This OPTION
AGREEMENT (this “ Agreement ”) is
made as of the 15 th day of July, 2009, by and among Seminole Energy
Services, LLC, an Oklahoma limited liability company (“
SES ”), NGAS Gathering, LLC, a Kentucky limited
liability company (“ NGL ”), Daugherty
Petroleum, Inc., a Kentucky corporation (“ DPI
”), and NGAS Gathering II, LLC, a Kentucky limited liability
company wholly owned by DPI (“ New NGAS
Gathering ”). SES, NGL, DPI and New NGAS Gathering
are sometimes referred to herein individually as a “
Party ” and collectively as the “
Parties .” Other capitalized terms used herein
and not defined below shall have the respective meanings set for
the in the Purchase Agreement (as hereinafter defined).
WHEREAS, the
Parties entered into that certain Asset Purchase Agreement dated as
of May 11, 2009, as amended by that certain First Amendment to
Asset Purchase Agreement (“ First Amendment
”) dated the date hereof (as further amended, modified and
supplemented, the “ Purchase Agreement
”), relating to various gathering systems owned by NGL and
DPI in Kentucky, Tennessee and Virginia, together with related
assets, as furthered described in the Purchase Agreement
(collectively, the “ Gathering Assets
”).
WHEREAS, pursuant
to the terms of the Purchase Agreement, NGL and DPI have
(i) sold and conveyed an undivided 50% interest in the
Gathering System to Seminole Gas Company, L.L.C., an Oklahoma
limited liability company wholly owned by SES (“
SGC ”) and (ii) contributed the remaining
undivided 50% interest in the Gathering System to New NGAS
Gathering.
WHEREAS, in
accordance with the Purchase Agreement and as partial consideration
for the transactions contemplated thereby, NGL, DPI and New NGAS
Gathering agreed that at the closing of the transactions
contemplated by the Purchase Agreement (the “ APA
Closing ”) such parties would grant options to SES,
and SES agreed to accept the options, to either (i) purchase
100% of the equity interests of, in and to New NGAS Gathering or
(ii) purchase the 50% undivided interest in the Gathering
System held by New NGAS Gathering.
WHEREAS, as part
of the modifications to the Purchase Agreement provided in the
First Amendment, the Parties and SGC have agreed, with the consent
of SES, to set forth the terms and conditions of such options in
this Agreement rather than in the Purchase Agreement or the
exhibits or schedules thereto.
NOW, THEREFORE,
FOR AND IN CONSIDERATION of the sum of Ten Dollars ($10.00), the
premises, mutual covenants, representations, warranties, conditions
and agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
1.
Definitions . Where used herein, except where the
context otherwise requires, the following terms shall be defined as
set forth below. Other capitalized terms used herein and not
defined below have the respective meaning set forth in the Purchase
Agreement.
” NGAS
Option Assets ” means and includes all real, personal
and mixed property interests of New NGAS Gathering of any kind
whatsoever, including, without limitation, the Retained Gathering
Assets (as defined in the Purchase Agreement).
” NGAS
Option Equity Interests ” means 100% of all of the
limited liability company interests, membership interests or any
other equity interests in New NGAS Gathering.
” NGAS
Option Period ” shall have the meaning set forth in
Section 2 hereof.
” NGAS
Options Price ” shall have the meaning set forth in
Section 2 hereof.
” NGAS
Option Promissory Note ” means the promissory note of
SES in substantially the form of Exhibit A
attached hereto.
” NGAS
Qualified Offering” means either (1) a private
placement of shares of NRI common stock in reliance on Reg. D under
the Securities Act, (2) a registered direct “best
efforts” placement of shares of NRI common stock under the
NGAS Shelf or (3) a firm commitment underwritten public
offering of the shares of common stock of NRI, which (A) is
consummated no later than 5:00 p.m. Tulsa, Oklahoma time on the
second Business Day before the expiration of the NGAS Option
Period, (B) is conducted in
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accordance with
applicable Law, including the Securities Act and the applicable
Nasdaq listing standards, and (C) provides NRI with net cash
proceeds of not less than US $5,000,000.
” NNG
LLC Agreement ” shall mean the limited liability
company agreement, operating agreement, or applicable governing
document and agreement for New NGAS Gathering dated as of the date
hereof, as amended and as the same may be amended in accordance
with the terms thereof and the other Transaction
Documents.
” NRI
Shelf ” means registration statement on Form S-3
(File No. 333-144417) filed by NRI with the Securities and
Exchange Commission to register up to an aggregate of $100,000,000
of its equity or debt securities for sale from time to time was
declared effective on November 7, 2007.
”
NRI ” means NGAS Resources, Inc., a British
Columbian corporation, and the ultimate parent company of Sellers
and New NGAS Gathering.
”
Securities Act ” means the Securities Act of
1933, as amended, supplemented or restated from time to time, and
any successor statute.
2.
