OFFSHORE PACKAGE PURCHASE AGREEMENT

Exhibit 10.1

EXECUTION COPY

OFFSHORE PACKAGE

PURCHASE AGREEMENT

BETWEEN

DOMINION EXPLORATION & PRODUCTION, INC.

AS SELLER,

AND

ENI PETROLEUM CO. INC.,

AS PURCHASER,

Dated as of April 27, 2007

TABLE OF CONTENTS

 

 

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Index of Defined Terms

 

 

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OFFSHORE PACKAGE PURCHASE AGREEMENT

This Offshore Package Purchase Agreement (this “ Agreement ”), is dated as of April 27, 2007, by and between Dominion Exploration & Production, Inc., a corporation organized under the Laws of Delaware (“ Seller ”), and Eni Petroleum Co. Inc., a corporation organized under the Laws of Delaware (“ Purchaser ”). Seller and Purchaser are sometimes referred to collectively as the “ Parties ” and individually as a “ Party .”

RECITALS :

Seller desires to sell and Purchaser desires to purchase those certain interests in oil and gas properties, rights and related assets that are defined and described as “Assets” herein.

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 agree as follows:

ARTICLE 1.

PURCHASE AND SALE

Section 1.1 Purchase and Sale . On the terms and conditions contained in this Agreement, Seller agrees to sell to Purchaser and Purchaser agrees to purchase, accept and pay for the Assets.

Section 1.2 Certain Definitions . As used herein:

(a) “ Assets ” means the following:

(i) The oil and gas leases, oil, gas and mineral leases and subleases, royalties, overriding royalties, net profits interests, mineral fee interests, carried interests, and other rights to oil and gas in place, and mineral servitudes, that are described on Exhibit A-1 (collectively, the “ Leases ”), and any and all oil, gas, water, CO ₂ or injection wells thereon or on the pooled, communitized or unitized acreage that includes all or any part of the Leases, including the interests in the wells shown on Exhibit A-2, Part 1 attached hereto (the “ Wells ”);

(ii) All pooled, communitized or unitized acreage which includes all or part of any Leases (the “ Units ”), and all tenements, hereditaments and appurtenances belonging to the Leases and Units.

(iii) The gas processing plants, gas gathering systems, pipelines, and other mid-stream equipment described on Exhibit A-3 (the “ Midstream Assets ” and, together with the Leases, Wells and Units, the “ Properties ”);

(iv) All of Seller’s right, title and interest in and to the Material Contracts listed in Schedule 4.9 and all other currently existing contracts, agreements and instruments with respect to the Properties, to the extent applicable to the Properties, including

operating agreements, unitization, pooling, and communitization agreements, declarations and orders, area of mutual interest agreements, joint venture agreements, farmin and farmout agreements, exchange agreements, transportation agreements, agreements for the sale and purchase of oil and gas and processing agreements, but excluding any contracts, agreements and instruments included within the definition of “Excluded Assets,” and provided that the defined term “Contracts” shall not include the Leases and other instruments constituting Seller’s chain of title to the Leases (subject to such exclusion and proviso, the “ Contracts ”);

(v) All of Seller’s right, title and interest in surface fee interests, easements, permits, licenses, servitudes, rights-of-way, surface leases and other rights to use the surface or seabed appurtenant to, and used or held for use primarily in connection with, the Properties, but excluding any permits and other appurtenances included within the definition of “Excluded Assets;”

(vi) All of Seller’s right, title and interest in equipment, machinery, facilities, fixtures and other tangible personal property and improvements, including pipelines, platforms and Well equipment (both surface and subsurface) located on the Properties or used or held for use in connection with the operation of the Properties or the production, transportation or processing of oil and gas from the Properties, but excluding (A) office furniture, fixtures and equipment except as described in Section 1.2(a)(vii), (B) materials and equipment inventory except as described in Section 1.2(a)(viii), (C) vehicles except as described in Section 1.2(a)(ix) and (D) any such items included within the definition of “Excluded Assets” (subject to such exclusions, the “ Equipment ”);

(vii) The offices leases or buildings, if any, described on Exhibit A-4 and the furniture, fixtures and equipment located in those offices and buildings, but excluding any such items included within the definition of “Excluded Assets;”

(viii) The materials and equipment inventory, if any, described on Exhibit A-5;

(ix) The vehicles acquired pursuant to Section 6.10;

(x) All oil and gas produced from or attributable to the Leases, Units or Wells after the Effective Date, all oil, condensate and scrubber liquids inventories and ethane, propane, iso-butane, nor-butane and gasoline inventories of Seller from the Properties in storage as of the Effective Date, and all production, plant and transportation imbalances as of the end of the Effective Date (the economic transfer of which as of the Effective Date will be made by a financial adjustment pursuant to Section 2.3(e) and the physical transfer shall occur on the Closing Date); and

(xi) The data and records of Seller and its Affiliates, to the extent relating primarily to the Properties or other Assets (and the software set forth on Exhibit A-7), excluding, however, in each case:

(A) all corporate, financial, Tax and legal data and records of Seller that relate primarily to Seller’s business generally (whether or not relating to the Assets), to Seller’s business and operations in Virginia, West Virginia, Ohio, Pennsylvania,

 

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New York, Kentucky, and Maryland (the “ Appalachian Business ”), or to Seller’s business elsewhere in the onshore United States (except those onshore Midstream Assets identified on Exhibit A-3 and those office leases and buildings identified on Exhibit A-4) or in Canada, or to businesses of Seller and its Affiliates other than the exploration and production of oil and gas;

(B) any data, software and records to the extent disclosure or transfer is prohibited or subjected to payment of a fee or other consideration by any license agreement or other agreement with a Person other than Affiliates of Seller, or by applicable Law, and for which no consent to transfer has been received or for which Purchaser has not agreed in writing to pay (subject to Section 6.11) the fee or other consideration, as applicable;

(C) all legal records and legal files of Seller including all work product of and attorney-client communications with Seller’s legal counsel (other than Leases, title opinions, Contracts and Seller’s working files for litigation of Seller listed on Schedule 4.5 which is assumed by Purchaser pursuant to Section 12.1);

(D) data and records relating to the sale of the Assets, including bids received from and records of negotiations with third Persons;

(E) any data and records relating primarily to the other Excluded Assets;

(F) those original data, software and records retained by Seller pursuant to Section 13.6; and

(G) originals of well files and division order files with respect to Wells and Units for which Seller is operator but for which Purchaser does not become operator (provided that copies of such files will be included in the Records).

(Clauses (A) through (G) shall hereinafter be referred to as the “ Excluded Records ” and subject to such exclusions, the data, software and records described in this Section 1.2(a)(xi) shall hereinafter be referred to as the “ Records .”)

(xii) The radio licenses described on Exhibit A-6 except those for which a transfer is prohibited or subject to payment of a fee or other consideration and for which no consent to transfer has been received or for which Purchaser has not agreed in writing to pay the fee or other consideration, as applicable; and

(xiii) All (a) accounts, instruments and general intangibles (as such terms are defined in the Uniform Commercial Code of Texas) attributable to the Assets at the Closing Date (other than the Excluded Assets and the amounts to which Seller is entitled pursuant to Section 2.3 and Section 2.4); and (b) liens and security interests and collateral in favor of Seller that exist as of the Closing Date, whether choate or inchoate, under any law, rule or regulation or under any of the Contracts (i) arising from the ownership, operation or sale or other disposition of any of the Assets or (ii) arising in favor of Seller as the operator of certain of the Assets, but only to the extent Purchaser is appointed successor operator.

 

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(b) “ Adverse Environmental Condition ” shall mean, with respect to the Assets, any violation of Environmental Laws; any condition that is required to be remediated or cured under applicable Environmental Laws; the failure to remediate or cure any condition that is required to be remediated or cured under applicable Environmental Laws; or any actual or threatened action or proceeding before any Governmental Authority alleging potential liability arising out of or resulting from any actual or alleged violation of, or any remedial obligation under, any Environmental Laws.

(c) “ Affiliate ” means, with respect to any Person, a Person that directly or indirectly controls, is controlled by or is under common control with such Person, with control in such context meaning the ability to direct the management or policies of a Person through ownership of voting shares or other securities, pursuant to a written agreement, or otherwise.

