Exhibit 10.1

 

Execution Version

 

PURCHASE AND SALE AGREEMENT

 

AMONG

 

LEGACY ENERGY, INC.

 

AS SELLER

 

NIMIN ENERGY CORP.

 

AS PARENT

 

AND

 

BREITBURN OPERATING L.P.

 

AS BUYER

 

 

 

  

TABLE OF CONTENTS

 

Article I            Assets 1       Section 1.01 Agreement to Sell and Purchase
1   Section 1.02 Assets 1   Section 1.03 Excluded Assets 3         Article
II          Purchase Price 3       Section 2.01 Purchase Price 3   Section 2.02
Property Values 4   Section 2.03 Law 4   Section 2.04 Effective Time 4        
Article III         Title Matters 4       Section 3.01 Examination Period 4  
Section 3.02 Defensible Title and Permitted Encumbrances 4   Section 3.03 Title
Defect 7   Section 3.04 Notice of Title Defects 7   Section 3.05 Remedies for
Title Defects and Title Benefits 8   Section 3.06 Special Warranty of Title 9  
Section 3.07 Preferential Rights To Purchase 9   Section 3.08 Consents to
Assignment 10   Section 3.09 Remedies for Title Benefits 11         Article
IV         Environmental Matters 11       Section 4.01 Environmental Review 11  
Section 4.02 Environmental Definitions 12   Section 4.03 Notice of Environmental
Defects 13   Section 4.04 Remedies for Environmental Defects 14         Article
V          Representations and Warranties of Seller 15       Section 5.01
Seller’s Existence 15   Section 5.02 Legal Power 15   Section 5.03 Authority;
Enforceability 15   Section 5.04 Brokers 15   Section 5.05 Bankruptcy 15  
Section 5.06 Suits 16   Section 5.07 Royalties 16   Section 5.08 Taxes 16  
Section 5.09 Leases; Easements; Contracts 16   Section 5.10 Liens 17   Section
5.11 Imbalances 17   Section 5.12 No Conflict or Violation 17   Section 5.13
Consents; Preferential Rights 17   Section 5.14 Compliance with Laws 17

 

(i)

 

 

  Section 5.15 Permits 17   Section 5.16 Wells 17   Section 5.17 Proposed
Operations or Expenditures 18   Section 5.18 Status of Seller 18   Section 5.19
Environmental 18   Section 5.20 Payout 18   Section 5.21 Suspense Funds 18      
  Article VI         Representations and Warranties of Buyer 19       Section
6.01 Buyer’s Existence 19   Section 6.02 Legal Power 19   Section 6.03
Authority; Enforceability 19   Section 6.04 Brokers 19   Section 6.05 Bankruptcy
19   Section 6.06 Suits 19   Section 6.07 Qualifications 20   Section 6.08
Investment 20   Section 6.09 Financial Resources 20   Section 6.10 Due Diligence
Investigation 20   Section 6.11 Approvals 20         Article
VII         Seller’s Conditions to Close 20       Section 7.01 Representations
20   Section 7.02 Performance 20   Section 7.03 Pending Matters 21   Section
7.04 Purchase Price 21   Section 7.05 Execution and Delivery of the Closing
Documents 21   Section 7.06 Securityholder Approval 21         Article
VIII         Buyer’s Conditions to Close 21       Section 8.01 Representations
21   Section 8.02 Performance 21   Section 8.03 Pending Matters 21   Section
8.04 Execution and Delivery of the Closing Documents 21   Section 8.05
Securityholder Approval 21         Article IX         Tax Matters 21      
Section 9.01 Transfer Taxes 21   Section 9.02 Asset Taxes 22   Section 9.03 Tax
Cooperation 22   Section 9.04 Tax Definitions 23         Article X           The
Closing 24       Section 10.01 Time and Place of the Closing 24   Section 10.02
Adjustments to Purchase Price at the Closing 24

 

(ii)

 

 

  Section 10.03 Closing Statement 25   Section 10.04 Actions of Seller at the
Closing 25   Section 10.05 Actions of Buyer at the Closing 26   Section 10.06
Actions of Parent at the Closing 26         Article XI          Termination 26  
    Section 11.01 Right of Termination 26   Section 11.02 Effect of Termination
27   Section 11.03 Termination Damages 27   Section 11.04 Attorneys’ Fees, Etc
29         Article XII        Post-Closing Obligations 29       Section 12.01
Allocation of Expense and Revenues 29   Section 12.02 Final Statement 30  
Section 12.03 Further Cooperation 30         Article XIII       Covenants and
Operation of the Assets 31       Section 13.01 Operations after Effective Time
31   Section 13.02 Limitations on the Operational Obligations and Liabilities of
Seller 32   Section 13.03 Special Meeting; Information Circular/Proxy Statement
32   Section 13.04 Required Approvals 33   Section 13.05 Operation of the Assets
After the Closing 34   Section 13.06 Casualty Loss 35   Section 13.07
Operatorship 35   Section 13.08 Records 35   Section 13.09 Administrative Duties
and Other Obligations 36   Section 13.10 Reserved 36   Section 13.11 No-Shop 36
  Section 13.12 Support Agreement 42         Article XIV        Obligations and
Indemnification 43       Section 14.01 Retained Obligations 42   Section 14.02
Assumed Obligations 43   Section 14.03 Buyer’s Indemnification 43   Section
14.04 Seller’s Indemnification – Third Party Non-Environmental Claims 44  
Section 14.05 Seller’s Indemnification – Third Party Environmental Claims 44  
Section 14.06 Notices and Defense of Indemnified Matters 45         Article
XV        Limitations on Representations and Warranties 45       Section 15.01
Disclaimers of Representations and Warranties 45   Section 15.02 Independent
Investigation 46   Section 15.03 Survival 46         Article XVI       Dispute
Resolution 46       Section 16.01 General 46

 

(iii)

 

 

  Section 16.02 Senior Management 47   Section 16.03 Dispute by Independent
Expert 47   Section 16.04 Limitation on Arbitration 47         Article
XVII        Miscellaneous 48       Section 17.01 Names 48   Section 17.02
Expenses 48   Section 17.03 Document Retention 48   Section 17.04 Entire
Agreement 48   Section 17.05 Waiver 48   Section 17.06 Publicity and Disclosure
of Agreement 48   Section 17.07 Reasonable Commercial Efforts 49   Section 17.08
Construction 49   Section 17.09 No Third Party Beneficiaries 49   Section 17.10
Assignment 49   Section 17.11 Governing Law 49   Section 17.12 Notices 49  
Section 17.13 Severability 50   Section 17.14 Time of the Essence 50   Section
17.15 Counterpart Execution 50   Section 17.16 Parent Liability 50   Section
17.17 Financial Statements 50

 

(iv)

 

EXHIBITS AND SCHEDULES

 

Exhibit A – Subject Interests Exhibit B – Wells and Interests Exhibit C –
Allocated Values Exhibit D – Form of Assignment and Bill of Sale Exhibit E-1 –
Form of Seller’s Officer’s Certificate Exhibit E-2 – Form of Parent’s Officer’s
Certificate Exhibit F – Form of Buyer’s Officer’s Certificate Exhibit G – Form
of Support Agreement     Schedule 1.02(e) – Contracts Schedule 1.03 – Excluded
Assets Schedule 3.07 – Preferential Purchase Rights Schedule 3.08 – Consents
Schedule 5.06 – Existing Claims and Litigation Schedule 5.08 – Taxes Schedule
5.11 – Imbalances Schedule 5.14 – Compliance with Laws Schedule 5.15 – Permits
Schedule 5.16 – P&A Wells Schedule 5.17 – Proposed Operations or Expenditures
Schedule 5.19 – Environmental Schedule 5.20 – Payout Schedule 5.21 – Suspense
Funds Schedule 10.02(b)(iii) – Liens for Taxes and Assessments Schedule 13.04 –
Required Approvals Schedule 13.12 – Officers and Directors

 

(v)

 

 

DEFINITIONS

 

TERM   SECTION Acquisition Proposal   Section 13.11(a)(i) Agreement   Preamble
Allocated Values   Section 2.02 Asset Taxes   Section 9.04(a) Assets   Section
1.02 Assignment   Section 10.04(a) Assumed Obligations   Section 14.02 Audited
Special Financial Statements   Section 17.17(c) Business Days   Section 3.01
Buyer   Preamble Buyer Additional Asset Taxes   Section 9.02 Buyer’s
Environmental Consultant   Section 4.01(a) Buyer’s Environmental Review  
Section 4.01(a) Buyer Indemnitees   Section 14.04 CERCLA   Section 4.02(c)
Closing   Section 10.01 Closing Date   Section 10.01 Contracts   Section 1.02(e)
Defensible Title   Section 3.02 Disputes   Section 16.01 Documents   Section
17.03 Due Diligence Period   Section 13.11(a)(ii) Easements   Section 1.02(c)
Effective Time   Section 2.04 Environmental Defect   Section 4.02(a)
Environmental Defect Value   Section 4.02(d) Environmental Permits   Section
5.19(b) Environmental Information   Section 4.01(b) Environmental Laws   Section
4.02(c) Examination Period   Section 3.01 Exchange Act   Section 17.17(a)
Excluded Assets   Section 1.03 Final Settlement Date   Section 12.02(a) Final
Statement   Section 12.02(b) Governmental Authority   Section 4.02(b)
Hydrocarbons   Section 1.02(d) Independent Expert   Section 16.03(a) Information
Circular   Section 13.03(b) Law   Section 2.03 Leases   Section 1.02(a) Losses  
Section 14.03

 

(i)

 

 

TERM   SECTION Net Revenue Interest   Section 3.02(a) Notice of Disagreement  
Section 12.02(a) Parent   Preamble Parent Securityholder Approval   Section
13.03(a) Parent Securityholders   Section 13.03(a) Party or Parties   Preamble
Permits   Section 5.15 Permitted Encumbrances   Section 3.02(d) Person   Section
1.02(g) Personal Property   Section 1.02(d) Proposed Final Statement   Section
12.02(a) Purchase Price   Section 2.01 Purchase Price Adjustments   Section
10.02(c) Records   Section 1.02(f) Regulatory Authority   Section 13.04(a)
Representatives   Section 13.11(b) Required Approvals   Section 13.04(a)
Retained Obligations   Section 14.01 SEC   Section 17.17(a) Securities Act  
Section 17.17(a) Seller   Preamble Seller Additional Asset Taxes   Section 9.02
Seller Indemnitees   Section 14.03 Seller’s Auditor   Section 17.17(a) Special
Financial Statements   Section 17.17(a) Special Meeting   Section 13.03(b)
Statement   Section 10.03 Straddle Period   Section 9.04(b) Subject Interest(s)
  Section 1.02(a) Superior Proposal   Section 13.11(a)(ii) Tax or Taxes  
Section 9.04(c) Tax Return   Section 9.04(d) Third Party   Section 1.02(g) Title
Benefit   Section 3.09(a) Title Defect   Section 3.03 Title Defect Value  
Section 3.04(c) Transfer Taxes   Section 9.01 Working Interest   Section 3.02(b)

 

(ii)

 

 

PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (this “Agreement”) is made and entered into
this 24th day of April, 2012, by and among Legacy Energy, Inc., a Delaware
corporation (“Seller”), NiMin Energy Corp., an Alberta corporation, and owner of
all of the outstanding shares of common stock of Seller (“Parent”), and
BreitBurn Operating L.P., a Delaware limited partnership (“Buyer”). Buyer,
Seller and Parent are collectively referred to herein as the “Parties,” and are
sometimes referred to individually as a “Party.”

 

WITNESSETH:

 

WHEREAS, Seller is willing to sell to Buyer, and Buyer is willing to purchase
from Seller, the Assets (as defined in Section 1.02), all upon the terms and
conditions hereinafter set forth;

 

WHEREAS, the Board of Directors of Parent and Seller (i) have determined that
the transaction is fair and in the best interest of Parent and its stockholders
and Seller and its stockholders and (ii) have approved and adopted this
Agreement and the transaction contemplated by this Agreement;

 

NOW, THEREFORE, in consideration of the mutual benefits derived and to be
derived from this Agreement by each Party, Seller, Parent and Buyer hereby agree
as follows:

 

Article I
Assets

 

Section 1.01        Agreement to Sell and Purchase. Subject to and in accordance
with the terms and conditions of this Agreement, Buyer agrees to purchase the
Assets from Seller, and Seller agrees to sell the Assets to Buyer.

 

Section 1.02          Assets. Subject to Section 1.03, the term “Assets” shall
mean all of Seller’s right, title and interest in and to:

 

(a)the leasehold estates in and to the oil, gas and mineral leases described or
referred to in Exhibit A (the “Leases”), the lands covered by the Leases, and
any fee interests, fee mineral interests, royalties, net profits interests and
overriding royalty interests in and to the lands covered by the Leases,
assignments and other documents of title described or referred to in Exhibit A,
all as more specifically described in Exhibit A (collectively, the “Subject
Interests,” or singularly, a “Subject Interest”);

 

(b)all rights incident to the Subject Interests, including, without limitation,
(i) all rights with respect to the use and occupation of the surface of and the
subsurface depths under the Subject Interests; (ii) all rights with respect to
any pooled, communitized or unitized acreage by virtue of any Subject Interest
being a part thereof, including all Hydrocarbon (as defined in Subsection (d) of
this Section 1.02) production after the Effective Time (as defined in Section
2.02) attributable to the Subject Interests or any such pool or unit allocated
to any such Subject Interest;

  

 

 

 

(c)to the extent assignable or transferable, all easements, rights-of-way,
surface leases, servitudes, permits, licenses, franchises and other estates or
similar rights and privileges directly related to or used in connection with the
Subject Interests (the “Easements”), including, without limitation, the
Easements described or referred to in Exhibit A;

 

(d)to the extent assignable or transferable, all personal property, equipment,
fixtures, inventory and improvements located on or used in connection with the
Subject Interests and the Easements or with the production, treatment, sale or
disposal of oil, gas or other hydrocarbons (collectively, “Hydrocarbons”),
including, without limitation, all wells and well locations located on the lands
covered by the Subject Interests or on lands with which the Subject Interests
may have been pooled, communitized or unitized (whether producing, shut in or
abandoned, and whether for production, injection or disposal), including,
without limitation, the wells described in Exhibit B, wellhead equipment, pumps,
pumping units, flowlines, pipelines, gathering systems, piping, tanks,
buildings, treatment facilities, injection facilities, disposal facilities,
compression facilities and other materials, supplies, equipment, facilities and
machinery (collectively, “Personal Property”);

 

(e)to the extent assignable or transferable, all contracts, agreements and other
arrangements (excluding the Leases and the Easements) that directly relate to
the Subject Interests, the Leases or the Easements, including, without
limitation, production sales contracts, farmout agreements, operating
agreements, service agreements and similar arrangements (collectively, the
“Contracts,” including, without limitation, the Contracts described in Schedule
1.02(e));

 

(f)all books, records, files, muniments of title, reports and similar documents
and materials, including, without limitation, lease records, well records and
division order records, well files, title records (including abstracts of title,
title opinions and memoranda, and title curative documents related to the
Assets), contracts and contract files and correspondence, in each case that
relate to the foregoing interests, in the possession of, and maintained by,
Seller (collectively, the “Records”);

 

(g)all geological and geophysical data relating to the Subject Interests, other
than such data which cannot be transferred without the consent of (provided that
Seller shall use commercially reasonable efforts to obtain such consent) or
payment to any Third Party (unless paid by Buyer). For purposes of this
Agreement, (i) “Person” means any individual, firm, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization, Governmental Authority or any other entity; and (ii) “Third Party”
means any Person or entity, governmental or otherwise, other than Seller or
Buyer, and their respective affiliates; the term includes, but is not limited
to, working interest owners, royalty owners, lease operators, landowners,
service contractors and governmental agencies; and

 

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(h)any other assets that are located in the State of Wyoming or that are used or
useful to the Assets described in Section 1.02(a) through Section 1.02(g).

