Exhibit 10.1

 

Execution Copy

 

PURCHASE AND SALE AGREEMENT

 

between

 

FORESTAR PETROLEUM CORPORATION

 

AS SELLER

 

AND

 

DW SLATE, LLC

 

AS BUYER

 

DATED

 

APRIL 7, 2016

 

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TABLE OF CONTENTS

 

 

 

Page

 

 

 

ARTICLE I PURCHASE AND SALE

1

 

 

 

1.1

Purchase and Sale

1

1.2

Effective Time

1

1.3

The Assets

1

1.4

Excluded Assets

2

 

 

 

ARTICLE II PURCHASE PRICE

3

 

 

 

2.1

Purchase Price

3

2.2

Allocation of the Purchase Price

4

2.3

Adjustments to Purchase Price

4

 

 

 

ARTICLE III BUYER’S INSPECTION; DISCLAIMERS

6

 

 

 

3.1

Access to Records

6

3.2

Access to the Assets; On-site Inspection

6

3.3

Disclaimers

7

 

 

 

ARTICLE IV TITLE MATTERS

9

 

 

 

4.1

Seller’s Title

9

4.2

Title Defect Procedure

12

4.3

Interest Addition

16

4.4

Title Arbitration

16

4.5

Preferential Rights and Consents

17

 

 

 

ARTICLE V ENVIRONMENTAL MATTERS

18

 

 

 

5.1

Environmental Procedures

18

5.2

Contested Environmental Defects

19

5.3

Seller’s Right to Remediate

20

5.4

Waiver and Remedies

20

5.5

Definitions

21

5.6

Condition of Assets — NORM and TE-NORM

22

 

 

 

ARTICLE VI SELLER’S REPRESENTATIONS

22

 

 

 

6.1

Corporate Representations

22

6.2

Seller’s Representations with Respect to the Assets

23

6.3

Generally

27

 

 

 

ARTICLE VII BUYER’S REPRESENTATIONS

27

 

 

 

7.1

Organization and Standing

27

7.2

Power

27

7.3

No Violation

27

7.4

Authorization and Enforceability

27

7.5

Liability for Brokers’ Fees

28

7.6

Litigation

28

7.7

Securities Laws, Access to Data and Information

28

7.8

Financial Resources

28

7.9

Buyer’s Evaluation

28

 

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TABLE OF CONTENTS
(continued)

 

 

 

Page

 

 

 

ARTICLE VIII COVENANTS AND AGREEMENTS

29

 

 

 

8.1

Covenants and Agreements of Seller

29

8.2

Covenants and Agreements of the Parties

31

8.3

Government Approvals Respecting Assets

32

8.4

Casualty Loss

33

 

 

 

ARTICLE IX TAX MATTERS

34

 

 

 

9.1

Apportionment of Production Taxes

34

9.2

Income Taxes

34

9.3

Transfer Taxes

34

9.4

Allocations for Federal Income Tax Purposes

34

 

 

 

ARTICLE X CONDITIONS PRECEDENT TO CLOSING

34

 

 

 

10.1

Seller’s Conditions Precedent

34

10.2

Buyer’s Conditions Precedent

35

 

 

 

ARTICLE XI RIGHT OF TERMINATION AND ABANDONMENT

36

 

 

 

11.1

Termination

36

11.2

Remedies

36

 

 

 

ARTICLE XII CLOSING

37

 

 

 

12.1

Date of Closing

37

12.2

Time and Place of Closing

37

12.3

Closing Obligations

37

 

 

 

ARTICLE XIII FINAL SETTLEMENT STATEMENT

38

 

 

 

13.1

Post-Closing Adjustments

38

13.2

Dispute Resolution

39

 

 

 

ARTICLE XIV ASSUMPTION AND RETENTION OF LIABILITIES; INDEMNIFICATION

39

 

 

 

14.1

Buyer’s Assumption of Liabilities and Losses

39

14.2

Seller’s Retention of Liabilities and Losses

40

14.3

Indemnification

41

14.4

Limitation on Indemnity Obligations

42

14.5

Effect of Knowledge of Breach of Representation or Warranty

42

14.6

Exclusive Remedy

43

14.7

Procedure

43

14.8

Express Negligence

44

14.9

No Insurance; Subrogation

44

14.10

Reservation as to Third-Parties

45

14.11

Reduction in Losses

45

14.12

Limitation on Damages

45

 

 

 

ARTICLE XV MISCELLANEOUS

45

 

 

 

15.1

Expenses

45

15.2

Notices

46

15.3

Amendments

47

 

ii

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TABLE OF CONTENTS
(continued)

 

 

 

Page

 

 

 

15.4

Waiver

47

15.5

Assignment

47

15.6

Announcements

47

15.7

Counterparts/Electronic Signatures

47

15.8

Jurisdiction, Venue, Jury Waiver

47

15.9

Governing Law

48

15.10

Entire Agreement

48

15.11

Binding Effect

48

15.12

Survival

48

15.13

No Third-Party Beneficiaries

49

15.14

Time of the Essence

49

15.15

No Partnership; No Fiduciary Duty

49

15.16

Other Contract Interpretation

49

 

iii

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EXHIBIT LIST

 

Annex I

Defined Terms

 

 

Exhibit A

Leases and Lands

 

 

Exhibit B

Wells

 

 

Exhibit C

Form of Assignment, Bill of Sale and Conveyance

 

 

Exhibit D

Form of Certificate of Non-Foreign Status

 

 

Exhibit E

Form of Buyer’s Officer Certificate

 

 

Exhibit F

Form of Seller’s Officer Certificate

 

 

Exhibit G

Form of Seller Parent Guarantee

 

iv

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SCHEDULE LIST

 

Schedule 1.4(l)

Certain Excluded Assets

 

 

Schedule 2.2

Allocated Values

 

 

Schedule 4.1(d)

Permitted Encumbrances

 

 

Schedule 6.1(g)

Existing Claims and Litigation

 

 

Schedule 6.2(a)

AFEs

 

 

Schedule 6.2(b)

Material Agreements

 

 

Schedule 6.2(c)

Compliance with Laws

 

 

Schedule 6.2(e)

Environmental Matters

 

 

Schedule 6.2(g)

Consents and Preferential Rights

 

 

Schedule 6.2(m)

Rights to Production

 

 

Schedule 6.2(n)

Suspense Accounts

 

 

Schedule 6.2(o)

Bonds, Letters of Credit and Guarantees

 

 

Schedule 6.2(q)

Insurance

 

 

Schedule 8.1(b)

New Contracts or Amendments

 

 

Schedule 9.4

Tax Allocation Schedule

 

 

Schedule 14.2

Losses Retained by Seller

 

v

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PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (“Agreement”), dated April 7, 2016 (the
“Execution Date”), is between Forestar Petroleum Corporation, a Delaware
corporation, whose address is 6300 Bee Cave Road, Building Two, Suite 500,
Austin, Texas 78746 (“Seller”), and DW Slate, LLC, a Delaware limited liability
company, whose address is 590 Madison Avenue, 9th Floor, New York, New York
10022 (“Buyer”).  Seller and Buyer may be referred to individually as a “Party”
or collectively as the “Parties.”  Capitalized terms used in this Agreement have
the meaning given such terms in Annex I to this Agreement.

 

RECITALS

 

A.            Seller owns and desires to sell the Assets (as defined in
Section 1.3 below) to Buyer.

 

B.            Buyer desires to purchase the Assets from Seller.

 

C.            In order to induce Buyer to enter into this Agreement, Forestar
Group Inc., a Delaware corporation, has delivered the Seller Parent Guarantee.

 

D.            Buyer and Seller wish to accomplish the foregoing, all under the
terms of this Agreement.

 

AGREEMENT

 

In consideration of the mutual promises, covenants and warranties contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Buyer and Seller agree as follows:

 

ARTICLE I
PURCHASE AND SALE

 

1.1          Purchase and Sale.  Seller agrees to sell the Assets to Buyer and
Buyer agrees to purchase the Assets from Seller, under the terms of this
Agreement.

 

1.2          Effective Time.  The purchase and sale of the Assets will be
effective as of January 1, 2016, at 7:00 a.m. Mountain Time (the “Effective
Time”).

 

1.3          The Assets.  The term “Assets” refers to all of Seller’s right,
title and interest, whether present, contingent or revisionary, in and to the
following as of the Effective Time, other than the Excluded Assets:

 

(a)           the leasehold estates (including all royalty interests, overriding
royalty interests, net profits interests, and similar interests) created by the
oil and gas leases described in Exhibit A and all other oil and gas leases and
other similar instruments (whether or not described on Exhibit A) covering the
Lands, and any ratifications, renewals, extensions or amendments related to such
leases and other instruments (collectively, the “Leases”), only insofar as the
Leases cover the lands described in Exhibit A and the lands pooled, unitized, or
communitized therewith (the “Lands”), and the oil, gas, gas liquids and all
other hydrocarbons and non-hydrocarbons (“Hydrocarbons”) attributable to or
produced from the Leases and the Lands;

 

(b)           the oil, gas, water, and/or monitoring wells located on the Leases
and the Lands, whether producing, plugged, permanently abandoned, shut-in, or
temporarily abandoned, including the

 

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wells described in Exhibit B (collectively, the “Wells”) and the facilities
associated or used in connection with the Wells, including production units,
flow lines and compression facilities;

 

(c)           the real property, tangible personal property, equipment,
fixtures, improvements, Permits, rights-of-way, easements and other rights to
use the surface, used or held for use in connection with the exploration,
drilling for, production, gathering, treatment, handling, processing, storing,
transporting, sale, or disposal of hydrocarbons produced from the Leases, Lands
and Wells (the “Equipment”);

 

(d)           the unitization, pooling and communitization agreements,
declarations and orders, and the units created thereby and all other similar
agreements relating to the Leases and Lands and to the production of
Hydrocarbons attributable thereto;

 

(e)           all existing and effective Contracts, including the Contracts
described in Schedule 6.2(b) of the Disclosure Letter, only insofar as they
relate to the properties and interests described in Sections 1.3(a) through
(d) (the “Applicable Contracts”), but excluding any Contracts to the extent the
transfer thereof would result in a violation of applicable Law or is restricted
by any Consent that is not waived by Buyer or satisfied pursuant to Section 4.5;
provided, however, that “Applicable Contracts” shall not include the instruments
constituting the Leases;

 

(f)            subject to Section 8.2(d), the files, records and data maintained
by Seller and relating to the interests described in this
Sections 1.3(a) through (e), other than the records and data described in
Section 1.3(g), including all lease files, land files, drilling reports, files
relating to the Applicable Contracts, division order files, abstracts and title
opinions and copies of applicable accounting records, correspondence, production
records, appraisals and accounting records (subject to the exclusions described
in Section 1.4, the “Records”);

 

(g)           to the extent transferable without a penalty or payment of
additional consideration to a third Person (unless Buyer agrees in writing to
pay such additional consideration), (i) all seismic records, gravity maps,
gravity meter surveys, seismic surveys, well logs, electric logs, core data,
pressure data, graphical production curves and other similar geological or
geophysical surveys or data covering the Leases and Lands, including any
processed or reprocessed data; and (ii) all geophysical or seismic licenses,
data and third-party interpretations; and

 

(h)           all rights, claims, and causes of action (including warranty and
similar claims, indemnity claims, and defenses) whether arising before, on, or
after the Effective Time to the extent such rights, claims, and causes of action
relate to any of the properties described in Sections 1.3(a) through (g).

 

1.4          Excluded Assets.  The Assets do not include, and there is hereby
expressly excepted and excluded therefrom and reserved to Seller, the following
assets and properties (the “Excluded Assets”):

 

(a)           all rights, claims, and causes of action (including warranty and
similar claims, indemnity claims, and defenses) whether arising before, on, or
after the Effective Time to the extent such rights, claims, and causes of action
relate to any of the Retained Liabilities, Seller Taxes, or any of Seller’s
indemnity obligations under this Agreement;

 

(b)           any accounts receivable accruing before the Effective Time;

 

(c)           all corporate minute books, financial records and other business
records of Seller that relate to Seller’s business generally;

 

2

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(d)           all contracts of insurance;

 

(e)           all Hydrocarbons from or attributable to the Assets with respect
to all periods prior to the Effective Time, and all proceeds attributable
thereto;

 

(f)            all claims for refunds of Seller Taxes or other costs or expenses
borne by Seller or Seller’s predecessor’s in interest and title attributable to
periods prior to the Effective Time;

 

(g)           all documents and instruments of Seller (or any Seller Affiliate)
that are (1) subject to legal privilege (such as the attorney-client privilege
or work product doctrine) or un-Affiliated third-Person contractual restrictions
on disclosure or transfer, (2) interpretative or subjective data, (3) personnel
information, (4) Income Tax information, and (5) records relating to the sale of
the Assets, including proposals, and information relating to litigation and
claims retained by Seller received from and records of negotiations with third
Persons and economic analyses associated therewith;

 

(h)           all seismic records, gravity maps, gravity meter surveys, seismic
surveys, well logs, and other similar geological or geophysical surveys or data
covering any portion of the Leases or Lands, including any processed or
reprocessed data, but only to the extent that such data is not transferred by
Seller pursuant to Section 1.3(g);

 

(i)            Seller’s area wide bonds, permits and licenses or other permits,
licenses or authorizations used in the conduct of Seller’s business generally;

 

(j)            any refunds due Seller by a third party for any overpayment of
rentals, royalties, excess royalty interests or production payments attributable
to the Assets with respect to any period of time prior to the Effective Time;

 

(k)           (1) vehicles, (2) any computers and related peripheral equipment,
(3) communications equipment, and (4) communications licenses granted by the
Federal Communications Commission or other governmental body;

 

(l)            the equipment, inventory, machinery, fixtures and other tangible
personal property and improvements and other properties described on Schedule
1.4(l) of the Disclosure Letter;

 

(m)          all Hedge Contracts;

 

(n)           reserve estimates; and

 

(o)           copies of all Records relating to the Retained Liabilities.

 

ARTICLE II
PURCHASE PRICE

 

2.1          Purchase Price.  Subject to the terms and conditions of this
Agreement, the purchase price for the Assets is Fifty Million U.S. Dollars (U.S.
$50,000,000) (the “Purchase Price”).  The Purchase Price is payable as follows:

 

(a)           Deposit.  As an earnest money deposit, Buyer shall wire to Seller
in immediately available funds (to the account designated by Seller in writing)
an amount equal to ten percent (10%) of the Purchase Price constituting Five
Million U.S. Dollars (U.S. $5,000,000) within one Business Day of the Execution
Date (together with any earnings thereon, the “Deposit”); provided, however, if
Seller does

 

3

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not receive the Deposit by 5:00 p.m., Central Time, on such date, then this
Agreement will automatically terminate without any further action of the
Parties.  If the transaction contemplated by this Agreement (“Transaction”)
closes, the Deposit shall be a credit to the Purchase Price at Closing.  If this
Agreement is terminated at or prior to Closing, Seller shall distribute the
Deposit under Article XI.

 

(b)           Cash at Closing.  Buyer shall pay to Seller by wire transfer in
immediately available funds, less the Deposit at Closing subject to the
adjustments to the Purchase Price contained in this Agreement.

 

2.2          Allocation of the Purchase Price.  Solely for the purposes of
Article IV and Article V, Buyer and Seller have allocated the Purchase Price
among the Assets as set forth on Schedule 2.2 of the Disclosure Letter.  The
value so allocated to a particular Asset may be referred to as the “Allocated
Value” for that Asset.  Neither Seller nor Buyer makes any representation or
warranty concerning the accuracy of the Allocated Values.

 

2.3          Adjustments to Purchase Price.  All adjustments to the Purchase
Price shall be made according to the factors described in this Section 2.3 and
without duplication.

 

(a)           Proration of Costs and Revenues.  For purposes of determining the
amounts of the adjustments to the Purchase Price provided for in this
Section 2.3, the principles set forth in this Section 2.3(a) apply.  Buyer will
be entitled to its share of all production of Hydrocarbons from or attributable
to the Leases, Lands, and Wells at and after the Effective Time (and all
products and proceeds attributable thereto), and to all other income, proceeds,
receipts and credits earned with respect to the Assets at or after the Effective
Time, and shall be responsible for (and entitled to any refunds with respect to)
its share of all Property Expenses incurred at and after the Effective Time. 
Seller shall be entitled to its share of all Hydrocarbon production from or
attributable to the Leases, Lands, and Wells prior to the Effective Time (and
all products and proceeds attributable thereto), and to its share of all other
income, proceeds, receipts and credits earned with respect to the Assets prior
to the Effective Time, and shall be responsible for (and entitled to any refunds
with respect to) its share of all Property Expenses incurred prior to the
Effective Time.  “Earned” and “incurred,” as used in this Agreement shall be
interpreted in accordance with GAAP and COPAS standards, except as otherwise
specified in this Agreement.  For purposes of allocating production (and
proceeds and accounts receivable with respect thereto), under Section 2.3,
(1) liquid Hydrocarbons shall be deemed to be “from or attributable to” the
Leases, Lands, and Wells when they pass through the pipeline connecting into the
storage facilities into which they are run and (2) gaseous Hydrocarbons shall be
deemed to be “from or attributable to” the Leases, Lands, and Wells when they
pass through the royalty measurement meters, delivery point sales meters, or
custody transfer meters on the gathering lines or pipelines through which they
are transported (whichever meter is closest to the well).  Seller shall utilize
reasonable interpolative procedures, consistent with industry practice, to
arrive at an allocation of production when exact meter readings or gauging and
strapping data are not available.

 

(b)           Settlement Statements.  Any adjustment to the Purchase Price at
Closing will be set out in a “Preliminary Settlement Statement” prepared by
Seller, and submitted to Buyer no later than five Business Days prior to Closing
for Buyer’s comment and review.  Seller shall provide Buyer written wire
transfer instructions for payment of the Purchase Price and the Parties shall
settle on the contents of the Preliminary Settlement Statement, and execute the
same, no later than one Business Day before Closing.  If the Parties cannot
agree on the Preliminary Settlement Statement prior to the Closing, the
Preliminary Settlement Statement as presented by Seller (with such changes
agreed to by the Parties) will be used to adjust the Purchase Price at Closing. 
The Preliminary Settlement Statement shall set forth the Closing Amount and all
adjustments to the Purchase Price and associated calculations.  The term
“Closing Amount” means the Purchase Price, adjusted as provided in this
Section 2.3 using reasonable

 

4

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estimates if actual numbers are not available, less the Deposit.  After Closing,
the Purchase Price shall be adjusted under the Final Settlement Statement
delivered under Section 13.1.

 

(c)           Property Expenses.  The term “Property Expenses” means all
expenses and payments of every kind attributable to the Assets and incurred in
the ordinary course of business, including capital expenses, operating expenses,
facilities and plant expenses, costs and capital expenses charged to the Assets
in accordance with the applicable operating agreement, joint interest billings,
overhead costs charged to the Assets under the applicable operating agreement,
lease operating expenses, lease rental and maintenance costs, Burdens, drilling
expenses, completion expenses, workover expenses, geological, geophysical, and
any other exploration, development, transportation, compression, gathering,
processing, treating or maintenance expenditures chargeable under the Applicable
Contracts; provided, however, the term “Property Expenses” does not include any
Income Taxes, Production Taxes, or any expenses and payments for which either
Party is entitled to indemnity under Article XIV or adjustment to the Purchase
Price under Section 2.3(d) or Section 2.3(e) (other than Section 2.3(d)(2) and
Section 2.3(e)(2)).

 

(d)           Upward Adjustments.  At Closing, the Purchase Price will be
adjusted upward by:

 

(1)           an amount equal to all proceeds received and retained by Buyer,
net of royalties, overriding royalties, profit payments and similar burdens,
from the production, transportation, gathering, processing, treating or sale of
Hydrocarbons, including condensate tank inventory, produced from or credited to
the Assets prior to the Effective Time;

 

(2)           an amount equal to all direct and actual Property Expenses
attributable to the Assets from and after the Effective Time that are paid or
borne by Seller or its Affiliates prior to Closing, and as to all Production
Taxes, the amount allocable to Buyer in accordance with Section 9.1 that are
paid or borne by Seller or its Affiliates prior to Closing;

 

(3)           to the extent not covered in the preceding paragraph, an amount
equal to all prepaid expenses attributable to the Assets after the Effective
Time that were paid by or on behalf of Seller and have not been incurred as of
the Effective Time, including lease rentals, prepaid compressor and other rental
charges, prepaid rights-of-way and license fees, and prepaid utility charges;
and

 

(4)           any other amount provided for in this Agreement or as may be
agreed to in writing by Buyer and Seller.

 

(e)           Downward Adjustments.  The Purchase Price shall be adjusted
downward by:

 

(1)           an amount equal to all proceeds received and retained by Seller,
net of royalties, overriding royalties, profit payments and similar burdens,
from the production, transportation, gathering, processing, treating, or sale of
Hydrocarbons, including condensate tank inventory, produced from or credited to
the Assets from and after the Effective Time;

 

(2)           an amount equal to all direct and actual Property Expenses and
capital costs attributable to the Assets before the Effective Time that, in each
case, are paid by or on behalf of Buyer or its Affiliates, and as to all
Production Taxes, the amount allocable to Seller in accordance with Section 9.1
that are paid or borne by Buyer or its Affiliates subsequent to Closing;

 

(3)           an amount equal to the Title Defect Adjustment (as defined in
Section 4.2(d)(1)) and an amount provided for in Section 4.2(d)(3), as
applicable;

 

5

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(4)           an amount equal to the Environmental Defect Adjustment (as defined
in Section 5.1(c)(i)) and an amount provided for in Section 5.1(c)(ii), as
applicable; and

 

(5)           any other amount provided for in this Agreement or as may be
agreed to in writing by Buyer and Seller.

