Exhibit 10.1

PURCHASE AND SALE AGREEMENT

October 24, 2007

BY AND BETWEEN

BARRY RAY SALSBURY, BRIAN CARL ALBRECHT

SHELL SIBLEY, WILLIE WILLARD POWELL AND

CAROLYN MONICA GREER

(OWNERS OF THE HARVEST GROUP, LLC)

AS SELLER,

THE HARVEST GROUP, LLC

AND

SARATOGA RESOURCES, INC.

AS BUYER

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TABLE OF CONTENTS

 

Page

 

 

Article I – Purchase and Sale

1

1.01

Purchase and Sale of Membership Interests

1

 

 

Article II – Purchase Price

1

2.01

Purchase Price

1

2.02

Payment of the Purchase Price

1

 

 

Article III – Company’s and Seller's Representations and Warranties

2

3.01

Existence and Good Standing

2

3.02

Qualification

2

3.03

Authorization

2

3.04

Brokers' Fees

2

3.05

Non-Contravention

2

3.06

Approvals

2

3.07

Third Party Claims, Disputes and Litigation

2

3.08

Imbalances and Make Up Obligations

3

3.09

Call on Production

3

3.10

Payment of Royalties

3

3.11

Compliance With Laws

3

3.12

Material Contracts

3

3.13

Other Assets

5

3.14

Equipment

5

3.15

Insurance

5

3.16

Environmental

5

3.17

Wells

6

3.18

No Encumbrances

6

3.19

Absence of Certain Changes or Events

6

3.20

Books and Records

7

3.21

Capitalization

7

3.22

Financial Statements; Other Financial Data

7

3.23

Directors, Officers, and Managers

8

3.24

Bank Accounts

8

3.25

Effectiveness of Leases

8

3.26

Company Tax Liability

8

 

 

Article IV – Seller's Representations and Warranties

8

4.01

Valid and Binding Agreement

8

4.02

Authorization of Agreement

8

4.03

Third Party Claims, Disputes and Litigation

8

4.04

Broker's Fees

8

4.05

Ownership of Membership Interests

8

4.06

Marketable Title

9

4.07

Investment Representations

9

 

 

Article V – Buyer's Representations and Warranties

9

5.01

Existence and Good Standing

9

5.02

Authorization

10

5.03

Broker's Fees

10

5.04

Non-Contravention

10

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5.05

Approvals

10

5.06

Valid and Binding Agreement

10

5.07

Proceedings

10

5.08

Funding Ability

10

5.09

Investment Representations

10

5.10

No Distribution

11

5.11

Reliance; Independent Investigation

11

5.12

Breach on Date Hereof

11

5.13

Buyer Financial Statements

11

5.14

Third Party Claims, Disputes and Litigation

11

5.15

Compliance with Laws

11

5.16

Compliance with Reporting Requirements

12

 

 

Article VI – Disclaimers and Waivers

12

 

 

Article VII – Title, Environmental and Material Contract Due Diligence

13

7.01

Title Due Diligence Examination

13

7.02

Environmental Due Diligence Examination

16

7.03

Material Contract Due Diligence

17

7.04

Adjustments to Purchase Price with Respect to Title Defects, Environmental

18

7.06

Defects and Material Contract Defects

18

7.06

Buyer Indemnification

18

 

 

Article VIII – Additional Pre-Closing Covenants and Agreements of Parties

18

8.01

Operations Prior to Closing

18

8.02

Sale or Disposal of Assets

19

8.03

Distributions

19

8.04

Reasonable Best Efforts

19

8.05

Notice of Litigation

19

8.06

HSR Filing

19

8.07

Notification of Inaccuracy of Representation of Warranty

19

8.08

Account Signatories

20

8.09

Access to Officers, Managers and Employees

20

8.10

Removal of Officers, Directors and Managers

20

8.11

Schedules of Exhibits

20

8.12

Environmental Issues

20

8.13

HRS Filings

20

8.14

Excluded Oil and Gas Properties

20

 

 

Article IX – Conditions Precedent to Closing

20

9.01

Seller’s Conditions Precedent to Closing

20

9.02

Buyer Conditions Precedent

21

 

 

Article X – Closing; Certain Post-Closing Agreements and Covenants

22

10.01

Time and Place of Closing

22

10.02

Closing Obligations

22

10.03

Buyer’s Post-Closing Representations Regarding Access

23

 

 

Article XI – Termination

23

11.01

Termination

23

11.02

Effect of Termination

25

 

 

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Article XII – Survival and Indemnification

25

12.01

Survival

25

12.02

Indemnification by Seller

25

12.03

Assumption of Liability and Indemnification by Buyer

25

12.04

Inducement to Seller

26

12.05

Indemnification Proceedings

26

12.06

Damages

26

12.07

Insurance Proceeds

27

12.08

Limited to Actual Damages

27

12.09

Express Negligence Rule

27

 

 

Article XIII – Casualty Loss

27

13.01

Casualty Loss

27

 

 

Article XIV – Certain Definitions and References

27

14.01

Certain Defined Terms

27

14.02

References and Construction

29

 

 

Article XV - Miscellaneous

29

15.01

Exhibits

29

15.02

Expenses

30

15.03

No Sales Taxes

30

15.04

Notices

30

15.05

Amendments

31

15.06

Assignment

31

15.07

Headings, Time of Essence

31

15.08

Counterparts

31

15.09

Governing Law

31

15.10

Entire Agreement

31

15.11

Parties in Interest

31

15.12

Arbitration

32

15.13

Injunctive Relief

32

15.14

Public Announcements

32

15.15

Confidentiality

32

15.16

Intentionally Omitted

32

15.17

Further Assurances

32

15.18

Liability of Seller

32

 

 

EXHIBITS

 

Exhibit “A”

Company Properties

 

Exhibit “B”

Form of Assignment of Membership Interests

 

Exhibit “C”

Form of Subordinated Note

 

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SCHEDULES

 

Schedule 2.02(b)

Wire Transfer Instructions

 

Schedule 3.06

Third Party Approvals and Consents

 

Schedule 3.07

Company’s and Seller’s Third Party Claims, Disputes and Litigation

 

Schedule 3.10

Overriding Royalty Interests

 

Schedule 3.12

Material Contracts

 

Schedule 3.12(d)

Consents or Waivers

 

Schedule 3.13

Company Assets

 

Schedule 3.15

Insurance

 

Schedule 3.16

Disclosed Violations of Applicable Environmental Law

 

Schedule 3.17

Wells

 

Schedule 3.18

Encumbrances

 

Schedule 3.22

Company’s Financial Statements

 

Schedule 3.23

Directors and Officers

 

Schedule 3.24

Bank Accounts

 

Schedule 3.25

Non HBP Leaseholds

 

Schedule 5.13

Buyer’s Financial Statements

 

Schedule 5.14

Buyer’s Third Party Claims, Disputes and Litigation

 

Schedule 7.01(d)(i)Reserve Report

 

Schedule 8.01

Contemplated Operations

 

Schedule 8.08

Account Signatories

 

Schedule 8.14

Excluded Oil and Gas Properties

 

Schedule 9.01(g)

Form of Legal Opinion

 

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PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (“Agreement”), dated October 24, 2007, is by
and among Barry Ray Salsbury, Brian Carl Albrecht, Shell Sibley, Willie Willard
Powell, and Carolyn Monica Greer (collectively, “Seller”), owners of The harvest
group, LLC, a Louisiana limited liability company (“Company”), the Company, and
SARATOGA RESOURCES, INC., a Texas corporation, 2304 Hancock Drive, Austin, Texas
78756 (“Saratoga” or “Buyer”).

WITNESSETH:

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, on the terms set forth in this Agreement, all of the membership
interests (“Membership Interests”) in the Company.

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

ARTICLE I.

PURCHASE AND SALE

1.01

Purchase and Sale of Membership Interests.  Subject to the terms and conditions
of this Agreement, Seller agrees to sell, and Buyer agrees to purchase, on the
Closing Date (defined below), all of the Membership Interests of the Company.

ARTICLE II.

PURCHASE PRICE

2.01

Purchase Price.  Subject to any adjustments that may be made under Article VII,
the purchase price for the Membership Interests shall be Twenty-Nine Million and
No/100 Dollars (U.S.) ($29,000,000.00) (the “Purchase Price”).

2.02

Payment of the Purchase Price.

(a)

The Purchase Price shall be payable (i) in cash (the “Cash Amount”), an amount
equal to Twenty-Two Million Nine ($22,000,009) Dollars, and (ii) the balance
(the “Non-Cash Amount”) in the form of the Subordinated Note (as hereinafter
defined).  For purposes of Section 2.02(a), the term Subordinated Note shall
mean a promissory note issued by Buyer, substantially in the form attached
hereto as Exhibit C, the principal amount of which is equal to the Non-Cash
Amount, and that (A) is subordinate to senior debt financing of Saratoga
including, but not limited to, senior revolver debt, senior term debt and a
senior development line of credit, to the extent set forth in the Subordinated
Note attached hereto as Exhibit C, (B) is due and payable in cash on the earlier
of (I) thirty-six (36) months from Closing, or (II) closing of a
fully-underwritten registered public offering of securities by the Company in
which the net proceeds to the Company equal or exceed $70,000,000, (C) bears
interest at the rate of eight (8%) percent per annum, payable quarterly in cash,
(D) is secured by a Lien on the assets of Company, specifically limited to those
assets of Company described in this Agreement which are owned or will be owned
by Company on the date and time of Closing, and (E) provides for payment of an
additional “equity participation bonus” amount on the earlier of maturity or on
repayment of the Subordinated Note in an amount equal to a twelve percent (12%)
annualized yield on the outstanding principal balance of the Subordinated Note
until paid, which amount is payable in cash or shares of Saratoga Resources,
Inc. common stock (“Saratoga Shares”), or a combination of cash and Saratoga
Shares, at Buyer’s discretion.  Any Saratoga Shares delivered to Seller (or any
designee(s) of Seller hereunder) in payment of the “equity participation bonus”
provided for in this Section 2.02(a)(ii)(D) shall be valued (x) if the shares to
be delivered are listed on a national or regional securities exchange, at the
average closing price of such shares on the principal exchange on which such
shares are listed over a three

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(3) trading day period ending immediately prior to the date on which such shares
become deliverable as provided for in this Section 2.02(a)(ii)(D), or (y) if the
shares to be delivered are not listed on a national or regional securities
exchange, by a valuation opinion issued to Seller (or any designees of Seller)
and Buyer, at Buyer’s cost, by a Person reasonably acceptable to Seller.  Any
adjustments to the Purchase Price under Article VII shall be apportioned
75.8621% against the Cash Amount and 24.1379% against the Non-Cash Amount.

(b)

All cash payments by Buyer to Seller pursuant to this Article II shall be made
in immediately available funds by confirmed wire transfer to a bank account
designated by Seller to Buyer as provided in Schedule 2.02(b).  Any and all
Saratoga Shares to be issued by Buyer as part of the Non-Cash Amount shall be
issued to Seller or its designees, subject to compliance with applicable
security laws.

ARTICLE III.

COMPANY’S AND  SELLER’S REPRESENTATIONS AND WARRANTIES

The Company, and each individual Seller, represents and warrants to Buyer, as
follows:

3.01

Existence and Good Standing.  Company is validly existing and, as applicable, in
good standing under the laws of the jurisdiction of its incorporation or
organization as the case may be.  Company has the power and authority to own its
property and to carry on its business as now conducted and to enter into and to
carry out the terms of this Agreement.

3.02

Qualification.  Company is duly qualified or licensed to conduct business as a
foreign corporation, limited liability company or limited partnership (as
applicable) in each of the jurisdictions in which it owns, leases or operates
the Company Properties.

3.03

Authorization.  The execution and delivery of this Agreement by Company, the
performance of this Agreement by Company and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate, limited liability company or limited partnership action (as
applicable).

3.04

Broker’s Fees.  Company is not a party to, or in any way obligated under, nor
does Company or Seller have any knowledge of, any contract or outstanding claim
for the payment of any broker’s or finder’s fee which Company is obligated to
pay in connection with the origination, negotiation, execution, or performance
of this Agreement for which Buyer could be held responsible.

3.05

Non-Contravention.  Neither the execution, delivery nor performance of this
Agreement by Company will (i) conflict with or result in a violation under any
provision of Company’s governing documents; (ii) conflict with or result in a
violation of any provision of, or constitute a default under, any Material
Contract or agreement or any bank loan, indenture or credit agreement to which
Company is a party or by which any of its properties or Company Properties are
bound; (iii) violate any Applicable Law binding upon Company; (iv) violate any
applicable order, writ, judgment or decree of any Governmental Entity binding
upon Company; or (v) result in the creation of any Lien on the Company
Properties or the Membership Interests (or any of them).

3.06

Approvals.  Except for any filing required by the HSR Act, no authorization,
consent or approval of, or filing with, any Governmental Entity is required to
be obtained or made by Company for the execution and delivery by Seller of this
Agreement and the consummation by Seller of the transaction contemplated
hereunder.  No authorization, consent or approval of any non-governmental third
party is required to be obtained by Company for the execution and delivery of
this Agreement or the consummation by Seller of the transaction contemplated
hereunder, except as set forth in Schedule 3.06.

3.07

Third Party Claims, Disputes and Litigation.  Except as set forth in Schedule
3.07, there are no claims, disputes or litigation pending or, to the Best of
Company’s Knowledge or the knowledge of Seller, threatened, in which Company is
or may be a party and which directly relates to the Membership Interests or
Company Properties.  There are no claims, disputes or litigation pending or, to
the Best of Company’s Knowledge or

2

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the knowledge of Seller, threatened, in which Company is or may be a party
affecting the execution and delivery of this Agreement by Seller or the
consummation of the transactions contemplated hereby by Seller.  There are no
bankruptcy, reorganization or arrangements with creditors pending, being
contemplated by, or to the Best of Company’s Knowledge or the knowledge of
Seller, threatened against Company.

3.08

Imbalances and Make Up Obligations.  There are no gas imbalances or make up
obligations affecting the Leases, Wells, Units, or other interests included
within the Company Properties.

3.09

Call on Production.   There are no calls on production affecting the Leases,
Wells, Units, or other interests included within the Company Properties.

3.10

Payment of Royalties.  Schedule 3.10 sets forth an accurate and complete list of
all overriding royalty interests pertaining to the Company Properties, and
Seller and Company represent and warrant that all royalties pertaining to the
Leases, Wells, Units, and the Company Properties have been, and are being, paid
timely, except for those royalties as may be set forth on Schedule 3.07, which
are disputed in good faith by Company and for which an adequate accounting
reserve has been established by Company.

3.11

Compliance With Laws.  To the Best of Company’s Knowledge or the knowledge of
Seller, the ownership and operation of the Company Properties operated by
Company have been in compliance with all Applicable Laws,

3.12

Material Contracts.

