Document:

exv10w5

 

Exhibit 10.5

SALT WATER DISPOSAL SYSTEM

OWNERSHIP AND OPERATING AGREEMENT

     THIS SALT WATER DISPOSAL SYSTEM OWNERSHIP AND OPERATING AGREEMENT (“Agreement”) is
made and entered into by and between COG Operating LLC, a Delaware limited liability company
(“COG LLC”), acting for itself and COG Oil & Gas LP, a Texas limited partnership (“COG
LP”), each with a mailing address of 550 W. Texas Avenue, Suite 1300, Midland, Texas 79701,
(COG LLC and COG LP, collectively herein, “COG”), and Chase Oil Corporation, a New Mexico
corporation, Caza Energy LLC, a New Mexico limited liability company, and Mack Energy Corporation,
a New Mexico corporation, each with a mailing address of P.O. Box 960, Artesia, New Mexico 88211
(herein collectively referred to as “Chase”).

     WHEREAS, pursuant to that certain Contract Operator Agreement of even date (the
“COA”), COG has engaged the services of Mack Energy Corporation (“Mack”) to operate
certain oil and gas properties (the “COG Properties”) conveyed to it by Chase pursuant to
the Combination Agreement dated February 24, 2006 (Mack acting in its capacity as operator under
the COA is herein called “Contract Operator”);

     WHEREAS, Chase is the owner of certain oil and gas properties, which are located in the area
of the COG Properties, (the “Chase Properties,” together with the COG Properties, herein
called the “Contract Area”);

     WHEREAS, COG and Chase desire to dispose of water produced from any wells currently located or
hereafter acquired or drilled in the Contract Area into the disposal wells and related facilities,
permits, right-of-ways, easements, orders and other agreements described in Exhibit A attached
hereto (the “SWD System”); and

     WHEREAS, COG and Chase desire to make certain arrangements with respect to the ownership and
operation of the SWD System.

     NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:

     1. Operator. COG shall be operator of record of the SWD System (COG in such capacity,
and its successors, if any, in such capacity being herein called “Operator”), and shall conduct and
direct and have full control of all operations with respect thereto, subject to the terms of this
Agreement. Operator shall conduct all such operations in accordance with industry standards but it
shall have no liability to any other party for losses sustained or liabilities incurred, except as
such as may result from gross negligence or willful misconduct of Operator.

     2. Ownership. The SWD System shall be owned based on the each party’s percentage
contribution of the total annual volume of produced water disposed of into the SWD System during
the prior calendar year; the parties acknowledging that such ownership, as of January 1, 2006,
shall be ninety percent (90%) to COG LP and ten percent (10%) to Chase. No later than sixty (60)
days after the end of the prior calendar year, the Operator shall provide all parties with a report
showing each party’s percentage contribution of total volume of produced water disposed for the
prior calendar year by February 1st of the following year (“Annual Review”).

 

 

No later than thirty (30) days after receiving the Annual Review, COG LP and Chase shall
cross-convey among each other such interest in the SWD System as may be required to result in
ownership of the SWD System (“Ownership Interest”) being proportionate to each party’s
annual percentage contribution of total volume of produced water disposed in the SWD System for the
prior one-year period.

     3. Costs and Expenses. Operator shall allocate operating costs and expenses between
the parties in accordance with the following:

	 	a)	 	Operating Costs. The monthly cost of operating the SWD System and
disposing of produced water from the Contract Area shall be allocated based on each
party’s respective Ownership Interest at the time. The parties acknowledge that they
intend to own and operate the SWD System without profit to any party and that any
third-party income attributable to the SWD System shall be allocated pro rata to the
parties as a reduction of each parties share of costs hereunder.
	 
	 	b)	 	Maintenance and Repair Costs. Each party shall pay its proportionate
share of maintenance and repair costs associated with the SWD System based on its
respective Ownership Interest, including workovers.
	 
	 	c)	 	Expansion Costs. Costs for expanding the SWD System as a result of a
Water Disposal Deficiency (as defined herein) shall be allocated pursuant to Section 5
of this Agreement.
	 
	 	d)	 	Invoices. Within thirty (30) days after the end of each calendar
quarter, Operator shall furnish Chase with an invoice for its Ownership Interest share
of (i) operating costs, (ii) maintenance and repair costs, and (iii) as provided in
Section 5, any agreed upon expansion costs. Chase shall remit the amount due within
thirty (30) days after the receipt of the invoice.

