EXHIBIT 2.2
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PURCHASE AND SALE AGREEMENT
Between
GMX RESOURCES INC.
(Seller)
and
▇▇▇▇▇▇▇ OIL CO., INC.
(Buyer)
Dated the 28th day of August, 2002
GARDEN CITY, KANSAS AREA
▇▇▇▇▇▇ AND ▇▇▇▇▇ COUNTIES
TABLE OF CONTENTS
ARTICLE I. PROPERTIES.....................................................1
Section 1.01 Agreement to Sell and Purchase.............................1
Section 1.02 Properties.................................................1
Section 1.03 Suspense Accounts..........................................3
Section 1.04 Excluded Assets............................................3
Section 1.05 ▇▇▇▇▇▇ Claimants...........................................4
Section 1.06 Effective Time.............................................4
Section 1.07 Ownership of Properties....................................4
ARTICLE II. PURCHASE PRICE.................................................5
Section 2.01 Purchase Price.............................................5
Section 2.02 Adjustments to Purchase Price..............................5
Section 2.03 Allocated Values...........................................7
ARTICLE III. REPRESENTATIONS AND WARRANTIES.................................7
Section 3.01 Representations and Warranties of Seller...................7
Section 3.02 Representations and Warranties of Buyer....................8
ARTICLE IV. COVENANTS.....................................................10
Section 4.01 Covenants of Seller.......................................10
Section 4.02 Covenants of Buyer........................................11
Section 4.03 General Covenants.........................................12
ARTICLE V. TITLE AND ECONOMIC MATTERS....................................13
Section 5.01 Good and Defensible Title.................................13
Section 5.02 Casualty Loss.............................................15
Section 5.03 Notice of Title Defect....................................15
Section 5.04 Remedies for Title Defects................................15
Section 5.05 Seller's Election Not to Cure.............................16
Section 5.06 Seller's Election to Cure.................................16
Section 5.07 Upward Adjustments........................................17
Section 5.08 Preferential Rights.......................................17
Section 5.09 Physical and Environmental Conditions.....................17
Section 5.10 General Environmental Indemnity...........................17
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Section 5.11 Environmental Laws........................................18
Section 5.12 Environmental Defect......................................18
ARTICLE VI. CONDITIONS TO CLOSING.........................................19
Section 6.01 Seller's Conditions.......................................19
Section 6.02 Buyer's Conditions........................................19
ARTICLE VII. CLOSING.......................................................20
Section 7.01 Closing...................................................20
Section 7.02 Closing Obligations.......................................20
ARTICLE VIII. POST-CLOSING RIGHTS AND OBLIGATIONS...........................21
Section 8.01 Files and Records.........................................21
Section 8.02 Post-Closing Adjustments..................................21
Section 8.03 Taxes and Recording Fees..................................21
Section 8.04 Further Assurances........................................22
Section 8.05 Survival..................................................22
Section 8.06 Assumption of Liabilities and Indemnity...................22
Section 8.07 Joint Billing Audits: Credits.............................22
Section 8.08 Successor Operator........................................22
Section 8.09 American Warrior Litigation...............................23
ARTICLE IX. TERMINATION OF AGREEMENT......................................23
Section 9.01 Termination...............................................23
Section 9.02 Liabilities Upon Termination..............................23
ARTICLE X. MISCELLANEOUS.................................................23
Section 10.01 Notices...................................................23
Section 10.02 Amendments................................................24
Section 10.03 Assignment................................................24
Section 10.04 Table of Contents Headings................................24
Section 10.05 References................................................24
Section 10.06 Governing Law.............................................24
Section 10.07 Announcements.............................................24
Section 10.08 Use of Seller's Names.....................................25
Section 10.09 Entire Agreement..........................................25
Section 10.10 Parties in Interest.......................................25
Section 10.11 Waiver....................................................25
Section 10.12 Waiver of Representations and Warranties..................25
Section 10.13 Indemnification...........................................26
Section 10.14 Litigation Costs..........................................26
Section 10.15 Exhibits..................................................26
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Section 10.16 Definition of "Knowledge".................................26
EXHIBITS
Exhibit A Leases
Exhibit B Working Interest Properties and Allocated Value
Exhibit C Field Office Assets
Exhibit D Assignment, ▇▇▇▇ of Sale and Conveyance
Exhibit F ▇▇▇▇▇▇ Claimants
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PURCHASE AND SALE AGREEMENT
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This Purchase and Sale Agreement (the "Agreement") is entered into
this 27 day of August, 2002, by and between GMX RESOURCES INC., an Oklahoma
corporation, hereinafter called the "Seller", and ▇▇▇▇▇▇▇ Oil Co., Inc, a Kansas
corporation, hereinafter called the "Buyer". Buyer and Seller are collectively
referred to herein as the "Parties" and sometimes individually referred to as a
"Party".
WITNESSETH:
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WHEREAS, Seller is willing to sell to Buyer, and Buyer is willing to
purchase from Seller, the Properties (as hereinafter defined), upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual benefits derived and
to be derived herefrom by each Party, Seller and Buyer hereby agree as follows:
ARTICLE I
PROPERTIES
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Section 1.01 Agreement to Sell and Purchase. Subject to the terms
and conditions of this Agreement, Buyer agrees to purchase from Seller and
Seller agrees to sell, transfer, assign and convey to Buyer the Properties as of
the Effective Time.
Section 1.02 Properties. The "Properties" hereunder shall consist of
all of Seller's right, title and interest in and to the following described
assets and shall hereafter collectively, in whole or in part, be sometimes
referred to as the "Properties" or individually as the "Property":
(a) The oil, gas and mineral leases, fee mineral interests, fee
royalty interests, and other similar interests described in Exhibit A, together
with all other interests of Seller in and to the lands subject thereto and the
▇▇▇▇▇ located thereon or pooled therewith including, without limitation, working
interests, overriding royalty interests, net revenue interests, carried
interests, reversionary interests, production payments, net profits interests,
and any other interests of a similar nature whether legal or equitable, vested
or contingent (all of which are hereafter referred to as "Lease(s)" or
"Leasehold Interests" and the lands covered thereby which shall be referred to
herein collectively as the "Lands" or singularly as the "Land").
(b) All hydrocarbons produced from or allocated to the Leasehold
Interests or Lands, after the Effective Time. "Hydrocarbons" shall mean and
include oil, gas well gas, casinghead gas, condensate, and all components of any
of them.
(c) All of the assignments or other instruments or agreements that
pertain to the Properties and all contractually binding arrangements to which
the Properties may be subject and which will be binding on the Properties or
Buyer after the Closing, including, without limitation; production payment
assignments; net profits interest assignments; farmin and farmout
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agreements; bottom-hole agreements; crude oil, condensate, and natural gas
purchase and sale, exchange, gathering, transportation, and marketing
agreements; hydrocarbon storage agreements; acreage contribution agreements;
operating agreements; hydrocarbon balancing agreements; pooling agreements;
unitization, pooling and communitization agreements; processing agreements;
saltwater disposal agreements; options; permits; licenses; servitudes,
easements; rights-of-way; orders; facilities or equipment leases; and other
contracts, agreements, and rights owned by Seller or its subsidiary Endeavor
Pipeline Inc., in whole or in part, to the extent that they are (i) appurtenant
to or affect the Properties or (ii) used or held for use in connection with the
ownership or operation of the Properties or the production or treatment of
hydrocarbons on or produced therefrom, or the sale or disposal of water,
hydrocarbons, or associated substances (the "Applicable Contracts").
(d) All of the personal property, fixtures, movable and immovable
property and improvements appurtenant to the Leasehold Interests or Lands
including, without limitation, the ▇▇▇▇▇, including ▇▇▇▇▇ contained in the
units, and the locations described in Exhibit B. As used throughout this
Agreement, "Working Interest Properties" shall mean those properties described
in Exhibit B and all Leasehold Interests and Lands appurtenant thereto.
(e) Any oil, gas and mineral unitization, pooling and
communitization agreement, declaration or order relating to the Leasehold
Interests or Lands, and the units, pools or communitized areas, if any, created
thereby (including, without limitation, all units, pools or communitized areas
formed under orders, regulations, rules or other official acts of any federal,
state or other governmental agency having or asserting jurisdiction); all
production from the unit, pool or communitized area allocated to the Leasehold
Interests or Lands, and all interests in any ▇▇▇▇▇ within each unit, pool or
communitized area associated with the Leasehold Interests or Lands.
(f) All surface interests, permits, franchises, easements,
rights-of-way, contract rights, intangible rights, rights under warranties made
by prior owners of the Leasehold Interests or Lands, manufacturers, vendors and
other third parties, rights accruing under applicable statutes of limitations or
prescription and other rights, estates and hereditaments incident or relating to
the Leasehold Interests or Lands.
