NONE OF THE SECURITIES TO WHICH THIS
AGREEMENT RELATES HAVE BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY U.S.
STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE
OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED
HEREIN) EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND
IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE AND/OR
PROVINCIAL SECURITIES LAWS.
AGREEMENT
THIS AGREEMENT effective as of May 21, 2007.
AMONG:
ARKANOVA ENERGY
CORPORATION
21 Waterway Avenue – Suite 300
The Woodlands, Texas 77381
(the "Company")
AND:
ARKANOVA ACQUISITION
CORP.
21 Waterway Avenue – Suite 300
The Woodlands, Texas 77381
("Acquisition Corp.")
AND:
DAVID
GRIFFIN
604 Cherry St
Helena, AR 72342-3306
(the "Subscriber")
WHEREAS:
A. The
Subscriber entered into a Oil and Gas Lease Acquisition and
Development Agreement dated July 24, 2006 (the "Development
Agreement") with Arkanova Energy, Inc. (the “Lessee”),
a private Delaware company;
B. Pursuant
to the terms of the Development Agreement, the Subscriber agreed to
deliver to the Lessee leases (the “Leases”) of 100% of
the mineral rights in 50,000 acres, more or less, located in
Phillips and Monroe Counties, Arkansas as more particularly
described in the Development Agreement, subject to a royalty
interest in favour of the lessors;
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C. As
at the date hereof, the Lessee has paid to the Subscriber, on
account of the lease bonus payments for the leasehold interests
delivered by the Subscriber and his affiliates and related parties,
being David B. Griffin, his wife, Roxanna S. Griffin, Griffin
Family Investments Company Number One, and any other entities in
which David Griffin has at least a fifty percent ownership interest
(the “Related Parties”), a total of $8,498,205 (the
"Paid to Date Amount"), the receipt of which is hereby acknowledged
by the Subscriber;
D. The
Paid to Date Amount has been allocated to the following leases, for
a balance due and owing of $1,372,873 (the "Lease Payment"),
payable to the Subscriber and the Related Parties upon delivery of
evidence in form and substance reasonably satisfactory to Lessee as
more particularly described in the Development Agreement:
Date of Lease
|
Name of Lessor
|
Acres Leased
|
Lease Bonus
Amount (DG
Interest) |
| February 19, 2007 |
D.B. Griffin et al. |
23,935.62 |
$7,180,684.50 |
| November 17, 2006 |
Griffin/Howe et al. |
16,567.52 |
$2,485,128 |
| November 17, 2006 |
Griffin/Solomon et al. |
1,368.44 |
$205,266.00 |
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$9,871,078.50 |
E. On
March 1, 2007, the Lessee merged with and into Acquisition Corp.,
with Acquisition Corp. carrying on as the surviving corporation
(the "Merger");
F. By
operation of law, and as of the effective date of the Merger, all
of the rights, assets and liabilities of the Lessee, including the
rights under the Development Agreement, were deemed vested in
Acquisition Corp.; and
G. The
parties hereto seek to enter into this Agreement whereby, following
the payment by Acquisition Corp. to the Subscriber of an additional
sum of $1,000,000 on account of monies due to the Subscriber and
the Related Parties for the leasehold interests (the "Additional
Payment"), the Subscriber agrees to accept, at the election of the
Company, shares of common stock in the capital of the Company
(each, a "Share") at a price of $1.25 per Share in full and final
settlement of the Lease Payment and any further payments due from
Acquisition Corp. for the Leases (each, an "Additional Lease
Payment"), provided that this Agreement shall not apply to (i) the
acquisition of mineral interests under the Area on Mutual Interest
clause in the Agreement and (ii) shall only apply to mineral rights
owned by Subscriber and the Related Parties as of 5:00 P.M. Central
Daylight time Monday, May 21, 2007.
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THEREFORE, in consideration of the mutual
covenants and agreements herein contained and other good and
valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties covenant and agree as
follows:
Issuance of Shares
1.
Shares
1.1
Acquisition Corp. agrees to immediately notify the Company upon the
payment of the Additional Payment (the "Notice of Payment").
1.2 Upon
receipt of the Notice of Payment by the Company, and upon the
election by the Company to pay the Lease Payment and any Additional
Lease Payment in Shares:
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(a) |
the Company agrees to issue the Shares to the
Subscriber on the basis of the representations and warranties and
subject to the terms and conditions set forth herein;
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(b) |
the Subscriber agrees to accept the Shares in
full and final satisfaction of the Lease Payment and/or any
Additional Lease Payment, as applicable; and
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(c) |
the Subscriber agrees to complete, sign and
return to the Company as soon as possible, on request by the
Company, any documents, questionnaires, notices and undertakings as
may be required by regulatory authorities, the OTC Bulletin Board,
stock exchanges and applicable law.
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2.
Closing
2.1
The closing of each issuance of the Shares shall occur within
fifteen (15) business days of the election, by the Company, to pay
the Lease Payment and/or any Additional Lease Payment, as
applicable, in Shares (the "Closing Date").
