Document:

Exhibit 10.1

 

EXECUTION VERSION

 

PURCHASE AND SALE AGREEMENT

 

BY AND BETWEEN

 

LAREDO PETROLEUM, INC.,

 

LAREDO PETROLEUM TEXAS, LLC AND

 

LAREDO GAS SERVICES, LLC

 

as Sellers

 

AND

 

ENERVEST ENERGY INSTITUTIONAL FUND XII-WIB, L.P.,

 

ENERVEST ENERGY INSTITUTIONAL FUND XII-WIC, L.P.,

 

ENERVEST ENERGY INSTITUTIONAL FUND XII-A, L.P.,

 

ENERVEST ENERGY INSTITUTIONAL FUND XIII-A, L.P.,

 

ENERVEST ENERGY INSTITUTIONAL FUND XIII-WIB, L.P., AND

 

ENERVEST ENERGY INSTITUTIONAL FUND XIII-WIC, L.P.,

 

as Buyers

 

AND ENERVEST OPERATING, L.L.C.,

 

For the limited purpose stated herein

 

Dated May 20, 2013

 

* - Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    
	
Article 1   Definitions and References
    	
1
    
	
 
    	
 
    	
 
    
	
1.1
    	
Certain Defined Terms
    	
1
    
	
1.2
    	
References, Construction and Joint Drafting
    	
13
    
	
 
    	
 
    	
 
    
	
Article 2   PURCHASE AND SALE
    	
13
    
	
 
    	
 
    
	
2.1
    	
Purchase and Sale
    	
14
    
	
2.2
    	
Purchase Price
    	
14
    
	
2.3
    	
Allocation of the Purchase Price
    	
14
    
	
2.4
    	
Adjustments to Purchase Price
    	
16
    
	
2.5
    	
Preliminary Settlement Statement
    	
18
    
	
 
    	
 
    	
 
    
	
Article 3   BUYERS’ INSPECTION; DUE DILIGENCE REVIEW
    	
19
    
	
 
    	
 
    
	
3.1
    	
Due Diligence
    	
19
    
	
3.2
    	
Access to Records
    	
19
    
	
3.3
    	
On-Site Inspection
    	
19
    
	
3.4
    	
Disclaimer
    	
21
    
	
 
    	
 
    	
 
    
	
Article 4   TITLE MATTERS
    	
21
    
	
 
    	
 
    
	
4.1
    	
Sellers’ Title
    	
21
    
	
4.2
    	
Title Defects and Title Benefits
    	
24
    
	
4.3
    	
Title Dispute Resolution
    	
29
    
	
4.4
    	
Preferential Rights and Consents
    	
31
    
	
 
    	
 
    	
 
    
	
Article 5   ENVIRONMENTAL MATTERS
    	
33
    
	
 
    	
 
    
	
5.1
    	
Definitions
    	
33
    
	
5.2
    	
Exclusive Remedy
    	
35
    
	
5.3
    	
Environmental Defects
    	
36
    
	
5.4
    	
NORM, Wastes and Other Substances
    	
39
    
	
 
    	
 
    	
 
    
	
Article 6   SELLERS’ REPRESENTATIONS AND WARRANTIES
    	
40
    
	
 
    	
 
    
	
6.1
    	
Status
    	
40
    
	
6.2
    	
Power
    	
40
    
	
6.3
    	
No Conflicts
    	
40
    
	
6.4
    	
Authorization and Enforceability
    	
40
    
	
6.5
    	
Consents
    	
40
    
	
6.6
    	
Preferential Rights
    	
40
    
	
6.7
    	
Liability for Brokers’ Fees
    	
41
    
	
6.8
    	
Bankruptcy
    	
41
    
	
6.9
    	
Litigation
    	
41
    
	
6.10
    	
Material Agreements
    	
41
    
	
6.11
    	
AFEs
    	
42
    
	
6.12
    	
Taxes
    	
42
    
	
6.13
    	
Tax Partnerships
    	
43
    

 

i

 

	
6.14
    	
Compliance with Law and Government   Authorizations
    	
43
    
	
6.15
    	
Environmental Matters
    	
43
    
	
6.16
    	
Payments for Production; Calls on Production
    	
43
    
	
6.17
    	
Well Status and Abandonments
    	
44
    
	
6.18
    	
Bonds and Credit Support
    	
44
    
	
6.19
    	
Suspense Funds
    	
44
    
	
6.20
    	
Imbalances
    	
44
    
	
6.21
    	
Insurance
    	
44
    
	
6.22
    	
Royalties
    	
44
    
	
 
    	
 
    	
 
    
	
Article 7   BUYER’S AND EVOC’S REPRESENTATIONS AND WARRANTIES
    	
44
    
	
 
    	
 
    
	
7.1
    	
Organization and Standing
    	
44
    
	
7.2
    	
Power
    	
45
    
	
7.3
    	
No Conflicts
    	
45
    
	
7.4
    	
Authorization and Enforceability
    	
45
    
	
7.5
    	
Consent
    	
45
    
	
7.6
    	
Liability for Brokers’ Fees
    	
45
    
	
7.7
    	
Bankruptcy
    	
46
    
	
7.8
    	
Litigation
    	
46
    
	
7.9
    	
Financial Resources and Other Capability
    	
46
    
	
7.10
    	
No Benefit Plan Investor
    	
46
    
	
7.11
    	
Qualifications
    	
46
    
	
7.12
    	
Buyer’s Evaluation
    	
46
    
	
7.13
    	
Securities Law Compliance
    	
47
    
	
 
    	
 
    	
 
    
	
Article 8   COVENANTS AND AGREEMENTS
    	
47
    
	
 
    	
 
    
	
8.1
    	
Covenants and Agreements of Sellers
    	
47
    
	
8.2
    	
Covenants and Agreements of Buyers and EVOC,   as Applicable
    	
49
    
	
8.3
    	
Covenants and Agreements of the Parties
    	
52
    
	
 
    	
 
    	
 
    
	
Article 9 TAX   MATTERS
    	
54
    
	
 
    	
 
    
	
9.1
    	
Asset Tax Liability
    	
54
    
	
9.2
    	
Transfer Taxes
    	
55
    
	
9.3
    	
Asset Tax Returns
    	
55
    
	
9.4
    	
Tax Cooperation
    	
55
    
	
 
    	
 
    	
 
    
	
Article 10   CONDITIONS PRECEDENT TO CLOSING
    	
56
    
	
 
    	
 
    
	
10.1
    	
Conditions to Obligations of Both Parties
    	
56
    
	
10.2
    	
Sellers’ Conditions
    	
56
    
	
10.3
    	
Buyers’ Conditions
    	
57
    
	
 
    	
 
    	
 
    
	
Article 11   RIGHT OF TERMINATION
    	
57
    
	
 
    	
 
    
	
11.1
    	
Termination
    	
57
    
	
11.2
    	
Liabilities Upon Termination
    	
58
    
	
11.3
    	
Return of Documentation and Confidentiality
    	
59
    
	
 
    	
 
    	
 
    
	
Article 12   CLOSING
    	
59
    

 

ii

 

	
12.1
    	
Date of Closing
    	
59
    
	
12.2
    	
Place of Closing
    	
59
    
	
12.3
    	
Closing Obligations
    	
59
    
	
 
    	
 
    	
 
    
	
Article 13   POST-CLOSING OBLIGATIONS
    	
60
    
	
 
    	
 
    
	
13.1
    	
Post-Closing Adjustments
    	
60
    
	
13.2
    	
Records
    	
62
    
	
13.3
    	
Further Assurances
    	
62
    
	
 
    	
 
    	
 
    
	
Article 14   ASSUMPTION AND RETENTION OF OBLIGATIONS AND INDEMNIFICATION; DISCLAIMERS
    	
62
    
	
 
    	
 
    
	
14.1
    	
Buyers’ Assumption of Liabilities and   Obligations
    	
62
    
	
14.2
    	
Indemnification
    	
62
    
	
14.3
    	
Claims Procedure
    	
65
    
	
14.4
    	
Survival of Warranties, Representations and   Covenants
    	
67
    
	
14.5
    	
Reservation as to Non-Parties
    	
68
    
	
14.6
    	
Tax Treatment of Indemnity Payments
    	
68
    
	
 
    	
 
    	
 
    
	
Article 15   MISCELLANEOUS
    	
68
    
	
 
    	
 
    
	
15.1
    	
Schedules and Exhibits
    	
68
    
	
15.2
    	
Expenses
    	
68
    
	
15.3
    	
Notices
    	
68
    
	
15.4
    	
Amendments
    	
69
    
	
15.5
    	
Assignment
    	
69
    
	
15.6
    	
DISCLAIMERS
    	
69
    
	
15.7
    	
Counterparts Signatures
    	
71
    
	
15.8
    	
Governing Law
    	
71
    
	
15.9
    	
Entire Agreement
    	
72
    
	
15.10
    	
Binding Effect
    	
72
    
	
15.11
    	
No Third-Party Beneficiaries
    	
72
    
	
15.12
    	
Dispute Resolution
    	
72
    
	
15.13
    	
Publicity
    	
73
    

 

List of Exhibits

 

	
Exhibit A
    	
 
    	
Leases
    
	
Exhibit B
    	
 
    	
Wells and Allocated Values
    
	
Exhibit C
    	
 
    	
Surface Contracts
    
	
Exhibit D
    	
 
    	
Excluded Assets
    
	
Exhibit E
    	
 
    	
Form of Assignment
    
	
Exhibit F
    	
 
    	
Form of Specified Contracts Assignment   and Assumption
    
	
Exhibit G
    	
 
    	
Form of Certificate of Non-Foreign   Status
    

 

iii

 

List of Schedules

 

	
Schedule 1.1(a)
    	
Buyer’s Knowledge Representatives
    
	
Schedule 1.1(b)
    	
Seller’s Knowledge Representatives
    
	
Schedule 1.1(c)
    	
Specified Contracts
    
	
Schedule 1.1(d)
    	
Hedge Contracts
    
	
Schedule 2.1(a)
    	
Proportionate Shares
    
	
Schedule 2.4(c)
    	
Additional Assets
    
	
Schedule 6.3
    	
Conflicts
    
	
Schedule 6.5
    	
Consents
    
	
Schedule 6.6
    	
Preferential Rights
    
	
Schedule 6.9
    	
Litigation
    
	
Schedule 6.10(a)
    	
Material Agreements
    
	
Schedule 6.10(b)
    	
Material Agreement Matters
    
	
Schedule 6.11
    	
AFEs
    
	
Schedule 6.12
    	
Taxes
    
	
Schedule 6.14
    	
Compliance with Laws and Governmental   Authorizations
    
	
Schedule 6.15
    	
Environmental Matters
    
	
Schedule 6.16(b)
    	
Calls on Production
    
	
Schedule 6.17
    	
Well Status and Abandonments
    
	
Schedule 6.18
    	
Bonds and Credit Support
    
	
Schedule 6.19
    	
Suspense Funds
    
	
Schedule 6.20
    	
Imbalances
    
	
Schedule 6.21
    	
Insurance
    
	
Schedule 6.22
    	
Royalties
    
	
Schedule 8.1
    	
Conduct of Business
    
	
Schedule 8.1(c)
    	
Hedging Transactions
    
	
Schedule 8.3(d)
    	
Available Employees
    

 

iv

 

PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (this “Agreement”), is dated as of the 20th day of May, 2013 (the “Execution Date”), by and between Laredo Petroleum, Inc., a Delaware corporation (“Laredo”), Laredo Petroleum Texas, LLC, a Texas limited liability company (“Laredo Texas”), and Laredo Gas Services, LLC, a Delaware limited liability company (“Laredo Gas Services” and, together with Laredo and Laredo Texas, “Sellers” and each individually, “Seller”), and EnerVest Energy Institutional Fund XII-WIB, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XII-WIC, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XII-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIII-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIII-WIB, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIII-WIC, L.P., a Delaware limited partnership (collectively, “Buyers” and each individually, “Buyer”), and EnerVest Operating, L.L.C., a Delaware limited liability company (“EVOC”) which enters into this Agreement solely for the purposes of providing the referenced representations, warranties and covenants contained herein.  Buyers and Sellers are collectively referred to herein as the “Parties” and each individually as a “Party”.

 

RECITALS

 

WHEREAS, Sellers own certain oil and gas interests and associated assets located in Oklahoma and Texas (collectively, as more fully defined in Section 1.1 the “Assets”); and

 

WHEREAS, Sellers desire to sell, and Buyers desire to purchase, the Assets upon the terms and conditions set forth in this Agreement.

 

NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyers and Sellers agree as follows:

 

ARTICLE 1
 DEFINITIONS AND REFERENCES

 

1.1                               Certain Defined Terms.  Capitalized terms used herein and not otherwise defined herein have the respective meanings assigned to them in this Section 1.1:

 

“AAA” means the American Arbitration Association.

 

“Accounting Expert” has the meaning set forth in Section 13.1(b).

 

“AFE” has the meaning set forth in Section 6.11.

 

“Affected Asset” has the meaning set forth in Section 4.4(b)(1).

 

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by or is under common control with such Person; provided that for purposes of this Agreement, Warburg Pincus LLC and its affiliates and all private equity funds and portfolio companies (other than Sellers) owned or managed by Warburg Pincus LLC or its

 

 

affiliates shall not be deemed to be affiliates of Sellers.  For purposes of the immediately preceding sentence, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

 

“Aggregate Defect Deductible” means * of the unadjusted Purchase Price.

 

“Agreement” has the meaning set forth in the Preamble.

 

“Allocated Value” has the meaning set forth in Section 2.3(a).

 

“Applicable Contracts” means those Contracts to which Sellers are a party or are bound and that will be binding on Buyers or any of the Assets following Closing; provided, however, that such Contracts shall be considered “Applicable Contracts” to the extent, and only to the extent, such Contracts relate solely to the Assets.  For the avoidance of doubt, no Excluded Asset shall be an “Applicable Contract”.

 

“Asset Taxes” means all ad valorem, property, production, excise, severance and all other similar Taxes assessed against the Assets or based on or measured by the value or ownership of the Assets, or the production of Hydrocarbons or the receipt of proceeds therefrom (but, for the avoidance of doubt, shall not include income, franchise or similar Taxes or Subject Transfer Taxes).

 

“Assets” means all of Sellers’ right, title, and interest in and to the following (but specifically excluding the Excluded Assets):

 

(a)                                 (1) those oil, gas and mineral leases and fee mineral interests described in Exhibit A (collectively, the “Leases”), including all leasehold estates, royalty interests, overriding royalty interests, net profits interests, or similar interests associated with such oil, gas and mineral leases and fee mineral interests and (2) the lands covered by the Leases and all lands pooled or unitized with the lands covered by the Leases (collectively, the “Lands”);

 

(b)                                 the Hydrocarbons under the Lands and that may be produced, saved or sold from, or otherwise be allocated or attributed to, the Lands on or after the Effective Time;

 

(c)                                  the oil, gas, water or injection wells located on the Lands, whether producing, shut-in, or temporarily or permanently abandoned, including those described in Exhibit B (the “Wells” and, together with the Leases and Lands, the “Properties”);

 

(d)                                 all equipment, machinery, fixtures and other tangible personal property and improvements located on the Lands or primarily used or primarily held for use (whether on or off the Lands) in connection with the operation of the Properties or the production, gathering, treatment, processing, storage, sale, disposal and other handling of

 

2

 

* - Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

 

 

Hydrocarbons attributable thereto, including any tanks, boilers, buildings, fixtures, injection facilities, saltwater disposal facilities, compression facilities, pumping units and engines, flow lines, pipelines, gathering systems, gas and oil treating facilities, machinery, roads, inventory and other appurtenances, improvements and facilities (all of the foregoing, excluding the Wells, collectively, “Equipment”);

 

(e)                                  to the extent assignable, all surface leases, permits, rights-of-way, licenses, easements and other surface rights agreements primarily used or held for use in connection with the production, gathering, treatment, processing, storage, sale, disposal and other handling of Hydrocarbons or produced water from the Properties, including those described in Exhibit C (collectively, the “Surface Contracts”);

 

(f)                                   to the extent assignable, all existing and effective Applicable Contracts, including purchase contracts, joint operating agreements, exploration agreements, development agreements, unitization agreements, unit operating agreements, balancing agreements, farm-out agreements, service agreements, transportation, processing, treatment or gathering agreements, equipment leases and other contracts, agreements and instruments; and

 

(g)                                  originals (to the extent in Sellers’ possession) or copies of all files, records, and data relating to the Assets described in clauses (a) through (f) above, which records shall include: lease records; well records; division order records; well files; title records (including abstracts of title, title opinions and memoranda, and title curative documents); engineering records; geological and geophysical data (including schematics, proprietary 2D and 3D seismic data and/or assignable seismic data licenses in the possession of Sellers) and all technical evaluations, interpretive data and technical data and information relating to the other Assets; maps; production records; electric logs; core data; pressure data; decline curves and graphical production curves; reserve reports; appraisals, joint interest billing decks and other partner details, lease operating statements and Asset Tax records; provided, however, that (1) those items referenced above in this sub-section (g) that are subject to a valid legal privilege or to disclosure restrictions owing by any Seller to a Third Party, (2) those items referenced above in this sub-section (g) that are not transferable without payment of additional consideration (and Buyers have not agreed in writing to pay such additional consideration), and (3) all e-mails and other electronic files on any Seller’s servers and networks relating to the foregoing items referenced in this sub-section (g) in each case, shall be excluded (the foregoing items, taking into account the exclusions listed above, collectively, the “Records”).

 

“Assignment” has the meaning set forth in Section 12.3(a).

 

“Assumed Liabilities” has the meaning set forth in Section 14.1.

 

“Available Employees” has the meaning set forth in Section 8.3(d).

 

“Business Day” means a day other than a Saturday, Sunday or a day on which commercial banks in Houston, Texas are authorized or required by applicable Law to be closed for business.

 

3

 

“Buyer” or “Buyers” has the meaning set forth in the Preamble.

 

“Buyer Indemnified Parties” has the meaning set forth in Section 14.2(a).

 

“Buyer Taxes” means (a) all Subject Transfer Taxes, (b) all Taxes imposed on or asserted against any Buyer in respect of its business for any taxable period or portion thereof, whether before or after the Closing Date, (c) all Asset Taxes for any taxable period or portion thereof on and after the Effective Time, and (d) all other Taxes to the extent attributable to the obligations of any Buyer hereunder.

 

“Buyer Transaction Costs” means all fees, costs and expenses of any brokers, financial advisors, consultants, accountants, attorneys or other professionals payable by Buyers or EVOC in connection with the structuring, negotiation or consummation of the transactions contemplated by this Agreement.

 

“Buyer’s Knowledge” means the actual knowledge, without any obligation of investigation or inquiry, of those Persons listed on Schedule 1.1(a).

 

“Cap” has the meaning set forth in Section 14.2(c)(2).

 

“Casualty Loss” has the meaning set forth in Section 8.3(b).

 

“Claim” means any claim, demand, cause of action, petition or similar notice.

 

“Claim Notice” has the meaning set forth in Section 14.3(a).

 

“Closing” has the meaning set forth in Section 12.1.

 

“Closing Amount” means the Preliminary Purchase Price, less the Performance Deposit.

 

“Closing Date” has the meaning set forth in Section 12.1.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Condition” has the meaning set forth in Section 5.1(a).

 

“Confidentiality Agreement” means that certain Confidentiality Agreement, dated March 27, 2013, by and between Laredo and EnerVest, Ltd.

 

“Confidential Information” has the meaning set forth in Section 8.2(c).

 

“Consent” has the meaning set forth in Section 6.5.

 

“Contract” means any written or oral contract or agreement, including farm-in and farm-out agreements; participation, exploration and development agreements; crude oil, condensate and natural gas purchase and sale, gathering, transportation and marketing agreements; joint operating agreements; balancing agreements; unitization agreements; unit operating agreements; processing agreements; facilities or equipment leases; and other similar Contracts, but excluding, however, master service agreements and any other blanket contracts, the Surface Contracts, the

 

4

 

Leases and any other instrument creating or evidencing any interest in real property included in Assets.

 

“Control Systems” means equipment, software licenses, communication equipment, computer hardware, computer software, servers, networks, network connections, Distributed Control System (DCS) equipment, Programmable Logic Controllers (PLC) and other associated equipment, to the extent, and only to the extent, the same are used primarily as part of the process control and safety system of the production facilities included in the Assets, including, for the avoidance of doubt, SCADA systems and the supporting equipment required to operate SCADA systems, but excluding any licenses required to be obtained from any Governmental Entity for the operation of any of the foregoing or any software proprietary to any Seller or its Affiliates being used with the Control Systems.

 

“Cure Period” has the meaning set forth in Section 4.2(i).

 

“Customary Post-Closing Consents” means the consents and approvals from Governmental Entities for the assignment of the Assets to another Person that are customarily obtained after the assignment of properties similar to the Assets.

 

“Deductible” has the meaning set forth in Section 14.2(c)(1).

 

“Defect Notice Date” means 5:00 p.m. Tulsa, Oklahoma Time on July 25, 2013.

 

“Defensible Title” has the meaning set forth in Section 4.1(b).

 

“Dispute” means any dispute, claim or controversy of any kind or nature related to, arising under, or connected with this Agreement or the transactions contemplated hereby (including disputes as to the creation, validity, interpretation, breach or termination of this Agreement).

 

“DOJ” means the U.S. Department of Justice.

 

“Due Diligence Period” has the meaning set forth in Section 3.1.

 

“Due Diligence Review” has the meaning set forth in Section 3.1.

 

“Effective Time” means April 1, 2013, at 12:01 a.m. local time where the Assets are located.

 

“Environment” has the meaning set forth in Section 5.1(b).

 

“Environmental Adjustment Amount” has the meaning set forth in Section 5.3(c).

 

“Environmental Assessment” has the meaning set forth in Section 3.3(a).

 

“Environmental Defect” has the meaning set forth in Section 5.1(c).

 

“Environmental Defect Expert” has the meaning set forth in Section 5.3(f).

 

5

 

“Environmental Defect Notice” has the meaning set forth in Section 5.3(a).

 

“Environmental Defect Property” has the meaning set forth in Section 5.3(a).

 

“Environmental Defect Value” has the meaning set forth in Section 5.3(a).

 

“Environmental Disputed Matters” has the meaning set forth in Section 5.3(f).

 

“Environmental Dispute Notice” has the meaning set forth in Section 5.3(f).

 

“Environmental Law” has the meaning set forth in Section 5.1(d).

 

“Environmental Liabilities” has the meaning set forth in Section 5.1(e).

 

“Equipment” has the meaning set forth in Section 1.1 under the defined term “Assets”.

 

“Event” has the meaning set forth in the definition of “Material Adverse Effect”.

 

“EVOC” has the meaning set forth in the Preamble.

 

“Excluded Assets” means (a) (1) all corporate, financial, income, Tax, legal and other records of Sellers that relate to Sellers’ business generally (whether or not relating to the Assets) and (2) all books, files and other records to the extent relating to the Excluded Assets; (b) all rights to any refunds for Taxes or other costs or expenses borne by Sellers or Sellers’ predecessors in interest and attributable to periods prior to the Effective Time in accordance with the principles of Section 9.1; (c)  all production, trade credits, all accounts, receivables, note receivables, take or pay amounts receivable, other receivables, proceeds, income or revenues, deposits, cash, checks in process of collection, cash equivalents and funds attributable to the Assets with respect to any period of time prior to the Effective Time; (d) any refunds due to Sellers by a Third Party for any overpayment of rentals, royalties, production payments or other amounts attributable to the Assets with respect to any period of time prior to the Effective Time; (e) any causes of action, claims, insurance or condemnation proceeds and other rights (including for indemnification and defense) of Sellers to the extent arising prior to the Effective Time; (f) all of Sellers’ motor vehicles, trailers and associated personal property; (g) all of Sellers’ radio equipment and associated licenses, other than the Control Systems; (h) all of Sellers’ computers, computer hardware, software, servers, networks and network connections and associated information technology equipment, other than the Control Systems; (i) all of Sellers’ proprietary technology, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property; (j) any geological, geophysical or seismic data, materials or information, including maps, interpretations, records or other technical information related to or based upon any such data, materials or information, and any other asset, data, materials or information, the transfer of which is restricted or prohibited under the terms of any Third Party license, confidentiality agreement or other agreement or the transfer of which would require the payment of a fee or other consideration to any Third Party; provided, however that if such data, materials or information is transferable upon payment of a fee or other consideration, such data, materials or information shall be transferred to Buyers subject to the payment by Buyers of such fee or other consideration; (k) all Hedge Contracts, except  for any Hedge Contracts relating to Hedging Transactions pursuant to Section 8.1(c), and all proceeds, income or other rights relating thereto;

 

6

 

(l) all accounts, proceeds, refunds, income or revenues attributable to insurance premiums with respect to any period of time prior to the Effective Time; and (m) those Contracts and other assets described on Exhibit D.

 

“Execution Date” has the meaning set forth in the Preamble.

 

“Final Purchase Price” has the meaning set forth in Section 13.1(a).

 

“Final Section 1060 Allocation Schedule” has the meaning set forth in Section 2.3(b).

 

“Final Settlement Date” has the meaning set forth in Section 13.1(a).

 

“Final Settlement Statement” has the meaning set forth in Section 13.1(a).

 

“Final Settlement Statement Due Date” has the meaning set forth in Section 13.1(a).

 

“FTC” means the Federal Trade Commission.

 

“Fundamental Representations” means the representations and warranties of (a) Sellers contained in Section 6.1 (Status), Section 6.2 (Power), Section 6.4 (Authorization and Enforceability) and Section 6.7 (Liability for Brokers’ Fees), and (b) Buyers and/or EVOC, as applicable, contained in Section 7.1 (Organization and Standing), Section 7.2 (Power), Section 7.4 (Authorization and Enforceability), Section 7.6 (Liability for Brokers’ Fees), Section 7.9 (Financial Resources and other Capability), Section 7.11 (Qualification) and Section 7.12 (Buyers’ Evaluation).

 

“GAAP” means generally accepted accounting principles in the United States.

 

“Governing Documents” means the documents governing the formation and internal operation of a Person, including (a) in the instance of a corporation, the articles/certificate of incorporation and bylaws of such corporation, and (b) in the instance of a limited liability company, the certificate of formation and limited liability company agreement of such limited liability company.

 

“Governmental Authorizations” means any federal, state or local governmental license, permit, franchise, order, exemption, variance, waiver, authorization or certificate, or any application therefor.

 

“Governmental Entity” means any instrumentality, subdivision, court, administrative agency, commission, official or other authority of the United States or any other country or any state, province, prefect, municipality, locality or other government or political subdivision thereof, or any quasi-governmental or private body exercising any administrative, executive, judicial, legislative, police, regulatory, taxing, importing or other governmental or quasi-governmental authority.

 

“Hazardous Materials” has the meaning set forth in Section 5.1(f).

 

“Hedge Contracts” means those Contracts listed on Schedule 1.1(d).

 

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“Hedging Transactions” has the meaning set forth in Section 8.1(c).

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“Hydrocarbons” means oil, gas, casinghead gas, coal bed methane, condensate and other gaseous and liquid hydrocarbons or any combination thereof.

 

“Imbalances” means, with respect to the Assets, and subject to the provisions of any balancing or similar agreement burdening such Assets, any imbalance at (a) the wellhead between (1) the amount of Hydrocarbons produced from any of the Wells and allocated to the interests of Sellers therein and (2) the shares of production from the relevant Well to which Sellers were entitled, or (b) the pipeline flange (or inlet flange at a processing plant or similar location) between (1) the amount of Hydrocarbons nominated by or allocated to Sellers and (2) the Hydrocarbons actually delivered on behalf of Sellers.

 

“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person evidenced by notes, bonds, debentures or any other similar debt; (c) all amounts payable by such Person as deferred purchase price for property; (d) all obligations of such Person under any futures, hedge, swap, collar, put, call, floor, cap, option or other similar Contracts that are intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons, securities, foreign exchange rates or interest rates; (e) all obligations of such Person as lessee under leases that are recorded as capital leases in accordance with either the past practices of such Person or GAAP and (f) all guarantees of or by such Person of any of the items described in clauses (a) through (e) hereof.

 

“Indemnified Party” has the meaning set forth in Section 14.3(a).

 

“Indemnifying Party” has the meaning set forth in Section 14.3(a).

 

“Individual Environmental Threshold” has the meaning set forth in Section 5.3(b).

 

“Individual Title Threshold” has the meaning set forth in Section 4.2(f).

 

“Lands” has the meaning set forth in Section 1.1 under the defined term “Assets.”

 

“Law” means any statute, law, principle of common law, rule, regulation, judgment, order, ordinance, requirement, code, writ, injunction, or decree of any Governmental Entity.

 

“Laredo” has the meaning set forth in the Preamble.

 

“Laredo Gas Services” has the meaning set forth in the Preamble.

 

“Laredo Texas” has the meaning set forth in the Preamble.

 

“Leases” has the meaning set forth in Section 1.1 under the defined term “Assets.”

 

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“Lien” means any of the following: mortgage, lien (statutory or other), other security agreement or interest, hypothecation, pledge or other deposit arrangement, charge, levy, executory seizure, attachment, garnishment, encumbrance (including any easement, exception, reservation or limitation), conditional sale, title retention or other similar agreement, preemptive or similar right, or any option; provided, however, that the term “Lien” shall not include any of the foregoing to the extent created by this Agreement.

 

“Losses” has the meaning set forth in Section 14.2.

 

“Material Adverse Effect” means any state of facts, condition, change, event, effect or occurrence (each, an “Event”), when taken together with all other Events, that has a direct, reasonably determinable negative economic impact in excess of *, net of any insurance or reinsurance recoverable, on (a) the ability of Sellers to consummate the transactions contemplated by this Agreement or (b) the ownership or operation condition of the Assets (as currently owned and operated), taken as a whole; provided, however, that none of the following Events shall be deemed to constitute, and none of the following Events shall be taken into account in determining whether there has been, a “Material Adverse Effect”: (1) national, international, regional or local business, economic or political conditions, including the engagement by the United States of America in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States of America or any of its respective territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States of America; (2) events affecting the financial, banking or securities markets (including any disruption thereof or any decline in the price of securities generally or any market or index); (3) conditions (or changes in such conditions) generally affecting the oil and gas and/or gathering, processing or transportation industry whether as a whole or specifically in any area or areas where the Assets are located; (4) increases or decreases in energy, electricity, natural gas and/or oil, or other raw materials or operating costs; (5) changes in prices of Hydrocarbons, including changes in price differentials; (6) Acts of God (including, but not limited to, fire, flood, earthquake, storm, tornado, hurricane or other natural disaster); (7) civil unrest, rebellions, insurrections, riots, lockouts, strikes or any other industrial strife; (8) changes or reinterpretations in GAAP or Law; (9) the taking of any action required by this Agreement; (10) changes as a result of the negotiation, announcement, execution or performance of this Agreement, including by reason of the identity of Buyers or EVOC or any communication by Buyers or any of their Affiliates of their plans or intentions regarding the operation of the Assets; (11) any actions taken or omitted to be taken by or at the request or with the prior written consent of any Buyer or EVOC; (12) effects or changes that are cured or no longer exist by the earlier of the Closing or the termination of this Agreement pursuant to ARTICLE 11; (13) the exercise of a preferential right as to any of the Assets; (14) reclassifications or recalculations of reserves in the ordinary course of business; (15) natural declines in Well performance; or (16) orders, actions or inactions of any Governmental Entity.

 

“Material Agreements” has the meaning set forth in Section 6.10(a).

 

“Net Imbalance” means an amount equal to (a) the sum of all Imbalances attributable to (1) any Seller being underproduced with respect to any Well or (2) having overdelivered with

 

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* - Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

 

 

respect to any pipeline minus (b) the sum of all Imbalances attributable to (1) any Seller being overproduced with respect to any Well or (2) having underdelivered with respect to any pipeline.

 

“Net Mineral Acre” means, as computed separately with respect to each Lease, (a) the number of gross acres in the lands covered by such Lease, multiplied by (b) the undivided percentage interest in oil, gas or other minerals covered by such Lease, as applicable, in such lands, multiplied by (c) the applicable Seller’s Working Interest in such Lease.

 

“Net Revenue Interest” means, with respect to any Person, the interest of such Person in and to the Hydrocarbons produced and saved from, or otherwise attributable to, a Lease or Well, as applicable, after satisfaction of all royalties, overriding royalties, net profits interests and other similar burdens on or measured by production of Hydrocarbons therefrom.

 

“NORM”  has the meaning set forth in Section 5.1(h)

 

“Notice of Defective Interests” has the meaning set forth in Section 4.2(c).

 

“Outside Termination Date” means August 30, 2013.

 

“Party” or “Parties has the meaning set forth in the Preamble.

 

“Per Item Threshold” has the meaning set forth in Section 14.2(c)(1).

 

“Performance Deposit” has the meaning set forth in Section 2.2(b).

 

“Performance Deposit Bank” has the meaning set forth in Section 2.2(b).

 

“Permitted Encumbrances” has the meaning set forth in Section 4.1(c).

 

“Person” means any individual or entity, including any corporation, limited liability company, partnership (general or limited), joint venture, association, joint stock company, trust, unincorporated organization or Governmental Entity.

 

“Phase I Environmental Site Assessment” means an environmental site assessment performed pursuant to the American Society for Testing and Materials E1527 - 05, or any similar environmental assessment.

 

“Plugging and Abandonment Obligations” has the meaning set forth in Section 5.1(h).

 

“Policies” has the meaning set forth in Section 6.21.

 

“Preferential Right” has the meaning set forth in Section 6.6.

 

“Preliminary Purchase Price” has the meaning set forth in Section 2.5.

 

“Preliminary Settlement Statement” has the meaning set forth in Section 2.5.

 

“Properties” has the meaning set forth in Section 1.1 under the defined term “Assets.”

 

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“Property Expenses” has the meaning set forth in Section 2.4(b).

 

“Property Taxes” has the meaning set forth in Section 9.1.

 

“Property Valuation Expert” has the meaning set forth in Section 2.3(b).

 

“Proportionate Share” has the meaning set forth in Section 2.1(a).

 

“Proposed Section 1060 Allocation Schedule” has the meaning set forth in Section 2.3(b).

 

“Purchase Price” has the meaning set forth in Section 2.2.

 

“Records” has the meaning set forth in Section 1.1 under the defined term “Assets.”

 

“Remediation” or “Remediate” has the meaning set forth in Section 5.1(i).

 

“Representatives” means, with respect to each Party, such Party’s Affiliates and such Party’s and such Party’s Affiliates’ respective directors, officers, members, employees, agents, brokers, accountants, consultants, financial advisors, counsel, financing sources and other representatives.

 

“Rules” has the meaning set forth in Section 15.12.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Seller” or “Sellers” has the meaning set forth in the Preamble.

 

“Seller Indemnified Parties” has the meaning set forth in Section 14.2(b).

 

“Seller Taxes” means (a) all Taxes (other than Asset Taxes and Subject Transfer Taxes) imposed on or asserted against any Seller in respect of its business or the disposition of the Assets for any taxable period or portion thereof, whether before or after the Closing Date, (b) all Asset Taxes for any taxable period or portion thereof ending immediately prior to the Effective Time, and (c) all other Taxes to the extent attributable to the obligations of any Seller hereunder.

 

“Seller Transaction Costs” means all fees, costs and expenses of any brokers, financial advisors, consultants, accountants, attorneys or other professionals payable by Sellers in connection with the structuring, negotiation or consummation of the transactions contemplated by this Agreement.

 

“Seller’s Knowledge” means the actual knowledge, without any obligation of investigation or inquiry, of the Persons listed on Schedule 1.1(b).

 

“Specified Contracts” means those Applicable Contracts listed on Schedule 1.1(c).

 

“Subject Transfer Taxes” has the meaning set forth in Section 9.2.

 

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“Surface Contracts” has the meaning set forth in Section 1.1 under the defined term “Assets.”

 

“Tax” means (a) any taxes and assessments imposed by any Governmental Entity, including net income, gross income, profits, gross receipts, license, employment, stamp, occupation, premium, alternative or add-on minimum, ad valorem, real property, personal property, transfer, real property transfer, value added, sales, use, environmental (including taxes under Code Section 59A), customs, duties, capital stock, franchise, excise, withholding, social security (or similar), unemployment, disability, payroll, fuel, excess profits, windfall profit, severance, estimated or other tax, including any interest, penalty or addition thereto, whether disputed or not, and any expenses incurred in connection with the determination, settlement or litigation of the Tax liability, (b) any obligations to indemnify any other Person under any agreements or arrangements with respect to Taxes described in clause (a) above, and (c) any transferee liability in respect of Taxes described in clauses (a) and (b) above or payable by reason of assumption, transferee liability, operation of Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law) or otherwise.

 

“Tax Partnership” has the meaning set forth in Section 6.13.

 

“Tax Proceeding” has the meaning set forth in Section 9.3.

 

“Tax Return” means any return, report or similar statement required to be filed with respect to any Taxes (including any attached schedules), including any information return, claim for refund, amended return and declaration of estimated Tax.

 

“Third Party” means any Person other than the Parties and their respective Affiliates.

 

“Third Party Claim” has the meaning set forth in Section 14.3(b).

 

“Third Party Proprietary Data” means all geological, geophysical, technical and other proprietary data and information, including as may be covered by any patent or other intellectual property right, that is owned or otherwise held by a Third Party and licensed to any Seller, with no rights to transfer or disclose same to Buyers.

 

“Title Adjustment Amount” has the meaning set forth in Section 4.2(h).

 

“Title Benefit” has the meaning set forth in Section 4.2(b).

 

“Title Benefit Amount” has the meaning set forth in Section 4.2(g).

 

“Title Benefit Notice” has the meaning set forth in Section 4.2(d).

 

“Title Benefit Property” has the meaning set forth in Section 4.2(d).

 

“Title Defect” has the meaning set forth in Section 4.2(a).

 

“Title Defect Amount” has the meaning set forth in Section 4.2(e).

 

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“Title Defect Expert” has the meaning set forth in Section 4.3(a).

 

“Title Defect Property” has the meaning set forth in Section 4.2(c).

 

“Title Dispute Notice” has the meaning set forth in Section 4.3.

 

“Title Disputed Matter” has the meaning set forth in Section 4.3.

 

“Transaction Documents” has the meaning set forth in Section 15.9.

 

“Wells” has the meaning set forth in Section 1.1 under the defined term “Assets.”

 

“Working Interest” means, with respect to any Person, the percentage of the costs and expenses to be borne by such Person for the maintenance, development and operation of a Lease or Well without regard to the effect of any and all royalties, overriding royalties, net profits interests and other similar burdens on or measured by production.

