Defect Amounts. The diminution of value of the Assets attributable to any valid Defect that burdens an Asset (the “Defect Amount”) shall be determined as follows: (i) if Purchaser and Sellers agree on the Defect Amount, that amount shall be the Defect Amount; (ii) subject to Section 3.2(d)(vii), if a Title Defect is a Lien that is liquidated in amount, then the Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the Subject Company Group’s interest in the affected DSU or Well; (iii) if a Title Defect as to the applicable Subject Formation affecting any Well or DSU represents a negative discrepancy between (A) the actual Net Revenue Interest for the applicable Subject Formation as to such Well or DSU and (B) the Net Revenue Interest percentage stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable, over the productive life of such Well or DSU, and in such case there is a proportionate decrease in the actual Working Interest with respect to the applicable Subject Formation as to such Well or DSU, as applicable, from the Working Interest stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable, then the Defect Amount shall be equal to the product of (1) the Allocated Value of such Subject Formation as to such Well or DSU, as applicable multiplied by (2) a fraction, the numerator of which is (x) the remainder of (I) the “Net Revenue Interest” percentage stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable, minus (II) the actual Net Revenue Interest for such Subject Company Group with respect to such Subject Formation as to such Well or DSU, as applicable, and the denominator of which is (y) the “Net Revenue Interest” percentage stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable; provided that if the Title Defect does not affect the “Net Revenue Interest” percentage stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable, throughout its entire productive life, the Defect Amount determined under this Section 3.2(d)(iii) shall be reduced to take into account the applicable time period only; (iv) if the Title Defect represents an obligation, encumbrance, burden, or charge upon or other defect in title to the applicable Subject Formation as to a DSU or Well of a type not described in Section 3.2(d)(i) through Section 3.2(d)(iii), the Defect Amount shall be determined by taking into account the Allocated Value of the Subject Formation for the DSU or Well so affected, the portion of the Subject Company Group’s interest in the applicable Subject Formation as to such DSU or Well affected by the Title Defect, the legal effect of the Title Defect, the potential present value economic effect of the Title Defect over the life of the applicable Subject Formation as to such DSU or Well, the values placed upon the Title Defect by Purchaser and Sellers, the estimated capital and operational costs and expenses (or reduction or increases thereof) attributable to the Subject Company Group’s Working Interest, and such other reasonable factors as are necessary to make a proper evaluation and determination of such value; (v) if a Defect is an Environmental Defect, the Defect Amount shall be equal to the costs and expenses chargeable to the Subject Company Group’s Working Interest or interest (as of the Closing Date) to Remediate the Asset subject to such Environmental Defect in the lowest-cost manner reasonably available, consistent with applicable Environmental Laws, taking into account that non-permanent remedies (including mechanisms to contain or stabilize Hazardous Substances, including monitoring site conditions, natural attenuation, risk-based corrective action, institutional controls, or other appropriate restrictions on the industrial use of the property, caps, dikes, encapsulation, leachate collection systems, and the like), may be the lowest-cost manner reasonably available if such non-permanent remedies are effective, in compliance with applicable Environmental Laws and the requirements of applicable Governmental Authorities and allow for the continued operation of the relevant Asset(s); provided, however, such Defect Amount shall expressly exclude (A) the costs, fees and expenses of Purchaser’s and/or its Affiliate’s employees or attorneys, (B) costs, fees and expenses for matters that are ordinary costs of doing business regardless of the presence of an Environmental Defect (e.g., those costs that would ordinarily be incurred in the day-to-day operations of the Assets or in connection with permit renewal/amendment activities), and (C) overhead costs of Purchaser or its Affiliates; (vi) subject to and without limitation of Section 3.2(f), the Defect Amount with respect to a Defect shall be determined without duplication of any costs or losses included in another Defect Amount hereunder, or for which Purchaser otherwise receives credit in the calculation of the Adjusted Purchase Price; and (vii) notwithstanding anything to the contrary in this Agreement, with respect only to Title Defects, the aggregate adjustment to the Unadjusted Purchase Price for all Defect Amounts attributable to Defects with respect to each Asset shall not exceed the Allocated Value of such Asset (after giving effect to any applicable adjustments due to prior Defects) except with respect to Liens that are liquidated in amount with personal recourse to any member of the Subject Company Group (so long as such recourse is not limited to the Assets subject to such Lien).
