Document:

Second Modification of Transaction Documents

SECOND MODIFICATION OF TRANSACTION DOCUMENTS

THIS SECOND MODIFICATION OF TRANSACTION DOCUMENTS (this “Agreement”) is entered into as of June 1, 2012 by and between TRI-VALLEY CORPORATION, a Delaware corporation (“Debtor”), and GEORGE T. GAMBLE 1991 TRUST (“Purchaser”) to amend that certain Amended and Restated Pledge and Security Agreement dated as of March 30, 2012 by and between Debtor and Purchaser (including all supplements thereto and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal or extension thereof, in whole or in part, “Pledge Agreement”) and the First Purchase Agreement (as hereinafter defined), in respect of the 14% Senior Secured Note dated as of  March 30, 2012 (including all supplements thereto and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof, in whole or in part, “First Note”), and the 14% Senior Secured Note dated as of May 4, 2012 (including all supplements thereto and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof, in whole or in part, “Second Note”), each issued by the Debtor and payable to Purchaser (the First Note, the Second Note, and the Third Note (defined below), collectively, “Notes”).  All capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in the Pledge Agreement unless otherwise stated. 

RECITALS

A.

Purchaser purchased: (i) the First Note pursuant to the terms of that certain Senior Secured Note and Warrant Purchase Agreement dated as of March 30, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, “First Purchase Agreement”), and (ii) the Second Note pursuant to the terms of that certain Senior Secured Note and Warrant Purchase Agreement dated as of May 4, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, the “Second Purchase Agreement”, and together with the First Purchase Agreement, “Purchase Agreements”).

B.

Among other collateral documents, TVOG and Select Resources executed in favor of Purchaser that certain (i) Guaranty Agreement dated as of March 30, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, “First Guaranty”), and (ii) Guaranty Agreement dated as of May 4, 2012 (as amended, restated, supplemented, or otherwise modified from time to time, “Second Guaranty”, and together with the First Guaranty, “Guaranties”).

C.

The parties hereto have agreed that Debtor will issue to Purchaser a new 14% Senior Secured Demand Note dated as of June 1, 2012 evidencing an uncommitted line of credit to be advanced at Purchaser’s sole discretion (including all supplements thereto and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof, in whole or in part, “Third Note”), to be secured by the same collateral and guaranteed by the same Guaranties as the First Note and the Second Note.

D.

Accordingly, Debtor is required to execute and deliver this Agreement to modify certain terms and conditions of the First Purchase Agreement, the Second Purchase Agreement, the Pledge Agreement, the First Guaranty and the Second Guaranty.

NOW THEREFORE, for good and adequate consideration, the receipt and sufficiency of which is hereby acknowledged, Purchaser and Debtor agree as follows:

Second Modification of Transaction Documents – Page 1

074561.02

1.

Amendments to the Pledge Agreement.   The Pledge Agreement shall be amended by replacing in its entirety the existing Schedule 3 therein with the Schedule 3 attached hereto.

2.

Amendments to the First Purchase Agreement.  The following sections of the First Purchase Agreement shall be amended as follows:

(a)

The definition of “Transaction Documents” in Section 1.3 of the First Purchase Agreement shall be deleted in its entirety and the new definition set forth below shall be substituted in replacement thereof:

“This Agreement, Additional Purchase Agreement (as defined below), the Security Agreement, the Assignment Agreement, the Deed of Trust, the Guaranty, the Royalty Interests Assignment, the Note, the Additional Note (as defined below), the Third Note (as defined below), the Registration Rights Agreement, the Warrant, the Additional Warrant (as defined below) and other documents and instruments executed in connection herewith, including all supplements thereto and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof, in whole or in part, are collectively referred to as the “Transaction Documents.” “Additional Note” shall refer to that certain Promissory Note dated as of April 3, 2012 in the initial principal amount of $1,500,000.00 executed by the Debtor and made payable to the Purchaser, “Additional Warrant” shall refer to that certain Warrant to Purchase Shares of Common Stock of Tri-Valley Corporation dated as of May 4, 2012 issued by Debtor in favor of Purchaser, “Additional Purchase Agreement” shall refer to that certain Senior Secured Note and Warrant Purchase Agreement dated as of May 4, 2012, each as amended, restated, supplemented, replaced, or otherwise modified from time to time, and “Third Note” shall refer to that certain  promissory note issued by Debtor in favor of Purchaser as of June 1, 2012 evidencing an uncommitted line of credit to be advanced at Purchaser’s sole discretion, and each including all supplements thereto, and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof.”

(b)

Section 7.1(i) of the First Purchase Agreement shall be deleted in its entirety and the following shall be substituted in replacement thereof:

“(i)

an event of default under the Additional Purchase Agreement or the Third Note shall occur.” 

3.

Amendments to the Second Purchase Agreement.  The following sections of the Second Purchase Agreement shall be amended as follows:

(a)

The definition of “Transaction Documents” in Section 1.3 of the Second Purchase Agreement shall be deleted in its entirety and the new definition set forth below shall be substituted in replacement thereof:

“This Agreement, First Agreement, the Security Agreement, the Modification of Transaction Documents, the Deed of Trust, the Amendment to Deed of Trust, the Guaranty, the Note, the First Note, the Third Note (as defined below) the Registration Rights Agreement, the Registration Rights Side Letter, the Warrant, the First Warrant, and all other documents and instruments executed in connection herewith or therewith, including all supplements thereto and amendments or modifications thereof, and all 

Second Modification of Transaction Documents – Page 2

074561.02

agreements given in substitution therefor or in restatement, renewal, increase or extension thereof, in whole or in part, are collectively referred to as the “Transaction Documents.” “Third Note” shall refer to that certain  promissory note issued by Debtor in favor of Purchaser as of June 1, 2012 evidencing an uncommitted line of credit to be advanced at Purchaser’s sole discretion, including all supplements thereto, and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof.”

(b)

Section 7.1(i) of the Second Purchase Agreement shall be deleted in its entirety and the following shall be substituted in replacement thereof:

“(i)

an event of default under the First Agreement or the Third Note shall occur.” 

4.

Amendments to the Guaranties.  The Guaranties shall be amended by replacing in its entirety Subsection 1(a) in each of the First Guaranty and the Second Guaranty and the following shall be substituted in replacement thereof: 

“(a) payment, when due, of any and all outstanding and unpaid indebtedness and other amounts of every kind, howsoever created, arising, or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing or owing to the Lender by the Borrower under: (i) the Note, (ii) that certain 14% Senior Secured Demand Note issued by Borrower in favor of Lender as of June 1, 2012 evidencing an uncommitted line of credit to be advanced at Lender’s sole discretion, and (iii) any other note issued by Borrower in favor of Lender, now or in the future, including with respect to each of (i)-(iii), all supplements thereto, and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof (including, without limitation, amounts that would become due but for operation of any applicable provision of Title 11 of the United States Code (including, without limitation, 11 U.S.C.  §§ 502 and 506)), together with all pre- and post-maturity interest thereon (including, without limitation, all post-petition interest if the Borrower voluntarily or involuntarily file for bankruptcy protection) (all such obligations being hereinafter collectively referred to as the “Liabilities”) and”

5.

Conditions Precedent to Effectiveness of this Agreement.  Unless otherwise waived by Purchaser in its sole discretion, this Agreement shall become effective when, and only when, Purchaser shall have received, in form and substance satisfactory to Purchaser, in Purchaser’s sole discretion:

(a)

The following documents, fully executed by all of the parties thereto:

(i)

this Agreement;

(ii)

the Third Note;

(iii)

that certain Second Amendment and Modification of Deed of Trust, Assignment of Production, Security Agreement, Fixture Filing, and Financing Statement dated as of even date herewith by and between TVOG and Purchaser; and

(iv)

the Ratification and Affirmation of Guarantor attached to this Agreement duly executed by TVOG and Select Resources.

(b)

resolutions of the Board of Directors (or other appropriate governing authority) of each of Debtor, TVOG and Select Resources authorizing the execution, delivery and performance of this Agreement and any other documents signed in connection herewith, together with an incumbency certificate of an authorized officer, the Bylaws of each of Debtor, TVOG 

Second Modification of Transaction Documents – Page 3

074561.02

and Select Resources, and an updated, “bring-down” certification from a registered agent service company as to the Certificates of Formation and Certificates of Legal Existence and Good Standing of each of Debtor, TVOG and Select Resources; and

(c)

except as specifically set forth on the Disclosure Schedule to the Second Purchase Agreement or as otherwise disclosed to Purchaser in writing on or before the date hereof, evidence that (i) no default or Event of Default has occurred and is continuing, and (ii) no material adverse change in the Debtor’s financial condition or assets has occurred and is continuing.

6.

Representations and Warranties of Debtor.  Debtor represents and warrants as follows:

(a)

It is duly authorized and empowered to execute, deliver and perform this Agreement and all other instruments referred to or mentioned herein to which it is a party, and all action on its part requisite for the due execution, delivery and the performance of this Agreement has been duly and effectively taken;

(b)

After giving effect to this Agreement, except as specifically set forth on the Disclosure Schedule to the Second Purchase Agreement or as otherwise disclosed to Purchaser in writing on or before the date hereof, the representations and warranties contained in the Purchase Agreements and any other Transaction Documents executed by it in connection herewith or therewith are true in all material respects on and as of the date hereof as though made on and as of the date hereof, except to the extent that such representation or warranty was made as of a specific date, in which case such representation or warranty was true in all material respects when made; 

(c)

After giving effect to this Agreement, except as specifically set forth on the Disclosure Schedule to the Second Purchase Agreement or as otherwise disclosed to Purchaser in writing on or before the date hereof, no event has occurred and is continuing which constitutes a default or an Event of Default; and

(d)

When duly executed and delivered, each of this Agreement, the Purchase Agreements and any other Transaction Documents will be legal and binding obligations of it, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors’ rights and by equitable principles of general application.

7.

Reference to and Effect on the Transaction Documents.  

(a)

Upon the effectiveness of this Agreement, each reference in the Purchase Agreements to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import, and each such reference in the Transaction Documents, shall mean and be a reference to the applicable Purchase Agreement, or the applicable Transaction Document, as amended hereby.

(b)

Except as specifically amended above, the Purchase Agreements, the Notes, and all other Transaction Documents shall remain in full force and effect and are hereby ratified and confirmed.  Without limiting the generality of the foregoing, the Pledge Agreement and related documents and all collateral described therein do and shall continue to secure the payment of all obligations of Debtor under the Purchase Agreements, the Notes, and any other Transaction Documents, each as amended hereby.

Second Modification of Transaction Documents – Page 4

074561.02

(c)

In the event of any inconsistency between the terms of any Transaction Document and the terms of such Transaction Document as amended hereby, the terms of the Transaction Document, as amended hereby, shall control.

(d)

The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Purchaser under, or constitute a waiver of any other provision of, any of the Transaction Documents.

8.

Further Assurance; Costs and Expenses.  Debtor shall pay any and all costs and expenses payable or determined to be payable in connection with the execution and delivery, filing or recording of this Agreement and the other instruments and documents to be delivered hereunder, and agrees to save Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such fees.  All such costs, expenses and liabilities shall be a part of the indebtedness under the Notes, becoming additional principal owed by Debtor thereunder and accruing interest as set forth in the Notes. Debtor hereby agrees to execute such other documents to be filed of record as may be necessary or as may be required in the opinion of counsel to Purchaser, to effect the transactions contemplated hereby and to protect the liens and security interests of the Transaction Documents, and the liens and/or security interests in all other collateral.

9.

Execution in Counterparts.  This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.

10.

Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that Purchaser has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of New York law shall not be deemed to deprive Purchaser of such rights and remedies as may be available under Federal law.

11.

No Set-offs, Counterclaims, Defenses, Etc.  Debtor and each of the Guarantors, by their execution hereof, each hereby declares that it has no set-offs, counterclaims, defenses or other causes of action against Purchaser arising out of the Transaction Documents, or any other documents mentioned herein or otherwise; and to the extent any such set-offs, counterclaims, defenses, or other causes of action may exist, whether known or unknown, such items are hereby waived by Debtor.  Debtor hereby reaffirms to Purchaser each of its respective representations, warranties, covenants and agreements contained in the Transaction Documents with the same force and effect as if each were separately stated herein and made as of the date hereof.

12.

Successors and Assigns.  This Agreement shall be binding upon, and shall inure to the benefit of, the parties’ respective successors and assigns.

13.

Final Agreement.  THIS AGREEMENT, THE NOTES, THE DEED OF TRUST (AS DEFINED IN THE FIRST PURCHASE AGREEMENT) AND THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

]

Second Modification of Transaction Documents – Page 5

074561.02

IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed by its authorized signatory as of the date first indicated above.

DEBTOR:

TRI-VALLEY CORPORATION, a Delaware corporation 

By: /s/ Maston N. Cunningham

Maston N. Cunningham, Chief Executive Officer

Second Modification of Transaction Documents – Signature Page

403521612

074561.02

IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed by its authorized signatory as of the date first indicated above.

PURCHASER:

GEORGE T. GAMBLE 1991 TRUST

By: /s/ G. Thomas Gamble, Trustee

`

G. Thomas Gamble, Trustee

Second Modification of Transaction Documents – Signature Page

403521612

074561.02

RATIFICATION AND AFFIRMATION OF GUARANTORS

As of June 1, 2012, each undersigned Guarantor (“Guarantor”, and collectively, “Guarantors”) hereby expressly (a) acknowledges the terms of this Agreement, (b) ratifies and affirms its obligations under that certain Guaranty Agreement dated as of March 30, 2012 (as amended, modified, supplemented or restated from time to time in effect, the “Guaranty”) executed by each Guarantor in favor of the Purchaser, (c) acknowledges, renews and extends its continued liability under said Guaranty and agrees that said Guaranty remains in full force and effect notwithstanding the matters contained herein, and (d) represents and warrants to the Purchaser that as of the date hereof, after giving effect to the terms of this Agreement, all of the representations and warranties contained in each Transaction Document to which said Guarantor is a party are true and correct in all material respects, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, such representations and warranties shall continue to be true and correct in all material respects as of such specified earlier date.

GUARANTORS:

TRI-VALLEY OIL & GAS CO., a California corporation

By:  /s/ Maston N. Cunningham

        Maston N. Cunningham, Chief Executive Officer

        and President

SELECT RESOURCES CORPORATION, a Delaware corporation

By:

/s/ Maston N. Cunningham

Maston N. Cunningham, Chief Executive   

             Officer

Second Modification of Transaction Documents – Signature Page

403521612

074561.02

Schedule 3

CERTAIN DEFINED TERMS

All capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in this Schedule 3, and if not defined in this Schedule 3 or otherwise in this Agreement, the meanings set forth in the First Purchase Agreement (as defined below) unless otherwise stated.  For purposes of this Agreement, the following terms have the meanings set forth below:

 

“First Note”:  that certain 14% Senior Secured Note issued by the Debtor and payable to Purchaser dated as of March 30, 2012 (including all supplements thereto and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof, in whole or in part).

“First Purchase Agreement”: that certain 14% Senior Secured Note and Warrant Purchase Agreement by and between Debtor and Purchaser dated as of March 30, 2012 (as amended, restated, supplemented, or otherwise modified from time to time).

“Notes”:  collectively, the First Note, the Second Note, the Third Note, and any other notes issues by Debtor to Purchaser, now or hereafter. 

“Obligations”:  collectively, the Obligations (as defined in the First Purchase Agreement) and the Obligations (as defined in the Second Purchase Agreement).

“Purchase Agreements”:  collectively, the First Purchase Agreement and the Second Purchase Agreement.

“Second Note”:  that certain 14% Senior Secured Note issued by the Debtor and payable to Purchaser dated as of May 4, 2012 (including all supplements thereto and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof, in whole or in part).

“Second Purchase Agreement”:  that certain 14% Senior Secured Note and Warrant Purchase Agreement by and between Debtor and Purchaser dated as of May 4, 2012 (as amended, restated, supplemented, or otherwise modified from time to time).

“Select Resources”:  Select Resources Corporation, Inc., a Delaware corporation, which is a wholly-owned subsidiary of Debtor.

“Select Securities”:  all of the issued and outstanding shares of common stock of Select Resources.

“Subsidiaries”:  collectively, TVOG, Select Resources, and any other Person 50% or more of whose voting securities or other ownership interests are directly or indirectly owned by Debtor (and each, a “Subsidiary”).

“Third Note”:  that certain 14% Senior Secured Demand Note issued by the Debtor and payable to Purchaser dated as of June 1, 2012, evidencing an uncommitted line of credit to be advanced at Purchaser’s sole discretion (including all supplements thereto and amendments or modifications thereof, and all agreements given in substitution therefor or in restatement, renewal, increase or extension thereof, in whole or in part).

Second Modification of Transaction Documents – Schedule 3

074561.02

“Transaction Documents”:  collectively, the Transaction Documents (as defined in the First Purchase Agreement) and the Transaction Documents (as defined in the Second Purchase Agreement) (all as amended, restated, supplemented, or otherwise modified from time to time). 

“TVOG”:  Tri-Valley Oil & Gas Co., a California corporation, which is a wholly-owned subsidiary of Debtor.

“TVOG Securities”:  all of the issued and outstanding shares of common stock of TVOG.

Second Modification of Transaction Documents – Schedule 3

074561.02exhibit10-1.htm

Exhibit 10.1

 

 

  

 Execution Version

PURCHASE AND SALE AGREEMENT

 

 

 

between

 

 

ANTERO RESOURCES CORPORATION

 

as Seller

 

and

 

VANGUARD PERMIAN, LLC

 

as Buyer

 

 

dated

 

June 1, 2012

 

 

 

  

  

  

TABLE OF CONTENTS

 

	 	 	Page
	
ARTICLE I

	
DEFINITIONS AND INTERPRETATION

	
1

	
1.1

	
Defined Terms

	
1

	
1.2

	
References and Rules of Construction

	
1

	
ARTICLE II

	
PURCHASE AND SALE

	
2

	
2.1

	
Purchase and Sale

	
2

	
2.2

	
Excluded Assets

	
3

	
2.3

	
Revenues and Expenses

	
3

	
ARTICLE III

	
PURCHASE PRICE

	
4

	
3.1

	
Purchase Price

	
4

	
3.2

	
Deposit

	
4

	
3.3

	
Adjustments to Purchase Price

	
4

	
3.4

	
Adjustment Methodology

	
6

	
3.5

	
Preliminary Settlement Statement

	
6

	
3.6

	
Interim Settlement Statement

	
7

	
3.7

	
Final Settlement Statement

	
7

	
3.8

	
Disputes

	
8

	
3.9

	
Allocation of Purchase Price / Allocated Values

	
8

	
3.10

	
Post-Closing Adjustments after Final Settlement Statement

	
8

	
3.11

	
Allocation for Imbalances

	
8

	
ARTICLE IV

	
REPRESENTATIONS AND WARRANTIES OF SELLER

	
9

	
4.1

	
Organization, Existence and Qualification

	
9

	
4.2

	
Authority, Approval and Enforceability

	
9

	
4.3

	
No Conflicts

	
9

	
4.4

	
Consents

	
9

	
4.5

	
Bankruptcy

	
10

	
4.6

	
Foreign Person

	
10

	
4.7

	
Litigation

	
10

	
4.8

	
Material Contracts

	
10

	
4.9

	
No Violation of Laws

	
11

	
4.10

	
Preferential Rights

	
11

	
4.11

	
Royalties, Etc

	
11

	
4.12

	
Imbalances

	
11

	
4.13

	
Current Commitments

	
11

	
4.14

	
Environmental

	
11

	
4.15

	
Production Taxes

	
12

	
4.16

	
Brokers’ Fees

	
12

	
4.17

	
No Known Liabilities

	
12

  

i

  

	
ARTICLE V

	
BUYER’S REPRESENTATIONS AND WARRANTIES

	
12

	
5.1

	
Organization, Existence and Qualification

	
12

	
5.2

	
Authority, Approval and Enforceability

	
12

	
5.3

	
No Conflicts

	
13

	
5.4

	
Consents

	
13

	
5.5

	
Bankruptcy

	
13

	
5.6

	
Litigation

	
13

	
5.7

	
Financing

	
13

	
5.8

	
Regulatory

	
13

	
5.9

	
Independent Evaluation

	
14

	
5.10

	
Brokers’ Fees

	
14

	
5.11

	
Accredited Investor

	
14

	
ARTICLE VI

	
CERTAIN AGREEMENTS

	
14

	
6.1

	
Conduct of Business

	
14

	
6.2

	
Successor Operator

	
15

	
6.3

	
HSR Act

	
15

	
6.4

	
Governmental Bonds

	
16

	
6.5

	
Record Retention

	
16

	
6.6

	
Guarantees

	
16

	
6.7

	
Notifications

	
16

	
6.8

	
Amendment of Schedules

	
16

	
6.9

	
Hedges and Novation Agreements

	
17

	
6.10

	
Audit Rights

	
17

	
6.11

	
Shortfall Amounts

	
17

	
ARTICLE VII

	
BUYER’S CONDITIONS TO CLOSING

	
18

	
7.1

	
Representations

	
18

	
7.2

	
Performance

	
18

	
7.3

	
No Legal Proceedings

	
18

	
7.4

	
Title Defects; Environmental Defects; Casualty; Preferential Rights; Consents

	
18

	
7.5

	
HSR Act

	
18

	
7.6

	
Novation Agreements

	
18

	
7.7

	
FERC Approvals

	
19

	
7.8

	
Closing Deliverables

	
19

	
ARTICLE VIII

	
SELLER’S CONDITIONS TO CLOSING

	
19

	
8.1

	
Representations

	
19

	
8.2

	
Performance

	
19

	
8.3

	
No Legal Proceedings

	
19

	
8.4

	
Title Defects; Environmental Defects; Casualty; Consents

	
19

	
8.5

	
HSR Act

	
19

	
8.6

	
Replacement Bonds and Guarantees

	
20

	
8.7

	
FERC Approvals

	
20

	
8.8

	
Closing Deliverables

	
20

  

ii

  