 

1.2                               References, Construction and Joint Drafting.

 

(a)                                 References and Construction.  When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference will be to an Article, Section, Exhibit or Schedule to this Agreement unless otherwise indicated.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.”  Unless the context otherwise requires, (1) words, terms and titles (including terms defined herein) in the singular include the plural and vice versa, (2) the words “herein,” “hereof,” “hereby,” “hereunder” and words of similar nature refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited, (3) the words “this Article,” “this Section” and “this subsection,” and words of similar import, refer only to the Article, Section or subsection hereof in which such words occur, (4) each accounting term not defined herein will have the meaning given to it under GAAP, (5) the use in this Agreement of a pronoun in reference to a Party includes the masculine, feminine or neuter, as the context may require, (6) all references to “$” shall be deemed references to United States Dollars, (7) the headings of the Articles and Sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement, (8) the words “shall” and “will” are used interchangeably throughout this Agreement and shall accordingly be given the same meaning, regardless of which word is used, and (9) except as expressly provided otherwise in this Agreement, references to any Law or agreement means such Law or agreement as it may be amended from time to time.

 

(b)                                 Joint Drafting.  The Parties have participated jointly in negotiating and drafting this Agreement.  In the event that an ambiguity or a question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties, and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.

 

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ARTICLE 2
 PURCHASE AND SALE

 

2.1                               Purchase and Sale.

 

(a)                                 Subject to the terms and conditions of this Agreement, Buyers agree to purchase from Sellers at Closing their respective undivided proportionate interests set forth opposite each Buyer’s name in Schedule 2.1(a) hereto (each Buyer’s “Proportionate Share”), and Sellers agree to sell, assign and deliver to Buyers, in their respective Proportionate Shares, at Closing, the Assets for the consideration specified in this ARTICLE 2.

 

(b)                                 Sellers shall retain all of the Excluded Assets.

 

2.2                               Purchase Price(a)   .

 

(a)                                 The unadjusted purchase price for the Assets shall be $438,000,000.00 (the “Purchase Price”).

 

(b)                                 On or before the date that is three (3) Business Days following the Execution Date, Buyers shall pay, by wire transfer of immediately available funds to a joint signature bank account, with Wells Fargo Bank, National Association (the “Performance Deposit Bank”), to be established by Sellers and Buyers, $40,000,000.00 (the “Performance Deposit”).  The Performance Deposit shall be held and distributed by the Performance Deposit Bank in order to secure Buyers’ performance of this Agreement.  Subject to Section 11.2(b) and Section 11.2(c), all interest earned on the Performance Deposit shall be credited against the Purchase Price.

 

(c)                                  At Closing, Buyers shall pay to Sellers the Closing Amount by wire transfer of immediately available funds to Sellers’ designated account.

 

(d)                                 After Closing, final adjustments to the Purchase Price shall be made (1) pursuant to the Final Settlement Statement to be delivered pursuant to Section 13.1(a) and the payments made by the owing Party as provided in Section 13.1(a), and (2) upon final resolution of any Title Disputed Matters and any Environmental Disputed Matters, in accordance with ARTICLE 4 and Article 5, respectively.

 

2.3                               Allocation of the Purchase Price.

 

(a)                                 On or prior to the Execution Date and solely for the purposes of ARTICLE 4 and Article 5, Buyers and Sellers have agreed upon an allocation of the Purchase Price among (1) the Leases as set forth on Exhibit A, (2) the Wells as set forth on Exhibit B, (3) the Assets owned by Laredo Gas Services and (4) the Assets not allocated pursuant to (1)-(3) above as such amounts are listed on Exhibit B (collectively, the “Allocated Values”).

 

(b)                                 Sellers may (but are not obligated to) prepare an allocation of the Purchase Price on a schedule (the “Proposed Section 1060 Allocation Schedule”) for purposes of, and in accordance with, Section 1060 of the Code and the regulations promulgated thereunder, within 30 days after the Final Settlement Date.  Within 60 days after delivery of such Proposed Section 1060 Allocation Schedule, if so prepared by Sellers in accordance with the preceding sentence, Buyers and Sellers shall reasonably endeavor to agree to a final

 

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allocation schedule to be used for income Tax reporting purposes (the “Final Section 1060 Allocation Schedule”); provided that if the Parties are unable to reach agreement within such 60-day period, then, immediately after the expiration of such period, either Party may invoke the Dispute resolution provisions immediately below upon the delivery of written notice thereof to the other Party and, within ten days thereafter, the Parties shall mutually appoint an independent expert having the qualifications specified below (the “Property Valuation Expert”), failing which the Parties shall, within ten days after the expiration of such foregoing ten day period, request that the AAA, acting through its offices in Houston, Texas, appoint the Property Valuation Expert.  The Property Valuation Expert shall be a licensed petroleum engineer, having a minimum of ten years’ experience with regard to the types of oil and assets involved in the Proposed Section 1060 Allocation Schedule Dispute, shall be without any conflicts of interest as to the Parties, and shall not have been employed by or undertaken more than $50,000 of work, in the aggregate, for any Party (including its Affiliates) within the five year period preceding the submission of the Dispute.  Within 15 days following the appointment of the Property Valuation Expert, Sellers shall provide the Property Valuation Expert with a copy of this Agreement, and each Party shall provide, both to the Property Valuation Expert and to each other, a summary of its position with regard to the Proposed Section 1060 Allocation Schedule in a written document of ten pages or less.  The Parties shall instruct the Property Valuation Expert that, within 30 days after receiving the Parties’ respective submissions, the Property Valuation Expert shall render a written decision, choosing only either Buyers’ position or Sellers’ position with respect to each Disputed matter.  Any decision rendered by the Property Valuation Expert pursuant hereto shall be final, conclusive and binding on Sellers and Buyers, and will be enforceable against each Party in any court having jurisdiction hereof, but is not reviewable by, or appealable to, any court except in the event of fraud.  The Parties shall each bear one-half of the costs of the Property Valuation Expert and of the associated Dispute resolution process and proceedings.  In the case of such a Dispute resolution process regarding Sellers’ Proposed Section 1060 Allocation Schedule Dispute, Sellers will issue the Final Section 1060 Allocation Schedule consistent with the Property Valuation Expert’s decision, within 30 days after receiving the Property Valuation Expert’s decision with respect thereto.  For the avoidance of doubt, the Property Valuation Expert will function as an expert in accordance with the foregoing procedure, not as an arbitrator.  Sellers and Buyers shall file all Tax Returns (including Internal Revenue Service Form 8594) consistent with any such Final Section 1060 Allocation Schedule.  Sellers and Buyers shall take no position inconsistent with such allocations on any applicable Tax Return in any audit by or proceeding before any Governmental Entity related to Taxes, unless required by Law or with the written consent of the other Party (not to be unreasonably withheld, delayed or conditioned) provided, however, that nothing contained herein shall prevent Buyers or Sellers from settling any proposed deficiency or adjustment by any Governmental Entity based upon or arising out of the allocation, and neither Buyers nor Sellers shall be required to litigate before any court any proposed deficiency or adjustment by any Governmental Entity challenging such allocation.  In the event that the allocation described herein is disputed by any Governmental Entity, then the Party receiving notice of the dispute shall promptly notify, consult with and obtain the consent (not to be unreasonably withheld, conditioned or delayed) of the other Party concerning resolution of the dispute.  If either (i) Sellers fail to deliver to Buyers a Proposed Section 1060 Allocation Schedule within 30 days after the Final Settlement Date or (ii) a Final Section 1060 Allocation Schedule is not agreed by the Parties (or otherwise determined by a Dispute resolution process

 

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in accordance with the foregoing provisions of this Section 2.3(b)), then each Party shall be responsible for its reporting requirements under Code Section 1060 and any other provisions that may apply; provided that the Parties shall reasonably coordinate with each other regarding any such filings, in order to avoid any material inconsistencies.

 

2.4                               Adjustments to Purchase Price.  The Purchase Price shall be adjusted according to this Section 2.4 without duplication.  For purposes of determining the amounts of the adjustments to the Purchase Price provided for in this Section 2.4, the principles set forth in Section 2.4(a) shall apply.

 

(a)                                 Proration of Costs and Revenues.

 

(1)                                 Buyers shall be (A) entitled to (i) all production of Hydrocarbons from or attributable to the Properties from and after the Effective Time (and all products and proceeds attributable thereto), and (ii) excluding overhead charges arising under applicable joint operating agreements, administrative orders or other legal authority related to those Assets operated by Sellers that are earned prior to Closing, all other income, proceeds, receipts and credits earned with respect to the Assets from and after the Effective Time, and (B) responsible for (and entitled to any refunds with respect to) all Property Expenses incurred from and after the Effective Time.

 

(2)                                 Sellers shall be (A) entitled to (i) all production of Hydrocarbons from or attributable to the Properties prior to the Effective Time (and all products and proceeds attributable thereto), (ii) all other income, proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time, and (iii) all overhead charges arising under applicable joint operating agreements, administrative orders or other legal authority related to the Assets operated by any Seller that are earned prior to Closing, and (B) responsible for (and entitled to any refunds with respect to) all Property Expenses incurred prior to the Effective Time.

 

(3)                                 “Earned” and “incurred”, as used in this Agreement shall be interpreted in accordance with GAAP and Council of Petroleum Accountants Society standards, except as otherwise specified herein.

 

(4)                                 Sellers have caused the Hydrocarbons in the storage facilities located on, or utilized in connection with, the Leases to be measured, gauged or strapped as of the Effective Time.  For purposes of allocating production (and proceeds and accounts receivable with respect thereto) under this Section 2.4, (A) liquid Hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the pipeline connecting into the storage facilities into which they are run and (B) gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the royalty measurement meters, delivery point sales meters or custody transfer meters on the gathering lines or pipelines through which they are transported (whichever meter is closest to the well).  Sellers shall utilize reasonable interpolative procedures, consistent with industry practice, to arrive at an allocation of production when exact meter readings or gauging and strapping data are not available.

 

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(b)                                 Property Expenses.  The term “Property Expenses” means all (1) capital expenses attributable to the Assets in the ordinary course of business, (2) Asset Taxes (as apportioned as of the Effective Time pursuant to ARTICLE 9), (3) operating expenses incurred in the ownership, development, operation and production of the Assets in the ordinary course of business and, where applicable, in accordance with any relevant joint operating agreement (including lease rentals, if any), (4) overhead costs charged to the Assets under the applicable joint operating agreement, administrative order or other legal authority and (5) extension and renewal payments with respect to the Leases.

 

(c)                                  Upward Adjustments.  To calculate the Preliminary Purchase Price and the Final Purchase Price, the Purchase Price shall be adjusted upward, without duplication, by the following:

 

(1)                                 an amount equal to any proceeds received by Buyers (net of royalties, overriding royalties, net profit interests and other similar burdens on or measured by production) from the sale of any Hydrocarbons that were produced from and saved, or attributable to, the Assets prior to the Effective Time;

 

(2)                                 an amount equal to the cost of all additional Assets listed on Schedule 2.4(c) and Leases acquired after the Effective Time;

 

(3)                                 an amount equal to all Property Expenses and all royalties, overriding royalties, net profit interests and similar burdens on or measured by production, in each case, attributable to the Assets from and after the Effective Time that were paid by any Seller;

 

(4)                                 an amount equal to the value of all Hydrocarbons that were produced and saved from, or attributable to, the Assets that are in storage or existing in stock tanks, pipelines and/or plants (including inventory) as of the Effective Time, such value to be based upon the applicable Contract price in effect as of the Effective Time (or if there is no Contract price, then the market price in effect as of the Effective Time in the field in which such Hydrocarbons were produced), net of (A) all amounts payable as royalties, overriding royalties, net profit interests and other similar burdens on or measured by production and (B) all applicable severance Taxes;

 

(5)                                 an amount equal to all prepaid expenses (including pre-paid bonuses, rentals, cash calls and advances to Third Party operators for expenses not yet incurred, prepaid Taxes, and scheduled payments) paid by any Seller and attributable to the ownership or operation of the Assets from and after the Effective Time;

 

(6)                                 an amount equal to the Subject Transfer Taxes paid by any Seller with respect to the transactions contemplated by this Agreement;

 

(7)                                 with respect to those Assets operated by any Seller, an amount equal to all overhead charges arising under applicable joint operating agreements, administrative orders or other legal authority that are (A) attributable to such Seller operated Assets and the period of time prior to Closing and (B) which have been paid by Third Parties and received by any Buyer;

 

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(8)                                 with respect to natural gas, if the Net Imbalance is positive, an amount equal to (A) the Net Imbalance, multiplied by (B) $2.55 per Mmbtu; and

 

(9)                                 any other amount provided for in this Agreement or otherwise agreed to in writing by Buyers and Sellers.

 

(d)                                 Downward Adjustments.  To calculate the Preliminary Purchase Price and the Final Purchase Price, the Purchase Price shall be adjusted downward, without duplication, by the following:

 

(1)                                 subject to Section 4.2(f), an amount equal to the Title Adjustment Amount attributable to Title Defects for which Sellers have chosen the remedy set forth in Section 4.2(j)(1);

 

(2)                                 subject to Section 5.3(b), an amount equal to the Environmental Adjustment Amount attributable to Environmental Defects, if any, for which Sellers have chosen the remedy set forth in Section 5.3(e)(1);

 

(3)                                 an amount equal to the Allocated Value (without duplication) of those Assets not transferred at Closing in accordance with Section 4.2(j)(2), Section 4.4(a), Section 4.4(b) or Section 5.3(e)(3);

 

(4)                                 an amount equal to all proceeds received by Sellers (net of royalties, overriding royalties, net profit interests and similar burdens on or measured by production and Asset Taxes), from the sale of any Hydrocarbons produced and saved from, or attributable to, the Assets from and after the Effective Time;

 

(5)                                 an amount equal to the value of any Casualty Loss pursuant to Section 8.3(b);

 

(6)                                 with respect to natural gas, if the Net Imbalance is negative, an amount equal to (i) the absolute value of the Net Imbalance, multiplied by (ii) $2.55 per Mmbtu;

 

(7)                                 an amount equal to all Property Expenses and all royalties, overriding royalties, net profit interests and similar burdens on or measured by production, in each case, attributable to the Assets prior to the Effective Time that were paid by Buyers;

 

(8)                                 all funds held in suspense by Sellers with respect to the operation, ownership, production and developments of the Assets, including those amounts set forth in Schedule 6.19; and

 

(9)                                 any other amount provided in this Agreement or otherwise agreed to in writing by Buyers and Sellers.

 

2.5                               Preliminary Settlement Statement.  On or before the day that is two Business Days prior to Closing, Sellers shall deliver to Buyers a statement (the “Preliminary Settlement

 

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Statement”) setting forth Sellers’ calculations of the adjustments to the Purchase Price set forth in Section 2.4 (the Purchase Price, as so adjusted “Preliminary Purchase Price”), the resulting Preliminary Purchase Price and the Closing Amount, in each case, prepared in good faith using the best information reasonably available to Sellers at the Closing Date, along with such data in Sellers’ possession as is reasonably necessary to support such calculations.  The Preliminary Settlement Statement also shall set forth Sellers’ designated account for purposes of Buyers’ payment of the Closing Amount.  The Parties shall attempt to agree in writing upon the Preliminary Purchase Price prior to Closing, and in the event the Parties cannot agree upon the Preliminary Purchase Price prior to Closing, Sellers’ calculation of the Preliminary Purchase Price and the Closing Amount as reasonably calculated and as set forth in the Preliminary Settlement Statement shall be used by the Parties for purposes of Closing.

 

ARTICLE 3
 BUYERS’ INSPECTION; DUE DILIGENCE REVIEW

 

3.1                               Due Diligence.  Subject to the provisions of this ARTICLE 3, from and after the Execution Date up to the Defect Notice Date (the “Due Diligence Period”), Sellers will make the Assets available to Buyers and their Representatives for inspection and review to permit Buyers, at Buyers’ sole cost and risk, to perform its due diligence with respect to the Assets (the “Due Diligence Review”).

 

3.2                               Access to Records.  For purposes of the Due Diligence Review, to the extent the Records are in Sellers’ possession or actual control and are not (a) Excluded Assets or (b) subject to (1) a valid legal privilege or (2) disclosure or transfer restrictions owing by any Seller to a Third Party, Sellers will, upon reasonable (being no less than three Business Days’) advance notice from Buyers, make the Records available to Buyers for inspection or copying, at Buyers’ sole cost and expense, at the offices of Sellers located in Tulsa, Oklahoma during normal business hours.  For the avoidance of doubt, any and all such Records inspected and/or copied by Buyers pursuant to this Section 3.2 remain subject to the provisions of Section 8.2(c). Buyers shall not, during the Due Diligence Period, contact any of the customers or suppliers of any Seller, or Working Interest co-owners of any Seller, operators, lessors or surface interest owners, in connection with the transactions contemplated hereby, whether in person or by telephone, mail or other means of communication, without the specific prior written consent of such Seller, which consent shall not be unreasonably withheld.

 

3.3                               On-Site Inspection.

 

(a)                                 Sellers hereby consent to Buyers conducting, during the Due Diligence Period and for purposes of the Due Diligence Review, upon reasonable (being no less than three Business Days) advance notice to Sellers and at Buyers’ sole risk and expense, on-site inspections of the Assets and a Phase I Environmental Site Assessment (each such inspection or assessment, an “Environmental Assessment”); provided, however, that any Third Party engaged by Buyers to perform all or any portion of such Environmental Assessment shall be subject to Sellers’ prior approval; provided, further, that (1) any such Environmental Assessment will be subject to Section 8.2(c) and (2) if the consent of any Third Party is required to provide Buyers such access, and such consent is not granted following the commercially reasonable efforts of Sellers, Buyers shall not have access to such Assets.  Buyers shall not

 

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conduct any sampling, boring or other invasive activities without prior written notice to, and the written consent of, Sellers.  In connection with any Environmental Assessment or other inspection pursuant to this Section 3.3, Buyers agree to comply with all safety policies and other requirements of Sellers and the operator of the Assets (whether such operator is a Seller, an Affiliate of a Seller or a Third Party).  Buyers shall coordinate its access rights and Environmental Assessments of the Assets with Sellers and any Third Party operator of the Assets to reasonably minimize any inconvenience to or interruption of the conduct of business by Sellers or any such Third Party operator of the Assets.

 

(b)                                 If Buyers or any of their Representatives prepare a written report with respect to any Environmental Assessment, Buyers will furnish a copy thereof to Sellers as soon as practicable following the receipt thereof by Buyers, and in any event by the Defect Notice Date.  The Parties shall maintain the confidentiality of any Environmental Assessments conducted hereunder, and any reports created with respect thereto, unless and only to the extent disclosure of the same is required by a Governmental Entity; provided that Buyers’ obligations with respect to such confidentiality shall cease upon the Closing.

 

(c)                                  During all times during the Due Diligence Period that Buyers and/or any of their Representatives are on the Assets or conducting Buyers’ Due Diligence Review of the Records, Buyers shall maintain, at their sole expense and with insurers reasonably satisfactory to Sellers, policies of insurance of the types and in the amounts reasonably satisfactory to Sellers.  Coverage under all insurance required to be carried by Buyers hereunder will (1) be primary insurance, (2) include the Seller Indemnified Parties as additional insureds, (3) waive subrogation against the Seller Indemnified Parties and (4) provide for five days prior notice to Sellers in the event of cancellation or modification of the policy or reduction in coverage.  Buyers shall provide evidence of such insurance to Sellers prior to entering the Assets.

 

(d)                                 EXCEPT TO THE EXTENT CAUSED BY THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE SELLER INDEMNIFIED PARTIES, BUYERS HEREBY WAIVE, RELEASE AND AGREE TO DEFEND, INDEMNIFY AND HOLD HARMLESS SELLERS AND THE OTHER SELLER INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES ARISING IN ANY WAY OUT OF OR ATTRIBUTABLE TO THE ACCESS AFFORDED TO BUYERS AND THEIR REPRESENTATIVES PURSUANT TO THIS ARTICLE 3 OR THE ACTIVITIES (OR ACTS OF OMISSION) OF BUYERS OR THEIR REPRESENTATIVES RELATED TO SUCH ACCESS, INCLUDING WITH RESPECT TO ANY ENVIRONMENTAL ASSESSMENT (BUT NOT INCLUDING LOSSES INCURRED BY BUYERS AFTER CLOSING RELATING TO ANY CONDITION DISCOVERED AS A RESULT OF SUCH ENVIRONMENTAL ASSESSMENT), IN EACH CASE, EVEN IF SUCH LOSSES ARISE OUT OF OR ARE ATTRIBUTABLE TO, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE SELLER INDEMNIFIED PARTIES.

 

(e)                                  Upon completion of any Environmental Assessment, Buyers shall, at their sole cost and expense and without any cost or expense to Sellers or their Affiliates (1) repair all physical damage, if any, done to the Assets or to the Environment in connection with

 

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the Environmental Assessment, (2) restore each Asset to the approximate same physical condition that it was in prior to commencement of the Environmental Assessment and (3) remove all equipment, tools or other property brought onto, and any wastes generated on, the Assets in connection with the Environmental Assessment.  Any disturbance to the Assets (including the real property associated with the Assets) resulting from the Environmental Assessment will be promptly corrected by Buyers.

 

3.4                               Disclaimer.  EXCEPT FOR THE SPECIFIC REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6 SELLERS MAKE NO, AND DISCLAIM ALL, WARRANTIES OR REPRESENTATIONS OF ANY KIND AS TO ANY INFORMATION OBTAINED BY BUYERS OR THEIR REPRESENTATIVES PURSUANT TO THIS ARTICLE 3, INCLUDING THE RECORDS AND ANY INFORMATION CONTAINED THEREIN.  BUYERS AGREE THAT ANY CONCLUSIONS DRAWN FROM, OR ANY ACTIONS (OR INACTIONS) OF BUYERS FOLLOWING, THEIR DUE DILIGENCE REVIEW SHALL BE THE RESULT OF THEIR OWN INDEPENDENT REVIEW AND JUDGMENT AND SHALL BE AT BUYERS’ SOLE RISK AND LIABILITY.

 

ARTICLE 4
 TITLE MATTERS

 

4.1                               Sellers’ Title.

 

(a)                                 Exclusive Remedy.  Other than Buyers’ remedies for breaches of Sections 8.1(b)(1) or Section 8.1(b)(3), Buyers’ rights under Section 4.1, Section 4.2 and Section 4.3 shall be the sole and exclusive rights and remedies of Buyers with respect to any Seller’s failure to have Defensible Title with respect to the Assets or any other title matter with respect to the Assets.  OTHER THAN THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, SELLERS MAKE NO, AND DISCLAIM ALL, WARRANTIES OR REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THEIR TITLE TO THE PROPERTIES AND OTHER ASSETS; AND BUYERS HEREBY ACKNOWLEDGE AND AGREE THAT BUYERS’ SOLE AND EXCLUSIVE REMEDY FOR ANY DEFECT OF TITLE WITH RESPECT TO THE PROPERTIES AND OTHER ASSETS (OTHER THAN FOR BREACHES OF SECTIONS 8.1(b)(1) OR SECTION 8.1(b)(3)), INCLUDING ANY TITLE DEFECT, SHALL BE AS PROVIDED FOR IN SECTION 4.1, SECTION 4.2, SECTION 4.3 AND THE SPECIAL WARRANTY OF TITLE SET FORTH IN THE ASSIGNMENT.

 

(b)                                 Defensible Title.  The term “Defensible Title” means such title of Sellers to the Properties immediately prior to the Effective Time that, subject to and except for Permitted Encumbrances:

 

(1)                                 in the case of any Lease (subject and defined, for all purposes under this ARTICLE 4, on Exhibit A) or any Well (subject and defined, for all purposes under this ARTICLE 4, to any limitation as to the formations(s) owned under the heading “Formation Owned” on Exhibit B), entitles any Seller to receive a Net Revenue Interest throughout the productive life of each Lease or Well of not less than the Net Revenue Interest shown in Exhibit B for such Lease or Well, except (A) as otherwise specifically

 

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set forth in Exhibit B, (B) for decreases in connection with those operations from and after the Effective Date in which such Seller may be a non-consenting co-owner, (C) for decreases resulting from the establishment or amendment of pools or units occurring in the ordinary course of business from and after the Execution Date and (D) for decreases required under controlling agreements or applicable Law to allow other Working Interest owners to make up past underproduction or pipelines to make up past underdeliveries;

 

(2)                                 in the case of any Lease or Well, obligates any Seller to bear a Working Interest throughout the productive life of such Lease or Well not greater than the Working Interest shown in Exhibit B for such Lease or Well, without increase, except (A) as otherwise specifically set forth in Exhibit B, (B) for increases to the extent that they are accompanied by at least a proportionate increase in such Seller’s Net Revenue Interest with respect to such Lease or Well and (C) for increases resulting from contribution requirements with respect to defaults or non-consent elections by co-owners under the applicable joint operating agreements; and

 

(3)                                 is free and clear of Liens.

 

(c)                                  Permitted Encumbrances.  The term “Permitted Encumbrances” means any and all of the following:

 

(1)                                 lessors’ royalties, overriding royalties, net profits interests, production payments, reversionary interests and similar burdens on or measured by production if the net cumulative effect of such burdens does not operate to: (A) reduce the Net Revenue Interest for any Lease or Well below the Net Revenue Interest set forth on Exhibit B; or (B) obligate a Seller to bear a Working Interest with respect to any Lease or Well greater than the Working Interest set forth on Exhibit B with respect to such Lease or Well (unless the Net Revenue Interest with respect to such Lease or Well is greater than the Net Revenue Interest set forth in Exhibit B in the same or greater proportion as any increase in such Working Interest);

 

(2)                                 preferential rights to purchase the Assets or similar rights;

 

(3)                                 Liens for Taxes that are not yet due and payable or that are being contested in good faith in the normal course of business;

 

(4)                                 all rights to consent by, required notices to, filings with, or other actions by Governmental Entities or other Persons in connection with the transfer of the Assets or the transactions contemplated hereby;

 

(5)                                 excepting circumstances where such rights have already been triggered, rights of reassignment upon final intention to surrender or abandon any Asset;

 

(6)                                 easements, rights-of-way, servitudes, permits, surface leases and other rights with respect to surface operations, pipelines, grazing, logging, canals, ditches, reservoirs or the like, and easements for streets, alleys, highways, pipelines, telephone lines, power lines, distribution lines, railways and other easements and rights-of-way, on,

 

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over or in respect of any of the Assets or any restriction on access thereto, in each case, that do not materially interfere with operations currently conducted on the affected Asset;

 

(7)                                 the terms and conditions of the Leases, Applicable Contracts or Surface Contracts or of any compulsory pooling or other order of any Governmental Entity; provided, however, that the net cumulative effect of such items does not: (A) reduce the Net Revenue Interest for any Lease or Well below the Net Revenue Interest set forth on Exhibit B; or (B) obligate a Seller to bear a Working Interest for any Lease or Well greater than the Working Interest set forth on Exhibit B with respect to such Lease or Well (unless the Net Revenue Interest with respect to such Well is greater than the Net Revenue Interest set forth in Exhibit B in the same or greater proportion as any increase in such Working Interest);

 

(8)                                 materialmen’s, mechanics’, operators’ or other similar Liens arising (A) in the ordinary course of business or (B) incident to the construction or improvement of any property in the ordinary course of business, in each case for amounts not yet due and payable (including any amounts being withheld as provided by Law) or that are being contested in good faith in the normal course of business;

 

(9)                                 such Title Defects and/or breaches of the special warranty set forth in the Assignment that Buyers have waived in writing (or has been deemed to have waived pursuant to Section 4.2(c));

 

(10)                          Liens burdening the Assets that will be discharged or released at or before Closing;

 

(11)                          calls on production under existing Contracts;

 

(12)                          gas balancing and other production balancing obligations and obligations to balance or furnish make-up Hydrocarbons under Hydrocarbon sales, gathering, processing or transportation Contracts;

 

(13)                          all rights reserved to or vested in any Governmental Entities to control or regulate any of the Assets in any manner or to assess Tax with respect to the Assets, the ownership, use or operation thereof, or revenue, income or capital gains with respect thereto, and all obligations and duties under all applicable Laws of any such Governmental Entity or under any franchise, grant, license or Permit issued by any Governmental Entity;

 

(14)                          zoning and planning ordinances and municipal regulations;

 

(15)                          the terms and conditions of this Agreement;

 

(16)                          Liens against landowners (or lessors or mineral owners under the Leases) that (A) do not materially interfere with the use or ownership of the Assets subject thereto or affected thereby (as currently used or owned); and (B) secure amounts not yet due and payable;

 

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(17)                          all other Liens, Contracts, obligations, defects and irregularities affecting the Assets that do not: (A) reduce the Net Revenue Interest for any Lease or Well below the Net Revenue Interest set forth on Exhibit B; (B) obligate any Seller to bear a Working Interest for any Lease or Well greater than the Working Interest set forth on Exhibit B for such Lease or Well (unless the Net Revenue Interest for such Lease or Well is greater than the Net Revenue Interest set forth in on Exhibit B in the same or greater proportion as any increase in such Working Interest); or (C) materially interfere with operations currently conducted on the Assets; and

 

(18)                          following Closing, any matter of which any Buyer was aware prior to the Defect Notice Date that could have been claimed as a Title Defect pursuant to Section 4.2(c) but for which Buyers failed to deliver a Notice of Defective Interests with respect thereto in accordance with Section 4.2(c) prior to the Defect Notice Date.

 

4.2                               Title Defects and Title Benefits.

 

(a)                                 Title Defect.  The term “Title Defect” means any Lien (other than a Permitted Encumbrance), obligation, defect, or other matter that causes any Seller not to have Defensible Title to its Property, provided, however, that none of the following shall be considered Title Defects:

 

(1)                                 defects in the chain of title consisting of the failure to recite marital status in a document;

 

(2)                                 defects arising out of lack of survey or lack of metes and bounds description;

 

(3)                                 defects asserting a change in Working Interest or Net Revenue Interest based on a change in drilling and spacing units, tract allocation or other changes in pool or unit participation occurring after the Effective Time by a Person other than such Seller;

 

(4)                                 defects arising out of lack of corporate or other entity authorization;

 

(5)                                 defects that have been cured by applicable Laws of limitations, prescription, laches or otherwise;

 

(6)                                 defects asserted by Buyers to the effect that non-consent interests or farmed-in interests of any Seller in any Lease or Well are not held of record by such Seller in the official recording situs for the particular Lease or Well;

 

(7)                                 defects based on a gap in such Seller’s chain of title in the State of Oklahoma’s or State of Texas’ records as to any applicable Lease where the State of Oklahoma or State of Texas or any of their respective agents is the lessor thereunder, or in the applicable county records in the State of Oklahoma or State of Texas as to other Leases, unless such gap is affirmatively shown to exist in such records by an abstract of title, title opinion or landman’s title chain or runsheet, which documents shall be provided with delivery of a Title Defect Notice with respect to such defects;

 

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(8)                                 defects as a consequence of cessation of production, insufficient production, or failure to conduct operations on any of the Properties held by production, or lands pooled, communitized or unitized therewith, unless Buyers provide affirmative evidence that reasonably substantiates the cessation of production, insufficient production or failure to conduct operations, thereby giving rise to a right to terminate the Lease in question, which evidence shall be provided with delivery of a Title Defect Notice with respect to such defects;

 

(9)                                 defects or irregularities resulting from or related to probate proceedings or lack thereof unless same result in a reduction of Net Revenue Interest or an increase in the Working Interest without a proportionate increase in the Net Revenue Interest of the affected asset) for such Lease or Well shown on Exhibit B;

 

(10)                          defects arising from prior oil and gas leases relating to the Lands that are terminated, expired or invalid but not surrendered of record;

 

(11)                          any defect that affects only which Person has the right to receive royalty payments (rather than the amount of such royalty) and that does not affect the validity of the underlying Lease; and

 

(12)                          defects based on references to lack of information (unless such information (A) is not reflected in the records of the applicable county and (B) is not in the Records made available to Buyers).

 

(b)                                 Title Benefit.  The term “Title Benefit” means any right, circumstance or condition that operates to increase the Net Revenue Interest of any Seller with respect to any Lease or Well above that shown in Exhibit B.

 

(c)                                  Notice of Defective Interest.  On or before the Defect Notice Date, Buyers shall notify Sellers in writing of any matters that, in Buyers’ reasonable opinion, constitute a Title Defect (such notice, a “Notice of Defective Interests”).  To be effective, each Notice of Defective Interests shall be in writing, be received by Sellers prior to or on the Defect Notice Date and contain the following: (1) a clear description of the alleged Title Defect, (2) a description of each Property affected by the alleged Title Defect (each such Property, a “Title Defect Property”), (3) the Allocated Value of each Title Defect Property, (4) supporting documents reasonably necessary for Sellers (as well as any title attorney or examiner hired by Sellers) to verify the existence of the alleged Title Defect, and (5) the amount which Buyers reasonably believe to be the Title Defect Amount as provided for in Section 4.2(e), and the computations and information upon which Buyers’ beliefs are based.  To give Sellers an opportunity to commence reviewing and curing Title Defects, prior to the Defect Notice Date, Buyers agree to use its reasonable efforts to give Sellers weekly notices of all Title Defects discovered by Buyers during the preceding week; provided that any such notice may be preliminary in nature and supplemented prior to the Defect Notice Date.  Other than with respect to Buyers’ (A) remedies for breaches of Section 8.1(b)(1) and Section 8.1(b)(3), and (B) rights under the special warranty set forth in the Assignment, any matters that may otherwise constitute a Title Defect, but of which Sellers have not been notified by Buyers in a Notice of

 

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Defective Interests delivered in accordance with this Section 4.2(c) prior to the Defect Notice Date, shall be deemed to have been waived by Buyers for all purposes.

 

(d)                                 Notice of Title Benefits.  On or prior to the Defect Notice Date, Buyers will promptly furnish Sellers with written notice (in accordance with the requirements for a Title Benefit Notice below) of any matters that, in Buyers’ reasonable opinion, could constitute a Title Benefit, and that is discovered by any of Buyers’ or any of their Representatives (for the avoidance of doubt, including any title attorneys, landmen or other title examiners) while conducting Buyers’ Due Diligence Review.  On or before the Defect Notice Date, Sellers shall advise Buyers in writing of any matters that, in Sellers’ reasonable opinion, constitute a Title Benefit (each such notice, a “Title Benefit Notice”).  For purposes of clarity, Buyers shall be obligated to provide Sellers with a Title Benefit Notice with respect to any Title Benefit they should discover during their due diligence. However, Buyers are not obligated to, and may not, conduct due diligence on all Properties. Buyers shall not be liable for failing to disclose any Title Benefits on Properties for which they choose, in their sole discretion, not to perform due diligence or on Properties for which they perform due diligence but, notwithstanding the due diligence, do not obtain relevant information that would reveal a Title Benefit. Each Title Benefit Notice shall be in writing and contain the following:  (1) a clear description of the Title Benefit, (2) a description of each Property affected by the Title Benefit (each such Property, a “Title Benefit Property”), (3) the Allocated Value of each Title Benefit Property, (4) supporting documents reasonably necessary for Buyers or Sellers, as applicable, (as well as any title attorney or examiner hired by Buyers or Sellers, as applicable) to verify the existence of the Title Benefit, and (5) the amount which Buyers or Sellers, as applicable, reasonably believe to be the Title Benefit Amount for each Title Benefit Property and the computations and information upon which Sellers’ belief is based.  Subject to Sellers’ remedy for a breach of this Section 4.2(d) by Buyers, Sellers shall be deemed to have waived all Title Benefits of which it has not given, or received, notice on or before the Defect Notice Date.

 

(e)                                  Title Defect Amount. Subject to the provisions of Section 4.2(f), the “Title Defect Amount” means the amount by which the Allocated Value of a Title Defect Property affected by a Title Defect is reduced as a result of the existence of such Title Defect, which amount shall be determined in accordance with the following methodology, terms and conditions:

 

(1)                                 if Buyers and Sellers agree in writing on the Title Defect Amount, that amount shall be the Title Defect Amount;

 

(2)                                 if the Title Defect is a Lien that is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount of the payment necessary to remove such Title Defect from the Title Defect Property;

 

(3)                                 for Leases that are undeveloped and non-producing as of the Execution Date, in the event that an asserted Title Defect is the actual failure of Sellers to own the number of net leasehold acres represented on Exhibit A for any such undeveloped Lease, then the Title Defect Amount shall be an amount equal to the Allocated Value of the affected Lease multiplied by a fraction, (A) the numerator of which is the difference between (i) the represented aggregate number of net leasehold acres

 

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covered by the Lease, and (ii) the actual aggregate number of net leasehold acres covered by such Lease, and (B) the denominator of which shall be the represented aggregate number of net leasehold acres shown on Exhibit A for such Lease;

 

(4)                                 in the event that the Title Defect for any Lease or Well is the actual failure of the applicable Seller to own the represented Net Revenue Interest with respect to such Lease or Well set forth on Exhibit B then the Title Defect Amount shall be equal to the Allocated Value of the Title Defect Property multiplied by a fraction, (A) the numerator of which is the difference between (i) the actual Net Revenue Interest for the Title Defect Property, and (ii) the Net Revenue Interest with respect to such Title Defect Property as set forth on Exhibit B and (B) the denominator of which is the Net Revenue Interest with respect to such Title Defect Property as set forth on Exhibit B; and

 

(5)                                 if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in subsections (1), (2), (3) or (4) above, the Title Defect Amount shall be determined by taking into account the following factors:  (A) any potential discrepancy between (i) the Net Revenue Interest or Working Interest with respect to such Title Defect Property and (ii) the Net Revenue Interest or Working Interest with respect to such Title Defect Property as stated on Exhibit B; (B) the Allocated Value of the Title Defect Property; (C) the portion of the Title Defect Property affected by the Title Defect; (D) the legal effect of the Title Defect; (E) the values placed upon the Title Defect by Buyers and Sellers; (F) the likelihood that the Title Defect will prevent or impair the timely receipt of production revenues attributable to the Title Defect Property; and (G) such other reasonable factors as are necessary to make a proper evaluation.

 

Notwithstanding anything to the contrary in this ARTICLE 4, the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of the Title Defect Property and if a Title Defect is reasonably susceptible to being cured, the Title Defect Amount attributable to such Title Defect shall not exceed the cost and expense to cure such Title Defect.

 

(f)                                   Title Deductibles.  Except as provided in the last sentence of this Section 4.2(f), notwithstanding anything to the contrary in this Agreement, (1) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Sellers in connection with the transactions contemplated hereby for any Title Defect affecting a Title Defect Property for which the Title Defect Amount attributable thereto does not exceed * (“Individual Title Threshold”); and (2) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Sellers in connection with the transactions contemplated hereby for any Title Defect Amount attributable to a Title Defect affecting a Title Defect Property that exceeds the Individual Title Threshold unless (A) the sum of (i) the aggregate Title Defect Amounts of all such Title Defects exceeding the Individual Title Threshold, excluding any Title Defects cured by Sellers, plus (ii) the aggregate Environmental Defect Values of all Environmental Defects that exceed the Individual Environmental Threshold, excluding any Environmental Defects Remediated by Sellers, minus (iii) all Title Benefit Amounts, exceeds (B) the Aggregate Defect Deductible, after which point, subject to the Individual Title Threshold, Buyers shall be

 

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* - Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

 

 

entitled to adjustments to the Purchase Price or other remedies only with respect to the incremental amount of such Title Defect Amounts, in the aggregate, in excess of such Aggregate Defect Deductible.  If any Asset is excluded pursuant to Section 4.2(j)(2), the Title Defect Amount relating to such excluded Asset will not be counted towards the Aggregate Defect Deductible. Notwithstanding anything to the contrary otherwise set forth in this Agreement, with respect to any Title Defect discovered, and a Notice of Defective Interests delivered,  by Buyer during the Due Diligence Period that, if discovered by Buyer after Closing, would constitute a breach of the special warranty set forth in Section 2.1 of the Assignment, subject, however, to the Permitted Encumbrances, the Title Defect Amount for such Title Defect shall not be subject to the Individual Title Threshold nor the Aggregate Title Defect Deductible.

