MERGER AGREEMENT AND PLAN OF MERGER BETWEEN MAINLAND RESOURCES, INC. AND AMERICAN EXPLORATION CORPORATION Dated March 22, 2010
EXHIBIT
2.1
MERGER
AGREEMENT AND PLAN OF MERGER
BETWEEN
MAINLAND
RESOURCES, INC.
AND
AMERICAN
EXPLORATION CORPORATION
Dated
March 22, 2010
TABLE
OF CONTENTS
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Page
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PART
1 INTERPRETATION
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1
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Definitions
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1
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Interpretation
Not Affected by Headings, etc.
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7
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Currency
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7
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Number
and Gender
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7
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Date
For Any Action
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8
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Entire
Agreement
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8
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Schedules
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8
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Knowledge
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8
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PART
2 THE MERGER
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8
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Merger
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8
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Resale
Restrictions
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10
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Shareholders’
Rights Upon Merger
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10
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Surrender
of Certificates
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10
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By-laws
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11
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Effects
of Merger
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11
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Additional
Actions
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11
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No
Tax Representations of Mainland
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11
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No
Tax Representations of American Exploration
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11
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PART
3 IMPLEMENTATION OF THE MERGER
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11
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Implementation
Steps by American Exploration
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11
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Implementation
Steps by Mainland
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12
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Securities
Compliance
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12
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Preparation
of Filings
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12
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PART
4 REPRESENTATIONS AND WARRANTIES
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13
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Representations
and Warranties of American Exploration
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13
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Representations
and Warranties of Mainland
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23
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Survival
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31
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PART
5 COVENANTS
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31
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Covenants
of American Exploration
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31
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Covenants
of Mainland
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36
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Directors
of Mainland and the Surviving Corporation
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39
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Mutual
Covenants
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40
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PART
6 CONDITIONS
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42
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Mutual
Conditions Precedent
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42
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Additional
Conditions Precedent to the Obligations of Mainland
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44
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Additional
Conditions Precedent to the Obligations of American
Exploration
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45
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Notice
and Cure Provisions
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46
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Satisfaction
of Conditions
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47
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PART
7 AMENDMENT AND TERMINATION
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47
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Amendment
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47
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Mutual
Understanding Regarding Amendments
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47
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Termination
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48
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Remedies
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49
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PART
8 CLOSING
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49
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Closing
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49
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Deliveries
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50
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PART
9 GENERAL
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52
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Notices
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52
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Assignment
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53
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Binding
Effect
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53
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Waiver
and Modification
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53
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No
Personal Liability
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53
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Further
Assurances
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53
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Expenses
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54
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Consultation
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54
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Governing
Laws
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54
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Time
of Essence
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54
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Counterparts
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54
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MERGER
AGREEMENT AND PLAN OF MERGER
THIS MERGER AGREEMENT AND PLAN OF
MERGER (the “Agreement”) is made as of
March 22, 2010.
BETWEEN:
MAINLAND RESOURCES, INC., a
company existing under the laws of the State of Nevada, USA
(“Mainland”)
AND:
AMERICAN EXPLORATION
CORPORATION, a company existing under the laws of the State of Nevada,
USA
(“American
Exploration”)
THIS AGREEMENT WITNESSES that
in consideration of the respective covenants and agreements herein contained,
the Parties hereto covenant and agree as follows: scheme B
PART
1
INTERPRETATION
Definitions
1.1 In this
Agreement, unless there is something in the subject matter or context
inconsistent therewith, the following terms shall have the following meanings
respectively:
“1933 Act” means the United
States Securities Act of
1933, as amended;
“Affiliate” has the meaning
ascribed thereto in Rule 405 under the 1933 Act unless otherwise expressly
stated herein;
“American Exploration Dissent
Rights” means the rights of any American Exploration Shareholders to
dissent pursuant to the Nevada Statutes with respect to the Merger;
“American Exploration Financial
Statements” means the audited annual financial statements of American
Exploration and the unaudited interim financial statements of American
Exploration included in the American Exploration SEC Filings;
“American Exploration Meeting”
means the special meeting of American Exploration Shareholders, including any
adjournment thereof, to be called and held for the purpose of considering the
Merger;
“American Exploration Merger
Resolutions” means the consent resolutions of the shareholders of
American Exploration to ratify this Agreement and to approve the Merger and to
be substantially in the form and content of Schedule A annexed
hereto;
-2-
“American Exploration Leases”
means the oil and gas properties set out in Schedule C hereto;
“American Exploration Options”
means those outstanding options to acquire American Exploration Shares as set
out in Schedule D hereto;
“American Exploration SEC
Filings” means the annual reports on Form 10-K or Form 10-KSB, quarterly
reports on Form 10-Q or Form 10-QSB, and current reports on Form 8-K, and any
amendments thereto, filed by American Exploration with the SEC on and after
March 1, 2008;
“American Exploration Shares”
means the shares of issued and outstanding common stock in the capital of
American Exploration as constituted on the date hereof;
“American Exploration
Shareholders” means holders of record of American Exploration Shares, and
in the singular means any holder of record of American Exploration
Shares;
“American Exploration Warrants”
means those outstanding warrants to acquire American Exploration Shares as set
out in Schedule D hereto;
“American Exploration’s
Lawyers” means ▇▇▇▇▇▇▇▇ and Wedge, Attorneys-at-Law, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇;
“Ancillary Agreements” means
the agreements, if any, to be negotiated and executed by American Exploration
and others, which are determined by American Exploration to be reasonably
necessary to permit the transactions contemplated herein, after the date hereof
but before the Closing, each of which Ancillary Agreement must in form and
substance be satisfactory to Mainland, acting reasonably;
“Articles of Merger” has the
meaning ascribed to it in §2.1;
“Assets” means all properties,
assets, privileges, rights, interests and claims, real and personal, tangible
and intangible, of every type and description, wherever located, owned, leased
or licensed by American Exploration;
“Business” means, in respect of
American Exploration, the business currently carried on by American Exploration
as of the date hereof including activities carried on directly and indirectly in
connection with the exploration for, and the acquisition and development of, oil
and gas properties in the United States, and in respect of Mainland, means the
business currently carried on by Mainland as of the date hereof including
activities carried on directly and indirectly in connection with the exploration
for, and the acquisition and development of, oil and gas properties in the
United States and North America;
“Business Day” means any day on
which commercial banks are generally open for business in Vancouver, British
Columbia, and Carson City, Nevada;
“Closing” means the completion
of the Merger and the closing of all other transactions expressly contemplated
by this Agreement to complete concurrently therewith;
“Dissenting Shares” means those
American Exploration Shares and those Mainland Shares of which the holders
thereof have properly and timely complied with the Nevada Statutes as to
dissenters’ rights;
-3-
“Effective Date” means the date
that the Merger is completed;
“Effective Time” means 12:01
a.m. (Vancouver time) on the Effective Date;
“Encumbrance” means any
mortgage, charge, pledge, hypothecation, lien, security interest, assignment,
option, equity, execution, claim or any other title defect or other encumbrance
of any kind or nature whatsoever (including any agreement to give any of the
foregoing), whether or not registered or registrable or whether consensual or
arising by operation of law (statutory or otherwise);
“Environmental Laws” means all
applicable Laws relating to the protection of the environment and public health
and safety, including, without limitation, including applicable common law, the
Clean Air Act, the Comprehensive Environmental Response Compensation and
Liability Act, the Resource Conservation and Recovery Act of 1976, the Toxic
Substances Control Act, the Clean Water Act, the Safe Drinking Water Act, the
Hazardous Materials Transportation Act, the Oil Pollution Act of 1990, all as
amended, and any state Laws implementing or analogous to the foregoing federal
Laws, and all other Laws relating to or regulating emissions, discharges,
releases, or cleanup of pollutants, contaminants, chemicals, polychlorinated
biphenyls, oil and gas exploration and production wastes, brine, solid wastes,
or toxic or Hazardous Substances or wastes;
“Exchange Ratio” means the
ratio which determines the number of Mainland Shares that are to be issued on
completion of the Merger for all of the American Exploration Shares, subject to
reduction by any Dissenting Shares, and which Exchange Ratio, as of the date of
this Agreement, is one Mainland Share for every four American Exploration
Shares; provided, however, that the Exchange Ratio may be adjusted by good faith
negotiation between the parties if required having regard to (a) the results of
the due diligence investigation of a party’s Business and affairs by the other
party, or (b) the Fairness Opinions; and further provided that either party may
terminate this Agreement in the event such due diligence results or Fairness
Opinions warrant the conversion of the American Exploration Shares into more
than 15,000,000 Mainland Shares, it being agreed that not more than 15,000,000
Mainland Shares shall be issued in exchange for American Exploration Shares
pursuant to the Merger (exclusive of any Mainland Shares issued in exchange for
American Exploration Shares which are issued upon exercise prior to Closing of
any American Exploration Options or any American Exploration
Warrants);
“Fairness Opinion” means in the
case of American Exploration, the report prepared by Working Capital Corporation
for American Exploration with respect to the Merger, and in the case of
Mainland, the report prepared by ▇▇▇▇▇ & ▇▇▇▇▇, Inc. for Mainland with
respect to the Merger;
“Governmental Entity”
means:
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(a)
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any
multinational, federal, provincial, state, regional, municipal, local or
other government, governmental or public department, central bank, court,
tribunal, arbitral body, commission, board, bureau or agency, domestic or
foreign;
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(b) any
subdivision, agent, commission, board, or authority of any of the
foregoing;
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(c)
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any
quasi-governmental or private body exercising any regulatory,
expropriation, or taxing authority under or for the account of any of the
foregoing;
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(d) any
regulatory agency or self-regulatory organization; and
(e) for
greater certainty, the SEC;
-4-
“Hazardous Substance” means any
pollutant, contaminant, waste of any nature, hazardous substance, hazardous
material, toxic substance, dangerous substance or dangerous good as defined or
identified by Environmental Laws;
“Information” has the meaning
ascribed hereto in §5.6(b);
“Intangible Property” means all
intangible property used in connection with the Business, including all
geological information, licenses, permits, authorities, franchises, approvals
and authorizations by any Governmental Entity, books and records, systems and
technology, restrictive covenants and other industrial or intellectual property
or other rights used in connection with the Business;
“Joint Proxy Statement” means
the notice of the American Exploration Meeting and the Mainland Meeting and the
accompanying Joint Proxy Statement of American Exploration and Mainland,
including all appendices thereto, to be sent to American Exploration
Shareholders and Mainland Shareholders in connection with the American
Exploration Meeting and the Mainland Meeting;
“Laws” means all statutes,
regulations, statutory rules, orders, policies, and terms and conditions of any
grant of approval, permission, authority or license of any court, Governmental
Entity, and the term “applicable” with respect to
such Laws and in the context that refers to one or more Persons, means that such
Laws apply to such Person or Persons or its or their business, undertaking,
property or securities and emanate from a Governmental Entity having
jurisdiction over the Person or Persons or its or their business, undertaking,
property or securities;
“Mainland Dissent Rights” means
the rights of any Mainland Shareholders to dissent pursuant to the Nevada
Statutes with respect to the Merger;
“Mainland Exchange Options” has
the meaning ascribed thereto in §2.2(d);
“Mainland Exchange Warrants”
has the meaning ascribed thereto in §2.2(e);
“Mainland Financial Statements”
means the audited annual financial statements of Mainland and the unaudited
interim financial statements of Mainland included in the Mainland SEC
Filings;
“Mainland Meeting” means the
special meeting of Mainland Shareholders, including any adjournment thereof, to
be called and held for the purpose of considering the Merger;
“Mainland Merger Resolutions”
means the consent resolutions of the shareholders of Mainland to ratify this
Agreement and to approve the Merger and to be substantially in the form and
content of Schedule A annexed hereto;
“Mainland SEC Filings” means
the annual reports on Form 10-K or Form 10-KSB, quarterly reports on Form 10-Q
or Form 10-QSB, and current reports on Form 8-K, and any amendments thereto,
filed by Mainland with the SEC on and after March 1, 2008;
“Mainland Shares” means the
shares of common stock in the capital of Mainland as constituted on the date
hereof;
-5-
“Mainland Shareholders” means
holders of record of Mainland Shares, and in the singular means any holder of
record of Mainland Shares;
“Mainland Transfer Agent” means
Empire Stock Transfer, Inc., of Henderson, Nevada;
“Mainland’s Lawyers” means Lang
▇▇▇▇▇▇▇▇ llp,
Barristers and Solicitors, 1500 – ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇.▇.
▇▇▇ ▇▇▇;
“Material Adverse Change”, when
used in connection with either American Exploration or Mainland, means any
change, effect, event or occurrence with respect to its condition (financial or
otherwise), properties, assets, liabilities, obligations (whether absolute,
accrued, conditional or otherwise), businesses, operations or results of
operations that is, or would reasonably be expected to be, material and adverse
to the business, operations or financial condition of such party taken as a
whole other than any change, effect, event or occurrence relating to the
Canadian or United States’ economy or securities markets in
general;
“Material Adverse Effect” when
used in connection with either American Exploration or Mainland, means any
effect that is, or would reasonably be expected to be, material and adverse to
the business, operations or financial condition of such party taken as a
whole;
“Material Contracts” means the
contracts or commitments of American Exploration or Mainland (other than oil and
gas leases entered into by Mainland in the ordinary course of business), and, as
the context requires:
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(a)
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out
of the ordinary course of Business (other than the party’s agreements with
its legal counsel and its Fairness Opinion
Consultants);
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(b)
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involving
liability for or payment by American Exploration or Mainland, as the case
may be, of more than $10,000 in the aggregate (the party’s agreements with
its legal counsel and its Fairness Opinion
consultants);
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(c)
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of
a duration greater than one year ;
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(d)
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affecting
ownership of, or title to, or any interest in, mineral, resource, real
estate or personal property;
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(e)
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in
respect of or concerning Intangible
Property;
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(f)
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in
respect of or concerning bonuses, incentive compensation, pension, group
insurance, employee welfare plans or collective
agreements;
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(g)
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with
employees, officers or insiders; or
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(h)
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of
the following kinds or
descriptions:
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(i) continuing
contracts or commitments for the purchase of materials, supplies, equipment or
services;
(ii) purchase
contracts or commitments providing for a purchase price in excess of current
market prices at the date of that contract or commitment;
-6-
(iii) sales or
service contracts or commitments providing for a sale price or service rate
below current market prices or rates at the date of the particular contract or
commitment;
(iv) contracts
or commitments for technical assistance or management or consulting
services;
(v) shareholders
agreements or contracts involving any joint venture, partnership or other
arrangement or agreement involving the sharing of profits or revenues, expenses
or investments;
(vi) contracts
limiting the freedom of American Exploration or Mainland, as the case may be, to
engage in any business;
(vii) contracts
that could have a material adverse financial impact on American Exploration or
Mainland, as the case may be; and
(viii) notwithstanding
the generality of the foregoing, with respect to American Exploration, those
contracts specifically listed in Schedule C, and, with respect to Mainland,
those contracts specifically listed in Schedule E;
“Merger” means the merger of American
Exploration with and into Mainland on the terms and
conditions herein provided and for greater certainty includes the other
transactions expressly provided to complete concurrently therewith;
“Nevada Statutes” means
Chapters 78 (Private Corporations) and 92A – Mergers, Conversions,
Exchanges and Domestications, of the Nevada Revised Statutes;
“Person” includes any
individual, firm, partnership, joint venture, venture capital fund, limited
liability company, unlimited liability company, association, trust, trustee,
executor, administrator, legal personal representative, estate, group, body
corporate, corporation, unincorporated association or organization, Governmental
Entity, syndicate or other entity, whether or not having legal
status;
“Pending Avere Agreements”
means the following agreements, currently in draft form, which are anticipated
by the parties to be executed prior to Closing: the Assignment and Novation
Agreement among American Exploration, Mainland, Avere Energy, Inc., and
Guggenheim Corporate Funding, LLC, and the Amending Agreement among American
Exploration, Mainland, and Guggenheim Corporate Funding, LLC;
“Plan of Merger,” where the
context requires, means this Agreement;
“Pre-Effective Date Period”
means the period from and including the date hereof to and including the
Effective Time;
“Registration Statement” means
the joint registration statement of Mainland and American Exploration proposed to be filed on
Form S-4 under the 1933 Act to register: the Mainland Shares to be issued in
exchange for American Exploration Shares under the Merger, [the Mainland
Exchange Options; and the Mainland Exchange Warrants;]
“Representatives” has the
meaning ascribed thereto in §5.6(a);
-7-
“SEC” means the United States
Securities and Exchange Commission;
“Subsidiary” means, with
respect to a specified body corporate, any body corporate of which more than 50%
of the outstanding shares ordinarily entitled to elect a majority of the board
of directors thereof (whether or not shares of any other class or classes shall
or might be entitled to vote upon the happening of any event or contingency) are
at the time owned directly or indirectly by such specified body corporate and
shall include any body corporate, partnership, joint venture or other entity
over which it exercises direction or control or which is in a like relation to a
Subsidiary;
“Surviving Corporation” means
Mainland as the surviving corporation in the Merger;
“Taxes” means, in respect of a
party and its Affiliates, all federal, state, provincial, municipal, foreign or
other taxes, imposts, rates, levies, assessments and government fees, and any
other charges lawfully levied, assessed or imposed against it including, without
restricting the generality of the foregoing, all income, capital gains, sales,
excise, capital, real property, goods and services, business transfer and value
added taxes, customs and import duties, together with all interests, fines and
penalties with respect thereto;
“this Agreement”, “hereto”, “hereunder”, “hereof”, “herein”, “hereby” and similar
expressions mean or refer to this Merger Agreement and any agreement, deed or
instrument supplemental or ancillary hereto, and the expressions “article”, “section”, “subsection”, “paragraph”, “subparagraph”, “clause” and “subclause” followed by a
number mean the specified article, section, subsection, paragraph, subparagraph,
clause or subclause of this Agreement;
“Termination Date” means
September 30, 2010, or such later date as may be mutually agreed by the Parties
to this Agreement; and
Interpretation
Not Affected by Headings, etc.
