EXHIBIT 99.1
DEBENTURE PURCHASE AGREEMENT
BETWEEN
PIONEER DRILLING COMPANY
AND
WEDGE ENERGY SERVICES, L.L.C.
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF CONVERTIBLE DEBENTURE................................................................................-2-
ARTICLE II
CLOSING..........................................................................................................-3-
ARTICLE III
REPRESENTATIONS AND WARRANTIES BY THE COMPANY AND WEDGE..........................................................-3-
ARTICLE IV
REGISTRATION RIGHTS..............................................................................................-4-
ARTICLE V
AFFIRMATIVE COVENANTS............................................................................................-4-
ARTICLE VI
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES............................................................-6-
ARTICLE VII
ADDITIONAL COVENANTS.............................................................................................-7-
ARTICLE VIII
NEGATIVE COVENANTS...............................................................................................-7-
ARTICLE IX
DEFAULT..........................................................................................................-7-
ARTICLE X
MISCELLANEOUS....................................................................................................-8-
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DEBENTURE PURCHASE AGREEMENT
THIS
DEBENTURE PURCHASE AGREEMENT (the "Agreement"), is entered into
this 3rd day of July, 2002, among
PIONEER DRILLING COMPANY (the "Company"), a
corporation incorporated under the laws of the State of
Texas, whose principal
place of business is at 0000 Xxxxxxxx, Xxxxxxxx X, Xxx Xxxxxxx, Xxxxx 00000 and
WEDGE ENERGY SERVICES, L.L.C., a limited liability company organized under the
laws of the State of Delaware, whose principal place of business is at 0000
Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000, or its assigns ("WEDGE").
RECITALS
WHEREAS, on October 9, 2001, the Company entered into that certain
6.75% Convertible Subordinated Debenture, Series A, due October 9, 2006 in the
principal amount of $18,000,000 (the "October 2001 Debenture");
WHEREAS, on May 28, 2002 WEDGE did provide certain financial
accommodations to the Company in connection with a subsidiary of the Company,
Pioneer Drilling Services, Ltd.'s (the "Subsidiary") purchase of two drilling
rigs (the "Rigs") and the Company's financing of such acquisition by the Frost
National Bank ("Frost Bank"), all of which is memorialized in that certain
Letter Agreement of even date therewith (the "Letter Agreement");
WHEREAS, in accordance with Section 5 of the Letter Agreement, the
Company and the Subsidiary have elected to cause WEDGE or an Affiliate to
contribute up to an additional $10,000,000 of which WEDGE shall have the right
to direct $7,000,000 of such amount to be paid either to the Company, or
directly to Frost Bank for the sole purpose of retiring that outstanding
indebtedness incurred by the Company in connection with the purchase of the Rigs
and in consideration of same, the Company has agreed to (i) grant WEDGE the
right to exchange the October 2001 Debenture, (ii) cause Frost Bank to release
all financial accommodations made by WEDGE, (iii) pay current all accrued and
unpaid interest on all outstanding debt investments between WEDGE and the
Company, and (iv) enter into the Debenture Agreement of even date herewith in
the principal amount of $25,000,000 and enter into a Debenture Agreement on the
Subsequent Closing Date in the principal amount of $3,000,000 (both Debenture
Agreements reflecting the aggregate amount of $28,000,000 are hereinafter
collectively referred to as the "Debenture").