	
ARTICLE IX

	
CLOSING

	
20

	
9.1

	
Date of Closing

	
20

	
9.2

	
Place of Closing

	
20

	
9.3

	
Closing Obligations

	
20

	
9.4

	
Records

	
21

	
ARTICLE X

	
ACCESS/DISCLAIMERS

	
22

	
10.1

	
Access

	
22

	
10.2

	
Confidentiality

	
23

	
10.3

	
Disclaimers

	
23

	
ARTICLE XI

	
TITLE MATTERS; CASUALTY; TRANSFER RESTRICTIONS

	
25

	
11.1

	
Seller’s Title

	
25

	
11.2

	
Notice of Title Defects; Defect Adjustments

	
26

	
11.3

	
Casualty Loss

	
30

	
11.4

	
Preferential Purchase Rights and Consents to Assign

	
31

	
ARTICLE XII

	
ENVIRONMENTAL MATTERS

	
32

	
12.1

	
Notice of Environmental Defects

	
32

	
12.2

	
NORM, Wastes and Other Substances

	
35

	
ARTICLE XIII

	
ASSUMPTION; INDEMNIFICATION; SURVIVAL

	
35

	
13.1

	
Assumption by Buyer

	
35

	
13.2

	
Indemnities of Seller

	
36

	
13.3

	
Indemnities of Buyer

	
37

	
13.4

	
Limitation on Liability

	
37

	
13.5

	
Express Negligence

	
37

	
13.6

	
Exclusive Remedy

	
37

	
13.7

	
Indemnification Procedures

	
38

	
13.8

	
Survival

	
40

	
13.9

	
Waiver of Right to Rescission

	
40

	
13.10

	
Insurance, Taxes

	
41

	
13.11

	
Non-Compensatory Damages

	
41

	
13.12

	
Cooperation by Buyer   Retained Litigation

	
41

	
13.13

	
Disclaimer of Application of Anti-Indemnity Statutes

	
41

	
ARTICLE XIV

	
TERMINATION, DEFAULT AND REMEDIES

	
41

	
14.1

	
Right of Termination

	
41

	
14.2

	
Effect of Termination; Remedies

	
42

	
14.3

	
Return of Documentation and Confidentiality

	
43

  

iii

  

	
ARTICLE XV

	
MISCELLANEOUS

	
43

	
15.1

	
Appendices, Exhibits and Schedules

	
43

	
15.2

	
Expenses and Taxes

	
43

	
15.3

	
Assignment

	
44

	
15.4

	
Preparation of Agreement

	
44

	
15.5

	
Publicity

	
44

	
15.6

	
Notices

	
44

	
15.7

	
Further Cooperation

	
46

	
15.8

	
Filings, Notices and Certain Governmental Approvals

	
46

	
15.9

	
Entire Agreement; Conflicts

	
46

	
15.10

	
Parties in Interest

	
46

	
15.11

	
Amendment

	
47

	
15.12

	
Waiver; Rights Cumulative

	
47

	
15.13

	
Governing Law; Jurisdiction

	
47

	
15.14

	
Severability

	
48

	
15.15

	
Removal of Name

	
48

	
15.16

	
Counterparts

	
48

 

 

 

 

 

  

iv

  

LIST OF APPENDICES, EXHIBITS AND SCHEDULES

 

 

	
Appendix I

	
―

	
Defined Terms

	  	  	  
	
Exhibit A

	
―

	
Leases

	
Exhibit A-1

	
―

	
Wells and Undrilled Locations

	
Exhibit B

	
―

	
Form of Assignment and Bill of Sale

	
Exhibit C

	
―

	
Excluded Assets

	  	  	  
	
Schedule 2.1(f)

	
―

	
Well Meters

	
Schedule 2.1(h)

	
―

	
Hedges

	
Schedule 3.8

	
―

	
Allocated Values

	
Schedule 4.4

	
―

	
Consents

	
Schedule 4.7

	
―

	
Litigation

	
Schedule 4.8

	
―

	
Material Contracts

	
Schedule 4.9

	
―

	
Violation of Laws

	
Schedule 4.10

	
―

	
Preferential Rights

	
Schedule 4.11

	
―

	
Royalties, Etc.

	
Schedule 4.12

	
―

	
Imbalances

	
Schedule 4.13

	
―

	
Current Commitments

	
Schedule 4.14

	
―

	
Environmental

	
Schedule 4.15

	
―

	
Production Taxes

	
Schedule 6.1

	
―

	
Conduct of Business

	
Schedule 6.6

	
―

	
Guarantees

	
Schedule 8.6

	
―

	
Firm Transportation and Other Arrangements

	
Schedule 13.1

	
―

	
Retained Litigation

 

 

 

  

v

  

PURCHASE AND SALE AGREEMENT

 

 

This PURCHASE AND SALE AGREEMENT (this “Agreement”) is executed as of this 1st day of June 2012, and is between Antero Resources Corporation, a Delaware corporation (“Seller”) and Vanguard Permian, LLC, a Delaware limited liability company (“Buyer”).  Seller and Buyer are each a “Party,” and collectively the “Parties.”

 

RECITALS

 

Seller desires to sell and assign, and Buyer desires to purchase and pay for, all of Seller’s right, title and interest in and to the Assets (as defined hereinafter) effective as of the Effective Time (as defined hereinafter).

 

NOW, THEREFORE, for and in consideration of the mutual promises contained herein, the benefits to be derived by each Party hereunder, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

1.1 Defined Terms.  Capitalized terms used herein shall have the meanings set forth in Appendix I, unless the context otherwise requires.

 

1.2 References and Rules of Construction.  All references in this Agreement to Appendices, Exhibits, Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Appendices, Exhibits, Schedules, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise.  Titles appearing at the beginning of any Articles, Sections, subsections and other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof.  The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Article, Section, subsection or other subdivision unless expressly so limited.  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.  Wherever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limiting the foregoing in any respect.” All references to “$” or “dollars” shall be deemed references to United States Dollars.  Each accounting term not defined herein will have the meaning given to it under GAAP as interpreted as of the date of this Agreement.  Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.  Appendices, Exhibits and Schedules referred to herein are attached hereto and by this reference incorporated herein for all purposes.

  

1

  

 

ARTICLE II

 

PURCHASE AND SALE

 

2.1 Purchase and Sale.  Subject to the terms and conditions of this Agreement, Seller agrees to sell, and Buyer agrees to purchase and pay for all of Seller’s right, title and interest in and to the assets described in Section 2.1(a) through Section 2.1(j) below (such assets, less and except the Excluded Assets, collectively, the “Assets”):

 

(a) the oil and gas leases and fee mineral interests described in Exhibit A, subject to any reservations or depth restrictions described in Exhibit A, together with any and all other right, title and interest of Seller in and to any leasehold estates created thereby subject to the terms, conditions, covenants and obligations set forth in such leases and/or Exhibit A, and all other interests of Seller of any kind or character in such leases and fee mineral interests, subject (in each case) to any reservation or depth restrictions described in Exhibit A (such interest in such leases and fee mineral interests, the “Leases”);

 

(b) all wells located on any of the Leases or on any other lease with which any Lease has been unitized (such interest in such wells, including the wells set forth in Exhibit A-1, the “Wells”), and in all Hydrocarbons produced therefrom or allocated thereto;

 

(c) all rights and interests in, under or derived from all unitization and pooling agreements in effect with respect to any of the Leases or Wells and the units created thereby (the “Units”);

 

(d) to the extent that they may be assigned or the extent they may be assigned upon payment of a fee or other consideration, and Buyer has paid such fee or other consideration, all Applicable Contracts and all rights thereunder, including certain firm transportation agreements;

 

(e) to the extent that they may be assigned or the extent they may be assigned upon payment of a fee or other consideration, and Buyer has paid such fee or other consideration, all permits, licenses, servitudes, easements and rights-of-way to the extent used primarily in connection with the ownership or operation of any of the Leases, Wells, Units or other Assets;

 

(f) all equipment, machinery, fixtures and other personal, moveable and mixed property, operational and nonoperational, known or unknown, located on any of the Leases, Wells, Units or other Assets or primarily used in connection therewith, including pipelines, gathering systems, manifolds, buoys, well equipment, casing, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines, meters (including the meters set forth on Schedule 2.1(f)), processing and separation facilities, structures, materials and other items primarily used in the operation thereof (collectively, the “Personal Property”);

 

(g) all Imbalances relating to the Assets;

 

(h) all Hedges;

 

(i) all of the files, records, information and data, whether written or electronically stored, primarily relating to the Assets in Seller’s or its Affiliates’ possession, including:  (i) land and title records (including abstracts of title, title opinions and title curative documents); (ii) Applicable Contract files; (iii) correspondence; (iv) operations, environmental and production records; (v) facility and well records; (vi) geologic technical data, including logs, maps and Seller’s interpretations thereof; and (vii) copies of any environmental studies that have been prepared with respect to the Assets, which studies shall be delivered to Buyer in accordance with the provisions of Section 9.4 (collectively, “Records”); and

 

  

2

  

 

(j) seismic data which is proprietary to Seller, including any interpretations, analyses and reports related thereto.

 

2.2 Excluded Assets.  Seller shall reserve and retain all of the Excluded Assets.

 

2.3 Revenues and Expenses.  Subject to the provisions hereof, Seller shall remain entitled to all of the rights of ownership (including the right to all production, proceeds of production (including realized gains on Hedges) and other proceeds) and shall remain responsible (by payment, through the adjustments to the Purchase Price hereunder or otherwise) for all Operating Expenses, in each case, attributable to the Assets for the period of time prior to the Effective Time.  Subject to the provisions hereof, and subject to the occurrence of Closing, Buyer shall be entitled to all of the rights of ownership (including the right to all production, proceeds of production and other proceeds), and shall be responsible (by payment, through the adjustments to the Purchase Price hereunder or otherwise) for all Operating Expenses, in each case, attributable to the Assets for the period of time from and after the Effective Time.  “Operating Expenses” means all operating expenses (including costs of insurance and ad valorem, property, severance, production and similar Taxes based upon or measured by or attributable to the ownership or operation of the Assets or the production of Hydrocarbons therefrom, but excluding any other Taxes) and capital expenditures incurred in the ownership and operation of the Assets in the ordinary course of business and, where applicable, in accordance with the relevant operating or unit agreement, if any, and overhead costs charged to the Assets under the relevant operating agreement or unit agreement, if any, but excluding Liabilities attributable to (i) personal injury or death, property damage or violation of any Law, (ii) Decommission obligations, (iii) environmental matters, including obligations to remediate any contamination of water or Personal Property under applicable Environmental Laws, (iv) obligations with respect to Imbalances, or (v) obligations to pay Working Interests, royalties, overriding royalties or other interest owners revenues or proceeds attributable to sales of Hydrocarbons relating to the Assets, including those held in suspense.  After Closing, each Party shall be entitled to participate in all joint interest audits and other audits of Operating Expenses for which such Party is entirely or in part responsible under the terms of this Section 2.3.  For the avoidance of doubt, Seller shall remain responsible (by payment, through the adjustments to the Purchase Price hereunder or pursuant to Section 3.10) for all drilling costs, completion costs and other capital expenditures for work done or services performed prior to the Effective Time in connection with the operation of the Assets (to the extent actually incurred and billed and that have not been previously paid, the “Unpaid Capital Costs”), including all such costs associated with the “Activities Completed, Costs Not Yet Fully Billed to Antero” noted on Schedule 4.13.

 

  

3

  

 

ARTICLE III

 

PURCHASE PRICE

 

3.1 Purchase Price.  The purchase price for the Assets shall be $445,000,000.00 (the “Purchase Price”), adjusted in accordance with this Agreement and payable by Buyer to Seller at Closing by wire transfer in same day funds to a bank account of Seller (the details of which shall be provided by Seller to Buyer in the Preliminary Settlement Statement).

 

3.2 Deposit. Concurrently with the execution of this Agreement, Buyer has deposited by wire transfer in same day funds with Seller the sum of $22,250,000.00, representing five percent (5%) of the Purchase Price (such amount, the “Deposit”).  If Closing occurs, the Deposit shall be applied toward the Adjusted Purchase Price at Closing.

 

3.3 Adjustments to Purchase Price.  The Purchase Price shall be adjusted as follows, and the resulting amount shall be herein called the “Adjusted Purchase Price”:

 

(a) The Purchase Price shall be adjusted upward by the following amounts (without duplication):

 

(i) an amount equal to the value of all Hydrocarbons attributable to the Assets in storage or at plants (including inventory) and upstream of the pipeline connection or upstream of the sales meter as of the Effective Time, the value to be based upon the contract price in effect as of the Effective Time (or the sales price, if there is no contract price, in effect as of the Effective Time), less (A) Burdens on such production and (B) severance Taxes deducted by the purchaser of such production;

 

(ii) an amount equal to all Operating Expenses and all other costs and expenses paid by Seller that are attributable to the ownership of the Assets during the Interim Period, whether paid before or after the Effective Time, including (A) bond and insurance premiums paid by or on behalf of Seller with respect to the Interim Period, (B) Burdens, (C) rentals and other lease maintenance payments and (D) property, severance and production Taxes and any other Taxes (exclusive of income Taxes) based upon or measured by the ownership of the Assets, the production of Hydrocarbons, or the receipt of proceeds therefrom;

 

(iii) the Title Benefit Amounts of any Title Benefits for which the Title Benefit Amounts have been determined prior to Closing;

 

(iv) the amount of all Taxes allocated to Buyer but paid by Seller in accordance with Section 15.2;

 

(v) subject to Section 3.11, to the extent that Seller is underproduced as shown with respect to the net Well Imbalances set forth in Schedule 4.12, as complete and final settlement of all Well Imbalances attributable to the Assets, the sum of $372,063.51 which is an amount equal to the product of the underproduced volumes times (A) $1.95/MMBtu for gaseous Hydrocarbons or (B) $50.00/Bbl for liquid Hydrocarbons, as applicable;

 

(vi) subject to Section 3.11, to the extent that Seller has overdelivered any Hydrocarbons as of the Effective Time as shown with respect to the net Pipeline Imbalances set forth in Schedule 4.12, as complete and final settlement of all Pipeline Imbalances attributable to the Assets, the sum of $0.00 which is an amount equal to the product of the overdelivered volumes times (A) $1.95/MMBtu for gaseous Hydrocarbons or (B) $50.00/Bbl for liquid Hydrocarbons, as applicable;

 

  

4

  

 

(vii) to the extent not included as an Operating Expense for which an adjustment was made pursuant to Section 3.3(a)(ii), any insurance premiums paid by or on behalf of Seller with respect to the Interim Period; and

 

(viii) any other amount provided for elsewhere in this Agreement or otherwise agreed upon by Seller and Buyer.

 

(b) The Purchase Price shall be adjusted downward by the following amounts (without duplication):

 

(i) an amount equal to all proceeds actually received by Seller attributable to the ownership or operation of the Assets, including the sale of Hydrocarbons produced therefrom or allocable thereto during the Interim Period, net of (A) expenses (other than Operating Expenses and other expenses taken into account pursuant to Section 3.3(a)) directly incurred in earning or receiving such proceeds, and (B) any sales, excise or similar Taxes in connection therewith not reimbursed to Seller by a Third Party purchaser; provided, however, that such amount shall not include any proceeds received from Hedge settlements attributable to the calendar month of April 2012;

 

(ii) if Seller makes the election under Section 11.2(d)(i) with respect to a Title Defect, the Title Defect Amount with respect to such Title Defect if the Title Defect Amount has been determined prior to Closing;

 

(iii) if Seller makes the election under Section 12.1(b)(i) with respect to an Environmental Defect, the Remediation Amount with respect to such Environmental Defect if the Remediation Amount has been determined prior to Closing;

 

(iv) the Allocated Value of the Assets excluded from the transactions contemplated hereby pursuant to Section 11.2(d)(ii), Section 11.4(a)(i), Section 11.4(b)(i), or Section 12.1(b)(iii);

 

(v) the amount of all Taxes allocated to Seller but payable by Buyer in accordance with Section 15.2;

 

(vi) subject to Section 3.11, to the extent that Seller is overproduced as shown with respect to the net Well Imbalances set forth in Schedule 4.12, as complete and final settlement of all Well Imbalances attributable to the Assets, the sum of $37,617.72 which is an amount equal to the product of the overproduced volumes times (A) $1.95/MMBtu for gaseous Hydrocarbons or (B) $50.00/Bbl for liquid Hydrocarbons, as applicable;

 

(vii) subject to Section 3.11, to the extent that Seller has underdelivered any Hydrocarbons as of the Effective Time as shown with respect to the net Pipeline Imbalances set forth in Schedule 4.12, as complete and final settlement of all Pipeline Imbalances attributable to the Assets, the sum of $0.00 which is an amount equal to the product of the underdelivered volumes times (A) $1.95/MMBtu for gaseous Hydrocarbons or (B) $50.00/Bbl for liquid Hydrocarbons, as applicable;

 

  

5

  

 

(viii) an amount equal to all proceeds from sales of Hydrocarbons relating to the Assets and payable to owners of Working Interests, royalties, overriding royalties and other similar interests (in each case) that are held by Seller in suspense as of the Closing Date;

 

(ix) an amount equal to the aggregate amount of all payments received by Seller (or any of its Affiliates) with respect to any Hedges settled after the Effective Time (which for purposes of the Hedges, shall be May 1, 2012) with respect to production attributable to any period of time from and after the Effective Time (which for purposes of the Hedges, shall be May 1, 2012) or as otherwise agreed upon by Seller and Buyer;

 

(x) any amounts calculated pursuant to Section 6.9;

 

(xi) an amount equal to the Unpaid Capital Costs, which, for purposes of determining the Final Price pursuant to Section 3.7, shall include amounts owing but not yet billed (through an invoice or a joint interest billing statement); and

 

(xii) any other amount provided for elsewhere in this Agreement or otherwise agreed upon by Seller and Buyer.

 

3.4 Adjustment Methodology.  When available, actual figures will be used for the adjustments to the Purchase Price at Closing.  To the extent actual figures are not available, estimates will be used subject to final adjustments in accordance with Section 3.7 and Section 3.8.

 

3.5 Preliminary Settlement Statement.  Not less than six (6) Business Days prior to Closing, Seller shall prepare and submit to Buyer for review a draft settlement statement (the “Preliminary Settlement Statement”) that shall set forth the Adjusted Purchase Price, reflecting each adjustment made in accordance with this Agreement as of the date of preparation of such Preliminary Settlement Statement and the calculation of the adjustments used to determine such amount, together with the designation of Seller’s accounts for the wire transfers of funds as required by Section 3.1 and Section 9.3(d).  Within two (2) Business Days of receipt of the Preliminary Settlement Statement, Buyer will deliver to Seller a written report containing all changes with the explanation therefor that Buyer proposes to be made to the Preliminary Settlement Statement.  The Parties shall in good faith attempt to agree on the Preliminary Settlement Statement as soon as possible after Seller’s receipt of Buyer’s written report.  The Preliminary Settlement Statement, as agreed upon by the Parties, will be used to adjust the Purchase Price at Closing; provided that if the Parties do not agree upon an adjustment set forth in the Preliminary Settlement Statement, then the amount of such adjustment used to adjust the Purchase Price at Closing shall be that amount set forth in the draft Preliminary Settlement Statement delivered by Seller to Buyer pursuant to this Section 3.5.

 

  

6

  

 

3.6 Interim Settlement Statement.  On or before August 31, 2012, an interim settlement statement (the “Interim Settlement Statement”) will be prepared by Seller, based on the Unpaid Capital Costs attributable to and actual income received and expenses paid during the period of time commencing with the Effective Time and ending at 7:00 a.m. (Central Time) on August 31, 2012, that shall set forth an interim Purchase Price adjustment amount, reflecting only those adjustments to be made to the Purchase Price pursuant to Sections 3.3(a)(ii), 3.3(b)(i) and 3.3(b)(xi) of this Agreement as of the date of preparation of such Interim Settlement Statement and the calculation of the adjustments used to determine such amount.  Within two (2) Business Days of receipt of the Interim Settlement Statement, Buyer will deliver to Seller a written report containing all changes with the explanation therefor that Buyer proposes to be made to the Interim Settlement Statement.  The Parties shall in good faith attempt to agree on the Interim Settlement Statement as soon as possible after Seller’s receipt of Buyer’s written report.  In the event the Parties agree to the amounts set forth in the Interim Settlement Statement, the interim Purchase Price adjustment amount determined pursuant to this Section 3.6 shall be paid by the owing Party within ten (10) days of such agreement as to such owed amounts to the owed Party.   If the Parties do not agree upon the interim Purchase Price adjustment amount set forth in the Interim Settlement Statement by September 15, 2012, then the amount of such adjustment to be paid to the owed Party shall be that amount set forth in the draft Interim Settlement Statement delivered by Seller to Buyer pursuant to this Section 3.6, such amount to be paid by the owing Party by September 25, 2012 to the owed Party. All amounts paid pursuant to this Section 3.6 shall be delivered in United States currency by wire transfer of immediately available funds to the account specified in writing by the relevant Party.