1.2 The
division of this Agreement into Parts, sections and other portions and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation hereof. Unless otherwise indicated, all
references to a “Part” or “section” followed by a number and/or a letter refer
to the specified Part or section of this Agreement.
1.3 If one or
more of the provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality or
enforceability of the remaining provisions hereof shall not be affected or
impaired thereby. Each of the provisions of this Agreement is hereby
declared to be separate and distinct.
Currency
1.4 Unless
otherwise specifically indicated, all sums of money referred to in this
Agreement are expressed in lawful money of the United States of
America.
Number
and Gender
1.5 Words
importing the singular number only shall include the plural and vice versa, words importing
the masculine gender shall include the feminine gender and neuter and vice versa.
-8-
Date
For Any Action
1.6 In the
event that any date on which any action is required to be taken hereunder by
either Party hereto is not a Business Day, such action shall be required to be
taken on the next succeeding day which is a Business Day.
Entire
Agreement
1.7 This
Agreement and the agreements and other documents herein referred to constitute
the entire agreement between the Parties hereto pertaining to the terms of the
Merger and supersede all other prior agreements, understandings, negotiations
and discussions, whether oral or written, between the Parties hereto with
respect to the terms of the Merger.
Schedules
1.8 The
following Schedules are annexed to this Agreement and are hereby incorporated by
reference into this Agreement and form a part hereof:
Schedule A – American
Exploration Merger Resolutions
Schedule B – Mainland
Merger Resolutions
Schedule C – Material
Contracts of American Exploration
Schedule D – American
Exploration Options and Warrants
Schedule
E – Material
Contracts of Mainland
Knowledge
1.9 Each
reference herein to the knowledge of a party means, unless otherwise specified,
the existing knowledge of such party without specific or special
inquiry.
PART
2
THE
MERGER
Merger
2.1 On the
Closing and subject to the provisions of this Agreement, American Exploration
shall merge with and into Mainland in accordance with the Nevada
Statutes. The Parties shall cause the Merger to be consummated by
filing Articles of Merger (“Articles of Merger”) with the
Secretary of State of the State of Nevada in accordance with the relevant
provisions of the Nevada Statutes. In the event of a conflict of
interpretation between this Agreement and the Articles of Merger, the Articles
of Merger shall control.
2.2 Subject
to the provisions of this Agreement and the Plan of Merger, upon acceptance of
the Articles of Merger by the State of Nevada:
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(a)
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each
American Exploration Share will thereby be cancelled and the holder of
such American Exploration Share shall be entitled to be issued the number
of Mainland Shares determined by the Exchange Ratio, with any fractions of
0.5 and more in respect of each holder’s aggregate American Exploration
Shares rounded off to the nearest whole share (so that no American
Exploration Shareholder will receive more than one share in lieu of a
fractional share in respect of such American Exploration Shareholder’s
entire holdings). As of the Effective Time, all American
Exploration Shares shall no longer be outstanding and shall automatically
be cancelled and shall cease to exist, and each holder of a certificate
representing any American Exploration Shares shall cease to have any
rights with respect thereto, except the right to receive the Mainland
Shares to be issued in consideration therefor upon surrender of such
certificate, without interest;
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-9-
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(b)
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each
American Exploration Share held in the treasury of American Exploration
immediately prior to the Effective Time shall be cancelled without any
conversion thereof and no payment or distribution shall be made with
respect thereto;
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(c)
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notwithstanding
anything in this Agreement to the contrary, if, between the date of this
Agreement and the Effective Time, the Exchange Ratio has been agreed upon
in writing by American Exploration and Mainland, and thereafter the
outstanding Mainland Shares shall have been changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall have been declared with a
record date within such period, the Exchange Ratio shall be
correspondingly adjusted;
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(d)
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all
of the American Exploration Options then outstanding will thereby be
disposed of by the holders thereof in consideration for the issue by
Mainland of non-transferable stock options (the “Mainland Exchange
Options”) to the persons set out in Schedule D hereto, subject to
reduction for any American Exploration Options that are exercised or
expire prior to Closing. The number of Mainland Exchange
Options issuable shall be determined with reference to the Exchange Ratio,
mutatis
mutandis. As of the date of this Agreement, the Exchange
Ratio is one Mainland Exchange Share for every four American Exploration
Shares. Accordingly, assuming the Exchange Ratio is the same at
the Effective Time, an American Exploration Option to acquire four
American Exploration Shares would result in a Mainland Option to acquire
one Mainland Share. The exercise price of each Mainland
Exchange Option shall be $1.50. No fractional Mainland Exchange
Options will be issued, and any fractions of 0.5 and more in respect of
each holder’s aggregate American Exploration Options shall be rounded off
to the nearest whole option (so that no American Exploration Option holder
will receive more than one Mainland Exchange Option in lieu of a
fractional option in respect of such American Exploration Option holder’s
entire holdings);
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(e)
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all
of the American Exploration Warrants then outstanding will thereby be
disposed of by the holders thereof in consideration for the issue by
Mainland of non-transferable common stock purchase warrants (the “Mainland Exchange
Warrants”) to the persons set out in Schedule D hereto, subject to
reduction for any American Exploration Warrants that are exercised or
expire prior to Closing. The number of Mainland Exchange
Warrants issuable shall be determined with reference to the Exchange
Ratio, mutatis
mutandis. As of the date of this Agreement, the Exchange
Ratio is one Mainland Exchange Share for every four American Exploration
Shares. Accordingly, assuming the Exchange Ratio is the same at
the Effective time, American Exploration Warrants to acquire four American
Exploration Shares would result in a Mainland Warrant to acquire one
Mainland Share, and the exercise price of each Mainland Exchange Warrant
shall be determined by multiplying the per share exercise price of the
corresponding whole American Exploration Warrants by the Exchange
Ratio. No fractional Mainland Exchange Warrants will be issued,
and any fractions of 0.5 and more in respect of each holder’s aggregate
American Exploration Warrants shall be rounded off to the nearest whole
warrant (so that no American Exploration Warrant holder will receive more
than one Mainland Exchange Warrant in lieu of a fractional warrant in
respect of such American Exploration Warrant holder’s entire holdings);
and
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-10-
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(f)
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Mainland
will be the Surviving Corporation, and, upon the Effective Time, shall
continue in existence and without further transfer shall succeed to and
possess all rights, privileges, powers and franchises of
Mainland and all of the assets and property of whatever kind
and character of American Exploration shall vest in Mainland as the
Surviving Corporation. Mainland, as the Surviving Corporation,
shall also be liable for all of the liabilities and obligations of
American Exploration, and any claim or judgment against American
Exploration may be enforced against Mainland as the Surviving
Corporation. The articles of incorporation and bylaws of
Mainland existing immediately prior to the Effective Time shall be the
articles of incorporation and bylaws of Mainland immediately after the
Effective Time.
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Resale
Restrictions
2.3 The
Mainland Shares issued to American Exploration Shareholders in the Merger, the
Mainland Exchange Options and the Mainland Exchange Warrants will be registered
under the Registration Statement. However, the Mainland Shares issued
to American Exploration Shareholders in the Merger, as well as the Mainland
Shares issued in the event of exercise of the Mainland Exchange Options or
Mainland Exchange Warrants issued in exchange for American Exploration Options
and American Exploration Warrants, as the case may be, shall be subject to
resale restrictions under British Columbia Instrument 51-509 – Issuers Quoted in the U.S.
Over-the-Counter Markets. In addition, the Mainland Shares
issuable upon exercise of the Mainland Exchange Options and upon exercise of the
Mainland Exchange Warrants will not be registered under the Registration
Statement, and, upon issuance, will constitute “restricted securities” as
defined in Rule 144(a)(3) under the 1933 Act.
Shareholders’
Rights Upon Merger
2.4 Upon
consummation of the Merger, each American Exploration Shareholder shall, subject
to applicable Laws and this Agreement, cease to have any rights with respect to
any share certificate evidencing the American Exploration Shareholder’s title to
one or more American Exploration Shares, and to any American Exploration Shares
evidenced thereby, other than the right to receive a share certificate for
Mainland Shares.
Surrender
of Certificates
2.5 In
connection with the Closing, Mainland will issue Mainland share certificates
evidencing the Mainland Shares to be issued to American Exploration Shareholders
in the Merger on substantially the same basis as the American Exploration Shares
are registered as of the Effective Time. That is, American Exploration Shares
registered in the names of direct beneficial holders will be so registered and
American Exploration Shares registered in the name of brokerages, clearing
houses and other intermediaries will be registered in those names, either in
paper or in electronic form as the Mainland Transfer Agent may
advise. The Mainland Transfer Agent shall, before issuing a Mainland
share certificate in the name of a direct beneficial American Exploration
Shareholder, require the delivery to the Mainland Transfer Agent of the American
Exploration share certificates which are outstanding and registered in such
American Exploration shareholder’s name, duly endorsed for transfer in blank,
but the Mainland Transfer Agent shall institute standard procedures in
connection with American Exploration Shares registered in the names of
brokerages, clearing houses and other intermediaries where such shares are
book-based.
-11-
By-laws
2.6 After the
Merger, the by-laws of Mainland shall be the by-laws of the Surviving
Corporation.
Effects
of Merger
2.7 The Merger
shall have all further effects as specified in the applicable provisions of the
Nevada Statutes and the Articles of Merger.
Additional
Actions
2.8 If, at
any time after the Merger, Mainland shall determine that the Surviving
Corporation requires that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of American
Exploration or otherwise to carry out this Agreement, the officers and directors
of the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of American Exploration, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
American Exploration, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement and the transactions contemplated
hereby.
No
Tax Representations of Mainland
2.9 No
representation is made by Mainland in regards to the tax treatment of the Merger
for American Exploration Shareholders, American Exploration Option holders or
American Exploration Warrant holders.
No
Tax Representations of American Exploration
2.10 No
representation is made by American Exploration in regards to the tax treatment
of the Merger for Mainland Shareholders or Mainland Option holders.
PART
3
IMPLEMENTATION
OF THE MERGER
Implementation
Steps by American Exploration
3.1 American
Exploration covenants in favor of Mainland that American Exploration
shall:
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(a)
|
convene
and hold the American Exploration Meeting for the purpose of considering
the American Exploration Merger Resolution (and for any other proper
purpose as may be set out in the notice for such meeting);
and
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(b)
|
subject
to the satisfaction or waiver of the other conditions herein contained in
favor of each party, with the co-operation of Mainland, take such steps as
are necessary to give effect to the
Merger.
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-12-
Implementation
Steps by Mainland
3.2 Mainland
covenants in favor of American Exploration that Mainland shall convene and hold
the Mainland Meeting for the purpose of considering the Mainland Merger
Resolution (and for any other proper purpose as may be set out in the notice for
such meeting).
3.3 Mainland
further covenants in favor of American Exploration that, on or prior to the
Effective Date and subject to the satisfaction or waiver of the other conditions
herein contained in favor of each such party, Mainland shall:
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(a)
|
subject
to the satisfaction or waiver of the other conditions herein contained in
favor of each party, with the co-operation of American Exploration, take
such steps as are necessary to give effect to the
Merger;
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(b)
|
subject
to §2.5, and subject to the satisfaction or
waiver of the other conditions herein contained in favor of each party,
deliver certificates for Mainland Shares to American Exploration
Shareholders in accordance with this Agreement;
and
|
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(c)
|
subject
to the satisfaction or waiver of the other conditions herein contained in
favor of each party, deliver agreements or certificates for Mainland
Exchange Options and Mainland Exchange Warrants, as appropriate, to
American Exploration Option holders and American Exploration Warrant
holders, as the case may be, in accordance with this Agreement, against
the delivery and surrender of the agreements and certificates representing
the corresponding American Exploration Options and American Exploration
Warrants.
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Securities
Compliance
3.4 Each of
Mainland and American Exploration shall take all necessary steps to ensure that
the transactions contemplated hereby are in compliance with applicable
Laws.
Preparation
of Filings
3.5 Mainland
and American Exploration shall co-operate in:
(a) the
preparation of the Registration Statement and Joint Proxy Statement;
and
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(b)
|
the
preparation of any application for any regulatory approvals, other orders,
rulings, consents and any other documents, and the taking of any action,
deemed by Mainland or American Exploration, acting reasonably, to be
necessary to discharge their respective obligations under applicable Laws
in connection with the Merger and the other transactions contemplated
hereby.
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3.6 Each of
Mainland and American Exploration shall furnish to the other all such
information concerning it and its security holders as may be required (and, in
the case of its security holders, available to it with reasonable effort) for
the effectuation of the actions described in §3.4
and §3.5 and the foregoing provisions of this §3.6, and each covenants that no information furnished
by it (to its knowledge in the case of information concerning its security
holders) in connection with such actions or otherwise in connection with the
consummation of the Merger and the other transactions contemplated by this
Agreement will contain any untrue statement of a material fact, or omit to state
a material fact required to be stated in any such document or necessary in order
to make any information so furnished for use in any such document not misleading
in the light of the circumstances in which it is furnished.
-13-
3.7 American
Exploration shall take all necessary steps to ensure the Joint Proxy Statement
complies with all applicable Laws and, without limiting the generality of the
foregoing, to cause the Joint Proxy Statement to not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which they are made (other than with
respect to any information relating to and provided by Mainland or any third
party that is not an affiliate of American Exploration). Without limiting the
generality of the foregoing, American Exploration shall cause the Joint Proxy
Statement to provide American Exploration Shareholders entitled to vote with
information in sufficient detail to permit them to form a reasoned judgment
concerning the matters to be placed before them at the American Exploration
Meeting and Mainland shall provide all information which is reasonably requested
of it for American Exploration to do so.
3.8 Mainland
shall take all necessary steps to ensure the Joint Proxy Statement complies with
all applicable Laws and, without limiting the generality of the foregoing, to
cause the Joint Proxy Statement to not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading in light of
the circumstances in which they are made (other than with respect to any
information relating to and provided by American Exploration or any third party
that is not an affiliate of Mainland). Without limiting the generality of the
foregoing, Mainland shall cause the Joint Proxy Statement to provide Mainland
Shareholders entitled to vote with information in sufficient detail to permit
them to form a reasoned judgment concerning the matters to be placed before them
at the Mainland Meeting and American Exploration shall provide all information
which is reasonably requested of it for Mainland to do so.
PART
4
REPRESENTATIONS
AND WARRANTIES
Representations
and Warranties of American Exploration
4.1 American
Exploration represents and warrants to and in favor of Mainland as follows and
acknowledges that Mainland is relying upon such representations and warranties
in connection with the matters contemplated by this Agreement:
(a) Organization.
(i) American
Exploration has been duly incorporated or formed under the applicable Laws of
Nevada, is validly subsisting and has full corporate or legal power and
authority to carry on the Business, to perform its obligations hereunder, and to
enter into, own, hold, license, and lease its Assets;
(ii) American
Exploration has made all necessary filings under all applicable corporate,
securities, and taxation laws or any other laws to which it is subject, and is
in good standing in each jurisdiction in which the conduct of its business or
the ownership or leasing of its Assets makes that qualification necessary;
and
(iii) American
Exploration has no minority interest in any other corporation or entity, which
minority interest is material in relation to American Exploration;
-14-
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(b)
|
Capitalization. The
authorized capital of American Exploration consists of 150,000,000 shares
of common stock with a par value of $0.001. As of the date of
this Agreement, there are 59,718,333 American Exploration Shares issued
and outstanding. Except as set out in Schedule E hereto, there
are no options, warrants, conversion privileges or other rights,
agreements, arrangements or commitments (pre-emptive, contingent or
otherwise) obligating American Exploration to issue or sell any shares of
American Exploration, or ownership interests, securities, or obligations
of any kind convertible into or exchangeable for any shares of American
Exploration or any other Person, nor is there outstanding any stock
appreciation rights, phantom equity, or similar rights, agreements,
arrangements or commitments based upon the book value, income, or any
other attribute of American Exploration. All outstanding
American Exploration Shares have been duly authorized and are validly
issued and outstanding as fully paid and non-assessable shares, free of
pre-emptive rights;
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(i)
|
There
are no outstanding bonds, debentures or other evidences of indebtedness of
American Exploration including any which have the right to vote (or that
are convertible for or exercisable into securities having the right to
vote) with the holders of the American Exploration Shares on any matter.