(a)

Set forth on Schedule 3.12 (and segregated in Schedule 3.12 among the below
categories) is a true, complete, and correct description of each contract,
agreement, lease, or similar arrangement to which Company is a party or by which
any of the Company Properties or Membership Interests is bound and which:

(i)

is between Company and any Affiliate of Company;

(ii)

is an employment agreement between the Company, on the one hand, and its
officers, members, managers, and employees, on the other hand;

(iii)

upon Closing, will (either alone or upon the occurrence of any additional acts
or events, including the passage of time) result in any material payment or
benefit (whether of severance pay or otherwise) becoming due, or the
acceleration or vesting of any right to any material payment or benefits, from
Buyer or the Company to any officer, director, consultant, member, manager or
employee of the Company;

(iv)

involves payment by or to the Company of more than $250,000;

(v)

expressly limits the ability of the Company to compete in or conduct any line of
business or compete with any Person or in any geographic area or during any
period of time, in each case, if such limitation is or is reasonably likely to
be material to the Company;

(vi)

is an oil, gas and mineral lease, State of Louisiana operating agreement,
unitization agreement, joint venture agreement, joint operating agreement,
partnership agreement or other similar contract or agreement involving a sharing
of profits and expenses with one or more third Persons;

(vii)

benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement, or the value of any of the benefits of which will be
calculated on the

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basis of any of the transactions contemplated by this Agreement (including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan);

(viii)

is a limited liability company operating agreement or equity holder rights
agreement, or which otherwise provides for the issuance of any securities in
respect of this Agreement;  

(ix)

is a contract for the sale, purchase, processing, exchange, gathering,
treatment, compression or transportation of any Hydrocarbons or any other
Company Properties;

(x)

creates a purchase option, right of first refusal, call, or preferential
purchase right on any Hydrocarbons;

(xi)

creates any area of mutual interest or similar provision with respect to the
acquisition by Company or its assigns of any interest in any Hydrocarbons, land
or asset, or contains any restrictions on the ability of Company or its assigns
to compete with any other Person;

(xii)

is a dry hole, bottom hole, acreage contribution, purchase and acquisition,
exploration, farmout, farmin, or similar agreement;

(xiii)

creates or evidences any preferential purchase right or consent;

(xiv)

evidences an obligation to pay a deferred purchase price of property, except
accounts payable arising in the ordinary course of business;

(xv)

evidences a lease or rental of any land, building or other improvements or
portion thereof, excluding Leases;

(xvi)

is necessary to own and/or operate the Company Properties in the manner that
they were owned and operated on the date of this Agreement or that creates any
material obligation related to the Company Properties;

(xvii)

is a seismic agreement, license, geophysical or similar agreement;

(xviii)

relates to engineering software, licenses thereto, or relating to intellectual
property in general;

(xix)

is a facility use agreement, production handling agreement, salt water disposal
agreement, servicing contracts, or similar agreement relating to the use of
facilities to aid in the production of   Hydrocarbons from the Company
Properties or other oil and gas properties;

(xx)

is an easement, surface lease, permit, license, right of way, servitude, or
other interest appertaining to the Company Properties; or

(xxi)

is an executory contract or agreement relating to the Company Properties.

(the “Material Contracts”).

(b)

Seller has made available to Buyer true, complete, and correct copies of all
Material Contracts (together with all amendments and supplements to such
Material Contracts, and all waivers of any terms thereof).

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(c)

Except as set forth on Schedule 3.12, (1) each Material Contract is in full
force and effect and constitutes a legal, valid, and binding agreement,
enforceable in accordance with its terms, of each party thereto; (2) there are
no violations or breaches of any Material Contract by the Company or existing
facts or circumstances which upon notice or the passage of time or both will
constitute a violation or breach thereof by the Company, which would,
individually or in the aggregate, have a Material Adverse Effect on the value of
the Company Properties or the Membership Interests; (3) no notice of the
exercise or attempted exercise of premature termination, price reduction,
market-out or curtailment of any Material Contract has been received by Company
or any Affiliate of Company nor, to the Best of Company’s Knowledge or the
knowledge of Seller, any other party to such Material Contract; (4) no notice
has been received by Company or any Affiliate of Company nor, to the knowledge
of Company or Seller, any other party to such Contract, that any party thereto
intends not to honor its obligations under any Material Contract; and (5)
Company, nor, to the Best of Company’s Knowledge or the knowledge of Seller, any
other party to such Material Contract, is not participating in any discussions
or negotiations regarding modification of any Material Contract.

(d)

No consent of any third parties is required under any of the Material Contracts
as a result of any transfer of the Membership Interest unto Buyer, except for
such consents identified in Schedule 3.12(d).

3.13

Other Assets.  The Company presently owns, and will own at Closing, the assets,
leases, and properties, real and personal, identified and generally described in
Schedule 3.13 which do not constitute Company Property (neither Seller nor the
Company warrant ownership of the Company Property).

3.14

Equipment.  All equipment and personal property currently used on the Company
Properties and identified in Schedule 3.13 have been maintained, and will be
maintained through Closing, in an operable state of repair consistent with
customary standards in the industry.

3.15

Insurance.  Company currently maintains the insurance coverages identified in
Schedule 3.15 and Seller shall ensure that such coverages continue through
Closing.

3.16.

Environmental.  

(a)

To the Best of Company’s Knowledge or the knowledge of Seller, except as set
forth in Schedule 3.16, there are no violations of Applicable Environmental Laws
relating to the Company Properties during the period Company owned or operated
the Company Properties, which have not been corrected or remediated and all
applicable fines or penalties have been paid in full under the requirements of
any Governmental Entity having jurisdiction.

(b)

To the Best of Company’s Knowledge or the knowledge of Seller, except as set
forth in Schedule 3.16, there are no Environmental Liabilities that arise from
events occurring at or conditions existing on the Company Properties during the
period Company owned or operated the affected Company Properties.

(c)

Except as set forth in Schedule 3.16, all Permits required under Applicable
Environmental Laws that are necessary to the operation of the Company Properties
have been obtained and are in full force and effect, other than those Permits,
the failure of which to obtain which would not, individually or in the
aggregate, have a Material Adverse Effect on the operation of the Company
Properties, and Company has operated the Company Properties in compliance with
such Permits, except for any failure of compliance which would not, individually
or in the aggregate, have a Material Adverse Effect.

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(d)

Except as set forth in Schedule 3.16, neither Company nor any of its Affiliates
has received any notifications of any Proceedings pending or, to the Best of
Company’s Knowledge or the knowledge of Seller, threatened against Company or
the Company Properties and alleging that Company or the Company Properties are
in violation of or otherwise subject to liability under Applicable Environmental
Law.

(e)

To the Best of Company’s Knowledge or the knowledge of Seller, there has been no
claim asserting liability for exposure of any Person or property to hazardous
materials in connection with the Company Properties.  

3.17.

Wells. To the Best of Company’s Knowledge or the knowledge of Seller, all Wells
on the Company Properties have been drilled and completed within the limits
permitted by all applicable Leases, contracts, and pooling or unit agreements,
and by legal requirements.  To the Best of Company’s Knowledge or the knowledge
of Seller, no Well existing prior to the Closing on the Company Properties is,
or after the Closing Date will be, subject to penalties on allowables because of
any overproduction or any other violation of legal requirements.  Except as set
forth in Schedule 3.17, there are no Wells, platforms, or other Equipment
located on the Company Properties that:  (i) Company is currently obligated by
any legal requirement or contract to currently plug and abandon; (ii) are
subject to exceptions to a requirement to plug and abandon issued by a
Governmental Entity; or (iii) have been plugged and abandoned in a manner that
does not comply in all material respects with legal requirements.

3.18.

No Encumbrances.  Except as set forth in Schedule 3.18, there are no mortgages,
liens, privileges, and security agreements affecting the Membership Interests or
the Company Properties other than Liens that Seller or Company shall cause to be
released prior to or pursuant to the Closing.

3.19.

Absence of Certain Changes or Events.  Since June 30, 2007 (the date of the last
unaudited Company financial statement provided by Seller to Buyer), (i) the
Company has conducted its business only in the ordinary course consistent with
past practice in all material respects, and (ii) there has not been any
transaction or occurrence by which the Company has:

(a)

suffered any Material Adverse Effect;

(b)

declared, set aside or paid any dividend or other distribution (whether in cash,
stock or property) with respect to any of its outstanding Membership Interests,
or made any redemption, purchase or other acquisition of any of its equity
securities, except for distributions by the Company to its members on or about
September 11, 2007;

(c)

cancelled any debts or waived any receivables, claims or rights in excess of
$50,000.00 individually or in the aggregate;

(d)

suffered any uninsured casualty loss or damage in excess of $50,000.00
individually or in the aggregate;

(e)

amended any material term of any equity security or Material Contract of the
Company;

(f)

hired any employees;

(g)

made any payments to any Affiliates, with the exception of payments made to
Harvest Oil & Gas, LLC or its employees, each in the ordinary course of
business;

(h)

incurred any obligation to make capital expenditures in excess of $50,000.00
individually or in the aggregate, except well and facility expenditures incurred
in the ordinary course of business; or

(i)

made any change in its accounting methods, principles or practices.

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3.20.

Books and Records.  The Company and/or Seller has provided to Buyer true and
correct copies of any minute books and records of the Company, current as of the
date hereof (and which shall be current as of the Closing), taken at any
meetings and all written consents in lieu of meetings of the Company’s Members
or Managers or any committees thereof.  The Material Contracts, accounting,
financial reporting and business books and records of the Company and any other
information furnished by Seller or Company to Buyers in connection herewith
accurately and fairly reflect in all material respects the business and
condition of the Company, the transactions related to the Company Properties and
the liabilities of the Company with respect thereto.  Without limiting the
generality of the foregoing, the Company has not engaged in any transaction with
respect to its business or operations, maintained any bank account therefore or
used any funds of the Company in the conduct thereof except for transactions,
bank accounts and funds that have been and are reflected in the normally
maintained books and records of the business.

3.21

Capitalization.

(a)

The authorized equity ownership of the Company consists solely of the Membership
Interests, which are owned 100% of record and beneficially, free and clear of
any Liens other than (i) restrictions on transfer pursuant to applicable
securities law and (ii) Liens that shall be released by Seller pursuant to the
Closing, and have been duly authorized and validly issued, and are fully paid
and non-assessable.  As of the Closing Date there shall be no outstanding
options, subscriptions, warrants, calls, commitments, pre-emptive rights or
other rights obligating the Company to issue or sell any Membership Interests or
any securities convertible into or exercisable for any Membership Interests, or
otherwise requiring Seller or the Company to give any Person the right to
receive any benefits or rights similar to any rights enjoyed by or accruing to
the holders of Membership Interests or any rights to participate in the equity
or net income of the Company.  All of the issued Membership Interests of the
Company were issued, and to the extent purchased or transferred, have been so
purchased or transferred, in compliance with all Applicable Laws, including
federal and state securities laws, and any preemptive rights and any other
statutory or contractual rights of any Seller.

(b)

The Company has no subsidiaries.  The Company does not own, directly or
indirectly, any capital of or other equity interest in or have any other
investment in or outstanding loans to any corporation, partnership or other
entity or organization.  There are no stockholders’ agreements, voting trusts or
other agreements or understandings to which Seller or the Company is a party or
by which either is bound with respect to the transfer or voting of any of the
Membership Interests (other than agreements that shall be released pursuant to
the Closing).

3.22

Financial Statements; Other Financial Data.  Attached hereto as Schedule 3.22
are correct and complete copies of (i) the audited balance sheet of the Company
as of December 31, 2006, together with the related audited statements of income
and retained earnings and of cash flows for the period ended December 31, 2006
and (ii) the unaudited balance sheet of the Company as of June 30, 2007,
together with the related unaudited statements of income and retained earnings
and of cash flows for the period ended June 30, 2007 (the “Company Financial
Statements”).  The Company Financial Statements present fairly in all material
respects the financial position of the Company as of the dates indicated, and
the results of its operations for the respective periods indicated. The Company
Financial Statements have been prepared in conformity with GAAP.  As of the
Closing, the Company will have no liabilities other than (i) liabilities
reflected on any of the Company Financial Statements; (ii) liabilities in
respect of taxes, assessments, governmental charges and levies and claims for
labor, materials and supplies to the extent that payment therefore shall not be
past due or which are being contested in good faith; (iii) current liabilities
of Borrower incurred in the ordinary course of business and not incurred through
(A) the borrowing of money, or (B) the obtaining of credit (except for credit on
an open account basis customarily extended and in fact extended in connection
with normal purchases of goods and services); (iv) endorsements for collection,
deposits or negotiation and warranties of products or services, in each case
incurred in the ordinary course of business; (v) liabilities in respect of
performance, surety or appeal bonds obtained in the ordinary course of Company’s
business; (vi) ordinary and customary liabilities under the Material Contracts;
(vii) liabilities incurred pursuant to Sections 3.19, 8.01 and

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8.02, and (viii) liabilities under the letter(s) of credit and hedge contract(s)
described on Schedule 3.22 relating to the MBL Debt (which liabilities will not
be paid by Company or Seller at Closing and will remain a liability of Company
after Closing).

3.23

Directors, Officers, and Mangers.  As of the Closing Date, the Company shall not
have any directors, managers, officers, or employees other than as listed on
Schedule 3.23.

3.24

Bank Accounts.  Attached hereto as Schedule 3.24 is a list of all banks or other
financial institutions with which the Company has an account, showing the type
and account number of each such account, and the names of the persons authorized
as signatories thereon or to act or deal in connection therewith.

3.25

Effectiveness of Leases.  Except as identified in Schedule 3.25, all leasehold
and other mineral interests included within Company Properties identified on
Exhibit A are presently being maintained pursuant to the terms of each
individual Lease, and there are no outstanding demands for a release pending by
any lessor.

3.26

Company Tax Liability.  The Company has no past due local, state, or federal tax
liability.

ARTICLE IV.

SELLER’S REPRESENTATIONS AND WARRANTIES

Seller, individually and collectively, hereby represents and warrants to Buyer
as follows:

4.01

Valid and Binding Agreement.  This Agreement has been duly executed and
delivered by Seller, and all documents and instruments required hereunder to be
executed and delivered by Seller at Closing will be duly executed and delivered
by Seller. Seller has all requisite power and authority to execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby and thereby to be consummated by Seller. This Agreement and
all such documents and instruments constitute legal, valid and binding
obligations of Seller enforceable in accordance with their respective terms,
subject, however, to (i) the effects of bankruptcy, insolvency, reorganization
and other similar laws affecting creditors’ rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.

4.02

Authorization of Agreement.  The execution and delivery of this Agreement by
Seller and the performance of the transactions contemplated herein by Seller
have been duly authorized by all necessary action, and no other action on the
part of Seller is necessary to authorize this Agreement or consummate the
transactions contemplated hereby.

