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SECURITIES PURCHASE AGREEMENT

Stock Purchase Agreement

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This Stock Purchase Agreement involves

CAPCO ENERGY INC

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Title: SECURITIES PURCHASE AGREEMENT
Governing Law: Texas     Date: 3/16/2005
Industry: Oil and Gas Operations     Law Firm: CAPC     Sector: Energy

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Exhibit 10.1

 

 

 

 

 

 

 

 

 

SECURITIES PURCHASE AGREEMENT

 

 

Dated as of March 10, 2005

 

 

By and Between

 

 

CAPCO ENERGY, INC.

 

and

 

 

JVL Global Energy (QP), LP

JVL Global Energy, LP

Navitas Fund, LP

Peninsula Fund, LP

Peninsula Catalyst Fund, LP

Peninsula Catalyst QP Fund, LP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

TABLE OF CONTENTS

Page

 

ARTICLE I DEFINITIONS

1

Section 1.1 - Definitions

1

Section 1.2 - Other Definitions

3

Section 1.3 - Construction

3

 

ARTICLE II ISSUANCE AND PURCHASE OF STOCK

3

Section 2.1 - Issuance and Purchase of Stock

3

Section 2.2 - The Closing

3

 

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

3

Section 3.1 - Organization

3

Section 3.2 - Due Authorization

4

Section 3.3 - Non-Contravention

4

Section 3.4 – Consents

4

Section 3.5 - Capitalization

4

Section 3.6 - Legal Proceedings

5

Section 3.7 - No Violations

5

Section 3.8 - Permits

5

Section 3.9 - Financial Statements

5

Section 3.10 - No Material Adverse Change

6

Section 3.11 - Disclosure

6

Section 3.12 - Compliance

6

Section 3.13 - Reporting Status

7

Section 3.14 - Properties

7

Section 3.15 - Contracts

7

Section 3.16 - Environmental Matters

8

Section 3.17 – Tax Returns

8

Section 3.18 - Insurance

8

 

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

8

Section 4.1 - Authority

8

Section 4.2 - Consents and Approval; No Violation

9

Section 4.3 - Securities Laws

9

 

ARTICLE V ADDITIONAL AGREEMENTS

12

Section 5.1 - Use of Proceeds

12

Section 5.2 - Access to Information

12

Section 5.3 - Reservation of Common Stock

12

Section 5.4 - Market for Common Stock

12

Section 5.5 - Best Efforts

13

Section 5.6 - Public Announcements

13

Section 5.7 - Restrictive Legends

13

 

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Section 5.8 - Registration Rights

13

Section 5.9 - Indemnification

16

 

ARTICLE VI PURCHASERS' CONDITIONS

17

Section 6.1 - Representations and Covenants

17

Section 6.2 - Required Consents and Approvals

17

Section 6.3 - Additional Documents

17

 

ARTICLE VII COMPANY’S CONDITIONS

17

Section 7.1 - Representations and Covenants

17

Section 7.2 - Required Consents and Approvals

17

Section 7.3 - Additional Documents

17

 

ARTICLE VIII TERMINATION AND SURVIVAL

18

Section 8.1 - Termination

18

Section 8.2 - Survival; Failure to Close

18

 

ARTICLE IX MISCELLANEOUS

18

Section 9.1 - Entire Agreement

18

Section 9.2 - Notices

18

Section 9.3 - Governing Law

20

Section 9.4 - Severability

20

Section 9.5 - Expenses

20

Section 9.6 - Descriptive Headings

20

Section 9.7 - Counterparts

20

Section 9.8 - Assignment

21

Section 9.9 - Amendments; Waivers

21

 

Schedule 3.1 – Subsidiaries of the Company

Schedule 3.5 – Capitalization

Schedule 3.6 – Legal Proceedings

Schedule 4.3(b) – Risk Factors

Exhibit "A" – Form of Warrant

 

 

 

 

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SECURITIES PURCHASE AGREEMENT

 

 

This Securities Purchase Agreement (the " Agreement ") is made and entered into as of the 10 th  day of March, 2005, by and among Capco Energy, Inc., a Colorado corporation (the " Company "), JVL Global Energy (QP), LP, JVL Global Energy, LP, Navitas Fund, LP, Peninsula Fund, LP, Peninsula Catalyst Fund, LP, and Peninsula Catalyst QP Fund, LP (individually, a " Purchaser ", and collectively, the " Purchasers ").