(g) Any Imbalance, as of the Effective Time, relating to the
Properties. For the purposes of this Agreement, the term "Imbalance" means any
imbalance at the wellhead, between the amount of natural gas or other
hydrocarbons produced from a well to which Seller was entitled and the amount of
production which Seller was actually allocated for sale purposes, together with
any appurtenant rights and obligations concerning future in-kind and/or cash
balancing at the wellhead.
(h) Without limiting the foregoing, the interest and estate, whether
real, personal or mixed, movable or immovable, corporeal or incorporeal of every
nature and description in and to or derived under the Leasehold Interests or
Lands, whether such right, title, claim or interest be under and by virtue of an
oil and gas lease, oil, gas and mineral lease, overriding royalty assignment or
reservation, production payment, operating agreement, unitization, pooling,
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communitization agreement, declaration or order, division order, transfer order,
or any other type of contract, conveyance or instrument, or under and by virtue
of any other type of claim or title to the Properties, present or reversionary.
(i) The original files, records and data directly relating to the
items described in subsections (a) through and including (h) above, including,
without limitation, title records (including abstracts of title, title opinions,
and title curative documents); contracts; correspondence; geological records,
operations and production files (the "Property Records").
(j) The land, buildings, residence and equipment listed on Exhibit C
relating to the Seller's field office in ▇▇▇▇▇▇ County, Kansas (the "Field
Office Assets").
Section 1.03 Suspense Accounts. In the event the Properties include
funds being held in suspense for the benefit of third parties, Seller shall
transfer to Buyer and Buyer agrees to accept from Seller and hold for the
benefit of the parties entitled to receive payment thereof, all monies
representing the value or proceeds of production removed or sold from the Lands
and then held by Seller for accounts from which payment has been suspended,
("Suspended Proceeds"). After Closing, Buyer, its successors and assigns, as to
any Suspended Proceeds to be transferred to Buyer, shall be solely responsible
for the distribution of such proceeds to the party or parties entitled to
receive payment of the same. Buyer's responsibility shall include any obligation
under law to identify or locate such party or parties and to report and pay such
funds to any governmental authority under applicable unclaimed, abandoned
property or escheat laws.
Section 1.04 Excluded Assets. There is specifically excluded from
the Property, and reserved unto Seller, the following Excluded Assets:
(a) all trade credits and all accounts, instruments and general
intangibles attributable to the Properties with respect to any period of time
prior to the Effective Time;
(b) all claims and causes of action of Seller (i) arising from acts,
omissions or events, or damage to or destruction of property, occurring prior to
the Effective Time, or (ii) arising under or with respect to any of the
Applicable Contracts that are attributable to periods of time prior to the
Effective Time (including claims for adjustments or refunds);
(c) all rights and interests of Seller (i) under any policy or
agreement of insurance or indemnity, (ii) under any bond, or (iii) to any
insurance or condemnation proceeds or awards arising, in each case, from acts,
omissions or events, or damage to or destruction of property, occurring prior to
the Effective Time;
(d) all hydrocarbons produced from the Properties with respect to
all periods prior to the Effective Time, together with all proceeds from the
sale of such hydrocarbons;
(e) claims of Seller for refunds of or loss carry forwards with
respect to (i) production or any other taxes attributable to any period prior to
the Effective Time, (ii) income or franchise taxes, or (iii) any taxes
attributable to the Excluded Assets;
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(f) all proceeds, income or revenues (and any security or other
deposits made) attributable to (i) the Properties for any period prior to the
Effective Time, or (ii) any Excluded Assets;
(g) all of Seller's proprietary computer software, patents, trade
secrets, copyrights, names, trademarks, logos and other intellectual property;
(h) all of Seller's internal appraisals and interpretive data, all
privileged information and all data, licenses or permits that cannot be
disclosed or assigned to Buyer as a result of confidentiality, licensing, or
permitting arrangements under agreements with third parties;
(i) all audit rights arising under any of the Applicable Contracts
or otherwise with respect to any period prior to the Effective Time or to any of
the Excluded Assets.
Section 1.05 ▇▇▇▇▇▇ Claims. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (the "▇▇▇▇▇▇ Claims")
claim interests in certain of the Properties as described on Exhibit F arising
from alleged fraudulently recorded assignments and no written agreements
("▇▇▇▇▇▇ Interests"). The ▇▇▇▇▇▇ Interests are not included in the Net Revenue
and Working Interests for the applicable Properties on Exhibit B. Seller is in
litigation with the ▇▇▇▇▇▇ Claims over these claims and has suspended payments
to the ▇▇▇▇▇▇ Claims of proceeds of production from such interests. The ▇▇▇▇▇▇
Interests and related suspense funds will be Excluded Assets and shall be
reserved from the applicable conveyance documents for the Properties. Seller
shall be treated as the owner of the ▇▇▇▇▇▇ Interests by the Buyer after the
Closing and Seller shall indemnify Buyer from any claims of the ▇▇▇▇▇▇ Claims
relating to the ▇▇▇▇▇▇ Interests. If Seller is successful in defeating the
▇▇▇▇▇▇ Claims' claims, Seller shall sell and Buyer shall purchase the ▇▇▇▇▇▇
Interests based on the Allocated Value of the Properties to be effective as of
the Effective Time with purchase price adjustments as provided in Section 2.02
hereof for all revenues and expenses for the period between the Effective Time
and the Closing of such sale and purchase.
Section 1.06 Effective Time. The purchase and sale of the Properties
shall be effective as of September 1, 2002 at 7:00 A.M. local time in the
jurisdiction in which the Properties are located (the "Effective Time").
Section 1.07 Ownership of Properties. Subject to the provisions
hereof, Seller shall be entitled to all of the rights (including, without
limitation, the right to all production, proceeds of production and other
proceeds) of ownership, and shall be subject to the duties and obligations of
such ownership, other than those duties and obligations for which Buyer is
liable under the terms of this Agreement, attributable to the Properties for the
periods of time prior to the Effective Time. Subject to the provisions hereof,
Buyer shall be entitled to all of the rights (including, without limitation, the
right to all production, proceeds of production and other proceeds) of such
ownership, and shall be subject to the duties and obligations of such ownership,
other than those duties and obligations for which Seller is liable under the
terms of this Agreement, attributable to the Properties and for the periods of
time from and after the Effective Time; provided, however, that (a) Seller shall
have the right to retain all proceeds (including, without limitation, proceeds
of production) attributable to the Properties which are received by Seller
before Closing, and (b) to the extent such amounts retained by Seller are
attributable to the period of time between the
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Effective Time and Closing, such amounts shall be the subject of adjustments to
the Purchase Price as provided in Article II. hereof.
ARTICLE II
PURCHASE PRICE
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Section 2.01 Purchase Price. The aggregate purchase price for the
Properties shall be One Million, Seven Hundred Thirty Three Thousand Dollars
($1,733,000.), including Seventy Thousand Dollars ($70,000) for the Field Office
Assets, in immediately available United States of America funds (the "Purchase
Price"), subject to adjustments in accordance with the provisions of this
Agreement. Subject to the provisions hereof, the Purchase Price (as adjusted)
shall be paid to Seller at the Closing. Within three (3) business days of
Seller's execution of this Agreement, Buyer shall pay to Seller, by wire
transfer of immediately available funds, a cash deposit (the "Performance
Deposit") in an amount equal to ten percent (10%) of the Purchase Price to an
account to be designated by Seller. The Performance Deposit shall be
non-interest bearing and refunded to Buyer only in the event this Agreement is
terminated pursuant to Sections 9.01(b), 9.01(c) or 9.01(d).
Section 2.02 Adjustments to Purchase Price. The Purchase Price shall
be adjusted at Closing and, if necessary, at the Final Settlement Date as
follows and the resulting amount shall be herein called the "Adjusted Purchase
Price":
(a) The Purchase Price shall be adjusted upward by the following:
(1) the amount of all operating and capital expenditures
actually paid by or on behalf of Seller and not deducted or
netted from the proceeds under Section 2.02(b) below, in
connection with the operation of the Properties which are, in
accordance with generally accepted accounting principles and oil
field practices, attributable to the period of time after the
Effective Time, including, without limitation, (i) rentals,
shut-in well payments, and other lease maintenance payments,
(ii) ad valorem, property, excise, severance, production taxes,
and any other taxes (exclusive of income taxes) based upon or
measured by the ownership of the Properties or the production of
hydrocarbons or the receipt of proceeds therefrom, and (iii)
overhead allowable under the applicable operating agreements and
other charges and expenses, including overhead and other charges
and expenses billed by Seller as operator;
(2) the value (determined by the price most recently paid prior
to the Effective Time for such oil less all applicable
deductions) of all oil and other liquid hydrocarbons in storage
or existing in stock tanks, upstream of the pipeline connection
as of the Effective Time which is credited to the Properties,
less applicable production taxes payable on such oil, the amount
of oil in storage as of the Effective Time to be based on gauge
reports to the extent available or on
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alternative methods to be agreed by the parties;
(3) the positive amount, if any, determined by subtracting (i)
one (1) percent of the Purchase Price, (ii) the Downward Defect
Adjustments and (iii) the purchase price reductions due to
Environmental Defects as determined in Section 5.12, from the
Upward Adjustments; and
(4) any other amount mutually agreed upon by Seller and Buyer.