(d) “ Annual Incentive Plan ” means the annual incentive bonus plan sponsored by Dominion Resources, Inc. for its eligible employees.

(e) “ Business Day ” means any day other than a Saturday, a Sunday, or a day on which banks are closed for business in New York, New York or Richmond, Virginia, United States of America.

(f) “ COBRA ” has the meaning set forth in Section 10.9.

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

(h) “ Company Offshore Employees ” has the meaning set forth in Section 10.1.

(i) “ Company’s U.S. Benefit Plans ” has the meaning set forth in Section 10.3.

(j) “ E&P Business ” means the business and operations conducted with the Assets by the Seller.

(k) “ Effective Date ” means 11:59 p.m. Central Time on June 30, 2007.

(l) “ Employee Plans ” means employee benefit plans and programs, including, without limitation, (i) all retirement, savings and other pension plans; (ii) all health, severance, insurance, disability and other employee welfare plans; and (iii) all employment, incentive, perquisites, vacation and other similar plans, programs or practices whether or not subject to ERISA and whether covering one person or more than one person, that are maintained by Seller or any Affiliate, including an ERISA Affiliate, with respect to Company Offshore Employees or to which Seller or any Affiliate, including an ERISA Affiliate, contributes on behalf of Company Offshore Employees.

 

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(m) “ Environmental Liabilities ” shall mean any and all environmental response costs, costs to cure, restoration costs, costs of remediation or removal, settlements, penalties, fines, attorneys’ fees and other Damages, including any such matters incurred or imposed pursuant to any claim or cause of action by a Governmental Authority or other Person, attributable to an Adverse Environmental Condition occurring with respect to the Assets.

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

(o) “ ERISA Affiliate ” means any other Person that is required to be treated as a single employer with Seller under Section 414 of the Code or Section 4001(a)(14) of ERISA.

(p) “ Executives ” means the Company employees listed on Schedule 1.2.

(q) “ FOM Index Price ” means the FOM index pricing as shown in “Prices of Spot Gas Delivered to Pipelines” as published in Platts Inside FERC Gas Market Report.

(r) “ Governmental Authority ” means any national government and/or government of any political subdivision, and departments, courts, commissions, boards, bureaus, ministries, agencies or other instrumentalities of any of them.

(s) “ Hazardous Substances ” shall mean any substance defined or regulated as a “pollutant,” “hazardous substances” or “hazardous waste” under any Environmental Laws.

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

(u) “ Laws ” means all laws, statutes, rules, regulations, ordinances, orders, decrees, requirements, judgments and codes of Governmental Authorities.

(v) “ Managing Directors ” means the individuals listed on Schedule 10.2(b).

(w) “ Material Contract ” means any Contract (i) which, in the case of (A) below, can be reasonably expected to generate gross revenue per year in excess of Twenty Million dollars ($20,000,000), or (ii) in the case of (D), (E), (F) or (G) below can reasonably be expected to require expenditures per year chargeable to the owner of the Assets in excess of Twenty Million dollars ($20,000,000) or (iii) which, in the case of (A), (B), (C), (G) or (H) below, is not terminable by Seller or its successors or assigns at will (without penalty) on ninety (90) days notice or less, and is of one or more of the following types:

(A) contracts for the purchase, sale or exchange of oil, gas or other hydrocarbons;

(B) contracts for (i) the gathering, treatment, processing, handling, storage or transportation of oil, gas or other hydrocarbons and (ii) platform use, access or sharing agreements;

(C) contracts for the use or sharing of drilling rigs or drill ships;

 

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(D) purchase agreements, farmin and farmout agreements, exploration agreements, participation agreements and similar agreements providing for the earning of an equity interest;

(E) partnership agreements, joint venture agreements and similar agreements;

(F) operating agreements, unit agreements and unit operating agreements;

(G) seismic licenses and contracts; and

(H) contracts for the construction and installation of Equipment with guaranteed production throughput requirements where amounts owed if the guaranteed throughput is not delivered exceed Ten Million dollars ($10,000,000).

(x) “ Multiemployer Plan ” means a multiemployer plan, as defined in Sections 3(37) and 4001(a)(3) of ERISA.

(y) “ PBGC ” means the Pension Benefit Guaranty Corporation.

(z) “ Person ” means any individual, corporation, partnership, limited liability company, trust, estate, Governmental Authority or any other entity.

(aa) “ Property Costs ” means all operating expenses (including without limitation costs of insurance, rentals, shut-in payments, title examination and curative actions, and production and similar Taxes measured by units of production, and severance Taxes, attributable to production of oil and gas from the Assets, but excluding Seller’s other Taxes) and capital expenditures (including without limitation bonuses, broker fees, and other lease acquisition costs, costs of drilling and completing wells and costs of acquiring equipment) incurred in the ownership and operation of the Assets in the ordinary course of business, general and administrative costs with respect to the E&P Business, and overhead costs charged to the Assets under the applicable operating agreement or if none, charged to the Assets on the same basis as charged on the date of this Agreement, but excluding without limitation liabilities, losses, costs, and expenses attributable to:

(i) claims, investigations, administrative proceedings, arbitration or litigation directly or indirectly arising out of or resulting from actual or claimed personal injury, illness or death; property damage; environmental damage or contamination; other torts; private rights of action given under any Law; or violation of any Law,

(ii) obligations to plug wells, dismantle facilities, close pits and clear the site and/or restore the surface or seabed around such wells, facilities and pits,

(iii) obligations to remediate actual or claimed contamination of groundwater, surface water, soil or Equipment,

(iv) title claims (including claims that Leases have terminated),

 

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(v) claims of improper calculation or payment of royalties (including overriding royalties and other burdens on production) related to deduction of post-production costs or use of posted or index prices or prices paid by affiliates,

(vi) gas balancing and other production balancing obligations,

(vii) casualty and condemnation, and

(viii) any claims for indemnification, contribution or reimbursement from any third Person with respect to liabilities, losses, costs and expenses of the type described in preceding clauses (i) through (vii), whether such claims are made pursuant to contract or otherwise.

(bb) “ Purchaser U.S. Employee Plans ” has the meaning set forth in Section 10.4.

(cc) “ Taxes ” means all taxes, including any foreign, federal, state or local income tax, surtax, remittance tax, presumptive tax, net worth tax, special contribution, production tax, pipeline transportation tax, freehold mineral tax, value added tax, withholding tax, gross receipts tax, windfall profits tax, profits tax, severance tax, personal property tax, real property tax, sales tax, goods and services tax, service tax, transfer tax, use tax, excise tax, premium tax, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, unemployment tax, disability tax, alternative or add-on minimum tax and estimated tax, imposed by a Governmental Authority together with any interest, fine or penalty thereon, and with such term to include transferee liability for any of the preceding.

(dd) “ Title IV Plan ” has the meaning set forth in Section 4.4(b)(iv).

(ee) “ Transferred Derivatives ” means the physical derivatives contracts listed on Schedule 4.9.

(ff) “ U.S. Temporary Employees ” means those individuals providing services with respect to the Assets as either “co ops,” “interns” or contract workers through CoreStaff.

(gg) “ WARN Act ” has the meaning set forth in Section 10.10.

