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ACQUISITION AGREEMENT
ACQUISITION AGREEMENT AMONG
WENTWORTH ENERGY, INC.
("PURCHASER")
AND THE MEMBERS OF KLE MINERAL HOLDINGS, LLC
("SELLERS")
THIS ACQUISITON AGREEMENT , is made and
entered into effective as of March 28, 2005 (the "
Agreement "), among Wentworth Energy, Inc., a Oklahoma
corporation ("Wentworth" or " Purchaser "), and the
limited liability members and interest holders of KLE Mineral
Holdings, LLC, a Kentucky Limited Liability Company ("KLE"), Sam
P. Burchett, with an address of 200 W. Vine Street, Suite 400,
Lexington, Kentucky 40507 and Stephen G. Lunn, with an address
of 427/428 Old Brompton Road, South Kensington, London SW7 3SS,
United Kingdom (British duel citizenship UK/NZ (respectively the
" Sellers ").
WHEREAS, the Sellers and the Board
of Directors of Purchaser have approved the terms of this
Agreement and of the transactions contemplated hereby;
WHEREAS, the Sellers and Purchaser
have previously entered into an option agreement dated March 28,
2005, providing for the payment of an initial option amount of
$50,000 and $10,000 per month till Final Closing and upon such
payments that Sellers are irrevocably required to sell to
Purchaser their Limited Liability Interest, at Final Closing to
occur after June 1, 2005 and before August 31, 2005, in exchange
for the Purchase Price and, upon completion of Purchasers due
diligence and other matters;
WHEREAS , this Agreement provides
for the terms of the acquisition from Sellers and transfer of
all of Sellers' Limited Liability Interests (4 Units) in KLE to
Purchaser in exchange for the Purchase Price as set forth
herein; and
WHEREAS , the Sellers and
Purchaser desire to set forth the terms of the agreement in
connection with the transactions provided for.
NOW, THEREFORE , in consideration of the
promises and representations, warranties and agreements herein
contained, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
Definitions . As used herein, the
following terms shall have the following meanings:
" Acquired and Assumed Assets and
Liabilities " is defined as all the disclosed assets and
liabilities of KLE as of the date of Closing and set forth on
exhibits and schedules to this Agreement.
" Agreement " has the
meaning specified in the introductory paragraph above but shall
include all exhibits, schedules and Ancillary Documents as if
fully set forth and incorporated herein.
" Ancillary Documents " as
to any Person means all agreements, releases, certificates and
other documents contemplated by this Agreement and where
required to be entered into or executed by such Person; and
where a reference to a Person is made in conjunction with a
reference to " Ancillary Documents ," the term shall
refer only to such documents which such Person has entered into
or executed.
" Closing" is defined as the
initial execution and delivery of this Agreement and all
transactions contemplated herein to be completed prior to the
Final Closing and as further specified in Section 3.01
hereof.
" Closing Date " is defined
as the date agreed to by the parties, not sooner than June 1,
2005 and before August 31, 2005 whereby the Final Closing shall
take place and as further specified in Section 3.01 hereof.
" Code " means the Internal
Revenue Code of 1986, as amended.
" Common Stock " means the
common stock of Wentworth Energy, Inc.
"Effective Date" The
effective date of this agreement is March 28, 2005.
"Final Closing" is defined
as when the Option is exercised by Purchaser, the Sellers'
transfer the Limited Liability Interest to Purchaser in exchange
for the Purchase Price on the Closing Date.
" Governmental Entity " has
the meaning specified in Section 4.02 hereof.
" Knowledge " means, with
respect to any Person, (I) actual knowledge of such Person
(including the actual knowledge of the officers, directors and
key employees of such Person).
" Laws " means all applicable
common law and any statute, law, code, ordinance, regulation,
rule, resolution, order, determination, writ, injunction, award
(including, without limitation, any award of any arbitrator),
judgments and decrees applicable to the specified persons or
entities and to the businesses and assets thereof. The laws of
the Commonwealth of Kentucky will have overriding preference if
not otherwise noted.
" Limited Liability Interest(s)
" means the entire interest of the members in KLE Mineral
Holdings, LLC, a Kentucky limited liability company, in the form
of 4 Units, held by the individual Sellers (1 unit held by Sam
P. Burchett and 3 units held by Stephen G. Lunn).
" Option " means the Option
Agreement entered into on March 28, 2005 whereby Purchaser, upon
full payment of the Option Amount shall have the right to close
on the transactions contemplated by this Agreement. The option
becomes irrevocable to Sellers upon full payment of the Option
Amount and may be exercised by Purchaser anytime after June 1,
2005 and before August 31, 2005.