 

Section 1.03          Excluded Assets. Notwithstanding the foregoing, the Assets
shall not include, and there is excepted, reserved and excluded from the sale
contemplated hereby (collectively, the “Excluded Assets”): (a) to the extent
received by Seller or Buyer within 90 days after Closing, all credits and
refunds (other than those relating to Taxes, which are governed by Subsection
(b) below) and all accounts, instruments and general intangibles (as such terms
are defined in the Texas Uniform Commercial Code) attributable to the Assets
with respect to any period of time prior to the Effective Time; (b) to the
extent received by Seller or Buyer within 90 days after Closing, all claims of
Seller for refunds of or loss carry forwards with respect to (i) income or
franchise Taxes imposed on Seller, or (ii) any Taxes attributable to the other
Excluded Assets, and such other refunds, and rights thereto, for amounts paid in
connection with the Assets and attributable to the period prior to the Effective
Time, including refunds of amounts paid under any gas gathering or
transportation agreement, but excluding for the avoidance of doubt, any refunds
of Asset Taxes; (c) to the extent received by Seller or Buyer within 90 days
after Closing, all proceeds, income or revenues (and any security or other
deposits made) attributable to (i) the Assets for any period prior to the
Effective Time, or (ii) any other Excluded Assets; (d) all of Seller’s
proprietary computer software, technology, patents, trade secrets, copyrights,
names, trademarks and logos; (e) all of Seller’s rights and interests in
geological and geophysical data which cannot be transferred without the consent
of (provided that Seller shall use commercially reasonable efforts to obtain
such consent) or payment to any Third Party; (f) data and other information that
cannot be disclosed or assigned to Buyer as a result of confidentiality or
similar arrangements under agreements with Persons unaffiliated with Seller; (g)
to the extent received by Seller or Buyer within 90 days after Closing, all
audit rights arising under any of the Contracts or otherwise with respect to any
period prior to the Effective Time or to any of the other Excluded Assets; (h)
all corporate, partnership and income Tax records of Seller; (i) vehicles,
office equipment and supplies; and (j) the items described on Schedule 1.03.

 

Article II
Purchase Price

 

Section 2.01      Purchase Price. The total consideration for the purchase, sale
and conveyance of the Assets to Buyer is Buyer’s payment to Seller of the sum of
$98,050,000 (the “Purchase Price”), as adjusted in accordance with the
provisions of this Agreement. The adjusted Purchase Price shall be paid to
Seller (or its designee) at Closing (as defined in Section 10.01) by means of a
completed federal funds transfer to an account designated in writing by Seller.

 

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Section 2.02        Property Values. Buyer and Seller have agreed on the
allocation of values among the Assets as set forth in Exhibit C (the “Allocated
Values”).  Seller and Buyer agree that the Allocated Values shall be used for
federal income tax purposes, for computation of any adjustments to the Purchase
Price pursuant to the provisions of Article III and Article IV, and for all
other purposes incident to this Agreement.

 

Section 2.03       Law. For the purposes of this Agreement, “Law” means any
statute, Law, rule, regulation, ordinance, order, code, ruling, writ,
injunction, decree or other official act of or by any Governmental Authority.

 

Section 2.04        Effective Time. If the transactions contemplated hereby are
consummated in accordance with the terms and provisions hereof, the ownership of
the Assets shall be transferred from Seller to Buyer on the Closing Date, and
effective as of 7:00 a.m. local time where the Assets are located on April 1,
2012 (the “Effective Time”).

 

Article III
Title Matters

 

Section 3.01         Examination Period. Following the execution date of this
Agreement until the Closing (the “Examination Period”), Seller shall permit
Buyer and/or its representatives to examine, at all reasonable times, in
Seller’s offices, all abstracts of title, title opinions, title files, ownership
maps, lease files, contract files, assignments, division orders, operating and
accounting records and agreements pertaining to the Assets insofar as same may
now be in existence and in the possession of Seller. “Business Days” means all
calendar days excluding Saturdays, Sundays and U.S. legal holidays.

 

Section 3.02         Defensible Title and Permitted Encumbrances. For purposes
of this Agreement, the term “Defensible Title” means, with respect to a given
Asset, such ownership by Seller in such Asset that, subject to and except for
the Permitted Encumbrances (as defined in Subsection (d) of this Section 3.02):

 

(a)entitles Seller to receive not less than the percentage set forth in
Exhibit B as Seller’s “Net Revenue Interest” of all Hydrocarbons produced, saved
and marketed from each well or unit as set forth in Exhibit B, all without
reduction, suspension or termination of such interest throughout the productive
life of such well;

 

(b)obligates Seller to bear not greater than the percentage set forth in
Exhibit B as Seller’s “Working Interest” of the costs and expenses relating to
the maintenance, development and operation of each well or unit as set forth in
Exhibit B, all without increase throughout the productive life of such well; and

 

(c)is free and clear of all liens, encumbrances and defects in title.

 

(d)The term “Permitted Encumbrances” shall mean any of the following matters to
the extent the same are valid and subsisting and affect the Assets:

 

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(i)the Contracts described in Schedule 1.02(e);

 

(ii)any (A) undetermined or inchoate liens or charges constituting or securing
the payment of expenses that were incurred incidental to the maintenance,
development, production or operation of the Assets or for the purpose of
developing, producing or processing Hydrocarbons therefrom or therein, and (B)
materialman’s, mechanics’, repairman’s, employees’, contractors’, operators’
liens or other similar liens or charges for liquidated amounts arising in the
ordinary course of business (1) that Seller has agreed to assume or pay pursuant
to the terms hereof, or (2) for which Seller will pay or release at the Closing;

 

(iii)any liens for current period Taxes to the extent there has been a reduction
in the Purchase Price under this Agreement for such liens;

 

(iv)the terms, conditions, restrictions, exceptions, reservations, limitations
and other matters contained in (including any liens or security interests
created by Law or reserved in oil and gas leases for royalty, bonus or rental,
or created to secure compliance with the terms of) the agreements, instruments
and documents that create or reserve to Seller its interest in the Assets,
provided that the net cumulative effect of such matters does not operate to
reduce the Net Revenue Interests of Seller for any well, well location or unit
below those set forth in Exhibit B or increase the Working Interests of Seller
for any well, well location or unit above those set forth in Exhibit B for such
well, well location or unit without a corresponding increase in the Net Revenue
Interests;

 

(v)any obligations or duties affecting the Assets to any municipality or public
authority with respect to any franchise, grant, license or permit and all
applicable Laws, rules, regulations and orders of any Governmental Authority (as
defined in Section 4.02(b));

 

(vi)any (A) easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations, pipelines, grazing, hunting,
lodging, canals, ditches, reservoirs or the like, and (B) easements for streets,
alleys, highways, pipelines, telephone lines, power lines, railways and other
similar rights-of-way on, over or in respect of property owned or leased by
Seller or over which Seller owns rights-of-way, easements, permits or licenses,
to the extent that same do not materially interfere with the oil and gas
operations to be conducted on the Assets;

 

-5-

 

(vii)all lessors’ royalties, overriding royalties, net profits interests,
carried interests, production payments, reversionary interests and other burdens
on or deductions from the proceeds of production created or in existence as of
the Effective Time, whether recorded or unrecorded, provided that the net
cumulative effect of such matters does not operate to reduce the Net Revenue
Interests of Seller for any well, well location or unit below those set forth in
Exhibit B or increase the Working Interests of Seller for any well, well
location or unit above those set forth in Exhibit B or such well, well location
or unit without a corresponding increase in the Net Revenue Interests;

 

(viii)preferential rights to purchase or similar agreements with respect to
which (A) waivers or consents are obtained from the appropriate parties for the
transaction contemplated hereby, or (B) required notices have been given for the
transaction contemplated hereby to the holders of such rights and the
appropriate period for asserting such rights has expired without an exercise of
such rights;

 

(ix)required Third Party consents to assignments or similar agreements with
respect to which (A) waivers or consents are obtained from the appropriate
parties for the transaction contemplated hereby, or (B) required notices have
been given for the transaction contemplated hereby to the holders of such rights
and the appropriate period for asserting such rights has expired without an
exercise of such rights;

 

(x)all rights to consent by, required notices to, filings with, or other actions
by Governmental Authorities in connection with the sale or conveyance of oil and
gas leases or interests therein that are customarily obtained subsequent to such
sale or conveyance;

 

(xi)rights reserved to or vested in any Governmental Authority to control or
regulate any of the Assets and the applicable Laws, rules and regulations of
such Governmental Authorities; and

 

(xii)all defects (but not liens), irregularities affecting the Assets that
individually or in the aggregate (A) do not operate to (1) reduce the Net
Revenue Interests of Seller for any well, well location or unit below those set
forth on Exhibit B, (2) increase the proportionate share of costs and expenses
of leasehold operations attributable to or to be borne by the Working Interests
of Seller for any well, well location or unit above those set forth on Exhibit
B, or (3) otherwise interfere materially with the operation, value or use of the
Assets, or (4) would be accepted by a reasonably prudent buyer in the business
of owning and operating similar oil and gas properties; or (B) operate to
increase the proportionate share of costs and expenses of leasehold operations
attributable to or to be borne by the Working Interest of Seller for any well,
well location or unit above those set forth on Exhibit B, so long as there is a
proportionate increase in Seller’s Net Revenue Interest for such well, well
location or unit.

 

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Section 3.03        Title Defect. The term “Title Defect,” as used in this
Agreement, shall mean: (a) any encumbrance, encroachment, irregularity, defect
in or objection to Seller’s ownership of any Asset (expressly excluding
Permitted Encumbrances) that causes Seller not to have Defensible Title to such
Asset; or (b) any default by Seller under a lease, farmout agreement or other
contract or agreement that would (i) have a material adverse effect on the
operation, value or use of such Asset, (ii) prevent Seller from receiving the
proceeds of production attributable to Seller’s interest therein or (iii) result
in cancellation of Seller’s interest therein.

 

Section 3.04          Notice of Title Defects.

 

(a)If Buyer discovers any Title Defect affecting any Asset, Buyer shall notify
Seller as promptly as possible but no later than the expiration of the
Examination Period of such alleged Title Defect. To be effective, such notice
must (i) be in writing, (ii) be received by Seller prior to the expiration of
the Examination Period, (iii) describe the Title Defect in sufficient, specific
detail (including any alleged variance in the Net Revenue Interest) to the
extent reasonably known, (iv) identify the specific Asset or Assets affected by
such Title Defect, and (v) include the value of such Title Defect as determined
by Buyer. 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, except
under the Assignment.

 

(b)Upon the receipt of such effective notice from Buyer, subject to Section 3.05
Seller and Buyer shall attempt to mutually agree on a resolution including, but
not limited to (i) attempt to cure such Title Defect at any time prior to the
Closing or (ii) exclude the affected Asset from the sale and reduce the Purchase
Price by the mutually agreed allocated value of such affected Asset.

 

(c)The value attributable to each Title Defect (the “Title Defect Value”) that
is asserted by Buyer in the Title Defect notices shall be determined based upon
the criteria set forth below:

 

(i)If the Title Defect is a lien upon any Asset, the Title Defect Value is the
amount necessary to be paid to remove the lien from the affected Asset.

 

(ii)If the Title Defect asserted is that the Net Revenue Interest attributable
to any well or unit is less than that stated in Exhibit C or the Working
Interest attributable to any well or unit is greater than that stated in
Exhibit C, then the Title Defect Value shall take into account the relative
change in the interest from Exhibit C and the appropriate Allocated Value
attributed to such Asset.

 

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(iii)If the Title Defect represents an obligation, encumbrance, burden or charge
upon the affected Asset (including any increase in Working Interest for which
there is not a proportionate increase in Net Revenue Interest) of a type not
described in Subsections (i) and (ii) of Section 3.04(c) for which the economic
detriment to Buyer is unliquidated, the amount of the Title Defect Value shall
be determined by taking into account the following factors: the Allocated Value
of the affected Asset, the portion of the Asset affected by the Title Defect,
the legal effect of the Title Defect, the potential discounted economic effect
of the Title Defect over the life of the affected Asset, the Title Defect Values
placed upon the Title Defect by Buyer and Seller and such other reasonable
factors as are necessary to make a proper evaluation.

 

(iv)If a Title Defect is not in effect or does not adversely affect an Asset
throughout the entire productive life of such Asset, such fact shall be taken
into account in determining the Title Defect Value.

 

(v)The Title Defect Value of a Title Defect shall be determined without
duplication of any costs or losses included in another Title Defect Value
hereunder.

 

(vi)Notwithstanding anything herein to the contrary, in no event shall a Title
Defect Value exceed the Allocated Value of the wells, units or other Assets
affected thereby.

 

(vii)If Buyer and Seller agree on the Title Defect Value, that amount shall be
the Title Defect Value.

 

(viii)Such other factors as are reasonably necessary to make a proper
evaluation.

 

Section 3.05          Remedies for Title Defects and Title Benefits.

 

(a)With respect to each Title Defect that is not cured on or before the Closing,
the Purchase Price shall be reduced by an amount equal to the Title Defect Value
agreed upon in writing by Buyer and Seller.

 

(b)If any Title Defect is in the nature of an unobtained consent to assignment
or other restriction on assignability, the provisions of Section 3.08 shall
apply.

 

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(c)If on or before Closing the Parties have not agreed upon the validity of any
asserted Title Defect or have not agreed on the Title Defect Value attributable
thereto, either Party shall have the right to elect to have the validity of such
Title Defect and/or such Title Defect Value determined by an Independent Expert
pursuant to Section 16.03; provided that if the validity of any asserted Title
Defect, or the Title Defect Value attributable thereto, is not determined before
Closing, the affected Asset shall be conveyed to Buyer at Closing and the
Purchase Price paid at Closing shall be reduced such that only the undisputed
Allocated Value with respect to any affected Asset shall be paid at Closing, and
upon the final resolution of such dispute pursuant to Article XVI, to the extent
it is determined that the subject Title Defect was not valid or that the Title
Defect Amount used to reduce the Purchase Price was overstated, Buyer shall
promptly refund to Seller the amount determined pursuant to such final
resolution that was withheld by Buyer at Closing.

 

(d)Notwithstanding anything to the contrary in this Agreement, (i) if the value
of a given individual Title Defect (or individual Title Benefit (as defined in
Section 3.09(a))) does not exceed $25,000, then no adjustment to the Purchase
Price shall be made for such Title Defect (or Title Benefit), (ii) if the
aggregate adjustment to the Purchase Price determined in accordance with this
Agreement for Title Defects (exceeding $25,000) and Environmental Defects
(exceeding $25,000), or for Title Benefits, does not exceed three percent (3%)
of the Purchase Price prior to any adjustments thereto, then no adjustment of
the Purchase Price shall be made therefor, and (iii) if the aggregate adjustment
to the Purchase Price determined in accordance with this Agreement for Title
Defects (exceeding $25,000) and Environmental Defects (exceeding $25,000), or
for Title Benefits, does exceed three percent (3%) of the Purchase Price prior
to any adjustments thereto, then the Purchase Price shall only be adjusted by
the amount of such excess.

 

Section 3.06         Special Warranty of Title. Seller hereby agrees to warrant
and defend title to the Assets unto Buyer against every Person whomsoever
lawfully claiming or to claim the same or any part thereof, by, through or under
Seller and its affiliates, but not otherwise; subject, however, to the Permitted
Encumbrances and the other matters set forth herein.

 

Section 3.07          Preferential Rights To Purchase.

 

(a)Buyer’s good faith allocation of values as set forth in Exhibit C shall be
used to prepare an allocation of the Purchase Price to Assets that are subject
to preferential purchase rights and shall be set forth in Schedule 3.07. Seller
shall use its reasonable efforts to comply with all preferential right purchase
provisions relative to any Asset prior to Closing.

 

(b)If, prior to Closing, a holder of a preferential purchase right exercises its
rights with respect to an Asset to which its preferential purchase right applies
(as determined in accordance with the agreement in which the preferential
purchase right arises) and consummates the purchase, then the Asset covered by
such preferential purchase right shall be excluded from the Assets to be
conveyed to Buyer, and the Purchase Price shall be reduced by the Allocated
Value of such Asset.

 

 

 

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(c)If by Closing, either (a) the time frame for the exercise of a preferential
purchase right has not expired and Seller has not received notice of an intent
not to exercise or a waiver of the preferential purchase right, or (b) a holder
of a preferential purchase right exercises its right but fails to consummate the
purchase prior to Closing, then Seller shall retain the Assets conveyed by such
preferential purchase rights and the Purchase Price shall be adjusted downward
by an amount equal to the Allocated Value of such Assets. As to any Assets
retained by Seller hereunder, following Closing, if a preferential purchase
right is not consummated within the time frame specified in the preferential
purchase right, or if the time frame for exercise of the preferential purchase
right expires without exercise after the Closing, then, subject to the same
terms and conditions set forth in this Agreement, Seller shall promptly convey
the applicable Asset to Buyer effective as of the Effective Time, and Buyer
shall pay the Allocated Value thereof pursuant to the terms of this Agreement up
to and through the Final Settlement Date and in connection with the payments to
be made with respect to the Final Statement as set forth in Section 12.02(b).