     4. Disposal Rights. Each party shall have the concurrent, unrestricted and equal
right to deliver water to the SWD System. Subject to the terms and conditions of this Agreement,
Operator shall accept all water produced from existing wells in the Contract Area at the point of
interconnection between the SWD System and each party’s respective facilities (“Delivery
Point(s)”). Should either party desire to dispose of water produced from any future wells
drilled within the Contract Area (“Additional Well(s)”), and should Operator, in its sole
judgment, determine that the SWD System has available capacity to receive such additional produced
water (“Excess Capacity”), such additional produced water may be disposed of into the SWD
System so long as such Excess Capacity exists.

     5. Expansion. In the event Excess Capacity is inadequate to handle both parties
disposal needs (a “Water Disposal Deficiency”), then the parties shall have the following
options:

a) The parties may jointly agree to an extension, repair, expansion, addition, or
enlargement of existing or new facilities to the SWD System, including the
conversion of a previously producing well to a disposal well (an
“Improvement”). In that event, each party shall share in the cost of
constructing such Improvement in such ratio agreed to among the parties. Costs of
constructing Improvements

2

 

shall include, without limitation, the costs of engineering, construction,
equipment, metering, well conversion, and related permitting.

b) A party may individually propose an Improvement to the SWD System by giving the
other party written notice and a good faith estimate of the cost to construct such
Improvement (the “Proposing Party”). Each party shall share in the cost of
constructing such Improvement in such ratio agreed to among the parties, or if such
agreement cannot be obtained, then the Proposing Party shall bear the entire cost of
such Improvement and be entitled to the sole and exclusive use of any increased
capacity resulting from such Improvement. Any Proposing Party that constructs an
Improvement shall construct it in a good and workmanlike manner and in accordance
with industry standards. The Proposing Party shall defend, indemnify, and hold the
non-proposing party harmless from all actions, causes of action, damages, and costs
(including reasonable attorneys’ fees) arising out of any failure to construct the
Improvement in accordance with such standard of performance.

Operator shall operate and maintain any Improvement constructed pursuant to this Agreement but
shall have no obligation to construct any Improvement.

     6. Delivery of Produced Water. Each party shall be responsible at its sole risk and
cost for delivering produced water to the SWD System as well as creating the interconnection
between the SWD System and its respective facilities. Operator may refuse to accept for disposal
any produced water unless in its reasonable judgment such produced water (a) is of low percentage
suspended solids and compatible with other produced water in the SWD System, and (b) is delivered
at an adequate pressure to enter the SWD System at atmospheric pressure (but shall not exceed the
SWD System’s maximum delivery pressure as determined by Operator, in its good faith judgment, from
time to time, based on then current operating conditions). Operator has the right to refuse to
accept produced water that has or develops conditions or contents that harms or has potential to
harm the SWD System; or take other measures that in its reasonable judgment would normally be taken
by a prudent facility operator under the same or similar circumstances. Notwithstanding anything to
the contrary contained herein, neither party shall not be obligated to deliver a minimum volume of
produced water under this Agreement. Operator is granted unrestricted use of the produced water
once it enters the SWD System at the designated Delivery Point(s).

     7. Measurement. Each party, at its sole cost and expense, will be responsible for the
installation and maintenance of flow lines, meters, and equipment connecting the its properties to
the Delivery Point(s). The parties shall agree upon a mutually agreeable method of measurement.
Each party shall be solely responsible for any damage resulting from the operation of and
maintenance of its flow lines and the pipelines upstream of the Delivery Point(s).

     8. Interruption of Service. In the event mechanical or other difficulties are
encountered which cause a temporary interruption in the normal operation of the SWD System, if
Operator is prevented from disposing of produced water for any cause not within its control, or the
SWD System is unable to dispose of produced water, the obligation of Operator to accept and dispose
of produced water hereunder shall be suspended during the continuation of the period of

3

 

disability, without liability to Operator. Operator shall not be considered in default of
this Agreement as a result of any suspension of operations due to causes beyond the control and
without the fault or gross negligence or wilfull misconduct of Operator, including, but not
restricted to an act of God or of a public enemy, fire, flood, epidemic quarantine restriction,
area wide strike, freight embargo, unusually severe weather, or delay of Operator’s subcontractors
or suppliers due to such cause.

     9. Term. This agreement shall continue in force so long as any well located in the
Contract Area is utilizing the SWD System, unless earlier terminated by mutual agreement of the
parties. Notwithstanding the term herein expressly set forth, Operator may at any time, in its
sole discretion, terminate this Agreement by giving at least thirty (30) days prior written notice
to Chase if changes in the applicable laws, rules and regulations will render continued performance
of this Agreement illegal. In such event, the parties shall agree to modify or amend this
Agreement as necessary to ensure continued performance in compliance with any new or amended laws,
rules, and regulations.

