ASSET PURCHASE AGREEMENT

Exhibit 2.5

 

ASSET PURCHASE AGREEMENT

 

Seller

and

Rio Vista Penny, LLC,
an Oklahoma limited liability company

Buyer

EXHIBITS

				Section
Exhibit		Description		where Defined
A		Assets			1.2
B		Wells and Interests			1.2	(b)
C		Form of Assignment, Bill of Sale and Conveyance			10.3	(a)
D		FIRPTA Certificate			10.3	(i)

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (the “Agreement”) is made this 1st day of October, 2007, to be effective the 1st day of the month in which Closing occurs (the “Effective Time”) by and between G M Oil Properties, Inc., an Oklahoma corporation, located at 111 South Main Street, Eufaula, Oklahoma (the “Seller”), and Rio Vista Penny, LLC, an Oklahoma limited liability company, located at 2121 Rosecrans Ave, Suite 3355, El Segundo, California 90245 (the “Buyer”). The Buyer and Seller may be collectively referred to herein as the “Parties” and individually as a “Party.”

RECITALS

WHEREAS, Seller owns certain real and personal property interests in certain oil and gas properties located in McIntosh, Pittsburg and Haskell counties, as described in Section 1.2 below (collectively, the “Assets”);

WHEREAS, Seller is currently in default under the TCW Debt (as hereinafter defined), does not have the assets to keep the TCW Debt current, and desires to sell its interest in the Assets to Buyer in exchange for Buyer’s assumption and release of the TCW Debt so that TCW Asset Management Company will not institute the recently threatened foreclosure proceedings against Seller and that any rights and/or claims under such Debt are fully waived and released;

WHEREAS, Seller owns and desires to sell approximately thirty three and one third percent (33.33%) of the issued and outstanding shares of capital stock of MV Pipeline Company, an Oklahoma corporation, which stock is included among the Assets; and

WHEREAS, Buyer desires to purchase the Assets pursuant to the terms of this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree as follows:

ARTICLE 1
PURCHASE AND SALE

1.1 Purchase and Sale . Seller agrees to sell and Buyer agrees to purchase through assumption of debt the Assets pursuant to the terms of this Agreement.

1.2 Assets . The interest in and to the real property and the other types of property associated therewith as described in this Section 1.2 will be referred to collectively as the “Assets.” The Assets are comprised of the following:

 

CONFIDENTIAL

(a) All of Seller’s right, title and interest in and to the oil and gas properties specifically described in Exhibit B (collectively, the “Properties”), the working interests owned by Seller in the Properties, and any and all right, title and interest of Seller in and to the oil, gas and all other hydrocarbons in, on or under the lands described on Exhibit B (the “Lands”) and other hydrocarbons and products, whether liquid or gaseous, produced in association therewith (“Hydrocarbons”) after the Effective Time and all other minerals of whatever nature in, on or under the Lands and lands pooled or unitized therewith.

(b) The oil and gas wells located on the Lands, or lands pooled or unitized therewith, including without limitation, the oil and gas wells specifically described in Exhibit B, whether producing or non-producing and whether fully or properly described or not, (the “Wells”), all injection and disposal wells on the Lands, and all personal property and equipment associated with the Wells as of the Effective Time.

(c) The rights, to the extent transferable, in and to all existing and effective unitization, pooling and communitization agreements, declarations and orders, and the properties covered and the units created thereby to the extent that they relate to or affect any of either Seller’s properties and interests described in Sections 1.2(a) and (b) or the production of Hydrocarbons, if any, attributable to said properties and interests after the Effective Time.

(d) The rights, to the extent transferable without material restriction under applicable law or third-party agreements (without the payment of any funds or consideration), in and to existing and effective oil, gas, liquids, condensate, casinghead gas and natural gas sales, purchase, exchange, gathering, transportation and processing contracts, operating agreements, balancing agreements, joint venture agreements, partnership agreements, and farmout agreements (the “Material Agreements”), insofar only as they relate to the operation of the Assets being purchased as defined in Sections 1.2(a), (b) and (c), excluding, however, any insurance contracts and any other contracts, agreements or instruments related solely to the operation of the day-to-day business of the Seller. A complete list of all Material Agreements being assumed by Buyer is attached hereto as Schedule 1.2(d).