4.03

Third Party Claims, Disputes and Litigation.  Except as set forth in Schedule
3.07, there are no claims, disputes or litigation pending or, to Seller’s
knowledge, threatened, in which Seller is or may be a party and which directly
relates to the Membership Interests or Company Properties.  There are no claims,
disputes or litigation pending or, to Seller’s knowledge, threatened, in which
Seller is or may be a party affecting the execution and delivery of this
Agreement by Seller or the consummation of the transactions contemplated hereby
by Seller.  There are no bankruptcy, reorganization or arrangements with
creditors pending, being contemplated by, or to Seller’s knowledge, threatened
against Seller.

4.04

Broker’s Fees.  Seller is not a party to, or in any way obligated under, nor
does Seller have any knowledge of, any contract or outstanding claim for the
payment of any broker’s or finder’s fee which Seller is obligated to pay in
connection with the origination, negotiation, execution, or performance of this
Agreement for which Buyer could be held responsible.

4.05

Ownership of Membership Interests.  Seller is the record and beneficial owner of
all of the Membership Interests, and those Membership Interests are owned by
Seller free and clear of all Liens other than (i) restrictions on transfer
pursuant to applicable securities laws and (ii) Liens that shall be released by
Seller prior to or pursuant to the Closing, including, without limitation,
voting trusts or stockholders agreements.  Seller has full authority to transfer
pursuant to this Agreement all of the Membership Interests, free and clear of
all Liens, other

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than restrictions on transfer pursuant to applicable securities laws, and all
Liens in favor of MBL encumbering the  Membership Interests shall be released
prior to or pursuant to the Closing.

4.06

Marketable Title.  The delivery by Seller to Buyer at the Closing of the
Membership Interests shall vest in Buyer good and marketable title to all of the
Membership Interests, free and clear of all Liens, other than restrictions on
transfer pursuant to applicable securities laws.

4.07

Investment Representations.

(a)

Seller has (i) the ability to bear the economic risks of ownership of the
Subordinated Note and the Saratoga Shares that may be issued under the terms of
the Subordinated Note (collectively, the “Saratoga Securities”), as appropriate,
which may be delivered to Seller under the terms of the Agreement and (ii) the
knowledge and experience in financial and business matters necessary for
evaluating the merits and risks of investing in the Saratoga Securities;

(b)

Seller has had such opportunity as it has deemed appropriate to ask questions of
and receive answers from persons acting on behalf of Buyer concerning Buyer, the
Saratoga Securities and the transactions contemplated hereby in order to make an
informed investment decision with respect to the Saratoga Securities;

(c)

Seller is not acquiring the Saratoga Securities under the terms and conditions
of this Agreement as a result of or after any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or meeting;

(d)

Intentionally Omitted;

(e)

Seller is acquiring the Saratoga Securities upon the terms and conditions set
forth in this Agreement for investment and for Seller’s own account and not with
the current view to, or for resale in connection with, any distribution;

(f)

Seller understands that the Saratoga Securities have not been registered under
the Securities Act or under any state securities or blue sky laws, and, as a
result, are subject to substantial restrictions on transfer;

(g)

Seller acknowledges that appropriate legends will be placed on the certificates
representing the Saratoga Securities indicating the restrictions on transfer of
the Saratoga Securities under applicable securities laws; and

(h)

Seller acknowledges that the Saratoga Securities must be held for a period of at
least one year from issuance, unless subsequently registered under the
Securities Act and any applicable state securities or blue sky laws, or sold or
otherwise transferred pursuant to exemptions from registration under the
Securities Act and/or such state securities laws.

ARTICLE V.

BUYER’S REPRESENTATIONS AND WARRANTIES

Buyer represents and warrants to Seller as follows:

5.01

Existence and Good Standing.  Buyer is a Texas corporation validly existing and
in good standing under the laws of the jurisdiction of its incorporation. Buyer
has the power and authority to own its property and to carry on its business, as
now conducted, and to enter into and to carry out the terms of this Agreement.

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5.02

Authorization.  The execution and delivery of this Agreement by Buyer and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on behalf of Buyer.

5.03

Broker’s Fees.  Buyer is not a party to, or in any way obligated under, nor does
Buyer have any knowledge of, any contract or outstanding claim for the payment
of any broker’s, marketer’s or finder’s fee in connection with the origination,
negotiation, execution or performance of this Agreement for which Seller could
be held responsible.

5.04

Non-Contravention.  Neither the execution, delivery nor performance of this
Agreement by Buyer will (i) conflict with or result in a violation under any
provision of Buyer’s governing documents; (ii) conflict with or result in a
violation of any provision of, or constitute a default under, any material
contract or agreement or any bank loan, indenture or credit agreement to which
Buyer is a party or by which any of its properties or Company Properties are
bound; (iii) violate any Applicable Law binding upon Buyer; or (iv) violate any
applicable order, writ, judgment or decree of any Governmental Entity binding
upon Buyer.

5.05

Approvals.  Except for (i) any filing required by the HSR Act, and (ii) any
filings to be made under applicable state and federal securities law, no
authorization, consent or approval of, or filing with, any Governmental Entity
is required to be obtained or made by Buyer for the execution and delivery by
Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereunder. No authorization, consent or approval of any
non-governmental third party is required to be obtained by Buyer for the
execution and delivery of this Agreement or the consummation by Buyer of the
transactions contemplated hereunder.

5.06

Valid and Binding Agreement.  This Agreement has been duly executed and
delivered by Buyer, and all documents and instruments required hereunder to be
executed and delivered by Buyer at or after Closing will be duly executed and
delivered by Buyer. This Agreement and all such documents and instruments
constitute legal, valid and binding obligations of Buyer enforceable in
accordance with their respective terms, subject, however, to (i) the effects of
bankruptcy, insolvency, reorganization and other similar laws affecting
creditors’ rights generally and (ii) equitable principles which may limit the
availability of certain equitable remedies (such as specific performance) in
certain instances.

5.07

Proceedings.  There are no Proceedings pending or, to the Buyer’s knowledge,
threatened, in which Buyer is or may be a party affecting the execution and
delivery of this Agreement by Buyer or the consummation of the transactions
contemplated hereby by Buyer.  There are no bankruptcy, reorganization or
arrangement Proceedings pending, being contemplated by, or to the Buyer’s
knowledge, threatened against Buyer.

5.08

Funding Ability.  Buyer has preliminary non-binding commitments to have all
funds necessary, and at the Closing will have all funds necessary, for Buyer’s
consummation of the transactions contemplated hereby.

5.09

Investment Representations.

(a)

Buyer has (i) the ability to bear the economic risks of ownership of the
Membership Interests delivered to Buyer under the terms of the Agreement and
(ii) the knowledge and experience in financial and business matters necessary
for evaluating the merits and risks of acquiring the Membership Interests;

(b)

Buyer has had such opportunity as it has deemed appropriate to ask questions of
and receive answers from persons acting on behalf of Company and Seller
concerning the Membership Interests, the Company, Seller and the transactions
contemplated hereby in order to make an informed investment decision with
respect to the acquisition of the Membership Interests;

(c)

Buyer is not purchasing the Membership Interests under the terms and conditions
of this Agreement as a result of or after any advertisement, article, notice or
other

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communication published in any newspaper, magazine or similar media or broadcast
over television or radio or presentation at any seminar or meeting;

(d)

Buyer is acquiring the Membership Interests upon the terms and conditions set
forth in this Agreement for investment and for Buyer’s own account and not with
the current view to, or for resale in connection with, any distribution;

(e)

Buyer has been informed that the solicitations of offers and the sale of the
Membership Interests by Seller have not been registered with any securities
commission, state or federal, and Buyer hereby specifically agrees that neither
Buyer, nor its directors, shareholders, employees, representatives or agents,
shall initiate any Proceeding based upon the assertion or claim that the sale
contemplated hereunder is the sale of securities;

(g)

Buyer acknowledges that appropriate legends will be placed on any certificates
representing the Membership Interests indicating any restrictions on transfer of
the Membership Interests under applicable securities laws; and

(h)

Buyer acknowledges that the Membership Interests will be held indefinitely by
Buyer unless subsequently registered under the Securities Act and any applicable
state securities or blue sky laws or sold or otherwise transferred pursuant to
exemptions from registration under the Securities Act and/or such state
securities laws.

5.10

No Distribution.  Buyer is acquiring the Membership Interests for its own
benefit and account and not with the intent of selling or making a distribution
of such Membership Interests in violation of applicable federal or state
securities laws.

5.11

Reliance; Independent Investigation.  In making the decision to enter into this
Agreement and consummate the transactions contemplated hereby, Buyer has relied
solely the representations and warranties contained herein and on its own
independent due diligence investigation of the Company Properties and the
Membership Interests and its own expertise and judgment and the advice and
counsel of its own legal, land, tax, economic, environmental, engineering,
geological and geophysical and other advisors and consultants.  

5.12

Breach on Date Hereof.  As of the date of this Agreement, Buyer has no knowledge
of any breach by Company or Seller of any of their representations and
warranties contained in this Agreement.

5.13

Buyer Financial Statements.  Attached hereto on Schedule 5.13 are correct and
complete copies of (i) the audited balance sheet of Buyer as of December 31,
2006, together with the related audited statements of income and retained
earnings and of cash flows for the period ended December 31, 2006 and (ii) the
unaudited balance sheet of Buyer as of June 30, 2007, together with the related
unaudited statements of income and retained earnings and of cash flows for the
period ended June 30, 2007 (the “Buyer Financial Statements”).  The Buyer
Financial Statements present fairly in all material respects the financial
position of Buyer as of the dates indicated, and the results of its operations
for the respective periods indicated and no material adverse change in the
financial condition of Buyer has occurred since the date of the Buyer Financial
Statements through the date hereof and no material adverse change in the
financial condition of Buyer shall occur during the period of time from the
execution of this Agreement until the Closing.  The Financial Statements have
been prepared in conformity with GAAP.

5.14

Third Party Claims, Disputes and Litigation.  There are no claims, disputes or
litigation pending or, to the Buyer’s knowledge, threatened, in which Buyer is
or may be a party except as may be set forth in Schedule 5.14.  There are no
bankruptcy, reorganization or arrangements with creditors pending, being
contemplated by, or to Buyer’s knowledge, threatened against Buyer.

5.15

Compliance With Laws.  To the best of Buyer’s knowledge, Buyer has complied in
all material respects with all laws that are applicable to all or any part of
the operation of its business activities which the failure to comply with could
have a material adverse effect on the financial condition of Buyer.

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5.16

Compliance with Reporting Requirements.  Buyer has, during the preceding twelve
months, filed all reports required to be filed by it under Section 13 or 15(d)
of the Securities Exchange Act of 1934 (the “Exchange Act”).  Until the earlier
of (i) the payment, in cash, of the “equity participation bonus” provided for in
Section 2.02(a)(ii)(D), (ii) the sale of all Saratoga Shares, if any, issued in
payment of the “equity participation bonus,” or (iii) the eligibility of the
Saratoga Shares to be resold without restrictions pursuant to Rule 144(k)
promulgated under the Securities Act, Buyer shall (A) use its reasonable best
efforts to continue to file all reports required to be filed by it under the
Exchange Act and (B) provide to Seller, from time to time upon request from
Seller, written confirmation of Buyer’s filing of all reports required to be
filed by Buyer under the Exchange Act during the twelve months preceding such
request.

 ARTICLE VI.

DISCLAIMERS AND WAIVERS

6.01.

Other than those representations and warranties expressly set out in Articles
III and IV of this Agreement, Company and Seller hereby expressly disclaim any
and all representations or warranties with respect to the Membership Interests,
the Company Properties, and the other transactions contemplated hereby.

6.02.

WITHOUT LIMITING THE FOREGOING, EXCEPT AS EXPRESSLY SET FORTH HEREIN, COMPANY
AND SELLER MAKE NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY, OR IMPLIED,
AS TO (i) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION,
OR RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE MEMBERSHIP INTERESTS OR THE
COMPANY PROPERTIES; (ii) THE PRESENCE, QUALITY, AND QUANTITY OF HYDROCARBON
RESERVES (IF ANY) ATTRIBUTABLE TO THE COMPANY PROPERTIES; (iii) THE ABILITY OF
THE COMPANY PROPERTIES TO PRODUCE HYDROCARBONS, INCLUDING PRODUCTION RATES,
DECLINE RATES, AND RECOMPLETION OPPORTUNITIES; (iv) THE PRESENT OR FUTURE VALUE
OR THE ANTICIPATED INCOME, COSTS, OR PROFITS, IF ANY, TO BE DERIVED FROM THE
MEMBERSHIP INTERESTS OF THE COMPANY PROPERTIES, (v) TITLE TO THE COMPANY
PROPERTIES; (vi) THE ENVIRONMENTAL CONDITION OF THE COMPANY PROPERTIES, (vii)
ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR, AND (viii) ANY OTHER
MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL FURNISHED TO
BUYER BY SELLER.

6.03.

WITHOUT LIMITING THE FOREGOING, EXCEPT AS EXPRESSLY SET FORTH HEREIN, COMPANY
AND SELLER HEREBY EXPRESSLY DISCLAIM ANY WARRANTY, WHETHER EXPRESS OR IMPLIED,
AND WHETHER BY COMMON LAW, STATUTE OR OTHERWISE, AS TO OPERATING CONDITION,
VALUE, FINANCIAL CONDITON, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, CONDITION
OR OTHERWISE, CONCERNING THE MEMBERSHIP INTERESTS OR THE COMPANY PROPERTIES.
 COMPANY AND SELLER DO NOT WARRANT THE COMPANY PROPERTIES OR THE MEMBERSHIP
INTERESTS TO BE FREE FROM REDHIBITORY DEFECTS, LATENT OR APPARENT, AND BUYER
EXPRESSLY SPECIFICALLY WAIVES ANY CLAIM UNDER ARTICLES 2520 THROUGH 2548 OF THE
LOUISIANA CIVIL CODE, AS AMENDED, OR ANY OTHER PROVISIONS OR THEORIES OF LAW,
FOR A REDUCTION OR ADJUSTMENT IN THE PURCHASE PRICE BASED UPON REDHIBITION OR
QUANTI MINORIS OR ACTION OF EVICTION ON ACCOUNT OF THE CONDITION OR
MERCHANTABILITY OF THE MEMBERSHIP INTERESTS OR THE COMPANY PROPERTIES. THIS
WAIVER OF WARRANTY EXTENDS TO ALL DEFECTS, EVEN IF THE DEFECT OR DEFECTS RENDER
THE MEMBERSHP INTERESTS OR THE COMPANY PROPERTIES ABSOLUTELY USELESS OR SO
INCONVENIENT OR IMPERFECT THAT BUYER WOULD NOT HAVE PURCHASED THE MEMBERSHIP
INTERESTS HAD BUYER KNOWN OF THE DEFECTS. BUYER ACKNOWLEDGES THAT IT HAS
EXAMINED THE COMPANY PROPERTIES THOROUGHLY AND IS FULLY SATISFIED WITH THEIR
CONDITION. BUYER AND SELLER ACKNOWLEDGE AND STIPULATE THAT THE PURCHASE PRICE
WAS NEGOTIATED AND AGREED UPON AFTER CONSIDERATION OF THIS WAIVER OF WARRANTY.
BUYER ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT TO THE ATTENTION OF BUYER
AND EXPLAINED IN DETAIL AND THAT BUYER HAS VOLUNTARILY AND KNOWINGLY

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CONSENTED TO THIS WAIVER OF WARRANTY.

