Exhibit 2.1
-----------
PURCHASE AND SALE AGREEMENT
BETWEEN
DEVON ENERGY PRODUCTION COMPANY, L.P.
and
TALL GRASS GAS SERVICES, L.L.C.
and
QUEST RESOURCE CORPORATION
DATED
December 10, 2003
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TABLE OF CONTENTS
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PARAGRAPH # PAGE #
Property or Properties
1.
1
Sale and Purchase
2.
2
Sale Price
3.
2
Earnest Money
4.
2
Allocated Values
5.
3
Seller's Representations
6.
3
Buyer's Representations
7.
5
Access to Records
8.
6
Defects
9.
6
Notice of Defects
10.
7
Preferential Rights
11.
7
Physical and Environmental Inspection
12.
8
Sale Price Adjustments
13.
8
Effect of Termination
14.
11
Warranty of Title
15.
11
Conditions of Closing by Buyer
16.
12
Conditions of Closing by Seller
17.
12
Preliminary Closing Statement
18.
13
Closing
19.
13
Reservations and Exceptions
20.
14
Assumption of Liabilities and Indemnities
21.
14
Taxes
22.
17
Accounting; Retained Obligations;
Environmental Liabilities
23.
17
Sales Tax
24.
19
Post-Closing Adjustments
25.
19
Notices
26.
20
Further Assurance
27.
20
Disclaimer of Warranties
28.
20
Operations by Seller
29.
21
Securities Laws
30.
23
Due Diligence
31.
23
Material Factor
32.
23
Press Release
33.
23
Entire Agreement
34.
23
Tax Reporting
35.
23
Assignability
36.
23
Survival
37.
24
Tax Deferred Exchange Election
38.
24
Choice of Law
39.
24
Counterpart Execution
40.
24
Severance of Invalid Provisions
41.
24
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SCHEDULE OF EXHIBITS
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Exhibit "A" Oil and Gas
Properties
Exhibit "A-2" Allocation of Values
Exhibit "A-3" Gas Imbalance Schedule
Exhibit "A-4" Contracts
Exhibit "B" Form of Deed,
Assignment and Bill of Sale - Devon Energy
Production Company, L.P.
Exhibit "B-1" Form of Deed, Assignment and
Bill of Sale - Tall Grass Gas
Services, LLC
Exhibit "C" Non-foreign
Affidavit
Schedule 6(c) Lawsuits, Claims or
Demands
Schedule 6(e) Payout Status
Schedule 6(k) Authorizated
Expenditures
Schedule 6(m) Suspense Amounts
Schedule 6(n) Preferential Rights and
Consents
ii
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THIS AGREEMENT, dated as of 10th day of December,
2003, is between DEVON ENERGY
PRODUCTION COMPANY, L.P., an Oklahoma limited
partnership,
("DEPCO") AND TALL
GRASS GAS SERVICES, LLC., a limited
liability company,
("TGGS") organized under
the laws of Oklahoma, with offices at 20 North Broadway,
Suite 1500,
Oklahoma
City, Oklahoma 73102, (DEPCO and TGGS are
hereinafter
collectively referred
to
as "Seller"), and QUEST RESOURCE CORPORATION,
with offices at 5901
N. Western,
Suite 200, Oklahoma City, Oklahoma 73118
(hereinafter referred to as "Buyer").