There are no outstanding contractual obligations of American Exploration
to repurchase, redeem or otherwise acquire any of its outstanding
securities;
|
(c) Authority
and No Violation.
|
(i)
|
American
Exploration has the requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by American Exploration and the consummation by
American Exploration of the transactions contemplated by this Agreement
have been duly authorized by its Board of Directors and no other corporate
proceedings on its part are necessary to authorize this Agreement, or the
transactions contemplated hereby other
than:
|
|
(A)
|
with
respect to finalizing and approving the Joint Proxy Statement and other
matters relating thereto; and
|
|
(B)
|
with
respect to the completion of the Merger, the approval of the American
Exploration Shareholders;
|
|
(ii)
|
This
Agreement has been duly executed and delivered by American Exploration and
constitutes its legal, valid and binding obligation, enforceable against
it in accordance with its terms, subject to bankruptcy, insolvency, and
other applicable Laws affecting creditors’ rights generally, and to
general principles of equity;
|
|
(iii)
|
The
approval of this Agreement, the execution and delivery by American
Exploration of this Agreement, and the performance by it of its
obligations hereunder, and the completion of the Merger and the
transactions contemplated thereby, will
not:
|
|
(A)
|
result
in a violation or breach of, require any consent to be obtained under, or
give rise to any termination, purchase or sale rights, or payment
obligation under any provision of:
|
|
(I)
|
its
articles of incorporation, by-laws or other charter documents, including
any unanimous shareholder agreement or any other agreement or
understanding relating to ownership of shares or other
interests;
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-15-
|
(II)
|
subject
to obtaining any necessary regulatory approvals relating to American
Exploration, any Laws, judgment, or decree, except to the extent that the
violation or breach of, or failure to obtain any consent under, any Laws,
judgment or decree would not, individually or in the aggregate, have a
Material Adverse Effect on American Exploration;
or
|
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(III)
|
subject
to obtaining any necessary regulatory approvals relating to American
Exploration and the requisite approval of the American Exploration
Shareholders, and except as would not, individually or in the aggregate,
have a Material Adverse Effect on American Exploration, or on any material
contract, agreement, license, franchise, or permit to which it is party or
by which it is bound or is subject or is the
beneficiary;
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(B)
|
give
rise to any right of termination or acceleration of indebtedness of
American Exploration;
|
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(C)
|
except
as would not, individually or in the aggregate, have a Material Adverse
Effect on American Exploration, result in the imposition of any
restriction, tax, penalty, Encumbrance, charge, or lien upon any of the
Assets, or restrict, hinder, impair, or limit the ability of American
Exploration to carry on the Business of American Exploration as and where
it is now being carried on;
|
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(D)
|
result
in any payment (including severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any director or employee of
American Exploration or increase any benefits otherwise payable to any
such person or under any American Exploration Plans or result in the
acceleration of time of payment or vesting of any such benefits, including
the time of exercise of stock options;
or
|
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(E)
|
result
in the acceleration of time of payment or vesting of any such benefits,
including the time of exercise of stock
options;
|
No
consent, approval, order or authorization of, or declaration or filing with, any
Governmental Entity is required to be obtained by American Exploration, or to
its knowledge, any American Exploration Shareholder in connection with the
execution and delivery of this Agreement or the consummation by American
Exploration of the transactions contemplated hereby other than (A) any approval
of the American Exploration Shareholders of the Merger, (B) filing the Articles
of Merger with the Secretary of State of the State of Nevada, and (C) any other
consents, approvals, orders, authorizations, declarations or filings of or with
a Governmental Entity which, if not obtained, would not, individually or in the
aggregate, have a Material Adverse Effect on American Exploration;
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(d)
|
No Defaults. Subject to
obtaining any necessary regulatory approvals relating to American
Exploration, American Exploration is not in default under, and there
exists no event, condition or occurrence which, after notice or lapse of
time or both, would constitute such a default under, any contract
(including the Material Contracts), agreement, license or franchise to
which it is a party which would, if terminated due to such default, cause
a Material Adverse Effect;
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-16-
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(e)
|
Absence of Certain Changes or
Events. American Exploration has conducted its Business only in the
ordinary and regular course of business consistent with past practice and
except as otherwise provided in this Agreement, there has not occurred
since the date of the most recent balance sheet forming part of the
American Exploration Financial
Statements:
|
(i) a
Material Adverse Change with respect to American Exploration;
|
(ii)
|
any
damage, destruction, or loss, whether covered by insurance or not, that
could reasonably be expected to have a Material Adverse Effect on American
Exploration;
|
|
(iii)
|
any
redemption, repurchase or other acquisition of American Exploration Shares
by American Exploration or any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property)
with respect to American Exploration
Shares;
|
|
(iv)
|
any
material increase in or modification of the compensation payable or to
become payable by it to any of its directors or officers, or any grant to
any such director or officer of any increase in severance or termination
pay;
|
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(v)
|
any
increase in or modification of any bonus, pension, insurance or benefit
arrangement (including the granting of stock options, restricted stock
awards or stock appreciation rights) made to, for or with any of its
directors or officers;
|
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(vi)
|
any
acquisition or sale of its property or Assets to a Person not dealing at
arm’s length;
|
|
(vii)
|
any
entering into, amendment of, relinquishment, termination or non-renewal by
it of any material contract, agreement, license, franchise, lease
transaction, commitment or other right or obligation, other than in the
ordinary and regular course of business consistent with past
practice;
|
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(viii)
|
an
act whereby American Exploration has engaged or entered into any
transaction or made any disbursement or assumed or incurred any liability
or obligation or made any commitment to make any expenditure which might
materially and adversely affect any of the Assets or the organization,
operations, affairs, Business, properties, prospects or financial
condition or position of American
Exploration;
|
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(ix)
|
any
resolution to approve a combination or reclassification of any of its
outstanding shares;
|
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(x)
|
an
act whereby American Exploration has purchased or agreed to purchase, or
leased or agreed to lease, or acquired or agreed to acquire, any property
or asset, other than as required in the usual and ordinary course of the
operation of the Business;
|
-17-
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(xi)
|
an
act whereby American Exploration has sold, transferred, disposed of,
mortgaged, pledged, charged, or leased any Asset or property, other than
as required in the usual and ordinary course of the operation of the
Business;
|
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(xii)
|
any
change in its accounting methods, principles or practices;
or
|
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(xiii)
|
any
agreement or arrangement to take any action which, if taken prior to the
date hereof, would have made any representation or warranty set forth in
this Agreement materially untrue or incorrect as of the date when
made;
|
(f) Employment.
|
(i)
|
Except
as set forth in the American Exploration SEC Filings, American Exploration
is not a party to any written or oral policy, agreement, obligation or
understanding providing for severance or termination payments to, or any
employment agreement with, any director or
officer;
|
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(ii)
|
American
Exploration is not a party to any collective bargaining agreement nor
subject to any application for certification or, to the knowledge of
American Exploration, threatened or apparent union-organizing campaigns
for employees not covered under a collective bargaining agreement nor are
there any current, pending or, to the knowledge of American Exploration,
threatened strikes or lockouts at American Exploration that would,
individually or in the aggregate, have a Material Adverse Effect on
American Exploration;
|
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(iii)
|
American
Exploration is not subject to any claim for wrongful dismissal,
constructive dismissal, or any other tort claim, actual or, to the
knowledge of American Exploration, threatened, or any litigation, actual
or, to the knowledge of American Exploration, threatened, relating to
employment or termination of employment of employees or independent
contractors;
|
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(iv)
|
American
Exploration has operated in all material respects in accordance with all
applicable Laws with respect to employment and labour, including, but not
limited to, employment and labour standards, occupational health and
safety, employment equity, pay equity, workers’ compensation, human rights
and labour relations, and there are no current, pending, or, to the
knowledge of American Exploration, threatened proceedings before any board
or tribunal with respect to any of the above
areas;
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(g)
|
Financial
Statements. The American Exploration Financial
Statements have been prepared in accordance with United States generally
accepted accounting principles, the requirements of applicable
Governmental Entities and applicable securities Laws; such financial
statements present fairly, in all material respects, the financial
position and results of operations of American Exploration as of the
respective dates thereof and for the respective periods covered
thereby;
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(h)
|
Books and Records. The
books, records and accounts of American Exploration, in all material
respects:
|
|
(i)
|
have
been maintained in accordance with good business practices on a basis
consistent with prior years;
|
-18-
|
(ii)
|
are
stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the Assets of American Exploration;
and
|
|
(iii)
|
accurately
and fairly reflect the basis for the American Exploration Financial
Statements. American Exploration has devised and maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that:
|
|
(A)
|
transactions
are executed in accordance with management’s general or specific
authorization; and
|
(B) transactions
are recorded as necessary:
|
(I)
|
to
permit preparation of financial statements in conformity with US generally
accepted accounting principles or any other criteria applicable to such
statements; and
|
(II) to
maintain accountability for Assets;
|
(i)
|
Litigation, Etc. There
is no claim, action, proceeding, or investigation pending or, to the
knowledge of American Exploration, threatened against American Exploration
before any court or Governmental Entity. Neither American Exploration or
its assets or properties is subject to any outstanding judgment, order,
writ, injunction, or decree;
|
|
(j)
|
Environmental. Except
for any matters that, individually or in the aggregate, would not have a
Material Adverse Effect on American
Exploration:
|
|
(i)
|
all
operations of American Exploration have been conducted, and are now in
compliance with all Environmental
Laws;
|
|
(ii)
|
American
Exploration is in possession of, and in compliance with, all permits,
authorizations, certificates, registrations, approvals and consents
necessary under Environmental Laws to own, lease and operate its
properties and to conduct its business as it is now being conducted or as
proposed to be conducted (collectively the “Environmental Permits”);
and
|
(iii) American
Exploration is not aware of, or is subject to:
|
(A)
|
any
Environmental Laws which require or may require any work, repairs,
construction, change in business practices or operations, or expenditures,
including capital expenditures for facility upgrades, environmental
investigation and remediation expenditures, or any other such
expenditures;
|
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(B)
|
any
written demand or written notice with respect to the breach of or
liability under any Environmental Laws applicable to American Exploration,
including any regulations respecting the use, storage, treatment,
transportation or disposition (including disposal or arranging for
disposal) of Hazardous Substances;
|
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(C)
|
any
written demand or written notice with respect to liability, by contract or
operation of applicable Laws, under Environmental Laws applicable to
American Exploration or any current or former subsidiary or any of its
predecessor entities, divisions or any formerly owned, leased or operated
properties or Assets of the foregoing, including liability with respect to
the presence, release or discharge of Hazardous Substances;
or
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-19-
|
(D)
|
any
changes in the terms or conditions of any Environmental Permits or any
renewal, modification, revocation, re-issuance, alteration, transfer or
amendment of such Environmental Permits, or any review by, or approval of,
any Governmental Entity of such Environmental Permits that are required in
connection with the execution or delivery of this Agreement, the
consummation of the transactions contemplated hereby or the continuation
of the Business following such
consummation;
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(iv)
|
American
Exploration has not conducted the Business or used any of the Assets or
permitted them to be conducted or used, to generate, manufacture, refine,
treat, transport, store, handle, dispose of, transfer, produce or process
Hazardous Substances, except in compliance with all applicable judgments,
decrees, orders, injunctions, rules, statutes and regulations of all
courts, arbitrators or Governmental Authorities, including all
environmental, health and safety statutes and regulations and, to the best
of American Exploration’s knowledge, neither has any lessee or prior owner
of any of the Assets or any other
Person;
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(v)
|
American
Exploration, the Business and the Assets and the uses to which its assets
have been put and the state of maintenance and repair thereof comply in
all material respects with all applicable Laws, judgments, decrees,
orders, injunctions, rules and regulations of all Governmental
Authorities, courts or arbitrators, including all environmental, health
and safety statutes and regulations and fire and building codes and
standards;
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(vi)
|
American
Exploration has not received any notices of any contravention of, or
demands or requests for, repairs or other remedial work with respect to
any of its assets under any statutes, bylaws, ordinances, rules or
regulations of any Government Authority or arising from the use of any of
its assets, or the occupation or use of any premises owned, leased or
utilized by American Exploration or relating to the location, size,
configuration, state of repairs, design or construction of, or defects in
any of these premises;
|
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(vii)
|
American
Exploration is not subject to any judicial or administrative proceeding
alleging the violation of any applicable Environmental Laws, health or
safety laws or other statutes and regulations, judgments, decrees, orders,
injunctions, or rules;
|
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(viii)
|
American
Exploration is not the subject of investigation by any Governmental
Authority evaluating whether any remedial action is needed to respond to a
release of any Hazardous Substance into the environment nor has any
Hazardous Substance been released into the environment, or disposed of,
at, on, or near any property used or previously used by American
Exploration as a result of the conduct of the Business or otherwise,
except as permitted by the laws or regulations enforced at the relevant
time and American Exploration does not have any contingent liability in
connection with the release of any Hazardous Substance or contaminant or
other substance into the environment;
and
|
-20-
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(ix)
|
American
Exploration has not filed any notice under any applicable Environmental
Laws, health or safety laws, other statutes or regulations, judgments,
decrees, orders or injunctions, indicating past or present treatment,
storage, or disposal of a Hazardous Substance or constituent, or other
substance into the environment, and, to the best of the knowledge of
American Exploration, there are no orders or directions relating to
environmental matters requiring any work, repairs or capital expenditures
with respect to the Assets or
Business;
|
(k) Tax Matters. In
respect of Taxes:
|
(i)
|
American
Exploration has prepared and filed on time with all appropriate
Governmental Entities all returns and other documents that it is required
to file in respect of any Taxes, or in respect of any other provision in
any domestic or foreign federal, provincial, municipal, state, territorial
or other taxing statute for all fiscal periods ending prior to the date
hereof, and that all such returns and other documents are correct and
complete in all material respects;
|
|
(ii)
|
American
Exploration has paid in full and when due all Taxes required to be paid by
it on or prior to the date hereof, and will have paid all such Taxes as of
the date of Closing;
|
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(iii)
|
American
Exploration has withheld from each payment made to any of its present or
former employees, officers, directors, and any other third party, all
amounts required by law and has remitted such withheld amounts within the
prescribed time periods to the appropriate Governmental
Entity. American Exploration has remitted all Taxes and
employee contributions payable by it in respect of its employees and has
remitted such amounts to the appropriate Governmental Entity within the
time required under the applicable legislation. American
Exploration has charged, collected and remitted within prescribed time
periods all Taxes as required under applicable legislation on any sale,
supply or delivery whatsoever made by
them;
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(iv)
|
there
are no reassessments of the Taxes of American Exploration that have been
issued and are outstanding. No Governmental Entity has
challenged, disputed, or questioned American Exploration in respect of
Taxes or of any returns, filings or other reports filed under any taxing
statute. American Exploration is not negotiating any draft
assessment or reassessment with any Governmental
Entity. American Exploration is not aware of any contingent
liabilities for Taxes or any grounds for an assessment or reassessment
including, without limitation, aggressive treatment of income, expenses,
credits or other claims for deduction under any return or
notice. American Exploration has not received any indication
from a Governmental Entity that an assessment or reassessment is proposed
in respect of any Taxes regardless of its merits. American
Exploration has not executed or filed with any Governmental Entity any
waiver or agreement extending the time period for assessment, reassessment
or collection of any Taxes;
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(v)
|
no
claim has been made by any Governmental Entity in a jurisdiction where
American Exploration does not file Tax returns that American Exploration
is or may be subject to taxation in that
jurisdiction;
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-21-
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(vi)
|
American
Exploration is not a party to or bound by any Tax-sharing agreement, Tax
indemnity obligation or similar agreement, arrangement or practice with
respect to Taxes (including any advance pricing agreement, closing
agreement or other agreement relating to Taxes with any Governmental
Entity). American Exploration has not been a member of an
affiliated group of corporations within the meaning of Section 1504 of the
Code. American Exploration does not have any liability for the
Taxes of any other person or entity under Treasury Regulations Section
1.1502-6 (or similar provision of the law of any jurisdiction) as a
transferee or successor, by contract or
otherwise;
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(vii)
|
no
liens for Taxes exist with respect to any of the Assets of American
Exploration;
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(viii)
|
American
Exploration is not and never has been a “United States real property
holding corporation” within the meaning of Section 897(c)(2) of the
Code;
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(ix)
|
the
non-capital losses of American Exploration were incurred by American
Exploration only in carrying on the
Business;
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(x)
|
American
Exploration has paid all Taxes imposed on the acquisition of its tangible
personal property, and none of its tangible personal property has been
transferred at any time on a tax-exempt basis;
and
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(xi)
|
American
Exploration has not, prior to the date hereof
:
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|
(A)
|
discontinued
carrying on any business in respect of which non-capital losses were
incurred;
|
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(B)
|
acquired
or had the use of any property from a person with whom it was not dealing
at arm’s length;
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(C)
|
disposed
of anything to a person with whom it was not dealing at arm’s length for
proceeds less than or greater than the fair market value thereof;
or
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(D)
|
paid
any dividends or made any distributions to its shareholders with respect
to any of its shares or other ownership interests herein; nor does it have
any plans to do any of the foregoing in the
future;
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(l)
|
Compliance with Laws.
American Exploration has complied with and is not in violation of any
applicable Laws, orders, judgments and decrees other than non-compliance
or violations which would not, individually or in the aggregate, have a
Material Adverse Effect on American Exploration. Without limiting the
generality of the foregoing, all securities of American Exploration
(including, all options, rights or other convertible or exchangeable
securities) have been issued in compliance, in all material respects, with
all applicable securities Laws, and all securities to be issued upon the
exercise of any such options, rights and other convertible or exchangeable
securities will be issued in compliance with all applicable securities
Laws;
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(m)
|
Intangible Property.
All of the Intangible Property of American Exploration is owned by
unencumbered good and marketable title. There are no restrictions on the
ability of American Exploration to use and exploit all rights in the
Intangible Property, and all statements in all applications for
registration of the Intangible Property were true and correct as of the
date of such applications;
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-22-
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(n)
|
Licences, Etc. American
Exploration owns, possesses, or has obtained, and is in material
compliance with, all permits from any Governmental Entity necessary to
conduct its Business as now conducted, or as proposed to be conducted,
except for such failure that would individually or in the aggregate not
have a Material Adverse Effect on American
Exploration;
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(o)
|
Securities Registration
Rights. No holder of securities issued by American Exploration has
any right to compel American Exploration to register or otherwise qualify
such securities for public sale in Canada or the United
States;
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(p)
|
Reports. To
the best of its knowledge after due inquiry, American Exploration has
filed with or furnished to the Securities and Exchange Commission true and
complete copies of all forms, reports, schedules, statements and other
documents required to be filed or furnished by it, and such documents, at
the time filed or furnished:
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(i)
|
did
not contain any misrepresentation (as defined in the applicable securities
laws), and
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(ii)
|
complied
in all material respects with the requirements of applicable securities
Laws.