WHEREAS, WEDGE has previously acquired 7,241,007 shares of common stock
of the Company; and
WHEREAS, in connection with the issuance of the Debenture, the parties
have agreed, among other things, that WEDGE will have the right to convert the
Debenture as provided therein and certain preemptive rights to participate in
all future debt or equity offerings in the Company;
NOW, THEREFORE, the parties agree as follows:
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ARTICLE I
PURCHASE OF CONVERTIBLE DEBENTURE
1.1 Purchase by WEDGE. At the Initial Closing Date, the Company hereby
agrees to sell, and WEDGE or an Affiliate agrees to purchase, the 6.75%
Convertible Subordinated Debenture, Series B, No. 1, due July 3, 2007, for the
aggregate amount of $25,000,000 payable upon WEDGE tendering to the Company, the
October 2001 Debenture, and tendering to Frost Bank, or the Company by wire
transfer the sum of $7,000,000 to satisfy all obligations of the Company
relating to the purchase of the Rigs. On the Subsequent Closing Date, the
Company agrees to sell, and WEDGE or an Affiliate agrees to purchase the 6.75%
Convertible Subordinated Debenture, Series B, No. 2, in the aggregate amount of
$3,000,000 by tendering such sum to the Company by wire transfer. Attached
hereto as Exhibit "A" is the form of Debenture which sets forth all rights of
WEDGE, as a holder of such Debenture, and all duties and obligations of the
Company, as the issuer of same. The Company and WEDGE hereby expressly
incorporate all terms and conditions of the Debenture as if it were set out in
their entirety in this Section 1.1.
1.2 Continued Enforceable Agreements. The Company and WEDGE hereby
acknowledge and confirm the continued enforceability of the Common Stock
Purchase Agreement entered into on or about May 18, 2001, expressly including,
but not limited to, Sections 1.4 and 1.7, and the Registration Rights Agreement
entered into between the parties simultaneously therewith. In the event there
shall be a conflict between this Agreement and either the Common Stock Purchase
Agreement or the Registration Rights Agreement, the terms of this Agreement
shall govern.
1.3 Board Seat. So long as Purchaser shall own at least 10% of the
capital stock of the company, the Board of Directors agrees to support and cause
to be placed on the ballot at any election of Directors one person designated by
Purchaser who shall be a nominee to the Board of Directors of the Company (a
"WEDGE Board Nominee"), but only if necessary to cause at least one WEDGE Board
Nominee to continue as a director of the Company after such election. So long as
Purchaser shall own at least 25% of the capital stock of the Company, the Board
of Directors agrees to support and cause to be placed on the ballot at any
election of Directors up to three persons designated by Purchaser who shall be
nominees to the Board of Directors of the Company, but only if necessary to
cause at least three WEDGE Board nominees to continue as Directors of the
Company after such election. If WEDGE shall have three WEDGE Board Nominees on
the Board of Directors at least one shall be an individual with no affiliation
to Purchaser, or its affiliates, who shall serve as an independent outside
director. Additionally, at least one WEDGE Board Nominee shall be appointed to
serve on the audit committee and compensation committee of the Board of
Directors. Beginning the date hereof, the foregoing shall constitute the only
agreement between Purchaser and the Company and its Board of Directors regarding
the nomination by Purchaser of members of the Board of Directors of the Company.
1.4 Outstanding Interest. The Company, simultaneous with the executive
hereof, will tender to WEDGE a check in the amount of $283,500 to pay for all
accrued and unpaid interest relating to the October Debenture.
1.5 Definitions. All capitalized terms, not otherwise defined herein,
shall have the meaning ascribed to them in the Debenture.
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1.6 Assignability. WEDGE shall have the absolute, unfettered right to
assign all, or any part of the Debenture to an Affiliate of WEDGE by tendering
written notice to the Company and the Company shall cause the Debenture to be
issued to such assignee.
ARTICLE II
CLOSING
The closing of the transactions provided for in Article 1 of this
Agreement (herein called the "Closings") shall take place at the offices of
Xxxxxxxx & Xxxxxxxxx, P.C., 000 Xxxx Xxxxx Xx., Xxxxx 0000, Xxx Xxxxxxx, Xxxxx,
with the initial closing taking place on or before July 3, 2002, and the
subsequent closing taking place on or before September 30, 2002 (the "Closing
Dates").
ARTICLE III
REPRESENTATIONS AND WARRANTIES BY THE COMPANY AND WEDGE
3.1 The Company hereby acknowledges and expressly reconfirms all
warranties and representations contained in Article IV of the Debenture.