THEREFORE,
in consideration of the covenants and agreements herein
contained, Seller and Buyer agree as
follows:
1. "Property" or
"Properties"
means Seller's
ownership interests in the
properties (real, personal or mixed) and
appurtenant
rights (contractual or
otherwise) set out below:
a)
All of Seller's
right, title and interests in, to and
under, or
derived from,
the oil and gas (the
term gas herein deemed to
include coalbed
methane gas) leasehold interests, working
interests, royalty
interests,
overriding
royalty interests,
reversionary interests, mineral interests, production payments,
net profits interests,
rights to take
royalties in-kind, fee
interests and surface
interests (including but not limited to
easements, rights-of-way, servitudes, franchise, surface
leases,
and subsurface leases) owned or leased by Grantor in Oklahoma
and
Kansas that are located in Nowata County, Oklahoma and Labette,
Montgomery,
Neosho, Wilson
and Woodson Counties, Kansas,
including, without limitation, those described in Exhibit "A"
and
other interests in
production of oil, gas or other minerals from
the lands (or lands pooled therewith) owned or leased by
Grantor
in Nowata County,
Oklahoma and Labette, Montgomery, Neosho,
Wilson, and
Woodson Counties, Kansas, including, without
limitation, those
described in and
subject to the
reservations
expressed in Exhibit "A" (the "Leases");
b) All of
Seller's right,
title and interests
in, to and under, or
derived from,
all of the presently existing and valid
unitization,
communitization and pooling declarations, orders,
and agreements (including all units formed by voluntary
agreement
and those formed under
the rules,
regulations, orders or
other
official acts of any
governmental
entity or tribal authority
having appropriate jurisdiction) to the extent they relate to
any
of the interests
which are described in Exhibit "A", or the
production of
oil, gas or hydrocarbon and non-hydrocarbon
substances attributable thereto;
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c) All of
Seller's right,
title and interests
in, to and under, or
derived from, all of
the presently existing
and valid oil sales
contracts, casinghead
gas sales contracts,
gas sales contracts,
processing
contracts,
gathering
contracts,
transportation
contracts, permits
or licenses of any nature owned, held or
operated in
connection
with operations, farm-out contracts,
farm-in contracts, balancing contracts (including but not
limited
to gas imbalances),
suspense funds, operating agreements, areas
of mutual interest, and other contracts, agreements and
instruments (to the
extent said contracts are transferable)
described in Exhibit
"A-4" (the forgoing, together with the
instruments described in Paragraph 1(c), being the
"Contracts");
d) All of
Seller's right,
title and interests
in, to and under, or
derived from,
the personal
property, improvements, fixtures,
facilities, wells
(whether producing, unplugged, plugged and
abandoned,
shut-in, injection,
disposal
or water supply),
including without limitation those set wells forth on Exhibit
"B"
gathering lines, flow lines, injection lines, pipelines, tanks,
boilers, buildings,
machinery, equipment (surface and downhole),
inventory, pipelines,
utility lines, power lines, telephone
lines, roads and other appurtenances, to the extent the same are
situated upon
or used or held for use by Seller solely in
connection with the ownership, operation, maintenance or repair
of the interests
which are described in clause (a) above,
including those
described in Exhibit "A", or the production,
treating, storing,
gathering or marketing of oil, gas or
other
hydrocarbon and non-hydrocarbon substances attributable
thereto;
e) Records (as
defined in Paragraph 19(e) hereof).
2. Sale and
Purchase. Subject to and upon all of the
terms, conditions,
reservations and exceptions hereinafter set forth, Seller
shall sell, transfer,
assign, convey and deliver the
Properties to Buyer or
its designee, and
Buyer
shall purchase, receive, pay for and accept the Properties from Seller,
effective at Closing (the "Effective
Time").
3. Sale
Price. The sale price for the Properties shall be One Hundred
Twenty Six Million U.S. Dollars
$126,000,000.00 ("Sale Price"), subject only to
any applicable price adjustment as provided
for hereinbelow.
4. Earnest
Money. Upon execution of this Agreement, Buyer shall pay to
Seller an earnest money deposit
("Earnest Money") in
the amount of Five Million
Dollars ($5,000,000). At Closing, the Earnest Money shall be
credited against
the Sale Price, as adjusted hereunder.
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5. Allocated
Values. Buyer and Seller herein agree upon
the allocation of
the Sale Price among the Properties
(the "Allocated
Value"). Buyer and Seller
agree that such Allocated Value will be used by each for all Tax
reporting
purposes. Such Allocated Values are made a
part of this Agreement and are shown
on Exhibit "A-2" which is attached hereto.
If there is a negative allocation for
any Property, and the negative allocation does not result from a
gas imbalance
in favor of Seller as the overproduced
party, Seller may withdraw the
Property
from this transaction, in which event the Sale Price will
be increased by
the
absolute value of the negative amount allocated to the Property. Seller and
Buyer agree that this transaction is not
subject to the reporting requirement of
Section 1060 of the Internal Revenue Code of 1986, as amended, and that,
therefore, IRS Form 8594, Asset Acquisition
statement, is not required to be and
will not be filed for this transaction.
