TRANSFER AND EXCHANGE AGREEMENT

 

With a copy to:	Roger Crabb
	Scheef & Stone, LLP
	5956 Sherry Lane, Suite 1400
	Dallas, Texas 75225
	Telephone No.: (214) 706-4224
	Facsimile No.: (214) 706-4242
APOLLO LNG:	APOLLO LNG, INC. , a Texas corporation
	Mr. Dennis McLaughlin
	3001 Knox, Suite 403
	Dallas, Texas 75205
	Telephone:  (214) 389-9800
	Facsimile No.: (214) 389-9806
With a copy to:	George Lowrance
	Chappell, Hill & Lowrance, L.L.P.
	2501 Parkview, Suite 220
	Fort Worth, Texas 76102
	Telephone No.: (817) 332-1800
	Facsimile No.: (817) 332-1956
With a copy to:	Roger Crabb
	Scheef & Stone, LLP
	5956 Sherry Lane, Suite 1400
	Dallas, Texas 75225
	Telephone No.: (214) 706-4224
	Facsimile No.: (214) 706-4242

 

RECITALS

 

WHEREAS, APPLIED LNG TECHNOLOGIES USA, L.L.C. (“ ALT ”) is a limited liability company organized under the laws of the State of Delaware; and

 

WHEREAS , 49% of the membership units of ALT are owned by Neptune Leasing, Inc. (“ Neptune ”); and

 

WHEREAS , 51% of the membership units of ALT are owned by Golden Spread Energy, Inc. (“ Golden Spread ”) (collectively, Neptune and Golden Spread may be referred to herein as “ Seller ,”) (collectively, the membership units owned by Neptune and the membership units owned by Golden Spread are referred to herein as the “ Units ”); and

 

WHEREAS, Apollo Resources International, Inc. (“ Apollo ”) is a corporation organized under the laws of the State of Utah; and

 

WHEREAS , Apollo LNG, Inc. (“ Apollo LNG ”) is a corporation newly organized under the laws of the State of Texas, and which, prior to the consummation of the transactions contemplated hereby, has no shareholders, assets, or liabilities, and has conducted no business activities; and

 

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WHEREAS , this Agreement is being executed immediately prior to the Closing of the transactions contemplated hereunder; and

 

WHEREAS , pursuant to the Closing, Apollo LNG shall be formed in a transaction meeting the requirements of Section 351 of the Internal Revenue Code, in which Seller shall transfer to Apollo LNG the Units in exchange for 10,125,000 shares of the Series A Preferred Stock of Apollo LNG, and 10,125,000 shares of the Series B Preferred Stock of Apollo LNG, which shares, in the aggregate, shall represent 81% of the issued and outstanding shares of Apollo LNG Stock (as such term is defined below) immediately subsequent to the transfer by Seller of the Units, Seller shall transfer to Ken Kelley 2,375,000 shares of Series A Preferred Stock of Apollo LNG and 2,375,000 shares of Series B Preferred Stock of Apollo LNG, Apollo shall, contemporaneously transfer cash to Apollo LNG in exchange for 100% of the issued and outstanding common stock of Apollo LNG, and following such transactions no other shares of any class of stock of Apollo LNG will be issued or outstanding; and

 

WHEREAS , Apollo LNG wishes to acquire the Units and receive the cash contribution of Apollo, and Seller wishes to transfer the Units to Apollo LNG and Apollo wishes to make such cash contribution to Apollo LNG (hereinafter, Apollo LNG, Neptune and Golden Spread may be referred to jointly as the “ Parties ,” and each a “ Party ”).

 

NOW, THEREFORE, subject to the terms and conditions herein expressed, the Parties agree as follows:

 

AGREEMENT

 

1.             DEFINITIONS.

 

1.1.          Except as otherwise provided or unless the context otherwise requires, and in addition to terms defined in other provisions of this Agreement, the following terms shall have the meanings specified in this Section 1.1 when capitalized and used in this Agreement.

 

(a)           “Affiliate” of a specified Person shall mean a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified, and in the case of a specified Person who is a natural person, his/her spouse, his/her issue, his/her parents, his/her estate and any trust entirely for the benefit of his/her spouse and/or issue.

 

(b)           “Agreement” shall mean this Agreement, including the Disclosure Schedules attached hereto.

 

(c)           “Business Day” shall mean any day during which the Citibank, NA office at 53 ^rd and Park Avenue, New York, New York is open for business.

 

(d)           “Collateral Agreements” shall mean the Transition Services Agreement and the Registration Rights Agreement.

 

(e)           “Commercially Reasonable Efforts” shall mean those efforts which a prudent business Person would exert using sound business judgment in like circumstances.

 

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(f)            “Confidentiality Agreement” shall mean the Confidentiality Agreement dated September 26, 2005, between ALT and Apollo.

 

(g)           “Disclosure Schedule(s)” shall mean the schedules attached to this Agreement.

 

(h)           “Effective Date” has the meaning given to it in the introductory paragraph of this Agreement.

 

(i)            “Governmental Approvals” shall mean any authorization, approval, consent, license, registration, lease, ruling, permit, tariff, certification, exemption, filing or registration by or with any Governmental Authority.

 

(j)            “Governmental Authority” shall mean the United States, any state, county, or city, any political subdivision, agency, court or instrumentality of any of the foregoing, and any governmental or quasi-Governmental Authority, agency or body having jurisdiction over the respective assets or the Person in question.

 

(k)           “HLDM Stock Purchase Agreement” shall mean the Stock Purchase Agreement of even date herewith between Ken Kelley, Apollo LNG, and Apollo.