 

3.7 Final Settlement Statement.  On or before one hundred eighty (180) days after Closing, a final settlement statement (the “Final Settlement Statement”) will be prepared by Seller, based on actual income and expenses during the Interim Period and which takes into account all final adjustments made to the Purchase Price and shows the resulting final Purchase Price (the “Final Price”).  The Final Settlement Statement shall set forth the actual proration of the amounts required by this Agreement.  As soon as practicable, and in any event within thirty (30) days, after receipt of the Final Settlement Statement, Buyer shall return to Seller a written report containing any proposed changes to the Final Settlement Statement and an explanation of any such changes and the reasons therefor (the “Dispute Notice”).  Any changes not so specified in the Dispute Notice shall be deemed waived and Seller’s determinations with respect to all such elements of the Final Settlement Statement that are not addressed specifically in the Dispute Notice shall prevail.  If Buyer fails to timely deliver a Dispute Notice to Seller containing changes Buyer proposes to be made to the Final Settlement Statement, the Final Settlement Statement as delivered by Seller will be deemed to be correct and will be final and binding on the Parties and not subject to further audit or arbitration.  If the Final Price set forth in the Final Settlement Statement is mutually agreed upon by Seller and Buyer, the Final Settlement Statement and the Final Price, shall be final and binding on the Parties hereto (other than with respect to amounts not accounted for therein or settled thereby, which amounts shall be subject to the provisions of Section 3.10).  Any difference in the Adjusted Purchase Price as paid at Closing pursuant to the Preliminary Settlement Statement (as adjusted by any interim Purchase Price adjustment amount paid pursuant to Section 3.6) and the Final Price shall be paid by the owing Party within ten (10) days of final determination of such owed amounts in accordance herewith to the owed Party.  All amounts paid pursuant to this Section 3.7 shall be delivered in United States currency by wire transfer of immediately available funds to the account specified in writing by the relevant Party.

 

  

7

  

 

3.8 Disputes.  If Seller and Buyer are unable to resolve the matters addressed in the Dispute Notice, each of Buyer and Seller shall within ten (10) Business Days after the delivery of such Dispute Notice, summarize its position with regard to such dispute in a written document of twenty pages or less and submit such summaries to the Denver, Colorado office of Ernst & Young or such other Person as the Parties may mutually select (the “Accounting Arbitrator”), together with the Dispute Notice, the Final Settlement Statement and any other documentation such Party may desire to submit.  Within ten (10) Business Days after receiving the Parties’ respective submissions, the Accounting Arbitrator shall render a decision choosing either Seller’s position or Buyer’s position with respect to each matter addressed in any Dispute Notice, based on the materials described above.  Any decision rendered by the Accounting Arbitrator pursuant hereto shall be final, conclusive and binding on Seller and Buyer and will be enforceable against any of the Parties in any court of competent jurisdiction.  The costs of such Accounting Arbitrators shall be borne one-half by Buyer and one-half by Seller.

 

3.9 Allocation of Purchase Price / Allocated Values.  Buyer and Seller agree that the Purchase Price and any Assumed Obligation or other items treated as consideration for federal income Tax purposes shall be allocated among the Assets in accordance with Section 1060 of the Code as set forth in Schedule 3.8 to this Agreement (the “Allocated Values”).  Each Party shall utilize the Allocated Values, as updated by mutual agreement of the Parties to reflect any adjustment to the Purchase Price pursuant to this Agreement for purposes of all federal, state and local Tax returns and reports, including Internal Revenue Service Form 8594, and neither any Party or its Affiliates shall take any position on any Tax return that is inconsistent with such Allocated Values, as adjusted, unless such position is mutually agreed by the Parties or required to be taken pursuant to a final determination, as defined in Section 1313 of the Code.  Buyer and Seller agree that such allocation, as adjusted, is reasonable and shall not take any position inconsistent therewith, including in notices to Preferential Purchase Right holders.  Seller and Buyer agree to promptly advise the other regarding the existence of any Tax audit or controversy regarding the correctness of the Allocated Values or any adjustment thereto.

 

3.10 Post-Closing Adjustments after Final Settlement Statement.  If, during the period from and after the Parties’ agreement upon the Final Settlement Statement up until the second (2nd) anniversary of Closing, (a) any Party receives monies belonging to the other, including proceeds of production, then such amount shall immediately be paid over to the proper Party, (b) any Party pays monies for Operating Expenses which are the obligation of the other Party hereto, then such other Party shall promptly reimburse the Party which paid such Operating Expenses upon receipt of an invoice from such paying Party, (c) a Party receives an invoice of an expense or obligation which is owed by the other Party, such Party receiving the invoice shall promptly forward such invoice to the Party obligated to pay the same, and (d) if an invoice or other evidence of an obligation is received by a Party, which is partially an obligation of both Seller and Buyer, then the Parties shall consult with each other, and each shall promptly pay its portion of such obligation to the obligee.

 

3.11 Allocation for Imbalances.  If, prior to one hundred eighty (180) days following Closing, either Party discovers an error in the Imbalances set forth in Schedule 4.12 or updated amounts are available for those Imbalances set forth on Schedule 4.12 that are identified as not being current as of the Effective Time, then the Purchase Price shall be further adjusted either at Closing or pursuant to the Final Settlement Statement pursuant to Section 3.3(a)(v), Section 3.3(a)(vi), Section 3.3(b)(vi) or Section 3.3(b)(vii), as applicable, and Schedule 4.12 will be deemed amended immediately prior to Closing to reflect the Imbalances for which the Purchase Price is so adjusted.

 

  

8

  

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Subject to the matters specifically listed or disclosed in the Schedules to this Agreement (as added, supplemented or amended pursuant to Section 6.8), Seller represents and warrants to Buyer the following as of the date of this Agreement and as of the Closing Date:

 

4.1 Organization, Existence and Qualification.  Seller is a corporation duly formed and validly existing under the Laws of the State of Delaware.  Seller has all requisite power and authority to own and operate its property (including, its interests in the Assets) and to carry on its business as now conducted.  Seller is duly licensed or qualified to do business as a foreign corporation in all jurisdictions in which it carries on business or owns assets and such qualification is required by Law, except where the failure to be so qualified would not have a Material Adverse Effect.

 

4.2 Authority, Approval and Enforceability.  Seller has full power and authority to enter into and perform this Agreement, the Transaction Documents to which it is a party and the transactions contemplated herein and therein.  The execution, delivery and performance by Seller of this Agreement have been duly and validly authorized and approved by all necessary corporate action on the part of Seller.  This Agreement is, and the Transaction Documents to which Seller is a party when executed and delivered by Seller will be, the valid and binding obligations of Seller and enforceable against Seller 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).

 

4.3 No Conflicts.  Assuming the receipt of all Consents and the waiver of, or compliance with, all Preferential Purchase Rights, the execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated herein will not (a) conflict with or result in a breach of any provisions of the organizational documents of Seller, (b) result in a default or the creation of any Encumbrance or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license or other Material Contract or (c) violate any Law applicable to Seller or any of the Assets, except in the case of clauses (b) and (c) where such default, Encumbrance, termination, cancellation, acceleration or violation would not have a Material Adverse Effect.

 

4.4 Consents.  Except (a) as set forth in Schedule 4.4, (b) for Customary Post-Closing Consents, (c) under Contracts that are terminable upon not greater than sixty (60) days notice without payment of any fee, and (d) for Preferential Purchase Rights, there are no restrictions on assignment, including requirements for consents from Third Parties to any assignment (in each case), that Seller is required to obtain in connection with the transfer of the Assets by Seller to Buyer or the consummation of the transactions contemplated by this Agreement by Seller (each, a “Consent”).

 

  

9

  

 

4.5 Bankruptcy.  There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to Seller’s Knowledge, threatened in writing against Seller or any Affiliate of Seller.

 

4.6 Foreign Person.  Seller is not a “foreign person” within the meaning of Section 1445 of the Code.

 

4.7 Litigation.  Except as set forth in Schedule 4.7, there is no suit, action or litigation by any Third Party before any Governmental Authority, and no legal, administrative or arbitration proceeding, (in each case) pending or, to Seller’s Knowledge, threatened in writing against Seller or the Assets that would have a Material Adverse Effect.

 

4.8 Material Contracts.

 

(a) Except for forced pooling orders, integration orders and any pre-pooling letter agreements associated therewith and Contracts entered into in accordance with Section 6.1, Schedule 4.8 sets forth all Applicable Contracts of the type described below (collectively, the “Material Contracts”):

 

(i) any Applicable Contract that can reasonably be expected to result in aggregate payments by Seller of more than $250,000 during the current or any subsequent calendar year (based solely on the terms thereof and current volumes, without regard to any expected increase in volumes or revenues);

 

(ii) any Applicable Contract that can reasonably be expected to result in aggregate revenues to Seller of more than $250,000 during the current or any subsequent calendar year (based solely on the terms thereof and current volumes, without regard to any expected increase in volumes or revenues);

 

(iii) any Hydrocarbon purchase and sale, transportation, processing or similar Applicable Contract that is not terminable without penalty upon sixty (60) days or less notice;

 

(iv) any indenture, mortgage, loan, credit or sale-leaseback or similar Applicable Contract that can reasonably be expected to result in aggregate payments by Seller of more than $100,000 during the current or any subsequent calendar year;

 

(v) any Applicable Contract that constitutes a lease under which Seller is the lessor or the lessee of real or Personal Property which lease (A) cannot be terminated by Seller without penalty upon sixty (60) days or less notice and (B) involves an annual base rental of more than $100,000;

 

(vi) each Hedge agreement;

 

  

10

  

 

(vii) any farmout agreement, participation agreement, exploration agreement, development agreement, joint operating agreement, unit agreement or similar Applicable Contract; and

 

(viii) any Applicable Contract between Seller and any Affiliate of Seller that will not be terminated prior to Closing.

 

(b) Except as set forth in Schedule 4.8 and except for such matters that would not have a Material Adverse Effect, there exists no default under any Material Contract by Seller or, to Seller’s Knowledge, by any other Person that is a party to such Material Contract, and no event has occurred that with notice or lapse of time or both would constitute any default under any such Contract by Seller or, to Seller’s Knowledge, any other Person who is a party to such Material Contract.

 

4.9 No Violation of Laws.  To Seller’s Knowledge, except as set forth in Schedule 4.9, as of the date of this Agreement Seller is not in violation of any applicable Laws with respect to its ownership and operation of the Assets.  This Section 4.9 does not include any matters with respect to Environmental Laws, such matters being addressed exclusively in Section 4.14.

 

4.10 Preferential Rights.  Except as set forth in Schedule 4.10, there are no preferential purchase rights, rights of first refusal or other similar rights that are applicable to the transfer of the Assets in connection with the transactions contemplated hereby (each a “Preferential Purchase Right”).

 

4.11 Royalties, Etc.  Except for such items that are being held in suspense for which the Purchase Price is adjusted pursuant to Section 3.3(b)(viii), to Seller’s Knowledge, Seller has paid all Burdens with respect to the Assets due by Seller, or if not paid, is contesting such Burdens in good faith in the normal course of business.  To Seller’s Knowledge, Schedule 4.11 sets forth all Burdens with respect to the Assets that are being contested and all items that are being held in suspense as of March 31, 2012.

 

4.12 Imbalances.  To Seller’s Knowledge, Schedule 4.12 sets forth all material Imbalances associated with the Assets as of the Effective Time or such other date stated in Schedule 4.12.

 

4.13 Current Commitments.  Schedule 4.13 sets forth, as of the date of this Agreement, all authorities for expenditures (“AFEs”) relating to the Assets to drill or rework wells or for other capital expenditures pursuant to any of the Material Contracts for which all of the activities anticipated in such AFEs or commitments have not been completed by the date of this Agreement.

 

4.14 Environmental.

 

(a) With respect to the Assets, Seller has not entered into, and is not subject to, any agreements, consents, orders, decrees, judgments, license or permit conditions, or other directives of any Governmental Authority that are in existence as of the date of this Agreement, are based on any Environmental Laws, that relate to the future use of any of the Assets and that require any change in the present conditions of any of the Assets.

 

  

11

  

 

(b) Except as set forth in Schedule 4.14, as of the date of this Agreement, Seller has not received written notice from any Person of any release or disposal of any Hazardous Substance concerning any land, facility, asset or property included in the Assets that:  (i) interferes with or prevents compliance by Seller with any Environmental Law or the terms of any license or permit issued pursuant thereto; or (ii) gives rise to or results in any common Law or other liability of Seller to any Person which, in the case of either clause (i) or (ii) hereof, would have a Material Adverse Effect.

 

4.15 Production Taxes.  Except as set forth in Schedule 4.15, during the period of Seller’s ownership of the Assets, all Taxes based on or measured by the ownership of the Assets, the production of Hydrocarbons or the receipt of proceeds therefrom that have become due and payable have been timely paid, other than Taxes which are being contested in good faith. Schedule 4.15 sets forth all Taxes based on or measured by the ownership of the Assets, the production of Hydrocarbons or the receipt of proceeds therefrom, in each case, that are being contested.

 

4.16 Brokers’ Fees.  Seller has incurred no liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Buyer or any Affiliate of Buyer shall have any responsibility.

 

4.17 No Known Liabilities.  Except for those Liabilities for which Buyer will have no responsibility pursuant to the terms of this Agreement, to Seller’s Knowledge, Seller has no Liabilities from, based upon, related to or associated with the ownership and operation of the Assets prior to the date of this Agreement that would be required to be included on the balance sheet of Seller prepared in accordance with GAAP consistent with past practices, except for Operating Expenses and except for Liabilities otherwise described in the Schedules to this Agreement, as the same may be amended in accordance herewith.

 

ARTICLE V

 

BUYER’S REPRESENTATIONS AND WARRANTIES

 

Buyer represents and warrants to Seller the following as of the date of this Agreement and as of the Closing Date:

 

5.1 Organization, Existence and Qualification.  Buyer is a limited liability company duly formed, validly existing, and in good standing under the Laws of the State of Delaware and has all requisite power and authority to own and operate its property and to carry on its business as now conducted.  Buyer is duly licensed or qualified to do business as a foreign limited liability company in all jurisdictions in which it carries on business or owns assets and such qualification is required by Law except where the failure to be so qualified would not have a material adverse effect upon the ability of Buyer to consummate the transactions contemplated by this Agreement.

 

5.2 Authority, Approval and Enforceability.  Buyer has full power and authority to enter into and perform this Agreement, the Transaction Documents to which it is a party and the transactions contemplated herein and therein.  The execution, delivery and performance by Buyer of this Agreement have been duly and validly authorized and approved by all necessary limited liability company action on the part of Buyer.  This Agreement is, and the Transaction Documents to which Buyer is a party when executed and delivered by Buyer will be, the valid and binding obligation of Buyer and enforceable against Buyer 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).

 

  

12

  

 

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

 

5.4 Consents.  There are no consents or other restrictions on assignment, including requirements for consents from Third Parties to any assignment, (in each case) that Buyer is required to obtain in connection with the consummation of the transactions contemplated by this Agreement by Buyer.

 

5.5 Bankruptcy.  There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to Buyer’s knowledge, threatened in writing against Buyer or any Affiliate of Buyer.

 

5.6 Litigation.  There is no suit, action or litigation by any Person by or before any Governmental Authority, and no legal, administrative or arbitration proceeding, (in each case) pending, or to Buyer’s knowledge, threatened in writing against Buyer that would have a material adverse effect upon the ability of Buyer to consummate the transactions contemplated by this Agreement.

 

5.7 Financing.  Buyer shall have as of the Closing Date, sufficient cash in immediately available funds with which to pay the Purchase Price, consummate the transactions contemplated by this Agreement and perform its obligations under this Agreement and the Transaction Documents.

 

5.8 Regulatory.  As of the Closing Date, Buyer will be qualified per applicable Law to own and assume operatorship of the Assets in all jurisdictions where the Assets are located, and the consummation of the transactions contemplated by this Agreement will not cause Buyer to be disqualified as such an owner or operator.  To the extent required by any applicable Laws, Buyer has, and will hereafter continue to maintain, lease bonds, area-wide bonds or any other surety bonds as may be required by, and in accordance with, all applicable Laws governing the ownership and operation of such leases and has filed any and all required reports necessary for such ownership and operation with all Governmental Authorities having jurisdiction over such ownership and operation.

 

  

13

  

 

5.9 Independent Evaluation.  Buyer is sophisticated in the evaluation, purchase, ownership and operation of oil and gas properties and related facilities.  In making its decision to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer (a) has relied or shall rely solely on its own independent investigation and evaluation of the Assets and the advice of its own legal, Tax, economic, environmental, engineering, geological and geophysical advisors and the express provisions of this Agreement and not on any comments, statements, projections or other materials made or given by any representatives or consultants or advisors of Seller, and (b) has satisfied or shall satisfy itself through its own due diligence as to the environmental and physical condition of and contractual arrangements and other matters affecting the Assets.  Buyer has no knowledge of any fact that results in the breach of any representation, warranty or covenant of Seller given hereunder.

 

5.10 Brokers’ Fees.  Buyer has incurred no liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which Seller or Seller’s Affiliates shall have any responsibility.

 

5.11 Accredited Investor.  Buyer is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended, and will acquire the Assets for its own account and not with a view to a sale or distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations thereunder, any applicable state blue sky Laws or any other applicable securities Laws.

 

ARTICLE VI

 

CERTAIN AGREEMENTS

 

6.1 Conduct of Business.

 

(a) Except (w) as set forth in Schedule 6.1, (x) for the operations covered by the AFEs and other capital commitments described in Schedule 4.13, (y) for actions taken in connection with emergency situations and (z) as expressly contemplated by this Agreement or as expressly consented to in writing by Buyer (which consent shall not be unreasonably delayed, withheld or conditioned), Seller shall from and after the date hereof until Closing:

 

(i) operate the Assets in the usual, regular and ordinary manner consistent with past practice; and

 

(ii) maintain the books of account and Records relating to the Assets in the usual, regular and ordinary manner, in accordance with the usual accounting practices of each such Person.

 

(b) Except (x) as set forth in Schedule 6.1, (y) for the operations covered by the AFEs and other capital commitments described in Schedule 4.13, and (z) as expressly contemplated by this Agreement or as expressly consented to in writing by Buyer (which consent shall not be unreasonably delayed, withheld or conditioned), Seller shall, from and after the date hereof until Closing:

 

  

14

  

 

(i) not enter into an Applicable Contract that, if entered into on or prior to the date of this Agreement, would be required to be listed in a Schedule attached to this Agreement, or materially amend or change the terms of any Material Contract;

 

(ii) not transfer, sell, mortgage, pledge or dispose of any material portion of the Assets other than the sale and/or disposal of Hydrocarbons in the ordinary course of business and sales of equipment that is no longer necessary in the operation of the Assets or for which replacement equipment has been obtained; and

 

(iii) not commit to do any of the foregoing.

 

(c)           Buyer acknowledges Seller owns undivided interests in certain of the properties comprising the Assets that it is not the operator thereof, and Buyer agrees that the acts or omissions of the other Working Interest owners (including the operators) who are not Seller or any Affiliate of Seller shall not constitute a breach of the provisions of this Section 6.1, and no action required by a vote of Working Interest owners shall constitute such a breach so long as Seller has voted its interest in a manner that complies with the provisions of this Section 6.1.

 

6.2 Successor Operator.  While Buyer acknowledges that it desires to succeed Seller as operator of those Assets or portions thereof that Seller may presently operate, Buyer acknowledges and agrees that Seller cannot and does not covenant or warrant that Buyer shall become successor operator of such Assets since the Assets or portions thereof may be subject to operating or other agreements that control the appointment of a successor operator.  Seller agrees, however, that as to the Assets it operates, it shall use its commercially reasonable efforts to support Buyer’s efforts to become successor operator of such Assets (to the extent permitted under any applicable joint operating agreement) effective as of Closing (at Buyer’s sole cost and expense) and to designate and/or appoint, to the extent legally possible and permitted under any applicable joint operating agreement, Buyer as successor operator of such Assets effective as of Closing.

 

6.3 HSR Act.  If applicable, within five (5) Business Days following the execution by Buyer and Seller of this Agreement, Buyer and Seller will each prepare and simultaneously file with the DOJ and the FTC the notification and report form required for the transactions contemplated by this Agreement by the HSR Act, and request early termination of the waiting period thereunder.  Buyer and Seller 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.  Buyer and Seller shall cooperate with each other and, subject to the terms of the Confidentiality Agreement, shall promptly furnish all information to the other Party that is necessary in connection with Buyer’s and Seller’s compliance with the HSR Act.  Buyer and Seller shall keep each other fully advised with respect to any requests from or communications with the DOJ or FTC concerning such filings and shall consult with each other with respect to all responses thereto.  Each of Seller and Buyer shall use its reasonable efforts to take all actions reasonably necessary and appropriate in connection with any HSR Act filing to consummate the transactions consummated hereby. Each Party shall pay its own fees and expenses related to filings required by this Section 6.3.

 

  

15

  

 

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

 

6.5 Record Retention.  Buyer shall and shall cause its successors and assigns to, for a period of seven (7) years following Closing (a) retain the Records, (b) provide Seller, its Affiliates and its and their officers, employees and representatives with access to the Records (to the extent that Seller has not retained the original or a copy) during normal business hours for review and copying at Seller’s expense, and (c) provide Seller, its Affiliates and its and their officers, employees and representatives with access, during normal business hours, to materials received or produced after Closing relating to any indemnity claim made under Section 13.2 for review and copying at Seller’s expense.  At the end of such seven (7) year period and prior to destroying any of the Records, Buyer shall notify Seller in advance of such destruction and provide Seller an opportunity to copy such Records at Seller’s sole cost and expense.