Section 1.3 Excluded Assets . Notwithstanding anything to the contrary in Section 1.2 or elsewhere in this Agreement, the “Assets” shall not include any rights with respect to the Excluded Assets. “ Excluded Assets ” shall mean the following:

(i) the Excluded Records;

(ii) copies of other Records retained by Seller pursuant to Section 13.6;

(iii) contracts, agreements and instruments whose transfer is prohibited or subjected to payment of a fee or other consideration by an agreement with a Person other than an Affiliate of Seller, or by applicable Law, and for which no consent to transfer has been received or for which Purchaser has not agreed in writing to pay the fee or other consideration, as applicable;

 

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(iv) Permits and other appurtenances for which transfer is prohibited or subjected to payment of a fee or other consideration by an agreement with a Person other than an Affiliate of Seller, or by applicable Law, and for which no consent to transfer has been received or for which Purchaser has not agreed in writing to pay the fee or other consideration, as applicable;

(v) all claims against insurers and other third parties pending on or prior to the Effective Date;

(vi) assets of or which relate to Seller’s and its Affiliates’ Employee Plans or worker’s compensation insurance and programs;

(vii) all trademarks and trade names containing “Dominion” or any variant thereof;

(viii) all futures, options, swaps and other derivatives except the Transferred Derivatives, and all software used for trading, hedging and credit analysis;

(ix) the Clearinghouse and Castlewood Road records storage facilities located in Richmond, Virginia;

(x) all of Seller’s interests in office leases, buildings and other onshore real property other than those expressly identified in Exhibit A-3 or A-4;

(xi) any leased equipment and other leased personal property which is not purchased prior to Closing pursuant to Section 6.10 (except to the extent the lease is transferable without payment of a fee or other consideration which Purchaser has not agreed in writing to pay);

(xii) all office equipment, computers, cell phones, pagers and other hardware, personal property and equipment that: (A) relate primarily to Seller’s business generally, or to the Appalachian Business or to Seller’s business elsewhere in the onshore United States (except those onshore Midstream Assets identified on Exhibit A-3 and those office leases and buildings identified on Exhibit A-4) or in Canada, or to other businesses of Seller and its Affiliates (except the E&P Business), or (B) are set forth on Schedule 1.3 (even if relating to the Onshore Midstream Assets identified on Exhibit A-3 or the office leases and buildings identified on Exhibit A-4);

(xiii) the contracts and software used for both the Assets and other assets of Seller and its Affiliates described on Schedule 1.3;

(xiv) any Tax refund (whether by payment, credit, offset or otherwise, and together with any interest thereon) in respect of any Taxes for which Seller is liable for payment or required to indemnify Purchaser under Section 9.1;

 

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(xv) refunds relating from severance Tax abatements with respect to all taxable periods or portions thereof ending on or prior to the Effective Date;

(xvi) all indemnities and other claims against Persons (other than Seller and/or their Affiliates) for Taxes for which CNG is liable for payment or required to indemnify Purchaser under Section 9.1;

(xvii) claims against insurers under policies held by Seller or its Affiliates;

(xviii) Property Costs and revenues associated with all joint interest audits and other audits of Property Costs covering periods for which Sellers are in whole or in part responsible for the Assets, which audit adjustments are paid or received prior to the Cut-Off Date; and

(xix) any other assets, contracts or rights described on Schedule 1.3.

Section 1.4 Transfer of Certain Assets Not Held by Sellers . Seller shall, at Closing, cause Dominion Resources Services, Inc. to assign to Purchaser certain personal property described on Schedule 1.4. EACH ASSIGNMENT OF SUCH PERSONAL PROPERTY SHALL BE “AS IS, WHERE IS” WITH ALL FAULTS, AND ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF CONDITION, QUALITY, AIRWORTHINESS, SUITABILITY, DESIGN, MARKETABILITY, TITLE, INFRINGEMENT, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS ARE HEREBY DISCLAIMED; provided, however, that such personal property shall be considered “Assets” for purposes of this Agreement with the benefit of the representations, warranties and other provisions of this Agreement related to the Assets. Without limiting any other obligations of its Affiliates under Section 6.3 of this Agreement, Seller shall also cause Dominion Resources Services, Inc. to comply with the various covenants contained in Sections 6.1 and 6.4, to the extent applicable to the property described on Schedule 1.4, prior to Closing.

ARTICLE 2.

PURCHASE PRICE

Section 2.1 Purchase Price . The purchase price for the Assets (the “ Purchase Price ”) shall be Four Billion Seven Hundred Fifty Seven Million dollars ($4,757,000,000) (the “ Unadjusted Purchase Price ”), adjusted as provided in Section 2.3.

Section 2.2 Allocation of Purchase Price .

(a) At least thirty (30) days prior to the Target Closing Date, Seller shall prepare and deliver to Purchaser, using and based upon the best information available to Seller, a schedule setting forth the following items:

(i) the Unadjusted Purchase Price as set forth in Section 2.1;

 

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(ii) the liabilities associated with the Assets as of the Closing (as required for the allocations under clause (iii)); and

(iii) an allocation of the sum of the Unadjusted Purchase Price under clause (i) and the aggregate amount of such liabilities under clause (ii) that are includable in the Purchaser’s tax basis in the Assets among the classes of the Assets as of the Closing, which allocations shall be made in accordance with Section 1060 of the Code and the Treasury Regulations thereunder and shall be consistent with the Allocated Values established pursuant to Section 3.4.

Seller shall at Purchaser’s request make reasonable documentation available to support the proposed allocation. As soon as reasonably practicable, but not later than fifteen (15) days following receipt of Seller’s proposed allocation schedule, Purchaser shall deliver to Seller a written report containing any changes that Purchaser proposes to be made in such schedule (and specifying the reasons therefor in reasonable detail). The Parties shall undertake to agree on a final schedule no later than six (6) Business Days prior to the Closing Date. In the event the Parties cannot reach agreement by that date, the Seller’s allocation shall be used pending adjustment under the following paragraph.

(b) Within thirty (30) days after the determination of the Purchase Price under Section 8.4(b), the schedule described in Section 2.2(a) shall be amended by Seller and delivered to Purchaser to reflect the Purchase Price following final adjustments. Purchaser shall cooperate with Seller in the preparation of the amended schedule. If the Seller’s amendments to the schedule are not objected to by Purchaser (by written notice to Seller specifying the reasons therefor in reasonable detail) within thirty (30) days after delivery of Seller’s adjustments to the schedule, it shall be deemed agreed upon by the Parties. In the event that the Parties cannot reach an agreement within twenty (20) days after Seller receives notice of any objection by Purchaser, then, any Party may refer the matters in dispute to Ernst & Young LLP or another mutually acceptable independent appraiser (the “ Independent Appraiser ”) to assist in determining the fair value of each separate class of Assets solely for the purposes of the allocation described in this Section 2.2. The Independent Appraiser shall be instructed to deliver to Purchaser and Seller a written determination of the valuation and any revisions to the schedule within thirty (30) days after the date of referral thereof to the Independent Appraiser. Purchaser and Seller agree to accept the Independent Appraiser’s determinations as to the appropriate adjustments to the schedule. The Independent Appraiser may determine the issues in dispute following such procedures, consistent with the provisions of this Agreement, as it reasonably deems appropriate in the circumstances and with reference to the amounts in issue. The Parties do not intend to impose any particular procedures upon the Independent Appraiser, it being the desire and direction of the Parties that any such disagreement shall be resolved as expeditiously and inexpensively as reasonably practicable. The Independent Appraiser shall act as an expert for the limited purpose of determining the specific disputed aspects of the allocation schedule submitted by any Party and may not award damages, interest, or penalties to any Party with respect to any matter. Seller and Purchaser each shall bear its own legal fees and costs of presenting its case. Seller shall bear one-half and Purchaser shall bear one-half of the costs and expenses of the Independent Appraiser.

 

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(c) The allocations set forth in the schedule described in this Section 2.2 shall be used by Seller and Purchaser as the basis for reporting asset values and other items, including preparing Internal Revenue Service Form 8594, Asset Acquisition Statement (which Form 8594 shall be completed, executed and delivered by such parties as soon as practicable after the Closing but in no event later than 15 days prior to the date such form is required to be filed). Seller and Purchaser agree not to assert, and will cause their Affiliates not to assert, in connection with any audit or other proceeding with respect to Taxes, any asset values or other items inconsistent with the amounts set forth in the schedule described in this Section 2.2.