 

(l)            “JBK Liens” shall mean the Liens of Jack B. Kelley, Inc., on certain assets of ALT as more particularly described in that certain Security Agreement, dated as of November 1, 2005, executed by ALT, in favor of Jack B. Kelley, Inc., securing payment of that certain Promissory Note dated November 1, 2005, in the original principal sum of $8,000,000, executed by ALT, and payable to the order of Jack B. Kelley, Inc.

 

(m)          “Ken Kelley” shall mean Oliver Kendall Kelley, a person and a resident of Potter County, Texas.

 

(n)           “Ken Kelley Goodwill” shall mean the personal efforts and contributions of Ken Kelley to ALT, prior to the Closing under this Agreement.

 

(o)           “Knowledge,” “known” and “knows,” shall mean the knowledge, either actual or constructive (based upon what a reasonable person in the applicable position with a Party should know), of (i) a Responsible Officer of that Party and (ii) in the case of the knowledge of Seller, and without limiting clause (i) above, the Responsible Officers of ALT and each of Ken Kelley, Eric Alexander and Steve Bartlett and (iii) in the case of the knowledge of Apollo LNG and of Apollo, and without limiting clause (i) above, the Responsible Officers of Apollo LNG, Apollo and each of Dennis McLaughlin, Mark Ariail, Lyle Justus, Wayne McPherson and Christopher Chambers.

 

(p)           “Law” or “Laws” shall mean any constitution, statute, code, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction (including applicable permits and Governmental Approvals) of any applicable Governmental Authority.

 

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(q)           “Liens” shall mean any lien, charge, hypothecation, pledge, mortgage, title retention agreement, security interest, adverse claim, option, or pledge of any nature, kind or description whatsoever and any agreement to create any of the foregoing.

 

(r)            “Losses” shall mean any and all liabilities, payments, losses, suits, claims, costs, or expenses (including attorneys fees and costs of investigation incurred in defending against such liabilities, payments, losses, suits, claims, costs or expenses).

 

(s)           “Material Adverse Effect” or “Material Adverse Change” shall mean any change in or effect on, ALT, Apollo LNG or Apollo, as the case may be (including the businesses thereof) which is, or reasonably could be expected to be, materially adverse to the business, operations, assets, condition (financial or otherwise) or prospects of any such entity.

 

(t)            “Mountain States Stock Purchase Agreement” shall mean the Stock Purchase Agreement of even date herewith between Seller, Apollo, and Apollo Production & Operating, Inc.

 

(u)           “Ordinary Course of Business” shall mean the ordinary course of business consistent with past custom and practice (including with respect to quantity, quality and frequency).

 

(v)           “Permitted Liens” shall mean any of the following:  (i)  Liens for current taxes,  assessments or government charges not yet due and payable and clearly reflected on the appropriate company balance sheet and adequately reserved for, (ii) Liens that, when taken together, would not materially detract from the market value or materially interfere with the present businesses of ALT, Apollo LNG or of Apollo or otherwise have a Material Adverse Effect, (iii) and Liens set forth on Schedule 1.1(v) .

 

(w)          “Person” shall mean and include an individual,  partnership,  limited partnership,  limited liability company,  corporation,  association,  joint stock company,  trust,  joint venture, unincorporated organization, or a Governmental Authority.

 

(x)            “Registration Rights Agreement” means the Registration Rights Agreement of even date herewith, entered into between Neptune, Golden Spread, Ken Kelley, Apollo and Apollo LNG, providing for certain registration rights of Golden Spread, Neptune, and Ken Kelley with respect to the Apollo LNG Stock.

 

(y)           “Responsible Officer” shall mean, with respect to any Person, the chief executive officer, the president, the respective vice presidents in charge of operations, legal, finance, and accounting of such Person and, in each case, any Person fulfilling substantially the same role for such Person, however designated.

 

(z)            “Transition Services Agreement” means the Transition Services Agreement of even date herewith, between Golden Spread and Apollo.

 

1.2.          Rules of Interpretation.

 

(a)           The singular includes the plural, and the plural includes the singular.

 

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(b)           A reference to any Law includes any amendment or modification thereto, all rules and regulations promulgated under such Law and all administrative and judicial authority exercisable thereunder.

 

(c)           A reference to any contract, agreement or instrument includes any amendment or modification thereto including by waiver or consent.

 

(d)           A reference to Person includes its permitted successors and assigns.

 

(e)           Any date specified for any action that is not a Business Day shall be deemed to mean the first Business Day after such date.

 

(f)            This Agreement shall be deemed to have been drafted by each Party hereto and this Agreement shall not be construed against any Party as a principal drafts Person.

 

2.             AGREEMENT FOR TRANSFER AND EXCHANGE

 

2.1.          Transfer and Exchange.   Upon the terms and subject to the conditions set forth in this Agreement, Seller shall transfer to Apollo LNG, and Apollo LNG shall acquire from Seller, the Units in exchange for (the “ Exchange Consideration ”) (i) Twelve Million Five Hundred Thousand Dollars ($12,500,000.00) in Series A $1.00 par value 8.5% cumulative non-voting convertible preferred stock in Apollo LNG (the “ Series A Stock ”); and (ii)  Twelve Million Five Hundred Thousand Dollars ($12,500,000.00) in Series B $1.00 par value 8.5% cumulative non-voting convertible preferred stock in Apollo LNG (the “ Series B Stock ”) (collectively, the Series A Stock and the Series B Stock shall be referred to herein as the “ Apollo LNG Stock ”).