(e) All of the personal property, fixtures, improvements, permits, licenses, approvals, servitudes, rights-of-way and easements, including, without limitation the rights of way and easements set forth on Exhibit B, surface leases and other surface rights (including, but not limited to, any wells, tanks, boilers, buildings, injection facilities, saltwater disposal facilities, compression facilities, gathering systems, other appurtenances and facilities) located on or used in connection with or otherwise related to the exploration for or production, gathering, treatment, processing, storing, sale or disposal of Hydrocarbons or water produced from the properties and interests described in Sections 1.2(a) through (d) to the extent that they are located on or used in the operation of the Assets as of the Effective Time, and all contract rights (including rights under leases to third parties) related thereto.

 

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(f) The files, records, data and information relating to the items described in Sections 1.2(a) through (e) maintained by Seller (the “Records”), including without limitation, accounting files relating to the Assets, lease files, land files, well files, gas, oil and other hydrocarbon sales contract files, gas processing files, division order files, abstracts, title opinions, all electronic files directly related to the Assets, AFEs, geological and seismic data to the extent such seismic data can be transferred at no cost to Seller, and all other information of every type related exclusively or primarily to any of the Assets, but excluding the following:

(i) all of Seller’s internal appraisals and interpretive data related to the Assets,

(ii) all information and data under contractual restrictions on assignment,

(iii) all privileged information,

(iv) Seller’s corporate, financial, employee and general tax records that do not relate exclusively to the Assets and

(v) all accounting files that do not relate to the Assets.

(g) All of Seller’s right, title and interest in and to any and all shares of the capital stock (the “MV Stock”) of MV Pipeline Company, an Oklahoma corporation (“MV”).

1.3 Assumed Liabilities. Unless otherwise set forth in Schedule 1.3, Buyer assumes no liabilities of Seller.

1.4 Effective Time . The purchase and sale of the Assets shall be effective as of the 1 ^st day of the month of Closing, at 7:00 a.m. local time at the site of the Assets (the “Effective Time”).

1.5 Definitions . The following terms used in this Agreement and not otherwise defined herein shall have the meanings indicated below:

(a) Defensible Title . The term “Defensible Title” to the Assets means such title of Seller that, subject to and except for the Permitted Encumbrances:

(i) is free from reasonable doubt to the end that a prudent person engaged in the business of purchasing and owning, developing, and operating producing oil and gas properties with knowledge of all of the facts and their legal bearing would be willing to accept the same;

(ii) entitles Seller to receive not less than the net revenue interest (“NRI”) for the depths or formations, if any, set forth for each Well and/or Lease (unit interest or leasehold interest, as applicable) on Exhibit B;

 

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(iii) obligates Seller to bear costs and expenses relating to the maintenance, development, operation and the production of Hydrocarbons from each Well (unit interest or leasehold interest, as applicable) in an amount not greater than the working interest (“WI”) therefore as set forth on Exhibit B without a corresponding increase in the NRI for such Property; and

(iv) is free and clear of encumbrances, liens and defects that would create a material impairment of use and enjoyment of or loss of interest in the affected property.

(b) Environmental Laws . The term “Environmental Law” shall mean any and all laws, statutes, regulations, rules, orders, ordinances, permits, or determinations of any governmental authority pertaining to health or the environment in effect in any and all jurisdictions in which the Assets are located, including, without limitation, any applicable provisions of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. , the Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq. , the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. , the Clean Water Act, 33 U.S.C. § 1251 et seq. , the Clean Air Act, 42 U.S.C. § 7401 et seq. , the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq. , and the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq. , and all analogous state or local statutes, and the regulations promulgated pursuant thereto.