 

ARTICLE I
DEFINITIONS

 

Section 1.1 - Definitions

.  As used in this Agreement, the following terms have the meanings indicated:

" Agreement " has the meaning ascribed to such term in the first paragraph hereof.

 

" Closing " has the meaning ascribed to such term in Section 2.2.

 

" Closing Date " has the meaning ascribed to such term in Section 2.2.

 

" Common Stock " means the common stock, $0.001 par value per share, of the Company.

 

" Company " has the meaning ascribed to such term in the first paragraph hereof.

 

" Contracts " means any indenture, mortgage, deed of trust, loan agreement, note, lease (other than oil and gas leases), license, franchise agreement, permit, certificate, contract or other agreement or instrument to which the Company or any of its Subsidiaries is a party or to which their respective material properties or assets are subject.

 

" Dolphin Transaction " means the transaction(s) among the Company, Hoactzin Partners, L.P. and Dolphin Direct Equity Partners, LP pursuant to that certain Amended Memorandum of Terms for Investment in Certain Oil and Gas Projects dated February 7, 2005 and the documents and instruments related thereto.

 

" Environmental Laws " means all (i) all federal statutes regulating or prescribing restrictions regarding the use of property or other activities affecting the environment (air, water, land, animal and plant life), including but not limited to the following:  the Clean Air Act, Clean Water Act, Comprehensive Environmental Response, Compensation and Liability Act, Emergency Planning and Community Right-to-Know Act, Hazardous Materials Transportation Act, National Environmental Policy Act, Occupational Safety and Health Act, Oil Pollution Act of 1990, Resource Conservation and Recovery Act, Safe Drinking Water Act, and Toxic Substances Control Act; (ii) all regulations promulgated under such federal statutes, (iii) all local and state laws, rules and regulations regulating the use of or relating to or affecting the environment, and (iv) all common law rights, duties and obligations relating to the use of or matters affecting the environment.

 

" Exchange Act " means the Securities Exchange Act of 1934, as amended.

 

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" Governmental Authority " means the United States, any foreign country, state, county, city or other political subdivision, agency or instrumentality thereof.

 

" Material Adverse Effect " means any event or condition which, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole.

 

" Permits " means any licenses, permits, certificates, consents, orders, approvals and other authorizations from, and all declarations and filings with, all federal, state, local and other Governmental Authorities, all self-regulatory organizations and all courts and other tribunals presently required or necessary to own or lease, as the case may be, and to operate the properties of the Company and its Subsidiaries and to carry on the business of the Company and the Subsidiaries as now or proposed to be conducted as set forth in the SEC Filings.

 

" Purchaser " and " Purchasers " have the meanings ascribed to such terms in the first paragraph hereof.

 

" SEC " means the Securities and Exchange Commission.

 

" SEC Filings " means the Company’s reports and other filings made with the SEC for a period of twelve (12) months prior to the date hereof and all exhibits thereto.

 

" Securities " means the Common Stock and the Warrants being purchased pursuant to this Agreement and the Warrant Shares issuable upon exercise of the Warrants.

 

" Securities Act " means the Securities Act of 1933, as amended.

 

" Subsidiary " means, when used with reference to an entity, any corporation, a majority of the outstanding voting securities of which are owned directly or indirectly by such entity.  Such term shall also refer to any other partnership, limited partnership, limited liability company, joint venture, trust, or other business entity in which such entity has a material interest.  With respect to the Company, as of the date of this Agreement, the Company’s Subsidiaries are set forth on Schedule 3.1 attached hereto.