 

(f)            For purposes of this Section 3.2, delay rentals that are due with
respect to a Lease prior to the Effective Time shall be considered attributable
to the period prior to the Effective Time and shall not be prorated.

 

ARTICLE III
BUYER’S INSPECTION; DISCLAIMERS

 

3.1          Access to Records.  During the 30-day period from and after the
Execution Date, Seller will make the Records available to Buyer and its
Diligence Representatives, at Seller’s offices, for inspection and review during
normal business hours to allow Buyer and its Representatives to perform Buyer’s
due diligence review.  Buyer may make copies of such Records at its cost and
expense, but shall, if Seller so requests, either return or destroy all copies
so made if the Closing does not occur.  Seller is not obligated to provide Buyer
with access to records that do not relate to the Assets.  To the extent any
records relating to the Assets contain additional information and data not
relating to the Assets, Buyer shall be subject to the confidentiality
restrictions described in Section 8.2(a) as to such information in the event
that the Closing occurs.  In the event that Closing does not occur, such records
will continue to be subject to the Confidentiality Agreement.  Buyer and its
Diligence Representatives may inspect the Records and such additional
information only to the extent such inspection does not violate any contractual
commitment of Seller to an un-Affiliated third Person; provided that Seller
shall use its commercially reasonable efforts to obtain any necessary waivers
such that Buyer can review the applicable Records.

 

3.2          Access to the Assets; On-site Inspection.

 

(a)           Access.  Buyer acknowledges that the permission of the operator or
another third Person may be required before Buyer will be able to inspect
portions of the Assets and that such permission must be obtained prior to the
inspection of such portions.  Seller shall use commercially reasonable efforts
to obtain such permission for Buyer upon Buyer’s request. To the extent that
Seller may do so as a non-operator of the Assets, subject to Section 5.1, Seller
grants Buyer and its Diligence Representatives access to the Assets, during
Seller’s normal business hours, so Buyer and its Diligence Representatives may
conduct, at Buyer’s sole risk and expense, on-site inspections and an ASTM
Phase I environmental review of all or any portion of the Assets (each, an
“Environmental Assessment”).  Neither Buyer nor its Diligence Representatives
may conduct an ASTM Phase II environmental assessment or any sampling, boring,
drilling, or other invasive investigation activities (collectively, “Enhanced
Activities”) without the prior notice and written consent of Seller, which
consent Seller may withhold in its sole and absolute discretion; provided,
however, Buyer may, subject to the further proviso below, conduct Enhanced
Activities if Buyer determines, in its reasonable, good-faith discretion and
based upon the results of Buyer’s Environmental Assessment, that such Enhanced
Activities are necessary to identify and quantify potential liabilities;
provided further, however, Seller may, in its sole discretion, prohibit Buyer
from conducting such Enhanced Activities and, after receiving written notice of
such prohibition, Buyer may elect, in its sole discretion, to treat such denial
as an Environmental Defect and the affected Assets as Environmental Defect
Properties.  If Buyer or its Diligence Representatives prepares an Environmental
Assessment or investigation or report from Enhanced Activities of any Assets,
Buyer shall keep such Environmental Assessment and investigation or report from
Enhanced Activities confidential and furnish a copy of the final version thereof
to Seller.  In connection with any on-site

 

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inspections, if any, prior to Closing, Buyer (1) shall not interfere with, and
will cause its Diligence Representatives not to interfere with, the normal
operation of the Assets, (2) shall comply with, and will cause its Diligence
Representatives to comply with, all requirements of the operators of the Assets,
and (3) represents that it and its Representatives are adequately insured.

 

(b)           Indemnity.  EXCEPT TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF ANY MEMBER OF SELLER INDEMNIFIED PARTIES, AND EXCEPT FOR
ANY PRE-EXISTING LOSS OR CONDITION MERELY DISCOVERED OR DISCLOSED BY BUYER’S
ACTIVITIES, BUYER WAIVES, RELEASES AND SHALL DEFEND, INDEMNIFY, AND HOLD
HARMLESS SELLER INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES ARISING
OUT OF, RESULTING FROM, OR RELATING TO THE ACCESS AFFORDED TO BUYER AND ITS
DILIGENCE REPRESENTATIVES UNDER THIS AGREEMENT OR THE ACTIVITIES OF BUYER AND
ITS DILIGENCE REPRESENTATIVES RELATED TO SUCH ACCESS, EVEN IF SUCH LOSSES ARISE
OUT OF OR RESULT FROM, SOLELY OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT
OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OR VIOLATION OF LAW
OF OR BY A MEMBER OF SELLER INDEMNIFIED PARTIES.  The provisions of this
Section 3.2(b) shall survive termination of this Agreement.

 

(c)           Clean-Up.  In the event that either Party terminates this
Agreement under Section 11.1, Buyer shall, at its sole cost and expense and
without any cost or expense to Seller Indemnified Parties (1) repair all damage
done to the Assets in connection with any Environmental Assessment or Enhanced
Activities, and (2) remove all equipment, tools or other property brought onto
the Assets in connection with any Environmental Assessment or Enhanced
Activities.

 

(d)           Insurance.  During all periods that Buyer or any of its Diligence
Representatives are on the Assets, Buyer shall maintain, at its sole expense,
policies of insurance covering Buyer’s and its Diligence Representatives’
activities and presence on the Assets, which insurance shall be of the type and
in the amounts consistent with customary business practices. Upon request by
Seller, Buyer shall provide evidence of such insurance to Seller prior to
entering the Assets, and in the event that Buyer or its Diligence
Representatives desire to conduct any Enhanced Activities, at Seller’s request,
Buyer will list the Seller Indemnified Parties as additional insureds on such
insurance.

 

3.3          Disclaimers.

 

(a)           EXCEPT FOR SELLER’S EXPRESS REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND SELLER’S
SPECIAL WARRANTY OF TITLE IN THE ASSIGNMENT, THE ASSETS ARE BEING CONVEYED BY
SELLER TO BUYER WITHOUT WARRANTY OF ANY KIND, EXPRESS, IMPLIED, STATUTORY,
COMMON LAW OR OTHERWISE, AND THE PARTIES HEREBY EXPRESSLY DISCLAIM, WAIVE AND
RELEASE ANY EXPRESS WARRANTY OF MERCHANTABILITY, CONDITION OR SAFETY AND ANY
EXPRESSED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE; AND BUYER ACCEPTS THE
ASSETS, “AS IS, WHERE IS, WITH ALL FAULTS, WITHOUT RECOURSE.”  EXCEPT TO THE
EXTENT PROVIDED IN SELLER’S EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN
THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, ALL DESCRIPTIONS OF THE
WELLS, EQUIPMENT, FACILITIES, PERSONAL PROPERTY, FIXTURES, AND STRUCTURES
HERETOFORE OR HEREAFTER FURNISHED TO BUYER BY SELLER HAVE BEEN AND SHALL BE
FURNISHED SOLELY FOR BUYER’S CONVENIENCE, AND HAVE NOT CONSTITUTED AND SHALL NOT
CONSTITUTE A REPRESENTATION OR WARRANTY OF ANY KIND BY SELLER.  BUYER EXPRESSLY
WAIVES THE WARRANTY OF

 

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FITNESS AND THE WARRANTY AGAINST VICES AND DEFECTS, WHETHER APPARENT OR
LATENT, IMPOSED BY ANY APPLICABLE STATE OR FEDERAL LAW.

 

(b)           EXCEPT FOR SELLER’S EXPRESS REPRESENTATIONS AND WARRANTIES IN THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND SELLER’S SPECIAL WARRANTY OF
TITLE IN THE ASSIGNMENT, SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY
IMPLIED OR EXPRESS WARRANTY AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO
(1) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY OF THE RECORDS OR OTHER
INFORMATION FURNISHED WITH RESPECT TO THIS AGREEMENT; (2) THE EXISTENCE OR
EXTENT OF RESERVES OR THE VALUE OF THE ASSETS BASED THEREON; (3) THE CONDITION
OR STATE OF REPAIR OF ANY OF THE ASSETS; (4) THE ABILITY OF THE ASSETS TO
PRODUCE HYDROCARBONS, INCLUDING PRODUCTION RATES, DECLINE RATES AND RECOMPLETION
OPPORTUNITIES; (5) REGULATORY MATTERS; (6) THE PRESENT OR FUTURE VALUE OF THE
ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE ASSETS;
(7) THE ENVIRONMENTAL CONDITION OF THE ASSETS; (8) ANY PROJECTIONS AS TO EVENTS
THAT COULD OR COULD NOT OCCUR; OR (9) THE TAX ATTRIBUTES OF ANY ASSET.  EXCEPT
AS TO ANY SCHEDULE OR EXHIBIT TO THIS AGREEMENT AND SELLER’S EXPRESS
REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS, ANY DATA, INFORMATION OR OTHER RECORDS FURNISHED BY SELLER ARE
PROVIDED TO BUYER AS A CONVENIENCE AND BUYER’S RELIANCE ON OR USE OF THE SAME IS
AT BUYER’S SOLE RISK.

 

(c)           THIS DISCLAIMER AND DENIAL OF WARRANTY ALSO EXTENDS TO ANY EXPRESS
OR IMPLIED REPRESENTATION OR WARRANTY AS TO THE COMMODITY PRICES BUYER AND
SELLER WILL RECEIVE FROM PRODUCTION OF OIL, GAS OR OTHER SUBSTANCES FROM THE
ASSETS, IT BEING ACKNOWLEDGED, AGREED AND EXPRESSLY UNDERSTOOD THAT ALL RESERVE,
PRICE AND VALUE ESTIMATES UPON WHICH BUYER HAS RELIED OR IS RELYING HAVE BEEN
DERIVED BY THE INDIVIDUAL AND INDEPENDENT EVALUATION OF BUYER.  BUYER ALSO
STIPULATES, ACKNOWLEDGES AND AGREES THAT RESERVE REPORTS ARE ONLY ESTIMATES OF
PROJECTED FUTURE OIL AND/OR GAS VOLUMES, FUTURE FINDING COSTS AND FUTURE OIL
AND/ GAS SALES PRICES, ALL OF WHICH FACTORS ARE INHERENTLY IMPOSSIBLE TO PREDICT
ACCURATELY EVEN WITH ALL AVAILABLE DATA AND INFORMATION.

 

(d)           EXCEPT FOR SELLER’S EXPRESS REPRESENTATIONS AND WARRANTIES IN THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND SELLER’S SPECIAL WARRANTY OF
TITLE IN THE ASSIGNMENT, SELLER HAS NOT AND WILL NOT MAKE ANY REPRESENTATION OR
WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS,
THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH,
SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL
CONDITION OF THE ASSETS, AND NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE
CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND SUBJECT TO BUYER’S RIGHTS
UNDER THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, BUYER SHALL BE DEEMED
TO BE TAKING THE ASSETS “AS IS” AND “WHERE IS” WITH ALL FAULTS FOR PURPOSES OF
THEIR ENVIRONMENTAL CONDITION AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH
ENVIRONMENTAL INSPECTIONS AS BUYER DEEMS APPROPRIATE.  EXCEPT FOR SELLER’S
EXPRESS REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS, SELLER’S SPECIAL

 

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WARRANTY OF TITLE IN THE ASSIGNMENT AND THE RETAINED LIABILITIES, BUYER FURTHER
RELEASES, REMISES, AND FOREVER DISCHARGES SELLER INDEMNIFIED PARTIES FROM ANY
AND ALL LOSSES THAT BUYER MIGHT NOW OR SUBSEQUENTLY MAY HAVE AGAINST SELLER
INDEMNIFIED PARTIES RELATING DIRECTLY OR INDIRECTLY TO THE ASSETS AND ARISING
OUT OF OR INCIDENT TO ENVIRONMENTAL LAWS.

 

(e)           THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT, TO THE EXTENT
REQUIRED BY APPLICABLE LAW, THE DISCLAIMERS CONTAINED IN THIS AGREEMENT ARE
“CONSPICUOUS” FOR THE PURPOSES OF SUCH APPLICABLE LAW.

 

ARTICLE IV
TITLE MATTERS

 

4.1          Seller’s Title.

 

(a)           Limited Representation and Warranty.  For purposes of evaluating
Seller’s title to the Assets pursuant to this Article IV, Seller represents that
as of the Effective Time and as of April 28, 2016 (the “Defect Notice Date”), it
owns Defensible Title to the Leases and Wells.  The representation in the
immediately preceding sentence will terminate as of the Defect Notice Date and
have no further force or effect after such date.  Except for the special
warranty of title contained in the Assignment executed at Closing, and without
limiting Buyer’s right to adjust the Purchase Price by operation of this
Article IV, Seller makes no warranty or representation, express, implied,
statutory or otherwise, with respect to Seller’s title to any of the Assets. 
Except as may constitute a breach of Seller’s representations and warranties set
forth in Article VI, Buyer acknowledges that the sole remedy for any defect of
title, including any Title Defect existing with respect to any of the Assets as
of the Defect Notice Date, is and will be (i) the rights as set forth in
Section 4.2, or (ii) the right to terminate this Agreement under
Section 11.1(f).

 

(b)           Assignment and Special Warranty of Title.  The Assignment shall
(i) contain a special warranty of title by, through, and under Seller, subject
to the Permitted Encumbrances, but shall otherwise be without warranty of title
of any kind, express, implied or statutory or otherwise and (ii) grant to Buyer
full rights of substitution and subrogation in and to all rights and actions of
warranty of title that Seller has or may have against all preceding owners and
vendors relating to the relevant Assets.

 

(c)           Defensible Title.

 

(1)           The term “Defensible Title” means such title of Seller with
respect to the Leases and Wells or other Assets that a prudent person engaged in
the business of the ownership, development and operation of oil and gas
leasehold and properties and having knowledge of all of the facts and their
legal bearing would be willing to accept the same, and that, subject to and
except for Permitted Encumbrances as defined in Section 4.1(d):

 

(i)            entitles Seller to receive a share of the Hydrocarbons produced,
saved and marketed from any (I) Lease or Well that does not contain a
“(Non-Consent)” notation next to the well name for such Well on Exhibit B
throughout the duration of the productive life of such Lease or Well after
satisfaction of all Burdens on or measured by production of Hydrocarbons (a
“NRI”), of not less than the NRI shown in Exhibit A or Exhibit B, as applicable,
for such Lease or Well, and (II) Well that contains a “(Non-Consent)” notation
next to

 

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the well name for such Well on Exhibit B after payout of such Well of not less
than the NRI shown in Exhibit B for such Well;

 

(ii)           obligates Seller to bear a percentage of the costs and expenses
for the maintenance, development, operation and the production relating to any
(I) Lease or Well that does not contain a “(Non-Consent)” notation next to the
well name for such Well on Exhibit B throughout the productive life of such
Lease or Well or such specified zone(s) therein (“Working Interest”) not greater
than the Working Interest shown in Exhibit A or Exhibit B, as applicable, for
such Lease or Well and (II) Well that contains a “(Non-Consent)” notation next
to the well name for such Well on Exhibit B after payout of such Well of not
greater than the Working Interest shown in Exhibit B for such Well, without, in
the case of clauses (I) and (II) increase, except increases to the extent that
they are accompanied by a proportionate increase in Seller’s NRI;

 

(iii)          results in Seller owning at least the Net Acres set forth in
Exhibit A for any Lease throughout the duration of the productive life of such
Lease;

 

(iv)          with respect to a Lease that is not designated as “Held by
Production” on Exhibit A, the primary term of such Lease does not expire prior
to the expiration date set forth on Exhibit A for such Lease;

 

(v)           with respect to a Lease that is designated as “Held by Production”
on Exhibit A, the term of such Lease is being perpetuated by production of
Hydrocarbons in paying quantities therefrom or from the unit of which it forms a
part; and

 

(vi)          is free and clear of liens, encumbrances or other defects.

 

(2)           If a Lease or Well has not been given an Allocated Value, Seller
shall be deemed to have Defensible Title to such Lease or Well.

 

(d)           Permitted Encumbrances.  “Permitted Encumbrances” means:

 

(1)           Burdens (payable or in suspense) to the extent that the net
cumulative effect of any such Burden does not operate to (i) reduce the NRI of
Seller in any (I) Lease or Well that does not contain a “(Non-Consent)” notation
next to the well name for such Well on Exhibit B to be below the NRI for such
Lease or Well as set forth on Exhibit A or Exhibit B, as applicable, or
(II) Well that contains a “(Non-Consent)” notation next to the well name for
such Well on Exhibit B after payout of such Well of not less than the NRI for
such Well as set forth on Exhibit B, (ii) obligate Seller to bear the Working
Interest in any (I) Lease shown on Exhibit A or Well shown on Exhibit B that
does not contain a “(Non-Consent)” notation next to the well name for such Well
on Exhibit B not greater than the Working Interest set forth in Exhibit A or
Exhibit B, as applicable, from the currently producing formations for such Lease
or Well, or (II) Well shown on Exhibit B that contains a “(Non-Consent)”
notation next to the well name for such Well on Exhibit B after payout of such
Well of not greater than the Working Interest shown in Exhibit B for such Well,
except, in the case of clauses (I) and (II), for increases to the extent they
are accompanied by a proportionate increase in Seller’s NRI in such Lease or
Well, or (iii) reduce the Net Acres of Seller in any Lease to be below the Net
Acres for such Lease as set forth on Exhibit A;

 

(2)           liens for Taxes, or assessments not yet due and delinquent or, if
delinquent, that are being contested in good faith in the normal course of
business as reflected in Schedule 4.1(d) of the Disclosure Letter and if so
required by statute, for which a bond has been posted;

 

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(3)           all Customary Post-Closing Consents;

 

(4)           excepting circumstances where such rights have already been
triggered, rights of reassignment upon the surrender or expiration of any Lease;

 

(5)           easements, rights-of-way, servitudes, Permits, surface leases and
other surface rights on or over the Assets or any restrictions on access
thereto, to the extent that that they do not (i) materially impair the use,
ownership or operation of the Assets (as currently owned and operated),
(ii) reduce the NRI of Seller in any (I) Lease or Well that does not contain a
“(Non-Consent)” notation next to the well name for such Well on Exhibit B to be
below the NRI for such Lease or Well as set forth on Exhibit A or Exhibit B, as
applicable, or (II) Well that contains a “(Non-Consent)” notation next to the
well name for such Well on Exhibit B after payout of such Well of not less than
the NRI for such Well as set forth on Exhibit B, (iii) obligate Seller to bear
the Working Interest in any (I) Lease shown on Exhibit A or Well shown on
Exhibit B that does not contain a “(Non-Consent)” notation next to the well name
for such Well on Exhibit B not greater than the Working Interest set forth in
Exhibit A or Exhibit B, as applicable, from the currently producing formations
for such Lease or Well, or (II) Well shown on Exhibit B that contains a
“(Non-Consent)” notation next to the well name for such Well on Exhibit B after
payout of such Well of not greater than the Working Interest shown in Exhibit B
for such Well, except, in the case of clauses (I) and (II), for increases to the
extent they are accompanied by a proportionate increase in Seller’s NRI in such
Lease or Well, or (iv) reduce the Net Acres of Seller in any Lease to be below
the Net Acres for such Lease as set forth on Exhibit A;

 

(6)           the terms and conditions of the Material Agreements, to the extent
that that they do not (i) materially impair the use, ownership or operation of
the Assets (as currently owned and operated), (ii) reduce the NRI of Seller in
any (I) Lease or Well that does not contain a “(Non-Consent)” notation next to
the well name for such Well on Exhibit B to be below the NRI for such Lease or
Well as set forth on Exhibit A or Exhibit B, as applicable, or (II) Well that
contains a “(Non-Consent)” notation next to the well name for such Well on
Exhibit B after payout of such Well of not less than the NRI for such Well as
set forth on Exhibit B, (iii) obligate Seller to bear the Working Interest in
any (I) Lease shown on Exhibit A or Well shown on Exhibit B that does not
contain a “(Non-Consent)” notation next to the well name for such Well on
Exhibit B not greater than the Working Interest set forth in Exhibit A or
Exhibit B, as applicable, from the currently producing formations for such Lease
or Well, or (II) Well shown on Exhibit B that contains a “(Non-Consent)”
notation next to the well name for such Well on Exhibit B after payout of such
Well of not greater than the Working Interest shown in Exhibit B for such Well,
except, in the case of clauses (I) and (II), for increases to the extent they
are accompanied by a proportionate increase in Seller’s NRI in such Lease or
Well, or (iv) reduce the Net Acres of Seller in any Lease to be below the Net
Acres for such Lease as set forth on Exhibit A;

 

(7)           materialmen’s, mechanics’, operators’ or other similar liens
arising in the ordinary course of business incidental to operation of the Assets
(1) if such liens and charges have not been filed under Law and the time for
filing such liens and charges has expired, or (2) if their validity is being
contested in good faith by appropriate action as reflected in Schedule 4.1(d) of
the Disclosure Letter;

 

(8)           liens, security interests, or encumbrances created under Leases
and/or joint operating agreements or by operation of Law in respect of
obligations that are not yet due;

 

(9)           any lien, security interest, or encumbrance affecting the Assets
that is discharged by Seller at or prior to Closing;

 

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(10)         rights reserved to or vested in any Governmental Authority to
control or regulate any of the Assets in any manner, and all applicable Laws and
Orders of general applicability in the area of the Assets;

 

(11)         such Title Defects as Buyer has waived in writing or pursuant to
Section 4.2(c);

 

(12)         matters that would otherwise be considered Title Defects but that
do not meet the Individual Title Threshold set forth in Section 4.2(f);

 

(13)         wellhead and pipeline imbalances associated with the Assets;

 

(14)         preferential purchase rights, Required Consents and other Consents
applicable to the Transaction;

 

(15)         the failure of Seller to have an approved assignment from the
Bureau of Indian Affairs when it acquired any Asset listed on Schedule 4.1(d) of
the Disclosure Letter;

 

(16)         any claims related to or Burdens resulting from the Huffman
Litigation; and

 

(17)         the Leases and all other Contracts, agreements and instruments
applicable to the Assets that (in each case) do not (i) materially impair the
use, ownership or operation of the Assets (as currently owned and operated),
(ii) reduce the NRI of Seller in any (I) Lease or Well that does not contain a
“(Non-Consent)” notation next to the well name for such Well on Exhibit B to be
below the NRI for such Lease or Well as set forth on Exhibit A or Exhibit B, as
applicable, or (II) Well that contains a “(Non-Consent)” notation next to the
well name for such Well on Exhibit B after payout of such Well of not less than
the NRI for such Well as set forth on Exhibit B, (iii) obligate Seller to bear
the Working Interest in any (I) Lease shown on Exhibit A or Well shown on
Exhibit B that does not contain a “(Non-Consent)” notation next to the well name
for such Well on Exhibit B not greater than the Working Interest set forth in
Exhibit A or Exhibit B, as applicable, from the currently producing formations
for such Lease or Well, or (II) Well shown on Exhibit B that contains a
“(Non-Consent)” notation next to the well name for such Well on Exhibit B after
payout of such Well of not greater than the Working Interest shown in Exhibit B
for such Well, except, in the case of clauses (I) and (II), for increases to the
extent they are accompanied by a proportionate increase in Seller’s NRI in such
Lease or Well, or (iv) reduce the Net Acres of Seller in any Lease to be below
the Net Acres for such Lease as set forth on Exhibit A.

