CONTRIBUTION AGREEMENT by and among PDC MOUNTAINEER, LLC, as the Company, PETROLEUM DEVELOPMENT CORPORATION as the Contributor, and LR-MOUNTAINEER HOLDINGS, L.P. as the Investor October 29, 2009
Execution
Version
by
and among
PDC
MOUNTAINEER, LLC,
as
the Company,
PETROLEUM
DEVELOPMENT CORPORATION
as
the Contributor, and
LR-MOUNTAINEER
HOLDINGS, L.P.
as
the Investor
October
29, 2009
TABLE OF
CONTENTS
ARTICLE I
CONTRIBUTION
SECTION
1.1 Contribution
of Properties
SECTION
1.2 Assumption
of Liabilities
SECTION
1.3 Retained
Assets
SECTION
1.4 No
Assumption of Retained Liabilities
SECTION
1.5 Restricted
Contracts
ARTICLE
II CLOSING
SECTION
2.1 Closing
SECTION
2.2 Closing
Deliveries
SECTION
2.3 Consents
ARTICLE
III TITLE MATTERS
SECTION
3.1 Contributor’s
Title
SECTION
3.2 Definition
of Defensible Title
SECTION
3.3 Definition
of Permitted Encumbrances
SECTION
3.4 Title
and Environmental Defect Procedure
SECTION
3.5 Consents
to Assignment and Preferential Rights to Purchase
ARTICLE
IV REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
SECTION
4.1 Authority
SECTION
4.2 Validity
and Binding Effect
SECTION
4.3 Noncontravention
SECTION
4.4 Proper
Use and Maintenance of Tangible Personal Property
SECTION
4.5 Litigation
SECTION
4.6 Taxes
SECTION
4.7 Environmental
Matters
SECTION
4.8 Material
Contracts
SECTION
4.9 Consents;
Preferential Rights
SECTION
4.10 Solvency
SECTION
4.11 Books
and Records
SECTION
4.12 Subsidiary
SECTION
4.13 Oil
and Gas Properties of Subsidiary
SECTION
4.14 Lease
Provisions
SECTION
4.15 Compliance
with Law
SECTION
4.16 AFE’s
SECTION
4.17 Broker’s
Fee
SECTION
4.18 Imbalances
SECTION
4.19 Payout
Balances
SECTION
4.20 Plugging
and Abandonment
SECTION
4.21 No
Expenses Owed and Delinquent
SECTION
4.22 Bonds
SECTION
4.23 Title
to Assets
SECTION
4.24 Real
Property
SECTION
4.25 Contributor’s
Disclaimer of Representation and Warranties
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION
5.1 Organization
SECTION
5.2 Authority
SECTION
5.3 Validity
and Binding Effect
SECTION
5.4 Noncontravention
SECTION
5.5 Litigation
ARTICLE
VI INDEMNIFICATION
SECTION
6.1 Indemnification
of the Company
SECTION
6.2 Indemnification
of the Contributor
SECTION
6.3 Indemnification
Procedures for Claims
SECTION
6.4 Limitations
on Representations and Warranties and Indemnities
SECTION
6.5 Tax
Treatment of Indemnity Claims
SECTION
6.6 Payment
of Indemnity Obligations
ARTICLE
VII POST CLOSING OBLIGATIONS
SECTION
7.1 Filing
and Recording
SECTION
7.2 Further
Assurances
SECTION
7.3 Post-Closing
Third-Party Consents and Preferential Purchase Rights
SECTION
7.4 Assignment
of PDC Operator Contracts and Operatorship
SECTION
7.5 Post-Closing
Adjustment
SECTION
7.6 Post-Closing
Settlement Statement
SECTION
7.7 Post-Closing
Environmental Assessment
SECTION
7.8 Post
Closing Diligence
ARTICLE
VIII MISCELLANEOUS
SECTION
8.1 Parties
in Interest; Assignment
SECTION
8.2 No
Third Party Beneficiaries
SECTION
8.3 Notices
SECTION
8.4 Tax
Matters
SECTION
8.5 Amendment;
Waivers
SECTION
8.6 Severability
SECTION
8.7 Headings
SECTION
8.8 Rules
of Construction
SECTION
8.9 Entire
Agreement
SECTION
8.10 Choice
of Law and Consent to Jurisdiction
SECTION
8.11 Availability
of Equitable Relief
SECTION
8.12 Rules
of Drafting
SECTION
8.13 Counterparts
SECTION
8.14 Investor
Rights to Enforce Terms
SECTION
8.15 Schedules
EXHIBITS
AND SCHEDULES
Annex
A Definitions
|
Exhibit
A:
|
Contributed
Assets
|
|
A-1
|
Leases
|
|
X-0
|
Xxxxx
|
|
X-0
|
Contracts
|
|
A-4
|
Easements
|
|
A-5
|
Seismic
Licenses
|
|
A-6
|
Office
Buildings
|
Schedule
1.1 Area
Schedule
1.3 Retained
Assets
Schedule
1.5 Restricted
Contracts
Schedule
3.4 Allocations
Schedule
4.5 Litigation
Schedule
4.6 Taxes
Schedule
4.7 Environmental
Reports
Schedule
4.8(b) Contract
Issues
Schedule
4.9(a) Preferential
Rights
Schedule
4.9(b) Consents
Schedule
4.12(g) Subsidiary
Taxes
Schedule
4.14 Suspense
Funds
Schedule
4.16 Outstanding
AFE’s
Schedule
4.20 P&A
Obligations
Schedule
4.22 Bonds
This
CONTRIBUTION AGREEMENT (this “Agreement”) is made
and entered into as of October 29, 2009, by and among PDC Mountaineer, LLC, a
Delaware limited liability company (the “Company”), Petroleum
Development Corporation, a Nevada Corporation (the “Contributor”), and
LR-Mountaineer Holdings, L.P., a Delaware limited partnership (“Investor”). The
Company and Contributor may be separately referred to herein as a “Party” and
collectively as the “Parties.” For
the avoidance of doubt, Investor is a party to this Agreement solely for the
purpose of enforcing the rights of the Company against Contributor and the
rights specifically granted to Investor hereunder, and Investor shall have no
liabilities or obligations to Contributor or the Company by virtue of being a
party hereto.
W
I T N E S S E T H:
WHEREAS,
the Contributor desires to contribute to the Company the Oil and Gas Properties
(as hereinafter defined) and other properties, assets, rights and interests
described herein; and
WHEREAS,
the Company is willing to acquire and accept such Oil and Gas Properties and
other properties, assets, rights and interests described herein;
and
WHEREAS,
in consideration of the contribution by the Contributor of the Oil and Gas
Properties and other properties, assets, rights and interests described herein,
the Contributor will acquire certain limited liability company interests in the
Company and be admitted as a member of the Company, in accordance with the terms
and subject to the conditions set forth in the Limited Liability Company
Agreement of the Company (the “LLC Agreement”),
dated as of the date hereof, by and between Contributor and Investor;
and
WHEREAS,
capitalized terms used herein without definition shall have the respective
meanings assigned to such terms in the LLC Agreement;
NOW,
THEREFORE, in consideration of the premises, the terms and conditions contained
herein, the mutual benefits to be gained from the performance thereof and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE
I
CONTRIBUTION
SECTION
1.1 Contribution
of Properties
. At
the Closing, but with economic effect as of October 1, 2009 (the “Effective Date”)
(which economic effect shall be reflected through the adjustment provisions in
Section 7.5), the Contributor shall contribute, transfer and deliver to the
Company, and the Company shall accept from the Contributor, all of the
Contributor’s right, title and interest in and to the following properties,
assets, rights and entitlements, subject, however, to the Permitted Encumbrances
(the “Contributed
Assets”):
(a) The oil
and gas leases and other leaseholds, royalties, overriding royalties, net
profits interests, mineral fee interests, carried interests, and other rights to
Hydrocarbons in place that are described on Exhibit A-1
(collectively, the “Leases”), and any and
all oil, gas, water, CO2 or injection xxxxx thereon, including the interests in
the xxxxx shown on Exhibit A-2
(collectively, the “Xxxxx”);
(b) All
pooled, communitized or unitized acreage which includes all or a part of any
Lease or includes any Well (the “Units”), and all
tenements, hereditaments and appurtenances belonging to the Leases and
Units;
(c) The gas
gathering systems and facilities, including compressor sites, pipeline and
pipeline rights of way associated with the Leases and Xxxxx (the “Gathering Systems”),
and together with the Leases, Xxxxx and Units, the “Oil and Gas
Properties”);
(d) All
presently existing contracts, agreements and instruments to the extent
applicable to the Oil and Gas Properties or the production of Hydrocarbons from
the Oil and Gas Properties, including but not limited to, operating agreements,
unitization, pooling and communitization agreements, declarations and orders,
area of mutual interest agreements, joint venture agreements, farmin and farmout
agreements, exchange agreements, transportation agreements, agreements for the
sale and purchase of Hydrocarbons and processing agreements (as amended and
supplemented, the “Contracts”),
including but not limited to those Contracts described on Exhibit A-3; provided, however, that
“Contracts” shall not include (x) any derivative, swap, collar, put, call, cap,
option or other contract that is intended to benefit from, relate to, or reduce
or eliminate the risk of fluctuations in interest rates, basis risk or the price
of commodities, including Hydrocarbons or securities (“Xxxxxx”), (y) any
contracts, agreements and instruments to the extent transfer is restricted or
subjected to payment of a fee or other consideration by an agreement with a
person other than an affiliate of Contributor, or by applicable law, provided, such contracts,
agreements and instruments are listed on Schedule 4.9(b) (the
“Transition
Contracts”), and (z) the Leases, Easements and other instruments
constituting Contributor’s chain of title to the Leases and Easements; provided further, that any
contracts, agreements, instruments, surface fee interests, easements, permits,
licenses, securities, rights-of-way, surface lease and seismic license
agreements that are held in the name of Contributor or any Affiliate in its
capacity as operator under any joint operating agreement, and that are subject
to the Transition, Administrative and Marketing Agreement, dated as of the date
hereof, by and among Contributor, Xxxxx Natural Gas Company, PDC Eastern
Operations Company, LLC, the Company, PDC Mountaineer Operations, LLC and
Investor (the “Services Agreement”)
shall be assigned to the Company in accordance with Section 7.4 (the contracts
in (z), collectively, the “PDC Operator
Contracts”).
(e) All
equipment, machinery, tools, fixtures and other tangible personal property and
improvements located on the Oil and Gas Properties or used or held for use in
connection with the operation of the Oil and Gas Properties or the production of
Hydrocarbons from the Oil and Gas Properties, (the “Equipment”);
(f) All
Hydrocarbons produced from or attributable to the Leases, Units or Xxxxx at and
after the Effective Date;
(g) All
surface fee interests, easements, permits, licenses, servitudes, rights-of-way
and surface leases described on Exhibit A-4 (the
“Easements”),
and other surface rights appurtenant to, and used or held for use solely in
connection with, the Oil and Gas Properties, but excluding any permits and other
appurtenances to the extent transfer is restricted or subjected to payment of a
fee or other consideration by an agreement with a Person other than an Affiliate
of Contributor, or by applicable Law, and for which no consent to transfer has
been received or for which the Company has not agreed in writing to pay the fee
or other consideration, as applicable, and as described on Schedule 4.9(b) (the
“Transition
Rights”);
(h) The
licenses for use of all geological or geophysical information, data and
analysis, including information arising from seismic licenses, as described on
Exhibit
A-5;
(i) The
office leases, buildings, and any surface fee interests underlying the same, as
described on Exhibit
A-6, and the furniture, fixtures and equipment located
therein.
(j) All of
the limited liability company interests in PA PDC LLC (the “Membership
Interest”), a Delaware limited liability company (“Subsidiary”);
and
(k) The
information and records of Contributor to the extent relating in any respect to
the Oil and Gas Properties and the Membership Interest.
Notwithstanding
anything to the contrary herein, Contributor hereby covenants to convey all of
its right, title, and interest in and to all oil and gas properties, CO2
properties, and related assets located in the areas described and shown on Schedule 1.1 (the
“Area”), except
for the Retained Assets. Pursuant to Section 7.2, Contributor
agrees to cooperate with Company and Investor to take all actions necessary to
accomplish such covenant.
SECTION
1.2 Assumption
of Liabilities
. Without
limiting the Company’s rights to indemnity under Section 6.1, from and after the
Closing the Company assumes and hereby agrees to fulfill, perform, pay and
discharge (or cause to be fulfilled, performed, paid or discharged) all of the
obligations and liabilities of Contributor, known or unknown, with respect to
the Contributed Assets, regardless of whether such obligations or liabilities
arose prior to, on or after the Effective Date, including but not limited to
obligations to (a) furnish makeup gas and/or settle imbalances according to the
terms of applicable gas sales, processing, gathering or transportation
contracts, and to satisfy all other obligations relating to future
delivery/payment obligations and/or imbalances, (b) pay working interests,
royalties, overriding royalties and other interests held in suspense, (c)
properly plug and abandon any and all xxxxx, including inactive xxxxx or
temporarily abandoned xxxxx, drilled on the Leases or otherwise pursuant to the
Contributed Assets, (d) replug any well, wellbore, or previously plugged well on
the Leases to the extent required or necessary, (e) dismantle or decommission
and remove any equipment, structures, materials, platforms, flowlines, and
property of whatever kind related to or associated with operations and
activities conducted on the Oil and Gas Properties or otherwise pursuant to the
Contributed Assets, (f) clean up, restore and/or remediate the premises covered
by or related to the Contributed Assets in accordance with applicable agreements
and Laws, (g) perform all obligations applicable to or imposed on the lessee,
owner, or operator under the Leases and related contracts, or as required by
Laws and (h) the liabilities set forth on Schedule 4.5 (all of
said obligations and liabilities, subject to the exclusions below, herein being
referred to as the “Assumed
Liabilities”); provided, however, that the
Company does not assume any obligations or liabilities of Contributor
(collectively, “Retained
Liabilities”) to the extent that they are:
(i) attributable
to or arise out of the ownership, use or operation of the Retained Assets by
Contributor or an Affiliate of Contributor;
(ii) the
continuing responsibility of the Contributor under Sections 7.1 and 7.3 or
obligations and liabilities for which Contributor (subject to the limitations of
Section 6.4) is required to indemnify the Company under Section
6.1;
(iii) third
party claims for payment of any rentals, royalties, excess royalty, overriding
royalty interests, production payments, and other payments due and/or payable by
Contributor to mineral and royalty holders and other interest owners on or prior
to the Effective Date under or with respect to the Contributed Assets and the
Hydrocarbons produced therefrom or attributable thereto, except to the extent of
any loss of title, Title Defect or other title defect arising from the Company’s
failure to properly or timely make payments that are (A) held in suspense as of
the Closing, (B) included in the Contributed Assets and (C) disclosed on Schedule 4.14;
or
(iv) liabilities
or obligations, known or unknown, with respect to the Contributed Assets arising
prior to the Effective Date (except for Title Defects or Environmental Defects);
provided, however, Contributor’s responsibility and retention of liability with
respect to liabilities and obligations under this clause (iv) that have not been
paid or subject to a Claim as of the second anniversary of the Closing Date, and
the classification thereof as Retained Liabilities, shall terminate on the
second anniversary of the Closing Date.