3.2 WEDGE represents and warrants that:
(a) Experience. WEDGE is an "accredited investor" within the
meaning of Regulation D promulgated by the Securities and Exchange
Commission under the Act, and (by virtue of its experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company) it is capable of
evaluating the merits and risks of its investment in the Company. WEDGE
acknowledges that it had the opportunity to ask questions of the
officers of the Company. In reaching the conclusion that it desires to
acquire the Debenture and the Stock upon conversion, WEDGE has
evaluated its financial resources and investment position and the risks
associated with this investment and acknowledges that it is able to
bear the economic risks of this investment.
(b) Restricted Securities. As of the date hereof, WEDGE
represents, warrants and agrees that it is acquiring the Debenture, and
upon conversion the Stock, solely for its own account, for investment,
and not with a view to the distribution or resale thereof. WEDGE
further represents that its present financial condition is such that it
is not under any present necessity or constraint to dispose of such
Debenture or the Stock into which it is convertible to satisfy any
existing or contemplated debt or undertaking and that the investment is
suitable for WEDGE upon the basis of WEDGE's other security holdings,
financial situation and needs. WEDGE acknowledges and understands that
it must bear the economic risk of this investment for an indefinite
period of time because the Stock must be held indefinitely unless
subsequently registered under the Act and applicable state and other
securities laws or unless an exemption from such registration is
available.
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(c) Unregistered Stock. WEDGE is aware that the Debenture and
the Stock have not been registered under the Act, and that,
accordingly, the Stock must be held unless it is subsequently
registered under said Act or unless, in the opinion of counsel
reasonably satisfactory to the Company, a sale or transfer may be made
without registration thereunder. WEDGE agrees that any certificates
evidencing the Stock must bear a standard legend restricting the
transfer thereof consistent with the foregoing and that a notice may be
made in the records of the Company or its transfer agent restricting
the transfer of the Stock in a manner consistent with the foregoing.
ARTICLE IV
REGISTRATION RIGHTS
Upon conversion of the Debenture into common stock as provided in
Article VII of the Debenture, the Company and the Holder shall agree to abide by
and honor the terms of that certain Registration Rights Agreement between them
executed as of May 18, 2001.
ARTICLE V
AFFIRMATIVE COVENANTS
5.1 Conditions to Obligations of WEDGE. The obligations of WEDGE under
this Agreement shall, except as may be waived in writing by WEDGE, be subject to
the following conditions:
(a) Company's Representations and Warranties True at the
Initial Closing. WEDGE shall not have discovered any material error,
misstatement or omission in the representations and warranties made by
the Company in Article III above which such error, misstatement or
omission remains uncured; and the Company shall have performed and
complied with in all material respects all agreements and conditions
required by this Agreement to be performed or complied with by it at or
prior to the Initial Closing.
(b) Opinion of Counsel for the Company. Attached hereto as
Exhibit "B" is a true and correct copy of the Opinion of Counsel to be
delivered by Xxxxxxxx and Xxxxxxxxx, P.C., attorneys for the Company,
as approved by counsel for WEDGE.
(c) Absence of Restraint. No order to restrain, enjoin or
otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby shall have been entered; and, on the
Closing Dates, there shall not be any pending or threatened litigation
in any court, or any proceeding by or before any governmental
commission, board or agency, with a view to seeking to restrain or
prohibit consummation of this Agreement or the transactions
contemplated hereby or in which divestiture, rescission or significant
damages are sought in connection with this Agreement or the
transactions contemplated hereby, and no investigation by any
governmental agency shall be pending or threatened which might result
in any such litigation or other proceeding.
(d) Company Officers' Certificate. WEDGE shall have received a
certificate, dated as of the respective Closing Dates, of the
president, executive vice president and financial officers
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of the Company (the "Officers' Certificate") to the effect that the
representations and warranties relating to the Company or its business,
financial condition, properties or assets are true in all material
respects at and as of the Initial Closing Date or, to the extent such
representations and warranties are made at and as of a specific date,
such representations and warranties were true in all material respects,
and as of such date.
