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ASSET PURCHASE AGREEMENT

Asset Purchase Agreement

ASSET PURCHASE AGREEMENT | Document Parties: MAGNUM HUNTER RESOURCES CORP | Triad Energy Corporation | Triad Hunter, LLC | Triad Oil and Gas Co, Ltd | Triad Resources, Inc You are currently viewing:
This Asset Purchase Agreement involves

MAGNUM HUNTER RESOURCES CORP | Triad Energy Corporation | Triad Hunter, LLC | Triad Oil and Gas Co, Ltd | Triad Resources, Inc

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Title: ASSET PURCHASE AGREEMENT
Governing Law: Ohio     Date: 10/29/2009
Industry: Oil and Gas Operations     Law Firm: Fulbright Jaworski     Sector: Energy

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Exhibit 2.1

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (“ Agreement ”) is made and entered into as of the 28th day of October, 2009 (the “ Execution Date ”), by and among Magnum Hunter Resources Corporation, a Delaware corporation (“ Parent ”), Triad Hunter, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“Buyer”), Triad Energy Corporation, a West Virginia corporation (“ Triad ”), Alpha Drilling Ltd., an Ohio limited liability company (“ ADL ”), Triad Resources, Inc., an Ohio corporation (“ TRI ”), and Triad Oil and Gas Co., Ltd., an Ohio limited liability company (“ TOG ,” and together with Triad, ADL, and TRI, “ Sellers ” and each, individually, a “ Seller ”). Sellers, Parent and Buyer may be referred to herein individually as a “ Party ” or collectively as the “ Parties .”  Certain defined terms used in this Agreement are set forth in Appendix A (Appendix of Definitions) attached hereto and made a part hereof.

 

BACKGROUND

 

A.  Sellers are engaged in the exploration, development and production of oil and natural gas (the “ Business ”). On December 31, 2008 (the “ Petition Date ”), Sellers and their affiliates, TriTex Resources, L.L.C., an Ohio limited liability company (“ TTR ”), and TriTex Energy, L.L.C., an Ohio limited liability company (“ TTE ”), each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code and such petitions are being jointly administered in proceedings (collectively, the “ Bankruptcy Cases ”) by the Bankruptcy Court. The Bankruptcy Cases are being jointly administered under Case No. 08-62733 (the “ Bankruptcy Estate ”).

 

B.  As of the Petition Date, Triad, TRI, TOG, TTR and TTE were indebted to a syndicate of banks that includes Capital One, as agent bank (“ Capital One ”), Citibank, N.A. (“ Citibank ”) and Allied Irish Bank (“ AIB ”) in the principal amount of $69,970,000.00 (the “ Triad Debt ”). Capital One, Citibank, AIB and any successor holding any of the Triad Debt are collectively referred to herein as the “ Triad Secured Lenders .”

 

C.  As of the Petition Date, ADL was indebted to Wesbanco Bank, Inc.(“ Wesbanco ”) in the principal amount of $3,009,990.04 (the “ Wesbanco Debt ”).

 

D.  Buyer desires to purchase the Subject Assets (as defined below) pursuant to the applicable sections of the Bankruptcy Code and to assume the Assumed Liabilities (as defined below) from the Sellers, on the following terms and conditions.

 

E.  Sellers desire to sell the Subject Assets and to assign the Assumed Liabilities to Buyer or to one or more Affiliates of Buyer designated by Buyer, on the following terms and conditions.

 

NOW THEREFORE , in consideration of the premises and the respective agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

 

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ARTICLE I

 

TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES

 

Section 1.1    Transfer of Subject Assets .  On the terms of and subject to the conditions in this Agreement, Sellers will sell, convey, transfer, assign and deliver to Buyer and/or its nominee, on the Closing Date, all of Sellers’ right and title to and interest in all of the operating assets of Triad, TRI and ADL, except the Excluded Assets (as defined below) (collectively the “ Subject Assets ”) including but not limited to:

 

(a)  The oil and gas leases including any leaseholds, record title and operating rights, royalty interests or overriding royalty interests owned by Sellers in such leases (the “ Mineral Leases ”), including but not limited to those listed on Schedule 1.1(a) ;

 

(b)  The oil, gas, disposal and injector wells (the “ Wells ”) listed on Schedule 1.1(b) ;

 

(c)  All pipelines listed on Schedule 1.1 (c) ;

 

(d)  All inventory including new materials, spare parts, replacement parts and supplies, including the property set forth on Schedule 1.1(d) ;

 

(e)  All fixed assets, leasehold improvements, vehicles and production equipment, including the property set forth on Schedule 1.1(e) ;

 

(f)  All prepaid expenses, prepaid rents, prepaid insurance, utility deposits and deposits on contractual obligations related to Subject Assets, including the items set forth on Schedule 1.1(f) ;

 

(g)  All backlog, claims and rights under contracts, distribution agreements, supplier agreements, purchase orders, work orders, leases of equipment, machinery, vehicles, production machinery, tooling and office furniture and equipment and other items of personal property, including the property set forth on Schedule 1.1(g) ;

 

(h)  All licenses, Permits, franchises, certificates, approvals and authorizations necessary to conduct the Business, including the property set forth on Schedule 1.1(h) ;

 

(i)  The benefit of third-party representations, warranties and guarantees, supplier lists, customer lists, business plans and strategies, marketing materials and plans, trade secrets, know-how, computer software and programs, the names “Triad,” “Triad Resources,” “Triad Energy,” “Alpha Drilling,” and “Triad Oil & Gas,” any derivative or combination of those names and all trademarks and other names or slogans used by Sellers in connection with the Business or its products, including all goodwill associated therewith and all patents, patentable inventions and other Intellectual Property and Proprietary Property of any kind used in the Business, including all copyright interests, whether or not patentable or registerable, including the property set forth on Schedule 1.1(i) ;

 

 

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(j)  All other personal property including product catalogs, advertising materials, stationery, purchase order forms, sale order forms and invoices, including the property set forth on Schedule 1.1(j) ;

 

(k)  All rights in, to and under the leases of real estate, other than the Mineral Leases described above, identified on Schedule 1.1(k) (collectively, the “Other Real Estate Leases”);

 

(l)  All files, books and records (“ Books and Records ”) of Sellers relating to the Business (but excluding Sellers’ Retained Records), all as the same exist on the Closing Date including, but not limited to, geological, plats, surveys, maps, cross-sections, production records, electric logs, cuttings, cores, core data, pressure data, decline and production curves, well files and related matters, division of interest records, division orders, lease files, title opinions, abstracts, lease operating statements and all other accounting information, marketing reports, statements, gas balancing information and all other marketing information, all geophysical and seismic records except to the extent that the transfer of such geophysical or seismic records would violate existing licensing or other contractual restrictions on such transfer (“collectively “ Sellers’ Records ”);

 

(m)  To the extent assumed by Buyer, the rights of Sellers in each of the operating agreements set forth on Schedule 1.1(m) ;

 

(n)  To the extent assumed by Buyer, the gas purchase agreements together with the accompanying indemnifying division orders set forth on Schedule 1.1(n) ;

 

(o)  To the extent assumed by Buyer, the rights of Sellers in and to any gas balancing agreements; oil, gas, and condensate purchase and sale agreements; joint venture agreements; exploration agreements; farm-out agreements; farm-in agreements; dry hole agreements; bottom hole agreements; acreage contribution agreements; area of mutual interest agreements; saltwater disposal agreements; servicing contracts; production purchase, gathering and processing agreements; third party contractor or supplier agreements; marketing agreements; seismic licenses and agreements; non-competition agreements and other contracts principally related to real property or oil and gas interests, as set forth on Schedule 1.1(o) .

