AGREEMENT OF SALE AND PURCHASE

Exhibit 2.1

AGREEMENT OF SALE AND PURCHASE

BY AND AMONG

PETROHAWK PROPERTIES, LP

AND

KCS RESOURCES, LLC

TOGETHER, AS SELLER

AND

MERIT MANAGEMENT PARTNERS I, L.P.

AS PURCHASER

September 18, 2009

TABLE OF CONTENTS

 

 

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EXHIBITS

 

SCHEDULES

 

 

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DEFINITIONS

“1031 Assets” has the meaning set forth in Section 7.8(c) .

“Actual Knowledge” has the meaning set forth in Section 5.1(a) .

“Adjusted Purchase Price” shall mean the Purchase Price after calculating and applying the adjustments set forth in Section 2.2 .

“Adjustment Period” has the meaning set forth in Section 2.2(a) .

“AFE” means authority for expenditure.

“Affiliates” with respect to any Person, means any Person that directly or indirectly controls, is controlled by or is under common control with such Person. The concept of control, controlling or controlled as used in the aforesaid context means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another, whether through the ownership of voting securities, by contract or otherwise. No Person shall be deemed an Affiliate of any Person by reason of the exercise or existence of rights, interests or remedies under this Agreement.

“Aggregate Benefit Deductible” has the meaning set forth in Section 3.4(j) .

“Aggregate Defect Deductible” has the meaning set forth in Section 3.4(j) .

“Aggregate Indemnity Deductible” has the meaning set forth in Section 11.4(c) .

“Agreed Accounting Firm” has the meaning set forth in Section 9.4(b) .

“Agreed Interest Rate” means the rate of interest published in the Wall Street Journal from time to time, as the one month London Interbank Offered Rate (LIBOR) plus 200 basis points, with adjustments in that rate to be made on the same day as any change in that rate.

“Agreement” means this Agreement of Sale and Purchase.

“Allocated Value” has the meaning set forth in Section 3.4(a) .

“Assessment” has the meaning set forth in Section 4.1 .

“Assets” has the meaning set forth in Section 1.2 .

“Assumed Seller Obligations” has the meaning set forth in Section 11.3 .

“Business Day” means each calendar day except Saturdays, Sundays, and federal holidays.

“CERCLA” has the meaning set forth in the definition of Environmental Laws.

“Claim Notice” has the meaning set forth in Section 11.4(b) .

 

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“Closing” has the meaning set forth in Section 9.1(a) .

“Closing Date” has the meaning set forth in Section 9.1(b) .

“Closing Payment” has the meaning set forth in Section 9.4(a) .

“Code” means the United States Internal Revenue Code of 1986, as amended.

“Confidentiality Agreement” has the meaning set forth in Section 7.1(a) .

“Contracts” has the meaning set forth in Section 1.2(d) .

“Conveyance” has the meaning set forth in Section 3.1(b) .

“COPAS” has the meaning set forth in Section 1.4(b) .

“Cure Period” has the meaning set forth in Section 3.4(c) .

“Defensible Title” has the meaning set forth in Section 3.2 .

“Deposit” has the meaning set forth in Section 2.1 .

“DTPA” has the meaning set forth in Section 11.10(a) .

“Earned” has the meaning set forth in Section 1.4(b) .

“Effective Time” has the meaning set forth in Section 1.4(a) .

“Environmental Claim Date” has the meaning set forth in Section 4.3 .

“Environmental Defect” has the meaning set forth in Section 4.3 .

“Environmental Defect Amount” has the meaning set forth in Section 4.3 .

“Environmental Defect Notice” has the meaning set forth in Section 4.3 .

“Environmental Laws” means, as the same may have been amended, any federal, state or local law relating to (i) the control of any potential pollutant or protection of the environment, including air, water or land, (ii) the generation, handling, treatment, storage, disposal or transportation of waste materials, or (iii) the regulation of or exposure to hazardous, toxic or other substances alleged to be harmful, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq . (“CERCLA”); the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq . (“RCRA”); the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq .; the Clean Air Act, 42 U.S.C. § 7401 et seq . the Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq .; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq .; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq .; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136 et seq.; the Occupational Safety and

 

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Health Act, 29 U.S.C. § 651 et seq .; the Atomic Energy Act, 42 U.S.C. § 2011 et seq. (“AEA”); and all applicable related law, whether local, state, territorial, or national, of any Governmental Body having jurisdiction over the property in question addressing pollution or protection of human health, safety, natural resources or the environment and all regulations implementing the foregoing. The term “Environmental Laws” includes all judicial and administrative decisions, orders, directives, and decrees issued by a Governmental Body pursuant to the foregoing.

“Environmental Liabilities” shall mean any and all environmental response costs (including costs of remediation), damages, natural resource damages, settlements, consulting fees, expenses, penalties, fines, orphan share, prejudgment and post-judgment interest, court costs, attorneys’ fees, and other liabilities incurred or imposed (i) pursuant to any order, notice of responsibility, directive (including requirements embodied in Environmental Laws), injunction, judgment or similar act (including settlements) by any Governmental Body to the extent arising out of any violation of, or remedial obligation under, any Environmental Laws which are attributable to the ownership or operation of the Assets prior to the Effective Time or (ii) pursuant to any claim or cause of action by a Governmental Body or other Person for personal injury, property damage, damage to natural resources, remediation or response costs to the extent arising out of any violation of, or any remediation obligation under, any Environmental Laws which is attributable to the ownership or operation of the Assets prior to the Closing.

“Equipment” has the meaning set forth in Section 1.2(f) .

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Event” has the meaning set forth in definition of Material Adverse Effect.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, together with the rules and regulations of the SEC promulgated thereunder.

“Excluded Assets” has the meaning set forth in Section 1.3 .

“Excluded Seller Obligations” has the meaning set forth in Section 11.3 .

“Final Purchase Price” has the meaning set forth in Section 9.4(b) .

“Final Settlement Date” has the meaning set forth in Section 9.4(b) .

“Fundamental Representations” has the meaning set forth in Section 11.4(a) .

“Future Well” means a well that may be drilled in the future on a Future Well Location, which (for the purposes of determining Defensible Title thereto and any Title Defects associated therewith pursuant to this Agreement) shall be treated as if such well had been drilled and completed and was in existence at or prior to the date of this Agreement.

“Future Well Location” means each drilling location identified on Exhibit A-1 , subject to any depth restriction set forth in such Exhibit A-1 with respect to such location.

 

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“GAAP” means generally accepted accounting principles in effect in the United States as amended from time to time.

“Governmental Authorizations” has the meaning set forth in Section 5.12 .

“Governmental Body” or “Governmental Bodies” means any federal, state, local, municipal, or other government; any governmental, regulatory or administrative agency, commission, body, arbitrator or arbitration panel or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; and any court or governmental tribunal.