(c) Permitted Encumbrances . The term “Permitted Encumbrances” shall mean:

(i) lessors’ royalties, overriding royalties, net profits interests, production payments, reversionary interests and similar burdens, if the net cumulative effect of all such burdens does not operate to reduce the NRI for a particular Asset below that set forth on Exhibit B;

(ii) any preferential rights to purchase and required third party consents to assignments of contracts and similar agreements for which written waivers or consents are obtained prior to Closing;

(iii) liens for taxes or assessments not yet due or not yet delinquent or, if delinquent, that are being contested in good faith in the normal course of business;

(iv) all rights to consent by, required notices to, filings with, or other actions by federal, state or local entities in connection with the sale or conveyance of the Assets if the same are customarily obtained subsequent to such sale or conveyance;

(v) rights of reassignment, to the extent any exist as of the date of this Agreement, upon the surrender or expiration of any lease;

 

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(vi) easements, rights-of-way, servitudes, permits, surface leases and other rights with respect to surface operations, on, over or in respect of any of the properties or any restriction on access thereto and that do not materially interfere with the operation of the affected Asset;

(vii) such Title Defects as Buyer has waived in writing;

(viii) the terms and conditions of the Material Agreements;

(ix) materialmen’s, mechanic’s, repairmen’s, employees’, contractors’, operators’ or other similar liens or charges arising in the ordinary course of business incidental to construction, maintenance or operation of the Assets

a. if they have not been filed pursuant to law and the time for filing them has expired,

b. if filed, they have not yet become due and payable or payment is being withheld as provided by law, or

c. if their validity is being contested in good faith by appropriate action;

(x) rights reserved to or vested in any governmental authority to control or regulate any of the Assets in any manner, and all applicable laws, rules, regulations and orders of general applicability in the area;

(xi) liens arising under operating agreements, unitization and pooling agreements and production sales contracts securing amounts not yet due or, if due, being contested in good faith in the ordinary course of business;

(xii) division orders terminable without penalty upon no more than 90 days notice to the Buyer;

(xiii) calls on or preferential rights to purchase production held by parties other than Seller or an affiliate of Seller;

(xiv) that certain Note Purchase Agreement and that certain Mortgage, Assignment, Security Agreement, Fixture Filing and Financing Statement, both dated August 29, 2005, made by and among Seller, as Debtor/Mortgagor; TCW Asset Management Company, as Administrative Agent for the benefit of the Holders (as that term is defined in the Note Purchase Agreement) and the Holders in the current principal amount of $16,500,000, plus accrued and unpaid interest (collectively referred to herein as the “TCW Debt”); and

 

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(xv) all other liens, charges, encumbrances, contracts, agreements, instruments, obligations, defects, and irregularities affecting the leases or the units or wells to which they relate that, individually or in the aggregate:

a. are not such as to interfere with the operation, value or use of the Leases (or portion thereof) affected thereby;

b. have not delayed the receipt or prevented Seller from receiving its share of the proceeds or production from any of the units or wells to which the Leases relate;

c. do not reduce the interest of Seller with respect to all oil and gas produced from any unit or well to which the Leases relate below the NRI set forth in Exhibit B for the Asset to which such unit or well relates; and

d. do not increase Seller’s portion of the costs and expenses relating to the operations on and the maintenance and development of the lands and depths included in any unit or well to which the Leases relate above the WI set forth in Exhibit B for the Asset to which such unit or well relates.

ARTICLE 2
PURCHASE PRICE

2.1 Purchase Price . The purchase price (the “Purchase Price”) payable by Buyer for the Assets shall be the assumption of the TCW Debt ; and the full release of Seller (and any of its officers, directors, employees, agents, shareholders or affiliates) from the TCW Debt;

2.2 (Intentionally Omitted)

2.3 Allocation of Value . The Purchase Price shall be allocated among the Assets as set forth in that certain side letter agreement by and between Seller and Buyer dated of even date herewith (the “Allocated Value Side Letter”). The value allocated to an interest as set forth in the Allocated Value Side Letter may be referred to as the “Allocated Value” for that interest and has to be agreed upon by Seller and Buyer.

ARTICLE 3
BUYER’S INSPECTION

3.1 Access to Records .

a. Access . The Buyer and Buyer’s representatives have had access to all of Buyer’s documents and Buyer’s offices for a least a 30 day period prior to the Closing Date and subject to Section 6.3(b), Seller has disclosed and made available to Buyer and its representatives at Seller’s offices and during Seller’s normal business hours, all Records as may be reasonably requested by Buyer for the purpose of permitting Buyer to complete its due diligence review. Seller has permitted Buyer to inspect the Records only to the extent, in each case, that Seller may do so without violating legal constraints or any obligation of confidence or other contractual commitment of Seller to a third party.