SECTION
1.3 Retained
Assets
. Notwithstanding
the foregoing provisions of Section 1.1, the following assets shall not
constitute Contributed Assets and shall not be sold, assigned or conveyed to the
Company pursuant to Article I (the “Retained
Assets”):
(a) all
corporate, financial, tax and legal records of Contributor to the extent not
related to the Oil and Gas Properties or the Membership Interest;
(b) any
interests in xxxxx owned pursuant to existing drilling partnerships among the
Contributor and third parties, which are specifically described on Schedule 1.3;
(c) any
Xxxxxx; and
(d) the PDC
Operator Contracts, but only until such time as the PDC Operator Contracts are
assigned to the Company pursuant to Section 7.4.
SECTION
1.4 No
Assumption of Retained Liabilities
. All
of the Retained Liabilities shall remain the sole responsibility of and shall be
retained, paid, performed and discharged solely by Contributor when and as they
become due and payable.
SECTION
1.5 Restricted
Contracts
. In
the event that the transfer of a Contract to the Company requires that
Contributor pay a fee or other form of consideration (for purposes of this
Section 1.5, “Consideration”) to a
Person other than an Affiliate or subsidiary of Contributor, or is otherwise
restricted by applicable law (each of which Contracts is described on Schedule 1.5), then
the Contributor will not be required to transfer such Contract to the Company,
but, in lieu thereof, shall hold the Contract in trust for the sole and
exclusive benefit of the Company. For transfers requiring the payment
of Consideration, at Investor’s election, the Company (at the Company’s sole
expense), shall pay such Consideration on behalf of the Contributor; in which
event, the Contributor shall thereafter take all commercially reasonable actions
to cause the transfer of the Contract to the Company.
ARTICLE
II
CLOSING
SECTION
2.1 Closing
. The
closing of the transactions contemplated by this Agreement (the “Closing”) will take
place at the offices of Xxxxx Xxxxx L.L.P., located at 000 Xxxxxxxxx Xxxxxx,
Xxxxxxx, Xxxxx, concurrently with the initial capital contribution of the
Investor pursuant to the terms of the LLC Agreement. As used herein,
the term “Closing
Date” means the date upon which the Closing takes place.
SECTION
2.2 Closing
Deliveries
. At
the Closing, the Contributor shall deliver to the Company duly executed bills of
sale, deeds, general conveyances, endorsements, assignments and other good and
sufficient instruments of conveyance, transfer, assignment or contribution and
such other documents, certificates, filings or other agreements necessary to
transfer title to (or other rights specified in Article I with respect to) the
Contributed Assets to the Company as well as such other documents as may be
called for under this Agreement or as the Company shall reasonably request,
including, but not limited to, the copies of any consents, approvals or
authorizations obtained by the Contributor in connection with the performance of
its obligations under Article I and a properly executed affidavit, in the form
prescribed by Treasury Regulations under Section 1445 of the Code, stating that
Contributor is not a “foreign person” within the meaning of Section 1445 of the
Code.
SECTION
2.3 Consents
. The
parties agree that Contributor is not required to obtain third party consents to
assignment or preferential purchase right waivers specifically described on
Schedules 4.9(a)
and 4.9(b)
prior to the Closing, provided, however, the
Contributor shall seek to obtain such consents and waiver in accordance with the
terms of Section 3.5 hereto.
ARTICLE
III
TITLE
MATTERS
SECTION
3.1 Contributor’s
Title
. Contributor
represents and warrants to the Company and to the Investor that Contributor’s
title to (i) the Units and Xxxxx (other than Marcellus Acreage Leases) shown on
Exhibit A-2,
and (ii) the ownership interest in the Marcellus Acreage Leases shown on Exhibit A-1, is in
each case, Defensible Title as defined in Section 3.2. This representation and
warranty in this Section 3.1 and the provisions of this Article 3 provide the
Company’s exclusive remedy with respect to any Title Defects.
SECTION
3.2 Definition
of Defensible Title
. As
used in this Agreement, the term “Defensible Title”
means that title of the Contributor which, subject to Permitted
Encumbrances:
(a) As to Oil
and Gas Properties (other than Marcellus Acreage), entitles Contributor to
receive throughout the duration of the productive life of such Unit or Well
(after satisfaction of all royalties, overriding royalties, nonparticipating
royalties, net profits interests or other similar burdens on or measured by
production of Hydrocarbons), not less than the “net revenue interest” share
shown in Exhibit
A-2 of all Hydrocarbons produced, saved and marketed from such Unit or
Well, except as stated in Exhibit
A-2;
(b) As to Oil
and Gas Properties (other than Marcellus Acreage), obligates Contributor to bear
a percentage of the costs and expenses for the maintenance and development of,
and operations relating to, such Unit or Well not greater than the “working
interest” shown in Exhibit A-2 without
increase throughout the productive life of such Unit or Well, except as stated
in Exhibit
A-2;
(c) As to
Marcellus Acreage Leases, entitles Contributor to the Net Mineral Acres for each
Marcellus Acreage Lease set forth on Exhibit A-1;
and
(d) Is free
and clear of all Encumbrances other than Permitted Encumbrances.
SECTION
3.3 Definition
of Permitted Encumbrances
. As
used herein, the term “Permitted Encumbrances” means any or all of the
following:
(a) liens,
charges, encumbrances, contracts, agreements, instruments, obligations, defects
and irregularities of title and restrictions of right or interest of any nature
affecting any Oil and Gas Property that will be discharged at
Closing;
(b) lessors’
royalties, overriding royalties, and similar burdens that do not operate to
reduce the net revenue interest of Contributor below that net revenue interest
set forth on Exhibit
A-2, increase the working interest of Contributor above that working
interest set forth on Exhibit A-2 (without
a proportionate increase in the corresponding net revenue interest), or reduce
the Net Mineral Acres set forth on Exhibit
A-1;
(c) contingent
future obligations under any joint operating agreement, farm-out agreement, or
any similar agreement identified on Exhibit A-3, whereby
an operator or other party with an interest in such agreement may earn, or
otherwise become entitled to, an interest in any Lease or Well that do not
operate to reduce the net revenue interest of Contributor below that net revenue
interest set forth on Exhibit A-2, increase
the working interest of Contributor above that working interest set forth on
Exhibit A-2
(without a proportionate increase in the corresponding net revenue interest), or
reduce the Net Mineral Acres set forth on Exhibit A-1 or Exhibit
A-8;
(d) division
orders, provided that the same do not operate to reduce the net revenue interest
of Contributor below that net revenue interest set forth on Exhibit A-2 or
increase the working interest of Contributor above that working interest set
forth on Exhibit
A-2 (without a proportionate increase in the corresponding net revenue
interest) or reduce the Net Mineral Acres set forth on Exhibit A-1 and are
not such as to interfere materially with the operation, value or use of any of
the Oil and Gas Properties;
(e) normal
and customary sales contracts relating to hydrocarbons for oil and gas
operations in the Appalachian region;
(f) all
rights to consent by, required notices to, and filings with or other actions by
Governmental Authorities, if any, in connection with the change of ownership or
control of an interest in any Oil and Gas Property;
(g) materialmen’s,
mechanics’, repairmen’s, employees’, contractors’, operators’, tax and other
similar liens or charges arising pursuant to operations or in the ordinary
course of business incidental to construction, maintenance, or operation of the
Leases if they are not now due and payable;
(h) easements,
servitudes, permits, surface leases and other rights in respect of surface
operations, pipelines, or the like and easements on, over, or in respect of the
Leases that are not such as to interfere materially with the operation, value or
use of the Leases;
(i) all other
inchoate liens, charges, encumbrances, contracts, agreements, instruments,
obligations, defects and irregularities, affecting any of the Oil and Gas
Properties that individually or in the aggregate are customary in the industry
and are not such as to interfere materially with the operation, value or use of
any of the Oil and Gas Properties, that do not operate to reduce the net revenue
interest of Contributor below that net revenue interest set forth on Exhibit A-2, increase
the working interest of Contributor above that working interest set forth on
Exhibit A-2
(without a proportionate increase in the corresponding net revenue interest), or
reduce the Net Mineral Acres set forth on Exhibit
A-1;
(j) A
reduction in Contributor’s working interest and/or net revenue interest and/or
Net Mineral Acres below those shown on Exhibit A-1 and A-2, respectively, or
any consent by any non-participating royalty interest or non-executive mineral
interest, authorizing the lessee or executive rights holder to pool a leasehold
interest, royalty interest, or mineral interest constituting part of any Oil and
Gas Property, or to pool another leasehold interest, royalty interest or mineral
interest with any Oil and Gas Property;
(k) limitations
imposed on the Oil and Gas Properties by reason of the correlative rights of the
owners or operators of coal mineral rights in a common property;
(l) all
applicable Laws, Permits, rules and orders of any Governmental
Authority;
(m) inchoate
liens for Taxes not due and payable before the Closing Date;
(n) rights of
first refusal, preferential rights to purchase and similar rights with respect
to the Contributed Assets which, are subject to the provisions of Section
3.5;
(o) third
party consent requirements and similar restrictions with respect to the
Contributed Assets which, are subject to the provisions of Section
3.5;
(p) the
litigation matters described on Schedule 4.5;
and
(q) matters
that would otherwise be considered Title Defects but that do not meet the
Individual Claim Threshold set forth in Section 6.4.
SECTION
3.4 Title
and Environmental Defect Procedure.
(a) Title and Environmental Defect
Notice. If Company discovers any Title Defect or Environmental
Defect affecting any of the Oil and Gas Properties, Company may notify
Contributor of such alleged Title Defect or Environmental Defect from time to
time prior to the Defect Claim Date, provided that such allegation is made in
good faith. To be effective, such notice (“Title Defect Notice”
or “Environmental
Defect Notice”, respectively) must:
(i) be in
writing;
(ii) be
received by Contributor prior to the Defect Claim Date;
(iii) describe
the Title Defect or Environmental Defect in reasonable detail including the
basis therefore (including any alleged variance in the net revenue interest or
working interest of any Oil and Gas Property resulting from a Title Defect) and
any supporting documents;
(iv) identify
the specific Oil and Gas Property to which such Title Defect or Environmental
Defect relates; and
(v) include
the value of such Title Defect or, provided sufficient data is available,
include a preliminary, good-faith estimate of the value of such Environmental
Defect that is consistent with Section 3.4(c) and Section 7.7(e).
Any
matters that may otherwise constitute a Title Defect or Environmental Defect,
but of which Contributor has not been specifically notified by Company by the
Defect Claim Date in accordance with the foregoing, will be deemed to have been
waived by Company for all purposes; provided, that to the extent
the Company has a claim for a Title Defect or Environmental Defect of which the
Contributor had knowledge, Company may provide notice of such claim up to six
months beyond the Defect Claim Date, provided, further, that the Company will be
deemed to have waived Claims for Title Defects and Environmental Defects with
respect to which the Contributor had knowledge if the Company has not provided
notice by the end of such additional six month period. For purposes
of this Section 4.6(a), “knowledge” means the actual knowledge of any
Contributor Knowledge Personnel.
(b) Cure. Upon the
receipt of an effective Title Defect Notice or Environmental Defect Notice from
Company, Contributor will have the option, but not the obligation, to attempt to
cure such Title Defect or Environmental Defect prior to the date that is ninety
(90) days after the Defect Claim Date or, such additional time as reasonably
necessary to cure such defect provided Contributor uses diligent efforts to
pursue such cure (“Cure Date”); except, however, in the event
that any applicable Environmental Law requires cure or Remediation of an
Environmental Defect` in a shorter time period. Contributor’s
election to attempt to cure a Title Defect shall not constitute a waiver of
Contributor’s right to dispute the existence, nature, or value of, or cost to
cure, the Title Defect. A property affected by any Title Defect or Environmental
Defect will be referred to as a “Title Defect
Property” or “Environmental Defect
Property,” respectively.