 

(p)  All intangible assets and goodwill of Sellers;

 

(q)  All of Sellers’ natural gas and oil revenue production;

 

(r)  All of Sellers’ natural gas, oil, casinghead gas, condensate, distillate and other liquid and gaseous hydrocarbons produced from the Mineral Leases, products refined and manufactured therefrom and the accounts and proceeds from the sale thereof to the extent such production has been produced, or accrued, or is held on the Mineral Leases or in the tanks from and after the Closing Date;

 

(s)  All cash and cash equivalents relating to the Business existing and in the possession of Sellers at the Closing;

 

(t)  All accounts receivables of Sellers related to the Business existing as of the Closing; and

 

 

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(u)  All well bonds posted by the Sellers in the States of Ohio and West Virginia and the Commonwealth of Kentucky, to the extent that the same are assignable.

 

The Subject Assets, whether or not specifically itemized above, that fall under the definition of Assigned Executory Contracts are subject to the terms of Section 6.5 , and any Executory Contract that is not specifically designated by Buyer in accordance with the procedures set forth in Section 6.5 shall be an Excluded Asset (as defined below).

 

The assets listed on Appendix B   (the “ Excluded Assets ”) shall be retained by Sellers and all rights and interests in, and obligations with respect to, the Excluded Assets shall remain the sole property, liability and obligation of Sellers.

 

Section 1.2    Assumption of Liabilities .  In addition to the payment of the Purchase Price, Buyer shall assume the Assumed Liabilities at the Closing.  Notwithstanding any provision in this Agreement or any other writing to the contrary, Buyer is assuming only the Assumed Liabilities and is not assuming any Excluded Liabilities or any other Liability of any predecessor of Sellers or any prior owner of all or part of its businesses and assets of whatever nature, whether presently in existence or arising hereafter. All such other Liabilities (including the Excluded Liabilities) shall be retained by and remain obligations and liabilities of Sellers.

 

Section 1.3    Subject Assets Sold “As Is, Where Is” .   The Parties hereto agree that the Subject Assets sold pursuant to this Agreement are sold, conveyed, transferred and assigned on an “AS IS, WHERE IS” BASIS “WITH ALL FAULTS” and that except as expressly set forth in Section 1.4 , Section 1.5 and Article III of this Agreement, Sellers make no representations or warranties, terms, conditions, understandings or collateral agreements of any nature or kind, express or implied, by statute or otherwise, concerning the Subject Assets or the condition, quality, or usefulness, of the Subject Assets, including without limitation any implied warranty of merchantability or fitness for a particular purpose, which warranties are also hereby expressly disclaimed.  The Parties further acknowledge and agree that no Party shall be liable under this Agreement for any lost profits or indirect, consequential, punitive or special damages under any circumstances.

 

Buyer confirms, acknowledges and agrees that it has inspected the Subject Assets prior to the execution of this Agreement to the extent that it wishes to do so and that Buyer is relying upon its own investigations and inspections of the Subject Assets with respect to the quality and condition thereof.

 

Section 1.4    Method of Conveyance and Transfer .  At Closing and subject to the Confirmation Order, Sellers shall transfer good and marketable title to the Subject Assets (and in the case of oil and gas assets, defensible title and in fee simple determinable) to Buyer free and clear of any and all Encumbrances other than the Assumed Liabilities.

 

Section 1.5    Delivery of Instruments of Transfer .  At Closing, Sellers shall deliver to Buyer such specific assignments, bills of sale, endorsements, certificates, leases, deeds, real property title documents and other good and sufficient instruments of conveyance and transfer, in form and substance satisfactory to Buyer and its counsel, as shall be reasonably requested by Buyer to effectively vest in Buyer, as provided in the Confirmation Order issued pursuant to the Bankruptcy Code, good and marketable title to all the Subject Assets (and in the case of oil and gas assets, defensible title), including, but not limited to the bill of sale and assignment and assumption agreement, dated the Closing Date, in the form attached hereto as Exhibit A (the “ Bill of Sale ”), and the Assignment of Trademarks conveying the trademarks included in the Subject Assets to Buyer, in the form attached hereto as Exhibit B (the “ Intellectual Property Assignment Agreement ”). Simultaneously with the delivery of such instruments and agreements, Sellers shall put Buyer or its designees in actual possession and operating control of the Subject Assets.  In addition to the foregoing, at the Closing, Sellers shall also deliver all of the documents and agreements and other deliveries contemplated by Article VII .

 

 

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Section 1.6    Conveyance of Title to Owned Real Property . Upon the terms and subject to the conditions set forth in this Agreement and as a part of the conveyance of the Subject Assets hereunder, Sellers agree to sell, assign, transfer, convey, and deliver the Owned Real Property to Buyer or one or more Affiliates of Buyer designated by Buyer at the Closing, and Buyer agrees to purchase and accept the Owned Real Property from Sellers at the Closing. Sellers shall convey title to the Owned Real Property to Buyer on the Closing Date by limited warranty deed(s) or the equivalent under the laws of the State in which the Owned Real Property is located (together, the “ Deed ”) in a form customarily used in the locality in which the Owned Real Property is located, subject, however, to Permitted Encumbrances.  Each Deed shall be executed in accordance with the requirements of the laws of the State in which such Owned Real Property is located and shall be in such form as will permit the Deed to be recorded.

 

Section 1.7    Further Assurances .   Sellers, at any time and from time to time after the Closing, upon request of Buyer, will do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably required for the better conveying, transferring, assigning and delivering to Buyer, or to its successors and assigns, and for aiding and assisting in collecting and reducing to Buyer’s possession, all of the Subject Assets.