 

4.2          Title Defect Procedure.

 

(a)           Title Defect.  “Title Defect” means any lien, charge, encumbrance,
obligation (including contract obligation), defect, or other matter (including
without limitation a discrepancy in NRI or Working Interest) that alone or in
combination with other defects causes Seller not to have Defensible Title.  The
following shall be excluded from the definition of Title Defect:

 

(1)           defects based solely on lack of information in Seller’s files or
reference to documents not in Seller’s files unless records of the applicable
county reflect that any information in Seller’s files is incorrect;

 

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(2)           defects in the chain of title related to  the failure to recite
marital status or omissions of probate succession, heirship or estate
proceedings, unless Buyer provides evidence that such failure or omission has
resulted in another party’s superior claim of title to the relevant Asset;

 

(3)           defects arising out of lack of corporate or other entity
authorization unless Buyer provides evidence that the same results in another
party’s superior claim of title to the Asset;

 

(4)           defects that are defensible by possession under applicable
statutes of limitation for adverse possession or for prescription;

 

(5)           defects based on a gap in Seller’s chain of title unless such gap
is affirmatively shown to exist after a review of the available public and/or
county records and the Records, by an abstract of title, title opinion or
landman’s title chain, which documents shall be included in the Title Defect
Notice;

 

(6)           defects arising out of lack of survey, unless a survey is
expressly required by applicable laws or regulations;

 

(7)           defects or irregularities resulting from or related to (a) probate
proceedings where such defects or irregularities have been outstanding for 10
years or more, or (b) the lack of probate proceedings where an affidavit of
heirship has been recorded in the county records evidencing the decedent’s heirs
or devisees and the decedent died more than 10 years ago;

 

(8)           defects asserting a change in Working Interest or NRI based on a
change in drilling and spacing units, tract allocation or other changes in pool
or unit participation occurring after the Execution Date; and

 

(9)           defects asserting that the before and after payout interests
related to the non-consent interests under a joint operating agreement or
statutory non-consent provisions, as reflected in Exhibit B, do not transfer
title and have not been recorded in the county records.

 

(b)           Title Defect Value.  “Title Defect Value” means the value of any
Title Defect with respect to any Title Defect Property.  The Parties will
determine the Title Defect Value as follows:

 

(1)           If the Title Defect is an indebtedness secured by a lien or
encumbrance on a Title Defect Property that may be discharged in full by the
satisfaction of such indebtedness, the Title Defect Value shall be the total
amount to discharge such indebtedness so that such lien or encumbrance no longer
burdens the Title Defect Property;

 

(2)           If the Title Defect for any Lease or Well is the actual failure of
Seller to own the represented NRI for such Lease or Well, throughout the
duration of the productive life of such Lease or Well, as set forth on Exhibit A
or Exhibit B as applicable, and the Working Interest attributable to such Title
Defect Property has been reduced proportionately, then the Title Defect Value
will be the product of (i) the Allocated Value of such Title Defect Property
multiplied by (ii) a fraction, the numerator of which is the positive difference
between (A) the NRI for such Title Defect Property set forth on Exhibit A or
Exhibit B, as applicable, and (B) the actual NRI for such Title Defect Property,
and the denominator of which is the NRI for such Title Defect Property on
Exhibit A or Exhibit B, as applicable;

 

(3)           If the Title Defect for any Lease is the actual failure of Seller
to own the represented Net Acres for such Lease shown on Exhibit A throughout
the productive life of such Lease, then the Title Defect Value will be the
product of (i) the Allocated Value of such Title Defect Property

 

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multiplied by (ii) a fraction, the numerator of which is the positive difference
between (A) the Net Acres for such Title Defect Property set forth on Exhibit A,
and (B) the actual Net Acres for such Title Defect Property, and the denominator
of which is the Net Acres for such Title Defect Property set forth on
Exhibit A;  and

 

(4)           If the Title Defect represents an obligation, lien, encumbrance,
or other defect in title to the Title Defect Property of a type that does not
fall into subsections (1) through (3), above, then the Title Defect Value shall
be determined by the Parties in good faith, taking into account all relevant
factors, including the following: (i) the Allocated Value of the affected Title
Defect Property; (ii) if the Title Defect represents only a possibility of title
failure, the probability that such failure will occur; (iii) the portion of the
Title Defect Property affected by the Title Defect; (iv) the legal effect of the
Title Defect; (v) the potential economic effect of the Title Defect throughout
the productive life of the Title Defect Property; (vi) the values placed upon
the Title Defect by Buyer and Seller; and (vii) such other reasonable factors as
are necessary to make a proper evaluation.

 

In determining the Title Defect Value, the Parties will include only that
portion of the Title Defect Property affected by the Title Defect; the Title
Defect Value with respect to a Title Defect Property shall be determined without
duplication of any costs or losses included in any other Title Defect Value
under this Agreement; and the Title Defect Value for any Title Defect Property
will not exceed the Allocated Value of such Title Defect Property.

 

(c)           Notice of Title Defects.  Buyer shall deliver to Seller a written
“Title Defect Notice” as soon as reasonably possible but no later than 5:00
p.m., Mountain Time, on the Defect Notice Date.  The Title Defect Notice must
satisfy the following conditions precedent:  such notice must (1) be in writing
and asserted in good faith; (2) name the affected Lease or Well (such affected
Lease or Well is a “Title Defect Property”); (3) describe each Title Defect and
the basis for it; (4) describe the necessary curative for each Title Defect;
(5) attach copies of the Supporting Documentation; (6) state the Allocated Value
of the Title Defect Property; (7) state Buyer’s good faith estimate of the Title
Defect Value; and (8) set forth the computations upon which Buyer’s estimate is
based; provided, however, that the sufficiency or volume of documents delivered
pursuant to this Section 4.2(c) shall not serve as any basis to dispute the
validity of the Title Defect Notice.  To give Seller an opportunity to commence
reviewing and curing Title Defects, Buyer agrees to use reasonable efforts to
give Seller, once at the end of every two week period prior to the Defect Notice
Date, written notice of all alleged Title Defects discovered by Buyer during the
preceding two week period, which notice may be preliminary in nature and
supplemented prior to the expiration of the Defect Notice Date; provided that
failure to provide preliminary notice of a Title Defect shall not prejudice
Buyer’s right to assert any Title Defect hereunder on or before the Defect
Notice Date.  “Supporting Documentation” for a particular Title Defect means,
(i) if the basis is derived from any document, a copy of such document (or
pertinent part thereof) or (ii) if the basis is derived from any gap in Seller’s
chain of title, the recorded documents preceding and following the gap, or
(iii) if the basis is not as described in subsections (i) and (ii), then
reasonable, written documentation.  Buyer irrevocably waives all Claims for
Title Defects not submitted by 5:00 p.m., Mountain Time, on the Defect Notice
Date.

 

(d)           Remedies for Title Defects.  Subject to Seller’s continuing right
to dispute the existence of a Title Defect or the Title Defect Amount asserted
with respect thereto, and subject to the Individual Title Threshold and
Aggregate Defect Deductible, in the event that any Title Defect timely asserted
by Buyer in accordance with Section 4.2(c) actually exists and is not waived by
Buyer or cured on or before Closing, Seller shall elect, in its sole discretion,
one of the following:

 

(1)           convey the Title Defect Property to Buyer at Closing with a
reduction to the Purchase Price by an amount equal to the aggregate Title Defect
Values (the aggregate amount of all

 

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such reductions to the Purchase Price, the “Title Defect Adjustment”), and
retain the right to cure the Title Defect after Closing;

 

(2)           provided that Seller obtains the written consent of Buyer (which
consent shall be given in Buyer’s sole discretion), convey the Title Defect
Property to Buyer at Closing, without adjustment to the Purchase Price, and
indemnify Buyer against all liability, loss, cost and expense resulting from
such Title Defect pursuant to a mutually agreed indemnity agreement; or

 

(3)           retain the entirety of the Leases or Wells subject to such Title
Defect, together with all associated Assets, in which event the Purchase Price
shall be reduced by an amount equal to the Allocated Value of such property and
such associated Assets.

 

(e)           Title Disputed Matters.  The Parties shall resolve Disputes
concerning the following matters under Section 4.4: the existence and scope of
Title Defects or Interest Additions; the Title Defect Value or Interest Addition
Amount; the Title Defect Value or Interest Addition Amount of that portion of
the Asset affected by a Title Defect or Interest Addition Amount, as applicable;
and the adequacy of Seller’s Title Defect curative materials and curative
actions (the “Title Disputed Matters”).  As of Closing, if the Parties have not
resolved the Title Disputed Matters, then at Closing, Seller will retain the
entirety of the Leases or Wells subject to such Title Disputed Matters, together
with all associated Assets, and the Purchase Price shall be reduced by an amount
equal to the Allocated Value of the Title Defect Property and such associated
Assets.  At Closing, Buyer shall pay an amount equal to the Allocated
Value(s) of such affected Assets into an escrow account established pursuant to
an escrow agreement mutually agreed to by the Parties.  The escrow agreement
shall provide that funds will be released from escrow only upon the joint
written instructions of the Parties.  The Title Disputed Matters will be finally
determined by binding arbitration pursuant to Section 4.4.  Upon resolution of
the Title Disputed Matters by the Title Arbitrator, Seller shall make its
election under Section 4.2(d).  Within five Business Days after that election,
the Parties shall take such actions as are necessary to give effect to that
election.

 

(f)            Title Threshold and Deductible.  Notwithstanding anything to the
contrary, (1) in no event shall there be any adjustments to the Purchase Price
or other remedies provided by Seller for any individual Title Defect for which
the Title Defect Amount does not exceed a threshold of $50,000 (“Individual
Title Threshold”); and (2) in no event shall there be any adjustments to the
Purchase Price or other remedies provided by Seller for any Title Defect that
exceeds the Individual Title Threshold unless the sum of (i) the Title Defect
Amounts of all such Title Defects, in the aggregate, excluding any Title Defects
cured by Seller, plus (ii) the Remediation Costs for all Environmental Defects
as provided in Section 5.1(c), exceeds a deductible in an amount equal to 2% of
the Purchase Price (“Aggregate Defect Deductible”), after which point Buyer
shall be entitled to adjustments to the Purchase Price or other remedies only
with respect to such Title Defects in excess of such Aggregate Defect
Deductible.

 

(g)           Pre-Closing Cure.  Seller shall have the right, but not the
obligation, to attempt, at its sole cost, to cure or remove at any time prior to
Closing, to Buyer’s reasonable satisfaction, any Title Defects of which it has
been advised by Buyer.

 

(h)           Post-Closing Cure.   Seller shall have 180 calendar days after the
Closing Date in which to attempt, at its sole cost, to cure any Title Defects
under Section 4.2(d)(1).  If Seller cures any such Title Defect to Buyer’s
reasonable satisfaction within such 180-day period, then Buyer shall promptly
pay Seller the Title Defect Amount with respect to each Title Defect that is so
cured; provided, however, that the aggregate amount of Title Defect Amounts to
be paid by Buyer to Seller on account of Seller’s curing of Title Defects after
the Closing shall not exceed the Title Defect Adjustment.  If Seller

 

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does not cure any such Title Defect to Buyer’s reasonable satisfaction within
such 180-day period, then Buyer shall have no obligation to pay to Seller the
Title Defect Amount with respect to such Title Defect.

 

4.3          Interest Addition.

 

(a)           Interest Addition Definition.  As used in this Agreement, the term
“Interest Addition” means any right, circumstance or condition that operates
(1) to increase the NRI of Seller in (I) any Lease or Well that does not contain
a “(Non-Consent)” notation next to the well name for such Well on Exhibit B
above that shown on Exhibit A or Exhibit B, as applicable, or (II) Well that
contains a “(Non-Consent)” notation next to the well name for such Well on
Exhibit B after payout of such Well above that shown for such Well as set forth
on Exhibit B to the extent, with respect to clauses (I) and (II), the same does
not cause a greater than proportionate increase in Seller’s Working Interest
therein above that shown on Exhibit A or Exhibit B, as applicable, (2) to
decrease the Working Interest of Seller in any (y) Well shown on Exhibit B that
does not contain a “(Non-Consent)” notation next to the well name for such Well
on Exhibit B below that shown on Exhibit B, or (z) Well shown on Exhibit B that
contains a “(Non-Consent)” notation next to the well name for such Well on
Exhibit B after payout of such Well of below that shown on Exhibit B for such
Well, except, in the case of clauses (y) and (z), to the extent the same causes
a decrease in Seller’s Working Interest that is proportionately greater than the
decrease in Seller’s NRI therein below that shown on Exhibit B, or (3) to
increase the Net Acres of Seller covered by the Lease above that shown on
Exhibit A.

 

(b)           Interest Addition Notice.  On or before the Defect Notice Date,
Seller shall have the right, but not the obligation, to notify Buyer of any
Interest Additions (such notice describing the Interest Addition is an “Interest
Addition Notice”) and propose an upward adjustment to the Purchase Price to
account for such Interest Addition.

 

(c)           Contents of Interest Addition Notice.  The Interest Addition
Notice shall be in writing and contain the following: (1) a description of the
Interest Addition, (2) the Leases or Wells (and the applicable zone(s) therein)
affected by the Interest Addition, (3) the Allocated Values of the Leases or
Wells (and the applicable zone(s) therein) subject to such Interest Addition,
and (4) the amount by which Seller reasonably believes the Allocated Value of
those Leases or Wells (and the applicable zone(s) therein) is increased by the
Interest Addition (“Interest Addition Amount”), and the computations and
information upon which Seller’s belief is based.  Seller shall be deemed to have
waived all Interest Additions of which it has not given notice on or before the
Defect Notice Date.

 

(d)           Interest Addition Amount.  The Interest Addition Amount resulting
from an Interest Addition shall be determined in accordance with the same
methodology, terms and conditions for determining the Title Defect Value;
provided, however, the Parties will give effect to the Individual Title
Threshold but not the Aggregate Defect Deductible.  The sole remedy of Seller
with respect to Interest Additions shall be that the aggregate Interest Addition
Amounts attributable to all Interest Additions that exceed the Title Threshold
shall be offset against any downward adjustments to the Purchase Price
attributable to the aggregate of all Title Defect Values, if any.  The Parties
acknowledge that the calculation of the aggregate Title Defect Adjustment shall
be net of such aggregate Interest Addition Amounts.

 

4.4          Title Arbitration.  The Parties will attempt to initially resolve
all Title Disputed Matters through good faith negotiations.  If the Parties
cannot resolve the Title Disputed Matters on or before Closing, then the Closing
will not be delayed; provided, however, if either Party seeks to terminate this
Agreement under Section 11.1(f), and such Party’s election to terminate this
Agreement under such Section relies upon alleged Title Defects and/or Title
Defect Values that are Title Disputed Matters in order to reach the termination
threshold set forth therein, then the Parties will resolve all such Title

 

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Disputed Matters under this Section 4.4 prior to Closing or termination, as
applicable.  In the event that neither Party attempts to terminate this
Agreement under Section 11.1(f), the Parties shall proceed to Closing as
contemplated herein as to all Assets.

 

The Title Disputed Matters will be finally determined under this Section 4.4. 
There shall be a single arbitrator, who shall be an attorney with at least 10
years of experience in oil and gas title and transaction matters, as selected by
mutual agreement of Buyer and Seller within 15 days after any Party invokes the
provisions of this Section 4.4 to resolve such Dispute, and absent such
agreement, by the Denver, Colorado, office of the AAA (such individual, the
“Title Arbitrator”).  The arbitration proceeding shall be held in Denver,
Colorado, and shall be conducted in accordance with the AAA Rules to the extent
such rules do not conflict with the terms of this Section 4.4.  The Title
Arbitrator’s determination shall be made within 20 days after submission by the
Parties of the matters in Dispute and shall be final and binding upon both
Parties, without right of appeal.  In making his or her determination, the Title
Arbitrator shall be bound by the rules set forth in this Article IV and, subject
to the foregoing, may consider such other matters as in the opinion of the Title
Arbitrator are necessary to make a proper determination.  The Title Arbitrator,
however, may not render a decision with respect to a Title Defect Value, in each
case, in excess of the highest value for such Title Disputed Matters as claimed
by Buyer or Seller, as applicable, or below the lowest value for such Title
Disputed Matters as claimed by Seller or Buyer, as applicable.  The Title
Arbitrator shall act as an expert for the limited purpose of determining the
specific Title Disputed Matters submitted by either Party and may not award
damages, interest, or penalties to either Party with respect to any Dispute. 
Seller and Buyer shall each bear its own legal fees and other costs of
presenting its case to the Title Arbitrator.  Each of Seller and Buyer shall
bear one-half of the costs and expenses of the Title Arbitrator.

 

4.5          Preferential Rights and Consents.

 

(a)           Notices.  Prior to Closing, Seller shall deliver notice to the
holder of each Consent and preferential purchase right, including those set
forth on Schedule 6.2(g) of the Disclosure Letter, in accordance with the
contractual provisions applicable to such right of the transactions contemplated
hereby.  If Seller or Buyer discovers other Assets affected by Required
Consents, Consents, or preferential purchase rights, such Party shall notify the
other Party immediately and Seller shall (i) use commercially reasonable efforts
to obtain such Required Consent, Consent, and/or (ii) give the notices required
in connection with the Consents or preferential rights prior to Closing.

 

(b)           Consents.  The term “Required Consent” means a Consent that if not
obtained by Closing, would invalidate the conveyance of the Assets by its
express terms with words such as “the failure to obtain such consent will void
the assignment,” or provide the holder thereof with the right to terminate the
instrument giving rise to such Consent. For avoidance of doubt, the term
“Required Consents” does not include Customary Post-Closing Consents.  If a
Required Consent has not been obtained as of the Closing or any other Consent
has been denied in writing prior to the Closing with respect to an Asset (a
“Restricted Asset”), then at Closing (1) the Restricted Asset shall be retained
by Seller, (2) the Purchase Price will be reduced by the Allocated Value of the
retained Restricted Asset, and (3) and such amount shall be paid into an escrow
account established pursuant to an escrow agreement mutually agreed to by the
Parties. After Closing, Seller shall use commercially reasonable efforts (and
Buyer shall assist Seller as reasonably requested) to obtain the consent of the
third Persons required to convey the Restricted Asset to Buyer.  The escrow
agreement shall provide, with respect to each Restricted Asset, that funds will
be released from escrow only upon the joint written instructions of the
Parties.  With respect to any such Restricted Asset as to which the necessary
Consent for the assignment to Buyer is obtained following the Closing,
(i) Seller shall transfer such Restricted Asset to Buyer by execution and
delivery of an instrument of conveyance reasonably satisfactory to Buyer and
Seller, and (ii) concurrent with such transfer, the Parties shall deliver to the
escrow agent joint written instructions

 

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instructing the escrow agent to release the Allocated Value of the Restricted
Asset to Seller.  Notwithstanding the foregoing, Seller shall not be required to
renew or extend any Restricted Asset at the end of its primary term.  In the
event that such Consent is not obtained within 90 days after Closing, then,
after such date, Buyer may deliver a written notice to Seller requesting that
such Restricted Asset become an Excluded Asset.  Within five Business Days after
Seller’s receipt of such notice, the Parties shall deliver to the escrow agent
joint written instructions instructing the escrow agent to release the Allocated
Value of the Restricted Asset to Buyer, and, upon such release such Restricted
Asset will be deemed an Excluded Asset.