 

CONFIDENTIAL

Subject to the consent and cooperation of third parties, Seller will cooperate with Buyer in Buyer’s reasonable efforts to obtain, at Buyer’s sole expense, such additional information relating to the Wells and associated drilling and spacing units as Buyer may reasonably desire, to the extent in each case that Seller may do so without violating legal constraints or any obligation of confidence or other contractual commitment of Seller to a third party.

b. No Representation or Warranty . The Records are files or copies thereof that Seller has used or generated in the normal course of business. SELLER MAKES NO WARRANTY OR REPRESENTATION OF ANY KIND, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, AS TO THE RECORDS, INCLUDING ANY REPRESENTATION OR WARRANTY AS TO THE ACCURACY AND COMPLETENESS OF THE RECORDS. Buyer acknowledges that any conclusions drawn from the Records are the result of its own independent review and judgment. Notwithstanding anything herein to the contrary, this provision 3.1.b. shall not alter or undermine any representation or warranty made by Seller in Section 4 of this Agreement or in any other provision made in this Agreement.

3.2 Access to Assets .

a. Access . Buyer and Buyer’s representatives have within thirty (30) days prior to Closing physically inspected the Wells and Equipment to assure themselves that there are no openly obvious Environmental issues associated with the Assets and have inspected the Wells and Equipment to assure themselves that the Assets are in working order. Additionally, Seller will grant Buyer and/or Buyer’s authorized representatives, agents and employees during reasonable business hours, further reasonable access to the Assets to allow Buyer to conduct, at Buyer’s sole risk and expense, further on-site inspections and environmental assessments of the Wells and Equipment. In connection with such on-site inspections, Buyer agrees to not unreasonably interfere with the normal operation of the Assets.

ARTICLE 4
SELLER’S REPRESENTATIONS AND WARRANTIES

Excluding issues related to the TCW Debt, Seller hereby makes the following representations, warranties and agreements to and with Buyer:

4.1 Organization and Standing . Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma.

 

CONFIDENTIAL

4.2 Power . Seller has all requisite corporate power and authority to carry on its businesses as presently conducted, and to enter into this Agreement and each of the documents contemplated to be executed by Seller at Closing, and to perform its obligations under this Agreement and under such documents. The execution and delivery of this Agreement and each of the documents contemplated to be executed by Seller at Closing and the fulfillment of and compliance with the terms and conditions hereof will not violate, nor be in conflict with, any material provision of Seller’s organizational documents, bylaws or any material provision of any agreement or instrument to which Seller is a party or by which it is bound, or, to Seller’s knowledge, any judgment, decree, order, statute, rule or regulation applicable to it.

4.3 Authorization and Enforceability . The execution, delivery and performance of this Agreement and the transactions contemplated hereby have been duly and validly authorized by all requisite action on Seller’s part. This Agreement constitutes Seller’s legal, valid and binding obligation, enforceable in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and other laws for the protection of creditors, as well as to general principles of equity, regardless whether such enforceability is considered in a proceeding in equity or at law.

4.4 Liability for Brokers’ Fees . Subject to that certain Indemnification Agreement by and between Buyer and the officers, directors, shareholders, employees or agents of Seller dated on even date herewith, Buyer shall have no liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement.

4.5 No Bankruptcy . There are no bankruptcy proceedings pending, being contemplated by, or to the knowledge of Seller, existing that involves Seller or the Assets.

4.6 Litigation . Seller has received written notice of default of the TCW Debt, concerning the Assets (the “Default Notice”), and Seller has informed Buyer of its receipt of the Default notice. Other than the Default Notice, Seller has not received written notice of any pending proceeding, action, suit, claim or investigation before any federal, state or other governmental court, agency or other instrumentality involving Seller or the Assets that, if adversely determined, might (i) result in an impairment or loss of title to the Assets, (ii) materially impair the value of the Assets or (iii) materially hinder or impede the operation of the Assets.. There is no action, suit, proceeding, claim or investigation by any person, entity, administrative agency or governmental body pending or, to Seller’s knowledge threatened, against Seller before any governmental authority that impedes or is likely to impede its ability to consummate the transactions contemplated by this Agreement.