 

" Transactions " means the issuance and sale of the Units to the Purchasers and the other transactions and obligations contemplated by this Agreement.

 

" Unit " means one share of Common Stock and one-half of a Warrant.

 

" Warrant " or " Warrants " means the Company’s Common Stock Purchase Warrants, each initially exercisable within five (5) years for one share of Common Stock at a purchase price of $0.45 per share and having terms substantially as set forth in Exhibit "A" attached hereto.

 

" Warrant Certificate " means a certificate evidencing a Warrant in substantially the form attached hereto as Exhibit "A" .

 

 

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" Warrant Shares " means the shares of Common Stock purchased or purchasable upon the exercise of the Warrants pursuant to the terms thereof, initially being 5,000,000 shares of Common Stock.

 

Section 1.2 - Other Definitions

.  Other terms defined in this Agreement have the meanings so given them.

Section 1.3 - Construction

.   Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine, and neuter.  Except as specified otherwise, all references to Articles and Sections refer to articles and sections of this Agreement, and all references to exhibits and schedules are to Exhibits and Schedules attached to this Agreement, each of which is made a part of this Agreement for all purposes.  The word "including" shall mean "including, without limitation" unless the context otherwise requires.

ARTICLE II
ISSUANCE AND PURCHASE OF STOCK

 

Section 2.1 - Issuance and Purchase of Stock

.  Subject to the terms and conditions of this Agreement, the Company agrees to issue and sell to the Purchasers, and the Purchasers agree to subscribe for and purchase from the Company, a total of 10 million Units for an aggregate purchase price of $3,000,000 in cash (the " Purchase Price ").  The number of Units to be purchased by each Purchaser will be specified in writing to the Company at least three days prior to Closing.

Section 2.2 - The Closing

.  Subject to the terms and conditions of this Agreement, the issuance and purchase of the Units shall take place at a closing (the " Closing ") to be held at the offices of the Company, 5555 San Felipe., Suite 725, Houston, Texas 77056, at 10:00 a.m. (Central time) on March 10, 2005, or such other place or time as may be agreed by the parties.  The date on which the Closing occurs is referred to herein as the " Closing Date ."  At the Closing, the Company will deliver to Purchasers stock certificates representing the Common Stock purchased and Warrant Certificates for the Warrants Purchased, registered in the name of each Purchaser as specified in accordance with Section 2.1 upon receipt of the Purchase Price by wire transfer of immediately available funds to an account designated by the Company, or by such other method as is mutually agreed to by Purchasers and the Company.  Such certificates shall bear appropriate restrictive legends deemed necessary by the Company to comply with applicable securities and corporate laws, including without limitation those set forth in Section 5.9.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to Purchasers as of the date hereof as follows:

 

Section 3.1 - Organization

 

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.  Each of the Company and its Subsidiaries (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted, and (iii) is registered or qualified to do business and in good standing in each jurisdiction in which it owns or leases property or transacts business, except where the failure to be so qualified would reasonably be expected to have a Material Adverse Effect, and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification.   Schedule 3.1 contains a list of the Company’s Subsidiaries, including the jurisdiction of organization of, and direct and indirect ownership of the Company in, each Subsidiary (and whether such ownership is subject to a lien, security interest or other encumbrance).

Section 3.2 - Due Authorization

.  The Company has all requisite power and authority to execute, deliver and perform its obligations under this Agreement, and this Agreement has been duly authorized and validly executed and delivered by the Company and constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, and except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 3.3 - Non-Contravention

.  The execution and delivery of this Agreement, the issuance and sale of the Securities and the consummation of the Transactions will not (assuming the consents referred to in Section 3.4 and the waiver of any pre-emptive rights identified in Schedule 3.5 are obtained) conflict with or constitute a violation of, or default or result in the creation or imposition of any lien or encumbrance on any material asset of the Company or its Subsidiaries under (i) any material Contracts, (ii) the charter, by-laws or other organizational documents of the Company or any of its Subsidiaries, or (iii) to its knowledge, any law, regulation, ordinance or order of any court or governmental agency, arbitration panel or authority binding upon the Company or any of its Subsidiaries or their respective properties, in each case except those that would not reasonably be expected to have a Material Adverse Effect.