 

(a)           Seller shall assign, transfer and deliver to Apollo LNG the Units representing 100% of the total membership units in ALT and shall represent to Apollo LNG that there are no additional membership units in ALT of any nature or of any category and shall deliver an assignment of the Units in form and substance acceptable to counsel for Apollo LNG; and

 

(b)           Apollo LNG shall accept and acquire the Units from Seller and in exchange therefor, shall deliver to Seller and to Ken Kelley the Apollo LNG Stock, which shall be composed of 12,500,000 shares of Series A Stock and 12,500,000 shares of Series B Stock, each of which is non-voting and each share of which shall be convertible according to the terms in Section 2.2 hereof.

 

The Apollo LNG Stock delivered by Apollo LNG shall be apportioned between Seller and Ken Kelley as follows:  Series A Stock, 10,125,000 shares allocable to Seller and 2,375,000 shares allocable to Ken Kelley, in consideration for the Ken Kelley Goodwill, and Series B Stock, 10,125,000 shares allocable to Seller, and 2,375,000 allocable to Ken Kelley, in consideration for the Ken Kelley Goodwill.

 

(c)           Apollo shall deliver a cash payment to Apollo LNG, and Apollo LNG shall deliver to Apollo, 25,000,000 shares of the voting common stock of Apollo LNG, constituting 100% of the issued and outstanding shares of common stock of Apollo LNG.

 

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2.2.          Rights, Preferences, Privileges, and Attributes of Apollo LNG Preferred Stock .

 

(a)           The Apollo LNG Stock shall bear a cumulative cash dividend in the amount of 8.50% annually, which dividend shall commence to accrue upon the first anniversary of the Closing Date, and shall accrue from day to day thereafter, whether or not earned or declared, it being understood that no dividend shall accrue or shall be payable for the period from the Closing Date until the first anniversary thereof.  The dividend shall be payable commencing on the last day of the eighteenth (18 ^th ) month following the Closing Date and shall be payable semi-annually thereafter (the “ Dividend Payment Dates ”).  Dividends shall cease to accrue upon Apollo LNG Stock that has been converted as provided for below.

 

(b)           Commencing upon the Closing and continuing thereafter until the second (2 ^nd ) anniversary after the Closing, Seller and Ken Kelley may, at their sole option and without an obligation to do so, convert at any time all, but not less than all, of the Series A Stock into voting common stock, par value $0.01, in Apollo LNG (the “ Series A Conversion Rights ”), that shall represent forty-nine percent (49.00%) of the total issued and outstanding common stock of Apollo LNG at the time of conversion.

 

(c)           Commencing upon the Closing and continuing thereafter until the second (2 ^nd ) anniversary after the Closing, each Seller and Ken Kelley may, at their sole option and without an obligation to do so, at any time and from time to time, convert all, or any portion thereof, of the Series B Stock held by them into voting common stock in Apollo (the “ Series B Conversion Rights ”) at a conversion price of $0.40 per share of Apollo common stock, regardless of the actual market price of such Apollo common stock (along with the time period as described in Section 2.2(b)  hereof, this period of time shall be referred to herein as the “ Conversion Period ”)(collectively, the Series A Conversion Rights and the Series B Conversion Rights shall be referred to herein as the “ Conversion Rights ”). Therefore (for purposes of illustration and assuming that all dividends payable as of the date of conversion have been paid), each share of Series B Stock may be exchanged for two and one-half (2-1/2) shares of Apollo voting common stock. Notwithstanding the foregoing , Seller and Ken Kelley may not exercise their Series B Conversion Rights in a combined total of more than five (5) increments during the Conversion Period. Upon the exercise by a Seller or by Ken Kelley, or by either of them, as the case may be, of all or any portion of their Conversion Rights, all accrued dividends then outstanding shall, in the sole judgment and discretion of Apollo LNG, be promptly paid to such Seller or to Ken Kelley, as the case may be, in either (i) cash; or (ii) Apollo registered common stock valued at the average closing price of such stock over the most immediate five (5) trading day period prior to the exercise of the Conversion Rights by Apollo LNG and further discounted by a factor of thirty percent (30%).

 

The initial Series B Stock conversion price of $0.40 per share of Apollo common stock shall be subject to adjustment as follows:

 

(i)            If Apollo shall effect a stock split of its outstanding common stock, the conversion price per share of Apollo common stock in effect immediately prior to the stock split shall be proportionately decreased.  If Apollo shall combine the outstanding shares of its common stock, the conversion price per share of

 

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Apollo common stock in effect immediately prior to the combination shall be proportionately increased.  Any such adjustment shall be effective at the close of business on the date the stock split or combination occurs.

 

(ii)           If Apollo shall make or issue or set a record date for the determination of holders of its outstanding common stock entitled to receive a dividend or other distribution payable in shares of Apollo common stock, the conversion price per share of Apollo common stock in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying the conversion price per share of Apollo common stock then in effect by a fraction:

 

(1)           the numerator of which shall be the total number of shares of Apollo common stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

 

(2)           the denominator of which shall be the total number of shares of Apollo common stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Apollo common stock issuable in payment of such dividend or distribution.

