PURCHASE AND SALE
AGREEMENT
EQUITABLE PRODUCTION
COMPANY
PINE MOUNTAIN OIL AND GAS,
INC.
Dated as of April 13,
2007
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ARTICLE 1 PURCHASE AND SALE
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1
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Section 1.1 Purchase and
Sale
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1
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Section 1.2 Combined Assets
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1
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Section 1.3 Excluded Assets
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3
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Section 1.4 Certain
Definitions
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3
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Section 1.5 Effective Time; Proration of
Costs and Revenues.
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8
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Section 1.6 Back-In
Interests
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9
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Section 1.7 Pre-Effective Time Interests
and Assets
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9
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Section 1.8 Intentions of the
Parties
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10
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10
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Section 2.1 Purchase Price
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10
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Section 2.2 Adjustments to Purchase
Price
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11
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Section 2.3 Effect of Purchase Price
Adjustments
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12
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Section 2.4 Allocation of Purchase
Price
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12
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12
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12
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Section 3.2 Definition of Defensible
Title
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13
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Section 3.3 Definition of Permitted
Encumbrances
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14
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Section 3.4 Notice of Asserted Title
Defects; Defect Adjustments
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15
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Section 3.5 Consents to Assignment and
Preferential Rights to Purchase
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19
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Section 3.6 Casualty or Condemnation
Loss
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20
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF
SELLER
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20
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20
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22
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Section 4.3 Liability for Brokers’
Fees
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23
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Section 4.4 Consents, Approvals or
Waivers
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23
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23
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23
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Section 4.7 Environmental
Laws
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24
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Section 4.8 Compliance with
Laws
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24
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24
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Section 4.10 Payments for
Production
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Section 4.11 Production
Imbalances
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24
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Section 4.12 Permits, etc.
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24
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Section 4.13 Outstanding Capital
Commitments
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25
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Section 4.14 Plugging and
Abandonment
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25
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Section 4.15 Condition of Equipment,
etc.
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25
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Section 4.16 Payments of Royalties and
Expenses
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25
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-i-
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26
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Section 4.18 Absence of Certain
Events
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26
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26
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ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF
PURCHASER
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26
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Section 5.1 Existence and
Qualification
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26
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26
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Section 5.3 Authorization and
Enforceability
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26
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26
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Section 5.5 Liability for Brokers’
Fees
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27
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Section 5.6 Consents, Approvals or
Waivers
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27
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27
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27
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Section 5.9 Qualification
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27
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Section 5.10 No Top Leases
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Section 5.11 Independent
Investigation
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27
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Section 5.12 Seller
Information
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ARTICLE 6 COVENANTS OF THE
PARTIES
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28
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28
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Section 6.2 Indemnity Regarding
Access
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28
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Section 6.3 Pre-Closing
Notifications
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28
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Section 6.4 Confidentiality; Public
Announcements
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29
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Section 6.5 Governmental
Reviews
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30
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30
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Section 6.7 Further
Assurances
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32
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Section 6.8 Assumption of
Obligations
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32
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Section 6.9 Like-Kind
Exchange
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32
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Section 6.10 Operation of
Assets
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32
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Section 6.11 Financial
Information
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33
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Section 6.12 No Merger of
Interests
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33
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Section 6.13 Waiver of Condition for
Pittston Litigation
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34
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ARTICLE 7 CONDITIONS TO CLOSING
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35
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Section 7.1 Conditions of Seller to
Closing
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35
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Section 7.2 Conditions of Purchaser to
Closing
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36
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37
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Section 8.1 Time and Place of
Closing
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37
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Section 8.2 Closing Deliveries of
Seller
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37
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Section 8.3 Closing Deliveries of
Purchaser
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38
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Section 8.4 Closing Payment and
Post-Closing Purchase Price Adjustments
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39
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ARTICLE 9 TERMINATION AND
AMENDMENT
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40
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40
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Section 9.2 Effect of
Termination
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41
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-ii-
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ARTICLE 10 INDEMNIFICATIONS;
LIMITATIONS
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41
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Section 10.1
Indemnification
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Section 10.2 Indemnification
Actions
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43
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Section 10.3 Limitation on
Actions
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45
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46
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46
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Section 11.2 Property Costs and Gathering
Charges
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47
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Section 11.3 Counterparts
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47
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Section 11.5 [Intentionally
Omitted]
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48
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48
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Section 11.7 [Intentionally
Omitted]
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48
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Section 11.8 Governing Law; Jurisdiction;
Court Proceedings
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48
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48
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48
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48
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49
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Section 11.13 Entire
Agreement
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49
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49
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Section 11.15 No Third Person
Beneficiaries
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49
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Section 11.17 Construction
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50
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Section 11.18 Limitation on
Damages
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50
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Section 11.19 Attorney’s
Fees
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50
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50
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-iii-
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Leases
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Wells
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Contracts
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Water Disposal
Wells; Other Excluded Assets
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Delinquent
Liens for Current Taxes or Assessments
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Delinquent
Liens Arising in the Ordinary Course of Business
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Calls on
Production Under Existing Contracts
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Form of
Conveyance
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Form of New
Lease
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Form of
Operating Agreement
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Form of
Settlement Agreement
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Form of
Termination Agreement
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Permitted
Encumbrances
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Seller
Guaranty
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Purchaser
Guaranty
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Form of EPC
Lease
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Allocated
Values
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Conflicts
(Seller)
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Consents,
Approvals or Waivers (Seller)
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Litigation
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Litigation
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Taxes and
Assessments
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Compliance with
Laws
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Contracts
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Payments for
Production
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Production
Imbalances
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Governmental
Permits
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Outstanding
Capital Commitments
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Plugged or
Abandoned Wells
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Condition of
Equipment, etc.