“Hazardous Material” means (i) any “hazardous substance,” as defined by CERCLA, (ii) any “hazardous waste” or “solid waste,” in either case as defined by RCRA, and any analogous state statutes, and any regulations promulgated thereunder, (iii) any solid, hazardous, dangerous or toxic chemical, material, waste or substance, within the meaning of and regulated by any applicable Environmental Laws, (iv) any radioactive material, including any naturally occurring radioactive material, and any source, special or byproduct material as defined in AEA and any amendments or authorizations thereof, (v) any regulated asbestos-containing materials in any form or condition, (vi) any regulated polychlorinated biphenyls in any form or condition, and (vii) petroleum, petroleum hydrocarbons or any fraction or byproducts thereof.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Hydrocarbons” means oil, gas, casinghead gas, condensate, natural gas liquids, and other gaseous and liquid hydrocarbons or any combination thereof and sulphur and other minerals extracted from or produced with the foregoing.

“Imbalance” or “Imbalances” means any over-production, under-production, over-delivery, under-delivery or similar imbalance of Hydrocarbons produced from or allocated to the Assets, regardless of whether such over-production, under-production, over-delivery, under-delivery or similar imbalance arises at the wellhead, pipeline, gathering system, transportation system, processing plant or other location.

“incurred” has the meaning set forth in Section 1.4(b) .

“Indemnified Party” has the meaning set forth in Section 11.7(a) .

“Indemnifying Party” has the meaning set forth in Section 11.7(a) .

“Indemnity Agreement” has the meaning set forth in Section 3.4(d)(ii) .

“Independent Expert” has the meaning set forth in Section 4.3 .

“Individual Indemnity Threshold” has the meaning set forth in Section 11.4(c)

“Individual Benefit Threshold” has the meaning set forth in Section 3.4(j) .

“Individual Environmental Threshold” has the meaning set forth in Section 4.3 .

 

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“Individual Title Threshold” has the meaning set forth in Section 3.4(j) .

“Invasive Activity” has the meaning set forth in Section 4.1 .

“KCS” means KCS Resources, LLC, a Delaware limited liability company.

“Lands” has the meaning set forth in Section 1.2(a) .

“Laws” means all statutes, laws, rules, regulations, ordinances, orders, decrees and codes of Governmental Bodies.

“Leases” has the meaning set forth in Section 1.2(a) .

“Like-Kind Exchange” has the meaning set forth Section 7.8(c) .

“Losses” means any and all debts, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), diminution in value, monetary damages, fines, fees, Taxes, penalties, interest obligations, deficiencies, losses and expenses (including amounts paid in settlement, interest, court costs, costs of investigators, reasonable fees and expenses of attorneys, accountants, financial advisors and other experts, and other actual out of pocket expenses incurred in investigating and preparing for or in connection with any Proceeding); however, excluding special, punitive, exemplary, consequential or indirect damages, except to the extent a party is required to pay such damages to a third party in connection with a matter for which such party is entitled to indemnification under Article 11 .

“Lowest Cost Response” means the response required or allowed under Environmental Laws that addresses the condition present at the lowest cost (considered as a whole taking into consideration any material negative impact such response may have on the operations of the relevant assets and any potential material additional costs or liabilities that may likely arise as a result of such response) as compared to any other response that is required or allowed under Environmental Laws.

“Material Adverse Effect” means any change, inaccuracy, circumstance, effect, event, result, occurrence, condition or fact (each an “Event”) (whether or not (i) foreseeable or known as of the date of this Agreement or (ii) covered by insurance) that has had, or could reasonably be expected to have, a material adverse effect on (i) the ownership, operation or value of the Assets, taken as a whole, or (ii) the ability of Seller to consummate the transactions contemplated hereby. Excluded from such Events for the purposes of determining whether a “Material Adverse Affect” has occurred or could reasonably be expected to occur are (A) Events resulting from entering into this Agreement or the announcement of the transactions contemplated by this Agreement, (B) Events resulting from changes in general market, economic, financial or political conditions or any outbreak of hostilities or war or terrorist events, (C) Events that affect the Hydrocarbon exploration, production, development, processing, gathering and/or transportation industry generally (including changes in commodity prices or general market prices in the Hydrocarbon exploration, production, development, processing, gathering and/or transportation industry generally), (D) any effect resulting from a change in Laws or regulatory policies, and (E) the consequences of drilling and production operations (including but not limited to

 

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depletion, the watering out of any Well(s), collapsed casing or sand infiltration of any Well(s), sidetrack drilling operations on any Well(s), drilling results of any Well(s), and the depreciation of personal property due to ordinary wear and tear with respect to the Assets).

“Material Contracts” has the meaning set forth in Section 5.10 .

“NMUPA” has the meaning set forth in Section 11.10(a) .

“Net Revenue Interest” has the meaning set forth in Section 3.2(a) .

“NORM” means naturally occurring radioactive material.

“Notice Period” has the meaning set forth in Section 11.7(a) .

“PEC” means Petrohawk Energy Corporation, a Delaware corporation and ultimate parent of Seller.

“Permitted Encumbrances” has the meaning set forth in Section 3.3 .

“Person” means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Body or any other entity.

“Petrohawk Properties” means Petrohawk Properties, LP, a Texas limited partnership.

“Personal Property” has the meaning set forth in Section 1.2(g) .

“Pipelines” has the meaning set forth in Section 1.2(g) .

“Preference Property” has the meaning set forth in Section 7.7(b) .

“Preference Right” means any right or agreement that enables any Person to purchase or acquire any Asset or any interest therein or portion thereof as a result of or in connection with (i) the sale, assignment or other transfer of any Asset or any interest therein or portion thereof or (ii) the execution or delivery of this Agreement or the consummation or performance of the terms and conditions contemplated by this Agreement.

“Proceeding” or “Proceedings” has the meaning set forth in Section 5.7 .

“Properties” has the meaning set forth in Section 1.2(c) .

“Property Costs” has the meaning set forth in Section 1.4(b) .

“Purchase Price” has the meaning set forth in Section 2.1 .

“Purchaser” has the meaning set forth in the preamble hereto.

“Purchaser Indemnified Persons” has the meaning set forth in Section 11.5 .

“Qualified Intermediary” has the meaning set forth in Section 7.8(c) .

 

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“RCRA” has the meaning set forth in the definition of Environmental Laws.

“Records” has the meaning set forth in Section 1.2(i) .

“ REGARDLESS OF FAULT ” means WITHOUT REGARD TO THE CAUSE OR CAUSES OF ANY CLAIM, INCLUDING, WITHOUT LIMITATION, EVEN THOUGH A CLAIM IS CAUSED IN WHOLE OR IN PART BY:

OTHER THAN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THE NEGLIGENCE (WHETHER SOLE, JOINT, CONCURRENT, COMPARATIVE, CONTRIBUTORY, ACTIVE OR PASSIVE), STRICT LIABILITY, OR OTHER FAULT OF THE SELLER INDEMNIFIED PERSONS; AND/OR

A PRE-EXISTING DEFECT, WHETHER PATENT OR LATENT, OF THE PREMISES OF PURCHASER’S PROPERTY OR SELLER’S PROPERTY (INCLUDING WITHOUT LIMITATION THE ASSETS), INVITEES AND/OR THIRD PARTIES; AND/OR

THE UNSEAWORTHINESS OF ANY VESSEL OR UNAIRWORTHINESS OF ANY AIRCRAFT OF A PARTY WHETHER CHARTERED, OWNED, OR PROVIDED BY THE PURCHASER INDEMNIFIED PERSONS, SELLER INDEMNIFIED PERSONS, INVITEES AND/OR THIRD PARTIES.