(b) The Purchase Price shall be adjusted downward by the following:
(1) the amount of net proceeds (gross proceeds after royalties,
overriding royalties, and similar burdens on production and
severance and production taxes and any other taxes based upon or
measured by the production of hydrocarbons or the receipt of
proceeds therefrom) derived from the sale of hydrocarbons
received by Seller attributable to the Properties which are, in
accordance with generally accepted accounting principles,
attributable to the period of time after the Effective Time;
(2) an amount equal to all expenditures and costs relating to
the Properties conveyed to Buyer at Closing that are
attributable to the period of time prior to the Effective Time
and that are unpaid as of the Closing and that are subsequently
paid by Buyer;
(3) an amount equal to all unpaid ad valorem, property,
production, severance and similar taxes and assessments (but not
including income taxes) based upon or measured by the ownership
of the Properties or the production of hydrocarbons or the
receipt of proceeds therefrom, which taxes or assessments
attributable to the period of time to prior to the Effective
Time and that are unpaid as of the Closing, which amount shall,
where possible, be computed based upon the tax rate and values
applicable to the tax period in question; otherwise, the amount
of the adjustment under this paragraph shall be computed based
upon such taxes assessed against the applicable portion of the
Properties for the immediately preceding tax period just ended;
(4) an amount equal to the Allocated Value of those Properties
not conveyed to Buyer in connection with the exercise of
preferential rights to purchase or similar rights as provided in
Section 5.08;
(5) the positive amount, if any, determined by subtracting (i)
the Upward Adjustments and (ii) one (1) percent of the Purchase
Price from the sum of (x) the Downward Defect Adjustments and
(y) the purchase price reductions due to Environmental Defects
as determined in Section 5.12;
(6) the Performance Deposit; and
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(7) any other amount mutually agreed upon by Seller and Buyer.
Section 2.03 Allocated Values. For purposes of this Agreement, with
respect to each Working Interest Property, the term "Allocated Value" means the
amount set forth on Exhibit B under the column "Allocated Value" for such
Working Interest Property. Seller and Buyer agree and stipulate that the
Allocated Values have been established solely for use in calculating adjustments
to the Purchase Price as provided herein. Seller and Buyer do not intend for the
Allocated Values to be treated or interpreted to constitute an allocation of the
Purchase Price among the Working Interest Properties for federal or state income
tax purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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Section 3.01 Representations and Warranties of Seller. Seller
represents and warrants the following to Buyer, which representations and
warranties shall be true and correct in all material respects as of the
execution of this Agreement and as of Closing:
(a) Seller is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Oklahoma and is duly qualified to
carry on its business in multiple jurisdictions including the States of Kansas
and Oklahoma.
(b) Seller has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement, to sell the
Properties on the terms described in this Agreement, and to perform its
obligations under this Agreement.
(c) The execution, delivery and performance of this Agreement and
the transactions contemplated hereby have been duly and validly authorized by
all necessary actions, corporate or otherwise, if any, on the part of Seller.
(d) This Agreement has been duly executed and delivered on behalf of
Seller and constitutes a legal, valid and binding obligation of Seller,
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, reorganization, moratorium, and similar laws, as well as to
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(e) The consummation of the transactions contemplated by this
Agreement will not violate, or be in conflict with, the articles of
incorporation, bylaws or governing documents of Seller or any material provision
of any agreement or instrument (except for any covenants contained in any loan
agreements requiring consent which Seller will obtain prior to Closing) to which
Seller is a party or by which it, or the Properties, is bound or will not
violate or be in conflict with any material provision of any judgment, decree,
order, statute, rule or regulation applicable to Seller or any Property, or
result in the creation or imposition of any lien on any Property.
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(f) Seller shall pay the broker's or finder's fees relating to the
transaction contemplated by this Agreement and Buyer shall have no
responsibility whatsoever for such fees.
(g) To the knowledge of Seller, other than litigation with the
▇▇▇▇▇▇ Claimants and AMERICAN WARRIOR, INC. V. GMX RESOURCES, ET AL., District
Court of ▇▇▇▇▇▇ County, Kansas, Case No. 02C174 ("American Warrior Litigation"),
no suit, action or other proceeding has been threatened or is pending against
Seller or the Properties before any court, governmental agency, including the
Kansas Corporation Commission, or arbitrator and to Seller's knowledge there
exist no unsatisfied judgments any of which might result in impairment or loss
of Seller's interest in any part of the Working Interest Properties or that
might hinder or impede the operation of the Working Interest Properties in any
material respect or that seeks to restrain or prohibit, or to obtain substantial
damages from Seller, in respect of, or which is related to or arises out of,
this Agreement or the consummation of all or part of the transactions
contemplated herein, or which otherwise might impair and adversely affect the
Properties or the value or conveyance thereof.
(h) To the knowledge of Seller, all federal, state and local tax and
information returns relating to the Properties and required under the statutes,
rules and regulations of such jurisdictions have been filed and all taxes,
including, but not limited to, ad valorem, severance and income taxes (other
than those being contested in good faith for which adequate provisions will be
made) shown on said returns to be due, and additional assessments received prior
to the date hereof which are due and payable, have been paid.
(i) To the knowledge of Seller, Seller (i) has all governmental
licenses, authorizations, consents and approvals required for the ownership and
operation of the Working Interest Properties, and (ii) has complied with all
applicable rules, regulations, and ordinances of any governmental authority
having jurisdiction over the Working Interest Properties and as to which
non-compliance would have a material adverse effect on any of the Working
Interest Properties.
(j) To the knowledge of Seller, (i) as of the Effective Time,
proceeds from the sale of oil, condensate, and gas from the Working Interest
Properties were being received in all respects by Seller in a timely manner and
were not being held in suspense for any reason; (ii) Exhibit E lists all of the
material Imbalances between Seller and any third party with respect to the
Properties; and (iii) Seller is not obligated by virtue of any prepayment made
under any production sales contract or any other contract containing a
"take-or-pay" clause, or under any production payment, forward sale, deferred
production, or similar arrangement to deliver oil, gas, or other minerals
produced from or allocated to any of the Properties at some future time without
receiving full payment thereof at the time of delivery; provided, however, that
nothing contained in this subsection (iii) shall be intended to include or
relate to Imbalances.
Section 3.02 Representations and Warranties of Buyer. Buyer
represents and warrants the following to Seller, which representations and
warranties shall be true and correct in all material respects as of the
execution of this Agreement and as of Closing:
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(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Kansas and is duly qualified to
carry on its business in the State of Kansas.
(b) Buyer has all requisite power and authority, to carry on its
business as presently conducted, to enter into this Agreement, to purchase the
Properties on the terms described in this Agreement, and to perform its other
obligations under this Agreement, and is in compliance with the bonding and
liability insurance requirements in accordance with all applicable state or
federal laws or regulations.
(c) The execution, delivery and performance of this Agreement and
the transactions contemplated hereby have been duly and validly authorized by
all necessary action, corporate or otherwise, if any, on the part of Buyer.
(d) This Agreement has been duly executed and delivered on behalf of
Buyer and constitutes a legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, reorganization, moratorium, and similar laws, as well as to
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(e) The consummation of the transactions contemplated by this
Agreement will not violate, or be in conflict with, the articles of
incorporation, bylaws or governing documents of Buyer or any material provision
of any agreement or instrument to which Buyer is a party or by which it is bound
or will not violate or be in conflict with any judgment, decree, order, statute,
rule or regulation applicable to Buyer.
(f) Buyer has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated by this
Agreement for which Seller shall have any responsibility whatsoever.
(g) Buyer represents that by reason of Buyer's knowledge and
experience in the evaluation, acquisition, and operation of oil and gas
properties, Buyer has evaluated the merits and risks of purchasing the
Properties from Seller and has formed an opinion based solely upon Buyer's
knowledge and experience and not upon any representations or warranties by
Seller, except as set forth in Section 3.01.