 

ARTICLE II

 

PAYMENT OF PURCHASE PRICE

 

Section 2.1    Consideration .  The purchase price for the Subject Assets shall be the sum of the following amounts (collectively, the “ Purchase Price ”). At the Closing, the Purchase Price shall be paid as follows:

 

(a)   Cash.   Buyer shall pay Triad $8,000,000 in cash (the “ Cash Payment ”).

 

(b)   Preferred Stock .  Parent shall issue to Triad or its designees 4,000,000 shares of Parent’s Series B Redeemable Convertible Preferred Stock having an aggregate fair market value of $15,000,000 (the “ Preferred Shares ”). The certificate of designations for the Preferred Shares shall have the terms set forth on Schedule 2.1(b) , and shall be in a form reasonably acceptable to Parent and Sellers.

 

(c)   Wesbanco Debt .  Buyer or Parent shall use their reasonable best efforts to negotiate in good faith to obtain a commitment letter on or before November 30, 2009 from Wesbanco (the “ Wesbanco Commitment Letter ”) for the assumption by Buyer or Parent of the Wesbanco Debt.  If the Wesbanco Commitment Letter is obtained by November 30, 2009, Buyer or Parent will enter into an agreement (the “ Wesbanco Assumption Agreement ”) at Closing to assume the Wesbanco Debt in accordance with the terms of the Wesbanco Commitment Letter.  If the Wesbanco Commitment Letter is not obtained by November 30, 2009, Buyer or Parent shall prepay the Wesbanco Debt at Closing.  Sellers (i) shall cooperate with Buyer and Parent in their efforts to obtain the Wesbanco Commitment Letter and (ii) represent and warrant to Buyer and Parent that the Wesbanco Debt is prepayable at any time without penalty.  The assumption or repayment of the Wesbanco Debt shall include or constitute, respectively, a full and unconditional release of all personal guaranties of the Wesbanco Debt.

 

 

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(d)   Triad Debt .  At Closing, Buyer or Parent shall, in accordance with Section 5.1 , use reasonable best efforts to enter into a new term loan facility (or an amended and restated loan facility), in form and substance reasonably acceptable to Buyer, in an original principal amount of not less than $55,000,000 (the “ New Term Loan ”) with (i) the Triad Secured Lenders, or one or more of the Triad Secured Lenders and such other lenders as may be a part of the new syndicate (the “ Replacement Lenders ”), or (ii) such other lender or lenders from which Buyer or Parent may choose to obtain financing.  Buyer shall either (x) assume $55,000,000 of the Triad Debt owed to the Triad Secured Lenders pursuant to the New Term Loan or (y) use the proceeds of the New Term Loan to pay off $55,000,000 of the Triad Debt owed to the Triad Secured Lenders.  The New Term Loan shall mature five (5) years from the effective date of the Plan, shall be secured by first priority liens and security interests on the Subject Assets and shall include the following terms, or such other terms reasonably acceptable to Buyer: amortization for the New Term Loan will be $10 million in each of the first four (4) years and $15 million in the final year; and interest shall be payable at LIBOR plus 350 bps, but not less than 5.00%.

 

As additional consideration, Buyer shall assume the Assumed Liabilities at the Closing.

 

Section 2.2    Use of Cash Payment .  On the Closing Date, the Cash Payment, minus the dollar amount in the Escrow Account at the time of Closing (which shall be credited against the Cash Payment in accordance with Section 2.4 ) (the “ Holdback Amount ”), will be deposited into the Escrow Account to be held, maintained and administered by a bank of recognized standing that is mutually acceptable to the Parties to serve as escrow agent (the “ Escrow Agent ”) in strict accordance with the Escrow Agreement.  The Holdback Amount shall be used to pay the Closing Costs in accordance with Section 5.3 .  Any amount remaining in the Escrow Account after paying or providing for the payment of Closing Costs and escrow fees shall be returned to Buyer as approved by the Bankruptcy Court.  Sellers shall cooperate with Buyer and use reasonable best efforts to gain such approval by the Bankruptcy Court as soon as is reasonably practicable following the Closing.

 

Section 2.3    Resolution of Environmental Defects and Title Defects .   Upon the receipt of a proper Title Defect Notice or Environmental Defect Notice, the Cure Cost  for each such Title Defect and Environment Defect shall be journalized. If the aggregate Cure Costs for any uncured Title Defect or Environmental Defect on the date that the Examination Period ends is equal to or less than $4,050,000, Buyer shall be deemed to have accepted such Title Defects and Environment Defects for all purposes and shall be solely responsible for the Cure Costs and there shall be no set off or reduction in the Purchase Price or the Cash Payment.  If the aggregate Cure Costs for any uncured Title Defect or Environmental Defect on the date that the Examination Period ends is in excess of $4,050,000, Sellers shall have the option, but not the obligation, to either cure such Title Defect or Environmental Defect prior to Closing, at Sellers’ sole cost and expense, or reduce the Purchase Price by an amount, on a dollar-for-dollar basis, that is equal to amount of the aggregate Cure Costs that are in excess of $4,050,000.

 

 

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Section 2.4    Deposit .   On or prior to November 6, 2009, Buyer shall deposit with the Escrow Agent the sum of $1,000,000 (the “ Deposit ”). Parent may fulfill its requirement to make the Deposit by delivering cash and/or newly issued common shares of Parent (the “ MHR Stock ”) to the Escrow Agent for deposit in the escrow account (the “ Escrow Account ”). So long as the aggregate fair market value of the cash and MHR Stock equals at least $1,100,000 ($1,000,000 if the Deposit is entirely cash) at all times from the date of deposit through 11:00 a.m. (Cleveland, Ohio time) on the business day immediately preceding the Closing Date (the “ Deposit Conversion Date ”), Buyer will be deemed to have met its obligation under this Section 2.4 .   During the period commencing November 6, 2009 until the Deposit Conversion Date (the “ Applicable Period ”), the MHR Stock shall at all times be valued at the volume weighted average price of Parent’s common stock on the NYSE Amex over the period of twenty (20) consecutive trading days ending on the trading day immediately preceding the date as of which the fair market value is being determined.  If at any time during the Applicable Period the fair market value of the cash and the MHR Stock in the Escrow Account is less than $1,100,000 ($1,000,000 if the Deposit is entirely cash), (i) Sellers shall promptly provide written notice to Parent and (ii) Parent shall promptly, and in any event within five (5) business days following Parent’s receipt of such notice, deliver to the Escrow Agent such cash and/or additional number of shares of MHR Stock so that the value of the cash and all MHR Stock deposited with the Escrow Agent equals or exceeds $1,100,000 ($1,000,000 if the Deposit is entirely cash).  MHR Stock in the Escrow Account shall be, and at all time remain, free and clear of any and all Encumbrances and shall be accompanied by power or powers of attorney executed in blank and any other documentation the Escrow Agent reasonably shall require to facilitate the transfer of title of the MHR Stock or to permit the holder thereof to sell or otherwise convert the MHR Stock to cash.  The Deposit shall be administered by the Escrow Agent in accordance with the Escrow Agreement.  Prior to 11:00 a.m. (Cleveland, Ohio time) on the Deposit Conversion Date, Parent shall deliver $1,000,000 in cash, less any cash in the Escrow Account, to the Escrow Agent in substitution of the MHR Stock, whereupon the Parties shall authorize the Escrow Agent to return to Parent the MHR Stock then on deposit in the Escrow Account.  If Parent, for any reason, has failed to substitute cash for the MHR Stock prior to 11:00 a.m. (Cleveland, Ohio time) on the Deposit Conversion Date, the Escrow Agent shall transfer the MHR Stock to a brokerage account established in the name of Triad or its nominee, whereupon the owner of such brokerage account may immediately sell such MHR Stock on the open market as soon thereafter as is practicable at the then prevailing price(s) and deposit the net proceeds of such sale(s) in the Escrow Account; provided however, any such sale must be conducted in a reasonably prudent manner.  If, for any reason, the amount of funds in the  Escrow Account by the end of the Deposit Conversion Date does not equal or exceed $8,000,000, Parent shall immediately deposit such cash as may be required to restore the balance of funds in the Escrow Account to $8,000,000. All funds in the Escrow Account (i) shall be credited against the Cash Payment required to be made by Buyer at the Closing, or (ii) shall be fully distributed to the Parties as provided in Section 10.2 .