     10. Audit. Each party shall have the right to audit the SWD System records and
accounts of Operator upon ten (10) days prior notice to Operator. Such audit must be completed and
objections made within thirty (30) days of the commencement of the audit process.

     11. Assignment and Delegation. This Agreement is personal and neither party may
assign any rights nor delegate any duties incurred by this Agreement, or any part thereof, without
the prior written consent of the other party, except in connection with a sale or other disposition
of a party’s entire interest in wells connected to the SWD System.

     12. Governing Law. This Agreement shall be governed, construed, and interpreted in
accordance with the laws of the State of New Mexico.

     13. Notices. All notices authorized or required between the parties by this Agreement
shall be in writing and delivered in person or by mail, courier service or by telecopy which
provides written confirmation of complete transmission, and addressed to the designated
representative of the party addressed.

     14. COG Representative. For all purposes hereof, the COG’s representative will be E.
Joseph Wright. The address for all notices hereunder shall be:

COG Operating LLC

550 W. Texas Avenue, Suite 1300

Midland, Texas, 79701

Attn: E. Joseph Wright

Fax: (432) 683-7441

     15. Chase Representative. For all purposes hereof, the Chase’s representative will be
Robert Chase. The address for all notices hereunder shall be:

4

 

Chase Oil Corporation

P.O. Box 960

Artesia, New Mexico 88211

Attn: Robert Chase

Fax: (505) 746-9539

     16. Relationship of Parties. The rights, duties, obligations and liabilities of the
parties hereunder shall be several and not joint or collective. Nothing herein contained shall
ever be construed as creating a partnership of any kind, a joint venture, an association or trust,
or is imposing upon any one or more of the parties hereto any partnership duty, obligation or
liability.

5

 

     IN WITNESS WHEREOF, this instrument is executed this 24th day of February 2006
(“Effective Date”).

	 	 	 	 	 
	COG OPERATING LLC	 	 
	 
	 	 	 	 
	By:
	 	/s/ E. Joseph Wright	 	 
	 

	 	 	 	 
	 

	 	          E. Joseph Wright, Vice President –

          Engineering and Operations	 	 
	 
	 	 	 	 
	CHASE OIL CORPORATION	 	 
	 
	 	 	 	 
	By:
	 	/s/ Robert C. Chase	 	 
	 

	 	 	 	 
	 

	 	          Robert C. Chase, President	 	 
	 
	 	 	 	 
	CAZA ENERGY LLC	 	 
	 
	 	 	 	 
	By:
	 	/s/ Mack C. Chase	 	 
	 

	 	 	 	 
	 

	 	          Mack C. Chase, Manager	 	 
	 
	 	 	 	 
	MACK ENERGY CORPORATION	 	 
	 
	 	 	 	 
	By:
	 	/s/ Robert C. Chase	 	 
	 

	 	 	 	 
	 

	 	          Robert C. Chase, Vice President	 	 

6exv10w6

 

Exhibit 10.6

COG Operating LLC

Midland, Texas

Software & Services Agreement

March 2006

Provided by:

Enertia Software

125 W. Missouri Avenue

Midland, Texas 79701

ph: (432) 685-1753 fax: (432) 685-4006

 

 

Software License Agreement

This Software License Agreement (the “Agreement”) is made by and between Enertech Information
Systems, Inc., dba Enertia Software, a Texas corporation (the
“Licensor”) and COG Operating LLC, a
Delaware limited liability company {the “Licensee”), to be effective as of March 1, 2006 (the
“Effective Date”). Licensor and Licensee may be collectively referred to herein as the “Parties” or
individually as “Party.”

Now, therefore, in consideration of the mutual covenants and promises contained in this Agreement,
Licensor and Licensee agree as follows:

ARTICLE 1

LICENSE GRANT

Grant of License

	1.1	 	Subject to the terms and conditions specified in this Agreement, Licensor hereby grants to
Licensee for itself and its parent company, if any, and its and their subsidiaries,
affiliates and/or business units a user object code license to the Enertia Energy Management
System (the “Software”). The fees for this license are defined in Schedule A of this
Agreement which is attached hereto and made a part of hereof. This license allows Licensee to
install the Software in a single location for up to twenty (20) concurrent users. Remote site
access to a central database will be counted as concurrent user access. A “single location”
is defined as a single central database. Installation of Software at a remote site to
maintain additional production database(s) will constitute an additional license and such use
will result in additional fees for any such site.