Section 3.4 – Consents

.  No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States is required for the execution and delivery of this Agreement and the valid issuance and sale of the Units, other than such as have been made or obtained, except for those in connection with the Dolphin Transaction, for any filings required to be made under federal or state securities laws, and where any failure to make or obtain any of the foregoing would not reasonably be expected to have a Material Adverse Effect.

Section 3.5 - Capitalization

 

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.  The capitalization of the Company as of December 31, 2004 is as set forth in Schedule 3.5 attached hereto and in the SEC Filings.  The Company has not issued any capital stock since that date, except for the issuance of 25,000 shares on February 9, 2005, upon the exercise of a stock option.  The Units have been duly authorized, and when issued and paid for in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and non-assessable.  The outstanding shares of capital stock of the Company have been duly and validly issued and are fully paid and non-assessable, have been issued in compliance with all federal and state securities laws, and were not issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  Except as set forth in Schedule 3.5 or disclosed in the SEC Filings, there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in the Company, or any contracts, commitments, agreements, understandings or arrangements of any kind to which the Company is a party relating to such issuance of capital stock or other equity interest in the Company.  Except as disclosed in the SEC Filings, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Common Stock to which the Company is a party.

Section 3.6 - Legal Proceedings

.  Except as disclosed in Schedule 3.6 or in the SEC Filings, there is no material legal or governmental proceedings pending, or to the knowledge of the Company, threatened to which the Company or any of its Subsidiaries is a party or of which the business or property of the Company or any of its Subsidiaries is subject, which would be reasonably likely to have a Material Adverse Effect on the Company.

Section 3.7 - No Violations

.  Neither the Company nor any of its Subsidiaries is (i) in violation of its charter, bylaws or other organizational document, or to its knowledge, (ii) in violation of any law, administrative regulation, ordinance or order of any court or Governmental Authority, arbitration panel or authority applicable to the Company or any of its Subsidiaries, which would be reasonably likely to have a Material Adverse Effect, or (iii) in default in the performance of any material Contracts, which would be reasonably likely to have a Material Adverse Effect.

Section 3.8 - Permits

.  Each of the Company and its Subsidiaries has all necessary Permits that are currently necessary for the operation of the business of the Company and its Subsidiaries as currently conducted and as described in the SEC Filings, except where the failure to currently possess such Permits would not reasonably be expected to have a Material Adverse Effect.

Section 3.9 - Financial Statements

.  The financial statements of the Company and the related notes contained in the SEC Filings present fairly in all material respects, in accordance with generally accepted accounting principles, the consolidated financial position of the Company and its Subsidiaries as of the dates indicated (the " Financial Statements ").  Such Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified.

 

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Section 3.10 - No Material Adverse Change

.  Except as disclosed in the SEC Filings, since September 30, 2004, there has not been (i) any change in the business, financial condition,  operation, or prospects of the Company which would reasonably be expected to have a Material Adverse Effect, (ii) any obligation, direct or contingent, that is material to the Company and its Subsidiaries considered as one enterprise, incurred by the Company or its Subsidiaries, except obligations incurred in the ordinary course of business, (iii) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company, or (iv) any loss or damage (whether or not insured) to the physical property of the Company or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect.

Section 3.11 - Disclosure

.  The information contained in the SEC Filings as of the date of such information, and the information contained in this Agreement, including any schedule or exhibit attached hereto, does not and did not, as of the date of such information, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.

Section 3.12 - Compliance

.  

(a)

The Common Stock is registered pursuant to the Exchange Act and is quoted on the OTC Bulletin Board (the " OTCBB "), and the Company has taken no action designed to, or to its knowledge likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or the quotation of the Common Stock from the OTCBB, nor has the Company received any notice within the 12 months preceding the date of this Agreement regarding the termination of such registration or quotation.