 

Section 2.5    Tax Allocation of Purchase Price .  Prior to the Closing, Buyer and Sellers shall work together to agree on the allocation of the Purchase Price among the Subject Assets in accordance with Code Section 1060 and applicable Treasury Regulations (and similar provisions of state or local law).  The allocations required under the preceding sentence shall be prepared for each Seller.  For purposes of making the allocations required under Code Section 1060, Buyer and Sellers agree that the value of the Preferred Shares shall be $15,000,000.  To the extent that Buyer and Sellers agree on the allocation of the Purchase Price for each Seller, the allocation shall be set forth on Schedule 2.5 to be included in this Agreement at the Closing and Buyer and each of Sellers shall file, in accordance with Section 1060 of the Code an Asset Allocation Statement on Form 8594 which reflects the allocations set forth on Schedule 2.5 for the Subject Assets with its federal income tax return for the tax year in which the Closing Date occurs and shall contemporaneously provide the other Party with a copy of the Form 8594 being filed. Each Party agrees not to assert, in connection with any tax return, audit or other similar proceeding, any allocation of the aggregate consideration which differs from the allocation set forth on Schedule 2.5 .  Notwithstanding any other provisions of this Agreement, this Section 2.5 shall survive the Closing Date without limitation, and shall not be an admission of and shall not be evidence of the value of any of the Subject Assets on Sellers’ Bankruptcy Cases or any other related proceeding, and shall be for tax purposes only.  To the extent that Buyer and Sellers are unable to agree on the allocation of the Purchase Price for each Seller, then Buyer and each Seller shall be free to file a Form 8594 completed by such party.

 

 

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Section 2.6    Transfer Taxes .  All applicable sales and transfer taxes (“ Transfer Taxes ”), if any, arising by reason of the transfer of the Subject Assets under this Agreement will be paid by Buyer.

 

ARTICLE III

 

REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLERS

 

Sellers hereby represent and warrant jointly and severally to Buyer and Parent as follows:

 

Section 3.1    Organization and Good Standing .

 

(a)  Triad is a corporation duly organized, validly existing and in good standing under the laws of the State of West Virginia. TRI is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio. ADL is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Ohio. TOG is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Ohio. Sellers have full power and authority to carry on the Business as and where now conducted and to own or lease and operate their respective properties as and where now owned or leased and operated by them, and are duly qualified to do business in every jurisdiction in which the property owned, leased or operated by them, or the nature of the business conducted by them, makes such qualification necessary.

 

(b)  Set forth on Schedule 3.1(b) is a true and correct list of all jurisdictions where each of Sellers has material business operations  or owns or leases property.

 

(c)  Set forth on Schedule 3.1(c) is a true and correct organization chart indicating Sellers and their respective corporate parents and subsidiaries as of the date of this Agreement and as of the Closing.

 

 

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Section 3.2    Authority .   Subject to the entry of the Confirmation Order, (i) each Seller has all requisite power and authority, corporate, trustee, partnership or otherwise, to execute, deliver and perform under this Agreement and the other agreements, certificates, and instruments to be executed by it in connection with or pursuant to this Agreement (together with this Agreement, the “Sellers’ Documents”); (ii) the execution, delivery, and performance by each Seller of each Seller Document to which it is a party has been duly authorized by all necessary action, corporate or otherwise, on the part of such Seller; (iii) this Agreement has been, and at the Closing the other Sellers’ Documents will be, duly executed and delivered by each Seller that is a party hereto and thereto; and (iv) this Agreement is, and upon execution and delivery, each of the other Sellers’ Documents will be, a legal, valid, and binding agreement of each Seller that is party hereto and  thereto, enforceable against such Seller in accordance with their respective terms.

 

Section 3.3    No Violation or Consents .  Subject to the entry of the Confirmation Order, except as set forth on Schedule 3.3 , neither the execution, delivery and performance of this Agreement by the Sellers, nor the consummation of the transactions contemplated hereby will (a) violate or conflict with any provision of the certificate of formation or incorporation, as applicable, bylaws, operating agreement or other governing documents of Sellers (b) require the consent, waiver, approval, license or authorization of or any filing by Sellers  with any third party or public authority, (c) violate, conflict with or result in a breach of or the acceleration of any material obligation under, or constitute a default (or an event which with notice or the lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of an Encumbrance on any Subject Assets, other than the Permitted Encumbrances, or (d) to Sellers’ knowledge, violate or conflict with any law, rule, regulation, permit, ordinance or regulation applicable to the Subject Assets to be transferred to Buyer or its nominee hereunder.

 

Section 3.4    Compliance with Law .  Except as set forth on Schedule 3.4 :

 

(a)  Except as otherwise specifically directed by the Bankruptcy Court, Sellers have conducted and continue to conduct the Business in accordance with all Laws applicable to Sellers and the Subject Assets. To Sellers’ knowledge, Sellers are not now, and at Closing will not be, in material breach of any Mineral Leases.

 

(b)  All filings and notices relating to the Mineral Leases, or the ownership or operation thereof, required to be made by Sellers with all Governmental Authorities have been made by or on behalf of Sellers other than filings or notices for which the failure to provide is not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect on Sellers.