 

(g)                                  Title Benefit Amount.  The “Title Benefit Amount” means the amount by which the Allocated Value of a Title Benefit Property affected by a Title Benefit is increased as a result of the existence of such Title Benefit.  Each Title Benefit Amount shall be determined in accordance with the same methodology, terms and conditions for determining each Title Defect Amount.  With respect to any Title Benefit reported under Section 4.2(d), provided that the Title Benefit Amount with respect thereto is in excess of the Individual Title Threshold, the Title Benefit Amount attributable to such Title Benefit shall be used to reduce the amount of the aggregate Title Defect Amounts and Environmental Defect Values attributable to Title Defects and Environmental Defects properly and timely raised by Buyers after taking into account the Individual Title Threshold and the Individual Environmental Threshold, as applicable.  If the Parties cannot reach an agreement on alleged Title Benefits or Title Benefit Amounts by the scheduled Closing, then (1) the average of Sellers’ and Buyers’ good faith estimate of such disputed Title Benefit Amount shall be used in calculating the reduction to the Title Defect Amounts and Environmental Defect Values pursuant to this Section 4.2(g) to the extent applicable, and (2) the provisions of Section 4.3 shall apply.  For the avoidance of doubt, Sellers shall not be entitled to any remedy with respect to any claimed Title Benefit if the applicable Title Benefit Amount with respect thereto is not in excess of the Individual Title Threshold.

 

(h)                                 Title Adjustment Amount.  The amount by which the Purchase Price is to be adjusted in accordance with this ARTICLE 4 for Title Defect Amounts (after, for the avoidance of doubt, taking into account the Aggregate Title Defect Deductible and any offsetting Title Benefit Amounts) shall be referred to as the “Title Adjustment Amount”.

 

(i)                                     Sellers’ Right to Cure.  Continuing until one Business Day prior to Closing (such period of time, the “Cure Period”), Sellers shall have the right, but not the obligation, to attempt, at their sole cost, to cure or remove any Title Defects timely asserted by Buyers pursuant to Section 4.2(c).  If Sellers believe that they have cured any applicable Title Defect, Sellers shall deliver written notice thereof to Buyers, together with supporting documents available to Sellers and reasonably necessary for Buyers (as well as any title attorney or examiner hired by Buyers) to verify the cure of such Title Defect.  Buyers shall, at or prior to the end of the Cure Period, advise Sellers in writing whether it agrees or (pursuant to a Title Dispute Notice, as described in Section 4.3) Disputes that any such Title Defect has been so cured; provided that Buyers’ failure to timely respond to Sellers’ notice of cure shall be deemed Buyers’ agreement that such Title Defect has been cured and Buyers’ waiver of its Claim with respect to such Title Defect.  If Buyers timely notify Sellers of a Dispute as to Sellers’

 

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attempted cure of any Title Defect, then (subject to Section 4.2(j)), the provisions of Section 4.3 shall apply to such Title Defect.

 

(j)                                    Remedies for Title Defects.  Subject to Sellers’ continuing right to Dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect thereto and subject to Section 4.2(f), in the event that any Title Defect timely asserted by Buyers in accordance with Section 4.2(c) is not waived in writing by Buyers or cured by Sellers prior to the end of the Cure Period, then Sellers shall elect one of the following remedies with respect to such Title Defect:

 

(1)                                 reduce the Purchase Price by the Title Defect Amount applicable to such Title Defect;

 

(2)                                 retain the entirety of the Title Defect Property that is subject to such Title Defect (together with all related Assets) and reduce the Purchase Price by an amount equal to the Allocated Value of the Assets so retained; or

 

(3)                                 with Buyers’ reasonable consent, indemnify Buyers against all Losses resulting from such Title Defect with respect to the applicable Title Defect Property pursuant to an indemnity agreement mutually acceptable to the Parties.

 

As to any Title Defect timely asserted by Buyers in accordance with Section 4.2(c) which remains uncured by Sellers prior to the end of the Cure Period and for which a corresponding Title Defect Amount is included in the Title Adjustment Amount at Closing (including, for the avoidance of doubt, any Title Defect which Sellers have chosen to dispute pursuant to Section 4.3), Sellers also shall retain the right, but not the obligation, to attempt to cure each such Title Defect after Closing at Sellers’ sole cost and expense; provided that Sellers shall furnish notice to Buyers of Sellers’ belief that they have cured any such Title Defect (together with supporting documents available to Sellers and reasonably necessary for Buyers, as well as any title attorney or examiner hired by them, to verify the cure of any such Title Defect), by no later 15 days prior to the Final Settlement Statement Due Date.  If Buyers disagree that the Title Defect has been cured, it shall so advise Sellers in writing within five Business Days after receipt of Sellers’ notice as provided above, following which the provisions of Section 4.3 will apply to resolve such Dispute, and the Final Settlement Statement Due Date shall be extended to the extent necessary to complete the Dispute resolution procedure as provided for in Section 4.3.  Should Buyers (A) fail to respond to Sellers’ notice of cure in such five Business Day period, then Buyers shall be deemed to have (i) agreed that the Title Defect has been cured and (ii) waived its Claim with respect to such Title Defect, or (B) agree that the Title Defect has been cured, and then, in each case, the Title Defect Amount attributable thereto and included in the Title Adjustment Amount used to adjust the Purchase Price at Closing shall be credited to Sellers in the Final Settlement Statement.

 

4.3                               Title Dispute Resolution.  If prior to the Closing or, with respect to the adequacy of Sellers’ Title Defect curative actions after Closing, after the Closing, the Parties are unable to resolve any Title Disputed Matter, then either Party shall have the right, upon the delivery of written notice to the other Party (each, a “Title Dispute Notice”), to Dispute such Title Disputed Matter and to invoke the Dispute resolution provisions below in this Section 4.3 in order to

 

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resolve any such Dispute.  As used herein, the term “Title Disputed Matter” means a Dispute regarding any of the following: (w) the existence and scope of a Title Defect or Title Benefit; (x) any Title Defect Amount or Title Benefit Amount, as the case may be; (y) the Title Adjustment Amount, if any; and (z) the adequacy of Sellers’ Title Defect curative actions.  As to any Dispute regarding the adequacy of Sellers’ Title Defect curative actions after Closing as provided for in Section 4.2(j), the Final Settlement Statement Due Date shall be extended to the extent necessary to complete the Dispute resolution procedure as provided for below in this Section 4.3.  Any Title Dispute Notice must be delivered on or before the tenth Business Day after Closing except with respect to Disputes relating to any of Sellers’ Title Defect curative actions conducted post-Closing.  Any Title Dispute Notice relating to any of Sellers’ Title Defect curative actions conducted post-Closing must be delivered within ten Business Days following Buyers’ receipt of notice from Sellers that they have cured the applicable Title Defect.  In no event will Closing be delayed on account of any Title Disputed Matter and, if the Title Defect Property affected thereby is transferred to Buyers at Closing, the average of the Parties’ respective good faith estimates of the Title Defect Amounts attributable to such Title Defect Property shall be used in the calculation and determination of the Title Adjustment Amount to be used at Closing.

 

(a)                                 The Parties shall attempt to resolve all Title Disputed Matters through good faith negotiations for a period of 20 days after the delivery of a Title Dispute Notice by either Party.  Following such negotiation period, if the Title Disputed Matter at issue remains in Dispute, such Title Disputed Matter shall be resolved pursuant to this Section 4.3 and the Parties shall mutually appoint an independent expert having the qualifications specified below (the “Title Defect Expert”).  If the Parties are unable to mutually agree upon the Title Defect Expert, then the Parties shall, within ten days after the expiration of such foregoing negotiation period, request that the AAA, acting through its offices in Houston, Texas, appoint the Title Defect Expert.  The Title Defect Expert shall be a licensed title attorney having a minimum of ten years’ experience with regard to the types of title defects affecting the Properties involved in the Title Disputed Matter, shall be without any conflicts of interest as to the Parties, and shall not have been employed by or undertaken more than $50,000 of work, in the aggregate, for either Party or its Affiliates within the five year period preceding the submission of the Dispute.  For the avoidance of doubt, the Title Defect Expert will function as an expert in accordance with the procedures set forth in this Section 4.3, and not as an arbitrator.

 

(b)                                 Within 30 days following the appointment of the Title Defect Expert, Sellers shall provide the Title Defect Expert with a copy of this Agreement, and each Party shall provide, both to the Title Defect Expert and each other, a summary of its position with regard to each such outstanding Title Disputed Matter in a written document of five pages or less per Title Disputed Matter.  The Parties shall instruct the Title Defect Expert that, within 30 days after receiving the Parties’ respective submissions, the Title Defect Expert shall render a written decision.  In rendering its decision, the Title Defect Expert shall not award (1) a higher Title Defect Amount than the lower of (A) the Allocated Value of the applicable Property or (B) the amount claimed by Buyers in their summary, (2) a higher Title Benefit Amount than the amount claimed by Sellers in their summary, (3) a lower Title Benefit Amount than the amount claimed by Buyers in their summary or (4) a lower Title Defect Amount than that amount claimed by Sellers in their summary, as applicable.  The Title Defect Expert shall determine the specific disputed Title Defect, Title Benefit, Title Defect Amount, Title Benefit Amount or the adequacy

 

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of Sellers’ Title Defect curative actions, as the case may be, submitted by either Party and may not award damages, interest or penalties to either Party with respect to any other matter.  Any decision rendered by the Title Defect Expert pursuant hereto shall be final, conclusive, and binding on Sellers and Buyers, and will be enforceable against each Party in any court having jurisdiction hereof, but is not reviewable by, or appealable to, any court except in the event of fraud.  The Parties shall each bear one-half of the costs of the Title Defect Expert and of any associated dispute resolution process and proceedings.

 

(c)                                  If the Title Defect Expert determines that a Title Defect did not exist or that a Title Defect existed but was cured by Sellers, then any Title Defect Amount attributable thereto that was included in the Title Adjustment Amount used at Closing, if any, shall be credited to Sellers in the Final Settlement Statement.

 

(d)                                 If the Title Defect Expert determines that a Title Defect exists, but that the Title Defect Amount attributable thereto is a lesser amount than any Title Defect Amount with respect thereto that was included in the Title Adjustment Amount used at Closing, if any, then the difference thereof shall be credited to Sellers in the Final Settlement Statement.

 

(e)                                  If the Title Defect Expert determines that a Title Defect exists, such Title Defect has not been cured by Sellers and the Title Defect Amount attributable thereto is a greater amount than any Title Defect Amount with respect thereto that was included in the Title Adjustment Amount used at Closing, if any, then the difference thereof shall be credited to Buyers in the Final Settlement Statement.

 

(f)                                   Any such adjustments to the amount of the Purchase Price will be reflected in the Final Settlement Statement as applicable.

 

4.4                               Preferential Rights and Consents.

 

(a)                                 Preferential Purchase Rights.  Promptly following the Execution Date, and in any event within five Business Days following the Execution Date, Sellers shall send notices to the holder of each Preferential Right listed on Schedule 6.6 in accordance with the terms of the instruments giving rise to such Preferential Rights.  Sellers shall promptly provide a copy of each such notice to Buyers following the delivery thereof by Sellers.  Sellers shall use commercially reasonable efforts to cause waivers of such Preferential Rights to be obtained and delivered prior to Closing; provided that Sellers shall not be required to make payments or undertake other obligations to or for the benefit of the holders of such Preferential Rights in order to obtain the required waivers.  Buyers shall reasonably cooperate with Sellers in seeking to obtain such waivers of Preferential Rights; provided that Buyers shall not be required to make payments or undertake other obligations to or for the benefit of the holders of such Preferential Rights in order to obtain the required waivers.  Any Preferential Right must be exercised subject to all terms and conditions set forth in this Agreement (including all thresholds, deductibles and other amounts except for the cash consideration, which shall equal the Allocated Value for such property), including the successful Closing of this Agreement pursuant to ARTICLE 12 as to those Assets for which Preferential Rights have not been exercised.  The consideration payable under this Agreement for any particular Asset for purposes of Preferential Rights notices shall be the Allocated Value for such Asset, subject to

 

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adjustment pursuant to Section 2.4 and Section 13.1.  If, prior to the Closing Date, either Party discovers any required Preferential Right for which notices have not been delivered pursuant to the first sentence of this Section 4.4(a), then (x) the Party making such discovery shall provide the other Party with written notification of such Preferential Right, (y) Sellers, following delivery or receipt of such written notification, as applicable, will promptly send notices to the holders of such Preferential Rights in accordance with the terms of the instrument giving rise to such Preferential Right, and (z) the terms and conditions of this Section 4.4(a) shall apply to the Assets subject to such Preferential Right.

 

(1)                                 If, prior to Closing, any holder of a Preferential Right notifies Sellers that it intends to consummate the purchase of the Assets to which its Preferential Right applies or if the time for exercising such Preferential Right has not expired, then the Assets subject to such Preferential Right (together with all related Assets) shall be excluded from the Assets to be assigned to Buyers at Closing, and the Purchase Price shall be reduced by the sum of the Allocated Values of such Assets so excluded.

 

(2)                                 Sellers shall be entitled to all proceeds paid by any Person exercising a Preferential Right prior to Closing.  If such holder of such Preferential Right thereafter fails to consummate the purchase of the Assets subject to such Preferential Right (together with all related Assets) on or before the end of the time period for closing such sale or the time for exercising such Preferential Right expires without exercise by the holder thereof, then (A) Sellers shall so notify Buyers, (B) Sellers shall assign to Buyers, on the tenth Business Day following the end of such time period or termination of such right without exercise, such Assets that were so excluded at Closing pursuant to an instrument in substantially the same form as the Assignment, and (C) Buyers shall pay to Sellers, by wire transfer of immediately available funds, the amount by which the Purchase Price was reduced at Closing with respect to such excluded Assets, as adjusted pursuant to Section 2.4 and Section 13.1.

 

(3)                                 All Assets for which any applicable Preferential Right has been waived in writing, or as to which the time for exercising the applicable Preferential Right has expired, in each case, prior to Closing, shall be transferred to Buyers at Closing, subject to the other provisions of this Agreement.

 

(b)                                 Consents.  Promptly following the execution of this Agreement, and in any event within five Business Days following the Execution Date, Sellers shall send notices to the holder of each Consent listed on Schedule 6.5 requesting such holder’s applicable written Consent to the transactions contemplated hereby.  Sellers shall use commercially reasonable efforts to cause such Consents to be obtained and delivered prior to Closing; provided that Sellers shall not be required to make payments or undertake other obligations to or for the benefit of the holders of such Consents in order to obtain the required Consents.  Buyers shall reasonably cooperate with Sellers in seeking to obtain such Consents to assignment; provided that Buyers shall not be required to make payments or undertake other obligations to or for the benefit of the holders of such Consents in order to obtain the required Consents.  If, prior to the Closing Date, either Party discovers any Consents for which notices have not been delivered pursuant to the first sentence of this Section 4.4(b), then (x) the Party making such discovery shall provide the other Party with written notification of such Consents, (y) Sellers, following

 

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delivery or receipt of such written notification, as applicable, will promptly send notices to the holders of Consents requesting such Consents, and (z) the terms and conditions of this Section 4.4(b) shall apply to the Assets subject to such Consents.

 

(1)                                 If (A) Sellers fail to obtain any such Consent prior to Closing and the failure to obtain such Consent would (i) cause the assignment of the Assets affected thereby to Buyers to be void or (ii) give the holder of such Consent the right to terminate the applicable underlying Lease, Surface Contract or Applicable Contract under the express terms thereof, (B) Sellers fail to obtain a Consent held by a Governmental Entity prior to Closing, or (C) a Consent requested by Sellers is denied in writing, then, in each case, the Assets affected by such un-obtained Consent (together with all related Assets, the “Affected Assets”) shall be excluded from the Assets to be assigned to Buyers at Closing, and the Purchase Price shall be reduced by the sum of the Allocated Value of such Affected Assets.

 

(2)                                 If any such Consent relating to Affected Assets that was not obtained prior to Closing is obtained within 45 days following the Closing, then (A) on the fifteenth Business Day after such Consent is obtained, Sellers shall assign such Affected Assets to Buyers pursuant to an instrument in substantially the same form as the Assignment, and (B) Buyers shall pay to Sellers, by wire transfer of immediately available funds, the amount by which the Purchase Price was reduced at Closing with respect to such Affected Assets, as adjusted pursuant to Section 2.4 and Section 13.1.

 

(3)                                 If Sellers fail to obtain any such Consent prior to Closing and (A) the failure to obtain such Consent would not (i) cause the assignment of the Assets affected thereby to Buyers to be void or (ii) give the holder of such Consent the right to terminate the applicable underlying Lease, Surface Contract or Applicable Contract under the express terms thereof, (B) the holder of such Consent is not a Governmental Entity and (C) such Consent requested by Sellers is not denied in writing by the holder thereof, then (I) the Assets subject to such un-obtained Consent shall nevertheless be assigned by Sellers to Buyers at Closing as part of the Assets and without reduction to the Purchase Price, (II) Buyers shall have no claim against Sellers, and Sellers shall have no liability for, the failure to obtain any such Consent and (III) Buyers shall be responsible from and after the Closing for any and all Losses arising from the failure to obtain such Consent.

 

ARTICLE 5
 ENVIRONMENTAL MATTERS

 

5.1                               Definitions.  For the purposes of this Agreement, the following terms shall have the following meanings:

 

(a)                                 “Condition” means any circumstance, status or defect that, with notice to the Governmental Entity with jurisdiction, would currently require Remediation under Environmental Laws.

 

(b)                                 “Environment” means all or any of the following media: land (whether on or below the surface of the earth or beneath the surface of any waters); air or water,

 

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whether on or below the surface of the earth or whether contained within buildings or other natural or man-made structures above or below ground or below any waters; and any living organism (including man) supported by the foregoing media.

 

(c)                                  “Environmental Defect” means a Condition of or affecting the Environment in, on, under or relating to a particular Asset (including air, land, soil, surface and subsurface strata, surface water, groundwater, or sediments), but excluding any Plugging and Abandonment Obligations (which shall not constitute an Environmental Defect).

 

(d)                                 “Environmental Law” or “Environmental Laws” means any federal, tribal, state, local or foreign law (including common law), statute, rule, regulation, requirement, ordinance and any writ, decree, bond, authorization, approval, license, permit, registration, binding criteria, standard, consent decree, settlement agreement, judgment, order, directive or binding policy issued by or entered into with a Governmental Entity pertaining or relating to: (1) pollution or pollution control, including, without limitation, storm water; (2) protection of the Environment or of human health, including from exposure to Hazardous Materials; (3) employee safety in the workplace; or (4) the management, presence, use, generation, processing, extraction, treatment, recycling, refining, reclamation, labeling, transport, storage, collection, distribution, disposal or release or threat of release of Hazardous Materials.  “Environmental Laws” shall include, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., the Solid Waste Disposal Act (as amended by the Resource Conservation and Recovery Act), 42 U.S.C. § 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Federal Safe Drinking Water Act, 42 U.S.C. §§ 300f-300, the Federal Air Pollution Control Act, 42 U.S.C. § 7401 et seq., the Oil Pollution Act, 33 U.S.C. § 2701 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., the Endangered Species Act, 16 U.S.C. § 1531 et seq., the National Historic Preservation Act, 16 U.S.C. §470 et seq. and the regulations and orders respectively promulgated thereunder, each as amended, or any equivalent or analogous state or local statutes, laws or ordinances, any regulation promulgated thereunder and any amendments thereto.

 

(e)                                  “Environmental Liabilities” means all Losses involving any pollution of or other harm to or destruction of the Environment or any natural resources, including the payment of natural resource damages that are assessed by any Governmental Entity and any Losses attributable to the Remediation of any such damage, brought or assessed by or in favor of any Persons, including any Governmental Entity, to the extent any of the foregoing directly or indirectly involves the Assets or the presence, disposal or release of any Hazardous Materials of any kind in, on or under the Assets or any other premises to the extent directly or indirectly relating to operations involving the Assets or the transportation, disposal or other handling of Hazardous Materials generated by or otherwise attributable to operations involving the Assets, whether any of the foregoing is created, arises or otherwise relates or is attributable to any period of time, whether before

 

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or after Sellers acquired ownership of the Assets and whether before, on or after the Effective Time.

 

(f)                                   “Hazardous Materials” means, without limitation, any waste, substance, product, or other material (whether solid, liquid, gas or mixed), which is or becomes identified, listed, published, or defined as a hazardous substance, hazardous waste, hazardous material, toxic substance, radioactive material, oil, or petroleum waste, or which is subject to regulation, investigation, control or remediation pursuant to any Environmental Law.

 

(g)                                  “NORM”  means naturally occurring radioactive material.

 

(h)                                 “Plugging and Abandonment Obligations” means any and all responsibility and liability, in accordance with all applicable Laws, Leases, Surface Contracts and other Contracts, permits or any orders, directives or other requirements of any applicable Governmental Entities or otherwise as required for reasonable and prudent oilfield operations, for all of the following, arising out of or otherwise relating to the ownership or operation of the Assets, directly or indirectly, whether attributable to any period of time before, on or after the Effective Time: (1) the necessary and proper plugging, replugging and abandonment of all Wells; (2) the necessary and proper removal, closure, abandonment, decontamination and disposal, as applicable, of all structures, facilities, pits, pipelines, Equipment, operating inventory, abandoned property, trash, refuse, wastes and junk located on, comprising part of or otherwise attributable to the Assets in connection with any activities referenced in this item (2) or the foregoing item (1); (3) the necessary and proper capping and burying of all associated flow lines and other pipelines located on or comprising part of the Assets, including in connection with any of the activities referenced in the foregoing items (1) or (2); and (4) the necessary and proper restoration of the surface and subsurface of the Properties to the condition as required pursuant to all applicable Laws, Leases, Surface Contracts and Contracts, in connection with any of the activities referenced in the foregoing items (1), (2) or (3).

 

(i)                                     “Remediation” or “Remediate” means investigation, assessment, characterization, delineation, monitoring, sampling, analysis, response action, removal, corrective action, mitigation, decontamination, treatment, cleanup and disposal of Hazardous Materials and restoration of any harm or damage to, or replacement of any destruction of, the Environment or any natural resources (including the payment of natural resource damages that are assessed by any Governmental Entity, including for the loss of use thereof), in each case, to the extent required by applicable Environmental Laws or Governmental Entity.

 

5.2                               Exclusive Remedy.  Other than Buyers’ remedies for breaches of Section 6.15, Section 5.3 shall constitute the sole and exclusive rights and remedies of Buyers with respect to any Environmental Defect, the existence of any Condition with respect to the Assets, the Remediation of any such Environmental Defect or Condition, or Sellers’ or their respective predecessors’ failure to comply with Environmental Laws.

 

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5.3          Environmental Defects.

 

(a)           Environmental Defect Notices.  On or before the Defect Notice Date, Buyers shall notify Sellers in writing of any matters that, in Buyers’ reasonable opinion, constitute an Environmental Defect (such notice, an “Environmental Defect Notice”).  To be effective, each Environmental Defect Notice shall be in writing, be received by Sellers prior to or on the Defect Notice Date and contain the following: (1) a detailed description of the alleged Environmental Defect, (2) each Asset affected by the alleged Environmental Defect (each such Asset, an “Environmental Defect Property”), (3) the Allocated Value, if any, of each Environmental Defect Property, (4) supporting documents reasonably necessary for Seller (as well as any environmental consultant hired by Seller) to verify the existence of the alleged Environmental Defect, and (5) the amount that Buyers reasonably believe is the most cost-effective manner reasonably available to Remediate each alleged Environmental Defect, consistent with Environmental Laws and the requirements of the applicable Governmental Entity, taking into account that non-permanent remedies (such as mechanisms to contain or stabilize Hazardous Materials, including monitoring site conditions, natural attenuation, risk-based corrective action, institutional controls or other appropriate restrictions on the use of property, caps, dikes, encapsulation, leachate collection systems, etc.) may be the most cost-effective manner reasonably available, net to Sellers’ interest in the applicable Assets (the “Environmental Defect Value”), and the computations and information upon which Buyers’ belief is based.  To give Sellers an opportunity to commence reviewing and curing Environmental Defects, prior to the Defect Notice Date Buyers agree to use their reasonable efforts to give Sellers weekly written notices of all Environmental Defects discovered by Buyers during the preceding week; provided that any such notice may be preliminary in nature and supplemented prior to or on the Defect Notice Date.  Other than with respect to Buyers’ remedies for breaches of Section 6.15, any matters that may otherwise constitute an Environmental Defect, but of which Sellers have not been notified by Buyers in an Environmental Defect Notice delivered in accordance with this Section 5.3(a) prior to the Defect Notice Date, shall be deemed to have been waived by Buyers for all purposes.

 

(b)           Environmental Deductibles.  Notwithstanding anything to the contrary in this Agreement, (1) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Sellers in connection with the transactions contemplated hereby for any Environmental Defect affecting an Environmental Defect Property for which the Environmental Defect Value attributable thereto does not exceed * (“Individual Environmental Threshold”); and (2) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Sellers in connection with the transactions contemplated hereby for any Environmental Defect Value attributable to an Environmental Defect affecting an Environmental Defect Property that exceeds the Individual Environmental Threshold unless (A) the sum of (i) the aggregate Environmental Defect Values of all such Environmental Defects exceeding the Individual Environmental Threshold, excluding any Environmental Defects Remediated by Sellers, plus (ii) the aggregate Title Defect Amounts of all Title Defects that exceed the Individual Title Threshold, excluding any Title Defects cured by Sellers, minus (iii) all Title Benefit Amounts, exceeds (B) the Aggregate Defect Deductible, after which point, subject to the Individual Environmental Threshold, Buyers shall be entitled to adjustments to

 

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* - Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

 

 

the Purchase Price or other remedies only with respect to the incremental amount of such Environmental Defect Values, in the aggregate, in excess of such Aggregate Defect Deductible.

 

If any Asset is excluded pursuant to Section 5.3(e)(3), the Environmental Defect Value relating to such excluded Asset will not be counted towards the Aggregate Defect Deductible.

 

(c)           Environmental Adjustment Amount.  The amount by which the Purchase Price is to be adjusted in accordance with this ARTICLE 5 for Environmental Defect Values shall be referred to as the “Environmental Adjustment Amount”.

 

(d)           Sellers’ Right to Remediate.  Continuing until the end of the Cure Period, Sellers shall have the right, but not the obligation, to attempt, at its sole cost, to Remediate any Environmental Defects timely asserted by Buyers pursuant to Section 5.3(a).  If Sellers believe that they have Remediated any applicable Environmental Defect, Sellers shall deliver written notice thereof to Buyers, together with supporting documents available to Sellers and reasonably necessary for Buyers (as well as any environmental consultant hired by Buyers) to verify the Remediation of the Environmental Defects.  Buyers shall, at or prior to the end of the Cure Period, advise Sellers in writing whether they agree or (pursuant to an Environmental Dispute Notice, as described in Section 5.3(f)) dispute that the Environmental Defect has been so Remediated; provided that Buyers’ failure to timely respond to Sellers’ notice of Remediation shall be deemed Buyers’ irrevocable agreement that the Environmental Defect has been Remediated and Buyers’ irrevocable waiver of its Claim with respect to such Environmental Defect.  If Buyers timely notify Sellers in writing of a Dispute as to Sellers’ attempted Remediation of any Environmental Defect, then (subject to Section 5.3(e)) the provisions of Section 5.3(f) shall apply to such Environmental Defect.

 

(e)           Remedies for Environmental Defects.  Subject to Sellers’ continuing right to dispute the existence of an Environmental Defect and/or the Environmental Defect Value asserted with respect thereto and subject to Section 5.3(b), in the event that any Environmental Defect timely asserted by Buyers in accordance with Section 5.3(a) is not waived in writing by Buyers or Remediated by Sellers prior to the end of the Cure Period, then Sellers shall elect one of the following remedies with respect to such Environmental Defect:

 

(1)           reduce the Purchase Price by the Environmental Defect Value applicable to such Environmental Defect;

 

(2)           with Buyers’ reasonable consent, indemnify Buyers against all Losses resulting from such Environmental Defect and associated Remediation pursuant to an indemnity agreement mutually agreed by the Parties; or

 

(3)           retain the entirety of the Asset that is subject to such Environmental Defect (together with all related Assets), and reduce the Purchase Price by an amount equal to the sum of the Allocated Value of the Assets so retained.

 

If Sellers elect the option set forth in clause (1) above, then Buyers shall be deemed to have assumed responsibility for all costs and expenses attributable to the Remediation of the applicable Environmental Defect and all Losses with respect thereto, and Buyers’ obligations with respect thereto shall be deemed to constitute Assumed Obligations.  If Sellers elect the

 

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option set forth in clause (2) above, Sellers shall additionally have the right to elect to assume responsibility for the Remediation of such Environmental Defect following Closing and, if Sellers so elect (A) Sellers shall use their reasonable efforts to implement such Remediation in a manner which is consistent with the requirements of Environmental Laws in a timely fashion for the type of Remediation that Sellers elect to undertake and (B) Buyers, effective as of the Closing, hereby grant to Sellers and their representatives access to the Assets to conduct such Remediation.

 

(f)            Environmental Dispute Resolution Procedure.  If prior to the Closing the Parties are unable to resolve any Environmental Disputed Matter, then either Party shall have the right, upon the delivery of written notice to the other Party (each, an “Environmental Dispute Notice”), to Dispute such Environmental Disputed Matter and to invoke the Dispute resolution provisions below in this Section 5.3(f) in order to resolve any such Dispute.  As used herein, the term “Environmental Disputed Matter” means a Dispute regarding any of the following:  (w) the existence and scope of an Environmental Defect; (x) any Environmental Defect Value; (y) the Environmental Adjustment Amount, if any; and (z) the adequacy of Sellers’ Environmental Defect Remediation actions.  Any Environmental Dispute Notice must be delivered on or before the tenth Business Day after Closing.  In no event will Closing be delayed on account of any Environmental Disputed Matter and if the Environmental Defect Property affected thereby is transferred to Buyers at Closing, the average of the Parties’ respective good faith estimates of the Environmental Defect Values attributable to such Environmental Defect Property shall be used in the calculation and determination of the Environmental Adjustment Amount to be used at Closing

 

(1)           The Parties shall attempt to resolve all Environmental Disputed Matters through good faith negotiations for a period of 20 days after the delivery of an Environmental Dispute Notice by either Party.  Following such negotiation period, if the Environmental Disputed Matter at issue should remain in Dispute, such Environmental Disputed Matter shall be resolved pursuant to this Section 5.3(f) and the Parties shall mutually appoint an independent expert having the qualifications specified below (the “Environmental Defect Expert”).  If the Parties are unable to mutually agree upon the Environmental Defect Expert, then the Parties shall, within ten days after the expiration of such negotiation period, request that the AAA, acting through its offices in Houston, Texas, appoint the Environmental Defect Expert.  The Environmental Defect Expert shall be a certified environmental professional having a minimum of ten years’ experience with regard to the types of environmental defects affecting the Properties involved in the Environmental Disputed Matter, shall be without any conflicts of interest as to the Parties, and shall not have been employed by or undertaken more than $50,000 of work, in the aggregate, for either Party or its Affiliates within the five year period preceding the submission of the Dispute.  For the avoidance of doubt, the Environmental Defect Expert will function as an expert in accordance with the procedures set forth in this Section 5.3(f), and not as an arbitrator.

 

(2)           Within 30 days following the appointment of the Environmental Defect Expert, Sellers shall provide the Environmental Defect Expert with a copy of this Agreement, and each Party shall provide, both to the Environmental Defect Expert and each other, a summary of its position with regard to each such outstanding Environmental

 

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Disputed Matter in a written document of five pages or less per Environmental Disputed Matter.  The Parties shall instruct the Environmental Defect Expert that, within 30 days after receiving the Parties’ respective submissions, the Environmental Defect Expert shall render a written decision.  In rendering its decision, the Environmental Defect Expert shall not award a higher Environmental Defect Value than the amount claimed by Buyers in their summary or a lower Environmental Defect Value than the amount claimed by Sellers in their summary, as applicable.  Any decision rendered by the Environmental Defect Expert pursuant hereto shall be final, conclusive, and binding on Sellers and Buyers, and will be enforceable against each Party in any court having jurisdiction hereof, but is not reviewable by, or appealable to, any court except in the event of fraud.  The Parties shall each bear one-half of the costs of the Environmental Defect Expert and of any associated Dispute resolution process and proceedings.

 

(3)           If the Environmental Defect Expert determines that an Environmental Defect did not exist or that an Environmental Defect existed but was Remediated by Sellers, then any Environmental Defect Value attributable thereto that was included in the Environmental Adjustment Amount used at Closing, if any, shall be credited to Sellers in the Final Settlement Statement.

 

(4)           If the Environmental Defect Expert determines that an Environmental Defect exists, but that the Environmental Defect Value attributable thereto is a lesser amount than any Environmental Defect Value with respect thereto that was included in the Environmental Adjustment Amount used at Closing, if any, then the difference thereof shall be credited to Sellers in the Final Settlement Statement.

 

(5)           If the Environmental Defect Expert determines that an Environmental Defect exists, such Environmental Defect has not been Remediated by Sellers and the Environmental Defect Value attributable thereto is a greater amount than the Environmental Defect Value with respect thereto that was included in the Environmental Adjustment Amount used at Closing, if any, then the difference thereof shall be credited to Buyers in the Final Settlement Statement.

 

(6)           Any such adjustments to the amount of the Purchase Price will be reflected in the Final Settlement Statement as applicable.

 

5.4          NORM, Wastes and Other Substances.  Buyers acknowledge that the Assets have been used for exploration, development and production of oil and gas and that there may be petroleum, produced water, wastes or other substances or materials located in, on or under the Assets or associated with the Assets.  Equipment and sites included in the Assets may contain asbestos, NORM or other Hazardous Materials.  NORM may affix or attach itself to the inside of wells, materials and equipment as scale, or in other forms.  The wells, materials and equipment located on the Assets or included in the Assets may contain NORM and other wastes or Hazardous Materials.  NORM containing material and/or other wastes or Hazardous Materials may have come in contact with various environmental media, including water, soils or sediment.  Special procedures may be required for the assessment, remediation, removal, transportation or disposal of environmental media, wastes, asbestos, NORM and other Hazardous Materials from the Assets.  Notwithstanding anything herein to the contrary, Buyer shall not be permitted to 

 

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claim any Environmental Defect on the account of the presence of NORM on the Assets and the properties underlying the Assets.

 

ARTICLE 6
 SELLERS’ REPRESENTATIONS AND WARRANTIES

 

Each Seller represents and warrants, on its own behalf and solely with respect to itself, to Buyers as follows:

 

6.1          Status.  Such Seller is an entity duly formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation, as applicable, and is duly qualified to carry on its business in such other jurisdictions as may be necessary, except where the failure to be so qualified would not have a Material Adverse Effect.

 

6.2          Power.  Such Seller has all requisite entity power and authority to carry on its business as presently conducted, to enter into this Agreement and the other documents to be delivered by such Seller at Closing pursuant to this Agreement and to perform its obligations hereunder and thereunder.

 

6.3          No Conflicts.  Except as disclosed in Schedule 6.3 and assuming the receipt of all Consents and the waiver of all Preferential Rights, the execution, delivery and performance by such Seller of this Agreement and the other documents to be delivered by such Seller at Closing pursuant to this Agreement and the consummation of the transactions contemplated herein and therein does not and will not (a) conflict with or result in a breach of any provisions of the Governing Documents of such Seller, (b) result in a default or the creation of any Lien (other than a Permitted Encumbrance), or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions, or provisions of any Lease, Surface Contract or Applicable Contract to which such Seller is a party or by which such Seller or the Assets may be bound or (c) violate any Law applicable to such Seller or any of the Assets, except in the case of clauses (b) and (c) where such default, Lien, termination, cancellation, acceleration or violation would not have a Material Adverse Effect.

 

6.4          Authorization and Enforceability.  Assuming the due authorization, execution and delivery by the Buyers of this Agreement and the other documents to be delivered by Buyers at Closing pursuant to this Agreement, this Agreement constitutes, and the other documents to be delivered by such Seller at Closing pursuant to this Agreement will constitute, such Seller’s legal, valid and binding obligations, enforceable in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar Laws, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

6.5          Consents.  Except as set forth on Schedule 6.5 and for Customary Post-Closing Consents, no consent, approval or authorization of any applicable Governmental Entity or other Third Party is required to be obtained in connection with the consummation of the transactions contemplated by this Agreement (each such required consent, a “Consent”) by such Seller.

 

6.6          Preferential Rights.  Except as set forth on Schedule 6.6, there are no preferential rights to purchase or similar rights with respect to the Assets that are applicable to the 

 

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transactions contemplated by this Agreement (each such applicable preferential right listed on Schedule 6.6, a “Preferential Right”).

 

6.7          Liability for Brokers’ Fees.  Such Seller has not incurred any liability, contingent or otherwise, for investment bankers’, brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Buyers shall have any responsibility whatsoever.

 

6.8          Bankruptcy.  There are no bankruptcy or insolvency proceedings pending by or against, being contemplated by or, to Seller’s Knowledge, threatened against such Seller.

 

6.9          Litigation.  Except as set forth on Schedule 6.9, as of the Execution Date there are no actions, suits or proceedings pending by or against such Seller with respect to the Assets, or, to Seller’s Knowledge, threatened against such Seller with respect to the Assets, in each case, in any court, arbitration proceeding or other Dispute resolution venue by or before any Governmental Entity, which, if determined adversely to such Seller, would have a Material Adverse Effect.

 

6.10        Material Agreements.

 

(a)           Schedule 6.10(a) lists all of the following types of Applicable Contracts in effect as of the Execution Date (the “Material Agreements”):

 

(1)           any Applicable Contract between such Seller, on the one hand, and any Affiliate of such Seller, on the other hand;

 

(2)           any Applicable Contract for (A) the sale, exchange, or other disposition of Hydrocarbons produced from or attributable to the Assets or (B) the purchase, sale, processing, transportation or other disposal of any such Hydrocarbons, in each case, that is not cancelable without penalty or other payment on not more than 60 days’ prior written notice, other than terms of joint operating agreements or gas balancing agreements which permit an operator or other co-owner to take or market production of a non-taking co-owner;

 

(3)           any Applicable Contract requiring such Seller to sell, lease, farm-out, or otherwise dispose of any interest in any of the Properties after the Execution Date, other than non-consent penalties for non-participation in operations under joint operating agreements or conventional rights of reassignment arising in connection with such Seller’s surrender or release of any of the Properties;

 

(4)           any Applicable Contract that creates any area of mutual interest or similar provision with respect to the Assets or contains any material restrictions on the ability of such Seller to compete with any other Person;

 

(5)           any Applicable Contract that can reasonably be expected to result in aggregate payments by, or revenues to, such Seller, in each case, only with respect to the Assets, of more than $250,000 during the current fiscal year or $500,000 in the aggregate over the term of such Contract;

 

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(6)           any Applicable Contract that is an agreement for Indebtedness;

 

(7)           any Applicable Contract that is a drilling contract, unitization agreement, unit operating agreement, joint operating agreement, exploration agreement, development agreement, participation agreement, joint venture agreement or similar agreement;

 

(8)           any Applicable Contract that contains any rights allowing a Third Party to participate in any sales or purchases of any of the Assets that are triggered by or applicable to the transactions contemplated by this Agreement; and

 

(9)           any Applicable Contract that constitutes a lease under which such Seller is the lessor or the lessee of personal property which lease (A) cannot be terminated by such Person without penalty upon 60 days or less notice and (B) involves an annual base rental of more than $50,000.