 

(iii)          If Apollo shall make or issue or set a record date for the determination of holders of Apollo common stock entitled to receive a dividend or other distribution payable in other than shares of Apollo common stock, then, and in each event, an appropriate revision to the conversion price per share of Apollo common stock shall be made and provision shall be made (by adjustments of the conversion price or otherwise) so that the holders of the Series B Stock shall receive upon conversions thereof, in addition to the number of shares of Apollo common stock receivable thereon, the number of securities of Apollo which they would have received had the Series B Stock been converted into common stock on the date of such event; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the conversion price per share of Apollo common stock shall be adjusted as of the time of actual payment of such dividends or distributions

 

(iv)          If there shall be (1) a capital reorganization of Apollo (other than by way of a stock split or combination of shares or stock dividends or distributions provided for above), or (2) a merger or consolidation of Apollo with or into another corporation where the holders of outstanding Apollo voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged or consolidated entity immediately after such merger or consolidation, or (3) the sale of all or substantially all of Apollo’s properties or assets to any other person (an “ Organic Change ”) then as a part of such Organic Change, an appropriate adjustment to the

 

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conversion price shall be made so that the Series B Stock shall thereafter convert into the kind and amount of shares of stock and other securities or property of Apollo or any successor corporation resulting from such Organic Change.

 

(v)           If the common stock issuable upon conversion of Series B Stock at any time or from time to time after the issuance date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 2.2(c)(i), 2.2(c)(ii), and 2.2(c)(iii) , or a reorganization, merger, consolidation, or sale of assets provided for in Section 2.2(c)(iv)) , then, and in each event, an appropriate revision to the conversion price per share shall be made and provisions shall be made (by adjustments of the conversion price per share or otherwise) so that the Seller and Ken Kelley shall have the right thereafter to convert the Series B Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of common stock into which the Series B Stock might have been converted immediately prior to such reclassification exchange, substitution or other change.

 

(d)           In the event that Apollo LNG shall default on the payment of any dividend as described in this Section 2.2 , upon written notice to Apollo LNG from Seller or Ken Kelley of such default, Apollo LNG shall thereafter have a period of ten (10) days to cure such default by making a cash payment to Seller and/or to Ken Kelley as may be appropriate in the amount of the default ( the “ Apollo LNG Cure Period ”) and thereafter (A) Apollo LNG may, for an additional period of five (5) Business Days following the Apollo LNG Cure Period, cure the default by delivering to Seller or to Ken Kelley as the case may be, Apollo common stock in the amount of the default [the amount of Apollo stock to be delivered to Seller or to Ken Kelley shall be determined by the average closing price of such stock over the most immediate five (5) trading day period prior to the date of such default discounted by thirty percent (30%) (the “ Apollo LNG Cure ”)];or (B) in the event that Apollo LNG shall not have accomplished the Apollo LNG Cure within five (5) Business Days after the expiration of the Apollo LNG Cure Period, the Apollo LNG Stock shall immediately be vested with full voting rights, in addition to the voting rights described in Section 2.2(e)  below (the “ Additional Voting Rights ”).  In such event, the holders of the Apollo LNG Stock shall be vested with full voting rights for ninety percent (90%) of the total voting rights in Apollo LNG.  For the avoidance of doubt, it is expressly understood and agreed that such 90% voting rights shall include the right to remove and replace directors immediately, without cause, and to elect directors, and to vote upon or approve any other matter that may be voted on by the holders of common stock or other voting stock in Apollo LNG.  Notwithstanding the foregoing , the financial default and the obligation to pay dividends shall continue to be an obligation of Apollo LNG. If the default is fully cured by the payment of all amounts due, within ninety (90) days from the expiration of the Apollo LNG Cure Period, the Additional Voting Rights shall terminate.

 

(e)           In addition to the matters described above, the designations, rights, preferences, privileges, and attributes of the Apollo LNG Stock are as follows:

 

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(i)            If all dividends on the Apollo LNG Stock from the date from which such dividends on such shares began to accrue have not been paid when due, the deficiency must be fully paid, together with additional dividends (the “ Additional Dividends ”) to reflect amounts equivalent to interest on accrued but unpaid dividends at the rate of ten percent (10%) per annum, before any dividends may be declared or any distribution whatsoever made on or with respect to the Apollo LNG common stock or any other capital stock of Apollo LNG.  After full dividends on the Apollo LNG Stock shall have been paid, then and not otherwise, dividends may be paid or declared and set apart for payment upon the Apollo LNG common stock, or other capital stock of Apollo LNG, out of any funds legally available for the declaration of dividends.

 

(ii)           Apollo LNG, at its option, may, but is not so obligated, redeem, at any time or from time to time commencing on the first day of the termination of the Conversion Period and continuing at all times thereafter, the whole or any part of the Apollo LNG Stock outstanding by paying in cash to the holders of such shares to be redeemed, $1.00 per share, plus an amount in cash equivalent to the amount of all accrued and unpaid dividends (including any Additional Dividends), computed from the date from which dividends on each such share began to accrue and cumulate to the date fixed for such redemption. Notice of redemption must be given at least ten (10) days and not more than thirty (30) days prior to the date fixed for such redemption.  Such redemptions shall be made ratably between the Series A Stock and the Series B Stock, and shall also be made ratably with respect to the Apollo LNG Stock held by Ken Kelley and the Apollo LNG Stock held by Seller.

 

(iii)          In the event of any termination, liquidation, voluntary or involuntary dissolution, or winding up of the affairs of Apollo LNG, then, before any payment or distribution may be made to the holders of the common stock or any other capital stock of Apollo LNG, the holders of the Apollo LNG Stock at the time outstanding must be paid, in cash, $1.00 per share, plus an amount in cash equivalent to all accrued and unpaid dividends (including Additional Dividends) computed from the date from which dividends on each such share began to accrue and cumulate to the date fixed for such payments or distributions to the holders of any other capital stock Apollo LNG Stock.