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ARTICLE IV
COVENANTS
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Section 4.01 Covenants of Seller. Seller covenants and agrees with
Buyer that:
(a) After the execution of this Agreement until Closing, and to the
extent reasonably within Seller's control, (i) Seller shall cause the Properties
to be maintained and operated in a good and workmanlike manner; (ii) Seller
shall refrain from taking any action, without the prior consent of Buyer, to
sell, dispose of, distribute, mortgage, encumber or enter into any agreement or
arrangement for the sale, disposition, distribution, mortgage, or encumbrance
of, any of the Properties or otherwise enter into any transaction, the effect of
which would be to cause Seller's Net Revenue Interest (as hereafter defined in
Section 5.01(a)) to be less than, or Seller's Working Interest (as hereafter
defined in Section 5.01(a)) to be greater than that shown in Exhibit B for the
Properties shown thereon or burdened or encumbered in any manner different than
as contemplated herein except to the extent that hydrocarbons are produced and
sold from the Properties during the course of normal operations; (iii) except
for emergencies, Seller shall not enter into any contract or commitment or
assume or incur any obligation with respect to the normal operations of the
Properties involving expenditures, net to Seller's interest, in excess of Five
Thousand Dollars ($5,000.00) per Property without the prior consent of Buyer;
(iv) Seller shall not, without Buyer's prior consent, commence or consent to the
commencement of the drilling of any well or the deepening, sidetracking,
completion or recompletion of any existing well or the abandonment of any well
on the Properties; (v) Seller shall not, without Buyer's prior consent, release,
amend, modify or otherwise change any Lease or Applicable Contract, nor enter
into any contract or other agreement regarding the sale or other disposition of
gas production attributable to the Properties except for month to month sales in
the ordinary course of business; (vi) Seller shall not commit any oil or gas
production from the Properties to any purchaser thereof (except in those
instances in which Seller is obligated to deliver such oil or gas production
under existing contracts or other arrangements) in excess of forty five (45)
days without the prior written consent of Buyer; (vii) Seller shall not, without
the prior written consent of Buyer, enter into any agreement or arrangement to
balance or otherwise settle any Imbalances with other interest owners in any of
the Properties; (viii) Seller shall maintain in force all insurance policies
covering the Working Interest Properties that are presently in force, (ix)
Seller shall perform all material obligations under the Leases and the
Applicable Contracts and maintain in all material respects the Working Interest
Properties in a manner consistent with prior operations; (x) Seller shall
furnish to Buyer copies of all authorities for expenditures on material
operations commenced, but not completed prior to the Closing; and (xi) Seller
shall not relinquish voluntarily its position as operator with respect to any
Working Interest Property.
(b) Seller shall, from the date hereof until Closing, pay as they
become due all expenses related to the Properties during the period from the
execution hereof until Closing, as would be paid by a reasonably prudent party,
and shall not create or suffer to exist any lien, mortgage, pledge, charge,
security interest, or other encumbrance of any kind with respect to any Property
(except for Permitted Encumbrances).
10
(c) Seller shall grant Buyer and its agents at their sole expense,
risk and cost, reasonable access from the date hereof until Closing, during
normal business hours or as may otherwise be mutually agreed, to Seller's
personnel and Properties, books and records and provided that Buyer maintains
the confidentiality of such information in accordance with Section 4.02(a).
Buyer shall have the right to photocopy any such materials at Buyer's expense.
If Buyer requests information not in the possession of a Seller, Seller shall
use all reasonable efforts to obtain the requested information from the
applicable operator or other third party. Through the Closing, Seller shall also
afford Buyer and its authorized representatives reasonable access to and entry
upon all of the Properties operated by Seller for the purposes of operational
inspections and reasonable access to any employees or contract personnel that
have been involved with the operation, maintenance, or development of such
Properties and the accounting or supervision thereof.
(d) In the event Seller is required to make elections which are
timely in nature under any Applicable Contract, then Seller shall attempt to
notify Buyer, specifying the nature and time period associated with such
election, and Buyer shall respond to Seller within sufficient time to enable
Seller to make such timely election failing which response Seller shall make
such election as would a reasonably prudent operator.
(e) Seller shall promptly notify Buyer of any Casualty Loss, as
defined in Section 5.02, suit, action or other proceeding before any court,
arbitrator or governmental agency and any cause of action which relates to the
Properties or which might result in a material impairment or loss of Seller's
interest in any portion of the Properties or the value thereof or which might
materially hinder or impede their operation.
(f) At least three (3) business days prior to the Closing, Seller
shall submit to Buyer for review and approval, the documents described in
Section 7.02 (a) and (b).
(g) When Closing occurs, Seller shall duly execute and deliver all
documents and instruments required hereunder.
Section 4.02 Covenants of Buyer. Buyer covenants and agrees with
Seller that:
(a) Until completion of Closing or for a period of one year from the
date of this Agreement in the event Closing should not occur for any reason
except as required by law and with prior notice to Seller, Buyer and its
officers, directors, employees, agents and representatives shall hold in strict
confidence all data and information obtained from Seller in connection with the
Properties, whether before or after the execution of this Agreement, except any
data or information which (i) at the time of the disclosure to Buyer by Seller
is in the public domain; (ii) after disclosure to Buyer by Seller becomes part
of the public domain by publication or otherwise, except by breach of this
provision by Buyer; (iii) Buyer can establish was rightfully in its possession
at the time of disclosure to Buyer by Seller; (iv) Buyer rightfully received
from third parties free of any obligations of confidence; or (v) is developed
independently by Buyer, provided the person or persons developing the
information shall not have had access to data or
11
information obtained from Seller in connection with the transactions
contemplated by this Agreement. If this Agreement is terminated for any reason,
Buyer shall return to Seller all copies of information in the possession of
Buyer obtained from Seller or pursuant to any provision of this Agreement, which
information is at the time of termination required to be held in confidence
pursuant to this section, and shall not utilize or permit utilization of such
information to compete with Seller or its co-working interest owners in the
Properties.
Until the completion of Closing or for a period of one year from the
date of this Agreement in the event Closing should not occur for any reason,
except as required by law and with prior notice to Seller, Buyer and its
officers, directors, employees, agents and representatives shall hold in strict
confidence all matters relating to this Agreement and the transactions
contemplated hereby, including, without limitation, Title Defects and the
exercise of preferential purchase rights.
(b) To the extent necessary to facilitate the consummation of the
transactions contemplated herein, Buyer agrees to enter into any specific
agreements of assumption with respect to the obligations of Seller after the
Closing which may be required by third parties or governmental authorities to
the extent such obligations are attributable to the Properties and to the extent
such agreement does not expand the obligations of Buyer beyond the existing
obligations of Seller assumed pursuant to this Agreement.
(c) Buyer shall grant Seller and its agents at their sole expense,
risk and cost, reasonable access from and after Closing, during normal business
hours or as may otherwise be mutually agreed, to Buyer's personnel and
Properties, books and records. Buyer will provide Seller with reasonable access
to any books and records retained by Buyer for seven (7) years together with
such additional files, data and records of Buyer as may be reasonably requested
by Seller in order to pursue any claims, obligations and disputes relating to
the Properties. Buyer shall use all reasonable efforts to obtain access, for
Seller's benefit, to all such books and records that are appurtenant to any
Property which may be conveyed by Buyer.
(d) After Buyer acquires any Property and if the holder of a validly
existing preferential right to purchase timely asserts such right in accordance
with the agreement through which such right exists, then Buyer shall, if
acceptable to the holder of such preferential right to purchase, convey same to
such holder at the same terms and conditions set forth herein and retain any
payments received for such Properties, it being the intention to place the
respective parties in the same economic position as would have obtained if the
right had been exercised prior to Closing.
Section 4.03 General Covenants. Seller and Buyer covenant and agree
as follows:
(a) Seller and Buyer agree to cooperate with each other in
connection with the preparation by such parties of any report to the Securities
Exchange Commission and other federal, state, or local governmental agencies
that are required of such parties as the result of the execution and delivery of
this Agreement or the consummation of the transactions described in this
Agreement.
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(b) Each Party will use its reasonable best efforts to take, or to
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including (i) cooperation in determining whether any action by or in respect of,
or filing with, any governmental body, agency, or official authority is
required, or any actions, consents, approvals, or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated hereby; (ii) cooperation in
seeking and obtaining any such actions, consents, approvals, or waivers; and
(iii) the execution of any additional instruments necessary to consummate the
transactions contemplated hereby.
ARTICLE V
TITLE AND ECONOMIC MATTERS
--------------------------
Section 5.01 Good and Defensible Title.