(e) No Material Adverse Effect. No Material Adverse Effect in
the results of operations, financial condition or business of the
Company taken as a whole shall have occurred, and the Company shall not
have suffered any material loss or damages to any of its properties or
assets which change, loss or damage materially affects or impairs the
ability of the Company to conduct its respective businesses. For
purposes of this Agreement, the term "Material Adverse Effect" shall
mean an event, circumstance, loss, development or effect (individually
or in the aggregate) when considered in light of the total operations
of the Company, would prohibit the Company from engaging in any
material aspect of its business or result in a material adverse change
in the business, operations, properties, prospects or assets of the
Company, or if measured monetarily, would exceed $150,000.
(f) Consents and Other Approvals. WEDGE shall have received
all consents and other approvals which are necessary or required, if
any, to consummate this Agreement.
(g) Release of Letter of Credit. Frost Bank shall have
returned to WEDGE that certain Letter of Credit in the amount of
$7,000,000 which shall not have been drawn upon.
(h) Deliveries. WEDGE or an Affiliate shall have received (a)
Debenture certificates, and (b) any other documents which WEDGE may
reasonably request to consummate this Agreement and the transactions
contemplated hereby.
5.2 Conditions to Obligations of the Company. The obligations of the
Company under the Agreement shall except as may be waived in writing by the
Company, be subject to the following conditions:
(a) Pay Off Frost Bank. WEDGE shall fund $7,000,000 to either
the Company, or to Frost Bank for the sole purpose of retiring the
current indebtedness of the Subsidiary Company in the approximate
amount of $7,000,000 at Frost Bank which amount was used to acquire the
Rigs.
(b) Return of Note and Security Agreement. WEDGE shall return
to the Subsidiary all documents held in escrow by WEDGE as more fully
described in the Letter Agreement.
(c) AMEX and Shareholder Approval. The Company shall have
obtained all required consents and approvals, if any, from its
Shareholder and the American Stock Exchange in connection with either
the issuance of the Debenture or the issuance of shares of common stock
convertible thereto.
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ARTICLE VI
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
6.1 Nature of Statements. All statements contained in any Exhibit or
schedule hereto, including the Debenture, or in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties by the Company.
6.2 Survival of Representations and Warranties. All covenants,
agreements, representations and warranties made hereunder or pursuant hereto or
in connection with the transactions contemplated hereby shall survive the
Closings. Generally, all covenants, representations and warranties shall remain
effective for a period of 24 months from the date of closing. The
representations and warranties of the Company with respect to litigation, ERISA
and environmental matters shall remain effective for a period of 48 months from
the Subsequent Closing Date. The representations and warranties of the Company
with respect to taxes and title to Stock shall survive for the applicable
limitations period established by law. Notwithstanding the foregoing, any bona
fide claim which shall have been asserted during any such survival period and
the obligation to indemnify for such claim shall continue in effect until such
time as such claim shall have been resolved or settled.
6.3 Indemnity by the Company. The Company shall indemnify and hold
harmless WEDGE and the officers, directors, managers, agents, affiliates and
representatives of WEDGE or any of them (the "WEDGE Indemnitees") from and
against, and shall reimburse the WEDGE Indemnitees from any loss, liability,
damage or expense, including reasonable attorneys' fees and costs of
investigation incurred as a result thereof, that the WEDGE Indemnitees shall
incur or suffer (collectively, the "WEDGE Recoverable Losses"), arising out of
or resulting from (a) any misrepresentation by the Company, or (b) breach by the
Company of any (i) representation or warranty contained in Article III hereof,
(ii) the breach or non-fulfillment of an agreement or covenant under or pursuant
to this Agreement, including the Registration Rights Agreement, or (iii) any
document, certificate, schedule or instrument delivered by or on behalf of the
Company pursuant hereto.