 

(iv)          Except to the extent and in the cases specifically required by Law or required or permitted by this Agreement, the holders of the Apollo LNG Stock will have no voting rights and all voting rights and power shall be vested exclusively in the holders of the common stock of Apollo LNG.

 

(v)           So long as any shares of the Apollo LNG Stock are outstanding, Apollo LNG shall not, without the affirmative consent (given in writing without a meeting or by vote at a meeting duly called for the purpose) of the holders of at least two-thirds (2/3) in aggregate par value of the Apollo LNG Stock then outstanding:

 

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(1)           Alter, amend or repeal the terms of the Apollo LNG Stock;

 

(2)           Issue or create any class of stock which ranks on a parity with, or prior to the Apollo LNG Stock in respect of dividends, assets, liquidation rights, preferences, privileges, or voting rights;

 

(3)           Reclassify shares of any class ranking junior to the Apollo LNG Stock in respect of dividends, assets, liquidation rights, preferences, voting rights or privileges, wholly or partially into shares of any class ranking on a parity with or prior to the Apollo LNG Stock in respect of dividends, assets, liquidation rights, preferences, voting rights, or privileges;

 

(4)           License on an exclusive basis or sell all or substantially all of its property and assets to, or merge or consolidate into or with, any other corporation or entity, or take any action which results in a corporate reorganization or sale of control;

 

(5)           Redeem any shares of capital stock, other than the Apollo LNG Stock, or authorize a payment of a dividend upon any class of stock, other than the Apollo LNG Stock.

 

(vi)          Promptly following January 1, 2006, Apollo LNG shall file appropriate amendments to its articles of incorporation setting forth, as contemplated under the Texas Business Organizations Code, a description of the preferences, limitations, and rights of the Apollo LNG Stock.

 

3.             CLOSING

 

3.1.          Closing and Preparation Therefor .  The closing of the transaction contemplated by this Agreement (“ Closing ”) shall be transacted on the date five (5) days after all conditions set forth in Section 5.1 and Section 5.2   have been satisfied or waived, or such other date as may be mutually agreed to by Seller and Apollo, but, in no event, after December 7, 2005 (the “ Closing Date ”) and shall occur at the offices of Sprouse Shrader Smith, P.C., Amarillo, Texas or such other location as the Parties may agree.  The effective closing date (the “ Effective Closing Date ”) shall be deemed to be November 30, 2005.

 

3.2.          Closing Obligations of Apollo .  At or before the Closing, Apollo and/or Apollo LNG, as appropriate, shall deliver to Seller (and Ken Kelley, with respect to the Apollo LNG Stock) the following:

 

(a)           The Apollo LNG Stock, free and clear of all Liens.  The certificates representing the Apollo LNG Stock shall bear the restrictive legend customarily placed on securities that have not been registered under applicable federal and state securities Laws and shall be accompanied by stock powers as required by this Agreement, and any other documents that are necessary to transfer to Seller good title to all the Apollo LNG Stock, all of which shall be in form acceptable to counsel for Seller.

 

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(b)           Certified resolutions of the boards of directors of Apollo and Apollo LNG authorizing or ratifying the execution, delivery, guarantee and performance of this Agreement and all related documents and instruments, duly certified by the respective secretaries of Apollo and Apollo LNG.

 

(c)           The certificates, instruments, and other documents provided for in Section 5.2 hereof.

 

(d)           Such other documents as Seller’s counsel may reasonably request to consummate the transactions contemplated hereby.

 

3.3.          Closing Obligations of Seller .  At or before the Closing, Seller shall deliver to Apollo and/or Apollo LNG, as appropriate, the following:

 

(a)           The Units, free and clear of all Liens. The assignment and transfer of the Units shall be accomplished by such documents as are necessary and appropriate to transfer to Apollo LNG good title to all of the Units, and which shall be approved by counsel for Apollo.

 

(b)           Certified resolutions of Neptune, Golden Spread and ALT, authorizing or ratifying the execution, delivery and performance of this Agreement and all related instruments.

 

(c)           A Certificate from the Arizona Corporation Commission confirming that ALT is a limited liability company in good standing in the State of Arizona, dated within five (5) business days prior to the Closing Date.

 

(d)           Copies of letters from ALT to all material vendors and suppliers advising them of the sale, which letters will be mailed by Seller promptly following the Closing.

 

(e)           The certificates, instruments, and other documents provided for in Section 5.1 hereof.

 

(f)            Releases of any Liens against any of the Units or the assets of ALT, other than any expressly permitted by this Agreement, including Permitted Liens.

 

(g)           Such other documents as Apollo’s counsel may reasonably request to consummate the transactions contemplated hereby.

 

3.4.          Risk of Loss.  Pending the Closing, ALT shall bear all risk of loss, damage or destruction suffered by ALT. In the event of any material loss, damage or destruction to the assets of ALT prior to the Closing, which cannot be repaired prior to the Closing, Apollo may, in the exercise of its sole judgment (a) declare the Agreement to be null and void; or (b) waive the loss, damage or destruction and accept the assets of ALT in an “as is, how is, where is” condition. In such event, any insurance proceeds received by ALT from such loss, damage or destruction shall be retained in ALT. Pending the Closing Apollo shall bear all risk of loss, damage or destruction suffered by Apollo.  In the event of any material loss, damage or destruction to the assets of Apollo prior to the Closing, which cannot be repaired prior to the Closing, Seller may, in the exercise of its sole judgment (a) declare the Agreement to be null and void; or (b) waive the loss, damage or destruction and close the transactions contemplated

 

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hereby.  Each Party shall immediately notify the other Party of any loss, damage or destruction to its properties, as contemplated pursuant to this Section 3.4 .