ARTICLE VII.

TITLE, ENVIRONMENTAL AND MATERIAL CONTRACT DUE DILIGENCE

7.01

Title Due Diligence Examination.

(a)

Buyer shall have the right to analyze any and all public records relating to the
Company Properties and Company and Seller shall afford to Buyer and its
authorized representatives reasonable access during normal business hours to the
office, personnel and books and records of Company in order for Buyer to conduct
a title examination as it may in its sole discretion choose to conduct with
respect to the Company Properties in order to determine whether Title Defects
(as below defined) exist (“Buyer’s Title Review”); provided, however, that such
investigation shall be upon reasonable notice and shall not unreasonably disrupt
the personnel and operations of Company or impede the efforts of Company or
Seller to comply with its other obligations under this Agreement.  Such books
and records shall include all abstracts of title, title opinions, title files,
lease files, assignments, division orders, operating records and agreements, and
financial and accounting records, in each case insofar as same may now be in
existence and in the possession of Company or Seller, excluding, however, any
information that Company is prohibited from disclosing by third party
confidentiality restrictions.  The cost and expense of Buyer’s Title Review, if
any, shall be borne solely by Buyer.  All requests for access to Company’s
employees, contractors, offices, properties, books and records shall be made to
such representatives designated in writing by Company (the “Designated
Representatives”), which Designated Representatives shall be solely responsible
for coordinating all such requests and all access permitted hereunder.  Buyer
shall not contact any of the customers or suppliers of Company or its working
interest co-owners or operators, in connection with the transactions
contemplated hereby, whether in person or by telephone, mail or other means of
communication, without the specific prior authorization of the Designated
Representatives, which consent shall not be unreasonably withheld.

(b)

“Title Defect” shall mean any particular defect in or failure of Company’s
ownership of any Company Property:  (A) that causes Company to not have
Defensible Title to such Company Property and (B) regarding which a Title Defect
Notice has been timely and otherwise validly delivered.  Notwithstanding any
other provision in this Agreement to the contrary, the following matters shall
not constitute, and shall not be asserted as, a Title Defect:  (1) defects or
irregularities arising out of lack of corporate authorization or a variation in
corporate name, unless Buyer provides affirmative evidence that such corporate
action was not authorized and results in another person’s superior claim of
title to the relevant Company Property; (2) defects or irregularities that have
been cured or remedied by the passage of time, including applicable statutes of
limitation or statutes for prescription; (3) defects or irregularities in the
chain of title consisting of the failure to recite marital status in documents;
(4) defects or irregularities in title which have not delayed or prevented
Company from receiving its net revenue interest share of the proceeds of
production and have not caused Company to bear a share of expenses and costs
greater than its working interest share from any lease, unit or well; (5)
conventional rights of reassignment normally activated by an intent to abandon
or release a lease and requiring notice to the holders of such rights and any
defect or irregularity as would normally be waived by persons engaged in the oil
and gas business when purchasing producing properties; and (6) the absence of
record title with respect to certain  leases when Company’s net revenue interest
and working interest in such Leases, as set forth on Exhibit A, is based upon
enforceable contractual rights evidenced by documents that have not, as yet,
been filed with and approved by the State of Louisiana or other applicable
Governmental Entity.

(c)

If Buyer discovers any Title Defect affecting the Company Properties, Buyer
shall notify Seller of such Title Defect  To be effective, such notice (“Title
Defect Notice”) must (i) be in writing, (ii) be received by Seller at least
twenty (20) days prior to the Closing Date, (iii) describe the Title Defect in
detail (including the basis for any alleged variance in the net revenue
interest), (iv) identify the

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specific Lease, Well, or Unit affected by such Title Defect, (v) suggest a value
of such Title Defect as determined by Buyer in good faith, and (vi) set forth
the action that Buyer reasonably believes needs to be taken in order to cure the
Title Defect.  Any matters that may otherwise constitute Title Defects, but of
which Seller has not been specifically notified by Buyer in accordance with the
foregoing, shall be deemed to have been waived by Buyer for all purposes.  Upon
the receipt of an effective Title Defect Notice from Buyer, Seller shall have
the option, but not the obligation, to attempt to cure the Title Defect prior to
Closing. The Lease, Well or Unit affected by such uncured Title Defect shall be
a “Title Defect Property”.

(d)

With respect to each Title Defect that is not cured or waived on or before the
Closing, the parties shall attempt to make a mutual determination as to the
“Title Defect Amount,” which shall mean, with respect to a Title Defect
Property, the amount by which such Title Defect Property is impaired as a result
of the existence of one or more Title Defects, which amount shall be determined
as follows:

(i)

The Title Defect Amount with respect to a Title Defect Property, in addition to
the legal effect of such Title Defect on the property affected thereby, shall be
determined by taking into consideration the value given to such Lease, Well, or
Unit in the reserve report presently being prepared by Collarini & Associates,
with the understanding that such reserve report will most likely become
available on or about November 1, 2007 (“Reserve Report”).  Upon completion of
the Reserve Report, the parties agree that it will be attached hereto as
Schedule 7.01(d)(i).  However, (A) if such Title Defect is in the nature of
Company’s net revenue interest in a property being less than the net revenue
interest set forth on Exhibit A, then Buyer and Seller agree that the Purchase
Price shall be reduced in an amount equal to the value given to such Lease,
Well, or Unit in the Reserve Report multiplied by the percentage reduction in
such net revenue interest as a result of such Title Defect; and (B) if such
Title Defect is in the nature of a mortgage, lien, privilege, and/or security
agreement, then Seller and Buyer agree that the Purchase Price shall be reduced
in the amount equal to the amount required to fully discharge such mortgage,
lien, privilege, and/or security agreement; and

(ii)

If the Title Defect results from any matter not described in Section 7.01(d)(i),
the Title Defect Amount shall be an amount equal to the difference between the
value of the Title Defect Property affected by such Title Defect with such Title
Defect and the value of such Title Defect Property without such Title Defect.

(iii)

At least fifteen (15) days prior to the Closing Date, Buyer and Seller shall
meet to attempt in good faith to mutually determine (x) with respect to each
individual Title Defect Property, the Title Defect Amount, and (y) with respect
to all Title Defect Properties, in the aggregate, the excess, if any, of the
cumulative Title Defect Amounts attributable to all Title Defect Properties over
$500,000 (“Excess Title Defect Amounts”).  In the event Buyer and Seller fail to
reach such a mutual determination as to the Excess Title Defect Amounts, an
amount equal to the difference between Buyer’s estimation of the Excess Title
Defect Amounts and Seller’s estimation of the Excess Title Defect Amounts shall
be placed by Seller (from the Cash Amount) into a mutual agreeable escrow
account, and the undisputed amount shall be deducted from the Purchase Price in
accordance with Section 7.04, and the dispute shall thereafter be resolved
pursuant to Section 15.12 herein.

(e)

As used in this Section 7.01:

(i)

“Defensible Title” means, as of the Closing Date, with respect to the Company
Properties, such record title and ownership by Company that, except for
Permitted Encumbrances:

(A)

entitles Company to receive and retain not less than the percentage set forth in
Exhibit A as Company’s “Net Revenue Interest” of all Hydrocarbons produced,

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saved and marketed from each Lease, Well, or Unit comprising Company Properties
as set forth in Exhibit A;

(B)

obligates Company to bear not greater than the percentage set forth in Exhibit A
as Company’s “Working Interest” of the costs and expenses relating to the
maintenance, development and operation of each Lease, Well, or Unit comprising
Company Properties as set forth in Exhibit A; and

(C)

is free and clear of all Liens, production payments, overriding royalties and
similar burdens.

 

(ii)

“Permitted Encumbrances” shall mean (A) Liens for taxes which are not yet
delinquent or which are being contested in good faith and for which adequate
reserves have been established; (B) normal and customary liens of co-owners
under operating agreements, unitization agreements, and pooling orders relating
to the Company Properties, which obligations are not past due and pursuant to
which Company is not in default; (C) mechanic’s and materialman’s liens relating
to the Company Properties, which obligations are not past due and pursuant to
which Company is not in default; (D) Liens in the ordinary course of business
consisting of minor defects and irregularities in title or other restrictions
(whether created by or arising out of joint operating agreements, farm-out
agreements, leases and assignments, contracts for purchases of hydrocarbons or
similar agreements, or otherwise in the ordinary course of business,
specifically including obligations already in existence relating to plugging and
abandonment escrow agreements) that are of the nature customarily accepted by
prudent purchasers of oil and gas properties and do not materially affect the
value of any property encumbered thereby or materially impair the ability of the
obligor to use any such property in its operations; (E) all approvals or rights
to consent by, required notices to, filing with or other actions by Governmental
Entities, including the Louisiana State Mineral Board acting on behalf of the
State of Louisiana, in connection with the sale or conveyance of oil and gas
leases or interests therein if they are customarily obtained subsequent to the
sale or conveyance; (F) easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of operations, pipelines, or facilities or
the like; (G) easements, rights-of-way, servitudes, permits and other rights,
on, over or in respect of any of the Leases; (H) other Liens, contracts,
agreements, royalty interests, overriding royalty interests, production
payments, instruments, obligations, defects and irregularities affecting the
Leases which individually or in the aggregate do not reduce the interest of
Company with respect to Hydrocarbons produced from (or, where subject to a unit
or pooling agreement, allocated to) any Leases below the “Net Revenue Interest”
or “NRI” set forth at Exhibit A for such Leases; (I) all rights reserved to or
vested in any Governmental Entity to control or regulate the Company Properties
in any manner, and all applicable laws, rules and orders of governmental
authority; (J) any Title Defects as Buyer may have expressly waived in writing
or which are deemed to have been waived under this Agreement; (K) preferential
rights to purchase and consent to transfer requirements of any Person, other
than a party hereto or any Governmental Entity (i) to the extent not triggered
by the consummation of the transactions contemplated herein or (ii) if triggered
by the consummation of the transactions contemplated herein, with respect to
which waivers or consents shall have been obtained from the appropriate parties
or the time period to exercise the preferential right to purchase or to withhold
consent has expired; and (L) changes or adjustments that result from the
establishment of units, changes in existing units (or the participating areas
therein), or the entry into of pooling or unitization agreements unless made in
breach of the provisions hereof.

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7.02

Environmental Due Diligence Examination.

(a)

Notwithstanding any representations or warranties given by Seller or Company
herein, Buyer shall have the right, or the right to cause an environmental
consultant reasonably acceptable to Seller (“Buyer’s Environmental Consultant”),
to conduct an environmental review of the Company Properties prior to the
Closing Date (“Buyer’s Environmental Review”).  The cost and expense of Buyer’s
Environmental Review, if any, shall be borne solely by Buyer.  With respect to
any samples taken in connection with Buyer’s Environmental Review, Buyer shall
take split samples, providing one of each such sample, properly labeled and
identified, to Seller.

(b)

Unless otherwise required by Applicable Law, Buyer shall (and shall cause
Buyer’s Environmental Consultant, if applicable, to) treat confidentially any
matters revealed by Buyer’s Environmental Review and any reports or data
generated from such review (the “Environmental Information”), and Buyer shall
not (and shall cause Buyer’s Environmental Consultant, if applicable, to not)
disclose any Environmental Information to any Governmental Entity or other third
party without the prior written consent of Company.  Unless otherwise required
by Applicable Law, Buyer may use the Environmental Information only in
connection with the transactions contemplated by this Agreement.  If Buyer,
Buyer’s Environmental Consultant, if applicable, or any third party to whom
Buyer has provided any Environmental Information become legally compelled to
disclose any of the Environmental Information, Buyer shall provide Company with
prompt notice sufficiently prior to any such disclosure so as to allow Company,
at Company’s expense, to file any protective order, or seek any other remedy, as
it deems appropriate under the circumstances.  If this Agreement is terminated
prior to the Closing, Buyer shall deliver the Environmental Information to
Company, which Environmental Information shall become the sole property of
Company.  Buyer shall provide copies of the Environmental Information to Company
without charge.

(c)

If Buyer and/or Buyer’s Environmental Consultant, if applicable, discovers any
Environmental Defect (as herein defined) affecting the Company Properties, Buyer
shall notify Seller of such alleged Environmental Defect.  To be effective, such
notice (an “Environmental Defect Notice”) must (i) be in writing, (ii) be
received by Seller at least twenty (20) days prior to the Closing Date, (iii)
describe the Environmental Defect in reasonable detail, including, (A) the
written conclusion of Buyer’s Environmental Consultant, if applicable, that an
Environmental Defect exists, which conclusion shall be reasonably substantiated
by the factual data gathered in Buyer’s Environmental Review, and (B) a
separate, reasonably specific citation of the provisions of Applicable
Environmental Laws alleged to be violated and the related facts that
substantiate such violation, (iv) identify the specific Company Properties
affected by such Environmental Defect, including a site plan showing the
location of all sampling events, boring logs and other field notes describing
the sampling methods utilized and the field conditions observed, (v), set forth
the procedures recommended to correct the Environmental Defect, together with
any related recommendations from Buyer’s Environmental Consultant, if
applicable, and (vi) set forth Buyer’s good faith estimate of the Environmental
Defect Value, including the basis for such estimate. Any matters that may
otherwise constitute Environmental Defects, but of which Seller has not been
specifically notified by Buyer in accordance with the foregoing, together with
any environmental matter that does not constitute an Environmental Defect, shall
be deemed to have been waived by Buyer for purposes of this Section 7.02.  Upon
the receipt of an effective notice from Buyer, Seller shall have the option, but
not the obligation, to attempt to cure such Environmental Defect at any time
prior to Closing.

(d)

If any Environmental Defect described in a notice delivered in accordance with
Section 7.02 is not cured on or before the Closing, the parties shall attempt to
make a mutual determination as to the Environmental Defect Value.  At least
fifteen (15) days prior to the Closing Date, Buyer and Seller shall meet to
attempt in good faith to mutually determine (x) with respect to each individual
Environmental Defect, the Environmental Defect Value, and (y) with respect to
all Environmental Defects in the aggregate, the excess, if any, of the
cumulative Environmental Defect Value over $500,000 (“Excess Environmental
Defect Value”).  In the event Buyer and Seller fail to reach such

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a mutual determination as to the Excess Environmental Defect Value, an amount
equal to the difference between Buyer’s estimation of the Excess Environmental
Defect Value and Seller’s estimation of the Excess Environmental Defect Value
shall be placed by Seller (from the Cash Amount) into a mutual agreeable escrow
account, and the undisputed amount shall be deducted from the Purchase Price in
accordance with Section 7.04 and the dispute shall thereafter be resolved
pursuant to Section 15.12 herein.

