RESERVES SHALL MEAN SUCH RESERVES THAT ARE ESTIMATED
BY VENOCO'S INDEPENDENT RESERVES ENGINEER IN A RESERVE REPORT THAT, IF VENOCO IS
THEN A REPORTING COMPANY, IS THE SOURCE OF RESERVES DETERMINATIONS CONTAINED, OR
OTHERWISE REFLECTED, IN VENOCO'S PUBLIC REPORTS PERIODICALLY FILED WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION. UPON DETERMINATION OF SUCH AMOUNT, THE
REMAINING BALANCE OF SUCH FUNDS DRAWN BY VENOCO SHALL BE TURNED OVER TO BUYER.
(ii)
VENOCO SHALL BE ENTITLED TO DRAW AND RETAIN SOME OR ALL OF THE
BALANCE OF THE PERFORMANCE SECURITY (i) PRIOR TO THE CLOSING DATE, IN THE EVENT
OF A MATERIAL BUYER DEFAULT, AS PROVIDED IN THIS SECTION 2.7, INCLUDING IN THE
EVENT OF A TERMINATION OF THIS AGREEMENT AS SET FORTH IN THIS SECTION 2.7(f),
(ii) AT THE TIME AND ON THE TERMS AND CONDITIONS SET FORTH IN SECTION 7.1(c), IF
THE CLOSING DOES NOT OCCUR, AND (iii) FOLLOWING THE CLOSING DATE IF (x) A
MATERIAL BUYER DEFAULT OCCURS OR (y) THE LNG PROJECT TERM ENDS PRIOR TO THE LNG
OPERATIONS COMMENCEMENT DATE.
(iii)
BUYER AND VENOCO, AFTER DUE NEGOTIATION, HEREBY ACKNOWLEDGE AND
AGREE THAT THE AMOUNT OF THE PERFORMANCE SECURITY REPRESENTS A REASONABLE
ESTIMATE OF THE DAMAGES WHICH VENOCO WILL SUSTAIN IN THE EVENT OF ANY SUCH
MATERIAL BUYER DEFAULT. BUYER AND VENOCO HEREBY AGREE THAT VENOCO MAY, IN THE
EVENT OF A MATERIAL BUYER DEFAULT, TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO
BUYER AND RETAIN THE PERFORMANCE SECURITY AND THE PROCEEDS FROM DRAWING THEREON
AS SET FORTH IN THIS SECTION 2.7(f) AS LIQUIDATED DAMAGES.
(iv)
SUCH RETENTION OF THE PERFORMANCE SECURITY BY VENOCO SHALL
CONSTITUTE VENOCO'S SOLE REMEDY FOR SUCH MATERIAL BUYER DEFAULT PRIOR TO THE LNG
OPERATIONS COMMENCEMENT DATE AND IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO
VENOCO PURSUANT TO SECTIONS 1671, 1676 AND 1677 OF THE CALIFORNIA CIVIL CODE,
AND SHALL NOT BE DEEMED TO CONSTITUTE A FORFEITURE OR PENALTY WITHIN THE MEANING
OF SECTION 3275 OR SECTION 3369 OF THE CALIFORNIA CIVIL CODE, OR ANY SIMILAR
PROVISION.
NOTHING IN THIS SECTION 2.7(f) SHALL IMPAIR OR LIMIT THE EFFECTIVENESS OR
ENFORCEABILITY OF THE INDEMNIFICATION OBLIGATIONS OF BUYER CONTAINED IN
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SECTION 4.1(l) AND SECTION 9.1(a)(iii), AND NOTHING IN THIS SECTION 2.7(f) SHALL
IMPAIR OR LIMIT VENOCO'S RIGHTS OR REMEDIES FOR BREACH OR DEFAULT BY BUYER FROM
AND AFTER THE LNG OPERATIONS COMMENCEMENT DATE. NOTWITHSTANDING THE PROVISIONS
OF SECTION 9.4, VENOCO'S RIGHT TO DRAW AND RETAIN THE PERFORMANCE SECURITY SHALL
NOT BE DEEMED TO BE A "CLAIM" SUCH THAT VENOCO WOULD BE REQUIRED TO BRING AN
ARBITRATION ACTION PRIOR TO DRAWING AND RETAINING THE PERFORMANCE SECURITY.
VENOCO AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS
OF THIS SECTION 2.7(f) AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND
BY ITS TERMS.
Initials of representative of Buyer:
Initials of representative of Venoco:
Section 2.8 P&A Cost Payment Security.
(a)
Amount; Purpose; No Limit. The P&A Cost Payment Security shall
consist of an irrevocable standby letter of credit in the initial face amount of
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