(b)

As long as any Purchaser owns Common Stock, Warrants or Warrant Shares, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Purchaser owns Common Stock, Warrants or Warrant Shares, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Purchasers annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Purchaser may reasonably request, all to the extent required from time to time to enable such person to sell Common Stock and Warrant Shares without registration under the Securities Act. Upon the request of any Purchaser, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.

 

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Section 3.13 - Reporting Status

.  The Company has filed all documents that the Company was required to file under the Exchange Act during the 12 months preceding the date of this Agreement.  Copies of such documents have been made available to the Purchasers.

Section 3.14 - Properties

.  Each of the Company and its Subsidiaries has good and defensible title to all property included in the Financial Statements, free and clear of all liens, charges, encumbrances or restrictions, except for Permitted Encumbrances.  As used herein, the term "G ood and Defensible Title " means, as to the oil and gas properties of the Company or its Subsidiaries (the " Oil and Gas Properties "), such right, title and interest that is (i) owned or deducible of record (either from the records of the applicable county, parish, country and/or, in the case of Federal leases, from the records of the applicable office in the Bureau of Land Management or Minerals Management Service and/or, in the case of Indian leases, from the applicable office of the Bureau of Indian Affairs, and state leases, from the records of the applicable state land office), or (ii) such that a reasonably prudent purchaser of oil and gas properties would accept the same.  As used herein, the term " Permitted Encumbrances " means: (i) matters described in the SEC Filings or reflected in the Financial Statements; (ii) royalties, overriding royalties, net profits interests, production payments and other burdens on production which do not materially reduce the Company's or its Subsidiaries' net revenue interest in any of the Oil and Gas Properties to less than the interest included in the information in the Financial Statements, (iii) liens for taxes, assessments, labor and materials where payment is not delinquent, (iv) operating agreements, unit agreements, unitization and pooling designations and declarations, gathering and transportation agreements, processing agreements, gas, oil and liquids purchase, sale and exchange agreements, exploration and development agreements, surface agreements, farmout agreements and other similar agreements, provided they do not have a material adverse effect on the ownership of the Oil and Gas Properties or increase the cost burden applicable to any such property in excess of the cost burden included in the information in the Financial Statements, (v) regulatory authority of governmental agencies not presently or previously materially violated, (vi) easements, surface leases and rights, plat restrictions and similar encumbrances, provided that they do not detract from the value, or materially increase the cost of operation of any of the Oil and Gas Properties, (vii) liens, encumbrances and rights granted or arising in connection with the Dolphin Transaction; and (viii) liens, charges, encumbrances and irregularities in the chain of title which, because of remoteness in or passage of time, statutory cure periods, marketable title acts or other similar reasons, have not affected or interrupted, and are not reasonably expected to affect or interrupt, the claimed ownership of the Company or the receipt of production revenues from the Oil and Gas Properties affected thereby, and any other encumbrance or claim which would not reasonably be expected to have a Material Adverse Effect.

Section 3.15 - Contracts

.  All material Contracts are valid, binding and enforceable against the Company or its Subsidiaries, as applicable, and, to the knowledge of the Company, are valid, binding and enforceable against the other party or parties thereto and are in full force and effect with only such exceptions as would not reasonably be expected to have a Material Adverse Effect.  The Company and its Subsidiaries, and to the knowledge of the Company, the other parties thereto,

 

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are not in default under any of the material Contracts, which default would reasonably be expected to have a Material Adverse Effect.

Section 3.16 - Environmental Matters

.  Except as would not reasonably be expected to have a Material Adverse Effect and except as disclosed in the SEC Filings, (i) each of the Company and its Subsidiaries is in compliance with and not subject to liability under applicable Environmental Laws, (ii) each of the Company and its Subsidiaries has made all filings and provided all notices required under any applicable Environmental Law, and has in full force and effect and is in compliance with all Permits required under any applicable Environmental Laws, (iii) there is no civil, criminal or administrative action, suit, demand, hearing, notice of violation, proceeding, notice or demand letter or request for information pending or, to the knowledge of the Company, threatened against the Company or its Subsidiaries under any  Environmental Law, (iv) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company or its Subsidiaries, and (v) neither the Company nor its Subsidiaries has received notice that it has been identified as a potentially responsible party under any Environmental Law.