 

(b)           Except as otherwise set forth on Schedule 6.10(b), such Seller is in default in any material respect under any Material Agreement and, to Seller’s Knowledge, no other party to any Material Agreement is in default in any material respect thereunder.  To Seller’s Knowledge, no event has occurred that, with notice, lapse of time or both, would constitute a default in any material respect under any Material Agreement.  During the Due Diligence Period for purposes of the Due Diligence Review, such Seller has or will make available to Buyers prior to Closing, true and complete copies of the Material Agreements.

 

6.11        AFEs.  As of the Execution Date, all outstanding authorizations for expenditures or other similar capital commitments relating to the Assets to drill or rework Wells or build gathering systems or other facilities (“AFEs”), that in each case, will be binding upon Buyers or the Assets as of the Effective Time, are set forth in Schedule 6.11.  For the avoidance of doubt, the amounts shown on Schedule 6.11 with respect to such AFEs are estimates.

 

6.12        Taxes.  Except as disclosed on Schedule 6.12, (a) all Tax Returns relating to or in connection with such Seller’s acquisition, ownership, or operation of the Assets required to be filed have been timely filed and all such Tax Returns are correct and complete in all material respects; (b) subject to any Taxes which such Seller disputes in good faith and which are listed on Schedule 6.12, all material Taxes relating or applicable to such Seller’s acquisition, ownership or operation of the Assets that are or have become due have been timely paid, and such Seller is not delinquent in the payment of any such material Taxes; (c) there is not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax of such Seller relating to such Seller’s acquisition, ownership or operation of the Assets; (d) there are no administrative or judicial proceedings pending or threatened in writing against the Assets or against such Seller relating to or in connection with the Assets by any taxing authority with respect to Taxes; (e) there are no Liens on any of the Assets that arose in connection with such Seller’s failure (or alleged failure) to pay any Tax other than Permitted Encumbrances; (f) such Seller is not a foreign person within the meaning of Section 1445(f) of the Code; and (g) all Tax withholding and deposit requirements imposed by applicable Law with respect to any of the Assets or the business of such Seller have been satisfied in all material respects.

 

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6.13        Tax Partnerships.  None of the Assets are held by or are subject to any arrangement between such Seller and any other Persons, whether owning undivided interests therein or otherwise, that is treated as or constitutes a partnership for purposes of Subchapter K of Chapter 1 of Subtitle A of the Code (a “Tax Partnership”).

 

6.14        Compliance with Law and Government Authorizations.

 

(a)           Except as would not have a Material Adverse Effect, such Seller (if such Seller is the operator of the Assets) or, to Seller’s Knowledge, any Third Party operator of the Assets has obtained and is maintaining all Governmental Authorizations that are presently necessary or required by it to own and operate the Assets as the Assets are presently owned and operated.

 

(b)           Except as provided on Schedule 6.14, no written notice of violation of Law or a Governmental Authorization has been received by such Seller from a Governmental Entity with respect to the Assets.

 

(c)           Except as would not have a Material Adverse Effect with respect to the Assets operated by Seller, and to Seller’s Knowledge with respect to the Assets not operated by the Seller, the Assets are being operated in compliance with all applicable Laws.

 

Notwithstanding the foregoing, this Section 6.14 does not relate to any Tax matters, which are exclusively addressed in Section 6.12 and Section 6.13, or Environmental Laws, which are exclusively addressed in ARTICLE 5 and in Section 6.15.

 

6.15        Environmental Matters.  Except as referenced in Schedule 6.15 or as would not have a Material Adverse Effect:

 

(a)           such Seller has not entered into any agreements, orders, decrees, judgments, license or permit conditions, or other directives of any Governmental Entity in existence as of the Execution Date based on any prior violations of Environmental Laws that materially impairs the future ownership or use of any of the Assets or that currently requires any Remediation as to any of the Assets.

 

(b)           As of the Execution Date, neither such Seller (if such Seller is the operator of the Assets), nor to Seller’s Knowledge any Third Party operator of the Assets, has received written notice from any Governmental Entity of any Condition concerning any Asset that (1) materially interferes with or prevents compliance by such Seller or the Assets with any Environmental Law or the terms of any Governmental Authorization relating to Environmental Laws, or (2) gives rise to or results in any common Law or other liability of such Seller to any Person.

 

6.16        Payments for Production; Calls on Production.

 

(a)           such Seller has not: (1) received any advance, “take-or-pay” or other similar payments under production sales Contracts applicable to the Assets that entitle the purchasers to “make up” or otherwise receive deliveries of Hydrocarbons without paying at such time the contract price therefor; or (2) other than in accordance with gas balancing 

 

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arrangements and non-consent provisions in Contracts, received any advance payment or other similar payment to deliver Hydrocarbons produced from, or attributable to, the Assets, or proceeds from the sale thereof, at some future time, without receiving payment therefor at or after the time of delivery.

 

(b)           To the Seller’s Knowledge, no Person has any call upon, option to purchase or similar rights with respect to the Hydrocarbon production from the Assets, except as set forth on Schedule 6.16(b).

 

6.17        Well Status and Abandonments.  Except as referenced on Schedule 6.17 and as would not have a Material Adverse Effect (a) to Seller’s Knowledge, all Wells that have been permanently abandoned were abandoned in accordance with all applicable Laws; and (b) such Seller has not received any written notices from any applicable Governmental Entities that: (1) any such permanently abandoned Wells were not abandoned in accordance with all applicable Laws; or (2) there are any Wells for which permanent abandonment is presently required for compliance with applicable Laws.

 

6.18        Bonds and Credit Support.  Except as referenced on Schedule 6.18, there are no bonds, letters of credit and other similar credit support instruments maintained by such Seller or its Affiliates with respect to such Seller’s ownership and operation of the Assets.

 

6.19        Suspense Funds.  Except as set forth in Schedule 6.19, as of the date set forth on such Schedule, such Seller does not hold any Third Party funds in suspense with respect to production of Hydrocarbons from any of the Properties other than amounts less than the statutory minimum amount that such Seller is permitted to accumulate prior to payment.

 

6.20        Imbalances.  Schedule 6.20 sets forth all material Imbalances associated with the Assets as of the Effective Time.

 

6.21        Insurance.  Schedule 6.21 lists each material insurance policy maintained by such Seller that relates or provides coverage to the Assets (the “Policies”).  Except as set forth on Schedule 6.21, there are no claims pending with respect to any Policies.

 

6.22        Royalties.  Except as disclosed on Schedule 6.22 and for such items that are not yet due or are being held in suspense as permitted pursuant to applicable Law, to Seller’s Knowledge, such Seller has paid, in all material respects, all royalties, overriding royalties and other burdens on production due by such Seller with respect to the Properties.

 

ARTICLE 7
 BUYER’S AND EVOC’S REPRESENTATIONS AND WARRANTIES

 

Each Buyer and EVOC represents and warrants to Sellers as follows:

 

7.1          Organization and Standing.

 

(a)           Buyer is a limited partnership duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is duly qualified to carry on its business in Oklahoma, Texas and such other jurisdictions as may be necessary, except where 

 

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the failure to be so qualified would not have a material adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement and perform its obligations hereunder.

 

(b)           EVOC is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is duly qualified to carry on its business in Oklahoma, Texas and such other jurisdictions as may be necessary, except where the failure to be so qualified would not have a material adverse effect on the ability of Buyers to consummate the transactions contemplated by this Agreement and perform their obligations hereunder.

 

7.2          Power.  Buyer/EVOC, has all requisite entity power and authority to carry on its business as presently conducted, to enter into this Agreement and the other documents to be delivered by Buyer/EVOC at Closing pursuant to this Agreement and to perform its obligations hereunder and thereunder.

 

7.3          No Conflicts.  The execution, delivery and performance by Buyer/EVOC of this Agreement and the other documents to be delivered by Buyer/EVOC at Closing pursuant to this Agreement and the consummation of the transactions contemplated herein and therein does not and will not (a) conflict with or result in a breach of any provisions of the Governing Documents of Buyer/EVOC, (b) result in a default or the creation of any Lien or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions, or provisions of any note, bond, mortgage or indenture to which Buyer/EVOC is a party or by which Buyer/EVOC or any of its property may be bound or (c) violate any Law applicable to Buyer/EVOC or any of its property, except in the case of clauses (b) and (c) where such default, Lien, termination, cancellation, acceleration or violation would not have a material adverse effect upon the ability of Buyer/ EVOC to consummate the transactions contemplated by this Agreement or perform its obligations hereunder.

 

7.4          Authorization and Enforceability.  Assuming the due authorization, execution and delivery by Sellers of this Agreement and the other documents to be delivered by Sellers at Closing pursuant to this Agreement, this Agreement constitutes, and the other documents to be delivered by Buyer/EVOC at Closing pursuant to this Agreement will constitute, Buyer’s/ EVOC’s legal, valid and binding obligations, enforceable in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and similar Laws, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

7.5          Consent.  No Consent is required to be obtained with respect to the consummation the transactions contemplated by this Agreement by Buyer/EVOC.

 

7.6          Liability for Brokers’ Fees.  Buyer/EVOC has not incurred any liability, contingent or otherwise, for investment bankers’, brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Sellers shall have any responsibility whatsoever.

 

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7.7                               Bankruptcy.  There are no bankruptcy or insolvency proceedings pending by or against, being contemplated by or, to Buyer’s Knowledge, threatened against Buyer/EVOC or its Affiliates.

 

7.8                               Litigation.  There is no action, suit, proceeding, Claim or investigation by any Governmental Entity, court, arbitral authority or other Person pending by or against Buyer/EVOC or, to Buyer’s Knowledge, threatened against Buyer/EVOC, in each case, in any court, arbitration proceeding or other Dispute resolution venue by or before any Governmental Entity that impedes or is likely to impede Buyer’s ability to consummate the transactions contemplated by this Agreement and to perform its obligations hereunder.

 

7.9                               Financial Resources and Other Capability.  Buyer has the financial resources available to consummate the transactions contemplated by this Agreement, to pay the Purchase Price and to pay any and all fees and expenses incurred by Buyer in connection with the transactions contemplated by this Agreement.  Buyer has the financial, technical and other capabilities to perform all of Buyer’s other obligations under this Agreement and all of the obligations assumed from Sellers under the Assets.

 

7.10                        No Benefit Plan Investor. Buyer acknowledges that it is not a “benefit plan investor” and none of the assets of Buyer include “plan assets” (as such terms are defined under Department of Labor Regulation Section 2510.3-101, as modified by Section 3(42) of the Employee Retirement Income Security Act of 1974, as amended).

 

7.11                        Qualifications. Buyers are qualified to own, and EVOC is qualified to operate the Assets in all jurisdictions where such Assets are located, and the consummation of the transactions contemplated by this Agreement will not cause Buyer to be disqualified as such owner or EVOC to be disqualified as such operator. Buyer currently has lease bonds and any other surety bonds as may be required by, and in accordance with, all applicable Laws governing the ownership and operation of the Assets. To Buyer’s and EVOC’s knowledge, there are no matters or circumstances applicable to Buyer or to EVOC that would preclude or inhibit unconditional approval by Governmental Authorities of the assignment of the Assets from Seller to Buyer.

 

7.12                        Buyer’s Evaluation.

 

(a)                                 Review.  Buyer is an experienced and knowledgeable investor in the oil and gas industry and is aware of the possibility of risks in the acquisition of oil and gas assets.  Buyer acknowledges that Sellers have not made any representations or warranties as to the Assets except as expressly and specifically provided in ARTICLE 6, the affirmations of such representations and warranties contained in the certificate to be delivered by Sellers at Closing pursuant to Section 12.3(g) and the special warranty set forth in the Assignment, and that Buyer may not rely on any other representations or warranties made by Sellers or Sellers’ Representatives or on any of Sellers’ estimates with respect to reserves or the value of the Assets, or any projections as to future events or other analyses or forward looking statements.

 

(b)                                 Independent Evaluation.  In entering into this Agreement, except for the representations and warranties expressly and specifically provided in ARTICLE 6, the 

 

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affirmations of such representations and warranties contained in the certificate to be delivered by Sellers at Closing pursuant to Section 12.3(g) and the special warranty set forth in the Assignment, Buyer acknowledges and affirms that it has relied and will rely solely on the terms of this Agreement and the Assignment and upon its independent analysis, evaluation and investigation of, and judgment with respect to, the business, economic, legal, environmental, tax or other consequences of this transaction, including its own estimate and appraisal of the extent and value of the Hydrocarbon reserves or other value of the Assets.  As of Closing, Buyers have been afforded full access to the books and records, facilities and personnel of Sellers for purposes of conducting a due diligence investigation and has conducted a full due diligence investigation of Sellers and the Assets.

 

7.13                        Securities Law Compliance.  Buyer is acquiring the Assets for its own account for use in its trade or business, and not with a view toward or for sale associated with any distribution thereof, nor with any present intention of making a distribution thereof within the meaning of the Securities Act and applicable state securities Laws.  Buyer is an “accredited investor” within the meaning of Regulation D of the Securities Act.

 

ARTICLE 8
 COVENANTS AND AGREEMENTS

 

8.1                               Covenants and Agreements of Sellers.  Except (w) as set forth in Schedule 2.4(c) or Schedule 8.1, (x) for and in connection with the operations pursuant to any AFE listed on Schedule 6.11, (y) as required pursuant to the terms of any Material Agreement, Lease or Surface Contract, or (z) as consented to in writing by Buyers (such consent not to be unreasonably withheld, delayed or conditioned):

 

(a)                                 Operations Prior to Closing.  Sellers shall:

 

(1)                                 cause the Assets operated by Sellers, and use their commercially reasonable efforts to cause the Assets operated by Third Parties, to be operated in a manner consistent in all material respects with past practice;

 

(2)                                 notify Buyers if Sellers obtain Knowledge of any Third Party Claim materially affecting the Assets or notice from a Third Party of any default by Sellers under any Material Agreement; and

 

(b)                                 Restriction on Operations.  Without Buyers’ approval, Sellers shall not:

 

(1)                                 convey, sell, transfer or abandon any part of the Assets except, upon two Business Days prior notice to Buyers, (A) Leases that have terminated in the ordinary course of business based upon the expiration of the primary terms of such Leases, (B) Leases that are, in Sellers’ good faith and reasonable opinion, no longer capable of production in paying quantities, (C) sales of Equipment or facilities in the ordinary course of business, or (D) sales of Hydrocarbons produced from, or attributable to, the Assets in the ordinary course of business;

 

(2)                                 approve or propose any operations anticipated in any instance to cost the owner of the Assets more than $250,000, net to the Assets, per activity or per any 

 

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series of related activities, except for (A) any operations in the ordinary course of business, (B) emergency operations, (C) any operations required under applicable Laws, or (D) any operations necessary to avoid a material monetary penalty or forfeiture provision under any applicable Lease, Surface Contract, Applicable Contract or Law; provided, however, that Sellers shall forward to Buyers the applicable AFE with respect to any operation that does not require approval pursuant to this Section 8.1(b)(2);

 

(3)                                 enter into any farm-out, farm-in or other similar Contract affecting the Assets;

 

(4)                                 let lapse any of Sellers’ insurance now in force with respect to the Assets;

 

(5)                                 modify or terminate any Material Agreement, other than any such Material Agreement that terminates according to its terms;

 

(6)                                 enter into any Contract that, if in existence as of the Execution Date, would be a Material Agreement;

 

(7)                                 waive, release, assign, settle or compromise any claim, action or proceeding relating to the Assets, other than waivers, releases, assignments, settlements or compromises that involve only the payment of monetary damages not in excess of $250,000 individually or in the aggregate, net to the Assets, (excluding amounts to be paid under insurance policies); provided, however, that the restrictions contained in this Section 8.1(b)(7) shall not apply to any of the claims, actions or proceedings listed on Schedule 6.9; or

 

(8)                                 authorize or agree, in writing or otherwise, to take any of the actions prohibited by this Section 8.1(b).

 

(c)                                  Derivative Transactions. To the extent that doing so would not cause any Seller to be in violation of any provision of any agreement (including, without limitation, any credit agreement, indenture, other loan or similar document) to which it is a party or otherwise cause any Seller to be in breach of any representation and warranty contained in this Agreement, Laredo shall use its reasonable efforts to enter into, but only to the extent as mutually agreed upon by Sellers and Buyers, hedging transactions (which are capable of being transferred to, or novated in favor of, Buyers) covering that portion of production from the Assets as described on Schedule 8.1(c).  Upon execution of this Agreement, Laredo shall, in consultation with Buyers, obtain quotations from counterparties with whom Laredo has current ISDA agreements for straight swaps for quantities of production from the future proved developed producing oil and gas reserves attributable to the Assets.  Upon receipt of written instruction from the Buyers directing Laredo which swaps to enter into and with which counterparty, subject to the indemnities set forth herein, Laredo shall use its reasonable efforts to execute, for the benefit and liability of Buyers, such transactions with the counterparty providing the terms acceptable to the Buyers as set forth in such instruction (the “Hedging Transactions”).  Buyers shall promptly  reimburse the Sellers for all costs and expenses associated with the execution of the Hedging Transactions.  At Closing, all such Hedging Transactions shall be transferred to, or novated in 

 

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favor of, Buyers.  Whether or not the Closing occurs, Buyers shall pay, be responsible for, release, defend, indemnify and hold Sellers and the other Seller Indemnified Parties harmless from and against any and all (i) costs and expenses of entering into the Hedging Transactions, (ii) costs and expenses related to transferring to, or novating in favor of, Buyers and (iii) costs, expenses and other liabilities arising from or attributable to the Hedging Transactions.  In the event that this Agreement is terminated prior to Closing, Laredo may, at its sole election, unwind any or all of the Hedging Transactions; but in any event, Buyers shall release, defend, indemnify and hold Sellers and the other Seller Indemnified Parties harmless from and against any and all losses, costs, expenses or other liabilities arising from or related to the Hedging Transactions, and shall make any required payments to Sellers and the other Seller Indemnified Parties within ten Business Days after receipt of an invoice with respect thereto.

 

(d)                                 Consents.  For the purposes of obtaining the written consents for AFEs required in Section 8.1(b)(2), Buyers designate the following contact Person:  Bill Page, at the address and telephone number for Buyers set forth in Section 15.3.  Such consents may be obtained in writing by overnight courier or given by .pdf or facsimile transmission.  Buyers agree that they will (1) timely respond to any written request for consent pursuant to Section 8.1(b)(2), and (2) consent to any written request for approval of any AFE that the officers of Sellers reasonably consider to be economically viable.  Buyers’ consent shall be considered granted within ten days (unless a shorter time, not to be less than 48 hours, is reasonably required by the circumstances and the applicable joint operating agreement and such shorter time is specified in Sellers’ request for consent) after Buyers’ receipt of such request for such consent, unless Buyers notify Sellers to the contrary during that period.

 

(e)                                  Disclaimer.  Buyers acknowledge that Sellers own undivided interests in certain of the Assets with respect to which they are not the operator, and Buyers agree that the acts or omissions of the other Working Interest owners (including the operators) who are not Sellers or any of Sellers’ Affiliates and which Sellers do not have the contractual right to control shall not constitute a breach of the provisions of Section 8.1, nor shall any action required by a vote of Working Interest owners in and of itself constitute such a breach so long as Sellers have voted their interest in a manner that complies with the provisions of Section 8.1.

 

8.2                               Covenants and Agreements of Buyers and EVOC, as Applicable.

 

(a)                                 Change of Name.  As promptly as practicable, but in any case within 120 days after the Closing Date, Buyers and EVOC shall use their reasonable efforts to (1) eliminate the name “Laredo” and any variants thereof from the Assets, (2) cease using in any way the word “Laredo” with respect to the Assets, and (3) remove and cease to use all trademarks associated with Sellers or their Affiliates with respect to the Assets.  Except with respect to such grace period for eliminating existing usage, for the avoidance of doubt, Buyers and EVOC shall have no right to use any logos, trademarks or trade names belonging to Sellers or any of their Affiliates.  FROM AND AFTER THE CLOSING, BUYERS HEREBY WAIVE, RELEASE AND AGREE TO JOINTLY AND SEVERALLY, DEFEND, INDEMNIFY AND HOLD HARMLESS SELLERS AND THE OTHER SELLER INDEMNIFIED PARTIES FROM AND AGAINST ANY LOSSES ARISING OUT OF, OR IN ANY WAY ATTRIBUTABLE TO, THE USE OF THE WORD “LAREDO” WITH RESPECT TO THE ASSETS OR OTHERWISE IN RELATION TO ANY BREACH BY BUYERS OR EVOC OF THEIR 

 

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OBLIGATIONS UNDER THIS SECTION 8.2(A), EVEN IF SUCH LOSSES ARISE OUT OF OR RESULT FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, GROSS, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE SELLER INDEMNIFIED PARTIES.

 

(b)                                 Governmental Bonds.  Buyers and EVOC acknowledge that none of the bonds, letters of credit and guarantees, if any, posted by Sellers or their Affiliates with Governmental Entities and relating to the Assets are transferable to Buyers or EVOC.  On or before the Closing Date, Buyers and EVOC shall obtain, or cause to be obtained in the name of the Buyers and EVOC, replacements for such bonds, letters of credit and guarantees to the extent such replacements are necessary (1) for Buyers’ ownership and EVOC’s operation of the Assets and (2) to permit the cancellation of the bonds, letters of credit and guarantees posted by Sellers and/or their Affiliates with respect to the Assets.  In addition, at or prior to Closing, Buyers and EVOC shall deliver to Sellers evidence of the posting of bonds or other security with all applicable Governmental Entities meeting the requirements of such authorities to own and, where appropriate, operate, the Assets.

 

(c)                                  Confidentiality.  As used herein, the term “Confidential Information” means all proprietary information of whatever nature, in whatever form (including oral, written, graphic, digital, electronic or otherwise), which may be disclosed by Sellers or their Representatives to Buyers or their Representatives, or otherwise obtained by Buyers or their Representatives, regarding the Assets (whether pursuant to Buyers’ Due Diligence Review or otherwise), including the following types of information, documents and other materials: (w) geological, geophysical, drilling, engineering, production, operational, reserve, reservoir and other technical, leasehold, land, environmental, financial, commercial and other data, plats, models, plans, analyses, reports, contracts and other materials; (x) the existence and contents of any proposal, discussion, negotiation, understanding or agreement involving the Parties in respect of the Assets, including with respect to the transactions contemplated by this Agreement; (y) all reproductions, transcriptions, reports, summaries, extracts, restatements, analyses, interpretations, sketches, notes and other materials, in whatever form, which may be generated by Buyers from any Confidential Information previously received by Buyers; and (z) Third Party Proprietary Data.

 

(1)                                 Subject to Section 8.2(c)(2) and Section 8.2(c)(3), Buyers agree that all Confidential Information shall, in accordance with the Confidentiality Agreement and this Agreement, be kept strictly confidential and shall not be sold, traded, published, transferred or otherwise disclosed to any other Person in any manner whatsoever, including electronically or by any other means of reproduction or transmittal, without Sellers’ specific prior written consent.  Without limiting the scope of Buyers’ obligations under the immediately preceding sentence, Buyers shall take protective measures for the Confidential Information which are at least as stringent as for its own confidential and proprietary information.

 

(2)                                 Buyers may disclose Confidential Information without Sellers’ prior written consent only to the extent that such disclosed Confidential Information: (A) at the time disclosed, is part of the public domain other than through the act or omission of 

 

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Buyers or their Representatives in violation of the provisions of this Section 8.2(c); (B) was, prior to the Effective Time, acquired independently by Buyers from a Third Party who (i) lawfully obtained such Confidential Information, and (ii) did not derive such Confidential Information directly or indirectly from Sellers or its Representatives; (C) is developed by Buyers or any of their Affiliates independently, and without the use of or reference to, any of the Confidential Information; or (D) is required to be disclosed by Buyers under applicable Law, including any recognized securities exchange on which the shares of Buyers or any of their Affiliates are actively traded; provided that Buyers will make all reasonable efforts to give Sellers prior written notice of any such required disclosure and the opportunity to seek a protective order if Sellers wish, all to the extent permitted by applicable Law; provided further, if Sellers wish, but are unable, to obtain such protective order prior to any such required disclosure, then (I) Buyers may disclose to the appropriate Governmental Entity or other authority that portion of the Confidential Information which Buyers are legally required to disclose and Buyers shall use all reasonable efforts to obtain assurances that confidential treatment will be accorded to the Confidential Information and (II) Buyers shall not be liable to Sellers for such disclosure to the extent made in accordance with this Section.

 

(3)                                 Notwithstanding the foregoing, Buyers may disclose Confidential Information to any of their Affiliates and other Representatives without Sellers’ prior written consent, provided that Buyers shall remain liable hereunder for any failure of such Affiliate or other Representative to maintain such Confidential Information as strictly confidential in accordance with the terms of this Section 8.2(c).  Buyers shall ensure that each such Affiliate and other Representative is aware of Buyers’ obligations under this Section 8.2(c) and shall ensure compliance by each such Affiliate and other Representative with all such obligations.

 

(d)                                 Qualifications. Buyers shall continue to be qualified to own, and EVOC shall continue to be qualified to operate the Assets in all jurisdictions where such Assets are located. Buyers and/or EVOC, as applicable, will continue to maintain lease bonds and any other surety bonds as may be required by, and in accordance with, all applicable Laws governing the ownership and operation of the Assets.

 

(e)                                  Future Assumption of Liabilities.  In the event that (i) any Buyer or any of its successors or assigns conveys, assigns, or otherwise transfers all or substantially all of their properties or assets to any Person; (ii) any Buyer or any of its successors or assigns conveys, assigns, or otherwise transfers all or any portion of the Assets to any Person; or (iii) any dissolution, liquidation, termination, merger, consolidation or other reorganization of any Buyer occurs, then, and in each such case, such assignment, conveyance, transfer, or change shall expressly provide that the successors, assigns and transferees of any Buyer and any of its successors, assigns or transferees shall assume and continue to be responsible for the Assumed Liabilities set forth in this Agreement.  Each Buyer agrees that the covenants set forth in this Section 8.2(e) shall run with title to the Leases/Lands and shall be incorporated at Closing into each Assignment conveying the Leases/Lands to such Buyer.  Each Buyer hereby acknowledges  Sellers’ reliance on this Section 8.2(e) and that same is a material part of this Agreement, agrees that the Purchase Price reflects Buyers’ agreement to the covenants set forth in this Section 8.2(e), and acknowledges further that, without this Section 8.2(e), Sellers would not have entered 

 

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into this Agreement.  The provisions contained in this Section 8.2(e) shall expressly survive Closing and delivery and recording of each Assignment.

 

8.3                               Covenants and Agreements of the Parties.

 

(a)                                 Communication Between the Parties Regarding Breach.  If Buyers or Sellers obtain Knowledge prior to Closing that leads either Party to believe that the other Party has breached a representation or warranty or failed to perform a covenant or agreement under this Agreement, the non-breaching Party shall inform the alleged breaching Party in writing of such potential breach as soon as reasonably practicable so that the breaching Party may attempt to remedy or cure such breach prior to the Closing.  If such breach or failure is thereafter cured to the reasonable satisfaction of the non-breaching Party by the Closing (or, if the Closing does not occur, by the date this Agreement terminates), then such breach or failure shall be deemed not to have occurred for all purposes of this Agreement.

 

(b)                                 Casualty Loss.  Prior to Closing, if a portion of the Assets is destroyed or materially damaged by fire or other casualty or if a material portion of the Assets is taken or threatened to be taken in condemnation or under the right of eminent domain (each, a “Casualty Loss”), Sellers shall promptly advise Buyers in writing of such Casualty Loss and shall elect, by the delivery of written notice to Buyers at least five Business Days prior to the Closing Date (or, if the Casualty Loss occurs after such date and prior to Closing, as soon as reasonably practicable prior to the Closing Date), either of the following: (1) to retain the Asset affected by the Casualty Loss and reduce the Purchase Price by the Allocated Value of such Asset; or (2) with the consent of Buyers, such consent not to be unreasonably withheld, conditioned or delayed, to assign such Asset to Buyers without any reduction of the Purchase Price, subject to the assignment to Buyers of all insurance proceeds received by Sellers (net of any Taxes incurred thereon by Sellers) as to such Casualty Loss.

 

(c)                                  Successor Operator.  Sellers are designated as operator of certain Assets pursuant to joint operating agreements with Third Parties included in the Applicable Contracts.  Buyers acknowledge that such Third Parties may not agree to allow EVOC to succeed Sellers as operator under such joint operating agreements or may exercise other rights that they may have which would preclude EVOC from succeeding Sellers as operator.  Buyers and EVOC specifically acknowledge and agree that Sellers have made no representation, warranty or other guarantee that EVOC will succeed Sellers as operator under any joint operating agreement; provided that Sellers shall use their commercially reasonably efforts, if requested by Buyers and/or EVOC, to support EVOC’s succession of Sellers as operator as to any of the Assets currently operated by Sellers, subject to the provisions of any applicable joint operating agreement and subject to the payment by Buyers and/or EVOC of any required fee or other consideration.  It is expressly understood and agreed that neither Sellers nor any of their Affiliates shall be obligated to continue operating any of the Assets following the Closing, and Buyers assume full responsibility for operating (or causing the operation of) all Assets following Closing.  Without implying any obligation on Sellers’ part to continue operating any Assets after the Closing, if Sellers or any of their Affiliates continue to operate any Assets following the Closing at the request of Buyers or any third party working interest owner, due to constraints of applicable joint operating agreements, failure of a successor operator to take over operations or other reasonable cause, such continued operation by such Person shall be for the 

 

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account of Buyers and at the sole risk, cost and expense of Buyers (including such Person’s overhead) and Buyers release and indemnify Sellers and the other Seller Indemnified Parties from any liabilities in connection with such operations, except to the extent caused by gross negligence or willful misconduct of Sellers or any of their Affiliates.

 

(d)                                 Employees of Sellers.  Buyers and EVOC agree that, without Sellers’ prior written consent and excepting only as expressly otherwise provided below, until one year after the Closing Date, Buyers and EVOC will not, directly or indirectly, solicit for employment any employee of Sellers or any of their Affiliates who have provided services in relation to the Assets or with whom Buyers or EVOC have had contact or who became known to Buyers or EVOC in connection with Buyers’ consideration of the transactions contemplated by this Agreement, except as to the Available Employees (as defined below); provided that, so long as Buyers and EVOC have not breached their obligations hereunder, Buyers and EVOC shall not be precluded from hiring any such employee or other Person who (1) responds to any advertisement to the public or the industry generally that is not directly or indirectly targeted at employees of the Sellers or any of their Affiliates, or (2) has been terminated (and not rehired) by Sellers or any of their Affiliates at least six months prior to commencement of employment discussions between Buyers or EVOC and such employee or other Person.  Buyers, EVOC or their Affiliates, in their sole discretion, may make offers of employment to those certain of the Sellers’ employees listed in Schedule 8.3(d) (the “Available Employees”).  From and after the Execution Date until the Closing Date, Sellers shall reasonably cooperate with Buyers and EVOC in permitting Buyers, EVOC or their Affiliates, upon reasonable notice to Sellers, reasonable access to the Available Employees to interview such Available Employees during normal business hours and to communicate any information concerning employment offers and employment with Buyers, EVOC or their Affiliates.  Without limitation to the foregoing, however, Sellers shall have the right to make competing offers to the Available Employees to remain employees of Sellers.

 

(e)                                  Government Reviews.  In a timely manner, the Parties and EVOC shall (1) make all required filings, prepare all required applications and conduct negotiations with each Governmental Entity as to which such filings, applications or negotiations are necessary or appropriate in the consummation of the transactions contemplated hereby and (2) provide such information as each may reasonably request to make such filings, prepare such applications and conduct such negotiations.  Each Party and EVOC shall reasonably cooperate with and use all commercially reasonable efforts to assist the other with respect to such filings, applications, and negotiations.  Without limiting the foregoing, if the Parties determine that a filing under the HSR Act is required, then, within ten Business Days following the Execution Date, the Parties will prepare and file with the DOJ and the FTC the notification and report form required by the HSR Act for the transactions contemplated by this Agreement, and request early termination of the waiting period thereunder.  Each of the Parties agree to respond promptly to any inquiries from the DOJ or the FTC concerning such filings and to comply in all material respects with the filing requirements of the HSR Act.  The Parties shall cooperate with each other and shall promptly furnish all information to the other Parties that is necessary in connection with Buyers’ compliance with the HSR Act.  The Parties shall use their commercially reasonable efforts to take all actions reasonably necessary and appropriate in connection with any HSR Act filing to consummate the transactions consummated hereby.  All filing fees incurred in 

 

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connection with the HSR Act filings made pursuant to this Section 8.3(e) shall be borne one-half by Buyers and one-half by Sellers.

 

(f)                                   Amendment of Schedules.  Buyers agree that Sellers shall have the continuing right until Closing to add, supplement or amend the Schedules and Exhibits with respect to any matter hereafter arising or discovered which, if existing or known as of the Execution Date or thereafter, would have been required to be set forth or described in such Schedules.  Simultaneously with any such addition, supplement or amendment, Sellers shall provide copies thereof to Buyers.  For purposes of determining whether the conditions set forth in ARTICLE 10 have been fulfilled, the Schedules to Sellers’ representations and warranties contained in ARTICLE 6 shall be deemed to include only that information contained therein on the Execution Date and shall be deemed to exclude all information contained in any addition, supplement or amendment thereto; provided, however, that if Closing shall occur, then all matters disclosed pursuant to any such addition, supplement or amendment at or prior to Closing which relate to events, actions or omissions which arose or relate to periods of time between the Execution Date and Closing shall be waived and deemed part of the Schedules for all purposes and Buyers shall not be entitled to make any Claim with respect thereto pursuant to the terms of this Agreement or otherwise.  For the avoidance of doubt and notwithstanding anything in the foregoing to the contrary (1) Buyers shall be entitled to make a Claim pursuant to Section 14.2(a)(1) with respect to any addition, supplement or amendment of the Schedules to Sellers’ representations and warranties contained in ARTICLE 6 pursuant to this Section 8.3(f) to the extent (and only to the extent) that the event, action or omission which gave rise to such addition, supplement or amendment arose or related to periods of time prior to the Execution Date, and (2) Sellers shall be entitled to supplement, modify and/or amend Schedule 1.1(c) prior to Closing, and such Schedule (as so supplemented, modified and/or amended) shall, for all purposes under this Agreement (including ARTICLE 10 and Section 12.3), be deemed to include all the information contained therein on the Closing Date.

 

(g)                                  Confidentiality Agreement.  Upon the Closing Date, the Parties agree that the Confidentiality Agreement shall terminate.

 

ARTICLE 9
 TAX MATTERS

 

9.1                               Asset Tax Liability.  Subject to the treatment of real property Taxes, personal property Taxes and similar ad valorem Taxes (“Property Taxes”) provided below, all Asset Taxes for Tax periods that begin before and end on or after the Effective Time shall be allocated between Buyers and Sellers as of the Effective Time for all taxable periods that include the Effective Time.  All Asset Taxes that are not Property Taxes shall be allocated to Sellers to the extent they relate to Hydrocarbon production prior to the Effective Time and to Buyers to the extent they relate to Hydrocarbon production on or after the Effective Time.  No liability for Asset Taxes shall duplicate an adjustment to Purchase Price made pursuant to Section 2.4.  Property Taxes for each assessment period shall be allocated to Sellers based on the percentage of the assessment period occurring before the Effective Time and to Buyers based on the percentage of the assessment period occurring on or after the Effective Time.  Each Party shall  promptly furnish to the other Party copies of any Asset Tax assessments and statements (or invoices therefor from any applicable Third Party operator of the Assets) received by it, to the 

 

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extent such assessment, statement, or invoice relates to an Asset Tax allocable to the other Party under this Section 9.1.  Sellers shall estimate all Asset Taxes asserted against it that are attributable to the ownership or operation of the Assets to the extent relating to the period on and after the Effective Time and through the Closing Date, together with all Subject Transfer Taxes, and incorporate such estimates into the Preliminary Settlement Statement.  The actual amounts (to the extent the actual amounts differ from the estimates included in the Preliminary Settlement Statement and are known at the time of the Final Settlement Statement) shall be accounted for in the Final Settlement Statement. If the actual amounts are not known at the time of the Final Settlement Statement, the amounts shall be re-estimated, as necessary, based on the best information available at the time of the Final Settlement Statement.

 

9.2                               Transfer Taxes.  All sales, use, transfer, stamp, documentary, registration, value-added and other similar Taxes (including all applicable real estate transfer Taxes but excluding Taxes on gross income, net income, gross receipts or margin), duties, levies, recording fees or other governmental charges incurred by or imposed with respect to the property transfers undertaken pursuant to this Agreement (“Subject Transfer Taxes”) shall be the responsibility of, and shall be paid by, Buyers.  The Parties shall reasonably cooperate in taking steps that would minimize or eliminate any Subject Transfer Taxes.  Buyers agree to file all Subject Transfer Tax Returns relating to such Subject Transfer Taxes and to reasonably consult with Sellers regarding any such filing. Upon filing, Buyers shall promptly provide Sellers with a copy of all Subject Transfer Tax Returns.

 

9.3                               Asset Tax Returns.  Sellers shall provide Buyers with any information Sellers have that is reasonably necessary for Buyers to file any required Tax Return with respect to Asset Taxes that are due after the Closing Date.  All such Tax Returns shall be prepared by Buyers in a manner consistent with the prior practice of Sellers, to the extent permitted by Law and in a manner consistent with the allocation described in Section 2.3(a), Section 2.3(b) and, if applicable, the final Section 1060 Allocation Schedule.  Buyers shall provide Sellers with copies of completed drafts of such Tax Returns at least 20 days prior to the due date for filing thereof, to the extent reasonably practicable, along with supporting work papers, for Sellers’ review.  Buyers shall consider in good faith any comment that Sellers submit to Buyers no less than ten days prior to the due date of such Tax Returns.  Buyers shall file all such Tax Returns and, subject to the provisions of Section 9.1, pay all Asset Taxes due and payable with respect to such Tax Returns.  To the extent Buyers make any payment of Asset Taxes pursuant to this Section 9.3 for which Sellers are liable pursuant to Section 9.1 and which exceeds the amount taken into account in the Final Settlement Statement, Sellers shall reimburse Buyers for such excess amount no later than ten days after Buyers deliver a statement to Sellers setting forth the amount of reimbursement to which Buyers are entitled along with such supporting evidence as is reasonably necessary to calculate the amount of reimbursement.