 

(d)Seller shall use reasonable efforts to send out the applicable preferential
right to purchase notices within five Business Days after the date this
Agreement is executed. Buyer acknowledges and agrees that Seller shall determine
(in its good faith judgment) the extent of the preferential purchase rights
encumbering the Assets, and said determination shall be used by Seller to
provide the preferential purchase right notifications.

 

Section 3.08          Consents to Assignment. Seller shall use all reasonable
efforts to obtain all necessary consents from Third Parties to assign the Assets
prior to Closing (other than governmental approvals that are customarily
obtained after Closing), and Buyer shall assist Seller with such efforts. Such
consents are set forth on Schedule 3.08. If prior to Closing, Seller fails to
obtain a consent to assign that would invalidate the conveyance of the Asset
affected by the consent to assign or materially affect the value or use of the
Asset, then Seller shall retain the affected Asset and the Purchase Price shall
be reduced by the Allocated Value of the affected Asset. If such consent has
been obtained as of the Final Settlement Date, then Seller shall convey the
affected Asset to Buyer effective as of the Effective Time, subject to the same
terms and conditions set forth in this Agreement, and Buyer shall pay Seller the
Allocated Value of the affected Asset, in accordance with the terms and
conditions of this Agreement. If such consent has not been obtained as of the
Final Settlement Date, the affected Asset shall be excluded from the sale and
the Purchase Price shall be deemed to be reduced by an amount equal to the
Allocated Value of the affected Asset. Buyer shall reasonably cooperate with
Seller in obtaining any required consent including providing assurances of
reasonable financial conditions, but Buyer shall not be required to expend funds
or make any other type of financial commitments as a condition of obtaining such
consent.

 

 

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Section 3.09          Remedies for Title Benefits.

 

(a)If either Party discovers any Title Benefit during the Examination Period
affecting the Assets, it shall promptly notify the other Party in writing
thereof on or before the expiration of the Examination Period. Subject to
Section 3.05, Seller shall be entitled to an upward adjustment to the Purchase
Price pursuant to Section 10.02(a)(i) with respect to all Title Benefits, in an
amount mutually agreed upon by the Parties. For purposes of this Agreement, the
term “Title Benefit” shall mean Seller’s interest in any Subject Interest that
is greater than or in addition to that set forth in Exhibit B (including,
without limitation, a Net Revenue Interest that is greater than that set forth
in Exhibit B) or Seller’s Working Interest in any Subject Interest that is less
than the Working Interest set forth in Exhibit B (without a corresponding
decrease in the Net Revenue Interest). Any matters that may otherwise constitute
Title Benefits, but of which Buyer has not been specifically notified by Seller
in accordance with the foregoing, shall be deemed to have been waived by Seller
for all purposes.

 

(b)If with respect to a Title Benefit the Parties are not deemed to have agreed
on the amount of the upward Purchase Price adjustment or have not otherwise
agreed on such amount prior to the Closing Date, Seller or Buyer shall have the
right to elect to have such Purchase Price adjustment determined by an
Independent Expert pursuant to Section 16.03. If the amount of such adjustment
is not determined pursuant to this Agreement by the Closing, the undisputed
portion of the Purchase Price with respect to the Asset affected by such Title
Benefit shall be paid by Buyer at the Closing and, subject to Section 3.05, upon
determination of the amount of such adjustment, any unpaid portion thereof shall
be paid by Buyer to Seller.

 

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Article IV
Environmental Matters

 

Section 4.01          Environmental Review.

 

(a)Buyer shall have the right to conduct or cause a consultant (“Buyer’s
Environmental Consultant”) to conduct an environmental review of the Assets
prior to the expiration of the Examination Period (“Buyer’s Environmental
Review”). The cost and expense of Buyer’s Environmental Review, if any, shall be
borne solely by Buyer. The scope of work comprising Buyer’s Environmental Review
shall be limited to that mutually agreed by Buyer and Seller prior to
commencement thereof and shall not include any intrusive test or procedure
without the prior consent of Seller. Buyer shall (and shall cause Buyer’s
Environmental Consultant to): (i) consult with Seller before conducting any work
comprising Buyer’s Environmental Review, (ii) perform all such work in a safe
and workmanlike manner and so as to not unreasonably interfere with Seller’s
operations, and (iii) comply with all applicable Laws, rules and regulations.
Buyer shall be responsible for, provided that Seller shall provide all
reasonable assistance in, obtaining any Third Party consents that are required
in order to perform any work comprising Buyer’s Environmental Review, and Buyer
shall consult with Seller prior to requesting each such Third Party consent.
Seller shall have the right to have a representative or representatives
accompany Buyer and Buyer’s Environmental Consultant at all times during Buyer’s
Environmental Review. 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. Buyer hereby
agrees to release, defend, indemnify and hold harmless Seller from and against
all claims, losses, damages, costs, expenses, causes of action and judgments of
any kind or character (including those resulting from Seller’s sole, joint,
COMPARATIVE or concurrent negligence or strict liability) to the extent arising
out of Buyer’s Environmental Review.

 

(b)Unless otherwise required by applicable Law, Buyer shall (and shall cause
Buyer’s Environmental Consultant 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 to not) disclose any Environmental Information
to any Governmental Authority or other Third Party without the prior written
consent of Seller. Unless otherwise required by Law, Buyer may use the
Environmental Information only in connection with the transactions contemplated
by this Agreement. If Buyer, Buyer’s Environmental Consultant 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
Seller with prompt notice sufficiently prior to any such disclosure so as to
allow Seller 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 Seller, which
Environmental Information shall become the sole property of Seller. Buyer shall
provide two copies of the Environmental Information to Seller without charge.

 

Section 4.02          Environmental Definitions.

 

(a)Environmental Defects. For purposes of this Agreement, the term
“Environmental Defect” shall mean, with respect to any given Asset, an
individual environmental condition that constitutes a violation of, or requires
remediation under, Environmental Laws in effect as of the date of this Agreement
in the jurisdiction in which such Asset is located. Environmental Defect shall
not be deemed to include an environmental condition described on Schedule 5.19.

 

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(b)Governmental Authority. For purposes of this Agreement, the term
“Governmental Authority” shall mean, as to any given Asset, the United States
and the state, county, parish, city and political subdivisions in which such
Asset is located and that exercises jurisdiction over such Asset, and any
agency, department, board or other instrumentality thereof that exercises
jurisdiction over such Asset.

 

(c)Environmental Laws. For purposes of this Agreement, the term “Environmental
Laws” shall mean all Laws, statutes, ordinances, court decisions, rules and
regulations of any Governmental Authority pertaining to health or the
environment as may be interpreted by applicable court decisions or
administrative orders, including, without limitation, the Clean Air Act, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act, as amended (“CERCLA”), the Federal Water Pollution Control Act, as amended,
the Occupational Safety and Health Act, as amended, the Resources Conservation
and Recovery Act, as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendment and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and comparable state and local Laws.

 

(d)Environmental Defect Value. For purposes of this Agreement, the term
“Environmental Defect Value” shall mean, with respect to any Environmental
Defect, the value, as of the Closing Date, of the estimated costs and expenses
to correct such Environmental Defect consistent with Environmental Laws.

 

Section 4.03         Notice of Environmental Defects.

 

(a)If Buyer discovers any Environmental Defect affecting the Assets, Buyer shall
notify Seller prior to the expiration of the Examination Period of such alleged
Environmental Defect. To be effective, such notice must: (i) be in writing; (ii)
be received by Seller prior to the expiration of the Examination Period; (iii)
describe the Environmental Defect in sufficient, specific detail to the extent
then reasonably known; and (iv) state Buyer’s estimate of the Environmental
Defect Value to the extent then reasonably known, including the basis for such
estimate, for which Buyer would agree to adjust the Purchase Price in order to
accept such Environmental Defect if Seller elected Section 4.04(b) as the remedy
therefor.

 

(b)Any matters that may otherwise constitute Environmental Defects, but of which
Seller has not been 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 all purposes, except as
provided in Section 14.05. Upon the receipt of such effective notice from Buyer,
subject to Section 4.04(a) and Section 4.04(b) Seller and Buyer shall attempt to
mutually agree on a resolution including, but not limited to, (i) attempt to
cure such Environmental Defect at any time prior to the Closing; or (ii) exclude
the affected Asset from the sale and reduce the Purchase Price by the allocated
value of such affected Asset.

 

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Section 4.04         Remedies for Environmental Defects.

 

(a)If any Environmental Defect described in a notice delivered in accordance
with Section 4.03 is not cured on or before the Closing, then the Purchase Price
shall be reduced by the Environmental Defect Value of such Environmental Defect
as agreed by the Parties.

 

(b)If Buyer and Seller have not agreed as to the validity of any asserted
Environmental Defect, or if the Parties have not agreed on the Environmental
Defect Value therefor, then on or before three Business Days prior to the
Closing Date either Party shall have the right to elect to have the validity of
the asserted Environmental Defect, and/or the Environmental Defect Value for
such Environmental Defect, determined by an Independent Expert pursuant to
Section 16.03. If the validity of any such asserted Environmental Defect or the
amount of any such Environmental Defect Value is not determined by the Closing,
the Asset affected by such disputed Environmental Defect shall be excluded from
the Closing and the Purchase Price paid at Closing shall be reduced by the
Allocated Value of such Asset. Upon resolution of such dispute, the
Environmental Defect Value, if any, found to be attributable to such
Environmental Defect shall, subject to this Section 4.04, be paid by Seller to
Buyer and the Asset conveyed to Buyer, if that is part of the mutually agreed
settlement. Notwithstanding the foregoing, Seller and Buyer shall each have the
right to exclude an Asset from the sale if the Environmental Defect Value
exceeds the Allocated Value of the Asset(s) affected thereby.

 

(c)Notwithstanding anything to the contrary in this Agreement, (i) if the
Environmental Defect Value for a given individual Environmental Defect does not
exceed $25,000, then no adjustment to the Purchase Price shall be made for such
Environmental Defect; (ii) if the aggregate adjustment to the Purchase Price
determined in accordance with this Agreement for Environmental Defects
(exceeding $25,000) and Title Defects (exceeding $25,000) does not exceed three
percent (3%) of the Purchase Price prior to any adjustments thereto, then no
adjustment of the Purchase Price shall be made therefore; and (iii) if the
aggregate adjustment to the Purchase Price determined in accordance with this
Agreement for Environmental Defects (exceeding $25,000) and Title Defects
(exceeding $25,000) does exceed three percent (3%) of the Purchase Price prior
to any adjustments thereto, then the Purchase Price shall only be adjusted by
the amount of such excess.

 

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Article V
Representations and Warranties of Seller

 

Each of Seller and Parent represents and warrants to Buyer as of the date hereof
and as of the Closing that:

 

Section 5.01         Seller’s Existence. Seller is a corporation, duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and is duly qualified to conduct business, and is in good standing, in
each jurisdiction in which the Assets make such qualification necessary. Seller
has full legal power, right and authority to carry on its business as such is
now being conducted and as contemplated to be conducted. Seller’s headquarters
and principal offices are all located in the State of California.

 

Section 5.02         Legal Power. Seller has the legal power and right to enter
into and perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement will not
violate, nor be in conflict with:

 

(a)any provision of Seller’s certificate of incorporation, by-laws or other
governing documents;

 

(b)any material agreement or instrument to which Seller is a party or by which
Seller is bound; or

 

(c)any judgment, order, ruling or decree applicable to Seller as a party in
interest or any Law, rule or regulation applicable to Seller.

 

Section 5.03         Authority; Enforceability. The execution, delivery and
performance of this Agreement by Parent and Seller and the consummation by
Parent and Seller of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Parent, and by the Board of Directors
and sole stockholder of Seller and, other than Parent Securityholder Approval,
no other corporate proceedings on the part of Parent or Seller are necessary to
authorize Parent’s or Seller’s execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement constitutes valid and legally binding obligations of Parent and
Seller, enforceable against Parent and Seller in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar Laws effecting generally the enforcement of
creditors’ rights and by general principles of equity.

 

Section 5.04         Brokers. Macquarie Tristone Capital LP has acted for or on
behalf of Seller or any affiliate of Seller in connection with this Agreement or
the transactions contemplated by this Agreement. No broker or finder is entitled
to any brokerage or finder’s fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Seller or any
affiliate of Seller for which Buyer has or will have any liabilities or
obligations (contingent or otherwise).

 

Section 5.05         Bankruptcy. There are no bankruptcy, reorganization or
arrangement proceedings pending, being contemplated by or to the knowledge of
Seller threatened against Seller.

 

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Section 5.06         Suits. There is no material suit, action, claim,
investigation or inquiry by any Person or entity or by any administrative agency
or Governmental Authority and no legal, administrative or arbitration proceeding
pending or, to Seller’s knowledge, threatened against Seller or any affiliate of
Seller that relates to the Assets or the transactions contemplated by this
Agreement except as shown on Schedule 5.06.

 

Section 5.07         Royalties. All rentals, royalties and other payments due
under the Subject Interests described in Exhibit A have been paid in all
material respects, except those amounts in suspense.

 

Section 5.08         Taxes.

 

(a)Each Tax Return required to be filed with respect to the Assets has been
timely and properly filed under applicable Laws and all Taxes due and owed with
respect to the Assets have been timely and properly paid. All such Tax Returns
are correct and complete in all material respects.

 

(b)Except as set forth on Schedule 5.08, none of the Assets are subject to or
owned by any tax partnership requiring a partnership income Tax Return to be
filed under Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue
Code. To the extent any of the Assets are deemed by agreement or Law to be held
by a partnership for federal income Tax purposes, each such partnership has or
shall have in effect for the taxable year that includes the Closing Date an
election under Section 754 of the Internal Revenue Code that will apply with
respect to such portion of the Assets.

 

(c)The Assets are not subject to any lien for Taxes, other than Permitted
Encumbrances.

 

(d)As of the date of this Agreement, neither Seller nor any of its affiliates
has received written notice of any pending claim with respect to the Assets from
any taxing authority for assessment of Asset Taxes, and there are no ongoing
audits, suits, proceedings, assessments, reassessments, deficiency claims or
other claims relating to any Asset Taxes with respect to the Assets by any
applicable taxing authority.

 

(e)Neither Seller nor any of its affiliates have waived any statute of
limitations in respect of Asset Taxes, nor has Seller or any of its affiliates
agreed to any extension of time with respect to any Asset Tax assessment or
deficiency.

 

Section 5.09         Leases; Easements; Contracts. Exhibit A sets forth any
Leases and Easements, and Schedule 1.02(e), any material Contracts, that exist
as of the date of this Agreement. Except specified on Exhibit A or Schedule
1.02(e), Seller is not in material breach of, or material default under, and to
the knowledge of Seller, no other Person is in material breach of, or material
default under, any Lease, Easement or material Contract, and there does not
exist under any provision thereof, to the knowledge of Seller, any event that,
with the giving of notice or the lapse of time or both, would constitute such a
material breach or material default by any Person.

 

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Section 5.10         Liens. Except for Permitted Encumbrances, the Assets will
be conveyed free and clear of all liens, mortgages and encumbrances.

 

Section 5.11         Imbalances. Except as set forth on Schedule 5.11, there are
no well imbalances associated with the Assets as of the Effective Time.

 

Section 5.12         No Conflict or Violation. Neither the execution and
delivery of this Agreement nor the consummation of the transactions and
performance of the terms and conditions contemplated hereby by Seller will
(a) conflict with or result in any breach of any provision of the certificate of
incorporation or by-Laws or other governing documents of Seller; (b) be rendered
void or ineffective by or under the terms, conditions or provisions of any
agreement, instrument or obligation to which Seller is a party or is subject;
(c) result in a default under the terms, conditions or provisions of any Asset
(or of any agreement, instrument or obligation relating to or burdening any
Asset); or (d) violate or be rendered void or ineffective under any Law, other
than, in the case of the matters described in clauses (b), (c) and (d) of this
Section 5.12, the matters referenced in Section 5.13 and such conflicts,
breaches, violations, defaults or other events as will not have a material
adverse effect.