Section 3.17 – Tax Returns

.  Each of the Company and its Subsidiaries has filed all returns and reports of or relating to any federal, state, local or foreign income, franchise, ad valorem, excise, withholding or other taxes (" Tax Returns ") required to be filed on or before the date hereof, except where the failure to so file such Tax Returns would not reasonably be expected to have a Material Adverse Effect, and has paid all taxes shown as due on such Tax Returns, except those contested in good faith by appropriate proceedings.  To the knowledge of the Company, other than taxes which the Company or its Subsidiaries are contesting in good faith and for which the Company or such Subsidiaries have provided adequate reserves, there is no claim against the Company or its Subsidiary for any taxes (including any penalties and interest), and no assessment, deficiency or adjustment has been asserted or proposed that would reasonably be expected to have a Material Adverse Effect.

Section 3.18 - Insurance

.  Each of the Company and its Subsidiaries carries insurance in such amounts and covering such risks as is customary for persons of a similar size in the businesses in which they are engaged.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

 

Each Purchaser hereby represents and warrants to the Company as follows:

 

Section 4.1 - Authority

.  The Purchaser has all requisite organizational power and authority, to execute and deliver this Agreement and to consummate the Transactions to be performed by the Purchaser.  The execution and delivery of this Agreement and the consummation of the Transactions to be performed by the Purchaser have been duly and validly authorized by all necessary action on the

 

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part of the partners of the Purchaser, and no other partnership proceedings are necessary to authorize the execution and delivery of this Agreement by the Purchaser or to consummate the Transactions to be performed by the Purchaser.  This Agreement has been duly and validly executed and delivered by the Purchaser and, assuming this Agreement constitutes valid and binding obligations of the Company, this Agreement constitutes a valid and binding agreement of the Purchaser, enforceable against him in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law).

Section 4.2 - Consents and Approval; No Violation

.  Neither the execution and delivery of this Agreement by the Purchaser, the consummation of the Transactions to be performed by the Purchaser, nor compliance by the Purchaser, with any of the provisions hereof will (i) conflict with or result in any breach of any provisions of the Purchaser’s organizational documents, (ii) require any material consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, except for consents, approvals, authorizations, permits, filings or notifications which have been obtained or made, or (iii) result in a default (with or without due notice or lapse of time or both) or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any material agreements or violate any material order, writ, injunction, decree, statute, rule or regulation applicable to the Purchaser, which may adversely effect the Transactions or Purchaser's performance hereunder.

Section 4.3 - Securities Laws

.  Each Purchaser hereby represents and warrants to and covenants with the Company that:

(a)

Purchaser has adequate means of providing for its current needs and possible contingencies, and has no need now, and anticipates no need in the foreseeable future, to sell the Securities.  Purchaser is able to bear the economic risks of this investment, and consequently, without limiting the generality of the foregoing, Purchaser is able to hold the Securities for an indefinite period of time and has sufficient net worth to sustain a loss of the entire investment in the Securities in the event such loss should occur.

(b)

Purchaser recognizes that its investment in the Securities involves a high degree of risk which may result in the loss of the total amount of the investment.  Purchaser acknowledges that it is aware of and has carefully considered all risks incident to the purchase of the Securities, including without limitation those discussed in Schedule 4.3(b) .

(c)

Purchaser is acquiring the Securities for its own account (as principal) for investment and not with a view to the distribution or resale thereof.  Purchaser has not offered or sold any portion of the Securities and has no present intention of dividing the Securities with others or of reselling or otherwise disposing of any portion of the Securities.