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Suspense
Funds
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Casualty
Events
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Operation of
Assets and Expenses Associated Therewith
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-iv-
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Defined
Term
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Section
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Section 2.2
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Section 1.4(a)
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Section 1.4(b)
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Preamble
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Section 2.4
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Section 1.4(c)
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Section 3.2
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Asserted Title
Defect Amount
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Section 3.4(c)
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Section 1.7
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Section 1.4(d)
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Section 11.8
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Section 10.2(b)
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Section 10.2(b)
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Section 8.1
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Section 8.1
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Section 8.4(a)
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Section 2.4
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Section 1.2
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Section 1.4(e)
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Section 4.4
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Section 1.2(b)(ii)
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Section 7.1(c)
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Section 8.2(a)
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Section 1.2(a)
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Section 10.1(d)
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Section 3.2
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Section 1.5(b)
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Section 2.2(a)
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Section 3.2
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Section 4.7
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Section 1.4(f)
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Section 1.2(b)(iv)
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Section 4.1(d)
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Section 1.4(f)
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Section 1.3
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Preamble
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Section 1.4(h)
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Section 1.4(i)
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Exploration
Agreement PMOG Area
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Section 1.4(j)
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Section 1.4(k)
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Section 1.4(l)
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Section 1.4(m)
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-v-
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Defined
Term
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Section
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Section 1.4(n)
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Section 1.4(o)
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Section 1.4(p)
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Section 4.12
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Section 1.4(q)
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Section 1.5(b)
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Section 10.2(a)
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Section 10.2(a)
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Section 1.4(r)
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Section 1.4(s)
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Section 1.2(a)
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Section 11.13
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Section 6.9
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Section 4.1(d)
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Section 1.7
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Section 1.4(t)
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Section 8.2(e)
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Section 1.4(u)
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Preamble
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Section 7.1(e)
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Section 3.3
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Section 1.4(v)
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Section 6.13(a)
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Section 6.13(a)
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Section 7.1(e)(ii)
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Section 1.4(w)
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PM Undeveloped
Lease Interests
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Section 1.4(x)
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Section 1.4(y)
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Pre-Closing
Taxable Period
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Section 6.6(c)
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Pre-Effective
Time Interests
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Section 1.7
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Section 4.4
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Section 1.4(z)
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Section 1.2(b)(i)
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Section 1.5(c)
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Section 1.4(aa)
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Purchaser
Indemnified Persons
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Section 10.1
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Section 2.1
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Preamble
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Section 1.2(a)
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Section 1.4(bb)
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Section 1.4(cc)
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Scheduled
Transfer Requirements
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Section 4.4(a)
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Section 1.4(dd)
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Section 1.4(ee)
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Preamble
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Seller
Indemnified Persons
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Section 10.1
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-vi-
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Defined
Term
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Section
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Section 4.1(c)
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Statements of
Revenues and Expenses
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Section 6.11
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Section 6.6(c)
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Section 1.4(ff)
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Section 1.4(gg)
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Section 8.2(g)
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Section 9.1
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Section 3.4(f)
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Section 3.4(a)
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Section 3.2
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Section 11.13
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Section 1.4(hh)
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Undeveloped
Lease Interests
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Section 1.4(ii)
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Section 1.4(jj)
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Section 1.2(a)
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-vii-
PURCHASE AND SALE
AGREEMENT
This Purchase and
Sale Agreement (this “Agreement”), dated as of April
___, 2007, (the “Execution Date”) is by and between
Equitable Production Company, a corporation organized under the
Laws of the Commonwealth of Pennsylvania (“Seller”),
and Pine Mountain Oil and Gas, Inc., a corporation organized under
the Laws of the Commonwealth of Virginia (“Purchaser”).
Seller and Purchaser are sometimes referred to herein,
collectively, as the “Parties” and, individually, as a
“Party.”
WHEREAS, Seller is
the owner of certain interests in oil and gas properties that are
defined and described herein; and
WHEREAS, Seller
desires to sell and Purchaser desires to purchase a portion of
Seller’s right, title and interest in and to such properties
on the terms and conditions hereinafter 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 is 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 and accept from Seller
the Assets. Seller further agrees to transfer to Purchaser and
Purchaser agrees to accept from Seller the Pre-Effective Time
Interests as contemplated by Section 1.7 hereof.
Section 1.2 Combined Assets . “Combined
Assets” means the following:
(a) an undivided
one-half ( 1
/ 2 ) of all
of Seller’s interest in and to those leases identified on
Exhibit A-1 attached hereto (including without limitation, in
accordance with Section 11.20, Seller’s interest as
lessee under the EPC Lease, but for the avoidance of doubt,
excluding its interest as lessor thereunder) (such undivided
one-half ( 1
/ 2 )
interest in such leases, the “Leases”), provided that,
with respect to each of the wellbores of the wells identified on
Exhibit A-2 attached hereto (collectively, the
“Wells”) and the Proration Unit currently existing or
to be formed therefor, such interest shall be reduced or increased
to the extent necessary to cause: (i) effective as of the
Effective Time: (A) Purchaser and all Persons holding any working
interest in such Well and the Proration Unit currently existing or
that was formed previously held by Purchaser or any of its
Affiliates (all such Persons, “Purchaser Successors”),
to collectively hold, the interest in the wellbore of such Well
specified under the column titled “Purchaser Effective Time
Interest” on Exhibit A-2 and the same interest in the
Proration Unit currently existing or
-1-
to be formed
for such Well; and (B) Seller to hold the interest in the
wellbore of such Well specified under the column titled
“Seller Effective Time Interest” on Exhibit A-2
and the same interest in the Proration Unit currently existing or
to be formed for such Well; and (ii) effective as of the
Closing: (A) Purchaser and all Purchaser Successors to
collectively hold the interest in the wellbore of such Well
specified under the column titled “Purchaser Closing
Interest” on Exhibit A-2 and the same interest in the
Proration Unit currently existing or to be formed for such Well;
and (B) Seller to hold the interest in the wellbore of such
Well specified under the column titled “Seller Closing
Interest” on Exhibit A-2 and the same interest in the
Proration Unit currently existing or to be formed for such Well
(the interests to be transferred to Purchaser described in this
Section 1.2(a), the “Conveyed Lease
Interests”);
(b) that portion
of Seller’s right, title and interest corresponding to the
Conveyed Lease Interests in and to the following:
(i) all pooled,
communitized or unitized acreage, including acreage in units formed
or prescribed by regulatory order, associated with the Leases or
Wells (that portion of Seller’s right, title and interest in
such acreage corresponding to the Conveyed Lease Interests,
together with the Conveyed Lease Interests, the
“Properties”), and all tenements, hereditaments and
appurtenances associated therewith;
(ii) all contracts
listed on Exhibit A-3 (that portion of Seller’s right,
title and interest in such contracts corresponding to the
Properties, the “Contracts”);
(iii) all
easements, licenses, servitudes, rights-of-way, surface leases and
other surface rights appurtenant to, and used or held for use
primarily in connection with, the Properties or other Combined
Assets, but excluding any of the foregoing to the extent that
(1) transfer is restricted by third-party agreement or
applicable Law, (2) Seller is unable to obtain, using
commercially reasonable efforts, a waiver of, or otherwise satisfy,
such transfer restriction (provided that Seller shall not be
required to provide consideration or undertake obligations to or
for the benefit of the holders of such rights in order to obtain
any necessary consent or waiver), and (3) the failure to
obtain such waiver or satisfy such transfer restriction would cause
a termination of such instrument or a material impairment of the
rights thereunder; and
(iv) all
equipment, machinery, fixtures, well lines, pipelines and other
tangible personal property and improvements located on the
Properties or used or held for use primarily in connection with the
ownership or operation of the Properties or other Combined Assets,
but excluding any such items at and downstream of any wellsite
metering equipment associated with any Well (including such
wellsite metering equipment and any gathering lines, pipelines,
well lines and compressors downstream of such wellsite metering
equipment), and any such items included in the Excluded Assets
(that portion of Seller’s right,
-2-
title and
interest in such equipment, machinery, fixtures and other tangible
personal property and improvements corresponding to the Properties,
and subject to such exclusions, the
“Equipment”).