4.7 No Default . Other than the default of the TCW Debt as evidenced by the Default Notice, Seller is not in default under, and no condition exists that with notice or lapse of time or both would constitute a default under, (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Seller is a party or by which Seller is bound or to which any of the Assets are subject, or any other agreement, contract, lease, license, or other instrument, (ii) any order, judgment or decree of any court, commission, board, agency or other governmental body, or (iii) any law, statute, ordinance, decree, order, rule or regulation of any governmental authority.

 

CONFIDENTIAL

4.8 Regulatory Matters Seller has not received any notice or order from any governmental entity which regulates or purports to regulate any of the Assets or Seller, or any of Seller’s activities, except pertaining to usual and customary filing requirements applicable to properties of the types owned by Seller.

4.9 Taxes . Both Seller and MV Pipeline Company are currently under audit by the IRS for the tax year 2005 (the “Tax Audits”). Subject to the results of the Tax Audits, Seller represents to Buyer that Seller has either discharged or caused to be discharged all taxes and assessments of every kind and character as originally calculated by Seller and reported to the appropriate taxing authority, as the same have become due prior to Closing, relating to its ownership of the Assets.

4.10 Compliance with Laws . Seller represents to Buyer that (i) Seller is in compliance in all material respects with all applicable statutes, orders, rules and regulations promulgated or proposed by any federal, state or local governmental entity relating to the operation and conduct of the Assets, (ii) except for obligations to properly plug and abandon non-producing Wells, and related obligations, there are no such statutes, orders, rules or regulations which require material future actions or expenditures by or on behalf of Seller; (iii) Seller has not received any notice of alleged material violation of any such statute, order, rule or regulation; (iv) all of the Wells are located within valid proration units established by and in accordance with the rules of the governmental entity having jurisdiction, and (v) all material business and other licenses, permits, performance bonds and other security and authorizations required by law for the ownership and/or operation of the Assets and/or Seller’s conduct of its business or operations respecting the Assets have been obtained.

4.11 Contracts . Schedule 4.11 hereto is a list of all contracts (written or oral) affecting the Assets to which Seller is a party or by which it is bound, having a duration in excess of one (1) month or involving payments (or other value) in excess of $10,000. Seller has complied in all material respects with the provisions of all such contracts, and is not in default thereunder in any manner which would permit any other party thereto to cancel or terminate such contract; and, all such contracts are in full force and effect and constitute legal, valid and binding obligations of the Seller and, to the knowledge of Seller, are binding upon the other parties to such contract in accordance with their terms; and, as of the date hereof, there is no claimed breach of contract by any party to any such contract.

4.12 Production Sales Contracts; Future Sales Contracts . Except as disclosed on Schedule 4.12, the Assets are not subject to any contracts for the sale of oil or gas attributable to periods from and after the Effective Time, other than agreements that (i) are terminable, without penalty, upon not more than thirty (30) days’ notice, or (ii) provide for prices based upon market value on a current monthly basis or upon spot market price or published in an index commonly recognized by experienced sellers and buyers of oil or gas production. Seller is not under any obligation under any production sales contract, take-or-pay clause, or any similar arrangement, to deliver oil or gas from the Assets without receiving payment at the time of or subsequent to delivery. Seller has not entered into and is not subject to any obligation to deliver gas or oil in the future for which payment has already been received (e.g., a “forward” sale contract).

 

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4.13 No Material Adverse Change . There has not been and will not be during the period between the execution of this Agreement and Closing any material adverse effect with respect to the Assets.

4.14 Environmental Matters . Seller has not received any notification of, and Seller has no knowledge that (i) there has been a release of any hazardous substance (as the term “release” and “hazardous substance” are defined under environmental laws) on or from any of the Assets, or as a consequence of Seller’s operations or activities respecting the Assets, or any of them, prior to the date of this Agreement, or (ii) a condition exists on or under any of the Assets as of the date of this Agreement which could have a material adverse effect on such Property. Seller represents to Buyer that the Wells and their respective drilling sites have had drilling pits placed upon them which are necessary during the drilling operations. These pits during the drilling of the wells contained drilling fluids and other substances i.e. such as saltwater, and other fluids that could be deemed to be hazardous now or in the future. Additionally, the Wells have tanks and pipelines connected to them that from time to time have to be cleaned and maintained. Substances from the inside of these tanks and pipelines have from time to time been exposed to the atmosphere. These substances and the manner in which they have been handled could be deemed to be hazardous now or in the future.