“Retained Asset” has the meaning set forth in Section 7.7(c) .

“Retained Employee Liabilities” shall mean any liabilities of Seller (i) to employees of Seller arising under the Worker Adjustment Retraining Notification Act of 1988 as a result of actions taken by Seller prior to the Closing, (ii) arising out of claims by Seller employees with respect to events that occur prior to the Closing and that relate to their employment with, or the terminations of their employment from, Seller, (iii) with respect to employees of Seller arising under any “employee benefit plan” (as defined in Section 3(3) of ERISA) that is sponsored by, contributed to, or maintained by, Seller, or (iv) arising under ERISA for which Purchaser may have any liability under ERISA solely as a result of the consummation of the transaction contemplated by this Agreement.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, together with the rules and regulations of the SEC promulgated thereunder.

“Seller” has the meaning set forth in the preamble hereto.

“Seller Indemnified Persons” has the meaning set forth in Section 11.6 .

“Seller Operated Assets” means Assets operated by Seller or an Affiliate of Seller.

“Surface Contracts” has the meaning set forth in Section 1.2(e) .

 

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“Taxes” means all federal, state, local, and foreign income, profits, franchise, sales, use, ad valorem, property, severance, production, excise, stamp, documentary, real property transfer or gain, gross receipts, goods and services, registration, capital, transfer, or withholding taxes or other governmental fees or charges imposed by any Governmental Body, including any interest, penalties or additional amounts which may be imposed with respect thereto.

“Tax Returns” has the meaning set forth in Section 5.8(a) .

“Termination Date” has the meaning set forth in Section 10.1(b)(i) .

“Third Party Claim” has the meaning set forth in Section 11.7(a) .

“Title Benefit” has the meaning set forth in Section 3.2(d) .

“Title Benefit Amount” has the meaning set forth in Section 3.4(e) .

“Title Benefit Notice” has the meaning set forth in Section 3.4(b) .

“Title Claim Date” has the meaning set forth in Section 3.4(a) .

“Title Defect” has the meaning set forth in Section 3.2(d) .

“Title Defect Amount” has the meaning set forth in Section 3.4(d)(i) .

“Title Defect Notice” has the meaning set forth in Section 3.4(a) .

“Title Defect Property” has the meaning set forth in Section 3.4(a) .

“Title Expert” has the meaning set forth in Section 3.4(i) .

“Transfer Requirement” means any consent, approval, authorization or permit of, or filing with or notification to, any Person which is required to be obtained, made or complied with for or in connection with any sale, assignment or transfer of any Asset or any interest therein; provided, however, that “Transfer Requirement” shall not include any consent of, notice to, filing with, or other action by any Governmental Body in connection with the sale or conveyance of oil and/or gas leases or interests therein or Surface Contracts or interests therein, if they are not required prior to the assignment of such oil and/or gas leases, Surface Contracts or interests or they are customarily obtained subsequent to the sale or conveyance (including consents from state agencies).

“Transfer Taxes” has the meaning set forth in Section 12.3 .

“Units” has the meaning set forth in Section 1.2(c) .

“Warranty Well” means a Well or a Future Well, as the context requires.

“Wells” has the meaning set forth in Section 1.2(b) .

 

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AGREEMENT OF SALE AND PURCHASE

This Agreement of Sale and Purchase is executed on September 18, 2009, by and among Petrohawk Properties, LP, a Texas limited partnership, KCS Resources, LLC, a Delaware limited liability company (together “Seller”), and Merit Management Partners I, L.P., a Delaware limited partnership (“Purchaser”).

RECITALS

A. Seller owns the Assets as more fully described in Section 1.2 and the exhibits hereto.

B. Seller desires to sell to Purchaser and Purchaser desires to purchase from Seller the properties and rights of Seller hereafter described, in the manner and upon the terms and conditions hereafter set forth.

NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound by the terms hereof, agree as follows:

ARTICLE 1

PURCHASE AND SALE

Section 1.1 Purchase and Sale .

At the Closing, and upon the terms and subject to the conditions of this Agreement, Seller agrees to sell, transfer and convey the Assets to Purchaser and Purchaser agrees to purchase, accept and pay for the Assets and to assume the Assumed Seller Obligations.

Section 1.2 Assets .

As used herein, the term “Assets” means, subject to the terms and conditions of this Agreement, all of Seller’s right, title, interest and estate, in and to the following (but excluding the Excluded Assets):

(a) All of the oil and gas leases; subleases and other leaseholds; interests in fee; carried interests; reversionary interests; net profits interests; farmout rights; options; mineral interests and other properties and interests described on Exhibit A , subject to such depth limitations and other restrictions as may be set forth in the Oil and Gas Leases or other agreements of record (collectively, the “Leases”), together with each and every kind and character of right, title, claim, and interest that Seller has in and to the lands covered by the Leases and the interests currently pooled, unitized, communitized or consolidated therewith (the “Lands”);

(b) All oil, gas, water or injection wells located on the Lands, whether producing, shut-in, or temporarily abandoned, including but not limited to the interests in the wells shown on Exhibit A-1 attached hereto (collectively, the “Wells”);

(c) All leasehold interests of Seller in or to any currently existing pools or units which include any Lands or all or a part of any Leases or include any Wells, including those pools or units related to the Properties and associated with the Wells shown on Exhibit A-1 (the “Units”; the Units, together with the Leases, Lands and Wells, being hereinafter referred to as the “Properties”), and including all leasehold interests of Seller in production of Hydrocarbons from any such Unit, whether such Unit production of Hydrocarbons comes from Wells located on or off of a Lease, and all tenements, hereditaments and appurtenances belonging to the Leases and Units;

(d) All contracts, agreements and instruments by which the Properties are bound or subject, or that relate to or are otherwise applicable to the Properties, only to the extent applicable to the Properties rather than Seller’s or any of its Affiliates’ other properties, including but not limited to, operating agreements, unitization, pooling and communitization agreements, declarations and orders, joint venture agreements, farmin and farmout agreements, exploration agreements, participation agreements, area of mutual interest agreements, exchange agreements, transportation or gathering agreements, agreements for the sale and purchase of oil, gas or casinghead gas and processing agreements to the extent applicable to the Properties or the production of Hydrocarbons produced in association therewith from the Properties, including those identified on Schedule 1.2(d) (hereinafter collectively referred to as “Contracts”), but excluding any contracts, agreements and instruments to the extent transfer would result in a violation of applicable Law or is restricted by any Transfer Requirement that is not waived by Purchaser or satisfied pursuant to Section 7.7 and provided that “Contracts” shall not include the instruments constituting the Leases;