Subject Matter Software

	1.2	 	Software consists of the following software functional areas and/or modules:

Accounting & Financials

Well Production with Field Data Gathering

Land & Contracts

Inventory / Material Transfer

Imaging

DD&A

Fixed Assets

Report Writer with Add-In

Specifically, the Software contains the following:

	 	a)	 	A single computer program named Enertia. The program is:

	 	i)	 	Embodied on magnetic media mutually agreed upon by
Licensor and Licensee.
	 
	 	ii)	 	In object code language versions.

	 	b)	 	On-line help files.
	 
	 	c)	 	All subsequent improvements to either the computer program or the related documentation
made by either Licensor or Licensee as embodied in any subsequent agreement attached to and
made a part of the Agreement.

Software Upgrade Provision

	1.3	 	Licensor agrees to provide Licensee license upgrades to the Software in five (5) concurrent
user increments for a license fee of $50,000. This fixed fee upgrade provision will be in
effect for the term of this Agreement.

ARTICLE 2

LIMITATIONS ON USE

General Use of Software

	2.1.	 	Licensee agrees to use the Software solely for its own internal use and that of those
entities referenced in Section 1.1 on the Designated Hardware and not for any other person or
purpose.

 

 

Copies

	2.2.	 	Except as otherwise provided herein. Licensee may make as many copies of the Software as
required for use solely by Licensee and the other entities referenced in Section
1.1. Licensee agrees when making copies of the Software, not to
remove any trademark, copyright notices or other proprietary notices.

Licensee’s Responsibilities

	2.3.	 	Licensee shall be exclusively responsible for the supervision, management, and control of
its use of the Software, including, but not limited to:

	 	a)	 	Assuring proper configuration of the network infrastructure, hardware, related
equipment and devices, and compatibility with the Software.
	 
	 	b)	 	Establishing adequate operating methods.
	 
	 	c)	 	Implementing procedures sufficient to satisfy its obligations for security under this
Agreement, including appropriate control of its employees and independent contractors to
prevent misuse, unauthorized copying, modification, or disclosure of the Software
pursuant to Section 3.2.

License Term

	2.4.	 	The license granted in this Agreement shall remain in force for the term here of, which
shall commence on the Effective Date of this Agreement and continue thereafter unless and
until either Party advises the other Party that it is terminating this Agreement as of a
date at least six (6) months after the date of such notice, and which termination notice may
not be given prior to one hundred eighty (180) days after the Effective Date, unless
terminated earlier as provided herein. After the initial ninety-nine (99) year period
expires the license will automatically renew under additional ninety-nine (99) years terms
unless Licensor or Licensee requests in writing that the license be discontinued.

ARTICLE 3

PROPERTY RIGHTS

Title to Software

	3.1.	 	Title to the Software is reserved for the Licensor. Licensee acknowledges and agrees that
Licensor is and shall remain the owner of the Software and shall be the owner of all copies
of the Software made by the Licensee.

Confidentiality / Non Disclosure

	3.2	(a)	 	 Licensee acknowledges that the Software is confidential in nature and constitutes a
trade secret belonging to Licensor. Licensee agrees to hold the Software in confidence and
not to sell, rent, license, distribute, transfer, publish, reprint, reproduce, make
available or disclose the Software or its contents, including methods or ideas used in the
Software, to anyone except the other entities referenced in Section 1.1, and except
as may be necessary or convenient in the conduct of Licensee’s business. Licensee shall
instruct all employees, agents and independent contractors using the Software that they must
keep the Software confidential by using the same care and discretion that they use with
other data designated by the Licensee as confidential. Licensor further agrees that the
existing contents of this Agreement, including, but not limited to, the terms, conditions
and financial information are considered confidential and will be held in strict confidence.
This provision shall remain in full force and effect for a period of one (1) year after the
expiration or termination of this Agreement.
	 
	 	(b)	 	Licensor acknowledges that all information of Licensee provided or made available to
Licensor or which is accessible to it, whether before or after the Effective Date, and
regardless of the manner in which it was furnished, is confidential. Licensor agrees to
keep all such information strictly confidential and agrees that neither Licensor or its
representatives will in any manner communicate, publish or divulge such confidential
information without the express advanced written authorization of Licensee, except as may
otherwise be provided herein.

Restricted Access

	3.3.	 	Licensee agrees to keep the Software in a secure place under access and use restrictions
designed to prevent disclosure of the Software to unauthorized persons. Licensee agrees to
at least implement the security precautions that it normally uses to protect other software
subject to similar restrictions or confidentiality.

