Borrower, which information includes the name and address of such Borrower and other information that will allow such Lender or the Agent, as applicable, to identify each Borrower in accordance with the USA Patriot Act.

 

9.19 Tax Shelter Regulations . None of the Borrowers intend to treat the Term Loans and related transactions hereunder and under the other Loan Documents as a “reportable transaction” (within the meanings under current Treasury Regulation Section 1.6011-4 and Proposed Treasury Regulation Section 1.6011-4, promulgated on November 1, 2006). In the event the Borrowers determine to take any action inconsistent with the foregoing statement, it will promptly notify the Agent thereof. If the Borrowers so notify the Agent, the Borrowers acknowledge that one or more of the Lenders may treat its Percentage Share of the Term Loan and the related transactions hereunder and under the other Loan Documents as part of a transaction that is subject to current Treasury Regulation Section 301.6112-1 or Proposed Treasury Regulation Section 301.6112-1, promulgated on November 1, 2006, and, in such case, such Lender or Lenders, as applicable, will maintain the lists and other records required, if any, by such Treasury Regulations.

 

9.20 Contribution and Indemnification . In the event that the Borrowers pay (whether through direct payments or as a result of providing Collateral for the Obligations) any amounts on the Obligations in excess of the relevant Borrowers’ Obtained Benefit (the “ Excess Payments ”), the relevant Borrower shall be entitled to make demand on the other Borrowers for such Excess Payments, and to receive from each other Borrowers that received an Obtained Benefit, such Borrowers’ Contribution Percentage of the Excess Payment. If any party obligated to make such a payment is unable to pay the Contribution Percentage of the Excess Payment, each other Borrowers agrees to make a contribution to the party entitled to such payment to the extent necessary so that each Borrowers shares equally the liability for such Excess Payment in relation to the relative Obtained Benefit received by such Borrowers. In such regard, to the maximum extent permitted by law, each Borrowers shall indemnify, defend and hold harmless the other Borrowers from and against such Borrowers’ Contribution Percentage of any and all liability, claims, costs and expenses (including reasonable attorneys’ fees and expenses) arising with respect to the Obligations and exceeding such other Borrowers’ Obtained Benefit as provided herein. Any amount due under this Section 9.20 shall be due and payable within ten (10) days of demand therefor by the party entitled to payment and shall be made to the party entitled thereto at the address for notices to the Borrowers under this Agreement, in immediately available funds, not later than 2:00 p.m., Eastern Standard or Daylight Time, on the date on which such payment shall come due. The remedies available to the Borrowers pursuant to the provisions of this Section 9.20 are not exclusive. All rights and claims of contribution, indemnification and reimbursement under this Section 9.20 shall be subordinate in right of payment to the prior payment in full of all principal of and interest on the Term Loan and all fees payable hereunder. The provisions of this Section 9.20 shall, to the extent expressly inconsistent with any provision in any Loan Document, supersede such inconsistent provision.

 

(Signatures appear on following pages)

 

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

 

 

 

BORROWERS :

 

PETRODOME AROUND THE HORN, LLC

       
By: /s/ James A. Doris

 

 

James A. Doris  
    Chairman and Secretary  
       

 

PETRODOME BAYOU CHOCTAW, LLC

 

 

 

 

 

 

By: 

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME BLOOMINGTON, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME BUCKEYE, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME DIETZEL, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME EAST CREOLE, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

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Signature Page of Credit Agreement

 

 
 
 
 

 

  PETRODOME EC, LLC
       
By: /s/ James A. Doris

 

 

James A. Doris  
    Chairman and Secretary  

 

 

 

 

 

PETRODOME ENERGY, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris  

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME LIBERTY, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME LONE STAR, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME LOUISIANA PIPELINE, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME MAURICE, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

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Signature Page of Credit Agreement

 

 
 
 
 

 

 

PETRODOME NAPOLEONVILLE, LLC

       
By: /s/ James A. Doris

 

 

James A. Doris  
    Chairman and Secretary  

 

 

 

 

 

PETRODOME OPERATING, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

    James A. Doris  

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME PHEASANT BLESSING, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME PINEVILLE, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME PINTAIL, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

 

 

 

 

PETRODOME QUAIL RIDGE, LLC

 

 

 

 

 

 

By:

/s/ James A. Doris

 

 

 

James A. Doris

 

 

 

Chairman and Secretary

 

 

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