(e) All easements, permits, licenses, servitudes, rights-of-way, surface leases and other surface rights (“Surface Contracts”) appurtenant to, and used or held for use in connection with the Properties (including those identified on Schedule 1.2(e) ), but excluding any permits and other rights to the extent transfer would result in a violation of applicable Law or is restricted by any Transfer Requirement that is not waived by Purchaser or satisfied pursuant to Section 7.7 ;

(f) All treatment and processing plants and equipment, machinery, fixtures and other tangible personal property and improvements located on the Properties or used or held for use in connection with the operation of the Properties, including those identified on Exhibit A-2 (“Equipment”);

(g) All flow lines, pipelines, gathering systems and appurtenances thereto located on the Properties or used, or held for use, in connection with the operation of the Properties, including those identified on Schedule 1.2(g) (“Pipelines” and, together with the Equipment and Wells, “Personal Property”);

(h) All Hydrocarbons produced from or attributable to the Leases, Lands, and Wells from and after the Effective Time, together with Imbalances associated with the Properties;

(i) All lease files, land files, well files, gas and oil sales contract files, gas processing and transportation files, division order files, abstracts, title opinions, land surveys, logs, maps, engineering data and reports, interpretive data, technical evaluations and technical outputs, and other books, records, data, files, and accounting records, including but not limited to records

 

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showing all funds payable to owners of working interests, royalties and overriding royalties and other interests in the Properties held in suspense by Seller as of the Closing Date, in each case to the extent related to the Properties, or used or held for use in connection with the maintenance or operation thereof, but excluding (i) any books, records, data, files, logs, maps, evaluations, outputs, and accounting records to the extent disclosure or transfer would result in a violation of applicable Law or is restricted by any Transfer Requirement that is not satisfied pursuant to Section 7.7 , (ii) computer or communications software or intellectual property (including tapes, codes, data and program documentation and all tangible manifestations and technical information relating thereto), (iii) attorney-client privileged communications and work product of Seller’s or any of its Affiliates’ legal counsel (other than title opinions), (iv) reserve studies and evaluations, and (v) records relating to the marketing, negotiation, and consummation of the sale of the Assets (subject to such exclusions, the “Records”); provided, however, that Seller may retain the originals of such Records as Seller has reasonably determined may be required for existing litigation, tax, accounting, and auditing purposes;

(j) To the extent transferable, and subject to payment by Purchaser of all third party transfer and license fees, all geological and geophysical data (including all seismic data, as well as reprocessed data) related exclusively to the Properties, including those items identified in Schedule 1.2(j) ;

(k) All vehicles identified on Schedule 1.2(k) ;

(l) All funds contained in the escrow accounts identified in Schedule 1.2(l) , which are for plugging and abandonment of wells, and all funds payable to owners of working interests, royalties and overriding royalties and other interests in the Properties held in suspense by Seller as of the Closing Date; and

(m) All automation and telemetry equipment associated with the Assets.

Section 1.3 Excluded Assets.

Notwithstanding the foregoing, the Assets shall not include, and there is excepted, reserved and excluded from the transaction contemplated hereby (collectively, the “Excluded Assets”):

(a) except to the extent necessary to satisfy Seller’s obligations under Section 7.1 , (i) all corporate, financial, income and franchise tax and legal records of Seller that relate to Seller’s business generally (whether or not relating to the Assets), (ii) all books, records and files that relate to the Excluded Assets, (iii) those records retained by Seller pursuant to Section 1.2(i) and (iv) copies of any other Records retained by Seller pursuant to Section 1.5 ;

(b) all rights to any refund related to the Excluded Seller Obligations or Taxes or other costs or expenses borne by Seller or Seller’s predecessors in interest and title attributable to periods prior to the Effective Time;

(c) Seller’s area-wide bonds, permits and licenses or other permits, licenses or authorizations used in the conduct of Seller’s business generally;

(d) those items listed in Schedule 1.3(d) ;

 

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(e) all trade credits, accounts receivable, notes receivable, take-or-pay amounts receivable, pre-paid expenses and deposits, and other receivables attributable to the Assets with respect to any period of time prior to the Effective Time;

(f) all right, title and interest of Seller in and to vehicles used in connection with the Assets, other than those identified on Schedule 1.2(k) ;

(g) all rights, titles, claims and interests of Seller or any Affiliate of Seller (i) to or under any policy or agreement of insurance or any insurance proceeds; except to the extent provided in Section 3.5 , and (ii) to or under any bond or bond proceeds;

(h) subject to Section 12.5 , any patent, patent application, logo, service mark, copyright, trade name or trademark of or associated with Seller or any Affiliate of Seller or any business of Seller or of any Affiliate of Seller;

(i) a nonexclusive right to freely use any copies of any logs, interpretive data, technical outputs, technical evaluations, maps, engineering data and reports, and other data and information being transferred as a part of the Assets that Seller is entitled to retain pursuant to Section 1.5 ; and

(j) all Retained Assets not conveyed to Purchaser pursuant to Section 7.7 and any Property excluded pursuant to Section 3.4(d)(iii) .

Section 1.4 Effective Time; Proration of Costs and Revenues .

(a) Subject to Section 1.5 , possession of the Assets shall be transferred from Seller to Purchaser at the Closing, but certain financial benefits and burdens of the Assets shall be transferred effective as of 7:00 A.M., local time, where the respective Assets are located, on July 1, 2009 (the “Effective Time”), as described below.

(b) Purchaser shall be entitled to all Hydrocarbon production from or attributable to the Properties at and after the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits earned with respect to the Assets at or after the Effective Time, and shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred at and after the Effective Time. Seller shall be entitled to all Hydrocarbon production from or attributable to the Properties prior to the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time, and shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred prior to the Effective Time. “Earned” and “incurred”, as used in this Agreement, shall be interpreted in accordance with GAAP and Council of Petroleum Accountants Society (COPAS) standards, as applicable. “Property Costs” means all costs attributable to the ownership and operation of the Assets (including without limitation costs of insurance relating specifically to the Assets and ad valorem, property, severance, Hydrocarbon production and similar Taxes based upon or measured by the ownership or operation of the Assets or the production of Hydrocarbons therefrom, but excluding any other Taxes) and capital expenditures incurred in the ownership and operation of the Assets and, where applicable, in accordance with the relevant operating or

 

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unit agreement, if any, and overhead costs charged to the Assets under the relevant operating agreement or unit agreement, if any, by unaffiliated third parties and, with respect to Assets operated by Seller, $100,000/month (pro rated for any partial months as applicable). For purposes of this Section 1.4 , determination of whether Property Costs are attributable to the period before or after the Effective Time shall be based on when services are rendered, when the goods are delivered, or when the work is performed. For clarification, the date an item or work is ordered is not the date of a pre-Effective Time transaction for settlement purposes, but rather the date on which the item ordered is delivered to the job site, or the date on which the work ordered is performed, shall be the relevant date. For purposes of allocating Hydrocarbon production (and accounts receivable with respect thereto), under this Section 1.4 , (i) liquid Hydrocarbons shall be deemed to be “from or attributable to” the Properties when they are placed into the storage facilities and (ii) gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the delivery point sales meters on the pipelines through which they are transported. Seller shall utilize reasonable interpolative procedures to arrive at an allocation of Hydrocarbon production when exact meter readings or gauging and strapping data is not available. Seller shall provide to Purchaser, no later than five (5) Business Days prior to Closing, all data necessary to support any estimated allocation, for purposes of establishing the adjustment to the Purchase Price pursuant to Section 2.2 hereof that will be used to determine the Closing Payment. Property Costs that are paid periodically shall be prorated based on the number of days in the applicable period falling before and the number of days in the applicable period falling at or after the Effective Time, except that Hydrocarbon production, severance and similar Taxes shall be prorated based on the number of units actually produced, purchased or sold or proceeds of sale, as applicable, before, and at or after, the Effective Time. In each case, Purchaser shall be responsible for the portion allocated to the period at and after the Effective Time and Seller shall be responsible for the portion allocated to the period before the Effective Time.