 

 

Labels

	3.4	 	Licensee agrees not to intentionally remove, mutilate, or destroy any copyright, patent
notice, trademark, service mark, other proprietary markings, or confidential legends placed on
or within the Software

Emulating Software

	3.5	 	Licensee agrees not to create emulating software based on the Software for sale or
distribution and decompilation. Disassembly or reverse engineering of the Software is strictly
prohibited.

ARTICLE 4

PAYMENT

Payment Terms

	4.1.	 	Payment shall be made to Licensor pursuant to the terms of Schedule A.

Taxes

	4.2.	 	Licensee shall pay all applicable sales and/or usage taxes arising from the purchase of
hardware, software and/or services from Licensor.

ARTICLE 5

DELIVERY AND SERVICE

Delivery of the Software

	5.1	 	Licensor shall deliver and install the Software to Licensee within ten (10) days of the
execution of this Agreement. If the Software is lost or damaged during shipment. Licensor
shall replace it at no additional charge to Licensee. If the Software is lost or damaged
while in Licensee’s possession, Licensor shall replace it when Licensee pays cost of
shipping, and as long as Licensee is not in material breach or default of this Agreement.
Licensor will not be responsible for replacing any lost data.

Software Training

	5.2	 	Licensor shall provide a total number of thirty (30) man-days of on-site training for
individual and/or group instruction. These training days would be provided at Licensee’s
Midland, Texas location or Licensor’s Midland, Texas training facility as designated by
Licensee as a part of the Project Fee defined in Schedule A of this Agreement. In the
event the Parties agree that more than one employee of Licensor needs to be present for
training, one day of training will be counted for each employee of Licensor present.

	 	 	If Licensor must travel outside of Midland, Texas to provide training for Licensee, Licensee
shall pay such travel expenses in accordance with Section 5.6.

Software Enhancements

	5.3	 	Licensor further agrees to make on-going enhancements to the Software to accommodate the
functional requirements of Licensee. Enhancements requested promptly by Licensee will be
provided in writing with a definition of the scope of work. Licensor will provide Licensee
with an estimated project timeline and project cost for the requested enhancements to the
Software. It is agreed that Licensor has the final and ultimate decision on the acceptance,
design and deployment for any proposed enhancements to the Software and that all such
enhancements will be covered under the copyright pertaining to the Software.

Electronic Data Conversion

	5.4	 	Upon request Licensor agrees to provide electronic data conversion services for Licensee in
order to convert Licensee’s Questa / Integra oil and gas data. Licensee agrees to provide
electronic data conversion services where the data that can be provided in an industry
standard format, such as ASCII. Excel, Access or SQL Server with a complete data dictionary.
The electronic data conversion services shall be provided by Licensor as a part of the
Project Fee defined in Schedule A of this Agreement.

Information Technology

	5.5	 	On dates and times mutually determined, Licensor agrees to provide four (4) days of on site
information technology services to assist
Licensee with the installation and configuration of the hardware, operating systems and related
software necessary for the network

 

 

	 	 	infrastructure that will support the use of the Software. These information technology services
shall be provided by Licensor as a part of the Project Fee defined in Schedule A of this
Agreement.

Travel & Related Expenses

	5.6	 	Licensee will be responsible for all reasonable and customary travel outside of Midland.
Texas, and related expenses for visits to Licensee’s office incurred by by Licensor’s
representatives requested by Licensee.

ARTICLE 6

WARRANTY PROVISIONS

Warranty of Title

	6.1.	 	Licensor warrants that it has good title to the Software and the right to license its use to
Licensee free of any trademark, copyright, or patent of any other party.

Indemnity

	6.2	(a)	 	 Licensee will promptly notify Licensor of the assertion of any claim that the Software
or Licensee’s use of the Software under this Agreement violates the trade secret, trademark,
copyright, patent, or other proprietary right of any other party, and shall cooperate with
Licensor in the investigation and resolution of any such claim. Licensor shall defend,
indemnify and hold Licensee and the other entities referenced in Section 1.1 and its
and their respective directors, officers, employees and agents harmless from and against all
claims, suits, actions, costs, expenses, damages, judgments, or injunctions or liabilities
incurred by Licensee in connection therewith.
	 
	 	(b)	 	Subject to 6.2(a), if the Software becomes, or is likely to become, the subject of a
claim of infringement, Licensor may procure for Licensee, at no charge to Licensee, the
right to continue using the Software, may replace or modify the Software to render it
noninfringing, or may require that Licensee discontinue use of the Software. In the event
that Licensee must discontinue use of the Software the remedies defined in Section
6.5 of this Agreement shall be available to Licensee.
	 