(a) As used herein, the term "Good and Defensible Title" shall mean,
as to each of the Working Interest Properties, that quantity of title to such
Working Interest Properties by virtue of which Seller can successfully defend
against a claim to the contrary made by a third party as determined by Buyer in
the exercise of reasonable judgment and in good faith, such that (i) Seller (and
upon Closing, Buyer), by virtue of its ownership interests in the Leasehold
Interests and Lands described in Exhibit A, is entitled to receive a fractional
decimal interest of not less than the "Net Revenue Interest" set forth in
Exhibit B, in production of hydrocarbons from the Working Interest Properties
without reduction, suspension, or termination throughout the productive life of
each such Working Interest Property (the "Net Revenue Interest"); (ii) Seller is
obligated to bear (and after Closing shall obligate Buyer to bear) a fractional
decimal interest of not more than the "Working Interest" set forth on Exhibit B
of the costs and expenses related to the maintenance, development, drilling,
equipping, testing, completing, sidetracking, reworking and operation of each
Working Interest Property which are set forth on Exhibit B without increase
throughout the productive life of each Property; and (iii) the Working Interest
Properties are subject to no liens, encumbrances, obligations or defects except
those which are Permitted Encumbrances.
(b) As used herein, the term "Permitted Encumbrances", shall mean:
(1) Lessors' royalties, overriding royalties, payments out of
production, reversionary interests and other burdens affecting
Seller's Net Revenue Interest if the net cumulative effect of
such burdens does not operate to (i) reduce the Net Revenue
Interest of Seller in any Working Interest Property to less than
the Net Revenue Interest for such Working Interest Property as
set forth in Exhibit B; or (ii) increase the Working Interest of
Seller in any such Working Interest Property to greater than the
Working Interest therefor as set forth in Exhibit B (unless
Seller's Net Revenue Interest therein is increased in the same
proportion);
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(2) Preferential rights to purchase and required third party
consents to assignments and similar agreements with respect to
which (i) waivers or consents are obtained from the appropriate
parties; (ii) the appropriate time period for asserting such
rights has expired without an exercise of such rights; or (iii)
Buyer has agreed to treat such rights as Permitted Encumbrances;
(3) All rights to consent by, required notices to, filings with,
or other actions by governmental entities in connection with the
sale or conveyance of oil and gas leases or interests therein if
the same are customarily obtained subsequent to such sale or
conveyance;
(4) Non-consent penalties applied against the interest of Seller
arising under applicable operating agreements, which are taken
into account in the calculation of the interests shown on
Exhibit B;
(5) Easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface operations which
do not materially interfere with or detract from the operations,
value or use of the Working Interest Properties by Buyer;
(6) Such Title Defects as Buyer has waived or released or is
deemed to have waived pursuant to the terms of this Agreement,
including, without limitation, Section 5.03 hereof;
(7) The terms and conditions of all leases, agreements, orders,
poolings or unitization agreements, instruments, documents and
other matters described or referred to in this Agreement or
exhibits hereto, provided the same do not result in a decrease
in the Net Revenue Interest or an increase in the Working
Interest in any of the Working Interest Properties (unless
Seller's Net Revenue Interest therein is increased in the same
proportion) or that do not materially interfere with or detract
from the operations, value or use of the Working Interest
Properties by Buyer;
(8) Rights of reassignment, to the extent any exist as of the
date of this Agreement, upon the surrender or expiration of any
lease;
(9) Liens for taxes or assessments not yet due or not yet
delinquent or, if delinquent, that are not material and are
being contested in good faith in the normal course of business;
(10) Liens, if any, to be released at Closing in a form
acceptable to Buyer;
(11) All rights of owners of the Properties to partition under
applicable law or Applicable Contracts, if any;
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(12) All other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects and irregularities
affecting the Working Interest Properties (including without
limitation oil and gas sales purchase agreements and liens of
operators relating to obligations not yet due or pursuant to
which Seller is not in default) that do not reduce the Net
Revenue Interests for the Working Interest Properties or do not
prevent the receipt of proceeds of production therefrom or do
not increase the share of costs above the Working Interests for
the Working Interest Properties shown thereon or that do not
materially interfere with or detract from the operations, value,
or use of the Working Interest Properties by Buyer.
Section 5.02 Casualty Loss. If, after the date of this Agreement but
prior to the Closing, all or any portion of the Properties are destroyed or
damaged by fire, flood, earthquake, storm, theft, vandalism, explosion, blowout,
riot, sabotage, accident or other casualty of a similar nature or shall be taken
by condemnation or under the right of eminent domain (all of which are herein
called "Casualty Loss"), Buyer may elect: (i) to treat the Casualty Loss as a
Title Defect in accordance with Sections 5.04 and 5.05; or (ii) to purchase such
Property notwithstanding any such destruction or taking (without reduction of
the Purchase Price) in which case Seller shall, at the Closing, pay to Buyer all
sums paid to Seller by third parties by reason of the destruction, damage or
taking of such Property and shall assign, transfer and set over unto Buyer all
of the right, title and interest of Seller in and to any claims against or
unpaid proceeds or other payments from third parties arising out of such
destruction or taking, including, but not limited to, insurance proceeds. Prior
to Closing, Seller shall not voluntarily compromise, settle or adjust any
amounts payable by reason of any Casualty Loss during the aforementioned period
without first obtaining the written consent of Buyer.
Section 5.03 Notice of Title Defect. The term "Title Defect" as used
herein shall mean the existence of any lien, contract, agreement, encumbrance,
encroachment, irregularity, defect in or objection to Seller's title to any
Working Interest Property (expressly excluding Permitted Encumbrances) that
alone or in combination with other defects renders Seller's title to such
Properties less than Good and Defensible Title (including any Casualty Loss
treated as a Title Defect pursuant to Section 5.02 above). As soon as
practicable but in no event later than twenty (20) days after the date of this
Agreement, Buyer shall furnish written notice to Seller specifying any
objections to Seller's titles to any of the Working Interest Properties which in
Buyer's opinion constitute Title Defects. Such notice of Title Defect shall be
in writing and shall include: (i) a description of the Properties (or portion
thereof) affected by the Title Defect; (ii) the basis for determining that a
Title Defect exists; and (iii) the amount by which Buyer believes the Allocated
Value for each such Property has been diminished as a result of the Title
Defect. In no event shall the value attributable to Title Defects on a Property
exceed the Allocated Value of such Property. In addition, Buyer shall be deemed
to have waived any Title Defects which are not asserted by the assertion date
hereinabove referred to.
Section 5.04 Remedies for Title Defects. If Buyer timely notifies
Seller of a Title Defect, as provided above, Seller shall have the right, but
not the obligation, to elect to cure the Title Defect or, in the alternative,
reduce the Purchase Price by the amount of the value of the uncured Title Defect
in the manner provided in Section 5.05. Seller shall furnish to Buyer prior
15
to Closing written notice of its election, and such notice shall state whether
Seller agrees with the value attributed to the Title Defect as set forth in
Buyer's notice. If Seller does not agree with (i) Buyer's determination that a
Title Defect exists on a Property or (ii) the amount determined by Buyer as the
diminution in value as a result of the Title Defect, Seller may submit the
disagreement to arbitration in accordance with the procedures set forth in
Section 10.17.
Section 5.05 Seller's Election Not to Cure. If Seller elects not to
cure a Title Defect of which Seller has been notified, then the total net
diminution in the Allocated Values of the affected Properties attributable to
such defects shall be included in the "Downward Defect Adjustments". If the
Title Defect is other than a preferential right to purchase or similar right,
the affected Property shall be sold and conveyed to Buyer and the Downward
Defect Adjustments shall be increased by the value diminution attributable to
such Title Defect which shall be determined as follows:
(1) Where Seller agrees with the value of the Title Defect as
set forth in Buyer's notice, that value shall be used in
determining the amount of the Downward Defect Adjustment.
(2) If the Title Defect is a lien, encumbrance or other charge
upon a Property subject to assertion of title defects which is
undisputed and liquidated in amount, then the amount used to
determine the Downward Defect Adjustments shall be the amount as
of the Effective Time necessary to be paid to the obligee to
remove the Title Defect from the affected Property, but in no
event to exceed the Allocated Value of such Property.