Section 2.3 Adjustments to Purchase Price . The Unadjusted Purchase Price shall be adjusted as follows, but only with respect to matters (i) in the case of Section 2.3(a), for which notice is given on or before the Title Claim Date, (ii) in the case of Sections 2.3(b), (c), (d), (e), (f) or (i), identified on or before the 180th day following Closing (the “ Cut-Off Date ”) and (iii) in the case of Section 2.3(g) and (h), received or paid on or before the Cut-Off Date:

(a) Increased or decreased, as appropriate, in accordance with Section 3.5;

(b) Decreased as a consequence of Assets excluded from this transaction as a consequence of the exercise of preferential rights to purchase, as described in Section 3.6;

(c) Decreased by the amount of royalty, overriding royalty and other burdens payable out of production of oil or gas from the Leases and Units or the proceeds thereof to third Persons but held in suspense by Seller at the Closing, and any interest accrued in escrow accounts for such suspended funds, to the extent such funds are not transferred to Purchaser’s control at the Closing;

(d) Increased by the amount of the Computer/Vehicle Buy-Out Costs in accordance with Section 6.10, such increase not to exceed four hundred twenty five thousand dollars ($425,000);

(e) Adjusted for production, plant, pipeline and transportation gas imbalances and inventory on the Effective Date as follows:

(i) Decreased by sum of the amount of each production, plant, pipeline and transportation gas imbalance owed by Seller to third Persons at the Effective Date with respect to production from the Properties (or, in the case of Properties not operated by Seller, as reported on the most recent imbalance statement as of a date closest to June 30, 2007), in Mmbtu, multiplied by (A) the FOM Index Price for the point designated with respect to such source of the imbalance on Schedule 2.3(e) on the first day of the month after the month of the Effective Date less (B) the adjustments to such FOM Index Price shown on Schedule 2.3(e).

(ii) Increased by the sum of the amount of each production, plant, pipeline and transportation gas imbalance owed by third Persons to Seller at the Effective Date with respect to production from the Properties (or, in the case of Properties not operated by Seller, as reported on the most recent imbalance statement as of a date closest to June 30, 2007), in Mmbtu, multiplied by (A) the FOM Index Price for the point designated with respect to such source of the imbalance on Schedule 2.3(e) on the first day of the month after the month of the Effective Date less (B) the adjustments to such FOM Index Price shown on Schedule 2.3(e).

 

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(iii) Decreased by the sum of the amount of each scrubber liquid overlift owed by Seller at the Effective Date with respect to production from the Properties (or, in the case of Properties not operated by Seller, as reported on the most recent statement received as of a date closest to June 30, 2007), in Barrels, multiplied by (A) the index price for the point designated with respect to such source of the imbalance on Schedule 2.3(e) on the first day of the month after the month of the Effective Date less (B) the adjustments to such index price shown on Schedule 2.3(e).

(iv) Decreased by the sum of the amount of each ethane, propane, iso-butane, nor-butane and gasoline overlift owed by Seller at the Effective Date with respect to production from the Properties (or, in the case of Properties not operated by Seller, as reported on the most recent statement received as of a date closest to June 30, 2007), in gallons, multiplied by (A) the index price for the point designated with respect to such source of the imbalance on Schedule 2.3(e) on the first day of the month after the month of the Effective Date less (B) the adjustments to such index price shown on Schedule 2.3(e).

(v) Increased by the sum of the amount of each oil, condensate and scrubber liquid inventory from the Properties in storage at the end of the Effective Date and produced for the account of Seller on or prior to the Effective Date, in Barrels, multiplied by (A) the index price for the point designated with respect to the location of the inventory on Schedule 2.3(e) on the first day of the month after the month of the Effective Date less (B) the adjustments to such index price shown on Schedule 2.3(e).

(vi) Increased by the sum of the amount of each ethane, propane, iso-butane, nor-butane and gasoline inventory from the Properties in storage at the end of the Effective Date and produced for the account of Seller on or prior to the Effective Date, in gallons, multiplied by (A) the index price for the point designated with respect to the location of the inventory on Schedule 2.3(e) on the first day of the month after the month of the Effective Date less (B) the adjustments to such index price shown on Schedule 2.3(e).

(vii) Decreased by the sum of the amount of each amount of oil transportation and production imbalance owed by Seller to third Persons at the Effective Date with respect to production from the Properties (or, in the case of Properties not operated by Seller, as reported on the most recent imbalance statement as of a date prior to the Effective Date), in Barrels, multiplied by (A) the index price for the point designated with respect to such source of the imbalance on Schedule 2.3(e) on the first day of the month after the month of the Effective Date less (B) the adjustments to such index price shown on Schedule 2.3(e).

(viii) Increased by the sum of the amount of each oil transportation and production imbalance owed by third Persons to Seller at the Effective Date with respect to production from the Properties (or, in the case of Properties not operated by Seller, as

 

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reported on the most recent imbalance statement as of a date prior to the Effective Date), in Barrels, multiplied by (A) the index price for the point designated with respect to such source of the imbalance on Schedule 2.3(e) on the first day of the month after the month of the Effective Date less (B) the adjustments to such index price shown on Schedule 2.3(e).

(f) [RESERVED]

(g) Without prejudice to either Party’s rights under Article 12, adjusted for proceeds and other income attributable to the Assets, Property Costs and certain other costs attributable to the Assets, and interest as follows:

(i) Decreased by an amount equal to the aggregate amount of the following proceeds received by Seller or any of its Affiliates on or prior to the Closing Date, or by Seller or any remaining Affiliate of Seller after the Closing Date:

(A) amounts earned from the sale, during the period from but excluding the Effective Date through and including the Closing Date (such period being referred to as the “ Adjustment Period ”), of oil, gas and other hydrocarbons produced from or attributable to the Properties (net of any (x) royalties, overriding royalties and other burdens payable out of production of oil, gas or other hydrocarbons or the proceeds thereof that are not included in Property Costs, (y) gathering, processing and transportation costs paid in connection with sales of oil, gas or other hydrocarbons that are not included as Property Costs under Section 2.3(g)(ii) and (z) production Taxes, other Taxes measured by units of production, severance Taxes and any other Property Costs, that in any such case are deducted by the purchaser of production, and excluding the effects of any futures, options, swaps or other derivatives other than the Transferred Derivatives), and

(B) other income earned with respect to the Assets during the Adjustment Period (provided that for purposes of this Section, no adjustment shall be made for funds received by Seller for the account of third Persons and to which Seller does not become entitled prior to the Cut-Off Date, and excluding any income earned from futures, options, swaps or other derivatives other than the Transferred Derivatives);

(ii) Increased by an amount equal to the amount of all Property Costs, Taxes and other amounts expressly excluded from the definition of Property Costs which are incurred in the ownership and operation of the Assets after the Effective Date but paid by or on behalf of Seller or any of its Affiliates through and including the Closing Date, or by Seller or any remaining Affiliate of Seller after the Closing Date but prior to the Cut-Off Date, except in each case (w) any costs already deducted in the determination of proceeds in Section 2.3(g)(i), (x) Taxes (other than production Taxes and other Taxes measured by units of production and severance Taxes), which are addressed in Section 9.1(c), (y) costs attributable to futures, options, swaps or other derivatives, or the elimination of the same pursuant to Section 6.9, other than costs attributable to the Transferred Derivatives,

 

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and (z) Seller’s share of costs attributable to acquiring replacement seismic licenses for Purchaser or obtaining approval to transfer existing seismic licenses to Purchaser pursuant to Section 6.11, and provided that overhead costs charged with respect to development and production operations shall not exceed the amounts chargeable to the Properties under the applicable operating agreement or, if for any Property there is none, the amounts charged for that Property on the same basis as charged on the date of this Agreement; and

(iii) Increased by the amount that would be calculated on the Unadjusted Purchase Price at the Agreed Rate, for the period from but excluding the Target Closing Date through and including the Closing Date; as used herein, the term “ Agreed Rate ” shall mean the lesser of (y) the one month London Inter-Bank Offered Rate, as published on Telerate Page 3750 on the last Business Day prior to the Effective Date, plus two percentage points (LIBOR +2%) and (z) the maximum rate allowed by applicable Laws.

The amount of each adjustment to the Unadjusted Purchase Price described in Section 2.3(g) shall be determined in accordance with the United States generally accepted accounting principles (the “ Accounting Principles ”);

(h) Decreased by Seller’s share of the seismic costs described in Section 6.11, however, if as of the Cut-Off Date, any replacement licenses or license transfers for such seismic have not been obtained, Seller’s share of such costs shall be deemed to be Twenty-five Million dollars ($25,000,000); and

(i) Increased by the cost of transportation provided pursuant to Section 6.1.