 

6.6 Guarantees.  Buyer shall cooperate with Seller in order to cause Seller and its Affiliates to be released, as of the Closing Date, from all guarantees, including any performance bonds previously put in place by Seller, set forth in Schedule 6.6, which shall describe the security posted (the “Guarantees”).  Without limiting the foregoing, if required by the counterparty to any Guarantee, Buyer shall provide, effective as of the Closing Date, substitute arrangements of Buyer or its Affiliates covering all periods covered by the Guarantees, such substitute arrangements to be equivalent or better in terms of type of security and creditworthiness of the party providing the security as compared to the Guarantees, as set forth in Schedule 6.6.  In the event that any counterparty to any such Guarantee does not release Seller and its Affiliates, then, from and after Closing, Buyer shall indemnify Seller or its relevant Affiliate against all amounts incurred by Seller or its relevant Affiliate under such Guarantee (and all costs incurred in connection with such Guarantee) if applicable to Assets acquired by Buyer.  Notwithstanding anything to the contrary contained in this Agreement, any cash placed in escrow by Seller or any Affiliate of Seller pursuant to the Guarantees must be returned to Seller, and shall be deemed an Excluded Asset.

 

6.7 Notifications.  Buyer will notify Seller promptly after any officer of Buyer obtains actual knowledge that any representation or warranty of Seller contained in this Agreement is, becomes or will be untrue in any material respect on or before the Closing Date.

 

6.8 Amendment of Schedules.  Buyer agrees that, with respect to the representations and warranties of Seller contained in this Agreement, Seller shall have the continuing right until Closing to add, supplement or amend the Schedules to its representations and warranties with respect to any matter hereafter arising or discovered which, if existing or known at the date hereof or thereafter, would have been required to be set forth or described in such Schedules.  For all purposes of this Agreement, including for purposes of determining whether the conditions set forth in Article VII have been fulfilled, the Schedules to Seller’s representations and warranties contained in this Agreement shall be deemed to include only that information contained therein on the date of this Agreement 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 shall be waived and Buyer shall not be entitled to make a claim with respect thereto pursuant to the terms of this Agreement or otherwise.

 

  

16

  

 

6.9 Hedges and Novation Agreements.  Seller and Buyer shall use their commercially reasonable efforts to take, on or prior to Closing, all steps necessary to effectuate the novation of all Hedges to Buyer or Buyer’s designated financial institution pursuant to Novation Agreement(s) (including Buyer entering into ISDA Master Agreement(s) with each Hedge Counterparty).  Subject to Sections 7.6 and Section 8.7, in the event a Hedge Counterparty refuses to novate any Hedge to Buyer at Closing pursuant to a Novation Agreement, there shall be a downward Purchase Price adjustment calculated based on the current strip price on June 29, 2012 for the respective index, discounted to the June 29, 2012 PV-10 value.

 

6.10 Audit Rights.  Buyer, at Buyer’s expense, may engage an auditing firm to conduct an audit of the revenues and expenses of Seller attributable to the Assets for the period of three (3) calendar years prior to the Effective Time through the Closing Date.  Seller agrees, from the date of this Agreement until one hundred eighty (180) days after Closing, that Seller will cooperate and assist such auditors, including making available (at Buyer’s sole cost and expense) books, records and personnel of Seller reasonably requested by such auditing firm; provided, however, that in no event shall Seller or its Affiliates be required to provide any representation letters to any Person as a result of its obligations under this Section 6.10; and provided further, however, that nothing in this Section 6.10 shall require any such cooperation or assistance on the part of Seller to the extent it would interfere unreasonably with the business or operations of Seller.

 

6.11 Shortfall Amounts.  Seller hereby agrees to pay Buyer any “Shortfall Amounts” (as such term is defined in the G&T Agreement, each a “Shortfall Amount”) due and owing by “Producer” (as such term is defined in the G&T Agreement) pursuant to the terms of that certain Gas Gathering & Treating Agreement, dated as of October 1, 2010, by and between Seller and Antero Resources Midstream Corporation (Cardinal Midstream, LLC) (as amended, supplemented or restated from time to time, the “G&T Agreement”) and relating to the period of time beginning on April 1, 2012 and extending to December 31, 2012, in each case, by wire transfer in immediately available funds on or prior to the last day of the calendar month following the calendar month in which such amount accrued or is otherwise attributable under the terms of the G&T Agreement; provided, however, that the Shortfall Amount attributable to April 2012 shall be paid by Seller along with the May 2012 Shortfall Amount on June 30, 2012; provided, further, however, if, following the Closing Date, Buyer permanently or temporarily shuts in any well or wells capable of production that are subject to such G&T Agreement, for any months during which such well or wells are shut in, Seller shall only be obligated to pay Buyer an amount equal to the Shortfall Amount due for the calendar month previous to the shut in.

 

  

17

  

 

ARTICLE VII

 

BUYER’S CONDITIONS TO CLOSING

 

The obligations of Buyer to consummate the transactions provided for herein are subject, at the option of Buyer, to the fulfillment by Seller or waiver by Buyer, on or prior to Closing of each of the following conditions:

 

7.1 Representations.  The representations and warranties of Seller set forth in Article IV shall be true and correct in all respects on and as of the Closing Date, with the same force and effect as though such representations and warranties had been made or given on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date), except for those breaches, if any, of such representations and warranties that would not have a Material Adverse Effect.

 

7.2 Performance.  Seller shall have materially performed or complied with all obligations, agreements and covenants contained in this Agreement as to which performance or compliance by Seller is required prior to or at the Closing Date.

 

7.3 No Legal Proceedings.  No material suit, action, litigation or other proceeding by any Third Party shall be pending before any Governmental Authority seeking to restrain, prohibit, enjoin or declare illegal, or seeking substantial damages in connection with, the transactions contemplated by this Agreement.

 

7.4 Title Defects; Environmental Defects; Casualty; Preferential Rights; Consents.  In each case subject to the Individual Title Defect Threshold, the Individual Environmental Threshold and the Aggregate Deductible, as applicable, the sum of (a) all Title Defect Amounts determined under Section 11.2(h) prior to Closing, less the sum of all Title Benefit Amounts determined under Section 11.2(i) prior to Closing, plus (b) all Remediation Amounts for Environmental Defects determined under Article XII prior to Closing, plus (c) the amount of all uninsured Casualty Loss, plus (d) the Allocated Value of any Assets excluded from the transactions contemplated hereby pursuant to Section 11.4(a)(i) and Section 11.4(b)(i), shall be less than twenty-five percent (25%) of the Purchase Price.

 

7.5 HSR Act.  If applicable, the waiting period under the HSR Act applicable to the consummation of the transactions contemplated hereby shall have expired, notice of early termination shall have been received or a consent order issued (in form and substance satisfactory to Seller) by or from applicable Governmental Authorities.

 

7.6 Novation Agreements.  The Hedges with JP Morgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Credit Agricole Corporate & Investment Bank shall have been novated to Buyer or Buyer’s designated financial institution pursuant to the Novation Agreement(s).

 

  

18

  

 

7.7 FERC Approvals.  If applicable, Buyer and Seller shall have obtained any necessary waivers from the Federal Energy Regulatory Commission regarding such commission’s capacity release policies.

 

7.8 Closing Deliverables.  Seller shall have delivered (or be ready, willing and able to deliver at Closing) to Buyer the documents and other items required to be delivered by Seller under Section 9.3.

 

ARTICLE VIII

 

SELLER’S CONDITIONS TO CLOSING

 

The obligations of Seller to consummate the transactions provided for herein are subject, at the option of Seller, to the fulfillment by Buyer or waiver by Seller on or prior to Closing of each of the following conditions:

 

8.1 Representations.  The representations and warranties of Buyer set forth in Article V shall be true and correct in all respects on and as of the Closing Date, with the same force and effect as though such representations and warranties had been made or given on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) except for those breaches, if any, of such representations and warranties that 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.

 

8.2 Performance.  Buyer shall have materially performed or complied with all obligations, agreements and covenants contained in this Agreement as to which performance or compliance by Buyer is required prior to or at the Closing Date.

 

8.3 No Legal Proceedings.  No material suit, action, litigation or other proceeding by any Third Party shall be pending before any Governmental Authority seeking to restrain, prohibit or declare illegal, or seeking substantial damages in connection with, the transactions contemplated by this Agreement.

 

8.4 Title Defects; Environmental Defects; Casualty; Consents.  In each case subject to the Individual Title Defect Threshold, the Individual Environmental Threshold and the Aggregate Deductible, as applicable, the sum of (a) all Title Defect Amounts determined under Section 11.2(h) prior to Closing, less the sum of all Title Benefit Amounts determined under Section 11.2(i) prior to Closing, plus (b) all Remediation Amounts for Environmental Defects determined under Article XII prior to Closing, plus (c) the amount of all uninsured Casualty Loss, plus (d) the Allocated Value of any Assets excluded from the transactions contemplated hereby pursuant to Section 11.4(b)(i), shall be less than twenty-five percent (25%) of the Purchase Price.

 

8.5 HSR Act.  If applicable, the waiting period under the HSR Act applicable to the consummation of the transactions contemplated hereby shall have expired, notice of early termination shall have been received, or a consent order issued (in form and substance satisfactory to Seller) by or from applicable Governmental Authorities.

 

  

19

  

 

8.6 Replacement Bonds and Guarantees.  Buyer shall have obtained, in the name of Buyer (a) replacements for Seller’s and/or its Affiliates’ bonds, letters of credit and guarantees, to the extent required by Section 6.4 and (b) substitute arrangements for the Guarantees to the extent required by Section 6.6, and shall have obtained documentation releasing and discharging Seller from all post-Closing obligations and Liabilities under the agreements, bonds, letters of credit or guarantees set forth on Schedule 8.6, in each case duly executed by the applicable counterparties thereto.

 

8.7 FERC Approvals.  If applicable, Buyer and Seller shall have obtained any necessary waivers from the Federal Energy Regulatory Commission regarding such commission’s capacity release policies.

 

8.8 Closing Deliverables.  Buyer shall have delivered (or be ready, willing and able to deliver at Closing) to Seller the documents and other items required to be delivered by Buyer under Section 9.3.

 

ARTICLE IX

 

CLOSING

 

9.1 Date of Closing.  Subject to the conditions stated in this Agreement, the sale by Seller and the purchase by Buyer of the Assets pursuant to this Agreement (the “Closing”) shall occur on or before June 29, 2012, or if all conditions to Closing in Article VII have not yet been satisfied or waived by that date, then five (5) Business Days after such conditions have been satisfied or waived, or such other date as Buyer and Seller may agree upon in writing.  The date Closing actually occurs shall be the “Closing Date”.

 

9.2 Place of Closing.  Closing shall be held at the offices of Vinson & Elkins L.L.P., 1001 Fannin Street, Suite 2500, Houston, Texas 77002, or such other place as mutually agreed upon by the Parties.

 

9.3 Closing Obligations.  At Closing, the following documents shall be delivered and the following events shall occur, the execution of each document and the occurrence of each event being a condition precedent to the others and each being deemed to have occurred simultaneously with the others:

 

(a) Seller and Buyer shall execute, acknowledge and deliver the Assignment in sufficient counterparts to facilitate recording in the applicable counties covering the Assets.

 

(b) Seller and Buyer shall execute and deliver assignments, on appropriate forms, of federal Leases and state Leases included in the Assets in sufficient counterparts to facilitate filing with the applicable Governmental Authority.

 

(c) Seller and Buyer shall execute and deliver the Preliminary Settlement Statement.

 

(d) Buyer shall deliver to Seller, to the accounts designated in the Preliminary Settlement Statement, by direct bank or wire transfer in same day funds, the Adjusted Purchase Price after giving effect to the Deposit.

 

  

20

  

 

(e) Seller shall deliver, on forms supplied by Buyer and reasonably acceptable to Seller, transfer orders or letters in lieu thereof directing all purchasers of production to make payment to Buyer of proceeds attributable to production from the Assets from and after the Effective Time, for delivery by Buyer to the purchasers of production.

 

(f) Seller shall deliver an executed statement described in Treasury Regulation §1.1445-2(b)(2) certifying that Seller is not a “foreign person” within the meaning of Section 144 of the Code.

 

(g) To the extent required under any applicable Law or Governmental Authority for any federal or state Lease, Buyer shall deliver designation of operator forms designating the current operator as operator of those Leases that such Person currently operates.

 

(h) An authorized officer of Seller shall execute and deliver a certificate, dated as of Closing Date, certifying that the conditions set forth in Section 7.1 and Section 7.2 have been fulfilled and, if applicable, any exceptions to such conditions that have been waived by Buyer.

 

(i) An authorized officer of Buyer shall execute and deliver a certificate, dated as of Closing, certifying that the conditions set forth in Section 8.1 and Section 8.2 have been fulfilled and, if applicable, any exceptions to such conditions that have been waived by Seller.

 

(j) Seller and Buyer shall have delivered fully executed originals of the Novation Agreement(s) to each other Party and the Hedge Counterparties.

 

(k) Seller shall deliver executed releases of any and all liens, mortgages and other encumbrances on the Assets incurred by Seller or its Affiliates in connection with borrowed monies.

 

(l) At the option of Buyer, Seller and Buyer shall execute and deliver a Transition Services Agreement, in form and substance to be agreed upon by Seller and Buyer under which Seller will continue as the operator of the Assets and Seller will agree to facilitate the transition of the operation of, and accounting for, the Assets for a period not to exceed two (2) months following the Closing Date, for the consideration of $40,000.00 per month.

 

(m) Seller and Buyer shall execute and deliver any other agreements, instruments and documents which are required by other terms of this Agreement to be executed and/or delivered at Closing.

 

9.4 Records.  In addition to the obligations set forth under Section 9.3 above, but notwithstanding anything herein to the contrary, no later than thirty (30) Business Days after the Closing Date, Seller shall make available to Buyer the Records for pickup from Seller’s offices during normal business hours.

 

  

21

  

 

ARTICLE X

 

ACCESS/DISCLAIMERS

 

10.1 Access.

 

(a) From and after the date hereof and up to and including the Closing Date (or earlier termination of this Agreement) but subject to the other provisions of this Section 10.1 and obtaining any required consents of Third Parties, including Third Party operators of the Assets, Seller shall afford to Buyer and its officers, employees, agents, accountants, consultants, attorneys, investment bankers and other authorized representatives (“Buyer’s Representatives”) reasonable access, during normal business hours, to the Assets and all Records in Seller’s or any of its Affiliates’ possession. All investigations and due diligence conducted by Buyer or any Buyer’s Representative shall be conducted at Buyer’s sole cost, risk and expense and any conclusions made from any examination done by Buyer or any Buyer’s Representative shall result from Buyer’s own independent review and judgment.

 

(b) Buyer shall be entitled to conduct a Phase I environmental property assessment with respect to the Assets.  Seller or its designee shall have the right to accompany Buyer and Buyer’s Representatives whenever they are on site on the Assets and also to collect split test samples if any are collected.  Notwithstanding anything herein to the contrary, Buyer shall not have access to, and shall not be permitted to conduct any environmental due diligence (including any Phase I environmental property assessments) with respect to, any Assets where Seller does not have the authority to grant access for such due diligence.

 

(c) Buyer shall coordinate its environmental property assessments and physical inspections of the Assets with Seller and all Third Party operators to minimize any inconvenience to or interruption of the conduct of business by Seller or such Third Party operators.  Buyer shall abide by Seller’s, and any Third Party operator’s, safety rules, regulations and operating policies while conducting its due diligence evaluation of the Assets, including any environmental or other inspection or assessment of the Assets and, to the extent required by Seller or any Third Party operator, execute and deliver any required boarding agreement of Seller or any such Third Party operator.  Buyer hereby defends, indemnifies and holds harmless each of the operators of the Assets and the Seller Indemnified Parties from and against any and all Liabilities arising out of, resulting from or relating to any field visit, environmental property assessment or other due diligence activity conducted by Buyer or any Buyer’s Representative with respect to the Assets, EVEN IF SUCH LIABILITIES ARISE OUT OF OR RESULT FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF OR BY A MEMBER OF THE SELLER INDEMNIFIED PARTIES, EXCEPTING ONLY LIABILITIES ACTUALLY RESULTING ON THE ACCOUNT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A MEMBER OF THE SELLER INDEMNIFIED PARTIES.

 

(d) Buyer agrees to promptly provide Seller, but in no event less than five (5) days after receipt or creation, copies of all final environmental reports and test results prepared by Buyer and/or any of Buyer’s Representatives which contain data collected or generated from Buyer’s environmental due diligence with respect to the Assets.  Seller shall not be deemed by its receipt of said documents or otherwise to have made any representation or warranty, expressed, implied or statutory as to the condition of the Assets or to the accuracy of said documents or the information contained therein.

 

  

22

  

 

(e) Upon completion of Buyer’s environmental due diligence, Buyer shall at its sole cost and expense and without any cost or expense to Seller or its Affiliates (i) repair all damage done to the Assets in connection with Buyer’s due diligence, (ii) restore the Assets to the approximate same or better condition than they were prior to commencement of Buyer’s due diligence and (iii) remove all equipment, tools or other property brought onto the Assets in connection with Buyer’s due diligence.  Any disturbance to the Assets (including, the leasehold associated therewith) resulting from Buyer’s due diligence will be promptly corrected by Buyer.

 

(f) During all periods that Buyer and/or any of Buyer’s Representatives are on the Assets, Buyer shall maintain, at its sole expense and with insurers reasonably satisfactory to Seller, policies of insurance of the types and in the amounts reasonably requested by Seller.  Coverage under all insurance required to be carried by Buyer hereunder will (i) be primary insurance, (ii) list Seller Indemnified Parties as additional insureds, (iii) waive subrogation against Seller Indemnified Parties and (iv) provide for ten (10) days prior notice to Seller in the event of cancellation or modification of the policy or reduction in coverage.  Upon request by Seller, Buyer shall provide evidence of such insurance to Seller prior to entering the Assets.

 

10.2 Confidentiality.  Buyer acknowledges that, pursuant to its right of access to the Records or the Assets, Buyer will become privy to confidential and other information of Seller or its Affiliates and Buyer shall ensure that such confidential information shall be held confidential by Buyer and Buyer’s Representatives in accordance with the terms of the Confidentiality Agreement.  If Closing should occur, the foregoing confidentiality restriction on Buyer, including the Confidentiality Agreement, shall terminate (except as to (a) such portion of the Assets that are not conveyed to Buyer pursuant to the provisions of this Agreement, (b) the Excluded Assets and (c) information related to assets other than the Assets).

 

10.3 Disclaimers.

 

(a) EXCEPT AS AND TO THE LIMITED EXTENT EXPRESSLY SET FORTH IN ARTICLE IV OR SECTION 11.1(b) (I) SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (II) SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO BUYER OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING, ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO BUYER BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT, REPRESENTATIVE OR ADVISOR OF SELLER OR ANY OF ITS AFFILIATES).

 

  

23

  

 

(b) EXCEPT AS AND TO THE LIMITED EXTENT EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE IV OR SECTION 11.1(b) AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED AS TO (I) TITLE TO ANY OF THE ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY ENGINEERING, GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION RELATING TO THE ASSETS, (III) THE QUANTITY, QUALITY OR  RECOVERABILITY OF HYDROCARBONS IN OR FROM THE ASSETS, (IV) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES TO BE GENERATED BY THE ASSETS, (V) THE PRODUCTION OF OR ABILITY TO PRODUCE HYDROCARBONS FROM THE ASSETS, (VI) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, (VII) THE CONTENT, CHARACTER OR NATURE OF ANY INFORMATION MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY SELLER OR THIRD PARTIES WITH RESPECT TO THE ASSETS, (VIII) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE TO BUYER OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO AND (IX) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT.  EXCEPT AS AND TO THE LIMITED EXTENT EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE IV OR SECTION 11.1(b), SELLER FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF MERCHANTABILITY, FREEDOM FROM LATENT VICES OR DEFECTS, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY OF THE ASSETS, RIGHTS OF A PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT BUYER 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 OR DEFECTS (KNOWN OR UNKNOWN, LATENT, DISCOVERABLE OR UNDISCOVERABLE), AND THAT BUYER HAS MADE OR CAUSED TO BE  MADE SUCH INSPECTIONS AS BUYER DEEMS APPROPRIATE.

 

(c) OTHER THAN AS AND TO THE LIMITED EXTENT EXPRESSLY REPRESENTED OTHERWISE IN SECTION 4.14, SELLER HAS NOT AND WILL NOT MAKE ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE ASSETS, AND NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND SUBJECT TO BUYER’S LIMITED RIGHTS AS SPECIFIED IN THIS AGREEMENT FOR A BREACH OF SELLER’S REPRESENTATIONS SET FORTH IN SECTION 4.14, BUYER SHALL BE DEEMED TO BE TAKING THE ASSETS “AS IS” AND “WHERE IS” WITH ALL FAULTS FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH ENVIRONMENTAL INSPECTIONS AS BUYER DEEMS APPROPRIATE.

 

  

24

  

 

(d) SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS SECTION 10.3 ARE “CONSPICUOUS” DISCLAIMERS FOR THE PURPOSE OF ANY APPLICABLE LAW.

 

ARTICLE XI

 

TITLE MATTERS; CASUALTY; TRANSFER RESTRICTIONS

 

11.1 Seller’s Title.

 

(a) General Disclaimer of Title Warranties and Representations.  Except for the special warranty of title as set forth in Section 11.1(b) and without limiting Buyer’s remedies for Title Defects set forth in this Article XI, Seller makes no warranty or representation, express, implied, statutory or otherwise, with respect to Seller’s title to any of the Assets and Buyer hereby acknowledges and agrees that Buyer’s sole remedy for any defect of title, including any Title Defect, with respect to any of the Assets (i) before Closing, shall be as set forth in Section 11.2 and (ii) after Closing, shall be pursuant to the special warranty of title set forth in Section 11.1(b).