Option . For the period commencing on the date of
this Agreement and ending at 5:00 p.m. Tulsa, Oklahoma time on
January 15, 2010 (the “ NGAS Option Period
”):
(a) DPI hereby
grants to SES the exclusive, irrevocable, and continuing right and
option (the “ NGAS Equity Option ”) to
purchase all of the NGAS Option Equity Interests, free and clear of
all Liens other than any lien or encumbrance arising under the NNG
LLC Agreement or restrictions on transfer under applicable
securities laws), in accordance with the other terms and provisions
hereof; and
(b) New NGAS
Gathering hereby grants to SES the exclusive and irrevocable and
continuing right and option (the “ NGAS Assets
Option ”) to purchase all of the NGAS Option Assets,
free and clear of all Liens (other than Permitted Encumbrances) in
accordance with the other terms and provisions hereof.
The purchase price
(the “ NGAS Option Price ”) for either
the NGAS Equity Option or the NGAS Asset Option (collectively
referred to herein as the “ NGAS Options
” and, individually as an “ NGAS Option
”) shall be paid in the forms specified in
Section 3 and otherwise in accordance with
Section 6 in an amount equal to TWENTY-TWO
MILLION DOLLARS (US$22,000,000), minus the sum of (A) the
third-party costs incurred by SES to remove and obtain a full and
final release of any Liens on the NGAS Option Equity Interests or
NGAS Option Assets (other than Permitted Encumbrances) or to remove
and obtain a full and final release of any guaranties issued or
agreed to by New NGAS Gathering, and (B) any Tax or expenses
attributable to New NGAS Gathering or the NGAS Option Assets,
insofar as they relate to periods prior to the closing of the NGAS
Option, for which SES (or New NGAS Gathering after such closing)
will be liable (and SES agrees to timely pay the amounts deducted
pursuant to this sub-clause (b) to the governmental body or
other party or parties entitled to such payment when due, but in no
event shall SES be obligated to pay an aggregate amount in excess
of the amount credited against the NGAS Option Price).
3.
Forms of Payment of NGAS Option Price . The
NGAS Option Price shall be payable as follows: (1) $7,500,000 by
wire transfer to a designated account of DPI at KeyBank National
Association, to be applied as a partial repayment of outstanding
borrowings under the NGAS Credit Agreement; and (2) the
remainder in the form of the NGAS Option Promissory Note, payable
to the order if DPI, as described in Section 7
below.
4.
Exercise of the NGAS Options. If SES elects to
exercise an NGAS Option, it shall give written notice thereof (the
“ NGAS Option Election Notice ”) at any
time prior to the expiration of the NGAS Option Period to DPI and
New NGAS Gathering, specifying whether its election covers the NGAS
Option Equity Interests (“ NGAS Equity Option
”) or the NGAS Option Assets (“ NGAS Assets
Option ”).
5. Put
Option. Subject to the provisions of
Section 5.1(b) of the Purchase Agreement, if an NGAS
Qualified Offering is consummated at any time prior to the
expiration of the NGAS Option Period and any Required Consents not
obtained prior to Closing have been obtained within sixty days
after the Closing under the Purchase Agreement, and are in full
force and effect, DPI, upon written notice to SES (“
Put Notice ”), shall have the irrevocable right
to require that SES purchase the NGAS Option Equity Interests for
the NGAS Option Price, in accordance with the terms hereof,
subject, however, to all of the other applicable conditions and
covenants set forth herein. NRI intends to consummate an NGAS
Qualified Offering prior to the end of the NGAS Option
Period.
6.
Conditions. Notwithstanding anything stated herein to
the contrary, and notwithstanding delivery of an NGAS Option
Election Notice by SES or delivery of a Put Notice by DPI, the
Parties shall have no obligation to, nor any liability for refusing
to, close and consummate the transactions contemplated by this
Agreement unless
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the following
conditions are satisfied, and New NGAS Gathering and DPI, at their
sole cost and expense, shall use their respective best efforts to
cause such conditions to be satisfied as promptly as possible after
the NGAS Option Election Notice is delivered to DPI and New NGAS
Gathering or the Put Notice is furnished to SES, as the case may
be:
(a) If the NGAS
Equity Option is exercised, DPI shall properly execute and deliver
to Buyer, at the closing of the exercise of the NGAS Equity Option,
two (2) original copies of the Assignment of NGAS Equity
Option Interests, dated as of the date thereof, in substantially
the form attached hereto as Exhibit B (the
“ NNG Equity Assignment ”), providing for
the assignment and conveyance to SES of all of the NGAS Option
Equity Interests, free and clear of all Liens;
(b) DPI and New
NGAS Gathering shall have delivered to SES, at Sellers’ sole
cost and expense, release documentation, in form and substance
satisfactory to SES, sufficient to establish clear, marketable and
unencumbered title to the NGAS Option Assets, free of all Liens
(other than Permitted Encumbrances) including the release of any
and all liens or collateral assignments created under the NGAS
Credit Agreement;
(c) At
Seller’s sole cost and expense, Sellers shall cause Keybank
National Association, as administrative agent for the lenders under
the NGAS Credit Agreement (and any other lenders under the NGAS
Credit Agreement) to properly execute, have notarized and deliver
to SES, two (2) original copies of the Release of Liens and
Pledge, in substantially the form attached hereto as
Exhibit C (the “ Equity
Releases ”), fully releasing all security interests,
Liens, claims, guaranties or encumbrances of any kind whatsoever
that Keybank National Association (and any other lenders under the
NGAS Credit Agreement) may have regarding
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