Section 2.4 Ordinary Course Pre-Effective Date Costs Paid and Revenues Received Post-Closing .

(a) With respect to any revenues earned or Property Costs incurred with respect to the Assets on or prior to the Effective Date but received or paid after the Effective Date:

(i) Seller shall be entitled to all amounts earned from the sale, during the period up to and including the Effective Date, of oil, gas and other hydrocarbons produced from or attributable to the Properties, which amounts are received after Closing but on or before the Cut-Off Date (net of any (A) royalties, overriding royalties and other burdens payable out of production of oil, gas or other hydrocarbons or the proceeds thereof that are not included in Property Costs, (B) gathering, processing and transportation costs paid in connection with sales of oil, gas and other hydrocarbons that are not included as Property Costs under Section 2.4(a)(ii) and (C) production Taxes, other Taxes measured by units of production, severance Taxes, and other Property Costs, that in any such case are deducted by the purchaser of production), and to all other income earned with respect to the Assets through and including the Effective Date and received on or before the Cut-Off Date; and

 

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(ii) Seller shall be responsible for (and entitled to any refunds and indemnities with respect to) all Property Costs incurred through and including the Effective Date. Seller’s responsibility for the foregoing shall terminate on the Cut-Off Date.

“Earned” and “incurred,” as used in this Section and Section 2.3, shall be interpreted in accordance with accounting recognition guidance under the Accounting Principles and shall be consistent with Seller’s current accounting recognition practices.

(b) Should Purchaser or its Affiliates receive after Closing any proceeds or other income to which Seller is entitled under Section 2.4(a), Purchaser shall fully disclose, account for and promptly remit the same to Seller.

(c) Should Purchaser pay after Closing any Property Costs for which Seller is responsible under Section 2.4(a), Seller shall reimburse Purchaser promptly after receipt of Purchaser’s invoice, accompanied by copies of the relevant vendor or other invoice and proof of payment. Within forty-five (45) days following Closing, Seller shall provide notice to its vendors related to the E&P Business to promptly send any pre-Effective Date invoices.

(d) Seller shall have no further entitlement to amounts earned from the sale of oil, gas and other hydrocarbons produced from or attributable to the Properties and other income earned with respect to the Assets (except any applicable Excluded Assets), and no further responsibility for Property Costs incurred with respect to the Assets, to the extent such amounts have not been received or paid, respectively, on or before the Cut-Off Date.

Section 2.5 Procedures .

(a) For purposes of allocating production (and accounts receivable with respect thereto), under Section 2.3 and Section 2.4, (i) liquid hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the pipeline flange connecting into the storage facilities on the platform serving the applicable Lease or Unit or, if there are no such storage facilities, when they pass through the LACT meters or similar meters at the point of entry into the pipelines through which they are transported from that platform, and (ii) gaseous hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the delivery point sales meters or similar meters at the point of entry into the pipelines through which they are transported from the platform serving the applicable Lease or Unit. Seller shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings are not available.

Surface use fees, insurance premiums and other Property Costs that are paid periodically shall be prorated based on the number of days in the applicable period falling on or before, or after, the Effective Date, or the Closing Date, as applicable. Production Taxes and similar Taxes measured by units of production, and severance Taxes, shall be prorated based on the amount of hydrocarbons actually produced, purchased or sold, as applicable, on or before, and after, the Effective Date, or the Closing Date, as applicable.

(b) After Closing, Purchaser shall handle (and Seller shall cooperate with the handling of) all joint interest audits and other audits of Property Costs covering periods for which Seller is in whole or in part responsible under Section 2.4, provided that Purchaser

 

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shall not agree to any adjustments to previously assessed costs for which Seller is liable, or any compromise of any audit claims to which Seller would be entitled, without the prior written consent of Seller, such consent not to be unreasonably withheld. Purchaser shall provide Seller with a copy of all applicable audit reports and written audit agreements received by Purchaser and relating to periods for which Seller is partially responsible.

ARTICLE 3.

TITLE MATTERS

Section 3.1 Company’s Title . Seller represents and warrants to Purchaser that Seller’s title (i) to the Units and Wells shown on Exhibit A-2, Part 1, (ii) to the ownership interests in the Leases containing proved undeveloped locations (the “ PUD Leases ”) shown on Exhibit A-2, Part 2 and (iii) to the Leases shown on Exhibit A-1 and as calculated in Section 3.2(a), as of the date hereof is, and as of the Closing Date shall be, Defensible Title as defined in Section 3.2. This representation and warranty, the provisions of this Article 3 and the special warranty in the Conveyances provide Purchaser’s exclusive remedy with respect to any Title Defects.

Section 3.2 Definition of Defensible Title .

(a) As used in this Agreement, the term “ Defensible Title ” means that title of Seller which, subject to Permitted Encumbrances:

(i) Entitles the Seller to receive, (A) in the case of any Unit, Well or PUD Lease, throughout the duration of the productive life of such Unit, Well or PUD Lease (after satisfaction of all royalties, overriding royalties, nonparticipating royalties, net profits interests or other similar burdens on or measured by production of oil and gas), not less than the “net revenue interest” share shown in Exhibit A-2 of all oil, gas and other minerals produced, saved and marketed from such Unit or Well or PUD Lease, and, (B) in the case of any Lease listed on Exhibit A-1 not covered by clause (A) above, throughout the duration of the productive life of such Lease, not less than the net revenue interest share of all oil, gas and other minerals produced, saved and marketed from such Lease calculated by subtracting from the working interest for such Lease shown on Exhibit A-1 the proportionate share of any royalty, overriding royalty, nonparticipating royalty, net profits interest, or other similar burdens measured by production of oil and gas attributable to such working interest, in any case, except (1) decreases in connection with those operations in which Seller may elect after the date hereof to be a nonconsenting co-owner, (2) decreases resulting from reversion of interest to co-owners with respect to operations in which such co-owners elect, after the date hereof, not to consent, (3) decreases resulting from the establishment or amendment, after the date hereof, of pools or units, (4) decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under deliveries and (5) as otherwise expressly stated in Exhibit A-2;

 

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(ii) Obligates Seller to bear a percentage of the costs and expenses for the maintenance and development of, and operations relating to, any Unit, Well, Lease or PUD Lease not greater than the “working interest” shown in Exhibit A-1 or Exhibit A-2 without increase throughout the productive life of such Unit, Well, Lease or PUD Lease, except as stated in Exhibit A-1 or Exhibit A-2 and except increases resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements or applicable Law and increases that are accompanied by at least a proportionate increase in Seller’s net revenue interest (in the case of each Lease, as calculated in Section 3.2(a)(i)(B)); and

(iii) Is free and clear of liens, encumbrances, obligations or defects, other than Permitted Encumbrances.

(b) As used in this Agreement, the term “ Title Defect ” means any lien, charge, encumbrance, obligation or defect including without limitation a discrepancy in net revenue interest or working interest that causes a breach of Seller’s representation and warranty in Section 3.1. 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 or Well above that shown on Exhibit A-2, without causing a greater than proportionate increase in Seller’s working interest above that shown in Exhibit A-2.