 

(c)           Preferential Purchase Rights.  If prior to the Closing Date,
(i) any preferential right to purchase any portion of the Assets is exercised
prior to the Closing Date, (ii) the time frame for the exercise of such
preferential purchase right has not expired and Seller has not received notice
of an intent not to exercise or waiver of the preferential purchase right, or
(iii) a third Person exercises its preferential right to purchase, but fails to
consummate the transaction prior to the Closing, then that portion of the Assets
affected by such preferential purchase right shall be excluded from the Assets
at Closing and the Purchase Price shall be adjusted downward by an amount equal
to the Allocated Values of such affected Assets. If a third Person elects to
exercise its preferential right to purchase prior to Closing but after Closing
does not consummate the transaction within the time frame specified in the
preferential purchase right (provided that the reason therefor is not Seller’s
default), Seller will convey the affected Asset to Buyer as soon as possible
after the expiration of the time for consummation of the transaction by the
holder of the preferential right, such conveyance to be effective as of the
Effective Time, and Buyer agrees to pay Seller the Allocated Value of the
affected Asset.  If a preferential purchase right is not discovered prior to
Closing, and the affected Asset is conveyed to Buyer at Closing, and the
preferential purchase right is exercised after Closing, Buyer will convey such
affected Asset to the party exercising such right on the same terms and
conditions under which Seller conveyed such Asset to Buyer (with the purchase
price being the Allocated Value for the affected Asset) and retain all amounts
paid by the party exercising such preferential right to purchase.  In the event
of such exercise, Buyer shall prepare, execute and deliver a form of conveyance
of such Asset to such exercising party, such conveyance to be in form and
substance as provided in this Agreement.

 

ARTICLE V
ENVIRONMENTAL MATTERS

 

5.1          Environmental Procedures.

 

(a)           Consultant.  Buyer shall employ a third-Person environmental
consultant selected by Buyer and approved in writing by Seller (which approval
shall not be unreasonably withheld) (the “Environmental Consultant”) to
determine the existence of any Environmental Defects (as defined in Section 5.5)
and the Remediation Costs (as defined in Section 5.5), if any, associated
therewith.

 

(b)           Defect Notice.  If the Environmental Consultant identifies and
Buyer claims one or more Environmental Defects in the course of its
investigation, Buyer may, on or before 5:00 p.m., Mountain Time, on the Defect
Notice Date, deliver to Seller one or more Environmental Defect Notices (as
defined in Section 5.5).  An Environmental Defect Notice must satisfy the
following conditions precedent:  such notice must (1) be in writing and be
delivered no later than 5:00 p.m., Mountain Time, on the Defect Notice Date,
(2) name the affected Asset or portion thereof (the “Environmental Defect
Property”), (3) name the condition that constitutes, causes, or contributes to
the Environmental Defect,  (4) provide factual substantiation for the
Environmental Defect,  and (5) contain the Environmental Consultant’s good faith
written estimates of the Remediation Costs which must describe in reasonable
detail the Remediation proposed for the alleged Environmental Defect; provided,
however, that the volume of documents delivered pursuant to this
Section 5.1(b) shall not serve as any basis to dispute the

 

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validity of the Environmental Defect Notice.  For the purpose of the preceding
sentence, “factual substantiation for the Environmental Defect” means reports
prepared by the Environmental Consultant.  To give Seller an opportunity to
commence reviewing and curing Environmental Defects, Buyer agrees to use
reasonable efforts to give Seller, once at the end of every two week period
prior to the Defect Notice Date, written notice of all alleged Environmental
Defects discovered by Buyer during the preceding (2) week period, which notice
may be preliminary in nature and supplemented prior to the expiration of the
Defect Notice Date; provided that failure to provide preliminary notice of an
Environmental Defect shall not prejudice Buyer’s right to assert any
Environmental Defect hereunder on or before the Defect Notice Date.  Seller has
the right, but not the obligation, to cure any claimed Environmental Defect on
or before the Closing Date.

 

(c)           Remedies.  Subject to (x) each Party’s right to terminate this
Agreement under Section 11.1(f), (y) Seller’s right to Remediate the
Environmental Defect prior to Closing, and (z) Seller’s continuing right to
dispute the existence of an Environmental Defect and/or the Remediation Costs
asserted with respect thereto, if Buyer delivers a valid Environmental Defect
Notice(s) to Seller, and the sum of the (i) Remediation Costs in respect of all
Environmental Defects identified in such Environmental Defect Notice(s) plus
(ii) the Title Defect Amounts as determined under Article IV, in the aggregate,
exceeds the Aggregate Defect Deductible, then Seller may elect, at its sole
discretion, one of the following options with respect to each Environmental
Defect so identified:

 

(1)           reduce the Purchase Price by an amount equal to the Remediation
Cost attributable to such Environmental Defect (with such amount being the
“Environmental Defect Adjustment”), whereupon Seller shall convey the
Environmental Defect Property to Buyer at Closing and Buyer shall thereafter
assume all liability for Remediation of the Environmental Defect Property;

 

(2)           if the Remediation Costs are greater than the Allocated Value of
the Asset subject to the Environmental Defect, exclude such affected Asset and
any associated Assets and adjust the Purchase Price downward by an amount equal
to the Allocated Value(s) of such affected Assets, in which event such affected
Assets shall constitute an Excluded Asset; or

 

(3)           with Buyer’s prior written consent (which consent shall be given
in Buyer’s sole discretion), indemnify Buyer against any Loss attributable to
the relevant Environmental Defect, which indemnity shall be in the form
reasonably acceptable to the Parties.

 

5.2          Contested Environmental Defects.

 

(a)           Rejection Notice.  If Seller contests the existence of an
Environmental Defect or the Remediation Costs, Seller shall notify Buyer in
writing on or before three Business Days after the Defect Notice Date
(“Rejection Notice”).  The Rejection Notice shall state with reasonable
specificity the basis for the rejection of the Environmental Defect(s) or the
Remediation Costs, including any factual substantiation for the rejection. 
Within three Business Days of receipt of the Rejection Notice, representatives
of Buyer and Seller knowledgeable in environmental matters shall meet and,
either (1) mutually agree to reject the particular Environmental Defect(s) or
(2) agree on the validity of such Environmental Defect(s) and the Remediation
Costs.  If the Parties cannot agree on either options (1) or (2) in the
preceding sentence with respect to each challenged Environmental Defect, the
Environmental Defect(s) and/or the Remediation Costs subject to the Rejection
Notice shall be resolved in accordance with the arbitration procedures set forth
in Section 5.2(b).

 

(b)           Exclusion of Asset.  If Seller elects to challenge the existence
of an Environmental Defect and/or the Remediation Costs, or if Buyer elects to
challenge Seller’s claim that any Environmental Defect has been cured, and such
Dispute has not been resolved as of Closing, then the

 

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Asset subject to the Environmental Defect and any associated Assets shall be
retained by Seller and the Purchase Price shall be adjusted downward by an
amount equal to the Allocated Value(s) of such affected Assets.  At Closing,
Buyer shall pay an amount equal to the Allocated Value(s) of such affected
Assets into an escrow account established pursuant to an escrow agreement
mutually agreed to by the Parties.  The escrow agreement shall provide that
funds will be released from escrow only upon the joint written instructions of
the Parties.  The Environmental Disputed Matters will be finally determined by
binding arbitration pursuant to Section 5.2(d).  At such time as an
Environmental Disputed Matter is finally resolved (either by the agreement of
the Parties or pursuant to the decision of the Environmental Arbitrator), Seller
shall make its election under Section 5.1(c).  Within five Business Days after
that election, the Parties shall take such actions as are necessary to give
effect to that election, including providing joint written instructions for
release of funds from the escrow account.

 

(c)           Environmental Disputed Matters.  If the Parties cannot resolve
Disputes concerning the (1) existence and scope of an Environmental Defect or
Remediation Costs under Section 5.2(a) or (2) the adequacy of Seller’s
Environmental Defect curative materials and efforts (the “Environmental Disputed
Matters”) on or before Closing, then the Closing will not be delayed; provided,
however, if either Party seeks to terminate this Agreement under
Section 11.1(f), and such Party’s election to terminate this Agreement under
such Section relies upon alleged Environmental Defects and/or Remediation Costs
that are Environmental Disputed Matters in order to reach the termination
threshold set forth therein, then the Parties will resolve all such
Environmental Disputed Matters under this Section 5.2(c) prior to Closing or
termination, as applicable.  In the event that neither Party attempts to
terminate this Agreement under Section 11.1(f), the Parties shall proceed to
Closing as contemplated herein as to all Assets (other than those Assets
excluded pursuant to the express terms of this Agreement).

 

(d)           Arbitration.  The Environmental Disputed Matters will be finally
determined under this Section 5.2(d).  There will be a single arbitrator, who
must be an environmental attorney with at least 10 years of experience in oil
and gas environmental matters, as selected by mutual agreement of Buyer and
Seller within 15 days after any Party invokes the provisions of this
Section 5.2(d) to resolve such Dispute, and absent such agreement, by the
Denver, Colorado, office of the AAA (the “Environmental Arbitrator”).  The
arbitration proceeding will be held in Denver, Colorado, and conducted in
accordance with the AAA Rules to the extent such rules do not conflict with the
terms of this Section 5.2(d).  The Environmental Arbitrator’s determination must
be made within 20 days after submission of the matters in Dispute and shall be
final and binding upon both Parties, without right of appeal.  In making its
determination, the Environmental Arbitrator shall be bound by the rules set
forth in this Section 5.2(d) and, subject to the foregoing, may consider such
other matters as in the opinion of the Environmental Arbitrator are necessary or
helpful to make a proper determination.  The Environmental Arbitrator, however,
may not award Buyer a greater Remediation Cost than the Remediation Cost claimed
by Buyer nor a lesser Remediation Cost than the Remediation Cost proposed by
Seller.  The Environmental Arbitrator will act as an expert for the limited
purpose of determining the specific Environmental Disputed Matters submitted by
either Party and may not award damages, interest or penalties to either Party
with respect to any matter.  Seller and Buyer will each bear its own legal fees
and other costs of presenting its case.  Each Party will bear one-half of the
costs and expenses of the Environmental Arbitrator.

 

5.3          Seller’s Right to Remediate.  Seller shall have the right, but not
the obligation, to attempt, at its sole cost, to Remediate at any time prior to
Closing, any Environmental Defect of which it has been advised by Buyer pursuant
to the terms of this Agreement.

 

5.4          Waiver and Remedies.  Except as may constitute a breach of Seller’s
representations and warranties set forth in Article VI,

 

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(a)           BUYER IRREVOCABLY WAIVES FOR ALL PURPOSES ALL OBJECTIONS
ASSOCIATED WITH THE ENVIRONMENTAL CONDITION OF THE ASSETS (INCLUDING
ENVIRONMENTAL DEFECTS), UNLESS SUCH OBJECTIONS ARE RAISED IN AN ENVIRONMENTAL
DEFECT NOTICE WITHIN THE APPLICABLE TIME PERIOD SET FORTH IN SECTION 5.1(b); and

 

(b)           the rights and remedies granted Buyer in this Article V are the
exclusive rights and remedies against Seller related to any matters that would
be an Environmental Defect, except as provided herein with respect to any
Retained Liability.

 

5.5          Definitions.  For the purposes of this Agreement, the following
terms have the following meanings:

 

“Assumed Environmental Liabilities” means, subject to Seller’s indemnification
obligations hereunder and obligations with respect to Environmental Defects, all
Losses (including Remediation Costs, and any damage to natural resources
(including soil, air, surface water, or groundwater) and expenses for the
modification, repair, or replacement of facilities on the Lands) brought or
assessed by any and all Persons, created or attributable to any period of time,
whether arising before, on or after the Closing Date, relating to
(a) environmental conditions in, on or under the Assets, and (b) the presence,
disposal, or Release of any Hazardous Substances of any kind in, on, or under
the Assets.

 

“Environmental Defect” means a condition relating to an Asset (including
associated air, land, soil, surface and subsurface strata, surface water and
ground water or sediments), excluding conditions resulting from or related to
the presence or existence of NORM or TE-NORM, that (a) is attributable to the
period of time prior to the Defect Notice Date, and (b) causes an Asset and/or
Seller to be in violation of an Environmental Law at the time of the submittal
of any Environmental Defect Notice, and (c) requires Remediation Costs in excess
of $50,000 per condition, net to Seller’s interest.  It is understood and agreed
that matters of a similar nature including oil spills, or chemical barrels found
at a single site shall be collectively deemed a single incident or condition. 
In all other respects, each Environmental Defect will be addressed as a single
incident or condition, and the Environmental Defects will not be aggregated on a
per condition basis or otherwise (i.e., chemical barrels found at all of the
Well sites shall not be aggregated, but instead, shall be evaluated on a
site-by-site basis).

 

“Environmental Defect Notice” means a written notice of an Environmental Defect
that contains the information set forth in Section 5.1(b) made by Buyer to
Seller on or before the Defect Notice Date.

 

“Environmental Law” means any Law issued or promulgated by any Governmental
Authority in effect on or before the Execution Date relating to the prevention
of pollution, preservation and restoration of environmental quality, protection
of the environment (including air, water, or land), or the Release, generation,
handling, storage, transportation, or disposal of Hazardous Substances.

 

“Hazardous Substances” means any pollutants, contaminants, toxics or hazardous
or extremely hazardous substances, materials, wastes, constituents, compounds or
chemicals that are regulated by, or may form the basis of any liability under,
any Environmental Laws, including NORM, asbestos, and man-made material fibers.

 

“Lowest Cost Response” means the response required or allowed under
Environmental Laws that addresses the identified condition at the lowest cost
(considered as a whole, taking into consideration any material negative impact
such response may have on the operations of the relevant Assets and any
potential material additional costs or liabilities that may likely arise as a
result of such response) as compared to any other response that is required or
allowed under Environmental Laws.  The Lowest Cost

 

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Response may include taking no action, leaving the condition unaddressed,
periodic monitoring or the recording of notices in lieu of remediation, if such
responses are allowed under Environmental Laws.  None of the following costs
shall be included in determining the Lowest Cost Response: (i) the costs of
Buyer’s and/or its Affiliate’s employees, project managers or attorneys,
(ii) expenses for matters that are costs of doing business, e.g., those costs
that would ordinarily be incurred in the day-to-day operations of the Assets, or
in connection with permit renewal activities,  (iii) overhead costs of Buyer
and/or its Affiliates, (iv) costs and expenses that would not have been required
under Environmental Laws as they exist on the date of the Environmental Defect
Notice, (v) costs or expenses incurred in connection with remedial or corrective
action that is designed to achieve standards that are more stringent than those
required for similar facilities or that fails to reasonably take advantage of
applicable risk reduction or risk assessment principles allowed under applicable
Environmental Laws, and/or (vi) any costs or expenses relating to the
assessment, remediation, removal, abatement, transportation and disposal of any
NORM or TE-NORM.

 

“NORM” means naturally occurring radioactive material.

 

“Release” means the spilling, leaking, disposing, discharging, emitting,
depositing, dumping, ejecting, leaching, pumping, pouring, injecting,
discarding, abandoning, placing, spreading, escaping, or any other release
(including any subsurface migration resulting therefrom) or threatened release,
however defined, whether intentional or unintentional, into the environment.

 

“Remediate” or “Remediation” means the Lowest Cost Response that may be taken to
correct an Environmental Defect in accordance with applicable Environmental Laws
as recommended in good faith and in writing by the Environmental Consultant, or
as agreed upon between the Parties.

 

“Remediation Costs” means the costs or estimates thereof, to Remediate a
particular Environmental Defect, as estimated in good faith and in writing by
the Environmental Consultant.

 

“TE-NORM” means technologically-enhanced NORM.

 

5.6          Condition of Assets – NORM and TE-NORM.  Buyer acknowledges that
some oil field production equipment located on the Assets may contain NORM or
TE-NORM.  In this regard, Buyer expressly understands that NORM or TE-NORM may
affix or attach itself to the inside of wells, materials and equipment as scale
or in other forms, and that wells, materials and equipment located on the Assets
described herein may contain NORM or TE-NORM.  Buyer also expressly understands
that special procedures may be required for the removal and disposal of NORM or
TE-NORM from the Assets where it may be found.

 

ARTICLE VI
SELLER’S REPRESENTATIONS

 

Except as set forth on the schedules to the disclosure letter delivered to Buyer
on the Execution Date (the “Disclosure Letter”), which identifies items of
disclosure that correspond to a particular schedule or section of this
Agreement, Seller represents and warrants to Buyer as follows, as of the
Execution Date and as of the Closing Date:

 

6.1          Corporate Representations.

 

(a)           Incorporation/Qualification.  Seller is a Delaware corporation,
duly organized, validly existing and in good standing under the Laws of the
State of Delaware and is qualified to conduct business in North Dakota.

 

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(b)           Power and Authority.  Seller has the requisite power and authority
to execute and deliver this Agreement and the other Transaction Documents to
which it is or will be a party and perform its obligations under this Agreement
and such other Transaction Documents.

 

(c)           No Lien, No Violation.  Except for the Consents and preferential
rights to purchase contemplated in Section 4.5, the Required Consents described
on Schedule 6.2(g) of the Disclosure Letter, and all Customary Post-Closing
Consents, the execution, delivery and performance of this Agreement and the
other Transaction Documents to which it is or will be a party or the
consummation of the Transaction by Seller will not (1) violate any provision of
Seller’s governing documents, (2) create a material lien or encumbrance (other
than a Permitted Encumbrance) on the Assets or trigger an outstanding security
interest in the Assets that will remain in existence after Closing, (3) violate,
or be in conflict with, any agreement or instrument to which Seller is a party
and which affects the Assets in any material respect, and (4) violate or be in
conflict with any Law applicable to Seller as a party in interest or any of the
Assets, in case under this clause (4), in any material respect.

 

(d)           Authorization and Enforceability.  The execution, delivery, and
performance by Seller of this Agreement and the other Transaction Documents to
which it is or will be a party have been duly and validly authorized by all
necessary action on the part of Seller.  This Agreement has been duly executed
and delivered by Seller (and all Transaction Documents required under this
Agreement to be executed and delivered by Seller at Closing will be duly
executed and delivered by Seller) and this Agreement constitutes, and at the
Closing such Transaction Documents will constitute, the legal, valid and binding
obligations of Seller, enforceable in accordance with their terms, subject,
however, to the effects of bankruptcy, insolvency, reorganization, moratorium
and other Laws for the protection of creditors, as well as to general principles
of equity, regardless of whether such enforceability is considered in a
proceeding in equity or at Law.

 

(e)           Liability for Brokers’ Fees.  Seller has not incurred any
liability, contingent or otherwise, for brokers’ or finders’ fees relating to
the Transaction for which Buyer will have any responsibility whatsoever.

 

(f)            No Bankruptcy.  There are no bankruptcy proceedings pending,
being contemplated by or, to Seller’s Knowledge, threatened against Seller.

 

(g)           Litigation.  Except as set forth on Schedule 6.1(g) of the
Disclosure Letter, there are no actions, suits, or proceedings pending or, to
Seller’s Knowledge, threatened in writing, against Seller that relate to the
Assets or would materially affect Seller’s ability to consummate the
Transaction.

 

6.2          Seller’s Representations with Respect to the Assets.

 

(a)           AFEs.  To Seller’s Knowledge, as of the Execution Date, Schedule
6.2(a) of the Disclosure Letter is a list and description of all outstanding
authorities for expenditures or other current commitments relating to the Assets
to drill or rework wells, build gathering systems, or for other capital
expenditures (“AFEs”) that, in each case, will be binding upon Buyer or the
Assets after the Effective Time are also set forth in Schedule 6.2(a) of the
Disclosure Letter.  Notwithstanding anything to the contrary in this Agreement,
the amounts shown on Schedule 6.2(a) of the Disclosure Letter with respect to
such AFEs are estimates.

 

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(b)           Material Agreements.

 

(1)           Schedule 6.2(b) of the Disclosure Letter sets forth all Applicable
Contracts that Seller either (y) is the original signatory to, or (z) of which
Seller has Knowledge, in each case, of the type described below (the “Material
Agreements”):

 

(i)            any Applicable Contract that can reasonably be expected to result
in aggregate payments by or revenues to Seller of more than $75,000 during the
current or any subsequent fiscal year of Seller (based solely on the terms
thereof and without regard to any expected increase in volumes or revenues);

 

(ii)           any Hydrocarbon transportation, gathering, storage and processing
or similar Applicable Contracts that are not terminable without penalty on 90
days or less notice;

 

(iii)          any Applicable Contract for the purchase, sale or exchange of any
Hydrocarbons that is not terminable without penalty on 90 days or less notice;

 

(iv)          Applicable Contracts to sell, lease, farmout, exchange, or
otherwise dispose of all or any part of the Assets (other than Hydrocarbons),
but excluding conventional rights of reassignment upon intent to abandon or
release a Well or Lease and excluding any operating agreements;

 

(v)           Applicable Contracts that are joint operating agreements, unit
operating agreements, unit agreements, farmout agreements, participation
agreements, exploration agreements, development agreements or joint venture
agreements;

 

(vi)          Applicable Contracts that non-competition agreements or any
Applicable Contracts that purport to restrict, limit, or prohibit a party from
engaging in any line of business or the manner in which, or the locations at
which, such party conducts business, including area of mutual interest
agreements;

 

(vii)         Applicable Contracts for the use of drilling rigs and other
contracts relating to the drilling, completion or hydraulic fracturing of wells
including sand supply contracts reasonably expected, as of the date hereof, to
result in expenditures in excess of $75,000 in any 12 month period;

 

(viii)        any Applicable Contract with any Affiliate of any Seller that will
be binding on Buyer after the Effective Time; or

 

(ix)          any Applicable Contract that is a master seismic license or
agreement.

