AFFECTING THE ASSETS WHICH
INDIVIDUALLY OR IN THE AGGREGATE (A) DO NOT OPERATE TO (1) REDUCE THE NET
REVENUE INTEREST OF SELLERS AS SET FORTH IN EXHIBIT B, (2) INCREASE THE
PROPORTIONATE SHARE OF COSTS AND EXPENSES OF LEASEHOLD OPERATIONS ATTRIBUTABLE
TO OR TO BE BORNE BY THE WORKING INTERESTS OF SELLERS AS SET FORTH IN EXHIBIT B,
OR (B) OPERATE TO INCREASE THE PROPORTIONATE SHARE OF COSTS AND EXPENSES OF
LEASEHOLD OPERATIONS ATTRIBUTABLE TO OR TO BE BORNE BY THE WORKING INTEREST OF
SELLERS, SO LONG AS THERE IS A PROPORTIONATE INCREASE IN SELLERS' NET REVENUE
INTEREST.
SECTION 3.03
TITLE DEFECT. THE TERM "TITLE DEFECT," AS USED IN THIS
AGREEMENT, SHALL MEAN: (A) ANY ENCUMBRANCE, ENCROACHMENT, IRREGULARITY, DEFECT
IN OR OBJECTION TO SELLERS' OWNERSHIP OF ANY ASSET (EXPRESSLY EXCLUDING
PERMITTED ENCUMBRANCES) THAT CAUSES SELLERS NOT TO HAVE DEFENSIBLE TITLE TO SUCH
ASSET; OR (B) ANY DEFAULT BY SELLERS UNDER A LEASE, FARMOUT AGREEMENT OR OTHER
CONTRACT OR AGREEMENT THAT WOULD (I) HAVE A ADVERSE AFFECT ON THE OPERATION,
VALUE OR USE OF SUCH ASSET, (II) PREVENT SELLERS FROM RECEIVING THE PROCEEDS OF
PRODUCTION ATTRIBUTABLE TO SELLERS' INTEREST THEREIN OR (III) RESULT IN
CANCELLATION OF SELLERS' INTEREST THEREIN.
SECTION 3.04
NOTICE OF TITLE DEFECTS. IF BUYER DISCOVERS ANY TITLE
DEFECT AFFECTING ANY ASSET, BUYER SHALL NOTIFY SELLERS AS PROMPTLY AS POSSIBLE,
BUT NO LATER THAN THE EXPIRATION OF THE EXAMINATION PERIOD OF SUCH ALLEGED TITLE
DEFECT. TO BE EFFECTIVE, SUCH NOTICE MUST (I) BE IN WRITING, (II) BE RECEIVED BY
SELLERS PRIOR TO THE EXPIRATION OF THE EXAMINATION PERIOD, (III) DESCRIBE THE
TITLE DEFECT IN SUFFICIENT, SPECIFIC DETAIL (INCLUDING ANY ALLEGED VARIANCE IN
THE NET REVENUE INTEREST), (IV) IDENTIFY THE SPECIFIC ASSET OR ASSETS AFFECTED
BY SUCH TITLE DEFECT, AND (V) INCLUDE THE VALUE OF SUCH TITLE DEFECT AS
DETERMINED BY BUYER. ANY MATTERS THAT MAY OTHERWISE CONSTITUTE TITLE DEFECTS,
BUT OF WHICH SELLERS HAVE NOT BEEN SPECIFICALLY NOTIFIED BY BUYER IN ACCORDANCE
WITH THE FOREGOING, SHALL BE DEEMED TO HAVE BEEN WAIVED BY BUYER FOR ALL
PURPOSES AND SHALL CONSTITUTE PERMITTED ENCUMBRANCES.
(A)
THE VALUE ATTRIBUTABLE TO EACH TITLE DEFECT (THE "TITLE DEFECT
VALUE") THAT IS ASSERTED BY BUYER IN THE TITLE DEFECT NOTICES SHALL BE
DETERMINED BASED UPON THE CRITERIA SET FORTH BELOW:
(I)
IF THE TITLE DEFECT IS A LIEN UPON ANY ASSET, THE TITLE DEFECT
VALUE IS THE AMOUNT NECESSARY TO BE PAID TO REMOVE THE LIEN FROM THE AFFECTED
ASSET.
(II)
IF THE TITLE DEFECT ASSERTED IS THAT THE NET REVENUE INTEREST
ATTRIBUTABLE TO ANY WELL OR UNIT IS LESS THAN THAT STATED IN EXHIBIT C
7
OR THE WORKING INTEREST ATTRIBUTABLE TO ANY WELL OR UNIT IS GREATER THAN THAT
STATED IN EXHIBIT C, THEN THE TITLE DEFECT VALUE SHALL TAKE INTO ACCOUNT THE
RELATIVE CHANGE IN THE INTEREST FROM EXHIBIT C AND THE APPROPRIATE ALLOCATED
VALUE ATTRIBUTED TO SUCH ASSET.
(III)
THE TITLE DEFECT VALUE OF A TITLE DEFECT SHALL BE DETERMINED
WITHOUT DUPLICATION OF ANY COSTS OR LOSSES INCLUDED IN ANOTHER