Section 3.3 Definition of Permitted Encumbrances . As used herein, the term “ Permitted Encumbrances ” means any or all of the following:

(a) Lessors’ royalties and any overriding royalties, reversionary interests and other burdens to the extent that they do not, individually or in the aggregate, reduce Seller’s net revenue interests below that shown in Exhibit A-2 or increase Seller’s working interests above that shown in Exhibit A-2 without a corresponding increase in the net revenue interest;

(b) All leases, unit agreements, pooling agreements, operating agreements, production sales contracts, division orders and other contracts, agreements and instruments applicable to the Assets, including provisions for penalties, suspensions or forfeitures contained therein, to the extent that they do not, individually or in the aggregate, reduce Seller’s net revenue interests below that shown in Exhibit A-1 or Exhibit A-2 or increase Seller’s working interests above that shown in Exhibit A-2 without a corresponding increase in the net revenue interest;

(c) Rights of first refusal, preferential purchase rights and similar rights with respect to the Assets;

(d) Third-party consent requirements and similar restrictions which are not applicable to the sale of the Assets contemplated by this Agreement or with respect to which waivers or consents are obtained from the appropriate Persons prior to the Closing Date or the appropriate time period for asserting the right has expired or which need not be satisfied prior to a transfer;

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

 

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(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;

(g) All rights to consent, by required notices to, filings with, or other actions by Governmental Authorities in connection with the sale or conveyance of oil and gas leases or rights or interests therein if they are customarily obtained subsequent 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, covenants, servitudes, permits, surface leases and other rights in respect of surface operations to the extent they do not, individually or in the aggregate, reduce Seller’s net revenue interest below that shown on Exhibit A-2 or increase Seller’s working interest beyond that shown on Exhibit A-1 or Exhibit A-2 without a corresponding increase in net revenue interest;

(j) Calls on production under existing Contracts; provided that the holder of such right must pay an index-based price for any production purchased by virtue of such call on production;

(k) Any termination of Seller’s title to any mineral servitude or any Property held by production as a consequence of the failure to conduct operations, cessation of production or insufficient production over any period except to the extent Seller has knowledge thereof as of the date hereof;

(l) All rights reserved to or vested in any Governmental Authorities to control or regulate any of the Assets in any manner or to assess Tax with respect to the Assets, the ownership, use or operation thereof, or revenue, income or capital gains with respect thereto, and all obligations and duties under all applicable Laws of any such Governmental Authority or under any franchise, grant, license or permit issued by any Governmental Authority;

(m) Any lien, charge or other encumbrance on or affecting the Assets which is expressly waived, assumed, bonded or paid by Purchaser at or prior to Closing or which is discharged by Seller at or prior to Closing;

(n) any lien or trust arising in connection with workers’ compensation, unemployment insurance, pension or employment laws or regulations;

(o) The matters described in Schedule 4.5;

(p) Any matters shown on Exhibit A-1 (only relating to working interests) or Exhibit A-2; and

(q) Any other liens, charges, encumbrances, defects or irregularities which do not, individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Assets subject thereto or affected thereby (as currently used or owned) and which would be accepted by a reasonably prudent purchaser engaged in the business of owning and

 

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operating oil and gas properties, including, without limitation, the absence of any lease amendment or consent by any royalty interest or mineral interest holder authorizing the pooling of any leasehold interest, royalty interest or mineral interest and the failure of Exhibits A-1 and A-2 to reflect any lease or any unleased mineral interest where the owner thereof was treated as a non-participating co-tenant during the drilling of any well.

Section 3.4 Allocated Values . Schedule 3.4 sets forth the agreed allocation of the Unadjusted Purchase Price among the Assets for purposes of Seller’s title representation in this Article 3. The “ Allocated Value ” for any Unit, Well, Lease or PUD Lease equals the portion of the Unadjusted Purchase Price that is allocated to such Unit, Well, Lease or PUD Lease on Schedule 3.4, increased or decreased by a share of each adjustment to the Unadjusted Purchase Price under Section 2.3(c), (d), (e) and (g). The share of each adjustment allocated to a particular Unit, Well, Lease or PUD Lease shall be obtained by allocating that adjustment among the various Assets on a pro rata basis in proportion to the Unadjusted Purchase Price allocated to each such Asset on Schedule 3.4. Seller has accepted such Allocated Values for purposes of this Agreement and the transactions contemplated hereby, but otherwise makes no representation or warranty as to the accuracy of such values.

Section 3.5 Notice of Title Defects; Defect Adjustments .

(a) To assert a claim arising out of a breach of Section 3.1, Purchaser must deliver a claim notice or notices to Seller on or before a date which is at least ten (10) Business Days prior to the Closing Date (the “ Title Claim Date ”). Each such notice shall be in writing and shall include:

(i) a description of the alleged Title Defect(s);

(ii) the Units, Wells, Leases or PUD Leases affected;

(iii) the Allocated Values of the Units, Wells, Leases or PUD Leases subject to the alleged Title Defect(s);

(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 Values of those Units, Wells, Leases or PUD Leases are reduced by the alleged Title Defect(s) and the computations and information upon which Purchaser’s belief is based.

Purchaser shall be deemed to have waived all breaches of Section 3.1 of which Seller has not been given notice on or before the Title Claim Date.

(b) Should Purchaser discover any Title Benefit on or before the Title Claim Date, Purchaser shall as soon as practicable, but in any case by the Title Claim Date, deliver to Seller a notice including:

(i) a description of the Title Benefit;

 

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(ii) the Units, Wells, Leases or PUD Leases affected;

(iii) the Allocated Values of the Units, Wells, Leases or PUD Leases subject to such Title Benefit; and

(iv) the amount by which the Purchaser reasonably believes the Allocated Value of those Units, Wells, Leases or PUD Leases is increased by the Title Benefit, and the computations and information upon which Purchaser’s belief is based.

Seller shall have the right, but not the obligation, to deliver to Purchaser a similar notice on or before the Title Claim Date with respect to each Title Benefit discovered by Seller. Seller shall be deemed to have waived all Title Benefits of which no Party has given notice on or before the Title Claim Date, except to the extent Purchaser has failed to give a notice which it was obligated to give under this Section 3.5(b).

(c) Seller shall have the right, but not the obligation, to attempt, at Seller’s sole cost, to cure or remove on or before sixty (60) days after the Closing Date any Title Defects of which Seller has been advised by Purchaser. No reduction shall be made in the Unadjusted Purchase Price with respect to a Title Defect for purposes of Closing if Seller has provided notice at least six (6) Business Days prior to the Closing Date of Seller’s intent to attempt to cure the Title Defect. If the Title Defect is not cured as agreed by Seller and Purchaser or if Seller and Purchaser cannot agree, and it is determined by the Title Arbitrator that such Title Defect is not cured at the end of the sixty (60) day post-Closing period, the adjustment required under this Article 3 shall be made pursuant to Section 8.4(b). Seller’s election to attempt to cure a Title Defect shall not constitute a waiver of Seller’s right to dispute the existence, nature or value of, or cost to cure, the Title Defect.

(d) With respect to each Unit, Well, Leases or PUD Lease affected by Title Defects reported under Section 3.5(a), the Unit, Well, Leases or PUD Lease shall be assigned at Closing, subject to all uncured Title Defects, and the Unadjusted Purchase Price shall be reduced by an amount (the “ Title Defect Amount ”) equal to the reduction in the Allocated Value for such Unit, Well, Leases or PUD Lease caused by such Title Defects, as determined pursuant to Section 3.5(g). Notwithstanding the foregoing provisions of this Section 3.5(d), no reduction shall be made in the Unadjusted Purchase Price with respect to any Title Defect that is (i) older than ten (10) years and, except for unreleased production payments or similar interest or other unreleased encumbrances, a Title Defect Amount of less than Twenty-Five Million Dollars ($25,000,000), (ii) involves a counterparty no longer in existence or in bankruptcy or receivership or (iii) consists of an alleged defect in the authorization, execution, delivery, acknowledgement, or approval of any instrument in Seller’s chain of title for which Seller at its election executes and delivers to Purchaser a separate written indemnity agreement, in form and substance reasonably satisfactory to Purchaser, under which Seller agrees to fully, unconditionally and irrevocably indemnify and hold harmless Purchaser and its successors and assigns from any and all Damages arising out of or resulting from such Title Defect.

 

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(e) With respect to each Unit, Well, Lease or PUD Lease affected by Title Benefits reported under Section 3.5(b) (or which Purchaser should have reported under Section 3.5(b)), the Unadjusted Purchase Price shall be increased by an amount (the “ Title Benefit Amount ”) equal to the increase in the Allocated Value for such Unit, Well, Lease or PUD Lease caused by such Title Benefits, as determined pursuant to Section 3.5(h), but in no event will the aggregate adjustments to the Unadjusted Purchase Price as a result of Title Benefits exceed the aggregate adjustments to the Unadjusted Purchase Price due to Title Defects.