Section 1.5 Delivery and Maintenance of Records .

Seller shall deliver the Records (FOB Seller’s office) to Purchaser within thirty (30) days following Closing. Other than any original Records retained by Seller pursuant to Section 1.2(i) , Purchaser shall be entitled to all original Records maintained by Seller. Seller shall be entitled to keep a copy or copies of all Records; provided, however, that Seller shall not sell or otherwise allow third parties to review, copy or otherwise use any Records retained by Seller except as required by law or permitted in connection with a transfer pursuant to Section 12.10. Purchaser shall preserve the Records for a period of ten (10) years following the Closing and will allow Seller and its representatives, consultants and advisors reasonable access, during normal business hours and upon reasonable notice, to the Records for any legitimate business reason of Seller, including in order for Seller to comply with a Tax or other legally required reporting obligation or Tax or legal dispute. Any such access shall be at the sole cost and expense of Seller. Unless otherwise consented to in writing by Seller, except in connection with a disposition by Buyer of all or part of the Assets, for a period of ten (10) years following the Closing Date, Purchaser shall not and shall cause its Affiliates not to, destroy, alter or otherwise dispose of the Records, or any portions thereof, without first giving at least thirty (30) days prior written notice to Seller and offering to surrender to Seller the Records or such portions thereof.

 

5

ARTICLE 2

PURCHASE PRICE

Section 2.1 Purchase Price; Deposit .

(a) The purchase price for the Assets (the “Purchase Price”) shall be $376,000,000 adjusted as provided in Section 2.2 .

(b) With one (1) Business Day of the execution of this Agreement, Purchaser shall deposit by wire transfer in same day funds into escrow with Seller an amount equal to ten percent (10%) of the Purchase Price (the “Deposit”). The Deposit shall be applied toward the Purchase Price at the Closing.

Section 2.2 Adjustments to Purchase Price .

The Purchase Price for the Assets shall be adjusted in the manner specified below (without duplication), with all such amounts being determined in accordance with GAAP and COPAS standards, as applicable, in order to reach the Adjusted Purchase Price:

(a) Reduced by the aggregate amount of the following proceeds received by Seller between (and including) the Effective Time and the Closing Date (with the period between the Effective Time and the Closing Date referred to as the “Adjustment Period”): (i) proceeds from the sale of Hydrocarbons (net of any royalties, overriding royalties or other burdens on or payable out of production, gathering, processing and transportation costs and any production, severance, sales, excise or similar Taxes not reimbursed to Seller by the purchaser of production) produced from or attributable to the Properties during the Adjustment Period, and (ii) other proceeds earned with respect to the Assets during the Adjustment Period;

(b) Reduced to the extent provided in Section 7.7 with respect to Preference Rights and Retained Assets;

(c) (i) If the parties make the election under Section 3.4(d)(i) with respect to a Title Defect, subject to the Individual Title Threshold and the Aggregate Defect Deductible, reduced by the Title Defect Amount with respect to such Title Defect if the Title Defect Amount has been determined prior to Closing and (ii) subject to the Individual Benefit Threshold and the Aggregate Benefit Deductible, increased by the Title Benefit Amount with respect to each Title Benefit for which the Title Benefit Amount has been determined prior to Closing;

(d) Increased by the amount of all Property Costs and other costs attributable to the ownership and operation of the Assets which are paid by Seller and incurred during the Adjustment Period (including any overhead costs under Schedule 1.4 deemed charged to the Assets with respect to the Adjustment Period even though not actually paid), except any Property Costs and other such costs already deducted in the determination of proceeds in Section 2.2(a), and reduced by the amount of all overhead charges paid by unaffiliated third parties to the extent such payments relate to the Adjustment Period;

 

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(e) Reduced to the extent provided in Section 3.4(d)(iii) for any Properties excluded from the Assets pursuant to Section 3.4(d)(iii) and reduced to the extent provided in Section 4.3 for Environmental Defects;

(f) Increased or reduced as mutually agreed upon in writing prior to Closing by Seller and Purchaser;

(g) Increased by the value of the amount of merchantable Hydrocarbons stored in tanks and pipelines attributable to the ownership and operation of the Assets that belong to Seller as of the Effective Time (which value shall be computed at the applicable third-party contract prices for the month of June 2009 for such stored Hydrocarbons);

(h) Reduced or increased, as the case may be, by the actual net aggregate Imbalances, if any, owed by Seller to third parties or third parties to Seller, as of the Effective Time, multiplied by a price of $3.00 per MMBtu;

(i) Increased by the amount of the escrow funds transferred pursuant to Section 1.2(l) ;

(j) Reduced by the amount of the Deposit; and

(k) Each adjustment made pursuant to Section 2.2(a) shall serve to satisfy, up to the amount of the adjustment, Purchaser’s entitlement under Section 1.4 to Hydrocarbon production from or attributable to the Properties during the Adjustment Period, and to the value of other income, proceeds, receipts and credits earned with respect to the Assets during the Adjustment Period, and as such, Purchaser shall not have any separate rights to receive any Hydrocarbon production or income, proceeds, receipts and credits with respect to which an adjustment has been made. Similarly, the adjustment described in Section 2.2(d) shall serve to satisfy, up to the amount of the adjustment, Purchaser’s obligation under Section 1.4 to pay Property Costs and other costs attributable to the ownership and operation of the Assets which are incurred during the Adjustment Period.

The Purchase Price, adjusted as set forth in (a) through (k), shall be increased by simple interest thereon from October 30, 2009 until Closing, computed at the Agreed Interest Rate, if Closing does not occur within forty-five (45) days of the date this Agreement is executed by the last party thereto if the failure to close within such period is solely due to the fault of Purchaser.

Section 2.3 Allocation of Purchase Price for Tax Purposes .

The Allocated Values are contained in Exhibit A-1 . Purchaser shall be responsible for assigning the Allocated Values, subject to Seller’s right to review the Allocated Values for reasonableness.

 

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ARTICLE 3

TITLE MATTERS

Section 3.1 Seller’s Title .

(a)  PURCHASER ACKNOWLEDGES THAT THE SOLE AND EXCLUSIVE REMEDY FOR TITLE DEFECTS SHALL BE AS SET FORTH IN SECTION 3.4.

