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Exhibit 10.1
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
RAVEN RESOURCES, LLC, AS SELLER
AND
LEGACY RESERVES OPERATING LP, AS BUYER
TABLE
OF CONTENTS
PAGE
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1.
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SALE
AND PURCHASE OF THE ASSETS.
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1
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1.1
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Acquired
Assets
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1
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1.2
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Assumed
Liabilities
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2
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2.
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PURCHASE
PRICE.
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3
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2.1
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Purchase
Price
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3
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2.2
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Deposit.
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3
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2.3
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Adjustments
to the Base Purchase Price
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3
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2.4
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Allocation
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4
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3.
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CLOSING.
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4
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3.1
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Closing
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4
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3.2
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Delivery
by Seller
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5
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3.3
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Delivery
by Buyer
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5
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3.4
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Further
Cooperation
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5
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4.
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ACCOUNTING
ADJUSTMENTS.
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6
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4.1
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Closing
Adjustments
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6
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4.2
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Strapping
and Gauging.
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6
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4.3
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Taxes
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6
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4.4
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Post-Closing
Adjustments
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7
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4.5
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Suspended
Funds
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7
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4.6
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Audit
Adjustments
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8
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4.7
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Cooperation
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8
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5.
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DUE
DILIGENCE: TITLE MATTERS.
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8
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5.1
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General
Access
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8
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5.2
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Defensible
Title
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8
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5.3
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Defect
Letters.
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10
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5.4
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Effect
of Title Defect
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12
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5.5
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Preferential
Rights and Consents.
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13
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6.
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ENVIRONMENTAL
ASSESSMENT.
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15
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6.1
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Physical
Condition of the Assets
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15
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6.2
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Inspection
and Testing.
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15
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6.3
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Notice
of Adverse Environmental Conditions
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16
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6.4
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Rights
and Remedies for Adverse Environmental
Conditions.
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17
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6.5
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Remediation
by Seller
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18
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7.
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REPRESENTATIONS
AND WARRANTIES OF SELLER.
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19
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7.1
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Seller’s
Representations and Warranties
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19
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7.2
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Scope
of Representations of Seller.
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21
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8.
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REPRESENTATIONS
AND WARRANTIES OF BUYER.
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22
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8.1
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Buyer’s
Representations and Warranties
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22
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9.
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CERTAIN
AGREEMENTS OF SELLER
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23
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9.1
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Maintenance
of Assets
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23
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9.2
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Records
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24
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9.3
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Audit
Rights.
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25
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10.
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CERTAIN
AGREEMENTS OF BUYER
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25
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10.1
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Plugging
Obligation
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25
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10.2
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Plugging
Bond
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25
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10.3
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Seller’s
Logos
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25
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10.4
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Like-Kind
Exchanges
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26
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11.
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CONDITIONS
PRECEDENT TO OBLIGATIONS OF BUYER
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26
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11.1
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No
Litigation
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26
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11.2
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Representations
and Warranties
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26
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12.
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CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF SELLER
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26
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12.1
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No
Litigation
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26
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12.2
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Representations
and Warranties
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26
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13.
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TERMINATION.
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26
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13.1
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Causes
of Termination
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26
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13.2
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Effect
of Termination.
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27
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14.
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INDEMNIFICATION.
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28
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14.1
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Indemnification
by Seller
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28
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14.2
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Indemnification
by Buyer
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30
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14.3
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Physical
Inspection
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30
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14.4
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Notification
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31
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15.
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MISCELLANEOUS.
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31
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15.1
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Casualty
Loss.
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31
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15.2
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Confidentiality.
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32
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15.3
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Notices
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32
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15.4
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Press
Releases and Public Announcements
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33
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15.5
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Compliance
with Express Negligence Test
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33
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15.6
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Governing
Law
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33
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15.7
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Exhibits
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33
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15.8
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Fees,
Expenses, Taxes and Recording.
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34
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15.9
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Assignment
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34
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15.10
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Entire
Agreement
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34
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15.11
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Severability
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34
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15.12
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Captions
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35
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15.13
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Time
of the Essence
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35
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15.14
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Counterpart
Execution
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35
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EXHIBITS
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1.1(A)
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Oil
and Gas Leases and Land
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2.4
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Allocation
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3.2(A)
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Form
of Assignment and Bill of Sale
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7.1(E)
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AFE’s
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7.1(G)
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Pending
Litigation
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7.1(K)
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Material
Agreements
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7.1(L)
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Consents
and Preferential Purchase Rights
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7.1(M)
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Gas
Imbalances
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PURCHASE AND SALE AGREEMENT
This
Purchase and Sale Agreement (this “Agreement”) is
entered into this 11 th day
of July, 2007, but effective as of 7:00 a.m. (Central Time) on
July 1, 2007 (the “Effective Time”), by and
between Raven Resources, LLC, an Oklahoma limited liability
company, (“Seller”) and Legacy Reserves Operating
LP, a Delaware limited partnership (“Buyer”), a
wholly-owned subsidiary of Legacy Reserves LP, a Delaware
limited partnership. Buyer and Seller are collectively
referred to herein as the “Parties” and sometimes
individually referred to as a
“Party.”