Section 1.3 Excluded Assets . Notwithstanding
anything to the contrary contained herein, the Combined Assets
shall not include, and the following are excepted, reserved and
excluded from the transactions contemplated hereby (collectively,
the “Excluded Assets”):
(a) all water
disposal wells, and any transfer facility, loadout facility or
other facility associated with such water disposal wells, located
on the Leases or used in connection with the disposal of produced
water derived from or otherwise attributable to any of the Wells,
including those water disposal wells and associated facilities
described on Exhibit A-4;
(b)
(i) computers and peripheral equipment related to such
computers; (ii) communication and telecommunication equipment
including but not limited to radios, towers, and networking
equipment; (iii) custom applications and databases;
(iv) measurement and data collection devices; and
(v) software and associated licenses, including but not
limited to any software relating to the SCADA System, Enertia,
Altra, Flow-Cal, Talon, Aries, Production Access, Pre-drill
Manager, Geographix, Synergy, and CygNet;
(c) all rights and
all obligations of Seller with respect to any refund or payment of
Taxes or other costs or expenses borne by Seller or Seller’s
predecessors in interest and title attributable to the Assets and
the period prior to the Effective Time;
(d) all rights and
all obligations of Seller with respect to the claims and causes of
action relating to the Assets that accrued or arose prior to the
Effective Time (other than claims or causes of action for proceeds
to which Purchaser is entitled under Section 1.5(b));
(e) Seller’s
area-wide bonds, permits and licenses (including all Federal
Communications Commission licenses) or other permits, licenses or
authorizations used in the conduct of Seller’s business
generally;
(f) the Gathering
Assets;
(g) all fee
mineral interests in Hydrocarbons; and
(h) those other
assets and interests identified on Exhibit A-4.
Section 1.4 Certain Definitions . As used
herein:
(a)
“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 (i) the power to direct the vote of more than fifty
percent (50%) of the voting shares or other securities of such
Person through ownership, pursuant
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to a written
agreement, or otherwise or (ii) the power to direct the
management and policies of a Person through ownership of voting
shares or other securities, pursuant to a written agreement, or
otherwise. For the purposes of this Agreement, the Company shall
not be considered an Affiliate of either Party or such
Party’s Affiliates.
(b) “Agreed
Interest Rate” means the lesser of (i) five percent (5%)
per annum and (ii) the maximum rate allowed by applicable
Laws.
(c)
“AMI” has the meaning set forth in the Operating
Agreement.
(d)
“Business Day” means any day other than a Saturday, a
Sunday, or a day on which banks are closed for business in
Pittsburgh, Pennsylvania or Fort Worth, Texas.
(e)
“Company” means Nora Gathering, LLC, a limited
liability company organized under the Laws of the State of
Delaware.
(f) “EPC
Lease” means a Hydrocarbons lease in substantially the form
attached hereto as Exhibit “J”.
(g)
“Exchange Act” means the Securities Exchange Act of
1934, as amended.
(h)
“Existing JOA” means the Coalbed Methane Gas Operating
Agreement dated as of August 1, 1994 and the Conventional Gas
(Non-Coalbed Gas) Operating Agreement dated as of August 1,
1994.
(i)
“Exploration Agreement” means the Coalbed Gas
Exploration and Development Agreement dated as of April 5,
1988, together with and as amended, supplemented and modified from
time to time by various amendments and supplemental agreements
thereto, including (i) the Amendment to Coalbed Gas
Exploration and Development Agreement dated as of December 12,
1990, (ii) the Second Amendment to Coalbed Gas Exploration and
Development Agreement dated as of August 26, 1994,
(iii) the Third Amendment to Coalbed Gas Exploration and
Development Agreement dated as of June 10, 1996, (iv) the
Fourth Amendment to Coalbed Gas Exploration and Development
Agreement dated as of July 10, 1997, and (v) the Fifth
Amendment to Coalbed Gas Exploration and Development Agreement
dated as of December 31, 1998.
(j)
“Exploration Agreement PMOG Area” means the areas
covered by the Exploration Agreement under which PMOG or any of its
Affiliates holds, or leases from third Persons not affiliated with
Seller, the mineral interest.
(k) “Future
Well” shall mean a well to be drilled in the future upon a
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 as of the date of this
Agreement.
(l) “Gas
Retention Percentage” has the meaning set forth in the
Gathering Agreement.
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(m)
“Gathering Agreement” has the meaning set forth in the
Contribution Agreement.
(n)
“Gathering Assets” has the meaning set forth in that
certain Contribution Agreement of even date herewith between
Seller, Equitable Gathering Equity, LLC, Purchaser and the
Company.
(o)
“Gathering Charges” means the Gathering Rate (as
defined in the Gathering Agreement) and all other charges set forth
in the Gathering Agreement, except the Gas Retention Percentage,
chargeable in connection with Hydrocarbons produced from the Assets
for the gathering services provided by Seller or its Affiliates
through the Gathering Assets, which charges shall be determined as
if the Gathering Agreement was in place effective as of the
Effective Time.
(p)
“Governmental Authority” means any government and/or
any political subdivision thereof, including departments, courts,
commissions, boards, bureaus, ministries, agencies or other
instrumentalities.
(q)
“Hydrocarbons” means all oil, gas, coalbed methane gas
and other associated hydrocarbons.
(r)
“LACT” means Lease Automatic Custody
Transfer.
(s)
“Laws” means all laws, statutes, rules, regulations,
ordinances, orders, requirements and codes of Governmental
Authorities.
(t) “Non-PM
Assets” means all Assets other than the PM Assets.
(u)
“Original Lease” means that certain Agreement, dated as
of July 25, 1972, between The Pittston Company (the
predecessor in interest to Purchaser), as lessor, and Philadelphia
Oil Company (the predecessor in interest to Seller), as lessee
(together with and as amended, supplemented and modified from time
to time by various amendments and supplemental agreements thereto,
including (i) the Supplemental Agreement, dated as of
January 19, 1976, between The Pittston Company and
Philadelphia Oil Company, (ii) the Supplemental Agreement II,
dated as of August 24, 1978, between The Pittston Company and
Philadelphia Oil Company, (iii) the Supplemental Agreement
III, dated as of January 1, 1986, between The Pittston Company
and Philadelphia Oil Company, (iv) the First Amendment to
Supplemental Agreement III, dated as of August 26, 1994, and
effective August 1, 1994 between Purchaser and Equitable
Resources Exploration, Inc., (v) the Supplemental Agreement
IV, dated as of February 3, 1997, between Purchaser and
Equitable Resources Energy Company — Eastern Region,
(vi) the Additional Acreage Agreement, dated as of
January 1, 1986, between The Pittston Company and Equitable
Resources Energy Company, (vii) the Amendment to the
Additional Acreage Agreement, dated as of January 1, 1987,
between Purchaser and Equitable Resources Energy Company,
(viii) the Second Amendment to the Additional Acreage
Agreement, dated as of April 11, 1988, and effective
January 1, 1988 between Purchaser and Equitable Resources
Exploration, Inc., (ix) the Third Amendment to the Additional
Acreage
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Agreement,
dated as of February 26, 1993, and effective January 1,
1993 between Purchaser and Equitable Resources Exploration, Inc.,
(x) the Fourth Amendment to the Additional Acreage Agreement,
dated as of August 26, 1994, between Purchaser and Equitable
Resources Exploration, Inc., (xi) the Fifth Amendment to the
Additional Acreage Agreement, dated as of March 21, 1995, and
effective January 1, 1995 between Purchaser and Equitable
Resources Exploration, Inc., (xii) the Sixth Amendment to the
Additional Acreage Agreement, dated as of June 10, 1996, and
effective December 31, 1995 between Purchaser and Equitable
Resources Exploration, Inc., (xiii) the Seventh Amendment to
the Additional Acreage Agreement, effective as of December 31,
1996, between Purchaser and Equitable Resources Energy Company,
(xiv) the Eighth Amendment to the Additional Acreage
Agreement, dated as of December 29, 1997, and effective
December 31, 1997 between Purchaser and Equitable Resources
Energy Company, (xv) the Ninth Amendment to the Additional
Acreage Agreement, dated as of November 25, 1999, and
effective December 31, 1999 between Purchaser and Seller, and
(xvi) the Tenth Amendment to the Additional Acreage Agreement,
dated as of May 3, 2005, and effective as of January 1,
2000, between Purchaser and Seller.