 

9.4                               Tax Cooperation.  Buyers and Sellers shall each cooperate fully as and to the extent reasonably requested by the other Party, in connection with the filing of any Tax Returns and any audit, litigation or other proceeding (each, a “Tax Proceeding”) with respect to Taxes relating to or in connection with the Assets.  Such cooperation shall include the retention and (upon the other Party’s request) the provision of such Records and information which are  reasonably relevant to any such Tax Return or Tax Proceeding and making employees available 

 

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on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.

 

ARTICLE 10
 CONDITIONS PRECEDENT TO CLOSING

 

10.1                        Conditions to Obligations of Both Parties.  The obligations of each Party at the Closing are subject to the satisfaction (or written waiver by both Parties) at or prior to the Closing of the following conditions precedent:

 

(a)                                 Governmental Entity Consents.  All consents and approvals of any Governmental Entity (including those required by the HSR Act, if applicable) required for the consummation of the transactions contemplated hereby, except for Customary Post-Closing Consents, shall have been granted, or the necessary waiting period shall have expired, or early termination of the waiting period shall have been granted.

 

(b)                                 No Governmental Injunctions or Restraints.  No temporary restraining order, preliminary or permanent injunction, or other legal restraint, prohibition or order issued by any court of competent jurisdiction or Governmental Entity preventing the consummation of the transactions contemplated by this Agreement will be in effect; and

 

(c)                                  No Action.  No action will have been taken, nor any statute, rule, or regulation will have been enacted, by any Governmental Entity that makes the consummation of the transactions contemplated by this Agreement illegal.

 

10.2                        Sellers’ Conditions.  The obligations of Sellers at the Closing are subject, at the option of Sellers, to the satisfaction or waiver at or prior to the Closing of the following conditions precedent:

 

(a)                                 All representations and warranties of Buyers and EVOC contained in ARTICLE 7 will be true and correct in all material respects (other than those representations and warranties qualified with respect to materiality, which shall be true and correct in all respects) as of the Closing Date as though made on and as of the Closing Date (except to the extent that such representations and warranties are made as of another specified date, in which case such representations and warranties shall be true and correct in all material respects (other than those representations and warranties qualified with respect to materiality, which shall be true and correct in all respects) as of such specified date);

 

(b)                                 Buyers and EVOC shall have performed and satisfied in all material respects all covenants and agreements required by this Agreement to be performed and satisfied by Buyers and EVOC (individually or as to its share of any joint obligations with Sellers) at or prior to the Closing; and

 

(c)                                  Buyers and EVOC shall have delivered, or be ready, willing and able to deliver, to Sellers the deliverables set forth in Section 12.3.

 

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10.3                        Buyers’ Conditions.  The obligations of Buyers at the Closing are subject, at the option of Buyers, to the satisfaction or waiver at or prior to the Closing of the following conditions precedent:

 

(a)                                 All representations and warranties of Sellers contained in ARTICLE 6 will be true and correct in all material respects (other than those representations and warranties qualified with respect to materiality, which shall be true and correct in all respects) as of the Closing Date as though made on and as of the Closing Date (except to the extent that such representations and warranties are made as of another specified date, in which case such representations and warranties shall be true and correct in all material respects (other than those representations and warranties qualified with respect to materiality, which shall be true and correct in all respects)  as of such specified date); provided, that the foregoing condition shall be deemed to have been satisfied unless the individual or aggregate impact of all inaccuracies of such representations and warranties would constitute a Material Adverse Effect;

 

(b)                                 Sellers shall have performed and satisfied in all material respects all covenants and agreements required by this Agreement to be performed and satisfied by Sellers (individually or as to its share of any joint obligations with Buyers) at or prior to the Closing; and

 

(c)                                  Sellers shall have delivered, or be ready, willing and able to deliver, to Buyers the deliverables set forth in Section 12.3.

 

ARTICLE 11
 RIGHT OF TERMINATION

 

11.1                        Termination.  This Agreement may be terminated prior to Closing as follows:

 

(a)                                 by the mutual written agreement of Sellers and Buyers;

 

(b)                                 by Buyers, if any of the conditions set forth in Section 10.3 have not been satisfied by Sellers on or before the Outside Termination Date;

 

(c)                                  by Sellers, if any of the conditions set forth in Section 10.2 have not been satisfied by Buyers or EVOC on or before the Outside Termination Date;

 

(d)                                 by Buyers, if all of the conditions set forth in Section 10.1, Section 10.2 and Section 10.3 have been satisfied (or, with respect to the conditions set forth in Section 10.3, waived in writing by Buyers), in each case, on or before the Outside Termination Date and Sellers nevertheless refuse or fail to close the transactions contemplated by this Agreement;

 

(e)                                  by Sellers, if all of the conditions set forth in Section 10.1, Section 10.2 and Section 10.3 have been satisfied (or, with respect to the conditions set forth in Section 10.2, waived in writing by Sellers), in each case, on or before the Outside Termination Date and Buyers nevertheless refuse or fail to close the transactions contemplated by this Agreement;

 

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(f)                                   by Sellers or Buyers if any of the conditions set forth in Section 10.1 are not satisfied on or before the Outside Termination Date; or

 

(g)                                  by either Sellers or Buyers, if the sum of (1) the Title Adjustment Amount, (2) the Environmental Adjustment Amount and (3) the Allocated Value of any Assets removed from the transactions contemplated by this Agreement pursuant to Section 4.2(j)(2), Section 4.4(a), Section 4.4(b) or Section 5.3(e)(3), exceeds, in the aggregate (i.e. collectively as to clauses (1) and (2) above), 25% of the unadjusted Purchase Price;

 

provided, however, that neither Buyers nor Sellers shall have the right to terminate this Agreement pursuant to Section 11.1(b) or Section 11.1(c) if such Party is at such time in material breach of any provision of this Agreement.

 

11.2                        Liabilities Upon Termination.  If this Agreement is terminated pursuant to any provision of Section 11.1, then, except (x) for the provisions of Sections 1.1, 1.2, 3.3(b),3.3(c), 3.3(d), 3.3(e), 3.4, 8.1(c), 8.2(c), 8.3(d), 11.2, 11.3, and 14.2(e) and ARTICLE 15, this Agreement shall forthwith terminate and become void, and (y) as is expressly provided in this Section 11.2, the Parties shall have no further liability or obligation hereunder and each Party waives all remedies available at law or in equity on account of the termination of this Agreement.

 

(a)                                 If Sellers terminate this Agreement pursuant to (1) Section 11.1(c) due to a willful breach of this Agreement by Buyers or EVOC or (2) Section 11.1(e), then, in each case, Sellers shall be entitled (A) to terminate this Agreement and to the Performance Deposit together with all interest accrued thereon, free and clear of any Claims thereon by Buyers or their Affiliates, as liquidated damages, or (B) to seek enforcement of specific performance of this Agreement, in either case, as Sellers’ sole remedy hereunder.  Buyers, EVOC and Sellers each agree to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party.

 

(b)                                 If Buyers terminate this Agreement pursuant to (1) Section 11.1(b) due to a willful breach of this Agreement by Sellers or (2) Section 11.1(d), then, in each case, Buyers shall be entitled (A) to terminate this Agreement and to a return of the Performance Deposit together with all interest accrued thereon, free and clear of any Claims thereon by Sellers or their Affiliates, as liquidated damages, or (B) to seek enforcement of specific performance of this Agreement, in either case, as Buyers’ sole remedy hereunder.  Buyers and Sellers each agree to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party.

 

(c)                                  If this Agreement is terminated for any reason other than as set forth in Section 11.2(a) or Section 11.2(b), then the Performance Deposit together with all interest accrued thereon shall be returned to Buyers, free and clear of any claims thereon by Sellers or their Affiliates, and Sellers shall have no further liability hereunder.

 

(d)                                 Pursuant to the terms of this Section 11.2, Buyers and Sellers shall deliver to the Performance Deposit Bank a signature to release to Sellers or Buyers, as

 

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applicable, from escrow an amount equal to the Performance Deposit together with all interest accrued thereto.

 

11.3                        Return of Documentation and Confidentiality.  Upon termination of this Agreement, Buyers and EVOC shall promptly return to Sellers or destroy all title, engineering, geological and geophysical data, environmental assessments and/or reports, maps and other information whatsoever furnished by Sellers to Buyers or EVOC or prepared by or on behalf of Buyers or EVOC in connection with the Due Diligence Review or the transactions contemplated hereby.  An officer of each Buyer or EVOC, as applicable, shall certify same to Sellers in writing.

 

ARTICLE 12
 CLOSING

 

12.1                        Date of Closing.  Subject to the conditions stated in this Agreement, the consummation of the transactions contemplated by this Agreement (the “Closing”) shall occur on (a) August 1, 2013, provided that if the conditions set forth in Section 10.1, Section 10.2, and Section 10.3 (other than any such conditions that by their nature cannot be satisfied until the Closing Date) have not been satisfied or waived in writing as of such date, then on the fifth Business Day after satisfaction (or waiver) of such conditions, or (b) such other date as Buyers and Sellers may agree upon in writing.  The date Closing occurs shall be the “Closing Date”.

 

12.2                        Place of Closing.  The Closing shall be held at the offices of Sellers at 10:00 a.m. Tulsa, Oklahoma time or at such other time and place as Buyers and Sellers may agree in writing.

 

12.3                        Closing Obligations.  At Closing, the following events shall occur, each being a condition precedent to the others and each being deemed to have occurred simultaneously with the others:

 

(a)                                 Sellers and Buyers shall each execute and deliver counterparts of the Assignment, Bill of Sale and Conveyance of the Assets and the Specified Contracts, effective as of the Effective Time, substantially in the form of Exhibit E (the “Assignment”), for recordation in each jurisdiction in which the Assets are located;

 

(b)                                 Sellers shall deliver possession of the Assets.

 

(c)                                  Sellers and Buyers shall each execute and deliver an Assignment and Assumption Agreement with respect to the Specified Contracts, effective as of the Effective Time, substantially in the form of Exhibit F;

 

(d)                                 Each Buyer (and EVOC with respect to a certificate certifying to the satisfaction on the conditions contained in Section 10.2(b)) shall deliver to Sellers a certificate executed by an authorized officer of such Buyer or EVOC, as applicable, certifying to the satisfaction of the conditions contained in Section 10.2(a) and Section 10.2(b), as applicable;

 

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(e)                                  Sellers and Buyers shall execute and deliver counterparts of such other assignments, bills of sale, certificates of title, or deeds necessary to transfer the Assets to Buyers, including any federal and state forms of assignment, as applicable;

 

(f)                                   Sellers and Buyers shall each execute and deliver an acknowledgment of the Preliminary Settlement Statement;

 

(g)                                  Each Seller shall deliver to Buyers a certificate executed by an authorized officer of such Seller certifying to the satisfaction by such Seller of the conditions contained in Section 10.3(a) and Section 10.3(b);

 

(h)                                 Sellers and Buyers shall deliver to the Performance Deposit Bank a jointly executed directive to release to Sellers from the jointly controlled account an amount equal to the Performance Deposit together with all interest accrued thereon;

 

(i)                                     Sellers shall transfer to Buyers all rights, benefits and obligations relating to Hedging Transactions;

 

(j)                                    Buyers shall cause the Closing Amount to be paid to Sellers by wire transfer of immediately available funds to an account designated by Sellers in the Preliminary Settlement Statement;

 

(k)                                 Sellers shall execute and deliver transfer orders or letters in lieu thereof (on a form reasonably acceptable to Buyers), notifying all purchasers of production of the change in ownership of the Assets and directing all purchasers of production to make payment to Buyers of proceeds attributable to production from the Assets;

 

(l)                                     Each Seller shall execute and deliver to Buyers and EVOC (and to the other working interest owners of the Assets which such Seller operates, if any) all documents necessary for such Seller to resign as operator of all those Assets which it currently operates;

 

(m)                             Each Seller shall execute and deliver to Buyers an affidavit of non-foreign status under Section 1445 of the Code in the form of Exhibit G; and

 

(n)                                 Sellers, EVOC and Buyers shall take such other actions and deliver such other documents as are contemplated by this Agreement.

 

ARTICLE 13
 POST-CLOSING OBLIGATIONS

 

13.1                        Post-Closing Adjustments.

 

(a)                                 Final Settlement Statement.  As soon as practicable after the Closing, but in no event later than 120 days after Closing except as may be otherwise expressly provided herein, (the “Final Settlement Statement Due Date”), Sellers will cause to be prepared and delivered to Buyers, in accordance with GAAP and customary industry accounting practices, a settlement statement setting forth each adjustment to the Purchase Price in accordance with

 

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Section 2.4 and showing the calculation of such adjustments and the resulting final purchase price (the “Final Purchase Price” and such statement, the “Final Settlement Statement”).  Within 30 days after its receipt of the Final Settlement Statement, Buyers shall deliver to Sellers a written report containing any changes that Buyers propose to make to the Final Settlement Statement.  Buyers’ failure to deliver to Sellers a written report detailing proposed changes to the Final Settlement Statement by such date shall be deemed to be an acceptance by Buyers of the Final Settlement Statement delivered by Sellers.  The Parties shall endeavor to agree in writing with respect to the changes proposed by Buyers, if any, by no later than 60 days after Buyers’ receipt of Sellers’ proposed Final Settlement Statement.  Should the Parties fail to agree on the Final Settlement Statement and Final Purchase Price by such date, either Party may invoke the Dispute resolution procedures provided for in Section 13.1(b).  The date upon which such agreement is reached or upon which the Final Purchase Price is determined pursuant to Section 13.1(b) shall be herein called the “Final Settlement Date.”  If such agreed or determined Final Purchase Price is more than the Preliminary Purchase Price, Buyers shall pay to Sellers the amount of such difference by wire transfer in immediately available funds no later than five Business Days after the Final Settlement Date.  If such agreed or determined Final Purchase Price is less than the Preliminary Purchase Price, Sellers shall pay the amount of such difference to Buyers by wire transfer in immediately available funds no later than five Business Days after the Final Settlement Date.

 

(b)                                 Dispute Resolution.  Within ten days after either Party invokes the Dispute resolution procedures of this Section 13.1(b) pursuant to Section 13.1(a), the Parties shall mutually appoint an independent expert having the qualifications specified below (the “Accounting Expert”).  If the Parties are unable to mutually agree upon the Accounting Expert within such ten day period, then the Parties shall, within ten days after the expiration of such foregoing ten day period, request that the AAA, acting through its offices in Houston, Texas, appoint the Accounting Expert.  The Accounting Expert shall be a certified public accountant having a minimum of ten years’ experience with regard to the types of matters involved in the Dispute, shall be without any conflicts of interest as to the Parties, and shall not have been employed by or undertaken more than $50,000 of work, in the aggregate, for either Party or its Affiliates within the five year period preceding the submission of the Dispute.  For the avoidance of doubt, the Accounting Expert will function as an expert in accordance with the foregoing procedure, not as an arbitrator.

 

(c)                                  Within 15 days following the appointment of the Accounting Expert, Sellers shall provide the Accounting Expert with a copy of this Agreement, and each Party shall provide, both to the Accounting Expert and to each other, a summary of its position with regard to each such outstanding matter involving the Final Settlement Statement in a written document of five pages or less per outstanding Disputed matter.  The Parties shall instruct the Accounting Expert that, within 30 days after receiving the Parties’ respective submissions, the Accounting Expert shall render a decision, choosing only either Buyers’ position or Sellers’ position with respect to each Disputed matter.

 

(d)                                 Any decision rendered by the Accounting Expert pursuant hereto shall be final, conclusive and binding on Sellers and Buyers, and will be enforceable against each Party in any court having jurisdiction hereof, but is not reviewable by, or appealable to, any court except in the event of fraud.  The Parties shall each bear one-half of the costs of the Accounting

 

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Expert and of any associated Dispute resolution proceedings.  The Final Settlement Statement shall be re-issued by Sellers if and as necessary to conform to the Accounting Expert’s decision.

 

13.2                        Records.  Sellers shall make the Records available for pick up by Buyers within 60 days following the Closing Date.  Sellers may retain copies of the Records, and Sellers shall have the right to review and copy the original Records during standard business hours and upon reasonable notice to Buyers for so long as Buyers retain the Records, which shall be a minimum of six years after the Closing Date.  Buyers agree that the Records will be maintained in compliance with all applicable Laws governing document retention.

 

13.3                        Further Assurances.  From time to time after Closing, Sellers, Buyers and EVOC shall each execute, acknowledge and deliver to each other such further instruments and take such other action as may be reasonably requested by such other Party or EVOC, as applicable, at such requesting Party’s or EVOC’s cost, as applicable, and as are commercially reasonable to be performed in order to accomplish more effectively the purposes of the transactions contemplated by this Agreement, including those post-Closing actions contemplated by Section 4.4(a) and Section 4.4(b).  Promptly after Closing, Buyers shall:  (a) record the Assignments of the Assets and all state and federal assignments executed at the Closing in all applicable real property records and/or, if applicable, all state and federal Governmental Entities, and Buyers shall provide to Sellers copies of such recorded documents; (b) actively pursue the approval of all Customary Post-Closing Consents from the applicable Governmental Entities; and (c) actively pursue all other consents and approvals that may be required in connection with the assignment of the Assets to Buyers and the assumption of the rights, interests, obligations and liabilities assumed by Buyers hereunder that have not been obtained prior to Closing, provided that Sellers shall reasonably cooperate with Buyers in obtaining such other consents and approvals, at Buyers’ cost.

 

ARTICLE 14
 ASSUMPTION AND RETENTION OF OBLIGATIONS AND INDEMNIFICATION; DISCLAIMERS

 

14.1                        Buyers’ Assumption of Liabilities and Obligations.  Upon Closing, but without limiting Buyers’ rights to indemnification pursuant to Section 14.2(a), Buyers shall, jointly and severally, assume and pay, perform, fulfill and discharge all Claims, costs, expenses, and other obligations and liabilities whatsoever accruing or relating to (a) * (b) all Plugging and Abandonment Obligations and Environmental Liabilities involving the Assets; and (c) * (all of the foregoing, collectively, the “Assumed Liabilities”).

 

14.2                        Indemnification.  For purposes hereof, “Losses” shall mean any and all costs (including court costs, reasonable fees and expenses of attorneys, technical experts and expert

 

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* - Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

 

 

witnesses and the costs of investigation), expenses (including interest), charges, judgments, awards, settlements, damages, penalties, fines, prosecutions, duties, obligations and other liabilities of any type, including those incurred pursuant to or otherwise involving any Claim, and including those pertaining to or in any way derivative from any personal injury, illness or death, damage, loss or destruction of real or personal property or of any natural resources, any pollution of other harm to or destruction of the Environment or infringement upon or other impairment of any intellectual property rights.

 

(a)                                 Sellers’ Indemnification of Buyers.  Effective as of Closing, Sellers, jointly and severally, hereby release, defend, indemnify, and save and hold harmless Buyers, their Affiliates and their and their Affiliates’ respective officers, directors, members, managers, employees, representatives and agents (the “Buyer Indemnified Parties”) from and against all Losses, to the extent attributable to or arising out of (1) any breach by Sellers of any of Sellers’ representations and warranties contained in ARTICLE 6 (or the corresponding affirmations of such representations and warranties made by Sellers in the certificate delivered pursuant to Section 12.3(g)); (2) any breach by Sellers of its covenants and agreements hereunder; (3) Seller Taxes; (4) any Claims for bodily injury, illness or death accruing prior to the Effective Time but only to the extent attributable to, arising out of, incident to or in connection with the operation of the Assets by Sellers prior to the Effective Time; and (5) any Claims pertaining to the Excluded Assets.

 

(b)                                 Buyers’ Indemnification of Sellers.  Effective as of Closing, Buyers, jointly and severally, release, defend, indemnify, and save and hold harmless Sellers, their Affiliates, Warburg Pincus LLC and Sellers’, their Affiliates’ and Warburg Pincus LLC’s respective officers, directors, members, managers, employees, representatives and agents (the “Seller Indemnified Parties”) from and against all Losses to the extent attributable to or arising out of: (1) the Assumed Liabilities; (2) any breach by Buyers or EVOC of any of their representations or warranties in ARTICLE 7 (or the corresponding affirmations of such representations and warranties made by Buyers and EVOC in their respective certificates delivered pursuant to Section 12.3(d)); (3) any breach by Buyers or EVOC of their covenants and agreements hereunder; or (4) Buyer Taxes, EVEN IF SUCH LOSSES ARE ATTRIBUTABLE TO OR ARISE OUT OF, SOLELY OR IN PART, THE SOLE, ACTIVE, GROSS, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY OF THE SELLERS INDEMNIFIED PARTIES.

 

(c)                                  Limitations on Indemnity.

 

(1)                                 Notwithstanding anything to the contrary set forth herein, Sellers shall have no liability for defense and indemnification hereunder or for any Loss pursuant to Section 14.2(a) unless (A) the amount of an applicable indemnifiable Loss exceeds * (the “Per Item Threshold”) and (B) the total value of all such Losses in excess of the Per Item Threshold, in the aggregate, exceeds * of the unadjusted Purchase Price (the “Deductible”), after which point the Buyer Indemnified Parties shall be entitled to defense and indemnification pursuant to Section 14.2(a) only to the incremental extent of the value of any such Losses in excess of the Deductible.

 

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* - Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

 

 

(2)                                 The maximum liability of Sellers for all of their obligations hereunder and under any Transaction Document, including for defense and indemnification pursuant to Section 14.2(a) with respect to Losses suffered by the Buyer Indemnified Parties (including Losses for which the Deductible applies), shall not exceed, in the aggregate, * (the “Cap”).

 

(3)                                 Notwithstanding the foregoing or anything to the contrary in this Section 14.2(c), the Per Item Threshold, Deductible and Cap will not apply to the indemnification obligations of Sellers (A) with respect to any breach by Sellers of any of their Fundamental Representations, (B) under Section 14.2(a)(3), (C) under Section 14.2(a)(5) or (D) with respect to any breach by Sellers of their obligations under Section 13.1; provided, however, that in no event shall Sellers’ aggregate liability under the aforementioned provisions of this Agreement and the Transaction Documents, together with all other liabilities of Sellers under this Agreement and the Transaction Documents, exceed 100% of the Purchase Price; provided, however, except for liabilities attributable to Section 14.2(a)(5).

 

(d)                                 Sole Remedy.  Notwithstanding anything to the contrary contained in this Agreement, from and after Closing, Sellers’ and Buyers’ and EVOC’s sole and exclusive remedies against each other with respect to any and all Claims for breaches of the representations, warranties, covenants and agreements contained in this Agreement or under any other agreement, contract or instrument contemplated herein (including the affirmations of the representations and warranties contained in the certificates delivered by each Party and EVOC at Closing pursuant to Section 12.3(d) and Section 12.3(g), as applicable) or otherwise in connection with the transactions contemplated hereby, are exclusively set forth in Section 3.3(d), Section 8.2(a) and this Section 14.2, and if no such right of defense or indemnification or to be held harmless is expressly provided in Section 3.3(d), Section 8.2(a) and this Section 14.2, then such Claims are hereby waived by the Parties to the fullest extent permitted by Law.  Except for the remedies contained in Section 3.3(d), Section 8.2(a) and this Section 14.2, each Party and EVOC (including as to its respective Indemnified Parties) releases, remises, and forever discharges the other Party (including as to its respective Indemnified Parties) and EVOC, as applicable, from any and all suits, legal or administrative proceedings, Claims, demands, damages, Losses, costs, liabilities, interest, causes of action and other obligations whatsoever, in Law or in equity, known or unknown, which such Parties might now or subsequently may have, based on, relating to, or arising out of this Agreement or any other agreement, contract or instrument contemplated herein, Sellers’ ownership, use, or operation of the Assets, or the condition, quality, status, or nature of the Assets, INCLUDING RIGHTS TO CONTRIBUTION OR COST RECOVERY UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, BREACHES OF STATUTORY AND IMPLIED WARRANTIES, NUISANCE OR OTHER TORT ACTIONS, RIGHTS TO PUNITIVE DAMAGES, COMMON LAW RIGHTS OF CONTRIBUTION, ANY RIGHTS UNDER INSURANCE POLICIES ISSUED OR UNDERWRITTEN BY THE OTHER PARTY OR ANY OF ITS AFFILIATES (IN EACH CASE) EVEN IF CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER ACTIVE OR PASSIVE, SIMPLE OR GROSS, SOLE, JOINT OR CONCURRENT), STRICT 

 

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* - Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

 

 

LIABILITY OR OTHER LEGAL FAULT OF ANY RELEASED PERSON, INVITEE OR THIRD PERSON, OR BY A PREEXISTING CONDITION.

 

(e)                                  Waiver of Non-Compensatory Damages.  None of the Buyer Indemnified Parties or Seller Indemnified Parties shall be entitled to recover from Sellers, Buyers, or their respective Affiliates or other Representatives, any special, indirect, consequential, punitive, exemplary, remote or speculative damages, including damages for lost profits of any kind, arising under or in connection with this Agreement, any other agreement, contract or instrument contemplated herein or the transactions contemplated hereby, except to the extent any such Party suffers such damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending of such damages) to a Third Party, which damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder.  Subject to the preceding sentence, Buyers, on behalf of each of the Buyer Indemnified Parties, and Sellers, on behalf of each of Seller Indemnified Parties, waive any right to recover any special, indirect, consequential, punitive, exemplary, remote or speculative damages, including damages for lost profits of any kind, arising in connection with or with respect to this Agreement, any other agreement, contract or instrument contemplated herein or the transactions contemplated hereby.

 

14.3                        Claims Procedure.  The defense, indemnification and hold harmless obligations contained in Section 3.3(a), Section 8.2(a) and Section 14.2 shall be implemented as follows:

 

(a)                                 Claim Notice.  The Party seeking defense and indemnification under the terms of this Agreement (“Indemnified Party”) shall submit a written “Claim Notice” to the other Party (“Indemnifying Party”) which, to be effective, must be delivered prior to the end of the survival period applicable under Section 14.4 to the particular Loss that is the subject of such Claim Notice and must state, to the extent of the information reasonably available to the Indemnified Party:  (1) the amount of each payment or other obligation claimed by an Indemnified Party to be owing or other Loss for which the Indemnified Party is seeking defense, indemnification and to be held harmless, (2) the basis for such Claim, with supporting documentation if available, and (3) a list identifying, to the extent reasonably possible, each separate item of Loss for which payment or any other obligation is so Claimed.  Within 30 days of receipt of a Claim Notice, the Indemnifying Party may provide written notice to the Indemnified Party that it accepts, contests or rejects the Losses identified in such Claim Notice or its responsibility for same.  Any failure of the Indemnifying Party to provide such notice within such time period shall be deemed to be a rejection by such Indemnifying Party of such Losses and its responsibility for same.  If the Indemnifying Party objects to a Claim Notice on the basis that it lacks sufficient information, it shall promptly request from the Indemnified Party any specific additional information reasonably necessary for it to assess such indemnification Claim, and the Indemnified Party shall provide the additional information reasonably requested to the extent reasonably available to it.  Upon receipt of such additional information, the Indemnifying Party shall notify the Indemnified Party of any withdrawal or modification of the objection.  All disputed defense, indemnification and hold harmless Claims shall be resolved by Buyers and Sellers in accordance with either (A) a mutual agreement between Buyers and Sellers, which shall be memorialized in writing, or (B) final arbitration in accordance with Section 15.12, which may be 

 

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invoked by either Party at any time when it reasonably believes that the Parties are unable to reach mutual agreement as to any defense, indemnification and hold harmless Claim arising under this Agreement.

 

(b)                                 Information.  Promptly after the Indemnified Party receives notice of a Claim or legal action by a Third Party that may result in a Loss for which defense, indemnification and the right to be held harmless may be sought under this ARTICLE 14 (a “Third Party Claim”), the Indemnified Party shall give written notice of such Third Party Claim to the Indemnifying Party.  If the Indemnifying Party or its counsel so requests, the Indemnified Party shall furnish the Indemnifying Party with copies of all pleadings and other material information reasonably available to the Indemnified Party with respect to such Third Party Claim.  At the election of the Indemnifying Party, made within 30 days after receipt of such notice, the Indemnified Party shall permit the Indemnifying Party to assume sole management and control of such Third Party Claim (to the extent only that such Third Party Claim relates to a Loss for which the Indemnifying Party is liable), including the determination of all appropriate actions, the negotiation of settlements on behalf of the Indemnified Party, and the conduct of litigation through attorneys of the Indemnifying Party’s choice; provided, however, that no such settlement can result in any cost or other liability to the Indemnified Party for which it is entitled to be defended, indemnified or held harmless hereunder, without its consent.  If the Indemnifying Party elects to assume such control, (i) any and all expense incurred by the Indemnified Party thereafter for investigation, defense or other handling of the matter shall be borne by the Indemnified Party, except as to those reasonable expenses incurred in responding to any request or instruction by the Indemnifying Party and (ii) the Indemnified Party shall give all reasonable information and assistance, other than pecuniary, that the Indemnifying Party shall reasonably request as necessary for the proper defense of such Third Party Claim.  In the absence of such an election, the Indemnified Party will reasonably endeavor to defend, at the Indemnifying Party’s expense, any Third Party Claim to which such Indemnifying Party’s defense, indemnification and hold harmless obligation under this ARTICLE 14 applies until the Indemnifying Party assumes such defense, and, if the Indemnifying Party fails to assume such defense within the time period provided above, settle or otherwise resolve the same in the Indemnified Party’s reasonable discretion at the Indemnifying Party’s expense and liability, subject to the Indemnifying Party’s consent, which shall not be unreasonably withheld, conditioned or delayed; provided, further, that if the Indemnifying Party fails to grant such consent, it shall immediately assume such defense, indemnification and hold harmless obligation from the Indemnified Party and reimburse the Indemnified Party for all expenses and other obligations and liabilities incurred by it prior to such point in time.  If any such Third Party Claim requires immediate action, both the Indemnified Party and the Indemnifying Party will cooperate in good faith to take appropriate action so as not to jeopardize the defense of such Third Party Claim or either Party’s position with respect to such Third Party Claim.  If the Indemnifying Party is entitled to, and does, assume the defense of any such Third Party Claim, the Indemnified Party shall have the right to employ separate counsel at its own expense and to participate in the defense thereof, subject to the Indemnifying Party’s sole management and control of the defense of any such Third Party Claim in its sole good faith judgment; provided, however, that, notwithstanding the foregoing, the Indemnifying Party shall pay the reasonable attorneys’ 

 

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fees of the Indemnified Party if the Indemnified Party’s counsel shall have advised the Indemnified Party in writing that there is a conflict of interest that could make it inappropriate under applicable standards of professional conduct to have common counsel for the Indemnifying Party and the Indemnified Party (provided that the Indemnifying Party shall not be responsible for paying for more than one separate firm of attorneys and one local counsel to represent all of the Indemnified Parties subject to such Third Party Claim).  In the event that the Indemnifying Party has any Dispute regarding whether it is obligated to defend, indemnify and hold harmless the Indemnified Party as to any Third Party Claim or other Claim or any Dispute as to the scope of any such defense, indemnity and hold harmless obligation as to a Third Party Claim or other Claim, such Dispute shall be resolved in accordance with Section 15.12, which Dispute resolution process may be invoked by either Party at any time when it reasonably believes that the Parties are unable to reach mutual agreement as to any defense, indemnification or hold harmless Claim arising under this Agreement.

 

14.4                        Survival of Warranties, Representations and Covenants.

 

(a)                                 Subject to Section 14.4(c), (1) the representations and warranties of the Parties and EVOC, as applicable, in ARTICLE 6 and ARTICLE 7 (other than, in each case, the Fundamental Representations) and the affirmations of such representations and warranties contained in the certificates to be delivered at Closing pursuant to Section 12.3(d) and Section 12.3(g), as applicable) shall, in each case, survive the Closing for a period of six months, (2) the Fundamental Representations and ARTICLE 9 (and the affirmations of such representations, warranties and covenants contained in the certificate to be delivered at Closing pursuant to Section 12.3(d) and Section 12.3(g), as applicable) shall survive the Closing until 30 days after the expiration of the statute of limitations applicable thereto, and if there is no applicable statute of limitations, such Fundamental Representations and affirmations shall survive the Closing for a period of five years, (3) the covenants of Sellers contained in Section 8.1 shall survive the Closing for a period of six months, except the obligations of Buyers pursuant to Section 8.1(c) shall survive the Closing without time limit, (4) the covenants of each Buyer contained in Section 8.2(c) shall terminate at Closing, (5) the obligations of each Buyer pursuant to Section 8.2(e) shall survive the Closing without time limit and (6) the remaining covenants and agreements of the Parties contained herein (other than those contained in Section 14.1 and Section 14.2, which shall survive as specified in Section 14.4(c)), shall survive the Closing for a period of 12 months.  Except for Section 14.4(a)(5), it is the intent of the Parties to shorten the application of the statute of limitations as set forth in this Section 14.4(a).

 

(b)                                 Representations, warranties, covenants and agreements (and any certificate related thereto) shall be of no further force and effect after the date of their expiration; provided that there shall be no termination of any bona fide Claim asserted through a Claim Notice delivered pursuant to Section 14.3 with respect to such a warranty, covenant or agreement prior to its expiration date.

 

(c)                                  The indemnities in (1) Section 14.2(a)(1), Section 14.2(a)(2), Section 14.2(b)(2) and Section 14.2(b)(3) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification, 

 

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except in each case as to matters for which a Claim Notice has been delivered to the Indemnifying Party on or before such termination date, (2) Section 14.2(a)(4) shall survive the Closing for a period of six months, (3) Section 14.2(a)(3) and Section 14.2(b)(4), shall survive the Closing until 30 days after the expiration of the statute of limitations applicable thereto, and (4) Section 14.2(b)(1) and Section 14.2(a)(5), shall survive the Closing without time limit.

 

14.5                        Reservation as to Non-Parties.  Nothing herein is intended to limit or otherwise waive any recourse Buyers, EVOC or Sellers may have against any Third Party for any obligations or liabilities that may be incurred with respect to the Assets.

 

14.6                        Tax Treatment of Indemnity Payments.  Any payment pursuant to this ARTICLE 14 shall be treated for Tax purposes as an adjustment to the Purchase Price, except to the extent otherwise required by applicable Law.

 

ARTICLE 15
 MISCELLANEOUS

 

15.1                        Schedules and Exhibits.  The Schedules and Exhibits hereto constitute a part of this Agreement. A matter set forth in one section of a Schedule need not be set forth in any other section of such Schedule so long as its relevance to such other section of the Schedule is reasonably apparent on the face of the information disclosed therein to Buyers. The disclosure of any matter or item in the Schedules shall not be deemed to constitute an acknowledgment that any such matter is required to be disclosed or is material or that such matter would or would reasonably be expected to result in a Material Adverse Effect.

 

15.2                        Expenses.  Except as may be otherwise specifically provided herein, all fees, costs and expenses incurred by Buyers, EVOC or Sellers in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the Party incurring the same, including engineering, land, title, legal and accounting fees, costs and expenses.  Notwithstanding any other provision of this Agreement, Sellers shall pay all Seller Transaction Costs and Buyers shall pay all Buyer Transaction Costs.

 

15.3                        Notices.  All notices and communications required or permitted under this Agreement shall be in writing and addressed as set forth below.  Any communication or delivery hereunder shall be deemed to have been duly made and the receiving Party or EVOC, as applicable, charged with notice as follows: (a) if personally delivered, when received; (b) if sent by facsimile, with electronic confirmation of delivery, if sent during normal business hours on a Business Day, and if not sent during normal business hours on a Business Day, on the next subsequent Business Day; (c) if mailed certified mail, return receipt requested, on the day such notice is received, and if such day is not a Business Day, on the next subsequent Business Day, or (d) if sent by overnight courier, the next Business Day after placement into the custody of the overnight courier.  All notices shall be addressed as follows:

 

	
If to Buyers or EVOC:
    	
If to Sellers:
    
	
 
    	
 
    
	
EnerVest, Ltd.
    	
Laredo Petroleum, Inc.
    
	
1001 Fannin, Suite 800
    	
15 W. Sixth Street, Suite 1800, 
    
	
Houston, TX 77002
    	
Tulsa, Oklahoma 74119
    

 

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Attn:    
    	
Phil DeLozier
    	
Attn:    
    	
Kenneth. E. Dornblaser
    
	
 
    	
Senior Vice President, Operations
    	
 
    	
Senior Vice President & General
    
	
Phone: (713) 659-3500
    	
 
    	
Counsel
    
	
Fax:    (713) 659-3556
    	
Phone:    (918) 513 - 4570
    
	
Email:pdelozier@enervest.net
    	
Fax:    (918) 513 - 4571
    
	
 
    	
 
    
	
With a copy to:
    	
With a copy to:
    
	
(which shall not constitute notice   hereunder)
    	
(which shall not constitute notice   hereunder)
    
	
 
    	
 
    
	
EnerVest, Ltd.
    	
Akin Gump Strauss Hauer & Feld LLP
    
	
1001 Fannin, Suite 800
    	
1111 Louisiana Street, 44th Floor
    
	
Houston, TX    77002
    	
Houston, Texas 77002
    
	
Attn: 
    	
Fabené J. Welch
    	
Attn: Christine B. LaFollette
    
	
 
    	
Senior Vice President and General
    	
Phone: (713) 220-5800
    
	
 
    	
Counsel
    	
Fax: (713) 236-0822
    
	
Phone: (713) 495-5386
    	
 
    
	
Email:    fwelch@enervest.net
    	
 
    
					

 

Any Party or EVOC may, by three Business Days’ prior written notice so delivered to the other Party or EVOC, change the address or individual to which delivery shall thereafter be made.

 

15.4                        Amendments.  This Agreement may not be amended except by an instrument expressly modifying this Agreement signed by each of the Parties.  Except for waivers specifically provided for in this Agreement, no waiver by either Party of any breach of any provision of this Agreement shall be binding unless made expressly in writing.  No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision hereof (regardless of whether similar), and no such waiver shall constitute a continuing waiver unless expressly so provided.  Delay in the exercise, or non-exercise, of any such right is not a waiver of that right.

 

15.5                        Assignment.  Neither Party shall assign all or any portion of its respective rights or delegate all or any portion of its respective duties and obligations hereunder without the prior written consent of the other Party.  Any such attempted assignment which does not comply with the foregoing provisions shall be deemed null and void.

 

15.6                        DISCLAIMERS.

 

(a)                                 EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATES TO BE DELIVERED BY SELLERS AT CLOSING PURSUANT TO SECTION 12.3(g) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, NEITHER SELLERS NOR ANY OTHER PERSON MAKE (AND BUYERS AND EVOC ARE NOT RELYING UPON) ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE ASSETS (INCLUDING THE VALUE, CONDITION OR USE OF ANY ASSET) OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND SELLERS DISCLAIM ANY OTHER REPRESENTATIONS OR WARRANTIES (WHETHER 

 

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EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) OR OTHER UNDERTAKINGS NOT CONTAINED IN THIS AGREEMENT, WHETHER MADE BY SELLERS, ANY AFFILIATE OF SELLERS OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AGENTS, CONSULTANTS OR OTHER REPRESENTATIVES.