(c) Title Defect Amount; Environmental
Defect Amount. “Title Defect Amount”
means, with respect to a Title Defect Property, the amount determined pursuant
to Section 3.4(c)(i) below. “Environmental Defect
Amount” means, with respect to an Environmental Defect Property, the
amount determined pursuant to Section 3.4(c)(iii) below. Title Defect
Amounts and Environmental Defect Amounts will be determined as
follows:
(i) The Title
Defect Amount with respect to a Title Defect Property will be determined by
taking into consideration the Allocated Value of the Title Defect Property
affected by such Title Defect (or if the Title Defect Property does not have a
specific Allocated Value, then the Allocated Value thereof will be derived from
the Allocated Value of the Lease associated therewith), the portion of the Title
Defect Property subject to such Title Defect, and the legal effect of such Title
Defect on the Title Defect Property affected thereby; provided, however,
that:
(A) if such
Title Defect is in the nature of the net revenue interest in a Unit or Well
being less than the net revenue interest set forth on Exhibit A-2 with
respect thereto and the corresponding working interest remains the same, then
the Title Defect Amount will be the Allocated Value for the relevant Unit or
Well multiplied by the percentage reduction in such Net Revenue Interest as a
result of such Title Defect;
(B) if such
Title Defect is in the nature of the working interest in a Unit or Well being
greater than the working interest set forth on Exhibit A-2 with
respect thereto and the corresponding net revenue interest remains the same,
then the Title Defect Amount will be the Allocated Value for the relevant Unit
or Well multiplied by the percentage increase in such working interest as a
result of such Title Defect;
(C) if such
Title Defect is the result of a discovery by Company that Contributor owns fewer
Net Mineral Acres of a Marcellus Acreage Lease than the Net Mineral Acres
reflected therefor in Exhibit A-1, then the
Title Defect Amount shall be equal to the product of the Allocated Value for
such Marcellus Acreage Lease, and the percentage reduction in such Net Mineral
Acres as a result of such Title Defect;
(D) if such
Title Defect is in the nature of an Encumbrance, then the Title Defect Amount
will be the amount required to fully discharge such Encumbrance;
and
(E) if the
Title Defect results from any matter not described in subsection (A) through (D)
above, the Title Defect Amount will be an amount equal to the difference between
the value of the Title Defect Property with such Title Defect and the value of
such Title Defect Property without such Title Defect (taking into account the
Allocated Value of the Title Defect Property).
A Title
Defect Amount may not exceed the Allocated Value of the Title Defect
Property.
(ii) In the
event that (A) a net revenue interest in a Unit or Well is greater than the net
revenue interest set forth on Exhibit A-2 with
respect thereto and the corresponding working interest remains the same, or (B)
the Net Mineral Acres in a Marcellus Acreage Lease is greater than the Net
Mineral Acres set forth on Exhibit A-1 with
respect thereto, or (C) on the Closing Date the Net Mineral Acres conveyed to
the Company is greater than 55,030 Net Mineral Acres, Contributor will be
entitled to a “Title Defect Credit” to the extent provided in Section
3.4(d). Such Title Defect Credit will be an amount equal to the
Allocated Value for the Unit, Well or Lease, as applicable, multiplied by the
percentage increase in the net revenue interest or Net Mineral Acres, applicable
thereto.
(iii) The
Environmental Defect Amount with respect to an Environmental Defect Property
shall equal the cost to Remediate the Environmental Defect giving due regard to
the standards set forth in Section 7.7(e).
(d) Indemnity Claims for Title Defects
and Environmental Defects. If (i) Contributor has
not provided notice under Section 3.4(b) of its election to attempt to cure a
Title Defect or Environmental Defect, (ii) Contributor has elected not to
attempt to cure a Title Defect or Environmental Defect, or (iii) Contributor has
failed to cure a Title Defect or Environmental Defect prior to the Cure Date, ,
then Company shall be entitled to a Claim for indemnification, pursuant to
Article VI, equal to the Title Defect Amount or Environmental Defect Amount, as
applicable, for the affected Unit, Well or Lease caused by such Title Defect or
Environmental Defect; provided, however, that any
such Claims for indemnification for Title Defects and Environmental Defects
shall be offset by any Title Defect Credits; provided, further, that no
offset by Title Defect Credits shall reduce the indemnity available under this
Section 3.4(d) below zero. This Section 3.4(d) shall, to the fullest
extent permitted by applicable Law, be the exclusive right and remedy of the
Company with respect to Contributor’s breach of its warranty and representation
in Section 3.1 and Section 4.7. In this regard and notwithstanding
anything to the contrary in this Agreement, if a Title Defect or Environmental
Defect results from any matter which could also result in a breach of any
representation or warranty of Contributor in Article IV, then Company shall
only be entitled to assert such matter prior to the Defect Claim Date for Title
Defects and Environmental Defects and shall be precluded from asserting such
matter as a basis of the breach of any such representation or
warranty.
(e) Arbitration. Contributor,
on the one hand, and Investor, on Company’s behalf, on the other hand, shall
attempt to agree on all Title Defect Amounts and Environmental Defect Amounts
(except with respect to Title Defects or Environmental Defects for which
Contributor provides notice of their election to continue attempting to cure
after the Defect Claim Date under Section 3.4(c)) and Title Defect Credits
within thirty (30) days following the Defect Claim Date. If
Contributor and Investor are unable to agree on an alleged Title Defect Amount,
Title Defect Credit, Environmental Defect or Environmental Defect Amount within
such 30-day period, such dispute(s), and only such dispute(s), shall be
exclusively and finally resolved in accordance with the following provisions of
this Section 3.4(e):
(i) If any
Party hereto elects to submit any dispute to arbitration as specifically
provided in this Section 3.4(e), then such Party will notify the other Party in
writing. Within fifteen (15) days following such notice, Contributor
and Investor agree to jointly select an arbitrator. For disputes
regarding Title Defects or Title Defect Amounts or Title Defect Credits, the
arbitrator will be an experienced oil and gas attorney, familiar by training and
experience with West Virginia and Pennsylvania oil and gas legal and business
matters including titles and oil and gas transactions. This person
will be the sole arbitrator (the “Title Defect
Arbitrator”) to hear and decide all existing disputes regarding asserted
Title Defects and Title Defect Amounts. For disputes regarding
Environmental Defects or Environmental Defect Amounts, the arbitrator will be an
experienced environmental attorney, familiar by training and experience with
West Virginia and Pennsylvania. environmental legal and business matters in the
oil and gas industry. This person will be the sole arbitrator (the
“Environmental Defect
Arbitrator”) to hear and decide all existing disputes regarding asserted
Environmental Defects and Environmental Defect Amounts. If
Contributor and Investor are unable to agree on the Title Defect Arbitrator or
Environmental Defect Arbitrator within the fifteen (15)-day period, any Party
hereto may apply to a Texas or Pennsylvania state or federal court regarding
asserted Title Defects and Title Defect Amounts or Environmental Defects and
Environmental Defect Amounts for the selection of a Title Defect Arbitrator or
Environmental Defect Arbitrator, respectively, with the qualifications set forth
in this Section. The Parties consent to the jurisdiction of such
court for this purpose.
(ii) Any
arbitration hearing, if one is desired by the Title Defect Arbitrator or
Environmental Defect Arbitrator, will be held in Houston, Texas, or such other
location acceptable to both Parties and the Title Defect Arbitrator or
Environmental Defect Arbitrator. Contributor may elect to conduct the
proceeding by written submissions from Contributor and Investor with exhibits,
including interrogatories, supplemented with appearances by Investor, Company
and Contributor as the Title Defect Arbitrator or Environmental Defect
Arbitrator may desire. The arbitration proceeding, subject only to
the terms hereof, will be conducted informally and expeditiously and in such a
manner as to result in a good faith resolution as soon as reasonably possible
under the circumstances. The decision of the Title Defect Arbitrator
or Environmental Defect Arbitrator with respect to such remaining disputed
matters will be reduced to writing and will be final and binding on the
Parties. Judgment upon the award(s) rendered by the Title Defect
Arbitrator or Environmental Defect Arbitrator may be entered and execution had
in any court of competent jurisdiction, or application may be made to such court
for a judicial acceptance of the award and an order of
enforcement. Contributor and Investor will bear their own legal fees
and other costs incurred in presenting their respective cases. The
charges and expenses of the Title Defect Arbitrator or Environmental Defect
Arbitrator will be shared equally by Contributor and Investor.
(iii) The
arbitration will commence as soon as possible after the Title Defect Arbitrator
or Environmental Defect Arbitrator is selected in accordance with the provisions
of this Section 3.4(e). In fulfilling his or her duties with respect
to determining the existence of a Title Defect or Environmental Defect or the
amount of a Title Defect Amount, Title Defect Credit or Environmental Defect
Amount, the Title Defect Arbitrator or Environmental Defect Arbitrator, as
applicable, may consider such matters as, in the opinion of the Title Defect
Arbitrator or Environmental Defect Arbitrator, are necessary or helpful to make
a proper determination and valuation; however, the Title Defect Arbitrator or
Environmental Defect Arbitrator will be bound by those factors set forth in
Section 3.4(c). Furthermore, the Title Defect Arbitrator or
Environmental Defect Arbitrator may consult with and engage disinterested third
parties to advise the Title Defect Arbitrator or Environmental Defect Arbitrator
including, without limitation, geologists, geophysicists, petroleum engineers,
title and oil and gas lawyers, accountants and consultants, and the fees and
expenses of such third parties will be considered to be charges and expenses of
the Title Defect Arbitrator or Environmental Defect Arbitrator. The
sole remedy in any arbitration award will be resolution of alleged Title
Defects, Title Defect Amounts and Title Defect Credits or Environmental Defects
and Environmental Defect Amounts and neither the Title Defect Arbitrator nor the
Environmental Defect Arbitrator will award any other remedy, including, without
limitation, equitable relief, actual damages, consequential, exemplary or
punitive damages, attorneys’ fees or interest reflecting the time value of
money.
(iv) Any
replacement Title Defect Arbitrator or Environmental Defect Arbitrator, should
one become necessary, will be selected in accordance with the procedure provided
above for the initial selection of the Title Defect Arbitrator or Environmental
Defect Arbitrator.
(v) As to any
determination of amounts owing under the terms of this Section 3.4(e), no
lawsuit based on such claimed amounts owing will be instituted by either
Investor or Contributor, other than to compel arbitration proceedings or enforce
the award of the Title Defect Arbitrator or Environmental Defect
Arbitrator.
(vi) All
privileges under state and federal law, including attorney-client and
work-product privileges, will be preserved and protected to the same extent that
such privileges would be protected in a federal or state court proceeding
applying state or federal law, as the case may be.
(f) Schedule 3.4 sets
forth the agreed allocation of the Agreed Value (as defined in the LLC
Agreement) among each of the Contributed Assets, which has been made in
compliance with the principles of Section 1060 of the Internal Revenue Code of
1986, as amended (the “Code”), and the
Treasury Regulations thereunder. The “Allocated Value” for
any Contributed Asset equals the portion of the unadjusted Agreed Value
allocated to such Contributed Asset on Schedule 3.4,
increased or decreased as described in this Section. Any adjustments
to the unadjusted Agreed Value pursuant to Section 7.5 shall be applied to the
amounts set forth in Schedule 3.4 for the
particular affected Contributed Assets, if determinable. Any
adjustments to the unadjusted Agreed Value pursuant to Section 7.5 that are not
specific to any particular Contributed Asset or Assets (for example, general and
administrative expense) shall be applied pro rata to each Contributed Asset
allocation on Schedule
3.4 in proportion to the amount of
each. Contributor has accepted such Allocated Values for purposes of
this Agreement and the transactions contemplated hereby, but otherwise make no
representation or warranty as to the accuracy of such values. For
purposes of the Marcellus Acreage, the term “Allocated Value” shall mean the
number of Net Mineral Acres of a Lease multiplied by the per Net Mineral Acre
price set forth on Schedule
3.4. Contributor and the Company agree (i) that the Allocated
Values shall be used by the Parties as the basis for reporting asset values and
other items for purposes of all federal, state, and local Tax Returns, including
without limitation Internal Revenue Service Form 8594 and (ii) that neither they
nor their Affiliates will take positions inconsistent with the Allocated Values
in notices to Governmental Authorities, in audit or other proceedings with
respect to Taxes, in notices to preferential purchaser right holders, or in
other documents or notices relating to the transactions contemplated by this
Agreement, except as otherwise required by Law. For purposes of this
Section 3.4(f) and as a result of Subsidiary being disregarded as an entity
separate from Contributor for U.S. federal income Tax purposes, the term “Contributed Assets”
shall include the assets of Subsidiary, and the term “Assumed Liabilities” shall
include the liabilities of Subsidiary.
SECTION
3.5 Consents
to Assignment and Preferential Rights to Purchase.
(a) Contributor
shall use commercially reasonable efforts to cause consents to assignment and
waivers of preferential rights to purchase or similar rights (all of which
consents, preferential rights and similar rights are specifically described on
Schedules 4.9(a) and
4.9(b)) (or the exercise thereof) to be obtained and delivered, provided
that Contributor shall not be required to make payments or undertake obligations
to or for the benefit of the holders of such rights in order to obtain the
required consents and waivers. The Company shall cooperate with
Contributor in a commercially reasonable manner in seeking to obtain such
consents to assignment and waivers of preferential rights.
(b) In no
event shall there be transferred at Closing any Contributed Asset for which a
consent requirement has not been satisfied and for which transfer is prohibited
or a fee is payable (unless the same has been paid by the Company) without the
consent. In cases in which the Contributed Asset subject to such a
requirement is a Contract and the Company is assigned the Oil and Gas
Property(ies) to which the Contract relates, but the Contract is not transferred
to the Company due to the unwaived consent requirement, Contributor shall
continue after Closing to use commercially reasonable efforts to obtain the
consent so that such Contract can be transferred to the Company upon receipt of
the consent, the Contract shall be held by Contributor for the benefit of the
Company, and the Company shall pay all amounts due thereunder and perform all
obligations thereunder. In cases in which the Contributed Asset
subject to such a consent requirement is an Oil and Gas Property and the third
Person consent to the transfer of the Oil and Gas Property is not obtained by
Closing, the affected Oil and Gas Property and the related assets shall not be
transferred at Closing and Agreed Value shall be reduced by the Allocated Value
of the Oil and Gas Property and related Assets. There shall be no
adjustment to the Agreed Value with respect to Contributed Assets other than Oil
and Gas Properties that are not transferred as a result of a failure to obtain a
consent. If an unsatisfied consent requirement with respect to which
an adjustment is made under this Section 3.5 is subsequently satisfied, a
separate Closing shall be held at which Contributor shall convey the affected
Oil and Gas Property and related Contributed Assets to the Company in accordance
with this Agreement.