RECITALS:
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A.
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Seller
desires to sell to Buyer certain oil, gas and mineral properties
and other assets on the terms and conditions set forth in this
Agreement.
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B.
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Buyer
desires to purchase from Seller such oil, gas and mineral
properties and other assets on the terms and conditions set forth
in this Agreement.
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WITNESSETH:
In
consideration of the mutual agreements contained in this
Agreement, Buyer and Seller agree as follows:
1. SALE
AND PURCHASE OF THE ASSETS.
1.1
Acquired Assets. Subject
to the terms and conditions of this Agreement, Seller agrees
to sell, convey and deliver to Buyer and Buyer agrees to
purchase, acquire and assume from Seller the following
(collectively, the “Assets”):
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(A)
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All
of Seller’s right, title, interest and obligations in, to and
under the oil and gas leases described in Exhibit 1.1(A)
attached hereto (the “Leases”), covering the land
described in Exhibit 1.1(A) (the “Land”),
whether or not such interests or land are accurately or completely
described on Exhibit 1.1(A) , and all of Seller’s oil
and gas leasehold or other interests in the Lands, together with
all the property and rights incident thereto, including without
limitation Seller’s rights and obligations in, to and under
all operating agreements; pooling, communitization and unitization
agreements; farmout agreements; joint venture agreements; product
purchase and sale contracts; transportation, processing, treatment
or gathering agreements; leases; permits (the
“Permits”); rights-of-way (the
“Rights-of-Way”); surface use agreements; surface
leases; easements (the “Easements”); licenses; options;
declarations; orders; contracts; and instruments in any way
relating to the Leases;
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(B)
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All
of Seller’s right, title and interest in and to the wells
(“Wells”) situated on or used in conjunction with
operations on the Leases and Land or on land pooled, communitized
or unitized therewith (“Pooled Land”), together with
all of Seller’s interests in and to all of the personal
property, fixtures, improvements and other property, whether real,
personal or mixed, now or as of the Effective Time on, appurtenant
to or used or obtained by Seller in connection with the Leases,
Land, Pooled Land or Wells or with the production, injection,
treatment, sale or disposal of hydrocarbons and all other
substances produced therefrom or attributable thereto
(collectively, the “Equipment”), including, without
limitation, producing and non-producing wells, injection wells,
disposal wells, water supply wells, well equipment, casing, tubing,
tanks, generators, boilers, buildings, pumps, motors, machinery,
pipelines, gathering systems, power lines, telephone and telegraph
lines, roads, field processing plants, field offices and other
furnishings related thereto, equipment leases, trailers, inventory
in storage, storage yards, and all other improvements or
appurtenances thereunto belonging;
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(D)
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All
of the oil and gas and associated hydrocarbons (“Oil and
Gas”) in and under or otherwise attributable to the Leases,
Land, and Pooled Land or produced from the Wells;
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(E)
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To
the extent assignable, all governmental permits, licenses and
authorizations, as well as any applications for the same, related
to the Leases, Land, Pooled Land and Wells or the use thereof;
and
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(F)
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All
of the files, records, and data of Seller relating to the items
described in subsections (A), (B), (C), (D) and (E) above (the
“Records”), including, without limitation, lease
records, well records, and division order records; well files and
prospect files; title records (including abstracts of title, title
opinions and memoranda, and title curative documents related to the
Leases and Wells); contracts and contract files; correspondence;
computer data files; micro-fiche data files; geological,
geophysical and seismic records, interpretations, data, maps and
information, production records, electric logs, core data, pressure
data, decline curves and graphical production curves; and
accounting records, to the extent only that the Records can be
transferred without violation of any third-party restriction and
are not protected by Seller’s attorney-client
privilege. The Records do not include any appraisals or
other evaluation materials related to Seller’s preparation of
the Assets for sale hereunder, any reservoir and/or development
studies prepared by or on behalf of Seller, nor any of
Seller’s income tax returns or files related
thereto.
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1.2
Assumed Liabilities. On
the Closing Date, Buyer shall assume and agree to timely and
fully pay, perform and otherwise discharge, without recourse
to Seller or its affiliates, all of the liabilities and
obligations of Seller and its affiliates, predecessors,
successors, assigns or representatives, direct or indirect,
known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued, which relate, directly or
indirectly, to the Assets, whether such liabilities and
obligations accrue before, on or after the Effective Time
(collectively, the “Assumed
Liabilities”). Notwithstanding the foregoing,
Assumed Liabilities shall not include, and there is excepted,
reserved and excluded from such liabilities assumed by Buyer,
the liabilities and obligations for which Seller indemnifies
Buyer pursuant to Section 14.1.
2.
PURCHASE PRICE .
2.1
Purchase Price. The
purchase price for the Assets is TWENTY MILLION THREE HUNDRED
THOUSAND AND NO/100 DOLLARS ($20,300,000.00) (the “Base
Purchase Price”), subject to the adjustments provided
for herein.