 

(b)                                 EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATES TO BE DELIVERED BY SELLERS AT CLOSING PURSUANT TO SECTION 12.3(g) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, SELLERS DISCLAIM ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, PROJECTION, FORECAST, STATEMENT OR INFORMATION MADE, COMMUNICATED OR FURNISHED (ORALLY OR IN WRITING) TO BUYERS OR ANY OF THEIR AFFILIATES OR ANY OF ITS REPRESENTATIVES, INCLUDING ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYERS BY ANY REPRESENTATIVE OF SELLERS OR ANY OF THEIR AFFILIATES.

 

(c)                                  EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATES TO BE DELIVERED BY SELLERS AT CLOSING PURSUANT TO SECTION 12.3(g) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLERS EXPRESSLY DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO (1) SELLERS’ TITLE TO ANY OF THE ASSETS, (2) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING OR OTHER CONSULTANT, ANY GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, OR ANY OTHER TECHNICAL, FINANCIAL, COMMERCIAL OR OTHER ANALYSIS OR EVALUATION RELATING TO THE ASSETS, (3) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE ASSETS, (4) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR PAST, PRESENT OR FUTURE REVENUES OR PROFITS GENERATED BY THE ASSETS, (5) THE PRODUCTION OF HYDROCARBONS FROM THE ASSETS, OR WHETHER PRODUCTION FROM THE ASSETS HAS BEEN CONTINUOUS OR IN PAYING QUANTITIES, (6) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, OR (7) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN OR THAT MAY BE MADE AVAILABLE OR COMMUNICATED TO BUYERS, EVOC OR THEIR AFFILIATES, OR ITS OR THEIR RESPECTIVE REPRESENTATIVES IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO.

 

(d)                                 EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 6, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATES TO BE DELIVERED BY 

 

70

 

SELLERS AT CLOSING PURSUANT TO SECTION 12.3(g) AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, SELLERS FURTHER DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY OF THE ASSETS, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT BUYERS SHALL BE DEEMED TO BE OBTAINING THE ASSETS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS”, WITH ALL FAULTS AND THAT BUYERS HAVE MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYERS DEEM APPROPRIATE.

 

(e)                                  EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 7, THE AFFIRMATIONS OF SUCH REPRESENTATIONS AND WARRANTIES CONTAINED IN THE CERTIFICATES TO BE DELIVERED BY BUYERS AND EVOC AT CLOSING PURSUANT TO SECTION 12.3(d), NEITHER BUYERS, EVOC NOR ANY AFFILIATE OF ANY BUYER OR EVOC MAKES (AND SELLERS ARE NOT RELYING UPON) ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND BUYERS AND EVOC DISCLAIM ANY OTHER REPRESENTATIONS OR WARRANTIES (WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) OR OTHER UNDERTAKINGS NOT CONTAINED IN THIS AGREEMENT, WHETHER MADE BY BUYERS, EVOC, ANY AFFILIATE OF ANY BUYER OR EVOC OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AGENTS, CONSULTANTS OR OTHER REPRESENTATIVES.

 

15.7                        Counterparts Signatures.  This Agreement may be executed and delivered in one or more counterparts, each of which when executed and delivered shall be an original, and all of which when executed shall constitute one and the same instrument.  The exchange of copies of this Agreement and of signature pages by facsimile or by electronic transmission in .pdf format shall constitute effective execution and delivery of this Agreement as to the Parties and EVOC and may be used in lieu of the original Agreement for all purposes.  Signatures of the Parties and EVOC transmitted by facsimile or electronic image scan transmission in .pdf format shall be deemed to be their original signatures for all purposes.  Any Party and EVOC, as applicable, that delivers an executed counterpart signature page by facsimile or by electronic scan transmission in .pdf format shall promptly thereafter deliver a manually executed counterpart signature page to the other Party and EVOC; provided, however, that the failure to do so shall not affect the validity, enforceability, or binding effect of this Agreement.

 

15.8                        Governing Law.  THIS AGREEMENT, ALL ISSUES ARISING HEREUNDER, ALL TRANSACTIONS CONTEMPLATED HEREBY AND ANY ARBITRATION OR EXPERT DISPUTE RESOLUTION PROCEDURE CONDUCTED PURSUANT HERETO SHALL BE CONSTRUED EXCLUSIVELY IN ACCORDANCE WITH, AND EXCLUSIVELY GOVERNED BY, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY CONFLICTS OF LAWS OR CHOICE OF LAW PRINCIPLES OR RULES WHICH MAY REFER ANY MATTER TO ANOTHER JURISDICTION FOR RESOLUTION.

 

71

 

15.9                        Entire Agreement.  This Agreement, the Exhibits, the Schedules, the Confidentiality Agreement and the documents delivered at Closing by or on behalf of each Party, EVOC and their Affiliates (collectively, the “Transaction Documents”) constitutes the entire agreement and understanding between the Parties and their respective members, shareholders, officers, directors and employees with respect to the subject matter hereof, superseding all prior negotiations, discussions, agreements and understandings relating to such subject matter.

 

15.10                 Binding Effect.  This Agreement shall be binding upon, and shall inure to the benefit of, the Parties, EVOC and their respective successors and permitted assigns.

 

15.11                 No Third-Party Beneficiaries.  This Agreement is intended to benefit only the Parties and their respective Indemnified Parties and their respective successors and permitted assigns; provided that only each of the Parties will have the right (but not the obligation) to enforce the provisions of this Agreement on its own behalf or on behalf of any of its respective Indemnified Parties.

 

15.12                 Dispute Resolution.  Except as otherwise provided in Section 2.3(b), Section 4.3, Section 5.3(f) and Section 13.1(b), any Dispute shall be determined by arbitration administered by the AAA in accordance with its Commercial Arbitration Rules (the “Rules”) and the provisions of this Section 15.12.

 

(a)                                 The arbitration shall be conducted by three arbitrators.  The place of arbitration shall be Houston, Texas.  Within 30 days of either Party providing notice to the other Party of a Dispute, each Party to such Dispute shall appoint one arbitrator, and the two arbitrators so appointed shall select the third and presiding arbitrator within 30 days following appointment of the second Party-appointed arbitrator.  If either Party fails to appoint an arbitrator within the permitted time period, then the missing arbitrator shall be selected by the AAA as appointing authority in accordance with the AAA Rules.  Any arbitrator nominated or appointed by the AAA shall be a member of the Large, Complex Commercial Case Panel of the AAA.  In addition to the rules of the AAA and applicable Law on arbitrator neutrality, no arbitrator shall have been an employee or consultant to either Party or any of its Affiliates within the five year period preceding the arbitration, or have any financial interest in the Dispute.

 

(b)                                 All awards of the arbitral tribunal shall be final and binding, subject only to grounds and procedures for vacating, modifying or correcting such under the Federal Arbitration Act (9 U.S.C. § 1 et seq.).  Judgment on the award may be entered and enforced by any court of competent jurisdiction hereunder.

 

(c)                                  Notwithstanding the agreement to arbitrate Disputes in this Section 15.12 (except as provided in Section 2.3(b), Section 4.3, Section 5.3(f) or Section 13.1(b)), either Party may apply to a court for interim measures pending appointment of the arbitration tribunal, including injunction, attachment and conservation orders.  The Parties agree that seeking and obtaining such court-ordered interim measures shall not waive a Party’s right to arbitration.  Additionally, the arbitrators (or in an emergency the chairperson acting alone in the event one or more of the other arbitrators is unable to be involved in a timely fashion) may grant interim measures including injunctions, attachments and conservation orders in appropriate 

 

72

 

circumstances, which measures may be immediately enforced by court order.  Hearings on requests for interim measures may be held in person, by telephone or video conference or by other means that permit the Parties to present evidence and arguments.  The arbitrators (or chairperson, as the case may be) may require either Party to provide appropriate security in connection with such measures.

 

(d)                                 The arbitral tribunal is authorized to award costs, attorneys’ fees and expert witness fees and to allocate such costs and fees between the Parties.  The award may include interest from the date of any default, breach or other accrual of a claim until the arbitral award is paid in full.  The arbitrators may not award indirect, consequential, special, punitive or exemplary damages except to the extent allowed under the terms of Section 14.2(e).  Unless otherwise directed by the arbitral tribunal, each Party shall pay its own expenses in connection with the arbitration.  The cost of the arbitrators shall be split evenly between the Parties.

 

(e)                                  All negotiations, mediation, arbitration and expert determinations relating to a Dispute (including a settlement resulting from negotiation or mediation, an arbitral award, documents exchanged or produced during a mediation or arbitration proceeding, and memorials, briefs or other documents prepared for the arbitration) are confidential and may not be disclosed by the Parties, their respective Affiliates or any of their respective employees, officers, directors, counsel, consultants and expert witnesses, except to the extent necessary to enforce any settlement agreement, arbitration award or expert determination, to enforce other rights of a Party as required by Law or for a bona fide business purpose, such as disclosure to accountants, shareholders or Third Party purchasers; provided, however, that breach of this Section 15.12(e) shall not void any settlement, expert determination or award.

 

(f)                                   Any papers, notices or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party in the manner set forth in Section 15.13.

 

15.13                 Publicity.  Neither Buyers nor EVOC nor Sellers nor any of their respective Representatives shall issue or cause the publication of any press release or other announcement with respect to the transactions contemplated by this Agreement without the prior written consent of the other Party (which shall not be unreasonably withheld, conditioned, or delayed), except as may be required by applicable Law or by the applicable rules, regulations or orders of any Governmental Entity or stock exchange, in which case, each Party shall provide the other Party a draft of such release or other announcement prior to the issuance thereof, and give reasonable consideration to such comments as the other Party may have, prior to such release or other announcement.

 

[Signature pages follow]

 

73

 

IN WITNESS WHEREOF, the Parties and EVOC have duly executed this Agreement as of the day and year first above written.

 

	
 
    	
 
    	
SELLERS:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
LAREDO PETROLEUM, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ Randy A. Foutch
    
	
 
    	
 
    	
Name:
    	
Randy A. Foutch
    
	
 
    	
 
    	
Title:
    	
Chairman and Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
LAREDO PETROLEUM TEXAS, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ Randy A. Foutch
    
	
 
    	
 
    	
Name:
    	
Randy A. Foutch
    
	
 
    	
 
    	
Title:
    	
Chairman and Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
LAREDO GAS SERVICES, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ Randy A. Foutch
    
	
 
    	
 
    	
Name:
    	
Randy A. Foutch
    
	
 
    	
 
    	
Title:
    	
Chairman and Chief Executive Officer
    

 

SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT

 

 

	
 
    	
 
    	
BUYERS:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
ENERVEST ENERGY INSTITUTIONAL FUND XII—WIB,   L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest, Ltd.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest Management GP, L.C.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ John B. Walker
    
	
 
    	
 
    	
 
    	
John B. Walker
    
	
 
    	
 
    	
 
    	
President and Chief Executive Officer
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
ENERVEST ENERGY INSTITUTIONAL FUND XII—WIC,   L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest Holding, LLC
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest, Ltd.,
    
	
 
    	
 
    	
 
    	
its Sole Member
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest Management GP, L.C.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ John B. Walker
    
	
 
    	
 
    	
 
    	
John B. Walker
    
	
 
    	
 
    	
 
    	
President and Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
ENERVEST ENERGY INSTITUTIONAL FUND XII—A,   L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest, Ltd.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest Management GP, L.C.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ John B. Walker
    
	
 
    	
 
    	
 
    	
John B. Walker
    
	
 
    	
 
    	
 
    	
President and Chief Executive Officer
    

 

SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT

 

 

	
 
    	
 
    	
ENERVEST ENERGY INSTITUTIONAL FUND XIII—A,   L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest, Ltd.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest Management GP, L.C.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ James M. Vanderhider
    
	
 
    	
 
    	
 
    	
James M. Vanderhider
    
	
 
    	
 
    	
 
    	
Executive Vice President and
    
	
 
    	
 
    	
 
    	
Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
ENERVEST ENERGY INSTITUTIONAL FUND XIII—WIB,   L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest, Ltd.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest Management GP, L.C.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ James M. Vanderhider
    
	
 
    	
 
    	
 
    	
James M. Vanderhider
    
	
 
    	
 
    	
 
    	
Executive Vice President and
    
	
 
    	
 
    	
 
    	
Chief Financial Officer
    

 

SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT

 

 

	
 
    	
 
    	
ENERVEST ENERGY INSTITUTIONAL FUND XIII—WIC,   L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest Holding XIII, LLC,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest, Ltd.,
    
	
 
    	
 
    	
 
    	
its Sole Member
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
EnerVest Management GP, L.C.,
    
	
 
    	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ James M. Vanderhider
    
	
 
    	
 
    	
 
    	
James M. Vanderhider
    
	
 
    	
 
    	
 
    	
Executive Vice President and
    
	
 
    	
 
    	
 
    	
Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
For the limited purposes stated herein:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
ENERVEST OPERATING, L.L.C.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ John B. Walker
    
	
 
    	
 
    	
 
    	
John B. Walker
    
	
 
    	
 
    	
 
    	
Executive Chairman
    

 

SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENTExhibit 10.1

 

AMENDED AND RESTATED
 LIMITED LIABILITY COMPANY AGREEMENT
 OF
 ATC HOLDCO, LLC

 

This Amended and Restated Limited Liability Company Agreement of ATC HOLDCO, LLC, is adopted, executed and entered into as of June 10, 2013, by and among TRP III (ATC) I, LP, a Delaware limited partnership (“TRP I”), TRP III (ATC) II, LP, a Delaware limited partnership (“TRP II”), and the Persons identified on Annex A hereto.  This Agreement, as it may be amended from time to time, shall be binding upon any Person who at any time is a Member, regardless of whether that Person has executed this Agreement or any amendment hereto.

 

WHEREAS, the Company was formed pursuant to the Delaware Limited Liability Company Act, 6 Del. C. §18-101, et seq., as amended from time to time (the “Delaware Act”), by the filing of the certificate of formation of the Company with the office of the Secretary of State of the State of Delaware on March 21, 2013;

 

WHEREAS, the initial Member previously entered into a Limited Liability Company Agreement, dated as of March 21, 2013 (the “Initial Agreement”) pursuant to the Delaware Act governing the affairs of the Company and the organization and conduct of its business; and

 

WHEREAS, the Members desire to amend and restate the Initial Agreement on the terms set forth below.

 

NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Members agree as follows:

 

ARTICLE 1
 DEFINED TERMS

 

1.1                               Definitions.  Unless the context otherwise requires, the terms defined in this Article I and in Annex B shall, for the purposes of this Agreement, have the meanings herein specified.

 

“704(c) Value” means, with respect to each Deemed Contributed Asset, a percentage of the Agreed Value of the applicable ATC Asset equal to the percentage of such ATC Asset deemed contributed to the Company pursuant to Code Section 721.

 

“Additional Members” has the meaning set forth in Section 14.1.

 

“Adjusted EBITDA” means earnings before non-floorplan interest, taxes, depreciation and amortization, calculated in accordance with generally accepted accounting principles in the United States, consistently applied.  For the avoidance of doubt, in calculating Adjusted EBITDA, floorplan interest shall be deducted from earnings.

 

 

“Affiliate” means, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, 50% or more of the securities of the Person having ordinary voting power in the election of directors of such Person, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person, and (iii) each of such Person’s officers, directors, joint venturers, and partners.  For the purpose of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

 

“Agreed Value” means, with respect to each of the ATC Assets and each of the ATC Realty Assets, the agreed gross fair market value of such asset as of the date of this Agreement.

 

“Agreement” means this Amended and Restated Limited Liability Company Agreement, including the annexes hereto, in each case as amended, modified, supplemented or restated from time to time.

 

“ATC” means The Around The Clock Freightliner Group, LLC, an Oklahoma limited liability company.

 

“ATC Assets” means the assets of ATC held at the time of the ATC Merger.

 

“ATC Merger” has the meaning given such term in the Merger Agreement.

 

“ATC Realty” means ATC Realty Investments, LLC, an Oklahoma limited liability company.

 

“ATC Realty Assets” means the assets treated as held by ATC Realty for federal income tax purposes at the time of the Realty Merger.  Because Bowen Realty is a disregarded entity for federal income tax purposes, the term “ATC Realty Assets” includes the assets of Bowen Realty held at the time of the Realty Merger.

 

“Board” has the meaning set forth in Section 6.1(a).

 

“Bowen Realty” means Bowen Realty Investments, LLC, an Oklahoma limited liability company.  Bowen Realty is disregarded as separate from ATC Realty for federal income tax purposes.

 

“Buyer” has the meaning set forth in Section 7.3(a).

 

“Capital Account” means the individual account maintained by the Company with respect to each Member as provided in Annex B.

 

“Capital Contribution” means, with respect to any Member, the aggregate amount of money and the Gross Asset Value of any property (other than money) contributed to the Company pursuant to Sections 4.1.

 

2

 

“Certificate” means the certificate of formation of the Company and any and all amendments thereto and restatements thereof filed on behalf of the Company with the office of the Secretary of State of the State of Delaware pursuant to the Delaware Act.

 

“Capital Percentage” means, for each Member, the fraction, expressed as a percentage, equal to the quotient of (A) the number of Units held by such Member, divided by (B) the aggregate number of Units held by all Members.  The Capital Percentage of each Member is set forth on Annex A.

 

“Capital Transactions” shall mean sales of Company assets out of the ordinary course of business, but only to the extent that the net proceeds of such sales are to be distributed to the Members rather than reinvested by the Company.

 

“Capital Transaction Proceeds” shall mean the net proceeds from each Capital Transaction, after deduction for all costs incurred in connection with such Capital Transaction.

 

“Charter Documents” has the meaning set forth in Section 13.3(b).

 

“Code” has the meaning set forth in Section B.1 of Annex B.

 

“Company” means ATC Holdco, LLC, the limited liability company heretofore formed and hereby continued under and pursuant to the Delaware Act and this Agreement.

 

“Convertible Note” has the meaning given that term in the Merger Agreement.

 

“Covered Person” means (a) a Member in its capacity as a member of the Company, (b) an officer, Manager or director of the Company, (c) any director, officer or manager of a Member who is or was serving at the request of the Company for another entity or enterprise, and (d) any Affiliate of a Member.

 

“Deemed Contributed Assets” has the meaning set forth in Section 4.9.

 

“Delaware Act” has the meaning set forth in the recitals.

 

“Equity Securities” has the meaning set forth in Section 4.1(a).

 

“Fiscal Year” means (i) any twelve (12) month period commencing on January 1 and ending on December 31, or (ii) any portion of the period described in clause (i) of this sentence for which the Company is required to allocate items of Company income, gain, loss or deduction.

 

“Gross Asset Value” has the meaning set forth in Section B.1 of Annex B.

 

“Indemnitees” has the meaning given that term in the Merger Agreement.

 

“Initial Agreement” has the meaning set forth in the recitals.

 

“IPO” has the meaning set forth in Section 9.3(a).

 

3

 

“Key Managers” shall mean Chinta Hari, Mark Lamont, Drew Burk, John Pruitt and Adam Arrington.

 

“Liquidator” has the meaning set forth in Section 11.2(a).

 

“Losses” has the meaning set forth in Section B.l of Annex B.

 

“M-B Holdings” means Miciotto-Bowen Holdings, Inc., a Texas corporation.

 

“Management Fee” has the meaning set forth in Section 3.3(c).

 

“Managers” has the meaning set forth in Section 6.1(a).

 

“Member” means any Person listed on Annex A or any Person admitted as an Additional Member or a Substitute Member pursuant to the provisions of this Agreement, in such Person’s capacity as a member of the Company; and “Members” means two or more of such Persons when acting in their capacities as members of the Company.

 

“Merger Agreement” means that certain Agreement and Plan and Merger dated as of March 29, 2013, as amended, by and among the Company, M-B Holdings, ATC, ATC Realty, ATC Merger Sub, LLC, Realty Merger Sub, LLC, John C. Miciotto, Jr., Darcie Bowen-Miciotto, Jeffrey W. Bowen and the Charles and Cassandra Bowen Charitable Foundation.

 

“Observer” means a person entitled to attend regular and special meetings of the Board (and committees and subcommittees thereof), as provided in Section 6.3(f).

 

“Offering Member” has the meaning set forth in Section 7.2.

 

“Operating Cash Flow” shall mean the gross receipts of the Company from all sources other than Capital Transactions, including borrowings and amounts released from reserves, less all expenditures of the Company, including repayments of debt and additions to reserves, other than costs incurred in connection with Capital Transactions.

 

“Optionee” has the meaning set forth in Section 7.2(c).

 

“Other Members” has the meaning set forth in Section 7.2(a).

 

“Penske” means Penske Automotive Group, Inc. or its Affiliate.

 

“Permitted Transfer” has the meaning set forth in Section 7.1(b).

 

“Person” means any individual, partnership, corporation, limited liability company, association, joint stock company, business, trust, joint venture, company, or other business entity or unincorporated organization.

 

“Profits” has the meaning set forth in Section B.l of Annex B.

 

“Realty Merger” has the meaning given such term in the Merger Agreement.

 

4

 

“Reoffered ROFO Units” has the meaning set forth in Section 7.2(b).

 

“ROFO Units” has the meaning set forth in Section 7.2(a).

 

“Rollover Units” means the Units issued to M-B Holdings on the date of this Agreement.

 

“Sale Transaction” has the meaning set forth in Section 7.4(a).

 

“Substitute Member” has the meaning set forth in Section 7.6.

 

“Tax Distribution Amount” means, for each Member and each year, the income tax applicable to such Member’s allocable share of the Company’s net taxable income and gain for such year (including Code Section 704(c) items), calculated on the assumption that cumulative net losses, if any, allocable to such Member with respect to prior years are available to offset such income and gain, and on the assumption that the income and gain allocable to such Member is taxed at the maximum potential combined federal and state income tax rate applicable to a Member (or, in the case of a Member that is a pass-through entity, the direct or indirect person taxable on the income of the Company allocated to such Member) subject to the highest such combined rate, taking into account the deduction of state taxes for federal income tax purposes and the character of such income and gain.  For the avoidance of doubt, the assumed combined federal and state income tax rate utilized for purposes of determining the Tax Distribution Amounts of the Members with respect to each year shall be the same for all Members.

 

“Tax Matters Partner” has the meaning set forth in Section 12.1(a).

 

“Tag-Along Right” has the meaning set forth in Section 7.3(a).

 

“Total ATC Consideration” has the meaning set forth in Section 4.9.

 

“Transfer” has the meaning set forth in Section 7.1(a).

 

“Transfer Notice” has the meaning set forth in Section 7.2(a).

 

“Transfer Price” has the meaning set forth in Section 7.2(a).

 

“Transferor Member” has the meaning set forth in Section 7.3(a).

 

“Treasury Regulations” and “Treas. Reg.” means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

 

“TRP I” has the meaning set forth in the recitals.

 

“TRP II” has the meaning set forth in the recitals.

 

“TRP Party” means TRP I, TRP II or any of their Affiliates, including Penske.

 

5

 

“Unit” means an ownership interest of a Member in the Company with a Capital Percentage.  The Capital Percentage of each Unit shall equal 100% divided by the total number of Units outstanding.

 

ARTICLE 2
 FORMATION AND TERM

 

2.1                               Organization.  The Members hereby organize and continue the Company heretofore formed as a limited liability company under and pursuant to the provisions of the Delaware Act without dissolution and agree that the rights, duties and liabilities of the Members shall be as provided in the Delaware Act, except as otherwise provided herein.

 

2.2                               Name.  The name of the Company shall be ATC Holdco, LLC.  The business of the Company may be conducted, upon compliance with all applicable laws, under any other name designated by the Board.  At any time the Board may change the name of the Company by causing an amendment to the Certificate to be filed with the office of the Secretary of State of Delaware pursuant to the Delaware Act.

 

2.3                               Term.  The term of the Company commenced on the date the Certificate was filed in the office of the Secretary of State of the State of Delaware and shall continue until the Company is dissolved and wound up in accordance with the provisions of this Agreement and the Certificate is cancelled in accordance with the Delaware Act.

 

2.4                               Registered Agent and Office.  The Company’s registered agent and office in Delaware shall be the Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808.  At any time, the Board may designate another registered agent and/or registered office by causing an amendment to the Certificate to be filed with the office of the Secretary of State of Delaware pursuant to the Delaware Act.

 

2.5                               Principal Place of Business.  The principal place of business of the Company shall be 2555 Telegraph Road, Bloomfield Hills, MI 48302, or at such location as may be determined from time to time by the Board, which need not be in the State of Delaware.  The Company may have such other offices as the Board may designate from time to time.

 

2.6                               Qualification in Other Jurisdictions.  The Board and any authorized officers of the Company shall cause the Company to be qualified, formed or registered under foreign registration and qualification and assumed or fictitious name statutes or similar laws in any jurisdiction in which the Company is required to be qualified, formed or registered under applicable law.  Any officer, as an authorized person within the meaning of the Delaware Act, may execute, deliver and file any certificates (and any amendments and/or restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business.

 

2.7                               No State Law Partnership.  The Members have agreed to form and have formed a limited liability company and do not intend to form a partnership under the laws of the State of Delaware or any other laws; provided, however, that, to the extent permitted by United States or

 

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other applicable law, the Company shall be treated as a partnership for United States federal, state and local income tax purposes.

 

ARTICLE 3
 PURPOSE AND POWERS OF THE COMPANY

 

3.1                               Purpose and Powers.  The object and purpose of, and the nature of the business to be conducted and promoted by, the Company is engaging in any lawful business, act or activity for which limited liability companies may be formed under the Delaware Act.  The Company shall have the power and authority to take any and all actions necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of such object and purpose.

 

3.2                               Limitation on Liability.  Except as otherwise required by the Delaware Act or applicable law or as expressly agreed in writing, no director, manager, officer, shareholder, partner, member, employee or agent of any Member shall be personally liable for the payment of any sums owing by such Member to the Company or any other Member under the terms of this Agreement or for the performance of any other covenant or agreement of such Member contained herein.

 

3.3                               Conflicts of Interest; Related Party Transactions; Management Fee.

 

(a)                                 Any Member and any Affiliate of any Member and any of their respective directors, officers, members, partners, stockholders, employees, or controlling persons may engage in or possess an interest in any business or activity whatsoever, whether presently existing or hereafter created, without any accountability to the Company or any Member, and without obligation to offer any business opportunity to the Company or any other Member even if the opportunity is one that the Company might reasonably be deemed to have pursued or desired to pursue if granted the opportunity to do so, and no such Person shall be liable to the Company or any Member for breach of any fiduciary or other duty, as a Member, director or otherwise, by reason of the fact that such Person acquires or pursues such opportunity or directs such opportunity to another Person or fails to present such opportunity to the Company, except for any Member that agrees otherwise pursuant to a separate agreement with the Company or any other direct or indirect subsidiaries of the Company; provided, however, that nothing in this Section 3.3 or in such separate agreement shall be construed to relieve or excuse any Person from his, her or its obligations under any employment, non-use, non-disclosure, non-solicitation, covenant-not-to-compete or similar covenant in this Agreement or any other agreement between such Person and the Company or any of its subsidiaries, or any of their respective Affiliates.

 

(b)                                 Nothing in this Agreement other than Section 6.6(b) shall impede the Company’s ability to enter into contractual arrangements with any Member or Manager or any Affiliate of any Member or Manager, except that without first obtaining the approval of the independent Managers with respect thereto and a majority of the outstanding Units held by Members other than the interested Member(s), in each case which approval shall not be unreasonably withheld, conditioned or delayed, neither the Company nor any of its subsidiaries shall enter into any transaction or series of related transactions with any Member or Manager or any Affiliate of any Member or Manager unless such transaction or series of related transactions

 

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is on terms that are no less favorable to the Company or its subsidiary, as applicable, than would be available in a comparable transaction in arm’s-length dealings with an unrelated third party.

 

(c)                                  Notwithstanding anything contained in this Agreement, the Members acknowledge and agree that ATC will pay a management fee to Transportation Resource Advisors III, LLC or its designee equal to the greater of (i) two percent (2%) of ATC’s Adjusted EBITDA or (ii) $300,000 per year (the “Management Fee”).  The Management Fee shall be payable quarterly in advance based on the budgeted ATC Adjusted EBITDA, which amount shall be adjusted annually within fifteen (15) days following the Board’s approval of the audited financial statements for the Company and its subsidiaries.  If the Management Fee paid by ATC is overpaid for any year, then the overpayment shall be offset against the Management Fee owed by ATC during the next quarter or, if the Management Fee is underpaid, then ATC shall pay such shortfall within ten days following the Board’s approval of the audited financial statements..

 

ARTICLE 4
 CONTRIBUTION OF CAPITAL, ISSUANCE OF UNITS
 AND CAPITAL ACCOUNTS

 

4.1                               Authorization and Initial Issuance of Units; Capitalization.

 

(a)                                 Authorized Units.  The aggregate membership interest in the Company shall be divided into such number of Units as may be issued and outstanding from time to time.  Without limiting the power and authority of the Board set forth in this Agreement, subject to Section 4.2, the Board may, at any time and from time to time, without any consent, vote or approval of any of the Members, solicit and accept additional Capital Contributions from any Person and/or cause the Company to issue additional Units, rights, options, or warrants exercisable for or convertible into Units, or other securities or instruments of any type or class whatsoever, including, without limitation, warrants exercisable for Units (collectively, “Equity Securities”); provided, however, that for so long as M-B Holdings and its Affiliates collectively own at least ten percent (10%) of the issued and outstanding Units, the aggregate number of Equity Securities issued to employees, consultants or other service providers shall not exceed 6,510,000 Units without the consent of M-B Holdings and provided further that so long as Penske collectively owns at least ten percent (10%) of the issued and outstanding Units, the aggregate number of Equity Securities issued to employees, consultants or other service providers shall not exceed 6,510,000 Units without the consent of Penske.  Any such Equity Securities may be issued for cash, property, services, satisfaction of existing obligations or such other type, form, and amount of consideration (including notes, other evidences of indebtedness or obligations of the Person acquiring the interest, instrument or security, as the case may be) as the Board may determine to be appropriate.  Any such issuance may be made by the Company by setting forth either in an amendment or an addendum to this Agreement, the relative rights, obligations, duties, and preferences of each new class or series of interests created and reflecting all necessary adjustments to Capital Percentages.  A copy of this Agreement as so amended, or the addendum as so adopted, as the case may be, shall be provided to each Member.  All filings necessary to be made under the Delaware Act or applicable law in connection with the creation of such interests shall be made by an Officer acting on behalf of the Board and the Company.

 

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(b)                                 Initial Issuance.  On the date hereof, each Member has made, or shall be deemed for Federal income tax purposes as having made (in accordance with Section 4.9), the Capital Contributions set forth next to his, her or its name on Annex A, and has received in exchange for such Capital Contribution the number of Units set forth next to his, her or its name on Annex A.  The name and Capital Percentage of each Member are also set forth on Annex A.  The address for each Member is on file with the Company.

 

4.2                               Preemptive Rights.

 

(a)                                 Grant of Preemptive Rights.  If the Company hereafter proposes to issue or sell any Equity Securities, the Company shall first offer to each Member a portion of the number or amount of such Equity Securities proposed to be so sold equal to the product of (x) the number or amount of Units proposed to be so issued and sold (on an as converted basis, if applicable) multiplied by (y) a fraction, the numerator of which is the number of issued and outstanding Units then owned by such Member prior to such issuance plus, in the case of M-B Holdings, the number of Units into which the Convertible Note is convertible, and the denominator of which is the total number of Units then issued and outstanding and held by all Members plus the number of Units into which the Convertible Note is convertible, for the same price and upon the same terms and conditions as the Equity Securities being offered in such transaction.  Notwithstanding the foregoing, no Member shall have any purchase right pursuant to this Section 4.2(a) or otherwise with respect to any issuance of Equity Securities in connection with: a distribution payable solely and ratably in Units on its outstanding Units; an acquisition, sale-leaseback or loan in a bona fide arm’s length transaction; or pursuant to an option plan or agreement approved by the Managers.  The Company shall not cause or permit any of its subsidiaries to issue or sell any equity securities (including options, rights or securities convertible into equity securities) of such subsidiary to any Person other than the Company or another subsidiary of the Company without providing purchase rights to the Members that are equivalent to those set forth in this Section 4.2.

 

(b)                                 Procedures.

 

(i)                                     If, in accordance with this Section 4.2, the Company determines to issue additional Equity Securities, it shall give each Member having purchase rights under this Section 4.2 notice, specifying in reasonable detail the nature and type of securities being offered and the price and other terms and conditions on which they are being offered, at least 20 days before issuing any such securities.

 

(ii)                                  Any Member desiring to exercise its purchase rights under this Section 4.2 must give to the Company written notice of its election to purchase up to a specified amount of the securities proposed to be offered by the close of business on the tenth day after receipt of the notice required by Section 4.2(b)(i).  Such response shall set forth the Member’s acceptance of the offer and designate an amount of securities to be purchased by such Member (setting forth the maximum number desired if other Members elect not to purchase), which amount may be fewer than, equal to, or more than the amount of securities that such Member has a right to purchase under Section 4.2(a).  If any Member does not elect to purchase all of the offered Equity Securities that it has the right to purchase under Section 4.2(a), the Equity Securities remaining shall be allocated to each other electing Member in one or more successive

 

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allocations, up to the amount of Equity Securities specified in the election, pro rata, in the same proportion as the total number of Units held by that electing Member (plus, in the case of M-B Holdings, the number of Units into which the Convertible Note is convertible) bears to the total number of issued and outstanding Units held by all electing Members electing to purchase more than the maximum amount of Equity Securities that they are entitled to purchase under Section 4.2(a) (plus the number of Units into which the Convertible Note is convertible if M-B Holdings is such an electing Member).

 

(iii)                               Not later than 10 days after the date on which this offer expires, the Company shall notify each electing Member of the time and place of closing (which may be contingent on the closing of the sale of Equity Securities referred to in Section 4.2(b)(iv)), the number or amount of Equity Securities allotted to it, and the purchase price therefore, whereupon each such electing Member shall become legally obligated to purchase such Equity Securities at the price and on the terms offered.

 

(iv)                              Following the expiration of the offer and the giving of the notice required by Section 4.2(b)(i), the Company may thereafter offer and sell any of the Equity Securities not purchased by the Members for a period of 180 days on the terms and conditions set forth in the original notice to the Members.  Any of the Equity Securities not sold during that period may not thereafter be sold without first complying with the requirements of this Section 4.2.

 

4.3                               Contributions of Capital and Loans.

 

(a)                                 In General.  Except as otherwise expressly provided herein or in a written agreement between a Member and the Company, or to the extent that a Member agrees to make a Capital Contribution to, or to purchase Equity Securities or other interests from, the Company: (i) no Member shall be required to contribute any capital to the Company; (ii) no Member shall be required to make any loan to the Company; (iii) loans by a Member to the Company shall not be considered a contribution of capital, shall not increase the Capital Account of the lending Member or its ownership interest of the Company and the repayment of such loans by the Company shall not decrease, or result in any adjustment to, the Capital Account of the Member making the loans; (iv) no interest shall be paid on any capital contributed to the Company by any Member; and (v) under any circumstances requiring a return of all or any portion of a Capital Contribution, no Member shall have the right to receive property other than cash except in the sole discretion of the Board.

 

(b)                                 Advances.  If at any time the Company does not have sufficient cash to pay its obligations, none of the Members shall be required to make additional Capital Contributions to the Company.  However, any of the Members that may agree to do so with the consent of the Board may loan all or part of the needed funds to or on behalf of the Company, subject to the requirements of this Section 4.3(b).  If a Member agrees to make a loan to the Company, the Company shall first offer each other Member the right to make a pro rata portion of such loan (as determined below in this Section 4.3(b)).  Each Member that elects to make a portion of such loan (including the Member that initially agreed to make the loan) shall make a portion of the loan equal to the product of (x) the aggregate amount of the loan, multiplied by (y) a fraction, the numerator of which is the number of issued and outstanding Units then owned

 

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by such Member plus, in the case of M-B Holdings, the number of Units into which the Convertible Note is convertible, and the denominator of which is the total number of issued and outstanding Units held by all such Members plus, if M-B Holdings is making a portion of the loan, the number of Units into which the Convertible Note is convertible.  Any loan made pursuant to this Section 4.3(b) shall bear interest at the prevailing rate for similar debt on the date of such advance, as reasonably determined by the Board, from the date of the advance until the date of payment and shall be on such other terms and conditions as approved by the Board.  The Board, upon determining that a loan from Members is in the best interest of the Company, shall give each Member notice of the amount and terms of the loan in reasonable detail and any Member desiring to participate in the loan, as provided herein, must give written of its election to participate pursuant to this Section 4.3 by the close of business on the tenth day after receipt of the notice from the Company.  If any Member elects not to participate in the loan up to such Member’s allowable portion thereof, such portion shall be allocated to each other participating Member, pro rata, in the same proportion of the total number of Units held by that participating Member (plus, in the case of M-B Holdings, the number of Units into which the Convertible Note is convertible) bears to the total number of issued and outstanding Units held by all Members electing to participate in the loan. Notwithstanding the foregoing, if due to time constraints, the Board determines that it is in the best interest of the Company to borrow funds from a Member before other Members have an opportunity to elect to participate in the loan as provided herein, the Company may borrow the funds on an interim basis from a Member or Members while the offer to participate in the loan is made to and being considered by all Members.

 

4.4                               No Return of Contributions.  A Member is not entitled to the return of any part of the Member’s Capital Contribution.  An unrepaid Capital Contribution is not a liability of the Company or of any Member.  For the avoidance of doubt, no Member is required to contribute or to lend any cash or property to the Company to enable the Company to return another Member’s Capital Contribution.

 

4.5                               Capital Accounts.  A Capital Account shall be established and maintained for each Member as provided in Annex B.  Upon the transfer of a Unit, the transferee shall succeed to the corresponding portion of the Capital Account of the transferor as provided in Section B.2(b) of Annex B.

 

4.6                               Profits and Losses.  Profits and Losses shall be allocated to the Members in accordance with Annex B.

 

4.7                               Evidence of Units.  The Units will not be evidenced by certificates, but will be as reflected on the books and records of the Company.

 

4.8                               Record Holders of Units.  The Company shall be entitled to treat the Person in whose name any Units of the Company stand on the books and records of the Company as the absolute owner thereof, and as a Member holding the membership interest evidenced by those Units.  The Company shall not be bound to recognize any equitable or other claim to, or interest in, such Units on the part of any other Person, whether or not the Company has express or other notice of any such claim.