(e)

As used in this Section 7.02:

(i)

 “Environmental Defect” shall mean, with respect to any given Lease, Well, Unit,
or other Company Property, a violation of Applicable Environmental Laws in
effect as of the date hereof in the jurisdiction in which such Lease, Well,
Unit, or other Company Property is located, and not described on Schedule 3.16
hereto, that requires remediation, regarding which an Environmental Defect
Notice has been timely and otherwise validly delivered.  It is specifically
acknowledged and agreed that the presence in any wellbore, equipment, pipeline,
flowline or vessel on or related to the Company Properties of naturally
occurring radioactive material shall not be deemed to constitute an
Environmental Defect for purposes of this Agreement.

(ii)

“Environmental Defect Value” shall mean, with respect to any Environmental
Defect, the net present value of the reasonably estimated costs and expenses to
correct such Environmental Defect in the most cost effective manner reasonably
available, consistent with Applicable Environmental Laws, taking into account
that non-permanent remedies (such as mechanisms to contain or stabilize
hazardous materials, including monitoring site conditions, natural attenuation,
risk-based corrective action, institutional controls or other appropriate
restrictions on the use of property, caps, dikes, encapsulation, leachate
collection systems, etc.) may be the most reasonably cost effective manner.

7.03

Material Contract Due Diligence.   

(a)

Notwithstanding Sections 3.12(c), which shall survive closing, Buyer shall have
the right to analyze the Material Contracts described in Section 3.12(a) prior
to Closing, and Company and Seller shall afford to Buyer and its authorized
representatives reasonable access during normal business hours to the office,
personnel and books and records of Company in order for Buyer to conduct an
examination of such Material Contracts in order to determine whether a Material
Contract Defect (as below defined) exists (“Buyer’s Material Contract Review”);
provided, however, that such investigation shall be upon reasonable notice and
shall not unreasonably disrupt the personnel and operations of Company or impede
the efforts of Company or Seller to comply with its other obligations under this
Agreement.  

(b)

“Material Contract Defect” shall mean any violation or breach of a Material
Contract which would cause a Material Adverse Effect, and for which a Material
Contract Defect Notice has been timely and otherwise validly delivered.

(c)

If Buyer discovers any Material Contract Defect affecting the Company Properties
or the Membership Interests, Buyer shall notify Seller and Company of such
Material Contract Defect.  To be effective, such notice (“Material Contract
Defect Notice”) must (i) be in writing, (ii) be received by Seller at least
twenty (20) days prior to the Closing Date, (iii) describe the Material Contract
Defect in detail, (iv) identify the specific Material Contract affected by such
Material Contract Defect, (v) suggest a value of such Material Contract Defect
as determined by Buyer in good faith, and (vi) set forth the action that Buyer
reasonably believes needs to be taken in order to cure the Material Contract
Defect.  Any matters that may otherwise constitute a Material Contract Defect,
but of which Seller has not been specifically notified by Buyer in accordance
with the foregoing, shall be deemed

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to have been waived by Buyer for all purposes.  Upon the receipt of an effective
Material Contract Defect Notice from Buyer, Seller shall have the option, but
not the obligation, to attempt to cure the Material Contract Defect prior to
Closing.

(d)

If any Material Contract Defect described in a notice delivered in accordance
with Section 7.03 is not cured on or before the Closing, the parties shall
attempt to make a mutual determination as to the “Material Contract Defect
Value.”  At least fifteen (15) days prior to the Closing Date, Buyer and Seller
shall meet to attempt in good faith to mutually determine the Material Contract
Defect Value.  In the event Buyer and Seller fail to reach such a mutual
determination as to the Material Contract Defect Value, an amount equal to the
difference between Buyer’s estimation of the Material Contract Defect Value and
Seller’s estimation of the Material Contract Defect Value shall be placed by
Seller (from the Cash Amount) into a mutual agreeable escrow account, and the
undisputed amount shall be deducted from the Purchase Price in accordance with
Section 7.04, and the dispute shall thereafter be resolved pursuant to Section
15.12 herein.

7.04

Adjustments to Purchase Price with Respect to Title Defects, Environmental
Defects and Material Contracts Defects.  With respect to Title Defects,
Environmental Defects and Material Contract Defects which Seller has elected not
to cure or has been unable to cure on or before Closing, the Purchase Price
shall be reduced by the undisputed Excess Title Defect Amounts, the undisputed
Excess Environmental Defect Value and the undisputed Material Contract Defect
Value as determined by this Article VII.  

7.05

BUYER INDEMNIFICATION. WITH RESPECT TO INSPECTIONS, BUYER HEREBY INDEMNIFIES AND
SHALL RELEASE, DEFEND AND HOLD  SELLER AND COMPANY, TOGETHER WITH COMPANY’S
DIRECTORS, OFFICERS, SHAREHOLDERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS,
REPRESENTATIVES, CONTRACTORS, SUCCESSORS, AND ASSIGNS, HARMLESS FROM AND AGAINST
ANY AND ALL CLAIMS ARISING FROM BUYER’S INSPECTING AND OBSERVING THE COMPANY
PROPERTIES, INCLUDING (I) CLAIMS FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES
OF BUYER, ITS CONTRACTORS, AGENTS, CONSULTANTS, AND REPRESENTATIVES, AND DAMAGE
TO THE PROPERTY OF BUYER OR OTHERS ACTING ON BEHALF OF BUYER, EXCEPT FOR
INJURIES OR DEATH CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER
AND/OR COMPANY OR COMPANY’S DIRECTORS, OFFICERS, SHAREHOLDERS, PARTNERS,
MEMBERS, EMPLOYEES, CONTRACTORS, AGENTS, CONSULTANTS, OR REPRESENTATIVES; AND
(II) CLAIMS FOR PERSONAL INJURIES TO OR DEATH OF EMPLOYEES OF COMPANY OR THIRD
PARTIES, AND DAMAGE TO THE PROPERTY OF COMPANY OR THIRD PARTIES, TO THE EXTENT
CAUSED BY THE NEGLIGENCE, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT OF BUYER, ITS
CONTRACTORS, AGENTS, CONSULTANTS, AND REPRESENTATIVES.  THE FOREGOING INDEMNITY
INCLUDES, AND THE PARTIES INTEND IT TO INCLUDE, AN INDEMNIFICATION OF THE
INDEMNIFIED PARTIES FROM AND AGAINST CLAIMS ARISING OUT OF OR RESULTING, IN
WHOLE OR PART, FROM THE CONDITION OF THE COMPANY PROPERTIES OR THE SOLE, JOINT,
COMPARATIVE, OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE
INDEMNIFIED PARTIES.  THE INDEMNIFICATION PROVIDED BY THIS PARAGRAPH ONLY
APPLIES TO ANY DAMAGE CLAIMS EXCEEDING ANY INSURANCE COVERAGE PROVIDED BY ANY
INSURANCE CARRIER, SPECIFICALLY INCLUDING ANY INSURANCE CARRIER FOR COMPANY.
 INSURANCE CARRIERS FOR THE COMPANY ARE NOT RELEASED OR INDEMNIFIED BY THIS
SECTION 7.05.

ARTICLE VIII.

ADDITIONAL PRE-CLOSING COVENANTS AND AGREEMENTS  OF PARTIES

8.01

Operations Prior to Closing.  From the execution of this Agreement through the
Closing, Seller and Company covenant that Company will operate the Company
Properties in the ordinary course of its business and in a good and workmanlike
manner.  From the execution of this Agreement through the Closing, Company will
not sell or otherwise dispose of any portion of the Company Properties, except
for sales or other dispositions of (i) Hydrocarbons in the ordinary course of
business after production, or (ii) equipment and other personal property or

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fixtures in the ordinary course of business where the same has become obsolete,
is otherwise no longer useful for the operation of the Company Properties, or is
replaced by an item or items of at least equal suitability.  Attached hereto as
Schedule 8.01 is a plan of operations and activities presently contemplated for
the Company Properties.  Should Company receive (or desire to make) any
proposals to drill wells on the Company Properties, or to conduct other
operations which require consent of non-operators under any applicable operating
agreement, other than such activities included on Schedule 8.01, it will notify
Buyer of, and consult with Buyer concerning, such proposals, and will not make
or approve any single expenditure exceeding $50,000.00 (net to Company’s
interest), without the written consent of Buyer, which such consent will not be
unreasonably withheld.  If such proposed operation does not exceed $50,000.00
(net to Company’s interest) any decisions with respect to such proposal shall be
made by Company in its sole discretion, so long as the decisions are made in the
ordinary course of business.  

8.02

 Sale or Disposal of Assets. From the execution of this Agreement through the
Closing, Company will not sell or otherwise dispose of any portion of any other
asset owned by Company identified on Schedule 3.13, except those assets, which
in the ordinary course of business, have become obsolete, are otherwise no
longer useful to the Company, or are replaced by an item or items of at least
equal suitability.  Expenditures may be made in the ordinary course of business
in support of normal business operations.

8.03

Distributions.

Except as contemplated by Section 8.14, and with the exception of the salaries
paid to the members of Company, from the execution of this Agreement through the
Closing, Company will not make any distributions, equity or otherwise, to its
directors, officers, members, or managers.  

8.04

Reasonable Best Efforts.  Each party hereto agrees that it will not voluntarily
undertake any course of action inconsistent with the provisions or intent of
this Agreement and will use its Reasonable Best Efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things reasonably
necessary, proper, or advisable under Applicable Laws to consummate the
transactions contemplated by this Agreement, including, but not limited to,
(i) cooperation in determining whether any consents, approvals, orders,
authorizations, waivers, declarations, filings, or registrations of or with any
Governmental Entity or third party are required in connection with the
consummation of the transactions contemplated hereby; (ii) use of Reasonable
Best Efforts to obtain any such consents, approvals, orders, authorizations, and
waivers and to effect any such declarations, filings, and registrations;
(iii) use of Reasonable Best Efforts to cause to be lifted or rescinded any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby; (iv) use of
Reasonable Best Efforts to defend, and cooperation in defending, all lawsuits or
other Proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby; and (v) the execution of any additional
instruments necessary to consummate the transactions contemplated hereby.

8.05

Notice of Litigation.  Until the Closing, (i) Seller, upon learning of the same,
shall promptly notify Buyer of any Proceeding which is commenced or threatened
against Company or Seller and which affects this Agreement or the transactions
contemplated hereby and (ii) Buyer, upon learning of the same, shall promptly
notify Seller of any Proceeding which is commenced or threatened against Buyer
and which affects this Agreement or the transactions contemplated hereby.

8.06

HSR Filing.  If required by applicable law, Buyer shall (i) file or cause to be
filed, as promptly as practicable but in no event later than two (2) Business
Days after the execution and delivery of this Agreement, with the Federal Trade
Commission and the United States Department of Justice, all reports and other
documents required to be filed by such party under the HSR Act concerning the
transactions contemplated hereby and (ii) promptly comply with or cause to be
complied with any requests by the Federal Trade Commission or the United States
Department of Justice for additional information concerning such transactions,
in each case so that the waiting period applicable to this Agreement and the
transactions contemplated hereby under the HSR Act shall expire as soon as
practicable after the execution and delivery of this Agreement.  Each party
hereto agrees to request, and to cooperate with the other party or parties in
requesting, early termination of any applicable waiting period under the HSR
Act.  Buyer shall be responsible for, and shall pay, all filing fees payable in
connection with the filings by the parties required by the HSR Act.

8.07

Notification of Inaccuracy of Representation and Warranty.  Prior to Closing,
Buyer will notify Seller promptly after the discovery by Buyer of sufficient
facts and circumstances that would reasonably cause Buyer

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to believe that a representation and warranty of Company or Seller contained in
this Agreement will be untrue on the Closing Date.

8.08

Account Signatories.  Seller shall cause the Company to change the names of the
officers, employees, agents or other similar representatives of the Company, as
designated by Buyer at the Closing, who thereafter shall be authorized to
transact business with respect to the accounts, safe deposit boxes, lock boxes
or other relationships with the banks, trust companies, securities brokers and
other financial institutions set forth in Schedule 8.08.

8.09

Access to Officers, Managers and Employees.  Company and Seller shall allow
Buyer access to the officers, managers and employees of Company for purposes of
assessing the necessity of their ongoing roles with Company.

8.10

Removal of Officers, Directors and Managers.  In the event that Buyer determines
that the position of an officer, director or manager of Company is no longer
necessary or warranted, Company shall cause such officer, director or manager to
be removed and Company shall obtain resignations of such officers, directors and
managers at Closing.  Company warrants that it shall permit Buyer to designate
such officers, directors and managers of Company as Buyer determines to be
necessary or warranted, at the sole discretion of Buyer at Closing.

8.11

Schedules and Exhibits.  Notwithstanding anything else to the contrary contained
herein, it is understood and agreed that certain Exhibits and Schedules to be
delivered by Seller and Company hereunder may not have been completed and
delivered as of the date hereof and, with respect to any such Exhibits or
Schedules not yet delivered, Seller shall, within three (3) business days after
execution of this Agreement, deliver or cause to be delivered to Buyer Exhibits
A, B and C, and Schedules 2.02(b), 3.06, 3.07, 3.10, 3.12(d), 3.13, 3.15, 3.16,
3.17, 3.18, 3.22, 3.23, 3.24, 3.25, 8.01, 8.08 and 9.01(g).  

8.12

Environmental Issues.  Immediately after execution of this Agreement, Seller
shall make available to Buyer all environmental assessment, investigatory, and
audit reports, studies, analyses, and correspondence (other than correspondence
that exists solely in electronic form) relating to the Company Properties that
are in the possession or control of Company or any of its Affiliates and
addressing releases or threatened releases, remediations, Environmental
Liabilities, environmental conditions, or violations of Applicable Environmental
Laws.

8.13

HSR Filings.  If there are any required filings with any Governmental Entities
relating to compliance with the HSR Act, Buyer shall arrange for and make all
such filings.

8.14

Excluded Oil and Gas Properties.  Buyer and Seller acknowledge and agree that
the oil and gas properties and the related Site Specific Trust Accounts
identified in Schedule 8.14 have been omitted from Exhibit A and shall be
transferred by the Company to Seller (or any designee(s) of Seller) prior to or
contemporaneous with the Closing and that, notwithstanding anything to the
contrary herein contained, such transfer will not violate any representation,
warranty or covenant of Seller hereunder.

ARTICLE IX.

