TO ABANDON OR RELEASE A LEASE AND REQUIRING NOTICE TO THE HOLDERS OF SUCH
RIGHTS.
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(3)
"TITLE DEFECT AMOUNT" MEANS, WITH RESPECT TO A TITLE DEFECT
PROPERTY, THE REDUCTION IN THE ALLOCATED VALUE OF A PROPERTY OR AN ASSOCIATED
PROPERTY AS A RESULT OF THE EXISTENCE OF ONE OR MORE TITLE DEFECTS, WHICH AMOUNT
SHALL BE DETERMINED AS FOLLOWS:
(A)
THE TITLE DEFECT AMOUNT WITH RESPECT TO A TITLE DEFECT PROPERTY
SHALL BE DETERMINED BY TAKING INTO CONSIDERATION THE ALLOCATED VALUE OF THE
PROPERTY AFFECTED BY SUCH TITLE DEFECT (OR IF THE TITLE DEFECT PROPERTY DOES NOT
HAVE A SPECIFIC ALLOCATED VALUE, THEN THE ALLOCATED VALUE THEREOF SHALL BE
DERIVED FROM THE ALLOCATED VALUE OF THE LEASE, WARRANTY WELL OR UNIT ASSOCIATED
THEREWITH), THE PORTION OF THE PROPERTY SUBJECT TO SUCH TITLE DEFECT, AND THE
LEGAL EFFECT OF SUCH TITLE DEFECT ON THE PROPERTY AFFECTED THEREBY; PROVIDED,
HOWEVER, THAT:
(B)
IF SUCH TITLE DEFECT IS IN THE NATURE OF THE NET REVENUE INTEREST
IN A WARRANTY WELL, LEASE OR UNIT BEING LESS THAN THE NET REVENUE INTEREST SET
FORTH ON COMPANY SCHEDULE 4.19 WITH RESPECT THERETO AND THE CORRESPONDING
WORKING INTEREST REMAINS THE SAME, THEN THE TITLE DEFECT AMOUNT WILL BE THE
ALLOCATED VALUE FOR THE RELEVANT WARRANTY WELL, LEASE OR UNIT MULTIPLIED BY THE
PERCENTAGE REDUCTION IN SUCH NET REVENUE INTEREST AS A RESULT OF SUCH TITLE
DEFECT;
(C)
IF SUCH TITLE DEFECT IS IN THE NATURE OF A LIEN, THEN THE TITLE
DEFECT AMOUNT WILL BE THE AMOUNT REQUIRED TO FULLY DISCHARGE SUCH LIEN; AND
(D)
IF THE TITLE DEFECT RESULTS FROM ANY MATTER NOT DESCRIBED IN
SECTION 8.1(F)(3)(A), THE TITLE DEFECT AMOUNT SHALL BE AN AMOUNT EQUAL TO THE
DIFFERENCE BETWEEN THE VALUE OF THE TITLE DEFECT PROPERTY WITH SUCH TITLE DEFECT
AND THE VALUE OF SUCH TITLE DEFECT PROPERTY WITHOUT SUCH TITLE DEFECT (TAKING
INTO ACCOUNT THE ALLOCATED VALUE OF THE TITLE DEFECT PROPERTY).
(E)
"TITLE DEFECT" MEANS FOR EACH PROPERTY ON COMPANY SCHEDULE 4.19, A
DEFECT EXISTS (I) THAT CAUSES THE COMPANY AND THE SUBSIDIARIES TO NOT HAVE
DEFENSIBLE TITLE IN SUCH WARRANTY WELL OR LEASE; (II) THAT HAS A TITLE DEFECT
AMOUNT ATTRIBUTABLE THERETO IN EXCESS OF $25,000; AND (III) FOR WHICH A TITLE
DEFECT NOTICE HAS BEEN TIMELY AND OTHERWISE VALIDLY DELIVERED; AND
(F)
NOTWITHSTANDING THE FOREGOING, ANY MATTERS THAT WOULD OTHERWISE
CONSTITUTE A TITLE DEFECT WILL NOT BE A TITLE DEFECT IF IT IS NOT REASONABLY
LIKELY TO AFFECT THE ECONOMIC VALUE TO BUYER OF THE AFFECTED OIL AND GAS
PROPERTY BASED ON THE STANDARDS AND PRACTICES OF REASONABLY PRUDENT OPERATORS OF
OIL AND GAS WELLS ENGAGED IN THE DRILLING OF EXPLORATORY WELLS IN THE GEOGRAPHIC
REGION IN WHICH THE OIL AND GAS PROPERTIES ARE LOCATED.
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(G)
(1)
IF PFC AND BUYER ARE UNABLE TO REACH AN AGREEMENT AS
TO WHETHER A TITLE DEFECT EXISTS OR, IF IT DOES EXIST, THE TITLE DEFECT AMOUNT
ATTRIBUTABLE TO SUCH TITLE DEFECT, THEN PFC, AT ITS ELECTION, MAY EITHER:
(A)
NOTIFY