2.2
Deposit . Within
three (3) days of the execution of this Agreement, Buyer shall
deliver to Seller, in cash by wire-transfer in immediately
available funds, a Deposit in an amount equal to ONE MILLION
FIFTEEN THOUSAND AND NO/100 DOLLARS
($1,015,000.00) (five percent [5%] of the Base
Purchase Price) (the “Deposit”). The
Deposit shall be distributed to Seller and credited to the
Base Purchase Price at Closing, or if this Agreement is
terminated, shall be distributed or retained pursuant to
Article 13, provided however that any interest on the
Deposit shall be retained by Seller. In the event
the Deposit is not delivered to Seller as prescribed, this
Agreement shall be terminated.
2.3
Adjustments to the Base Purchase Price.
At
Closing, appropriate adjustments to the Base Purchase Price
shall be made as follows in accordance with Section 4.1 (as
adjusted, the “Purchase Price”):
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(A)
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The
Base Purchase Price shall be adjusted upward by:
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(i) any
amount determined to be due Seller pursuant to Section
4.2;
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(ii)
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Property
Taxes and Severance Taxes related to the Assets paid by Seller for
the period following the Effective Time as determined pursuant to
Section 4.3;
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(iii)
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an
amount equal to the costs, expenses and other expenditures (whether
capitalized or expensed) paid by Seller in accordance with this
Agreement that are attributable to the Assets for the period from
and after the Effective Time;
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(iv)
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for
all operated wells, a monthly rate of $400, prorated if necessary,
per active Well, as provided in the applicable operating agreement,
for operation and maintenance expenses (excluding workover costs,
plugging and abandoning costs, and major costs) incurred by Seller
while operating the Assets from and after the Effective
Time;
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(v)
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an
amount equal to the amount of proceeds derived from the sale of Oil
and Gas, net of royalties and severance taxes paid by Buyer,
actually received by Buyer and directly attributable to the Wells
which are, in accordance with generally accepted accounting
procedures, attributable to the period of time prior to the
Effective Time;
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(vi)
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any
other amount agreed upon in writing by Seller and
Buyer.
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(B)
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The
Base Purchase Price shall be adjusted downward by:
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(i)
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an
amount equal to the amount of proceeds derived from the sale of Oil
and Gas, net of royalties and severance taxes paid by Seller,
actually received by Seller and directly attributable to the Wells
which are, in accordance with generally accepted accounting
procedures, attributable to the period of time from and after the
Effective Time;
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(ii)
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an
amount equal to all expenditures, liabilities and costs relating to
the Assets (other than Taxes related to the Assets) that are unpaid
as of the Closing Date and assessed for or attributable to periods
of time or the ownership of production prior to the Effective Time
regardless how such expenditures, liabilities and costs are
calculated provided that to the extent the actual amounts cannot be
determined prior to the agreement of Buyer and Seller with respect
to the Closing Adjustment Statement, a reasonable estimate of such
expenditures, liabilities and costs shall be used (and to such
extent Buyer shall assume the liability and responsibility for
payment therefor);
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(iii)
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all
amounts related to Title Defects as determined pursuant to Section
5.4, consents and preferential rights as determined pursuant to
Section 5.6, Adverse Environmental Conditions as determined
pursuant to Section 6.4, Exclusion Adjustments as determined
pursuant to Sections 5.6 or 6.4, and Casualty Losses as determined
pursuant to Section 15.1;
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(iv)
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Property
Taxes and Severance Taxes related to the Assets to be paid by
Seller for the period prior to the Effective Time as determined
pursuant to Section 4.3; and
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(v) any other
amount agreed upon in writing by Seller and
Buyer.
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(C)
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Seller
shall have the right to collect any receivable, refund or other
amounts associated with periods prior to the Effective
Time. To the extent that Buyer collects any such
receivable, refund or other amounts, then Buyer shall promptly
remit any such amounts to Seller.
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2.4
Allocation. The
Base Purchase Price shall be allocated to the Assets as set
forth in Exhibit 2.4. The Parties agree that the
values allocated to various portions of the Assets, which are
set forth on Exhibit 2.4 (singularly with respect to each
item, the “Allocated Value” and collectively, the
“Allocated Values”), shall be binding on Seller
and Buyer and shall be used only for the purposes of adjusting
the Base Purchase Price pursuant to Sections 4.3 (relating to
Taxes), 5.4 (relating to Title Defects), 15.1 (relating to
Casualty Losses), and 6 (relating to Adverse Environmental
Conditions), and are not intended as a measure of value for
any other purpose.
3.
CLOSING .
3.1
Closing. The
sale and purchase of the Assets (“Closing”) shall
be held on or before July 31, 2007 (“Closing
Date”). Buyer shall have the option to extend
the Closing Date until August 31, 2007 in order to complete
due diligence, title or audit work. In the case of
such extension, Buyer shall pay interest at 7% per annum on
the balance of the purchase price less deposit from August 11
th until
the closing date or until August 31 st ,
whichever is sooner. The closing will take place at
the offices of Legacy Reserves LP, in Midland,
Texas.