(b) The conveyance to be delivered by Seller to Purchaser shall be substantially in the form of Exhibit B hereto (the “Conveyance”).

Section 3.2 Definition of Defensible Title .

As used in this Agreement, the term “Defensible Title” means that title of Seller with respect to the Units, Warranty Wells or other Assets shown in Exhibit A-1 that, except for and subject to Permitted Encumbrances:

(a) Entitles Seller to receive a share of the Hydrocarbons produced, saved and marketed from any Unit, Warranty Well or other Asset shown in Exhibit A-1 throughout the duration of the productive life of such Unit, Warranty Well or other Asset (after satisfaction of all royalties, overriding royalties, net profits interests or other similar burdens on or measured by production of Hydrocarbons) (a “Net Revenue Interest”), of not less than the Net Revenue Interest shown in Exhibit A-1 for such Unit, Warranty Well or other Asset, except (solely to the extent that such actions do not cause a breach of Seller’s covenants under Section 7.6 ) for decreases in connection with those operations in which Seller may from and after the Effective Time become a non-consenting co-owner, decreases resulting from the establishment or amendment from and after the Effective Time of pools or units, and decreases required to allow other working interest owners to make up past underproduction of Hydrocarbons or pipelines to make up past under deliveries of Hydrocarbons, and except as stated in such Exhibit A-1 ;

(b) Obligates Seller to bear a percentage of the costs and expenses for the maintenance and development of, and operations relating to, (i) any Unit, Warranty Well or other Asset shown in Exhibit A-1 not greater than the “working interest” shown in Exhibit A-1 for such Unit, Warranty Well or other Asset without increase throughout the productive life of such Unit, Warranty Well or other Asset, except as stated in Exhibit A-1 and except for increases resulting from contribution requirements with respect to non-consenting or defaulting co-owners under applicable operating agreements and increases that are accompanied by at least a proportionate increase in Seller’s Net Revenue Interest; and

(c) Is free and clear of liens, encumbrances, obligations, security interests, irregularities, pledges, or other defects.

(d) As used in this Agreement, the term “Title Defect” means any lien, charge, encumbrance, obligation (including contract obligation), defect, or other matter (including without limitation a discrepancy in Net Revenue Interest or working interest) that causes Seller not to have Defensible Title in and to the Units, Warranty Wells or other Assets shown on Exhibit A-1 as of the Effective Time and the Closing. As used in this Agreement, the term “Title Benefit” shall mean any right, circumstance or condition that operates to increase the Net Revenue Interest of Seller in any Unit, Warranty Well or other Asset shown on Exhibit A-1 , without causing a greater than proportionate increase in Seller’s working interest above that shown in Exhibit A-1 as of the Effective Time. Notwithstanding the foregoing, the following shall not be considered Title Defects:

 

(i)

defects based solely on (1) lack of information in Seller’s files, or (2) references to a document(s) if such document(s) is not in Seller’s files; provided, that this subclause (d)(i) shall not apply to the extent it can be reasonably evidenced, through Seller’s files or otherwise or through the public records, that Seller has Defensible Title to the Assets;

 

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(ii)

defects arising out of lack of corporate or other entity authorization unless Purchaser provides affirmative written evidence that the action was not authorized;

 

(iii)

defects based on failure to record Leases issued by any state or federal Governmental Body, or any assignments of such Leases, in the real property, conveyance or other records of the county in which such Property is located; and

 

(iv)

defects that have been cured by applicable Laws of limitation or prescription.

Section 3.3 Definition of Permitted Encumbrances .

As used herein, the term “Permitted Encumbrances” means any or all of the following:

(a) Royalties and any overriding royalties, reversionary interests, net profit interests, production payments, carried interests, and other burdens, to the extent that any such burden does not reduce Seller’s Net Revenue Interest below that shown in Exhibit A-1 or increase Seller’s working interest above that shown in Exhibit A-1 without a proportionate increase in the Net Revenue Interest;

(b) All Leases, unit agreements, pooling agreements, operating agreements, Hydrocarbon production sales contracts, division orders and other contracts, agreements and instruments applicable to the Assets, to the extent that they do not, individually or in the aggregate, reduce Seller’s Net Revenue Interest below that shown in Exhibit A-1 or increase Seller’s working interest above that shown in Exhibit A-1 without a proportionate increase in the Net Revenue Interest;

(c) Preference Rights applicable to this or any future transaction;

(d) Transfer Requirements applicable to this or any future transaction;

(e) Liens for current Taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions;

(f) 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 amounts not yet delinquent (including any amounts being withheld as provided by Law) or, if delinquent, being contested in good faith by appropriate actions;

 

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(g) All rights to consent by, required notices to, filings with, or other actions by Governmental Bodies in connection with the sale or conveyance of the Assets or interests therein pursuant to this or to any future transaction if they are not required or customarily obtained prior to the sale or conveyance;

(h) Rights of reassignment arising upon final intention to abandon or release the Assets, or any of them;

(i) Easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations, to the extent that they do not (i) reduce Seller’s Net Revenue Interest below that shown in Exhibit A-1 , (ii) increase Seller’s working interest above that shown in Exhibit A-1 without a proportionate increase in Net Revenue Interest, or (iii) detract in any material respect from the value of, or interfere in any material respect with the use, ownership or operation of, the Assets subject thereto or affected thereby (as currently used, owned and operated) and which would be acceptable by a reasonably prudent purchaser engaged in the business of owning and operating oil and gas properties;

(j) Calls on Hydrocarbon production under existing Contracts that are listed on Schedule 1.2(d) ;

(k) All rights reserved to or vested in any Governmental Body to control or regulate any of the Assets in any manner, and all obligations and duties under all applicable Laws or under any franchise, grant, license or permit issued by any such Governmental Body;

(l) Any encumbrance on or affecting the Assets which is discharged by Seller at or prior to Closing;

(m) Any matters shown on Exhibit A-1 ;

(n) Any other liens, charges, encumbrances, defects or irregularities which do not, individually or in the aggregate, detract in any material respect from the value of, or interfere in any material respect with the use or ownership of, the Assets subject thereto or affected thereby (as currently used or owned), which would be accepted by a reasonably prudent purchaser engaged in the business of owning and operating oil and gas properties, and which do not reduce Seller’s Net Revenue Interest below that shown in Exhibit A-1 , or increase Seller’s working interest above that shown in Exhibit A-1 without a proportionate increase in Net Revenue Interest;

(o) Matters that would otherwise be considered Title Defects but that do not meet the Individual Title Threshold set forth in Section 3.4(j) ;

(p) Imbalances associated with the Assets;

(q) Liens granted under applicable joint operating agreements and similar agreements;

(r) The matters disclosed in Schedules 5.7(a) and 5.7(b) ; and

 

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(s) Any lien or trust arising in connection with workers’ compensation, unemployment insurance, pension, employment, or child support laws or regulations.

Section 3.4 Notice of Title Defect Adjustments .