	 	(c)	 	Licensor shall have no liability for any claim of copyright or patent infringement
based on the use of an original version of the Software if infringement would have been
avoided by the use of an updated version made available to Licensee at no cost to
Licensee.
	 
	 	(d)	 	Licensor shall not indemnify Licensee against any claim or liability based on
Licensee’s modification or conversion of the Software and/or use of the Software in
combination with programs or data not supplied by Licensor if infringement would have been
avoided by not using or combining the Software with other programs or data.

Limited Warranty and Remedies

	6.3.	 	Subject to Section 6.2, Licensor warrants to Licensee that for a period of one (1)
year from the date of installation and Licensee’s acceptance of
the Software; (1) the media
on which the Software is recorded is free from defects in materials and workmanship under
normal use and service; (2) the Software will perform functionally and substantially as
represented and as described in the On-line Help and related documentation (hereinafter
called “Documentation”) provided in accordance with this Agreement; and (3) the Software
program and Documentation are compatible.

Warranty Disclaimer

	6.4	 	THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.

Limitation of Remedies and Liquidated Damages

	6.5	 	LICENSOR AND LICENSEE AGREE THAT THEIR EXCLUSIVE REMEDIES AND ENTIRE LIABILITY WITH RESPECT
TO THE SOFTWARE, IS AS SET FORTH IN THIS AGREEMENT. EXCEPT FOR THE INDEMNITY CONTAINED IN
SECTION 6.2 AND DAMAGES WHICH MAY ARISE FROM VIOLATION OF THE CONFIDENTIALITY
PROVISIONS OF THIS AGREEMENT, IT IS AGREED AND UNDERSTOOD BY THE PARTIES THAT DAMAGES SHALL
BE NO GREATER THAN AN AMOUNT EQUIAL TO THE AGGREGATE AMOUNT OF THE FEES PAID HEREUNDER.
NEITHER PARTY SHALL BE

 

 

	 	 	LIABLE TO PAY THE OTHER, AND NO ARBITRATOR SHALL AWARD,
CONSEQUENTIAL, INDIRECT, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES.

Disclaimer of Reliance

	6.6	 	LICENSEE AGREES THAT THE LICENSOR SHALL NOT BE RESPONSIBLE FOR THE ACCURACY OR INACCURACY OF
ANY INFORMATION CORRECTLY PROVIDED THROUGH OR PROCESSED FROM THE RECORDS OF INFORMATION
RECEIVED THROUGH ELECTRONIC DATA INTERCHANGE (EDI) OR ALTERNATE DATA SOURCES.

ARTICLE 7

TERMINATION

Cause for Termination

	7.1	 	In the event of a material breach or default by either Party which remains uncured for thirty
(30) days after having received written notification detailing such material breach or
default, the non-breaching or non-defaulting party may terminate this Agreement.

Effect of Termination

	7.2	 	Licensee agrees that if the Agreement is terminated because of Licensee’s continued material
breach or default pursuant to Section 7.1, it shall immediately return all copies of
the Software to Licensor, certify to Licensor that it has not retained any copies of the
Software, and acknowledges that it may no longer use the Software. If Licensor continues to
be in material breach or default pursuant to Section 7.1, Licensee shall be entitled
to the remedies provided in Section 6.5, in addition to the right to terminate this
Agreement. In addition, and in such event, Licensee shall have the continuing right to
utilize the Software, without further charge, until such time as Licensor remedies its breach
or default.

ARTICLE 8

SUPPORT AND MAINTENANCE

	8.1	 	Licensor agrees to provide Licensee long-term support and maintenance for the Software.
Maintenance shall include; (1) twenty (20) hours per month of toll free telephone
consultation between the hours of 8 a.m. and 5 p.m. CST. Monday through Friday, excluding
holidays, regarding the use and operation of the Software. Licensee agrees that if Licensor
has to call Licensee and Licensee does not provide Licensor with a toll free telephone number
Licensee will be responsible for the actual costs incurred by Licensor for the call. The
hours shall not be accumulated for use in a future month and any excess hours will be billed
at Licensor’s standard hourly rate; (2) correction of defects that materially affect the
performance of operation features of the Software, and (3) new releases or any modifications
or enhancements to the Software within thirty (30) days of their authorization and general
availability to other customers of Licensor at no additional charge except reasonable media
shipping and handling. Licensee will reasonably limit the number of personnel designated to
request maintenance service under this Agreement. Licensor warrants that all maintenance
services provided to Licensee will be performed in good and workman-like fashion, consistent
with the highest standard of the petroleum software industry.