 

(2)           Seller has made available to Buyer true and correct copies of each
of the Material Agreements all amendments and other modifications thereto.  Each
Material Agreement constitutes the valid and binding agreement of Seller, and,
to Seller’s Knowledge, any other party thereto, enforceable against Seller and,
to Seller’s Knowledge, any other party thereto.  Seller is not and, to Seller’s
Knowledge, no other party is, in breach in any material respect of any Material
Agreement.  Seller has not received written notice or delivered written notice
of a default or breach with respect to any Material Agreement.

 

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(c)           Compliance with Laws.  Except as disclosed on Schedule 6.2(c) of
the Disclosure Letter, to the Knowledge of Seller, the Assets are in compliance
in all material respects with the provisions and requirements of all Laws
(excluding Environmental Laws, which are addressed in Section 6.2(e) and
Article V) of all Governmental Authorities having jurisdiction with respect to
the Assets, or the ownership, operation, development, maintenance, or use of any
thereof.

 

(d)           Production Sales Contracts.  Except for the Material Agreements,
to Seller’s Knowledge, Seller is not obligated under any Applicable Contract for
the sale of Hydrocarbons from the Assets containing a take-or-pay, advance
payment, or prepayment provision.

 

(e)           Environmental Matters.  Except as set forth on Schedule 6.2(e) of
the Disclosure Letter:

 

(1)           Seller has not received any written notice of violation of any
Environmental Law relating to the Assets where such violation has not been cured
or otherwise remedied, or of any pending or threatened Loss relating to the
Assets under any Environmental Law;

 

(2)           to Seller’s Knowledge (without any duty of inquiry) and except as
permitted by Law (including Environmental Law), there has been no Release into
the environment of any Hazardous Substance that could reasonably be expected to
cause any Asset to be subject to material Remediation pursuant to Environmental
Laws; and

 

(3)           to Seller’s Knowledge, there are no agreements, consents, orders,
decrees, judgments, or other directives of any Governmental Authorities that
relate to the future use of any of the Assets or that require any Remediation
after Closing.

 

(f)            Tax Matters.  Seller has timely filed or extended with the
appropriate Governmental Authorities all Tax Returns with respect to the Assets
that are required to be filed or extended on or before the Closing Date, and all
such Tax Returns or extensions are true, correct and complete in all material
respects.  To Seller’s Knowledge, all Taxes payable with respect to the Assets
(whether or not shown as due on a Tax Return) have been duly and timely paid in
full unless being contested in good faith by appropriate proceeding.  There are
no liens for Taxes on the Assets except for Taxes not yet due.  There are no
audits or investigations pending or threatened in writing against Seller or any
of the Assets before any Governmental Authority relating to the payment of any
Taxes imposed or based on the Assets or Hydrocarbons produced therefrom.  Other
than routine extensions, there are no agreements or waivers currently in effect
that provide for an extension of time with respect to the filing of any Tax
Return with respect to the Assets or the assessment or collection of any Tax
with respect to the Assets.  Seller has complied in all material respects with
all applicable Laws relating to the payment and withholding of Taxes with
respect to the Assets and has duly and timely withheld and paid over to the
appropriate Governmental Authorities all amounts required to be so withheld and
paid under all applicable Laws.   None of the Assets is, or prior to Closing
will be, held in an arrangement classified as a partnership for federal income
tax purposes.

 

(g)           Consents; Preferential Purchase Rights.  Except as set forth on
Schedule 6.2(g) of the Disclosure Letter, other than Customary Post-Closing
Consents there are no Consents and no preferential purchase rights, rights of
first refusal, or similar rights that are applicable to the transfer of the
Assets in connection with the Transaction.

 

(h)           Leases.  Seller is in compliance in all material respects with the
Leases, and Seller has not received any written demands or written notices of
default or non-compliance relating to the Leases.  To Seller’s Knowledge, no
lessor under any Lease has given written notice to Seller of any

 

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action to terminate, cancel, rescind, repudiate, or procure a judicial
reformation of any Lease or any provisions hereof.

 

(i)            Non-Consent Operations. Seller has not elected not to participate
in any operation or activity proposed with respect to any Asset that could
result in any of Seller’s (or, after the Closing, Buyer’s) interest in such
Asset becoming subject to a penalty or forfeiture as a result of such election.

 

(j)            Necessary Rights.  Except as set forth on Schedule 6.2(o) and
6.2(q), the Assets include all rights, contracts, permits, properties, benefits
and agreements necessary to allow Buyer to use and own the Assets in
substantially the same manner as such Assets are used and owned by Seller as of
the Effective Time.

 

(k)           Royalties and Rentals. To Seller’s Knowledge, all bonuses, delay
rentals, minimum royalties and royalties, other than suspended royalties, due
and owing by Seller with respect to Assets have been timely and correctly paid
in accordance with applicable Leases and Laws.

 

(l)            Wells and Equipment. To Seller’s Knowledge:

 

(1)           all Wells described on Exhibit B have been drilled and completed
at legal locations and within the limits permitted by all applicable Leases,
contracts, and pooling or unit agreements;

 

(2)           there are no Wells described on Exhibit B or equipment located on
the Assets (i) for which the operator is currently obligated by any Law to
currently plug, dismantle or abandon; or (ii) that have been plugged,
dismantled, or abandoned in a manner that does not comply in all material
respects with applicable Law; and

 

(3)           as of the Execution Date, there are no Wells located on the Lands
that have been designated as inactive according to the records of the North
Dakota Industrial Commission.

 

(m)          Rights to Production. To Seller’s Knowledge, with respect to
imbalances or as set forth on Schedule 6.2(m) of the Disclosure Letter, no
Person has any call upon, right to purchase or to market, option to purchase or
market, or similar rights with respect to any portion of the Hydrocarbons
produced from the Assets after the Effective Time that is not terminable without
penalty on less than three months’ notice.

 

(n)           Suspense Accounts. To Seller’s Knowledge, Schedule 6.2(n) of the
Disclosure Letter sets forth all Burdens that are being held in suspense by
Seller as of the Execution Date with respect to the Assets.

 

(o)           Bonds, Letters of Credit and Guarantees. Schedule 6.2(o) of the
Disclosure Letter identifies the bonds, letters-of-credit and guarantees posted
(or supported) by Seller or its Affiliates on behalf of Seller with respect to
the Assets.

 

(p)           Condemnation. Seller has not received any written notice of any
pending or threatened taking (whether permanent, temporary, whole or partial) of
any portion of the Assets by reason of condemnation.

 

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(q)           Insurance. As of the Execution Date, Seller has maintained, and
through the Closing Date will maintain, with respect to the Assets, the
insurance coverages set forth in Schedule 6.2(q) of the Disclosure Letter.

 

(r)            Imbalances.  As of the Execution Date there are, and as of the
Effective Time there were, no Imbalances attributable to the Assets.

 

(s)            Permits.  To Seller’s Knowledge, (i) the applicable operator has
maintained and is maintaining all Permits with respect to the Assets, (ii) the
Assets are in material compliance with all such Permits, and (iii) no event has
occurred that permits, or after the giving of notice or lapse of time or both
would permit, the revocation or termination of any such Permit or the imposition
of any restrictions of such a nature as may limit the operation or use of the
Assets as historically conducted.

 

6.3          Generally.

 

(a)           Effect of Disclosure.  The inclusion of a matter on a Schedule of
the Disclosure Letter in relation to a representation or warranty shall not be
deemed an indication that such matter necessarily would, or may, breach such
representation or warranty absent its inclusion on such Schedule of the
Disclosure Letter.

 

(b)           Effect of Schedules.  All Section headings in the Schedules of the
Disclosure Letter correspond to the Sections of this Agreement, but information
provided in any Section of the Schedules of the Disclosure Letter shall
constitute disclosure for purposes of each Section of this Agreement to which
its relevance is reasonably apparent.

 

ARTICLE VII
BUYER’S REPRESENTATIONS

 

Buyer represents and warrants to Seller the following, as of the Execution Date
and as of the Closing Date:

 

7.1          Organization and Standing.  Buyer is a limited liability company
duly organized, validly existing and in good standing under the Laws of the
State of Delaware and is qualified to conduct business in North Dakota.

 

7.2          Power.  Buyer has the requisite power and authority to execute and
deliver this Agreement and perform its obligations under this Agreement and the
other Transaction Documents to which it is or will be a party and perform its
obligations under this Agreement and such other Transaction Documents.

 

7.3          No Violation.  Except for Customary Post-Closing Consents, the
execution, delivery and performance by Buyer of this Agreement and the other
Transaction Documents to which it is or will be a party will not (a) violate any
provision of Buyer’s governing documents, (b) violate, be in conflict with,
require any filing with respect to, or result in any acceleration or default
under, any agreement or instrument to which Buyer is a party, (c) violate or be
in conflict with any Law applicable to Buyer, except any matters described in
clause (b) and (c) above as would not, individually or in the aggregate,
reasonably be expected to adversely affect Buyer’s ability to consummate the
Transaction and perform its obligations under this Agreement.

 

7.4          Authorization and Enforceability.  The execution, delivery, and
performance of this Agreement and the other Transaction Documents to which it is
or will be a party have been duly and

 

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validly authorized by all necessary action on the part of Buyer.  This Agreement
has been duly executed and delivered by Buyer (and all Transaction Documents
required under this Agreement to be executed and delivered by Buyer at Closing
will be duly executed and delivered by Buyer) and this Agreement constitutes,
and at the Closing such Transaction Documents will constitute, the legal, valid
and binding obligations of Buyer, enforceable in accordance with their terms,
subject, however, to the effects of bankruptcy, insolvency, reorganization,
moratorium and similar Laws for the protection of creditors, as well as to
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at Law.

 

7.5          Liability for Brokers’ Fees.  Buyer has not incurred any liability,
contingent or otherwise, for brokers’ or finders’ fees relating to the
Transaction for which Seller shall have any responsibility whatsoever.

 

7.6          Litigation.  There are no actions, suits proceedings, claims or
investigations by any person, entity, administrative agency or governmental body
pending or, to Buyer’s Knowledge, threatened in writing, against Buyer before
any Governmental Authority that are reasonably likely to adversely affect 
Buyer’s ability to consummate the Transaction.

 

7.7          Securities Laws, Access to Data and Information.  Buyer
acknowledges that the Assets are or may be deemed to be “securities” under the
Securities Act of 1933, as amended, and certain applicable state securities or
Blue Sky Laws and that resale thereof may therefore be subject to the
registration requirements of such acts.  The Assets are being acquired solely
for Buyer’s own account for the purpose of investment and not with a view to
resale, distribute or grant a participation therein in violation of any
securities Laws.  Buyer is familiar with the Assets and it is a knowledgeable,
experienced and sophisticated investor in the oil and gas business.  Buyer
understands and accepts the risks and absence of liquidity inherent in ownership
of the Assets.

 

7.8          Financial Resources.  Buyer will have at the Closing the financial
resources available to close the Transaction without any financing contingency
and to perform its post-Closing obligations under this Agreement.

 

7.9          Buyer’s Evaluation.

 

(a)           Background Materials.  Without limiting the representations and
warranties of Seller contained in this Agreement and the other Transaction
Documents and Seller’s special warranty of title in the Assignment, Buyer is
experienced and knowledgeable in the oil and gas business and is aware of its
risks.  Buyer has been afforded the opportunity to examine the Records.  Except
for the representations and warranties of Seller contained in this Agreement and
the other Transaction Documents and Seller’s special warranty of title in the
Assignment, Buyer acknowledges and agrees that Seller has not made any
representations or warranties, express or implied, written or oral, as to the
accuracy or completeness of the Records or any other information relating to the
Assets furnished or to be furnished to Buyer or its representatives by or on
behalf of Seller, including any estimate of the value of the Assets or reserves
or any projections as to future events.

 

(b)           Independent Evaluation.  Without limiting the representations and
warranties of Seller contained in this Agreement and the other Transaction
Documents and Seller’s special warranty of title in the Assignment, in entering
into this Agreement, Buyer acknowledges and affirms that it has relied and will
rely solely on the terms of this Agreement and upon its own independent
analysis, evaluation and investigation of, and judgment with respect to, the
business, economic, legal, Tax or other consequences of this Transaction,
including its estimate and appraisal of the extent and value of the Assets, and
the petroleum, natural gas and other reserves associated with the Assets. 
Except as expressly provided in this

 

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Agreement and the other Transaction Documents and Seller’s special warranty of
title under the Assignment, Seller will not have any liability to Buyer
Indemnified Parties resulting from any use, authorized or unauthorized, of the
Records or other information relating to the Assets provided by or on behalf of
Seller.

 

ARTICLE VIII
COVENANTS AND AGREEMENTS

 

8.1          Covenants and Agreements of Seller.  Seller covenants and agrees
with Buyer as follows:

 

(a)           Operations Prior to Closing.  Except as consented to in writing by
Buyer or provided for in this Agreement, from the Execution Date to the Closing
Date, Seller will:

 

(1)           pay or cause to be paid its proportionate share of all costs and
expenses incurred in connection with operation of the Assets and Seller will
notify Buyer of ongoing activities and major capital expenditures in excess of
$100,000 per activity (net to Seller’s interest), exclusive of the AFEs,
conducted on the Assets and shall consult with Buyer regarding all such matters
and operations involving such expenditures;

 

(2)           give prompt written notice to Buyer of any written notice of
asserted default or violation received or given by Seller under any Leases, any
Material Agreements, or applicable Laws;

 

(3)           cooperate reasonably with Buyer’s due diligence investigation of
the Assets;

 

(4)           operate (or use commercially reasonable efforts to cause the
operators thereof to operate) and maintain the Assets in the usual, regular and
ordinary manner consistent with past practice, and use its commercially
reasonable efforts to preserve its present business operations relating to the
Assets;

 

(5)           notify Buyer of any election Seller is required to make under any
Applicable Contract, specifying the nature and time period associated with such
election, and make its election in accordance with Buyer’s written instructions
but in no event shall Seller be required to make such election until the due
date for such election; provided, however, that in the event that Buyer delivers
such written instructions to Seller directing that Seller elect to participate
in such operations and the Closing does not occur, Buyer shall have the
obligation to purchase that limited portion of the Assets directly affected by
such operations (i.e., the relevant wellbores of such Wells and, to the extent
attributable thereto, contractual and leasehold rights to produce Hydrocarbons
from such Wells) for a purchase price equal to the cost of such operations that
has been paid by Seller, and in such event Seller shall assign such Wells and
such other limited interests in applicable portions of the Assets to Buyer using
the form attached as Exhibit C (as modified to reflect the interests to be
assigned) and Buyer shall bear all cost and risk of such portion of the Assets
attributable to the period after the Effective Time; and

 

(6)           notify Buyer, in a timely manner, of any Lease expirations or
continuous drilling or operations obligations that would result in any
termination or expiration of any interest in the Assets on or before sixty (60)
days after the Closing Date and, if requested by Buyer, provide reasonable
assistance with respect to efforts to extend any such Leases or request the
operator of the Assets to undertake operations requested by Buyer, at Buyer’s
sole expense, intended to satisfy any continuous drilling or operations
requirement.

 

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(b)           Restriction on Operations.  Subject to Section 8.1(a), unless
Seller obtains the prior written consent of Buyer to act otherwise, which
consent may not be unreasonably withheld, delayed, or conditioned, Seller will
use good faith efforts within the constraints of the applicable operating
agreements and other applicable agreements not to:

 

(1)           except for AFEs as described on Schedule 6.2(a) of the Disclosure
Letter, all of which are deemed to be approved, approve any operations on the
Assets anticipated to cost the owner of the Assets more than $100,000 per
activity net to Seller’s interest (excepting emergency operations required under
presently existing contractual obligations and operations necessary to avoid
material monetary penalty or forfeiture provision of any Applicable Contract or
order of any Governmental Authority, all of which will be deemed to be approved,
provided Seller promptly notifies Buyer of any emergency operation or operation
to avoid monetary penalty or forfeiture excepted herein);

 

(2)           convey or dispose of any of the Assets (other than replacement of
equipment or sale of Hydrocarbons in the regular course of business);

 

(3)           except to the extent described in Schedule 8.1(b) of the
Disclosure Letter, enter into any new Applicable Contracts with obligations in
excess of 30 days that cannot be terminated without penalty or other fee;

 

(4)           let lapse any of Seller’s insurance now in force with respect to
the Assets;

 

(5)           except to the extent described in Schedule 8.1(b) of the
Disclosure Letter, modify or terminate any Material Agreement;

 

(6)           enter, or agree to enter, into any agreement that, if in existence
as of the Execution Date, would be a Material Agreement; or

 

(7)           except with respect to the Huffman Litigation, waive, release,
assign, settle or compromise any claim, action or proceeding relating to the
Assets, other than waivers, releases, assignments, settlements or compromises
that involve only the payment of monetary damages not in excess of $100,000
individually or in the aggregate (excluding amounts to be paid under insurance
policies).

 

(c)           Permits.  Prior to and after Closing, Seller and Buyer shall
provide all notices and otherwise take all actions, and, with respect to Seller,
use its commercially-reasonable efforts to take all actions, required to
transfer or reissue any applicable Permits held by Seller (including
Environmental Permits) on substantially the same terms and conditions, as may be
necessary under applicable Laws in connection with the consummation of the
Transaction to allow Buyer to own and/or use the Assets in the manner currently
conducted in compliance with applicable Laws. Seller and Buyer shall use
commercially reasonable efforts to cooperate with each other to provide
information and to execute documents as reasonably required to provide and
obtain such Permits. In the event that all Permits have not been assigned to or
re-issued in the name of the Buyer as of Closing, for each such Permit not yet
assigned to or re-issued in the name of the Buyer, Seller shall use commercially
reasonable efforts to assist the Buyer in the prompt transfer or re-issuance of
each such Permit to Buyer after Closing, on substantially the same terms and
conditions.

 

(d)           Exclusivity.  From the date hereof until the earlier of the
Closing Date or termination of this Agreement, Seller will not directly or
indirectly, (a) solicit, initiate, entertain or encourage the submission of any
proposal or offer from any Person relating to the direct or indirect

 

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acquisition of the Assets, or any material portion thereof or (b) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing.

 

8.2          Covenants and Agreements of the Parties.

 

(a)           Confidentiality Agreement.  Effective upon Closing, the
Nondisclosure Agreement dated April 4, 2016 (the “Confidentiality Agreement”),
between Seller and Buyer, will be deemed terminated.

 

(b)           Mutual Confidentiality Obligations following the Closing.  For a
period of one year following the date hereof, each Party shall maintain all
provisions of this Agreement in strictest confidence, and shall not cause or
permit disclosure of this Agreement or any provisions contained herein to any
other Person without the express written consent of the other Party, provided
disclosures of any provisions of this Agreement otherwise prohibited may be made
by either Party:

 

(1)           to the extent necessary for such Party to enforce its rights
hereunder against the other Party;

 

(2)           to the extent to which a Party or its Affiliate is required to
disclose all or part of this Agreement by applicable Laws or by other compulsory
process (including deposition, subpoena, interrogatory, or request for
production of documents);

 

(3)           to the extent required by the applicable regulations of a
securities or commodities exchange; provided, however, Buyer acknowledges that
Seller may disclose any or all parts of this Agreement, the Disclosure Letter,
or the Exhibits to this Agreement as required by the rules and regulations of
the Securities and Exchange Commission and the New York Stock Exchange;

 

(4)           its own directors, officers, employees, agents, and other
Representatives;

 

(5)           to an Affiliate and/or its Representatives; and

 

(6)           to the extent the disclosure is of information which has already
been made public through no fault of the disclosing party, its Affiliates or
representatives;

 

Before disclosing any provisions of this Agreement under subsection (1) or
(2) above, the disclosing Party will, to the extent not prohibited by applicable
Laws, promptly provide the other Party with written notice of such requirement
so that the other Party may have an opportunity to attempt to seek, at its sole
expense, an appropriate protective order. The Parties shall both be entitled to
specific performance as remedy for a breach of this Section 8.2(b).

 

(c)           Seller Confidentiality Obligations following the Closing.  From
and after the Closing, Seller shall, and shall direct its representatives and
Affiliates to, keep confidential and not disclose all information relating to
the Assets, including the Records (the “Restricted Information”), and shall not
directly or indirectly use such Restricted Information for any purpose, except
as and to the extent permitted by the terms of this Agreement or the Transaction
Documents.  The obligation shall continue for a period of two years from the
Closing Date and shall not apply to any information that (i) is in the public
domain, (ii) is published or otherwise becomes part of the public domain through
no fault of Seller or any of its Affiliates or (iii) becomes available to Seller
or any of its Affiliates on a non-confidential basis from a source that did not,
to the Knowledge of Seller, acquire such information (directly or indirectly) on
a confidential basis.  Notwithstanding the foregoing, Seller may make
disclosures required

 

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by applicable Laws, Governmental Authority and/or in connection with Disputes
hereunder; provided, however, that Seller, to the extent practicable, shall
provide Buyer with prompt notice thereof so that Buyer, at its sole cost and
expense, may seek a protective order or other appropriate remedy or waive
compliance with the provisions of this Section 8.2(c).  In the event that such
protective order or other remedy is not obtained or Buyer waives compliance with
the provisions of this Section 8.2(c), Seller shall or shall cause the Person
required to disclose such Restricted Information to furnish only that portion of
the information that such Person is legally required.