 

(c)  Sellers hold all of the Permits necessary for the operation of the Business as currently conducted, other than Permits for which the failure to hold is not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect on Sellers or the Subject Assets.  All such Permits are valid and in full force and effect and, except as set forth on Schedule 3.4 , there are no proceedings pending or, to Sellers’ knowledge, threatened that are reasonably expected to result in the revocation, cancellation, suspension or modification of any material Permits and such Permits are readily transferable to Buyer without material expense.  Except as set forth on Schedule 3.4 , there are no proceedings pending or threatened (i) with respect to any alleged failure to have all Permits required in connection with the operation of the Business as currently conducted, or (ii) with respect to any valid requirement to plug or abandon any Well in which Sellers own an interest or that is located on any of the Mineral Leases.

 

 

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Section 3.5    Litigation .  Except for Matthew Bailey v. Triad Energy Corporation (Case No. 07-C-43, Pleasants County Court, West Virginia), Abicht Estate and Triad Energy Corporation v. James Smith, et. al. (Case No. 05-C-23, Pleasants County Court, West Virginia), Kathy Tucker v. Triad Resources, Inc . (Case No. 234-80-3284, Unemployment Compensation Review Commission, Columbus, Ohio), David Linger v. Triad Resources, Inc . (Case No. 08-C-141, Magistrate Court of Clay County, West Virginia) and David Linger v. Triad Resources, Inc. (Case No. 236-04-0499, Charleston UC, Charleston, West Virginia), there is no action, suit, proceeding in equity or law, arbitration or administrative or other proceeding or any investigation by any person (including, without limitation, any Governmental Authority) pending or threatened against or affecting Sellers or the Subject Assets that, if adversely determined, would have a Material Adverse Effect upon the Subject Assets or Sellers’ ability to perform their obligations under this Agreement or upon the consummation of the transactions described herein.  None of the Subject Assets are subject to any adverse order, judgment, injunction, writ or decree.

 

Section 3.6    Financial Statements and Reports; Material Liabilities .  Sellers have (i) provided Buyer with true and correct copies of the balance sheet and the related statements of income and cash flows for each of the Sellers  as of December 31, 2008 and (ii) filed with the Bankruptcy Court  the balance sheet and the related statements of income and cash flows for each interim period with respect to which Sellers have been required to file such documents with the Bankruptcy Court in the Bankruptcy Cases, including the balance sheet and the related statements of income and cash flows for each of the Sellers as of September 30, 2009 (the “ Last Balance Sheet Date ”) .  The items provided in accordance with clauses (i) and (ii) above are referred to as the “ Financial Statements .” The Financial Statements are true and accurate  and were prepared in accordance with sound accounting practices applied on a consistent basis with the past practices of Sellers.

 

Section 3.7    Absence of Certain Changes . Except as ordered by the Bankruptcy Court and disclosed in the filings made by the Sellers with the Bankruptcy Court in connection with the Bankruptcy Cases on or before October 27, 2009 (the “ Sellers’ Bankruptcy Filings ”), since the Last Balance Sheet Date, each Seller has conducted its business in the ordinary course and there has not been any:

 

(a)  Material Adverse Effect on the Subject Assets or in the financial condition, liabilities, Business or results of operations of Sellers;

 

(b)  sale, assignment or transfer of any of the material assets of Sellers;

 

(c)  any breach of, or default under, any Material Contract by Sellers;

 

(d)  revaluation by any Seller of its assets, including without limitation, any write-offs, increases in any reserves or any write-up of the value of inventory, property, equipment or any other asset;

 

(e)  destruction or loss of any Subject Asset; or

 

 

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(f)  increase in the compensation of officers or employees of Sellers (including any such increase pursuant to any bonus, pension, profit sharing or other plan or commitment) or any increase in the compensation payable or to become payable to any such officer or employee or any severance or termination pay or any modification of any employee benefit plan to which any of Sellers is a party.

 

Section 3.8    Material Contracts .

 

(a)  As of noon, Dallas, Texas time, on October 27, 2009, Sellers’ electronic data room (the “ Data Room ”) contained true and correct copies of all contracts or other agreements to which Sellers are a party or are bound, or by which any of the Subject Assets are bound, as of October 28, 2009, whether or not made in the ordinary course of business, which are material to the operation of the Business, including those contracts set forth on Schedule 1.1(m) , Schedule 1.1(n) , and Schedule 1.1(o) (collectively, the “ Material Contracts ”). Schedule 3.8 (a) sets forth a true and complete list of all Material Contracts.  On Schedule 3.8(a) , Sellers have indicated which Material Contracts are also Executory Contracts.

 

(b)  Except as set forth on Schedule 3.8(b) , subject to the orders of the Bankruptcy Court, (i) each Material Contract is a valid and binding agreement of those Sellers that are party thereto, enforceable in accordance with its terms; (ii) Sellers have performed, and, to Sellers’ knowledge, each other party has performed or will perform, each material term, covenant and condition of each Material Contract required to be performed as of the date hereof and as of the Closing; and (iii) to Sellers’ knowledge, no event has occurred that would, with the passage of time or compliance with any applicable notice requirements or both, constitute a default by Sellers under any of the Material Contracts.

 

(c)  Except as disclosed in Sellers’ Bankruptcy Filings, there are no on-going renegotiations of, or attempts to renegotiate, any amounts paid or payable to Sellers under any of the Material Contracts and no party has made written demand for such renegotiations.  Except as set forth on Schedule 3.8(c) , Sellers have not, with respect to the Material Contracts: (i) become overproduced as to any Well or Mineral Lease so as to have a balancing obligation relative thereto, nor has it otherwise received any quantity of natural gas or liquids, condensate or crude oil to be paid for thereafter other than in the normal cycle of billing; or (ii) received prepayments, advance payments or loans which will require the performance of services or provision of natural gas or liquids, condensate or crude oil under such Material Contracts on or after the Closing Date without being currently paid therefor other than in the normal cycle of billing.  Except as set forth on Schedule 3.8(c) , Sellers are not obligated, by virtue of prepayment arrangement, make up right under production sales contract containing a “take or pay” or similar provision, gas balancing agreement, production payment or any other arrangement to deliver hydrocarbons, or proceeds from the sale thereof, attributable to the Mineral Leases at some future time without then or thereafter receiving the full contract price therefor.  Except as set forth on Schedule 3.8(c) or in any Material Contract, there is no call upon, option to purchase or similar right to obtain hydrocarbons from the Mineral Leases in favor of any person other than pursuant to renewal rights or automatic renewal provisions contained in existing contracts for the sale of hydrocarbons.