Initial Maintenance Period

	8.2	 	The Initial Maintenance Period will begin upon the Effective Date of this Agreement and be
in effect for a six (6) month period. Licensor agrees to provide Licensee up to forty (40)
hours of monthly support and maintenance services (as defined in Section 8.1) to
Licensee beginning on the Effective Date and ending ninety (90) days later. After the Initial
Maintenance Period Licensee will be covered under the terms of the standard Software Support
and Maintenance Plan defined in Section 8.1 of this Agreement. The services during
the Initial Maintenance Period will be provided as a part of the Project Fee defined in
Schedule A, of this Agreement.

Maintenance Fee

	8.3	 	Upon a written request by Licensee for Annual Maintenance, the Annual Maintenance Fee will
be billed and payable annually in accordance with
Schedule A, Licensor may implement
a change in the Annual Maintenance Fee subject to the following conditions:

	 	a)	 	Licensor must provide written notice of the increase at least thirty (30) calendar
days prior to the expiration of Annual Maintenance; and

 

 

	 	b)	 	The Annual Maintenance Fee increase shall not exceed five percent (5%) of the prior
year’s Annual Maintenance Fee. Licensor agrees that no increase to the Annual Maintenance
Fee will be made within five (5) years from the execution date of this Agreement. Licensor
further agrees that the Annual Maintenance Fee shall not increase more than one hundred
percent (100%) of the original Annual Maintenance Fee defined in this Agreement during the
term of this Agreement.

	8.4	 	Licensee’s failure to request Annual Maintenance, from time to time, shall in no way limit its
use of the Software.

Disaster Recovery

	8.5	 	Licensor agrees to provide Licensee with Disaster Recovery services to support Licensee’s
continued use of the Software in the event of a hardware failure or natural disaster. Licensor
will host, provide Licensee with secure access to and maintain Licensee’s Software Database
(“Database”) at a mutually acceptable location until such time that Licensee can resume normal
operating capabilities. Licensor and licensee agree that the Disaster Recovery service is
being provided as a part of the Software Support and Maintenance fee defined in Schedule
A of this Agreement. The configuration of the Disaster Recovery functionality will be
provided as a part of the Project Fee defined in Schedule A of this Agreement.
Licensor and Licensee agree that the following terms will be applicable:

	 	a)	 	For this service agreement Licensee must be utilizing the current fixed release
version of Enertia or, if mutually agreed upon, the advanced release version of Enertia.

	 	b)	 	Licensor agrees that upon notification of a disaster by Licensee, Licensor will use
all available resources to enable Licensee to have secure access to the Software and
Licensor’s backup copy of Licensee’s Software Database, hosted on Licensor’s equipment and
utilizing Licensor’s resources. Licensor will use its best efforts to ensure that this
access is available within one (1) business day of notification. Licensor further agrees
to an initial response to Licensee within two (2) hours of receiving a call during normal
business hours.
	 
	 	c)	 	This Disaster Recovery provision is intended to provide a short term disaster recovery
capability only. Licensee agrees to make every reasonable effort within its control to
resolve the disaster situation as quickly as possible. In the event that Licensee is
unable to resolve the situation within fifteen (15) business days. Licensee agrees to pay
Licensor a daily Database hosting fee of $1,000 for each day Licensee utilizes Licensor’s
resources to access its Software Database.

ARTICLE 9

GENERAL PROVISIONS

Assignment

	9.1	 	Licensee may not assign or otherwise transfer any rights under this Agreement to any person
without the prior written consent of Licensor which will not be unreasonably withheld. Any
attempt to make such an assignment without Licensor’s consent shall be void.

Governing Law

	9.2	 	The Parties acknowledge and agree that this Agreement shall be construed pursuant to the laws
of the State of Texas.

Integration

	9.3	 	The Parties acknowledge and agree that this Agreement, along with the attachments, is the
complete and exclusive statement of the mutual understanding of the Parties and that it
supersedes and cancels all previous written and oral agreements and communications relating
to the subject matter of this Agreement.