3.2
Delivery by Seller. At
Closing, Seller shall deliver to Buyer:
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(A)
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A
separate Assignment and Bill of Sale executed by each Seller,
substantially in the form attached hereto as Exhibit 3.2(A)
, effecting the sale, transfer, conveyance and assignment of the
Assets, with (i) a special warranty of the real property title
by, through and under such Seller but not otherwise, and
(ii) with all personal property and fixtures conveyed
“AS IS, WHERE IS,” with no warranties whatsoever,
express, implied or statutory.
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(B)
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Any
governmental forms required to effect transfer in accordance with
applicable regulations;
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(C)
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Letters
in lieu of transfer orders instructing purchasers of production to
pay to Buyer the proceeds of sales of Oil and Gas from the
Assets;
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(D)
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Executed
change of operator forms as required by applicable governmental
regulation;
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(E)
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Releases
of the mortgages in favor of any bank that may be currently
encumbering the Assets;
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(F)
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The
Closing Adjustment Statement;
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(G)
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A
Non-Foreign Affidavit of each Seller;
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(H)
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Possession
of the Records and all other Assets.
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(I)
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Letters
of resignation as operator of these Assets, as appropriate, along
with ballot forms to the partners as directed by the operating
agreements.
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3.3
Delivery by Buyer. At
Closing, Buyer shall deliver to Seller or Seller’s
designee the Purchase Price set forth in the Closing
Adjustment Statement by wire transfer in immediately available
funds, less the Deposit and interest earned on the
Deposit. Buyer shall also deliver evidence that it
has provided replacement instruments for each guaranty, bond,
letter of credit or similar contingent obligation given by
Seller as required by law or the provisions of any Lease or
other agreement along with the appropriate instruments
necessary to receive immediate approval as Operator of these
Assets, as appropriate. Buyer shall execute and deliver the
Assignment and Bill of Sale, Closing Adjustment Statement and
other closing documents as necessary or
appropriate.
3.4
Further Cooperation. At
the Closing and thereafter as may be necessary, Seller and
Buyer shall execute and deliver such other instruments and
documents and take such other actions as may be reasonably
necessary to evidence and effectuate the transactions
contemplated by this Agreement.
4.
ACCOUNTING ADJUSTMENTS .
4.1
Closing Adjustments. With
respect to matters that can be determined as of the Closing,
Seller shall prepare, in accordance with the provisions of
this Article 4, a statement (the “Closing Adjustment
Statement”) with relevant supporting information setting
forth each adjustment to the Base Purchase Price submitted by
Seller. Seller shall submit the Closing Adjustment
Statement to Buyer, together with all records or data
supporting the calculation of amounts presented on the Closing
Adjustment Statement, no later than three (3) business days
prior to the scheduled Closing Date. Prior to the
Closing, Buyer and Seller shall review the adjustments
proposed by Seller in the Closing Adjustment
Statement. Agreed adjustments shall be taken into
account in computing any adjustments to be made to the Base
Purchase Price at the Closing. When available,
actual figures will be used for the adjustments at
Closing. To the extent actual figures are not
available, estimates shall be used subject to final
adjustments as described in Section 4.4 below.
4.2
Strapping and Gauging . Seller will cause
the Oil and Gas in the storage facilities located on, or
utilized in connection with, the Leases to be measured, gauged
or strapped as of the Effective Time. Seller will
cause the production meter charts (or if such do not exist,
the sales meter charts) on the pipelines transporting Oil and
Gas from the Leases to be read as of such time. The
Oil and Gas in such storage facilities above six inches or
through the meters on the pipelines as of the Effective Time
shall belong to Seller and shall be valued based on the price
actually paid for Oil and Gas produced from the Assets for the
month prior to the Effective Time, and the Oil and Gas placed
in such storage facilities after the Effective Time and
production upstream of the aforesaid meters shall belong to
Buyer and become part of the Assets. Buyer or
Buyer’s representative shall have the option to witness
the gauging by Seller. In the event Buyer or
Buyer’s representative exercising the option to witness
the gauging by Seller, Buyer agrees that the waiver and
release provisions set forth in Section 5.1(A) of this
Agreement shall apply thereto.
This
provision should not apply to any Assets that are not operated
by Seller. There shall be no settlement for Stock
in Tanks on non-operated Assets.
4.3
Taxes
.
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(A)
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Property Taxes . All ad valorem taxes, real property
taxes, personal property taxes and similar obligations assessed on
the Assets (“Property Taxes”) shall be apportioned as
of the Effective Time between Buyer and Seller. Buyer
shall file or cause to be filed all required reports and returns
incident to Property Taxes which are due on or after the Closing,
and shall pay or cause to be paid to the taxing authorities all
such taxes reflected on such reports and returns. The
Post-Closing Adjustment Statement shall settle all liability for
Property Taxes, using estimates based on previous assessments to
the extent current assessments are not known.