 

Section 3.9    Mineral Lease Provisions .  All Mineral Leases are in force and effect and Sellers are not to Sellers’ knowledge in material breach of any Mineral Lease.   Schedule 3.9(a) sets forth a true and complete list of the Net Revenue Interests and Working Interests of the Sellers with respect to all Sellers’ Mineral Leases and the Wells associated therewith.  Except as set forth on Schedule 3.9(b) , all rentals, royalties, overriding royalty interests and other payments due under each of the Mineral Leases have been timely and accurately paid, except (i) to the extent Sellers’ were specifically directed not to pay such amounts by the Bankruptcy Court, and (ii) amounts that are being held in suspense as a result of returned mail, checks not negotiated, or title issues in circumstances that do not provide any third party a right to terminate any such Mineral Lease.   Schedule 3.9(b) lists the accrued suspense funds as of October 28, 2009.

 

 

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Section 3.10    Sale Contracts .  Except as set forth on Schedule 3.10 and for (a) contracts governing the sale of oil or gas in the ordinary course which are terminable by Sellers without penalty on sixty (60) or fewer days’ notice, or (b) the disposition in the ordinary course of equipment no longer suitable for or used in oil and gas field operations, there are no contracts, agreements or options to which any of Sellers are a party outstanding for the sale, exchange or transfer of any of Sellers’ interest in the Subject Assets or any portion thereof.

 

Section 3.11    Title to Properties .

 

(a)  At Closing and subject to the Confirmation Order, Sellers shall transfer the Subject Assets to Buyer, which, pursuant to the Confirmation Order, shall be free and clear of all Encumbrances (other than Permitted Encumbrances).  Except as set forth on Schedule 3.11 , the Subject Assets constitute all of the assets necessary for the conduct of the Business as it is now being conducted.

 

(b)   Schedule 1.1(a) and Schedule 1.1(b) contain a true and correct lists of all Mineral Lease and Wells, respectively, owned or leased by Sellers for use in connection with the Business at the Closing. True and correct copies of each Mineral Lease, leases and other agreements evidencing Sellers’ ownership or lease rights with respect to the other Subject Assets were available to Buyer through the Data Room as of October 27, 2009. Sellers own or lease, subject to their rights and the rights of third parties under joint operating agreements where applicable, all inventory, fixed assets, leasehold improvements, vehicles, production equipment, and other personal property currently used in connection with the Subject Assets of which a Seller is the operator of record; provided, as to such property currently used with Subject Assets of which Sellers are not the operator of record, Sellers only represent and warrant that Sellers have an interest in such property commensurate with their Working Interest.   Schedule 3.11(b) contains a list of all leased personal property used in connection with the Subject Assets of which a Seller is the operator of record and Other Real Estate Leases and, except as set forth on Schedule 3.11(b) , all of such leases are assignable without the consent of a third party.

 

(c)  Sellers own all rights of way and related surface damage agreements that are currently used with the operation of the Subject Assets or the production, treatment, storage, sale or disposal of hydrocarbons, water or other minerals or substances produced from the Mineral Leases, and all of same are assignable.

 

 

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Section 3.12    Environmental Matters .

 

(a)  As to the operation of the Business, and with respect to the Subject Assets, except as disclosed in the Sellers’ Bankruptcy Filings, there are no Environmental Defects.

 

(b)  Sellers have not entered into, agreed in writing to, or are subject to any Encumbrance or other similar requirement of any third party or Governmental Authority under any Environmental Laws;

 

(c)  The Data Room contains true and correct copies of all environmental assessment or audit reports and other similar studies or analyses and all environmental information in its possession relating to the Subject Assets or the Business, including, but not limited to, pending or threatened (a) lawsuits, (b) action, complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any Governmental Authority or third party, (c) civil or criminal penalties, or (d) other unresolved orders based on any noncompliance with Environmental Laws, which items (a) through (d) have been available to Buyer on the Data Room as of October 27, 2009.

 

Section 3.13    Owned Real Property .

 

(a)  The Data Room contains a true and complete list (as of the date of this Agreement) of, and copies of all material agreements relating to, each parcel of real property owned by Sellers and used in the Business (collectively, the “ Owned Real Property ”), which list is attached hereto as Schedule 3.13 . Sellers own good and marketable title to the Owned Real Property in fee simple, and free and clear of all Encumbrances (whether or not of record), except for the Permitted Encumbrances.

 

(b)  There are no proceedings in eminent domain or other proceedings pending or, to Sellers’ knowledge, threatened, affecting any portion of the Owned Real Property or any means of ingress or egress thereto.

 

(c)  The Owned Real Property and present uses and operations thereof comply with, and no Seller has received written notice from any Governmental Authority that a portion of the Owned Real Property, or any building or improvement located thereon, currently violates, any Law in any material respect. No Owned Real Property is subject to any written governmental decree or order specifically issued with respect to such Owned Real Property (or, to the knowledge of Sellers, any threatened or proposed order) requiring the repair, removal or alteration of any improvement located on such Owned Real Property.

 

Section 3.14    Employee Benefit Plans .

 

(a)  Set forth in Schedule 3.14(a) is a true and correct list of all of Sellers’ Employee Benefit Plans.

 

(b)  As of noon, Dallas, Texas time, on October 27, 2006, the Data Room contained a true and correct copy of each of Sellers’ Employee Benefit Plans, if any, all of which were available to Buyer on the Data Room.

 

 

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(c)  Each Employee Benefit Plan is and at all times has been maintained, funded, operated, administered and invested in compliance with the terms of such Employee Benefit Plan and all applicable Laws, including ERISA, and the Code and Sellers have performed all of their material obligations under each Employee Benefit Plan. All contributions required to be made to any Employee Benefit Plan by applicable Laws or by the terms of such Employee Benefit Plan, and all premiums due or payable with respect to insurance policies funding any Employee Benefit Plan, for any period through the Effective Date, have been timely made or paid in full.  None of the Subject Assets is encumbered by any indebtedness to any Employee Benefit Plan, the Pension Benefit Guaranty Corporation, the Internal Revenue Service, or any other individual or agency.

 

Section 3.15    Labor Matters .  None of the Sellers is a party to any collective bargaining agreement with respect to any of Sellers’ employees.  Except as set forth on Schedule 3.15 , to Sellers’ knowledge, none of the employees of Sellers are represented by any labor union and none of the Sellers have any knowledge of any union organizational efforts involving Sellers’ employees during the past five (5) years.

 

Section 3.16    Proprietary Property .

 

(a)   Schedule 3.16 identifies (i) each patent or trademark, trade name, service mark or copyright registration which has been issued to Sellers and has not expired with respect to any Proprietary Property (with any relevant registration numbers identified), (ii) each pending application for registration of a trademark, trade name, service mark or copyright which any Seller has made with respect to any Proprietary Property, and (iii) each license, sublicense, agreement or other permission, relating to Proprietary Property to which any Seller is a party, pursuant to which any Seller has granted to any third party the right to use any Proprietary Property.