 

(b) Special Warranty of Title.  If Closing occurs, then effective as of the Closing Date, Seller warrants Defensible Title to the Assets (but, with respect to any Lease and any Well or Undrilled Location associated therewith, limited to the depths set forth in Exhibit A or Exhibit A-1, as applicable) unto Buyer against every Person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under Seller or its Affiliates, but not otherwise, subject, however, to the Permitted Encumbrances and to any matters of record in the applicable counties or in the applicable state or federal records prior to the Defect Claim Date; provided, however, that, except with respect to any liability of Seller for any claim asserted in writing by Buyer to Seller in accordance with Section 11.1(c) on or before the expiration of the Survival Period for breach of such special warranty, such special warranty shall cease and terminate at the end of such Survival Period.  Said special warranty of title shall be subject to the further limitations and provisions of this Article XI.

 

(c) Recovery on Special Warranty.

 

(i) Buyer’s Assertion of Title Warranty Breaches.  Prior to the expiration of the period of time commencing as of the Closing Date and ending at 5 p.m. Central Time on the twelve (12) month anniversary thereof (the “Survival Period”), Buyer shall furnish Seller a Title Defect Notice meeting the requirements of Section 11.2(a) setting forth any matters which Buyer intends to assert as a breach of Seller’s special warranty in Section 11.1(b).  For all purposes of this Agreement, Buyer shall be deemed to have waived, and Seller shall have no further liability for, any breach of Seller’s special warranty that Buyer fails to assert by a Title Defect Notice given to Seller on or before the expiration of the Survival Period.  Seller shall have a reasonable opportunity, but not the obligation, to cure any Title Defect asserted by Buyer pursuant to this Section 11.1(c)(i).  Buyer agrees to reasonably cooperate with any attempt by Seller to cure any such Title Defect.

 

  

25

  

 

(ii) Limitations on Special Warranty.  For purposes of Seller’s special warranty of title, the value of the Wells and/or Undrilled Locations set forth in Schedule 3.8, as appropriate (but limited to the depths, if any, set forth on Exhibit A-1 for such Well and/or Undrilled Location), shall be deemed to be the Allocated Value thereof, as adjusted herein.  Recovery on Seller’s special warranty of title shall be limited to an amount (without any interest accruing thereon) equal to the reduction in the Purchase Price to which Buyer would have been entitled had Buyer asserted the Title Defect giving rise to such breach of Seller’s special warranty of title as a Title Defect prior to Closing pursuant to Section 11.2, in each case taking into account the Individual Title Defect Threshold and the Aggregate Deductible.  Seller shall be entitled to offset any amount owed by Seller for breach of its special warranty of title with respect to any Asset by the amount of any Title Benefits with respect to such Asset as to which Seller gives Buyer notice after the Defect Claim Date.

 

11.2 Notice of Title Defects; Defect Adjustments.

 

(a) Title Defect Notices.  Buyer must deliver at least five (5) Business Days before Closing (the “Defect Claim Date”) claim notices to Seller meeting the requirements of this Section 11.2(a) (collectively the “Title Defect Notices” and individually a “Title Defect Notice”) setting forth any matters which, in Buyer’s reasonable opinion, constitute Title Defects and which Buyer intends to assert as a Title Defect pursuant to this Section 11.2(a).  For all purposes of this Agreement and notwithstanding anything herein to the contrary (except as provided in Section 11.1), Buyer shall be deemed to have waived, and Seller shall have no liability for, any Title Defect which Buyer fails to assert as a Title Defect by a properly delivered Title Defect Notice received by Seller on or before the Defect Claim Date; provided, however, that, for purposes of Seller’s special warranty to title under Section 11.1(b), such waiver shall not apply to any matter that prior to the Defect Claim Date is not reflected of record in the applicable counties or in the applicable state or federal records.  To be effective, each Title Defect Notice shall be in writing, and shall include (i) a description of the alleged Title Defect and the Asset, or portion thereof, affected by such Title Defect (each a “Title Defect Property”), (ii) the Allocated Value of each Title Defect Property, (iii) supporting documents reasonably necessary for Seller to verify the existence of such alleged Title Defect, and (iv) the amount by which Buyer reasonably believes the Allocated Value of each Title Defect Property is reduced by such alleged Title Defect and the computations upon which Buyer’s belief is based.  Buyer shall promptly upon discovery furnish Seller with written notice of any Title Benefit which is discovered by any of Buyer’s or any of its Affiliate’s employees, title attorneys, landmen or other title examiners while conducting Buyer’s due diligence with respect to the Assets prior to the Defect Claim Date.

 

(b) Title Benefit Notices.  Seller shall have the right, but not the obligation, to deliver to Buyer on or before the Defect Claim Date with respect to each Title Benefit a notice (a “Title Benefit Notice”) including (i) a description of the alleged Title Benefit and the Asset, or portion thereof, affected by such alleged Title Benefit (each a “Title Benefit Property”), and (ii) the amount by which Seller reasonably believes the Allocated Value of such Title Benefit Property is increased by such alleged Title Benefit and the computations upon which Seller’s belief is based.  Seller shall be deemed to have waived all Title Benefits for which a Title Benefit Notice has not been delivered on or before the Defect Claim Date.

 

  

26

  

 

(c) Seller’s Right to Cure.  Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure at any time prior to the expiration of one hundred and eighty (180) days following Closing (the “Cure Period”), any Title Defects of which it has timely received a Title Defect Notice from Buyer.  During the period of time from Closing to the expiration of the Cure Period, Buyer hereby agrees to afford Seller and its officers, employees, agents and other authorized representatives reasonable access, during normal business hours, to the Assets and all Records in Buyer’s or any of its Affiliates’ possession in order that Seller may attempt to cure any such Title Defects.

 

(d) Remedies for Title Defects.  Subject to Seller’s continuing right to dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect thereto and subject to the rights of the Parties pursuant to Section 14.1(c), in the event that any Title Defect timely asserted by Buyer in accordance with Section 11.2(a) is not waived in writing by Buyer or cured prior to Closing, Seller shall, at its sole option, elect to:

 

(i) subject to the Individual Title Defect Threshold and the Aggregate Deductible, reduce the Purchase Price by the Title Defect Amount determined pursuant to Section 11.2(h) or Section 11.2(k);

 

(ii) retain the entirety of the Title Defect Property that is subject to such Title Defect, together with all associated Assets, in which event the Purchase Price shall be reduced by an amount equal to the Allocated Value of such Title Defect Property and such associated Assets; or

 

(iii) if applicable, terminate this Agreement pursuant to Section 14.1(c).

 

(e) Post-Closing Payments/Adjustments.

 

(i) In the event that an adjustment for a Title Defect Amount is made to the Purchase Price and Seller thereafter cures, during the Cure Period, the Title Defect(s) for which such adjustment was made, then, at Seller’s election, (A) the Final Price reflected in the Final Settlement Statement shall be adjusted upward by the amount by which the Purchase Price was adjusted on account of such Title Defect(s) at Closing, or (B) Buyer shall promptly, but in any event within ten (10) Business Days after such Title Defect(s) has been cured and Buyer has received written notice from Seller thereof, together with supporting documentation available to Seller reasonably necessary to verify such cure of such Title Defect(s), pay to Seller the amount by which the Purchase Price was adjusted on account of such Title Defect(s).

 

(ii) In the event Seller retained the entirety of a Title Defect Property pursuant to Section 11.2(d) at Closing and Seller thereafter cures, during the Cure Period, the Title Defect(s) affecting such Title Defect Property, then, (A) at Seller’s election, (x) the Final Price reflected in the Final Settlement Statement shall be adjusted upward by the Allocated Value of such Title Defect Property and any associated Assets, or (y) Buyer shall promptly, but in any event within ten (10) Business Days after such Title Defect(s) has been cured and Buyer has received written notice from Seller thereof, together with supporting documentation available to Seller reasonably necessary to verify such cure of such Title Defect(s), pay to Seller the Allocated Value of the Title Defect Property, and (B) promptly following receipt of payment, Seller shall convey the Title Defect Property to Buyer pursuant to an assignment and bill of sale substantially in the form attached to this Agreement as Exhibit B.

 

  

27

  

 

(f) Remedies for Title Benefits.  With respect to each Title Benefit Property reported under Section 11.2(b), the Purchase Price shall be increased by an amount (the “Title Benefit Amount”) equal to the increase in the Allocated Value for such Title Benefit Property caused by such Title Benefit, as determined pursuant to Section 11.2(i) or Section 11.2(k).

 

(g) Exclusive Remedy.  Except for Buyer’s rights under Seller’s special warranty of title under Section 11.1(b) and Buyer’s rights to terminate this Agreement pursuant to Section 14.1(c), the provisions set forth in Section 11.2(d) shall be the exclusive right and remedy of Buyer with respect to Seller’s failure to have Defensible Title with respect to any Asset or any other title matter.

 

(h) Title Defect Amount.  The amount by which the Allocated Value of a Title Defect Property is reduced as a result of the existence of a Title Defect shall be the “Title Defect Amount” and shall be determined in accordance with the following terms and conditions:

 

(i) if Buyer and Seller agree on the Title Defect Amount, then that amount shall be the Title Defect Amount;

 

(ii) if the Title Defect is an Encumbrance that is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property;

 

(iii) if the Title Defect represents a discrepancy between (A) Seller’s Net Revenue Interest for any Title Defect Property and (B) the Net Revenue Interest set forth for such Title Defect Property in Exhibit A-1, then the Title Defect Amount shall be the product of the Allocated Value of such Title Defect Property multiplied by a fraction, the numerator of which is the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest set forth for such Title Defect Property in Exhibit A-1;

 

(iv) if the Title Defect represents an obligation or Encumbrance upon or other defect in title to the Title Defect Property of a type not described above, then the Title Defect Amount shall be determined by taking into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property, the values placed upon the Title Defect by Buyer and Seller and such other reasonable factors as are necessary to make a proper evaluation; provided, however, that if such Title Defect is reasonably capable of being cured, the Title Defect Amount shall not be greater than the reasonable cost and expense of curing such Title Defect;

 

  

28

  

 

(v) the Title Defect Amount with respect to a Title Defect Property shall be determined without duplication of any costs or losses included in another Title Defect Amount hereunder; and

 

(vi) notwithstanding anything to the contrary in this Article XI, 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 such Title Defect Property.

 

(i) Title Benefit Amount.  The Title Benefit Amount resulting from a Title Benefit shall be determined in accordance with the following methodology, terms and conditions:

 

(i) if Buyer and Seller agree on the Title Benefit Amount, then that amount shall be the Title Benefit Amount;

 

(ii) if the Title Benefit represents a discrepancy between (A) Seller’s Net Revenue Interest for any Title Benefit Property and (B) the Net Revenue Interest set forth for such Title Benefit Property in Exhibit A-1, then the Title Benefit Amount shall be the product of the Allocated Value of such Title Benefit Property multiplied by a fraction, the numerator of which is the Net Revenue Interest increase and the denominator of which is the Net Revenue Interest set forth for such Title Benefit Property in Exhibit A-1; and

 

(iii) if the Title Benefit is of a type not described above, then the Title Benefit Amounts shall be determined by taking into account the Allocated Value of Title Benefit Property, the portion of such Title Benefit Property affected by such Title Benefit, the legal effect of the Title Benefit, the potential economic effect of the Title Benefit over the life of such Title Benefit Property, the values placed upon the Title Benefit by Buyer and Seller and such other reasonable factors as are necessary to make a proper evaluation.

 

(j) Title Deductibles.  Notwithstanding anything to the contrary, (i) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller for any individual Title Defect for which the Title Defect Amount does not exceed $100,000 (the “Individual Title Defect Threshold”); and (ii) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller for any Title Defect that exceeds the Individual Title Defect Threshold unless (A) the amount of the sum of (1) the aggregate Title Defect Amounts of all such Title Defects that exceed the Individual Title Defect Threshold (but excluding any such Title Defects cured by Seller), plus (2) the aggregate Remediation Amounts of all Environmental Defects that exceed the Individual Environmental Threshold (but excluding any Environmental Defects cured by Seller), exceeds (B) the Aggregate Deductible, after which point Buyer shall be entitled to adjustments to the Purchase Price or other applicable remedies available hereunder, but, only with respect to the aggregate amount of such Title Defect Amounts and Remediation Amounts in excess of the Aggregate Deductible.  For the avoidance of doubt, if Seller retains any Title Defect Property pursuant to Section 11.2(d)(ii), the Title Defect Amount related to such Title Defect Property will not be counted towards the Aggregate Deductible.

 

  

29

  

 

(k) Title Dispute Resolution.  Seller and Buyer shall attempt to agree on all Title Defects, Title Benefits, Title Defect Amounts and Title Benefit Amounts prior to Closing.  If Seller and Buyer are unable to agree by Closing, the Title Defect Amounts and Title Benefit Amounts in dispute shall be exclusively and finally resolved pursuant to this Section 11.2(k).  There shall be a single arbitrator, who shall be a title attorney with at least ten (10) years experience in oil and gas titles involving properties in the regional area in which the Title Defect Properties are located, as selected by mutual agreement of Buyer and Seller within fifteen (15) days after the end of the Cure Period, and absent such agreement, by the Denver, Colorado office of the American Arbitration Association (the “Title Arbitrator”).  The arbitration proceeding shall be held in Denver, Colorado and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section 11.2(k).  The Title Arbitrator’s determination shall be made within twenty (20) days after submission of the matters in dispute and shall be final and binding upon both Parties, without right of appeal. In making its determination, the Title Arbitrator shall be bound by the rules set forth in Section 11.2(h) and Section 11.2(i) and, subject to the foregoing, may consider such other matters as in the opinion of the Title Arbitrator are necessary to make a proper determination.  The Title Arbitrator, however, may not award the Buyer a greater Title Defect Amount than the Title Defect Amount claimed by Buyer in its applicable Title Defect Notice.  The Title Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Title Defect, Title Benefit, Title Defect Amount and/or Title Benefit Amount submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. Seller and Buyer shall each bear its own legal fees and other costs of presenting its case.  Each of Seller and Buyer shall bear one-half of the costs and expenses of the Title Arbitrator.  To the extent that the award of the Title Arbitrator with respect to any Title Defect Amount or Title Benefit Amount is not taken into account as an adjustment to the Purchase Price pursuant to Section 3.5 or Section 3.7, then within ten (10) days after the Title Arbitrator delivers written notice to Buyer and Seller of his award with respect to a Title Defect Amount or a Title Benefit Amount and, subject to Section 11.2(j) (i) Buyer shall pay to Seller the amount, if any, so awarded by the Title Arbitrator to Seller, and (ii) Seller shall pay to Buyer the amount, if any, so awarded by the Title Arbitrator to Buyer.  Nothing herein shall operate to cause Closing to be delayed on account of any arbitration conducted pursuant to this Section 11.2(k) and, to the extent any adjustments are not agreed upon by the Parties as of Closing, the Purchase Price shall not be adjusted therefor at Closing and subsequent adjustments to the Purchase Price, if any, will be made pursuant to Section 3.7 or this Section 11.2.

 

11.3 Casualty Loss.

 

(a) Notwithstanding anything herein to the contrary, from and after the Effective Time, if Closing occurs, Buyer shall assume all risk of loss with respect to production of Hydrocarbons through normal depletion (including watering out of any well, collapsed casing or sand infiltration of any well) and the depreciation of Personal Property due to ordinary wear and tear, in each case, with respect to the Assets.

 

(b) If, after the date of this Agreement but prior to the Closing Date, any portion of the Assets is destroyed by fire or other casualty (each, a "Casualty Loss"), the Closing shall nevertheless occur despite such Casualty Loss without any adjustment to the Purchase Price, and Seller, at Closing, shall pay to Buyer all sums paid to Seller by Third Parties by reason of any Casualty Loss insofar as with respect to the Assets and shall assign, transfer and set over to Buyer or subrogate Buyer to all of Seller's right, title and interest (if any) in insurance claims, unpaid awards, and other rights against Third Parties (excluding any Liabilities, other than insurance claims, of or against any Seller Indemnified Parties) arising out of such Casualty Loss insofar as with respect to the Assets; provided, however, that Seller shall reserve and retain (and Buyer shall assign to Seller) all right, title, interest and claims against Third Parties for the recovery of Seller's costs and expenses incurred prior to Closing in pursuing or asserting any such insurance claims or other rights against Third Parties to the extent no adjustment has been made in Seller’s favor under Section 3.3 for such costs and expenses.

 

  

30

  

 

11.4 Preferential Purchase Rights and Consents to Assign.

 

(a) With respect to each Preferential Purchase Right set forth in Schedule 4.10, Seller, prior to Closing, shall send to the holder of each such Preferential Purchase Right a notice in material compliance with the contractual provisions applicable to such Preferential Purchase Right.

 

(i) If, prior to Closing, any holder of a Preferential Purchase Right notifies Seller that it intends to consummate the purchase of the Asset to which its Preferential Purchase Right applies or if the time for exercising such Preferential Purchase Right has not expired, then the Asset subject to such Preferential Purchase Right shall be excluded from the Assets to be assigned to Buyer at Closing (but only to the extent of the portion of such Asset affected by the Preferential Purchase Right), and the Purchase Price shall be reduced by the Allocated Value of the Asset (or portion thereof) so excluded.  Seller shall be entitled to all proceeds paid by any Person exercising a Preferential Purchase Right prior to Closing.  If such holder of such Preferential Purchase Right thereafter fails to consummate the purchase of the Asset (or portion thereof) covered by such Preferential Purchase Right on or before sixty (60) days following the Closing Date, or the time for exercising such Preferential Purchase Right expires without exercise by the holder thereof (A) Seller shall so notify Buyer and (B) Buyer shall purchase, on or before ten (10) days following receipt of such notice, such Asset (or portion thereof) that was so excluded from Seller, under the terms of this Agreement and for a price equal to the amount by which the Purchase Price was reduced at Closing with respect to such excluded Asset (or portion thereof).

 

(ii) All Assets for which any applicable Preferential Purchase Right has been waived, or as to which the period to exercise the applicable Preferential Purchase Right has expired, in each case, prior to Closing, shall be sold to Buyer at Closing pursuant to the provisions of this Agreement.

 

(b) With respect to each Consent set forth in Schedule 4.4, Seller, prior to Closing, shall send to the holder of each such Consent a notice in material compliance with the contractual provisions applicable to such Consent seeking such holder’s consent to the transactions contemplated hereby.

 

(i) If (A) Seller fails to obtain a Consent set forth in Schedule 4.4 prior to Closing and the failure to obtain such Consent would cause (1) the assignment of the Assets affected thereby to Buyer to be void or (2) the termination of a Lease under the express terms thereof or (B) a Consent requested by Seller is denied in writing, then, in each case, the Asset (or portion thereof) affected by such un-obtained Consent shall be excluded from the Assets to be assigned to Buyer at Closing, and the Purchase Price shall be reduced by the Allocated Value of such Asset (or portion thereof) so excluded.  In the event that a Consent (with respect to an Asset excluded pursuant to this Section11.4(b)(i)) that was not obtained prior to Closing is obtained within sixty (60) days following Closing, then, within ten (10) days after such Consent is obtained (x) Buyer shall purchase the Asset (or portion thereof) that was so excluded as a result of such previously un-obtained Consent and pay to Seller the amount by which the Purchase Price was reduced at Closing with respect to the Asset (or portion thereof) so excluded and (y) Seller shall assign to Buyer the Asset (or portion thereof) so excluded at Closing pursuant to an instrument in substantially the same form as the Assignment.

 

  

31

  

 

(ii) If Seller fails to obtain a Consent set forth in Schedule 4.4 prior to Closing (A) and the failure to obtain such Consent would not cause (1) the assignment of the Asset (or portion thereof) affected thereby to Buyer to be void or (2) the termination of a Lease under the express terms thereof and (B) such Consent requested by Seller is not denied in writing by the holder thereof, then the Asset (or portion thereof) subject to such un-obtained Consent shall nevertheless be assigned by Seller to Buyer at Closing as part of the Assets and Buyer shall have no claim against, and Seller shall have no Liability for, the failure to obtain such Consent.

 

(iii) Prior to Closing, Seller and Buyer shall use their commercially reasonable efforts to obtain all Consents listed on Schedule 4.4; provided, however, that neither Party shall be required to incur any Liability or pay any money in order to obtain any such Consent.  Subject to the foregoing, Buyer hereby agrees to provide Seller with any information or documentation that may be reasonably requested by Seller and/or the Third Party holders of such Consents in order to facilitate the process of obtaining such Consents.

 

ARTICLE XII

 

ENVIRONMENTAL MATTERS

 

12.1 Notice of Environmental Defects.

 

(a) Environmental Defects Notice.  Buyer must deliver, at or prior to the Defect Claim Date, claim notices to Seller meeting the requirements of this Section 12.1(a) (collectively the “Environmental Defect Notices” and individually an “Environmental Defect Notice”) setting forth any matters which, in Buyer’s reasonable opinion, constitute Environmental Defects and which Buyer intends to assert as Environmental Defects pursuant to this Section 12.1.  For all purposes of this Agreement, but subject to Buyer’s remedy for a breach of Seller’s representation contained in Section 4.14, Buyer shall be deemed to have waived, and Seller shall have no liability for, any Environmental Defect which Buyer fails to assert as an Environmental Defect by a properly delivered Environmental Defect Notice received by Seller on or before the Defect Claim Date.  To be effective, each Environmental Defect Notice shall be in writing and shall include (i) a description of the matter constituting the alleged Environmental Condition (including the applicable Environmental Law violated or implicated thereby) and the Assets affected by such alleged Environmental Condition, (ii) the Allocated Value of the Assets (or portions thereof) affected by such alleged Environmental Condition, (iii) supporting documents reasonably necessary for Seller to verify the existence of such alleged Environmental Condition, and (iv) a calculation of the Remediation Amount (itemized in reasonable detail) that Buyer asserts is attributable to such alleged Environmental Defect.  Buyer’s calculation of the Remediation Amount included in the Environmental Defect Notice must describe in reasonable detail the Remediation proposed for the alleged Environmental Condition that gives rise to the asserted Environmental Defect and identify all assumptions used by the Buyer in calculating the Remediation Amount, including the standards that Buyer asserts must be met to comply with Environmental Laws.  Seller shall have the right, but not the obligation, to cure any asserted Environmental Defect on or before Closing.