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(B)
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Sales Taxes, Filing Fees, Etc . The Base Purchase Price is net
of any sales taxes or other transfer taxes. Buyer shall
be liable for any sales tax or other transfer tax as well as any
applicable conveyance, transfer and recording fees, and real estate
transfer stamp or taxes imposed upon the sale pursuant to this
Agreement. If Seller is required by applicable state law
to report and pay these taxes or fees, Buyer shall promptly
reimburse Seller in full payment of the invoice.
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(C)
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Severance Taxes . All production, severance or
excise taxes, conservation fees and other similar such taxes or
fees (other than income taxes) payable on a current basis with
respect to Oil and Gas produced and sold from the Assets
(“Severance Taxes”) shall be borne by Seller to the
extent the production on which such taxes are based occurs during
Seller’s ownership prior to the Effective Time and shall be
borne by Buyer to the extent such production occurs after the
Effective Time.
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4.4
Post-Closing Adjustments
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(A)
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A
post-closing adjustment statement (the “Post-Closing
Adjustment Statement”) based on the actual income and
expenses shall be prepared and delivered by Seller to Buyer within
ninety (90) days after the Closing, proposing further adjustments
to the calculation of the Purchase Price based on the information
then available. Seller or Buyer, as the case may be,
shall be given access to and shall be entitled to review and audit
the other Party’s records pertaining to the computation of
amounts claimed in such Post-Closing Adjustment
Statement.
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(B)
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Within
thirty (30) days after receipt of the Post-Closing Adjustment
Statement, Buyer shall deliver to Seller a written statement
describing in reasonable detail its objections (if any) to any
amounts or items set forth on the Post-Closing Adjustment
Statement. If Buyer does not raise objections within
such period, then the Post-Closing Adjustment Statement shall
become final and binding upon the Parties at the end of such
period.
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(C)
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If
Buyer raises objections, the Parties shall negotiate in good faith
to resolve any such objections. If the Parties are
unable to resolve any disputed item within thirty (30) days after
Buyer’s receipt of the Post-Closing Adjustment Statement, any
disputed accounting item shall be submitted to a nationally
recognized independent accounting firm mutually agreeable to the
Parties who shall be instructed to resolve such disputed item
within thirty (30) days. The resolution of disputes by
the accounting firm so selected shall be set forth in writing and
shall be conclusive, binding and non-appealable upon the Parties
with respect to the accounting matters submitted and the
Post-Closing Adjustment Statement shall become final and binding
upon the Parties on the date of such resolution. The
fees and expenses of such accounting firm shall be paid one-half by
Buyer and one-half by Seller.
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(D)
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After
the Post-Closing Adjustment Statement has become final and binding
on the Parties, Seller or Buyer, as the case may be, shall pay to
the other such sums as are due to settle accounts between the
Parties due to differences between the estimated Purchase Price
paid pursuant to the Closing Adjustment Statement and the actual
Purchase Price set forth on the Post-Closing Adjustment
Statement.
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4.5
Suspended Funds. At
the Closing, Seller shall provide to Buyer a listing showing
all proceeds from production attributable to the Leases which
are currently held in suspense and shall transfer to Buyer all
of those suspended proceeds. Buyer shall be
responsible for proper distribution of all the suspended
proceeds, to the extent turned over to it by Seller, to the
parties lawfully entitled to them and any claims related
thereto, and Buyer hereby agrees to indemnify, defend and hold
harmless Seller from and against any and all claims,
liabilities, losses, costs and expenses arising out of or
relating to those suspended proceeds and any claims related
thereto after the Effective Date. Seller shall
remain responsible and liable for any claims, liabilities,
losses, costs and expenses arising out of or relating to those
suspended proceeds and any claims related thereto through the
Closing Date.
4.6
Audit Adjustments. Seller
retains all rights to adjustments resulting from any operating
agreement and other audit claims asserted against third party
operators on transactions occurring prior to the Effective
Time (which includes Buyer, if applicable). Any
credit received by Buyer pertaining to such an audit claim
shall be paid to Seller within thirty (30) days after
receipt.
4.7
Cooperation. Each
Party covenants and agrees to promptly inform the other with
respect to amounts owing under Sections 4.4 and 4.6
hereof.
5.
DUE DILIGENCE: TITLE MATTERS .
5.1
General Access
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(A)
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During
reasonable business hours, Seller agrees to grant Buyer physical
access to the Leases and Wells to allow Buyer to conduct, at
Buyer’s sole risk and expense, on-site inspections and
environmental assessments of the Leases and Wells. Buyer agrees not
to enter onto the Leases or contact field employees without
Seller’s prior knowledge. In connection with any such on-site
inspections, Buyer agrees not to interfere with the normal
operation of the Leases and Wells and agrees to comply with all
requirements of the operators of the Wells. If Buyer or
its agents prepares an environmental assessment of any Lease or
Well, Buyer agrees to keep such assessment confidential and to
furnish copies thereof to Seller. In connection with
granting such access, Buyer represents that it is adequately
insured and waives, releases and agrees to indemnify the Seller
against all claims for injury to, or death of, persons or for
damage to operations or property arising in any way from the access
afforded to Buyer hereunder or the activities of
Buyer. This waiver, release and indemnity by Buyer shall
survive termination of this Agreement.