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(q)
|
Assets Used in the Normal
Course of Business. The Assets constitute all of the
rights, assets and properties that are usually and ordinarily used or held
for use in connection with or otherwise relate to the operation of the
Business in the usual and ordinary course of the operation of the
Business. Except for contemplated additions that are not
material in the aggregate, all of the Assets include all rights, assets
and properties, the use and exercise of which are necessary for the
performance of any agreement to which American Exploration is a party, and
the conduct of the Business as now conducted and presently proposed by
American Exploration to be
conducted;
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(r)
|
Title to the
Assets. American Exploration is the legal and beneficial
owner of, and has good and marketable title to, the Assets, free and clear
of all Encumbrances (other than those Encumbrances disclosed in the
American Exploration SEC Filings or as otherwise disclosed by American
Exploration to Mainland in
writing);
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(s)
|
Condition of Assets.
All tangible rights, assets and properties comprising the Assets
are free from material defect, are in good condition and repair and (where
applicable) are in proper working order, having regard to the use and age
thereof;
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(t)
|
Material Contracts.
There has not been any breach, default in any term, condition,
provision or obligation to be performed under any of the Material
Contracts set out in Schedule D hereto, each Material Contract is in good
standing, full force and effect, and, with the exception of amendments to
the certain Material Contracts described in Schedule D,
unamended;
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(u)
|
Parties to Material Contracts.
Each of the Material Contracts contains the entire and only
agreement between the parties thereto with respect to the subject matter
thereof and identifies therein each person who is a party thereto or is
bound thereby, and American Exploration has neither received any notice
nor is aware that any other party to any Material Contract intends or
wishes to cancel such Material Contract nor is there a dispute between
American Exploration and any other party to any Material Contract;
and
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-23-
|
(v)
|
No Other Options or Agreements
to Acquire the Business. There is no written, oral, or implied
agreement, option, understanding or commitment, or any right or privilege
capable of becoming any of the same, for the purchase from American
Exploration of the Business or any of the Assets, other than purchase
orders or requests accepted by it in the usual and ordinary course of the
operation of the Business.
|
Representations
and Warranties of Mainland
4.2 Mainland
represents and warrants to and in favor of American Exploration as follows and
acknowledges that American Exploration is relying upon such representations and
warranties in connection with the matters contemplated by this
Agreement:
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(a)
|
Organization of
Mainland.
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|
(i)
|
Mainland
has been duly incorporated or formed under the applicable Laws of Nevada,
is validly subsisting and has full corporate or legal power and authority
to carry on the Business, to perform its obligations hereunder, and to
enter into, own, hold, license, and lease its
Assets;
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(ii)
|
Mainland
has made all necessary filings under all applicable corporate, securities,
and taxation laws or any other laws to which it is subject, and is in good
standing in each jurisdiction in which the conduct of its business or the
ownership or leasing of its Assets makes that qualification necessary;
and
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(iii)
|
Mainland
has no minority interest in any other corporation or entity, which
minority interest is material in relation to
Mainland;
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(b)
|
Capitalization of
Mainland. The authorized capital of Mainland consists of
400,000,000 shares of common stock with a par value of
$0.0001. As of the date of this Agreement, there are 80,969,502
Mainland Shares issued and outstanding. Other than options for
11,500,000 Mainland Shares (2,500,000 of which have not vested and are
expected to be cancelled prior to Closing) as at the date of this
Agreement, there are no other options, warrants, conversion privileges or
other rights, agreements, arrangements or commitments (contingent or
otherwise) obligating Mainland to issue or sell any shares or securities
or obligations of any kind convertible into or exchangeable for any
shares; however, Mainland expects to issue options for up to 1,000,000
additional Mainland Shares prior to Closing. All outstanding Mainland
Shares have been duly authorized and are validly issued and outstanding as
fully paid and non-assessable shares, free of pre-emptive
rights. There are no outstanding bonds, debentures or other
evidences of indebtedness of Mainland having the right to vote (or that
are convertible for or exercisable into securities having the right to
vote) with the holders of the Mainland Shares on any
matter. There are no outstanding contractual obligations of
Mainland to repurchase, redeem or otherwise acquire any of its outstanding
securities;
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(c) Authority and No
Violation.
|
(i)
|
Mainland
has the requisite corporate power and authority to enter into the
Agreement and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement by Mainland and the consummation
by Mainland of the transactions contemplated by this Agreement have been
duly authorized by its Board of Directors and no other corporate
proceedings on its part are necessary to authorize this Agreement or the
transactions contemplated hereby other
than:
|
-24-
|
(A)
|
with
respect to finalizing and approving the Joint Proxy Statement and other
matters relating thereto; and
|
|
(B)
|
with
respect to the completion of the Merger, the approval of the Mainland
Shareholders;
|
|
(ii)
|
this
Agreement has been duly executed and delivered by Mainland and constitutes
its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency and other
applicable Laws affecting creditors’ rights generally, and to general
principles of equity;
|
|
(iii)
|
the
approval of this Agreement, the execution and delivery by Mainland of this
Agreement and the performance by it of its obligations hereunder and the
completion of the Merger and the transactions contemplated thereby will
not:
|
|
(A)
|
result
in a violation or breach of, require any consent to be obtained under, or
give rise to any termination, purchase or sale rights, or payment
obligation under any provision of:
|
|
(I)
|
its
articles of incorporation, by-laws or other charter documents, including
any unanimous shareholder agreement or any other agreement or
understanding relating to ownership of shares or other interests or to
corporate governance with any party holding an ownership interest in
Mainland;
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|
(II)
|
subject
to obtaining any necessary regulatory approvals relating to Mainland, any
Laws, judgment or decree, except to the extent that the violation or
breach of, or failure to obtain any consent under, any Laws, judgment or
decree would not, individually or in the aggregate, have a Material
Adverse Effect on Mainland; or
|
|
(III)
|
subject
to obtaining any necessary regulatory approvals relating to Mainland ,and
except as would not, individually or in the aggregate, have a Material
Adverse Effect on Mainland, any material contract, agreement, license,
franchise, or permit to which it is party or by which it is bound or is
subject or is the beneficiary;
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|
(B)
|
give
rise to any right of termination or acceleration of indebtedness of
Mainland, or cause such indebtedness to come due before its stated
maturity or cause any available credit of Mainland to cease to be
available;
|
|
(C)
|
except
as would not, individually or in the aggregate, have a Material Adverse
Effect on Mainland, result in the imposition of any encumbrance, charge or
lien upon any of its assets, or restrict, hinder, impair, or limit its
ability to carry on its business as and where it is now being carried on;
or
|
-25-
|
(D)
|
result
in any payment (including severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any director or employee of
Mainland or increase any benefits otherwise payable under any Mainland
plans or result in the acceleration of time of payment or vesting of any
such benefits, including the time of exercise of stock
options.
|
No
consent, approval, order or authorization of, or declaration or filing with, any
Governmental Entity is required to be obtained by Mainland in connection with
the execution and delivery of this Agreement or the consummation by Mainland of
the transactions contemplated hereby or thereby other than (A) any approval of
the Mainland Shareholders of the Merger, and (B) any other consents, approvals,
orders, authorizations, declarations or filings of or with a Governmental Entity
which, if not obtained, would not, individually or in the aggregate, have a
Material Adverse Effect on Mainland;
|
(d)
|
No Defaults. Subject to
obtaining any necessary regulatory approvals relating to Mainland,
Mainland is not in default under, and there exists no event, condition or
occurrence which, after notice or lapse of time or both, would constitute
such a default under, any contract (including the Material Contracts),
agreement, license or franchise to which it is a party which would, if
terminated due to such default, cause a Material Adverse
Effect;
|
|
(e)
|
Absence of Certain Changes or
Events. Since the date of the most recent balance sheet
forming part of the Mainland Financial Statements, Mainland has conducted
its Business only in the ordinary and regular course of business
consistent with practice, and except as otherwise provided in this
Agreement, there has not occurred:
|
(i) a
Material Adverse Change with respect to Mainland;
(ii) any
damage, destruction, or loss, whether covered by insurance or not, that could
reasonably be expected to have a Material Adverse Effect on
Mainland;
(iii) any
redemption, repurchase or other acquisition of Mainland Shares by Mainland or
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to Mainland
Shares;
(iv) any
material increase in or modification of the compensation payable or to become
payable by it to any of its directors or officers, or any grant to any such
director or officer of any increase in severance or termination
pay;
(v) any
increase in or modification of any bonus, pension, insurance or benefit
arrangement (including the granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of its directors or
officers;
(vi) any
acquisition or sale of its property or Assets to a Person not dealing at arm’s
length;
(vii) any
entering into, amendment of, relinquishment, termination or non-renewal by it of
any material contract, agreement, license, franchise, lease transaction,
commitment or other right or obligation, other than in the ordinary and regular
course of business consistent with past practice;
-26-
(viii) an act
whereby Mainland has engaged or entered into any transaction or made any
disbursement or assumed or incurred any liability or obligation or made any
commitment to make any expenditure which might materially and adversely affect
any of the Assets or the organization, operations, affairs, Business,
properties, prospects or financial condition or position of
Mainland;
(ix) any
resolution to approve a combination or reclassification of any of its
outstanding shares;
(x) an act
whereby Mainland has purchased or agreed to purchase, or leased or agreed to
lease, or acquired or agreed to acquire, any property or asset, other than as
required in the usual and ordinary course of the operation of the
Business;
(xi) an act
whereby Mainland has sold, transferred, disposed of, mortgaged, pledged,
charged, or leased any Asset or property, other than as required in the usual
and ordinary course of the operation of the Business;
(xii) any
change in its accounting methods, principles or practices; or
(xiii) any
agreement or arrangement to take any action which, if taken prior to the date
hereof, would have made any representation or warranty set forth in this
Agreement materially untrue or incorrect as of the date when made;
(f) Employment.
(i) Except as
set forth in the Mainland SEC Filings, Mainland is not a party to any written or
oral policy, agreement, obligation or understanding providing for severance or
termination payments to, or any employment agreement with, any director or
officer;
(ii) Mainland
is not a party to any collective bargaining agreement nor subject to any
application for certification or, to the knowledge of Mainland, threatened or
apparent union-organizing campaigns for employees not covered under a collective
bargaining agreement nor are there any current, pending or, to the knowledge of
Mainland, threatened strikes or lockouts at Mainland that would, individually or
in the aggregate, have a Material Adverse Effect on Mainland;
(iii) Mainland
is not subject to any claim for wrongful dismissal, constructive dismissal, or
any other tort claim, actual or, to the knowledge of Mainland, threatened, or
any litigation, actual or, to the knowledge of Mainland, threatened, relating to
employment or termination of employment of employees or independent
contractors;
(iv) Mainland
has operated in all material respects in accordance with all applicable Laws
with respect to employment and labour, including, but not limited to, employment
and labour standards, occupational health and safety, employment equity, pay
equity, workers’ compensation, human rights and labour relations, and there are
no current, pending, or, to the knowledge of Mainland, threatened proceedings
before any board or tribunal with respect to any of the above
areas;
-27-
(g) Financial
Statements. The Mainland Financial Statements have been
prepared in accordance with United States generally accepted accounting
principles, the requirements of applicable Governmental Entities and applicable
securities Laws; such financial statements present fairly, in all material
respects, the consolidated financial position and results of operations of
Mainland as of the respective dates thereof and for the respective periods
covered thereby;
(h) Books and Records. The books,
records and accounts of Mainland, in all material respects:
(i) have been
maintained in accordance with good business practices on a basis consistent with
prior years;
(ii) are
stated in reasonable detail and accurately and fairly reflect the transactions
and dispositions of the Assets of Mainland; and
(iii) accurately
and fairly reflect the basis for the Mainland Financial Statements. Mainland has
devised and maintains a system of internal accounting controls sufficient to
provide reasonable assurances that:
(A) transactions
are executed in accordance with management’s general or specific authorization;
and
(B) transactions
are recorded as necessary:
(I) to permit
preparation of financial statements in conformity with US generally accepted
accounting principles or any other criteria applicable to such statements;
and
(II) to
maintain accountability for Assets;
|
(i)
|
Reports. To
the best of its knowledge after due inquiry, Mainland has filed with or
furnished to the Securities and Exchange Commission true and complete
copies of all forms, reports, schedules, statements and other documents
required to be filed or furnished by it, and such documents, at the time
filed or furnished;
|
|
(i)
|
did
not contain any misrepresentation (as defined in the applicable securities
Laws); and
|
|
(ii)
|
complied
in all material respects with the requirements of applicable securities
Laws.
|
|
(j)
|
Mainland
Shares. Mainland Shares to be issued pursuant to the
Merger will be duly and validly issued by Mainland on their respective
dates of issue as fully paid and non-assessable
shares;
|
|
(k)
|
Compliance with
Laws. Mainland has complied with and is not in violation
of any applicable Laws, orders, judgments and decrees other than
non-compliance or violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Mainland. Without
limiting the generality of the foregoing, all securities of Mainland
(including all options, rights or other convertible or exchangeable
securities) have been issued in compliance in all material respects with
all applicable securities Laws and all securities to be issued upon the
exercise of any such options, rights and other convertible or exchangeable
securities will be issued in compliance with all applicable securities
Laws;
|
-28-
(l) Litigation, Etc. There is no
claim, action, proceeding, or investigation pending or, to the knowledge of
Mainland, threatened against Mainland before any court or Governmental Entity.
Neither Mainland or its assets or properties is subject to any outstanding
judgment, order, writ, injunction, or decree;
(m) No Defaults. Subject to
obtaining any necessary regulatory approvals relating to Mainland, Mainland is
not in default under, and there exists no event, condition or occurrence which,
after notice or lapse of time or both, would constitute such a default under,
any contract (including the Material Contracts), agreement, license or franchise
to which it is a party which would, if terminated due to such default, cause a
Material Adverse Effect;
(n) Environmental. Except for any
matters that, individually or in the aggregate, would not have a Material
Adverse Effect on Mainland:
(i) all
operations of Mainland have been conducted, and are now in compliance with all
Environmental Laws;
(ii) Mainland
is in possession of, and in compliance with, all permits, authorizations,
certificates, registrations, approvals and consents necessary under
Environmental Laws to own, lease and operate its properties and to conduct its
business as it is now being conducted or as proposed to be conducted
(collectively the “Environmental Permits”);
and
(iii) Mainland
is not aware of, or is subject to:
(A) any
Environmental Laws which require or may require any work, repairs, construction,
change in business practices or operations, or expenditures, including capital
expenditures for facility upgrades, environmental investigation and remediation
expenditures, or any other such expenditures;
(B) any
written demand or written notice with respect to the breach of or liability
under any Environmental Laws applicable to Mainland, including any regulations
respecting the use, storage, treatment, transportation or disposition (including
disposal or arranging for disposal) of Hazardous Substances;
(C) any
written demand or written notice with respect to liability, by contract or
operation of applicable Laws, under Environmental Laws applicable to Mainland or
any current or former subsidiary or any of its predecessor entities, divisions
or any formerly owned, leased or operated properties or Assets of the foregoing,
including liability with respect to the presence, release or discharge of
Hazardous Substances; or
(D) any
changes in the terms or conditions of any Environmental Permits or any renewal,
modification, revocation, re-issuance, alteration, transfer or amendment of such
Environmental Permits, or any review by, or approval of, any Governmental Entity
of such Environmental Permits that are required in connection with the execution
or delivery of this Agreement, the consummation of the transactions contemplated
hereby or the continuation of the Business following such
consummation;
-29-
(iv) Mainland
has not conducted the Business or used any of the Assets or permitted them to be
conducted or used, to generate, manufacture, refine, treat, transport, store,
handle, dispose of, transfer, produce or process Hazardous Substances, except in
compliance with all applicable judgments, decrees, orders, injunctions, rules,
statutes and regulations of all courts, arbitrators or Governmental Authorities,
including all environmental, health and safety statutes and regulations and, to
the best of Mainland’s knowledge, neither has any lessee or prior owner of any
of the Assets or any other Person;
(v) Mainland,
the Business and the Assets and the uses to which its assets have been put and
the state of maintenance and repair thereof comply in all material respects with
all applicable Laws, judgments, decrees, orders, injunctions, rules and
regulations of all Governmental Authorities, courts or arbitrators, including
all environmental, health and safety statutes and regulations and fire and
building codes and standards;
(vi) Mainland
has not received any notices of any contravention of, or demands or requests
for, repairs or other remedial work with respect to any of its assets under any
statutes, bylaws, ordinances, rules or regulations of any Government Authority
or arising from the use of any of its assets, or the occupation or use of any
premises owned, leased or utilized by Mainland or relating to the location,
size, configuration, state of repairs, design or construction of, or defects in
any of these premises;
(vii) Mainland
is not subject to any judicial or administrative proceeding alleging the
violation of any applicable Environmental Laws, health or safety laws or other
statutes and regulations, judgments, decrees, orders, injunctions, or
rules;
(viii) Mainland
is not the subject of investigation by any Governmental Authority evaluating
whether any remedial action is needed to respond to a release of any Hazardous
Substance into the environment nor has any Hazardous Substance been released
into the environment, or disposed of, at, on, or near any property used or
previously used by Mainland as a result of the conduct of the Business or
otherwise, except as permitted by the laws or regulations enforced at the
relevant time and Mainland does not have any contingent liability in connection
with the release of any Hazardous Substance or contaminant or other substance
into the environment; and
(ix) Mainland
has not filed any notice under any applicable Environmental Laws, health or
safety laws, other statutes or regulations, judgments, decrees, orders or
injunctions, indicating past or present treatment, storage, or disposal of a
Hazardous Substance or constituent, or other substance into the environment,
and, to the best of the knowledge of Mainland, there are no orders or directions
relating to environmental matters requiring any work, repairs or capital
expenditures with respect to the Assets or Business;
(o) Tax Matters. In
respect of Taxes:
|
(xii)
|
Mainland
has prepared and filed on time with all appropriate Governmental Entities
all returns and other documents that it is required to file in respect of
any Taxes, or in respect of any other provision in any domestic or foreign
federal, provincial, municipal, state, territorial or other taxing statute
for all fiscal periods ending prior to the date hereof, and that all such
returns and other documents are correct and complete in all material
respects;
|
-30-
|
(xiii)
|
Mainland
has paid in full and when due all Taxes required to be paid by it on or
prior to the date hereof, and will have paid all such Taxes as of the date
of Closing;
|
|
(xiv)
|
Mainland
has withheld from each payment made to any of its present or former
employees, officers, directors, and any other third party, all amounts
required by law and has remitted such withheld amounts within the
prescribed time periods to the appropriate Governmental
Entity. Mainland has remitted all Taxes and employee
contributions payable by it in respect of its employees and has remitted
such amounts to the appropriate Governmental Entity within the time
required under the applicable legislation. Mainland has
charged, collected and remitted within prescribed time periods all Taxes
as required under applicable legislation on any sale, supply or delivery
whatsoever made by them;
|
|
(xv)
|
there
are no reassessments of the Taxes of Mainland that have been issued and
are outstanding. No Governmental Entity has challenged,
disputed, or questioned Mainland in respect of Taxes or of any returns,
filings or other reports filed under any taxing
statute. Mainland is not negotiating any draft assessment or
reassessment with any Governmental Entity. Mainland is not
aware of any contingent liabilities for Taxes or any grounds for an
assessment or reassessment including, without limitation, aggressive
treatment of income, expenses, credits or other claims for deduction under
any return or notice. Mainland has not received any indication
from a Governmental Entity that an assessment or reassessment is proposed
in respect of any Taxes regardless of its merits. Mainland has
not executed or filed with any Governmental Entity any waiver or agreement
extending the time period for assessment, reassessment or collection of
any Taxes;
|
|
(xvi)
|
no
claim has been made by any Governmental Entity in a jurisdiction where
Mainland does not file Tax returns that Mainland is or may be subject to
taxation in that jurisdiction;
|
|
(xvii)
|
Mainland
is not a party to or bound by any Tax-sharing agreement, Tax indemnity
obligation or similar agreement, arrangement or practice with respect to
Taxes (including any advance pricing agreement, closing agreement or other
agreement relating to Taxes with any Governmental
Entity). Mainland has not been a member of an affiliated group
of corporations within the meaning of Section 1504 of the
Code. Mainland does not have any liability for the Taxes of any
other person or entity under Treasury Regulations Section 1.1502-6 (or
similar provision of the law of any jurisdiction) as a transferee or
successor, by contract or
otherwise;
|
|
(xviii)
|
no
liens for Taxes exist with respect to any of the Assets of
Mainland;
|
|
(xix)
|
Mainland
is not and never has been a “United States real property holding
corporation” within the meaning of Section 897(c)(2) of the
Code;
|
|
(xx)
|
the
non-capital losses of Mainland were incurred by Mainland only in carrying
on the Business;
|
|
(xxi)
|
Mainland
has paid all Taxes imposed on the acquisition of its tangible personal
property, and none of its tangible personal property has been transferred
at any time on a tax-exempt basis;
and
|
|
(xxii)
|
Mainland
has not, prior to the date hereof :
|
-31-
|
(A)
|
discontinued
carrying on any business in respect of which non-capital losses were
incurred;
|
|
(B)
|
acquired
or had the use of any property from a person with whom it was not dealing
at arm’s length;
|
|
(C)
|
disposed
of anything to a person with whom it was not dealing at arm’s length for
proceeds less than or greater than the fair market value thereof;
or
|
|
(D)
|
paid
any dividends or made any distributions to its shareholders with respect
to any of its shares or other ownership interests herein; nor does it have
any plans to do any of the foregoing in the
future;
|
|
(p)
|
Registration Rights. No
holder of securities issued by Mainland has any right to compel Mainland
to register or otherwise qualify such securities for public sale in Canada
or the United States.