 

Section 5.13         Consents; Preferential Rights. Except for (a) consents or
approvals of, or filings with, any applicable Governmental Authorities in
connection with assignments of the Assets which are not customarily obtained
prior to the assignment of the Assets, (b) preferential purchase rights set
forth on Schedule 3.07 and consents set forth on Schedule 3.08 and (c) the
consents, filings or notices expressly described and set forth on Schedule
13.04, no consent, approval, authorization or permit of, or filing with or
notification to, any Person is required for or in connection with the execution
and delivery of this Agreement by Seller or for or in connection with the
consummation of the transactions and performance of the terms and conditions
contemplated hereby by Seller. To Seller’s knowledge, all agreements containing
(x) preferential purchase rights are set forth in Schedule 3.07 and (y) consents
are set forth in Schedule 3.08.

 

Section 5.14         Compliance with Laws. Except with respect to (a) matters
set forth on Schedule 5.06 and Schedule 5.14, (b) compliance with Laws
concerning taxes (as to which certain representations and warranties are made
pursuant to Section 5.08) and (c) compliance with Environmental Laws, Seller has
no knowledge of any material violation by Seller of any Law applicable to the
Assets.

 

Section 5.15         Permits. Schedule 5.15 sets forth all permits, licenses,
orders, approvals, variances, waivers, franchise rights and other authorizations
(the “Permits”) required to be obtained from any Governmental Authority for
owning or operating the Assets and, except as set forth on Schedule 5.15, Seller
possesses and is in compliance with all of the Permits.

 

Section 5.16         Wells. Except as set forth on Schedule 5.16, there is no
well included in the Assets that: (i) Seller is obligated on the date of this
Agreement by Law or agreement to plug and abandon; and (ii) to the knowledge of
Seller, has been plugged and abandoned other than in compliance in all material
respects with Law. 

 

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Section 5.17         Proposed Operations or Expenditures. Except as set forth on
Schedule 5.17, as of the date of this Agreement, there are no outstanding
authorities for expenditure or other commitments to conduct any operations or
expend any amount of money on or with respect to the Assets which are binding on
Seller or the Assets and will be binding on Buyer after Closing and which Seller
reasonably anticipates will require the expenditure of money in excess of
$50,000 per item (net to Seller’s interest).

 

Section 5.18         Status of Seller. Seller is not an “investment company” or
a company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

 

Section 5.19         Environmental. Except as set forth on Schedule 5.19:

 

(a)the Assets and Seller with respect to the Assets are in compliance in all
material respects with the requirements of all Environmental Laws;

 

(b)to the knowledge of Seller, all permits, licenses, approvals, consents,
certificates and other authorizations required by Environmental Laws with
respect to the ownership or operation of the Assets (the “Environmental
Permits”) have been properly obtained and are in full force and effect, and the
Assets are in material compliance with the Environmental Permits; and

 

(c)Seller (i) is not subject to any pending, material written claim or, to the
knowledge of Seller, threatened, material complaint or claim, related to any
material noncompliance with, or material liabilities arising under,
Environmental Laws with respect to the Assets or to the presence or release of
any hazardous substances on or from any of the Assets, and (ii) has not entered
into, and is not subject to, any pending consent order, consent decree,
compliance order or administrative order pursuant to any Environmental Laws that
relate to the current or future use of the Assets, or that require any
investigation or remediation of hazardous substances in relation to the Assets,
which would reasonably be expected to result in material liability to Seller (or
Buyer following Closing).

 

Section 5.20         Payout. Schedule 5.20 sets forth the status of any wells
with respect to which there is a before payout and after payout allocation of
rights.

 

Section 5.21         Suspense Funds. Schedule 5.21 sets forth (a) all funds held
in suspense by Seller as of the date hereof that are attributable to the Assets,
(b) a description of the source of such funds and the reason they are being held
in suspense and (c) if known, the name or names of the Persons claiming such
funds or to whom such funds are owed. Seller shall transfer to Buyer at Closing
the amounts of such funds.

 

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Article VI
Representations and Warranties of Buyer

 

Buyer represents and warrants to Seller and Parent as of the date hereof and as
of the Closing that:

 

Section 6.01         Buyer’s Existence. Buyer is a limited partnership, validly
existing and in good standing under the Laws of the State of Delaware and is
duly qualified to conduct business, and is in good standing, in each
jurisdiction in which the Assets make such qualification necessary. Buyer has
full legal power, right and authority to carry on its business as such is now
being conducted and as contemplated to be conducted. Buyer’s headquarters and
principal offices are all located in the State of California.

 

Section 6.02         Legal Power. Buyer has the legal power and right to enter
into and perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement will not
violate, nor be in conflict with:

 

(a)any provision of Buyer’s agreement of limited partnership or other governing
documents;

 

(b)any material agreement or instrument to which Buyer is a party or by which
Buyer is bound; or

 

(c)any judgment, order, ruling or decree applicable to Buyer as a party in
interest or any Law, rule or regulation applicable to Buyer.

 

Section 6.03         Authority; Enforceability. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of Buyer. This Agreement constitutes valid and legally binding
obligations of Buyer, enforceable against Buyer in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar Laws effecting generally the enforcement of
creditors’ rights and by general principles of equity.

 

Section 6.04         Brokers. No broker or finder has acted for or on behalf of
Buyer or any affiliate of Buyer in connection with this Agreement or the
transactions contemplated by this Agreement. No broker or finder is entitled to
any brokerage or finder’s fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Buyer or any
affiliate of Buyer for which Seller has or will have any liabilities or
obligations (contingent or otherwise).

 

Section 6.05         Bankruptcy. There are no bankruptcy, reorganization or
arrangement proceedings pending, being contemplated by or to the knowledge of
Buyer threatened against Buyer or any affiliate of Buyer.

 

Section 6.06         Suits. There is no material suit, action, claim,
investigation or inquiry by any Person or entity or by any administrative agency
or Governmental Authority and no legal, administrative or arbitration proceeding
pending or, to Buyer’s knowledge, threatened against Buyer or any affiliate of
Buyer that has materially affected or will materially affect Buyer’s ability to
consummate the transactions contemplated herein.

 

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Section 6.07         Qualifications. Buyer is now, and after the Closing shall
continue to be, qualified with all applicable Governmental Authorities to own
and operate the Assets and has, and shall maintain, all necessary bonds to own
and operate the Assets.

 

Section 6.08         Investment. Prior to entering into this Agreement, Buyer
was advised by and has relied solely on its own legal, tax and other
professional counsel concerning this Agreement, the Assets and the value
thereof. Buyer is acquiring the Assets for its own account and not for
distribution or resale in any manner that would violate any state or federal
securities Law, rule, regulation or order. Buyer understands and acknowledges
that if any of the Assets were held to be securities, they would be restricted
securities and could not be transferred without registration under applicable
state and federal securities Laws or the availability of an exemption from such
registration.

 

Section 6.09         Financial Resources. Buyer currently has, and at Closing
will have, sufficient financial resources available to pay the Purchase Price in
full in cash at Closing.

 

Section 6.10         Due Diligence Investigation. Prior to Closing, Buyer will
have fully conducted and, except as expressly provided in this Agreement, will
be relying exclusively on its own inspection and investigation in order to
satisfy itself as to the condition and suitability of the Assets. Buyer will be
fully satisfied with its due diligence review of the Assets, subject to Article
III, Article IV and Section 8.01.

 

Section 6.11         Approvals. No consent, approval, waiver, authorization,
notice or filing (other than those with respect to any Governmental Authority in
connection with assignment of the Assets which are not customarily obtained
prior to the assignment of the Assets) is required to be obtained or made by
Buyer in connection with the execution, delivery and performance by Buyer of
this Agreement, except for such filings as may be required under the Exchange
Act.

 

Article VII
Seller’s Conditions to Close

 

The obligations of Seller and Parent to consummate the transaction provided for
herein are subject, at the option of Seller and Parent, to the fulfillment on or
prior to the Closing Date of each of the following conditions (except for those
conditions that by their nature are to be satisfied at the Closing):

 

Section 7.01         Representations. The representations and warranties of
Buyer herein contained shall be true and correct in all material respects (or in
all respects in the case of any representation or warranty containing any
materiality qualification) on the Closing Date as though made on and as of such
date.

 

Section 7.02         Performance. Buyer shall have performed, in all material
respects, the obligations, covenants and agreements contained in this Agreement
to be performed or complied with by it at or prior to the Closing.

 

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Section 7.03         Pending Matters. No suit, action or other proceeding shall
be pending or threatened that seeks to restrain, enjoin or otherwise prohibit
the consummation of the transactions contemplated by this Agreement.

 

Section 7.04         Purchase Price. Buyer shall have delivered to Seller the
Purchase Price, as the same may be adjusted hereunder, in accordance with the
provisions of Article II.

 

Section 7.05         Execution and Delivery of the Closing Documents. Buyer
shall have executed, acknowledged and delivered, as appropriate, to Seller all
closing documents described in Section 10.05.

 

Section 7.06         Securityholder Approval. Parent Securityholder Approval, as
defined in Section 13.03, shall have been obtained.

 

Article VIII
Buyer’s Conditions to Close

 

The obligations of Buyer to consummate the transaction provided for herein are
subject, at the option of Buyer, to the fulfillment on or prior to the Closing
Date of each of the following conditions (except for those conditions that by
their nature are to be satisfied at the Closing):

 

Section 8.01         Representations. The representations and warranties of
Seller and Parent herein contained shall be true and correct in all material
respects (or in all respects in the case of any representation or warranty
containing any materiality qualification) on the Closing Date as though made on
and as of such date.

 

Section 8.02         Performance. Seller and Parent shall have performed, in all
material respects, the obligations, covenants and agreements contained in this
Agreement to be performed or complied with by it at or prior to the Closing.

 

Section 8.03         Pending Matters. No suit, action or other proceeding shall
be pending or threatened that seeks to restrain, enjoin or otherwise prohibit
the consummation of the transactions contemplated by this Agreement.

 

Section 8.04         Execution and Delivery of the Closing Documents. Seller
shall have executed, acknowledged and delivered, as appropriate, to Buyer all
closing documents described in Section 10.04.

 

Section 8.05         Securityholder Approval. Parent Securityholder Approval
shall have been obtained.

 

 Article IX
Tax Matters

 

Section 9.01         Transfer Taxes. All sales, use, transfer and similar Taxes
and all recording fees incurred by or imposed with respect to the transfer of
the Assets to Buyer pursuant to this Agreement (“Transfer Taxes”) shall be the
responsibility of, and shall be paid by, Buyer. Buyer and Seller shall
reasonably cooperate in good faith to minimize, to the extent permissible under
applicable Law, the amount of any such Transfer Taxes. For the avoidance of
doubt, Seller shall retain all liability for and shall pay all income Tax,
franchise Tax and similar Taxes imposed on any income or gain realized by Seller
pursuant to the transactions contemplated in this Agreement.

 

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Section 9.02         Asset Taxes. Seller shall retain responsibility for and
bear all Asset Taxes for (a) any period ending prior to the Effective Time and
(b) the portion of any Straddle Period that ends immediately prior to the
Effective Time. All Asset Taxes with respect to the ownership or operation of
the Assets arising on or after the Effective Time shall be allocated to and
borne by Buyer. For purposes of allocation between Seller and Buyer of Asset
Taxes that are payable with respect to Straddle Periods, the portion of any such
Asset Taxes that are attributable to the portion of the Straddle Period that
ends immediately prior to the Effective Time shall (i) in the case of Asset
Taxes that are based upon or related to income or receipts or imposed on a
transactional basis such as severance or production Taxes, be deemed equal to
the amount that would be payable if the tax year or period ended immediately
prior to the Effective Time; and (ii) in the case of other Asset Taxes, be
deemed equal to the product of (A) the amount of such Asset Taxes multiplied by
(B) the quotient of the number of days in the portion of such Straddle Period
ending on the day immediately prior to the day on which the Effective Time
occurs, divided by the total number of days in such Straddle Period.
Notwithstanding anything to the contrary in this Agreement, any ad valorem,
property or similar Asset Taxes assessed on or measured by the deemed value of
an Asset that is determined, pursuant to applicable law, from the prior
production of Hydrocarbons therefrom, shall be allocated and deemed attributable
to the period in which the relevant production of Hydrocarbons occurred,
regardless of whether such Asset Tax is assessed, imposed or payable in a later
period. Such Asset Taxes described in the preceding sentence that are
attributable to production occurring in the taxable period that includes the
Effective Time shall be prorated based on the amount of production occurring in
such period prior to the Effective Time, on the one hand, and the amount of
production occurring in such period on and after the Effective Time, on the
other hand, with the amount of such Asset Taxes allocable to the portion of the
period ending immediately prior to the Effective Time being the responsibility
of Seller and the remainder being the responsibility of Buyer. To the extent the
actual amount of an Asset Tax is not determinable at Closing or at the time the
Final Statement is prepared, as applicable, Buyer and Seller shall utilize the
most recent information available in estimating the amount of such Asset Tax for
purposes of Sections 10.02(a)(ii), 10.02(b)(iii), 12.01(b)(i) and 12.01(c)(i).
If, at the time the Final Statement is prepared, the amount of such Asset Tax
paid by Seller, plus, if applicable, the amount of any adjustment to the
Purchase Price with respect to such Asset Tax made pursuant to Section
10.02(b)(iii) minus, if applicable, the amount of any adjustment to the Purchase
Price with respect to such Asset Tax made pursuant to Section 10.02(a)(ii) is
(x) less than Seller’s share (or an estimate thereof) of the actual amount of
such Asset Tax determined pursuant to the foregoing provisions of this Section
9.02, then Seller shall promptly pay Buyer an amount equal to such difference
pursuant Section 12.01(c)(i) (the “Seller Additional Asset Taxes”) or (y) more
than Seller’s share (or an estimate thereof) of the actual amount of such Asset
Tax, determined pursuant to the foregoing provisions of this Section 9.02, then
Buyer shall promptly pay Seller an amount equal to such difference pursuant to
Section 12.01(b)(i) (the “Buyer Additional Asset Taxes”).

 

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Section 9.03         Tax Cooperation. The Parties shall cooperate fully, as and
to the extent reasonably requested by the other Party, in connection with the
filing of Tax Returns and any audit, litigation or other proceeding with respect
to Taxes relating to the Assets. Such cooperation shall include the retention
and (upon another Party’s request) the provision of records and information that
are relevant to any such Tax Return or audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided under this Agreement.
Seller and the Buyer agree to retain all books and records with respect to tax
matters pertinent to the Assets relating to any tax period beginning before the
Effective Time until the expiration of the statute of limitations of the
respective tax periods and to abide by all record retention agreements entered
into with any taxing authority.

 

Section 9.04         Tax Definitions.

 

(a)“Asset Taxes” means all ad valorem, property, excise, severance, production
or similar Taxes (including any interest, fine, penalty or addition to Tax
imposed by a taxing authority in connection with such Taxes) based upon
operation or ownership of the Assets or the production of Hydrocarbons therefrom
but excluding, for the avoidance of doubt, (a) income, capital gains, franchise
and similar Taxes and (b) Transfer Taxes.

 

(b)“Straddle Period” shall mean any tax period beginning before and ending after
the Effective Time.

 

(c)“Tax” or “Taxes” means (i) all taxes, assessments, fees, unclaimed property
and escheat obligations, and other charges of any kind whatsoever imposed by any
taxing authority, including any federal, state, local and/or foreign income tax,
surtax, remittance tax, presumptive tax, net worth tax, special contribution
tax, production tax, value added tax, withholding tax, gross receipts tax,
windfall profits tax, profits tax, ad valorem tax, personal property tax, real
property tax, sales tax, goods and services tax, service tax, transfer tax, use
tax, excise tax, premium tax, stamp tax, motor vehicle tax, entertainment tax,
insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax,
employment tax, unemployment tax, disability tax, alternative or add-on minimum
tax and estimated tax, (ii) any interest, fine, penalty or additions to tax
imposed by a taxing authority in connection with any item described in clause
(i), and (iii) any liability in respect of any item described in clauses (i) or
(ii) above, that arises by reason of a contract, assumption, transferee or
successor liability, operation of Law (including by reason of participation in a
consolidated, combined or unitary Tax Return) or otherwise.

 

(d)“Tax Return” shall mean any report, return, information statement, schedule,
attachment, payee statement or other information required to be provided to any
taxing authority with respect to Taxes or any amendment thereof, including any
return of an affiliated, combined or unitary group, and any and all work papers
relating to any Tax Return.