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(B)
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Upon
the execution of this Agreement, Seller shall give Buyer and its
representatives, employees, consultants, independent contractors,
attorneys and other advisors reasonable access to the Records
during regular office hours for any and all inspections and
copying.
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5.2
Defensible Title. As
used herein the term Defensible Title shall mean:
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(A)
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As
to the Assets, that record title or operating rights of Seller
which:
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(i)
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entitles
Seller to receive not less than the interests shown in Exhibit 2.4
as the “Net Revenue Interest” of all Oil and Gas
produced, saved and marketed from or allocated to the formations in
the associated Wells which are producing as of the date of this
Agreement or which have otherwise been given Allocated Value, all
without reduction, suspension or termination except as stated in
such Exhibit or otherwise permitted as Permitted Encumbrances;
and
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(ii)
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obligates
Seller to bear a percentage of the costs and expenses relating to
the maintenance and development of, and operations relating to, the
producing formations in each associated Well not greater than the
“Working Interest” shown in Exhibit 2.4 (without a
proportionate increase in the Net Revenue Interest), all without
increase except as stated in such Exhibit or otherwise permitted as
Permitted Encumbrances; and
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(B)
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That
title of Seller to the Assets is free and clear of liens,
encumbrances and defects that materially and adversely affect the
ownership, operation or use of the Assets, except for Permitted
Encumbrances.
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(C)
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As
used herein, the term “Permitted Encumbrances” shall
mean any one or more of the following:
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(1) The
provisions of the Leases and any lessor’s royalties,
overriding royalties, net profits interests, carried interests,
production payments, reversionary interests and similar burdens
reflected in the public records or in the Records, if the net
cumulative effect of the burdens does not operate to reduce the Net
Revenue Interest of Seller below the interests described in Exhibit
2.4;
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(2) Any
increase in lessor’s royalty occasioned by the repeal or
suspension of any governmental regulation providing for the
reduction of royalty for wells producing below defined threshold
amounts;
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(3) Division
orders and production sales contracts terminable without penalty
upon no more than ninety (90) days notice to the
purchaser;
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(4) Preferential
Rights and required third party consents to assignment and similar
agreements with respect to which waivers or consents are obtained
from the appropriate parties, or the appropriate time period for
asserting any such right has expired without an exercise of the
right;
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(5) Materialman’s,
mechanic’s, repairman’s, employee’s,
contractor’s, operator’s and other similar liens or
charges arising in the ordinary course of business for obligations
that are not delinquent or that will be paid and discharged in the
ordinary course of business, or if delinquent, that are being
contested in good faith by appropriate action of which Buyer is
notified in writing before Closing;
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(6) All
rights to consent by, required notices to, filings with, or other
actions by governmental entities in connection with the sale or
conveyance of oil and gas leases or interests therein if they are
routinely obtained subsequent to the sale or
conveyance;
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(7) Easements,
rights-of-way, servitudes, permits, surface leases and other rights
in respect of surface operations that do not materially interfere
with the oil and gas operations to be conducted on any Well or
Lease;
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(8) All
operating agreements, unit agreements, unit operating agreements,
pooling agreements and pooling designations affecting the Assets
that are either (i) of record in Seller’s chain of title
or (ii) reflected or referenced in the Records or
(iii) included as Material Agreements on Exhibit
7.1(K);
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(9) Conventional
rights of reassignment prior to release or surrender requiring
notice to the holders of the rights;
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(10)
All rights reserved to or vested in any governmental, statutory or
public authority to control or regulate any of the Assets in any
manner, and all applicable laws, rules and orders of governmental
authority;
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(11)
Defects that are defensible by possession under applicable statutes
of limitation for adverse possession or for prescription;
and
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(12)
All other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects and irregularities affecting the
Assets that individually or in the aggregate are not such as to
materially interfere with or affect the operation, value or use of
any of the Assets or have not prevented, and cannot reasonably be
expected to prevent, Buyer from receiving the proceeds of
production from the affected Assets.
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5.3
Defect Letters .
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(A)
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Buyer
may from time to time and no later than three (3) business days
prior to Closing notify Seller in writing (a “Notice”)
of any matter which would cause title to all or part of the Assets
not to be Defensible Title (“Title Defect”), provided
that no Title Defect shall be deemed to exist unless the Title
Defect Value thereof exceeds Ten Thousand Dollars ($10,000.00).
Further, there shall be no adjustment to the Base Purchase Price
unless the aggregate Title Defect Values of all Title Defects
satisfying the condition in clause (i) exceed one percent (1%)
of the Base Purchase Price (the “Title Defect
Threshold”) (such amount being a threshold, not a
deductible). In order to provide Seller a reasonable
opportunity to cure any Title Defects prior to Closing, Buyer shall
use reasonable efforts to provide the Notice as soon as reasonably
possible after becoming aware of or making its determination of the
Title Defect.