|
Survival
4.3 For
greater certainty, the representations and warranties of Mainland and American
Exploration contained herein shall survive the execution and delivery of this
Agreement and notwithstanding the completion of the Merger, continue in full
force and effect for the benefit of American Exploration and Mainland,
respectively for a period of two years. Any investigation by a party hereto and
its advisors shall not mitigate, diminish or affect the representations and
warranties of another party to this Agreement.
PART
5
COVENANTS
Covenants
of American Exploration
5.1 During
the Pre-Effective Date Period, American Exploration will, subject to the fact
that a transaction involving its Business is contemplated hereby, continue to
carry on the Business of American Exploration in a manner consistent with prior
practice, working to preserve the attendant goodwill and good standing of such
entities and their Assets and to contribute to retention of that goodwill to and
after the Effective Date. The following provisions of this Part 5 are intended to be in furtherance of this
general commitment.
5.2 Commencing
immediately and for the duration of this Agreement, American Exploration
covenants that unless it first receives the written consent of Mainland, which
consent will not be unreasonably withheld by Mainland, it will not, nor will it
permit its directors, officers, employees, agents, affiliates, associates or any
of its employees, officers or directors to solicit, discuss, encourage, procure,
negotiate or accept any offers to finance or purchase American Exploration, or
any component thereof to form any type of business combination, including
without limiting the generality of the foregoing, a merger, amalgamation, share
exchange, takeover, joint venture or pooling of
interests. Notwithstanding the foregoing or anything to the contrary
in this Agreement, if prior to the approval of this Agreement by the
stockholders of American Exploration, the Board of Directors of American
Exploration determines in good faith, after consultation with outside counsel,
that it is necessary to do so in order to avoid breaching its fiduciary duties
to the stockholders of American Exploration under applicable Nevada law,
American Exploration may, in response to an unsolicited Takeover Proposal of the
sort referred to in §5.2(b) that the Board of
Directors of American Exploration determines in good faith does or is reasonably
likely to involve consideration to the stockholders of American Exploration that
is superior to the consideration provided for in the Merger, (i) furnish
information with respect to American Exploration pursuant to a customary
confidentiality agreement to any Person making such proposal and (ii)
participate in negotiations regarding such proposal.
-32-
|
(a)
|
Neither
the Board of Directors of American Exploration nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, the
approval or recommendation by such Board of Directors or such committee of
this Agreement or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any transaction described in the first sentence of
Section 5.2, or (iii) cancel or fail to call
or hold the American Exploration Meeting or remove this Agreement and the
Merger from consideration at such meeting prior to completion of the vote
of the stockholders of American Exploration on this Agreement and the
Merger; except in each such case (x) in connection with an unsolicited
Takeover Proposal that the Board of Directors of American Exploration
determines in good faith constitutes a Superior Proposal and (y) if the
Board of Directors of American Exploration determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order
to avoid breaching its fiduciary duties to the stockholders of American
Exploration under applicable Nevada
law.
|
|
(b)
|
As
used in this Agreement: (i) “Superior Proposal” means a bona
fide written unsolicited Takeover Proposal (x) to acquire, directly or
indirectly, for consideration consisting of cash and/or publicly traded
securities, more than fifty percent (50%) of the shares and/or voting
power of American Exploration Shares then outstanding or all or
substantially all of the assets of American Exploration, (y) otherwise on
terms which the Board of Directors of American Exploration decides in its
good faith reasonable judgment to be more favorable (taking into account
any termination fee and expense reimbursement payable hereunder) to the
stockholders of American Exploration than the Merger (including, without
limitation, from a financial standpoint) and for which financing, to the
extent required, is then committed or which, in the good faith reasonable
judgment of the Board of Directors of American Exploration, is reasonably
capable of being obtained by such third party and (z) which the Board of
Directors of American Exploration determines, in its good faith reasonable
judgment, is reasonably likely to be consummated without undue delay; and
(ii) “Takeover Proposal” means any written proposal made by any Person
(other than Mainland) for a merger, consolidation or other business
combination involving American Exploration or any proposal or offer to
acquire in any manner, directly or indirectly, an equity interest in, any
more than 15% of the voting power of, or a substantial portion of the
assets of (other than asset dispositions in the ordinary course of
business consistent with past practices), American Exploration, other than
the transactions contemplated by this Agreement which proposal may contain
customary conditions and
qualifications.
|
|
5.3
|
(a) American
Exploration covenants and agrees that, until the Effective Date or the
earlier termination of this Agreement in accordance with Part 7, except (i) with the consent of Mainland
to any deviation therefrom, which consent may be withheld by Mainland in
its sole discretion; or (ii) with respect to any matter contemplated by
this Agreement or the Merger, American Exploration
will:
|
|
(i)
|
carry
on its Business in, and only in, the ordinary and regular course in
substantially the same manner as heretofore conducted and, to the extent
consistent with such Business, use all reasonable efforts to preserve
intact its present business organization and keep available the services
of its present officers and employees and others having business dealings
with it to the end that its goodwill and Business shall be
maintained;
|
-33-
|
(ii)
|
except
as set out in this Agreement, not commence to undertake a substantial
expansion of its Business or an expansion that is out of the ordinary and
regular course of Business consistent with prior practice in light of
current market and economic
conditions;
|
|
(iii)
|
not
split, combine or reclassify any of the outstanding shares of American
Exploration nor declare, set aside or pay any dividends on or make any
other distributions on or in respect of the outstanding shares of American
Exploration;
|
(iv) not amend
the articles of incorporation or by-laws of American Exploration;
|
(v)
|
not
sell, pledge, encumber, allot, reserve, set aside or issue, authorize or
propose the sale, pledge, encumbrance, allotment, reservation, setting
aside or issuance of, or purchase or redeem or propose the purchase or
redemption of, any shares in its capital stock or any class of securities
convertible or exchangeable into, or rights, warrants or options to
acquire, any such shares or other convertible or exchangeable
securities;
|
|
(vi)
|
not
reorganize, amalgamate or merge American Exploration with any other
Person, nor acquire or agree to acquire by amalgamating, merging or
consolidating with, purchasing substantially all of the assets of or
otherwise, any business of any corporation, partnership, association or
other business organization or division thereof, which acquisition would
be material to its business or financial
condition;
|
|
(vii)
|
not
sell, pledge, encumber, lease or otherwise dispose of any material assets,
other than the pending sale of a participation interest in the parties’
jointly operated natural gas properties to Avere Energy, Inc., as contemplated by
the Pending Avere Agreements;
|
|
(viii)
|
not
guarantee the payment of material indebtedness or incur material
indebtedness for money borrowed or issue or sell any debt securities nor
shall American Exploration increase the level of any current indebtedness
owed by it;
|
|
(ix)
|
use
commercially reasonable efforts to comply promptly with all requirements
which applicable Laws may impose on American Exploration with respect to
the transactions contemplated hereby and by the
Merger;
|
(x) not:
|
(A)
|
other
than in the usual, ordinary and regular course of Business and consistent
with past practice or pursuant to existing employment, pension,
supplemental pension, termination, compensation arrangements or policies,
enter into or materially modify any employment, severance, collective
bargaining or similar agreements, policies or arrangements with, or grant
any material bonuses, salary increases, stock options, pension or
supplemental pension benefits, profit sharing, retirement allowances,
deferred compensation, incentive compensation, severance or termination
pay to, or make any loan to, any officers or directors of it;
or
|
-34-
|
(B)
|
other
than in the usual, ordinary and regular course of Business and consistent
with past practice or pursuant to existing employment, pension,
supplemental pension, termination, compensation arrangements or policies,
in the case of employees who are not officers or directors, take any
action with respect to the entering into or modifying of any material
employment, severance, collective bargaining or similar agreements,
policies or arrangements or with respect to the grant of any material
bonuses, salary increases, stock options, pension or supplemental pension
benefits, profit sharing, retirement allowances, deferred compensation,
incentive compensation, severance or termination pay or any other form of
compensation or profit sharing or with respect to any increase of benefits
payable;
|
|
(xi)
|
not,
except in the usual, ordinary and regular course of Business and
consistent with past practice:
|
|
(A)
|
satisfy
or settle any claims or liabilities prior to the same being due, except
such as have been reserved in the American Exploration Financial
Statements, which are, individually or in the aggregate,
material;
|
|
(B)
|
grant
any waiver, exercise any option or relinquish any contractual rights which
are, individually or in the aggregate, material;
or
|
|
(C)
|
enter
into any interest rate, currency or commodity swaps, ▇▇▇▇▇▇ or other
similar financial instruments;
|
|
(xii)
|
not
settle or compromise any claim brought by any present, former or purported
American Exploration Shareholder in connection with the transactions
contemplated by this Agreement or the Merger prior to the Effective
Date;
|
|
(xiii)
|
except
in the usual, ordinary and regular course of Business and consistent with
past practice or as required by applicable Laws, not enter into or modify
in any material respect any contract, agreement, commitment or
arrangement, including Material Contracts, which new contract or series of
related new contracts or modification to an existing contract or series of
related existing contracts which would have a Material Adverse Effect on
American Exploration;
|
|
(xiv)
|
incur
or commit to capital expenditures prior to the Effective Date only in the
ordinary course consistent with past practice and not, in any event,
exceeding $10,000, individually or in the aggregate (other than its
agreements with its legal counsel and its Fairness Opinion
consultants);
|
|
(xv)
|
not
make any changes to existing accounting practices relating to American
Exploration except as required by Law or required by generally accepted
accounting principles or make any material tax election inconsistent with
past practice; and
|
(xvi) promptly
advise Mainland orally and, if then requested, in writing:
-35-
|
(A)
|
of
any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of American Exploration contained in
this Agreement (except any such representation or warranty which speaks as
of a date prior to the occurrence of such event), if made on or as of the
date of such event or the Effective Date, untrue or inaccurate in any
material respect;
|
(B) of any
Material Adverse Change in respect of American Exploration; and
|
(C)
|
of
any material breach by American Exploration of any covenant or agreement
contained in this Agreement.