 

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(d)

PURCHASER IS AWARE THAT IT MUST BEAR THE ECONOMIC RISK OF ITS INVESTMENT IN THE SECURITIES FOR AN INDEFINITE PERIOD OF TIME BECAUSE THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR UNDER THE SECURITIES LAWS OF ANY STATE, AND THEREFORE CANNOT BE SOLD UNLESS THEY ARE SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION OR EXCEPTION FROM SUCH REGISTRATION IS AVAILABLE AND, FURTHER, THAT ONLY THE COMPANY CAN TAKE ACTION TO REGISTER THE SECURITIES. PURCHASER ALSO RECOGNIZES THAT NO FEDERAL OR STATE AGENCY HAS PASSED UPON THE SECURITIES OR MADE ANY FINDING OR DETERMINATION AS TO THE FAIRNESS OF AN INVESTMENT IN THE SECURITIES.

(e)

Purchaser (i) acknowledges receipt of sufficient information from the Company concerning the business of the Company and its Subsidiaries in order for Purchaser to make a fully informed investment decision, (ii) has had the opportunity to review and obtain copies of any information which the Company possesses and is desired by Purchaser relating to the Securities and the Company and its Subsidiaries (including without limitation copies of the SEC Filings), and (iii) has been given the opportunity to meet with officials of the Company and to have said officials answer any questions regarding the terms and conditions of this particular investment, and all such questions have been answered to Purchaser’s full satisfaction.  While the Company has attempted to provide information that is as accurate as possible, Purchaser acknowledges and agrees that the Company and its representatives cannot and do not make any assurances, representations or warranties with respect to any such information, except for the representations expressly set forth herein.  All information described in this Section 4.3(e) and otherwise reviewed by Purchaser concerning the Company and its Subsidiaries, including without limitation the information included in the SEC Filings, is qualified in all respects by the Risk Factors discussed in Schedule 4.3(b) .  The Purchaser has sufficient knowledge and experience in financial and business matters to enable it to evaluate the merits and risks of an investment in the Securities.  In addition, in reaching the conclusion that it desires to acquire the Securities, Purchaser has carefully evaluated its financial resources and investments, has consulted with such legal, accounting and other experts as necessary or appropriate, and acknowledges and represents that Purchaser is able to bear the economic risks of this investment.  Purchaser acknowledges and understands that none of the information provided or made available by or on behalf of the Company constitutes any legal, tax or investment advice.

(f)

Purchaser is an " accredited investor " as such term is defined in Rule 501 under the Securities Act.  Purchaser will provide to the Company such information as may be reasonably requested by the Company to enable it to satisfy itself as to such status and the knowledge and experience of Purchaser and its ability to bear the economic risk of an investment in the Shares.

(g)

All representations and warranties made by Purchaser in this Agreement and all other oral or written information provided by Purchaser to the Company is and are true, correct and complete in all material respects, and, if there should be any material change in such information prior to the acceptance of this Agreement, Purchaser will immediately furnish such revised or corrected information to the Company.

 

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(h)

The address and social security number or federal tax identification number set forth on the signature page hereof is its true and correct state (or other jurisdiction) of residence and social security number or federal tax identification number.  Purchaser has no present intention of becoming a resident of any other state or jurisdiction.  Purchaser is not subject to backup withholding and will provide such forms and documents as may be required by the Company to evidence its exemption from backup or other withholding taxes and hereby consents to withholding of any applicable taxes from its distributions from the Company.

(i)

Purchaser acknowledges and understands that certain of the information that it has received regarding the Company and its Subsidiaries may be material, non-public information, and that Purchaser will not be able to trade in the Common Stock while in possession of such information until that information has been properly disseminated to the public or becomes immaterial to the Company and its Subsidiaries.

(j)

Purchaser acknowledges and agrees that if Purchaser is purchasing the Units in a fiduciary capacity, the representations, warranties and agreements contained herein shall be deemed to have been made on behalf of the person or persons for whom the Purchaser is so purchasing and that the representations and warranties of the Purchaser as set forth herein shall continue in effect following the sale of the Units pursuant hereto.  In the event that execution hereof by Purchaser is performed by any person as agent for or other representative of the Purchaser, such person represents that he is duly authorized and empowered to sign and deliver this document on behalf of the Purchaser in the capacity stated and that the Purchaser will be bound by this Agreement.