Section 5.06 Seller's Election to Cure. If Seller elects to cure any
Title Defect, Seller shall notify Buyer of such fact. If any such Title Defect
is cured or removed prior to the Closing, Buyer shall accept, pay for in
accordance with this Agreement, and receive an assignment of the affected
Property at the Closing and Seller shall have no further liability to Buyer with
respect to such Title Defect. If Seller elects to attempt to cure a Title
Defect, but Seller is unable to cure such Title Defect prior to the Closing,
Seller shall provide to Buyer written notice of such fact. At the Closing,
Seller shall not deliver to Buyer an assignment of the Property affected by the
asserted Title Defect, and the Allocated Value of the Property subject to the
asserted Title Defect shall be withheld from the Adjusted Purchase Price paid at
Closing. Seller shall have sixty (60) days after the Closing to cure or remove
all such Title Defects. With respect to those Title Defects cured or removed to
the reasonable satisfaction of Buyer or as to which Seller and Buyer otherwise
agree on or before the expiration of such sixty (60) day period, Buyer will
accept, pay for in accordance with this Agreement, and receive an assignment of
the affected Property. If, at the expiration of such sixty (60) day period,
there remain any Title Defects that have not been cured or removed to the
reasonable satisfaction of Buyer or otherwise agreed upon by Seller and Buyer,
Buyer shall eliminate the affected Property from the transactions contemplated
in this Agreement and retain the previously withheld portion of the Purchase
Price related to such Property, free and clear of any claim by Seller, and
thereupon any and all rights of Buyer in or with respect to such Property shall
terminate. During the sixty (60) day period provided for in this Section 5.06,
with respect to all Properties subject to uncured Title Defects that Seller is
16
attempting to cure, Seller shall remain the record and beneficial owner thereof,
and Seller shall continue to conduct its operations thereon or with respect
thereto subject to and in accordance with the provisions of this Agreement.
Section 5.07 Upward Adjustments. If there is any inaccuracy
identified on or before Closing that results in Seller owning an increased Net
Revenue Interest in the Properties, the Party discovering such inaccuracy shall
immediately notify the other Party of such inaccuracy. Seller and Buyer shall
endeavor to agree upon the amount of such increase in value occasioned by such
inaccuracy ("Upward Adjustments") by mutual agreement.
Section 5.08 Preferential Rights. Promptly after the execution of
this Agreement, Seller shall notify all holders of preferential rights or rights
to consent under any Applicable Agreement of this Agreement. If the Title Defect
is a preferential right to purchase or similar right which (i) has been
exercised, or (ii) where the holder thereof has timely notified Seller prior to
Closing of its intent to exercise, then the affected Property shall be excluded
from the Properties and the Purchase Price shall be reduced by the Allocated
Value of such Property.
Section 5.09 Physical and Environmental Conditions. Buyer agrees and
acknowledges that (a) it has had, or prior to the Closing will have, access to
and the opportunity to inspect the Properties for all purposes, including
without limitation, for the purposes of detecting the presence of hazardous or
toxic substances, pollutants or other contaminants, environmental hazards,
naturally occurring radioactive materials (NORM) and produced water
contamination of the surface and/or subsurface, (b) it has, or prior to the
Closing will have, satisfied itself as to the physical and environmental
condition of the Properties, both surface and subsurface, and their method of
operation and except as set forth herein, agrees to accept an assignment of the
Properties at Closing on an "AS IS, WHERE IS" basis, "WITH ALL FAULTS" and (c)
in making the decision to enter in this Agreement and consummate the
transactions contemplated hereby, Buyer has relied solely on the basis of its
own independent investigation of the Properties.
Section 5.10 General Environmental Indemnity.
(a) If the Closing occurs, Buyer hereby assumes and shall be
responsible for and agrees to indemnify, defend and hold harmless Seller, its
affiliates, its and their successors and assigns, and all of their respective
stockholders, directors, officers, employees, agents and representatives
(collectively, "Seller Indemnified Parties") from and against any and all losses
attributable to any Environmental Defect including, without limitation, damage
to property, injury to or death of persons or other living things, natural
resource damages, CERCLA response costs, environmental remediation and
restoration costs, or fines or penalties (collectively, "Claims") arising out of
or attributable to, in whole or in part, either directly or indirectly, the
ownership, condition or operation of the Properties at any time before or after
the Effective Time), WITHOUT REGARD TO THE SOLE, PARTIAL OR CONCURRENT
NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY, WILLFUL MISCONDUCT OR OTHER
FAULT OF THE SELLER INDEMNIFIED PARTIES (IT BEING THE EXPRESSED INTENTION OF THE
PARTIES HERETO THAT SUCH INDEMNITY CONSTITUTE AN
17
AGREEMENT BY BUYER TO INDEMNIFY AND PROTECT THE SELLER INDEMNIFIED PARTIES FROM
THE CONSEQUENCES OF THEIR OWN NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY,
WILLFUL MISCONDUCT OR OTHER FAULT, REGARDLESS OF WHETHER SAME IS THE SOLE,
PARTIAL OR CONCURRING CAUSE OF THE APPLICABLE LOSSES AND, IN THE CASE OF
NEGLIGENCE, REGARDLESS OF WHETHER SAME IS ACTIVE OR PASSIVE, OR THE RESULT OF AN
AFFIRMATIVE ACT OR OMISSION).
Section 5.11 Environmental Laws. As used herein, the term
"Environmental Laws" shall mean any and all federal, state and local statutes,
regulations, rules, orders, ordinances or permits of any governmental authority
pertaining to health, the environment, wildlife or natural resources in effect
in any and all jurisdictions in which the Properties are located, including,
without limitation, the Clean Air Act, as amended, and the Federal Water
Pollution Control Act, as amended, the Rivers and Harbors Act of 1899, as
amended, the Safe Drinking Water Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), as amended, the
Superfund Amendments and Reauthorization Act of 1986 (▇▇▇▇), as amended, the
Resource Conservation and Recovery Act (RCRA), as amended, The Hazardous and
Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control
Act, as amended, the Occupational Safety and Health Act (OSHA), as amended, and
the Hazardous Materials Transportation Act, as amended.
Section 5.12 Environmental Defect.
(a) For purposes of this Agreement, an Environmental Defect shall
mean any event, condition, or circumstance, including any release of hazardous
substances, relating to the Properties which constitutes a violation of any
Environmental Law. If, in the course of performing an environmental assessment
of the Properties, Buyer identifies the existence of any Environmental
Defect(s), Buyer shall provide to Seller written notice of such event,
condition, or circumstance, including the Property affected thereby, its
Allocated Value and Buyer's estimated cost of remediation, together with all
associated supporting reports, data, analysis and conclusions (which Seller and
Buyer shall keep strictly confidential unless otherwise required by law or
regulation), as soon as practicable, but in any event no later fifteen (15) days
after the date of the-is Agreement. All Environmental Defects not asserted in a
timely manner as provided in this Section 5.12 shall be deemed to have been
waived by Buyer and no adjustment shall be made to the Purchase Price pursuant
to Section 2.02 for such Environmental Defects.
(b) If Seller and Buyer agree upon the existence of such an
Environmental Defect and the method of remediating the same, then Seller may
elect to remediate the Environmental Defect. If Seller has not completed the
remediation of an Environmental Defect prior to Closing, Buyer shall not
purchase the affected Property at Closing and Buyer shall receive a reduction of
the Purchase Price in an amount equal to the Allocated Value of the affected
Property. If Seller completes such remediation within sixty (60) days after
Closing, Buyer will accept, pay for in accordance with this Agreement, and
receive an assignment of the affected Property. If Seller has not completed such
remediation within sixty (60) days after Closing, the affected Property will be
eliminated from this purchase and sale transaction and any and all rights of
Buyer in or to such
18
affected Property shall terminate. If Seller elects not to remediate the
Environmental Defect, Buyer may elect (i) to accept, pay for in accordance with
this Agreement, and receive an assignment of the Property affected by the
relevant Environmental Defect at the Closing, and receive a reduction of the
Purchase Price equal to the agreed upon estimate of the cost of remediating such
Environmental Defect; or (ii) to eliminate the affected Property from this
transaction and receive a reduction of the Purchase Price in an amount equal to
the Allocated Value of the affected Property.
(c) If Seller and Buyer are unable to agree on either the existence
of an Environmental Defect, the method of remediating the same, or the estimate
of the cost of such remediation, then Seller may elect (i) to eliminate the
affected Property from this transaction and reduce the Purchase Price in an
amount equal to the Allocated Value of the affected Property or (ii) submit the
disagreement to arbitration in accordance with the procedures set forth in
Section 10.17.
ARTICLE VI
CONDITIONS TO CLOSING
---------------------
Section 6.01 Seller's Conditions. The obligations of Seller at
Closing are, at its option, subject to the satisfaction at or prior to Closing
of the following conditions:
(a) All representations and warranties of Buyer contained in this
Agreement shall be true in all material respects at and as of Closing and Buyer
shall have performed in all material respects the agreements and covenants
required by this Agreement to be performed and satisfied by Buyer at or prior to
Closing.