In the event the
parties mutually agree
that a filing of Form 8594 is required, the
parties will confer and cooperate in
the preparation and filing of their respective forms to reflect a consistent
reporting of the agreed upon allocation. Buyer and Seller agree that for
purposes of the allocation of the Sale
Price the value of the personal property
is equal to Seller's adjusted tax basis for the
previous tax year end plus 2003
capital additions minus dispositions. The remainder of the sales price
represents the value of the non-personal
property. On or before Closing, Seller
will provide a schedule reflecting the basis of the personal property as
adjusted in accordance with the above.
6. Seller's
Representations.
Seller represents and
warrants to Buyer that
as of the date hereof and at Closing (as
hereinafter defined):
(a) DEPCO is a duly organized limited partnership validly existing
and
in good standing under the laws of the State of
Oklahoma and TGGS is a duly
organized limited liability company validly
existing and in good standing under
the laws of the State of Oklahoma, and each is duly qualified to carry on its
business in the state(s) in which the
Properties are located, and has full power
and authority to enter into and
perform this Agreement
according to its
terms
and this Agreement has been duly executed and delivered by Seller and
constitutes a legal, valid, and binding
obligation on it, enforceable against it
in accordance with its terms.
(b) Seller's execution, delivery and performance of this Agreement has
been duly authorized by all necessary
partnership and
limited liability company
action and will not violate or conflict with any agreement, law, rule,
regulation, charter, order, judgment or other instrument governing either
Seller's organization, management or business affairs or
to which either Seller
is a party or by which either Seller or any
Property is bound.
(c) Except as
set forth on Schedule 6(c), no suit, claim, demand,
investigation or other proceeding is pending or, to Seller's knowledge,
threatened: (i) with respect to the Properties
or the ownership,
operation or
use of any thereof; (ii) that might result in
impairment or loss or
diminution
of Seller's title to a Property;
or (iii) that may
otherwise adversely
affect
the value of a Property in any material respect. There are no bankruptcy or
reorganization proceedings contemplated by or pending or threatened against
Seller.
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(d) The Contracts and the Leases described on Exhibits A and A-4
hereof
constitute all of the contracts and other instruments which burden or will
burden or encumber or are otherwise
material to the ownership, use or operation
of the Property. The Contracts and Leases (other
than oil and gas leases): (i)
were entered into in the ordinary course of business; (ii) if executed by
Seller, were duly executed and delivered by Seller
and (iii) are in full force
and effect and are enforceable according to
their terms. Neither Seller, nor any
other party to Seller's knowledge, is in breach (or with notice or
the passage
of time or both may be in breach) of any obligation (other than under the
Leases) which might adversely affect the
Property in any material respect.
(e) The Leases are in full force and effect as to the lands
described in
Exhibit A hereto. Schedule 6(e) contains a true and
accurate list of the status
of the "payout balance" as of the date hereof for each
well and Lease that is
subject to a reversion or other adjustment at some level of cost recovery or
payout. All rentals, royalties, shut-in royalties, overriding royalties and
other payments and obligations due pursuant to or with respect to all the
Properties have been properly, fully and timely performed or paid; provided,
however, that Seller does not make any
representation or warranty regarding the
method of calculation, valuation or
computation of royalties with respect to any
such royalties which accrue after the Effective
Time. Neither Seller,
nor any
other party (to Seller's knowledge), is in
breach (or with notice or the passage
of time or both may be in breach) of any
obligation
under any of the
Leases in
any material respect.
(f) The Properties
have been owned, drilled, completed, operated,
developed and produced and are otherwise in compliance with all applicable
Contracts, Leases, decisions, judgments, orders, laws (excluding
Environmental
Laws), rules and regulations, and no adverse environmental
condition (hereafter
defined) exists with respect to the
Properties.
All necessary certificates,
consents, preferential right elections, permits, licenses and authorizations
(governmental or otherwise) affecting the
Property have been obtained and are in
force, and no violation exists in respect thereof. There are no violations of
any applicable regulations, rules or orders of the Federal
Energy Regulatory
Commission, the Department of Energy,
the Minerals
Management
Service or any
other regulatory agency with respect to the
Property. No written notice from any
governmental authority or person has been received by Seller claiming any
material violation or any repudiation of any Property or violation of any
decision, judgment, order, law, rule or
regulation.