(c) As to the
Preferential Rights identified on Schedule 4.9(a),
Contributor shall send preferential right notices to the preferential right
holders in accordance with Section 3.5(a). The affected Contributed
Assets shall be transferred to the Company at Closing; however, if the holder of
the preferential purchase right validly exercise same following the Closing, the
Company shall transfer the affected Oil and Gas Property to the holder of the
preferential purchase right on the terms and provisions set out in the
applicable preferential purchase right provision and the Company shall be
entitled to the consideration paid by such holder.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE CONTRIBUTOR
Contributor
represents and warrants to the Company and Investor as follows:
SECTION
4.1 Authority
. The
Contributor has all requisite corporate power and authority to enter into this
Agreement and the other documents to which it is a party required to effect the
contribution of the Contributed Assets (the “Contribution
Documents”), to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby in accordance with
the terms hereof and thereof (the “Contribution
Transactions”). The execution and delivery by the Contributor
of this Agreement and the other Contribution Documents to which it is a party,
the performance by the Contributor of its obligations hereunder and thereunder
and the consummation by the Contributor of the Contribution Transactions have
been duly and validly authorized by all necessary action on the part of the
Contributor, and no further action is necessary on the part of the Contributor
for the Contributor to execute and deliver this Agreement and the other
Contribution Documents to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the Contribution
Transactions.
SECTION
4.2 Validity
and Binding Effect
. This
Agreement has been, and as of the Closing Date each of the other Contribution
Documents to which the Contributor is a party will be, duly executed and
delivered on behalf of the Contributor. This Agreement constitutes,
and as of the Closing Date, each of the other Contribution Documents to which
the Contributor is a party will constitute, a legal, valid and binding
obligation of the Contributor, enforceable against the Contributor in accordance
with its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors’ rights generally and general equitable principles, regardless of
whether enforceability is considered in a proceeding at law or in
equity.
SECTION
4.3 Noncontravention
. The
execution and delivery by the Contributor of this Agreement and the other
Contribution Documents to which it is a party, the performance by the
Contributor of its obligations hereunder and thereunder and the consummation of
the Contribution Transactions will not (i) conflict with, or result in any
violation or breach of, any provision of the certificate of incorporation or
bylaws of the Contributor, (ii) result in any violation or breach of, constitute
a default under, give rise to any right of termination or acceleration (with or
without notice or the lapse of time or both) pursuant to, or result in being
declared void, voidable or without further effect, any term or provision of any
note, bond, mortgage, indenture, lease, franchise, permit, license, contract or
other agreement, instrument or document to which the Contributor is a party or
by which the Contributed Assets are or may be bound, except that (A) certain
Leases are subject to the consent of landowners, which consent requirements are
in the normal course of business and are customary in the oil and gas industry,
and are set forth in Schedule 4.9(b)
hereto, and (B) the contracts and agreements set forth on Schedule 4.9(b)
hereto may not be assigned to the Company without obtaining the consent of a
third party or without satisfying such other requirements as are described in
Schedule
4.9(b), which consents will be obtained or other requirements satisfied
prior to the assignment thereof, (iii) require the Contributor to obtain any
consent, approval, permit, notice, action, authorization or waiver from, make
any filing or effect any registration with, or give notice to, any Governmental
Authority or any other Person, except as set forth in Schedule 4.9(b), (iv)
conflict with, or result in any violation of, any Law or any order, writ,
injunction, judgment or decree of any court, arbitrator or Governmental
Authority that is applicable to the Contributor or the Contributed Assets or (v)
result in the creation of, or impose on the Contributor the obligation to
create, any Encumbrance (as hereinafter defined) upon the Contributed
Assets.
SECTION
4.4 Proper
Use and Maintenance of Tangible Personal Property
. The
Contributor has at all relevant times operated the tangible personal property to
be conveyed by the Contributor to the Company hereunder in a good and
workmanlike manner and such tangible personal property is in good and
serviceable condition (as determined by reference to operating standards for
companies engaged in similar lines of business in the geographic areas in which
the Contributor operates), ordinary wear and tear excepted, and subject to
prudent and customary maintenance programs (of the type employed by companies
engaged in similar lines of business in the geographic areas in which the
Contributor operates).
SECTION
4.5 Litigation
. Except
as set forth on Schedule 4.5, there
is no claim, legal action, suit, litigation, arbitration, dispute or
investigation, judicial, administrative or otherwise, or any order, decree or
judgment, now pending or in effect, or, to the knowledge of Contributor,
threatened, that affects the ownership or operation of the Contributed
Assets.
SECTION
4.6 Taxes.
(a) Except as
provided in Schedule
4.6(a), the Contributor has filed, or caused to be filed, or will file,
or cause to be filed, in a timely manner with the appropriate Governmental
Authorities, all material Tax Returns required to be filed on or prior to the
Closing Date with respect to the Contributed Assets and each such Tax Return has
been prepared in all material respects in compliance with all Laws and is true,
accurate and complete in all material respects.
(b) Except as
provided in Schedule
4.6(b), and to the Contributor’s knowledge, the Contributor has paid, or
caused to be paid, or will pay, or will cause to be paid, in a timely manner all
Taxes due on or prior to the Closing Date (whether or not shown on any Tax
Return and whether or not being contested) with respect to the Contributed
Assets.
(c) There are
no liens for unpaid Taxes (other than liens described in Section 3.3(m)) on the
Contributed Assets and (ii) no claim for unpaid Taxes has been made by any
Governmental Authority that could give rise to any such lien.
(d) There are
no outstanding written agreements or waivers that would extend the statutory
period in which a Governmental Authority may assess or collect a Tax against the
Contributor and for which the Contributed Assets could be subject, or the
Company could be subject as a transferee or acquirer of, or successor to, the
Contributed Assets.
(e) All
material Taxes that Contributor is or was required by Law to withhold or collect
with respect to the Contributed Assets have been duly withheld or collected and,
to the extent due and payable on or prior to the Closing Date, have been
remitted to the proper Governmental Authority or other Person, and with respect
to the Contributed Assets, Contributor has properly received and maintained any
and all certificates, forms, and other documents required by Law for any
exemption from withholding and remitting any such Taxes.
(f) Except
for the Membership Interest and as provided in Schedule 4.6(f), none
of the Contributed Assets includes any stock, partnership interests, limited
liability company interests, legal or beneficial interests or any other equity
interests in or of any Person, and the Contributed Assets are not subject to any
tax partnership for U.S. federal Tax purposes or other arrangement requiring a
partnership income Tax Return to be filed under Subchapter K of Chapter 1 of
Subtitle A of the Code.
SECTION
4.7 Environmental
Matters.
(a) The
Company’s (and Investor’s) sole and exclusive remedy for a breach of any
representation or warranty in this Section 4.7 shall be as set forth in Section
3.4 for Environmental Defects. To the extent representations and
warranties in other sections of this Agreement also could apply to environmental
matters, including matters related to, arising under or concerning Environmental
Laws, such representations and warranties shall be construed to exclude all
environmental matters and to apply to matters other than environmental
matters.
Except to
the extent disclosed in the environmental reports listed on Schedule 4.7,
(i) Neither
Contributor or Subsidiary nor any prior owner or operator of the Contributed
Assets has caused or allowed the generation, use, treatment, storage or disposal
of Hazardous Materials at, on, or from any of the Contributed Assets except in
accordance with all applicable Environmental Laws.
(ii) Contributor
and Subsidiary are and have been in compliance with all limitations,
restrictions, standards and obligations established under Environmental Laws
with respect to the Contributed Assets.
(iii) All
Environmental Permits necessary to operate the Contributed Assets in the manner
they are currently operated have been duly obtained or filed and are in full
force and effect and Contributor and Subsidiary are in compliance with such
Environmental Permits.
(iv) The
current operation of the Contributed Assets does not provide a basis for
revocation or suspension of any Environmental Permit related to the operation of
the Contributed Assets.
(v) There are
no Proceedings pending or, to the knowledge of Contributor threatened by or
before any court or any other Governmental Authority directed against
Contributor or Subsidiary relating to the operation of the Contributed Assets
that pertain or relate to (A) any Remedial Actions under any applicable
Environmental Law, (B) violations by Contributor or Subsidiary of any
Environmental Law, or (C) personal injury or property damage claims relating to
a Release of Hazardous Materials.
(vi) The
Contributed Assets are not encumbered by any lien arising or imposed under
Environmental Laws.
(vii) There are
no Hazardous Materials present in or on the soil, sediments, surface water or
ground water on, under or from or migrating from any of the Contributed Assets
in concentrations that are reasonably likely to give rise to an obligation to
conduct a Remedial Action pursuant to Environmental Laws.
(viii) Contributor
has provided Company with copies of reports in its possession reflecting the
Environmental Conditions of the Contributed Assets and any violations of
Environmental Law known to Contributor that have not been remedied.
(b) Notwithstanding
anything to the contrary in this Section or elsewhere in this Agreement,
Contributor represents and warrants with respect to the presence or absence of
naturally occurring radioactive material (“NORM”), asbestos,
mercury, drilling fluids and chemicals, and produced waters and hydrocarbons in
or on the Oil and Gas Properties or Equipment (collectively, “Typical OG
Materials”) in quantities typical for oilfield operations in the areas in
which the Properties and Equipment are located only that such Typical OG
Materials have been used and managed by Contributor, Subsidiary and their agents
in compliance with all applicable Environmental Laws, except such failures to
comply as, individually or in the aggregate, would not have a material adverse
effect. Contributor makes no other representation or warranty,
express or implied, in relation to these Typical OG Materials.
SECTION
4.8 Material
Contracts.
(a) Except
for contracts and agreements that will be terminated prior to Closing and for
which Company will have no liability hereunder or otherwise, Exhibit A-3 lists all
of the Contracts that are to be transferred to Company pursuant to this
Agreement. Each Contract is a valid and binding agreement of
Contributor, enforceable in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, or other laws affecting creditors’
rights generally or equitable principles; (ii) Contributor has performed, and to
the knowledge of Contributor every other party has performed, each material
term, covenant and condition of each of the Contracts that is to be performed by
Contributor or such other party at or before the date hereof; (iii) to the
knowledge of Contributor no event has occurred that would, with the passage of
time or compliance with any applicable notice requirements or both, constitute a
default by Contributor or any other party, under any of the Contracts; and (iv)
Contributor does not intend, and Contributor has not received notice that any
other party to a Contract intends, to cancel or terminate such
Contract.
(b) To the
knowledge of Contributor, no party has made written demand to renegotiate any
material amounts paid or payable to Contributor under any of the
Contracts. There are no commissions due (or to become due) to any
broker or other party as a result of the purchase or sale of hydrocarbons under
any of the Contracts. Contributor has not, with respect to the
Contracts: (i) received any quantity of natural gas or liquids,
condensate or crude oil to be paid for thereafter other than in the normal cycle
of billing; or (ii) received prepayments, advance payments or loans which will
require the performance of services or provision of natural gas or liquids,
condensate or crude oil under such Property Agreements on or after the Effective
Date without being currently paid therefore other than in the normal cycle of
billing. Contributor is not obligated, by virtue of prepayment
arrangement, make up right under production sales contract containing a “take or
pay” or similar provision, gas balancing agreement, production payment or any
other arrangement to deliver hydrocarbons, or proceeds from the sale thereof,
attributable to the Leases, or any lands pooled or unitized with such Leases, at
some future time without then or thereafter receiving the full contract price
therefore. Except as set forth on Schedule 4.8(b),
there is no call upon, option to purchase or similar right to obtain
hydrocarbons from the Leases, or any lands pooled or unitized with such Leases,
in favor of any person or entity other than pursuant to renewal rights or
automatic renewal provisions contained in existing contracts for the sale for
hydrocarbons. All of the Contracts listed on Part 2 of Exhibit A-3 are
normal and customary for oil and gas operations in the Appalachian
region.
SECTION
4.9 Consents;
Preferential Rights.
(a) Except as
set forth in Schedule
4.9(a), there are no preferential rights to purchase attributable or with
respect to any of the Contributed Assets that are applicable to the transactions
contemplated hereby.
(b) Except as
set forth in Schedule
4.9(b), there are no consents, approvals or authorizations of any person
or entity (excluding any of the foregoing customarily obtained following
Closing), in each case, required to be obtained by Contributor that are
applicable to the transactions contemplated hereby.
SECTION
4.10 Solvency
. The
Contributor is able to pay its debts as they become due, has capital sufficient
to carry on its business as presently conducted and proposed to be conducted,
owns property that has both a fair value and a fair market value in excess of
the amount required to pay its debts as they become due and is solvent in all
other respects. The Contributor has not been or will not be rendered
insolvent by the consummation of the Contribution Transactions and, immediately
following the consummation of the Contribution Transactions, the Contributor
will be able to pay its debts as they become due, will have capital sufficient
to carry on its business as then conducted and proposed to be conducted, and
will own property that has a fair value and a fair market value in excess of the
amount required to pay its debts as they become due.
SECTION
4.11 Books
and Records
. The
books and records of the Contributor directly related to the Contributed Assets
fairly reflect in all material respects the transactions to which the
Contributor is a party or by which it is bound or to which the Company will be a
party or will be bound after giving effect to the Contribution
Transactions. Such books and records are and have been properly kept
and maintained, with the revenues, expenses, assets and liabilities of the
Contributor accurately recorded in all material respects therein on the accrual
basis of accounting prepared in accordance with federal income tax accounting
principles. Copies of such books and records have been delivered to
the Company as of Closing.
SECTION
4.12 Subsidiary.
(a) Existence and
Qualification. Subsidiary is a limited liability company duly
organized and validly existing under the Laws of Delaware and is duly qualified
to do business as a foreign limited liability company in Pennsylvania and in all
other jurisdictions in which qualification is required.
(b) Power. Subsidiary
has the power and authority under its limited liability company agreement of its
state of organization to own, lease or otherwise hold its assets and conduct its
business in the manner consistent with recent practice.