4.15 Plugging and Abandonment Obligations . Seller has complied, to the extent compliance is required or appropriate as of the Effective Time, with all plugging and abandonment obligations associated with Wells in which it owns an interest, including plugging, abandonment, surface restoration, site clearance and disposal related waste materials, in compliance with all applicable contractual obligations and applicable rules and regulations of governmental entities having jurisdiction.

4.16 Payment of Burdens on Production . Seller represents that, to the knowledge of Seller, all delay rentals, shut-in payments, lease extension payments, royalties, excess royalties, overriding royalty interests, production payments, net profits interests and other payments due under or with respect to production from the Assets have been fully, properly and timely paid, except for suspended revenues, and that and all conditions necessary to keep the Leases in force have been fully performed. No notices have been received by Seller of any claim to the contrary and all of the Leases are in full force and effect.

4.17 Preferential Purchase Rights; Consents . To Seller’s knowledge, all preferential purchase rights and third-party consents which may pertain to the transfer of the Assets to Buyer are set forth on Schedule 4.17 hereto.

4.18 (Intentionally Omitted)

 

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4.19 Insurance . Schedule 4.19 hereto contains a true and complete list of all insurance coverage maintained by Company which covers the Assets, each of which is in full force and effect in the amounts set forth and described in said Schedule 4.19 hereto. Seller will keep such insurance in full force and effect until the Closing.

4.20 Capital Commitments . Seller has not paid, incurred or otherwise committed from and after the Effective Date to any expenditures in excess of a total of $50,000 for any purpose, to include the drilling, completion, recompletion, sidetracking or rework of any well on the Assets, the acquisition of other oil and gas properties, or the acquisition of seismic or other technical data, and no such expenditures are pending and unapproved.

4.21 Imbalances . As of the Effective Time, there are no gas imbalances with respect to production from or attributable to the Assets, whether such gas imbalances be instances of overproduction or underproduction.

4.22 (Intentionally Omitted)

4.23 Capital Structure of MV .

(a) The authorized capital stock of MV consists of 50,000 shares of MV Stock, par value $.001 per share.

(b) There are issued and outstanding 50,000 shares of MV Stock. No shares of MV Stock are held by MV as treasury stock.

(c) Approximately 33.33% of the outstanding shares of MV Stock are owned by Seller. Except as set forth in (b) above there are outstanding (i) no shares of capital stock or other voting securities of MV, (ii) no securities of MV or any other Person convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of MV, and (iii) no subscriptions, options, warrants, calls, rights (including preemptive rights), commitments, understandings or agreements to which Seller is a party or by which it is bound obligating Seller or MV to issue, deliver, sell, purchase, redeem or acquire shares of capital stock or other voting securities of MV (or securities convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of MV) or obligating Seller or MV to grant, extend or enter into any such subscription, option, warrant, call, right, commitment, understanding or agreement.

(d) All outstanding shares of MV capital stock are validly issued, fully paid and nonassessable and not subject to any preemptive right.

(e) There is no stockholder agreement, voting trust or other agreement or understanding to which Seller is a party or by which it is bound relating to the voting or transfer of any shares of the capital stock of MV.

 

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4.24 Title to the Assets .

(a) Seller has at least Defensible Title to all of the Assets.

(b) Except as otherwise set forth in Schedule 4.24, to the knowledge of Seller, all wells included in the Assets have been drilled and (if completed) completed, operated and produced in accordance with generally accepted oil and gas field practices and in compliance in all material respects with applicable oil and gas leases and applicable laws, rules and regulations (excluding Environmental Laws).

(c) Seller owns at least the undivided working and net revenue interests in each of the wells and leases as shown on Exhibit B attached hereto.

4.25 Payment of Third-Party Debts . Seller represents and warrants that for the period beginning sixty (60) days prior to the execution of this Agreement through the date of this Agreement Seller has and shall pay its Pre-Closing Liabilities, as that term is defined in Section 6.1(a), in accordance with its ordinary and reasonably prudent business practices.