 

(b)  Each item of Proprietary Property disclosed pursuant to Section 3.16(a) as owned by Sellers, and all internet web site content, software developed internally by Sellers, (i) is owned by Sellers, free and clear of any Encumbrances, other than Permitted Encumbrances, and (ii) is not currently the subject of any challenge, opposition, litigation or any other proceeding before any Governmental Authority.

 

(c)  Sellers have not interfered with, infringed upon, misappropriated or otherwise come into conflict with the intellectual property rights of any other Person, and no such claims have been asserted.

 

(d)  To the best of each Seller’s knowledge, no Person is infringing upon the Proprietary Property owned or used by Sellers, and no Seller has notified any Person that it believes that such Person is so infringing.

 

Section 3.17    Sellers as Debtor in Possession; No Trustee .  From the Petition Date through the Closing Date, Sellers have been at all times in their Bankruptcy Cases debtors-in-possession pursuant to Section 1107 of the Bankruptcy Code, and no trustee or examiner has been appointed in the Bankruptcy Cases.

 

Section 3.18    Brokerage and Finder’s Fees .   No shareholder, officer, director or agent of Sellers has incurred any liability to any broker, investment banker, finder or agent for any brokerage fees, finder’s fees, or commissions with respect to the transactions contemplated by this Agreement, except to RBC Capital Markets Corporation and Barrier Advisors, Inc., and which liability will be fully discharged and satisfied by Sellers at or prior to the Closing.  The terms and amount of such fees or commissions are set forth on Schedule 3.18 .  Sellers shall indemnify and hold Buyer and Parent harmless from any cost or expense arising out of or relating to any claim for a brokerage fee or finder’s fee incurred as a result of any agreement of Sellers in connection with the transactions provided for in this Agreement or any of the Related Agreements.

 

 

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Section 3.19    Assigned Executory Contracts.   A true and accurate copy of each Executory Contract was made available to Buyer through the Data Room.  All Executory Contracts are listed on Schedule 3.8(a) , and every contract listed on Schedule 3.8(a) that is an Executory Contract is designated as an Executory Contract.

 

Section 3.20    Investment Intent .  Triad, or its designee, is acquiring the Preferred Shares for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act.

 

Section 3.21    Restricted Company Shares .  Triad understands that the Preferred Shares have not been registered under the Securities Act or any state securities laws and constitute “restricted securities” within the meaning of Rule 144 under the Securities Act and may not be sold, pledged or otherwise disposed of unless they are subsequently registered under the Securities Act and applicable state securities laws or unless an exemption from registration is available.

 

Section 3.22    Notice .  Sellers have provided notice of their intent to enter into this Agreement to all creditors and other parties in interest.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT

 

As a material inducement to Sellers to enter into this Agreement and the Related Agreements and all other agreements and documents executed by Sellers in connection with this Agreement and the Closing hereunder and to consummate the transactions contemplated by this Agreement and the Related Agreements, Buyer and Parent, jointly and severally, represent and warrant to Sellers that:

 

Section 4.1    Organization and Good Standing .   Buyer is a limited liability company validly existing and in good standing under the Laws of the State of Delaware.  Parent is a corporation validly existing and in good standing under the Laws of the State of Delaware. Each of Parent and Buyer has full power and authority to carry on its business as and where now conducted and to own or lease and operate its properties at and where now owned or leased and operated by it, and is duly qualified to do business and is in good standing in every jurisdiction in which the property owned, leased or operated by it, or the nature of the business conducted by it, makes such qualification necessary.

 

 

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Section 4.2    Authority .   Each of Buyer and Parent has all requisite power and authority, corporate, trustee, partnership or otherwise, to execute, deliver, and perform under this Agreement and the other agreements, certificates, and instruments to be executed by it in connection with or pursuant to this Agreement (together with this Agreement, the “ Buyer Documents ”).  The execution, delivery, and performance by each of Parent and Buyer of each Buyer Document to which it is a party has been duly authorized by all necessary action, corporate or otherwise, on the part of Buyer or Parent, as applicable.  This Agreement has been, and at the Closing the other Buyer Documents will be, duly executed and delivered by each of Buyer or Parent, as applicable, if such Party is party thereto.  This Agreement is, and upon execution and delivery, each of the other Buyer Documents will be, a legal, valid, and binding agreement of Buyer or Parent, as applicable, enforceable against such Buyer or Parent, as applicable, in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally.

 

Section 4.3 No Violation of Charter Documents, Contracts or Laws .  Neither the execution and delivery of this Agreement, nor the consummation of the transactions provided for herein or therein, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, Breach, impairment or violation of: (a) any provision of Buyer’s or Parent’s certificate of formation or incorporation, as applicable, bylaws, operating agreements or other charter documents, as applicable, as currently in effect; (b) any material contract to which Buyer or Parent is a party or bound; or (c) any federal, state, local or foreign judgment, writ, decree, order, statute, rule or regulation applicable to Buyer or Parent, which, in the case of clauses (b) and (c), would have or be reasonably expected to have a Material Adverse Effect on Buyer or Parent or their ability to consummate the transactions contemplated by this Agreement.

 

Section 4.4    Subject Assets “As Is”/Release .  Except as otherwise provided herein, Buyer shall acquire the Subject Assets on an “As Is, Where Is” basis, “With All Faults” as described Section 1.3 and Sellers shall not be liable or bound in any manner by any oral or written statements or representations (other than those contained in this Agreement) relating to the Subject Assets.  Buyer represents, warrants and acknowledges that Buyer has been able to access the Data Room and that it entered into this Agreement on the basis of its own full investigation of all the facts and conditions underlying or relating to the Subject Assets and the Business.

 

Section 4.5    Articles of Organization; Corporate Minutes .   A true, accurate and complete copy of each of Parent’s and Buyer’s certificate of incorporation or certificate of formation, as applicable, and bylaws or other governing documents, and good standing certificates from the Secretary of State of the State of Delaware have been delivered to Sellers.

 

Section 4.6    Brokerage and Finder’s Fees .   No person acting on behalf of Buyer or Parent is or will be entitled to any brokers’ or finders fee, or any other commission or similar fee, directly or indirectly, from any of the Parties in connection with any of the transactions contemplated by this Agreement.

 

Section 4.7    Available Funds.   Buyer and Parent will have on the Closing Date sufficient funds available to it to perform all of their obligations under this Agreement, including, without limitation, to pay the Purchase Price in accordance with the terms of this Agreement and to assume the Assumed Liabilities.