 

4.             OTHER AGREEMENTS

 

4.1.          Environmental .  It is specifically understood and agreed by the Parties that, described on Schedule 4.1 and made a part hereof by this reference, Seller has provided a true and complete copy of a Phase I environmental survey (the “ Environmental Survey ”) of all of the real property owned by ALT and to be transferred according to this Agreement. The Parties agree that, as of the date of the Closing, the Environmental Survey shall be conclusively presumed to be an accurate reflection of the environmental conditions of all of the real property addressed by the Environmental Survey.  The Parties further agree that the Environmental Surveys, whether they are fully executed or not, shall be conclusively presumed by all Parties to be true and complete.

 

4.2.          Apollo LNG’s Access to Records .  Upon the mutual execution of this Agreement, Seller shall give Apollo, its counsel, accountants, lenders, and other designated agents full access, at reasonable times and on reasonable notice but without any unreasonable disruption to Seller’s or ALT’s businesses, to all records, assets, properties and operations pertaining to ALT.

 

The activities described in Section 4.1 and Section 4.2 shall be referred to in this Agreement as “ Apollo’s Due Diligence Review .”

 

4.3.          Apollo’s Due Diligence Review .  Apollo’s Due Diligence Review shall also be subject to the following terms and conditions:

 

(a)           Apollo’s Due Diligence Review shall be scheduled through designated representative(s) of Seller and Seller shall have the right to accompany Apollo’s employees, representatives and agents as they perform Apollo’s Due Diligence Review;

 

(b)           Apollo shall not disclose or allow its employees, representatives or agents to disclose the purposes for Apollo’s Due Diligence Review, without the consent of Seller, which consent shall not be unreasonably withheld or delayed;

 

(c)           Apollo shall obtain the prior approval of Seller before conducting any discussions with Seller’s employees, vendors, customers or service providers, which approval shall not be unreasonably withheld or delayed;

 

(d)           Apollo shall indemnify Seller and ALT against any physical damage or injury to property or persons or for any loss or damage proximately arising from Apollo’s Due Diligence Review;

 

(e)           Except as otherwise required by Law, any information concerning ALT’s properties gathered by Apollo as the result of, or in connection with, Apollo’s Due Diligence Review shall be kept confidential and shall not be revealed to, or discussed with, anyone other than representatives of Apollo or representatives of Seller.;

 

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(f)            Apollo shall bear all costs and expenses of Apollo’s Due Diligence Review.

 

(g)           From the Effective Date through the Closing Date, Seller shall notify Apollo promptly of (i) any actions or proceedings threatened or commenced against Seller or ALT or against any officer, director, affiliate, employee, properties or assets of Seller or ALT which could impair Seller’s ability to perform Seller’s obligations under this Agreement, and (ii) any request for additional information or documentary materials by any Governmental Authority in connection with the transactions contemplated hereby.

 

(h)           Seller shall promptly upon request, deliver to Apollo LNG copies or originals of minute books, property files, accounting and tax records, and other material records in whatever form or medium that relate to the business or assets of ALT, and that are in the possession or control of Seller or ALT, and Apollo LNG shall receive possession of all original records, to the extent they are in the possession of ALT or Seller and, in the event such originals are not so possessed, then true, complete and accurate copies thereof.

 

4.4.          Seller’s Conduct of Business.  Without in any way limiting any other obligation of the Seller pursuant to this Agreement, from the Effective Date until the Closing, Seller shall cause ALT to (a) maintain its books and records in accordance with past practices; (b) comply in all material respects with all applicable Laws; (c) conduct its business in the Ordinary Course of Business; (d) maintain insurance on the assets and operations of its business in amounts and with coverage at least as great as the amounts and coverage presently maintained by ALT; (e) not do any act or omit to do any act, or permit any act or omission to act, which would cause a breach of any contract, commitment or obligation for which Apollo LNG or Apollo would be liable or which would have a Material Adverse Effect.  Seller will not take or permit any action to be taken which would result in any representation or warranty of Seller or ALT herein becoming untrue or incorrect in any material respect.

 

4.5.          ALT’S Employee Compensation .  Attached hereto as Schedule 4.5 is a complete and accurate record of (a) all of ALT’s employees, (b) each employee’s current compensation plan (including base salary or hourly rate and bonus or commission pay), title, length of employment, employment contract, if any, (c) the number of hours of sick-time or vacation time which each employee has available during the year, and (d) a list of each Employee Benefit Plan as defined in Section 6.1(e)  of this Agreement.  ALT shall make appropriate arrangements at or prior to Closing to pay or provide for all accrued vacation pay, bonuses and other employee compensation or benefits earned but unpaid through the Closing Date.

 

4.6.          ALT’S Employee Termination .  Seller covenants that, as of the Closing, ALT will terminate the employment of all employees of ALT.  It is the present intention of Seller that ALT will cause its employees to be transferred to an Affiliate of ALT.  Seller agrees, in any event, to provide continuation health coverage for all former employees of ALT and all of ALT’s COBRA participants at the Closing date irrespective of the Seller’s continuation or termination of Seller’s or ALT’s then existing group health plan.  Seller shall provide ALT’s former employees and COBRA participants with timely notice of their COBRA group health plan continuation rights under the group health continuation plan, and shall indemnify, defend, and hold harmless Apollo LNG and Apollo from any and all obligations, claims, losses, or expenses

 

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associated in any manner with ALT’s former employees and COBRA participants rights to group health coverage benefits after their employment termination by ALT.