(b) No action or proceeding shall have been instituted before any
court, governmental agency, or arbitrator to restrain or prohibit the
consummation in whole or in part of the transactions contemplated herein, or to
obtain damages from Seller in respect of, or which is related to or arises out
of this Agreement.
Section 6.02 Buyer's Conditions. The obligations of Buyer at Closing
are, at its option, subject to the satisfaction at or prior to Closing of the
following conditions:
(a) All representations and warranties of Seller contained in this
Agreement shall be true in all material respects at and as of the Closing and
Seller shall have performed in all material respects the agreements and
covenants required by this Agreement to be performed and satisfied by Seller at
or prior to Closing.
(b) No action or proceeding shall have been instituted before any
court, governmental agency or arbitrator to restrain or prohibit the
consummation in whole or in part of the transactions contemplated herein, or to
obtain damages from Buyer in respect of, or which is related to or arises out of
this Agreement.
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(c) Buyer shall have received before Closing, copies of executed
releases from all entities holding liens, mortgages, or deeds of trust on any
Property, except those which are Permitted Encumbrances.
ARTICLE VII
CLOSING
-------
Section 7.01 Closing. The purchase by Buyer and the sale by Seller
of the Properties as contemplated by this Agreement (herein called the
"Closing") shall take place on September 26, 2002, subject to the right of
Seller to extend to no later than October 31, 2002 if necessary to resolve Title
or Environmental Defects Seller elects to cure, , time being of the essence, at
the offices of Seller at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, or such other time or place as the parties may agree upon.
Section 7.02 Closing Obligations. At the Closing the following
events shall occur, each being a condition precedent to the others and each
being deemed to have occurred simultaneously with the others:
(a) Seller shall execute, acknowledge and deliver to Buyer, for each
county where the Properties are situated, an assignment, ▇▇▇▇ of sale and
conveyance in the form attached hereto as Exhibit D of all of Seller's right,
title and interest in the Properties (including, where appropriate, any state's,
or Bureau of Land Management required forms of assignment), excluding those
Properties for which Buyer elects to continue to assert Title Defects as
provided in Section 5.06, located in such county on an "AS IS, WHERE IS" basis
with respect to all personalty and fixtures, and without any warranty of title,
other than a special warranty of title by Seller that the Properties have not
become subject to liens or encumbrances created by, through or under Seller.
(b) Seller shall deliver to Buyer original releases of all liens,
mortgages and deeds of trust burdening the interests of Seller in the Properties
executed by the holders of such liens, mortgages and deeds of trust, except
those which are Permitted Encumbrances.
(c) With respect to matters that can be determined as of Closing,
Seller shall deliver, on or before two (2) business days prior to Closing, a
settlement statement (herein called the "Preliminary Settlement Statement")
prepared by Seller and approved by Buyer that shall set forth the Closing Amount
(as hereinafter defined) and each adjustment and the calculation of such
adjustments used to determine such amount. The term "Closing Amount" shall mean
the Purchase Price adjusted as provided in Section 2.02, using for such
adjustments the best information then available. All other adjustments to the
Purchase Price shall be taken into account in the Final Settlement Statement
provided for by Section 8.02.
(d) Buyer shall deliver to Seller, in accordance with Seller's
written instructions which are to be provided Buyer at Closing, an amount equal
to the Closing Amount. Seller's instructions shall provide the manner of
payment, which shall be by wire transfer in accordance
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with Seller's depository instructions.
(e) Whenever necessary, Seller shall execute letters in lieu of
transfer or division orders on forms prepared by Seller and approved by Buyer
prior to Closing, directing certain purchasers of production to make payment to
Buyer of proceeds attributable to production from the Properties assigned to
Buyer under Section 7.02(a) on and after the Closing.
(f) Seller and Buyer shall execute and deliver all other documents,
instruments, certificates or other matters required by this Agreement or
otherwise necessary to carry out the transactions covered hereby.
ARTICLE VIII
POST-CLOSING RIGHTS AND OBLIGATIONS
-----------------------------------
Section 8.01 Files and Records. Within five (5) business days after
Closing, Seller, to the extent not prohibited by any contractual restraints,
shall deliver to Buyer, at Buyer's cost, the Property Records.
Section 8.02 Post-Closing Adjustments. On or before the business day
next following the ninetieth (90th) day after Closing, Seller shall prepare and
deliver to Buyer, in accordance with this Agreement and generally accepted
accounting principles, a statement (herein called the "Final Settlement
Statement") setting forth each adjustment to the Purchase Price that was not
finally determined as of the Closing and showing the calculation of such
adjustments, which adjustments shall be in accordance with the principles of
this Agreement. Within thirty (30) days of receipt of the Final Settlement
Statement, Buyer shall deliver to Seller a written report containing any changes
that Buyer proposes be made to the Final Settlement Statement. The parties shall
negotiate in good faith and undertake to agree with respect to the amounts due
pursuant to such post-Closing adjustments no later than (30) days after Buyer's
submission of its written report hereunder to Seller. Any disputed items shall
be removed from the Final Settlement Statement and thereafter shall be treated
as a disputed matter and if the dispute cannot be resolved by agreement, the
matter shall be submitted to arbitration in accordance with the procedures set
forth in Section 10.17. The date upon which such agreement (the "Final
Settlement Agreement") is reached shall be herein called the "Final Settlement
Date" which shall in no event be more than sixty (60) days following the date
such Final Settlement Statement was received by Buyer. In that event, Buyer
shall, within seven (7) days of the execution of the Final Settlement Agreement,
pay to Seller, or Seller shall pay to Buyer, whatever the case may be, in
immediately available funds the amount of such difference.
Section 8.03 Taxes and Recording Fees. Buyer shall pay all sales and
use taxes and related penalties and interest, if any, due as a result of this
transaction. Buyer shall pay all transfer, documentary filing and recording fees
required in connection with the filing and recording of any assignments and
furnish Seller copies of recorded and/or filed documents. It is agreed that
Buyer shall have no liability with respect to claims concerning (i) any federal,
state, local or foreign taxes (including, without limitation, interest and
penalties) on or measured by net
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income (collectively, "Income Taxes"), arising out of the sale of the Properties
pursuant hereto, or (ii) any liabilities or obligations relating to taxes
resulting from or arising out of the businesses or the ownership or operation of
the Properties prior to or at the Closing to the extent of Seller's liability.
Section 8.04 Further Assurances. After Closing, Seller and Buyer
shall execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
document, certificate or other instrument delivered pursuant hereto.
Section 8.05 Survival. The liability of Buyer and Seller under each
of their respective representations, warranties and covenants contained in this
Agreement shall survive the Closing and execution and delivery of the
assignments contemplated hereby. Except as otherwise provided in this Agreement
and after the Closing, any assertion by Buyer that Seller is liable (a) for the
inaccuracy of any representation or warranty, (b) for the breach of any
covenant, or (c) otherwise in connection with the transactions contemplated in
this Agreement, must be made by Buyer in writing and must be given to Seller on
or prior to six (6) months from the Closing. The notice shall state the facts
known to Buyer that give rise to such notice in sufficient detail to allow
Seller to evaluate the assertion.
Section 8.06 Assumption of Liabilities and Indemnity.
Notwithstanding anything herein to the contrary, Buyer expressly assumes all
obligations of plugging and abandoning all ▇▇▇▇▇, whether producing or
non-producing, located on the Properties or lands pooled therewith and the
obligation of restoration of the premises so as to return the Properties as
nearly as practicable to their original condition at Buyer's sole cost, risk and
expense, and Buyer assumes any and all liability therefore even though such
liability to plug and abandon and restore the premises may have arisen prior to
the Effective Time.
Section 8.07 Joint Billing Audits: Credits . Notwithstanding
anything in this Agreement to the contrary, Seller shall be responsible for the
settlement of all joint billing audits which relate to the Properties and the
accounting periods prior to the Effective Time. Buyer shall be responsible for
the settlement of all joint billing audits which relate to the Properties and
the account periods after the Effective Time. Any credits received by Buyer
after the Effective Time attributable to expenses paid prior to the Effective
Time shall be reimbursed to Seller by Buyer. Any credits received by Seller
after the Effective Time attributable to expenses paid after the Effective Time
shall be reimbursed to Buyer by Seller.
Section 8.08 Successor Operator. Promptly after execution of this
Agreement, Seller shall send to working interest owners in Seller operated
Properties ballots to elect Buyer as successor operator and shall support Buyers
election for such purpose. While Buyer represents that it desires to succeed
Seller as operator of the Properties, Buyer acknowledges and agrees that Seller
cannot and does not covenant or warrant that Buyer shall become successor
operator of the Properties.