 

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Article X
The Closing

 

Section 10.01      Time and Place of the Closing. If the conditions referred to
in Articles VII and VIII of this Agreement have been satisfied or waived by the
appropriate Party in writing, the transactions contemplated by this Agreement
(the “Closing”) shall take place at the offices of Seller, whose address is 1160
Eugenia Place, Suite 100, Carpinteria, California, or at such place designated
by Seller on the third Business Day after the conditions contained in Article
VII and Article VIII have been satisfied, or at such other time as is mutually
agreed between the Parties (the “Closing Date”).

 

Section 10.02       Adjustments to Purchase Price at the Closing.

 

(a)At the Closing, the Purchase Price shall be increased by the following
amounts:

 

(i)all upward Purchase Price adjustments for Title Benefits determined in
accordance with Article III;

 

(ii)Asset Taxes prorated to Buyer pursuant to Section 9.02, but paid by Seller
before Closing;

 

(iii)all upward Purchase Price adjustments for estimates determined in
accordance with Section 12.01; and

 

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

 

(b)At the Closing, the Purchase Price shall be decreased by the following
amounts:

 

(i)the Allocated Values of those Assets not conveyed at Closing due to the
failure to obtain a consent in accordance with Section 3.08 or in the exercise
of a preferential purchase right in accordance with Section 3.07;

 

(ii)all downward Purchase Price adjustments for Title Defects and Environmental
Defects determined in accordance with Article III and Article IV;

 

(iii)Asset Taxes for which Seller is responsible pursuant to Section 9.02 that
are not paid by Seller prior to Closing, including the Asset Taxes set forth on
Schedule 10.02(b)(iii);

 

(iv)any other amount provided for in this Agreement or agreed upon by Buyer and
Seller; and

 

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(v)all downward Purchase Price adjustments for estimates determined in
accordance with Section 12.01.

 

(c)The adjustments described in Sections 10.02(a) and (b) are hereinafter
referred to as the “Purchase Price Adjustments.”

 

Section 10.03       Closing Statement. Not later than three Business Days prior
to the Closing Date, Seller shall prepare and deliver to Buyer for review a
statement of the estimated Purchase Price Adjustments taking into account the
foregoing principles (the “Statement”). Prior to Closing, Buyer shall submit any
modifications to the Statement proposed by Seller, and the Parties shall agree
upon the Statement. In the event that Buyer fails to deliver such modifications
to Seller, then the Statement submitted by Seller shall be deemed to have been
mutually agreed to by the Parties. At the Closing, Buyer shall pay the Purchase
Price, as adjusted by the estimated Purchase Price Adjustments reflected on the
Statement, as agreed upon by the Parties; provided that, if the Parties do not
agree upon the estimated Purchase Price Adjustments set forth in the Statement,
then the amount of such estimated Purchase Price Adjustments shall be that
amount set forth in the version of the Statement modified by Buyer, provided
that Seller may later contest the calculation of the Purchase Price Adjustments
in connection with the Final Statement if any adjustments are not resolved in
such Final Statement by the Parties.

 

Section 10.04       Actions of Seller at the Closing. At the Closing, Seller
shall:

 

(a)execute, acknowledge and deliver to Buyer an assignment in the form of
Exhibit D (the “Assignment”) and such other instruments (in form and substance
mutually agreed upon by Buyer and Seller) as may be reasonably necessary to
convey the Assets to Buyer;

 

(b)execute, acknowledge and deliver to Buyer letters in lieu of transfer or
division orders directing all purchasers of production from the Subject
Interests to make payment of proceeds attributable to such production to Buyer
from and after the Effective Time as reasonably requested by Buyer prior to the
Closing Date;

 

(c)execute and deliver to Buyer an officer’s certificate in the form of Exhibit
E-1, dated as of the Closing Date, certifying that the conditions set forth in
Section 8.01 and Section 8.02 have been fulfilled;

 

(d)deliver to Buyer possession of the Assets;

 

(e)execute and deliver to Buyer a certificate of non-foreign status of Seller
meeting the requirements of Treasury Regulation Section 1.1445-2(b)(2);

 

(f)deliver to Buyer appropriate change of operator forms on those Assets
operated by Seller;

 

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(g)deliver to Buyer a recordable form of release of any pledge, mortgages,
financing statements, fixture filings and security agreements, if any, affecting
the Assets;

 

(h)deliver to Buyer the Audited Special Financial Statements as of and for the
year ended December 31, 2011 and the unaudited interim Special Financial
Statements for the three months ended March 31, 2012; and

 

(i)execute, acknowledge and deliver any other agreements provided for herein or
necessary or desirable to effectuate the transactions contemplated hereby.

 

Section 10.05       Actions of Buyer at the Closing. At the Closing, Buyer
shall:

 

(a)deliver to Seller the Purchase Price (as adjusted pursuant to the provisions
hereof) by wire transfer to an account designated in writing by Seller;

 

(b)execute and deliver to Seller an officer’s certificate in the form of Exhibit
F, dated as of the Closing Date, certifying that the conditions set forth in
Section 7.01 and Section 7.02 have been fulfilled;

 

(c)take possession of the Assets; and

 

(d)execute, acknowledge and deliver the Assignment and any other agreements
provided for herein or necessary or desirable to effectuate the transactions
contemplated hereby.

 

Section 10.06       Actions of Parent at the Closing. At the Closing, Parent
shall:

 

(a)execute and deliver to Buyer an officer’s certificate in the form of Exhibit
E-2, dated as of the Closing Date, certifying that the conditions set forth in
Section 8.01 and Section 8.02 have been fulfilled.

 

Article XI
Termination

 

Section 11.01       Right of Termination. This Agreement may be terminated at
any time at or prior to the Closing:

 

(a)by mutual written consent of the Parties;

 

(b)by Seller or Buyer if the Closing has not occurred on or before June 29,
2012, unless substantive comments are received by Seller from the SEC regarding
Parent’s information circular/proxy statement to be used in connection with the
proposed Special Meeting for Parent Securityholder Approval, in which event
Closing shall occur on or before 90 days from the execution of this Agreement
and in the event it has not occurred by such date may be terminated by either
Seller or Buyer;

 

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(c)by either Party if any Governmental Authority shall have issued an order,
judgment or decree or taken any other action challenging, delaying, restraining,
enjoining, prohibiting or invalidating the consummation of any of the
transactions contemplated herein;

 

(d)by either Party if (i) the aggregate amount of the Purchase Price Adjustments
agreed by the Parties or otherwise finally determined pursuant to this Agreement
with respect to all uncured Title Defects (net of the aggregate amount of the
Purchase Price Adjustments for all Title Benefits agreed by the Parties) plus
(ii) the aggregate amount of the Environmental Defect Values agreed by the
Parties or otherwise finally determined pursuant to this Agreement with respect
to all Environmental Defects, exceeds fifteen percent (15%) percent of the
Purchase Price, disregarding, for purposes of this Section 11.01(d), the three
percent (3%) aggregate deductible described in Section 3.05(d) and Section
4.04(c);

 

(e)by Buyer if Seller is unable to obtain Parent Securityholder Approval
pursuant to Section 13.03, or if Parent, Seller or the Board of Directors of
Parent, as applicable, accepts, approves, recommends or enters into an agreement
to implement an Acquisition Proposal;

 

(f)by Seller if Parent, Seller or the Board of Directors of Parent, as
applicable, accepts, approves, recommends or enters into an agreement to
implement an Acquisition Proposal that constitutes a Superior Proposal and
concurrently therewith Seller pays to Buyer a fee of $5,000,000 in immediately
available funds, provided that Parent and Seller have complied with their
obligations under Section 13.11; or

 

(g)as otherwise provided herein;

 

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

 

Section 11.02       Effect of Termination. In the event that the Closing does
not occur as a result of any Party exercising its right to terminate pursuant to
Section 11.01, then except as set forth in Section 5.04, Section 6.04, Section
11.03, Section 17.02, Section 17.04, Section 17.06 and Section 17.11, this
Agreement shall be null and void and no Party shall have any further rights or
obligations under this Agreement.

 

Section 11.03       Termination Damages.

 

(a)If all conditions precedent to the obligations of Buyer set forth in Article
VIII (except for those conditions that by their nature are to be satisfied at
the Closing) have been met and the transactions contemplated by this Agreement
are not consummated on or before the Closing Date because of the failure of
Buyer to perform any of its material obligations hereunder or the breach of any
representation herein by Buyer, then in such event, Seller shall have the option
to terminate this Agreement pursuant to Section 11.01(b) and, shall be entitled
to exercise any and all other rights and remedies at law or in equity.

 

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(b)If all conditions precedent to the obligations of Seller set forth in Article
VII (except for those conditions that by their nature are to be satisfied at the
Closing) have been met and the transactions contemplated by this Agreement are
not consummated on or before the Closing Date because of the failure of Seller
or Parent to perform any of its material obligations hereunder or the breach of
any representation herein by Seller or Parent, then in such event, Buyer shall
have the right to terminate this Agreement pursuant to Section 11.01(b) or
Section 11.01(e) and shall be entitled to exercise any and all other rights and
remedies at law or in equity.

 

(c)If this Agreement is terminated by Buyer pursuant to Section 11.01(e), then
Seller shall, immediately and in any event within one Business Day after
termination, pay to Buyer a fee of $5,000,000 in immediately available funds.

 

(d)If (i) at any time prior to termination of this Agreement an Acquisition
Proposal is made, or any Person announces any plan or intention, conditional or
otherwise, to make an Acquisition Proposal, and (ii) thereafter either the
Parent Securityholders do not approve the sale of the Assets as contemplated in
Section 13.03 or the sale of the Assets as provided herein is not submitted to
the Parent Securityholders for approval, and (iii) such Acquisition Proposal, an
amended version thereof or any other Acquisition Proposal is consummated within
12 months after the date on which the first mentioned Acquisition Proposal is
made or any such plan or intention is announced, then Seller shall, immediately
and in any event within one Business Day after the first-mentioned Acquisition
Proposal, an amended version thereof or any other Acquisition Proposal is
consummated, pay to Buyer a fee of $5,000,000 in immediately available funds.

 

(e)For clarity, payment of the fee provided for in Section 11.01(f), Section
11.03(c), Section 11.03(d) or Section 13.11(c)(vi)(C)(5) is not, and shall not
be construed as, Buyer’s sole and exclusive remedy for any failure of Seller or
Parent to perform any of its obligations hereunder or the breach of any
representation herein by Seller or Parent, and Buyer shall, in addition to
receiving payment under Section 11.01(f), Section 11.03(c), Section 11.03(d) or
Section 13.11(c)(vi)(C)(5), as applicable, be entitled to exercise any and all
other rights and remedies at law or in equity. For further clarity, Seller or
Parent shall not be obligated to pay more than one fee under Section 11.01(f),
Section 11.03(c), Section 11.03(d) or Section 13.11(c)(vi)(C)(5) totaling in the
aggregate the sum of $5,000,000.

 

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Section 11.04       Attorneys’ Fees, Etc. If either Party to this Agreement
resorts to legal proceedings to enforce this Agreement, the prevailing Party in
such proceedings shall be entitled to recover all costs incurred by such Party,
including reasonable attorneys’ fees, in addition to any other relief to which
such Party may be entitled. Notwithstanding anything to the contrary in this
Agreement, in no event shall either Party be entitled to receive any punitive,
indirect or consequential damages unless same are a part of a Third Party claim
for which a Party is seeking indemnification hereunder.

 

Article XII
Post-Closing Obligations

 

Section 12.01       Allocation of Expense and Revenues.

 

(a)Appropriate adjustments shall be made to the Purchase Price between Buyer and
Seller so that (i) Buyer will receive all proceeds from sales of Hydrocarbons
that are produced and saved from and after the Effective Time and any other
revenues arising out of the ownership or operation of the Assets from and after
the Effective Time, net of all costs and expenses (other than Taxes) that are
incurred in the ownership or operation of the Assets from and after the
Effective Time, which shall be borne by Buyer, including, without limitation,
all drilling costs, all capital expenditures, all overhead charges under
applicable operating or other agreements (regardless of whether Seller or an
affiliate of Seller serves as operator prior to the Closing), and (ii) Seller
will receive all proceeds from sales of Hydrocarbons that are produced and saved
prior to the Effective Time and any other revenues arising out of the ownership
or operation of the Assets prior to the Effective Time, net of all costs and
expenses (other than Taxes) that are incurred in the ownership or operation of
the Assets prior to the Effective Time, which shall be borne by Seller.

 

(b)In addition to the foregoing, Seller will be paid (i) the Buyer Additional
Asset Taxes, (ii) the amount as of the Effective Time of any prepaid costs,
including rentals and insurance premiums, insofar as such prepaid costs (other
than Taxes) relate to periods of time after the Effective Time, and (iii) the
value of all merchantable Hydrocarbons produced prior to the Effective Time but
in storage above the inlet connection or upstream of the applicable sales meter
on the Closing Date.

 

(c)In addition to the foregoing, Buyer will be paid (i) the Seller Additional
Asset Taxes, and (ii) an amount equal to all cash in, or attributable to,
suspense accounts relative to the Assets for which Buyer has assumed
responsibility under Section 14.02.

 

(d)All amounts due under this Section 12.01 will be (i) estimated and
adjustments to the Purchase Price paid at Closing will reflect such estimates
and (ii) finally settled in accordance with the Final Statement under Section
12.02.

 

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Section 12.02       Final Statement.

 

(a)Seller shall provide to Buyer monthly settlement statements within 15 days
after the end of each calendar month following execution of this Agreement until
Closing, setting forth as of the date of such statement a detailed calculation
of all post-Closing adjustments applicable to the period of time between the
Effective Time and Closing. On or before 90 days after the Closing Date, Seller
shall prepare and deliver to Buyer a post-Closing statement setting forth a
detailed calculation of all post-Closing adjustments applicable to the period
for time between the Effective Time and Closing (the “Proposed Final
Statement”). The Proposed Final Statement shall include any adjustment or
payment which was not finally determined as of the Closing Date and the
allocation of revenues and expenses as determined in accordance with Section
12.01. To the extent reasonably required by Seller, Buyer shall assist in the
preparation of the Proposed Final Statement. Seller shall provide Buyer such
data and information as Buyer may reasonably request supporting the amounts
reflected on the Proposed Final Statement in order to permit Buyer to perform or
cause to be performed an audit. The Proposed Final Statement shall become final
and binding upon the parties on the 30th day following receipt thereof by Buyer
(the “Final Settlement Date”) unless Buyer gives written notice of its
disagreement (a “Notice of Disagreement”) to Seller prior to such date. Any
Notice of Disagreement shall specify in detail the dollar amount, nature and
basis of any disagreement so asserted. If a Notice of Disagreement is received
by Seller in a timely manner, then the Parties shall resolve the Dispute (as
defined in Section 16.01) evidenced by the Notice of Disagreement in accordance
with Article XVI.

 

(b)Within five Business Days after the Final Settlement Date, Seller shall pay
to Buyer, or Buyer shall pay to Seller, in immediately available funds the net
amount due. For purposes of this Agreement, the term “Final Statement” shall
mean (i) the Proposed Final Statement becoming final pursuant to this Section
12.02, or (ii) upon resolution of any Dispute regarding a Notice of
Disagreement, the revised Proposed Final Statement reflecting such resolutions,
which the Parties shall issue, or cause the Independent Expert or arbitrators to
issue, as applicable, following such resolution.

 

Section 12.03       Further Cooperation.

 

(a)Seller shall make the Records available to be picked up by Buyer at the
offices of Seller during normal business hours within five Business Days after
the Closing to the extent the Records are in the possession of Seller and are
not subject to contractual restrictions on transferability. Seller shall have
the right to retain copies of any of the Records and the rights granted under
Section 17.03.

 

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(b)After the Closing Date, each Party, at the request of the other and without
additional consideration, shall execute and deliver, or shall cause to be
executed and delivered, from time to time such further instruments of conveyance
and transfer and shall take such other action as the other Party may reasonably
request to convey and deliver the Assets to Buyer and to accomplish the orderly
transfer of the Assets to Buyer in the manner contemplated by this Agreement.
After the Closing, the Parties will cooperate to have all proceeds received
attributable to the Assets be paid to the proper Party hereunder and to have all
expenditures to be made with respect to the Assets be made by the proper Party
hereunder.