(f) This Article 3 shall, to the fullest extent permitted by applicable Law, be the exclusive right and remedy of Purchaser with respect to Seller’s breach of its warranty and representation in Section 3.1. Except as provided in Article 3 and the Conveyances, Purchaser releases, remises and forever discharges Seller and its Affiliates and all such parties’ stockholders, officers, directors, employees, agents, advisors and representatives from any and all suits, legal or administrative proceedings, claims, demands, damages, losses, costs, liabilities, interest or causes of action whatsoever, in law or in equity, known or unknown, which Purchaser might now or subsequently may have, based on, relating to or arising out of, any Title Defect or other deficiency in title to any Asset.

(g) The Title Defect Amount resulting from a Title Defect shall be determined as follows:

(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 Seller’s interest in the affected Unit, Well or Lease;

(iii) if the Title Defect represents a discrepancy between (A) the net revenue interest for any Unit, Well or PUD Lease and (B) the net revenue interest or percentage stated on Exhibit A-2 or, in the case of a Lease, as calculated pursuant to Section 3.2(a)(i)(B), then the Title Defect Amount shall be the product of the Allocated Value of such Unit, Well or PUD Lease multiplied by a fraction, the numerator of which is the net revenue interest or percentage ownership decrease and the denominator of which is the net revenue interest or percentage ownership stated on Exhibit A-2 or, in the case of a Lease, as calculated pursuant to Section 3.2(a)(i)(B), provided that if the Title Defect does not affect the Unit, Well or PUD Lease throughout its entire productive life, the Title Defect Amount determined under this Section 3.5(g)(iii) shall be reduced to take into account the applicable time period only;

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

 

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(v) notwithstanding anything to the contrary in this Article 3, (A) an individual claim for a Title Defect for which a claim notice is given prior to the Title Claim Date shall only generate an adjustment to the Unadjusted Purchase Price under this Article 3 if the Title Defect Amount with respect thereto exceeds Five Million dollars ($5,000,000), (B) the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any given Unit, Well, Lease or PUD Lease shall not exceed the Allocated Value of such Unit, Well or Lease and (C) there shall be no adjustment to the Unadjusted Purchase Price for Title Defects unless and until the aggregate Title Defect Amounts that are entitled to an adjustment under Section 3.5(g)(v)(A) and for which Claim Notices were timely delivered exceed Fifteen Million dollars ($15,000,000), and then only to the extent that such aggregate Title Defect Amounts exceed Fifteen Million dollars ($15,000,000);

(vi) if a Title Defect is reasonably susceptible of being cured, the Title Defect Amount determined under subsections (iii) or (iv) above shall not be greater than the amount that can reasonably be shown to be the reasonable cost and expense of curing such Title Defect; and

(vii) the Title Defect Amount with respect to a Title Defect shall be determined without duplication of any costs or losses included in another Title Defect Amount hereunder, or for which Purchaser otherwise receives credit in the calculation of the Purchase Price.

(h) The Title Benefit Amount for any Title Benefit shall be the product of the Allocated Value of the affected Unit or Well 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-2 or, in the case of a Lease, as calculated pursuant to Section 3.2(a)(i)(B), provided that if the Title Benefit does not affect a Unit, Well, Lease or PUD Lease throughout the entire life of the Unit, Well, Lease or PUD Lease, the Title Benefit Amount determined under this Section 3.5(h) shall be reduced to take into account the applicable time period only. Notwithstanding anything to the contrary in this Article 3, an individual claim for a Title Benefit which is reported under Section 3.5(b) (or which Purchaser should have reported under Section 3.5(b)) prior to the Title Claim Date shall only generate an adjustment to the Unadjusted Purchase Price under this Article 3 if the Title Benefit Amount with respect thereto exceeds Five Million dollars ($5,000,000).

(i) Seller and Purchaser shall attempt to agree on all Title Defect Amounts and Title Benefit Amounts by five (5) Business Days prior to the Closing Date. If Seller and Purchaser are unable to agree by that date, then subject to Section 3.5(c), Seller’s good faith estimate shall be used to determine the Closing Payment pursuant to Section 8.4(a), and the Title Defect Amounts and Title Benefit Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this Section 3.5(i). During the 10-day period following the Closing Date, Title Defect Amounts and Title Benefit Amounts in dispute shall be submitted to a title attorney

 

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with at least 10 years’ experience in oil and gas titles in the state in which the Units or Wells (or majority of Units and Wells) in question are located as selected by mutual agreement of Purchaser and Seller or absent such agreement during the 10-day period, by the Houston office of the American Arbitration Association (the “ Title Arbitrator ”). Likewise, if by the end of the sixty (60) day post-Closing cure period under Section 3.5(c), Seller has failed to cure any Title Defects which it provided notice that it would attempt to cure, and Seller and Purchaser have been unable to agree on the Title Defect Amounts for such Title Defects, the Title Defect Amounts in dispute shall be submitted to the Title Arbitrator. The Title Arbitrator shall not have worked as an employee or outside counsel for either Party or its Affiliates during the five (5) year period preceding the arbitration or have any financial interest in the dispute. The arbitration proceeding shall be held in Houston, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section. The Title Arbitrator’s determination shall be made within 45 days after submission of the matters in dispute and shall be final and binding upon the Parties, without right of appeal. In making his determination, the Title Arbitrator shall be bound by the rules set forth in Section 3.5(g) and 3.5(h) and may consider such other matters as in the opinion of the Title Arbitrator are necessary or helpful to make a proper determination. Additionally, the Title Arbitrator may consult with and engage disinterested third Persons to advise the arbitrator, including title attorneys from other states and petroleum engineers. The Title Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Title Defect Amounts and Title Benefit Amounts submitted by any Party and may not award damages, interest or penalties to any Party with respect to any matter. Seller and Purchaser shall each bear its own legal fees and other costs of presenting its case. Purchaser shall bear one-half of the costs and expenses of the Title Arbitrator, and Seller shall be responsible for the remaining one-half of the costs and expenses.

Section 3.6 Consents to Assignment and Preferential Purchase Rights .

(a) Promptly after the date hereof, Seller shall prepare and send (i) notices to the holders of any required consents to assignment that are set forth on Schedule 4.12 requesting consents to the transactions contemplated by this Agreement and (ii) notices to the holders of any applicable preferential rights to purchase or similar rights that are set forth on Schedule 4.12 in compliance with the terms of such rights and requesting waivers of such rights. Any preferential purchase right must be exercised subject to all terms and conditions set forth in this Agreement, including the successful Closing of this Agreement pursuant to Article 8. The consideration payable under this Agreement for any particular Asset for purposes of preferential purchase right notices shall be the Allocated Value for such Asset. Seller shall use commercially reasonable efforts to cause such consents to assignment and waivers of preferential rights to purchase or similar rights (or the exercise thereof) to be obtained and delivered prior to Closing, provided that Seller shall not be required to make payments or undertake obligations to or for the benefit of the holders of such rights in order to obtain the required consents and waivers. Purchaser shall cooperate with Seller in seeking to obtain such consents to assignment and waivers of preferential rights.

(b) In no event shall there be transferred at Closing any Asset for which a consent requirement has not been satisfied and for which transfer is prohibited or a fee is payable (unless the same has been paid by Purchaser or is the responsibility of Seller under Section 6.11) without the consent. In cases in which the Asset subject to such a requirement is a Contract and Purchaser is assigned

 

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the Lease(s) to which the Contract relates, but the Contract is not transferred to Purchaser due to the unwaived consent requirement, Purchaser shall continue after Closing to use commercially reasonable efforts to obtain the consent so that such Contract can be transferred to Purchaser upon receipt of the consent, the Contract shall be held by Seller for the benefit of Purchaser, Purchaser shall pay all amounts due thereunder, and Purchaser shall be responsible for the performance of any obligations under such Contract to the extent that Purchaser has been transferred the Assets necessary to perform under such Contract until such consent is obtained. In cases in which the Asset subject to such a requirement is a Lease and the third Person consent to the transfer of the Lease is not obtained by Closing, Purchaser may elect to treat the unsatisfied consent requirements as a Title Defect and receive the appropriate adjustment to the Unadjusted Purchase Price under Section 2.3 by giving Seller written notice thereof in accordance with Section 3.5(a), except that such notice may be given up to six (6) Business Days prior to the Closing Date. If an unsatisfied consent requirement with respect to which an adjustment to the Unadjusted Purchase Price is made under Section 3.5 is subsequently satisfied prior to the date of the final adjustment to the Unadjusted Purchase Price under Section 8.4(b), Seller shall be reimbursed in that final adjustment for the amount of any previous deduction from the Unadjusted Purchase Price, the Lease, if not previously transferred to Purchaser under the first sentence of this Section 3.6(b), shall be transferred, and the provisions of this Section 3.6 shall no longer apply to such consent requirement.