 

  

32

  

 

(b) Remedies for Environmental Defects.  Subject to Seller’s continuing right to dispute the existence of an Environmental Defect and/or the Remediation Amount asserted with respect thereto, and subject to the rights of the Parties pursuant to Section 14.1(c), in the event that any Environmental Defect timely asserted by Buyer in accordance with Section 12.1(a) is not waived in writing by Buyer or cured during the Cure Period, Seller shall, at its sole option, elect to:

 

(i) subject to the Individual Environmental Threshold and the Aggregate Deductible, reduce the Purchase Price by the Remediation Amount;

 

(ii) assume responsibility for the Remediation of such Environmental Defect;

 

(iii) retain the entirety of the Asset that is subject to such Environmental Defect, together with all associated Assets, in which event the Purchase Price shall be reduced by an amount equal to the Allocated Value of such Asset and such associated Assets; or

 

(iv) if applicable, terminate this Agreement pursuant to Section 14.1(c).

 

If Seller elects the option set forth in clause (i) above, and if Closing occurs, Buyer shall be deemed to have assumed responsibility for all of the costs and expenses attributable to the Remediation of the Environmental Condition attributable to such Environmental Defect and all of all Liabilities with respect thereto and such responsibility of Buyer shall be deemed to constitute part of the Assumed Obligations hereunder.  If Seller elects the option set forth in clause (ii) above, Seller shall use 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 Seller elects to undertake and Buyer, effective as of Closing, hereby grants to Seller and its representatives, access to the Assets to conduct such Remediation.  Seller will be deemed to have adequately completed the Remediation required in the immediately preceding sentence (A) upon receipt of a certificate or approval from the applicable Governmental Authority that the Remediation has been implemented to the extent necessary to comply with existing Laws or (B) upon receipt of a certificate from a licensed professional engineer that the Remediation has been implemented to the extent necessary to comply with existing Laws.

 

(c) Exclusive Remedy.  Except for Buyer’s remedy for a breach of Seller’s representation contained in Section 4.14 and Buyer’s rights to terminate this Agreement pursuant to Section 14.1(c), the provisions set forth in Section 12.1(b) shall be the exclusive right and remedy of Buyer with respect to any Environmental Defect with respect to any Asset or other environmental matter.

 

  

33

  

 

(d) Environmental Deductibles.  Notwithstanding anything to the contrary, (i) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller for any individual Environmental Defect for which the Remediation Amount does not exceed $100,000 (the “Individual Environmental Threshold”); and (ii) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller for any Environmental Defect for which the Remediation Amount exceeds the Individual Environmental Threshold unless (A) the amount of the sum of (1) the aggregate Remediation Amounts of all such Environmental Defects that exceed the Individual Environmental Threshold (but excluding any Environmental Defects cured by Seller), plus (2) the aggregate Title Defect Amounts of all Title Defects that exceed the Individual Title Defect Threshold (but excluding any Title Defects cured by Seller), exceeds (B) the Aggregate Deductible, after which point Buyer shall be entitled to adjustments to the Purchase Price or other applicable remedies available hereunder, but only with respect to the aggregate amount of such Remediation Amounts and Title Defect Amounts in excess of the Aggregate Deductible. For the avoidance of doubt, if Seller retains any Assets pursuant to Section 12.1(b)(iii), the Remediation Amounts relating to such retained Assets will not be counted towards the Aggregate Deductible.

 

(e) Environmental Dispute Resolution.  Seller and Buyer shall attempt to agree on all Environmental Defects and Remediation Amounts prior to Closing.  If Seller and Buyer are unable to agree by Closing, the Environmental Defects and/or Remediation Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this Section 12.1(e).  There shall be a single arbitrator, who shall be an environmental attorney with at least ten (10) years experience in environmental matters involving oil and gas producing properties in the regional area in which the affected Assets are located, as selected by mutual agreement of Buyer and Seller within fifteen (15) days after the Closing Date, and absent such agreement, by the Denver, Colorado office of the American Arbitration Association (the “Environmental Arbitrator”).  The arbitration proceeding shall be held in Denver, Colorado and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section 12.1.  The Environmental Arbitrator’s determination shall be made within twenty (20) days after submission of the matters in dispute and shall be final and binding upon both Parties, without right of appeal. In making its determination, the Environmental Arbitrator shall be bound by the rules set forth in this Section 12.1 and, subject to the foregoing, may consider such other matters as in the opinion of the Environmental Arbitrator are necessary or helpful to make a proper determination.  The Environmental Arbitrator, however, may not award Buyer its share of any greater Remediation Amount than the Remediation Amount claimed by Buyer in its applicable Environmental Defect Notice.  The Environmental Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Environmental Defects and/or Remediation Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. Seller and Buyer shall each bear its own legal fees and other costs of presenting its case.  Each of Seller and Buyer shall bear one-half of the costs and expenses of the Environmental Arbitrator.  To the extent that the award of the Environmental Arbitrator with respect to any Remediation Amount is not taken into account as an adjustment to the Purchase Price pursuant to Section 3.5 or Section 3.7, then, within ten (10) days after the Environmental Arbitrator delivers written notice to Buyer and Seller of his award with respect to any Remediation Amount, and subject to Section 12.1(d) (i) Buyer shall pay to Seller the amount, if any, so awarded by the Environmental Arbitrator to Seller, and (ii) Seller shall pay to Buyer the amount, if any, so awarded by the Environmental Arbitrator to Buyer.  Nothing herein shall operate to cause Closing to be delayed on account of any arbitration conducted pursuant to this Section 12.1(e), and to the extent any adjustments are not agreed upon by the Parties as of Closing, the Purchase Price shall not be adjusted therefor at Closing and subsequent adjustments to the Purchase Price, if any, will be made pursuant to Section 3.7 or this Section 12.1(e).

 

  

34

  

 

12.2 NORM, Wastes and Other Substances.  Buyer acknowledges 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 Substances.  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 Substances.  NORM containing material and/or other wastes or Hazardous Substances 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 Substances from the Assets.

 

ARTICLE XIII

 

ASSUMPTION; INDEMNIFICATION; SURVIVAL

 

13.1 Assumption by Buyer.  Subject to Buyer’s rights to indemnity under this Article XIII, from and after Closing, if Closing occurs, Buyer assumes and hereby agrees to fulfill, perform, pay and discharge (or cause to be fulfilled, performed, paid and discharged) all obligations and Liabilities, known or unknown, arising from, based upon, related to or associated with the Assets, regardless of whether such obligations or Liabilities arose prior to, on or after the Effective Time, including obligations and Liabilities relating in any manner to the use, ownership or operation of the Assets, including obligations to (a) furnish makeup gas and/or settle Imbalances according to the terms of applicable gas sales, processing, gathering or transportation Contracts, (b) pay Working Interests, royalties, overriding royalties and other interest owners’ revenues or proceeds attributable to sales of Hydrocarbons, including those held in suspense (including those amounts for which the Purchase Price was adjusted pursuant to Section 3.3(b)(viii)), (c) Decommission the Assets (the “Decommissioning Obligations”), (d) except to the extent Seller is required to do so pursuant to Section 12.1(b)(ii), clean up and/or remediate the Assets in accordance with applicable Contracts and Laws, and (e) perform all obligations applicable to or imposed on the lessee, owner or operator under the Leases and the Applicable Contracts, or as required by Law, (all of said obligations and Liabilities, subject to the exclusions below, herein being referred to as the “Assumed Obligations”); provided, Buyer does not assume any obligations or Liabilities of Seller to the extent that they are:

 

(i) attributable to or arise out of the ownership, use or operation of the Excluded Assets; or

 

  

35

  

 

(ii) attributable to or arise out of the actions, litigation, suits or other proceedings, if any, set forth in Schedule 13.1, except insofar and only insofar as they are attributable or relate to the ownership or operation of the Assets, or production therefrom, for periods after the Effective Time.

 

13.2 Indemnities of Seller.  Effective as of Closing, subject to the limitations set forth in Section 13.4 and Section 13.8 or otherwise in this Agreement, Seller shall be responsible for, shall pay on a current basis and hereby defends, indemnifies, holds harmless and forever releases Buyer and its Affiliates, and all of its and their respective equityholders, partners, members, directors, officers, managers, employees, agents and representatives (collectively, “Buyer Indemnified Parties”) from and against any and all Liabilities, whether or not relating to Third Party claims or incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any of their respective rights hereunder, arising from, based upon, related to or associated with:

 

(a) any breach by Seller of any of its representations or warranties contained in Article IV;

 

(b) any breach by Seller of any of its covenants or agreements under this Agreement;

 

(c) the actions, suits or proceedings, if any, set forth in Schedule 13.1, except insofar and only insofar as they are attributable or relate to the ownership or operation of the Assets, or production therefrom, for periods after the Effective Time;

 

(d) any obligations to Seller’s employees and officers, except Operating Expenses attributable to the period from and after the Effective Time, or any obligations under employment contracts or retention, severance, termination, separation or incentive compensation with respect to Seller’s employees or officers, in each case, to the extent attributable to the period of time prior to the Closing Date;

 

(e) any act or omission by Seller involving or relating to the Excluded Assets; and

 

(f) any personal injury or death relating to the ownership, use or operation of the Assets that occurs prior to the Closing Date.

 

  

36

  

 

13.3 Indemnities of Buyer. Effective as of Closing, Buyer and its successors and assigns shall assume, be responsible for, shall pay on a current basis, and hereby defends, indemnifies, holds harmless and forever releases Seller and its Affiliates, and all of its and their respective equityholders, partners, members, directors, officers, managers, employees, agents and representatives (collectively, “Seller Indemnified Parties”) from and against any and all Liabilities, whether or not relating to Third Party claims or incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any of their respective rights hereunder, arising from, based upon, related to or associated with:

 

(a) any breach by Buyer of any of its representations or warranties contained in Article V;

 

(b) any breach by Buyer of any of its covenants or agreements under this Agreement; and

 

(c) the Assumed Obligations.

 

13.4 Limitation on Liability.

 

(a) Seller shall not have any liability for any indemnification under Section 13.2(a) and Section 13.2(f) of this Agreement (i) for any individual Liability unless the amount with respect to such Liability exceeds $100,000, and (ii) until and unless the aggregate amount of all Liabilities for which Claim Notices are delivered by Buyer exceeds the Indemnity Deductible, and then only to the extent such Liabilities exceeds the Indemnity Deductible; provided that the adjustments to the Purchase Price under Section 3.3, Section 3.5, Section 3.6, Section 3.7 or Section 3.8 and any payments in respect thereof shall not be limited by this Section 13.4(a).

 

(b) Notwithstanding anything to the contrary contained in this Agreement, Seller shall not be required to indemnify Buyer for aggregate Liabilities in excess of $34,000,000.00; provided that the adjustments to the Purchase Price under Section 3.3, Section 3.5, Section 3.6, Section 3.7 or Section 3.8 and any payments in respect thereof shall not be limited by this Section 13.4(b).

 

13.5 Express Negligence.  THE DEFENSE, INDEMNIFICATION, HOLD HARMLESS, RELEASE AND ASSUMED OBLIGATIONS PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LIABILITIES, LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE OR RESULTED SOLELY OR IN PART FROM THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF OR BY ANY INDEMNIFIED PARTY.  BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

 

  

37

  

 

13.6 Exclusive Remedy.  Notwithstanding anything to the contrary contained in this Agreement, the Parties agree that, from and after Closing, Section 6.6, Section 10.1(c), Section 11.1(c), Section 13.2 and Section 13.3, contain the Parties’ exclusive remedies against each other with respect to the transactions contemplated hereby, including breaches of the representations, warranties, covenants and agreements of the Parties contained in this Agreement or in any document or certificate delivered pursuant to this Agreement.  Except as specified in Section 11.1(c) and Section 13.2, effective as of Closing, Buyer, on its own behalf and on behalf of the Buyer Indemnified Parties, hereby releases, remises and forever discharges Seller and its Affiliates and all such Persons’ equityholders, partners, members, directors, officers, employees, agents and representatives from any and all suits, legal or administrative proceedings, claims, demands, damages, losses, costs, Liabilities, interest or causes of action whatsoever, in Law or in equity, known or unknown, which Buyer or the Buyer Indemnified Parties might now or subsequently may have, based on, relating to or arising out of this Agreement, the transactions contemplated by this Agreement, the ownership, use or operation of any of the Assets prior to Closing or the condition, quality, status or nature of any of the Assets prior to Closing, including rights to contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, breaches of statutory or implied warranties, nuisance or other tort actions, rights to punitive damages, common Law rights of contribution and rights under insurance maintained by Seller or any of its Affiliates (except as provided in Section 11.3(b)).

 

13.7 Indemnification Procedures.  All claims for indemnification under Section 6.6, Section 10.1(c), Section 13.2 and Section 13.3 shall be asserted and resolved as follows:

 

(a) For purposes of Section 6.6, Section 10.1(c) and this Article XIII, the term “Indemnifying Party” when used in connection with particular Liabilities shall mean the Party or Parties having an obligation to indemnify another Party or Parties with respect to such Liabilities pursuant to Section 6.6, Section 10.1(c) or this Article XIII, and the term “Indemnified Party” when used in connection with particular Liabilities shall mean the Party or Parties having the right to be indemnified with respect to such Liabilities by another Party or Parties pursuant to Section 6.6, Section 10.1(c) or this Article XIII.

 

(b) To make claim for indemnification under Section 6.6, Section 10.1(c), Section 13.2 and Section 13.3, an Indemnified Party shall notify the Indemnifying Party of its claim under this Section 13.7, including the specific details of and specific basis under this Agreement for its claim (the “Claim Notice”).  In the event that the claim for indemnification is based upon a claim by a Third Party against the Indemnified Party (a “Third Party Claim”), the Indemnified Party shall provide its Third Party Claim Notice promptly after the Indemnified Party has actual knowledge of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 13.7(b) shall not relieve the Indemnifying Party of its obligations under Section 6.6, Section 10.1(c), Section 13.2 and Section 13.3 (as applicable) except to the extent such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Third Party Claim or otherwise materially prejudices the Indemnifying Party's ability to defend against the Third Party Claim.  In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Third Party Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.

 

(c) In the case of a claim for indemnification based upon a Third Party Claim, the Indemnifying Party shall have thirty (30) days from its receipt of the Claim Notice to notify the Indemnified Party whether it admits or denies its liability to defend the Indemnified Party against such Third Party Claim at the sole cost and expense of the Indemnifying Party.  The Indemnified Party is authorized, prior to and during such thirty (30) day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.

 

  

38

  

 

(d) If the Indemnifying Party admits its liability to defend the Indemnified Party against a Third Party Claim, it shall have the right and obligation to diligently defend, at its sole cost and expense, the Indemnified Party against such Third Party Claim.  The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof.  If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Third Party Claim which the Indemnifying Party elects to contest.  The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 13.7(d).  An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the Indemnified Party from all liability in respect of such Third Party Claim or (ii) settle any Third Party Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).

 

(e) If the Indemnifying Party does not admit its liability or admits its liability to defend the Indemnified Party against a Third Party Claim, but fails to diligently prosecute, indemnify against or settle the Third Party Claim, then the Indemnified Party shall have the right to defend against the Third Party Claim at the sole cost and expense of the Indemnifying Party, with counsel of the Indemnified Party’s choosing, subject to the right of the Indemnifying Party to admit its liability and assume the defense of the Third Party Claim at any time prior to settlement or final determination thereof.  If the Indemnifying Party has not yet admitted its liability to defend the Indemnified Party against a Third Party Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any proposed settlement and the Indemnifying Party shall have the option for ten (10) days following receipt of such notice to (i) admit in writing its liability to indemnify the Indemnified Party from and against the liability and consent to such settlement and (ii) if liability is so admitted, reject, in its reasonable judgment, the proposed settlement, or (iii) deny liability. Any failure to respond such notice by the Indemnified Party shall be deemed to be an election under subsection (i) above.

 

(f) In the case of a claim for indemnification not based upon a Third Party Claim, the Indemnifying Party shall have thirty (30) days from its receipt of the Claim Notice to (i) cure the Liabilities complained of, (ii) admit its liability for such Liability or (iii) dispute the claim for such Liabilities.  If the Indemnifying Party does not notify the Indemnified Party within such thirty (30) day period that it has cured the Liabilities or that it disputes the claim for such Liabilities, the amount of such Liabilities shall conclusively be deemed a liability of the Indemnifying Party hereunder.

 

(g) An Indemnified Party shall use reasonable commercial efforts to pursue, and to cause its Affiliates to pursue, all insurance claims to which it may be entitled in connection with any Liabilities for which a claim for indemnification is made, and the Parties shall cooperate with each other in pursuing insurance claims with respect to any such Liabilities or any indemnification obligations from Third Parties with respect to any such Liabilities.  The Indemnifying Party is authorized by the Indemnified Party to give direction to the insurer under any insurance policy with respect to the defense of any action, suit, proceeding or claim relating to any liability giving rise to a claim for indemnification.  If the Indemnifying Party makes any payment on any Third Party Claim, the Indemnifying Party shall be subrogated, to the extent of such payment, to all rights and remedies of the Indemnified Party to any insurance benefits or other claims of the Indemnified Party with respect to such Third Party Claim.  The Parties acknowledge and agree that (i) the obligations of the Indemnified Party set forth in this Section 13.7(g) with respect to any Liabilities for which a claim for indemnification has been made shall be contingent on the Indemnified Party receiving a written statement from the Indemnifying Party whereby the Indemnifying Party admits its liability for such Liability and (ii) neither Party shall be required to maintain any particular insurance coverage following the Closing.

 

  

39

  

 

13.8 Survival.

 

(a) The representations and warranties of the Parties in Article IV and Article  V (other than the representations and warranties in Sections 4.1, 4.2, 4.16, 5.1, 5.2, 5.9, 5.10 and 5.11), and the covenants and agreements of the Parties in Sections 6.1 and 9.4, shall survive Closing for a period of twelve (12) months.  The representation and warranty of Seller in Section 11.1(b) shall terminate as of the expiration of the Survival Period.  Subject to the foregoing and Section 13.8(b), the remainder of this Agreement (including Sections 4.1, 4.2, 4.6, 4.16, 5.1, 5.2, 5.9, 5.10 and 5.11) shall survive Closing without time limit.  Representations, warranties, covenants and agreements 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 pursuant to this Agreement with respect to such a representation, warranty, covenant or agreement prior to its expiration date.

 

(b) The indemnities in Section 13.2(a), Section 13.2(b), Section 13.3(a) and Section 13.3(b) shall terminate as of the expiration date of each respective representation, warranty, covenant or agreement that is subject to indemnification, except in each case as to matters for which a specific written claim for indemnity has been delivered to the Indemnifying Party on or before such expiration date.  Seller’s indemnity in Section 13.2(c) shall survive without time limit and Seller’s indemnities in Section 13.2(d), Section 13.2(e) and Section 13.2(f) shall survive the Closing for a period of two (2) years.  Buyer’s indemnities in Section 6.6, Section 10.1(c) and in Section 13.3(c) shall survive Closing without time limit and shall be deemed covenants running with the Assets (provided that Buyer and its successors and assigns shall not be released from any of, and shall remain jointly and severally liable to the Seller Indemnified Parties for, the obligations and Liabilities of Buyer under such Sections of this Agreement upon any transfer or assignment of any Asset).

 

13.9 Waiver of Right to Rescission.  Seller and Buyer acknowledge that, following Closing, the payment of money, as limited by the terms of this Agreement, shall be adequate compensation for breach of any representation, warranty, covenant or agreement contained herein or for any other claim arising in connection with or with respect to the transactions contemplated by this Agreement.  As the payment of money shall be adequate compensation, following Closing, Buyer and Seller waive any right to rescind this Agreement or any of the transactions contemplated hereby.

 

  

40

  

 

13.10 Insurance, Taxes.  The amount of any Liabilities for which any of the Indemnified Parties is entitled to indemnification under this Agreement or in connection with or with respect to the transactions contemplated by this Agreement shall be reduced by any corresponding (a) Tax benefit created or generated by the incurrence of the Liability or (b) insurance proceeds, from insurance policies carried by a party realized, or that could reasonably be expected to be realized by such Party if a claim were properly pursued under the relevant insurance arrangements.

 

13.11 Non-Compensatory Damages.  None of the Buyer Indemnified Parties nor Seller Indemnified Parties shall be entitled to recover from Seller or Buyer, or their respective Affiliates, 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 or the transactions contemplated hereby, except to the extent any such Party suffers such damages to a Third Party, which damages (including costs of defense and reasonable attorneys’ 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, Buyer, on behalf of each of the Buyer Indemnified Parties, and Seller, 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 or the transactions contemplated hereby.