 

Article XIII
Covenants and Operation of the Assets

 

Section 13.01       Operations after Effective Time. Seller agrees, from and
after the date hereof until Closing, except as expressly contemplated by this
Agreement, as expressly consented to in writing by Buyer, or in situations
wherein emergency action is taken in the face of risk to life, property or the
environment, to:

 

(a)operate the Assets in the usual, regular and ordinary manner consistent with
past practice and in compliance with law in all material respects;

 

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

 

(c)not enter into a Contract, or materially amend or change the terms of any
Contract, that would involve individual commitments of more than $50,000, or
enter into any other material Contract;

 

(d)not plug or abandon any well located on the Assets without Buyer’s prior
written consent;

 

(e)not transfer, sell, mortgage, pledge or dispose of any of the Assets other
than the sale and/or disposal of Hydrocarbons in the ordinary course of business
or create or allow any lien on any of the Assets, other than liens that would be
Permitted Encumbrances;

 

(f)preserve in full force and effect all oil and gas leases, operating
agreements, easements, rights-of-way, permits, licenses and agreements that
relate to the Assets;

 

(g)submit to Buyer for prior written approval, all requests for operating or
capital expenditures (including AFEs) relating to the Assets that involve
individual commitments of more than $50,000; and

 

(h)obtain Buyer’s written approval prior to voting under any operating, joint
venture, partnership or similar agreement pertaining to the Assets.

 

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In order to reimburse Seller for administrative overhead expenses incurred in
order to operate the properties in accordance with this Section from the
Effective Time to the Closing Date, Buyer shall pay Seller a monthly fee of
$51,000, based upon the 51 wells operated at a charge of $1,000 per month,
prorated for any partial month.

 

Section 13.02       Limitations on the Operational Obligations and Liabilities
of Seller.

 

(a)From and after the date of execution of this Agreement and until the Closing,
and subject to the provisions of applicable operating and other agreements,
Seller shall use its reasonable efforts to operate the Assets and use its
reasonable efforts to cause any other operators to operate and administer the
Assets in a manner consistent with its past practices, and shall carry on its
business with respect to the Assets in substantially the same manner as before
execution of this Agreement.

 

(b)Buyer acknowledges that Seller owns undivided interests in some or all of the
Assets, and Buyer agrees that the acts or omissions of the other working
interest owners shall not constitute a violation of the provisions of this
Article XIII, nor shall any action required by a vote of working interest owners
constitute such a violation so long as Seller has voted its interests in a
manner that complies with the provisions of this Article XIII.

 

Section 13.03       Special Meeting; Information Circular/Proxy Statement.

 

(a)The Parties acknowledge and agree that this Agreement and the transaction
contemplated hereby are conditioned on and subject to approval by the holders of
common shares of Parent (the “Parent Securityholders”) of the sale of all, or
substantially all, of the assets of its wholly owned subsidiary, Seller, by
special resolution pursuant to section 190 of the Business Corporations Act
(Alberta) (the “Parent Securityholder Approval”). The Parent Securityholder
Approval shall not include or be made conditional upon approval by the Parent
Securityholders of any other transaction or matter.

 

(b)As promptly as practicable following the date of this Agreement, Parent
shall, (i) establish a record date for, duly call and give notice of, convene
and hold a special meeting (the “Special Meeting”) of the Parent Securityholders
for the purpose of obtaining the Parent Securityholder Approval and (ii) prepare
and shall file with applicable Regulatory Authorities an information
circular/proxy statement with respect to the transaction for use in soliciting
proxies for the Special Meeting and containing all information required by Law
to be set forth therein (together with the related notice of the Special Meeting
and form of proxy, the “Information Circular”). The Parties shall reasonably
cooperate in connection with the preparation of the Information Circular and
Buyer shall have the right to review and comment on the Information Circular;
provided, however, that Parent shall be solely responsible for the content of
the Information Circular and ensuring its compliance with applicable Laws.

 

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(c)As promptly as practicable after the Information Circular has been approved
or otherwise cleared by each of the applicable Regulatory Authorities, Parent
shall (i) mail the Information Circular to the Parent Securityholders in
accordance with applicable Law and (ii) use all reasonable efforts to hold the
Special Meeting as soon as practicable thereafter and, in any event, not later
June 27, 2012.

 

(d)Parent hereby confirms to Buyer that the Board of Directors of Parent has
unanimously approved this Agreement and determined that the transactions
contemplated hereby are in the best interests of Parent and the Parent
Securityholders, and resolved to recommend that the Parent Securityholders vote
in favor of the Parent Securityholder Approval. The Information Circular shall
contain notice of such approvals, determinations and resolutions.

 

(e)Except for proxies, Seller and Parent will promptly notify Buyer of any
notices, correspondence or other communications (written or oral) received from
a Regulatory Authority in connection with the Parent Securityholder Approval,
the Special Meeting or the Information Circular, and will provide to Buyer a
true and complete copy thereof (if written or otherwise recorded in tangible or
electronic form).

 

(f)Seller and Parent will promptly notify Buyer of any notices, correspondence
or other communications (written or oral) received from Parent Securityholders
in opposition to this Agreement, the transactions contemplated hereby or the
Parent Securityholder Approval, and will provide to Buyer a true and complete
copy thereof (if written or otherwise recorded in tangible or electronic form).

 

(g)Parent will allow representatives of Buyer to attend the Special Meeting.

 

Section 13.04       Required Approvals.

 

(a)Following the execution hereof, Parent and Seller shall use commercially
reasonable efforts, and Buyer shall cooperate in good faith with Sellers, to
obtain all approvals required from any Regulatory Authority, as defined below.
Schedule 13.04 sets forth a list of the Parties’ understanding, as of the date
of this Agreement, as to all consents, approvals, notices or filings that are
required to be obtained or made by Parent or Seller in connection with the
execution, delivery and performance of this Agreement and consummation of the
Transaction (the “Required Approvals”). The Parties shall update Schedule 13.04
from time to time to reflect any changes or updates to the list of Required
Approvals. For purposes of this Agreement, “Regulatory Authority” means any: (i)
multinational, federal, provincial, state, regional, municipal, local or other
government, governmental or public department, central bank, court, tribunal,
arbitral body, commission, board, bureau or agency, domestic or foreign; (ii)
any subdivision, agency, commission, board or authority of any of the foregoing;
or (iii) any quasigovernmental or private body exercising any regulatory,
expropriation or taxing authority under or for the account of any of the
foregoing, including any stock exchange.

 

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(b)The Parties will cooperate with each other (including by furnishing relevant
information) in complying with any filing or notification formalities required
to obtain any approval or clearance of or non-objection found to be applicable
to the transaction by any competent anti-trust or competition authority; and any
other filings, submissions or approvals required from any Governmental Authority
or Regulatory Authority.

 

(c)Each Party shall supply the others copies of all correspondence, filings or
communications (or memoranda setting forth the substance thereof) with
Governmental Authority or Regulatory Authority with respect to this Agreement
and the transactions contemplated hereby.

 

(d)With respect to information furnished by the Parties in connection with any
application, statement or filing relating to the transactions contemplated in
this Agreement, such information at the time such information is furnished shall
be correct in all material respects and shall not omit any material fact
required to be stated therein or necessary to make the statements therein not
misleading.

 

Section 13.05        Operation of the Assets After the Closing. It is expressly
understood and agreed that Seller shall not be obligated to continue operating
any of the Assets following the Closing and, without modifying Buyer’s rights
under this Agreement, Buyer hereby assumes full responsibility for operating (or
causing the operation of) all Assets following the Closing. Seller shall make
its Personnel available to Buyer prior to the Closing as may be reasonably
necessary to assist in the transition if Buyer becomes the operator. Without
implying any obligation on Seller’s part to continue operating any Assets after
the Closing, if Seller elects to continue to operate any Assets following the
Closing at the request of Buyer or any Third Party working interest owner, due
to constraints of applicable joint operating agreement(s), failure of a
successor operator to take over operations or other reasonable cause, such
continued operation by Seller shall be for the account of Buyer, at the sole
risk, cost and expense of Buyer. Seller is hereby released and indemnified by
Buyer from all claims, losses, damages, costs, expenses, causes of action and
judgments of any kind or character (including those resulting from Seller’s
sole, joint, COMPARATIVE or concurrent negligence or strict liability) with
respect to (a) such continued operations by Seller and (b) compliance with the
terms of any applicable joint operating agreement related to the election of a
successor operator.

 

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Section 13.06        Casualty Loss.

 

(a)Buyer shall assume all risk of loss with respect to, and any change in the
condition of, the Assets from the date of this Agreement until the Closing,
including with respect to the depletion of Hydrocarbons, the watering-out of any
well, the collapse of casing, sand infiltration of wells and the depreciation of
personal property.

 

(b)If after the date of this Agreement and prior to the Closing any part of the
Assets shall be damaged or destroyed by fire or other casualty or if any part of
the Assets shall be taken in condemnation or under the right of eminent domain
or if proceedings for such purposes shall be pending or threatened, this
Agreement shall remain in full force and effect notwithstanding any such
destruction, taking or proceeding, or the threat thereof and the Parties shall
proceed with the transactions contemplated by this Agreement notwithstanding
such destruction or taking without reduction of the Purchase Price.

 

(c)Notwithstanding Section 13.06(a), in the event of any loss described in
Section 13.06(b), at the Closing, Seller shall pay to Buyer all sums paid to
Seller by Third Parties by reason of the destruction or taking of such Assets,
including any sums paid pursuant to any policy or agreement of insurance or
indemnity, and shall assign, transfer and set over unto Buyer all of the rights,
title and interest of Seller in and to any claims, causes of action, unpaid
proceeds or other payments from Third Parties, including any policy or agreement
of insurance or indemnity, arising out of such destruction or taking.
Notwithstanding anything to the contrary in this Section 13.06, Seller shall not
be obligated to carry or maintain, and shall have no obligation or liability to
Buyer for its failure to carry or maintain, any insurance coverage with respect
to any of the Assets. Notwithstanding anything to the contrary contained in this
Section 13.06, should the uncompensated loss as determined by Buyer without
being limited by any Allocated Values exceed ten percent of the Purchase Price,
Buyer shall have the option to terminate this Agreement.

 

Section 13.07        Operatorship. Within five Business Days after Closing,
Seller will send out notifications of its resignation as operator for all wells
Seller currently operates and is selling to Buyer pursuant to this Agreement.
Seller makes no representation and/or warranty to Buyer as to the
transferability or assignability of operatorship of such wells. Buyer
acknowledges that the rights and obligations associated with such wells are
governed by applicable agreements and that operatorship will be determined by
the terms of those agreements. Seller shall use commercially reasonable efforts
to assist Buyer in assuming operatorship under all applicable joint operating
agreements.

 

Section 13.08        Records. Seller shall provide Buyer with all accounting
records and information relating to the Assets for the period from the Effective
Time to the Closing Date, including all revenue and joint interest billing
information and well master information.

 

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Section 13.09       Administrative Duties and Other Obligations. Seller shall
complete all administrative duties and other obligations pertaining to the
production of minerals from the Assets up to the Closing Date, including without
limitation, the filing of all state production and environmental reports,
payment of all production severance taxes and the filing of all severance tax
reports, the calculation and payment of all royalties due, the calculation and
payment of all third party production, and/or the calculation of payments in
kind information, if applicable, and preparation of the revenue run for the
calendar month immediately preceding the calendar month in which the Closing
occurs.

 

Section 13.10        Reserved.

 

Section 13.11        No-Shop.

 

(a)In this Agreement:

 

(i)“Acquisition Proposal” means any proposal, inquiry or offer (written or oral)
relating to (A) any merger, consolidation, amalgamation, take-over bid, tender
offer, exchange offer, plan of arrangement, recapitalization, liquidation,
dissolution, share exchange or sale of assets (including any lease, long-term
supply agreement or other arrangement having substantially the same economic
effect as a sale of assets) involving or relating to Parent or Seller, (B) any
purchase or sale of shares or other securities of Parent or Seller and/or any
right or interests therein, (C) any voting agreement, trust, partnership, joint
venture, proxy solicitation or other arrangement involving or relating to Parent
or Seller, or (D) any transactions or arrangements similar to, or having
substantially the same effect or consequences as, any of the foregoing, other
than the transactions contemplated by this Agreement, the consummation of which
would or would reasonably be expected to impede, interfere with, prevent or
delay completion of the transactions contemplated hereby, and where the subject
matter of any such event or circumstance set forth in clause (A) through (D) of
this definition represents or involves, whether in one transaction or a series
of transactions, 20% or more of the voting power in the capital of Parent or
Seller, or 20% or more of the consolidated assets (measured according to the
fair market value thereof as of the date of any such proposal, inquiry or offer)
of Parent and Seller taken as a whole, then its consummation will be deemed to
impede, interfere with, prevent or delay completion of the transactions
contemplated by this Agreement; provided, however, that an Acquisition Proposal
shall not include any sale of assets located in California by Parent or any of
its subsidiaries (or any proposal, inquiry, offer, transaction or arrangement
relating solely to any such sale of assets located solely in California and in
no way relating to the Assets); and

 

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(ii)“Superior Proposal” means an unsolicited bona fide written Acquisition
Proposal made after the date of this Agreement that:

  

(A)did not result from a breach of this Agreement;

 

(B)neither contravenes nor results from a breach of any agreement between the
person making such Acquisition Proposal and Parent or Seller;

 

(C)complies with all applicable securities laws;

 

(D)is not subject to a financing condition and in respect of which any financing
required to complete such Acquisition Proposal has been demonstrated to the
satisfaction of the Board of Directors of Parent, acting in good faith and after
receipt of advice from its financial advisor and outside legal counsel, to have
been obtained or are reasonably likely to be obtained (as evidenced by a written
financing commitment from one or more financial institutions of national
reputation);

 

(E)is not subject to a due diligence and/or access condition that would allow
greater access to the books, records or personnel of Parent or Seller than was
made available to Buyer prior to the date of this Agreement, which access shall
not continue beyond the fifth calendar day after the day on which access is
first afforded to the person making the Acquisition Proposal (the “Due Diligence
Period”); and

 

(F)the Board of Directors of Parent and any relevant committee thereof has
determined in good faith, after receipt of advice from its:

 

(1)financial advisor and outside legal counsel, is reasonably likely to be
completed without undue delay and in any event on the terms proposed, taking
into account all legal, financial, regulatory and other aspects of the
Acquisition Proposal and the person making the Acquisition Proposal;

 

(2)financial advisor, and without assuming away any risk of non-completion,
would, if the Acquisition Proposal was consummated according to its terms, be
expected to result in a transaction more favorable, from a financial point of
view, to Parent and Seller (taken as a whole) or the Parent Securityholders, as
applicable, than the transactions contemplated by this Agreement, including any
adjustment to the terms and conditions of this Agreement proposed pursuant to
Section 13.11(e) hereof; and

 

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(3)outside legal counsel, is such that failure to pursue the Acquisition
Proposal would be inconsistent with the exercise by the directors of Parent of
their fiduciary duties under applicable laws.

 

(b)Parent and Seller shall, and shall cause their respective directors,
officers, employees, agents, financial advisors or other representatives
(collectively, “Representatives”) to, immediately terminate any existing
solicitations, discussions or negotiations with any person (other than Buyer and
its affiliates) with respect to an actual or potential Acquisition Proposal, and
shall discontinue and cause to be discontinued any further access to
confidential information concerning the Assets or any data room, virtual or
otherwise, containing the same.