6.4 Indemnity by WEDGE. WEDGE shall indemnify and hold harmless the
Company and the officers, directors, agents, affiliates and representatives of
the Company or any of them (the "Company Indemnitees") from and against, and
shall reimburse the Company Indemnitees for any loss, liability, damage or
expense, including reasonable attorneys' fees and cost of investigation incurred
as a result thereof, that the Company Indemnitees shall incur or suffer
(collectively, the "Company's Recoverable Losses") resulting from (a) any
misrepresentation by WEDGE, or (b) breach by WEDGE of any (i) representation or
warranty contained in Article III hereof, (ii) agreement or covenant under or
pursuant to this Agreement, or (iii) document, certificate, schedule or
instrument delivered by or on behalf of WEDGE in connection herewith.
6.5 Limitation of Liability. Notwithstanding any liability which the
Company or WEDGE may incur in Sections 6.3 and 6.4, respectively, above, the
Company shall not be obligated for a WEDGE's Recoverable Loss, and WEDGE shall
not be obligated for a Company's Recoverable Loss, unless and until
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such loss, individually, or in the aggregate, shall have exceed $150,000, in
which case such liability shall be for all amounts in excess thereof.
ARTICLE VII
ADDITIONAL COVENANTS
Inspection of Property, Books and Records. The Company shall (a) keep
proper books of record and account in which full, true and correct entries in
conformity with generally accepted accounting principles accepted in the United
States of America shall be made of all dealings and transactions in relation to
its business activity, (b) permit representatives of WEDGE to visit and inspect
any of its properties and to examine and make abstracts from any of its books
and records at their customary location during normal business hours or at such
other times as WEDGE may reasonably request, and as often as may be reasonably
desired for use by WEDGE, and to discuss the business, operations, properties
and financial and other condition of the Company with the Company's officers and
employees. Additionally, the Company will adhere to the requirements of Section
3.01 of the Debenture by providing all financial and business information and
statements required therein within the time frames provided.
ARTICLE VIII
NEGATIVE COVENANTS
Reorganization, Stock Dividends, Reclassification, Subdivision or Stock
Issuances. The Company will not (a) enter into a reorganization, consolidation,
merger, lease or sale with another entity in connection with the sale, transfer
or conveyance of its Common Stock or assets, (b) subdivide or reclassify the
outstanding Common Stock into a greater or lesser number of shares, or (c) issue
any additional shares of its capital stock, unless it shall have given WEDGE at
least fifteen (15) days' advance written notice.
ARTICLE IX
DEFAULT
9.1 Event of Default. As used in this Agreement, the term "Event of
Default" shall mean any of the following:
(a) any default of any kind or nature under Section 8.01 of
the Debenture;
(b) any breach of any representation or warranty contained in
Article III herein in any material respect as of the date of issuance
or making thereof; or
(c) any default in the observance of any affirmative covenant
set forth in Article VI herein which is not remedied within 30 days
after written notice thereof to the Company by WEDGE.
9.2 Default Remedies. Upon the occurrence of an Event of Default, WEDGE
shall be entitled to enforce all rights and remedies provided in Section 8.02 of
the Debenture, in addition to all other rights and remedies it may be entitled
to at equity or under law.
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ARTICLE X
MISCELLANEOUS
10.1 Conflict of Agreement. The parties agree that in the event that
any of the terms or conditions of this Agreement shall conflict with the terms
or conditions of the Debenture, the Debenture shall govern.
10.2 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one agreement.
10.3 Amendments. This Agreement may be amended, modified or terminated
only by a written instrument signed by the parties hereto.
10.4 Governing Law. This Agreement shall in all respects be governed by
and shall be construed in accordance with the laws of the State of
Texas.
