ASSET PURCHASE AGREEMENT

Exhibit 2.7

 

ASSET PURCHASE AGREEMENT

 

Effective as of October 1, 2007

Penny Petroleum Corporation,
an Oklahoma corporation,

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 October, 2007 (the “Effective Time”) by and between Penny Petroleum Corporation, an Oklahoma corporation, located at 111 south Main Street, Eufaula, Oklahoma (the “Seller”), Gary Moores, (“Moores” or the “Shareholder”), and Rio Vista Penny, LLC, an Oklahoma limited liability company, located at 2121 Rosecrans Ave, Suite 3355, El Segundo, CA 90245 (the “Buyer”) and Rio Vista Energy Partners L.P., a Delaware limited partnership, located at 2121 Rosecrans Ave, Suite 3355, El Segundo, CA 90245 (“Rio Vista”). The Buyer and Seller may be collectively referred to herein as the “Parties” and individually as a “Party.”

RECITALS

WHEREAS, Seller owns and desires to sell certain of its 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 owns and desires to sell approximately ten percent (10%) of the issued and outstanding shares of capital stock of G M Oil Properties, Inc., an Oklahoma corporation, which stock is included among the Assets;

WHEREAS, Seller owns and desires to sell approximately sixty six and two thirds percent (66.66%) 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 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:

 

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(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, farmout agreements and other contracts, agreements and instruments (the “Material Agreements”), insofar only as they relate to any of Seller’s properties and interests described in Sections 1.2(a), (b) and (c), excluding, however, any insurance contracts.

(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.

(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:

 

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(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 “GMO Stock”) of G M Oil Properties, Inc., an Oklahoma corporation (“GMO”).

(h) 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. Reservation of Interest . Seller shall reserve an undivided twenty-five percent (25%) right, title and interest, proportionately reduced, in and to each of the Leases covering rights lying below 2,000 feet (the “Deep Rights”); provided, however, that notwithstanding Seller’s reservation of the Deep Rights, it is agreed that Seller shall reserve no rights or interests in and to:

(a) The wellbore of any well drilled on the Assets from the surface to the total depth drilled in such a well as of the Effective Time; and

(b) On a unit-by-unit basis, from the surface to the base of the deepest producing formation, or its stratigraphic equivalent, which is producing from the Well on the unit as of the Effective Time.

1.4 Effective Time . The purchase and sale of the Assets shall be effective as of October 1, 2007, 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;

 

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(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;

(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;

 

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

(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; and

(xiv) 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:

 

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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 $7,400,000, payable by Buyer at Closing as follows:

(a) Buyer will pay Seller $6,900,000 in cash or other immediately available funds;and

(b) Buyer will deliver to the Seller forty-five thousand nine hundred nine-eighty (45,998) common units of Rio Vista (the “Purchase Price Units”). Rio Vista will utilize its best efforts to register said units through an S-3 filing or, if Form S-3 is unavailable on any other appropriate form within ninety (90) days of the Effective Time. Part or all of the Purchase Price Units shall be used by Seller to pay in full that certain promissory note payable by Seller to Moores which is the MV Pipeline Company debt owed to Moores.

2.2 Non-Refundable Deposit . Upon execution of this Agreement, Buyer will immediately pay Seller via wire transfer a non-refundable deposit in cash or other immediately available funds in the amount $740,000 (the “Deposit”). In no event shall the Deposit be refundable to Buyer. The Deposit shall be credited against the cash portion of the Purchase Price at Closing, as shall any additional deposit paid to the Seller pursuant to Section 10.1.

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.

 

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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.

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.

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.

 

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ARTICLE 4
SELLER’S AND SHAREHOLDER’S REPRESENTATIONS AND WARRANTIES

Seller and Shareholder hereby jointly and severally make 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.

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 and Shareholder’s part. This Agreement constitutes each of Seller’s and Shareholder’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 . Neither Seller nor Shareholder has incurred any liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Buyer shall have any responsibility whatsoever.

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

4.6 Litigation . Neither Seller nor Shareholder has 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, Shareholder 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 or Shareholder’s knowledge threatened, against Seller or Shareholder before any governmental authority that impedes or is likely to impede its ability to consummate the transactions contemplated by this Agreement.

 

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4.7 No Default . Neither Seller nor Shareholder is 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 either Seller or Shareholder is a party or by which Seller or Shareholder 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.

4.8 Regulatory Matters . Neither Seller nor Shareholder has received any notice or order from any governmental entity which regulates or purports to regulate any of the Assets, Shareholder or Seller, or any of Shareholder’s activities or Seller’s activities, except pertaining to usual and customary filing requirements applicable to properties of the types owned by Seller.

4.9 Taxes . Seller and Shareholder represent to Buyer that it has either discharged or caused to be discharged all taxes and assessments of every kind and character, as the same have become due prior to Closing, relating to its ownership of the Assets. However, MV Pipeline Company is currently under audit by the IRS for the tax year 2005.