(v)
“Person” means any individual, corporation,
partnership, limited liability company, trust, estate, Governmental
Authority or any other entity.
(w) “PM
Assets” means all PM Undeveloped Lease Interests and all PM
Wells.
(x) “PM
Undeveloped Lease Interests” means all Undeveloped Lease
Interests in which Purchaser or its Affiliates possessed or has the
right to possess any part of the working interest or lessor
interest as of the Execution Date. For avoidance of doubt,
Undeveloped Lease Interests under the Original Lease and any
portion of the Exploration Agreement PMOG Area that constitutes an
Undeveloped Lease Interest shall be deemed to be PM Undeveloped
Lease Interests for all purposes of this Agreement.
(y) “PM
Wells” means all Wells in which Purchaser or its Affiliates
possessed or has the right to possess any part of the working
interest or lessor interest as of the Execution Date. For the
avoidance of doubt, the Wells listed under “PM Wells”
on Exhibit A-2 shall be deemed PM Wells for all purposes of
this Agreement.
(z)
“Production Taxes” means ad valorem, property,
severance, 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
(aa)
“Proration Unit” means, for any Well (i) the
acreage unit size as shown in the pooling or unit designation for
such Well filed in the real property records in the county in which
such Well is located, or if no such designation is filed, as
permitted with the state regulatory agency (or as shown on the
issued well permit) for such Well; provided that if no such acreage
size is provided pursuant to any of the foregoing, then
“Proration Unit” means, for any Well, the minimum
acreage unit size permitted by applicable Law for such Well and
(ii) the producing interval or targeted producing interval for
such Well.
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(bb)
“Records” means all lease files, land files, well
files, gas and oil sales contract files, gas processing files,
division order files, abstracts, title opinions, land surveys,
geologic and geophysical data (excluding interpretations thereof)
and files and all other books, records, data, files, maps and
accounting records to the extent relating primarily to the
Properties or other Combined Assets, excluding however,
(A) any record to the extent that: (1) disclosure of such
record is restricted by third-party agreement or applicable Law,
(2) Seller is unable to obtain, using commercially reasonable
efforts, a waiver of, or otherwise satisfy, such disclosure
restriction (provided that Seller shall not be required to provide
consideration or undertake obligations to or for the benefit of the
holders of such rights in order to obtain any necessary consent or
waiver) and (3) the failure to obtain such waiver or satisfy
such disclosure restriction would cause a termination of such
instrument or a material impairment of the rights thereunder; (B)
computer software; (C) all legal records and legal files of
Seller (other than (x) title opinions and (y) Contracts)
and all other work product of and attorney-client communications
with any of Seller’s legal counsel; (D) records relating
to the sale of the Assets, including bids received from and records
of negotiations with third Persons; (E) any other records to
the extent constituting Excluded Assets; and (F) contracts and
agreements of no further force and effect as of the Effective
Time.
(cc) “Review
Well” shall mean a Well or a Future Well, as the context
requires.
(dd)
“SEC” means the U.S. Securities and Exchange
Commission.
(ee)
“Securities Act” means the Securities Act of 1933, as
amended, and any successor statute thereto and the rules and
regulations of the SEC promulgated thereunder.
(ff)
“Tax” means all taxes, including income tax, surtax,
remittance tax, presumptive tax, net worth tax, production tax,
pipeline transportation tax, value added tax, withholding tax,
gross receipts tax, windfall profits tax, profits tax, severance
tax, personal property tax, real property tax, sales tax, service
tax, transfer tax, use tax, excise tax, premium tax, customs
duties, stamp tax, motor vehicle tax, entertainment tax, insurance
tax, capital stock tax, franchise tax, occupation tax, payroll tax,
employment tax, social security, unemployment tax, disability tax,
alternative or add-on minimum tax, estimated tax, and any other
assessments, duties, fees, or levies imposed by a Governmental
Authority, together with any interest, fine or penalty thereon, or
addition thereto.
(gg) “Tax
Return” means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof, required to be filed with any Governmental
Authority.
(hh)
“Transfer Taxes” means all transfer, sales, use,
documentary, stamp duty, conveyance and other similar Taxes,
duties, fees or charges.
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(ii)
“Undeveloped Lease Interests” means any Lease, acreage,
area (including the Exploration Agreement PMOG Area) or portion
thereof included in the Properties that is not included in a
Proration Unit corresponding to a Well.
(jj) “Well
Location” shall mean each lease/tract location identified on
Exhibit A-2.
Section 1.5 Effective Time; Proration of Costs and
Revenues .
(a) Title and
interest in and to the Combined Assets shall be transferred from
Seller to Purchaser at the Closing, but certain financial benefits
and burdens in respect of the Assets shall be transferred effective
as of the Effective Time, as described below. Notwithstanding
anything to the contrary herein, financial benefits and burdens in
respect of the Pre-Effective Time Interests prior to the Effective
Time shall not be modified or changed from the manner in which such
benefits and burdens were treated in the period prior to the
Effective Time by the provisions of this
Section 1.5.
(b) Purchaser
shall be entitled to all production of Hydrocarbons from or
attributable to the Assets on 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 on and after the Effective Time, and shall be responsible
for (and entitled to any refunds with respect to) all Property
Costs incurred on and after the Effective Time (provided that
Purchaser’s entitlement to production, income, proceeds,
receipts, and credits earned with respect to, and responsibility
for and entitlement to refunds with respect to Property Costs
relating to, certain of the Assets shall be adjusted as of Closing
in the manner described in Section 2.2). Seller shall be
entitled to all production of Hydrocarbons from or attributable to
the Assets 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 (provided that Seller’s entitlement to
production, income, proceeds, receipts, and credits earned with
respect to, and responsibility for and entitlement to refunds with
respect to Property Costs relating to, certain of the Assets shall
be adjusted as of Closing in the manner described in
Section 2.2). “Earned” and “incurred”,
as used in this Agreement, shall be interpreted in accordance with
United States generally accepted accounting principles (as
published by the Financial Accounting Standards Board) and Council
of Petroleum Accountants Societies (COPAS) standards.