10.5 Severability. If any provision or part thereof of this Agreement
is found to be prohibited, unenforceable or invalid under the laws of any
jurisdiction, the provision or part thereof shall be ineffective only to the
extent of such prohibition, unenforceability or invalidity under the applicable
law without effecting the enforceability or validity of such provision in any
other jurisdiction and without invalidating the remainder of such provision or
other provisions in this Agreement.
10.6 Injunctive Relief. The Company acknowledges that a breach of any
of the provisions hereof would cause irreparable harm to WEDGE and agrees that
in the event of any such threatened breach WEDGE shall be entitled to injunctive
relief and that it shall not be required to post any bond in excess of $1,000.
10.7 Term. Defined terms not defined herein shall have the meaning
ascribed thereto in the Debenture.
10.8 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed, first-class postage prepaid, by certified mail, return
receipt requested.
If to WEDGE:
WEDGE Energy Services, L.L.C.
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: President
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with a copy to:
WEDGE Energy Services, L.L.C.
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: General Counsel
with a copy to:
Xxxxxx X. Xxxxxx, Esq.
XxXxxxx, Xxxx & Xxxxxx
0000 Xxxx Xxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
If to the Company:
Pioneer Drilling Company
0000 Xxxxxxxx, Xxxxxxxx X
Xxx Xxxxxxx, Xxxxx 00000
with a copy to:
Xxxx X. Xxxxx
Xxxxxxxx and Xxxxxxxxx, PC
000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxx 00000
10.9 Headings. The headings of the sections of this Agreement have been
inserted for convenience or reference only and shall in no way restrict or
otherwise modify any of the terms or provisions hereof.
10.10 Arbitration.
(a) Negotiation Period. Any dispute, controversy or claim
arising out of or relating to this Agreement, or any alleged breach
hereof, will be subject to binding arbitration in accordance with this
Section 10.10. If such a dispute, controversy or claim exists, the
parties shall attempt for a 30-day period (the "Negotiation Period")
from the date any party gives any one or more of the other parties
notice (a "Dispute Notice") pursuant to this Section, to negotiate in
good faith, a resolution of the dispute. The Dispute Notice shall set
forth with specificity the basis of the dispute. During the Negotiation
Period, representatives of each party involved in the dispute who have
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authority to settle the dispute shall meet at mutually convenient times
and places and use their best efforts to resolve the dispute.
(b) Commencement of Arbitration. If a resolution is not
reached by the parties prior to the end of the Negotiation Period,
either party may provide a written request to the American Arbitration
Association within ten (10) days from the end of such period requesting
the selection of three (3) arbitrators (the "Panel") to arbitrate the
parties' respective rights and obligations with respect to the matters
set forth in the Dispute Notice. Each arbitrator on the Panel shall be
experienced in the arbitration of complex commercial disputes.
(c) Discovery. Each party to an arbitration shall be entitled
to such discovery as the Panel shall determine is appropriate.
(d) Expenses of Arbitration. The expenses of the Panel shall
be paid by the party that does not substantially prevail on the merits
in the arbitration (as determined by the award of the Panel).
(e) Location of Arbitration. The arbitration shall take place
in Houston,
Texas.
(f) AAA Rules. Except as expressly provided in this Section
10.10, the Arbitration shall be conducted in accordance with the
Commercial Rules of the America Arbitration Association as then in
effect.
(g) Attorneys' Fees and Expenses. The party that substantially
prevails on the merits of the arbitration (as defined by the Panel)
shall be entitled to reasonable attorneys' fees, costs, expenses, and
necessary disbursements in addition to any other relief to which such
party may be entitled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
PIONEER DRILLING COMPANY WEDGE ENERGY SERVICES, L.L.C.
By: By:
-------------------------------- --------------------------------
Name: Xxxxxxx X. Xxxxxx Name:
Title: Chief Executive Officer Title:
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EXHIBIT "A"
DEBENTURE
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EXHIBIT "B"
FORM OF OPINION OF XXXXXXXX & XXXXXXXXX
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