 

4.7.          Seller’s Access to Records .  Upon the mutual execution of this Agreement, Apollo shall give Seller, its counsel, accountants, lenders, and other designated agents full access, at reasonable times and on reasonable notice but without any unreasonable disruption to Apollo’s business, to all records, assets, properties and operations pertaining to Apollo or to Apollo LNG. The activities described in this Section shall be referred to as the “ Seller’s Due Diligence Review ”.

 

4.8.          Seller’s Due Diligence Review.   Seller’s Due Diligence Review shall also be subject to the following terms and conditions:

 

(a)           Seller’s Due Diligence Review shall be scheduled through designated representative(s) of Apollo, and Apollo shall have the right to accompany Seller’s employees, representatives and agents as they perform Seller’s Due Diligence Review on Apollo’s respective properties and assets;

 

(b)           Seller shall not disclose or allow its employees, representatives or consultants to disclose the purposes for Seller’s Due Diligence Review, without the consent of Apollo LNG and of Apollo, which consent shall not be unreasonably withheld or delayed;

 

(c)           Seller shall obtain the prior approval of Apollo before conducting any discussions with Apollo’s employees, vendors, customers or service providers, which approval shall not be unreasonably withheld or delayed;

 

(d)           Seller shall indemnify Apollo against any physical damage or injury to property or persons or for any loss or damage proximately arising from Sellers’ Due Diligence Review;

 

(e)           Except as otherwise required by Law, any information concerning Apollo’s properties gathered by Seller as the result of, or in connection with, Seller’s Due Diligence Review shall be kept confidential and shall not be revealed to, or discussed with, anyone other than representatives of Seller;

 

(f)            From the Effective Date through the Closing Date, Apollo LNG and Apollo shall notify Seller promptly of (i) any actions or proceedings threatened or commenced against Apollo LNG or Apollo or against any officer, director, affiliate, employee, properties or assets of Apollo or Apollo LNG which could impair Apollo’s or Apollo LNG’s ability to perform their obligations under this Agreement, and (ii) any request for additional information or documentary materials by any Governmental Authority in connection with the transactions contemplated hereby.

 

4.9.          Apollo LNG’s and Apollo’s Conduct of Business.   Without in any way limiting any other obligation of the Seller pursuant to this Agreement, from the Effective Date until the Closing, Apollo LNG and Apollo shall (a) maintain their books and records in accordance with past practices; (b) comply in all material respects with all applicable Laws; (c) conduct their business in the Ordinary Course of Business; (d) maintain insurance on the assets and operations

 

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of their business in amounts and with coverage at least as great as the amounts and coverage presently maintained by Apollo; (e) not do any act or omit to do any act, or permit any act or omission to act, which would cause a breach of any contract, commitment or obligation for which Seller would be liable or which would have a Material Adverse Effect.  Apollo LNG and Apollo will not take or permit any action to be taken which would result in any representation or warranty of either or Apollo LNG or Apollo herein becoming untrue or incorrect in any material respect.

 

4.10.        Records.   After the Closing, Apollo LNG shall maintain the books and records relating to ALT in an orderly and businesslike fashion and shall permit Sellers to have reasonable access at Seller’s expense to such books and records in connection with the preparation of Seller’s financial reports, tax returns, tax audits, the defense or prosecution of litigation (including arbitration), or any other reasonable need of Seller to consult such books and records.

 

4.11.        Certificates of Clearance.   Seller shall exercise Commercially Reasonable Efforts to obtain and deliver to Apollo LNG as soon as reasonably practicable after the Closing, Certificates of Clearance from the Arizona Department of Revenue, Mojave County, and the City of Phoenix, as applicable, with respect to ALT, verifying the timely filing of and required transaction privilege, sales, and/or use tax, income tax and unemployment and withholding tax returns by ALT, and payment by ALT of all amounts due.

 

4.12.        Capitalization of Apollo LNG .  Apollo LNG shall be capitalized by Neptune, Golden Spread and Apollo immediately following the execution and delivery by the Parties of this Agreement, and the closing of the transactions contemplated hereby, in a transaction under Section 351 of the Internal Revenue Code, pursuant to which (i) Neptune and Golden Spread shall transfer the Units to Apollo LNG, and Apollo shall contribute cash to Apollo LNG, and Apollo LNG shall contemporaneously issue 81% of the Apollo LNG Stock to Seller, 19% of the Apollo LNG Stock to Ken Kelley, and all of the common stock of Apollo LNG to Apollo; and (ii) therefore, immediately following such transactions, Seller will possess 81% of the ownership and control of the Apollo LNG Stock, and Apollo will possess 100% of the ownership and control of the common stock of Apollo LNG.  Prior to such capitalization Apollo LNG shall have had no shareholders or employees, shall have conducted no business activities, and shall have had no assets, properties or liabilities of any nature whatsoever (whether due or to become due, accrued, contingent, absolute or otherwise).

 

5.             CONDITIONS PRECEDENT TO THE PARTIES’ OBLIGATIONS TO CLOSE

 

5.1.          Contingencies of Apollo .  Apollo LNG’s obligation to acquire the Units and Apollo LNG’s and Apollo’s obligation to take the other actions required to be taken by Apollo LNG and by Apollo at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Apollo LNG or by Apollo, in whole or in part, in writing).

 

(a)           Representations and Warranties; Agreements; Covenants .  Each of the representations and warranties of Seller shall be true and correct in all material respects on the date made and shall be true and correct in all material respects as of the Closing. Each of the

 

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obligations of Seller required by this Agreement to be performed by it at or prior to the Closing shall have been duly performed and complied with in all material respects as of the Closing. At the Closing, Apollo LNG shall receive a certificate, dated the Closing date and duly executed by Seller to the effect that the conditions set forth in this Section 5.1(a)  have been satisfied except as specified in such certificate.