(g) The Properties are not subject to obligations under a
take-or-pay or
other arrangement, and Seller is not obligated by virtue of an election to
non-consent or not participate in a past or current operation on the Leases
pursuant to applicable agreements, to
produce oil or gas, or allow oil or gas to
be produced, without receiving full payment
at the time of delivery in an amount
that corresponds to the net revenue
interest described in Exhibit A-2.
(h) All ad valorem, property, production, severance, excise and other
taxes (other than state or federal income
taxes and franchise taxes) based on or
measured by the ownership of property,
the production or removal of oil or
gas
and the receipt of proceeds ("Taxes") which
are due and relating to the Property
have been
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properly and timely paid, subject to possible adjustment for volume or price
corrections, and there are no audits or other investigations pending or
threatened with respect thereto.
(i) Seller is timely
receiving its share of
proceeds from the sale of
oil or gas produced from the Lands (hereafter defined) without suspense,
counterclaim or set-off. There has been no production of oil or gas from the
Lands in excess of the allowable
production
established pursuant
to applicable
state or federal law or regulation that would result in a restriction on
production from the Lands subsequent to the
Effective Time.
(j) Seller has incurred no liability for brokers' or finders' fees
related to the transactions contemplated by
this Agreement for which Buyer shall
be liable.
(k) Except as
disclosed on
Schedule 6(k), there
are no outstanding
authorities for expenditures or any oral or
written commitments or
proposals to
conduct operations on the wells or the lands
subject to the Leases and other
lands pooled or otherwise combined
therewith (the "Lands").
(l) Except as set forth on Exhibit "A-3", as of the Effective Time,
no
portion of the Property is over produced,
under produced or otherwise subject to
an imbalance in respect of substances produced from the Lands or is otherwise
subject to a pipeline imbalance.
(m) Schedule 6(m) contains an accurate and complete list of amounts
held
in suspense by Seller with respect to the
Properties (the "Suspense Amounts") as
of the date hereof; and
(n) Schedule 6(n) contains an accurate and complete list of all (i)
preferential rights (hereafter defined) affecting the Properties and (ii)
consents, approvals and authorizations required in connection with the
consummation of the transactions
contemplated
hereby and the
conveyance of the
Properties as herein provided, except governmental consents traditionally
obtained after closing ("consents").
7. Buyer's
Representations. Buyer represents and warrants to Seller that
as
of the date hereof and at Closing:
(a) Buyer is a duly organized corporation validly existing and in good
standing under the laws of the State of its
organization;
is duly qualified
to
carry on its business in the state(s) in
which the Properties
are located, and
has full power and authority to enter into
and perform this Agreement according
to its terms and this Agreement has been duly executed and delivered by
Buyer
and constitutes a legal, valid, and binding obligation on it, enforceable
against it in accordance with its
terms;
(b) Buyer's execution,
delivery and
performance of this
Agreement has
been duly authorized by all necessary
corporate,
limited liability company or
partnership action, as applicable, and will not conflict with or
violate any
agreement, law, rule, regulation,
ordinance,
charter, order,
judgment or other
instrument governing either Buyer's
organization, management or business affairs
or to which Buyer is a party or by which
Buyer is bound;
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(c) Buyer represents
that by reason of its knowledge and experience in
the evaluation, acquisition, and operation of oil
and gas properties, Buyer has
evaluated the merits and risks of
purchasing the Properties from Seller and has
formed an opinion based solely on Buyer's knowledge and experience and the
representations and warranties by and
covenants of Seller. Buyer represents that
in entering into this Agreement, Buyer has relied solely on the express
representations, warranties and covenants of Seller in this
Agreement and the
Assignment (hereafter defined), Buyer's independent investigation of, and
judgment with respect to, the Properties
and the advice of its
own legal, tax,
economic, environmental, engineering, geological and geophysical
advisors and
not on any comments or statements of any
representatives
of, or consultants
or
advisors engaged by Seller. Buyer further represents that it
has not relied and
will not rely on any statements or interpretation by Seller or its
Representatives not set forth herein or in
the Assignment in making its decision
to enter into this Agreement or to close
this transaction; and;
(d) Buyer represents
that it is familiar with the provisions of K.S.A.
Section 55-179, including without limitations the provisions in
subsection (b)
that a person who is legally responsible for the proper care and control of
an
abandoned well shall include "the current or last operator of the lease upon
which such well is located, irrespective of whether such operator plugged or
abandoned such well".