(c) Limited Liability Company
Agreement. Contributor has delivered to the Company true and
complete copies of the limited liability company agreement (or equivalent
governing instruments), each as amended to date, of Subsidiary and has made
available to the Company for inspection the limited liability company books of
Subsidiary.
(d) Title to Membership
Interest. Contributor has good and valid title to the
Membership Interest, free and clear of any liens, claims, encumbrances, security
interests, options, charges and restrictions of any kind other than restrictions
on transfer that may be imposed by applicable federal or state securities laws
or in the applicable Company’s governing instruments. Other than this
Agreement, and, Subsidiary’s limited liability company agreement, the Membership
Interest is not subject to any voting agreement or other contract, agreement,
arrangement, commitment or understanding, including any such agreement,
arrangement, commitment or understanding restricting or otherwise relating to
the voting, dividend rights or disposition of the Membership
Interest.
(e) The Membership
Interest. The Membership Interest is duly
authorized and validly issued and outstanding, fully paid, non-assessable
(except as expressly authorized by the terms of the applicable limited liability
company agreement) and have not been issued in violation of any preemptive
rights. Except for the Membership Interest, there are no outstanding equity
interests in Subsidiary, or any contractual arrangements giving any Person a
right to receive any benefits or rights similar to the rights enjoyed by or
accruing to the holders of any membership interest in
Subsidiary. Other than pursuant to this Agreement, there are no
outstanding warrants, options, rights, convertible or exchangeable securities or
other commitments pursuant to which Contributor or Subsidiary is or may become
obligated to issue or sell any shares of capital stock or other equity interests
in Subsidiary.
(f) Subsidiaries. Subsidiary
does not directly or indirectly own any capital stock or other equity interest
in any Person.
(g) Taxes. Subsidiary
is, and at all times since its formation has been, disregarded as an entity
separate from Contributor for U.S. federal Tax purposes, and no election has
been filed on or prior to the Closing Date that could change such classification
on or after the Closing Date. Subsidiary has filed, or caused to be
filed, or will file, or cause to be filed, in a timely manner with the
appropriate Governmental Authorities all material Tax Returns required to be
filed by it on or prior to the Closing Date, and each such Tax Return has been
prepared in all material respects in compliance with all Laws and is true,
accurate and complete in all material respects. To Contributor’s
knowledge, Subsidiary has paid, or caused to be paid, or will pay, or will cause
to be paid, in a timely manner all Taxes due by it on or prior to the Closing
Date (whether or not shown on any Tax Return and whether or not being
contested). Except for Taxes not yet due and payable, (i) there are
no liens for unpaid Taxes on the assets of Subsidiary and (ii) no claim for
unpaid Taxes of Subsidiary has been made by any Governmental Authority that
could give rise to any such lien. There are no outstanding agreements
or waivers that would extend the statutory period in which a Governmental
Authority may assess or collect a Tax against Subsidiary. All
material Taxes that Subsidiary is or was required by Law to withhold or collect
have been duly withheld or collected and, to the extent due and payable on or
prior to the Closing Date, have been remitted to the proper Governmental
Authority or other Person, and Subsidiary has properly received and maintained
any and all certificates, forms, and other documents required by Law for any
exemption from withholding and remitting any such Taxes. No material
Tax audits or administrative or judicial Tax proceedings are pending or being
conducted with respect to Subsidiary. No power of attorney granted by
Subsidiary with respect to any Tax is currently in force. None of the
assets held by Subsidiary includes any stock, partnership interests, limited
liability company interests, legal or beneficial interests or any other equity
interests in or of any Person, and none of such assets is subject to any tax
partnership for U.S. federal Tax purposes or other arrangement requiring a
partnership income Tax Return to be filed under Subchapter K of Chapter 1 of
Subtitle A of the Code. None of the liabilities of Subsidiary
includes (A) an obligation to make a payment to any Person under any Tax
allocation or Tax sharing agreement, (B) an obligation to pay the Taxes of any
Person as a transferee or successor, by contract or otherwise, including an
obligation under Treasury Regulations §1.1502-6 (or any similar provision of
state, local or foreign Law), or (C) an obligation under any record retention,
transfer pricing, closing or other agreement or arrangement with any
Governmental Authority that will survive the Closing or impose any liability on
the Company after the Closing.
(h) Employees. Subsidiary
does not have, and has not had, any employees.
SECTION
4.13 Oil
and Gas Properties of Subsidiary
. Any
representation made by Contributor in Article III and this Article IV with
respect to the Oil and Gas Properties or subset thereof is intended to include
and shall incorporate any Oil and Gas Properties owned by
Subsidiary.
SECTION
4.14 Lease
Provisions
. The
Company’s (and Investor’s) sole and exclusive remedy for a breach of any
representation or warranty in this Section 4.14 shall be as set forth in Section
3.4 for Title Defects. All Leases are in force and effect and are
maintained by their terms. Accurate and timely payment of delay
rentals have been made to maintain in force and effect all Leases within the
primary term on which drilling operations were not timely
commenced. All other Leases are validly preserved beyond the primary
term by production in paying quantities or the accurate and timely payment of
shut-in royalty payments or otherwise. Except as set forth on Schedule 4.14, all
rentals, royalties, overriding royalty interests and other payments due under
each of the Leases have been timely and accurately paid, except amounts that are
being held in suspense as a result of title issues in circumstances that do not
provide any third party a right to terminate any such Lease. Schedule 4.14 lists
the accrued suspense funds by Well.
SECTION
4.15 Compliance
with Law
. Except
as set forth on Schedule
4.15:
(a) All
material filings and notices relating to the Contributed Assets, or the
ownership or operation thereof, required to be made by Contributor with all
applicable state and federal agencies have been made by or on behalf of
Contributor or if required to be made by any third party operator, to the
knowledge of Contributor have been made by or on behalf of such
operator. Contributor is not, and to Contributor’s knowledge no third
party operator of the Contributed Assets is, in violation of any Law with
respect to the Contributed Assets.
(b) Contributor
holds or if Contributor is not the operator thereof, to the knowledge
of Contributor the applicable third party operator holds, all of the Permits
necessary for the operation of the Contributed Assets as currently
conducted. There are no proceedings pending or, to the knowledge of
Contributor, threatened that are reasonably expected to result in the
revocation, cancellation, suspension or modification of the
Permits.
SECTION
4.16 AFE’s
. Except
as set forth in Schedule 4.16, there
are no outstanding calls or payments under authorities for expenditures for
payments or other capital commitments relating to the Contributed Assets which
exceed $50,000 (net to Contributor’s interest) and which are due or which
Contributor has committed to make which have not been made as of the Effective
Date.
SECTION
4.17 Broker’s
Fee
. Contributor
has incurred no obligation or liability, contingent or otherwise, for business
brokers’ or finders’ fees in respect of the matters provided for in this
Agreement for which Company or Company’s affiliates will be
responsible.
SECTION
4.18 Imbalances
. There
are no wellhead imbalances or other imbalances attributable to the Contributed
Assets as of the Effective Date which require payment from Company to a third
party or for which Company would otherwise be responsible.
SECTION
4.19 Payout
Balances
. There
are no “payout” balances for any Lease or Well that is subject to a reversion or
other adjustment at some level of cost recovery or payout.
SECTION
4.20 Plugging
and Abandonment
. Except
as set forth in Schedule 4.20, there
are no Xxxxx located on the Leases that:
(a) Contributor
has received an order from any Governmental Authority requiring that such Well
be plugged and abandoned;
(b) were
producing as of the Effective Date, but that as of the date of this Agreement
are shut in and have been for more than five (5) days, or temporarily abandoned;
or
(c) have been
plugged and abandoned but have not been plugged in accordance with all
applicable requirements of each Governmental Authority having jurisdiction over
the Contributed Assets.
SECTION
4.21 No
Expenses Owed and Delinquent
. No
expenses (including bills for labor, materials and supplies used or furnished
for use in connection with the Contributed Assets, overriding royalties and
other burdens on production and amounts payable to co-owners of the Contributed
Assets) are owed and delinquent in payment by Contributor for which Company
would be liable after the Effective Date.
SECTION
4.22 Bonds
. Schedule 4.22 lists
all surety bonds, letters of credit and other similar instruments maintained by
Contributor or any of its affiliates with respect to the Contributed
Assets.
SECTION
4.23 Title
to Assets
. Without
limiting the representations and warranties made in Section 3.1, Contributor has
good title to or, in the case of leased property and assets, has valid leasehold
interests in, all of the Equipment, in each case free and clear of all
Encumbrances except encumbrances that individually and in the aggregate are
customary in the industry and are not such as to interfere with the operation,
value or use of the Equipment. No material assets, licenses or other
rights that are used in the Equipment are held of record by Contributor or any
Affiliate of Contributor other than those that shall be transferred to the
Company at or after Closing, pursuant to this Agreement.
SECTION
4.24 Real
Property
. The
Company and its Subsidiary each have good and indefeasible title to all real
property set forth on Exhibit A-6, free and
clear of all Encumbrances, except Encumbrances as do not adversely affect the
value of such property and do not adversely interfere with the use of such
property by the Company and its Subsidiary or the marketability of such real
property, and all leasehold interests of the Company and its Subsidiary set
forth on Exhibit
A-6 are held by them under valid, subsisting and enforceable leases, with
such exceptions as are customary in the Appalachian region. All
improvements located thereon are located within the boundary lines of such
parcels of land, do not encroach on or violate any easement which may burden the
land, have all permits required in connection with the ownership or operation
thereof and have been operated and maintained in accordance with applicable
laws, and are supplied with utilities and other services necessary for the
operation of such improvements.
SECTION
4.25 Contributor’s
Disclaimer of Representation and Warranties
. EXCEPT
AS EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE III OR THIS ARTICLE 4, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, CONTRIBUTOR EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, ORAL OR WRITTEN, AS TO (I) TITLE
TO ANY OF THE ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE
MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY
GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE CONTRIBUTED
ASSETS, (III) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM
THE CONTRIBUTED ASSETS, (IV) THE EXISTENCE OF ANY PROSPECT OR RECOMPLETION,
INFILL OR STEP-OUT OPPORTUNITIES, (V) ANY ESTIMATES OF THE VALUE OF THE
CONTRIBUTED ASSETS OR FUTURE REVENUES GENERATED BY THE CONTRIBUTED ASSETS, (VI)
THE PRODUCTION OF HYDROCARBONS FROM THE CONTRIBUTED ASSETS, OR WHETHER
PRODUCTION HAS BEEN CONTINUOUS, OR IN PAYING QUANTITIES, (VII) THE MAINTENANCE,
REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE
CONTRIBUTED ASSETS, OR (VIII) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE
BEEN MADE AVAILABLE OR COMMUNICATED TO THE COMPANY, THE INVESTOR OR THEIR
RESPECTIVE 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 FURTHER
DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT, OR REGARDING INFRINGEMENT OF
INTELLECTUAL PROPERTY RIGHTS IN CONNECTION WITH THE CONTRIBUTED ASSETS, IT BEING
EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT THE COMPANY SHALL BE
DEEMED TO BE OBTAINING THE CONTRIBUTED ASSETS IN THEIR PRESENT STATUS, CONDITION
AND STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS, AND THAT THE
INVESTOR, ON BEHALF OF THE COMPANY HAS MADE OR CAUSED TO BE MADE SUCH
INSPECTIONS AS THE INVESTOR, ON BEHALF OF THE COMPANY, DEEMS
APPROPRIATE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
COMPANY REPRESENTS AND ACKNOWLEDGES THAT CONTRIBUTOR HAS NOT MADE AND WILL NOT
MAKE ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE
RELATING TO ENVIRONMENTAL LIABILITIES, THE RELEASE OF MATERIALS INTO THE
ENVIRONMENT OR PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE
ENVIRONMENT OR ANY OTHER ENVIRONMENTAL CONDITION OF THE CONTRIBUTED
ASSETS.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to the Contributor as
follows:
SECTION
5.1 Organization
. The
Company is a limited liability company duly organized and validly existing under
the laws of the State of Delaware, and has the requisite limited liability
company power and authority to own, lease and operate its properties and to
conduct its business as it is presently being conducted.
SECTION
5.2 Authority
. The
Company has full limited liability company power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Contribution Transactions. The execution, delivery and
performance of this Agreement by the Company have been duly authorized by all
necessary limited liability company and other action, and no further action is
necessary on the part of the Company for the Company to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
Contribution Transactions.
SECTION
5.3 Validity
and Binding Effect
. This
Agreement has been executed and delivered on behalf of the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors’ rights generally and
general equitable principles, regardless of whether enforceability is considered
in a proceeding at law or in equity.
SECTION
5.4 Noncontravention
. The
execution and delivery by the Company of this Agreement does not, and the
performance by the Company of its obligations hereunder and the consummation of
the Contribution Transactions will not, conflict with, result in any violation
of or default (with or without notice or lapse of time or both) under, any
provision of (i) the Certificate of Formation or LLC Agreement of the Company,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease,
permit, concession, franchise, license or other contract, agreement or
instrument to which the Company is a party or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any of
its properties or assets.
SECTION
5.5 Litigation
. There
is no litigation proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company that questions the validity
or enforceability of this Agreement or any other document, instrument or
agreement to be executed and delivered by the Company in connection with the
Contribution Transactions.
ARTICLE
VI
INDEMNIFICATION
SECTION
6.1 Indemnification
of the Company.
(a) The
Contributor shall indemnify and hold the Company harmless from and against all
Damages incurred or suffered by the Company caused by, arising out of or
resulting from: (i) the Retained Liabilities, (ii) misrepresentation,
nonfulfillment, or breach by the Contributor of any representation or warranty
contained in this Agreement (iii) failure to observe any covenant of the
Contributor contained in this Agreement, (iv) the Company’s failure to obtain
the consents described on Schedule 4.9(b)
within six months of the Closing, (v) Claims under Article III, (vi) any and all
Taxes or Tax liabilities that are imposed on or attributable to the ownership,
operation or production of the Contributed Assets during any Pre-Closing Tax
Period, and (vii) any and all Taxes or Tax liabilities that are imposed on or
attributable to Subsidiary during any Pre-Closing Tax Period, IN EACH CASE REGARDLESS OF THE SOLE
OR CONCURRENT NEGLIGENCE OR OTHER FAULT OF THE COMPANY.