(c)
“Property Costs” means all operating expenses
(including costs of insurance and Production Taxes), capital
expenditures incurred in the ownership and operation of the Assets
in the ordinary course of 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 Seller has historically
charged under the Existing JOA. “Property Costs” as
used herein shall not include the Gathering Charges.
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(d) For purposes
of allocating production (and accounts receivable with respect
thereto), under this Section 1.5, (i) liquid Hydrocarbons
shall be deemed to be “from or attributable to” the
Assets when they pass through the pipeline flange connecting into
the storage facilities located on the Leases 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 the Leases, and (ii) gaseous
Hydrocarbons shall be deemed to be “from or attributable
to” the Assets 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 Leases.
Seller shall utilize reasonable interpolative procedures to arrive
at an allocation of production when exact meter readings are not
available. Production Taxes, 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 before, or at and after, the Effective Time, except that
Production Taxes measured by units of production shall be prorated
based on the amount of Hydrocarbons actually produced, purchased or
sold, as applicable, before, or at and after, the Effective Time.
In each case, Purchaser shall be responsible for the portion
allocated to the period on and after the Effective Time and Seller
shall be responsible for the portion allocated to the period before
the Effective Time.
Section 1.6 Back-In Interests . Purchaser
acknowledges and agrees that any and all existing back-in rights of
the Purchaser or its Affiliates to an additional or increased
working interest in the Wells listed in Exhibit A-2 to which
Purchaser was entitled pursuant to the Existing JOA shall be
extinguished in full, and any liabilities or rights associated with
such back-in rights shall cease to exist and shall no longer be
enforceable.
Section 1.7 Pre-Effective Time Interests and
Assets . Immediately prior to the Closing, Purchaser and
Seller are the owners of certain working interests relating to
lands subject to the Original Lease and the Exploration Agreement.
As part of this Agreement and the transactions contemplated hereby
(as well as other transactions between the Parties and their
Affiliates), the Parties desire to enter into a new lease agreement
in substantially the form attached hereto as Exhibit C (the
“New Lease”), effective as of the Closing Date, with
Purchaser as the lessor and Seller as the lessee, and to terminate
the Original Lease, the Exploration Agreement and certain related
agreements, effective as of the Closing Date. In addition to the
working interests in the Leases and Review Wells and the related
assets that Purchaser is purchasing from Seller under this
Agreement (as such working interests are more particularly
described in the column titled “Conveyed Working
Interest” on Exhibit A-2 and the corresponding undivided
interests in the Combined Assets associated therewith, the
“Assets”). For purposes of clarification, the Parties
acknowledge that each Party may currently own some of the interests
that will be conveyed or cross conveyed under the Conveyance and
that the Conveyance is intended to stipulate and clarify as of the
Closing the interests that each of the Parties will own as of the
Closing. In order to reflect Purchaser’s pre-Effective Time
working interests in the Wells drilled under the Original Lease
and/or the Exploration Agreement, Seller, as the lessee under the
New Lease, will enter into such conveyances (including the
Conveyance) with Purchaser to confirm the pre-Effective Time
working interests of Purchaser in such Wells and related assets
that will be subject to the New Lease (as such pre-Effective Time
working interests are more particularly described in the column
titled “Purchaser Pre-Effective Time Working Interest”
on Exhibit A-2 and the corresponding undivided interests
included in the Combined Assets associated therewith, the
“Pre-Effective Time Interests”). The Parties
acknowledge that the Assets and the Pre-Effective Time Interests
together constitute the Combined Assets and the term
“Assets” as defined in this Agreement shall be the
Combined Assets excluding the Pre-Effective Time
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Interests, and
upon Closing, Purchaser and all Purchaser Successors shall
collectively hold the interest in each Review Well identified on
Exhibit A-2 as the “Purchaser Closing Interest”
for such Review Well and the same interest in the Proration Unit
for such Review Well, and Seller shall hold the interest in each
Review Well identified on Exhibit A-2 as the “Seller
Closing Interest” for such Review Well and the same interest
in the Proration Unit for such Review Well. Further, the parties
acknowledge that certain existing wells drilled by PMOG or its
predecessors upon the lands covered by the Original Lease were
excluded under the Original Lease and are being excluded under the
New Lease (as more particularly described therein), and such
excluded wells shall not be part of the Combined Assets, Assets or
Pre-Effective Time Interests.
Section 1.8 Intentions of the Parties . The
Parties acknowledge that it is their intent that (a) Seller
transfer to Purchaser and Purchaser accept as of the Effective Time
an undivided one-half (1/2) of Seller’s interest existing as
of the Closing Date in all leases (including without limitation
Seller’s interest as lessee under the EPC Lease, but for the
avoidance of doubt, excluding its interest as lessor thereunder)
included in Buchanan, Russell and Dickenson Counties, Virginia
(excluding any interests in the lands and properties excluded from
the AMI) and (b) pursuant to the Conveyance, Purchaser shall
cross convey to Seller such interest in such leases (but excluding
its interest as lessor under the Original Lease or the New Lease),
such that the respective interests of the Parties in such leases as
lessees thereunder shall be equal as of the Effective Time, whether
or not such leases are included in or accurately described on
Exhibit A-1. The Parties further acknowledge and agree that it
is their intent that, notwithstanding anything herein to the
contrary, to the extent that there are any Wells in which both
Seller and Purchaser currently have a working interest that exist
upon any Leases or within the AMI and that are not described on
Exhibit A-2, the respective interests of the Parties in such
Wells shall be the same interests as the Parties have in such Wells
as of the date hereof; provided, however, if any such Well has been
drilled by Seller upon the Leases or within the AMI on or after the
Effective Time, then the Parties agree that their respective
interests in such Wells and the Proration Units therefor as of the
Effective Time shall be equal.
Section 2.1 Purchase Price . The purchase price
for the Assets (the “Purchase Price”) shall be Two
Hundred and Sixty-Two Million Dollars (US$262,000,000), adjusted as
provided in Section 2.2.
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Section 2.2 Adjustments to Purchase Price . The
Purchase Price shall be adjusted as follows:
(a) Decreased by
the aggregate amount of the following proceeds received by Seller
attributable to the Assets on and after 12:01 a.m. local time
where the Assets are located on June 1, 2006 (the
“Effective Time”):
(i) proceeds from
the sale of Hydrocarbons produced from or attributable to the
Assets (less any royalties, overriding royalties net profits
interests and other similar burdens payable out of the production
of Hydrocarbons from the Assets or the proceeds thereof which are
not included in “Property Costs”); and
(ii) any other
proceeds received by Seller attributable to the Assets;
(b) Decreased in
accordance with Section 3.4;
(c) Decreased in
accordance with Section 3.5;
(d) Increased by
the amount of all Property Costs attributable to the Assets on and
after the Effective Time which are incurred and paid by Seller
excluding, however, any amounts deducted pursuant to
Section 2.2(a)(i) above;
(e) [Intentionally
omitted].
