IN WRITING WHICH OF THE OPTIONS AVAILABLE TO SELLER UNDER SECTION 5.4 THAT
SELLER ELECTS REGARDING EACH OF THE OIL AND GAS PROPERTIES AS TO WHICH THE TITLE
CONSULTANT HAS MADE A DETERMINATION.
IN EVALUATING WHETHER A TITLE DEFECT
EXISTS, DUE CONSIDERATION SHALL BE GIVEN TO THE LENGTH OF TIME THAT THE
PARTICULAR OIL AND GAS PROPERTY HAS BEEN PRODUCING OIL AND GAS AND WHETHER SUCH
FACT, CIRCUMSTANCE OR CONDITION IS OF THE TYPE EXPECTED TO BE ENCOUNTERED IN THE
AREA INVOLVED AND IS USUAL AND CUSTOMARILY ACCEPTABLE TO REASONABLE AND PRUDENT
OPERATORS, WORKING INTEREST OWNERS AND/OR PURCHASERS ENGAGED IN THE BUSINESS OF
THE EXPLORATION, DEVELOPMENT, AND OPERATION OF OIL AND GAS PROPERTIES.
5.4
EFFECT OF TITLE DEFECT.
(A)
IN THE EVENT BUYER PROVIDES SELLER WITH A
TIMELY NOTICE AND THE TITLE DEFECTS ARE VALID AND EXCEED THE TITLE DEFECT
THRESHOLD, FOR THOSE TITLE DEFECTS NOT CURED BY CLOSING, SELLER MAY, AT ITS SOLE
DISCRETION:
(I)
ADJUST THE BASE PURCHASE PRICE IN THE AMOUNT OF THE TITLE
DEFECT VALUE OF THE OIL AND GAS PROPERTY TO WHICH SUCH TITLE DEFECT RELATES AND
PROCEED TO CLOSING ON ALL OIL AND GAS PROPERTIES; OR
(II)
PROCEED WITH (A) CLOSING ON THOSE OIL AND GAS PROPERTIES NOT
AFFECTED BY THE VALID TITLE DEFECTS AND SUCH OIL AND GAS PROPERTIES TO WHICH A
TITLE DEFECT RELATES BUT FOR WHICH SELLER HAS ELECTED TO PROCEED TO CLOSING WITH
AN ADJUSTMENT OF THE BASE PURCHASE PRICE IN THE AMOUNT OF THE TITLE DEFECT VALUE
OF SUCH OIL AND GAS PROPERTIES, AND (B) DEFER CLOSING ON THOSE OTHER OIL AND GAS
PROPERTIES TO WHICH A TITLE DEFECT RELATES AND FOR WHICH SELLER HAS ELECTED TO
ATTEMPT TO CURE SUCH TITLE DEFECT AND TO NOT PROCEED TO CLOSING, FOR WHICH BUYER
SHALL PLACE INTO ESCROW AN AMOUNT EQUAL TO THE ALLOCATED VALUES OF THE OIL AND
GAS PROPERTIES AFFECTED BY THE VALID TITLE DEFECTS, WHICH WITHHELD AMOUNT SHALL
BE PAID TO SELLER WHEN THE OIL AND GAS PROPERTY AFFECTED BY ANY VALID TITLE
DEFECT IS CURED OR THE TITLE DEFECT IS WAIVED BY BUYER AND THE AFFECTED OIL AND
GAS PROPERTY IS CONVEYED FROM SELLER TO BUYER.
IF NEITHER OF THE ABOVE OCCURS
AND IF SELLER LATER DETERMINES IT WILL NOT CURE A TITLE DEFECT ON OR BEFORE
THIRTY (30) DAYS FROM THE CLOSING DATE, THE AMOUNT IN THE ESCROW ACCOUNT
ATTRIBUTABLE TO SUCH TITLE DEFECT WILL BE RETURNED TO BUYER AND SUCH OIL AND GAS
PROPERTY AFFECTED BY SUCH TITLE DEFECT SHALL BE DEEMED AN EXCLUDED ASSET AND BE
TRANSFERRED TO SELLER OR SELLER'S DESIGNEE PURSUANT TO SECTION 1.2.
15
(B)
THE DIMINUTION IN VALUE OF AN OIL AND GAS
PROPERTY ATTRIBUTABLE TO A VALID TITLE DEFECT (THE "TITLE DEFECT VALUE")
NOTIFIED IN A NOTICE SHALL BE DETERMINED BY THE FOLLOWING:
(I)
IF THE VALID TITLE DEFECT ASSERTED IS THAT THE ACTUAL NET
REVENUE INTEREST ATTRIBUTABLE TO THE PRODUCING OR VALUED FORMATION IN ANY OIL
AND GAS PROPERTY IS LESS THAN THAT STATED IN THE APPLICABLE