3.
Acknowledgements of Subscriber
3.1
The Subscriber acknowledges and agrees that:
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(a) |
the Shares when issued will not be registered
under the Securities Act of 1933, as amended (the "1933 Act"), or
under any state securities or "blue sky" laws of any state of the
United States, and are being offered only in a transaction not
involving any public offering within the meaning of the 1933 Act,
and, unless so registered, may not be offered or sold in the United
States or to U.S. Persons (as defined herein), except pursuant to
an effective registration statement under the 1933 Act, or pursuant
to an exemption from, or in a transaction not subject to, the
registration requirements of the 1933 Act, and in each case only in
accordance with applicable state securities laws;
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(b) |
the Company will refuse to register any transfer
of the Shares not made in accordance with the provisions of
Regulation S, pursuant to an effective registration statement under
the 1933 Act or pursuant to an available exemption from, or in a
transaction not subject to, the registration requirements of the
1933 Act;
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(c) |
by completing the Questionnaire, the Subscriber
is representing and warranting that the Subscriber is an
"accredited investor", as the term is defined in Regulation D
promulgated under the 1933 Act;
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(d) |
the decision to execute this Agreement and
accept the Shares agreed to be issued hereunder has not been based
upon any oral or written representation as to fact or otherwise
made by or on behalf of the Company and such decision is based
solely upon a review of publicly available information regarding
the Company available on the website of the United States
Securities and Exchange Commission (the "SEC") available at
www.sec.gov (the "Company
Information");
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(e) |
the Subscriber has had a reasonable opportunity
to review the Company Information and to ask questions of and
receive answers from the Company, and to obtain additional
information, to the extent possessed or obtainable without
unreasonable effort or expense, necessary to verify the accuracy of
the information contained in the Company Information, or any other
document provided to the Subscriber;
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(f) |
the books and records of the Company were
available upon reasonable notice for inspection, subject to certain
confidentiality restrictions, by the Subscriber during reasonable
business hours at its principal place of business and that all
documents, records and books pertaining to the issuance of the
Shares have been made available for inspection by the
Subscriber
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(g) |
the Company is entitled to rely on the
representations and warranties and the statements and answers of
the Subscriber contained in this Agreement and the Questionnaire
and the Subscriber will hold harmless the Company from any loss or
damage it may suffer as a result of the Subscriber's failure to
correctly complete this Agreement and the Questionnaire;
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(h) |
the Subscriber will indemnify and hold harmless
the Company and, where applicable, its respective directors,
officers, employees, agents, advisors and shareholders from and
against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all fees, costs
and expenses whatsoever reasonably incurred in investigating,
preparing or defending against any claim, lawsuit, administrative
proceeding or investigation whether commenced or threatened)
arising out of or based upon any acknowledgment, representation or
warranty of the Subscriber contained herein, the Questionnaire or
in any other document furnished by the Subscriber to the Company in
connection herewith, being untrue in any material respect or any
breach or failure
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by the Subscriber to comply with any covenant or
agreement made by the Subscriber to the Company in connection
therewith;
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(i) |
the Subscriber has been advised to consult its
own legal, tax and other advisors with respect to the merits and
risks of an investment in the Shares and with respect to applicable
resale restrictions and it is solely responsible (and the Company
is in any way responsible) for compliance with applicable resale
restrictions;
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(j) |
the Shares are not listed on any stock exchange
or automated dealer quotation system and no representation has been
made to the Subscriber that any of the Shares will become listed on
any stock exchange or automated dealer quotation system, except
that currently certain market makers make market in the shares of
the Company's common stock on the OTC Bulletin Board;
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(k) |
neither the SEC nor any other securities
commission or similar regulatory authority has reviewed or passed
on the merits of the Shares;
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(l) |
no documents in connection with the issuance of
the Shares have been reviewed by the SEC or any state securities
administrators; and
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(m) |
there is no government or other insurance
covering any of the Shares.
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4.
Representations, Warranties and Covenants of the
Subscriber
4.1 The
Subscriber hereby represents and warrants to and covenants with the
Company (which representations, warranties and covenants shall
survive the Closing Date) that:
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(a) |
the Subscriber is an "accredited investor" as
that term is defined in Regulation D promulgated under the 1933
Act;
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(b) |
the Subscriber has received and carefully read
this Agreement;
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(c) |
the Subscriber has the legal capacity and
competence to enter into and execute this Agreement and to take all
actions required pursuant hereto and, if the Subscriber is a
corporation, it is duly incorporated and validly subsisting under
the laws of its jurisdiction of incorporation and all necessary
approvals by its directors, shareholders and others have been
obtained to authorize execution and performance of this Agreement
on behalf of the Subscriber;
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(d) |
the Subscriber (i) has adequate net worth and
means of providing for its current financial needs and possible
personal contingencies, (ii) has no need for liquidity in this
investment, and (iii) is able to bear the economic risks of an
investment in the Shares for an indefinite period of time, and can
afford the complete loss of such investment;
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