(a) To assert a claim of a Title Defect prior to Closing, Purchaser must deliver claim notices to Seller (each a “Title Defect Notice”) on or before October 20, 2009 (the “Title Claim Date”). Purchaser agrees that it shall make reasonable efforts to furnish Seller once every two (2) weeks until the Title Claim Date with a Title Defect Notice if any officer of Purchaser or its Affiliates discover or learn of any Title Defect during such two (2) week period; provided that failure by Purchaser to do so shall not preclude Purchaser from raising any Title Defects. Each Title Defect Notice shall be in writing and shall include (i) a description of the alleged Title Defect(s), (ii) the Units, Warranty Wells or other Assets in Exhibit A-1 affected by the Title Defect (each a “Title Defect Property”), (iii) the Allocated Value of each Title Defect Property, (iv) supporting documents reasonably necessary for Seller (as well as any title attorney or examiner hired by Seller) to verify the existence of the alleged Title Defect(s), and (v) the amount by which Purchaser reasonably believes the Allocated Value of each Title Defect Property is reduced by the alleged Title Defect(s) and the computations and information upon which Purchaser’s belief is based. Notwithstanding any other provision of this Agreement to the contrary, Purchaser shall be deemed to have waived its right to assert Title Defects of which Seller has not been given notice on or before the Title Claim Date. For purposes hereof, the “Allocated Value” of an Asset shall mean the portion of the Purchase Price that has been allocated to a particular Unit, Warranty Well or other Asset in Exhibit A-1 as prepared by Purchaser and reviewed for reasonableness by Seller.

(b) Seller shall have the right, but not the obligation, to deliver to Purchaser on or before the Title Claim Date, with respect to each Title Benefit, a notice (a “Title Benefit Notice”) including (i) a description of the Title Benefit, (ii) the Units, Warranty Wells or other Assets in Exhibit A-1 affected, (iii) the Allocated Values of the Units, Warranty Wells or other Assets in Exhibit A-1 subject to such Title Benefit and (iv) the amount by which Seller reasonably believes the Allocated Value of those Units, Warranty Wells or other Assets is increased by the Title Benefit, and the computations and information upon which Seller’s belief is based. Seller shall be deemed to have waived all Title Benefits of which it has not given notice to Purchaser on or before the Title Claim Date.

(c) Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove Title Defects at any time prior to Closing (the “Cure Period”), unless the parties otherwise agree, any Title Defects of which it has been advised in writing by Purchaser.

(d) Remedies for Title Defects.

 

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In the event that any Title Defect is not waived by Purchaser or cured on or before Closing, Purchaser and Seller shall mutually elect to have one of the following remedies apply:

 

(i)

subject to the Individual Title Threshold and the Aggregate Defect Deductible, have the Purchase Price reduced by an amount agreed upon (“Title Defect Amount”) pursuant to Section 3.4(g) or Section 3.4(i) by Purchaser and Seller as being the value of such Title Defect, taking into consideration the Allocated Value of the Property subject to such Title Defect, the portion of the Property subject to such Title Defect and the legal effect of such Title Defect on the Property affected thereby; provided, however, that the methodology, terms and conditions of Section 3.4(g) shall control any such determination;

 

(ii)

indemnify Purchaser against all liability, loss, cost and expense resulting from such Title Defect pursuant to an indemnity agreement (the “Indemnity Agreement”) in the form attached hereto as Exhibit C ;

 

(iii)

have Seller retain the entirety of the Property that is subject to such Title Defect, together with all associated Assets, in which event the Purchase Price shall be reduced by an amount equal to the Allocated Value of such Property; or

 

(iv)

at Closing, have Purchaser deposit into escrow the full Allocated Value of the Property that is subject to such Title Defect. Seller shall then have 180 days after Closing in which to cure the Title Defect. Any Property so held back from the initial Closing will be conveyed to Purchaser at a delayed Closing within ten (10) days following the date that the Title Defect is cured, at which time Seller shall be entitled to withdraw the full Allocated Value of the Property from escrow, and provided further that if multiple delayed Closings are contemplated as a result of this provision and/or Section 7.7(c) , the delayed Closings may be consolidated on dates mutually agreeable to the parties. In the event that Seller is unable to cure the Title Defect within 180 days of the initial Closing, then the remedy set forth in subsection (i) shall be the sole remedy for such Title Defect. All other provisions of Section 3.4(i) shall apply as written and the Title Expert shall be selected within fifteen (15) Business Days of the end of the 180 day cure period.

In the event that Purchaser and Seller cannot mutually agree upon one of the foregoing remedies with respect to a Title Defect asserted by Purchaser pursuant to Section 3.4(a) prior to Closing, then Seller shall, at its sole election, select the remedy set forth in subsection (i), (iii) or (iv) above as the remedy for such Title Defect; provided, however, Seller may only select the remedy set forth in subsection (iii) above if the amount of the Title Defect asserted with respect to a Property is equal to or exceeds 50% of the Allocated Value of such Property.

(e) With respect to each Unit, Warranty Well or other Asset in Exhibit A-1 affected by Title Benefits reported under Section 3.4(b) , subject to the Individual Benefit Threshold and the Aggregate Defect Deductible, the Purchase Price shall be increased by an amount (the “Title Benefit Amount”) equal to the increase in the Allocated Value for such Unit, Warranty Well or other Asset in Exhibit A-1 caused by such Title Benefits, as determined pursuant to Section 3.4(h) .

 

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(f)  Section 3.4(d) shall be the exclusive right and remedy of Purchaser with respect to Title Defects asserted by Purchaser pursuant to Section 3.4(a) . Section 3.4(e) shall be the exclusive right and remedy of Seller with respect to Title Benefits asserted by Seller pursuant to Section 3.4(b) .

(g) The Title Defect Amount resulting from a Title Defect shall be the amount by which the Allocated Value of the Title Defect Property is reduced as a result of the existence of such Title Defect and shall be determined in accordance with the following methodology, terms and conditions:

 

(i)

if Purchaser and Seller agree on the Title Defect Amount, that amount shall be the Title Defect Amount;

 

(ii)

if the Title Defect is a lien, encumbrance or other charge which is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property;

 

(iii)

if the Title Defect represents a discrepancy between (A) the Net Revenue Interest for any Title Defect Property and (B) the Net Revenue Interest stated on Exhibit A-1 and causes a proportionate decrease to Seller’s working interest shown in Exhibit A-1, then the Title Defect Amount shall be the product of the Allocated Value of such Title Defect Property multiplied by a fraction, the numerator of which is the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest stated on Exhibit A-1;

 

(iv)

if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in subsections (i) or (ii) above, the Title Defect Amount shall be determined by taking into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property 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 Title Defect Property, the values placed upon the Title Defect by Purchaser and Seller and such other factors as are necessary to make a proper evaluation; and

 

(v)

notwithstanding anything to the contrary in this Article 3 , the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of the Title Defect Property.

(h) The Title Benefit Amount for any Title Benefit shall be the product of the Allocated Value of the affected Unit, Warranty Well or other Asset in Exhibit A-1 multiplied by a fraction, the numerator of which is the Net Revenue Interest increase and the denominator of which is the Net Revenue Interest stated on Exhibit A-1 .