 

(d)           Records.  Seller shall make the Records available to Buyer as soon
as is reasonably practical, but in any event on or before 30 days after the
Closing Date.  Seller may retain copies of the Records, and Seller shall have
the right to review and copy the Records during standard business hours upon
reasonable notice for so long as Buyer retains the Records.  Buyer shall
maintain the Records in compliance with all applicable Laws governing document
retention.  Buyer will not destroy or otherwise dispose of Records after Closing
unless Buyer first gives Seller reasonable notice and an opportunity to copy the
Records to be destroyed.  The Buyer acknowledges that the Seller will provide
the Records as they are currently maintained by Seller and Seller shall not have
any obligation to manipulate electronic data or otherwise supply to Buyer the
Records in a format not currently maintained by Seller.  In addition, upon
reasonable notice provided to Buyer, Seller shall be entitled to access the
Records, as necessary, for the purposes of complying with its obligations with
respect to the Excluded Assets and Retained Liabilities.

 

(e)           Further Assurances.  From time to time after Closing, Seller and
Buyer shall each execute, acknowledge and deliver to the other such further
instruments and take such other action as may be reasonably requested in order
to accomplish more effectively the purposes of the Transaction.

 

8.3          Government Approvals Respecting Assets.

 

(a)           Governmental Approvals.  Prior to Closing, Seller shall prepare
and provide Buyer with copies of the assignment documents and other Governmental
Authority transfer forms required to effectuate the transfer of the Assets. 
Buyer, within 15 days after Closing, shall file for approval with the applicable
Government Authorities all such assignment documents and other Governmental
Authority transfer documents prepared and provided by Buyer.  Buyer shall
(1) promptly after Closing take all other actions reasonably required of it by
Governmental Authorities to obtain all requisite regulatory approvals with
respect to the Transaction, and (2) use commercially reasonable efforts to
obtain the approval by such Governmental Authorities, as applicable, of Seller’s
assignment documents requiring Governmental Authority approval in order for
Buyer to be recognized by the Governmental Authorities as the owner of the
Assets.

 

(b)           Title Pending Governmental Approvals.  Until Buyer has obtained
all of the approvals of Governmental Authorities under Section 8.3(a), the
following shall occur with respect to the affected portion of the Assets:

 

(1)           Seller shall continue to hold record title to the affected Leases
and other affected portion of the Assets as nominee and for the benefit of
Buyer;

 

(2)           Buyer shall be responsible for all Assumed Liabilities with
respect to the affected Leases and other affected portion of the Assets as if
Buyer were the record owner of such Leases and other portion of the Assets as of
the Effective Time; and

 

(3)           Seller shall act as Buyer’s nominee but shall be authorized to act
only upon and in accordance with Buyer’s instructions, and Seller shall have no
authority, responsibility or

 

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discretion to perform any tasks or functions with respect to the affected Leases
and other affected portions of the Assets other than those which are purely
administrative or ministerial in nature, unless otherwise specifically requested
and authorized by Buyer in writing.

 

8.4          Casualty Loss.

 

(a)           Prior to Closing, if a portion of the Assets is damaged or
destroyed by fire, vandalism, theft, or other casualty or is taken in
condemnation or under right of eminent domain (“Casualty Loss”) and the
resulting Losses are less than $500,000, then the Assets affected by such
Casualty Loss shall be included in the Assets conveyed by Seller to Buyer
pursuant to this Agreement at the Closing, notwithstanding such Casualty Loss,
without any reduction to the Purchase Price with respect thereto.  Prior to
Closing, if a portion of the Assets suffers a Casualty Loss and the resulting
losses from such Casualty Loss exceeds $500,000, Seller shall promptly advise
Buyer thereof in writing and Buyer shall purchase the affected Asset at Closing
for the Allocated Values of the Assets reduced by Seller’s good faith estimated
cost to repair or replace, as applicable, such Assets (with equipment,
properties, or assets of similar utility or value) up to, in the case of Leases
or Wells, the Allocated Values thereof, net of any payments as may be received
from Seller’s insurers and paid to Buyer at or prior to Closing attributable to
any applicable insurance claims made on such Casualty Loss (the net reduction
being the “Estimated Net Casualty Loss”).  Seller, at its sole option, may elect
to cure such Casualty Loss to the extent pertaining to personal property by
notifying Buyer in writing prior to Closing and replacing (at Seller’s expense
and without charge therefor under Section 2.3) any personal property that is the
subject of such Casualty Loss with personal property of equal grade and utility;
if Seller timely cures such Casualty Loss, Buyer shall purchase the affected
Asset at Closing for the Allocated Value thereof.  In each case, Seller shall
retain all rights to insurance, condemnation awards, and other claims against
third Persons with respect to the casualty or taking except to the extent the
Parties otherwise agree in writing; provided, however, (i) if the cost of such
insurance is included as a Property Expense for which Buyer is liable or Buyer
otherwise assumes such cost under this Agreement, then Seller shall take such
action as may be reasonably necessary to cause Buyer to receive the benefit of
such insurance and (ii) Seller shall take such action as may be reasonably
necessary to cause Buyer to receive the benefit of all claims against third
Persons (including the assignment of such claims) with respect to such Casualty
Loss (excluding claims for repair costs to the extent such costs have resulted
in a decrease to the Purchase Price pursuant to this Section 8.4 or Seller has
borne such costs under this Section 8.4).  To the extent the Purchase Price is
reduced at Closing by the Estimated Net Casualty Loss of any Casualty Loss, then
promptly after Buyer determines the actual cost to repair or replace, as
applicable, the Assets affected by such Casualty Loss (such cost, not to exceed,
in the case of a Lease or Well, the Allocated Value of such Lease or Well, the
“Actual Net Casualty Loss”), Buyer shall give written notice thereof to Seller. 
If the Actual Net Casualty Loss is more than the Estimated Net Casualty Loss,
Seller shall pay Buyer the amount of such difference.  If the Actual Net
Casualty Loss is less than the Estimated Net Casualty Loss, Buyer shall pay to
Seller the amount of such difference.  Any such payment by a Party shall be made
by wire transfer of immediately available funds within five days following
Buyer’s notice of the Actual Net Casualty Loss.

 

(b)           If any action for condemnation or taking under right of eminent
domain is pending or threatened with respect to any Asset or portion thereof
after the date of this Agreement, but no taking of such Asset or portion thereof
occurs prior to the Closing Date, Buyer shall nevertheless be required to close
and Seller, at Closing, shall assign, transfer and set over to Buyer or
subrogate Buyer to all of Seller’s right, title and interest (if any) in such
condemnation or eminent domain action, including any future awards therein,
insofar as they are attributable to the Assets threatened to be taken, except
that Seller shall reserve and retain (and Buyer shall assign to Seller) all
rights, titles, interests and claims against third parties for the recovery of
Seller’s costs and expenses incurred prior to the Closing in defending or
asserting rights in such action with respect to the Assets.

 

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ARTICLE IX
TAX MATTERS

 

9.1          Apportionment of Production Taxes.  Seller shall be responsible for
all Production Taxes attributable to the Assets for any period or portion
thereof ending before the Effective Time.  Buyer shall be responsible for all
Production Taxes attributable to the Assets for any period or portion thereof
beginning on or after the Effective Time.  All Production Taxes shall be deemed
attributable to the period during which the relevant production occurred and not
attributable to the year in which such Production Taxes are assessed.  The
apportionment of Production Taxes between the Parties shall take place as an
adjustment to the Purchase Price pursuant to Section 2.3 in the Preliminary
Settlement Statement for Production Taxes for which information is available at
the Closing and pursuant to Section 13.1 in the Final Settlement Statement for
all remaining Production Taxes, using estimates of such Production Taxes if
actual numbers are not available.

 

9.2          Income Taxes.  Each Party shall be responsible for its own Income
Taxes.  Buyer and Seller recognize and acknowledge that, notwithstanding
anything to the contrary in this Agreement, Seller shall remain the owner of the
Assets for Income Tax purposes through the Closing Date, and accordingly
(i) Seller shall include in its Income Tax Returns all items of income, gain,
loss and deduction with respect to the Assets through the Closing Date and
(ii) Seller shall be responsible for and shall bear and pay all Income Taxes
with respect to the Assets or the income therefrom through the Closing Date
(including all gain recognized on the sale of the Assets pursuant to this
Agreement).

 

9.3          Transfer Taxes.  All Transfer Taxes (including any related
interest, penalties or legal costs) that may be imposed on any transfer of the
Assets under this Agreement shall be borne and paid 50% by Seller and 50% by
Buyer.  The Parties shall cooperate with one another in the preparation of any
Tax Returns and other related documentation with respect to such Transfer Taxes
(including any exemption certificates and forms as each may request to establish
an exemption from (or otherwise reduce) or make a report with respect to
Transfer Taxes).  Any expenses, fees or costs incurred by Seller or Buyer in
connection with preparing or filing such Tax Returns shall be borne and paid 50%
by Seller and 50% by Buyer.

 

9.4          Allocations for Federal Income Tax Purposes.  Buyer and Seller
acknowledge that, under Section 1060 of the Code, Buyer and Seller shall report
the allocation of the Purchase Price and any other amounts treated as
consideration for federal Income Tax purposes (collectively, the “Allocation
Amount”) among the Assets by attaching Internal Revenue Service Form 8594 to
their respective federal Income Tax returns for the taxable period which
includes the Closing Date.  Buyer and Seller agree that the Allocation Amount
shall be allocated among the Assets for Tax purposes in accordance with an
allocation schedule substantially consistent with Schedule 9.4 of the Disclosure
Letter (the “Tax Allocation Schedule”).  The Tax Allocation Schedule shall be
revised in a manner consistent with Section 1060 of the Code to take into
account any adjustments to the Purchase Price under this Agreement, including
any indemnification payments under Article XIV.  Buyer and Seller shall each
prepare their respective Forms 8594 with respect to the Transaction in a manner
consistent with the Tax Allocation Schedule.  The Parties shall not take any
Income Tax position (whether in audits, on Tax Returns, or otherwise) that is
inconsistent with such allocation unless required to do so by applicable Law.

 

ARTICLE X
CONDITIONS PRECEDENT TO CLOSING

 

10.1        Seller’s Conditions Precedent.  The obligations of Seller at the
Closing are subject to the satisfaction or waiver at or prior to the Closing of
the following conditions precedent:

 

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(a)           (1) All representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects (other than the
Buyer Fundamental Representations and those representations and warranties
qualified with respect to materiality) as of the Closing in accordance with
their terms as if such representations and warranties were remade at and as of
the Closing (except to the extent such representations and warranties are made
as of a specified date, in which case such representations and warranties shall
be true and correct as of such specified date), (2) the Buyer Fundamental
Representations and those representations and warranties of Buyer contained in
this Agreement qualified with respect to materiality shall be true and correct
in all respects as of the Closing in accordance with their terms as if such
representations and warranties were remade at and as of the Closing (except to
the extent such representations and warranties are made as of a specified date,
in which case such representations and warranties shall be true and correct as
of such specified date), and (3) Buyer shall have performed and satisfied all
covenants and agreements required by this Agreement to be performed and
satisfied by Buyer at or prior to the Closing in all material respects;

 

(b)           other than any order affecting only a portion of the Assets that
could be treated as a Casualty Loss, no order has been entered by any
Governmental Authority having jurisdiction over the Parties or the subject
matter of this Agreement that restrains or prohibits the Transaction and that
remains in effect at the time of Closing; and

 

(c)           Buyer shall be ready, willing, and able to deliver those
deliverables specified in Section 12.3 as being delivered by Buyer at the
Closing.

 

10.2        Buyer’s Conditions Precedent.  The obligations of Buyer at the
Closing are subject to the satisfaction or waiver at or prior to the Closing of
the following conditions precedent:

 

(a)           (1) All representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects (other than the
Seller Fundamental Representations and those representations and warranties
qualified with respect to materiality) as of the Closing in accordance with
their terms as if such representations and warranties were remade at and as of
the Closing (except to the extent such representations and warranties are made
as of a specified date, in which case such representations and warranties shall
be true and correct as of such specified date), (2) the Seller Fundamental
Representations and those representations and warranties of Seller contained in
this Agreement qualified with respect to materiality shall be true and correct
in all respects as of the Closing in accordance with their terms as if such
representations and warranties were remade at and as of the Closing (except to
the extent such representations and warranties are made as of a specified date,
in which case such representations and warranties shall be true and correct as
of such specified date), and (3) Seller shall have performed and satisfied all
covenants and agreements required by this Agreement to be performed and
satisfied by Seller at or prior to the Closing in all material respects;

 

(b)           other than any order affecting only a portion of the Assets that
could be treated as a Casualty Loss, no order has been entered by any
Governmental Authority having jurisdiction over the Parties or the subject
matter of this Agreement that restrains or prohibits the Transaction and that
remains in effect at the time of Closing;

 

(c)           Seller shall be ready, willing, and able to deliver those
deliverables specified in Section 12.3 as being delivered by Seller at the
Closing; and

 

(d)           the Seller Parent Guarantee shall be in full force and effect.

 

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ARTICLE XI
RIGHT OF TERMINATION AND ABANDONMENT

 

11.1        Termination.  This Agreement may be terminated:

 

(a)           by mutual consent of Seller and Buyer;

 

(b)           by Seller, if, through no fault of Seller, the Closing does not
occur on or before June 30, 2016 (the “Outside Date”);

 

(c)           by Buyer if, through no fault of Buyer, the Closing does not occur
on or before the Outside Date;

 

(d)           by Seller, if Seller’s conditions set forth in Section 10.1 are
not satisfied or are not capable of satisfaction at such time through no fault
of Seller and are not waived by Seller, as of the Scheduled Closing Date (or
such later date as determined under Section 12.1);

 

(e)           by Buyer, if Buyer’s conditions set forth in Section 10.2 are not
satisfied or are not capable of satisfaction at such time through no fault of
Buyer and are not waived by Buyer, as of the Scheduled Closing Date (or such
later date as determined under Section 12.1);

 

(f)            subject to the right of either Party to refer Title Disputed
Matters and Environmental Disputed Matters to arbitration, by either Party in
the event that the aggregate of (1) the Title Defect Adjustments (and subject to
the resolution of Title Disputed Matters under Section 4.4) in accordance with
Section 4.2, (2) Environmental Defect Adjustments, and (3) the Allocated Value
of any Title Defect Property or Environmental Defect Property retained by Seller
under Sections 4.2(d)(3) and 5.1(c)(ii) exceeds twenty percent (20%) of the
Purchase Price; or

 

(g)           automatically under Section 2.1(a) if Seller does not receive the
Deposit by 5:00 p.m., Central Time, on the date that is one Business Day after
the Execution Date;

 

provided, however, that without limiting the Parties’ rights under
Section 11.1(a) and 11.1(f) and the automatic termination under Section 11.1(g),
no Party will be entitled to terminate this Agreement under Sections 11.1(b),
11.1(c), 11.1(d), or 11.1(e), as applicable, if such Party is in breach of this
Agreement and such breach results (or would result if Closing were then
scheduled to occur) in a failure of a condition set forth in Sections 10.1 or
10.2, as applicable.

 

11.2        Remedies.

 

(a)           Buyer’s Breach.  If Seller is entitled to terminate this Agreement
under Section 11.1(d), Seller shall be entitled, as its sole and exclusive
remedy for Buyer’s breach of this Agreement and as full and final settlement of
all liabilities associated with Buyer’s breach of this Agreement, to elect to
terminate this Agreement under Section 11.1(d) and retain the Deposit, plus
earnings thereon, as liquidated damages and not as a penalty.  The Parties agree
that the retention of the Deposit as set forth in this Section 11.2(a) will be
deemed liquidated damages and that the amount of liquidated damages is
reasonable considering all of the circumstances existing as of the Execution
Date and constitute the Parties’ good faith estimate of the actual damages
reasonably expected to result from Buyer’s failure to tender performance on the
Scheduled Closing Date.

 

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(b)           Seller’s Breach.

 

(1)           Except as otherwise set forth in Section 11.2(b)(2), if Buyer is
entitled to terminate this Agreement under Section 11.1(e) or Section 11.1(f),
Buyer shall be entitled to elect to (i) terminate this Agreement in which case
(A) Seller shall return to Buyer the Deposit, and (B) Buyer may bring a claim
for actual damages against Seller as a result of Seller’s breach; provided,
however, such actual damages will not include, and Buyer waives any right to
recover under this Section 11.2(b)(1), the Buyer Hedge Losses as damages, or
(ii) not terminate this Agreement and pursue the remedy of specific performance
of this Agreement.

 

(2)           If Seller Willfully Breaches by failing to tender performance at
the Scheduled Closing Date (or such later date as determined under Section 12.1)
and Buyer is entitled to terminate this Agreement under Section 11.1(e), Buyer
shall be entitled to elect to (i) terminate this Agreement in which case
(A) Seller shall return to Buyer the Deposit, and (B) Buyer may bring a claim
for actual damages against Seller as a result of Seller’s Willful Breach, which
shall include any Buyer Hedge Losses, or (ii) not terminate this Agreement and
pursue the remedy of specific performance of this Agreement.

 

(3)           The remedies set forth in Sections 11.2(b)(1) and 11.2(b)(2) are
Buyer’s sole and exclusive remedies for Seller’s breach of this Agreement and
will be Buyer’s full and final settlement of all liabilities associated with
Seller’s breach of this Agreement.  The Parties agree that in the event Buyer
elects to terminate this Agreement and receive such amounts as provided herein,
such remedies will be deemed liquidated damages and that the amount of
liquidated damages is reasonable considering all of the circumstances existing
as of the Execution Date and constitute the Parties’ good faith estimate of the
actual damages reasonably expected to result from Seller’s failure to tender
performance on the Scheduled Closing Date.

 

(c)           Termination Under Section 11.1.  If this Agreement is terminated
under Section 11.1, this Agreement shall become void and of no further force or
effect, except for the provisions of Sections 3.2 (Access to the Assets; On-site
Inspection), 11.2 (Remedies), and Article XV (Miscellaneous), all of which shall
continue in full force and effect in accordance with their terms.  If Buyer or
Seller terminates this Agreement under Section 11.1 other than in the
circumstances described in Sections 11.2(a) or (b), neither Buyer nor Seller
shall have any liability to the other Party for termination of this Agreement,
but in such event, Seller shall immediately return the Deposit to Buyer.

 

ARTICLE XII
CLOSING

 

12.1        Date of Closing.  The “Closing” of the Transaction shall, unless
otherwise agreed to in writing by Buyer and Seller, be held on May 6, 2016
(“Scheduled Closing Date”) or, if all conditions in Article X to be satisfied
prior to the Closing have not yet been satisfied or waived, as soon as possible
thereafter as such conditions have been satisfied or waived, subject to the
rights of the Parties under Article XI.  The date the Closing actually occurs is
called the “Closing Date.”

 

12.2        Time and Place of Closing.  The Closing shall be held at the offices
of Seller in Denver, Colorado beginning at 9:00 a.m., Mountain Time, or at such
other time and place as Buyer and Seller may agree in writing.

 

12.3        Closing Obligations.  At the Closing, each Party shall deliver to
the other Party the following closing deliveries, as applicable, each being
deemed to have occurred simultaneously with the others:

 

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(a)           Seller shall execute, acknowledge and deliver to Buyer, an
Assignment, Bill of Sale and Conveyance in the form attached as Exhibit C, and
any applicable forms of any Governmental Authorities, conveying the Assets to
Buyer as of the Effective Time.

 

(b)           Seller and Buyer shall have previously executed and delivered the
Preliminary Settlement Statement under Section 2.3(b).

 

(c)           Buyer shall deliver the Closing Amount to the account at a bank
designated by Seller by wire transfer in immediately available funds, or by such
other method as agreed to by the Parties.

 

(d)           Seller shall execute and deliver to Buyer a Certificate of
Non-Foreign Status in the form attached as Exhibit D.

 

(e)           Buyer shall deliver to Seller the Officer’s Certificate dated as
of the Closing Date, in form and substance similar to Exhibit E.

 

(f)            Seller shall deliver to Buyer the Officer’s Certificate dated as
of the Closing Date, in form and substance similar to Exhibit F.

 

(g)           The Parties shall execute and deliver letters-in-lieu of division
or transfer orders covering the Assets that are prepared and provided by Seller
and reasonably satisfactory to Buyer, to reflect the Transaction.

 

(h)           Seller shall deliver to Buyer evidence that all lien releases from
Seller’s current lenders have been obtained relating to all mortgages, deeds of
trust, fixture filings and security agreements affecting the Assets, and that
releases of any related financing statements have been obtained (where
applicable, in accordance with the Uniform Commercial Code).

 

(i)            Seller and Buyer shall take such other actions and deliver such
other documents as are contemplated by this Agreement.