CONDITIONS PRECEDENT TO CLOSING

9.01

Seller’s Conditions Precedent.  The obligation of Seller to consummate the
transactions contemplated by this Agreement is subject to fulfillment on or
prior to the Closing Date of each of the following conditions:

(a)

Buyer shall have performed and complied, in all material respects, with all
terms of this Agreement required to be performed by, or complied with, by Buyer
prior to Closing.

(b)

Each of the representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects as of the date made and
(having been deemed to have been made again on and as of the Closing Date in the
same language) shall be true and correct in all material respects on and as of
the Closing Date, except as affected by transactions permitted by this

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Agreement and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.

(c)

No Proceeding shall, on the Closing Date, be pending before any Governmental
Entity in which it is sought by a person or entity other than the parties hereto
or any of their respective Affiliates to restrain, prohibit or invalidate any of
the transactions contemplated by this Agreement or to obtain damages in
connection with the transactions contemplated herein.

(d)

All approvals required by the HSR Act, shall have been received, or all
applicable waiting periods shall have elapsed.

(e)

Intentionally Omitted.

(f)

No Legal Proceeding shall be pending or threatened seeking to enjoin or prevent,
nor shall an Injunction, Order or Official Action have been issued prohibiting
consummation of the transactions contemplated hereby.

(g)

Seller shall have received an opinion in favor of Seller from Texas counsel for
Buyer, that is reasonably acceptable to Seller and substantially in the form of
Schedule 9.01(g).

(h)

Seller shall have received an opinion in favor of Seller from Texas counsel for
Seller opining that the transfer of the Membership Interests by Seller to Buyer
in accordance with this Agreement would not violate any applicable Texas
securities laws.

9.02

Buyer’s Conditions Precedent.  The obligation of Buyer to consummate the
transactions contemplated by this Agreement is subject to fulfillment on or
prior to the Closing Date of each of the following conditions precedent:

(a)

Seller shall have performed and complied, in all material respects, with all
terms of this Agreement required to be performed by, or complied with, by Seller
prior to Closing.

(b)

Each of the representations and warranties of Company and Seller contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date as if made on and as of such date, except as affected by
transactions contemplated or permitted by this Agreement and except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
as of such specified date.  

(c)

No Proceeding shall, on the Closing Date, be pending before any Governmental
Entity in which it is sought by a person or entity other than the parties hereto
or any of their respective Affiliates to restrain, prohibit or invalidate any of
the transactions contemplated by this Agreement or to obtain damages in
connection with the transactions contemplated herein.

(d)

At the Closing, no Legal Proceeding shall be pending or threatened seeking to
enjoin or prevent, nor shall an Injunction, Order or Official Action have been
issued prohibiting consummation of the transactions contemplated hereby.

(e)

Seller shall have caused the Company to change the authorized account
signatories as contemplated by Section 9.02.

(f)

All approvals required by the HSR Act, shall have been received, or all
applicable waiting periods shall have elapsed.

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(g)

On or prior to Closing, or pursuant to the Closing, all mortgages, liens and
encumbrances filed of public record and encumbering the Membership Interests or
the Company Properties, specifically including any and all Liens in favor of MBL
and the MBL NPI, shall have been fully paid, satisfied, released, and discharged
by Seller to the satisfaction of Buyer.

ARTICLE X.

CLOSING; CERTAIN POST-CLOSING AGREEMENTS AND COVENANTS

10.01

Time and Place of Closing.  The sale and purchase of the Membership Interests
pursuant to this Agreement (the “Closing”) shall be consummated and completed in
the offices of Buyer’s counsel, 1100 Poydras Street, Suite 1800, New Orleans,
Louisiana, at 9:00 a.m. (local time) on or before December 14, 2007 (the
“Closing Date”) or at such other place and time as the parties shall mutually
agree.

10.02

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

(a)

Seller shall execute, acknowledge and deliver to Buyer the instruments of
Assignment of Membership Interests in substantially the forms of Exhibit B
attached hereto (the “Conveyance”) evidencing the sale, assignment, transfer and
conveyance by the Seller to Buyer of the Membership Interests in accordance with
the terms hereof.

(b)

Seller shall deliver, or cause to be delivered, to Buyer with respect to each
mortgage, lien, privilege, and security agreement upon the Membership Interests
or the Company Properties, to the extent the same may exist immediately prior to
Closing, either (i) a recordable act of release appropriate to cancel such
mortgage, lien, privilege, and security agreement or (ii) an agreement
obligating the holder of such mortgage, lien, privilege, and security agreement
to cancel such mortgage, lien, privilege, and security agreement upon payment to
such lienholder of a portion of the proceeds from the sale of the Membership
Interests pursuant to this Agreement (which proceeds shall be sufficient to
obtain the cancellation of such mortgage, lien, privilege, and security
agreement pursuant to such agreement).

(c)

Seller shall deliver, or cause to be delivered, to Buyer a certificate of both
the Company and the Seller certifying that the Seller and Company have satisfied
each of the conditions of closing set forth in Section 9.02(a) has been
satisfied;

(d)

Seller shall deposit in a suitable escrow account (from the Cash Amount) all
amounts referred to in Sections 7.01(d)(iii), 7.02(d), and 7.03(d);

(e)

Seller shall deliver, or cause to be delivered, to Buyer a certificate of both
the Company and the Seller attesting as to the incumbency and signature of each
officer of the Company and the Seller, as applicable, who shall execute this
Agreement and any other agreement in connection herewith on behalf of the
Company or the Seller, as the case may be, and certifying as being complete and
correct the copies attached to such certificate of the Company’s constituent
documents, each as in effect on such date;

(f)

Seller shall deliver, or cause to be delivered, to Buyer a certificate of
existence of the Company from the Secretary of State of the State of Louisiana
and a certificate of the good standing of the Company from Secretary of State of
the State of Louisiana, and an appropriate certificate or acknowledgment from
the Louisiana State Mineral Board indicating that Company is qualified to hold
leases and related mineral interests and/or is authorized to conduct exploration
and development activities on state owned lands, in each case dated as of a date
not earlier than ten (10) days prior to the Closing Date;

(g)

Seller shall deliver, or cause to be delivered, to Buyer the originals of any
minute books, Membership Interests transfer records, electronic data and
corporate and any other records of the

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Company, including but not limited to, all land, geological, engineering and
geophysical work files relating to the Company’s Company Properties;

(h)

Seller shall deliver, or cause to be delivered, to Buyer general releases of
claims against the Company, in form and substance satisfactory to Buyer and its
financing source, from Seller;

(i)

Seller shall deliver, or cause to be delivered, to Buyer the resignation of such
directors, officers, managers, or employees of the Company as requested by Buyer
at any point in time between execution of this Agreement and the Closing;

(j)

Seller shall deliver, or cause to be delivered, to Buyer all consents or waivers
referred to on Schedule 3.12(d);

(k)

Buyer shall deliver, or cause to be delivered, to Seller a certificate of
existence of the Buyer from the Secretary of State of the State of Texas and a
certificate of the good standing of the Buyer from the State of Texas dated as
of a date not earlier than ten (10) days prior to the Closing Date;

(l)

Buyer shall deliver, or cause to be delivered, to Seller a certificate of a duly
authorized representative of Buyer, dated the Closing Date, authorizing the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and certifying that such authorizations are in
full force and effect and have not been rescinded or amended as of the Closing
Date;

(m)

Buyer shall deliver, or cause to be delivered, to Seller a certificate of a duly
authorized representative of Buyer attesting as to the incumbency and signature
of each person who shall execute this Agreement or any other material document
related to this transaction;

(n)

Buyer shall (i) pay to Seller the Cash Amount of the Purchase Price by wire
transfer of immediately available federal funds (ii) deliver to Seller the
Subordinated Note; and

(o)

Buyer shall deliver, or cause to be delivered, to Seller and Company a
certificate of Buyer certifying that the Buyer has satisfied each of the
conditions of closing set forth in Section 9.01(a) has been satisfied.

10.03

Buyer’s Post-Closing Representation Regarding Access.  As of the Closing Date,
Buyer shall be deemed to have represented and warranted to Seller as of the
Closing that (a) Buyer has been afforded an opportunity to (i) examine and
review the Financial Statements, the Material Contracts, the records of the
Company, and the Company Properties and such other materials and information as
it has requested to be provided to it with respect thereto, (ii) discuss such
materials and other information with Seller and Company’s representatives and to
ask questions about same and the Membership Interests and the Company
Properties, (iii) investigate the condition, including the subsurface condition,
of the Company Properties and related facilities and equipment, and (iv) Buyer
has assumed full responsibility for any conclusions or analyses relating to the
Membership Interest and the Company Properties and Buyer’s decision to purchase
the Membership Interest.

ARTICLE XI.

TERMINATION

11.01

Termination.  This Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Closing, unless otherwise indicated,
in the following manner:

(a)

by mutual written consent of Seller and Buyer; or

(b)

by either Seller or Buyer, if:

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(i)

the Closing shall not have occurred on or before December 14, 2007, unless such
failure to close shall be due to a breach of this Agreement by the party seeking
to terminate this Agreement pursuant to this clause (i); or

(ii)

there shall be any statute, rule, or regulation that makes consummation of the
transactions contemplated hereby illegal or otherwise prohibited or a
Governmental Entity shall have issued an order, decree, or ruling or taken any
other action permanently restraining, enjoining, or otherwise prohibiting the
consummation of the transactions contemplated hereby, and such order, decree,
ruling, or other action shall have become final and non-appealable; or

(c)

by Seller, if (i) Buyer shall have failed to fulfill in any material respect any
of its obligations under this Agreement; (ii) the conditions precedent contained
in Section 9.01 shall not have been fulfilled in any material respect; (iii) any
of the representations and warranties of Buyer contained in this Agreement shall
not be true and correct in any respect which is material to Seller or the
ability of Buyer to consummate the transactions contemplated hereby; (iv) in the
case of each of clauses (i), (ii) and (iii) of this subsection, such failure,
misrepresentation, or breach of warranty (provided it can be cured) has not been
cured within ten days after written notice thereof from Seller to Buyer; (v) if
the aggregate amount of the Excess Title Defect Amounts, Excess Environmental
Defect Value and Material Contract Defect Value identified in Article VII, as
asserted by Buyer in good faith, exceed ten percent (10%) of the Purchase Price;
(vi) if a casualty loss under Section 13.01 exceeds ten percent (10%) of the
Purchase Price; or (vii) if Seller cannot arrange for a full and complete
release of any and all Liens securing the MBL Debt and to arrange for a full and
complete release of the MBL NPI, both in an amount, and upon other terms and
conditions, acceptable to Seller in Seller’s sole discretion, or (viii) if MBL
does not approve and accept the form of the Subordinated Note.  Sellers right to
terminate this Agreement and the transactions contemplated hereby pursuant to
subsection (viii) of this Section 11.01(c) shall expire for all purposes at 5:00
p.m., central standard time, on November 9, 2007.

or

(d)

by Buyer, if (i) Seller shall have failed to fulfill in any material respect any
of its obligations under this Agreement, specifically excluding Seller’s
obligations under Section 8.11; (ii) the conditions precedent contained in
Section 9.02 shall not have been fulfilled in any material respect; (iii) any of
the representations and warranties of Seller contained in this Agreement shall
not be true and correct in any respect which is material to Buyer or the ability
of Seller to consummate the transactions contemplated hereby; (iv) if the
aggregate amount of the Excess Title Defect Amounts, Excess Environmental Defect
Value and Material Contract Defect Value identified in Article VII, as asserted
by Buyer in good faith, exceed ten percent (10%) of the Purchase Price; (v) if
Seller cannot arrange for a full and complete release of any and all Liens
securing the MBL Debt and to arrange for a full and complete release of the MBL
NPI, both in an amount, and upon other terms and conditions, acceptable to Buyer
in Buyer’s sole discretion; (vi) if Buyer does not receive acceptable advice
from tax counsel of its choice that the transactions contemplated hereby provide
an acceptable tax basis and/or that no other unanticipated tax consequences
occur; or (vii) if a casualty loss under Section 13.01 exceeds ten percent (10%)
of the Purchase Price; where in the case of each of clauses (i), (ii) and (iii)
of this subsection, such failure, misrepresentation, or breach of warranty
(provided it can be cured) has not been cured within ten (10) days after written
notice thereof from Buyer to Seller.  Buyer’s right to terminate this Agreement
and the transactions contemplated hereby pursuant to subsection (vi) of this
Section 11.01(d) shall expire for all purposes at 5:00 p.m., central standard
time, on November 16, 2007.

(e)

by Buyer, (i) in the event that Seller fails to deliver all Exhibits and
Schedules as required by Section 8.11 within three (3) business days of the date
hereof, or (ii) within five (5) business days following receipt of such Exhibits
and Schedules if Buyer determines that such Exhibits and Schedules and/or the
information disclosed therein, are not acceptable to Buyer in Buyer’s sole
discretion; or (iii) notwithstanding subsection (i) and (ii) of this Section
11.01(e), within ten (10)

24

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business days following receipt of Schedule 3.16 if one or more Environmental
Defects disclosed therein are not acceptable to Buyer in Buyers sole discretion.

11.02

Effect of Termination.  In the event of the termination of this Agreement
pursuant to Section 11.01 by Seller, on the one hand, or Buyer, on the other,
written notice thereof shall forthwith be given to the other party or parties
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section, Section 7.05, and in Article XV (exclusive of
Sections 15.03) shall survive the termination hereof.  Nothing contained in this
Section shall be construed to limit either party’s legal or equitable remedies
as a result of any breach of this Agreement.

ARTICLE XII.

SURVIVAL AND INDEMNIFICATION

12.01

Survival.

(a)

The representations and warranties of Company and Seller set forth in Article
III and IV shall survive and continue after Closing for period of one (1) year.
 The representations and warranties of Buyer contained in Article V shall
survive and continue after Closing for period of one (1) year and/or one (1)
year after the Saratoga Shares are issued, if any.  The period of time, if any,
for which a representation and warranty survives Closing is called a “Survival
Period.”  From and after the expiration of the Survival Period, no party hereto
shall be under any obligation with respect to any representation or warranty to
which such Survival Period relates, except with respect to matters as to which
notice has been received in accordance with Section 12.01(b).

(b)

No party hereto shall have any indemnification obligation pursuant to this
Article XII or otherwise in respect of any representation, warranty or covenant
unless (i) it shall have received from the party seeking indemnification written
notice of the existence of the claim for or in respect of which indemnification
is being sought and (ii) with respect to a representation and warranty, such
notice is received on or before the expiration of the Survival Period for such
representation and warranty.  Such notice shall set forth with reasonable
specificity (i) the basis under this Agreement, and the facts that otherwise
form the basis of such claim, (ii) the estimate of the amount of such claim
(which estimate shall not be conclusive of the final amount of such claim) and
an explanation of the calculation of such estimate, including a statement of any
significant assumptions employed therein, and (iii) the date on and manner in
which the party delivering such notice became aware of the existence of such
claim.