 

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(i) Seller and Purchaser shall attempt in good faith to agree on all Title Defect Amounts and Title Benefit Amounts prior to Closing. If Seller and Purchaser are unable to agree by Closing, the Title Defect Amounts and Title Benefit Amounts in dispute shall be exclusively and finally resolved pursuant to this Section 3.4(i) . There shall be a single arbitrator, who shall be a title attorney with at least ten (10) years experience in oil and gas titles involving properties in the regional area in which the Properties are located, as selected by mutual agreement of Purchaser and Seller within fifteen (15) Business Days after the end of the Cure Period (the “Title Expert”). The Title Expert’s determination shall be made within fifteen (15) Business Days after submission of the matters in dispute and shall be final and binding upon both parties, without right of appeal. In making his determination, the Title Expert shall be bound by the rules set forth in Section 3.4(g) and Section 3.4(h) and may consider such other matters as in the opinion of the Title Expert are necessary or helpful to make a proper determination. The Title Expert may allow the parties to make written submissions of their positions in the manner and to the extent the Title Expert deems appropriate, and the Title Expert may call on the parties to submit such other materials as the Title Expert deems helpful and appropriate to resolution of the dispute. Additionally, the Title Expert may consult with and engage disinterested third parties to advise the arbitrator, including without limitation petroleum engineers. The Title Expert shall act as an expert for the limited purpose of determining the specific disputed Title Defect Amounts and Title Benefit Amounts submitted by either party and may not award damages, interest or penalties to either party with respect to any matter. Seller and Purchaser shall each bear its own legal fees and other costs of presenting its case. Each party shall bear one-half of the costs and expenses of the Title Expert, including any costs incurred by the Title Expert that are attributable to such third party consultation. Within ten (10) days after the Title Expert delivers written notice to Purchaser and Seller of his award with respect to a Title Defect Amount or a Title Benefit Amount, (i) Purchaser shall pay to Seller the amount, if any, so awarded by the Title Expert to Seller, plus interest payable on such amount at the Agreed Interest Rate from (but not including) the Closing Date to (and including) the date on which such amount is paid to Seller and (ii) Seller shall pay to Purchaser the amount, if any, so awarded by the Title Expert to Purchaser, plus interest payable on such amount at the Agreed Interest Rate from (but not including) the Closing Date to (and including) the date on which such amount is paid to Purchaser.

(j) Notwithstanding anything to the contrary, (i) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller for any individual uncured Title Defect for which the Title Defect Amount therefor does not exceed $50,000 (“Individual Title Threshold”); and (ii) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller for uncured Title Defects unless the aggregate Title Defect Amounts attributable to all uncured Title Defects, taken together with the aggregate Environmental Defect Amounts attributable to all uncured Environmental Defects, exceeds a deductible in an amount equal to one and one-half percent (1  ¹ / 2 %) of the Purchase Price (“Aggregate Defect Deductible”), after which point adjustments to the Purchase Price or other remedies shall be made or available to Purchaser only with respect to uncured Title Defects and uncured Environmental Defects where the aggregate Title Defect Amounts and Environmental Defect Amounts attributable are in excess of such Aggregate Defect Deductible. Notwithstanding anything to the contrary, (i) in no event shall there be any adjustments to the Purchase Price for any individual Title Benefit for which the Title Benefit Amount does not exceed $50,000 (“Individual Benefit Threshold”); and (ii) in no event shall there be any adjustments to the Purchase Price for any Title Benefit unless

 

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the aggregate Title Benefit Amounts attributable to all such Title Benefits, exceeds a deductible in an amount equal to one and one-half percent (1  ¹ / 2 %) of the Purchase Price (“Aggregate Benefit Deductible”), after which point adjustments to the Purchase Price shall be made only with respect to such Title Benefit Amounts in excess of such Aggregate Benefit Deductible.

Section 3.5 Casualty or Condemnation Loss .

(a) From and after the Effective Time, but subject to the provisions of Section 3.5(b) and (c)  below and subject to Section 7.6, Purchaser shall assume all risk of loss with respect to and any change in the condition of the Assets and for production of Hydrocarbons through normal depletion (including but not limited to the watering out of any Well, collapsed casing or sand infiltration of any Well) and the depreciation of personal property due to ordinary wear and tear with respect to the Assets.

(b) Subject to the provisions of Section 8.1(e) and Section 8.2(e) hereof, if, after the date of this Agreement but prior to the Closing Date, any portion of the Assets is destroyed by fire or other casualty or is taken in condemnation or under right of eminent domain, and the loss as a result of such individual casualty or taking, taken together with all other casualty losses and takings, equals or exceeds twenty percent (20%) of the Purchase Price, unless this Agreement is terminated pursuant to Section 10.1, the transactions evidenced by this Agreement shall nevertheless be consummated and Seller shall elect by written notice to Purchaser prior to Closing either (i) to cause the Assets affected by any casualty or taking to be repaired or restored to at least its condition prior to such casualty, at Seller’s sole cost, as promptly as reasonably practicable (which work may extend after the Closing Date), (ii) to indemnify Purchaser through a document reasonably acceptable to Seller and Purchaser against any costs or expenses that Purchaser reasonably incurs to repair the Assets subject to any casualty or taking or (iii) to treat such casualty or taking as a Title Defect with respect to the affected Property or Properties under Section 3.4 . In each case, Seller shall retain all rights to insurance and other claims against third parties with respect to the casualty or taking except to the extent the parties otherwise agree in writing.

(c) If, after the date of this Agreement but prior to the Closing Date, any portion of the Assets is destroyed by fire or other casualty or is taken in condemnation or under right of eminent domain, and the loss to the Assets as a result of such individual casualty or taking, taken together with all other casualty losses and takings, is less than twenty percent (20%) of the Purchase Price, the transaction evidenced by this Agreement shall nevertheless be consummated and Seller shall, at Closing, pay to Purchaser all sums paid to Seller by third parties by reason of such casualty or taking and shall assign, transfer and set over to Purchaser all of Seller’s right, title and interest (if any) in insurance claims, unpaid awards, and other rights against third parties (other than Affiliates of Seller and its and their directors, officers, employees and agents) arising out of the casualty or taking.

Section 3.6 Limitations on Applicability .

The right of Purchaser to assert a Title Defect under this Agreement and Seller’s right to assert a Title Benefit under this Agreement shall terminate as of the Title Claim Date, provided there shall be no termination of Purchaser’s or Seller’s rights under Section 3.4 with respect to any bona fide Title Defect properly reported in a Title Defect Notice or bona fide Title Benefit Claim properly reported in a Title Benefit Notice on or before the Title Claim Date.

 

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Section 3.7 Government Approvals Respecting Assets .

(a) Federal and State Approvals . Purchaser shall, within thirty (30) days after Closing and at Purchaser’s own expense, file for approval with the applicable Governmental Bodies all assignment documents and other state and federal transfer documents required to effectuate the transfer of the Assets. Purchaser further agrees, promptly after Closing, to take all other actions reasonably required of it by federal or state agencies having jurisdiction to obtain all requisite regulatory approvals with respect to this transaction, and to use its commercially reasonable efforts to obtai