 

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4.9                               Tax Treatment of the Transactions Under the Merger Agreement.  On the date of this Agreement and in connection with the execution of this Agreement, the Company acquired all of the membership interests of ATC pursuant to the ATC Merger, and the Company acquired all of the membership interests of ATC Realty pursuant to the Realty Merger.  For federal income tax purposes, the ATC Merger and the Realty Merger shall be treated as provided in Section 6.8(i) of the Merger Agreement.  With regard to the ATC Merger, M-B Holdings shall be treated as conveying the ATC Assets to the Company in return for the Rollover Units, the assumption of liabilities of ATC, except to the extent M-B Holdings is required to indemnify the Company for such liabilities, and other consideration set forth in the Merger Agreement with respect to the ATC Merger (the “Total ATC Consideration”).  Pursuant to Treasury Regulation Section 1.707-3, the deemed conveyance of the ATC Assets to the Company in return for the Total ATC Consideration shall be treated (i) as a contribution by M-B Holdings to the Company of a fractional share of each of the ATC Assets to which Code Section 721 applies to the extent permitted by Treasury Regulation Section 1.707-3 (such fractional shares, the “Deemed Contributed Assets”), and (ii) as a taxable sale by M-B Holdings with respect to the remaining fractional share of each of the ATC Assets.  In determining the portion of the ATC Assets that constitute Deemed Contributed Assets, the cash portion of the Total ATC Consideration shall be treated as a distribution of debt proceeds pursuant to Treasury Regulation Section 1.707-5(b) to the maximum extent permitted thereunder.  The cash portion of the Total ATC Consideration not treated as a distribution of debt proceeds pursuant to the preceding sentence shall be treated as a reimbursement of capital expenditures pursuant to Treasury Regulation Section 1.707-4(d) to the maximum extent permitted thereunder.  No party to this Agreement (or any of its Affiliates) shall take any position (whether in a tax return, an audit, or otherwise) that is inconsistent with the treatment set forth in this Section 4.9, unless required to do so by applicable law.

 

4.10                        Units Held by a Key Manager.  The Company is entering into a subscription agreement with each Key Manager on the date of this Agreement.  Each subscription agreement sets forth various rights and obligations with respect to the Units held by each Key Manager.

 

ARTICLE 5
 MEMBERS

 

5.1                               Powers of Members.

 

(a)                                 The Members shall have the power to exercise any and all rights or powers granted to the Members pursuant to the express terms of this Agreement.

 

(b)                                 No Member, acting in his, her or its capacity as a Member, shall: (i) have the power to sign for or to bind the Company; (ii) take any part in the management of the business of, or transact any business for, the Company or its subsidiaries; or (iii) except as required by the Delaware Act and specifically provided in this Agreement, have any right to vote on or consent to any matter.

 

5.2                               Voting Rights of Members.  Each Unit shall entitle the holder thereof to one vote on each action to be voted on by the Members.

 

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5.3                               Action by Members.  Except as otherwise provided in the Delaware Act, the Certificate, or this Agreement, whenever any action is to be taken by vote of the Members, it shall be authorized upon receiving the affirmative vote of a majority of the votes cast by all Members entitled to vote thereon.

 

5.4                               Meetings of Members.

 

(a)                                 Quorum.  A meeting of the Members shall not be organized for the transaction of business unless a quorum is present.  The presence of Members entitled to cast at least a majority of the votes that all Members are entitled to cast on a particular matter to be acted upon at the meeting shall constitute a quorum for the purposes of consideration and action on the matter.  The Members present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough Members to leave less than a quorum.  If a meeting cannot be organized because a quorum has not attended, the Members present may adjourn the meeting to such time and place as they may determine.

 

(b)                                 Location.  All meetings of the Members shall be held at the principal place of business of the Company or at such other place within or outside the State of Delaware as shall be specified or fixed in the notice thereof.

 

(c)                                  Adjournment.  The chairman of the meeting or individual designated by the Board and present at the meeting or the Members present and entitled to vote shall have the power to adjourn a meeting from time to time, without any notice other than announcement at the meeting of the time and place at which the adjourned meeting will be held.

 

(d)                                 Call of Meeting.  A meeting of the Members for any proper purpose or purposes may be called at any time by the Board.  Only business within the purpose or purposes described in the notice of the meeting may be conducted at a meeting of the Members.  The notice shall specify the time and location of the meeting.

 

(e)                                  Notices.  Notice of a meeting of Members shall be given to the Members at least 10 days but not more than 60 days before the date of such meeting.

 

(f)                                   Waiver of Notice.  A waiver of notice of a meeting signed by the Member entitled to the notice, whether before or after the meeting, shall be deemed equivalent to the giving of the notice.  Attendance of a Member at a meeting constitutes a waiver of notice of the meeting, except where a Member attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

 

(g)                                  Conduct of Meetings.  All meetings of the Members shall be presided over by the Board, an individual designated by the Board or, in the absence of the Board or an individual designated by the Board, an individual chosen by the Members present.  The Person presiding at the meeting shall determine the order of business and the procedure at the meeting, including such regulations of the manner of voting and the conduct of discussion at such meeting.

 

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5.5                               Action by Consent or Remote Participation.

 

(a)                                 Action by Consent.  Any action required or permitted to be taken at a meeting of Members may be taken without a meeting and without a vote, upon the consent of the Members who would have been entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all Members entitled to vote thereon were present and voting.  The consents shall be in writing or in electronic form and shall be filed with the Board.  The Company shall provide any non-consenting Members with prompt written notice of any such action.

 

(b)                                 Remote Participation.  The presence or participation, including voting and taking other action, at a meeting of Members, by conference telephone or other electronic means, including, without limitation, the Internet, shall constitute the presence of, or vote or action by, the Member.

 

5.6                               Waiver of Partition.  No Member shall, either directly or indirectly, take any action to require partition or appraisement of the Company or of any of its assets or properties or cause the sale of any Company assets or property, and notwithstanding any provisions of applicable law to the contrary, each Member (and its successors or assigns) hereby irrevocably waives any and all right to maintain any action for partition or to compel any sale with respect to its Units, or with respect to any assets or properties of the Company, except as expressly provided in this Agreement.

 

5.7                               Resignation.  Subject to Article 7 with respect to Permitted Transfers, a Member may not at any time withdraw, resign or retire as a Member from the Company.  The Company may recover damages for breach of this Section 5.7 if any Member violates this Section 5.7 and may offset the Company’s damages against any amount payable as a distribution to a Member purporting to withdraw, resign or retire from the Company.

 

ARTICLE 6
  MANAGEMENT

 

6.1                               Management by Board.

 

(a)                                 Exclusive Responsibility.  The business and affairs of the Company shall be managed by or under the direction of a Board of the Company (the “Board”) consisting of natural persons designated as “managers” of the Company as provided below (“Managers”).  Except as otherwise provided herein (including, without limitation, Section 6.6), the Board shall have full, exclusive and complete discretion to manage and control the business and affairs of the Company, to make all decisions affecting the business and affairs of the Company and to take all actions as it deems necessary or appropriate to accomplish the purpose of the Company as set forth herein.  A Member, as such, shall not take part in, or interfere in any manner with, the management, conduct or control of the business and affairs of the Company, and shall not have any right or authority to act for or bind the Company.

 

(b)                                 Authority.  Only those Managers and officers who are authorized from time to time by a majority of the Managers (subject to Section 6.6) or otherwise authorized

 

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pursuant to a written employment agreement shall have the right and authority to act for or bind the Company.

 

 

(c)                                  Composition of Board; Voting Agreement.  Subject to the terms of this Agreement, the Board shall have six members.  The Board shall be constituted as follows:

 

(i)                                     Three persons shall be designated collectively by TRP I and TRP II;

 

(ii)                                  One person shall be designated by Penske; and

 

(iii)                               For so long as M-B Holdings and its Affiliates collectively own at least ten percent (10%) of the issued and outstanding Units, two persons shall be designated by M-B Holdings.

 

The right of M-B Holdings to designate two Managers pursuant to this Section 6.1(c) may be modified as follows:  (Y) if M-B Holdings and its Affiliates collectively own less than ten percent (10%) of the issued and outstanding Units, but owns greater than or equal to five percent (5%) of the issued and outstanding Units, then M-B Holdings shall only have the right to appoint one person to the Board and TRP shall appoint the other Manager; and (Z) if M-B Holdings and its Affiliates collectively own less than five percent (5%) of the issued and outstanding Units, then M-B Holdings shall no longer be entitled to appoint any Managers to the Board and all Board seats formerly designated for Managers appointed by M-B Holdings shall be designated for Managers appointed by TRP with the prior approval of Penske, whose approval shall not be unreasonably withheld.

 

(d)                                 Transferability.  The rights of M-B Holdings to designate or serve as a Manager (or appoint an observer) under Section 6.1(c) are non-transferable.  The rights of any TRP Party to designate a Manager under Section 6.1(c) may be transferred only in connection with a Transfer of all of the Units then held by such TRP Party.

 

(e)                                  Removal of Managers.  A Manager designated (or observers appointed) pursuant to Section 6.1(c) may be removed with or without cause by, and only by, the Member then entitled to designate the seat held by such Manager.

 

6.2                               Officers; Delegation and Duties.  The Company shall have such officers, other employees and agents as shall be necessary or desirable to conduct its business.  The Board may elect a Member, Manager or other Person to serve as an officer of the Company.  The Board may assign titles to the officers it elects.  Unless the Board decides otherwise, if the title is one commonly used for officers of a business corporation, the assignment of that title shall constitute the delegation of the authority and duties that are normally associated with that office, subject to any specific delegation of authority and duties made by the Board.  Any number of offices may be held by the same Person.  The salaries or other compensation, if any, of the officers, other employees and agents of the Company shall be fixed from time to time by the Board or such other Persons as have been delegated that authority.

 

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6.3                               Meetings of the Board.

 

(a)                                 Quorum; Manner of Acting.  Unless otherwise provided in the Certificate or this Agreement, a majority of the Board in office shall constitute a quorum for the transaction of business by the Board, and the act of a majority of the Managers present at a meeting at which a quorum is present shall be the act of the Board.  A Manager who is present at a meeting of the Board at which action on any matter is taken shall be presumed to have assented to the action unless his dissent is entered in the minutes of the meeting or unless he files his written dissent to the action with the secretary of the meeting before the adjournment thereof or delivers the dissent to the Company immediately after the adjournment of the meeting.  The right to dissent shall not apply to a Manager who voted in favor of the action.  Each Manager shall have one vote on the Board.

 

(b)                                 Location.  Meetings of the Board may be held at such place or places as shall be determined from time to time by the Board.

 

(c)                                  Waiver of Notice.  A waiver of notice of a meeting signed by the Manager entitled to the notice, whether before or after the meeting, shall be deemed equivalent to the giving of the notice.  Attendance of a Manager at a meeting constitutes a waiver of notice of the meeting, except where a Manager attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

 

(d)                                 Regular Meetings.  Regular meetings of the Board shall be held at such times and places as shall be designated from time to time by the Board.

 

(e)                                  Special Meetings.  Special meetings of the Board may be called by any Manager on not less than twenty four (24) hours’ notice to each other Manager either personally, by telephone, by mail or facsimile.  A notice shall specify the time and place of the meeting, but need not specify the purpose of the meeting.

 

(f)                                   Observers.  For so long as M-B Holdings is entitled to appoint one or more Managers to the Board, Darcie Miciotto and Jeff Bowen shall be appointed as Observers.  If M-B Holdings’ right to designate a Manager terminates, then it shall have the right to appoint one Observer to all Board meetings as long as it holds of record five percent (5%) of the issued and outstanding Units, after which the right to appoint an Observer shall cease (and shall not be restored by any subsequent acquisition of Units).  Each of TRP and Penske shall have the right to appoint one Observer.  Observers shall be provided with copies of notices, minutes, consents and other material provided to the Managers.  Observers shall have no participation or voting rights of any kind.  The Company (or its subsidiaries) shall reimburse Observers for reasonable out of pocket expenses actually incurred by them as a result of attending the meetings of the Board, including any committees and subcommittees thereof.

 

6.4                               Action by Consent or Remote Conference.

 

(a)                                 Action by Consent.  Any action required or permitted to be taken at a meeting of the Board may be taken without a meeting if, prior or subsequent to the action, all of the Managers consent thereto in writing, and the writing is filed with the minutes of the

 

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proceedings of the Board.  Any such action by written consent shall have the same force and effect as a majority vote of the Managers.

 

(b)                                 Remote Participation.  Managers may participate in Board meetings by conference telephone or other communications equipment by which all participating Managers may hear each other and such participation in a meeting shall constitute presence in person at the meeting.

 

6.5                               Compensation of Managers.  Managers shall not receive compensation for their services as Managers.  However, Managers shall be entitled to be reimbursed for out-of-pocket costs and expenses incurred in the course of their service as Managers.

 

6.6                               Limitations of the Authority of the Board.  Notwithstanding Section 6.1(a) or any other provision of this Agreement, the Board may not cause the Company (or any subsidiary) to do any of the following without the written approval of M-B Holdings so long as M-B Holdings and its Affiliates, collectively, own at least ten percent (10%) of the issued and outstanding Units, or without the consent of Penske so long as it owns at least ten percent (10%) of the issued and outstanding Units; provided, however, that such consent shall not be unreasonably withheld, conditioned or delayed:

 

(a)                                 borrow money or otherwise create, refinance or assume indebtedness (excluding capital leases) in excess of the greater of:  (i) the product of 3.5 multiplied by ATC’s EBITDA for the trailing 12 months ending on the last day of the prior calendar month; or (ii) $75,000,000, excluding indebtedness related to real estate, floorplan financing and the sale/leaseback of any assets;

 

(b)                                 enter into or amend any agreement with TRP or its Affiliates, except as otherwise provided in this Agreement;

 

(c)                                  create one or more encumbrances on all or any part of the assets of the Company, other than in the ordinary course of business or to secure indebtedness that does not otherwise require the consent of M-B Holdings and Penske;

 

(d)                                 make distributions of Operating Cash Flow or Capital Transaction Proceeds other than pursuant to this Agreement, including any distributions other than as provided in Article 9;

 

(e)                                  redeem, purchase or otherwise acquire any Units for a purchase price in excess of $5,000,000 in the aggregate in a single transaction or series of related transactions;

 

(f)                                   cause or permit any subsidiary of the Company to issue any securities to any Person other than the Company;

 

(g)                                  make any decisions to settle or compromise any matter raised by the Internal Revenue Service (including by TRP in its capacity as Tax Matters Partner pursuant to Section 12.1(a)) that would disproportionately affect M-B Holdings or its shareholders (for which Penske’s consent shall not be required) or that would disproportionately affect Penske (for which M-B Holdings’ consent shall not be required);

 

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(h)                                 do any act in contravention of this Agreement;

 

(i)                                     do any other act for which this Agreement requires the approval of M-B Holdings or Penske, as the case may be;

 

(j)                                    give any consent or approval under any contract or agreement if the subject of such consent or approval would require the approval of M-B Holdings or Penske under this Section 6.6 were it to be undertaken directly by the Company; or

 

(k)                                 cause or permit any subsidiary of the Company to take any action that would require the approval of a M-B Holdings or Penske under this Section 6.6 if such action were undertaken directly by the Company.

 

6.7                               Refinance or Prepayment of the Acquisition Indebtedness.  The Board shall notify M-B Holdings at least five (5) days prior to refinancing or prepaying all or any portion of the indebtedness that was utilized to finance the payment of the cash portion of the Total ATC Consideration.  The preceding sentence shall not be construed as requiring the consent or approval of M-B Holdings to refinance or prepay all or any portion of such indebtedness.

 

ARTICLE 7
 TRANSFERS

 

7.1                               General Transfer Provisions and Restrictions.

 

(a)                                 In addition to any other restriction under applicable federal or state securities laws, no Member shall (or shall agree to) transfer, give, donate, sell, convey, assign, pledge, hypothecate or otherwise encumber or dispose of (“Transfer”) to any Person, whether voluntarily or by operation of law (subject to Article 8) all or any portion of, or right in or to, its Units, except for Permitted Transfers (as defined below) or sales made in accordance with terms and conditions hereafter set forth in this Agreement.

 

(b)                                 Notwithstanding Section 7.1(a), and subject to the provisions of this Article 7 relevant to the Transfer (including, without limitation, Sections 7.2 and 7.3, if applicable), Units may be Transferred as follows (each a “Permitted Transfer”): (i) any Member may Transfer Units held by it to an Affiliate or to the Company; (ii)  any TRP Party may Transfer any or all of the Units then held by it in one transaction or a series of transactions at such price, and on such other terms and conditions as it may determine to be appropriate; (iii) any Member that is a natural person may Transfer any of the Units then held by such Member to such Member’s lineal descendants, such Member’s parents, spouse, siblings, and lineal descendants thereof, and any family limited partnership, limited liability company, trust or other fiduciary or other entity either controlled by or solely for the benefit of (A) such Member, (B) such Member’s lineal descendants, or (C) such Member’s parents, spouse, siblings, or lineal descendants of any thereof; or to an organization qualified under Section 501(C)(3) of the Code; (iv) any Member may Transfer Units in compliance with Section 7.2; and (v)  any Member may Transfer Units in a transaction approved by all members of the Board of Managers or in a transaction effected pursuant to Section 7.3.

 

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7.2                               Right of First Offer.  If at any time during the term of this Agreement any Member (an “Offering Member”) proposes to offer to Transfer any Units to any Person (other than pursuant to a Permitted Transfer described in clause (i) or (iii) of Section 7.1(b)), then prior to effecting such Transfer:

 

(a)                                 Such Offering Member shall give the Company and the other Members (the “Other Members”) written notice of the Offering Member’s intention, specifying the number of Units proposed to be Transferred (the “ROFO Units”), the proposed price therefor (the “Transfer Price”), and the other material terms upon which such Transfer is proposed to be made, including such other terms and information as the Company or the Other Members may reasonably request (collectively, the “Transfer Notice”).

 

(b)                                 The Company shall have the right, exercisable by written notice given to such Offering Member and the Other Members within ten (10) business days after delivery of the Transfer Notice, to purchase all (but not less than all) of the ROFO Units at the Transfer Price.  If the Company does not exercise its option, each of the Other Members shall have the option, exercisable by written notice given by such Other Members to the Offering Member within ten (10) days following the expiration of the Company’s option, to purchase such Other Member’s pro rata share of the ROFO Units.   For this purpose, an Other Member’s pro rata share equals the product of (x) the number of ROFO Units multiplied by (y) a fraction, the numerator of which is the number of issued and outstanding Units then owned by such Other Member plus, in the case of M-B Holdings, the number of Units into which the Convertible Note is convertible, and the denominator of which is the total number of Units then issued and outstanding and held by all Other Members (plus the number of Units into which the Convertible Note is convertible if M-B Holdings is an Other Member).  If one or more Other Members exercise their rights of first offer pursuant to this Section 7.2 and, after the expiration of the ten (10) business day period during which the Other Members may so exercise their rights, no exercise was made with respect to a portion of the ROFO Units to be Transferred by the Offering Member (collectively, the “Reoffered ROFO Units”), such Reoffered ROFO Units shall be re-offered by the Offering Member to the exercising Other Members by written notice thereof.  Each such exercising Other Member shall have an additional ten (10) business days following the receipt of such notice to notify the Offering Member in writing of his, her or its intent to purchase any Reoffered ROFO Units and shall be entitled to purchase his, her or its pro rata share of such Reoffered ROFO Units (determined under the principles set forth above in this Section 7.2(b) applied to the exercising Other Members), or otherwise in such proportions as the exercising Other Members mutually agree.  The procedure set forth above shall continue until rights to purchase all (but not less than all) of the Offering Member’s ROFO Units have been exercised by the Company and/or Other Members in a timely manner.  If all ROFO Units identified in the Transfer Notice are not purchased by the Company and/or the Other Members, then the Offering Member shall have no obligation to sell any of the ROFO Units to the Company and/or the Other Members and shall have the option, exercisable by written notice to the Company and all other Members, to (i) rescind its offer to Transfer the ROFO Units and retain all of the ROFO Units, or (ii) Transfer the ROFO Units pursuant to Section 7.2(d) below.

 

(c)                                  If the Company or the Other Member(s) (each an “Optionee”) exercises a right of first offer hereunder, a single closing for the purchase of the ROFO Units (including any Reoffered ROFO Units) with respect to which such right(s) were exercised shall take place

 

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within thirty (30) business days after the expiration of all applicable notice periods, which period of time shall be extended if necessary to comply with applicable securities laws, other federal law applicable to such transaction or similar state or local laws.  The exercise of an Optionee’s right of first offer under this Section 7.2 shall legally obligate such Optionee and the Offering Member to consummate the purchase of the ROFO Units (including any Reoffered ROFO Units) contemplated thereby, and each such Optionee and the Offering Member shall use all reasonable efforts to secure any approvals required in connection with such purchase and to consummate such transaction.

 

(d)                                 If none of the Company or any of the Other Members exercises its respective rights of first offer under this Section 7.2 within the time allowed under this Agreement for such exercise, or fails to purchase the entire ROFO Units (including any Reoffered ROFO Units) pursuant to any such exercise or exercises in accordance with this Section, the Offering Member, subject to Section 7.3 (if applicable), shall be free, during the period of the later of (i) one hundred eighty (180) days following the expiration of such time for exercise or such failure to purchase pursuant to any exercise, whichever occurs later and (ii) the Offering Member’s compliance with Section 7.3 (if applicable) to sell the ROFO Units (including any Reoffered ROFO Units) (or such remaining ROFO Units, as the case may be) specified in such Transfer Notice to any Person at a price that is not less than an amount equal to ninety percent (90%) of the Transfer Price set forth in such Transfer Notice and on other terms which, in the aggregate, are not materially more favorable to such Offering Member than the terms specified in such Transfer Notice, and any proposed Transfer during such period that involves a Transfer Price lower than ninety percent (90%) of the Transfer Price set forth in such Transfer Notice on terms, which in the aggregate, are materially more favorable to such Offering Member than the terms specified in such Transfer Notice, then the Offering Member shall be required to reoffer the ROFO Units to the Company and the Other Members at the lower Transfer Price and on the more favorable terms, in accordance with this Article 7.  Thereafter, any proposed Transfer by such Offering Member shall be subject to Section 7.1 and require a new Transfer Notice.

 

(e)                                  The purchase price for Units purchased under this Section 7.2 by either the Company or the Other Members shall be the Transfer Price.  The purchase and sale shall otherwise be on the applicable terms and conditions set forth in the Transfer Notice.  The full amount of the purchase price for Units purchased pursuant to this Section 7.2 shall be paid in full in cash at the closing described in Section 7.2(c) hereof; provided that, if the Transfer Notice provided for payment for any of the ROFO Units, in whole or in part, by means of any consideration other than cash, the Company or the Other Members, as the case may be, may purchase the Units for such consideration, or for its cash equivalent.  A competent independent appraiser mutually selected by the Company (if applicable), the exercising Other Members (if applicable), and the Offering Member shall fix the cash equivalent of such consideration.  In the event that the Company (if applicable), the exercising Other Members (if applicable), and the Offering Member cannot select a mutually acceptable appraiser, each shall select a competent, independent appraiser, which appraisers shall then select a third or fourth, as the case may be, competent, independent appraiser, whose determination as to value shall be conclusive and binding on the parties.  Costs of such appraisals shall be borne 50% by the Offering Member and 50% by the Company, if the Company is purchasing the Units, or the exercising Other Members

 

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(on a pro rata basis based upon the number of Units being purchased by each of the exercising Other Members).

 

7.3                               Tag-Along Rights.

 

(a)                                 Subject to first complying with Section 7.2, if at any time any Member proposes to sell to any Person (the “Buyer”) for value, in one or a series of transactions, other than pursuant to a Permitted Transfer under Section 7.1(b)(i) or (iii), all or any portion of the aggregate Units then owned by such Member (the Party proposing to sell its Units pursuant to this Section 7.3 is hereinafter referred to as the “Transferor Member(s)”), then each of the other Members shall have the right (“Tag-Along Right”) to cause the Transferor Member(s) to condition its sale to the Buyer of any Units owned by it on the purchase by the Buyer, at the same price and on the same terms and conditions as are applicable to the Units being sold by the Transferor Member(s), of that number of Units owned by such other Member as shall be determined by multiplying X and Y, where:

 

X = the total number of Units proposed to be sold by the Transferor Member(s), and

 

Y = a fraction, the numerator of which is the number of Units owned by such other Member plus, in the case of M-B Holdings, the number of Units into which the Convertible Note is convertible, and the denominator of which is the number of Units owned by all other Members (other than the Transferor Member(s)) who wish to participate in the sale of Units pursuant to this Section 7.3 (plus the number of Units into which the Convertible Note is convertible if M-B Holdings wishes to participate) plus the aggregate number of Units owned by Transferor Member(s).

 

(b)                                 In connection with a sale under this Section 7.3, the Transferor Member shall deliver a written notice to each other Member (i) setting forth the terms of any proposed sales to which this Section 7.3 applies, (ii) offering such other Member the Tag-Along Right, and (iii) specifying the number of Units to which such other Member shall have the right to sell to the Buyer pursuant to this Section 7.3, together with such other documents required to be executed by such other Member with respect to such sale.  Any other Member who desires to exercise its Tag-Along Right shall notify the Transferor Member in writing before the thirty (30) day period commencing on the date of the Transferor Member’s notice, and shall deliver to the Transferor Member within such thirty (30) day period all documents previously furnished to such other Member for execution in connection with the sale of its Units.  Delivery by such other Member of such notice and such other documents shall constitute an irrevocable exercise by the other Member of its Tag-Along Right with respect to the sale in question.

 

(c)                                  The Transferor Member may, within 180 days from the date of the Transferor Member’s notice referred to in Section 7.3(b) consummate any sale and, promptly after such consummation, shall notify each other Member to that effect and shall furnish evidence of such sale and of the terms thereof as the other Members may reasonably request.  No

 

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later than the fifth business day following such sale, the Transferor Member shall cause to be remitted (subject to any holdbacks or escrows in connection with such sale and net of such other Member’s pro rata portion of all costs and expenses incurred in connection therewith) to each other Member who exercised its Tag-Along Right the proceeds of such sale attributable to the sale of such other Member’s Units.  If any such sale is not consummated within such 180 day period, the Transferor Member may not consummate a sale pursuant to this Section 7.3 unless it again provides the Tag-Along Rights contemplated above to each other Member and shall return to each other Member all documents that such other Member previously delivered in connection with such sale.

 

(d)                                 Notwithstanding anything in this Section 7.3 to the contrary, there shall be no liability on the part of the Transferor Member or any of its Affiliates to any Member if any sale of Units pursuant to this Section 7.3 is not consummated for whatever reason.  It is understood that the Transferor Member, in its sole discretion, shall determine whether to effect a sale of Units to any Person pursuant to this Section 7.3.

 

(e)                                  The rights granted under this Section 7.3 shall not apply to (i) Transfers among or between TRP Parties, or (ii) any transaction or series of transactions involving the Transfer by TRP Parties to another Member or Members.

 

7.4                               Take-Along Rights.

 

(a)                                 Notwithstanding Section 7.1, if at any time, the TRP Parties desire to effect a sale of the entire Company to an unrelated Person or entity in one transaction or a series of similar transactions (a “Sale Transaction”), the TRP Parties may, in their sole discretion, require each other Member to sell all (but not less than all) of the Units then held by it to such purchaser in accordance with this Section 7.4 provided that such other Members shall only be required to sell its Units at the same price per Unit and upon substantially the same terms as the TRP Parties.

 

(b)                                 If the TRP Parties elect to exercise their take-along rights in connection with a Sale Transaction, they shall deliver a notice to each other Member and to the Company, setting forth the terms of the Sale Transaction (including the proposed closing date for its consummation, which shall not be fewer than 30 days after the date of such notice) and all documents required to be executed by each other Member to consummate the Sale Transaction.  Each other Member shall deliver to the TRP Parties, at least seven days before the proposed closing date, all documents previously furnished to such other Member for execution in connection with the Sale Transaction.  If any other Member fails to deliver these documents and the transaction is subsequently consummated, the Company shall cause its books and records to show that the Units represented by the defaulting Member are bound by the provisions of this section and that Units held by it shall be Transferred only to the third party who purchased the Units in the Sale Transaction.

 

(c)                                  Any TRP Party may, within 180 days from the date of its notice referred to above, consummate any Sale Transaction and, promptly after such consummation, shall notify the Company and each other Member to that effect and furnish such evidence of the sale and of the terms thereof as any other Member may reasonably request.  The TRP Parties shall also

 

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cause to be remitted to each other Member that has complied with its obligations hereunder the proceeds of the sale attributable to the sale of such Member’s Units not later than the third business day following the sale (subject to any agreed holdbacks or escrows in connection with such sale, and net of such Member’s pro rata portion of all costs and expenses incurred in connection therewith).  If a Sale Transaction is not consummated within such one hundred eighty (180) day period, the TRP Parties may not thereafter consummate the proposed Sale Transaction without again complying with this Section 7.4 and shall return to each other Member all documents previously delivered to the TRP Parties in connection with the Sale Transaction.

 

(d)                                 Notwithstanding anything in this Section 7.4 to the contrary, there shall be no liability on the part of any TRP Party to any Member if any sale of Units pursuant to this Section 7.4 is not consummated for whatever reason, it is understood that the TRP Parties, in its sole discretion, shall determine whether to effect a sale of Units to any person pursuant to this Section 7.4.

 

(e)                                  The rights granted to the TRP Parties under this Section 7.4 shall not apply to Transfers among or between TRP Parties.

 

7.5                               Cooperation.  The Company and the Members (other than the TRP Parties) shall use their respective commercially reasonable efforts to aid the TRP Parties in the consummation of any Sale Transaction pursuant to Section 7.4.  Any Member participating in a sale of Units pursuant to Section 7.3 or Section 7.4 shall cooperate in consummating the sale of Units as contemplated hereby and shall take all actions necessary, proper or advisable in connection therewith as are reasonably requested by the TRP Parties, including casting its vote or providing its written consent in favor thereof if required by applicable law or requested by the TRP Parties.  As part of such cooperation in any sale of Units pursuant to Section 7.3 or Section 7.4, each such Member shall execute and deliver a purchase agreement pursuant to which each Member will severally (but not jointly) make representations and warranties relating to its ownership of and title to the Units being sold and other customary fundamental matters; provided that such Member shall have provided indemnification on a pro rata basis in respect of such representations or warranties of the Company and as to the business; provided further that the sole source for payment of any such indemnity by such Member (whether such indemnity is payable to the purchaser, the sellers’ representative or otherwise) will be funds from the net proceeds otherwise distributed to such Member; and provided further, that no such Member will be required to execute a letter or transmittal or similar document that provides for additional representations and warranties or more extensive indemnification.  All Members will bear their respective share of the costs and expenses of any actual or proposed Sale Transaction to the extent such costs are incurred for the benefit of all Members and not otherwise paid by the Company or the acquiring party.  Costs incurred by Members for their own behalf will not be considered costs of the Sale Transaction; provided, that in any event, the Company will pay the reasonable attorneys’ fees of one counsel chosen by the Members to represent their interests.  In connection with any Sale Transaction, each Member will execute and deliver a contribution agreement among the Members apportioning (on a pro rata basis) their indemnity and reimbursement obligations on customary terms and conditions, and subject to the limitations on these obligations set forth above.  In any Sale Transaction, one of the TRP Parties shall be designated the sellers’ representative on customary terms and conditions (but subject to the

 

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limitations set forth in this Section 7.5) and with customary indemnifications against liabilities, other than liabilities arising from actions taken or not taken in bad faith.

 

7.6                               Obligations Upon Transfer.  No Transfer of any Units shall relieve the transferor from any of its obligations to the Company under this Agreement except to the extent that such obligations are assumed by the transferee in a legally valid and binding agreement and such transferee has complied with all provisions of this Section 7.6.  All Transfers shall be by instrument in form and substance satisfactory to the Board and shall include (a) an executed counterpart of this Agreement accepting and adopting all of the terms and provisions of this Agreement, as the same may have been amended, (b) appropriate representations of the transferee, including a representation by the transferee that such Transfer was made in accordance with all applicable laws and regulations covering such other matters as the board may reasonably require and (c) all such other agreements and instruments of assignment and assumption as the Board may reasonably deem to be necessary or desirable to effectuate such Transfer.  The transferee shall be admitted as a substitute Member (a “Substitute Member”) when the conditions set forth in this Section 7.6(c) have been satisfied, and the Company shall list Substitute Members as Members on Annex A.  Any Transfer in violation of this Agreement shall be null and void and shall not operate to vest any rights in any transferee.  In any case of an attempted Transfer not permitted hereby, the parties attempting to engage in such Transfer shall indemnify and hold harmless (and hereby agree to indemnify and hold harmless) the Company and the other Members from all costs, liabilities, and damages that any of such indemnified Persons may incur (including, without limitation, incremental tax liability and reasonable attorneys’ fees and expenses) as a result of such attempted Transfer and efforts to enforce the indemnity granted hereby.

 

7.7                               Expenses.  All expenses of the Company and of the Members occasioned by a Transfer of a Member’s Units permitted under Section 7.1 shall be borne by the Member effecting such Transfer.

 

7.8                               No Appraisal Rights.  No Member shall be entitled to any appraisal rights with respect to such Member’s Units, whether individually or as part of any class or group of Members, in the event of a merger, consolidation or other transaction involving the Company or its securities unless such rights are expressly provided by the agreement of merger, agreement of consolidation or other document effectuating such transaction.  Notwithstanding the foregoing, in the event that any TRP Party desires to sell the Company to any TRP Party or to any Affiliate of a TRP Party, the Company shall first obtain a fairness opinion from an independent, nationally recognized investment banking firm to ensure that the purchase price to be payable reflects the market value of the Company.

 

7.9                               Allocations with Respect to Assignor’s Interest.  Upon the Transfer pursuant to this section of all or any part of a Member’s Units, each item of Profits and Losses allocable to such Units shall be prorated (as to the transferred Units) between the transferor and transferee on the basis of the number of days in the taxable year of the Company preceding (and including) and succeeding, respectively, the date as of which the assignment or other instrument evidencing the Transfer is executed, or, in the case of a Transfer occurring by operation of law upon the death of a Member, the date of death, except that Profits and Losses from the sale or other

 

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taxable disposition of a Company capital asset shall be allocated to the Persons who were Members at the time such gain or loss was recognized by the Company.

 

ARTICLE 8
 RIGHTS TO PURCHASE

 

8.1                               Rights To Purchase.  The Company and each Member shall have the rights set forth below to purchase all, but not less than all, of the Units held by any Member (which for the purposes of this Article 8 shall include any Units acquired by the Member or his or her personal representative before the closing of a purchase of Units by the Company or the other Members and after the date of the event giving rise to the rights to purchase) in accordance with the provisions of this Article 8.

 

(a)                                 If Units owned by any Member become subject to Transfer by reason of (i) bankruptcy or insolvency proceedings, whether voluntary or involuntary, (ii) attachment or garnishment, (iii) divorce, or (iv) distraint, levy, execution or other involuntary transfer (other than in accordance with the laws of descent and distribution), then such Member or his or her personal representative shall give the Company written notice thereof promptly upon the occurrence of such event, stating the terms of such proposed Transfer, the identity of the proposed transferee, the price or consideration, if any, for which the Units are proposed to be transferred, and the number of Units and type and number of other interest to be Transferred.  Upon receipt of such notice, or, failing such receipt, when the Company otherwise obtains actual knowledge of such Transfer, the Company and each other Member shall have the right (but not the obligation) to purchase from the Member, his or her personal representative, and the transferee (as appropriate), and, upon exercise of this option, the Member, his or her personal representative, and the transferee (as appropriate) shall be obligated to sell, all of the Units owned by such Persons and acquired from the Member immediately prior to the occurrence of such event (or subsequently acquired as provided above), as shall be specified in the notice of exercise, for a purchase price equal to the fair market value of such Units, as determined in accordance with Section 8.2, and upon such other terms as are set forth in this Article 8.  Notwithstanding the foregoing, at the request of the transferor and upon approval of the Board, the Company may purchase only those Units proposed to be Transferred in the case of an event occurring under clause (ii), (iii), or (iv).

 

(b)                                 If any Units held by a Member or his or her personal representative are Transferred by operation of law (e.g., in the event of the bankruptcy or death of a Member or the attachment or garnishment of Units), the transferee shall receive such Units subject to the provisions of this Agreement, including, but not limited to, the rights granted to the Company and the other Members to acquire such Units.

 

8.2                               Fair Market Value.  Fair market value for purposes of this Article 8 shall be based on the fair market value of all outstanding Units (and without any discount for the lack of liquidity for such Units or the minority nature of their interest in the Company).  Fair market value shall initially be determined in good faith by the Board and communicated to the Members, after consultation with the affected Member during which such Member shall have the right to provide information to the Board, and the Board shall provide to such Member copies of all valuations obtained by the Board.  Following such determination, if the Member whose Units are

 

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purchasable for fair market value believes that the value determined by the Board is less than the actual fair market value of the Units, such Member may request a valuation by an appraiser or investment banker reasonably acceptable to both such Member and the Board.  If the fair market value as determined by that appraiser or investment banker (applying the definition set forth above) equals or exceed 105% of the fair market value as determined by the Board, such determination shall be final and binding on the parties as the fair market value for the Units; in all other cases the determination by the Board shall control.  Any request for such an evaluation must be made within 10 days after notice of the Board’s determination of fair market value has been delivered to the selling Member, and any valuation shall be made within 30 days of the date on which it is requested, promptly communicated to the Company and to all Members. Within 10 business days after the completion of any such valuation requested, the Company and any Member shall have the right to revoke any exercise of its right to purchase such Units (if made previously) by delivering written notice of revocation to the selling Member and all other Members and the Company.  The fees and expenses of any valuation requested pursuant to the preceding section shall be paid by the selling Member requesting it, unless the appraisal indicates that the fair market value of the Units is greater than 120% of the initial fair market value established by the Board, in which case the Company shall pay the cost of the appraisal.

 

8.3                               Exercise; Timing.  The purchase option arising pursuant to Section 8.1(a) above must be exercised by the Company by giving written notice to the affected Member within 180 days after the right to purchase has accrued under Section 8.1(a).  The Company shall immediately notify each Member when it has become aware that any right to purchase Units has arisen pursuant to Section 8.1(a) and shall keep the other Members apprised of any decision that it may make to exercise or not exercise its right to purchase Units.  If the Company does not exercise its right to purchase all Units that it is entitled to purchase pursuant to Section 8.1(a), the Members shall have the right to purchase any such Units not purchased by the Company in a manner and proportion calculated consistently with Section 4.2.

 

8.4                               Closing; Consideration To Be Paid.

 

(a)                                 The closing of any sale pursuant to this Article 8 shall be held as promptly as practicable (but in any event within 60 days) after the applicable preconditions to such Transfer have been satisfied, at the Company’s principal offices at 10:00 a.m. local time, or at such other time and place as may be reasonably acceptable to the Company.  At the closing of any sale pursuant to this Article 8, the selling Member shall deliver all documents necessary to effect such Transfer.  In consideration therefor, the Company shall pay the purchase price.

 

(b)                                 The Company may pay the purchase price for the Units pursuant to this Article 8, in the sole discretion of the Board, in cash or through a promissory note with a maturity date of three (3) years from the date of issuance bearing interest at a rate equal to the prime rate (as quoted by The Wall Street Journal on the Closing Date), calculated from the Closing Date to the date such payment is made.  The note will be subordinated to all amounts payable by the Company to its principal lender on terms and conditions acceptable to that lender.