|
|
(b)
|
American
Exploration shall perform all obligations required or desirable to be
performed by American Exploration under this Agreement, co-operate with
Mainland in connection therewith, and do all such other acts and things as
may be necessary or desirable in order to consummate and make effective,
as soon as reasonably practicable, the transactions contemplated in this
Agreement and, without limiting the generality of the foregoing, American
Exploration shall:
|
|
(i)
|
use
commercially reasonable efforts to obtain the approval of American
Exploration Shareholders to the Merger, subject, however, to the exercise
by the Board of Directors of American Exploration of its fiduciary duties
as provided herein;
|
|
(ii)
|
cooperate
with Mainland in order to facilitate the due diligence investigations
conducted by Mainland with respect to the Merger and the transactions
contemplated herein;
|
|
(iii)
|
apply
for and use commercially reasonable efforts to obtain any necessary
regulatory approvals relating to American Exploration and, in doing so, to
keep Mainland reasonably informed as to the status of the proceedings
related to obtaining any necessary regulatory approvals, including, but
not limited to, providing Mainland with copies of all related applications
and notifications, in draft form, in order for Mainland to provide its
reasonable comments;
|
|
(iv)
|
defend
all lawsuits or other legal, regulatory or other proceedings challenging
or affecting this Agreement or the consummation of the transactions
contemplated hereby;
|
|
(v)
|
use
commercially reasonable efforts to have lifted or rescinded any injunction
or restraining order or other order relating to American Exploration which
may adversely affect the ability of the parties to consummate the
transactions contemplated hereby;
|
|
(vi)
|
effect
all necessary registrations, filings and submissions of information
required by Governmental Entities from American Exploration;
and
|
|
(vii)
|
use
commercially reasonable efforts to obtain all necessary waivers, consents
and approvals required to be obtained by American Exploration from other
parties to loan agreements, leases or other contracts including Material
Contracts;
|
-36-
Covenants
of Mainland
5.4 Mainland
hereby covenants and agrees:
|
(a)
|
to
perform all obligations required or desirable to be performed by it under
this Agreement, to co-operate with American Exploration in connection
therewith, and to do all such other acts and things as may be necessary or
desirable in order to consummate and make effective, as soon as reasonably
practicable, the transactions contemplated by this Agreement and, without
limiting the generality of the foregoing,
to:
|
|
(i)
|
use
commercially reasonable efforts to obtain the approval of Mainland
Shareholders to the Merger, subject, however, to the exercise by the Board
of Directors of Mainland of its fiduciary duties as provided
herein;
|
|
(ii)
|
use
commercially reasonable efforts to have the Registration Statement filed
with the Securities and Exchange Commission and declared
effective;
|
|
(iii)
|
cooperate
with American Exploration in order to facilitate the due diligence
investigations conducted by American Exploration with respect to the
Merger and the transactions contemplated
herein;
|
|
(iv)
|
defend
all lawsuits or other legal, regulatory or other proceedings challenging
or affecting this Agreement or the consummation of the transactions
contemplated hereby;
|
|
(v)
|
apply
for and use commercially reasonable efforts to obtain all necessary
regulatory approvals relating to Mainland, and, in doing so, to keep
American Exploration reasonably informed as to the status of the material
proceedings related to obtaining any necessary regulatory approvals,
including, but not limited to, providing American Exploration with copies
of all related applications and notifications, in draft form, in order for
American Exploration to provide its reasonable
comments;
|
|
(vi)
|
use
commercially reasonable efforts to have lifted or rescinded any injunction
or restraining order or other order relating to American Exploration which
may adversely affect the ability of the parties to consummate the
transactions contemplated hereby;
|
|
(vii)
|
use
commercially reasonable efforts to have lifted or rescinded any injunction
or restraining order or other order relating to Mainland which may
adversely affect the ability of the parties to consummate the transactions
contemplated hereby;
|
|
(viii)
|
effect
all necessary registrations, filings and submissions of information
required by Governmental Entities from
Mainland;
|
|
(ix)
|
cause
Mainland to reserve a sufficient number of Mainland Shares for issuance in
connection with the Merger upon the completion of the
Merger;
|
|
(b)
|
use
commercially reasonable efforts to comply promptly with all requirements
which applicable Laws may impose on Mainland with respect to the
transactions contemplated hereby and by the
Merger;
|
-37-
|
(c)
|
until
the Effective Date or the earlier termination of this Agreement in
accordance with Part 7, except (1) with the
consent of American Exploration to any deviation therefrom, which shall
not be unreasonably withheld; or (2) with respect to any matter otherwise
provided for by this Agreement or the Merger, Mainland
will:
|
|
(i)
|
carry
on its business in, and only in, the ordinary and regular course in
substantially the same manner as heretofore conducted and, to the extent
consistent with such Business, use all reasonable efforts to preserve
intact its present business organization and keep available the services
of its present officers and employees and others having business dealings
with it to the end that its goodwill and Business shall be
maintained;
|
|
(ii)
|
except
as set out in this Agreement, not commence to undertake a substantial
expansion of its Business or an expansion that is out of the ordinary and
regular course of Business consistent with prior practice in light of
current market and economic
conditions;
|
|
(iii)
|
not
split, combine or reclassify any of its outstanding shares nor declare,
set aside or pay any dividends on or make any other distributions on or in
respect of its outstanding shares;
|
|
(iv)
|
not
make any changes to existing accounting practices related to Mainland
except as required by Law or required by generally accepted accounting
practice or make any material tax election with past practice or make any
material election inconsistent with past
practices;
|
(v) not amend
its articles of incorporation or bylaws, as applicable;
|
(vi)
|
other
than the grant of stock options by Mainland in the ordinary course, not
sell, pledge, encumber, allot, reserve, set aside or issue, authorize or
propose the sale, pledge, encumbrance, allotment, reservation, setting
aside or issuance of, or purchase or redeem or propose the purchase or
redemption of, any shares in its capital stock or of any Subsidiary
thereof or any class of securities convertible or exchangeable into, or
rights, warrants or options to acquire, any such shares or other
convertible or exchangeable
securities;
|
|
(vii)
|
not,
whether through its Board of Directors or otherwise, accelerate the
vesting of any unvested options;
|
|
(viii)
|
not
reorganize, amalgamate or merge Mainland with any other Person, nor
acquire by amalgamating, merging or consolidating with, purchasing a
majority of the voting securities or substantially all of the assets of or
otherwise any business of any corporation, partnership, association or
other business organization or division thereof, which acquisition would
be material to its business or financial condition on a consolidated
basis;
|
|
(ix)
|
not
sell, pledge, encumber, lease or otherwise dispose of any material assets,
except pursuant to that certain purchase agreement by and between
Mainland, as seller, and Exco Operating Company, LP, as buyer, dated March
12, 2010, and the pending sale of a participation interest in the parties’
jointly operated natural gas properties to Avere Energy, Inc., as contemplated by
the Pending Avere Agreements;
|
-38-
(x) not:
(A) other
than in the usual, ordinary and regular course of Business and consistent with
past practice or pursuant to existing employment, pension, supplemental pension,
termination, compensation arrangements or policies, enter into or materially
modify any employment, severance, collective bargaining or similar agreements,
policies or arrangements with, or grant any material bonuses, salary increases,
stock options, pension or supplemental pension benefits, profit sharing,
retirement allowances, deferred compensation, incentive compensation, severance
or termination pay to, or make any loan to, any officers or directors of it;
or
(B) other
than in the usual, ordinary and regular course of Business and consistent with
past practice or pursuant to existing employment, pension, supplemental pension,
termination, compensation arrangements or policies, in the case of employees who
are not officers or directors, take any action with respect to the entering into
or modifying of any material employment, severance, collective bargaining or
similar agreements, policies or arrangements or with respect to the grant of any
material bonuses, salary increases, stock options, pension or supplemental
pension benefits, profit sharing, retirement allowances, deferred compensation,
incentive compensation, severance or termination pay or any other form of
compensation or profit sharing or with respect to any increase of benefits
payable;
|
(xi)
|
not,
except in the usual, ordinary and regular course of Business and
consistent with past practice:
|
(A) satisfy
or settle any claims or liabilities prior to the same being due, except such as
have been reserved in the Mainland Financial Statements, which are, individually
or in the aggregate, material;
(B) grant any
waiver, exercise any option or relinquish any contractual rights which are,
individually or in the aggregate, material; or
(C) enter
into any interest rate, currency or commodity swaps, ▇▇▇▇▇▇ or other similar
financial instruments;
|
(xii)
|
not
settle or compromise any claim brought by any present, former or purported
Mainland Shareholder in connection with the transactions contemplated by
this Agreement or the Merger prior to the Effective
Date;
|
|
(xiii)
|
except
in the usual, ordinary and regular course of Business and consistent with
past practice or as required by applicable Laws, not enter into or modify
in any material respect any contract, agreement, commitment or
arrangement, including Material Contracts, which new contract or series of
related new contracts or modification to an existing contract or series of
related existing contracts which would have a Material Adverse Effect on
Mainland;
|
-39-
|
(xiv)
|
incur
or commit to capital expenditures prior to the Effective Date only in the
ordinary course consistent with past practice and not, in any event,
exceeding $10,000, individually or in the aggregate (other than its
agreements with its legal counsel and its Fairness Opinion
Consultants);
|
|
(xv)
|
not
guarantee the payment of material indebtedness or incur material
indebtedness for money borrowed or issue or sell any debt securities nor
shall Mainland increase the level of any current indebtedness owed by
it;
|
|
(xvi)
|
except
in the usual, ordinary and regular course of business and consistent with
past practice or as required by applicable Laws, not enter into or modify
in any material respect any contract, agreement, commitment or
arrangement, including material contracts, which new contract or series of
related new contracts or modification to an existing contract or series of
related existing contracts which would have a Material Adverse Effect on
Mainland;
|
(xvii) promptly
advise American Exploration orally and, if then requested, in
writing:
(A) of any
event occurring subsequent to the date of this Agreement that would render any
representation or warranty of Mainland contained in this Agreement (except any
such representation or warranty which speaks as of a date prior to the
occurrence of such event), if made on or as of the date of such event or the
Effective Date, untrue or inaccurate in any material respect;
(B) of any
Material Adverse Change in respect of Mainland; and
(C) of any
material breach by Mainland of any covenant or agreement contained in this
Agreement; and
|
(xviii)
|
use
commercially reasonable efforts to comply promptly with all requirements
which applicable Laws may impose on Mainland with respect to the
transactions contemplated hereby and by the
Merger,
|
|
(d)
|
that
on the Effective Date, Mainland will have the requisite corporate power
and authority to perform its obligations hereunder and
thereunder;
|
|
(e)
|
subject
to the conditions set out herein and the Plan of Merger, to issue on the
Effective Date such Mainland Shares, Mainland Exchange
Options and Mainland Exchange Warrants as are necessary to effect the
Merger; and
|
|
(f)
|
to
cooperate in good faith with American Exploration’s to consummate the
Pending Avere Agreements. Mainland further covenants not to
unreasonably withhold consent to the Pending Avere
Agreements.
|
Directors
of Mainland and the Surviving Corporation
5.5 Concurrent
with completion of the Merger, the Board of Directors of Mainland, as the
Surviving Corporation, shall consist of five (5) directors, four of whom will be
selected from among the existing directors of Mainland, and one (1) of whom will
be a former director of American Exploration. Mainland acknowledges
and agrees that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ will be appointed as an officer of Mainland, as
the Surviving Corporation.
-40-
Mutual
Covenants
|
5.6
|
(a) Subject
to applicable Laws, upon reasonable notice, each of Mainland and American
Exploration shall afford the other’s officers, employees, counsel,
accountants and other authorized representatives and advisors (“Representatives”)
access, during normal business hours from the date hereof and until the
earlier of the Effective Date or the termination of this Agreement, to its
properties, books, contracts and records as well as to its management
personnel, and, during such period, Mainland and American Exploration
shall furnish promptly to the other all information concerning that
party’s business, properties and personnel as the other may reasonably
request. Nothing in the foregoing shall require a party to disclose
information subject to a written confidentiality agreement with third
parties or customer-specific or competitively sensitive information
relating to areas or projects where a party is in direct competition with
the other.
|
|
(b)
|
Each
of Mainland and American Exploration acknowledges that certain information
provided to it under §(a) above will be
non-public and/or proprietary in nature (the “Information”). Except as
permitted below, each of Mainland and American Exploration will keep
Information confidential and will not, without the prior written consent
of the other, disclose it, in any manner whatsoever, in whole or in part,
to any other Person, and will not use it for any purpose other than to
evaluate the transactions contemplated by this Agreement. Each of Mainland
and American Exploration will make all reasonable, necessary and
appropriate efforts to safeguard the Information from disclosure to anyone
other than as permitted hereby and to control the copies, extracts or
reproductions made of the Information. The Information may be provided to
the Representatives of each of Mainland and American Exploration who
require access to the same to assist it in proceeding in good faith with
the transactions contemplated by this Agreement and whose assistance is
required for such purposes, provided that it has first informed such
Representatives to whom Information is provided that the Representative
has the same obligations, including as to confidentiality, restricted use
and otherwise, that it has with respect to such Information. This
provision shall not apply to such portions of the Information
that:
|
|
(i)
|
are
or become generally available to the public otherwise than as a result of
disclosure by a party or its
Representatives;
|
|
(ii)
|
become
available to a party on a non-confidential basis from a source other than,
directly or indirectly, the other party or its Representatives, provided
that such source is not to the knowledge of the first party, upon
reasonable inquiry, prohibited from transmitting the Information by a
contractual, legal or fiduciary
obligation;
|
|
(iii)
|
were
known to a party or were in its possession prior to being disclosed to it
by the other party or by someone on its behalf;
or
|
(iv) are
required by applicable Laws or court order to be disclosed.
|
(c)
|
The
Parties acknowledge that certain Information may be competitively
sensitive and that disclosure thereof shall be limited to that which is
reasonably necessary for the purpose of preparing submissions or
applications in order to obtain any necessary regulatory
approvals.
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|
(d)
|
The
provisions of this §5.6 shall survive the
termination of this Agreement.
|
5.7 Closing Matters. In addition to
the requirements of Part 8, Mainland and American
Exploration shall deliver, at the Closing, such customary certificates, opinions
and other closing documents as may be required by the other Party hereto, acting
reasonably to give effect to this Agreement and the transactions contemplated
hereunder.
5.8 Indemnification of American
Exploration Directors and Officers.
|
(a)
|
Mainland
agrees that all rights to indemnification by American Exploration now
existing in favor of each person who is now, or has been at any time prior
to the date hereof or who becomes prior to the Effective Time an officer
or director of American Exploration (each an “Indemnified Party”) as
provided in American Exploration’s articles of incorporation or bylaws, in
each case as in effect on the date of this Agreement, or pursuant to any
other agreements in effect on the date hereof, copies of which have been
provided to Mainland, including provisions relating to the advancement of
expenses incurred in the defense of any action or suit, shall survive the
Merger and shall remain in full force and effect for at least six (6)
years from the Effective Time. From and after the Effective
Time, Mainland shall be liable to pay and perform in a timely manner such
indemnification obligations. Mainland agrees that any claims
for indemnification hereunder as to which it has received written notice
prior to the sixth anniversary of the Effective Time shall survive,
whether or not such claims shall have been finally adjudicated or settled
prior to such anniversary. American Exploration hereby
represents and warrants to Mainland that, to its knowledge after due
inquiry, there are no claims made, pending or threatened against an
Indemnified Party arising in whole or in part out of actions or omissions
in his or her capacity as an officer or director of American
Exploration.
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(b)
|
Mainland
(the “Indemnifying
Party”) shall defend and hold harmless each Indemnified Party
against all losses, claims, damages, liabilities, fees, expenses,
judgments and fines arising in whole or in part out of actions or
omissions in their capacity as such occurring at or prior to the Effective
Time, and will reimburse each Indemnified Party for any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such losses, claims, damages, liabilities,
fees, expenses, judgments and fines as such expenses are incurred,
provided that nothing herein shall impair any rights of any Indemnified
Party. Promptly after receipt by an Indemnified Party under
this §5.8(b) of notice of the commencement of
any action, such Indemnified Party will, if a claim in respect thereof is
to be made against an Indemnifying Party under this §5.8(b), notify the Indemnifying Party of the
commencement thereof; but the omission so to notify an Indemnifying Party
will not relieve it from any liability which it may have to any
Indemnified Party. In case any such action is brought against
any Indemnified Party and it notifies an Indemnifying Party of the
commencement thereof, the Indemnifying Party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other Indemnifying Party similarly notified, to assume the defense
thereof, with counsel satisfactory to such Indemnified Party (who shall
not, except with the consent of the Indemnified Party, be counsel to the
Indemnifying Party), and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof (and so
long as the Indemnifying Party satisfies such obligations), the
Indemnifying Party will not be liable to such Indemnified Party under this
§5.8(b) for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of
investigation. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending or threatened action in respect of which any Indemnified Party is
or could have been a party and indemnity could have been sought hereunder
by such Indemnified Party unless such settlement (i) includes an
unconditional release of such Indemnified Party from all liability on any
claims that are the subject matter of such action and (ii) does not
include a statement as to, or an admission of, fault, culpability or a
failure to act by or on behalf of an Indemnified
Party.
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|
(c)
|
Mainland
shall maintain officers’ and directors’ liability insurance policies
covering the Indemnified Parties for a period of not less than six years
after the Effective Time, but only to the extent related to actions or
omissions prior to the Effective
Time.
|
|
(d)
|
The
obligations of Mainland under this §5.8 shall
survive the consummation of the Merger and shall not be terminated or
modified in such a manner as to adversely affect any Indemnified Party to
whom this §5.8 applies without the consent of such affected Indemnified
Party (it being expressly agreed that the Indemnified Parties to whom
this §5.8 applies shall be third
party beneficiaries of this §5.8, each of whom may enforce the provisions
of this §5.8).
|
|
(e)
|
If
Mainland or any of its successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers
all or substantially all of its properties and assets to any Person, then,
and in each such case, proper provision shall be made so that the
successors and assigns of Mainland shall assume the obligations set forth
in this §5.8.
|
PART
6
CONDITIONS
Mutual
Conditions Precedent
6.1 The
respective obligations of the Parties hereto to complete the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Effective Date, or earlier date where specified, of the following
conditions precedent, each of which may only be waived in full or in part by the
mutual consent of Mainland and American Exploration (and only to the extent such
waiver is permitted by applicable Law):
|
(a)
|
the
Board of Directors of Mainland will
have:
|
(i) determined
that the Merger is fair to the Mainland Shareholders and is in the best
interests of Mainland;
(ii) received
the Fairness Opinion prepared for Mainland to the effect that, subject to the
assumptions, qualifications and limitations relating to such opinion, as of the
date of this Agreement, the Merger is fair from a financial point of view to
holders of Mainland Shares; and
(iii) determined
to recommend that the Mainland Shareholders vote in favor of the
Merger;
|
(b)
|
The
Board of Directors of American Exploration will
have
|
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(i) determined
that the Merger is fair to the American Exploration Shareholders and is in the
best interests of American Exploration;
(ii) received
the Fairness Opinion prepared for American Exploration to the effect that,
subject to the assumptions, qualifications and limitations relating to such
opinion, as of the date of this Agreement, the Merger is fair from a financial
point of view to holders of American Exploration Shares; and
(iii) determined
to recommend that the American Exploration Shareholders vote in favor of the
Merger;
|
(c)
|
the
Merger shall have been approved at the American Exploration Meeting by
more than 50% of the votes cast by the American Exploration Shareholders
represented in person or by proxy at the American Exploration Meeting
which actually vote in favor or against the American Exploration Merger
Resolutions;
|
|
(d)
|
the
Merger shall have been approved at the Mainland Meeting by more than 50%
of the votes cast by the Mainland Shareholders represented in person or by
proxy at the Mainland Meeting which actually vote in favor or against the
Mainland Merger Resolutions;
|
|
(e)
|
each
of Mainland and American Exploration shall have completed their due
diligence inspection conducted in conjunction with the Merger and the
transactions contemplated herein to the satisfaction of Mainland and
American Exploration, respectively;
|
|
(f)
|
there
shall not be in force any order or decree restraining or enjoining the
consummation of the transactions contemplated by this Agreement and there
shall be no proceeding, of a judicial or administrative nature or
otherwise, brought by a Governmental Entity in progress or threatened that
relates to or results from the transactions contemplated by this Agreement
that would, if successful, result in an order or ruling that would
preclude completion of the transactions contemplated by this Agreement in
accordance with the terms hereof or would otherwise be inconsistent with
any regulatory approvals which have been
obtained;
|
|
(g)
|
all
consents, waivers, permits, orders and approvals of any Governmental
Entity and the expiry of any waiting periods, in connection with, or
required to permit the consummation of the Merger, the failure of which to
obtain or the non-expiry of which would constitute a criminal offence, or
would have a Material Adverse Effect on Mainland or American Exploration,
as the case may be, shall have been obtained or received on terms that
will not have a Material Adverse Effect on Mainland and/or American
Exploration;
|
|
(h)
|
there
shall not be pending or threatened any suit, action or proceeding by any
Governmental Entity, in each case that has a reasonable likelihood of
success;
|
|
(i)
|
seeking
to restrain or prohibit the consummation of the Merger or seeking to
obtain from Mainland or American Exploration any damages that are material
in relation to American Exploration taken as a
whole;
|
|
(ii)
|
seeking
to prohibit or materially limit the ownership or operation by Mainland of
any material portion of the Business or Assets of American Exploration or
to compel Mainland to dispose of or hold separate any material portion of
the Business or Assets of American Exploration, as a result of the
Merger;
|
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|
(iii)
|
seeking
to prohibit Mainland from effectively controlling in any material respect
the Business or operations of American Exploration;
or
|
|
(iv)
|
there
is in effect any other circumstance which is reasonably likely to have a
Material Adverse Effect on Mainland or American Exploration or the
Surviving Corporation;
|
|
(i)
|
all
necessary regulatory approvals shall have been obtained;
and
|
|
(j)
|
neither
party shall have given notice to the other within thirty (30) days of the
date hereof terminating this Agreement based on the results of the due
diligence investigation conducted by the party giving
notice. It is the parties’ intention that each party shall have
a due diligence investigation period, expiring thirty (30) days from the
date of this Agreement, in order to conduct such due diligence
investigations as the parties deem necessary to determine the feasibility,
economic or otherwise, of the transactions contemplated in this
Agreement. Either party may terminate this Agreement at any
time within such thirty (30) day period by delivery to the other of
written notice of termination of this Agreement. Upon such
termination, this Agreement shall be of no further force and
effect. Either party may waive the due diligence period in
writing at its option.