 

(c)Parent and Seller shall not, directly or indirectly, and shall not permit any
of its Representatives to:

 

(i)solicit, assist, initiate, facilitate or encourage, or take any action to
solicit, assist, initiate, facilitate or encourage (including by way of
furnishing information or permitting any visit to any facilities or entering
into any agreement) any Acquisition Proposal or the initiation of any
communications regarding an Acquisition Proposal;

 

(ii)enter into or participate in any discussions or negotiations with any person
regarding an Acquisition Proposal;

 

(iii)furnish or provide access to any information concerning Parent, Seller or
the Assets to any person in connection with, or that could reasonably be
expected to lead to, an Acquisition Proposal or the initiation of communications
regarding an Acquisition Proposal;

 

(iv)withdraw, amend or qualify, or propose publicly to withdraw, amend or
qualify, in a manner adverse to Buyer, the approval or recommendation of the
Board of Directors of Parent or any committee thereof of this Agreement or the
transactions contemplated hereby;

 

(v)release, waive or otherwise forbear in the enforcement of any provisions of,
or terminate, any confidentiality or "standstill" agreement between Parent or
Seller and any person relating to an actual or potential Acquisition Proposal,
or amend any such agreement or consent to the making of an Acquisition Proposal
in accordance with the terms of such agreement; or

 

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(vi)accept, approve, recommend or enter into an agreement to implement any
Acquisition Proposal, other than a confidentiality agreement as contemplated in
this Section 13.11(c), or authorize or propose publicly to do any of the
foregoing;

 

provided, however, that notwithstanding any other provision hereof Parent and
Seller and their respective Representatives may:

 

(A)enter into and participate in discussions or negotiations regarding an
Acquisition Proposal with a person who, without any solicitation, assistance,
initiation, facilitation or encouragement, directly or indirectly, by Parent or
Seller or any of their respective Representatives, seeks to initiate such
discussions or negotiations and, subject to such person entering into a
confidentiality agreement with Parent and Seller on substantially the same terms
as the Confidentiality Agreement dated January 19, 2012 between BreitBurn
Management Company LLC and Pacific Coast Energy Company LP and Parent (provided
that such confidentiality agreement shall provide for the disclosure thereof,
along with the information provided thereunder, to Buyer) may furnish such
person with or otherwise provide them with access to information concerning
Parent, Seller or the Assets, if and only to the extent that:

 

(1)Parent or Seller has received an Acquisition Proposal from such person that,
based on the information then available to the Board of Directors of Parent,
constitutes a Superior Proposal, and the Board of Directors of Parent has
determined in good faith, after receipt of advice from outside legal counsel,
that failure to take such action would be inconsistent with the exercise by the
directors of Parent of their fiduciary duties under applicable laws;

 

(2)prior to entering into or participating in any such discussions or
negotiations or furnishing or providing access to any such information, Parent
or Seller shall have complied with their obligations under Section 13.11(d), as
applicable, and notified Buyer of its intended action; and

 

(3)prior to furnishing or providing access to any such information, Parent or
Seller shall have provided to Buyer a copy of the confidentiality agreement
entered into with such person, a list of information to be provided to such
person, and copies of any such information not previously provided to Buyer;

 

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(B)in the event of a take-over bid for securities of Parent, comply with
applicable securities laws relating to the provision of directors’ circulars and
make appropriate disclosure to its securityholders with respect to thereto; and

 

(C)accept, approve, recommend or enter into an agreement to implement an
Acquisition Proposal that constitutes a Superior Proposal, and in connection
therewith withdraw, amend or qualify, in a manner adverse to Buyer, the approval
or recommendation of the Board of Directors of Parent or any committee thereof
of this Agreement or the transactions contemplated hereby, if

 

(1)Parent and Seller shall have complied with their obligations under this
Section 13.11;

 

(2)any Due Diligence Period contemplated under the Superior Proposal shall have
expired;

 

(3)the Board of Directors of Parent determines in good faith, after considering
all proposals to adjust the terms of this Agreement as contemplated by Section
13.11(e) and after receipt of advice from outside legal counsel, that failure to
take such action would be inconsistent with the exercise by the directors of
Parent of their fiduciary duties under applicable laws;

 

(4)at least five Business Days have elapsed from the later of the date on which
Buyer received notice pursuant to Section 13.11(e) of the Superior Proposal and,
if Buyer proposes to adjust the terms of this Agreement as contemplated by
Section 13.11(e), the date on which Buyer received notice of the determination
of the Board of Directors of Parent whether the Acquisition Proposal still
constitutes a Superior Proposal after giving effect to the adjusted transaction
terms under Buyer’s proposal; and

 

(5)Seller terminates this Agreement in accordance with Section 11.01 and
concurrently therewith pays to Buyer a fee of $5,000,000 in immediately
available funds;

 

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(d)Parent and Seller shall promptly (and in any event within 24 hours of
receipt) notify Buyer, at first orally and thereafter in writing, of any
Acquisition Proposal (or amendment thereto), any communication relating to an
Acquisition Proposal (including any request for discussions or negotiations),
any request for non-public information concerning the Assets or any
communication from a person that has made an Acquisition Proposal or informs
Parent or Seller or any of their respective Representatives that it is
considering making an Acquisition Proposal, received after the date hereof by
Parent or Seller (directly or through any of their respective Representatives),
and provide to Buyer a true and complete copy thereof and of any response
thereto made by or on behalf of Parent or Buyer or, if the Acquisition Proposal
(or amendment thereto), request, communication or response is not written or
otherwise recorded in tangible or electronic form, a description of the material
terms thereof, the identity of the person who made it and such other particulars
relating thereto as Buyer may reasonably request. Parent and Seller shall keep
Buyer fully informed of the status of and any change to the material terms of
any such Acquisition Proposal (or amendment thereto), request, communication or
response.

 

(e)If Parent or Seller (directly or through any of their respective
Representatives) receive a Superior Proposal, Parent or Seller shall, in
addition to their obligations under Section 13.11(d), give Buyer, orally and in
writing, not less than five Business Days’ advance notice of any decision by the
Board of Directors of Parent to accept, approve, recommend or to authorize an
agreement to implement the Superior Proposal, which notice shall confirm that
the Board of Directors of Parent has determined that the Acquisition Proposal in
question constitutes a Superior Proposal, shall confirm the identity of the
person making the Superior Proposal, and shall be accompanied by a true and
complete copy of the Superior Proposal, any amendments thereto and any material
correspondence relating thereto. During such five Business Day period, Buyer
shall have the opportunity, but not the obligation, to propose to amend the
terms of this Agreement and the transactions contemplated hereby, and in that
event Parent and Seller shall, and shall cause their respective Representatives
to, negotiate in good faith with Buyer to make such adjustments in the terms of
this Agreement and the transactions contemplated hereby as are acceptable to
Buyer and would enable completion of the transactions contemplated by this
Agreement (as amended) on such adjusted terms instead of the Superior Proposal.
The Board of Directors of Parent shall diligently and promptly review any such
proposal by Buyer and determine in good faith whether the Acquisition Proposal
still constitutes a Superior Proposal after giving effect to the adjusted
transaction terms under Buyer's proposal, and Parent or Buyer shall give Buyer,
orally and in writing, prompt notice of such determination. If Buyer proposes to
adjust the terms of this Agreement and the transactions contemplated hereby in a
manner that would result in a transaction more favorable, from a financial point
of view, to Parent and Seller (taken as a whole) or the Parent Securityholders,
as applicable, than the transaction contemplated by the Acquisition Proposal and
so advises the Board of Directors of Parent within five Business Days of
receiving written notice of the Superior Proposal, Parent and Seller shall not
accept, approve, recommend or enter into any agreement to implement such
Superior Proposal or release the person making the Superior Proposal from any
confidentiality or “standstill” obligations, and shall not withdraw, amend or
qualify in any manner the approval or recommendation of the Board of Directors
of Parent or any committee thereof of this Agreement or the transactions
contemplated hereby in a manner adverse to Buyer.

 

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(f)Each of Parent and Seller acknowledges and agrees that each successive
modification of any Acquisition Proposal shall constitute a new Acquisition
Proposal for purposes of this Section 13.11.

 

(g)The Board of Directors of Parent shall promptly reaffirm its approval and
recommendation of this Agreement and the transactions contemplated hereby by
news release in the event that any Acquisition Proposal is publicly announced
and either (i) the Board of Directors of Parent determines that the Acquisition
Proposal is not a Superior Proposal, or (ii) the Board of Directors of Parent
determines that a proposal by Buyer to adjust the terms of this Agreement and
the transactions contemplated hereby, as contemplated by Section 13.11(e), would
result in the Acquisition Proposal not being a Superior Proposal, and Buyer has
agreed to such adjustments. Buyer shall be given a reasonable opportunity to
review and comment on any such news release.

 

(h)Parent and Seller shall ensure that their Representatives are aware of the
provisions of this Section 13.11, and shall be jointly and severally responsible
for any breach of this Section 13.11 by any such Representative.

 

Section 13.12        Support Agreement. Concurrently with the signing of this
Agreement, Seller shall deliver to Buyer an executed support agreement in the
form of the agreement attached as Exhibit G from each of the officers and
directors of Seller listed on Schedule 13.12.

 

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Article XIV
Obligations and Indemnification

 

Section 14.01         Retained Obligations. Provided that the Closing occurs,
Seller shall retain all obligations and liabilities for, under, relating to or
arising from (a) the payment or improper payment of royalties, rentals and other
similar payments under the Leases relating to the Subject Interests accruing
prior to the Effective Time; (b) under the Contracts for (i) overhead charges
related to periods prior to the Effective Time, (ii) costs and expenses incurred
prior to the Effective Time for goods and services provided prior to the
Effective Time, and (iii) other payment obligations that accrue and become due
prior to the Effective Time; (c) any claim for personal injury or death relating
to the Assets and occurring prior to the Closing Date to the extent arising out
of or attributable to the period prior to the Closing Date; (d) (i) any and all
income Taxes, franchise Taxes and similar Taxes imposed by any applicable Law on
Seller or Parent or any of their affiliates, or any combined, unitary or
consolidated group of which any of the foregoing is or was a member, (ii) Asset
Taxes allocable to Seller pursuant to Section 9.02 taking into account, and
without duplication of, such Asset Taxes effectively born by Seller pursuant to
Section 10.02(b)(iii) or Section 12.01(c)(i)), (iii) any Taxes imposed on or
with respect to the ownership or operation of the Excluded Assets and (iv) and
any all other Taxes imposed on or with respect to the ownership or operation of
the Assets for any tax period (or portion thereof) ending before the Effective
Time; (e) the litigation matters set forth on Schedule 5.06; (f) any offsite
disposal of hazardous materials by Seller, prior to the Effective Time; (g)
Seller’s employment relationship with its employees and Seller’s employee
benefit plans; (h) any breach by Seller of any of Seller’s representations and
warranties contained in Article V (or the corresponding representation and
warranty made by Seller in the certificate delivered pursuant to Section
10.04(c) or its covenants hereunder); (i) any act or omission by Seller
involving or relating to the Excluded Assets or any other assets excluded from
the Assets pursuant to the terms hereof; (j) the matters set forth on Schedule
5.06; (k) taxes of Seller and (l) liens, security interests and similar charges
against the Assets relating to amounts that are being disputed in good faith by
Seller as of the date hereof or the Closing Date, as applicable (collectively,
the “Retained Obligations”).

 

Section 14.02         Assumed Obligations. Provided that the Closing occurs,
Buyer hereby assumes all duties, obligations and liabilities of every kind and
character with respect to the Assets or the ownership or operation thereof
(other than the Retained Obligations), whether attributable to periods before or
after the Effective Time, including, without limitation, those arising out of
(a) the terms of the Easements, Contracts, Leases, Personal Property or Subject
Interests comprising part of the Assets, (b) imbalances, (c) suspense accounts,
(d) Asset Taxes allocable to Buyer pursuant to Section 9.02 taking into account,
and without duplication of, such Asset Taxes effectively born by Buyer under
Section 10.02(a)(ii) and Section 12.01(b)(i), (e) the condition of the Subject
Interests, regardless of whether such condition arose before or after the
Effective Time, (f) obligations to properly plug and abandon or re-plug or
re-abandon or remove wells, flowlines, gathering lines or other facilities,
equipment or other personal property or fixtures comprising part of the Assets
and (g) obligations to restore the surface of the Subject Interests and
obligations to remediate or bring the Subject Interests into compliance with
applicable Environmental Laws (including conducting any remediation activities
that may be required on or otherwise in connection with activities on the
Subject Interests), regardless of whether such obligations or conditions or
events giving rise to such obligations, arose, occurred or accrued before or
after the Effective Time.

 

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Section 14.03         Buyer’s Indemnification. Provided that the Closing occurs,
except to the extent Seller has indemnification obligations under Section 14.04
or Section 14.05 Buyer shall release, defend, indemnify and hold harmless
Seller, its partners, and their respective officers, directors, employees,
agents, partners, representatives, members, shareholders, affiliates,
subsidiaries, successors and assigns (collectively, the “Seller Indemnitees”)
from and against: (a) any and all claims, damages, liabilities, losses, causes
of action, costs and expenses (including, without limitation, those involving
theories of negligence or strict liability and including court costs and
attorneys’ fees) (collectively, the “Losses”) to the extent resulting from,
arising out of, or related to the Assumed Obligations, and (b) any breach by
Buyer of any of Buyer’s representations and warranties contained in Article VI
(or the corresponding representation and warranty made by Buyer in the
certificate delivered pursuant to Section 10.05(b)), REGARDLESS OF WHETHER
CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT, COMPARATIVE OR CONCURRENT
NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE SELLER INDEMNITEES.

 

Section 14.04          Seller’s Indemnification – Third Party Non-Environmental
Claims. Provided that the Closing occurs, Seller shall release, defend,
indemnify and hold harmless Buyer, its members and affiliates, and their
respective officers, directors, employees, agents, representatives, members,
shareholders, affiliates, subsidiaries, successors and assigns (collectively,
the “Buyer Indemnitees”) from and against: (a) any and all Third Party
non-environmental claims relating to Seller’s ownership or operation of the
Assets prior to the Effective Time or as a result of, arising out of, or related
to the Retained Obligations, (b) any breach by Seller of any of Seller’s
representations and warranties contained in Article V (or the corresponding
representation and warranty made by Seller in the certificate delivered pursuant
to Section 10.04(c) or its covenants hereunder), (c) any act or omission by
Seller involving or relating to the Excluded Assets or any other assets excluded
from the Assets pursuant to the terms hereof, (d) the matters set forth on
Schedule 5.06, (e) any claim for personal injury or death relating to the Assets
and occurring prior to the Closing Date to the extent arising out of or
attributable to the period prior to the Closing Date, and (f) taxes of Seller,
in each case, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT,
COMPARATIVE OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY OF THE BUYER
INDEMNITEES; provided, however, notwithstanding anything to the contrary
contained herein, Seller’s indemnification obligation under this Section 14.04
shall only apply if (a) Buyer has provided Seller with written notice claiming
indemnification within 90 days after Closing, and (b) Buyer shall bear sole
responsibility for the aggregate costs associated with all Third Party
non-environmental claims and all Third Party environmental claims described in
Section 14.05 relating to time periods prior to the Effective Time up to a
deductible percentage of three percent (3%) of the Purchase Price. By the prior
sentence, it is the intent that Seller only be obligated to the extent of the
excess of the claims above the deductible percentage of three percent (3%).

 

Section 14.05         Seller’s Indemnification – Third Party Environmental
Claims. Provided that the Closing occurs, Seller shall release, defend,
indemnify and hold harmless Buyer, its partners, and their respective officers,
directors, employees, agents, representatives, members, shareholders, affiliates
and subsidiaries (collectively, Buyer Indemnitees) from and against any and all
Third Party environmental claims relating to Seller’s ownership or operation of
the Assets prior to the Effective Time or as a result of, arising out of, or
related to the Retained Obligations REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED
TO BY THE SOLE, JOINT, COMPARATIVE OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY
OF ANY OF BUYER INDEMNITEES; provided, however, notwithstanding anything to the
contrary contained herein, Seller’s indemnification obligation under this
Section 14.05 shall only apply if (i) Buyer has provided Seller with written
notice claiming indemnification within 90 days after the Closing, and (ii) Buyer
shall bear sole responsibility for the aggregate costs associated with all Third
Party environmental claims all Third Party non-environmental claims described in
Section 14.04 relating to time periods prior to the Effective Time up to a
threshold percentage of three percent (3%) of the Purchase Price. By the prior
sentence, it is the intent that Seller only be obligated to the extent of the
excess of the claims above the deductible percentage of three percent (3%).

 

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Section 14.06          Notices and Defense of Indemnified Matters. Each Party
shall promptly notify the other Party of any matter of which it becomes aware
and for which it is entitled to indemnification from the other Party under this
Agreement; provided, that any failure by the indemnified Party to notify the
indemnifying Party shall not affect the indemnified Party’s rights to
indemnification except the extent that the indemnifying Party is actually
prejudiced by the delay. The indemnifying Party shall be obligated to defend, at
the indemnifying Party’s sole expense, any litigation or other administrative or
adversarial proceeding against the indemnified Party relating to any matter for
which the indemnifying Party has agreed to indemnify and hold the indemnified
Party harmless under this Agreement. However, the indemnified Party shall have
the right to participate with the indemnifying Party in the defense of any such
matter at its own expense.