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(B)
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In
the Notice, Buyer must describe with reasonable detail each alleged
Title Defect it has discovered and the steps required to cure each
Title Defect, include Buyer’s reasonable estimate of the
Title Defect Value attributable to each, and include all data and
information in Buyer’s possession or control bearing
thereon. Subject to the special warranty in the
Assignment and Bill of Sale delivered at Closing, Buyer shall be
deemed to have conclusively waived all Title Defects not disclosed
to Seller in a Notice before three (3) business days prior to
Closing. Subject to the special warranty in the
Assignment and Bill of Sale delivered at Closing, Buyer waives any
remedy against Seller for Title Defects that do not exceed the
Title Defect Threshold or for which timely notice is not given as
provided hereunder or for which adjustment is made as hereafter
provided.
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(C)
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Upon
timely delivery of a Notice by Buyer:
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(i) within
three (3) business days after Seller’s receipt of the Title
Defects Notice, Seller shall notify Buyer whether Seller agrees
with Buyer’s claimed Title Defects and/or the proposed Title
Defect Values therefor (“Seller’s
Response”). If Seller does not agree with any
claimed Title Defect and/or the proposed Title Defect Value
therefor, then the Parties shall enter into good faith negotiations
and shall attempt to agree on such matters;
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(ii) within
one (1) business day after Seller’s notice of its cure of a
Title Defect, Buyer shall notify Seller whether Buyer agrees with
Seller’s proposed cure of a Title Defect
(“Buyer’s Response”). If Buyer does
not agree with any such cure, then the Parties shall enter into
good faith negotiations and shall attempt to agree on such
matters;
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(iii) if
the Parties cannot reach agreement concerning either the existence
of a Title Defect, Seller’s proposed cure of a Title Defect,
or a Title Defect Value within ten (10) days after Buyer’s
receipt of Seller’s Response or Seller’s receipt of
Buyer’s Response, as applicable, upon either Party’s
request, the Parties shall mutually agree on and employ an attorney
experienced in title examination in the state where the Assets are
located (“Title Consultant”) to resolve all points of
disagreement relating to Title Defects and Title Defect Values;
provided that Seller or Buyer may elect not to proceed to Closing
with regard to such Assets and adjust the Base Purchase Price in
the amount of the Allocated Value and not submit such matter to
arbitration;
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(iv) if
at any time any Title Consultant so chosen fails or refuses to
perform hereunder, a new Title Consultant shall be chosen by the
Parties. The cost of any such Title Consultant shall be
borne fifty percent (50%) by Seller and fifty percent (50%) by
Buyer. Each Party shall present a written statement of
its position on the Title Defect and/or Title Defect Value in
question to the Title Consultant within five (5) days after the
Title Consultant is selected, and the Title Consultant shall make a
determination of all points of disagreement in accordance with the
terms and conditions of this Agreement within ten (10) business
days of receipt of such position statements. The
determination by the Title Consultant shall be conclusive and
binding on the Parties, and shall be enforceable against any Party
in any court of competent jurisdiction. If necessary,
the Closing Date shall be deferred only as to those Assets affected
by any unresolved disputes regarding the existence of a Title
Defect and/or the Title Defect Value until the Title Consultant has
made a determination of the disputed issues with respect thereto
and all subsequent dates and required activities with respect to
any such Assets having reference to the Closing Date shall be
correspondingly deferred; provided, however, that, unless Seller
and Buyer mutually agree to the contrary, the Closing Date shall
not be deferred in any event for more than thirty (30) days beyond
the scheduled Closing Date in Section 3.1. Once the
Title Consultant’s determination has been expressed to both
Parties, if applicable, Seller shall have five (5) days in which to
advise Buyer in writing which of the options available to Seller
under Section 5.4 that Seller elects regarding each of the Assets
as to which the Title Consultant has made a
determination. In evaluating whether a Title Defect
exists, due consideration shall be given to the length of time that
the particular Asset has been producing Oil and Gas and whether
such fact, circumstance or condition is of the type expected to be
encountered in the area involved and is usual and customarily
acceptable to reasonable and prudent operators, working interest
owners and/or purchasers engaged in the business of the
exploration, development, and operation of oil and gas
properties.
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5.4
Effect of Title Defect
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(A)
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In
the event Buyer provides Seller with a timely Notice and the Title
Defects are valid and exceed the Title Defect Threshold, for those
Title Defects not cured by Closing, Seller may, at its sole
discretion:
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(i) adjust
the Base Purchase Price in the amount of the Title Defect Value of
the Asset to which such Title Defect relates and proceed to Closing
on all Assets; provided that Seller shall not be obligated to
transfer any Assets for which the Title Defect Value equals or
exceeds such Asset’s Allocated Value; or
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(ii) proceed
with (a) Closing on those Assets not affected by the valid Title
Defects and such Assets to which a Title Defect relates but for
which Seller has elected to proceed to Closing with an adjustment
of the Base Purchase Price in the amount of the Title Defect Value
of such Assets and (b) defer Closing on those other Assets to
which a Title Defect relates and for which Seller has elected to
attempt to cure such Title Defect and to not proceed to Closing,
for which Buyer shall place into escrow an amount equal to the
Allocated Values of the Assets affected by the valid Title Defects,
which withheld amount shall be paid to Seller when the Asset
affected by any valid Title Defect is cured or the Title Defect is
waived by Buyer and the affected Asset is conveyed from Seller to
Buyer. If neither of the above occurs and if Seller
later determines it will not cure a Title Defect on or before six
(6) months from the Closing Date, the amount in the escrow account
attributable to such Title Defect will be returned to Buyer and
Seller shall retain such Asset affected by such Title
Defect.