 

ARTICLE XIII
FINAL SETTLEMENT STATEMENT

 

13.1        Post-Closing Adjustments.  No later than 90 days after Closing,
Seller will prepare and deliver to Buyer, in accordance with customary industry
accounting practices, the final settlement statement (the “Final Settlement
Statement”) setting forth (i) each adjustment or payment that was not finally
determined as of the Closing, (ii) showing the calculation of such adjustment
and, (iii) the final purchase price (the “Final Purchase Price”).  No later than
30 days after receipt of Seller’s proposed Final Settlement Statement, Buyer
shall deliver to Seller a written report (with supporting documentation)
containing any changes that Buyer proposes to make to the Final Settlement
Statement.  Buyer’s failure to deliver to Seller a written report detailing
proposed changes to the Final Settlement Statement by that date shall be deemed
an acceptance by Buyer of the Final Settlement Statement as submitted by
Seller.  The Parties shall agree with respect to the changes proposed by Buyer,
if any, no later than 30 days after receipt of Seller’s proposed Final
Settlement Statement.  The date upon which such agreement is reached or upon
which the Final Purchase Price is established shall be herein called the “Final
Settlement Date.”  If the Final Purchase Price is more than the Closing Amount,
Buyer shall pay Seller the amount of such difference.  If the Final Purchase
Price is less than the Closing Amount, Seller shall pay to Buyer the amount of
such difference.  Any payment by a Party shall be made by wire transfer of
immediately available funds within five Business Days of the Final Settlement
Date.  Any adjustments requiring

 

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additional payment by either Buyer or Seller shall also be made in the same
manner.  The adjustments set out in the Final Settlement Statement shall be a
final settlement of the Parties with respect to all matters addressed in such
Final Settlement Statement.

 

13.2        Dispute Resolution.  If the Parties are unable to resolve a Dispute
as to the Final Purchase Price by 30 days after Buyer’s receipt of Seller’s
proposed Final Settlement Statement, the Parties shall submit the Dispute to the
Accounting Referee pursuant to this Section 13.2.  Within five Business Days
after the Accounting Referee has agreed to serve as such or has been appointed
by the Parties or the Houston, Texas, office of the American Arbitration
Association, as applicable, each Party shall summarize its position with regard
to the Dispute in a written document of ten pages or less and submit such
summaries to the Accounting Referee, together with the Final Settlement
Statement, Buyer’s written report containing its objections thereto and any
other documentation such Party may desire to submit.  Seller shall also furnish
the Accounting Referee with a copy of this Agreement.  The Parties shall
instruct the Accounting Referee that, within 15 Business Days after receiving
the Parties’ respective submissions, the Accounting Referee shall render a
decision with respect to each Dispute based on the terms of this Agreement and
the materials described above.  The Accounting Referee, however, may not render
a decision with respect to any Dispute in excess of the highest value for such
Dispute as claimed by the Parties or lower than the lowest value for such
Dispute as claimed by the Parties.  The Accounting Referee shall calculate only
the Disputes addressed by Buyer in its written report regarding the Final
Settlement Statement that are not otherwise resolved and agreed upon in writing
by Seller and Buyer after the initiation of the procedures contained in this
Section 13.2.  Each decision with respect to any Dispute that is rendered by the
Accounting Referee in accordance with this Section 13.2 shall be final,
conclusive and binding on Seller and Buyer and shall be enforceable against each
of the Parties in any court of competent jurisdiction.  The costs of such
Accounting Referee shall be borne one-half by Buyer and one-half by Seller.  The
Final Purchase Price set forth in the Final Settlement Statement, incorporating
the adjustment amounts determined by the Accounting Referee in accordance with
this Section 13.2, in addition to the adjustment amounts agreed to in writing by
the Parties, shall be final and binding on the Parties.  The Accounting Referee
shall be authorized to resolve only the specific Dispute aspects of the Final
Settlement Statement submitted by the Parties as provided above and may not
award damages, interest or penalties to any Party with respect to any other
matter.

 

ARTICLE XIV
ASSUMPTION AND RETENTION OF LIABILITIES; INDEMNIFICATION

 

14.1        Buyer’s Assumption of Liabilities and Losses.  Without limiting the
indemnity provisions set forth in Sections 14.3 and 14.4, at the Closing, Buyer
shall assume and pay, perform, fulfill and discharge all Losses with respect to
the Assets, regardless of whether such Losses arose prior to, on or after the
Effective Time, including (a) the Assumed Environmental Liabilities, (b) the
ownership, development, exploration, operation or maintenance of the Assets or
the production, transportation, processing and marketing of Hydrocarbons from
the Assets, including the payment of Property Expenses, which payment excludes,
however, any adjustments to the Purchase Price under Section 2.3 and
Article XIII, (c) the payment of Production Taxes, (d) the payment of Burdens on
the Assets, (e) the Plugging and Abandonment Obligations, (f) the make-up and
balancing obligations for gas from the Wells, and (g) any Retained Liabilities
described in Sections 14.2(i) or 14.2(j) for which Buyer has not delivered to
Seller a Claim Notice on or before the date that is three years after the
Closing Date ((a) through (g) are, collectively, the “Assumed Liabilities”);
provided however, that the Assumed Liabilities shall not include, and Buyer does
not assume, any Losses of Seller to the extent that they are Retained
Liabilities.  By assuming any liabilities or obligations in this Section 14.1,
Seller and Buyer do not intend to, and are not deemed to have admitted to any
third Person, any liability.

 

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14.2        Seller’s Retention of Liabilities and Losses.  Without limiting the
indemnity provisions set forth in Sections 14.3 and 14.4, Seller retains and
hereby agrees to pay, perform, fulfill and discharge all Losses relating to the
following (collectively, the “Retained Liabilities”):

 

(a)           the Excluded Assets;

 

(b)           the other matters described on Schedule 14.2 of the Disclosure
Letter;

 

(c)           the litigation listed on Schedule 6.1(g) of the Disclosure Letter;

 

(d)           all obligations and amounts owed to any employees of Seller
relating to the employment of such individuals by Seller or the termination of
employment of such individuals by Seller;

 

(e)           all obligations and liabilities owed to any employees of Seller
arising under any employee benefit or welfare plan maintained by Seller;

 

(f)            claims asserted by any employee, contractor or subcontractor of
Seller for bodily injury or death;

 

(g)           all claims asserted for bodily injury to or death or damage to
property to the extent resulting or arising from, or attributable to, the use,
ownership or operation of the Assets and attributable to periods prior to the
Closing Date (other than damage to property attributable or resulting from an
Assumed Environmental Liability, all of which are Assumed Liabilities);

 

(h)           any indenture, mortgage, loan, credit or sale-leaseback, guaranty
of any obligation, bond, letter of credit or similar financial contract, in each
case, for borrowed money of Seller or of any its Affiliates;

 

(i)            the payment of proceeds or other amounts owed to working
interest, royalty, overriding royalty and other interest owners relating to the
Assets, including with respect to any amounts held in suspense, and attributable
to the period of time prior to the Effective Time, including any mispayments or
allegations of mispayments of such proceeds or amounts attributable to the
period of time prior to the Effective Time and any joint interest audits
relating to the period of time prior to the Effective Time, for which Buyer, in
the case of this Section 14.2(i), has delivered a Claim Notice to Seller on or
before the date that is three years after the Closing Date;

 

(j)            any fines or penalties imposed by any Governmental Authority
relating to the Assets, or the ownership or operation thereof, with respect to
the period prior to the Closing, excluding any such fines or penalties imposed
by any Governmental Authority relating to or arising from any Assumed
Environmental Liability, for which Buyer, in the case of this Section 14.2(j),
has delivered a Claim Notice to Seller on or before the date that is three years
after the Closing Date;

 

(k)           the disposal or transportation of any Hazardous Substance to any
location not on the Assets or lands pooled or unitized therewith to the extent
resulting or arising from, or attributable to, the use, ownership or operation
of the Assets and attributable to periods prior to the Closing Date; and

 

(l)            any Seller Taxes.

 

By retaining any liabilities or obligations in this Section 14.2, Seller and
Buyer do not intend to, and are not deemed to have admitted to any third Person,
any liability.

 

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14.3        Indemnification.

 

(a)           Seller’s Indemnification of Buyer.  Following the Closing, Seller
shall defend, indemnify, save and hold harmless Buyer Indemnified Parties, from
and against all Losses to the extent caused by, arising out of, or resulting
from:

 

(1)           the Retained Liabilities;

 

(2)           any matter for which Seller has agreed to indemnify Buyer under
this Agreement;

 

(3)           any breach of representations or warranties made by Seller in this
Agreement or in any certificate or Transaction Document delivered by or on
behalf of Seller pursuant to this Agreement; and

 

(4)           any breach of any covenants or agreements by Seller under this
Agreement or any Transaction Documents.

 

(b)           Buyer’s Indemnification of Seller.  Following the Closing, Buyer
shall defend, indemnify, save and hold harmless Seller Indemnified Parties from
and against all Losses to the extent caused by, arising out of or resulting
from:

 

(1)           the Assumed Liabilities;

 

(2)           any matter for which Buyer has agreed to indemnify Seller under
this Agreement;

 

(3)           any breach of representations or warranties made by Buyer in this
Agreement or in any certificate or Transaction Document delivered by or on
behalf of Buyer pursuant to this Agreement; and

 

(4)           any breach of any covenants or agreements of Buyer under this
Agreement or any Transaction Documents.

 

As to each of the clauses described in this Section 14.3(b), EVEN IF SUCH LOSSES
ARE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR
CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF SELLER OR ANY SELLER
INDEMNIFIED PARTIES.

 

(c)           Scrape.  For purposes of determining the amount of Losses (but not
for the purpose of determining whether or not a representation or warranty has
been breached) under this Article XIV, any inaccuracy in or breach of any
representation or warranty shall be determined without regard to any materiality
contained in or otherwise applicable to such representation or warranty.

 

(d)           Losses.  The term “Losses” or, in the singular, “Loss,” means any
and all, direct or indirect, demands, claims, notices of violations, notices of
probable violations, filings, investigations, administrative proceedings,
actions, causes of action, suits, other legal proceedings, judgments,
assessments, damages, deficiencies, taxes, penalties, fines, obligations,
responsibilities, liabilities, payments, charges, losses, costs, and expenses
(including costs and expense of operating the Assets) of any kind or character
(whether known or unknown, fixed or unfixed, conditional or unconditional, based
on negligence, strict liability, or otherwise, choate or inchoate, liquidated or
unliquidated, secured or

 

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unsecured, accrued, absolute, contingent, or other legal theory), including
penalties and interest on any amount payable as a result of any of the
foregoing, any legal or other costs and expenses incurred in connection with
investigating or defending any of the foregoing, and all amounts paid in
settlement of any of the foregoing.  Without limiting the generality of the
foregoing, the term “Losses” specifically includes any and all Losses arising
from, attributable to, or incurred in connection with any (i) breach of
contract, (ii) loss or damage to property, injury to, or death of Persons, and
other tortuous injury, and (iii) violations of applicable Laws, including
Environmental Laws, and any other legal right or duty actionable at Law or
equity.  Losses for purposes of this Article XIV shall be subject to the
limitations set forth in Section 11.2(d).

 

14.4        Limitation on Indemnity Obligations.  With respect to all claims for
indemnification hereunder, the following limitations shall apply:

 

(a)           De Minimis Threshold.  Other than with respect to the Seller
Fundamental Representations or in the case of fraud, if the Loss that is the
subject of a Claim for indemnification by Buyer Indemnified Parties under
Section 14.3(a)(3) does not exceed a $50,000 threshold (“De Minimis Threshold”)
per event or circumstance, then the Buyer Indemnified Parties shall not be
entitled to indemnification from Seller for such Loss until such time as such
Loss exceeds the De Minimis Threshold. Other than with respect to the Buyer
Fundamental Representations or in the case of fraud, if the Loss that is the
subject of a Claim for indemnification by Seller Indemnified Parties under
Section 14.3(b)(3) does not exceed the De Minimis Threshold per event or
circumstance, then the Seller Indemnified Parties shall not be entitled to
indemnification from Buyer for such Loss until such time as such Loss exceeds
the De Minimis Threshold.

 

(b)           Indemnity Threshold.  Other than with respect to the Seller
Fundamental Representations or in the case of fraud, Seller shall not have any
liability for indemnification under Section 14.3(a)(3) until and unless the
aggregate amount of all liability for Losses that exceed the De Minimis
Threshold exceeds an amount equal to 3.0% of the unadjusted Purchase Price
(“Indemnity Threshold”), after which point Buyer Indemnified Parties shall be
entitled to claim Losses from the first dollar. Other than with respect to the
Buyer Fundamental Representations or in the case of fraud, Buyer shall not have
any liability for indemnification under Section 14.3(b)(3) until and unless the
aggregate amount of all liability for Losses that exceed the De Minimis
Threshold exceeds the Indemnity Threshold, after which point Seller Indemnified
Parties shall be entitled to claim Losses from the first dollar.

 

(c)           Cap.  Other than in the case of fraud, in no event shall Seller’s
aggregate liability to indemnify Buyer Indemnified Parties for aggregate Losses
under Section 14.3(a)(3) exceed (1) other than with respect to the Seller
Fundamental Representations, 15% of the unadjusted Purchase Price, or (2) with
respect to the Seller Fundamental Representations, 100% of the unadjusted
Purchase Price. Other than in the case of fraud, in no event shall Buyer’s
aggregate liability to indemnify Seller Indemnified Parties for aggregate Losses
under Section 14.3(b)(3) exceed (1) other than with respect to the Buyer
Fundamental Representations, 15% of the unadjusted Purchase Price, or (2) with
respect to the Buyer Fundamental Representations, 100% of the unadjusted
Purchase Price.

 

14.5        Effect of Knowledge of Breach of Representation or Warranty.  The
representations, warranties and covenants of the Indemnifying Party, and the
Indemnified Party’s right to indemnification with respect thereto, shall not be
affected or deemed waived by reason of any investigation made by or on behalf of
the Indemnified Party (including by any of its Representatives) or by reason of
the fact that the Indemnified Party or any of its Representatives knew or should
have known that any such representation or warranty is, was or might be
inaccurate or by reason of the Indemnified Party’s waiver of any condition set
forth in Section 10.1 or Section 10.2, as the case may be.

 

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14.6        Exclusive Remedy.  Except (i) in the case of fraud, (ii) as
expressly provided in this Agreement with respect to Title Defects and
Environmental Defects, all of which must be asserted before the Defect Notice
Date or such defects are waived, and (iii) for Buyer’s rights with respect to
the special warranty of title contained in the Assignment, Buyer Indemnified
Parties’ sole and exclusive recourse against Seller, and Seller Indemnified
Parties’ sole and exclusive recourse against Buyer, after the Closing for any
Loss or claim of Losses arising out of or relating to this Agreement and the
Assets shall be the indemnification provisions of this Article XIV.

 

14.7        Procedure.  The indemnifications contained in Section 14.3 shall be
implemented as follows:

 

(a)           Coverage.  Such indemnity shall extend to all Losses suffered or
incurred by the indemnified Party under this Article XIV.

 

(b)           Claim Notice.  The Party seeking indemnification under the terms
of this Agreement (“Indemnified Party”) shall submit a written “Claim Notice” to
the other Party (“Indemnifying Party”) which, to be effective, must state: 
(i) the amount of each payment claimed by an Indemnified Party to be owing, to
the extent such information is available, (ii) the basis for such claim, with
supporting documentation, if available, and (iii) a list identifying to the
extent reasonably possible each separate item of Loss for which payment is so
claimed.  The amount claimed shall be paid by the Indemnifying Party to the
extent required herein within 30 days after receipt of the Claim Notice, or
after the amount of such payment has been finally established, whichever last
occurs.

 

(c)           Information.  Within 60 days after the Indemnified Party receives
notice of a claim or legal action that may result in a Loss for which
indemnification may be sought under this Agreement (a “Claim”), the Indemnified
Party shall deliver a Claim Notice to the Indemnifying Party.  The failure of
the Indemnified Party to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of liability under this Agreement except to the extent that
the defense of such Claim is materially prejudiced by the failure to give such
notice.

 

(1)           Third-Party Claims.  In the event of a Claim made or brought by
any Person who is not a party to this Agreement or an Affiliate of a party to
this Agreement or a representative of the foregoing (a “Third-Party Claim”), at
the election of the Indemnifying Party made within 20 days after receipt of the
Claim Notice, the Indemnified Party shall allow the Indemnifying Party to assume
control of such Third-Party Claim (to the extent only that such Third-Party
Claim, legal action or other matter relates to a Loss for which the Indemnifying
Party is liable) so long as (i) the Indemnifying Party gives written notice to
the Indemnified Party within 20 days that it will indemnify the Indemnified
Party with respect to such Third-Party Claim, (ii) the Indemnifying Party
conducts such defense diligently with counsel reasonably satisfactory to the
Indemnified Party, (iii) the Indemnified Party has not been advised by counsel
that an actual conflict of interest exists between the Indemnifying Party and
the Indemnified Party in connection with the defense of such Third-Party Claim,
(iv) the Third-Party Claim, individually or in the aggregate with any other
claim, does not involve potential Losses that exceed the amount of the
indemnification available under this Agreement, and (v) the Third-Party Claim
involves only money damages and does not seek an injunction or other equitable
relief against the Indemnified Party and is not a part of a criminal
proceeding.  If the Indemnifying Party or its counsel so requests, the
Indemnified Party shall furnish, to the extent practicable, the Indemnifying
Party with copies of all pleadings and other information with respect to such
Third-Party Claim.  The Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third-Party Claim. 
The Indemnified Party is authorized, prior to and during such 20 day period, to
file any motion, answer or other pleading that it shall deem necessary and
appropriate to protect its interests or those of the Indemnifying Party and that
is not prejudicial to the Indemnifying Party, all costs of which

 

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shall be included as Losses in respect of such claim for indemnification. 
Notwithstanding the foregoing, if counsel for the Indemnifying Party reasonably
determines that there is a conflict between the positions of the Indemnifying
Party and the Indemnified Party in conducting the defense of such Third-Party
Claim or that there are legal defenses available to such Indemnified Party
different from or in addition to those available to the Indemnifying Party, then
one counsel for the Indemnified Party shall be entitled, if the Indemnified
Party so elects, to participate in or conduct the defense to the extent
reasonably determined by such counsel to protect the interests of the
Indemnified Party, at the expense of the Indemnifying Party; provided that in no
event shall the Indemnifying Party be required to pay the fees and expenses of
more than one counsel selected by the Indemnified Party.  No settlement of a
Third-Party Claim may be made by the Indemnifying Party without the written
consent of the Indemnified Party, such consent not to be unreasonably withheld. 
If the Indemnifying Party elects to assume control, (i) any expense incurred by
the Indemnified Party thereafter for investigation or defense of the matter
shall be borne by the Indemnified Party, and (ii) the Indemnified Party shall
give all reasonable information and assistance, other than pecuniary, that the
Indemnifying Party shall deem necessary to the proper defense of such
Third-Party Claim.  In the absence of such an election to assume control by the
Indemnifying Party, the Indemnified Party will use its best efforts to defend,
at the Indemnifying Party’s expense, any claim, legal action or other matter to
which such other Party’s indemnification under this Article XIV applies until
the Indemnifying Party assumes such defense, and, if the Indemnifying Party
fails to assume such defense within the time period provided above, settle the
same in the Indemnified Party’s reasonable discretion at the Indemnifying
Party’s expense.  If the Indemnifying Party notifies the Indemnified Party that
it desires to defend the Third-Party Claim under this Section 14.7(c), then the
Indemnifying Party shall work diligently to defend the Third-Party Claim and
shall not enter into any compromise or settlement or discharge with respect to
the Third-Party Claim without the prior written consent of the Indemnified Party
unless such judgment, compromise settlement or discharge (i) provides for the
payment by the Indemnifying Party of money as sole relief for the claimant,
(ii) involves no finding or admission of any violation of Law or the rights of
any Indemnified Party, (iii) does not encumber any of the assets of any
Indemnified Party or agree to any restriction or condition that would apply to
or materially adversely affect any Indemnified Party or the conduct of any
Indemnified Party’s business, and (iv) includes, as a condition of any entry of
judgment, settlement, compromise, discharge or other resolution, a complete and
unconditional release of each Indemnified Party from any and all liabilities in
respect of such Third-Party Claim.

 

(2)           Direct Claims.  In the event of a Direct Claim, the Indemnifying
Party shall have 60 days after its receipt of the Claim Notice with respect to
such Direct Claim to respond in writing to such Direct Claim. If the
Indemnifying Party does not so respond within such 60-day period, the
Indemnifying Party shall be deemed to have rejected such claim, in which case
the Indemnified Party shall be free to pursue such remedies as may be available
to the Indemnified Party on the terms and subject to the provisions of this
Agreement.

 

14.8        Express Negligence.  THE DEFENSE, INDEMNIFICATION, HOLD HARMLESS,
RELEASE, ASSUMED LIABILITIES, WAIVER, AND LIMITATION OF LIABILITY PROVISIONS
PROVIDED FOR IN THIS AGREEMENT WILL BE APPLICABLE WHETHER OR NOT THE
LIABILITIES, LOSSES, COSTS, EXPENSES, AND DAMAGES IN QUESTION AROSE OR RESULTED
SOLELY FROM THE GROSS, SOLE, ACTIVE, PASSIVE, CONCURRENT, OR COMPARATIVE
NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY
INDEMNIFIED PARTY.  THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND
IS CONSPICUOUS.

 

14.9        No Insurance; Subrogation.  The indemnifications provided in this
Agreement shall not be construed as a form of insurance.  Buyer and Seller
hereby waive for themselves, their successors or

 

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assigns, including any insurers, any rights to subrogation for Losses for which
each of them is respectively liable or against which each respectively
indemnifies the other, and, if required by applicable policies, Buyer and Seller
shall obtain waiver of such subrogation from their respective insurers.

 

14.10      Reservation as to Third-Parties.  Nothing herein is intended to limit
or otherwise waive any recourse Buyer or Seller may have against any third
Person for any obligations or liabilities that may be incurred with respect to
the Assets.