 

13.12 Cooperation by Buyer - Retained Litigation.  Buyer agrees to use reasonable efforts to cooperate with Seller in connection with Seller’s defense and other actions relating to or arising out of the litigation and claims set forth in Schedule 13.1.  Buyer agrees to make available Buyer’s employees engaged in the operation of the Assets for the purposes of providing testimony, depositions, information and other related activities relating to such litigation and claims.

 

13.13 Disclaimer of Application of Anti-Indemnity Statutes.  The Parties acknowledge and agree that the provisions of any anti-indemnity statute relating to oilfield services and associated activities shall not be applicable to this Agreement and/or the transactions contemplated hereby.

 

ARTICLE XIV

 

TERMINATION, DEFAULT AND REMEDIES

 

14.1 Right of Termination.  This Agreement and the transactions contemplated herein may be terminated at any time prior to Closing:

 

(a) by Seller, at Seller’s option, if any of the conditions set forth in Article VIII have not been satisfied on or before the Closing Date and, with the exception of the condition set forth in Section 8.1 to the extent the failure to satisfy such condition relates to the representations and warranties of Buyer set forth in Sections 5.5 and 5.7 and, with the exception of the condition set forth in Section 8.2 to the extent the failure to satisfy such condition relates to the covenants of Buyer set forth in Sections 3.1, 6.4 and 6.6, following written notice thereof from Seller to Buyer specifying the reason such condition is unsatisfied (including any breach by Seller of this Agreement), such condition remains unsatisfied for a period of five (5) Business Days after Buyer’s receipt of written notice thereof from Seller;

 

  

41

  

 

(b) by Buyer, at Buyer’s option, if any of the conditions set forth in Article VII have not been satisfied on or before the Closing Date and, following written notice thereof from Buyer to Seller specifying the reason such condition is unsatisfied (including any breach by Seller of this Agreement), such condition remains unsatisfied for a period of ten (10) Business Days after Seller’s receipt of written notice thereof from Buyer;

 

(c) by Buyer if the condition set forth in Section 7.4 has not been satisfied on or before the Closing Date or by Seller if the condition set forth in Section 8.4 is not satisfied on or before the Closing Date; or

 

(d) by Seller or Buyer if Closing shall not have occurred on or before July 31, 2012;

 

provided, however, that no Party shall have the right to terminate this Agreement pursuant to clause (a), (b) or (d) above if such Party or its Affiliates are at such time in material breach of any provision of this Agreement.

 

14.2 Effect of Termination; Remedies.

 

(a) If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to any provision of Section 14.1 hereof, then, except as provided in this Section 14.2 and except for the provisions of Sections 1.1, 10.1(c) through (f), 10.2, 10.3, 13.11, this Section 14.2, Section 14.3 and Article XV (other than Sections 15.2(b), 15.7 and 15.8) and such of the defined terms set forth on Annex 1 to give context to such sections, this Agreement shall forthwith become void and the Parties shall have no liability or obligation hereunder except and to the extent such termination results from the Willful Breach by a Party of any of its covenants or agreements hereunder in which case the other Party shall have the right to seek all remedies available at Law or in equity, including specific performance, for such Willful Breach; provided that if Seller is entitled to retain the Deposit as liquidated damages pursuant to Section 14.2(b), then such retention shall constitute full and complete satisfaction of any and all damages Seller may have against Buyer.

 

(b) If (i) Seller has the right to terminate this Agreement pursuant to Section 14.1(a) because of (A) the failure of Buyer to materially perform any of its obligations hereunder, or (B) the failure of any of Buyer’s representations and warranties hereunder to be true and correct in all respects as of the date of this Agreement and Closing, and (ii) all conditions precedent to the obligations of Buyer set forth in Article VII (other than those actions or deliveries to occur at Closing) have been met or waived by Buyer, then, in such event, Seller, as Seller’s sole remedy for Buyer’s breach of this Agreement or failure or refusal to close or perform any of its obligations hereunder, may terminate this Agreement and retain the Deposit as liquidated damages as its sole remedy, and in such case Seller expressly waives any and all other remedies, legal or equitable, that it otherwise may have had for Buyer’s breach of this Agreement or failure or refusal to close and Buyer shall have no further liability or obligation hereunder.

 

  

42

  

 

(c) If Closing does not occur for any reason other than as set forth in Section 14.2(b), then Buyer shall be entitled to the delivery of the Deposit upon demand, free of any claims by Seller with respect thereto.

 

14.3 Return of Documentation and Confidentiality.  Upon termination of this Agreement, Buyer shall return to Seller all title, engineering, geological and geophysical data, environmental assessments and/or reports, maps and other information furnished by Seller to Buyer or prepared by or on behalf of Buyer in connection with its due diligence investigation of the Assets, in each case in accordance with the Confidentiality Agreement and an officer of Buyer shall certify same to Seller in writing.

 

ARTICLE XV

 

MISCELLANEOUS

 

15.1 Appendices, Exhibits and Schedules.  All of the Appendices, Exhibits and Schedules referred to in this Agreement are hereby incorporated into this Agreement by reference and constitute a part of this Agreement.  Each Party to this Agreement and its counsel has received a complete set of Appendices, Exhibits and Schedules prior to and as of the execution of this Agreement.

 

15.2 Expenses and Taxes.

 

(a) Except as otherwise specifically provided, all fees, costs and expenses incurred by Buyer or Seller in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the Party incurring the same, including, legal and accounting fees, costs and expenses.

 

(b) All required documentary, filing and recording fees and expenses in connection with the filing and recording of the assignments, conveyances or other instruments required to convey title to the Assets to Buyer shall be borne by Buyer.  Seller shall retain responsibility for, and shall bear and pay, all federal income Taxes and state income Taxes (including any applicable interest or penalties) incurred or imposed with respect to (i) the transactions described in this Agreement or (ii) the ownership of the Assets, the production of Hydrocarbons, or the receipt of proceeds therefrom for all periods prior to the Closing Date.  Buyer shall assume responsibility for, and shall bear and pay, all state sales and use Taxes (including any applicable interest or penalties) incurred or imposed with respect to the transactions described in this Agreement or otherwise occurring in the ordinary course on or after the Effective Time.  Except to the extent reflected in the computation of the Adjusted Purchase Price pursuant to Section 3.3, (i) Seller shall retain responsibility for, and shall bear and pay, all ad valorem, property, severance, production, and similar Taxes and assessments based upon or measured by the ownership of the Assets, the production of Hydrocarbons, or the receipt of proceeds therefrom (including any applicable penalties and interest) and assessed against the Assets by any Taxing Authority for any period or portion thereof prior to the Effective Time, and (ii) Buyer shall be responsible for, and shall bear and pay, all such Taxes and assessments assessed against Seller or the Assets by any Taxing Authority for any period or portion thereof on or after the Effective Time.  For purposes of this Agreement, the foregoing proration of ad valorem and property Taxes shall be accomplished at Closing based on the ratio of the number of days in the year prior to (for Seller) and on and after (for Buyer) the Effective Time to the total number of days in the year as applied to the amount of ad valorem and property Taxes for the most recent year for which the amount of such Taxes can be finally determined at Closing.  Buyer shall be responsible for delivering payment to the Taxing Authorities of all ad valorem and property Taxes for the current year.

 

  

43

  

 

15.3 Assignment.  This Agreement may not be assigned by Buyer without prior written consent of Seller.  In the event Seller consents to any such assignment, such assignment shall not relieve Buyer of any obligations and responsibilities hereunder.  Any assignment or other transfer by Buyer or its successors and assigns of any of the Assets shall not relieve Buyer or its successors or assigns of any of their obligations (including indemnity obligations) hereunder, as to the Assets so assigned or transferred.

 

15.4 Preparation of Agreement.  Both Seller and Buyer and their respective counsel participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

 

15.5 Publicity.  Seller and Buyer shall promptly consult with each other with regard to all press releases or other public or private announcements issued or made at or prior to Closing concerning this Agreement or the transactions contemplated herein, and, except as may be required by applicable Laws or the applicable rules and regulations of any Governmental Authority or stock exchange, neither Buyer nor Seller shall issue any such press release or other public or private announcement without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed.

 

15.6 Notices.  All notices and communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by facsimile transmission (provided any such facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

 

  

44

  

 

If to Seller:

 

Antero Resources Corporation

1625 17th Street

Denver, Colorado 70202

Attention:  Alvyn A. Schopp

Fax:  (303) 357-7315

 

With additional copy to:

 

Vinson & Elkins LLP

1001 Fannin, Suite 2500

Houston, TX 77002

Attention:  John B. Connally

Fax:  (713) 615-5333

If to Buyer:

 

Vanguard Permian, LLC

5847 San Felipe, Ste. 3000

Houston, Texas 77057

Attention: Mark Carnes

Fax:  (832) 327-2260

With additional copy to:

 

Doherty & Doherty LLP

1717 St. James Place, Ste. 520

Houston, TX 77056

Attention:  J. Patrick Doherty

Fax:  (713) 572-1001

Any notice given in accordance herewith shall be deemed to have been given only when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission during normal business hours on a Business Day (or if delivered or transmitted after normal business hours on a Business Day or on a day other than a Business Day, then on the next Business Day), or upon actual receipt by the addressee during normal business hours on a Business Day after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be (or if delivered after normal business hours on a Business Day or on a day other than a Business Day, then on the next Business Day).  The Parties hereto may change the address and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 15.6.

 

  

45

  

 

15.7 Further Cooperation.  After Closing, Buyer and Seller shall execute and deliver, or shall cause to be executed and delivered, from time to time such further instruments of conveyance and transfer, and shall take such other actions as any Party may reasonably request, to convey and deliver the Assets to Buyer, to perfect Buyer’s title thereto, and to accomplish the orderly transfer of the Assets to Buyer in the manner contemplated by this Agreement.

 

15.8 Filings, Notices and Certain Governmental Approvals.  Promptly after Closing Buyer shall (a) record all assignments executed at Closing in the records of the applicable Governmental Authority (including any federal or state agencies, if applicable), (b) if applicable, send notices to vendors supplying goods and services for the Assets and to the operator of such Assets of the assignment of such Assets to Buyer, (c) actively pursue all Customary Post-Closing Consents from Governmental Authorities and (d) actively pursue all other consents and approvals set forth on Schedule 4.4 that may be required in connection with the assignment of the Assets to Buyer and the assumption of the Liabilities assumed by Buyer hereunder, in each case, that shall not have been obtained prior to Closing; provided, that, in the case of clause (d), at Buyer’s request, Seller shall reasonably cooperate with Buyer in connection with such pursuit efforts, the Parties understanding and agreeing that in no event will Seller be required to pay any out of pocket expenses associated with such efforts. Buyer obligates itself to use commercially reasonable efforts to take any and all action required by any Governmental Authority in order to obtain such unconditional approval, including Buyer shall post any and all bonds or other security that may be required in excess of its existing lease, pipeline or area-wide bond.

 

15.9 Entire Agreement; Conflicts.  THIS AGREEMENT, THE APPENDICES, EXHIBITS AND SCHEDULES HERETO, THE TRANSACTION DOCUMENTS AND THE CONFIDENTIALITY AGREEMENT COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF.  THERE ARE NO WARRANTIES, REPRESENTATIONS OR OTHER AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NEITHER SELLER NOR BUYER SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT OR STATEMENTS OF INTENTION NOT SO SET FORTH.  IN THE EVENT OF A CONFLICT BETWEEN THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY SCHEDULE OR EXHIBIT HERETO, THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL GOVERN AND CONTROL; PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE SCHEDULES AND EXHIBITS HERETO OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND EFFECT, SUBJECT TO THE PROVISIONS OF THIS SECTION 15.9.

 

  

46

  

 

15.10 Parties in Interest.  The terms and provisions of this Agreement shall be binding upon and inure to the benefit of Seller and Buyer and their respective successors and permitted assigns.  Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the Parties or their successors and permitted assigns, or the Parties’ respective related Indemnified Parties hereunder any rights, remedies, obligations or liabilities under or by reason of this Agreement; provided that only a Party and its respective successors and assigns will have the right to enforce the provisions of this Agreement on its own behalf or on behalf of any of its related Indemnified Parties (but shall not be obligated to do so).

 

15.11 Amendment.  This Agreement may be amended only by an instrument in writing executed by the Parties hereto against whom enforcement is sought.

 

15.12 Waiver; Rights Cumulative.  Any of the terms, covenants, representations, warranties or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance.  No course of dealing on the part of Seller or Buyer or their respective officers, employees, agents, or representatives and no failure by Seller or Buyer to exercise any of its rights under this Agreement shall, in each case, operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision.  No waiver by any Party of any condition, or any breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation or warranty.  The rights of Seller and Buyer under this Agreement shall be cumulative and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

 

15.13 Governing Law; Jurisdiction. 

 

(a) Except to the extent that the Laws of the State of Oklahoma and/or Arkansas, as applicable, are mandatorily applicable to the Assignment in connection with the conveyances of property interests involving real property located in the State of Oklahoma or Arkansas, as applicable, this Agreement and any claim, controversy or dispute arising under or related to this Agreement or the transactions contemplated hereby or the rights, duties and relationship of the parties hereto and thereto, shall be governed by and construed and enforced in accordance with the laws of the State of Texas, excluding any conflicts of law, rule or principle that might refer construction of provisions to the Laws of another jurisdiction.

 

(b) The Parties agree that the appropriate, exclusive and convenient forum for any disputes between any of the Parties hereto arising out of this Agreement, the Transaction Documents or the transactions contemplated hereby shall be in any state or federal court in Denver, Colorado and each of the Parties hereto irrevocably submits to the jurisdiction of such courts solely in respect of any proceeding arising out of or related to this Agreement.  The Parties further agree that the Parties shall not bring suit with respect to any disputes arising out of this Agreement, the Transaction Documents or the transactions contemplated hereby in any court or jurisdiction other than the above specified courts.  The Parties further agree, to the extent permitted by Law, that a final and nonappealable judgment against a Party in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment.

 

  

47

  

 

(c) To the extent that any Party hereto or any of its Affiliates has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such Party (on its own behalf and on behalf of its Affiliates) hereby irrevocably (i) waives such immunity in respect of its obligations with respect to this Agreement and (ii) submits to the personal jurisdiction of any court described in Section 15.13(b).

 

(d) THE PARTIES HERETO AGREE THAT THEY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

15.14 Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

15.15 Removal of Name.  As promptly as practicable, but in any case within thirty (30) days after the Closing Date, Buyer shall eliminate the names “Antero Resources”, “Antero” and any variants thereof from the Assets and, except with respect to such grace period for eliminating existing usage, shall have no right to use any logos, trademarks or trade names belonging to Seller or any of its Affiliates.

 

15.16 Counterparts.  This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement.  Any signature hereto delivered by a Party by facsimile or other electronic transmission shall be deemed an original signature hereto.

 

[Remainder of page intentionally left blank.  Signature page follows.]

 

 

 

  

48

  

IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of the date first written above.

 

SELLER:

 ANTERO RESOURCES CORPORATION

By:           /s/Alvyn A. Schopp

Name:      Alvyn A. Schopp

Title:        Vice President Accounting and Administration

 

BUYER:

VANGUARD PERMIAN, LLC

By: Vanguard Natural Gas, LLC, its sole member

By:           /s/Scott W. Smith

Name:      Scott W. Smith

Title:        President

 

[Signature Page to Purchase and Sale Agreement]

S-1

  

  

  

APPENDIX I

 

DEFINED TERMS

 

“Accounting Arbitrator” shall have the meaning set forth in Section 3.8.

 

“Adjusted Purchase Price” shall have the meaning set forth in Section 3.3.

 

“AFEs” shall have the meaning set forth in Section 4.13.

 

“Affiliate” shall mean any Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, another Person.  The term “control” and its derivatives with respect to any Person mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Aggregate Deductible” shall mean $10,000,000.00.

 

“Agreement” shall have the meaning set forth in the introductory paragraph herein.

 

“Allocated Values” shall have the meaning set forth in Section 3.9.

 

“Applicable Contracts” shall mean all Contracts to which Seller is a party or is bound relating to any of the Assets and (in each case) that will be binding on Buyer after Closing, including: confidentiality agreements; farmin and farmout agreements; bottom hole agreements; crude oil, condensate and natural gas purchase and sale, gathering, transportation and marketing agreements; hydrocarbon storage agreements; acreage contribution agreements; operating agreements; balancing agreements; pooling declarations or agreements; unitization agreements; processing agreements; saltwater disposal agreements; facilities or equipment leases; crossing agreements; letters of no objection; and other similar contracts and agreements, but exclusive of any master service agreements and Contracts relating to the Excluded Assets.

 

“Assets” shall have the meaning set forth in Section 2.1.

 

“Assignment” shall mean the Assignment and Bill of Sale from Seller to Buyer, pertaining to the Assets, substantially in the form attached to this Agreement as Exhibit B.

 

“Assumed Obligations” shall have the meaning set forth in Section 13.1.

 

“Burden” shall mean any and all royalties (including lessor’s royalty), overriding royalties, production payments, net profits interests and other burdens upon, measured by or payable out of production.

“Business Day” shall mean a day (other than a Saturday or Sunday) on which commercial banks in Denver, Colorado are generally open for business.

 

“Buyer” shall have the meaning set forth in the introductory paragraph herein.

 

“Buyer Indemnified Parties” shall have the meaning set forth in Section 13.2.

 

  

Appendix I-1

  

 

“Buyer’s Representatives” shall have the meaning set forth in Section 10.1(a).

 

“Casualty Loss” shall have the meaning set forth in Section 11.3(b).

 

“Claim Notice” shall have the meaning set forth in Section 13.7(b).

 

“Closing” shall have the meaning set forth in Section 9.1.

 

“Closing Date” shall have the meaning set forth in Section 9.1.

 

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

 

“Confidentiality Agreement” shall mean that certain Confidentiality Agreement between Seller and Vanguard Natural Resources, LLC dated March 5, 2012.

 

“Consent” shall have the meaning set forth in Section 4.4.

 

“Contract” shall mean any written or oral contract, agreement, agreement regarding indebtedness, indenture, debenture, note, bond, loan, collective bargaining agreement, lease, mortgage, franchise, license agreement, purchase order, binding bid, commitment, letter of credit or any other legally binding arrangement, including farmin and farmout agreements; participation, exploration and development agreements, crude oil, condensate and natural gas purchase and sale, gathering, transportation and marketing agreements, operating agreements, balancing agreements, unitization agreements, processing agreements, facilities or equipment leases, and other similar Contracts, but excluding, however, any Lease, easement, right-of-way, permit or other instrument creating or evidencing an interest in the Assets or any real or immovable property related to or used in connection with the operations of any Assets.

 

“Cure Period” shall have the meaning set forth in Section 11.2(c).

 

“Customary Post Closing Consents” shall mean the consents and approvals from Governmental Authorities for the assignment of the Assets to Buyer that are customarily obtained after the assignment of properties similar to the Assets.

 

“Decommission” shall mean all dismantling and decommissioning activities and obligations as are required by Law, any Governmental Authority or agreements including all well plugging, replugging and abandonment, facility dismantlement and removal, pipeline and flowline removal, dismantlement and removal of all other property of any kind related to or associated with operations or activities and associated site clearance, site restoration and site remediation.

 

“Decommissioning Obligations” shall have the meaning set forth in Section 13.1.

 

“Defect Claim Date” shall have the meaning set forth in Section 11.2(a).

 

“Defensible Title” shall mean such title of Seller with respect to the Assets that, as of the Effective Time and the date hereof and subject to Permitted Encumbrances:

 

  

Appendix I-2

  

 

(a)           with respect to each Well or Undrilled Location shown in Exhibit A-1 (but limited to any depth restrictions contained in Exhibit A-1), entitles Seller to receive not less than the Net Revenue Interest set forth in Exhibit A-1 for such Well or Undrilled Location (but limited to any depth restrictions contained in Exhibit A-1), except for (i) decreases in connection with those operations in which Seller or its successors or assigns may from and after the date of this Agreement elect to be a non-consenting co-owner, (ii) decreases resulting from the establishment or amendment from and after the date of this Agreement of pools or units, (iii) decreases required to allow other Working Interest owners to make up past underproduction or pipelines to make up past under deliveries, and (iv) as otherwise set forth in Exhibit A-1;

 

(b)           with respect to each Well or Undrilled Location shown in Exhibit A-1 (but limited to any depth restrictions contained in Exhibit A-1), obligates Seller to bear not more than the Working Interest set forth in Exhibit A-1 for such Well or Undrilled Location (but limited to any depth restrictions contained in Exhibit A-1), except (i) increases resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements, (ii) increases to the extent that such increases are accompanied by a proportionate increase in Seller’s Net Revenue Interest, and (iii) as otherwise set forth in Exhibit A-1; and

 

(c)           is free and clear of all Encumbrances.

 

“Deposit” shall have the meaning set forth in Section 3.2.

 

“Dispute Notice” shall have the meaning set forth in Section 3.7.

 

“DOJ” shall mean the Department of Justice.

 

“Effective Time” shall mean 7:00 a.m. (Central Time) on April 1, 2012; provided, however, that the “Effective Time” for purposes of the Hedges shall mean 7:00 a.m. (Central Time) on May 1, 2012.

 

“Encumbrance” shall mean any lien, mortgage, security interest, pledge, charge or similar encumbrance.

 

“Environmental Arbitrator” shall have the meaning set forth in Section 12.1(e).

 

“Environmental Condition” shall mean (a) a condition existing on the date of this Agreement with respect to the air, soil, subsurface, surface waters, ground waters and/or sediments that causes an Asset (or Seller with respect to an Asset) not to be in compliance with any Environmental Law or (b) the existence as of the date of this Agreement with respect to the Assets or their operation thereof of any environmental pollution, contamination or degradation where remedial or corrective action is presently required (or if known, would be presently required) under Environmental Laws.