 

(c)                                  If at the closing the selling Member has any outstanding monetary obligation to the Company, any of its subsidiaries or to another purchaser, the Company and any such purchaser shall have the right to set-off any such obligations against the purchase price to

 

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be paid to the seller by it, and that purchase price shall be reduced accordingly.  The calculation of such setoff and the identification and amount of the obligation shall be given to the seller in a notice not less than five days before such closing.

 

ARTICLE 9
 DISTRIBUTIONS

 

9.1                               Distributions of Tax Distribution Amount.  Except with respect to the year in which the Company is liquidated in accordance with Section 11.2, the Company shall distribute to each Member with respect to each year an amount of Operating Cash Flow, to the extent available, equal to such Member’s Tax Distribution Amount for such year.  Such distributions shall be made on a quarterly or other basis in a manner reasonably determined by the Board to enable the Members to satisfy both estimated and final tax payment requirements with respect to the applicable year.  If the aggregate, cumulative Tax Distribution Amount distributed to a Member pursuant to this Section 9.1 is greater than or less than the amount that such Member would have received if the aggregate, cumulative amount of such distributions to all Members had been made based upon each Member’s Capital Percentage, then such excess or deficiency shall be referred to as such Member’s “Tax Distribution Excess” or “Tax Distribution Deficiency.”

 

For the sake of clarity, each Member’s accumulated Tax Distribution Excess or Deficiency shall be calculated as the net deficiency or excess to the date of determination taking into account all Tax Distribution Deficiencies and Tax Distribution Excesses to that date for such Member, and each Tax Distribution Excess or Deficiency shall be increased each year by an interest factor that equals the amount of interest that would accrue on such amount if it were a Federal income tax deficiency.

 

9.2                               Other Distributions.  Except as otherwise provided in this Article 9 or Section 11.3, Operating Cash Flow and Capital Transaction Proceeds shall be distributed to the Members in the following manner:

 

(a)                                 first, to the Members with Tax Distribution Deficiencies in proportion to such Tax Distribution Deficiencies until all of those deficiencies have been eliminated and such Members have also received aggregate additional distributions under this Section 9.2(a) equal to the aggregate Tax Distribution Excesses;

 

(b)                                 second, to each Member in proportion to their Capital Percentages until each Member has received an aggregate, cumulative amount pursuant to this Section 9.2(b) that, taken together with any aggregate, cumulative amount distributed to such Member pursuant to Section 9.2(a), equals (i) in the case of a Member that had a Tax Distribution Excess as a result of the distributions made under Section 9.1, an amount equal to such Member’s Capital Contribution minus such Tax Distribution Excess, (ii) in the case of a Member that had a Tax Distribution Deficiency as a result of the distributions made under Section 9.1, an amount equal to such Member’s Capital Contribution plus such Tax Distribution Deficiency, and (iii) in the case of a Member that had no Tax Distribution Excess or Tax Distribution Deficiency as a result of the distributions made under Section 9.1, an amount equal to such Member’s Capital Contribution; and

 

27

 

(c)                                  third, to each Member in proportion to their Capital Percentages.

 

The timing of all distributions other than Tax Distribution Amounts shall be in the discretion of the Board; provided, however, that notwithstanding the foregoing or anything contained in this Agreement to the contrary, for so long as the Convertible Note is outstanding, the Company shall not make any distributions other than Tax Distribution Amounts without the written consent of M-B Holdings (which consent M-B Holdings may withhold in its sole and absolute discretion).

 

9.3                               Conversion to Corporation in Connection with IPO.

 

(a)                                 In connection with an initial public offering (an “IPO”) of equity interests in the Company (which, for the purposes of this Section 9.3, shall be deemed to include any successor to the Company’s business), the Board shall have the discretion to convert the Company into a corporation in such fashion as the Board considers appropriate, provided that (i) the transaction will be treated as an exchange under Code Section 351, which is nontaxable to the Members (except as otherwise provided under Code Section 357) or otherwise will not generate any material tax liabilities for any Member, and (ii) the Company shall use commercially reasonable efforts to structure such conversion in a manner that permits the Company’s stockholders to include their holding periods (for purposes of Rule 144 under the Securities Act of 1933) in respect of interests in the Company in calculating their respective holding periods in respect of shares of common stock received in the transaction.  Notwithstanding the foregoing, the Company shall not be required to structure a transaction in the manner contemplated hereby if the Board determines in good faith that it would not be permissible under applicable securities laws, detrimental to the Company and its Members or unduly burdensome or expensive, or reasonably likely to delay significantly the IPO.  In the event of such a conversion of the Company into a corporation, all interests of the Members in the Company shall be converted into shares of common stock of such corporation, with each Member receiving the amount of shares that corresponds to such Member’s positive Capital Account balance after such Capital Accounts have been adjusted to reflect the Gross Asset Value of such shares of common stock (on the assumption that such Gross Asset Value equals the offering price under the IPO).

 

(b)                                 In the event of an IPO, the Company and its stockholders shall in good faith negotiate and, prior to such IPO (if practicable), enter into a registration rights agreement containing provisions customary in such agreements, including provisions related to the representations of the parties, permitted cutbacks (based on pro rata ownership of the series and class of the Company’s Equity Securities being sold pursuant to such offering) and exclusions of certain registration statements from such registration rights, and indemnity, standstill and blackout provisions.  In addition to such customary provisions, such registration rights agreement shall provide that (i) the Company’s stockholders shall collectively be entitled on not more than one occasion to require the Company to register their Equity Securities on certain registration statements filed under Securities Act of 1933 with respect to the sale of Equity Securities for an aggregate offering price of at least $50 million, and (ii) “piggyback” registration rights.  The Company’s stockholders shall be entitled to participate in an IPO only if, and to the extent that (based upon pro rata ownership of the series and class of the Company’s Equity Securities being sold pursuant to such offering), the TRP Parties participate in the IPO.  Notwithstanding the foregoing, in the event of the IPO, no Company stockholder shall sell or otherwise transfer or

 

28

 

dispose of any Company securities held by stockholder (other than those included in the registration relating to such offering) for a period specified by the representative of the underwriters of the common stock being sold in such offering, which period shall not exceed 180 days (or, in the case of any stockholder who is not an officer or director, such shorter period as may be applicable to any TRP Party) following the effective date of the registration statement of the Company filed under the Securities Act of 1933, as amended, relating to such offering.

 

9.4                               Limitation on Distributions.  Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make a distribution to any Member on account of its membership interest in the Company if such distribution would violate Section 18-607 of the Delaware Act or other applicable law or cause a default or event of default under any indebtedness for borrowed money.

 

ARTICLE 10
 BOOKS AND RECORDS

 

10.1                        Books, Records and Financial Statements.  At all times during the continuance of the Company, the Company shall maintain, at its principal place of business, separate books of account for the Company that shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received and all income derived in connection with the operation of the Company’s business in accordance with United States generally accepted accounting principles consistently applied, and, to the extent inconsistent therewith, in accordance with this Agreement.  Such books of account, together with a certified copy of this Agreement and of the Certificate, shall at all times be maintained at the principal place of business of the Company.

 

10.2                        Accounting Method.  For both financial and tax reporting purposes, the books and records of the Company shall be kept on the accrual method of accounting applied in a consistent manner and shall reflect all Company transactions and be appropriate and adequate for the Company’s business.

 

10.3                        Information Rights.

 

(a)                                 Periodic Reporting.  The Company shall furnish the following reports to each Member:

 

(i)                                     Within 120 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries for such year, in each case, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the previous fiscal year, all in reasonable detail and audited by independent public accountants of recognized standing selected by the Company.

 

(ii)                                  Within 45 days after the end of each fiscal year of the Company, an unaudited consolidated balance sheet of the Company and its subsidiaries, for such year, and consolidated statements of income and cash flows of the Company and its subsidiaries for such

 

29

 

year, in each case, prepared in accordance with generally accepted accounting principles consistently applied.

 

(iii)                               Within 30 days after the end of the first, second, and third quarterly accounting periods in each fiscal year of the Company, an unaudited consolidated balance sheet of the Company and its subsidiaries, as of the end of each such quarterly period, and consolidated statements of income and cash flows of the Company and its subsidiaries for such period and for the current fiscal year to date, in each case, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, subject to changes resulting from normal year-end audit adjustments.

 

(b)                                 Board Meeting Information.  Promptly after the occurrence of any meeting of the Board or any committee thereof or any written consent in lieu of any such meeting, the Company shall report to each Member holding more than 5% of the outstanding Units that requests such report with respect to any material actions by the Board or such committee at such meeting or by such consent.

 

(c)                                  Information Rights Under Law.  The provisions of Sections 10.3(a) and (b) shall not limit any other rights which any Member may have under applicable law with respect to the books and records of the Company and its subsidiaries, or to inspect their respective properties or discuss with their officers, directors or agents their affairs, finances and accounts.

 

10.4                        Financial Accounts.  The Company shall establish and maintain one or more separate bank and investment accounts with financial institutions and firms that the Board determines.  The Company’s funds shall not be commingled with the funds of any Member; provided, however, that Company funds may be invested in a manner which is the same as or similar to the Members’ investment of their own funds or investments by their Affiliates.

 

ARTICLE 11
 DISSOLUTION, LIQUIDATION AND TERMINATION

 

11.1                        Dissolution.

 

(a)                                 The Company shall dissolve and its affairs shall be wound up on the first to occur of the following:

 

(i)                                     entry of a decree of judicial dissolution of the Company under Section 18-802 of the Delaware Act; or

 

(ii)                                  the consummation of any sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Company’s assets.

 

(b)                                 The death, dissolution, retirement, resignation, expulsion or bankruptcy of a Member or the occurrence of any other event that terminates the continued membership of a Member shall not cause a dissolution of the Company.

 

30

 

11.2                        Liquidation and Termination.

 

(a)                                 On dissolution of the Company, the Members shall appoint one or more Persons (which may be a Member) as liquidator (the “Liquidator”).  The Liquidator shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Delaware Act.  The costs of liquidation shall be borne as a Company expense.  Until final distribution, the Liquidator shall continue to operate the Company properties with all of the power and authority of a duly authorized Manager.  The steps to be accomplished by the Liquidator are as follows:

 

(i)                                     as promptly as possible after dissolution and again after final liquidation, the Liquidator shall cause a proper accounting to be made by a recognized firm of independent certified public accountants of the Company’s assets, liabilities, and operations through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable;

 

(ii)                                  the Liquidator shall first pay, satisfy or discharge from Company funds all of the debts, liabilities and obligations of the Company to its creditors (including, without limitation, all expenses incurred in liquidation) or otherwise make adequate provision for payment and discharge thereof (including, without limitation, the establishment of a cash escrow fund for contingent liabilities in such amount and for such term as the Liquidator may reasonably determine), all in accordance with the provisions of the Delaware Act as may be applicable; and

 

(iii)                               after all of the debts, liabilities and obligations of the Company to its creditors have been paid, satisfied or discharged or adequate provision for payment and discharge thereof has been made as required by paragraph (ii) above, the Liquidator shall pay the Members as follows:

 

(1)                                 the Liquidator may sell any or all Company property, including to Members, and any resulting gain or loss from each sale shall be computed and allocated to the Capital Accounts of the Members;

 

(2)                                 with respect to all Company property that has not been sold, the Gross Asset Value of that property shall be determined and the Capital Accounts of the Members shall be adjusted to reflect the manner in which the unrealized income, gain, loss, and deduction inherent in property that has not been reflected in the Capital Accounts previously would be allocated among the Members if there were a taxable disposition of that property for the fair market value of that property on the date of distribution; and

 

(3)                                 after completion of the steps in subparagraphs (1) and (2), the remaining assets shall be distributed to the Members in accordance with Section 9.2 (which, is expected to correspond with the Members’ Capital Accounts).

 

(b)                                 All distributions in kind to the Members shall be made subject to the liability of each distributee for costs, expenses, and liabilities relating to the assets distributed in kind theretofore incurred or for which the Company has committed prior to the date of termination and those costs, expenses, and liabilities shall be allocated to the distributees

 

31

 

pursuant to this Section 11.2.  The distribution of cash and/or property to a Member in accordance with the provisions of this Section 11.2 constitutes a complete return to the Member of its Capital Contribution and a complete distribution to the Member of its membership interest in the Company and all of the Company’s property.

 

(c)                                  Distributions pursuant to this Section 11.2 shall be made no later than such time as is required under Treas. Reg. Section 1.704-1(b)(2)(ii)(b)(2).

 

11.3                        Deficit Capital Accounts.  Notwithstanding anything to the contrary contained in this Agreement, and notwithstanding any custom or rule of law to the contrary, to the extent that a Member has a deficit Capital Account balance, upon dissolution of the Company such deficit shall not be an asset of the Company and such Members shall not be obligated to contribute such amount to the Company to bring the balance of such Member’s Capital Account to zero.

 

11.4                        Certificate of Cancellation.  On completion of the distribution of Company assets as provided herein, the Company shall be terminated, and the Liquidator (or such other Person or Persons as the Delaware Act may require or permit) shall file a certificate of cancellation with the office of the Secretary of State of the State of Delaware and take such other actions as may be necessary to terminate the existence of the Company.

 

ARTICLE 12
 TAX MATTERS

 

12.1                        Tax Matters Partner.

 

(a)                                 TRP I is hereby designated as “Tax Matters Partner” of the Company for purposes of Code Section 6231(a)(7) and shall have the power to manage and control, on behalf of the Company, any administrative proceeding at the Company level with the Internal Revenue Service relating to the determination of any item of Company income, gain, loss, deduction or credit for federal income tax purposes.  At any time, the Board may remove the Tax Matters Partner and appoint another Member to act as the Tax Matters Partner.

 

(b)                                 Each Member shall report for federal, state and local income tax purposes consistently with the relevant Schedules K-1 and corresponding state or local tax information provided to such Member by the Company, except to the extent such Member has knowledge that such information is not correct (in which case, such Member shall have the right to file a Form 8082 with the Internal Revenue Service).  Company tax returns shall be filed, and Schedules K-1 and other tax information provided to the Members, in accordance with Section B.8 of Annex B.

 

(c)                                  The Tax Matters Partner shall, within 20 days of the receipt of any notice from the Internal Revenue Service in any administrative proceeding at the Company level relating to the determination of any Company item of income, gain, loss, deduction or credit, mail a copy of such notice to each Member.

 

32

 

ARTICLE 13
 LIABILITY, EXCULPATION AND INDEMNIFICATION

 

13.1                        Liability.  Except as otherwise provided by the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Covered Person shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Covered Person.

 

13.2                        Exculpation.

 

(a)                                 No Covered Person shall be liable to the Company or to any other Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted in good faith by such Covered Person by or on behalf of the Company and in the reasonable belief that such act or omission was in or not opposed to the best interests of the Company, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person’s fraud, gross negligence or willful misconduct or by reason of such Covered Person’s negligent or willful breach of this Agreement.

 

(b)                                 A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, Profits or Losses or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid.

 

13.3                        Indemnification.

 

(a)                                 To the fullest extent permitted by applicable law: (a) the Company shall indemnify each Covered Person for any loss, damage or claim incurred by such Covered Person by reason of the fact that he, she or it is a Covered Person, except that no Covered Person shall be entitled to be indemnified to the extent of any loss, damage or claim incurred by such Covered Person by reason of the fraud, gross negligence or willful misconduct of such Covered Person or by reason of such Covered Person’s negligent or willful breach of this Agreement; provided, however, that such indemnity shall be provided out of and to the extent of Company assets only, and no Member shall have any personal liability on account thereof; and (b) each Covered Person shall indemnify the Company and each other Covered Person for any loss, damage, or claim incurred by the Company or such indemnified Covered Person by reason of the fraud, gross negligence or willful misconduct of such indemnifying Covered Person.

 

(b)                                 The Company, from and after the date of this Agreement, shall cause the articles of formation and operating agreement (“Charter Documents”) of ATC and ATC Realty to contain provisions no less favorable to the Indemnitees with respect to limitation of certain liabilities of managers, officers, employees and agents and indemnification than were set forth as of the date of the Merger Agreement in the Charter Documents of the Members of the Company

 

33

 

Group (as defined in the Merger Agreement) which provisions in each case shall not be amended, repealed or otherwise modified in a manner that would adversely affect the rights thereunder of any Indemnitee without the consent of such Indemnitee (it being expressly agreed that the Indemnitees to whom this Section 13.3(b) applies shall be third party beneficiaries of this Section 13.3(b)).

 

13.4                        Expenses.  To the fullest extent permitted by applicable law, expenses (including reasonable legal fees) incurred by a Covered Person in defending any claim, demand, action, suit or proceeding (relating to any matter for which indemnification may be available pursuant to Section 13.3) shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in Section 13.3.

 

13.5                        Insurance.  The Company shall purchase and maintain insurance for the Company to the extent and in such amounts as the Board, in its sole discretion, shall deem reasonable, on behalf of Covered Persons and such other Persons as the Managers shall determine, against any liability that may be asserted against or expenses that may be incurred by any such Person in connection with the activities of the Company or such indemnities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.  The Company may enter into indemnity contracts with Covered Persons and such other Persons as the Managers shall determine and adopt written procedures pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under Section 13.4 and containing such other procedures regarding indemnification as are appropriate.

 

ARTICLE 14
 ADDITIONAL MEMBERS

 

14.1                        Admission.  Upon authorization and issuance of Units to a Person who is not a Member and upon satisfaction of such other conditions may be required by the Board and this Agreement, such Person shall automatically be admitted as a Member of the Company (each such Person, an “Additional Member” and collectively, the “Additional Members” (which term does not include Persons admitted as Substitute Members in accordance with Article 7)).  Each such Person so admitted as an Additional Member shall execute this Agreement or a counterpart of this Agreement and the Company shall list such Person as a Member in Annex A and shall adjust the Capital Percentage of each other Member accordingly as set forth in Annex A.

 

ARTICLE 15
 MISCELLANEOUS

 

15.1                        Notices.  All notices provided for in this Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered or mailed by registered or certified mail, as follows:

 

34

 

(a)                                 if given to the Company, at the address of its principal place of business set forth in Section 2.5; or

 

(b)                                 if given to any Member, at the address set forth opposite his, her or its name on Annex A, or at such other address as such Member may hereafter designate by written notice to the Company.

 

All such notices shall be deemed to have been given when received.

 

15.2                        Headings.  The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

 

15.3                        Failure to Pursue Remedies.  The failure of any party to seek redress for violation of, or to insist upon the strict performance of, any provision of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation.

 

15.4                        Cumulative Remedies.  The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies.  Such rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise.

 

15.5                        Assignment; Binding Effect.  This Agreement may not be assigned, in whole or in part, by any Member.  Any purported assignment in violation of this Section 15.5 shall be null and void.  This Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement, their successors and assigns.

 

15.6                        Amendment.  Except as otherwise provided in this Agreement (including, without limitation, Section 13.3(b)), an amendment to this Agreement shall be adopted and be effective as an amendment hereto if it is in writing and is approved by a vote or consent of a majority of the outstanding Units and, for so long as M-B Holdings or Penske owns any Units or the Convertible Note remains outstanding, M-B Holdings and Penske; provided, however, that this Agreement may not be amended in a manner that adversely affects a Member disproportionately to other Members without the consent of the affected Member.  An amendment to Annex A to reflect the admission of an Additional Member, a Transfer, an issuance of Equity Securities, or other transaction affecting the Company’s capitalization, in each case in accordance with this Agreement, shall not be considered an amendment requiring a vote.

 

15.7                        Severability.  The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.

 

15.8                        Counterparts.  This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document.  All counterparts shall be construed together and shall constitute one instrument.

 

35

 

15.9                        Integration.  This Agreement, along with the subscription agreements relating to the purchase of Units by the Members, constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

 

15.10                 Governing Law; Consent To Jurisdiction.  This Agreement and the rights of the parties hereunder shall be interpreted in accordance with the laws of the State of Delaware, and all rights and remedies shall be governed by such laws without regard to principles thereof with respect to the conflict of laws.  Each Member (a) irrevocably submits to the exclusive jurisdiction of the United States District Court for the Northern District of Texas, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby, (b) agrees that service of any process, summons, notice or document by U.S. certified or registered mail to such Member’s respective address set forth on Annex A hereto shall be effective service of process in any action, suit or proceeding in the United States District Court for the Northern District of Texas, with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence, and (c) irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby brought in United States District Court for the Northern District of Texas, and hereby irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in such court has been brought in an inconvenient forum.

 

15.11                 Attorneys, Fees.  Except as otherwise provided herein, in any action, suit or proceeding brought to enforce the provisions of this Agreement, the parties shall bear their own costs and expenses (including attorneys’ fees), except that the party determined by the applicable court of competent jurisdiction to be the prevailing party in such action, suit or proceeding shall be entitled to recover its cost and expenses (including attorneys’ fees).

 

[Signature page follows]

 

36

 

IN WITNESS WHEREOF, the Members have executed this Agreement as of the date first above stated.

 

	
 
    	
TRP III   (ATC) I, LP
    
	
 
    	
 
    
	
 
    	
By:
    	
 Transportation Resource Management III, LLC,   its General Partner
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:   
    	
/s/   James A. Hislop
    
	
 
    	
 
    	
Name:   James A. Hislop
    
	
 
    	
 
    	
Title:   Managing Member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
TRP III   (ATC) II, LP
    
	
 
    	
 
    
	
 
    	
By:
    	
 Transportation Resource Management III, LLC,   its General Partner
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 /s/ James A. Hislop
    
	
 
    	
 
    	
Name:   James A. Hislop
    
	
 
    	
 
    	
Title:   Managing Member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PAG   Investments, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 /s/ David K. Jones
    
	
 
    	
 
    	
Name:   David K. Jones
    
	
 
    	
 
    	
Title:   Treasurer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Miciotto-Bowen   Holdings, Inc.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 /s/ John C. Miciotto, Jr.
    
	
 
    	
 
    	
Name:   John C. Miciotto, Jr.
    
	
 
    	
 
    	
Title:   Officer
    

 

[Signature Page No. 1 to ATC Holdco, LLC Limited Liability Company Agreement]

 

 

	
 
    	
/s/   Adam Arrington
    
	
 
    	
 Adam Arrington
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Drew Burk
    
	
 
    	
 Drew Burk
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Mark Lamont
    
	
 
    	
 Mark Lamont
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   John Pruitt
    
	
 
    	
 John Pruitt
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Chinta Hari
    
	
 
    	
 Chinta Hari
    

 

[Signature Page No. 2 to ATC Holdco, LLC Limited Liability Company Agreement]

 

 

	
 
    	
Brochick   Investment Co., LLC
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   George W. Brochick
    
	
 
    	
 
    	
Name:   George W. Brochick
    
	
 
    	
 
    	
Title:   Member
    

 

[Signature Page No. 3 to ATC Holdco, LLC Limited Liability Company Agreement]

 

 

ANNEX A

 

CAPITAL CONTRIBUTIONS

BY MEMBERS

 

	
Name
    	
 
    	
Initial Capital
    Contribution
    	
 
    	
Common
   Units
    	
 
    	
Capital Percentage
    	
 
    
	
TRP III (ATC) I, LP
    	
 
    	
$
    	
22,194,112
    	
 
    	
22,194,112
    	
 
    	
37.3
    	
%
    
	
TRP III (ATC) II, LP
    	
 
    	
$
    	
7,805,888
    	
 
    	
7,805,888
    	
 
    	
13.1
    	
%
    
	
PAG Investments, LLC
    	
 
    	
$
    	
15,900,000
    	
 
    	
15,900,000
    	
 
    	
27.0
    	
%
    
	
Miciotto-Bowen Holdings, Inc.
    	
 
    	
$
    	
11,900,000
    	
*
    	
11,900,000
    	
 
    	
20.0
    	
%
    
	
Adam Arrington
    	
 
    	
$
    	
100,000
    	
 
    	
100,000
    	
 
    	
0.17
    	
%
    
	
Drew Burk
    	
 
    	
$
    	
200,000
    	
 
    	
200,000
    	
 
    	
0.34
    	
%
    
	
Mark Lamont
    	
 
    	
$
    	
250,000
    	
 
    	
250,000
    	
 
    	
0.42
    	
%
    
	
John Pruitt
    	
 
    	
$
    	
50,000
    	
 
    	
50,000
    	
 
    	
0.08
    	
%
    
	
Chinta Hari
    	
 
    	
$
    	
600,000
    	
 
    	
600,000
    	
 
    	
1.01
    	
%
    
	
Brochick Investment Co., LLC
    	
 
    	
$
    	
500,000
    	
 
    	
500,000
    	
 
    	
0.84
    	
%
    
	
Total
    	
 
    	
$
    	
59,500,000
    	
 
    	
59,500,000
    	
 
    	
100.0
    	
%
    

 

*              M-B Holdings is not required to make an initial cash Capital Contribution to the Company in respect of its Units (i.e., the Rollover Units).  Rather, pursuant to Section 4.9, it will be deemed to have contributed the Deemed Contributed Assets to the Company.  The amount shown in this chart is the agreed fair market value (net of liabilities) of the Deemed Contributed Assets.

 

A-1

 

ANNEX B

FINANCIAL AND TAX MATTERS

 

B.1.         Definitions.  In addition to the terms defined in other provisions of this Agreement, including without limitation Section 1.1, the following terms shall have the meanings set forth below:

 

“Adjusted Capital Account Deficit” shall mean with respect to any Member, the deficit balance, if any, in the Member’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments (i) increasing the Capital Account by any amounts that the Member is obligated to restore or is deemed to be obligated to restore pursuant to Treas. Reg. Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(l) and 1.704-2(i)(5); and (ii) reducing the Capital Account by the items described in Treas. Reg. Sections l.704-1(b)(2)(ii)(d)(4), (5) and (6).  The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treas. Reg. Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

“Code” means the Internal Revenue Code of 1986 and any successor statute, as amended from time to time.

 

“Company Minimum Gain” has the same meaning as “partnership minimum gain” set forth in Treas. Reg. Sections 1.704-2(b)(2) and 1.704-2(d).

 

“Depreciation” shall mean for each Fiscal Year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; except that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Board, and if the Company uses the “remedial allocation method” under Treas. Reg. Section 1.704-3(d) with respect to any asset, Depreciation for that asset shall be computed in accordance with Treas. Reg. Section 1.704-3(d)(2).

 

“Gross Asset Value” with respect to any asset shall mean the asset’s adjusted basis for federal income tax purposes, except as follows:

 

(1)           The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of the asset, as reasonably determined by the contributing Member and the Board.

 

(2)           The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Board, as of the following times:

 

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(i)            the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis contribution of money, other property or services;

 

(ii)           the distribution by the Company to a Member of more than a de minimis amount of money or other property as consideration for an interest in the Company; or

 

(iii)          the liquidation of the Company for federal income tax purposes within the meaning of Treas. Reg. Section 1.704-1(b)(2)(ii)(g); except that the adjustments pursuant to clauses (i) and (ii) above shall be made only if the Board reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company.

 

(3)           The Gross Asset Value of any Company asset distributed to any Member shall be the gross fair market value of such asset on the date of distribution.

 

(4)           The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of those assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that the adjustments are taken into account in determining Capital Accounts pursuant to Treas. Reg. Section 1.704-l(b)(2)(iv)(m) and Section B.2, except that Gross Asset Values shall not be adjusted pursuant to this paragraph (4) to the extent the Board determines that an adjustment pursuant to paragraph (2) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (4).

 

(5)           If the Gross Asset Value of an asset has been determined pursuant to paragraphs (1), (2), or (4), that Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to that asset for purposes of computing Profits and Losses.

 

Notwithstanding the foregoing provisions of this definition, the initial Gross Asset Value of the ATC Assets and the ATC Realty Assets shall be the Agreed Value of the ATC Assets and the Agreed Value of the ATC Realty Assets, respectively.

 

“Member Nonrecourse Debt” has the same meaning as “partner nonrecourse debt” set forth in Treas. Reg. Sections 1.704-2(b)(4) and 1.704-2(i).

 

“Member Nonrecourse Debt Minimum Gain” shall have the same meaning as “partner nonrecourse debt minimum gain” set forth in Treas. Reg. Section 1.704-2(i) and shall be determined in accordance with the principles of that Section.

 

“Member Nonrecourse Deductions” shall mean “partner nonrecourse deductions” set forth in Treas. Reg. Sections 1.704-2(i)(1) and 1.704-2(i)(2) and any other deductions attributable to a liability of the Company for which one or more, but not all, the Members bear the economic risk of loss.

 

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“Nonrecourse Deductions” are deductions having the meaning set forth in Treas. Reg. Sections 1.704-2(b)(l) and 1.704-2(c).

 

“Profits and Losses” shall mean for each Fiscal Year or other period, an amount equal to the Company’s taxable income or loss for that year or period, determined in accordance with Code Section 703(a) (for these purposes, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

 

(1)           Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to the foregoing shall be added to such taxable income or loss.

 

(2)           Any expenditures of the Company described in Code Section 705(a)(2)(B) or that are treated as Code Section 705(a)(2)(B) expenditures pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profits or Losses pursuant to the foregoing shall be subtracted from such taxable income or loss.

 

(3)           In the event the Gross Asset Value of any Company asset is adjusted pursuant to paragraph (2), (3) or (4) of the definition of Gross Asset Value, the amount of the adjustment shall be taken into account as gain or loss from the disposition of the asset for purposes of computing Profits or Losses.

 

(4)           Gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of the property differs from its Gross Asset Value.

 

(5)           In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for the fiscal year or other period, computed in accordance with the definition of Depreciation under this Agreement.

 

(6)           Notwithstanding the above, any items that are specially allocated pursuant to Sections B.4 shall not be taken into account in computing Profits and Losses.

 

B.2.         Preparation and Maintenance of Capital Accounts.

 

(a)           The Capital Account for each Member shall:

 

(1)           be increased by (i) the amount of money contributed by that Member to the Company, (ii) the Gross Asset Value of property contributed by that Member to the Company (net of liabilities secured by the contributed property that the Company is

 

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considered to assume or take subject to under Section 752 of the Code), and (iii) allocations to that Member of Profits and any other Company income and gain (or items thereof), and

 

(2)           be decreased by (i) the amount of money distributed to that Member by the Company, (ii) the Gross Asset Value of property distributed to that Member by the Company (net of liabilities secured by the distributed property that the Member is considered to assume or take subject to under Section 752 of the Code), and (iii) allocations of Losses and any other Company loss and deduction (or items thereof), including loss and deduction described in Treas. Reg. Section 1.704-1(b)(2)(iv)(g).

 

The initial Capital Account of M-B Holdings (i.e., attributable to the Rollover Units) shall be $11,775,000.  The initial Capital Account of each other Member shall equal the amount of cash contributed by such Member pursuant to Section 4.1(b).

 

(b)           The Members’ Capital Accounts also shall be maintained and adjusted as permitted by the provisions of Treas. Reg. Section 1.704-1(b)(2)(iv)(f) and as required by the other provisions of Treas. Reg. Section 1.704-1(b)(2)(iv) and Section 1.704-1(b)(4), including adjustments to reflect the allocations to the Members of depreciation, depletion, amortization, and gain or loss as computed for book purposes rather than the allocation of the corresponding items as computed for tax purposes, as required by Treas. Reg. Section 1.704-1(b)(2)(iv)(g).  On the transfer of all or part of a Unit, the Capital Account of the transferor that is attributable to such transferred membership interest or part thereof shall carry over to the transferee Member in accordance with the provisions of Treas. Reg. Section 1.704-1(b)(2)(iv)(l).

 

(c)           The Capital Accounts of the Members as of the date hereof, based upon the cash and agreed-upon fair market value of all property, net of liabilities, being contributed to the Company by the Members on this day, are set forth on Annex A in the column labeled “Initial Capital Contribution.”

 

B.3.         Profits and Losses.  Profits, Losses and, to the extent necessary, individual items of income, gain, loss or deduction of the Company for a Fiscal Year shall be allocated among the Persons who were Members during such Fiscal Year in a manner such that the Capital Account of each Member, immediately after making such allocation, is, as nearly as possible, equal to:

 

(a)           the amount of the hypothetical distribution (if any) that such Member would receive if, on the last day of the Fiscal Year, (1) the Company were dissolved, its affairs wound up and its assets, including cash, were sold for cash equal to their Gross Asset Values, taking into account any adjustments thereto for such Fiscal Year, (2) all Company liabilities were satisfied in cash according to their terms (limited, with respect to each nonrecourse liability, to the Gross Asset Values of the assets securing such liability), and (3) the net proceeds thereof (after satisfaction of such liabilities) were distributed in full pursuant to Section 9.2 hereof over

 

(b)           the sum of (1) the amount, if any, without duplication, that such Member would be obligated to contribute to the capital of the Company, (2) such Member’s share of Company Minimum Gain determined pursuant to Treasury Regulations Section 1.704-2(g), and (3) such Member’s share of Member Nonrecourse Debt Minimum Gain determined pursuant to

 

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Treasury Regulations Section 1.704-2(i)(5), all computed as of the hypothetical sale described in Section B.3(a) of this Annex B.

 

B.4.         Special Allocations.  The following special allocations shall be made in the following order:

 

(a)           Minimum Gain Chargeback.  Notwithstanding any other provision of this Annex B, if there is a net decrease in Company Minimum Gain during any Company taxable year, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in accordance with Treas. Reg. Section 1.704-2(f).  Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto.  This Section B.4(a) is intended to comply with the minimum gain chargeback requirement in such Section of the Treasury Regulations and shall be interpreted consistently therewith.

 

(b)           Member Minimum Gain Chargeback.  Notwithstanding any other provision of this Agreement except Section B.4(a), if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Company fiscal year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treas. Reg. Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in accordance with Treas. Reg. Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto.  The items to be so allocated shall be determined in accordance with Treas. Reg. Section 1.704-2(i)(4).  This Section B.4(b) is intended to comply with the minimum gain chargeback requirement in that Section of the Treasury Regulations and shall be interpreted consistently therewith.

 

(c)           Qualified Income Offset.  In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treas. Reg. Section 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) that would create an Adjusted Capital Account Deficit for such Member, items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section B.4(c) shall be made if and only to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Agreement have been tentatively made as if this Section B.4(c) were not in this Agreement.

 

(d)           Gross Income Allocation.  In the event any Member has a deficit Capital Account at the end of any Company fiscal year, that is in excess of the amounts described in clause (i) of the definition of Adjusted Capital Account Deficit above, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section B.4(d) shall be made if and only to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Agreement have been tentatively made as if Section B.4(c) and this Section B.4(d) were not in this Agreement.

 

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(e)           Nonrecourse Deductions.  Nonrecourse Deductions for any fiscal year or other period shall be allocated among the Members in proportion to their respective Capital Percentages.

 

(f)            Member Nonrecourse Deductions.  Any Member Nonrecourse Deductions for any fiscal year or other period shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treas. Reg. Section 1.704-2(i).

 

B.5.         Tax Allocations: Code Section 704(c).

 

(a)           In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value.

 

(b)           In the event the Gross Asset Value of any Company asset is adjusted pursuant to paragraph (2) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Treasury Regulations thereunder.

 

(c)           The difference between the adjusted basis of the Deemed Contributed Assets and the 704(c) Value of the Deemed Contributed Assets at the time of the deemed contribution of the Deemed Contributed Assets to the Company shall be taken into account pursuant to the “traditional method” set forth in Treasury Regulations Section 1.704-3(b)(1).  Any other elections or other decisions relating to allocations pursuant to this Section B.5 shall be made by the Board in any manner that is provided in the Treasury Regulations under Code Section 704(c), reasonably reflects the purpose and intention of this Agreement.  Allocations pursuant to this Section B.5 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Profits, Losses, other items or distributions pursuant to any provision of this Agreement.

 

B.6.         Miscellaneous Allocation Provisions.

 

(a)           For purposes of determining Profits, Losses or any other items allocable to any period, Profits, Losses and any such other items shall be determined on a daily, monthly or other basis, as determined by the Board using any permissible method under Code Section 706 and the Treasury Regulations promulgated thereunder.

 

(b)           Except as otherwise provided in this Agreement, all items of Company income gain, loss, deduction, and any other allocations not otherwise provided for shall be divided among the Members in the same proportions as they share Profits or Losses, as the case may be, including, for this purpose, items allocated pursuant to Sections B.4, for the year.

 

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(c)           For the purpose of determining each Member’s share of excess nonrecourse liabilities pursuant to Treas. Reg. Section 1.752-3(a)(3), and solely for such purpose, each Member’s interest in profits is hereby specified to be such Member’s Capital Percentage.

 

B.7.         Establishment of Reserves.  The Board shall have the right and obligation to establish reasonable reserves for maintenance, improvements, acquisitions, capital expenditures and other contingencies, such reserves to be funded with such portion of the operating revenues of the Company for any fiscal year as the Board may deem necessary or appropriate for that purpose.

 

B.8.         Tax Returns.  The Board shall cause to be prepared and filed all necessary federal and state income tax returns for the Company, including making the elections described in Section B.9, and shall cause Schedules K-1, and corresponding forms for state and local tax purposes, to be provided to the Members within 135 days after the end of each taxable year.  The Board shall cause the Company to promptly provide to each Member such additional information reasonably requested by such Member for the preparation of such Member’s federal, state and local income tax returns (including, without limitation, if so requested, full apportionment information and copies of the Company’s Federal Form 1065).  Each Member shall furnish to the Board all pertinent information in its possession relating to Company operations that is necessary to enable the Company’s income tax returns to be prepared and filed.

 

B.9.         Election of Liquidation Value Safe Harbor.  Each Member, by executing this Agreement, hereby agrees to the following:

 

(a)           The Company is authorized and directed to elect the safe harbor, in accordance with proposed Treas. Reg. Section 1.83-3(1) and the proposed revenue procedure thereunder (once such regulations and revenue procedure become effective), under which the fair market value of each interest in the Company that is transferred in connection with the performance of services shall be treated as being equal to the liquidation value of that interest (the “Safe Harbor Election”);

 

(b)           The Company and each Member (including any person to whom an interest in the Company is transferred in connection with the performance of services) agree to comply with all requirements of the Safe Harbor Election with respect to all interests in the Company transferred in connection with the performance of services while the Safe Harbor Election remains effective, including the requirement that all relevant Federal income tax items be reported consistently with the Safe Harbor Election;

 

(c)           The effective date of the Safe Harbor Election shall be the earliest permitted such date under the applicable regulations and revenue procedure, once those become effective, and the Safe Harbor Election shall continue to apply until such time (if ever) as all Members affected by the Safe Harbor Election shall agree to terminate it and the Company shall affirmatively terminate it under applicable procedures;

 

(d)           The Tax Matters Partner shall file, with the Company’s Federal income tax return for the taxable year in which the Safe Harbor Election becomes effective, a document,

 

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executed by the Tax Matters Partner, stating that the Company is electing, on behalf of the Company and the Members, to have the Safe Harbor Election apply irrevocably with respect to all interests in the Company transferred in connection with the performance of services while the Safe Harbor Election is in effect; and

 

(e)           The Company shall comply with applicable recordkeeping requirements for the Safe Harbor Election, and the Company and the Members shall take all other actions, if any, required to comply with the requirements of such Safe Harbor Election as ultimately promulgated, to the extent practicable.

 

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