8. Access to
Records. After execution of this Agreement, Seller shall give
Buyer and its authorized representatives, during regular business hours, at
Buyer's sole risk, cost and expense,
access, with copying privileges, to all raw
geological, geophysical, production, engineering and other technical
data and
records, all data, records, assessments and reports relating
to the protection
of public health and safety, natural resources or the environment
("Environmental Records") and to all
contract, land, title and lease records, to
the extent such data and records are in Seller's possession or control and
relate to the Properties, and to such other information relating to the
Properties as Buyer may reasonably request;
provided, however, Seller shall have
no obligation to provide Buyer such access
to any data or
information to
which
access Seller cannot legally provide Buyer because of
third-party
restrictions
on Seller. Seller agrees to use its best
efforts to obtain the
consent of any
such third party to furnish and, at
Closing, convey such
information to
Buyer.
To the extent relating to any Properties not
purchased at Closing,
Buyer shall
keep all materials and data obtained
confidential
and shall return any
and all
such materials and data, and destroy Buyer's notes and work papers relating
thereto.
9. Defects. For the purpose of this
Agreement, a "Defect"
shall mean any
deficiency in one (or more) of the
following respects, to-wit:
(a) Seller's title as to one or more Properties is subject to an
outstanding mortgage, deed of trust, lien
or security interest or other material
burden or encumbrance;
(b) Seller owns less
than the net revenue interest shown on
Exhibit
"A-2" or is obligated to bear a share of
the costs of operation greater than the
working interest shown on Exhibit "A-2"
without a corresponding increase in net
revenue interest;
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(c) Seller's rights
and interests have
been or are subject
to being
reduced by virtue of the exercise by a
third party of a reversionary or back-in
interest, farm-out, or other similar right
not reflected on Exhibit "A-2" or at
a point different from that reflected in
Schedule 6(e);
(d) Seller is in default under some material provision of a Lease,
farmout agreement, or other contract or agreement affecting any of the
Properties; and
(e) An adverse environmental condition exists with respect to the
Lands
or a Property. An "adverse environmental condition" is (i) one in which the
affected Property is not in compliance with
laws, rules, regulations, statutes,
ordinances, rulings, decrees, orders, writs, decisions
or injunctions relating
to the protection of the environment, natural resources or public health and
safety in effect at the Effective Time
("Environmental Laws") or (ii) a physical
or environmental condition with respect to a
Property which could give rise to
an on-site or off-site remedial or other clean-up obligations imposed under
Environmental Laws.
10. Notice of
Defects. Upon the discovery of a Defect by Buyer, Buyer shall
promptly notify Seller in writing. Any such notice by Buyer shall include
appropriate evidence and documentation to
substantiate its position and shall be
delivered to Seller on or before January
31, 2004. After January 31, 2004, Buyer
shall be deemed to have fully inspected and accepted the
Properties "as is"
in
their then current physical and
environmental condition and the Properties shall
be deemed to be free of Defects (other than
with respect to Defects disclosed to
Seller), and any Defect which is not so
disclosed to Seller on or before January
31, 2004 shall conclusively be deemed waived by Buyer for all
purposes except
for purposes of the enforcement of (i) any breach of any representation,
covenant, or warranty of Seller (subject to and only to the extent
it survives
as provided herein), (ii) Buyer's rights under Paragraphs 13, 21 and 23 and
(iii) the special warranty provided by Seller in any deed,
assignment
and/or
bill of sale delivered to Buyer at
Closing.
11. Preferential
Rights. If any of the Properties are subject to
preferential purchase rights, rights of first refusal, consents to assign,
Lessor's approvals, or similar rights (collectively, "preferential rights"),
Seller shall promptly upon the execution of
this Agreement by the parties hereto
seek all consents (as defined in Paragraph 6(n)) and notify all holders of
preferential rights of its intention to sell
the Leases affected thereby and of
the corresponding Allocated Values. Seller shall promptly notify Buyer
if the
preferential rights are exercised or obtained,
or if the requisite
period has
elapsed without said rights having been
exercised,
and when such consents
are
obtained or refused.
If any party that elects to exercise a preferential purchase right fails to
consummate the purchase of the properties
covered by such right
pursuant to the
terms of this Agreement within 30 days after Closing, then Seller shall so
notify Buyer and Buyer shall purchase said Properties from Seller, under the
terms of this Agreement for a price equal to that portion of the Sale Price
previously allocated to it, as adjusted as
herein provided.