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Sources: Securities Purchase Agreement (Devon Energy Corp/De)
Defect Amounts. The diminution of value of the Assets attributable to any valid Defect that burdens an Asset actually burdens, encumbers or affects a DSU or Well (the “Defect Amount”) shall be determined as follows:
(i) if Purchaser and Sellers Sellers’ Representative agree on the Defect Amount, that amount shall be the Defect Amount;
(ii) subject to Section 3.2(d)(vii), if a Title Defect is a Lien that is liquidated in amount, then the Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the Subject Company Group’s interest in the affected DSU or Well;
(iii) if a Title Defect as to the applicable Subject Formation affecting any Well or DSU represents a negative discrepancy between (A) the actual Net Revenue Interest for the applicable Subject Formation as to such Well or DSU and (B) the Net Revenue Interest percentage stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable, over the productive life of such Well or DSU, and in such case there is a proportionate decrease in the actual Working Interest with respect to the applicable Subject Formation as to such Well or DSU, as applicable, from the Working Interest stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable, then the Defect Amount shall be equal to the product of (1) the Allocated Value of such Subject Formation as to such Well or DSU, as applicable multiplied by (2) a fraction, the numerator of which is (x) the remainder of (I) the “Net Revenue Interest” percentage stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable, minus (II) the actual Net Revenue Interest for such Subject Company Group with respect to such Subject Formation as to such Well or DSU, as applicable, and the denominator of which is (y) the “Net Revenue Interest” percentage stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable; provided that if the Title Defect does not affect the “Net Revenue Interest” percentage stated on the applicable Annex to Exhibit A-2 for such Subject Company Group with respect to such Subject Formation for such Well or the applicable Annex to Exhibit A-3 for such Subject Company Group with respect to such Subject Formation for such DSU, as applicable, throughout its entire productive life, the Defect Amount determined under this Section 3.2(d)(iii) shall be reduced to take into account the applicable time period only;
(iv) if the Title Defect represents an obligation, encumbrance, burden, or charge upon or other defect in title to the applicable Subject Formation as to a DSU or Well of a type not described in Section 3.2(d)(i) through Section 3.2(d)(iii), the Defect Amount shall be determined by taking into account the Allocated Value of the Subject Formation for the DSU or Well so affected, the portion of the Subject Company Group’s interest in the applicable Subject Formation as to such DSU or Well affected by the Title Defect, the legal effect of the Title Defect, the potential present value economic effect of the Title Defect over the life of the applicable Subject Formation as to such DSU or Well, the values placed upon the Title Defect by Purchaser and SellersPurchaser, the estimated capital and operational costs and expenses (or reduction or increases thereof) attributable to the Subject Company Group’s Working Interest, and such other reasonable factors as are necessary to make a proper evaluation and determination of such value;
(v) if a Defect is an Environmental Defect, the Defect Amount shall be equal to the costs and expenses chargeable to the Subject Company Group’s Working Interest or interest (as of the Closing Date) estimated cost to Remediate the Asset subject to such Environmental Defect in the lowest-cost manner reasonably available, consistent with applicable Environmental Laws, taking into account that non-permanent remedies (including mechanisms to contain or stabilize Hazardous Substances, including monitoring site conditions, natural attenuation, risk-based corrective action, institutional controls, controls or other appropriate restrictions on the industrial use of the property, caps, dikes, encapsulation, leachate collection systems, and the like), if such responses are allowed under Environmental Laws, may be the lowest-cost manner reasonably available if such non-permanent remedies are effectiveand, in compliance with applicable Environmental Laws and where applicable, to the requirements of extent required by applicable Governmental Authorities and allow for the continued operation of the relevant Asset(s)Authorities; provided, however, such Defect Amount shall expressly exclude (A) the costs, fees and expenses of Purchaser’s and/or its Affiliate’s employees or attorneys, (B) costs, fees and expenses for matters that are ordinary costs of doing business regardless of the presence of an Environmental Defect (e.g., those costs that would ordinarily be incurred in the day-to-day operations of the Assets or in connection with permit renewal/amendment activities), and (C) overhead costs of Purchaser or its AffiliatesAffiliates and (D) any Remediation costs, fees or expenses charged or chargeable solely to any other Working Interest owner or co-tenant or joint owner of the underlying Assets burdened by such Environmental Defect;
(vi) subject to and without limitation of Section 3.2(f), the Defect Amount with respect to a Defect shall be determined without duplication of any costs or losses included in another Defect Amount hereunder, or for which Purchaser otherwise receives credit in the calculation of the Adjusted Purchase Price; and
(vii) notwithstanding anything to the contrary in this Agreement, with respect only to Title Defects, the aggregate adjustment to the Unadjusted Purchase Price for all Defect Amounts attributable to all Title Defects with respect to each affecting a single Asset shall not exceed the Allocated Value of such Asset (after giving effect to any applicable adjustments due to prior Defects) ), except with respect to Liens that are liquidated in amount with personal recourse to any member of the a Subject Company Group (so long as such recourse is not limited to member or the Assets subject to such Lien)Assets.
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