12.02

Indemnification by Seller.  Seller shall indemnify, defend and hold harmless
Buyer from and against any and all claims, actions, causes of action, demands
assessments, losses, damages, liabilities, judgments, settlements, penalties,
costs, and expenses (including reasonable attorneys’ fees and expenses), of any
nature whatsoever (collectively, “Damages”), asserted against, resulting from,
imposed upon, or incurred by Buyer, directly or indirectly, by reason of or
resulting from (i) any breach by Company or Seller of its representations,
warranties and covenants contained in this Agreement, (ii) any Liens (except for
Permitted Encumbrances) or claims (other than claims contested in good faith for
which adequate reserves have been established or adequate insurance exists)
against the Company Properties filed or arising between execution of this
Agreement and the Closing Date.  Notwithstanding the foregoing, Buyer shall not
be entitled to indemnification from Seller with respect to claims that Company
or Seller would have otherwise had notice of prior to the Closing Date had Buyer
complied with Section 8.07 in all material respects.

12.03

ASSUMPTION OF LIABILITIES AND INDEMNIFICATION BY BUYER.  AS PART OF THE
CONSIDERATION FOR THE TRANSACTION CONTEMPLATED HEREUNDER, AND, IN THE ABSENCE OF
WHICH SELLER WOULD NOT HAVE AGREED TO CONVEY THE MEMBERSHIP INTERESTS TO BUYER,
BUYER HEREBY EXPRESSLY ASSUMES, AND COVENANTS AND AGREES TO FULLY COMPLY WITH,
(I) ALL LIABILITIES, DUTIES AND OBLIGATIONS THAT ARISE FROM THE OWNERSHIP OR
OPERATION OF THE COMPANY PROPERTIES WHETHER BEFORE, ON OR AFTER THE CLOSING
DATE; (II) ALL LIABILITIES AND OBLIGATIONS WITH RESPECT TO PLUGGING AND

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ABANDONMENT, INCLUDING ALL PLUGGING, REPLUGGING, ABANDONMENT, REMOVAL, DISPOSAL
OR RESTORATION ASSOCIATED WITH THE COMPANY PROPERTIES (WHETHER DRILLED OR PLACED
THEREON PRIOR TO OR AFTER THE CLOSING DATE), THE REMOVAL AND CAPPING OF ALL
ASSOCIATED FLOWLINES, THE RESTORATION OF THE SURFACE, SITE CLEARANCE AND ANY
DISPOSAL OF RELATED WASTE MATERIALS, INCLUDING NATURALLY OCCURRING RADIOACTIVE
MATERIAL (NORM) AND ASBESTOS, ALL IN ACCORDANCE WITH APPLICABLE LAWS AND THE
TERMS AND CONDITIONS OF THE LEASES AND ASSOCIATED CONTRACTS; (III) ALL DUTIES,
LIABILITIES AND OBLIGATIONS UNDER THE LEASES, INCLUDING THE PROPER AND TIMELY
PAYMENT OF ROYALTY BURDENS, AS WELL AS ANY THIRD PARTY CONTRACTS OR AGREEMENTS,
AFFECTING THE COMPANY PROPERTIES IN EXISTENCE AS OF THE CLOSING DATE; AND
(IV) ALL OTHER DUTIES, LIABILITIES AND OBLIGATIONS ASSUMED BY BUYER UNDER THIS
AGREEMENT WHETHER OR NOT ANY SUCH DUTIES, LIABILITIES AND OBLIGATIONS AROSE OR
ARISE ON OR BEFORE THE CLOSING DATE (THE “ASSUMED OBLIGATIONS”).

EXCEPT TO THE EXTENT THAT SELLER HAS INDEMNIFIED BUYER UNDER SECTION 12.02 AND
SUBJECT TO THE TERMS OF THIS ARTICLE XII, BUYER SHALL INDEMNIFY AND DEFEND
SELLER (“SELLER INDEMNIFIED PARTIES”) AGAINST ANY AND ALL DAMAGES ARISING OUT
OF, OR IN CONNECTION WITH (I) THE ASSUMED OBLIGATIONS AND (II) FROM ANY BREACH
BY BUYER OF ITS REPRESENTATIONS, WARRANTIES AND COVENANTS CONTAINED IN THIS
AGREEMENT.

12.04

Inducement to Seller. Buyer acknowledges that it evaluated its obligations under
this Article XII before it determined and submitted its offer for the Membership
Interests, and Buyer understands that its assumptions of obligations and its
indemnifications are a material inducement to Seller to enter into this
Agreement with, and close the sale to, Buyer.

12.05

Indemnification Proceedings.  In the event that any claim or demand, for which a
party (an “Indemnifying Party”) would be liable to the other party (an
“Indemnified Party”) under this Agreement, is asserted against or sought to be
collected from an Indemnified Party by a third party, the Indemnified Party
shall with reasonable promptness notify the Indemnifying Party of such claim or
demand, but the failure so to notify the Indemnifying Party shall not relieve
the Indemnifying Party of its obligations under this Article XII, except to the
extent the Indemnifying Party demonstrates that the defense of such claim or
demand is materially prejudiced thereby.  The Indemnifying Party shall have
thirty (30) days from receipt of the above notice from the Indemnified Party (in
this Section 12.05, the “Notice Period”) to notify the Indemnified Party whether
or not the Indemnifying Party desires, at the Indemnifying Party’s sole cost and
expense, to defend the Indemnified Party against such claim or demand; provided,
that the Indemnified Party is hereby authorized prior to and during the Notice
Period to file any motion, answer or other pleading that it shall deem necessary
or appropriate to protect its interests or those of the Indemnifying Party and
not prejudicial to the Indemnifying Party.  If the Indemnifying Party elects to
assume the defense of any such claim or demand, the Indemnified Party shall have
the right to employ separate counsel at its own expense and to participate in
the defense thereof.  If the Indemnifying Party elects not to assume the defense
of such claim or demand (or fails to give notice to the Indemnified Party during
the Notice Period), the Indemnified Party shall be entitled to assume the
defense of such claim or demand with counsel of its own choice, at the expense
of the Indemnifying Party.  If the claim or demand is asserted against both the
Indemnifying Party and the Indemnified Party and based on the advice of counsel
reasonably satisfactory to the Indemnifying Party it is determined that there is
a conflict of interest which renders it inappropriate for the same counsel to
represent both the Indemnifying Party and the Indemnified Party, the
Indemnifying Party shall be responsible for paying separate counsel for the
Indemnified Party; provided, however, that the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
all of the Indemnified Parties, regardless of the number of Indemnified Parties.
 If the Indemnifying Party elects to assume the defense of such claim or demand,
(i) no compromise or settlement thereof may be effected by the Indemnifying
Party without the Indemnified Party’s written consent (which shall not be
unreasonably withheld) unless the sole relief provided is monetary damages that
are paid in full by the Indemnifying Party and (ii) the Indemnifying Party shall
have no liability with respect to any compromise or settlement thereof effected
without its written consent (which shall not be unreasonably withheld).

12.06

Damages.  Subject to Section 15.13 of this Agreement, the parties hereto agree
that, in relation to any breach, default, or nonperformance of any
representation, warranty, covenant, or agreement made or entered into

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by a party hereto pursuant to this Agreement or any certificate, instrument, or
document delivered pursuant hereto, the only relief and remedy available to the
other party hereto in respect of said breach, default, or nonperformance shall
be Damages, but only to the extent properly claimable hereunder and subject to
the terms and provisions of this Article XII.

12.07

Insurance Proceeds.  Any indemnification payment required to be made pursuant to
this Agreement shall be reduced by any insurance proceeds or other proceeds (net
of any costs and expenses associated with obtaining such proceeds) from an
unaffiliated third party received by the Indemnified Party or any of its
Affiliates with respect to the item giving rise to the indemnification payment.
 The Indemnified Party shall use reasonable commercial efforts to pursue any
available insurance or other unaffiliated third party indemnification claims in
respect of any Damages for which indemnification is sought under this Agreement
(provided, that such pursuit shall not interfere with the ability of a party to
make a claim hereunder).

12.08

Limited to Actual Damages.  The indemnification obligations of the parties
pursuant to this Article XII shall be limited to actual Damages and shall not
include incidental, consequential, indirect, punitive, or exemplary Damages,
provided that any incidental, consequential, indirect, punitive, or exemplary
Damages recovered by a third party (including a Governmental Entity) against a
party entitled to indemnity pursuant to this Article XII shall be included in
the Damages recoverable under such indemnity.

12.09

EXPRESS NEGLIGENCE RULE.  THE INDEMNIFICATION, RELEASE AND ASSUMPTION PROVISIONS
PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LOSSES,
COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM THE GROSS,
ACTIVE, PASSIVE, CONCURRENT, SIMPLE OR SOLE NEGLIGENCE OR STRICT LIABILITY OR
OTHER FAULT OF ANY INDEMNIFIED PARTY OR ANY OTHER THEORY OF LIABILITY OR FAULT,
WHETHER IN LAW (COMMON OR STATUTORY) OR EQUITY. BUYER AND SELLER ACKNOWLEDGE
THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS
CONSPICUOUS.

ARTICLE XIII.

CASUALTY LOSS

13.01

Casualty Loss.  If, from the execution of the Agreement and prior to the
Closing, all or any material portion of the Company Properties are destroyed by
fire, hurricane, wind storm, or other casualty, is taken in condemnation or
under the right of eminent domain, or proceedings for such purposes are pending
or threatened, the Purchase Price shall be adjusted as agreed upon by the
parties.  In the event Buyer and Seller fail to reach a mutual determination as
to the adjustment of the Purchase Price, the Buyer shall, at the time of
Closing, place an amount equal to the difference between Buyer’s estimation of
the Purchase Price adjustment and Seller’s estimation of the Purchase Price
adjustment into a mutual agreeable escrow account, and any undisputed amount
shall be deducted from the Purchase Price, and the dispute shall thereafter be
resolved pursuant to Section 15.12 herein.  In such scenarios as described
above, the Company shall retain, at the time of Closing any sums paid to Company
by third parties by reason of the destruction or taking and all of the right,
title and interest of Company in and to any unpaid awards or other payments due
from third parties arising out of the destruction or taking, as to such Company
Properties and the foregoing shall be taken into account in the determination of
any Purchase Price adjustment pursuant to this Section 13.01.  In the event that
there is an adjustment to the Purchase Price, any insurance proceeds received
subsequent to the Closing will be distributed to the Seller to the extent the
Purchase Price was reduced. Company shall not voluntarily compromise or settle
or adjust any material amounts due and payable by reason of such destruction or
taking without first obtaining Buyer’s written consent.

ARTICLE XIV.

CERTAIN DEFINITIONS AND REFERENCES

14.01

Certain Defined Terms.  As used in this Agreement, each of the following terms
has the meaning given it below:

“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.  For

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the purposes of this definition, “control” when used with respect to any person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract, or otherwise; and the terms
“controlling” and “controlled” have meanings correlative to the foregoing.

“Applicable Environmental Laws” shall mean any and all Applicable Laws
pertaining to health, safety, or the environment in effect in any and all
jurisdictions in which the Seller has conducted operations or activities or
owned or leased property, including the Clean Air Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Rivers and Harbors Act of 1899, as amended, the Federal Water
Pollution Control Act, as amended, the Occupational Safety and Health Act of
1970, as amended, the Resource Conservation and Recovery Act of 1976, as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection laws.

“Applicable Law” means any statute, law, rule, or regulation or any judgment,
order, writ, injunction, or decree of any Governmental Entity to which a
specified person or property is subject.

“Business Day” shall mean a day other than a Saturday or Sunday or a day on
which commercial banks in the States of Texas or Louisiana are required to be
closed for business.

“Company Properties” means all of the oil and gas properties identified in
Exhibit “A.”

“Environmental Liabilities” means any liability associated with any violation of
purported violation of any Applicable Environmental Law.

“Governmental Entity” means any court or tribunal in any jurisdiction (domestic
or foreign) or any federal, state, municipal, or other governmental body,
agency, authority, department, commission, board, bureau, or instrumentality
(domestic or foreign).

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

“Hydrocarbons” shall mean oil, gas, other liquid or gaseous hydrocarbons, and/or
other minerals, or any of them or any combination thereof.

“Lien” means any lien, mortgage, security interest, pledge, charge, or
encumbrance of any kind.

“Lease” shall have the meaning given to it in Exhibit “A.”

“Material Adverse Effect” means any change, development, or effect which is, or
is reasonably likely to be, materially adverse (i) to the value, ownership, or
operation of the Company Properties, (ii) to the ability of a party to perform
on a timely basis any material obligation under this Agreement or any agreement,
instrument, or document entered into or delivered in connection herewith or
referenced herein, (iii) to the value of the Membership Interests.  To qualify
as being materially adverse, there must be a good faith expectation that the
change, development, or effect would have a value, individually or in the
aggregate with other such changes, developments or effects, of at least
$100,000.00.

“MBL” means Macquarie Bank Limited and/or Macquarie Americas Corp.

“MBL Debt” means any and all debt owed by the Company to MBL.

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“MBL NPI” means any and all net profits overriding royalty interests, or similar
interests or conveyances of production or production proceeds, in favor of MBL
and affecting any of the Company Properties.

“Permits” means licenses, permits, franchises, consents, approvals, variances,
exemptions, and other authorizations of or from Governmental Entities.

“Person” means any corporation, partnership, joint venture, association,
joint-stock company, trust, enterprise, unincorporated organization, or
Governmental Entity.

“Proceedings” means all proceedings, actions, claims, suits, investigations, and
inquiries by or before any arbitrator or Governmental Entity.

“Reasonable Best Efforts” means a party’s reasonable best efforts in accordance
with reasonable commercial practice and without the incurrence of unreasonable
expense.

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

“Taxes” means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, produc­tion, severance, transportation,
employment, payroll, franchise, or other tax imposed by any United States
federal, state, or local (or any foreign or provincial) taxing authority,
including any interest, penalties, or additions attributable thereto.

“To the Best of Company’s Knowledge” means all information within the actual
knowledge of an executive officer who devoted substantive attention to matters
of such nature during the ordinary course of his duties.  

“Unit” shall have the meaning given to it in Exhibit “A.”

“Well” shall have the meaning given to it in Exhibit “A.”

14.02

References and Construction.  In this Agreement:  (i) unless the context
requires otherwise, all references in this Agreement to sections, subsections or
other subdivisions shall be deemed to mean and refer to sections, subsections or
other subdivisions of this Agreement; (ii) titles appearing at the beginning of
any subdivision are for convenience only and shall not constitute part of such
subdivision and shall be disregarded in construing the language contained in
such subdivision; (iii) the words “this Agreement,” “this instrument,” “herein,”
“hereof,” “hereby,” “hereunder,” and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited; (iv) words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires; (v) pronouns in
masculine, feminine and neuter genders shall be construed to include any other
gender; (vi) examples shall not be construed to limit, expressly or by
implication, the matters they illustrate; (vii) the word “or” is not exclusive
and the word “includes” and its derivatives means “includes, but is not limited
to” and corresponding derivative expressions; (viii) no consideration shall be
given to the fact or presumption that one party had a greater or lesser hand in
drafting this Agreement; (ix) all references herein to “$” or “dollars” shall
refer to U.S. Dollars; and (x) unless the context otherwise requires or unless
otherwise provided herein, any reference herein to a particular agreement,
instrument or document shall also refer to and include all renewals, extensions,
modifications, amendments or restatements of such agreement, instrument, or
document.