"Option Amount" shall mean the initial
payment of $50,000 paid upon execution of the Option and any
further monthly instalments of $10,000 commencing on April 1,
2005 and continuing on each successive first day of the month
through August 1, 2005 and not exceeding a total amount of
$100,000.
" Person " means a natural person,
corporation, partnership or other business entity, or any
Governmental Entity.
" Properties " means the KLE's
interest in 119 patents and other assets associated with those
patents as more fully described in Exhibit E, also identified as
Acquired Assets.
" Purchase Price " has the meaning
specified in Section 3.02 hereof.
Purchaser " has the meaning
specified in the introductory paragraph above.
" SEC " means the Securities and
Exchange Commission.
" Securities Act " means the
Securities Act of 1933, as amended.
" Sellers " as previously defined
and specified in the introductory paragraph above are Sam P.
Burchett and Stephen G. Lunn. This shall mean the individual
limited liability interest holders of KLE for purposes of the
sale of the entity known as KLE.
ARTICLE 1 – EXERCISE OF OPTION TO
PURCHASE INTERESTS
1.01 Option
Rights . Previously, Purchaser entered into an Option
Agreement for the amount of $50,000.00 plus $10,000 per month
until Closing, (as defined hereinabove the "Option Amount")
executed by the parties on March 28, 2005 (a copy of which is
attached hereto and incorporated herein as Exhibit F). Upon full
payment of the Option Amount in the instalments provided for in
the Option Agreement, Purchaser will have the right to exercise
the option to acquire the Limited Liability Interests of Sellers
for a period extending from June 1, 2005, through August 31,
2005. The total amount paid under the option agreement shall be
deducted from the cash portion of the Purchase Price at the
Final Closing. As provided in the Option Agreement, the failure
by Purchaser to make any instalment, when due, renders the
Option null and void with no obligation by Sellers to return any
Option instalments previously paid all such payments to be
deemed liquidated damages to Sellers.
1.02 Exercise
of Option . Upon payment of the entire Option Amount
the option shall be deemed irrevocable by the parties and
the Closing of the acquisition of the Limited Liability
Interests pursuant to this Agreement shall take place at a date
after June 1, 2005, but before August 31, 2005, at Purchaser's
election and determination.
1.03
Failure to Exercise. Should Purchaser fail to exercise
the Option and close on this Agreement by August 31, 2005, the
Sellers shall retain the Option Amount as liquidated damages and
shall have no further obligation to sell the Limited Liability
Interest to Purchaser.
ARTICLE 2 – PURCHASED INTERESTS AND
ASSUMED LIABILITIES
2.01 Purchase and Sale of Shares .
Subject to the terms and conditions of this Agreement, Purchaser
will offer to acquire the Sellers' Limited Liability Interest as
set forth on Schedule 2.01 from Sellers in exchange of the
Purchase Price as set forth and defined in Section 3.01
2.02 Transfer of ownership .
Ownership rights in the Properties will remain with KLE and
Sellers will be transferring their respective ownership rights
in KLE. KLE will have the assets and liabilities as set forth on
Exhibit B (as defined the Assumed Assets and Liabilities), with
net changes in the worth of these assets and liabilities only to
occur in the normal course of business during the period of
operation prior to acquisition of the Limited Liability
Interests by Purchaser.
2.03 Transfer free from charge .
Interests tendered will be acquired on the terms of the offer,
free from charges and encumbrances not specifically set forth in
this Agreement, together with all rights attaching thereto.
2.04 Assumption of liabilities .
Purchaser will take KLE subject to those Assumed Liabilities
which are associated with KLE, including mining or clean up
costs and facilities closing costs as set out in Schedule
2.04.
2.05 Recommendation/Consent . KLE
is a member managed limited liability company and therefore does
not require the consent of any managing member. The sale of any
member's limited liability interest requires the consent of a
majority of the non-selling members. As there are only two
members, the execution of this Agreement by both members shall
constitute the requisite consent as required under applicable
Kentucky law and the KLE operating agreement as well as any
recommendation of sale by KLE's interest holders.
ARTICLE 3 – THE CLOSING; PURCHASE
PRICE
3.01 Closing and Final
Closing . The Closing shall occur upon execution of this
Agreement which may be held in escrow pending final due
diligence and arrangements for funding the Purchase Price.
The Final Closing of the transaction contemplated by this
Agreement shall occur after June 1, 2005 and before August 31,
2005 at Purchaser's election. At the Final Closing, on the
Closing Date, all rights to the Interests of Sellers in KLE
shall be assigned, transferred and conveyed to Purchaser in
exchange for the Purchase Price as set forth in Section 3.02,
including the delivery of the agreed shares in Purchaser and
cash in accordance with the Closing Procedure set out in Exhibit
A.