(b) The
Contributor shall indemnify and hold the Company harmless against any and all
damages awarded pursuant to the Royalty Litigation with respect to pre and
post-Effective Date production however, with respect to post-Effective Date
production, upon settlement or final judgment of the Royalty Litigation,
Contributor will make a cash payment to the Company in the amount based on a
formula, calculated pro-rata, of $680,000.00 per one percent (1%) increase in
the royalty on post-Effective Date production as a result thereof.
(c) For
purposes of determining the amount of Taxes or Tax liabilities that are
attributable to the Pre-Closing Tax Period under Section 6.1(a)(vi) and Section
6.1(a)(vii) of a Straddle Period, the following provisions shall
apply:
(i) In the
case of any liability for any real property, personal property, ad valorem and
similar Taxes (each, a “Property Tax”)
attributable to a Straddle Period, the amount of such Property Tax attributable
to the Pre-Closing Period of such Straddle Period shall be deemed to be the
amount of such Property Tax for the entire Straddle Period, multiplied by a
fraction, the numerator of which is the number of days in such Straddle Period
ending on and including the Closing Date, and the denominator of which is the
number of days in such Straddle Period; and
(ii) In the
case of any Taxes that are based on income, sales, revenue, production or
similar items or other Taxes that are not Property Taxes and pertains or is
attributable to any Straddle Period, the amount of such Taxes attributable to
the Pre-Closing Tax Period of such Straddle Period shall be determined based on
an interim closing of the books as of the close of business on the Closing Date
of the Contributor, in the case of Section 6.1(a)(vi), and Subsidiary, in the
case of Section 6.1(a)(vii).
SECTION
6.2 Indemnification
of the Contributor
. The
Company shall indemnify and hold the Contributor harmless from and against all
Damages incurred or suffered by the Contributor caused by, arising out of or
resulting from (i) the Assumed Liabilities and (ii) the Company’s failure to
observe or perform any of its covenants in this Agreement; provided, Contributor, in its
capacity as a Member of the Company, or any PDC Designee did not directly or
indirectly cause such failure or prevent the Company from observing or
performing such covenant.
SECTION
6.3 Indemnification
Procedures for Claims
. The
following procedures shall be applicable with respect to the indemnification
obligations of a party hereunder in respect of any claims, demands, actions or
causes of action (each a “Claim”) asserted or
brought by any third parties, including any present or former employees of any
party:
(a) Promptly
after receipt by the party seeking indemnification hereunder (the “Indemnitee”) of
written notice of the assertion or the commencement of any Claim, whether by
legal process or otherwise, with respect to any matter within the scope of this
Article VI, the Indemnitee shall give written notice thereof (a “Notice”) to the party
from whom indemnification is to be sought hereunder (the “Indemnitor”) and
shall thereafter keep the Indemnitor reasonably informed with respect thereto;
provided, however, that
the failure of the Indemnitee to give the Indemnitor prompt notice as provided
herein shall not relieve the Indemnitor of its indemnification obligations
hereunder, unless such failure results in (i) a default judgment, (ii) the
expiration of the time to answer a complaint or (iii) material prejudice to the
Indemnitor’s defense of such Claim. In case any such Claim is brought
against any Indemnitee, the Indemnitor shall be entitled to assume the defense
thereof, by giving the Indemnitee written notice of its intention to do so
within 30 days after receipt of the Notice, with counsel reasonably satisfactory
to the Indemnitee at the Indemnitor’s sole cost and expense; provided, Indemnitor
diligently pursues such defense, and; provided, further, that the
Indemnitor shall not be entitled to assume the defense if the named parties to
any such Claim (including any impleaded parties) include both the Indemnitee and
Indemnitor, and the Indemnitee shall have been advised by such counsel that
there is one or more legal defenses available to it that are in addition to or
in conflict with those available to the Indemnitor. If the Indemnitor
shall assume the defense of such Claim, it shall not settle such Claim without
the prior written consent of the Indemnitee (which consent shall not be
unreasonably withheld) unless such settlement includes an unconditional release
of the Indemnitee from all liability arising out of such Claim and imposes no
obligations on the Indemnitee. Notwithstanding the assumption by the
Indemnitor of the defense of any Claim as provided in this Section 6.3, the
Indemnitee shall be permitted to participate in the defense of such Claim and to
employ counsel at its own expense.
(b) If the
Indemnitor shall fail to notify the Indemnitee of its desire to assume the
defense of any such Claim within the prescribed period of time, or shall not be
entitled to assume the defense of any such Claim (including by failure to
diligently pursue defense of such Claim), then the Indemnitee shall control and
conduct the defense of any such Claim, at the cost and expense of the
Indemnitor, in which event it may do so in such manner as it may deem
appropriate acting in a reasonable and good faith manner; provided, however, that it
shall not settle any Claim that would give rise to liability on the part of the
Indemnitor under this Article VI without the prior written consent of the
Indemnitor. The Indemnitor shall be permitted to participate in the defense of
such Claim and to employ counsel at its own expense.
SECTION
6.4 Limitations
on Representations and Warranties and Indemnities.
(a) Except
for (i) the representations and warranties of the Contributor in this Agreement
made with respect to Taxes, which shall survive the Closing and not terminate
until 30 days after the expiration of all statutes of limitation (including all
extensions thereof) applicable to such Tax, (ii) the obligations,
representations and warranties of Contributor under Article III, which shall
survive the Closing and not terminate until the Defect Claim Date, (iii) the
obligations of Contributor under Section 6.1(b), which shall survive the Closing
and not terminate until a final settlement or nonappealable judgment is reached
in the Royalty Litigation, and (iv) the representations and warranties in
Section 4.12(d), which shall survive indefinitely, all of the representations
and warranties of the Contributor in this Agreement shall survive for a period
of two years from the Closing Date (“Indemnity Claim
Date”). Except with respect to indemnities for a breach of a
representation and warranty, which shall be subject to the survival periods set
forth in the preceding sentence, the indemnities set forth in this Article VI
shall survive indefinitely. 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 representation,
warranty, covenant or agreement prior to its expiration date.
(b) Notwithstanding
anything to the contrary in this Agreement, with respect to any Claim pursuant
to Section 6.1(a)(ii) (other than a Claim for Taxes or a Claim for breach of
Section 4.12(d), which shall not be subject to the indemnification limitations
contained in this Section 6.4(b)) and Section 6.1(a)(v):
(i) Contributor
shall not have any liability until and unless the Damages for any individual
Claim exceed Five Thousand dollars ($5,000) (the “Individual Claim
Threshold”).
(ii) Contributor
shall not have any liability until and unless the aggregate sum of Claims since
the Closing, including Title Defect Amounts and Environmental Defect Amounts,
exceeds One Million dollars ($1,000,000) (the “Deductible”), which
Deductible shall increase to $3,000,000 for Claims made later than six months
after the Closing, and then only to the extent that the aggregate sum of such
Claims since the Closing exceeds the Deductible.
(iii) Contributor
shall not be required to indemnify the Company under clauses (ii), (iv) and (v)
of Section 6.1 for aggregate Damages, including Title Defect Amounts and
Environmental Defect Amounts, in excess of (A) Investor’s aggregate Capital
Contributions (as defined the LLC Agreement) at the time Contributor pays such
obligations (“Aggregate Investor
Contribution Amount”), as to Claims within six months after the Closing,
and (B) fifty percent (50%) of the Aggregate Investor Contribution Amount, as to
Claims more than six months after the Closing (the “Indemnity
Cap”).
SECTION
6.5 Tax
Treatment of Indemnity Claims
. For
U.S. federal income Tax purposes (and state, local, and foreign Tax purposes
where applicable), any indemnity payment by Contributor to the Company and any
indemnity payment by the Company to Contributor made pursuant to Section 6.1 or
Section 6.2 will be treated as Capital Contributions (as defined in the LLC
Agreement) to the Company and Distributions (as defined in the LLC Agreement)
from the Company to Contributor, respectively; provided, that such payments will
not affect (a) the Capital Account (as defined in the LLC Agreement) of
Contributor, (b) any other Capital Contributions to be made by
Contributor, (c) the Distributions or allocations to be made to
Contributor under the LLC Agreement, or (d) the Units or Sharing Percentages (as
such terms are defined in the LLC Agreement); provided, further, that nothing in
this sentence shall affect the Company’s ability to adjust the Book Basis (as
defined in the LLC Agreement) of the Contributed Assets, as
appropriate.
SECTION
6.6 Payment
of Indemnity Obligations
. All
indemnity obligations of Contributor under this Agreement shall be funded by
cash payments to the Company and not by adjustments in Contributor’s interest in
the Company unless Contributor and Investor otherwise agree in
writing.
ARTICLE
VII
POST
CLOSING OBLIGATIONS
The
Company and the Contributor each covenant and agree as follows:
SECTION
7.1 Filing
and Recording
. At
the Company’s cost, within 10 Business Days after the Closing, the Company will
file or record the conveyancing documents in the appropriate governmental
records. At the Contributor’s cost, the Company will provide either
the originals or photocopies of the filed or recorded documents, including the
recording data, as agreed by the parties, to the Contributor.
SECTION
7.2 Further
Assurances
. The
Contributor agrees that from time to time after the Closing Date it shall (i)
execute, deliver, acknowledge, file and record, or cause to be executed,
delivered, acknowledged, filed and recorded, such further bills of sale, deeds,
general conveyances, endorsements, assignments and other good and sufficient
instruments of conveyance, transfer, assignment or contribution and such further
consents, certifications, affidavits and assurances as the Company may
reasonably request in order to vest in the Company all right, title and interest
in the Contributed Assets (except to the extent that title to the Contributed
Assets is not to be transferred to the Company in accordance with the express
terms of Article 1) or otherwise to consummate and make effective the
transactions contemplated by this Agreement upon the terms and conditions set
forth herein and (ii) take, or cause to be taken, all actions and do, or cause
to be done, all such things as the Company may reasonably request in order to
put the Company in actual possession of the Contributed Assets or otherwise to
accomplish the purposes of this Agreement. Without limiting the
generality of the foregoing, in the event that on or after the Closing Date the
Contributor receives any amount in cash and receivables generated by or
attributable to the Contributed Assets from and after the Effective Date, which
amount has not been accounted for in a post-closing adjustment pursuant to
Section 7.6, such amount shall be forthwith delivered to the
Company.
SECTION
7.3 Post-Closing
Third-Party Consents and Preferential Purchase Rights
. Each
of the Parties hereto hereby agrees to use commercially reasonable efforts (i)
to obtain, any and all approvals of Governmental Authorities in connection with
the consummation of the transactions contemplated by this Agreement, (ii) to
comply with all conditions and covenants applicable or related to it as
contemplated by this Agreement, (iii) to transfer to the Company all Transition
Contracts and Transition Rights and (iv) to take all such other commercially
reasonable actions as are necessary or advisable by it in order to cause it to
be able to fulfill its obligations hereunder.
SECTION
7.4 Assignment
of PDC Operator Contracts and Operatorship
. Contributor
agrees to take all commercially reasonable and necessary actions after the
Closing to transfer and assign the PDC Operator Contracts and operating rights
for the Oil and Gas Properties that Contributor currently operates, to the
Company or its designated subsidiary. After Closing, Contributor
agrees to send notices to all co-owners of the Oil and Gas Properties that it
currently operates, nominating and recommending the Company (or its designated
subsidiary) as successor operator.
SECTION
7.5 Post-Closing
Adjustment
. In
order to account for revenues and expenses attributable to the Contributed
Assets for the period after the Effective Date through and including the Closing
Date (“Adjustment
Period”), the Agreed Value shall be adjusted as follows: (i) reduced by
the sum of all Contributor’s and Subsidiary’s revenues in respect of the
Contributed Assets from and after the Effective Date, including the Hydrocarbon
Revenues received by the Contributor or Subsidiary during the Adjustment Period,
plus all cash and receivables relating to the Contributed Assets as of and after
the Effective Date (to the extent not included in such revenues) and (ii)
increased by all costs and expenses attributable to the ownership and operation
of the Contributed Assets during the Adjustment Period paid by Contributor
(collectively, the “Adjustment
Amount”).
SECTION
7.6 Post-Closing
Settlement Statement
. As
soon as reasonably practicable after the Closing but not later than the 60th day
following the Closing Date, Contributor shall prepare and deliver to the Company
and to Investor, a statement setting forth Contributor’s final calculation of
the Adjustment Amount and showing the calculation of each adjustment, based, to
the extent possible on actual credits, charges, receipts and other items as of
the Effective Date through the Closing Date. Contributor shall upon
request by Investor, on behalf of the Company, supply reasonable documentation
available to support any credits, charges, receipts or other
items. As soon as reasonably practicable but not later than the 30th
day following receipt of Contributor’s statement hereunder, Investor, on behalf
of the Company, shall deliver to Contributor a written report containing any
changes that Investor, on behalf of the Company, proposes be made to such
statement. Investor, on behalf of the Company, and Contributor shall undertake
to agree on the disputed items raised by Investor no later than 120 days after
the Closing Date. In the event that Investor, on behalf of the
Company, and Contributor cannot reach agreement within such period of time,
either Investor, on behalf of the Company, or Contributor may refer the
remaining matters in dispute to Deloitte & Touche, an independent accounting
firm, or if Deloitte & Touche is unable or unwilling to perform its
obligations under this Section 7.6, such other nationally-recognized independent
accounting firm as may be accepted by Investor, on behalf of the Company, and
Contributor, for review and final determination. The accounting firm
shall conduct the arbitration proceedings in Houston, Texas 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
7.6. The accounting firm’s determination shall be made within thirty
(30) days after submission of the matters in dispute and shall be final and
binding on both Parties, without right of appeal. The accounting firm
shall act as an expert for the limited purpose of determining the specific
disputed matters submitted by either Party and may not award damages or
penalties to either Party with respect to any matter. Contributor and
the Company shall each bear its own legal fees and other costs of presenting its
case. Each Party shall bear one-half of the costs and expenses of the
accounting firm.