ARTICLE XV.

MISCELLANEOUS

15.01

Exhibits.  The Exhibits referred to in this Agreement are hereby incorporated in
this Agreement by reference and constitute a part of this Agreement. Each party
to this Agreement has received a complete set of Exhibits as of the execution of
this Agreement.

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15.02

Expenses. Except as otherwise expressly provided in this Agreement, all fees and
expenses, including fees and expenses of counsel, financial advisors,
accountants, petroleum engineers and other outside consultants and advisors,
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fee or expense, regardless of
whether or not the Closing shall have occurred.

15.03

No Sales Taxes.  No sales, transfer or similar tax will be collected at Closing
from Seller or Buyer in connection with this transaction.  If, however, this
transaction is later deemed to be subject to sales, transfer or similar tax, for
any reason, Buyer agrees to be solely responsible, and shall indemnify and hold
the Seller harmless, for any and all sales, transfer or other similar taxes
(including related penalty, interest or legal costs) due by virtue of this
transaction to the applicable Governmental Entity and the Buyer shall remit such
taxes at that time.  Seller and Buyer agree to cooperate with each other in
demonstrating that the requirements for exemptions from such taxes have been
met.

15.04

Notices.  All notices and communications required or permitted under this
Agreement shall be in writing, and any communication or delivery hereunder shall
be deemed to have been duly made when personally delivered to the individual
indicated below, or if mailed or sent by facsimile transmission or via email
(provided such facsimile or email is confirmed by proof of delivery), when
received by the party charged with such notice and addressed as follows:

If to Buyer:

SARATOGA RESOURCES, INC.

2304 Hancock Drive

Austin, Texas 78756

-and-

1304 Alta Vista Avenue

Austin, Texas 78704

Attention:

Thomas F. Cooke, Chairman and CEO

Telephone:  (512) 445-2301

Fax:  (512) 443-2365

E-mail: tfcsri@yahoo.com

With a Copy to (which shall not constitute notice):

Schully, Roberts, Slattery & Marino

1100 Poydras Street, Suite 1800

New Orleans, Louisiana 70163

Attention:

Paul J. Goodwine

Telephone:  (504) 585-7800

Fax: (504) 585-7890

E-mail: pgoodwine@schullyroberts.com

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If to Seller:

Barry Ray Salsbury, Brian Carl Albrecht, Shell Sibley,

Willie Willard Powell, and Carolyn Monica Greer

THE HARVEST GROUP, LLC

67201 Industry Lane

Covington, Louisiana 70433

Attention:  Barry R. Salsbury

Telephone:

(985) 809-9292

Telecopier:

(985) 727-3870

E-mail:barry@harvest-oil.com

With a Copy to (which shall not constitute notice):

Carver, Darden, Koretzky, Tessier

Finn, Blossman & Areaux, LLC

1100 Poydras Street, Suite 2700

New Orleans, Louisiana  70163

Attention:  M. Taylor Darden

Telephone:  (504) 585-3800

Fax:  (504) 585-3801

E-mail:  darden@carverdarden.com

Any party may, by written notice so delivered to the other parties, change the
address or individual to which delivery shall thereafter be made.

15.05

Amendments.  This Agreement may not be amended nor any rights hereunder waived,
except by an instrument in writing signed by the party to be charged with such
amendment or waiver and delivered by such party to the party claiming the
benefit of such amendment or waiver.

15.06

Assignment.  Neither party may transfer all or any portion of its rights or
delegate all or any portion of its duties hereunder, unless it continues to
remain liable for the performance of the obligations hereunder and, if such
transfer is prior to Closing, obtains the prior written consent of the other
party, which consent shall not be unreasonably withheld.

15.07

Headings; Time of Essence.  The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.  Time is
of the essence in this Agreement.

15.08

Counterparts.  This Agreement may be executed by Buyer and Seller in any number
of counterparts, each of which shall be deemed an original instrument, but all
of which, together, shall constitute but one and the same instrument.

15.09

Governing Law.  This Agreement and the transactions contemplated hereby shall be
construed in accordance with, and governed by, the laws of the State of
Louisiana, without giving effect to principles of conflicts of law.

15.10

Entire Agreement.  This Agreement (including the Exhibits attached hereto and
the Seller Disclosure Schedule) constitutes the entire understanding among the
parties with respect to the subject matter hereof, superseding all negotiations,
prior discussions and prior agreements and understandings relating to such
subject matter.

15.11

Parties in Interest.  This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and permitted
assigns and, except as provided in Section 7.04 and in Article XII, nothing
contained in this Agreement, expressed or implied, is intended to confer upon
any other person or entity any benefits, rights or remedies.

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15.12

Arbitration.  All disputes arising out of, or in connection with, this Agreement
or any determination required to be made by Buyer and Seller as to which the
parties cannot reach an agreement shall be settled by arbitration in New
Orleans, Louisiana. Any matter to be submitted to arbitration shall be
determined by a panel of three (3) arbitrators, unless otherwise agreed by the
parties. Each arbitrator shall be a person experienced in the oil and gas
industry and shall be appointed:

(a)

by mutual agreement of Buyer and Seller, or

(b)

failing such agreement, within sixty (60) days of the request for arbitration,
each party shall appoint one arbitrator, and the third arbitrator shall be
appointed by the other two arbitrators, or, if they cannot agree, by a
representative of the American Arbitration Association.

In the event of the failure or refusal of the parties to appoint the
arbitrator(s) within one hundred twenty (120) days of the request for
arbitration, the arbitrator remaining to be named shall be selected in
accordance with the rules of the American Arbitration Association. The
arbitration shall be conducted in accordance with reasonable rules established
by the arbitrators. Any award by the arbitrators shall be final, binding and
non-appealable, and judgment may be entered thereon in any court of competent
jurisdiction.  

15.13

Injunctive Relief.  The parties hereto acknowledge and agree that irreparable
damage would occur in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached.  It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement, and shall
be entitled to enforce specifically the provisions of this Agreement, in any
court of the United States or any state thereof having jurisdiction, in addition
to any other remedy to which the parties may be entitled under this Agreement or
at law or in equity.  In case of any conflict between this Section 15.13 and
Section 12.06 of this Agreement, this Section 15.13 shall control, for all
purposes.

15.14

Public Announcements.  Except as may be required by Applicable Law, neither
Buyer, on the one hand, nor Seller, on the other, shall issue any press release
or otherwise make any statement to the public generally with respect to this
Agreement or the transactions contemplated hereby without the prior written
approval of the other Parties.  Any such press release or statement required by
Applicable Law shall only be made after reasonable notice to the other Parties.

15.15

Confidentiality.  Seller and Buyer have previously entered into a
Confidentiality Agreement and Non-Compete Amendment, dated August 9, 2007, and
the parties hereto agree that the provisions thereof shall continue to apply
during the term of this Agreement and after Closing.

15.16

Intentionally Omitted.

15.17

Further Assurances.  After Closing, each party hereto, at the request of the
other, shall, from time to time, without additional consideration execute and
deliver such further agreements and instruments of conveyance and take such
other action as the other party hereto may reasonably request in order to convey
and deliver the Membership Interests to Buyer and to otherwise accomplish the
transactions contemplated by the Agreement.  In connection with the foregoing,
Seller acknowledges that Buyer may be required to file financial statement with
the Securities and Exchange Commission (“SEC”) with respect to the Membership
Interests, which financial statements will necessarily have to be in conformity
with applicable SEC rules and regulations.  Seller covenants and agrees that it
will take such actions and provide such information and assistance and take such
steps as shall be deemed reasonably necessary by Buyer for Buyer to make such
filing(s) on a timely basis, including, but not limited to, access to the
internal accounting of the Company relating to the Membership Interests and the
cooperation of Company’s outside auditors. All costs and expenses directly
associated to Company’s or Seller’s efforts in complying with this provision
shall be borne in full by Buyer.

15.18

Liability of Seller.  The liability of each individual Seller under this
Agreement shall be joint and not solidary.

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EXECUTED on the day, month and year first above mentioned.

Saratoga Resources, Inc.

By: /s/ Thomas F. Cooke

Name: Thomas F. Cooke

Title: Chairman, CEO

ACKNOWLEDGEMENT

STATE OF TEXAS

§

COUNTY OF ______________

§

This instrument was acknowledged before me on this ______ day of __________,
2007, by ______________________, _______________________, a
_______________________ corporation, on behalf of said corporation.

___________________________________

Notary Public in and for the State of Texas

[Seal]

My commission expires:_______________

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EXECUTED on the day, month and year first above mentioned.

The Harvest Group, L.L.C.

By: /s/ Barry R. Salsbury

Name: Barry R. Salsbury

Title: President

ACKNOWLEDGEMENT

STATE OF LOUISIANA

§

PARISH OF ST. TAMMANY

§

Be it known, that on this 24th day of October, 2007, before me, the undersigned
authority, personally came and appeared Barry R. Salsbury, President of The
Harvest Group, L.L.C., a Louisiana limited liability company, to me personally
known (or satisfactorily proven) and known by me to be the person whose genuine
signature is affixed to the foregoing documents, who signed said document before
me and in the presence of the two witnesses whose names are thereto subscribed
as such, being competent witnesses, and who acknowledged, in my presence and in
the presence of said witnesses, that he signed the above and foregoing document
in the capacity herein, for the use and purposes stated therein, and as the act
and deed of said limited liability company.

In witness whereof, the said appearer has signed there presents and I have
hereunto affixed my hand and seal, together with the said witnesses on the day
and first above written.

[Seal]

/s/ Earl R. McCallon

Notary Public in and for the State of  Louisiana

Earl R. McCallon

Print Name of Notary

BAR NO. 09235

NOTARY PUBLIC ST TAMMANY PARISH

STATE OF LOUISIANA

MY COMMISSION IS ISSUED FOR LIFE

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EXECUTED on the day, month and year first above mentioned.

Barry Ray Salsbury

/s/ Barry R. Salsbury

ACKNOWLEDGEMENT

STATE OF LOUISIANA

§

§

PARISH OF ST. TAMMANY

§

BEFORE ME, on this 24th day of October 2007, the undersigned authority, on this
day personally appeared Barry Ray Salsbury, known to me (or satisfactorily
proven) to be the person, whose name is subscribed to the foregoing instrument,
and acknowledged that he possesses the authority to execute the foregoing
instrument as the act of himself for the purposes therein contained.

In witness whereof, I hereunto set my hand and official seal.

/s/ Earl R. McCallon

Notary Public

Bar Roll Number _____

My Commission expires ___________

Earl R. McCallon

BAR NO. 09235

NOTARY PUBLIC ST TAMMANY PARISH

STATE OF LOUISIANA

MY COMMISSION IS ISSUED FOR LIFE

35

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EXECUTED on the day, month and year first above mentioned.

Brian Carl Albrecht

/s/ Brian Carl Albrecht

ACKNOWLEDGEMENT

STATE OF LOUISIANA

§

§

PARISH OF ST. TAMMANY

§

BEFORE ME, on this 24th day of October 2007, the undersigned authority, on this
day personally appeared Brian Carl Albrecht, known to me (or satisfactorily
proven) to be the person, whose name is subscribed to the foregoing instrument,
and acknowledged that he possesses the authority to execute the foregoing
instrument as the act of himself for the purposes therein contained.

In witness whereof, I hereunto set my hand and official seal.

/s/ Earl R. McCallon

Notary Public

Bar Roll Number _____

My Commission expires ___________

Earl R. McCallon

BAR NO. 09235

NOTARY PUBLIC ST TAMMANY PARISH

STATE OF LOUISIANA

MY COMMISSION IS ISSUED FOR LIFE

36

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EXECUTED on the day, month and year first above mentioned.

Shell Sibley

/s/ Shell Sibley

ACKNOWLEDGEMENT

STATE OF LOUISIANA

§

§

PARISH OF ST. TAMMANY

§

BEFORE ME, on this 24th day of October 2007, the undersigned authority, on this
day personally appeared Shell Sibley, known to me (or satisfactorily proven) to
be the person, whose name is subscribed to the foregoing instrument, and
acknowledged that he possesses the authority to execute the foregoing instrument
as the act of himself for the purposes therein contained.

In witness whereof, I hereunto set my hand and official seal.

/s/ Earl R. McCallon

Notary Public

Bar Roll Number _____

My Commission expires ___________

Earl R. McCallon

BAR NO. 09235

NOTARY PUBLIC ST TAMMANY PARISH

STATE OF LOUISIANA

MY COMMISSION IS ISSUED FOR LIFE

37

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EXECUTED on the day, month and year first above mentioned.

Willie Willard Powell

/s/ Willie Willard Powell

ACKNOWLEDGEMENT

STATE OF LOUISIANA

§

§

PARISH OF ST. TAMMANY

§

BEFORE ME, on this 24th day of October 2007, the undersigned authority, on this
day personally appeared Willie Willard Powell, known to me (or satisfactorily
proven) to be the person, whose name is subscribed to the foregoing instrument,
and acknowledged that he possesses the authority to execute the foregoing
instrument as the act of himself for the purposes therein contained.

In witness whereof, I hereunto set my hand and official seal.

/s/ Earl R. McCallon

Notary Public

Bar Roll Number _____

My Commission expires ___________

Earl R. McCallon

BAR NO. 09235

NOTARY PUBLIC ST TAMMANY PARISH

STATE OF LOUISIANA

MY COMMISSION IS ISSUED FOR LIFE

38

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EXECUTED on the day, month and year first above mentioned.

Carolyn Monica Greer

/s/ Carolyn Monica Greer

ACKNOWLEDGEMENT

STATE OF LOUISIANA

§

§

PARISH OF ST. TAMMANY

§

BEFORE ME, on this 24th day of October 2007, the undersigned authority, on this
day personally appeared Carolyn Monica Greer, known to me (or satisfactorily
proven) to be the person, whose name is subscribed to the foregoing instrument,
and acknowledged that he possesses the authority to execute the foregoing
instrument as the act of himself for the purposes therein contained.

In witness whereof, I hereunto set my hand and official seal.

/s/ Earl R. McCallon

Notary Public

Bar Roll Number _____

My Commission expires ___________

Earl R. McCallon

BAR NO. 09235

NOTARY PUBLIC ST TAMMANY PARISH

STATE OF LOUISIANA

MY COMMISSION IS ISSUED FOR LIFE

39