 

(b)           Authorizations; Consents .  All corporate and limited liability company action necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by Seller and by ALT, and all notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, Governmental Authorities and third persons required to consummate the transactions contemplated hereby shall have been made or obtained.

 

(c)           Absence of Litigation.   No order, stay, injunction or decree of any Governmental Authority shall be in effect (i) that prevents or delays the consummation of any of the transactions contemplated hereby; or (ii) would impose any limitation on the ability of Apollo LNG effectively to exercise full rights of ownership of the Units. No action, suit or proceeding before any Governmental Authority shall be pending or threatened, and no investigation by any Governmental Authority shall have been commenced (and be pending), seeking to restrain or prohibit (or questioning the validity or legality of) the consummation of the transactions contemplated by this Agreement or seeking damages in connection therewith which Apollo LNG and Apollo, in good faith and with the advice of counsel, believe makes it undesirable to proceed with the consummation of the transactions contemplated hereby.

 

(d)           No Material Adverse Effect .  During the period from September 30, 2005 to the Closing, there shall not have been any Material Adverse Change with respect to ALT.

 

(e)           Organizational Documents.   Seller and ALT, as applicable, shall have delivered to Apollo and Apollo LNG each of the following documents:

 

(i)            certified copies of the articles of incorporation and bylaws of Neptune and of Golden Spread, and a certified copy of the certificate of formation and limited liability agreement of ALT;

 

(ii)           appropriate board, shareholder, manager, and member resolutions, and other similar documents in order to ratify, approve and implement further the transactions contemplated hereunder in form reasonably satisfactory to counsel for Apollo and Apollo LNG.

 

(f)            Transfer Documents.   Seller shall have delivered to Apollo LNG such transfer documents and other documents and instruments as shall be reasonably necessary to transfer to Apollo LNG the Units.

 

(g)           Completion of Due Diligence .  Apollo shall have completed the Apollo Due Diligence Review and the results of the Apollo Due Diligence Review shall be satisfactory to Apollo.

 

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(h)           Board Approval .  The board of directors of Apollo LNG and the board of directors of Apollo shall each have approved the consummation of all of the transactions contemplated by this Agreement.

 

(i)            Certificates .  Seller and ALT shall have furnished Apollo and Apollo LNG with such certificates of their officers and others as Apollo and Apollo LNG may reasonably request to evidence compliance with all of the conditions set forth in this Section 5.1 .

 

(j)            Legal Matters .  All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of Seller or ALT under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of Seller or ALT in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for Apollo and Apollo LNG.

 

(k)           Schedules .  ALT and Seller shall have delivered to Apollo and Apollo LNG all schedules referred to in this Agreement and required to be delivered by Seller or ALT and such schedules shall be acceptable in form and substance to Apollo LNG.

 

(l)            Collateral Agreements .  The Collateral Agreements shall have been executed and delivered by the respective parties to such Agreements.

 

(m)          Related Transactions .  The transactions contemplated by the HLDM Stock Purchase Agreement and the Mountain States Stock Purchase Agreement shall close immediately following the Closing under this Agreement, but, in no event later than December 7, 2005.

 

5.2.          Contingencies of Seller .  Seller’s obligations to sell the Units and to take the other actions required to be taken by Seller and ALT at the Closing are subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part, in writing).

 

(a)           Representations and Warranties; Agreements; Covenants .  Each of the representations and warranties of Apollo LNG and of Apollo shall be true and correct in all material respects on the date made and shall be true and correct in all material respects as of the Closing. Each of the obligations of Apollo (and Apollo LNG) required by this Agreement to be performed by them at or prior to the Closing shall have been duly performed and complied with in all material respects as of the Closing. At the Closing, Seller shall receive a certificate, dated the Closing date and duly executed by Apollo LNG and by Apollo to the effect that the conditions set forth in this Section 5.2(a)  have been satisfied except as specified in such certificate

 

(b)           Authorizations; Consents .  All corporate action necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by Apollo and by Apollo LNG, and all notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, Governmental Authorities and third Persons required to consummate the transactions contemplated hereby shall have been made or obtained. `

 

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(c)           Organizational Documents.   Apollo and Apollo LNG shall have delivered to Seller each of the following documents:

 

(i)            certified copies of the articles of incorporation and bylaws of Apollo and of Apollo LNG; and

 

(ii)           appropriate board and shareholder resolutions, and other similar documents in order to approve and implement further the transactions contemplated hereunder in form reasonably satisfactory to counsel for Seller.

 

(d)           Absence of Litigation.   No order, stay, injunction or decree of any Governmental Authority shall be in effect (i) that prevents or delays the consummation of any of the transactions contemplated hereby; or (ii) would impose any limitation on the ability of Seller effectively to exercise full rights of ownership of the Apollo LNG Stock. No action, suit or proceeding before any Governmental Authority shall be pending (or threatened by any Governmental Authority), and no investigation by any Governmental Authority shall have been commenced (and be pending), seeking to restrain or prohibit (or questioning the validity or legality of) the consummation of the transactions contemplated by this Agreement or seeking damages in connection therewith which Seller, in good faith and with the advice of counsel, believes makes it undesirable to proceed with the consummation of the transactions contemplated hereby.

 

(e)           No Material Adverse Effect .  During the period from September 30, 2005 to the Closing, there shall not have been any Material Adverse