3.02 Purchase Price . The
Purchase Price is Twelve Million Two Hundred and Fifty Thousand
Dollars and no cents ($12,250,000) in a tax-free exchange (if
applicable) of the Limited Liability Interest of Sellers for
Seven Million Five Hundred Thousand (7,500,000) common shares
(at an agreed upon value of $1.50 per share) in Wentworth stock
and the payment of $1,000,000 (less the aggregate amount already
paid to Buyer pursuant to the option agreement) in cash payable
as follows: one-third (1/3) of the balance due at Closing
payable on or before June 1, 2005, one-third (1/3) of the
balance due at Closing payable on or before July 1, 2005 and the
remaining one-third of the balance due at Closing on or before
August 1, 2005 all of which shall be paid into an escrow account
to be set up specifically for this purpose at Central Bank and
Trust Company, a financial institution, located in Lexington,
Kentucky. Therefore, on the Closing Date at the Final Closing,
Purchaser shall purchase all of the Limited Liability Interests
and associated rights for a price of Twelve Million, Two Hundred
and Fifty Thousand Dollars and no cents ($12,250,000). Sellers,
at their sole option, may elect to receive, in lieu of cash at
Final Closing, an additional Six Hundred and Sixty Six Thousand
Six Hundred and Sixty Seven (666,667) common shares of Wentworth
stock (valued for purposes of this Agreement at $1.50 per
share), minus an amount of common shares equal to the amount of
payments previously paid pursuant to the Option Agreement,
divided by $1.50, with such election to be exercised in writing
within one business day of the Closing Date.
3.02 (a) At the Final Closing, Wentworth will also issue
Seven Million Five Hundred Thousand (7,500,000) shares of
Wentworth common stock (valued at $1.50 per share only for
purpose of the exchange) to Sellers in the proportions of their
ownership of the Limited Liability Interest in further exchange
for the acquisition of the Limited Liability Interest and in
satisfaction of Eleven Million Two Hundred and Fifty Thousand
Dollars and no cents ($11,250,000) of the Purchase Price which
exchange shall be deemed a tax-free exchange.
3.02 (b) At the Final Closing, if Wentworth is unable to
make the payment of the cash portion of the Purchase Price as
provided in section 3.02 ($1,000,000 less the amount of payments
already made pursuant to the Option Agreement) it shall be at
Sellers' sole option, whether to elect to take the entire
Purchase Price in shares of Wentworth (valued for purposes of
this Agreement at $1.50 per share) or declare the Agreement null
and void. In electing to declare the Agreement null and void,
Sellers shall retain the Option Amount as its sole liquidated
damages.
3.03 Post Acquisition Cooperation.
The Purchaser and Sellers, post acquisition, shall exert all
efforts to increase the probability of prevailing in any
existing and future litigation and in exploring, developing and
leasing the Properties with the intent to bring them into
production.
3.04 Representation to the Board of
Directors. Sellers and Purchaser agree that, post Closing,
it will be in the parties' interest to have at least two former
members of KLE on the Board of Directors of Purchaser. It is
therefore the expressed intention of the parties to make the
necessary arrangements to propose to the annual general meeting
of Purchaser to elect two new members to the Board of Directors
of Purchaser reflecting the shareholders situation
post-acquisition. To the extent possible, by a written consent
of a majority of the Wentworth shareholders, the two (2)
newly-appointed board members will be Sam Burchett and Stephen
Lunn, and their appointment will be ratified, if necessary, at
the next Annual General Meeting of the shareholders.
3.05
Total Number of Wentworth Shares Outstanding. Wentworth
warrants that it shall have no more than twenty-five (25)
million shares of common stock outstanding after the completion
of the transactions contemplated by the Agreement and the
subsequent financing for the exploration and development of the
Properties. Any subsequent issuance of additional Wentworth
common stock shall be accomplished such that there shall be
equal dilution of the ownership immediately after the final
closing and issuance of the seven million five hundred thousand
(7,500,000) shares to Sellers.
ARTICLE 4 - REPRESENTATIONS AND
WARRANTIES
OF SELLER
Seller hereby represents and
warrants to Purchaser as follows:
4.01 Organization, Good Standing and
Foreign Qualification . Sellers represent that KLE is a
Limited Liability Company duly organized, validly existing and
in active standing under the laws of the Commonwealth of
Kentucky.
4.02 Authority Relative to
Agreements . Sellers have the requisite individual power and
authority to enter into this Agreement and all Ancillary
Documents, and to carry out their obligations hereunder and
thereunder. The execution and delivery of this Agreement and
each ancillary document, and the consummation of the
transactions provided for herein and therein, have been duly
authorized by the unanimous consent of the Members of KLE and do
not violate any provision of the respective Articles of
Organization or Operating Agreement of KLE. The execution by
Sellers of this Agreement and each ancillary document, and
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