Notice

	9.4	 	Any notice required or permitted by this Agreement to be given to either Party shall be
deemed to have been given if in writing and delivered personally or mailed by first class,
registered or certified mail, postage prepaid and addressed:

	 	(a)	 	When intended for Licensee to:

           COG Operating LLC

           Attn: Curt F. Kamradt

          Fasken Center, Tower II

          550 West Texas Avenue

          Suite 1300

          Midland, Texas 79701

 

 

Or

	 	(b)	 	When intended for Licensor, to:

          Enertia Software 

          Attn: Kevin E. Schmidt 

          125 W, Missouri Avenue

          Midland, TX 79701

Arbitration

	9.5	 	Any controversy or claim arising out of or relating to this Agreement shall be settled by
binding arbitration conducted in accordance with the Rules of the American Arbitration
Association, strictly in accordance with the terms of this Agreement and the substantive law
of the State of Texas. The arbitration shall be held at Midland, Texas, and shall be
conducted by three arbitrators. At least two of the arbitrators shall be chosen from a panel
of persons knowledgeable in data processing and business information systems, and at least
one of the arbitrators shall be an attorney. Arbitrators will not include anyone who has
ever held a position of employment or representative of either Licensor or Licensee.
Judgment on an award rendered by the arbitrators may be entered and enforced in any court of
competent jurisdiction. Neither Party shall institute a proceeding to enforce the rights
arising from this Agreement until that party has furnished to the other Party, by registered
mail, at least thirty (30) days prior written notice of its intent to do so. The Parties
agree that before commencing arbitration they will meet in a good faith attempt to resolve
any claim or controversy arising hereunder. Additionally, with the agreement of both Parties
hereto, controversies hereunder may be resolved by other alternative resolution methods. It
is the intent of the parties to avoid litigation.

Severability

	9.6	 	If any part of this Agreement shall be prohibited by or invalid under Oklahoma law, such
provision shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this Agreement.

Nonwaiver

	9.7	 	The Parties agree that a waiver of a breach or default under this Agreement shall not
constitute a waiver of any subsequent breach or default. The Parties also agree that no
failure to exercise or delay in exercising any right under this Agreement on the part of
either party shall operate as a waiver of the right.

Force Majeure

	9.8	 	The Parties agree that neither of them shall be in default of this Agreement for any
failure to perform, damages or delay in performance caused by an act of God, civil or
military authority, war, fire, labor strikes, delay in transportation, delay in delivery by
Licensor’s vendors, or other cause beyond its reasonable control.

Amendments

	9.9	 	This Agreement shall be changed, amended or modified only by a written agreement executed
by persons authorized to execute agreements on behalf of the Parties.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of March 29, 2006.

	 	 	 	 	 	 	 	 	 	 	 
	Licensor	 	 	 	Licensee	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Enertech Information Systems, Inc	 	 	 	COG Operating LLC	 	 
	dba Enertia Software	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Kevin E. Schmidt
 

Kevin E. Schmidt
	 	 
	 	By:
	 	/s/ Curt F. Kamradt
 

	 	 
	 

	 	President / CEO
	 	 	 	Name:
	 	Curt F. Kamradt	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Its:
	 	Vice President & Chief Financial Officer	 	 

 

 

Schedule A to the Software License Agreement

Payment Terms

Software
License and Project Fee: $450,000

Licensee
agrees to remit a Software License Fee of $300,000 and a Project Fee
of $150,000 for the
services defined in this Agreement. These services include the Software Training (Section
5.2), Electronic Data Conversion (Section 5.4), Information Technology
(Section 5.5), the Initial Maintenance Period (Section 8.2) and
the Disaster Recovery (Section 8.5) defined in this Agreement. Licensee agrees to remit
the Software License and Project Fee according to the following payment terms:

	 	1)	 	$300,000 due upon the Effective Date of this Agreement
	 
	 	2)	 	$150,000 due May 1, 2006

Annual Maintenance

The Annual Maintenance Fee of $48,000 will be paid annually in advance of the service period
beginning September 1, 2006, which shall be deemed the defined Anniversary Date for the Software
Support and Maintenance Plan.

Training Services

If Licensee requests additional training (beyond that provided pursuant to Section 5.2.),
the services will be billed monthly at the standard per hour rate, currently $150.00.

IT Services

If Licensee requests additional information technology services (beyond that provided pursuant to
Section 5.5), the services will be billed monthly at the standard per hour rate, currently
$150.00.

General Services

Fees for any additional services not contemplated in this Agreement but requested by Licensee and
performed by Licensor pursuant to this Agreement will be billed monthly at the Licensor’s standard
per hour rate, currently $150.00.

Sales and/or Usage Taxes

Licensee agrees to remit any applicable sales and/or usage fees applicable for all software,
hardware and services provided by Licensor. The fees defined in this Agreement do not include any
applicable sales and/or usage taxes for the Software and related services.

Licensee agrees to make prompt payment upon submission of invoices by Licensor.

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