 

 

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ARTICLE V

 

ADDITIONAL COVENANTS OF THE PARTIES

 

Section 5.1    Bank Commitment Letter .  On or before the Closing Date, Buyer or Parent will use reasonable best efforts to enter into the New Term Loan in accordance with the terms of Section 2.1(d) .  Buyer or Parent shall deliver to Triad a signed commitment letter, on or before November 30, 2009, from (i) Capital One, AIB and the successor bank to Citibank or a single commitment letter from Capital One as agent bank, (ii) the Replacement Lenders, or a representative of the syndicate of the Replacement Lenders, confirming that the Triad Secured Lenders (or the Replacement Lenders), or (iii) such other lender or lenders from which Buyer or Parent   chooses to obtain financing, stating that such lender or lender syndicate will fully fund the New Term Loan at the Closing (each a “ Bank Commitment Letter ”).

 

Section 5.2    New Equity Commitment

 

(a)  On or before November 30, 2009, Parent shall provide Sellers and Triad Secured Lenders sufficient evidence of its financial abilities to consummate the purchase of the Subject Assets and to successfully and profitably deploy the Subject Assets following the Closing Date, including evidence that Parent will be able to issue and sell to investors additional common equity of not less than $10,000,000 to be fully funded prior to the Closing Date to fund the capital requirements of Triad operating assets set forth in that certain reserve report prepared by Cawley, Gillespie & Associates, Inc., dated as of January 1, 2009, through calendar year 2010.

 

(b)  Parent’s obligations pursuant to Section 5.2(a) shall be deemed to have been fully satisfied upon Parent’s delivery to Triad of either (i) engagement letter(s) from a qualified underwriter, or (ii) commitment letter(s) from a qualified investor, in either the case of clauses (i) or (ii) above, evidencing the commencement of the process of issuing additional common equity of not less than $10,000,000 (together, the “ Equity Commitment Evidence ”).

 

(c)  Additionally, Parent shall over the twenty-four (24) months period immediately following the Closing Date, invest an additional $5,000,000, in cash, in Buyer or any other entity holding the Subject Assets to fund the expansion or improvement of any pipeline, the drilling of wells and the new lease acreage in the Appalachian Basin Province.

 

Section 5.3    Use of Cash at Closing .  Any cash retained by the Bankruptcy Estate immediately following the Closing plus a portion of the Holdback Amount may, at Sellers’ discretion and subject to the written consent of Triad Secured Lenders or an order of the Bankruptcy Court, (a) be distributed to, or for the benefit of, the unsecured creditors of the Bankruptcy Estate, or (b) be used to cover closing costs, including investment banking and professional fees, principal and interest on DIP loans, and mechanics’ lien claims (collectively, the “ Closing Costs ”).  To the extent the Holdback Amount held in escrow is not applied to Closing Costs, any amount remaining in the Escrow Account will be paid to Buyer in accordance with the terms of the Escrow Agreement.  In no event shall any portion of the Holdback Amount be distributed to the Triad Secured Lenders.  Sellers shall provide to Buyer a list of estimated Closing Costs, including the amounts owed and the Persons entitled to such amounts.

 

 

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Section 5.4    Due Diligence; Access to Information .

 

(a)  Buyer shall cooperate with Sellers and the Triad Secured Lenders in permitting each to continue to conduct reasonable due diligence on Buyer, its operations, directors, principal shareholders, officers and employees.

 

(b)  Between the date of this Agreement and the Closing Date, Sellers shall give to Buyer and its representatives reasonable access to the Subject Assets and all of Sellers’ Books and Records, and shall permit Buyer and its representatives to make copies thereof, and Sellers shall permit Buyer to interview Sellers’ executive officers during reasonable business hours and upon reasonable prior notice. All documents reviewed or produced by Buyer during its due diligence review are referred to herein collectively as the “ Diligence Report .” The Parties acknowledge that Parent and Sellers have entered into a confidentiality agreement (the “ Confidentiality Agreement ”) and Parent and Buyer each confirm that it and its affiliates, agents and other representatives are bound by and will comply with their respective obligations thereunder and that information obtained in connection with this Agreement and the investigations and reviews undertaken in connection therewith will be subject to the terms of the Confidentiality Agreement.  The Parties agree that the provisions of the Confidentiality Agreement will survive the execution of this Agreement until the earlier of (i) the Closing, or, (ii) if this Agreement is terminated prior to Closing, the expiration of the Confidentiality Agreement in accordance with its terms.

 

(c)  From the date of this Agreement until 5:00 p.m. Central time on November 6, 2009 (the “ Examination Period ”), in addition to its regular due diligence efforts undertaken pursuant to this Section 5.4 , Buyer may conduct a title examination and environmental examination as it may in its sole discretion choose to conduct with respect to the Subject Assets in order to determine whether Title Defects or Environmental Defects exist; provided that (i) such examination shall not interfere with Sellers’ business operations; (ii) Buyer and  its agents will evidence to Sellers the existence of an appropriate liability insurance policy in form reasonably satisfactory to Sellers insuring against claims for personal injury, death or property damage in an amount no less than $2,000,000 combined single limit for bodily injury and property damage; and (iii) Buyer and its agents shall not change, alter or remove any improvements or surfaces at the Subject Assets, perform test borings, drill or otherwise conduct any invasive activity in connection with such inspections and tests without Sellers’ prior written consent, which consent shall not be unreasonably withheld.

 

(d)  Buyer and its representatives may examine all abstracts of title, title opinions, title files, ownership maps, lease files, assignments, division orders, operating records and agreements, well files, financial and accounting records, geological, geophysical, engineering and environmental records, in each case insofar as the same may now be in existence and in the possession of Sellers, provided, however, that Sellers may withhold access to (a) all legally privileged documents other than title opinions; and (b) information that Sellers are prohibited from disclosing by third party confidentiality restrictions; provided further that Sellers, upon request from Buyer, will use their reasonable efforts to obtain a waiver of any such restrictions in favor of Buyer.  The cost and expense of Buyer’s examination, including but not limited to Buyer’s review of the title to the Subject Assets and environmental conditions on the Subject Assets will be borne solely by Buyer.

 

 

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(e)  Buyer and Parent hereby, jointly and severally, agree to indemnify, protect, defend and hold Sellers’ and their respective owners, shareholders, managers, members, directors, officers, employees, agents and representatives harmless from and against any and all losses, claims, damages, liabilities, costs or expenses (including reasonable attorney fees and disbursements of counsel) in respect of injury or death to persons or damage or destruction to property resulting or arising from Buyer’s due diligence examination hereunder; provided, however, (i) that damages, for this purpose only, shall not include damages to the extent resulting solely from the discovery by


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