|
Additional
Conditions Precedent to the Obligations of Mainland
6.2 The
obligations of Mainland to complete the transactions contemplated by this
Agreement shall be subject to the fulfilment of each of the following conditions
precedent (each of which is for Mainland’s exclusive benefit and may only be
waived on behalf of Mainland in full or in part by Mainland):
|
(a)
|
all
covenants of American Exploration under this Agreement to be performed on
or before the Effective Date shall have been duly performed by American
Exploration in all material
respects;
|
|
(b)
|
the
amount of American Exploration’s unencumbered cash in its bank accounts at
the Effective Time, less all payables and accrued payables estimated as of
Closing, and assuming the Pending Avere Agreements shall have closed and
consideration due to American Exploration from Avere Energy, Inc.
thereunder shall have been paid, shall be at least $1,600,000 (less
$50,000 per month allowable operating expenses incurred for each month,
pro rated, from March 1, 2010 to the Effective Time); the amount of
American Exploration’s unencumbered cash in its bank accounts at the
Effective Time is expected to be nil as of Closing if the Pending Avere
Agreements have not closed or the consideration due to American
Exploration from Avere Energy, Inc. thereunder have not been paid prior to
Closing;
|
|
(c)
|
the
number of holders of American Exploration Shares exercising their American
Exploration Dissent Rights shall not exceed 5% of the total issued and
outstanding American Exploration
Shares;
|
|
(d)
|
the
number of holders of Mainland Shares exercising their Mainland Dissent
Rights shall not exceed 5% of the total
issued and outstanding Mainland
Shares;
|
|
(e)
|
the
representations and warranties of American Exploration under this
Agreement shall be true and correct in all material respects as of the
Effective Date as if made on and as of such date (except to the extent
such representations and warranties speak as of an earlier date, in which
event such representations and warranties shall be true and correct in all
material respects as of such earlier date, or except as affected by
transactions contemplated or permitted by this Agreement) and Mainland
shall have received an officer’s certificate of American Exploration
addressed to Mainland and dated the Effective Date, signed on behalf of
American Exploration by one senior executive officer of American
Exploration, confirming the same as at the Effective
Date;
|
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|
(f)
|
between
the date hereof and the Effective Date, there shall not have occurred a
Material Adverse Change to American
Exploration;
|
|
(g)
|
the
parties shall have agreed upon a definitive Exchange
Ratio;
|
|
(h)
|
all
necessary corporate action shall have been taken by American Exploration
to permit the consummation of the
Merger;
|
|
(i)
|
Mainland
shall have received a satisfactory legal opinion from American
Exploration’s Lawyers as described in §8.2(a)(vii);
and
|
(j) all
deliveries under Part 8 shall have been made as
required of American Exploration.
6.3 Mainland
may not rely on the failure to satisfy any of the above conditions precedent as
a basis for non-compliance by Mainland with its obligations under this Agreement
if the condition precedent would have been satisfied but for a material default
by Mainland in complying with its obligations hereunder.
Additional
Conditions Precedent to the Obligations of American Exploration
6.4 The
obligations of American Exploration to complete the transactions contemplated by
this Agreement shall be subject to the following conditions precedent (each of
which is for the exclusive benefit of American Exploration and may be waived in
full or in part by American Exploration):
|
(a)
|
all
covenants of Mainland under this Agreement to be performed on or before
the Effective Date shall have been duly performed by Mainland in all
material respects;
|
|
(b)
|
the
amount of Mainland’s unencumbered cash in its bank accounts at the
Effective Time less all payables and accrued payables estimated (on a
consolidated basis) as of Closing, and assuming that
the transaction contemplated by that certain purchase agreement by and
between Mainland, as seller, and Exco Operating Company, LP, as buyer,
dated March 12, 2010 shall have closed and consideration due to Mainland
from Exco Operating Company, LP thereunder shall have been paid, shall be
at least $7,500,000 (less $50,000 per month allowable operating expenses
incurred for each month, pro rated, from March 1, 2010 to the Effective
Time);
|
|
(c)
|
the
number of holders of American Exploration Shares exercising their American
Exploration Dissent Rights shall not exceed 5% of the total issued and
outstanding American Exploration
Shares;
|
|
(d)
|
the
number of holders of Mainland Shares exercising their Mainland Dissent
Rights shall not exceed 5% of the total issued and outstanding Mainland
Shares;
|
|
(e)
|
all
representations and warranties of Mainland under this Agreement shall be
true and correct in all material respects as of the Effective Date as if
made on and as of such date (except to the extent such representations and
warranties speak as of an earlier date, in which event such
representations and warranties shall be true and correct in all material
respects as of such earlier date, or except as affected by transactions
contemplated or permitted by this Agreement) and American Exploration
shall have received a certificate of Mainland addressed to American
Exploration and dated the Effective Date, signed on behalf of Mainland by
one senior executive officer of Mainland, confirming the same as at the
Effective Date;
|
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|
(f)
|
there
shall not have occurred a Material Adverse Change to Mainland in the
Pre-Effective Date Period;
|
|
(g)
|
the
parties shall have agreed upon a definitive Exchange
Ratio;
|
|
(h)
|
all
other necessary corporate action shall have been taken by Mainland to
permit the consummation of the Merger and the issue of Mainland Shares and
Mainland Options pursuant to the
Merger;
|
|
(i)
|
the
Mainland Shareholders shall have passed the Mainland Merger Resolutions,
the Board of Directors of Mainland shall have adopted all necessary
resolutions, and all other necessary corporate action shall have been
taken by Mainland to permit the consummation of the
Merger.
|
|
(j)
|
American
Exploration shall have received a satisfactory legal opinion from
Mainland’s Lawyers as described in §8.2(b)(v);
|
(k) all
deliveries under Part 8 have been made as required
of Mainland.
6.5 American
Exploration may not rely on the failure to satisfy any of the above conditions
precedent as a basis for non-compliance by American Exploration with its
obligations under this Agreement if the condition precedent would have been
satisfied but for a material default by American Exploration in complying with
its obligations hereunder.
Notice
and Cure Provisions
6.6 Mainland
and American Exploration will give prompt notice to the other of the occurrence,
or failure to occur, at any time from the date hereof until the Effective Date,
of any event or state of facts which occurrence or failure would, or would be
likely to:
|
(a)
|
cause
any of the representations or warranties of the other party contained
herein to be untrue or inaccurate in any material respect on the date
hereof or on the Effective Date; or
|
|
(b)
|
result
in the failure in any material respect to comply with or satisfy any
covenant, condition, or agreement to be complied with or satisfied by the
other hereunder prior to the Effective
Date.
|
6.7 Neither
Mainland nor American Exploration may elect not to complete the transactions
contemplated hereby pursuant to the conditions precedent contained in §6.1, §6.2 and §6.4 on their respective parts to be fulfilled, or
exercise any termination right arising therefrom, unless forthwith and in any
event prior to the filing of the Articles of Merger, Mainland or American
Exploration, as the case may be, have delivered a written notice to the other
specifying in reasonable detail all breaches of covenants, representations and
warranties or other matters which Mainland or American Exploration, as the case
may be, are asserting as the basis for the non-fulfilment of the applicable
condition precedent or the exercise of the termination right, as the case may
be. If any such notice is delivered, provided that Mainland or American
Exploration, as the case may be, is proceeding diligently to cure such matter,
if such matter is capable of being cured, the other may not terminate this
Agreement as a result thereof until the earlier of September 30, 2010 and the
expiration of a period of 30 days from such notice. If such notice
has been delivered to American Exploration prior to the date of the American
Exploration Meeting, or if such notice has been delivered to Mainland prior to
the date of the Mainland Meeting, the American Exploration Meeting or the
Mainland Meeting, as the case may be, shall be adjourned until the expiry of
such period. If such notice has been delivered prior to the filing of
the Articles of Merger, such filing shall be postponed until the expiry of such
period. For greater certainty, in the event that such matter is cured
within the time period referred to herein, this Agreement may not be
terminated.
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Satisfaction
of Conditions
6.8 The
conditions precedent set out in §6.1, §6.2 and §6.4 shall be
conclusively deemed to have been satisfied, waived or released when, with the
consent of Mainland and American Exploration, the Articles of Merger are filed
with the Secretary of State of the State of Nevada.
PART
7
AMENDMENT
AND TERMINATION
Amendment
7.1 This
Agreement may, at any time and from time to time before or after the holding of
the American Exploration Meeting and/or the Mainland Meeting, but not later than
the Effective Date, be amended by mutual written agreement of the Parties
hereto, and any such amendment may, without limitation:
(a) change
the time for performance of any of the obligations or acts of the
Parties;
|
(b)
|
waive
any inaccuracies or modify any representation contained herein or in any
document delivered pursuant hereto;
|
|
(c)
|
waive
compliance with or modify any of the covenants herein contained and waive
or modify performance of any of the obligations of the Parties;
and
|
(d) waive
compliance with or modify any conditions precedent herein
contained;
provided,
however, that any such change, waiver or modification does not invalidate the
approval of the American Exploration Shareholders and the Mainland Shareholders
of the Merger.
Mutual
Understanding Regarding Amendments
7.2 The
Parties agree that if Mainland or American Exploration, as the case may be,
proposes any amendment or amendments to this Agreement or to the Merger, the
other will act reasonably in considering such amendment, and if the other (and
in the case of American Exploration, its shareholders) is not prejudiced by
reason of any such amendment, the other will co-operate in a reasonable fashion
with Mainland or American Exploration, as the case may be, so that such
amendment can be effected subject to applicable Laws and the rights of the
American Exploration Shareholders and the Mainland Shareholders.
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Termination
|
7.3
|
(a) If
any condition contained in §6.1 or §6.2 is not satisfied at or before the
Termination Date to the satisfaction of Mainland, then Mainland may by
notice to American Exploration terminate this Agreement and the
obligations of the Parties hereunder except as otherwise herein provided,
without detracting from the rights of Mainland arising from any breach by
American Exploration of a covenant or representation made by it herein,
which condition would have been satisfied, but for such a
breach
|
|
(b)
|
If
any condition contained in §6.1 and §6.4 is not satisfied at or before the
Termination Date to the satisfaction of American Exploration, then
American Exploration may by notice to Mainland terminate this Agreement
and the obligations of the Parties hereunder except as otherwise herein
provided, without detracting from the rights of American Exploration
arising from any breach by Mainland of a covenant or representation made
by it herein, which condition would have been satisfied, but for such a
breach.
|
|
(c)
|
The
Board of Directors of American Exploration may by notice to Mainland
terminate this Agreement, if the Board of Directors of American
Exploration has (i) withdrawn, or modified or changed in a manner adverse
to Mainland its approval or recommendation of this Agreement or the Merger
in order to approve and permit American Exploration to execute a
definitive agreement relating to a Superior Proposal, and (ii) determined
in good faith, after consultation with outside legal counsel to American
Exploration, that the failure to take such action as set forth in the
preceding clause (i) would result in a breach of the Board of Directors’
fiduciary duties under applicable Nevada law, notwithstanding all terms
and conditions which may be offered by Mainland in negotiations entered
into pursuant to the following proviso to this clause (ii); provided,
however, that the Board of Directors shall not take any such action in
connection with a Superior Proposal until American Exploration shall have
given Mainland such reasonable notice of all material terms and conditions
of the Superior Proposal as may be possible taking into account the terms
of the Superior Proposal, and American Exploration shall have, and shall
have caused its respective financial and legal advisors to, negotiate in
good faith with Mainland to make such adjustments in the terms and
conditions of this Agreement as would enable American Exploration to
proceed with the transactions contemplated herein on such adjusted
terms.
|
(d) This
Agreement may:
|
(i)
|
be
terminated by the mutual agreement of Mainland and American Exploration
(without further action on the part of the American Exploration
Shareholders) anytime prior to the filing of the Articles of
Merger;
|
|
(ii)
|
be
terminated by either Mainland or American Exploration, if there shall be
passed any law or regulation that makes consummation of the transactions
contemplated by this Agreement illegal or otherwise prohibited, or if any
injunction, order or decree enjoining Mainland or American Exploration
from consummating the transactions contemplated by this Agreement is
entered and such injunction, order or decree shall become final and
non-appealable;
|
(iii) be
terminated by Mainland if:
|
(A)
|
the
Board of Directors of American Exploration shall have failed to recommend
or withdrawn or modified or changed in a manner adverse to Mainland its
approval or recommendation of this Agreement or the Merger,
or
|
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|
(B)
|
this
Merger is not, prior to 21 days prior to the Termination Date, submitted
for the approval of the American Exploration Shareholders’ at the American
Exploration Meeting
|
(iv) be
terminated by American Exploration if:
|
(A)
|
the
Board of Directors of Mainland shall have failed to recommend or withdrawn
or modified or changed in a manner adverse to American Exploration its
approval or recommendation of this Agreement or the Merger,
or
|
|
(B)
|
this
Merger is not, prior to 21 days prior to the Termination Date, submitted
for the approval of the American Exploration Shareholders’ at the Mainland
Meeting.
|
|
(e)
|
If
the Effective Date does not occur on or prior to the Termination Date,
then this Agreement shall automatically terminate unless extended by
mutual agreement.
|
|
(f)
|
If
this Agreement is terminated in accordance with any of the foregoing
provisions of this §7.3, no party shall have
any further liability to perform its obligations hereunder except as
otherwise contemplated hereby, and provided that neither the termination
of this Agreement nor anything contained in this §7.3(f) shall relieve either party from any
liability for any breach by it of this Agreement, including from any
inaccuracy in its representations and warranties and any non-performance
by it of its covenants made herein.
|
Remedies
7.4 The
Parties hereto acknowledge and agree that an award of money damages would be
inadequate for any breach of this Agreement by either Party or its
representatives and any such breach would cause the non-breaching party
irreparable harm. Accordingly, the Parties hereto agree that, in the event of
any breach or threatened breach of this Agreement by either Party, the
non-breaching Party will also be entitled, without the requirement of posting a
bond or other security, to equitable relief, including injunctive relief and
specific performance. Such remedies will not be the exclusive remedies for any
breach of this Agreement but will be in addition to all other remedies available
at law or equity to each Party.
PART
8
CLOSING
Closing
8.1 The
Closing shall take place at the offices of Mainland’s Lawyers at 10:00 a.m. on
the Effective Date.
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Deliveries
8.2 Prior to
the Effective Date, the Parties shall deliver the following documents to
Mainland’s Lawyers which shall be held in escrow until the Parties are satisfied
that all documents required to be delivered hereunder have been delivered
accordingly:
|
(a)
|
American
Exploration shall deliver or cause to be delivered for the release subject
to §8.3 to
Mainland:
|
(i) executed
copies of the Ancillary Agreements, if any;
|
(ii)
|
a
duly executed certificate by a senior executive officer of American
Exploration dated as at the Effective Date to the effect that the
representations and warranties of American Exploration contained in this
Agreement are true and correct in all material respects and that the
covenants and agreements of American Exploration to be performed on or
before the Effective Date pursuant to the terms of this Agreement have
been duly performed in all material respects including the required cash
balance as set out in §6.2(b);
|
|
(iii)
|
a
certified copy of a resolution of the directors of American Exploration
duly passed, with a certification that it has not been rescinded and
continues in effect, approving this Agreement, such resolution, the Merger
and matters thereunder;
|
(iv) a
certified copy of the American Exploration Merger Resolutions;
|
(v)
|
any
necessary waivers, consents and approvals from other parties with respect
to Material Contracts should Mainland determine that any are needed
notwithstanding American Exploration’s representations to the contrary
herein;
|
(vi) duly
executed Articles of Merger; and
|
(vii)
|
the
favorable legal opinion of American Exploration’s Lawyers, in form
reasonably satisfactory to Mainland’s Lawyers,
including:
|
|
(A)
|
the
due authorization, execution and delivery by American Exploration of this
Agreement and the agreements required to be executed by American
Exploration pursuant thereto and that each of such agreements is a legal,
valid and binding obligation of American Exploration in accordance with
its terms, except as may be limited by laws of general application
affecting the rights of creditors generally, the effect of equitable
principles and that the availability of equitable remedies is subject to
the discretion of the court before which any proceedings therefor may be
brought;
|
|
(B)
|
as
to the due incorporation, organization, and good standing with respect to
the filing of annual returns of American Exploration;
and
|
|
(C)
|
as
to the corporate power and capacity of American Exploration to own the
Assets owned by it and to conduct the Business conducted by
it;
|
-51-
(b) Mainland
shall deliver or cause to be delivered for the release, subject to §8.3, to American Exploration:
|
(i)
|
a
certified copy of the Mainland Merger
Resolutions;
|
|
(ii)
|
a
treasury direction addressed to the Transfer Agent directing the issuance
to the former American Exploration Shareholders the number of Mainland
Shares determined in accordance with the terms of this Agreement;
provided, however, that each certificate representing any American
Exploration Shares, until surrendered to the Transfer Agent in exchange
for a certificate representing the appropriate number of Mainland Shares,
shall be deemed after the Effective Time to represent the holder’s right
and entitlement to be recognized as the holder of record of the number of
Mainland Shares determined by the Exchange Ratio in accordance with this
Agreement;
|
|
(iii)
|
a
duly executed certificate of one senior executive officer of Mainland
dated as at the Effective Date to the effect that the representations and
warranties of Mainland contained in this Agreement are true and correct in
all material respects and that the covenants and agreements of Mainland to
be performed on or before the Effective Date pursuant to the terms of this
Agreement have been duly performed in all material
respects;
|
|
(iv)
|
a
certified copy of a resolution of the directors of Mainland duly passed,
with a certification that such resolution has not been rescinded and
continues in effect, authorizing the execution, delivery and
implementation of this Agreement and of all transactions contemplated
hereby and of all documents to be delivered by Mainland pursuant hereto;
and
|
|
(v)
|
a
favorable legal opinion of Mainland’s Lawyers, in form reasonably
satisfactory to American Exploration’s Lawyer,
including:
|
|
(A)
|
Mainland
has the corporate power and capacity to execute and deliver this Agreement
and complete the transactions contemplated hereby, that all corporate
proceedings have been taken to complete the Merger under this Agreement,
and that this Agreement and each of the other agreements required
hereunder has been duly and validly authorized, executed and delivered by
Mainland and each such agreement is a legal, valid and binding obligation
of Mainland in accordance with its terms, except as may be limited by laws
of general application affecting the rights of creditors generally, the
effect of equitable principles, and the availability of equitable remedies
is subject to the discretion of the court before which any proceedings
therefor may be brought,
|
|
(B)
|
the
incorporation, organization and good standing in respect of the filing of
annual returns of Mainland,
|
|
(C)
|
the
due and valid issue of the Mainland Shares to American Exploration
security holders receiving such
securities;
|
(vi) a
certified copy of the Mainland Merger Resolutions; and
-52-
(vii) duly
executed Articles of Merger.