(f) Increased by
the amount of the Gathering Charges attributable to the Assets on
and after the Effective Time;
(g) Decreased by
Six Hundred Thousand Dollars (US$600,000) to represent an
adjustment (i) to the gathering rate paid by Purchaser in
connection with gathering services on the Gathering Assets provided
by Seller and its Affiliates prior to the Effective Time,
(ii) for certain pre-Effective Time capital expenditures and
(iii) for the Parties’ agreement regarding resolution of
the Pittston Litigation; and
(h) Decreased by
an amount equal to the difference between the (i) aggregate
amount paid by Purchaser for gathering services on the Gathering
Assets provided by Seller and its Affiliates for the period from
(and including) the Effective Time until the Closing with respect
to the Pre-Effective Time Interests, and (ii) the aggregate
amount that would have been paid by Purchaser for gathering
services on the Gathering Assets provided by Seller and its
Affiliates for the period from (and including) the Effective Time
until the Closing with respect to the Pre-Effective Time Interests
if Purchaser would have been charged the Gathering Charges for such
services.
The Purchase
Price, adjusted as set forth in this Section 2.2, shall be the
“Adjusted Purchase Price.”
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Section 2.3 Effect of Purchase Price Adjustments
. The adjustment described in Section 2.2(a) shall serve to
satisfy, up to the amount of the adjustment, Purchaser’s
entitlement under Section 1.5 to Hydrocarbon production from
or attributable to the Assets between the Effective Time and the
Closing and to other income, proceeds, receipts and credits earned
with respect to the Assets between the Effective Time and the
Closing, and Purchaser shall not have any separate rights to
receive any 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 1.5 to pay Property Costs attributable to the
ownership and operation of the Assets which are incurred between
the Effective Time and the Closing, and Purchaser shall not be
separately obligated to pay for any Property Costs with respect to
which an adjustment has been made.
Section 2.4 Allocation of Purchase Price .
Schedule 2.4 sets forth the agreed allocation of the
unadjusted Purchase Price among the Assets, which has been made in
accordance with Section 1060 of the Internal Revenue Code of
1986, as amended (the “Code”), and the Treasury
regulations thereunder. The “Allocated Value” for any
Asset shall equal the portion of the unadjusted Purchase Price
allocated to such Asset on Schedule 2.4, increased or
decreased as described in this Section 2.4. Any adjustments to
the Purchase Price other than the adjustments provided for in
Section 2.2(b) and Section 2.2(c) shall be applied on a
pro rata basis to the amounts set forth on Schedule 2.4 for
all Assets. After all such adjustments are made, any adjustments to
the Purchase Price pursuant to Section 2.2(b) and
Section 2.2(c) shall be applied to the amounts set forth in
Schedule 2.4 for the particular affected Assets. Seller and
Purchaser have accepted such Allocated Values for purposes of this
Agreement and the transactions contemplated hereby, however,
neither Seller nor Purchaser make any representation or warranty as
to the accuracy of such Allocated Values. Seller and Purchaser
agree (a) that the Allocated Values shall be used by Seller
and Purchaser as the basis for reporting asset values and other
items for purposes of all applicable Tax returns, and (b) that
neither they nor their Affiliates will take positions inconsistent
with the Allocated Values in notices to Governmental Authorities,
in audit or other proceedings with respect to Taxes, in notices to
preferential purchaser right holders, or in other documents or
notices relating to the transactions contemplated by this
Agreement.
(a) The Conveyance
shall contain a special warranty of title against every Person
lawfully claiming or to claim the interest to be conveyed by Seller
to Purchaser or any part thereof by, through and under Seller and
its Affiliates, but not otherwise, subject to Permitted
Encumbrances, but shall otherwise be without warranty of title,
express, implied or statutory, except that the Conveyance shall
transfer to Purchaser all rights or actions on title warranties
given or made by Seller’s predecessors (other than Affiliates
of Seller), to the extent Seller may legally transfer such
rights.
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(b)
Notwithstanding anything to the contrary in Section 3.1(a) and
the Conveyance, Section 3.4 shall provide Purchaser’s
exclusive remedy in respect of Asserted Title Defects reported in
accordance with this Article 3, and, Purchaser shall not be
entitled to make any claims against Seller or any of its Affiliates
under Seller’s special warranty of title in the Conveyance
against any such Asserted Title Defect. Except to the extent
expressly provided herein (including Purchaser’s rights with
respect to any breach of Seller’s covenant under
Section 6.10(f) and Purchaser’s rights under this
Article 3) and except under the special warranty of title set
forth in the Conveyance, Purchaser shall not be entitled to make
any claims against Seller or any of its Affiliates with respect to
any Title Defects to the extent that such Title Defects pertain to
the PM Assets (provided that if such Title Defects affect both the
PM Assets and the other Assets, then Purchaser shall be entitled to
any and all of its rights and remedies with respect to such Title
Defects insofar and only insofar as such Title Defects affect such
other Assets).
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 Assets which,
subject to Permitted Encumbrances:
(a) entitles
Seller to receive throughout the duration of the productive life of
any Review Well (after satisfaction of all royalties, overriding
royalties, nonparticipating royalties, net profits interests or
other similar burdens on or measured by production of
Hydrocarbons), not less than the “Conveyed Net Revenue
Interest” share shown in Exhibit A-2 for such Review
Well of all Hydrocarbons produced and sold from such Review Well,
as applicable, except (solely to the extent that such actions do
not cause a breach of Seller’s covenants under
Section 6.10 hereof) decreases in connection with those
operations in which, from or after the date of this Agreement,
Seller may be a nonconsenting co-owner, decreases resulting from
the establishment or amendment of pools or units from and after the
date of this Agreement, and decreases required to allow other
working interest owners to make up past underproduction or
pipelines to make up past underdeliveries;
(b) obligates
Seller to bear a percentage of the costs and expenses for the
maintenance and development of, and operations relating to, a
Review Well not greater than the “Conveyed Working
Interest” shown in Exhibit A-2 for such Review Well
without increase throughout the productive life of such Review
Well, as applicable, except as stated in Exhibit A-2,
respectively, and except increases resulting from contribution
requirements with respect to 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 all Encumbrances.
As used in this
Agreement, the term “Encumbrance” means any lien,
charge, encumbrance, irregularity or other defect (including a
discrepancy or error in net revenue interest or working interest as
set forth in Exhibit A-2 for a Review Well). The term
“Title Defect” means, with respect to any Asset that is
a Non-PM Asset, any Encumbrance that would cause
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Seller not to
have Defensible Title to such Non-PM Asset, and with respect to any
Asset that is a PM Asset, the term “Title Defect” means
any Encumbrance created by, through or under Seller or any of its
Affiliates that would cause Seller not to have Defensible Title to
such PM Asset. The term “Asserted Title Defect” means a
Title Defect reported by Purchaser pursuant to Section 3.4
hereof.