 

Article XV
Limitations on Representations and Warranties

 

Section 15.01         Disclaimers of Representations and Warranties. The express
representations and warranties of Seller and/or Parent contained in this
Agreement are exclusive and are in lieu of all other representations and
warranties, express, implied or statutory. except for the express
representations of seller AND/OR PARENT in this agreement AND THE SPECIAL
WARRANTY IN THE ASSIGNMENT, BUYER ACKNOWLEDGES THAT SELLER AND/OR PARENT HAS NOT
MADE, AND SELLER AND/OR PARENT HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER
HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT
COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (a) PRODUCTION RATES,
RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS BALANCING INFORMATION OR THE
QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY,
ATTRIBUTABLE TO THE ASSETS, (b) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR
HEREAFTER FURNISHED TO BUYER BY OR ON BEHALF OF SELLER AND/OR PARENT, AND (c)
THE ENVIRONMENTAL CONDITION OF THE ASSETS. except for the express
representations of seller AND/OR PARENT in this agreement AND THE SPECIAL
WARRANTY IN THE ASSIGNMENT, SELLER AND/OR PARENT EXPRESSLY DISCLAIMS AND
NEGATES, AND BUYER HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY AND FIXTURES CONSTITUTING A PART OF THE ASSETS (i) ANY IMPLIED OR
EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS OF PURCHASERS
UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE
PURCHASE PRICE, (v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM DEFECTS,
WHETHER KNOWN OR UNKNOWN, (vi) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER
APPLICABLE LAW, AND (vii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING
ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT, OR PROTECTION
OF THE ENVIRONMENT OR HEALTH, IT BEING THE EXPRESS INTENTION OF BUYER AND SELLER
AND/OR PARENT THAT THE PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND
FIXTURES INCLUDED IN THE ASSETS SHALL BE CONVEYED TO BUYER, AND BUYER SHALL
ACCEPT SAME, AS IS, WHERE IS, WITH ALL FAULTS AND IN THEIR PRESENT CONDITION AND
STATE OF REPAIR AND BUYER REPRESENTS TO SELLER AND/OR PARENT THAT BUYER WILL
MAKE OR CAUSE TO BE MADE SUCH INSPECTIONS WITH RESPECT TO SUCH PERSONAL
PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES AS BUYER DEEMS
APPROPRIATE. SELLER AND/OR PARENT AND BUYER AGREE THAT, TO THE EXTENT REQUIRED
BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES
CONTAINED IN THIS SECTION ARE “CONSPICUOUS” DISCLAIMERS FOR THE PURPOSES OF ANY
APPLICABLE LAW, RULE OR ORDER.

 

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Section 15.02         Independent Investigation. Buyer represents and
acknowledges that it is knowledgeable of the oil and gas business and of the
usual and customary practices of producers such as Seller and/or Parent and that
it has had (or will have prior to the Closing) access to the Assets, the
officers and employees of Seller and/or Parent, and the books, records and files
of Seller and/or Parent relating to the Assets, and in making the decision to
enter into this Agreement and consummate the transactions contemplated hereby,
Buyer has relied solely on the basis of its own independent due diligence
investigation of the Assets and upon the representations and warranties made in
Article V and the special warranty in the Assignment, and not on any other
representations or warranties of Seller and/or Parent or any other Person or
entity.

 

Section 15.03         Survival. Notwithstanding anything contained in this
Agreement to the contrary, the representations, warranties, covenants and
obligations of Seller under this Agreement shall not survive the Closing. The
representations, warranties, covenants and obligations of Parent pursuant to
Section 17.16, or otherwise, shall survive the Closing for 90 days only.
Notwithstanding the termination of any representation or warranty pursuant to
this Section 15.03, any claim for breach of representation or warranty properly
raised prior to the expiration of such representation or warranty shall survive
until such claim and the payment and the indemnity with respect thereto are
resolved.

 

Article XVI
Dispute Resolution

 

Section 16.01         General. Any and all claims, Disputes, controversies or
other matters in question arising out of or relating to title issues,
environmental issues or calculation of the Statement or revisions thereto (all
of which are referred to herein as “Disputes” which term shall not include any
other disputes claims, disputes, controversies or other matters in question
arising under this Agreement) shall be resolved in the manner prescribed by this
Article XVI.

 

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Section 16.02         Senior Management. If a Dispute occurs that the senior
representatives of the Parties responsible for the transaction contemplated by
this Agreement have been unable to settle or agree upon within a period of
fifteen (15) days after such Dispute arose, Seller shall nominate and commit one
of its senior officers, and Buyer shall nominate and commit one of its senior
officers, to meet at a mutually agreed time and place not later than thirty (30)
days after the Dispute has arisen to attempt to resolve same. If such senior
management have been unable to resolve such Dispute within a period of fifteen
(15) days after such meeting, or if such meeting has not occurred within
forty-five (45) days following such Dispute arising, then either Party shall
have the right, by written notice to the other, to resolve the Dispute through
the relevant Independent Expert pursuant to Section 16.03.

 

Section 16.03         Dispute by Independent Expert.

 

(a)Each Party shall have the right to submit Disputes regarding title issues,
environmental issues or calculation of the Statement or revisions thereto, to an
independent expert appointed in accordance with this Section 16.03 (each, an
“Independent Expert”), who shall serve as sole arbitrator. The Independent
Expert shall be appointed by mutual agreement of the Parties from among
candidates with experience and expertise in the area that is the subject of such
Dispute, and failing such agreement, such Independent Expert for such Dispute
shall be selected in accordance with the Rules (as defined in Subsection (b) of
this Section 16.03).

 

(b)Disputes to be resolved by an Independent Expert shall be resolved in
accordance with mutually agreed procedures and rules and failing such agreement,
in accordance with the rules and procedures of the Texas Arbitration Act and the
Rules of the American Arbitration Association to the extent such Rules do not
conflict with such Texas Arbitration Act or the provisions of this Agreement.
The Independent Expert shall be instructed by the Parties to resolve such
Dispute as soon as reasonably practicable in light of the circumstances. The
decision and award of the Independent Expert shall be binding upon the Parties
as an award under the Federal Arbitration Act and final and nonappealable to the
maximum extent permitted by Law, and judgment thereon may be entered in a court
of competent jurisdiction and enforced by any Party as a final judgment of such
court.

 

(c)The charges and expenses of the arbitrator shall be shared equally by Seller
and Buyer.

 

(d)Any arbitration hearing held pursuant to Section 3.05 or Section 16.03 shall
be held in Los Angeles, California.

 

Section 16.04         Limitation on Arbitration. ALL OTHER DISAGREEMENTS,
DIFFERENCES, OR DISPUTES ARISING BETWEEN SELLER AND BUYER UNDER THE TERMS OF
THIS AGREEMENT (AND NOT COVERED BY SECTIONS 3.05 OR 16.03) SHALL NOT BE SUBJECT
TO ARBITRATION AND SHALL BE DETERMINED BY A COURT OF COMPETENT JURISDICTION,
UNLESS THE PARTIES OTHERWISE MUTUALLY AGREE.

 

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Article XVII
Miscellaneous

 

Section 17.01         Names. As soon as reasonably possible after the Closing,
but in no event later than 60 days after the Closing, Buyer shall remove the
names of Seller and its affiliates, and all variations thereof, from all of the
Assets and make the requisite filings with, and provide the requisite notices
to, the appropriate federal, state or local agencies to place the title or other
indicia of ownership, including operation of the Assets, in a name other than
the name of the Seller or any of its affiliates, or any variations thereof.

 

Section 17.02         Expenses. Except as otherwise expressly set forth in this
Agreement, including due diligence expenses, incurred by it in connection with
this transaction, and neither Party shall be entitled to any reimbursement for
such expenses from the other Party.

 

Section 17.03         Document Retention. As used in this Section 17.03, the
term “Documents” shall mean all files, documents, books, records and other data
delivered to Buyer by Seller pursuant to the provisions of this Agreement,
including, but not limited to: financial and tax accounting records; land, title
and division of interest files; contracts; engineering and well files; and books
and records related to the operation of the Assets prior to the Closing Date.

 

Section 17.04         Entire Agreement. This Agreement, the documents to be
executed hereunder, and the exhibits attached hereto constitute the entire
agreement between the Parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties pertaining to the subject matter hereof.
No supplement, amendment, alteration, modification or waiver of this Agreement
shall be binding unless executed in writing by the Parties and specifically
referencing this Agreement.

 

Section 17.05        Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.

 

Section 17.06         Publicity and Disclosure of Agreement. Unless required by
Law, neither Seller nor Buyer shall issue any public announcement or press
release concerning the transactions contemplated herein without the written
consent of the other Party. The Parties agree to consult with each other prior
to issuing any press release or otherwise making any public statement with
respect to this Agreement or the transactions contemplated herein or making any
filing with any Regulatory Authority with respect thereto, except as may be
required by applicable Law or by obligations pursuant to any listing agreement
with a stock exchange and only after using its reasonable commercial efforts to
consult the other Party, taking into account the time constraints to which it is
subject as a result of such Law or obligation. Each of the Parties shall use its
commercially reasonable efforts to enable the other of them to review and
comment on all such press releases and filings prior to the release thereof. The
Parties acknowledge and agree that this Agreement shall be filed as required
with any applicable Governmental Authority or Regulatory Authority and included,
in whole or in part, in the Information Circular or as otherwise required to be
disclosed in accordance with applicable Law.

 

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Section 17.07         Reasonable Commercial Efforts. Each Party shall use its
respective reasonable commercial efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other Parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the transactions
contemplated herein, including the execution and delivery of such additional or
further consents, documents and other instruments and shall take all such
further actions as the other Parties may reasonably request for the purpose of
effectively carrying out the transactions contemplated by this Agreement and the
other related agreements.

 

Section 17.08         Construction. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. The Parties
acknowledge that they have participated jointly in the negotiation and drafting
of this Agreement and as such the Parties agree that if an ambiguity or question
of intent or interpretation arises hereunder, this Agreement shall not be
construed more strictly against one Party than another on the grounds of
authorship.

 

Section 17.09         No Third Party Beneficiaries. Except as provided in
Sections 14.04 and 14.05, nothing in this Agreement shall provide any benefit to
any Third Party or entitle any Third Party to any claim, cause of action, remedy
or right of any kind, it being the intent of the Parties that this Agreement
shall otherwise not be construed as a Third Party beneficiary contract.

 

Section 17.10          Assignment. Neither Party may assign or delegate any of
its rights or duties hereunder without the prior written consent of the other
Party and any assignment made without such consent shall be void. Except as
otherwise provided herein, this Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective permitted successors, assigns
and legal representatives.

 

Section 17.11         Governing Law. This Agreement, other documents delivered
pursuant hereto and the legal relations between the Parties shall be governed
and construed in accordance with the Laws of the State of Wyoming, without
giving effect to principles of conflicts of Laws that would result in the
application of the Laws of another jurisdiction. The Parties agree to venue in
Park County, Wyoming.

 

Section 17.12          Notices. Any notice, communication, request, instruction
or other document required or permitted hereunder shall be given in writing and
delivered in Person or sent by U.S. Mail postage prepaid, return receipt
requested, overnight courier or facsimile to the addresses of Seller and Buyer
set forth below. Any such notice shall be effective only upon receipt.

 

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Parent and Seller: 

  Clarence Cottman         c/o Legacy Energy, Inc.         1160 Eugenia Place,
Ste. 100         Carpinteria, CA 93013         Fax: 805-566-2917           OR  
    Scott Dobson         c/o Legacy Energy, Inc.         1160 Eugenia Place,
Ste. 100         Carpinteria, CA 93013         Fax: 805-566-2917  

  

  Buyer:   Greg Brown         c/o BreitBurn Management Company, LLC         515
S. Flower Street, Ste. 4800         Los Angeles, CA 90071         Fax: (213)
225-5916  

 

Either Party may, by written notice so delivered to the other Party, change its
address for notice purposes hereunder.

 

Section 17.13        Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect and the Parties shall negotiate in
good faith to modify this Agreement so as to effect their original intent as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.

 

Section 17.14        Time of the Essence. Time shall be of the essence with
respect to all time periods and notice periods set forth in this Agreement.

 

Section 17.15        Counterpart Execution. This Agreement may be executed in
any number of counterparts, and each counterpart hereof shall be effective as to
each Party that executes the same whether or not all of such Parties execute the
same counterpart. If counterparts of this Agreement are executed, the signature
pages from various counterparts may be combined into one composite instrument
for all purposes. All counterparts together shall constitute only one Agreement,
but each counterpart shall be considered an original.

 

Section 17.16        Parent Liability. Parent agrees that it is and shall be
jointly and severally liable for all of Seller’s obligations under this
Agreement and under any document to be entered into by Seller at Closing.

 

Section 17.17        Financial Statements.

 

(a)Seller shall prepare, at the sole cost and expense of Buyer, the financial
statements and all notes thereto related to the Assets (the “Special Financial
Statements”) that will be required of Buyer by the Securities and Exchange
Commission (“SEC”) in connection with any reports, registration statements or
other filings to be made by Buyer or any of its affiliates related to the
transactions contemplated by this Agreement with the SEC pursuant to the
Securities Act of 1933, as amended (the “Securities Act”), or the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), in such form that such
statements and notes thereto can be audited by the Seller’s external audit firm
(“Seller’s Auditor”). Seller shall cooperate with and permit Buyer to reasonably
participate in the preparation of the Special Financial Statements and shall
provide Buyer and its representatives with reasonable access to Seller’s
personnel who engage in the preparation of the Special Financial Statements.

 

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(b)Seller shall execute and deliver, or cause to be executed and delivered, to
Seller’s Auditor such representation letters, in form and substance customary
for representation letters provided to external audit firms by Seller (if the
financial statements are subject of an audit or are the subject of a review
pursuant to Statement of Accounting Standards 100 (Interim Financial
Information)), as may be reasonably requested by Seller’s Auditor, with respect
to the Special Financial Statements. Buyer agrees that (i) Buyer shall indemnify
and hold harmless Seller and provide a defense for Seller (excluding, in each
case, the negligence of Seller) with regard to the execution, delivery or any
other action related to the provision of (A) any representation letter delivered
by Seller to Seller’s Auditor, (B) the Special Financial Statements and (C) the
Audited Special Financial Statements, (ii) Buyer shall provide a customary
representation letter to Seller’s Auditor, if reasonably requested, and (iii)
Buyer’s existing outside auditors shall provide a customary representation
letter to Seller’s Auditor, if reasonably requested.

 

(c)Seller will engage Seller’s Auditor to perform an audit of the Special
Financial Statements and shall use commercially reasonable efforts to cause
Seller’s Auditor to issue unqualified opinions with respect to the Special
Financial Statements (the Special Financial Statements and related audit
opinions being hereinafter referred to as the “Audited Special Financial
Statements”), and provide its written consent for the use of Seller’s audit
reports with respect to Special Financial Statements in reports, registration
statements, or other documents filed by the Buyer or any of its affiliates under
the Securities Act or the Exchange Act, as needed. Buyer shall reimburse Seller
for all fees charged by Seller’s Auditor with respect to the preparation and
delivery by Seller’s Auditor to Buyer of the Audited Special Financial
Statements and any other fees charged by Seller’s Auditor to facilitate Buyer’s
ongoing compliance with SEC rules and regulations. Seller shall take all
reasonable action as may be necessary to facilitate the completion of such audit
and delivery of the Audited Special Financial Statements to Buyer or any of its
affiliates as soon as reasonably practicable. Buyer shall reimburse Seller for
all other reasonable costs and expenses incurred in complying with this Section
17.17.

 

(d)At the Closing, Seller shall deliver to Buyer the Audited Special Financial
Statements as of and for the year ended December 31, 2011 and the unaudited
interim Special Financial Statements for the three months ended March 31, 2012
pursuant to Section 10.04(h). If the Closing occurs on or after June 30, 2012,
Seller shall deliver to Buyer the unaudited interim Special Financial Statements
for the three months ended June 30, 2012 on or before August 1, 2012.

 

 Signature page follows

 

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IN WITNESS WHEREOF, Seller, Parent and Buyer have executed and delivered this
Agreement as of the date first set forth above.

 

  SELLER:       LEGACY ENERGY, INC.       By: /s/Clarence Cottman     Name:
Clarence Cottman   Title: Chief Executive Officer       PARENT:       NIMIN
ENERGY, CORP.       By: /s/Clarence Cottman     Name: Clarence Cottman   Title:
Chief Executive Officer       BUYER:       BREITBURN OPERATING L.P.       BY: 
BREITBURN OPERATING GP, LLC, its general partner       By: /s/Randall H.
Breitenbach     Name: Randall H. Breitenbach   Title: President

 

Signature Page to Purchase and Sale Agreement