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All properties for which preferential purchase rights have been waived,
or for
which the period to exercise such rights
has expired without
exercise prior to
Closing, shall be sold to Buyer at Closing
pursuant to the
provisions of this
Agreement.
12. Physical and
Environmental
Inspection.
After the
execution of this
Agreement Buyer and its authorized
representatives shall have physical access to
the Property at Buyer's sole cost, risk and expense for the purpose of
inspecting the same, conducting such tests, examination, investigations and
assessments as may be reasonable and necessary or appropriate to evaluate the
environmental and physical condition of the Property, including the
identification of wetlands. For those Properties which are not operated by
Seller, Seller shall obtain permission from the operator to conduct such
inspections. BUYER SHALL DEFEND AND
INDEMNIFY SELLER FROM ANY AND ALL LIABILITY,
CLAIMS, CAUSES OF ACTION, INJURY TO BUYER'S EMPLOYEES, AGENTS, CONTRACTORS,
SUBCONTRACTORS OR INVITEES OR TO BUYER'S
PROPERTY, AND/OR DAMAGE OR INJURY TO
SELLER'S PROPERTY, EMPLOYEES, AGENTS OR CONTRACTORS WHICH MAY ARISE OUT OF
BUYER'S INSPECTIONS REGARDLESS OF SELLER'S
NEGLIGENCE OR FAULT (INCLUDING STRICT
LIABILITY). Buyer agrees to provide to Seller, upon request, a copy of any
environmental assessments, including any reports, data, and
conclusions. Prior
to Closing, Buyer and Seller shall keep any
and all data or information acquired
by all such examinations and results of all analysis of such data and
information strictly confidential and not disclose same
to any person or agency
without the prior written approval of the
other party, unless
required to do so
by applicable law. The foregoing obligation of confidentiality shall survive
Closing with respect to Seller,
and the obligation of confidentiality shall
survive termination of this Agreement
without Closing with respect to Buyer.
13. Sale Price
Adjustments.
Buyer may,
in good faith, by delivery of
written notice to Seller of the existence
of a Defect pursuant
to the terms of
Paragraphs 9 and 10 (a "Defect Notice"),
request an adjustment to the Sale Price
for the property affected. Seller may, in good faith,
request an adjustment
to
the Sale Price by delivery of written notice to Buyer that the net revenue
interest actually owned by Seller therein
is greater than that shown on Exhibit
"A-2". Defect Notices submitted by Buyer before Closing
shall be delivered no
later than two (2) business days prior to Closing.
Either Buyer or Seller
may
also provide such a notice seeking a
post-Closing Sale
Price adjustment if such
notice is delivered to the other party on or before January 31, 2004. The
parties, acting diligently and in good
faith, shall use
reasonable efforts
to
agree on the existence of any asserted
Defects, and the value of the asserted
Defects as hereafter provided (the "Defect Value"). With respect to a Defect
Notice submitted by Buyer prior to
Closing, Seller
shall, by written notice
delivered to Buyer no later than the day before Closing, either (i) elect to
retain the affected Property and the Sale Price shall be reduced by the
Allocated Value thereof, (ii) waive its right to cure such
Defect, convey the
affected Property to Buyer in its current condition at Closing and accept a
reduction in the Sale Price in an amount
equal to the Defect Value therefore, or
(iii) notify Buyer of its intent to cure such
Defect after Closing without
adjustment to the Sale Price at Closing;
provided that Seller
shall be under no
obligation to affect such post-Closing cure. Seller's failure to timely make
such an election shall be deemed an election
to convey the
affected Property
under clause (iii) above. Notwithstanding
the forgoing, Seller may not
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make (nor be deemed to have made) an
election under clause (iii) above with
respect to any Defect not reasonably susceptible to cure within 120
days after
the date of the Defect Notice. With respect to Defects not so
susceptible
to
cure, the affected Property shall, at Seller's option, either be retained by
Seller or conveyed to Buyer at Closing, and the Sale Price shall be
reduced at
Closing by the Allocated Value of such
Property or the applicable Defect Value,
as appropriate.