(c) If any preferential right to purchase any Assets is exercised prior to Closing, the Purchase Price shall be decreased by the Allocated Value for such Assets, the affected Assets shall not be transferred at Closing, and the affected Assets shall be deemed to be deleted from Exhibits A-1 through A-6 to this Agreement, as applicable, for all purposes.

(d) Should a third Person fail to exercise or waive its preferential right to purchase as to any portion of the Assets prior to Closing and the time for exercise or waiver has not yet expired, then subject to the remaining provisions of this Section 3.6, such Assets shall be included in the transaction at Closing, there shall be no adjustment to the Purchase Price at Closing with respect to such preferential right to purchase, and Seller shall, at its sole expense, continue to use commercially reasonable efforts to obtain the waiver of the preferential purchase rights and shall continue to be responsible for the compliance therewith.

(e) Should the holder of the preferential purchase right validly exercise the same (whether before or after Closing), then:

(i) Seller shall convey the affected Assets to the holder on the terms and provisions set out in the applicable preferential right provision. If the affected Assets were previously transferred to Purchaser at Closing, Purchaser agrees to transfer the affected Assets back to Seller on the terms and provisions set out herein to permit Seller to comply with this obligation (or, if Seller so requests, shall transfer the affected Assets directly to the holder on the terms and provisions set out in the applicable preferential purchase right provision);

(ii) Pursuant to Section 2.3(b), Seller shall credit Purchaser with the Allocated Value of any Asset transferred pursuant to Section 3.6(e)(i);

 

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(iii) Seller shall be entitled to the consideration paid by such holder;

(iv) If the affected Assets were previously transferred to Purchaser at Closing, Purchase Price adjustments calculated in the same manner as the adjustments in Section 2.3(g) shall be calculated for the period from the Closing Date to the date of the reconveyance and the net amount of such adjustment, if positive, shall be paid by Purchaser to Seller and, if negative, by Seller to Purchaser;

(v) If the affected Assets were previously transferred to Purchaser at Closing, Seller shall assume all obligations assumed by Purchaser with respect to such Assets under Section 12.1, and shall indemnify, defend and hold harmless Purchaser from all Damages incurred by Purchaser caused by or arising out of or resulting from the ownership, use or operation of such Asset from the Closing Date to the date of the reconveyance, excluding, however, any such Damages resulting from any violation of any Law caused by the actions of, or implementation of policies or procedures of, Purchaser, breach of any contract by Purchaser after Closing, or gross negligence or willful misconduct of Purchaser after Closing; and

(vi) In the event that the value of any Property operated by Seller is materially impaired by the exercise of a preferential purchase right with respect to a Property also operated by Seller on which infrastructure is used by the first Property without the benefit of an agreement for such use which would survive the transfer of title to the third party preferential right holder, Purchaser may claim such material impairment as a Title Defect.

Section 3.7 Limitations on Applicability The representation and warranty in Section 3.1 shall terminate as of the Title Claim Date and shall have no further force and effect thereafter, provided there shall be no termination of Purchaser’s or Seller’s rights under Section 3.5 with respect to any bona fide Title Defect or Title Benefit claim properly reported on or before the Title Claim Date.

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES OF SELLER

Subject to the provisions of this Article 4, and the other terms and conditions of this Agreement, Seller represents and warrants to Purchaser the matters set out in Section 4.1 through Section 4.19.

Section 4.1 Seller .

(a) Existence and Qualification . Seller is a corporation duly organized, validly existing and in good standing under the laws of the state where it is incorporated (as set forth in the preamble).

(b) Power . Seller has the corporate power to enter into and perform this Agreement (and all documents required to be executed and delivered by Seller at Closing) and to consummate the transactions contemplated by this Agreement (and such documents).

 

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(c) Authorization and Enforceability . The execution, delivery and performance of this Agreement (and all documents required to be executed and delivered by Seller at Closing), and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller (and all documents required to be executed and delivered by Seller at Closing shall be duly executed and delivered by Seller) and this Agreement constitutes, and at the Closing such documents shall constitute, the valid and binding obligations of Seller, enforceable in accordance with their terms except as such enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(d) No Conflicts . The execution, delivery and performance of this Agreement by Seller, and the consummation of the transactions contemplated by this Agreement shall not (i) violate any provision of the certificate of incorporation or bylaws of Seller, (ii) result in default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, or other financing instrument to which Seller is a party or by which it is bound, (iii) violate any judgment, order, ruling, or decree applicable to Seller as a party in interest or (iv) violate any Laws applicable to Seller, except any matters described in clauses (ii), (iii), or (iv) above which would not have a Material Adverse Effect.

Section 4.2 No Undisclosed Liabilities; Accuracy of Data .

(a) Except as described on Schedule 4.2, as of December 31, 2006, the Assets were not subject to any obligations or liabilities that would be required to be reflected as liabilities on a balance sheet for the E&P Business prepared in accordance with the Accounting Principles other than obligations and liabilities described in the other schedules to this Article 4, and obligations and liabilities as would not, individually or in the aggregate, have a Material Adverse Effect. Schedule 4.2 includes the cost of all material repair, replacement and restoration work with respect to the Equipment necessitated by Hurricanes Katrina, Rita and Ivan.

(b) The financial data set forth in Schedule 4.2(b) (subject to the qualifications set forth therein) and in the data room folders 3.13.3 and 3.13.4 (DVDs of which have been provided to Purchaser in connection with signing this Agreement and identified by Seller and Purchaser) are true and correct.

(c) The historical factual information, excluding title information, supplied by Seller to Ryder Scott & Co. in the preparation of its report dated as of December 31, 2006 (the “ Reserve Report ”) of the Assets is accurate and complete in all material respects. The historical production data titled YE2006_Product in OBU_YE2006_Aries_database in the data room folder 2.1.2.3.1.1 as updated by OBUPROD_UPDATE in the data room folder 2.1.2.3.5.1 (DVDs of which have been provided to Purchaser in connection with signing this Agreement and identified by Seller and Purchaser) is accurate and complete in all material respects.

(d) Except for bonds, letters of credit and guarantees related primarily to the Excluded Assets which Seller is retaining, Schedule 13.5 sets forth all bonds, letters of credit and guarantees posted as of the date of this Agreement by Seller or any Affiliate of Seller with any Governmental Authority or third person relating to the Assets.

 

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Section 4.3 Assets of the E&P Business . Except as described in Section 1.3 and except for those vehicles, computers and software leased for use in the operation of the E&P Business that are not purchased by Seller or Affiliates of Seller pursuant to Section 6.10, (a) the Assets include all material equipment, materials, contracts, data, records, software and other property owned or leased by Seller or its Affiliates necessary for the conduct of the E&P Business in a manner consistent with recent practices; (b) since December 31, 2006, the Assets have been operated only in the ordinary course of business consistent with past practices of Seller (for this purpose, hurricane related repair work shall be considered ordinary course of business); and (c) no property material to the conduct of the E&P Business is being retained by Seller or Affiliates of Seller.

Section 4.4 Labor Matters and Employee Benefits .

(a) Labor Matters . Other than for Managing Directors and Executives, temporary employees or consultants, there are no employment agreements with any individuals who are (i) employed by Seller who are rendering services primarily with respect to the Assets or (ii) employed by Dominion Resources Services, Inc. but who are rendering services primarily with respect to the Assets. Seller has no collective bargaining agreements.

(b) Employee Benefits .

(i) Schedule 4.4(b)(i) lists all of the Employee Plans.

(ii) All Employee Plans subject to ERISA and the Code comply with ERISA, the Code and, as applicable, the Pregnancy Discrimination Act of 1978, the Age Discrimination in Employment Act, as amended, the Family and Medical Leave Act of 1993, and the Health Insurance Po