ARTICLE 5
BUYER’S REPRESENTATIONS AND WARRANTIES

Buyer makes the following representations and warranties:

5.1 Organization and Standing . Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Oklahoma.

5.2 Authorization . Buyer has all requisite limited liability company power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws relating to or affecting the enforcement of creditors’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

5.3 No Conflicting Agreements . This Agreement and the execution and delivery hereof by Buyer does not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated hereby will not:

(a) Conflict with, or require the consent of any person under, any of the terms, conditions, or provisions of the organizational documents of Buyer;

(b) Violate any provision of, or require any filing, authorization or approval under, any legal requirement applicable to or binding upon Buyer; or

 

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(c) Conflict with, result in a breach of, constitute a default under (without regard to requirements of notice or the lapse of time or both) accelerate or permit the acceleration of the performance required by; or require any consent, authorization or approval under, (i) any mortgage, indenture, loan, credit agreement or other agreement or instrument evidencing indebtedness for borrowed money to which Buyer is a party or by which Buyer is bound or to which any of its properties is subject or (ii) any lease, license, contract or other agreement or instrument to which Buyer is a party or by which it is bound or to which any of its properties is subject.

5.4 Litigation . There is no action, suit, proceeding or governmental investigation or inquiry pending or, to the knowledge of Buyer, threatened against Buyer or its subsidiaries or any of its properties that might delay, prevent or hinder the consummation of the transactions contemplated hereby.

5.5 Brokers . No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Buyer and for which Seller will have any obligation or liability. Buyer shall indemnify and hold Seller harmless from any and all claims, liabilities, damages, costs and expenses asserted against any one or more of the parties Seller by any Person claiming to have acted on behalf of Buyer, or to have been retained by Buyer, as a broker in connection with the transaction contemplated by this Agreement.

5.6 Further Distribution . Buyer (i) is acquiring an interest in the Assets for its own account and without a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended; and (ii) has such knowledge and experience in business, financial, and oil and gas matters that it is capable of evaluation of the merits and risks of entering into and of carrying out its obligations in connection with the acquisition of an interest in the Assets in the manner contemplated herein.

ARTICLE 6
COVENANTS AND AGREEMENTS

6.1 Covenants and Agreements of Seller . Seller hereby covenants and agrees as follows

(a) Operation of Assets . Seller will continue to operate the Assets according to the ordinary and usual course of business reasonably consistent with past and current practices until date of closing. Seller covenants and agrees that from and after sixty (60) days prior to the execution of this Agreement and until the Closing Date, Seller has utilized, and shall continue to utilize, all of its cash on hand and all funds received by Seller to attempt to satisfy any and all operating and business expenses incurred in the ordinary course of business, including any expenses attributable to the Assets and any and all other liabilities and accounts payable of the Seller attributable to the Assets, including but not limited to all amounts owed to PetroQuest and reimbursement to Buyer for all accrued and unpaid interest owing to TCW prior to Closing (the “Pre-Closing Liabilities”).

 

CONFIDENTIAL

In no event shall Pre-Closing Liabilities include any amounts due by Seller to any officer, director or shareholder of Seller or any party or entity affiliated with any officer, director or shareholder of Seller, except to the extent payment of such amounts are consistent with previous business practices (such as salaries and/or any royalty obligations). Seller covenants and agrees that from and after sixty (60) days prior to the execution of this Agreement and until the Closing Date, Seller has not and will not distribute any of its cash on hand or any funds received by Seller to any officer, director or shareholder of Seller or any party or entity affiliated with any officer, director or shareholder of Seller, except to the extent payment of such amounts are consistent with previous business practices (such as salaries and/or any royalty obligations).

(b) Conduct of Business . Seller covenants and agrees that from and after the date of this Agreement and until the Closing Date, except as Buyer shall otherwise specifically consent, Seller shall not:

(i) sell, lease, dispose of or abandon any of the Assets, or allow any of the Assets to be subjected to any lien or encumbrance other than the TCW Debt;

(ii) amend its charter documents;

(iii) waive or release any claim or cancel any claim with respect to the Assets held by it;

(iv) do any act or omit to do any act, or permit any act or omission to act, which would cause a breach of any contract or commitment with respect to the Assets to which it is a party;

(v) change any method of accounting for tax or financial purposes with respect to the Assets; or

(vi) agree, in writing or otherwise, to effect any of the foregoing.

(c) Cooperation by Seller . From the date of the Agreement until the Closing, Seller shall exercise reasonable commercial efforts to secure all necessary consents, approvals, authorization