Any
positive Adjustment Amount shall be funded by the Contributor in cash payment to
the Company and to the extent such Adjustment Amount is a negative value, such
Adjustment Amount shall be funded in cash by the Company to the
Contributor. For U.S. income Tax purposes (and state, local, and
foreign Tax purposes where applicable), any payment by Contributor to the
Company and any payment by the Company to Contributor made pursuant to this
Section 7.6 will be treated as Capital Contributions (as defined in the LLC
Agreement) to the Company and Distributions (as defined in the LLC Agreement)
from the Company to Contributor, respectively; provided, that such payments will
not affect (a) the Capital Account (as defined in the LLC Agreement) or
Contributor, (b) any other Capital Contributions to be made by Contributor, (c)
the Distributions or allocations to be made to Contributor under the LLC
Agreement, or (d) the Units or Sharing Percentages (as such terms are defined in
the LLC Agreement); provided further, that nothing in this sentence shall affect
the Company’s ability to adjust the Book Basis (as defined in the LLC Agreement)
of the Contributed Assets, as appropriate.
SECTION
7.7 Post-Closing
Environmental Assessment
.
(a) Following
the Closing but prior to the Defect Claim Date, the Investor shall be entitled
to conduct Phase I environmental assessments and conduct visual inspections,
record reviews and interviews relating to the Oil and Gas Properties and
Equipment, including their condition and compliance with Environmental Laws
(collectively, the “Phase I
Investigation”). Investor’s right of access shall not entitle
Investor to conduct intrusive testing or sampling except as provided for under
Section 7.7(b). All information obtained by Investor and its
representatives under this Section 7.7 shall become the property of the
Company.
(b) If
following a Phase I Investigation, further investigation testing soil, ground
water or other materials or information (“Phase II Assessment”) is recommended
in the underlying report, Investor, prior to the Defect Claim Date, may provide
written notice thereof to Contributor. The failure to provide such notice shall
constitute a waiver of such Environmental Defect. Upon Investor providing such
notice, a Phase II Assessment shall be conducted by a firm of national
reputation, which shall be selected by the Members of the Company to the extent
and scope recommended in the underlying report.
(c) If the
Phase II Assessment confirms, to Contributor’s reasonable satisfaction, that an
Environmental Defect exists, the Environmental Defect mechanisms set forth in
Section 3.4 shall apply.
(d) Investor,
Contributor and the Company shall maintain the results of any Phase I
Investigation or Phase II Assessment conducted pursuant to this Section 7.7
confidential in accordance with the confidentiality provisions set forth in the
LLC Agreement.
(e) Any
Remediation required pursuant to Section 7.7(b) shall be conducted by the
Company in a manner that is reasonable in extent and cost effective and shall be
designed or implemented in such a manner as to achieve the least stringent
risk-based closure or remediation standard applicable to the Environmental
Defect Property under Environmental Laws, subject to approval of any
Governmental Authority with jurisdiction over such Remediation, and as necessary
to permit the continued use of the Environmental Defect Property in the same
manner and for the same purpose it was being used as of the Effective
Date.
SECTION
7.8 Post
Closing Diligence
. To
the extent Investor elects to conduct any diligence post-Closing with respect to
the Contributed Assets for the purposes of asserting any Title Defect or
Environmental Claim under the terms of this Agreement, such diligence shall be
conducted using the resources and personnel of Investor, provided however that Company, at its
expense, shall reasonably cooperate with Investor’s due diligence investigations
including without limitation and without cost to Investor making Company
personnel available for interviews conducted pursuant to due diligence
activities, answering information requests, making records available for review,
and providing representatives to accompany Investor during due diligence
inspections of Contributed Assets.
ARTICLE
VIII
MISCELLANEOUS
SECTION
8.1 Parties
in Interest; Assignment
. This
Agreement shall be binding upon the parties and their respective successors and
assigns and shall inure to the benefit of the parties and the other Persons
entitled to indemnification under the terms of Article VI and their respective
successors, assigns and legal representatives. Neither this Agreement
nor any rights or obligations hereunder may be assigned by any Party without the
prior written consent of each of the other Party hereto.
SECTION
8.2 No
Third Party Beneficiaries
. Nothing
in this Agreement is intended or shall be construed to give any Person, other
than the parties hereto and the other Persons who are entitled to
indemnification under the terms of Article VI, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
SECTION
8.3 Notices
. Any
notice or other communication required or permitted hereunder shall be in
writing and shall be delivered by hand, by facsimile transmission or electronic
mail transmission, or by certified or registered mail, postage prepaid and
return receipt requested. Notices shall be deemed to have been given
upon delivery, if delivered by hand, three days after mailing, if mailed, and
upon receipt of an appropriate electronic confirmation, if delivered by
facsimile or electronic mail transmission. Notices shall be delivered
to the parties at the addresses set forth below:
If to the
Company:
PDC
Mountaineer, LLC
000
Xxxxxxx
Xxxxxxxxxx
XX 00000
Attention: Xxxxx
X. Xxxxxx
Phone: 000.000.0000
Fax: 000.000.0000
with
copies to (which shall not constitute notice to the Company):
LR-Mountaineer
Holdings, L.P.
Heritage
Plaza
Suite
4600
0000
Xxxxx Xx
Xxxxxxx,
XX 00000
Attention: Xxxx
Xxxxxxxx
Phone: 000-000-0000
Fax: 000-000-0000
and
to:
Petroleum
Development Corporation
0000
Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx,
Xxxxxxxx 00000
Attention: Xxxxx
X. Xxxxxxx
Phone:
000.000.0000
Fax:
000.000.0000
If
to Investor:
LR-Mountaineer
Holdings, L.P.
c/o Lime
Rock Management LP
000
Xxxxxxxxx Xxx., 0xx Xxxxx
Xxxxxxxx,
XX 00000
Xxxxxxx,
XX 00000
Attention: Xxxx
Xxxxxxx
Phone: 000.000.0000
Fax: 000.000.0000
with a
copy to (which shall not constitute notice to the Investor):
Fulbright
& Xxxxxxxx L.L.P.
0000
XxXxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxx 00000
Attention: Xxxxxx
Xxxxx
Phone: 000-000-0000
Fax: 000-000-0000
If
to the Contributor:
Petroleum
Development Corporation
0000
Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx,
Xxxxxxxx 00000
Phone:
000.000.0000
Fax:
000.000.0000
with
copies to (which shall not constitute notice to the Contributor):
Petroleum
Development Corporation
0000
Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx,
Xxxxxxxx 00000
Attention: Xxxxxx
X. Xxxxxx
Phone:
000.000.0000
Fax:
000.000.0000
and
to:
Xxxxx
Xxxxx L.L.P.
000
Xxxxxxxxx
Xxxxxxx,
Xxxxx 00000
Attention:
Xxxx Xxxxxx
Xxxx
X. Xxxxx
Phone:
000.000.0000
Fax:
000.000.0000
Any Party
may from time to time change its address or designee for notification purposes
by giving the other parties prior notice in the matter specified above of the
new address or the new designee and the subsequent date upon which the change
shall be effective.
SECTION
8.4 Tax
Matters.
(a) All
transfer, documentary, sales, use, stamp, registration, and other such Taxes
(“Transfer
Taxes”) incurred in connection with contribution of the Contributed
Assets hereunder shall be paid by the Company.
(b) If after
the Closing Date, the Company or Subsidiary receives a refund of any Tax
attributable to the Pre-Closing Tax Period, the Company shall pay to Contributor
within a reasonable period after such receipt an amount equal to such refund (or
so much of such refund as relates solely to the Pre-Closing Tax Period
determined in accordance with applicable principles of Section
6.1(c)).
(c) With
respect to each tax partnership listed on Schedule 4.6(f) that does not have an
election described in Section 754 of the Code in effect for its taxable year
that includes the date hereof, Contributor shall cause, or assist the Company in
causing, each such tax partnership to make such election to be effective for the
taxable year that includes the date hereof.
SECTION
8.5 Amendment;
Waivers
. This
Agreement may be amended only by a written instrument duly executed and
delivered on behalf of all of the parties. Compliance with any term
or provision hereof may be waived only by a written instrument executed by each
Party entitled to the benefits of the same. No failure to exercise
any right, power or privilege granted hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
granted hereunder.
SECTION
8.6 Severability
. In
the event that any one or more of the terms or provisions contained in this
Agreement shall be held to be invalid, illegal or unenforceable for any reason,
the validity, legality or enforceability of all the other terms and provisions
of this Agreement shall not be affected.
SECTION
8.7 Headings
. The
Article and Section headings in this Agreement are for convenience of reference
only, do not constitute a part of this Agreement and shall not limit, extend or
otherwise affect the meaning or interpretation of the terms and provisions of
this Agreement.
SECTION
8.8 Rules
of Construction
. In
this Agreement, unless the context otherwise requires, words in the singular
number or in the plural number shall each include the singular number and the
plural number, as the context may require. All references herein to
dollar amounts are in United States dollars. The terms “herein,”
“hereunder,” “hereto” and similar terms refer to this Agreement generally and
not to any one Article or Section of this Agreement, unless the context
otherwise requires. The terms “include” and “including” shall mean
include or including, as the case may be, without limiting the generality of the
description preceding such term. THE PARTIES AGREE THAT THE BOLD
AND/OR CAPITALIZED LETTERS IN THIS AGREEMENT CONSTITUTE CONSPICUOUS
LEGENDS.
SECTION
8.9 Entire
Agreement
. This
Agreement (including the Exhibits and Schedules hereto), together with the other
Contribution Documents and other documents referred to therein, constitute the
entire agreement and understanding between the parties with respect to the
Contribution Transactions and supersede all prior and contemporaneous oral or
written agreements, representations and warranties, arrangements and
understandings relating to the subject matter hereof and thereof.
SECTION
8.10 Choice
of Law and Consent to Jurisdiction
. This
Agreement shall be constructed, interpreted and enforced in accordance with, and
the respective rights and obligations of the parties shall be governed by, the
laws of the State of Delaware, except with respect to the matters regarding
rights and interests in the Oil and Gas Properties which shall be governed by
the laws of the State of Texas, in each case without regard to principles of
conflicts of law.
Each Party hereby consents to submit to
the exclusive jurisdiction and venue of the courts of Dallas County, Texas and
of the United States of America located in Dallas County, Texas for any actions,
suits or proceedings arising out of or relating to this Agreement.
SECTION
8.11 Availability
of Equitable Relief
. Each
of the parties hereto recognizes that irreparable injury may result from a
breach of any provision of this Agreement and that money damages may be
inadequate to fully remedy the injury. In order to prevent such
irreparable injury, the arbitrators selected pursuant to the Dispute Resolution
Procedures shall have the power to grant temporary or permanent injunctive or
other equitable relief. Notwithstanding Section 8.11, prior to the
appointment of the arbitrators, a Party hereto may seek temporary injunctive
relief from any court of competent jurisdiction; provided that the party seeking
such relief shall (if the procedures for dispute resolution have not already
been commenced) simultaneously commence the procedures for dispute resolution in
compliance with the Dispute Resolution Procedures. Such court ordered
relief shall not continue more than ten (10) days after the appointment of the
arbitrators.
SECTION
8.12 Rules
of Drafting
. Each
of the parties acknowledges that it has been represented, or has been advised of
its right to be represented, by independent counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement. Each Party and
its counsel cooperated in the drafting and preparation of this Agreement and the
documents referred to herein, and any and all drafts relating thereto shall be
deemed the work product of the parties and may not be construed against any
party by reason of its preparation. Accordingly, any rule of law or
any legal decision that would require interpretation of any ambiguities in this
Agreement against any party that draft it is of no application and is hereby
expressly waived.
SECTION
8.13 Counterparts
. This
Agreement may be executed in multiple counterparts, each of which shall be an
original, but all of which together shall constitute one and the same
agreement.
SECTION
8.14 Investor
Rights to Enforce Terms
. Notwithstanding
anything to the contrary in this Agreement, Investor shall have the exclusive
power and authority and right to enforce the terms of this Agreement on behalf
of the Company, with or without the consent of Contributor in its capacity as a
Member of the Company (as defined in the LLC Agreement) and without regard to
the interests of Contributor; provided, however, this provision shall not apply
to the Company exercising its rights under Section 7.7(e).
SECTION
8.15 Schedules
. Schedules
may include matters not required by the terms of the Agreement to be listed on
the Schedule, which additional matters are disclosed for purposes of information
only, and inclusion of any such matter does not mean that all such matters are
included.
[Remainder of page intentionally left
blank; Signature page follows]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
COMPANY:
PDC
MOUNTAINEER, LLC
By: /s/ Xxxxx X.
Xxxxxxx
Name:
Xxxxx X. Xxxxxxx
Title: Manager
By: /s/ J. Xxxxxxx Xxxxxxxx,
Xx.
Name: J.
Xxxxxxx Xxxxxxxx, Xx.
Title: Manager
CONTRIBUTOR:
PETROLEUM
DEVELOPMENT CORPORATION
By: /s/ Xxxxx X.
Xxxxxxx
Name:
Xxxxx X. Xxxxxxx
Title: Chief
Financial Officer
INVESTOR:
LR-MOUNTAINEER
HOLDINGS, L.P.
By: Lime
Rock Partners GP V, L.P.,
its General Partner
By: LRP
GP V, Inc., its General Partner
By: /s/ J. Xxxxxxx Xxxxxxxx,
Xx. Name: J. Xxxxxxx Xxxxxxxx,
Xx.
Title: Authorized
Signatory
APPENDIX
A
DEFINITIONS
For
purposes of this Agreement, the terms set forth below shall have the following
respective meanings:
“Affiliate” means,
with respect to any person, any other person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such person.