(k)

Purchaser acknowledges that it understands the meaning and legal consequences of the representations, warranties and covenants set forth in this Section 4.3 and that the Company has relied and will rely upon such representations, warranties, covenants and certifications, AND PURCHASER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE COMPANY AND ITS OFFICERS, DIRECTORS, CONTROLLING PERSONS, AGENTS AND EMPLOYEES, FROM AND AGAINST ANY AND ALL LOSS, DAMAGE OR LIABILITY, JOINT OR SEVERAL, AND ANY ACTION IN RESPECT THEREOF, TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT DUE TO OR ARISING OUT OF A BREACH OF ANY OF PURCHASER’S REPRESENTATIONS, WARRANTIES OR COVENANTS.

 

 

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ARTICLE V
ADDITIONAL AGREEMENTS

 

Section 5.1 - Use of Proceeds

.  The cash proceeds to the Company from the issuance of the Units shall be used by the Company on and after the Closing Date to acquire and develop oil and gas properties and for general corporate purposes.

Section 5.2 - Access to Information

(a)

Between the date hereof and the Closing Date, the Company will afford to Purchasers and their authorized representatives full access during normal business hours to the facilities and properties and to the books and records of the Company and its Subsidiaries, will permit Purchasers and their authorized representatives to make reasonable inspections and will cause its officers and those of its Subsidiaries to furnish Purchasers and their authorized representatives with such financial and operating data and other information with respect to the business, assets and properties of the Company and its Subsidiaries, as applicable, as Purchasers and their authorized representatives may from time to time request.

(b)

Purchasers and their representatives shall hold strictly confidential all information they obtain with respect to the Company or its Subsidiaries; provided, that Purchasers shall not be obligated to hold confidential information which (i) was or becomes generally available to the public other than as a result of a disclosure by any Purchaser or its representatives, (ii) was or becomes available to Purchasers on a non-confidential basis from a source other than the Company or its representatives, so long as such source is not bound by a confidentiality agreement with the Company or otherwise prohibited from transmitting the information to Purchasers, or (iii) is required to be disclosed in order to comply with any applicable law, order, regulation or ruling; provided further, that Purchasers shall notify the Company prior to any disclosure under (iii) above and provide the Company the opportunity to dispute or contest such disclosure before any disclosure is made.

Section 5.3 - Reservation of Common Stock

.  The Company will reserve and keep reserved for issuance, out of the authorized and unissued shares of the Common Stock, a number of shares of Common Stock sufficient to provide for issuance upon exercise of the outstanding Warrants and shall keep such shares free of any legal or contractual preemptive rights.  The Company will take all steps necessary to keep the Warrant Shares duly authorized for issuance by all requisite corporate and other action, and to assure that such Warrant Shares when issued upon exercise of the Warrants, as the case may be, will be validly issued, fully paid and non-assessable.

Section 5.4 - Market for Common Stock

.  The Company shall use its commercially reasonable efforts to satisfy the requirements within the control of the Company for its Common Stock to be quoted on the OTCBB or, at the option of the Company, listed on a recognized stock exchange.

 

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Section 5.5 - Best Efforts

.  Subject to the terms and conditions herein provided, the Company and Purchasers agree to use their best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Transactions.

Section 5.6 - Public Announcements

.  Purchasers shall not issue any press release or otherwise make any public statements with respect to the existence of this Agreement or the Transactions, and the Company shall issue such press releases or make such public statements as may be required by law.

Section 5.7 - Restrictive Legends

.  Unless counsel to the Company shall have advised the Company that such legend is no longer needed, each certificate evidencing the Securities shall bear a legend in substantially the following form:

"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE SAME ARE REGISTERED AND QUALIFIED IN ACCORDANCE WITH APPLICABLE STATE AND FEDERAL SECURITIES LAWS, OR IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED."

 

Section 5.


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