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(B)
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The
diminution in value of an Asset attributable to a valid Title
Defect (the “Title Defect Value”) notified in a Notice
shall be determined by the following:
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(i) if
the valid Title Defect asserted is that the actual Net Revenue
Interest attributable to the producing or valued formation in any
Asset is less than that stated in the applicable Exhibit, then the
Title Defect Value is the product of the Allocated Value attributed
to the affected formation(s) in such Asset, multiplied by a
fraction, the numerator of which is the difference between the Net
Revenue Interest set forth in the applicable Exhibit and the actual
Net Revenue Interest, and the denominator of which is the Net
Revenue Interest stated in the applicable Exhibit; or
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(ii) if
the valid Title Defect represents an obligation, encumbrance,
burden or charge upon the affected Asset (including any increase in
Working Interest for which there is not a proportionate increase in
Net Revenue Interest), the amount of the Title Defect Value is to
be determined by taking into account the Allocated Value of such
Asset, the portion of the Asset affected by the Title Defect, the
legal effect of the Title Defect, the potential economic effect of
the Title Defect over the life of the affected Asset, and the Title
Defect Values placed upon the Title Defect by Buyer and
Seller.
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(iii) Notwithstanding
the above, in no event shall the total of the Title Defect Values
related to a particular Asset exceed the Allocated Value of such
Asset.
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(C)
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If
the aggregate value of (i) the Base Purchase Price adjustment
for Title Defect Values plus (ii) the Allocated Value of
Assets which are retained in lieu of cure or adjustment equals or
exceeds ten percent (10%) of the Base Purchase Price, then by
notice delivered prior to the Closing either Party may terminate
this Agreement and neither Party shall have any further obligation
to conclude the transfer of the Assets under this
Agreement.
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5.5
Preferential Rights and Consents .
Seller
shall use its best efforts to obtain all required consents and
to give notices required in connection with preferential
purchase rights, so that the third party election date to
exercise the preferential right will occur at least seven (7)
business days prior to Closing. If Buyer discovers
other affected Assets during the course of Buyer’s due
diligence activities, Buyer shall notify Seller immediately
and Seller shall use its best efforts to obtain such consents
and to give the notices required in connection with the
preferential rights prior to Closing.
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Except
for consents and approvals which are customarily obtained
post-Closing and those consents which would not invalidate the
conveyance of the Assets, if a necessary consent to assign any
Lease has not been obtained as of the Closing that would invalidate
the conveyance of the Asset, then (i) the portion of the
Assets for which such consent has not been obtained shall not be
conveyed at the Closing, (ii) the Allocated Value for that
Asset shall not be paid to Seller, and (iii) Seller shall use
best efforts to obtain such consent as promptly as possible
following Closing. If such consent has been obtained as
of the date on which the Post-Closing Adjustment Statement becomes
final, Seller shall convey the affected Asset to Buyer effective as
of the Effective Time and Buyer shall pay Seller the Allocated
Value of the affected Asset, less any proceeds from the affected
Asset received by Seller attributable to the period of time after
the Effective Time (calculated in accordance with Section
2.3). If such consent has not been obtained or has not
been waived by Buyer as of the date on which the Post-Closing
Adjustment Statement becomes final, Seller shall elect either to
(i) challenge in court the enforceability of such consent
right, in which event Seller shall retain the affected Asset until
such legal challenge is finally resolved by settlement or
non-appealable court order, after which either Seller shall convey
the affected Asset to Buyer under the terms of this Agreement and
Buyer shall pay the Allocated Value of the Purchase Price for such
Asset, less any proceeds received by Seller attributable to such
Asset for the period from and after the Effective Time (calculated
in accordance with Section 2.3) or (ii) retain the affected
Asset and the Purchase Price shall be reduced by an amount equal to
the Allocated Value of the retained Asset (with such adjustment
being an “Exclusion Adjustment”). Buyer
shall reasonably cooperate with Seller in obtaining any required
consent including providing assurances of reasonable financial
conditions, but Buyer shall not be required to expend funds or make
any other type of financial commitments a condition of obtaining
such consent.
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(B)
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Preferential Purchase Rights .
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(i) If
any preferential right to purchase any portion of the Assets is
exercised prior to the Closing Date, or if the time frame for the
exercise of such preferential purchase rights has not expired and
Seller has not received notice of an intent not to exercise or
waiver of the preferential purchase right, that portion of the
Assets affected by such preferential purchase right shall be
excluded from the Assets and the Purchase Price shall be adjusted
downward by an amount equal to the Allocated Value of such affected
Assets without the requirement for Buyer to give notice (with such
adjustment being an “Exclusion
Adjustment&rdq
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