Subject to the forgoing, upon timely delivery of a Defect Notice by Buyer,
whether before or after Closing, Seller, at
Seller's option, may attempt to cure
the applicable Defect at Seller's sole
risk, cost and expense within one hundred
twenty (120) days after the notice. If within such 120 day period Buyer and
Seller cannot agree upon the existence of a Defect or its
Defect Value,
or if
Seller is unable to cure the applicable
Defect to Buyer's
satisfaction with one
hundred twenty (120) days after
receipt of notice of
such Defect, then
Seller
shall have the option to have the subject
property(ies) reconveyed to it and, in
such event and concurrently with such reconveyance, shall pay to Buyer the
Allocated Value applicable to the
reconveyed Property.
If Seller shall fail
to
elect to accept a reconveyance,
Seller shall pay
within two business days after
the expiration of the above-referenced one hundred twenty (120) day
period, to
Buyer the Defect Value attributable thereto as asserted by Buyer. In
the event
that on or before Closing Buyer notifies
Seller of Defects
(including
without
limitation Defects identified by notice to
Seller during the 2-day period before
Closing) and (i) the value of which (as
specified in such notice) exceeds 5% of
the Sale Price, Seller may terminate this
Agreement and the Earnest Money shall
promptly be refunded to Buyer or (ii) the
value of which (as
specified in such
notice) exceeds 15% of the Sale Price,
Buyer may terminate
this Agreement and
the Earnest Money shall promptly be refunded to Buyer. ANY REASSIGNMENT
INSTRUMENT SHALL PROVIDE THAT SELLER SHALL
DEFEND AND INDEMNIFY
BUYER AND ITS
SUCCESSORS AND ASSIGNS FROM ANY AND ALL
LIABILITY,
CLAIMS, COSTS (INCLUDING,
WITHOUT LIMITATION ATTORNEYS' FEES, COURT COSTS, AND OTHER COSTS OF SUIT,
INVESTIGATION OR ACTION), EXPENSES, DAMAGES, COSTS OF SETTLEMENT, FINES,
PENALTIES, SUITS, CAUSES OF ACTION, INJURY TO PERSONS OR DAMAGE TO PROPERTY
(INCLUDING WITHOUT LIMITATION TO THAT OF
SELLER'S AND BUYER'S EMPLOYEES, AGENTS,
CONTRACTORS, SUBCONTRACTORS OR INVITEES) WHICH
MAY ARISE DIRECTLY OR INDIRECTLY
FROM OUT OF OR IN CONNECTION WITH SUCH PROPERTY, THE CONDITION THEREOF, OR
BUYER'S OWNERSHIP OR OPERATION THEREOF, AND
WITHOUT REGARD TO WHETHER SAME ARISE
FROM OR OUT OF SELLER'S ACTIVITIES ON THE
REASSIGNED PROPERTIES.
IF SELLER SHALL ATTEMPT TO CURE ANY DEFECT AFTER
CLOSING, SELLER SHALL DEFEND
AND INDEMNIFY BUYER FROM ANY AND ALL
LIABILITY, CLAIMS, CAUSES OF ACTION, INJURY
TO SELLER'S EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS OR INVITEES OR
TO
SELLER'S PROPERTY, AND/OR DAMAGE OR INJURY TO BUYER'S PROPERTY (INCLUDING
WITHOUT LIMITATION THE PROPERTY AS SUCH TERM IS DEFINED
HEREIN), EMPLOYEES,
AGENTS OR CONTRACTORS, WHICH MAY ARISE OUT OF SUCH
ACTIVITIES,
REGARDLESS OF
BUYER'S NEGLIGENCE OR FAULT (INCLUDING
STRICT LIABILITY).
9
<PAGE>
The Defect Value of Defects shall be determined in good faith
and in accordance
with the following guidelines:
(a) If a Sale Price adjustment is based upon Buyer's or Seller's
notice
that Seller owns a different net revenue
interest or working
interest than that
shown on Exhibit "A-2", then the value for the portion of the Properties
affected shall be reduced or increased (as the case may be) to
reflect the
changes in the net revenue and working interest from those shown on Exhibit
"A-2", and the Sale Price shall be reduced
or increased accordingly.
(b) In the event a
third party exercises
an applicable preferential
right to purchase, the subject property(ies) shall be
removed from the sale and
the Sale Price shall be reduced by the
Allocated Value of the a