4.10 Compliance with Laws . Seller and Shareholder represent 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 or Shareholder; (iii) neither Seller nor Shareholder has 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. However, Seller and Shareholder restate to Buyer that Seller is not the operator of the Assets and thus, cannot insure that the Laws applicable to the Assets have been complied with. However, neither Seller nor Shareholder has any actual knowledge of the Operator’s failure to comply with existing Laws.

4.11 Contracts . Schedule 4.11 hereto is a list of all contracts (written or oral) affecting the Assets to which either Seller or Shareholder 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 and Shareholder have complied in all material respects with the provisions of all such contracts, and neither is 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 either Seller or Shareholder and to the knowledge of Seller and Shareholder 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.

 

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4.12 Production Sales Contracts; Future Sales Contracts . 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. Neither Seller nor Shareholder is 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. Neither Seller nor Shareholder has 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).

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 . Neither Seller nor Shareholder has received any notification of, and neither Seller nor Shareholder has any 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 and Shareholder represent 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 and Shareholder, while not the operator of the Wells represent, that, to the knowledge of Seller and Shareholder, 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 or Shareholder of any claim to the contrary and all of the Leases are in full force and effect.

 

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4.17 Preferential Purchase Rights; Consents . To Seller’s and Shareholder’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 Securities . Seller understands and acknowledges that none of the Purchase Price Units have been registered or qualified under the federal or applicable state securities laws and the Purchase Price Units are being issued to and acquired by Seller in reliance upon applicable exemptions from such registration and qualification requirements. Seller is an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act of 1933 (the “Securities Act”). Seller acknowledges that Seller has been furnished with, has been afforded access to, and has had the opportunity to ask questions and receive answers concerning, all information pertaining to the Purchase Price Units, Buyer, and Buyer’s assets and liabilities. The Purchase Price Units will be acquired by Seller for Seller’s own account for investment only and not with a view to any public resale or distribution thereof within the meaning of the Securities Act. Seller has no present intention of selling, granting any participation in, or otherwise distributing the Purchase Price Units. At no time was Seller presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Purchase Price Units. Seller understands that the acquisition of the Purchase Price Units involves substantial risk. Seller can bear the economic risk of Seller’s investment in the Purchase Price Units and has such knowledge and experience in financial or business matters that Seller is capable of evaluating the merits and risks of this investment in the Purchase Price Units. Seller understands that the Purchase Price Units are “restricted securities” as defined in Rule 144(a) promulgated under the Securities Act and that such securities may be resold without registration under the Securities Act only in certain limited circumstances and subject to applicable limitations. Seller understands that Buyer is under no obligation to register the Purchase Price Units sold hereunder except as otherwise provided in Section 6.1. Seller agrees that it will not offer to sell or otherwise dispose of any of the Purchase Price Units in violation of the registration and qualification requirements of the Securities Act and applicable state securities laws. All certificates to be delivered at Closing evidencing the Purchase Price Units will contain appropriate legends referencing these applicable securities law restrictions. Shareholder shall have piggy back rights to participate on a para parsu basis in any additional S-3 filing Rio Vista pursues post-closing until all Purchase Price Units are registered.

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 and/or Shareholder will keep such insurance in full force and effect until the Closing.

4.20 Capital Commitments . Neither Seller nor Shareholder has 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.

 

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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 Capital Structure of GMO .

(a) The authorized capital stock of GMO consists of two million (2,000,000) shares of GMO Stock, par value $.001 per share.

(b) The authorized capital stock of Company consists of two million (2,000,000) shares of Preferred Stock, $0.001 par value per share, of which no shares are outstanding and three million (3,000,000) shares of Common Stock, $0.001 par value per share, of which one million (1,000,000) shares are outstanding and of which 10% are owned by the Seller, free and clear of all liens, encumbrances, security agreements, options, claims, charges and restrictions, all of which outstanding shares are validly issued, fully paid and non-assessable. There are no shares of Company’s capital stock held in its treasury. There are no options, warrants, rights, shareholder agreements or other instruments or agreements outstanding giving any person the right to acquire any shares of capital stock of Company or any subsidiary of Company, nor are there any commitments to issue or execute any such options, warrants, rights, shareholder agreements or other instruments or agreements. There are no outstanding stock appreciation rights or similar rights measured with respect to any of Company’s or any Company subsidiary’s capital stock, nor are there any instruments, or agreements giving anyone the right to acquire any such rights. Seller has delivered or prior to Closing shall deliver to the Buyer accurate and complete copies of its stock certificates evidencing the Shares.

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 66.66% 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.

 

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(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 or Shareholder is a party or by which it is bound relating to the voting or transfer of any shares of the capital stock of MV.

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

ARTICLE 5
BUYER’S AND RIO VISTA’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:

 

CONFIDENTIAL

(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

(c) Conflict with, resu