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 on production of Hydrocarbons to the extent that they
do not, individually or in the aggregate, reduce the
“Conveyed Net Revenue Interest” below that shown in
Exhibit A-2 with respect to any Review Well or increase the
“Conveyed Working Interest” above that shown in
Exhibit A-2 with respect to any Review Well without at least a
proportionate increase in the net revenue interest for such Review
Well;
(b) all Contracts,
to the extent that they do not, individually or in the aggregate,
reduce the “Conveyed Net Revenue Interest” below that
shown in Exhibit A-2 with respect to any Review Well or
increase the “Conveyed Working Interest” above that
shown in Exhibit A-2 with respect to any Review Well without
at least a proportionate increase in the net revenue interest for
such Review Well;
(d) third-party
consent requirements and similar restrictions with respect to which
waivers or consents are obtained by Seller from the appropriate
parties prior to the Closing Date or the appropriate time period
for asserting the right has expired or which are expressly not
required to be satisfied prior to a transfer;
(e) liens for
current Taxes or assessments not yet delinquent or, if delinquent,
being contested in good faith by appropriate actions and listed on
Exhibit A-5;
(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 and listed on
Exhibit A-6;
(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, licenses, concessions, production sharing
agreements 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
Leases included in the Proration Unit for such Review
Well;
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(i) easements,
rights-of-way, servitudes, permits and other rights in respect of
surface and subsurface operations not involving the extraction of
Hydrocarbons to the extent that they do not, individually or in the
aggregate (i) reduce the “Conveyed Net Revenue
Interest” below that shown in Exhibit A-2 with respect
to any Review Well, (ii) increase the “Conveyed Working
Interest” above that shown in Exhibit A-2 with respect
to any Review Well without at least a proportionate increase in the
“Conveyed Net Revenue Interest” for such Review Well,
or (iii) materially detract from the value of, or materially
interfere with the use, ownership or operation of, any Review Well
subject thereto or affected thereby (as currently used, owned and
operated) and which would be accepted by a reasonably prudent
purchaser engaged in the business of owning and operating oil and
gas properties in the Appalachian Basin;
(j) calls on
production under existing Contracts that are listed on
Exhibit A-7;
(k) all rights
reserved to or vested in any Governmental Authority to control or
regulate any of the Wells or Undeveloped Lease Interests 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 Authority;
(l) any
Encumbrance which is discharged by Seller at or prior to
Closing;
(m) any rights
related to coal, coal seams or coal mining, whether statutory or
otherwise, other than rights to explore for, develop and produce
coalbed methane and associated Hydrocarbons and rights attendant
thereto;
(n) any matters
shown on Exhibit G; and
(o) any other
Encumbrances which do not, individually or in the aggregate,
(i) reduce the “Conveyed Net Revenue Interest”
below that shown in Exhibit A-2 with respect to any Review
Well, (ii) increase the “Conveyed Working
Interest” above that shown in Exhibit A-2 with respect
to any Review Well without at least a proportionate increase in the
net revenue interest for such Review Well, or (iii) materially
detract from the value of or materially interfere with the use,
ownership or operation of the Review Wells subject thereto or
affected thereby (as currently used, owned or operated) and which
would be accepted by a reasonably prudent purchaser engaged in the
business of owning and operating oil and gas properties in the
Appalachian Basin.
Section 3.4 Notice of Asserted Title Defects; Defect
Adjustments .
(a) To assert a
claim of a Title Defect prior to Closing, Purchaser must deliver a
claim notice to Seller on or before 5:00 p.m. EDT on April 25,
2007 (the “Title Claim Date”), except as otherwise
provided under Section 3.5 or Section 3.6; provided that
Purchaser agrees to furnish Seller at the end of every week period
following the execution of this Agreement and prior to the Title
Claim Date with a claim notice if any officer of Purchaser or its
Affiliates discovers or learns of any Title Defect during such
period. Each such notice shall be in writing and shall include
(i) a description of the Asserted Title Defect(s),
(ii) the Wells and/or Undeveloped Lease Interests
affected,
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(iii) the
Allocated Values of the Wells and/or Undeveloped Lease Interests
subject to such Asserted 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
such Asserted Title Defect(s) and (v) the amount by which
Purchaser reasonably believes the Allocated Values of those Wells
and/or Undeveloped Lease Interests are reduced by such Asserted
Title Defect(s) and the computations and information upon which
Purchaser’s belief is based. Subject to Purchaser’s
rights under the special warranty of title described in
Section 3.1(a) and its rights with respect to any breach of
Seller’s covenant under Section 6.10(f), Purchaser shall
be deemed to have waived all Title Defects of which Seller has not
been given notice on or before the Title Claim Date.
(b) In the event
that Purchaser notifies Seller of a Title Defect before the Title
Claim Date, Seller shall have the right, but not the obligation, to
attempt, at its sole cost, to cure or remove any Asserted Title
Defects of which it has been notified by Purchaser. If Seller so
elects to cure or remove any Asserted Title Defect, Purchaser shall
use commercially reasonable efforts to cooperate with
Seller’s efforts to cure or remove such Asserted Title
Defect. If prior to Closing, Seller has been unable to cure or
remove any Asserted Title Defect, then Seller and Purchaser
mutually shall elect to have one of the following options
apply:
(i) Remove the
interests in such Well or Undeveloped Lease Interest included in
the Assets that is subject to such Asserted Title Defect and those
other Assets primarily related to such interest in such Well or
Undeveloped Lease Interest from the transaction contemplated by
this Agreement. Such removed Assets shall not be assigned at the
Closing, shall become “Excluded Assets” for all
purposes hereunder and the Purchase Price shall be reduced by an
amount equal to the Allocated Value for such Assets, provided that
if any Asserted Title Defect is cured at any time prior to one
hundred eighty (180) days after Closing, within five
(5) days of Seller’s notice to Purchaser of such event,
the Parties shall conduct a subsequent Closing (in accordance with
the same terms hereof) for the purchase and sale of the Excluded
Asset that was subject to such cured Asserted Title
Defect.
(ii) Assign the
Asset subject to the Asserted Title Defect to Purchaser at Closing,
and defend, indemnify and hold the Purchaser Indemnified Persons
and Purchaser Successors harmless from and against all Damages that
arise out of or that any such Person may suffer as a result of such
Asserted Title Defect pursuant to a form of indemnity agreement
mutually agreeable to the Parties.
(iii) Assign the
Asset subject to the Asserted Title Defect to Purchaser at Closing,
and reduce the Purchase Price in accordance with
Section 3.4(c).
Provided that,
if Seller and Purchaser are unable to mutually agree on one of the
foregoing options, then the Parties shall be deemed to have chosen
the option under subsection (i) above.
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(c) The Purchase
Price shall be reduced by an amount (the “Asserted Title
Defect Amount”) equal to the reduction in the Allocated Value
for the interest in such Well or Undeveloped Lease Interest
included in the Assets that is subject to an uncured Asserted Title
Defect, which reduction is caused by such uncured Asserted Title
Defect as determined pursuant to Section 3.4(e); provided that
no reduction shall be made in the Purchase Price with respect to
any Asserted Title Defect for which an election has been made
pursuant to Section 3.4(b)(ii).