 

“Environmental Defect” shall mean an Environmental Condition with respect to an Asset that is not set forth in Schedule 4.14.

 

  

Appendix I-3

  

 

“Environmental Defect Notice” shall have the meaning set forth in Section 12.1(a).

 

“Environmental Laws” shall mean all applicable Laws in effect as of the date of this Agreement, including common Law, relating to the protection of the public health, welfare and the environment, including, those Laws relating to the storage, handling and use of chemicals and other Hazardous Substances and those Laws relating to the generation, processing, treatment, storage, transportation, disposal or other management thereof.  The term “Environmental Laws” does not include good or desirable operating practices or standards that may be employed or adopted by other oil and gas well operators or recommended by a Governmental Authority.

 

“Excluded Assets” shall mean (a) all of Seller’s corporate minute books, financial records and other business records that relate to Seller’s business generally (including the ownership and operation of the Assets); (b) all trade credits, all accounts, all receivables and all other proceeds, income or revenues attributable to the Assets and attributable to any period of time prior to the Effective Time; (c) all claims and causes of action of Seller arising under or with respect to any Contracts that are attributable to periods of time prior to the Effective Time (including claims for adjustments or refunds); (d) subject to Section 11.3, all rights and interests of Seller (i) under any policy or agreement of insurance or indemnity, (ii) under any bond or (iii) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events or damage to or destruction of property; (e) all Hydrocarbons produced and sold from the Assets with respect to all periods prior to the Effective Time; (f) all claims of Seller for refunds of, rights to receive funds from any Governmental Authority or loss carry forwards with respect to (i) production or any other Taxes attributable to any period prior to the Effective Time, (ii) income or franchise Taxes or (iii) any Taxes attributable to the Excluded Assets; (g) all personal computers and associated peripherals and all radio and telephone equipment (excluding any such radio and telephone equipment used in the operation of the Assets); (h) all of Seller’s proprietary computer software, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property; (i) all documents and instruments of Seller that may be protected by an attorney-client privilege; (j) all data that cannot be disclosed to Buyer as a result of confidentiality arrangements under agreements with Third Parties; (k) all audit rights arising under any of the Applicable Contracts or otherwise with respect to any period prior to the Effective Time or to any of the Excluded Assets, except for any Imbalances assumed by Buyer; (l) all geophysical and other seismic and related technical data and information relating to the Assets which Buyer has not separately agreed in writing to transfer, to the extent and only to the extent such geophysical and other seismic and related technical data and information is not transferred pursuant to Section 2.1(i) and Section 2.1(j); (m) documents prepared or received by Seller with respect to (i) lists of prospective purchasers for such transactions compiled by Seller, (ii) bids submitted by other prospective purchasers of the Assets, (iii) analyses by Seller of any bids submitted by any prospective purchaser, (iv) correspondence between or among Seller, its respective representatives, and any prospective purchaser other than Buyer and (v) correspondence between Seller or any of its respective representatives with respect to any of the bids, the prospective purchasers or the transactions contemplated by this Agreement; (n) any offices, office leases and any personal property located in or on such offices or office leases; (o) any assets specifically listed in Exhibit C; (p) any debt instruments; and (q) any assets described in Section 2.1(d), Section 2.1(e), Section 2.1(h) or Section 2.1(i) that are not assignable.

 

  

Appendix I-4

  

 

“Final Price” shall have the meaning set forth in Section 3.7.

 

“Final Settlement Statement” shall have the meaning set forth in Section 3.7.

 

“FTC” shall mean the Federal Trade Commission.

 

“G&T Agreement” shall have the meaning set forth in Section 6.11.

 

“GAAP” shall mean United States generally accepted accounting principles.

 

“Governmental Authority” shall mean any federal, state, local, municipal, tribal or other government; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, regulatory or Taxing Authority or power, and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.

 

“Guarantees” shall have the meaning set forth in Section 6.6.

 

“Hazardous Substances” shall mean any pollutants, contaminants, toxins or hazardous or extremely hazardous substances, materials, wastes, constituents, compounds or chemicals that are regulated by, or may form the basis of liability under, any Environmental Laws, including NORM and other substances referenced in Section 12.2.

 

“Hedge Counterparties” shall mean JP Morgan Chase Bank, N.A., Wells Fargo Bank, N.A., Key Bank National Association, Credit Suisse Energy LLC and Credit Agricole Corporate & Investment Bank, as applicable.

 

“Hedges” shall mean those swap, forward, future or derivative transactions or options or other similar Contracts to which Seller is a party set forth on Schedule 2.1(h).

 

“HSR Act” shall mean the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

 

“Hydrocarbons” shall mean oil and gas and other hydrocarbons produced or processed in association therewith.

 

“Imbalances” shall mean all Well Imbalances and Pipeline Imbalances.

 

“Indemnified Party” shall have the meaning set forth in Section 13.7(a).

 

“Indemnifying Party” shall have the meaning set forth in Section 13.7(a).

 

“Indemnity Deductible” shall mean $6,666,667.00.

 

“Individual Environmental Threshold” shall have the meaning set forth in Section 12.1(d).

 

“Individual Title Defect Threshold” shall have the meaning set forth in Section 11.2(j).

 

  

Appendix I-5

  

 

“Interim Period” shall mean that period of time commencing with the Effective Time and ending at 7:00 a.m. (Central Time) on the Closing Date.

 

“Interim Settlement Statement” shall have the meaning set forth in Section 3.6.

 

“ISDA Master Agreement” shall mean the ISDA 2002 Master Agreement or the 1992 Master Agreement, each as published by the International Swaps and Derivatives Association, Inc.

 

“ISDA Novation Agreement” shall mean the 2002 ISDA Novation Agreement, as published by the International Swaps and Derivatives Association, Inc.

 

“Knowledge” shall mean with respect to Seller, the actual knowledge (without investigation) of the following Persons:  Paul Rady, Glen Warren, Al Schopp, Kevin Kilstrom, Mark Mauz, Steve Woodward, Ward McNeilly, Chad Green and Phil Yoo.

 

“Law” shall mean any applicable statute, law, rule, regulation, ordinance, order, code, ruling, writ, injunction, decree or other official act of or by any Governmental Authority.

 

“Leases” shall have the meaning set forth in Section 2.1(a).

 

“Liabilities” shall mean any and all claims, causes of action, payments, charges, judgments, assessments, liabilities, losses, damages, penalties, fines and costs and expenses, including any attorneys’ fees, legal or other expenses incurred in connection therewith and including liabilities, costs, losses and damages for personal injury or death or property damage or environmental damage or remediation.

 

“Material Adverse Effect” shall mean an event or circumstance that, individually or in the aggregate, results in a material adverse effect on the ownership, operation or value of the Assets taken as a whole and as currently operated as of the date of this Agreement or a material adverse effect on the ability of Seller to consummate the transactions contemplated by this Agreement and perform its obligations hereunder; provided, however, that a Material Adverse Effect shall not include any material adverse effects resulting from:  (a) entering into this Agreement or the announcement of the transactions contemplated by this Agreement; (b) changes in general market, economic, financial or political conditions (including changes in commodity prices, fuel supply or transportation markets, interest or rates) in the area in which the Assets are located, the United States or worldwide; (c) changes in conditions or developments generally applicable to the oil and gas industry in the area where the Assets are located; (d) acts of God, including hurricanes, storms or other naturally occurring events; (e) acts or failures to act of Governmental Authorities; (f) civil unrest, any outbreak of disease or hostilities, terrorist activities or war or any similar disorder; (g) matters that are cured or no longer exist by the earlier of Closing and the termination of this Agreement; (h) a change in Laws from and after the date of this Agreement; (i) any reclassification or recalculation of reserves in the ordinary course of business; (j) changes in the prices of Hydrocarbons; (k) a change in Laws and any interpretations thereof from and after the date of this Agreement; and (l) natural declines in well performance.

 

“Material Contracts” shall have the meaning set forth in Section 4.8(a).

 

  

Appendix I-6

  

 

“Net Revenue Interest” shall mean, with respect to any Well or Undrilled Location (but limited to the depths, if any, set forth on Exhibit A-1 for such Well or Undrilled Location) the interest in and to all Hydrocarbons produced, saved and sold from or allocated to such Well or Undrilled Location (but limited to the depths, if any, set forth on Exhibit A-1 for such Well or Undrilled Location) after giving effect to all Burdens.

 

“NORM” shall mean naturally occurring radioactive material.

 

“Novation Agreement(s)” shall mean, collectively, each ISDA Novation Agreement by and among a Hedge Counterparty, Seller and Buyer pursuant to which the parties thereto shall agree that, effective upon Closing, all Hedges between Seller and such Hedge Counterparty shall be automatically novated and assigned from Seller to Buyer or Buyer’s designated financial institution, and upon such novation, such Hedges shall be transactions under, and the confirmations for such Hedges shall be confirmations subject to, the ISDA Master Agreement then in effect between Buyer and such Hedge Counterparty.

 

“Operating Expenses” shall have the meaning set forth in Section 2.3.

 

“Party” and “Parties” shall have the meaning set forth in the introductory paragraph herein.

 

“Permitted Encumbrances” shall mean:

 

(a) the terms and conditions of all Leases and all Burdens if the net cumulative effect of such Leases and Burdens does not operate to reduce the Net Revenue Interest of Seller with respect to any Well or Undrilled Location to an amount less than the Net Revenue Interest set forth in Exhibit A-1 for such Well or Undrilled Location (but limited to the depths, if any, set forth on Exhibit A-1 for such Well or Undrilled Location), and does not obligate Seller to bear a Working Interest with respect to any Well or Undrilled Location in any amount greater than the Working Interest set forth in Exhibit A-1 for such Well or Undrilled Location (unless the Net Revenue Interest for such Well or Undrilled Location is greater than the Net Revenue Interest set forth in Exhibit A-1 in the same proportion as any increase in such Working Interest);

 

(b) preferential rights to purchase and required consents to assignment and similar agreements listed on Schedule 4.4 or Schedule 4.10;

 

(c) liens for Taxes or assessments not yet due or delinquent or, if delinquent, that are being contested in good faith in the normal course of business;

 

(d) Customary Post-Closing Consents;

 

(e) conventional rights of reassignment;

 

(f) such Title Defects as Buyer may have waived (or deemed to be waived);

 

  

Appendix I-7

  

 

(g) all applicable Laws and all rights reserved to or vested in any Governmental Authority (i) to control or regulate any Asset in any manner; (ii) by the terms of any right, power, franchise, grant, license or permit, or by any provision of Law, to terminate such right, power, franchise, grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the Assets; (iii) to use such property in a manner which does not materially impair the use of such property for the purposes for which it is currently owned and operated; or (iv) to enforce any obligations or duties affecting the Assets to any Governmental Authority with respect to any franchise, grant, license or permit;

 

(h) rights of a common owner of any interest in rights-of-way, permits or easements held by Seller and such common owner as tenants in common or through common ownership;

 

(i) easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way, surface leases and other rights in the Assets for the purpose of operations, facilities, pipelines, transmission lines, transportation lines, distribution lines, power lines, telephone lines and other like purposes, or for the joint or common use of the lands situated on the outer continental shelf, rights-of-way, facilities and equipment, which, in each case, do not materially impair the operation or use of the Assets as currently operated and used;

 

(j) vendors, carriers, warehousemen’s, repairmen’s, mechanics’, workmen’s, materialmen’s, construction or other like liens arising by operation of Law in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due or which are being contested in good faith by appropriate proceedings by or on behalf of Seller;

 

(k) liens created under Leases and/or operating agreements or by operation of Law in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings by or on behalf of Seller;

 

(l) with respect to any interest in the Assets acquired through forced pooling or pursuant to an integration order, failure of the records of any Governmental Authority to reflect Seller as the owner of an Asset;

 

(m) any Encumbrance affecting the Assets that is discharged by Seller at or prior to Closing;

 

(n) any matters referenced and set forth in Exhibit A or Exhibit A-1 and all litigation set forth in Schedule 4.7; and

 

(o) the Leases and all other Encumbrances, Contracts (including the Applicable Contracts), instruments, obligations, defects and irregularities affecting the Assets that individually or in the aggregate are not such as to materially interfere with the operation or use of any of the Assets (as currently operated and used), do not reduce the Net Revenue Interest of Seller with respect to any Well or Undrilled Location to an amount less than the Net Revenue Interest set forth in Exhibit A-1 for such Well or Undrilled Location (but limited to the depths, if any, set forth on Exhibit A-1 for such Well or Undrilled Location), and do not obligate Seller to bear a Working Interest with respect to a currently producing formation in any Well or Undrilled Location in any amount greater than the Working Interest set forth in Exhibit A-1 for such Well or Undrilled Location (unless the Net Revenue Interest for such Well or Undrilled Location is greater than the Net Revenue Interest set forth in Exhibit A-1 in the same proportion as any increase in such Working Interest).

 

  

Appendix I-8

  

 

“Person” shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority or any other entity.

 

“Personal Property” shall have the meaning set forth in Section 2.1(f).

 

“Pipeline Imbalance” shall mean any marketing imbalance between the quantity of Hydrocarbons attributable to the Assets required to be delivered by Seller under any Contract relating to the purchase and sale, gathering, transportation, storage, processing or marketing of Hydrocarbons and the quantity of Hydrocarbons attributable to the Assets actually delivered by Seller pursuant to the relevant Contract, together with any appurtenant rights and obligations concerning production balancing at the delivery point into the relevant sale, gathering, transportation, storage or processing facility.

 

“Preferential Purchase Right” shall have the meaning set forth in Section 4.10.

 

“Preliminary Settlement Statement” shall have the meaning set forth in Section 3.5.

 

“Purchase Price” shall have the meaning set forth in Section 3.1.

 

“Records” shall have the meaning set forth in Section 2.1(i).

 

“Remediation” shall mean, with respect to an Environmental Condition, the implementation and completion of any remedial, removal, response, construction, closure, disposal or other corrective actions required under Environmental Laws to correct or remove such Environmental Condition.

 

“Remediation Amount” shall mean, with respect to an Environmental Condition, the present value as of the Closing Date (using an annual discount rate of ten percent (10%)) of the cost (net to Seller’s interest prior to the consummation of the transactions contemplated by this Agreement) of the most cost effective Remediation of such Environmental Condition.

 

“Seller” shall have the meaning set forth in the introductory paragraph of this Agreement.

 

“Seller Indemnified Parties” shall have the meaning set forth in Section 13.3.

 

“Shortfall Amount” shall have the meaning set forth in Section 6.11.

 

“Survival Period” shall have the meaning set forth in Section 11.1(c)(i).

 

“Tax” or “Taxes” shall mean any tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, license tax, value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, environmental tax, inventory tax, occupancy tax, severance tax, withholding tax, payroll tax, employment tax, gift tax, estate tax or inheritance tax, wealth tax, other import or export duties), levy, assessment, tariff or impost (including any related fine, penalty or interest imposed with respect thereto), imposed by or on behalf of any Taxing Authority.

 

  

Appendix I-9

  

 

“Taxing Authority” shall mean, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.

 

“Third Party” shall mean any Person other than a Party to this Agreement or an Affiliate of a Party to this Agreement or any officer or director of any Party or Affiliate of any Party.

 

“Third Party Claim” shall have the meaning set forth in Section 13.7(b).

 

“Title Arbitrator” shall have the meaning set forth in Section 11.2(k).

 

“Title Benefit” shall mean any right, circumstance or condition that operates (a) to increase the Net Revenue Interest of Seller in any Well or Undrilled Location above that shown for such Well or Undrilled Location in Exhibit A-1 to the extent the same does not cause a greater than proportionate increase in Seller’s Working Interest therein above that shown in Exhibit A-1, or (b) to decrease the Working Interest of Seller in any Well or Undrilled Location below that shown for such Well or Undrilled Location in Exhibit A-1 to the extent the same causes a decrease in Seller’s Working Interest that is proportionately greater than the decrease in Seller’s Net Revenue Interest therein below that shown in Exhibit A-1.

 

“Title Benefit Amount” shall have the meaning set forth in Section 11.2(f).

 

“Title Benefit Notice” shall have the meaning set forth in Section 11.2(b).

 

“Title Benefit Property” shall have the meaning set forth in Section 11.2(b).

 

“Title Defect” shall mean any Encumbrance, defect or other matter that causes Seller not to have Defensible Title in and to any Well or Undrilled Location as of the Effective Time; provided that the following shall not be considered Title Defects:

 

(a)           defects arising out of lack of corporate or other entity authorization unless Buyer provides affirmative evidence that such corporate or other entity action was not authorized and results in another Person’s superior claim of title to the relevant Asset;

 

(b)           defects based on a gap in Seller’s chain of title in the applicable federal, state or county records, unless such gap is affirmatively shown to exist in such records by an abstract of title, title opinion or landman’s title chain which documents shall be included in a Title Defect Notice;

 

(c)           defects based solely upon the failure to record any Leases or any assignments of interests in such Leases in any applicable county records;

 

(d)           defects based on the failure to recite marital status in a document or omission of successors or heirship or estate proceedings;

 

  

Appendix I-10

  

 

(e)           any Encumbrance or loss of title resulting from Seller’s conduct of business after the date of this Agreement in compliance with this Agreement;

 

(f)           Intentionally omitted.

 

(g)           defects arising from any prior oil and gas lease relating to the lands covered by a Lease not being surrendered of record, unless Buyer provides affirmative evidence that such prior oil and gas lease is still in effect and results in another Person’s actual and superior claim of title to the relevant Lease or Hydrocarbon Well;

 

(h)           defects that affect only which Person has the right to receive royalty payments (rather than the amount or the proper payment of such royalty payment);

 

(i)           defects based solely on: (i) lack of information in Seller’s files; (ii) references to an unrecorded document(s) to which neither Seller or any Affiliate is a party, if such document is dated earlier than January 1, 1960 and is not in Seller’s files; or (iii) Tax assessment, Tax payment or similar records (or the absence of such activities or records);

 

(j)           defects or irregularities that would customarily be waived by a reasonable owner or operator of oil and gas properties;

 

(k)           defects based upon the exercise of any Preferential Purchase Rights or failure to obtain any Consent listed on Schedule 4.4 or Schedule 4.10; and

 

(l)           defects that have been cured by applicable Laws of limitations or presumptions.

 

“Title Defect Amount” shall have the meaning set forth in Section 11.2(h).

 

“Title Defect Notice” shall have the meaning set forth in Section 11.2(a).

 

“Title Defect Property” shall have the meaning set forth in Section 11.2(a).

 

 “Transaction Documents” shall mean those documents executed pursuant to or in connection with this Agreement.

 

“Treasury Regulations” shall mean the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code.  All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.

 

“Undrilled Location” shall mean the undrilled wells identified on Exhibit A-1 and the Lease rights and lands attributable thereto.

 

“Units” shall have the meaning set forth in Section 2.1(c).

 

“Unpaid Capital Costs” shall have the meaning set forth in Section 2.3.

 

  

Appendix I-11

  

 

“Well Imbalance” shall mean any imbalance at the wellhead between the amount of Hydrocarbons produced from a Well and allocable to the interests of Seller therein and the shares of production from the relevant Well to which Seller is entitled, together with any appurtenant rights and obligations concerning future in kind and/or cash balancing at the wellhead.

 

“Wells” shall have the meaning set forth in Section 2.1(b).

 

“Willful Breach” means, with respect to any Party, that such Party does one or more of the following:  (a) such Party willfully and intentionally breaches in any material respect (by refusing to perform or by taking an action prohibited) any material pre-Closing covenant applicable to such Party, (b) such Party intentionally misrepresents any of the matters covered by its representations and warranties under this Agreement as of the date hereof, or (c) such Party willfully and intentionally causes any of its representations and warranties under this Agreement to not be true and correct in all material respects as of the Closing Date.

 

“Working Interest” shall mean, with respect to any Well or Undrilled Location (but limited to the depths, if any, set forth on Exhibit A-1 for such Well or Undrilled Location), the interest in and to such producing formation for such Well or Undrilled Location that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such producing formation for such Well or Undrilled Location, but without regard to the effect of any Burdens.

 

 

  

Appendix I-12

  

DISCLOSURE SCHEDULES

 

Inclusion of a matter on a Schedule to this Agreement in relation to a representation or warranty which addresses matters having a Material Adverse Effect or which contain a materiality threshold shall not be deemed an indication that such matter does or does not, or may or may not, have a Material Adverse Effect, or is or is not, or may or may not be, material.  Likewise, the inclusion of a matter on a Schedule to this Agreement in relation to a representation or warranty shall not be deemed an indication that such matter necessarily would or would not, or may or may not, breach such representation or warranty absent its inclusion on such Schedule.  Matters reflected in the Schedules to this Agreement, including specifications of the Assets, are not necessarily limited to matters required by this Agreement to be reflected in the Schedules.  Such additional matters are set forth for information purposes only, do not necessarily include other matters of a similar nature, and shall not expand the scope of the representations and warranties set forth in this Agreement.

 

Any fact or item which is clearly and conspicuously disclosed on any Schedule to this Agreement in such a way as to make its relevance or applicability to information called for by another Schedule or other Schedules to this Agreement reasonably apparent shall be deemed to be disclosed on such other Schedule or Schedules, as the case may be, notwithstanding the omission of a reference or cross-reference thereto.

 

Each of the Schedules to this Agreement is qualified in its entirety by reference to specific provisions of this Agreement, and is not intended to constitute, and shall not be construed as constituting, representations or warranties of Seller, except as and to the extent provided in this Agreement.

 

 

 

Disclosure Schedules

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00204-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00204-of-00352.parquet"}]]