8.3 Upon the
Parties being satisfied that all the required deliveries have been made
according to §8.2, the documents delivered
hereunder shall be released to ▇▇▇▇▇▇▇▇ and Wedge for the purpose of making the
filings with Governmental Entities required for the Closing to complete the
Merger, and thereafter the documents will be released to the respective
Parties.
PART
9
GENERAL
Notices
9.1 All
notices and other communications which may or are required to be given pursuant
to any provision of this Agreement shall be given or made in writing and shall
be deemed to be validly given if served personally or by telecopy, in each case
addressed to the particular party at:
(a) if to
Mainland, at:
Mainland
Resources Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇
Attention: ▇▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Director
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
with a
copy to:
Lang
▇▇▇▇▇▇▇▇ llp
1500 – ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇
▇▇▇
Attention: ▇▇.
▇▇▇▇▇▇ ▇. Deutsch
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
(b) if to
American Exploration, at:
American
Exploration Corporation
▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇
Attention: Mr.
▇▇▇▇▇ ▇▇▇▇▇▇▇, President and CEO
Facsimile (▇▇▇)
▇▇▇-▇▇▇-▇▇▇▇
with a
copy to:
▇▇▇▇▇▇▇▇
and Wedge
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇
▇.▇. ▇▇▇
▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇
Attention: ▇▇.
▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
-53-
or at
such other address of which either Party may, from time to time,
advise the other Party by notice in writing given in accordance with the
foregoing. The date of receipt of any such notice shall be deemed to be the date
of delivery or telecopying thereof.
Assignment
9.2 No party
hereto may assign its rights or obligations under this Agreement or the
Merger.
Binding
Effect
9.3 This
Agreement and the Merger shall be binding upon and shall enure to the benefit of
the Parties hereto and their respective successors and no third party shall have
any rights hereunder.
Waiver
and Modification
9.4 Mainland and
American Exploration may waive or consent to the modification of, in whole or in
part, any inaccuracy of any representation or warranty made to them hereunder or
in any document to be delivered pursuant hereto and may waive or consent to the
modification of any of the covenants herein contained for their respective
benefit or waive or consent to the modification of any of the obligations of the
other Parties hereto. Any waiver or consent to the modification of any of the
provisions of this Agreement, to be effective, must be in writing executed by
the party granting such waiver or consent.
No
Personal Liability
|
9.5
|
(a) No
director or officer of Mainland shall have any personal liability
whatsoever to American Exploration under this Agreement, or any other
document delivered in connection with this Agreement on behalf of
Mainland
|
|
(b)
|
No
director or officer of American Exploration shall have any personal
liability whatsoever to Mainland under this Agreement, or any other
document delivered in connection with this Agreement on behalf of American
Exploration.
|
Further
Assurances
9.6 Each
Party hereto shall, from time to time, and at all times hereafter, at the
request of the other Party hereto, but without further consideration, do all
such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
-54-
Expenses
|
9.7
|
(a) Mainland
shall be responsible for the costs of preparing and filing the
Registration Statement. Each party shall otherwise be
responsible for its costs in connection with the Merger; provided,
however, that in the event of a successful Merger, then Mainland shall be
responsible for all costs of the Merger. Provided, however,
that Mainland may allocate expenses between Mainland and American
Exploration after the Merger, as it determines appropriate in its sole
discretion. In the event either party terminates the Merger
before it is concluded, each party will be responsible for its own
costs.
|
|
(b)
|
American
Exploration represents and warrants to Mainland that no broker, finder or
investment banker, is or will be entitled to any brokerage, finder’s or
other fee or commission from American Exploration in connection with the
transactions contemplated hereby or by the
Merger.
|
|
(c)
|
Mainland
represents and warrants to American Exploration that no broker, finder or
investment banker, is or will be entitled to any brokerage, finder’s or
other fee or commission from Mainland in connection with the transactions
contemplated hereby or by the
Merger.
|
Consultation
9.8 Mainland
and American Exploration agree to consult with each other as to the general
nature of any news releases or public statements with respect to this Agreement
or the Merger, and to use their respective commercially reasonable efforts not
to issue any news releases or public statements inconsistent with the results of
such consultations. Subject to applicable Laws, each Party shall use
commercially reasonable efforts to enable the other Party to review and comment
on all such news releases prior to the release thereof. Mainland and American
Exploration also agree to consult with each other in preparing and making any
filings and communications in connection with any required regulatory
approvals.
Governing
Laws
9.9 This
Agreement, other than with respect to Part 2, shall
be governed by and construed in accordance with the laws of the Province of
British Columbia and the laws of Canada applicable therein and
shall be treated in all respects as a British Columbia contract. Each party
hereby irrevocably attorns to the jurisdiction of the courts of the Province of
British Columbia in respect of all matters, other than with respect to Part 2, arising under or in relation to this
Agreement. Part 2 of this Agreement
shall be governed by the laws of the State of Nevada and the Parties shall
attorn to the jurisdiction of the courts of Nevada in respect thereto,
regardless of the laws that might otherwise govern under applicable conflicts of
law thereof, and issues involving the corporate governance of either Party
hereto shall be governed by the laws of Nevada.
Time
of Essence
9.10 Time
shall be of the essence in this Agreement.
Counterparts
9.11 This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the
same instrument.
-55-
IN WITNESS WHEREOF the Parties
hereto have executed this Agreement as of the date first written
above.
MAINLAND
RESOURCES, INC.
Per: /s/▇▇▇▇▇▇▇ ▇.
Newport
President and CEO
Per:
Authorized Signatory
AMERICAN
EXPLORATION CORPORATION
Per: /s/▇▇▇▇▇▇
▇▇▇▇▇▇▇
Authorized Signatory
Per:
Authorized Signatory
SCHEDULE
A
AMERICAN
EXPLORATION CORPORATION
MERGER
RESOLUTIONS
WHEREAS:
|
A.
|
American
Exploration Corporation (the “Company”) has entered
into a merger agreement and plan of merger dated March 22, 2010 (the
“Agreement and Plan of
Merger”) with Mainland Resources, Inc. (“Mainland”);
and
|
|
B.
|
Pursuant
to the Agreement and Plan of Merger, Mainland will acquire all of the
issued and outstanding shares, stock options and common stock purchase
warrants of the Company in consideration for the issuance of shares of the
common stock of Mainland, and of stock options and common stock purchase
warrants of Mainland, on the terms and subject to the conditions of the
Agreement and Plan of Merger.
|
RESOLVED
THAT:
|
1.
|
The
merger of the Company with and into Mainland on the terms and subject to
the conditions of the Agreement and Plan of Merger is hereby approved and
recommended to the stockholders of the
Company;
|
|
2.
|
The
execution of the Agreement and Plan of Merger by the Company is hereby
ratified and approved; and
|
|
3.
|
Any
one officer or director of the Company is hereby authorized and directed
for and on behalf of the Company to call a meeting of the stockholders of
the Company in order to solicit the approval of the Agreement and Plan of
Merger from the stockholders of the Company, and to further execute or
cause to be executed, under the seal of the Company or otherwise, and to
deliver or cause to be delivered, all such other documents, agreements,
amendments to agreements, and instruments and to perform or cause to be
performed all such other acts and things as in such person’s opinion may
be necessary or desirable to give full effect to the foregoing resolution
and the matters authorized hereby, such determination to be conclusively
evidenced by the execution and delivery of such document, agreement,
amendment to an agreement, or instrument or the doing of any such act or
thing, including but not limited to amendments to the Agreement and Plan
of Merger.
|
SCHEDULE
B
MAINLAND
RESOURCES, INC.
MERGER
RESOLUTIONS
WHEREAS:
|
A.
|
Mainland
Resources, Inc. (the “Company”) has entered
into a merger agreement and plan of merger dated March 22, 2010 (the
“Agreement and Plan of
Merger”) with American Exploration Corporation (“American Exploration”);
and
|
|
B.
|
Pursuant
to the Agreement and Plan of Merger, the Company will acquire all of the
issued and outstanding shares, stock options and common stock purchase
warrants of American Exploration in consideration for the issuance of
shares of the common stock of the Company, and of stock options and common
stock purchase warrants of the Company, on the terms and subject to the
conditions of the Agreement and Plan of
Merger.
|
RESOLVED
THAT:
|
1.
|
The
merger of American Exploration with and into the Company on the terms and
subject to the conditions of the Agreement and Plan of Merger is hereby
approved and recommended to the stockholders of the
Company;
|
|
2.
|
The
execution of the Agreement and Plan of Merger by the Company is hereby
ratified and approved; and
|
|
3.
|
Any
one officer or director of the Company is hereby authorized and directed
for and on behalf of the Company to call a meeting of the stockholders of
the Company in order to solicit the approval of the Agreement and Plan of
Merger from the stockholders of the Company, and to further execute or
cause to be executed, under the seal of the Company or otherwise, and to
deliver or cause to be delivered, all such other documents, agreements,
amendments to agreements, and instruments and to perform or cause to be
performed all such other acts and things as in such person’s opinion may
be necessary or desirable to give full effect to the foregoing resolution
and the matters authorized hereby, such determination to be conclusively
evidenced by the execution and delivery of such document, agreement,
amendment to an agreement, or instrument or the doing of any such act or
thing, including but not limited to amendments to the Agreement and Plan
of Merger.
|
SCHEDULE
C
MATERIAL
CONTRACTS OF AMERICAN EXPLORATION
|
1.
|
Letter
Agreement between American Exploration and Avere Energy, Inc. dated
February 26, 2010.
|
|
2.
|
Letter
of Intent between American Exploration and Avere Energy, Inc. effective
January 15, 2010.
|
|
3.
|
Convertible
Debenture Agreement between American Exploration and DMS, Ltd. effective
October 13, 2009.
|
|
4.
|
Joint
Operating Agreement among American Exploration, Guggenheim Energy
Opportunities, LLC, and Mainland, executed October 12,
2009.
|
|
5.
|
Letter
Agreement between American Exploration and Mainland dated September 25,
2009.
|
|
6.
|
Third
Amendment to Option Agreement between American Exploration and Westrock
Land, Corp. effective August 19,
2009.
|
|
7.
|
Loan
Agreement between American Exploration and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, a director
of American Exploration, dated June 5,
2009
|
|
8.
|
Second
Amendment to Option Agreement between American Exploration and Westrock
Land, Corp. effective April 29,
2009.
|
|
9.
|
Loan
Agreement between American Exploration and ▇▇▇▇▇ ▇▇▇▇▇, a related third
party, dated May 29, 2009.
|
|
10.
|
Loan
Agreement between American Exploration and ▇▇▇▇▇ ▇▇▇▇▇, a related third
party, dated May 15, 2009.
|
|
11.
|
First
Amendment to Option Agreement between American Exploration and Westrock
Land, Corp. effective January 8,
2009.
|
|
12.
|
Option
Agreement between American Exploration and Westrock Land, Corp. effective
November 3, 2008.
|
|
13.
|
CDN$100,000
5% Convertible Debenture dated October 13, 2009, made by American
Exploration and payable to DMS Ltd.
|
|
14.
|
Rescission
Agreement between American Exploration and Dev Randhawa dated August 18,
2009, relating to that certain convertible note dated June 5, 2009, made
by American Exploration in the principal amount of $50,000 and payable to
Dev Randhawa.
|
|
15.
|
Rescission
Agreement between American Exploration and ▇▇▇▇▇ ▇▇▇▇▇ dated August 18,
2009, relating to that certain convertible note dated May 29, 2009, made
by American Exploration in the principal amount of CDN$8,200 and payable
to ▇▇▇▇▇ ▇▇▇▇▇.
|
-2-
|
16.
|
Rescission
Agreement between American Exploration and ▇▇▇▇▇ ▇▇▇▇▇ dated August 18,
2009, relating to that certain convertible note dated May 15, 2009, made
by American Exploration in the principal amount of $30,000 and payable to
▇▇▇▇▇ ▇▇▇▇▇.
|
SCHEDULE
D
AMERICAN
EXPLORATION OPTIONS AND WARRANTS
American
Exploration Options
|
American
Exploration Optionholder
|
No.
of American Exploration Shares Under Option
|
Exercise
Price
(US$)
|
Expiry
Date
|
Exchange
No.
of Mainland Options on Merger
|
Exercise
Price and Expiry Date of Mainland Options
(US$)
|
|
▇▇▇▇
▇▇▇▇
|
50,000
|
0.80
|
Sept.
25, 2019
|
12,500
|
1.50
|
|
▇▇▇▇
▇▇▇▇▇▇
|
100,000
|
0.80
|
Sept.
14, 2019
|
25,000
|
1.50
|
|
▇▇▇▇
▇▇▇▇▇▇
|
100,000
|
0.80
|
Sept.
14, 2019
|
25,000
|
1.50
|
|
▇▇▇▇▇
▇▇▇▇▇
|
150,000
|
0.80
|
Sept.
14, 2019
|
37,500
|
1.50
|
|
▇▇▇▇▇
▇▇▇▇▇
|
250,000
|
0.80
|
Sept.
14, 2019
|
62,500
|
1.50
|
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
300,000
|
0.80
|
Sept.
25, 2019
|
75,000
|
1.50
|
|
Dev
Randhawa
|
750,000
|
0.80
|
Sept.
14, 2019
|
187,500
|
1.50
|
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
1,000,000
|
0.80
|
Sept.
14, 2019
|
250,000
|
1.50
|
|
TOTAL
|
2,700,000
|
675,000
|
American
Exploration Warrants
|
Warrantholder
|
No.
of American Exploration Shares Under Warrant
(Whole
Warrants)
|
No.
of American Exploration Shares Under Warrant
(Half-Warrants)
|
Exercise
Price Per Whole Warrant
(US$)
|
Expiry
Date
|
|
076103
B.C. Ltd.
|
130,000
|
260,000
|
1.00
|
31/8/2010
|
|
12,500
|
25,000
|
1.50
|
24/9/2010
|
|
|
▇▇▇▇▇▇▇
Exportaciones del Petroleo Inc.
|
200,000
|
400,000
|
0.50
|
17/8/2010
|
|
66,667
|
133,334
|
1.25
|
21/9/2010
|
|
|
150,000
|
300,000
|
0.50
|
24/2/2011
|
|
|
TOTAL
|
559,167
|
1,118,333
|
SCHEDULE
E
MATERIAL
CONTRACTS OF MAINLAND
|
1.
|
Purchase
Agreement by and between Mainland, as seller and Exco Operating Company,
LP, as buyer, dated March 10, 2010.
|
|
2.
|
Senior
Secured Advancing Line of Credit Agreement between Mainland and Guggenheim
Corporate Funding, LLC dated October 16,
2009.
|
|
3.
|
Executive
Service Agreement between Mainland and ▇▇▇▇ ▇▇▇▇ effective September 22,
2009.
|
|
4.
|
Executive
Service Agreement between Mainland and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ effective September
22, 2009.
|
|
5.
|
Joint
Operating Agreement among Mainland, American Exploration, and Guggenheim
Corporate Funding executed October 12,
2009.
|
|
6.
|
Letter
Agreement between Mainland and American dated October 1,
2009.
|
|
7.
|
Security
Agreement between Mainland and Guggenheim Corporate Funding, LLC effective
August 7, 2009.
|
|
8.
|
Consulting
Service Letter Agreement between Mainland and VCS Group, Inc., of which a
director of Mainland is the sole director, officer, and shareholder, dated
February 11, 2009.
|
|
9.
|
Amendment
to Option Agreement between Mainland and Westrock Land, Corp. effective
August 28, 2009.
|
|
10.
|
Option
Agreement between Mainland and Westrock Land, Corp. effective June 22,
2009.
|
|
11.
|
Assignment,
Conveyance, and ▇▇▇▇ of Sale between Mainland and Petrohawk Properties, LP
effective August 4, 2008.
|
|
12.
|
Operating
Agreement between Mainland and Petrohawk Properties, LP dated August 1,
2008.
|
|
13.
|
Letter
Agreement between Mainland and Petrohawk Energy Corporation effective July
14, 2008.
|
For
greater certainty, oil and gas leases entered into by Mainland in the ordinary
course of business are not included in this Schedule
E.