(d) Except for
Purchaser’s rights under the special warranty of title
described in Section 3.1(a) and its rights with respect to any
breach of Seller’s covenant under Section 6.10(f),
Section 3.4(c) shall, to the fullest extent permitted by
applicable Laws, be the exclusive right and remedy of Purchaser
against Seller or its Affiliates with respect to any Title Defect
attributable to the Combined Assets.
(e) The Asserted
Title Defect Amount resulting from an Asserted Title Defect shall
be determined as follows:
(i) if Purchaser
and Seller agree on the Asserted Title Defect Amount, that amount
shall be the Asserted Title Defect Amount;
(ii) if the
Asserted Title Defect is an Encumbrance which is undisputed and
liquidated in amount, then the Asserted Title Defect Amount shall
be the amount necessary to be paid to remove the Asserted Title
Defect from the affected Well or Undeveloped Lease
Interest;
(iii) if the
Asserted Title Defect represents a discrepancy between (A) the
actual net revenue interest included in the Assets for any Well or
Undeveloped Lease Interest and (B) the “Conveyed Net
Revenue Interest” stated on Exhibit A-2 for such Review
Well, then the Asserted Title Defect Amount shall be the product of
the Allocated Value for the interest in the affected Well or
Undeveloped Lease Interest included in the Assets 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-2 for such interest; provided that if the
Asserted Title Defect does not affect a Review Well throughout the
life of such Review Well, the Asserted Title Defect Amount
determined under this Section 3.4(e)(iii) shall be reduced
accordingly;
(iv) if the
Asserted Title Defect represents an Encumbrance of a type not
described in subsections (i), (ii) or (iii) above, the
Asserted Title Defect Amount shall be determined by taking into
account the Allocated Value of the interest in the Review Well
included in the Assets so affected, the portion of such interest in
the Review Well affected by the Asserted Title Defect, the legal
effect of the Asserted Title Defect, the potential economic effect
of the Asserted Title Defect over the life of the affected Review
Well, the values placed upon the Asserted Title Defect by Purchaser
and Seller and such other factors as are necessary to make a proper
evaluation; and
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(v)
notwithstanding anything to the contrary in this Article 3,
(A) except for adjustments required by Section 3.6, the
aggregate Asserted Title Defect Amounts attributable to all
Asserted Title Defects upon any given interest in a Review Well
included in the Assets shall not exceed the Allocated Value of such
interest in the Review Well and (B) except for adjustments
required by Section 3.5 or Section 3.6, there shall be no
Purchase Price adjustment for Asserted Title Defects unless and
until the aggregate Asserted Title Defect Amounts for all interests
in the Review Wells included in the Assets for which claim notices
were timely delivered pursuant to Section 3.4(a) exceed Two
Million Six Hundred Twenty Thousand Dollars (US$2,620,000.00), and
then only to the extent that the aggregate Asserted Title Defect
Amounts exceed Two Million Six Hundred Twenty Thousand Dollars
(US$2,620,000.00);
(vi) if an
Asserted Title Defect of the type not described in subsections (i),
(ii) or (iii) above is reasonably susceptible of being
cured, the Asserted Title Defect Amount determined under subsection
(iv) above shall not be greater than the lesser of
(1) the reasonable cost and expense of curing such Asserted
Title Defect or (2) the share of such curative work cost and
expense which is allocated to such interest in such Review Well
included in the Assets pursuant to subsection (vii) below;
and
(vii) the Asserted
Title Defect Amount with respect to a Review Well shall be
determined without duplication of any costs or losses
(i) included in another Asserted Title Defect Amount
hereunder, or (ii) included in a casualty loss under
Section 3.6. To the extent that the cost to cure any Asserted
Title Defect will result in the curing of all or a part of one or
more other Asserted Title Defects, such cost of cure shall be
allocated for purposes of Section 3.4(e)(vi) among the
interests in the Review Wells so affected on a fair and reasonable
basis.
(f) Seller and
Purchaser shall attempt to agree on all Asserted Title Defects and
Asserted Title Defect Amounts by two (2) Business Days prior
to the Closing Date. If Seller and Purchaser are unable to agree by
that date, the average of Seller’s and Purchaser’s
estimates with respect to the Asserted Title Defect Amounts for the
Asserted Title Defects shall be used to determine the Closing
Payment pursuant to Section 8.4(a), and all Asserted Title
Defects and Asserted Title Defect Amounts in dispute shall be
exclusively and finally resolved by arbitration pursuant to this
Section 3.4(f). During the ten (10) Business Day period
following the Closing Date, Asserted Title Defects and Asserted
Title Defect Amounts in dispute shall be submitted to an attorney
with at least ten (10) years of experience in oil and gas
titles in southwestern Virginia as selected by mutual agreement of
Purchaser and Seller (the “Title Arbitrator”). The
arbitration proceeding shall be held in Pittsburgh, Pennsylvania
and shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association in effect
as of the date hereof, to the extent such rules do not conflict
with the terms of this Section 3.4(f). The Title
Arbitrator’s determination shall be made within twenty
(20) days after submission of the matters in dispute and shall
be final and binding
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upon both
Parties, without right of appeal. In making his determination, the
Title Arbitrator shall be bound by the rules set forth in
Section 3.4(e) and may consider such other matters as in the
opinion of the Title Arbitrator are necessary or helpful to make a
proper determination. Additionally, with the prior written consent
of Purchaser and Seller, the Title Arbitrator may consult with and
engage disinterested third parties to advise the Title Arbitrator,
including title attorneys from other states and petroleum
engineers. In no event shall any Asserted Title Defect Amount
exceed the estimate given by Purchaser in its claim notice
delivered in accordance with Section 3.4(a). The Title
Arbitrator shall act as an expert for the limited purpose of
determining the specific disputed Asserted Title Defects and
Asserted Title Defect 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
Arbitrator.
Section 3.5 Consents to Assignment and Preferential
Rights to Purchase .
(a) Seller
will use reasonable efforts, consistent with industry practices in
transactions of this type, to identify, with respect to all Assets,
the names and addresses of all parties holding Preferential Rights
and Consents applicable to the transactions contemplated hereby. In
attempting to identify the names and addresses of such parties
holding such Preferential Rights and Consents, Seller shall in no
event be obligated to go beyond its own records. Seller will
request, from the parties so identified (and from any parties
identified by Purchaser prior to Closing who have Preferential
Rights or from whom a Consent may be required), in accordance with
the documents creating such rights, execution of waivers of
Preferential Rights or Consents so identified. Seller shall have no
obligation other than to identify such Preferential Rights and
Consents and to so request such execution of waivers of
Preferential Rights and Consents (including, without limitation,
Seller shall have no obligation to assure that such waivers of
Preferential Rights and Consents are obtained).
(b) With
respect to Preferential Rights but not Consents, if a Person from
whom a waiver of a Preferential Right is requested refuses to give
such waiver prior to Closing, the interest in the Asset subject to
such Preferential Right will be excluded from the transaction
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