“Business Day” means a
day, other than Saturday, Sunday or any other day on which commercial banks in
New York, New York are authorized or required by Law to close.
“Contributor Knowledge
Personnel” means Xxx Xxxxxx, Xxxxx Xxxxxx, Xxxx Xxxxxxxx, and Xxxxxx
Xxxxxxxx.
“Damages” means the
amount of any actual liability, loss, cost, expense, claim, award, Tax or
judgment incurred or suffered by any indemnified party arising out of or
resulting from the indemnified matter, whether attributable to personal injury
or death, property damage, incidental damages, lost profits, contract claims
(including contractual indemnity claims), torts, or otherwise, including
reasonable fees and expenses of attorneys, consultants, accountants or other
agents and experts reasonably incident to matters indemnified against, the costs
of investigation and/or monitoring of such matters, and the costs of enforcement
of the indemnity and consequential, exemplary, punitive or other speculative
damages owed to any third party by the Indemnitee; provided, however, that the
Company shall not be entitled to indemnification under Section 6.1 for, and
“Damages” shall not include, (i) any consequential damages (including lost
profits included therein) or any punitive damages (other than consequential,
punitive or other speculative damages suffered by Persons other than
Indemnitee), (ii) any Taxes that may be assessed on payments made under this
Article VI or any Tax benefits to which the indemnified party may be entitled,
and (iii) any liability, loss, cost, expense, claim, award or judgment to the
extent resulting from or to the extent increased by the actions or omissions of
any indemnified party after the Closing Date.
“Defect Claim Date”
means one hundred and eighty (180) days following the Closing Date, or as
extended pursuant to Section 3.4(a).
“Encumbrance” means
any lien, charge or encumbrance.
“Environmental
Condition” means any pollution, contamination, degradation, damage or
injury to the environment or human health caused by, related to, arising from or
in connection with the generation, handling, use, treatment, storage,
transportation, disposal, discharge, Release or emission of any “Hazardous
Materials.”
“Environmental Defect”
means (A) any violation of, or condition or circumstance giving rise to
Environmental Liability under, any Environmental Law (i) on or relating to any
of the Contributed Assets, or (ii) which arises from the ownership of the
Leases, or any record keeping, construction, maintenance, repair or operation
with respect thereto, and is binding on the owner of the Contributed Assets; or
any condition or circumstance with respect to (i) any of the Contributed Assets
or (ii) the ownership, record keeping, construction, maintenance, repair or
operation with respect thereto, which (without notice or the lapse of time or
both, in each case) could result in or give rise to an Environmental Liability
binding on the owner or operator of the Contributed Assets and (B) any breach of
the representations and warranties in Section 4.7
“Environmental Laws”
means all applicable laws, regulations, enforceable requirements that have the
effect of law, orders, decrees, judgments or injunctions issued, promulgated or
entered into by any Governmental Authority pertaining to the protection of human
health or the environment as of the Effective Date.
“Environmental
Liability” means any and all liabilities, responsibilities, claims,
suits, damages, costs (including remedial, removal, response, abatement,
clean-up, investigative or monitoring costs and any other related costs and
expenses), other causes of action, damages, settlements, expenses, charges,
assessments, liens, penalties, fines, pre-judgment and post-judgment interest,
attorneys’ fees and other legal fees (a) pursuant to any agreement, order,
notice or responsibility, directive (including directives embodied in
Environmental Laws), injunction, judgment or similar documents (including
settlements) arising out of or in connection with any Environmental Laws, or (b)
pursuant to any claim by a Governmental Authority or other person for personal
injury or property damage as a result of an Environmental Defect, damage to
natural resources, Remediation or payment or reimbursement of Remediation costs
incurred or expended by a Governmental Authority or person pursuant to common
law or statute.
“Environmental
Permits” means any permits, licenses, authorizations, registrations,
consents or approvals granted or issued by any Governmental Authority under
applicable Environmental Laws.
“Governmental
Authority” means any nation or government, any state, city, municipality
or political subdivision thereof, any federal or state court and any other
agency, body, authority or entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
“Hazardous Material”
means pollutant, contaminant, material, or substance that is regulated under any
Environmental Law.
“Hydrocarbon Revenues”
means (i) proceeds from the sale of Hydrocarbons produced from or attributable
to the Contributed Assets (less any (A) royalties, overriding royalties net
profits interests and other similar burdens payable out of the production of
Hydrocarbons from the Contributed Assets, (B) costs of gathering, processing,
insurance and transportation paid in connection with a sale which are not
included in Property Costs, and (C) Taxes paid in connection with a sale which
are not included in Property Costs); and (ii) any other proceeds received and
attributable to the Contributed Assets.
“Hydrocarbons” means
oil, condensate, gas, casinghead gas and other liquid or gaseous hydrocarbons,
or any of them or any combination thereof, and all products and substances
produced therewith, extracted, separated, processed and produced
therefrom.
“Law” means any
applicable constitutional provision, statute, act, code (including the Code),
law, regulation, rule, ordinance, order, decree, ruling, proclamation,
resolution, judgment, decision, declaration, or interpretative or advisory
opinion or letter of a Governmental Authority having valid
jurisdiction.
“Liability” means,
with respect to any person, any duty, liability, Tax, or obligation of such
person of any kind, known or unknown, whether vested, absolute or contingent,
matured or unmatured, asserted or unasserted, conditional or unconditional,
accrued or unaccrued, liquidated or unliquidated, secured or unsecured, or due
or to become due, and whether contractual, statutory or otherwise.
“Marcellus Acreage”
means the undeveloped fee or mineral interests covering the Marcellus Shale
Formation as set forth on Exhibit
A-1.
“Marcellus Acreage
Leases” means those Leases covering Marcellus Acreage.
“Net Mineral Acres”
means the product of the net acres in each Marcellus Acreage Lease multiplied by
Contributor’s working interest in such Marcellus Acreage Lease, as set forth on
Exhibit
A-1.
“Permits” means all
written permits, licenses, and governmental authorizations, registrations and
approvals required in connection with the ownership or operation of the
Contributed Assets.
“Person” means a
natural person, partnership (whether general or limited), limited liability
company, trust (including a common law trust, business trust, statutory trust,
voting trust or any to her form of trust), estate, association (including any
group, organization, co-tenancy, plan, board, council or committee),m
corporation, government (including a country, state, county or any other
governmental subdivision, agency or instrumentality), custodian, nominee or any
other individual or entity (or series thereof) in its own or any representative
capacity, in each case, whether domestic or foreign.
“Pre-Closing Tax
Period” means (i) any Tax period ending on or before the Closing Date and
(ii) the portion of any Straddle Period that ends on the Closing
Date.
“Proceeding” means any
action, suit, claim, investigation, review or other proceeding, at law or in
equity, before any Governmental Authority or any arbitrator, board of
arbitration or similar entity.
“Release” means any
spilling, leaking, pumping, pouring, emitting, discharging, dumping or disposing
of any Hazardous Material into the environment.
“Remediate,” “Remediation,” or
“Remedial
Action” means the removal, abatement, response, investigative, cleanup
and/or monitoring activities undertaken to address any Environmental Conditions,
or a Release of Hazardous Materials, any investigation, study, assessment,
testing, monitoring, containment, removal, disposal, closure, corrective action,
passive remediation, natural attenuation or bioremediation, and the installation
and operation of remediation systems.
“Royalty Litigation”
means that litigation identified as items numbered 1 and 2 on Schedule
4.5.
“Special PDC
Withdrawal” has the meaning given such term in the LLC
Agreement.
“Straddle Period”
means any Tax period that begins on or before the Closing Date and ends after
the Closing Date.
“Tax” or “Taxes” means (i) any
and all federal, state, provincial, county, local, or foreign taxes or levies of
any kind and any and all other like assessments, customs, duties, imposts,
charges or fees, including income, gross receipts, ad valorem, value added,
excise, real property, personal property, asset, sales, use, franchise, license,
payroll, transaction, capital, capital gains, net worth, withholding, estimated,
social security, utility, workers’ compensation, severance, disability, wage,
employment, production, unemployment compensation, occupation, premium, windfall
profits, transfer, gains, alternative or add-on minimum, stamp, documentary,
recapture, business license, business organization, environmental, profits,
lease, or other taxes or other charges imposed by or on behalf or payable to any
Governmental Authority, together with any interest, fines, penalties,
assessments, or additions resulting from, attributable to, or incurred in
connection with any of the foregoing (whether or not disputed); (ii) any
liability for the payment of any item described in clause (i) as a result of
being a member of an affiliated, consolidated, combined or unitary group for any
period, including pursuant to Treasury Regulations §1.1502-6 (or any similar
state, local or foreign Law); (iii) any liability for the payment of any item
described in clauses (i) or (ii) as a result of any express or implied
obligation to indemnify any other Person as a result of any obligations under
any agreements or arrangements with any other Person with respect to such item;
or (iv) any successor liability for the payment of any item described in clauses
(i), (ii) or (iii) of any other Person, including by reason of being a party to
any merger, consolidation, conversion or otherwise.
“Tax Return” means any
and all reports, returns, declarations, statements, forms, or other information
required to be filed with or submitted to any Governmental Authority in
connection with the determination, assessment, collection, or payment of any Tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Law relating to any Tax.
“Title Defect” means
any lien, charge, encumbrance, obligation (including contract obligation),
defect, or other similar matter (including a discrepancy in net revenue interest
or working interest) that, if not cured, causes Contributor not to have
Defensible Title in and to the Unit, Well or Lease, as applicable, as of the
Closing Date. Notwithstanding the foregoing, the following shall not
be considered Title Defects:
(i) defects
based solely on (i) lack of information in Contributor’s files and/or the
temporary unavailability of information from regulatory agencies; (ii)
references to a document(s) if such document(s) is not in Contributor’s files;
or (iii) Tax assessment, Tax payment records or similar records (or the absence
of such records); and
(ii) defects
as a consequence of cessation of production, insufficient production, or failure
to conduct operations during any period after the completion of a well capable
of production in paying quantities on any Oil and Gas Property held by
production, or lands pooled, communitized or unitized therewith, except to the
extent of a third party claim for termination.
“Treasury Regulation”
means temporary and final regulations promulgated under the Code by the United
States Department of the Treasury, as amended (including any corresponding
provisions of succeeding regulations).
Each of
the terms below has the meaning set forth in the provision of this Agreement
identified opposite such term in the following table:
|
Defined Term
|
Section
|
|
Adjustment
Amount
|
Section
7.5
|
|
Adjustment
Period
|
Section
7.5
|
|
Agreed
Value
|
Section
3.4(f)
|
|
Agreement
|
Preamble
|
|
Allocated
Value
|
Section
3.4(f)
|
|
Area
|
Schedule
1.1
|
|
Assumed
Liabilities
|
Section
1.2
|
|
Claim
|
Section
6.3
|
|
Closing
|
Section
2.1
|
|
Closing
Date
|
Section
2.1
|
|
Code
|
Section
3.4(f)
|
|
Company
|
Preamble
|
|
Consideration
|
Section
1.6
|
|
Contracts
|
Section
1.1(d)
|
|
Contributed
Assets
|
Section
1.1
|
|
Contribution
Documents
|
Section
4.1
|
|
Contribution
Transactions
|
Section
4.1
|
|
Contributor
|
Preamble
|
|
Cure
Date
|
Section
3.4(b)
|
|
Deductible
|
Section
6.4(b)(ii)
|
|
Defensible
Title
|
Section
3.2
|
|
Effective
Date
|
Section
1.1
|
|
Environmental
Defect Amount
|
Section
3.4(c)
|
|
Environmental
Defect Arbitrator
|
Section
3.4(e)(i)
|
|
Environmental
Defect Notice
|
Section
3.4(a)
|
|
Environmental
Defect Property
|
Section
3.4(b)
|
|
Environmental
Laws
|
Section
4.7(c)
|
|
Equipment
|
Section
1.1(e)
|
|
Gathering
Systems
|
Section
1.1(c)
|
|
Xxxxxx
|
Section
1.1(d)
|
|
Indemnitee
|
Section
6.3(a)
|
|
Indemnitor
|
Section
6.3(a)
|
|
Indemnity
Cap
|
Section
6.4(b)(iii)
|
|
Indemnity
Claim Date
|
Section
6.4(a)
|
|
Individual
Claim Threshold
|
Section
6.4(b)(i)
|
|
Investor
|
Preamble
|
|
Leases
|
Section
1.1(a)
|
|
LLC
Agreement
|
Recitals
|
|
Membership
Interest
|
Section
1.1(j)
|
|
Net
revenue interest
|
Section
3.2(a)
|
|
NORM
|
Section
4.7(b)
|
|
Notice
|
Section
6.3(a)
|
|
Oil
and Gas Properties
|
Section
1.1(c)
|
|
Party
|
Preamble
|
|
PDC
Operator Contracts
|
Section
1.1(d)
|
|
Permitted
Encumbrances
|
Section
3.3
|
|
Phase
I Investigation
|
Section
7.7(a)
|
|
Phase
II Assessment
|
Section
7.7(b)
|
|
Preferential
Rights
|
Section
7.3(c)
|
|
Property
Tax
|
Section
6.1(c)(i)
|
|
Retained
Assets
|
Section
1.3
|
|
Retained
Liabilities
|
Section
1.2
|
|
Subsidiary
|
Section
1.1(i)
|
|
Title
Defect Amount
|
Section
3.4(c)
|
|
Title
Defect Arbitrator
|
Section
3.4(e)(i)
|
|
Title
Defect Credit
|
Section
3.4(c)(ii)
|
|
Title
Defect Notice
|
Section
3.4(a)
|
|
Title
Defect Property
|
Section
3.4(b)
|
|
Transfer
Taxes
|
Section
8.5(a)
|
|
Transition
Contracts
|
Section
1.1(d)
|
|
Transition
Rights
|
Section
1.1(g)
|
|
Typical
OG Materials
|
Section
4.7(b)
|
|
Units
|
Section
1.1(b)
|
|
Xxxxx
|
Section
1.1(a)
|