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Section 8.09 American Warrior Litigation. Buyer shall acquire the
Properties which are the subject matter of the American Warrior Litigation
subject to the existing partition claims, and any other claims arising
subsequent to the Effective Time. Seller shall remain responsible for the
defense of the American Warrior Litigation and will be exclusively responsible
for any money damage claims related to such litigation for actions arising prior
to the Effective Time.
ARTICLE IX
TERMINATION OF AGREEMENT
------------------------
Section 9.01 Termination. This Agreement and the transactions
contemplated hereby may only be terminated on or before Closing in the following
instances:
(a) By Seller if the conditions set forth in Section 6.01 are not
satisfied in all material respects or waived as of the Closing.
(b) By Buyer if the conditions set forth in Sections 6.02 are not
satisfied in all material respects or waived as of the Closing.
(c) At any time by the mutual written agreement of Buyer and Seller.
(d) By Seller or Buyer if the sum (net of all Upward Adjustments) of
Downward Defect Adjustments and purchase price reductions due to Environmental
Defects as determined in Section 5.12 exceeds twenty percent (20%) of the
Purchase Price.
Section 9.02 Liabilities Upon Termination. If this Agreement is
terminated for any reason or is breached, nothing contained herein unless
expressly stated as a limitation, shall be construed to limit Seller's or
Buyer's legal or equitable remedies including, without limitation, damages for
the breach or failure of any representation, warranty, covenant or agreement
contained herein; provided that neither party shall have the right to recover
any consequential damages including without limitation loss of profits.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.01 Notices - All notices and communications required or
permitted under this Agreement shall be in writing and shall be sufficiently
given, effective upon receipt, if personally delivered in writing or if mailed
by registered or certified mail, postage prepaid, or bonded overnight carrier,
or if communicated by telegram or telecopy, if directed to the Parties addressed
as follows:
Buyer: ▇▇▇▇▇▇▇ Oil Co., Inc.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Seller: GMX Resources Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: 405-600-0711 ext. 11
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇., President
Provided, however, that any notice required or permitted under this Agreement
will be effective if given verbally within the time period provided, so long as
such verbal notice is followed by written notice thereof in the manner herein
provided within twenty-four hours following the end of such time period. Any
party may, by written notice so delivered to the others, change the address or
individual to which delivery shall thereafter be made.
Section 10.02 Amendments. This Agreement may be amended or modified
at any time and in all respects, or any provision may be waived, only by an
instrument in writing executed by Buyer and Seller in the case of amendment or
modification, or, in the case of a waiver, by a written instrument executed by
the party to whom the obligation was owed.
Section 10.03 Assignment. This Agreement or any part hereof may not
be assigned by either Party without the prior written consent of the other
party. Subject to the foregoing, this Agreement is binding on the Parties hereto
and their respective successors and assigns.
Section 10.04 Table of Contents Headings. The headings of the
articles and sections of this Agreement are for guidance and convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions of this Agreement.
Section 10.05 References. References made in this Agreement,
including use of a pronoun, shall be deemed to include, where applicable,
masculine, feminine, singular or plural, individuals, partnerships or
corporations. As used in this Agreement, "person" shall mean any natural person,
corporation, partnership, trust, estate or other entity.
Section 10.06 Governing Law. This Agreement and its performance
shall be construed in accordance with, and governed by, the internal laws of the
state of Oklahoma, except to the extent Kansas law is applicable to any of the
real property aspects of the transactions contemplated by this Agreement The
Parties agree that any such dispute arising under this Agreement or the
transactions contemplated hereby, whether in contract, tort or otherwise, shall
be resolved as provided in Section 10.17 and that any necessary arbitration
shall be conducted in Oklahoma City, Oklahoma.
Section 10.07 Announcements. Seller and Buyer shall consult with
each other with
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regard to all press releases and other announcements issued at or prior to the
closing concerning this Agreement or the transaction contemplated hereby and,
except as may be required by applicable laws or the applicable rules or
regulations of any governmental agency or stock exchange, neither Buyer nor
Seller shall issue any such press release or other publicity without the prior
written consent of the other Party.
Section 10.08 Use of Seller's Names. Buyer agrees that, as soon as
practicable after the Closing, it will remove or cause to be removed the names
and marks used by Seller and all variations and derivatives thereof and logos
relating thereto from the Properties and will not thereafter make any use
whatsoever of such names, marks and logos.
Section 10.09 Entire Agreement. This Agreement constitutes the
entire understanding among the Parties with respect to the subject matter
hereof, superseding all negotiations, prior discussions and prior agreements and
understandings relating to such subject matter, whether oral or written.
Section 10.10 Parties in Interest. This Agreement shall be binding
upon, and shall inure to the benefit of, the Parties hereto and, except as
otherwise prohibited, their respective successors and assigns; and nothing
contained in this Agreement, express or implied, is intended to confer upon any
other person or entity any benefits, rights or remedies.
Section 10.11 Waiver. The failure of a Party hereto to insist on the
strict performance of any provision of this Agreement or to exercise any right,
power or remedy upon a breach thereof shall not constitute a waiver of any
provisions of this Agreement or limit the party's right thereafter to enforce
any provision or exercise any right.
Section 10.12 Waiver of Representations and Warranties. THE EXPRESS
REPRESENTATIONS OF SELLER CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN
LIEU OF, AND SELLER EXPRESSLY DISCLAIMS AND NEGATES AND BUYER HEREBY WAIVES, ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY, QUANTITY OR VOLUME OF
THE RESERVES, IF ANY, OF OIL, GAS OR OTHER HYDROCARBONS IN OR UNDER THE
LEASEHOLD INTERESTS AND LANDS; AND WITH RESPECT TO THE ENVIRONMENTAL CONDITION,
BOTH SURFACE AND SUBSURFACE, OF THE PROPERTIES. SELLER DOES NOT MAKE OR PROVIDE,
AND BUYER HEREBY WAIVES, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, AS
TO THE QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY
TO SAMPLES. EXCEPT AS PROVIDED HEREIN, SELLER DISCLAIMS AND NEGATES, AND BUYER
HEREBY WAIVES, ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY. THE ITEMS OF PERSONAL PROPERTY, EQUIPMENT, IMPROVEMENTS, FIXTURES AND
APPURTENANCES CONVEYED AS PART OF THE PROPERTIES ARE SOLD, AND BUYER ACCEPTS
SUCH ITEMS "AS IS, WITH ALL FAULTS". THERE ARE NO WARRANTIES THAT EXTEND BEYOND
THE FACE OF THIS AGREEMENT. BUYER ACKNOWLEDGES THAT THIS WAIVER IS CONSPICUOUS.
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Section 10.13 Indemnification. THE INDEMNIFICATION, RELEASE AND
ASSUMPTION PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER
OR NOT THE LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR IN
PART FROM THE GROSS, ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, OR OTHER FAULT OF
ANY INDEMNIFIED PARTY. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES
WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
Section 10.14 Litigation Costs. In the event that any Party to this
Agreement resorts to legal proceedings to enforce this Agreement, the prevailing
Party in such proceedings shall be entitled to recover all costs incurred by
such Party, including reasonable attorney fees.
Section 10.15 Exhibits. All exhibits attached to or referred to in
this Agreement are incorporated into and made a part of this Agreement.
Section 10.16 Definition of "Knowledge". For the purposes of this
Agreement, "knowledge" shall be limited to actual knowledge based on written
evidence contained in the files of, or otherwise in the possession of Seller or
based on the actual awareness of any officer, employee, or agent of Seller.
Section 10.17 Dispute Resolution. In the event of controversy
between the parties arising out of or relating to this Agreement, or the
performance thereof, the following shall apply:
(a) The parties shall at all times exercise good faith and attempt
to resolve the dispute.
(b) The dispute shall be referred by either party by notice to the
other, to the chief executive officers of the parties who shall in good faith
endeavor to resolve the dispute within twenty-one (21) days.
(c) If the chief executive officers have not resolved the dispute
within that time period, either party, by notice to the other, may cause the
dispute to be mediated. Within ten (10) days following this notice, the chief
executive officers shall endeavor to jointly select a mediator who shall
establish a mediation process which the parties shall follow.
(d) If the chief executive officers are unable to jointly select a
mediator within the time period or if the mediator determines that the mediation
is deadlocked, the dispute shall be determined by arbitration in accordance with
the rules then in force of The American Arbitration Association, and judgment on
the award rendered may be entered in any court having jurisdiction over the
parties.
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IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement
the day and year written above.
SELLER:
GMX RESOURCES INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
-------------------------------------------
Title: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇., President
BUYER:
▇▇▇▇▇▇▇ OIL CO., INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
Title: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
-------------------------------------------
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