 

14.11      Reduction in Losses.  Each Indemnified Party shall use commercially
reasonable efforts to mitigate any Losses, including by maintaining insurance
coverage with respect to the Assets and making claims relating to the Assets
thereunder.  The amount of any Losses for which an Indemnified Party is entitled
to indemnity under this Article XIV shall be reduced by (a) the amount of
insurance proceeds realized by the Indemnified Party or its Affiliates with
respect to such Losses, and (b) the present value (as agreed by the Parties) of
any Tax Benefit actually recognized by the Indemnified Party.  For this purpose,
the Indemnified Party shall be deemed to recognize a Tax benefit (“Tax Benefit”)
with respect to a taxable year if, and to the extent that, the Indemnified
Party’s cumulative liability for Taxes through the end of such taxable year,
calculated by excluding any Tax items attributable to the Losses in such taxable
year or carried forward to such taxable year, exceeds the Indemnified Party’s
actual cumulative liability for Taxes through the end of such taxable year,
calculated by taking into account any Tax items attributable to the Losses in
such taxable year or carried forward to such taxable year (to the extent
permitted by relevant Tax Law and treating such Tax items as the last items
claimed for any taxable year).

 

14.12      Limitation on Damages.  NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR
SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES SUFFERED BY SUCH
PARTY RESULTING FROM OR ARISING OUT OF THIS AGREEMENT OR THE BREACH THEREOF OR
UNDER ANY OTHER THEORY OF LIABILITY, WHETHER TORT, NEGLIGENCE, STRICT LIABILITY,
BREACH OF CONTRACT, WARRANTY, INDEMNITY OR OTHERWISE, INCLUDING, EXCEPT AS
SPECIFICALLY SET FORTH SECTION 11.2(b)(2), ANY BUYER HEDGE LOSSES, AND IN
FURTHERANCE OF THE FOREGOING, EACH PARTY RELEASES THE OTHER PARTY AND WAIVES ANY
RIGHT OF RECOVERY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY
DAMAGES SUFFERED BY SUCH PARTY REGARDLESS OF WHETHER ANY SUCH DAMAGES ARE CAUSED
BY THE OTHER PARTY’S NEGLIGENCE (AND REGARDLESS OF WHETHER SUCH NEGLIGENCE IS
SOLE, JOINT, CONCURRENT, ACTIVE, PASSIVE OR GROSS NEGLIGENCE), FAULT, OR
LIABILITY WITHOUT FAULT; PROVIDED, HOWEVER, THE FOREGOING SHALL NOT BE CONSTRUED
AS LIMITING AN OBLIGATION OF A PARTY TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE
OTHER PARTY AGAINST (1) CLAIMS ASSERTED BY THIRD PARTIES, INCLUDING, BUT NOT
LIMITED TO, THIRD-PARTY CLAIMS FOR SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR
EXEMPLARY DAMAGES OR (2) ANY LOSSES THAT ARE THE REASONABLY FORESEEABLE RESULT
OF ANY BREACH, DEFAULT, ACT OR OMISSION OF SUCH FIRST PARTY; PROVIDED FURTHER,
HOWEVER, EXCEPT AS SPECIFICALLY SET FORTH SECTION 11.2(B)(2), BUYER MAY NOT
RECOVER ANY BUYER HEDGE LOSSES.

 

ARTICLE XV
MISCELLANEOUS

 

15.1        Expenses.  Except as otherwise specifically provided, all fees,
costs and expenses incurred by Buyer or Seller in negotiating this Agreement or
in consummating the Transaction shall be

 

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paid by the Party incurring the same, including engineering, land, title, legal
and accounting fees, consultant and other professional costs and expenses.

 

15.2        Notices.  All notices and communications required or permitted under
this Agreement shall be in writing and addressed as set forth below.  Any
communication or delivery under this Agreement shall be deemed to have been duly
made and the receiving Party charged with notice (a) if personally delivered,
when received, (b) if sent by email transmission, on the date sent if sent
during normal business hours of the recipient, and on the next Business Day if
sent after normal business hours of the recipient, (c) if mailed, five Business
Days after mailing, certified mail, return receipt requested, or (d) if sent by
overnight courier, one day after sending.  All notices shall be addressed as
follows:

 

If to Seller:

 

Forestar Petroleum Corporation.

6300 Bee Cave Road, Building Two

Suite 500

Austin, Texas 78746

Attn:                    Charles D. Jehl

Email: ChuckJehl@forestargroup.com

 

With a copy to (which will not constitute notice):

 

Forestar Petroleum Corporation.

6300 Bee Cave Road, Building Two

Suite 500

Austin, Texas 78746

Attn:                    Matt Stark

David Grimm

Email:            MattStark@forestargroup.com

DavidGrimm@forestargroup.com

 

With a copy to (which will not constitute notice):

 

Davis Graham & Stubbs, LLP

1550 17th Street, Suite 500

Denver, CO 80202

Attn:                    Kristin L. Lentz

Sam Niebrugge

Email:            Kristin.Lentz@dgslaw.com

Sam.Niebrugge@dgslaw.com

 

If to Buyer:

 

590 Madison Avenue, 9th Floor

New York, New York 10022

Attn:                    Joseph Stark

Shawn Singh

Email:            Joseph.Stark@dwpartners.com

Shawn.Singh@dwpartners.com

 

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

 

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

 

15.4        Waiver.  No Party shall be deemed to have waived or discharged any
claim arising out of this Agreement, or any power, right, privilege, remedy, or
condition under this Agreement, unless the waiver or discharge of such claim,
power, right, privilege, remedy, or condition is expressly set forth in a
written instrument duly executed and delivered by or on behalf of the Party
against whom the waiver or discharge is sought to be enforced.  A waiver or
discharge made on one occasion or a partial waiver or discharge of any power,
right, privilege, remedy, or condition shall not preclude any other or further
exercise or enforcement of such power, right, privilege, or remedy or
requirement to satisfy such condition.  No failure or delay on the part of any
Party to exercise or enforce any power, right, privilege, or remedy under this
Agreement or to require the satisfaction of any condition under this Agreement
and no course of dealing between the Parties shall operate as a waiver,
discharge, or estoppel of any such power, right, privilege, remedy, or
condition.

 

15.5        Assignment.  Neither Party may assign this Agreement or any of its
rights or interests under this Agreement, or delegate any of its obligations or
liabilities under this Agreement, without the prior written consent of the other
Party, which consent may be withheld in each such Party’s sole and absolute
discretion and may be conditioned on the receipt of a written assumption of such
obligations from the delegate.  Any purported assignment or delegation in
violation of this Section 15.5 is void.

 

15.6        Announcements.  Prior to Closing, neither Party nor any of such
Party’s Affiliates may issue any press release or other public announcement, or
public statement or public comment relating to this Agreement or the
Transaction, without the consent of the other Party, as the case may be.  At or
after Closing, the content of any press release or public announcement first
announcing the consummation of this transaction shall be subject to the prior
review and reasonable approval of Seller and Buyer. The of this Section 15.6
shall not restrict disclosures by Buyer or Seller which are required by
applicable securities or other laws or regulations or the applicable rules of
any stock exchange having jurisdiction over the disclosing party or its
Affiliates.

 

15.7        Counterparts/Electronic Signatures.  This Agreement may be executed
by Buyer and Seller in any number of counterparts, each of which shall be deemed
an original instrument, but all of which together shall constitute but one and
the same instrument.  The exchange of copies of this Agreement and of signature
pages by facsimile or by electronic image scan transmission in .pdf format shall
constitute effective execution and delivery of this Agreement as to the Parties
and may be used in lieu of the original Agreement for all purposes.  Signatures
of the Parties transmitted by facsimile or electronic image scan transmission in
.pdf format shall be deemed to be their original signatures for all purposes. 
Any Party that delivers an executed counterpart signature page by facsimile or
by electronic scan transmission in .pdf format shall promptly thereafter deliver
a manually executed counterpart signature page to each of the other Party;
provided, however, that the failure to do so shall not affect the validity,
enforceability, or binding effect of this Agreement.

 

15.8        Jurisdiction, Venue, Jury Waiver. Jurisdiction and venue with
respect to any Disputes arising hereunder shall be proper only in the federal
courts of the United States located in Harris County, Texas, or the state courts
located in Harris County, Texas, and each Party irrevocably agrees that all
Disputes permitted to be commenced in court shall be heard and determined
exclusively in such courts.  The Parties hereby irrevocably waive, to the
fullest extent permitted by law, any objection which they

 

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may now or hereafter have to the venue of any Dispute arising under or relating
to this Agreement or any of the transactions contemplated hereby brought in such
court or any defense of inconvenient forum for the maintenance of such dispute. 
A judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.  Each Party irrevocably
submits to the jurisdiction of such courts solely in respect of any proceeding
arising out of or related to this Agreement or any of the transactions
contemplated hereby.  EACH PARTY VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY DISPUTE.

 

15.9        Governing Law.  This Agreement and the Transaction and any
arbitration or Dispute resolution conducted pursuant hereto shall be construed
in accordance with, and governed by, the Laws of the State of New York without
reference to the conflict of Laws principles thereof; provided, however, that
any matter related to real property shall be governed by the Laws of the state
of North Dakota.

 

15.10      Entire Agreement.  This Agreement, including the Exhibits and the
Disclosure Letter, and the Confidentiality Agreement constitutes the entire
understanding among the Parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and prior agreements and
understandings relating to such subject matter.

 

15.11      Binding Effect.  This Agreement shall be binding upon, and shall
inure to the benefit of the Parties hereto and their respective successors and
permitted assigns.

 

15.12      Survival.

 

(a)           Seller’s Representations and Warranties.  Subject to
Section 15.12(e), the representations and warranties of Seller in Article VI
(other than the Seller Fundamental Representations) and the corresponding
indemnity obligations of Seller under Section 14.3(a)(3) with respect to all
such representations and warranties, shall expire and terminate at 5:00 P.M.,
Mountain time, on the date that is 12 months after the Closing Date.  The Seller
Fundamental Representations and the corresponding indemnity obligations of
Seller under Section 14.3(a)(3) with respect to all such representations and
warranties, shall not expire and shall survive Closing and remain in full force
and effect indefinitely.

 

(b)           Buyer’s Representations and Warranties.  Subject to
Section 15.12(e), the representations and warranties of Seller in Article VII
(other than the Buyer Fundamental Representations) and the corresponding
indemnity obligations of Buyer under Section 14.3(b)(3) with respect to all such
representations and warranties, shall expire and terminate at 5:00 P.M.,
Mountain time, on the date that is 12 months after the Closing Date.  The Buyer
Fundamental Representations and the corresponding indemnity obligations of Buyer
under Section 14.3(b)(3) with respect to all such representations and
warranties, shall not expire and shall survive Closing and remain in full force
and effect indefinitely.

 

(c)           Covenants.

 

(1)           Each of the covenants and performance obligations of Seller
(1) that are to be complied with or performed by Seller prior to Closing and the
corresponding indemnities set forth in Section 14.3(a)(4) with respect to such
covenants and obligations shall expire and terminate at 5:00 P.M., Mountain
time, on the Closing Date, and (2) that are to be complied with or performed by
Seller on or after Closing and the other documents executed at Closing that are
to be complied with or performed by Seller on or after Closing and the
corresponding indemnities set forth in Section 14.3(a)(4) with respect to such
covenants and obligations shall not expire and shall survive Closing and remain
in full force and effect indefinitely.

 

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(2)           Each of the covenants and performance obligations of Buyer
(1) that are to be complied with or performed by Buyer prior to Closing and the
corresponding indemnities set forth in Section 14.3(b)(4) with respect to such
covenants and obligations shall expire and terminate at 5:00 P.M., Mountain
time, on the Closing Date, and (2) that are to be complied with or performed by
Buyer on or after Closing and the other documents executed at Closing that are
to be complied with or performed by Buyer on or after Closing and the
corresponding indemnities set forth in Section 14.3(b)(4) with respect to such
covenants and obligations shall not expire and shall survive Closing and remain
in full force and effect indefinitely.

 

(d)           Retained and Assumed Liabilities.  Notwithstanding anything in
this Agreement to the contrary, (1) Seller’s indemnity set forth in
Section 14.3(a)(1) shall not expire and shall survive Closing and remain in full
force and effect indefinitely and (y) Buyer’s indemnity set forth in
Section 14.3(b)(1) shall not expire and shall survive Closing and remain in full
force and effect indefinitely.

 

(e)           Survival After Claim.  Notwithstanding Section 15.12(a) through
(c), if a Claim Notice has been properly delivered under Section 14.7 before the
date any representation, warranty, covenant, or performance obligation would
otherwise expire under such Sections alleging a right to indemnification or
defense for Losses arising out, relating to, or attributable to the breach of
such representation, warranty, covenant, or performance obligation, such
representation, warranty, covenant, or performance obligation shall continue to
survive until the claims asserted in such Claim Notice that are based on the
breach of such representation, warranty, covenant, or performance obligation
have been fully and finally resolved under Section 15.8 or by agreement of the
Parties.

 

15.13      No Third-Party Beneficiaries.  This Agreement is intended to benefit
only the Parties hereto and their respective permitted successors and assigns.

 

15.14      Time of the Essence.  Time is of the essence in this Agreement.

 

15.15      No Partnership; No Fiduciary Duty.  This Agreement shall not create
and it is not the purpose or intention of the Parties to create any partnership,
mining partnership, joint venture, general partnership, or other partnership
relationship and none shall be inferred, and nothing in this Agreement shall be
construed to establish a fiduciary relationship between the Parties for any
purpose.

 

15.16      Other Contract Interpretation.

 

(a)           Headings.  The headings of the Articles and Sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.

 

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

 

(c)           Agreement Not to Be Construed Against Drafter.  The Parties have
participated jointly in negotiating and drafting this Agreement.  In the event
that an ambiguity or a question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the Parties, and no

 

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presumption or burden of proof will arise favoring or disfavoring any Party by
virtue of the authorship of any provision of this Agreement.

 

(d)           Miscellaneous Interpretation.  When a reference is made in this
Agreement to Articles, Sections, or Exhibits, such reference will be to an
Article, Section, or Exhibit to this Agreement unless otherwise indicated.  When
a reference is made in this Agreement to a Schedule, such reference will be to a
Schedule to the Disclosure Letter.  Whenever the words “include,” “includes” or
“including” are used in this Agreement, they will be deemed to be followed by
the words “without limitation.”  Unless the context otherwise requires, (i) “or”
is disjunctive but not necessarily exclusive, (ii) words in the singular include
the plural and vice versa, (iii) the words “herein,” “hereof,” “hereby,”
“hereunder” and words of similar nature refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited, and (iv) the use
in this Agreement of a pronoun in reference to a Party hereto includes the
masculine, feminine or neuter, as the context may require.  The Schedules and
Exhibits attached to this Agreement are deemed to be part of this Agreement and
included in any reference to this Agreement.  If the date of performance falls
on a day that is not a Business Day, then the actual date of performance will be
the next succeeding day that is a Business Day.

 

[Signature page follows.]

 

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The Parties have executed this Agreement as of the Execution Date to be
effective as of the Effective Time.

 

 

SELLER

 

 

 

FORESTAR PETROLEUM CORPORATION.

 

 

 

 

 

By:

/s/ Charles D. Jehl

 

Name:

Charles D. Jehl

 

Title:

Chief Financial Officer & Treasurer

 

 

 

 

 

 

 

BUYER

 

 

 

 

DW SLATE, LLC

 

 

 

 

 

 

 

By:

/s/ Shawn R. Singh

 

Name:

Shawn R. Singh

 

Title:

Authorized Signatory

 

SIGNATURE PAGE TO
PURCHASE AND SALE AGREEMENT

 

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Annex I

 

Definitions

 

“AAA” means the Arbitration Association of America.

 

“AAA Rules” means the effective Commercial Arbitration Rules and Mediation
Procedures published by the AAA.

 

“Accounting Referee” means the Denver, Colorado, office of Hein & Associates
LLP, or such other nationally recognized United States based accounting firm as
is mutually agreed upon by the Parties; provided that if the Denver, Colorado,
office of Hein & Associates LLP is unable or unwilling to serve as the
Accounting Referee within 10 days after receipt of a written request from the
Parties to serve, then, absent agreement by the Parties as to a replacement for
such Accounting Referee within 10 Business Days after notification that the
Denver, Colorado, office of Hein & Associates LLP is unable or unwilling to
serve, the Accounting Referee shall be a nationally recognized accounting firm
not materially associated with Seller or Buyer as selected by the Denver,
Colorado, office of the American Arbitration Association.

 

“Actual Net Casualty Loss” is defined in Section 8.4(a).

 

“AFEs” is defined in Section 6.2(a).

 

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

 

“Aggregate Defect Deductible” is defined in Section 4.2(f).

 

“Agreement” is defined in the preamble.

 

“Allocated Value” is defined in Section 2.2.

 

“Allocation Amount” is defined in Section 9.4.

 

“Applicable Contracts” is defined in Section 1.3(e).

 

“Assets” is defined in Section 1.3.

 

“Assumed Environmental Liabilities” is defined in Section 5.5.

 

“Assumed Liabilities” is defined in Section 14.1.

 

“Burdens” means any royalties (including landowner’s, overriding, and
nonparticipating), net profits interests, production payments, or other similar
burdens measured by or payable out of production of Hydrocarbons.

 

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

 

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“Buyer” is defined in the preamble.

 

“Buyer Fundamental Representations” means the representations and warranties of
Buyer set forth in Sections 7.1, 7.2, 7.3, 7.4, 7.5, and 7.8.

 

“Buyer Hedge Losses” means any losses that Buyer or any of its Affiliates incur
following termination of this Agreement as a result of it unwinding or
terminating any short oil price hedge positions it has entered into in
contemplation of acquiring the Assets pursuant to the Transaction; provided,
however, such short oil price hedge position shall not exceed 2,500 NYMEX crude
oil contracts (assumes 1,000 barrels of oil per contract).

 

“Buyer Indemnified Parties” means Buyer, its Affiliates, its and their
Representatives, and each such Person’s successors and assigns.

 

“Casualty Loss” is defined in Section 8.4(a).

 

“Claim” is defined in Section 14.7(c).

 

“Claim Notice” is defined in Section 14.7(b).

 

“Closing” is defined in Section 12.1.

 

“Closing Amount” is defined in Section 2.3(b).

 

“Closing Date” is defined in Section 12.1.

 

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

 

“Confidentiality Agreement” is defined in Section 8.2(a).

 

“Consent” means, other than any preferential purchase right, any consents to
assignment or other similar restrictions on assignment, in each case, that would
be applicable in connection with the transfer of the Assets to Buyer or the
consummation of the Transaction by Seller.

 

“Contract” means any written or oral contract, agreement, lease, mortgage,
franchise, license agreement, purchase order, binding bid, commitment, debt
instrument or any other legally binding arrangement, including farmin and
farmout agreements; participation, exploration and joint development agreements,
crude oil, condensate and natural gas purchase and sale, gathering,
transportation and marketing agreements, acreage contribution agreements,
operating agreements, balancing agreements, unitization agreements, processing
agreements, Hydrocarbon balancing agreements, Hydrocarbon storage agreements,
facilities or equipment leases, platform use and platform sharing agreements,
production handling agreements, and other similar contracts.

 

“COPAS” means the Council of Petroleum Accountant Societies of North America.

 

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

 

“Defect Notice Date” is defined in Section 4.1(a).

 

“Defensible Title” is defined in Section 4.1(c).

 

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“De Minimis Threshold” is defined in Section 14.4(a).

 

“Deposit” is defined in Section 2.1(a).

 

“Diligence Representatives” means the Buyer’s employees, agents,
representatives, and consultants.

 

“Direct Claim” means a Claim that does not result from a Third-Party Claim.

 

“Disclosure Letter” is defined in Article VI.

 

“Dispute” means any dispute, controversy or claim (of any and every kind or
type, whether based on contract, tort, statute, regulation or otherwise) arising
out of, relating to or connected with this Agreement or the Transaction,
including any dispute, controversy or claim concerning the existence, validity,
interpretation, performance, breach, or termination of this Agreement, the
relationship of the Parties arising out of this Agreement, or the Transaction.

 

“Effective Time” is defined in Section 1.2.

 

“Enhanced Activities” is defined in Section 3.2(a).

 

“Environmental Arbitrator” is defined in Section 5.2(d).

 

“Environmental Assessment” is defined in Section 3.2(a).

 

“Environmental Consultant” is defined in Section 5.1(a).

 

“Environmental Defect” is defined in Section 5.5.

 

“Environmental Defect Adjustment” is defined in Section 5.1(c)(i).

 

“Environmental Defect Notice” is defined in Section 5.5.

 

“Environmental Defect Property” is defined in Section 5.1(b).

 

“Environmental Disputed Matters” is defined in Section 5.2(c).

 

“Environmental Law” is defined in Section 5.5.

 

“Environmental Permit” means any Permit required by or issued pursuant to any
Environmental Law.

 

“Equipment” is defined in Section 1.3(c).

 

“Estimated Net Casualty Loss” is defined in Section 8.4(a).

 

“Excluded Assets” is defined in Section 1.4.

 

“Execution Date” is defined in the preamble.

 

“Final Purchase Price” is defined in Section 13.1.

 

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“Final Settlement Date” is defined in Section 13.1.

 

“Final Settlement Statement” is defined in Section 13.1.

 

“GAAP” mean generally accepted accounting principles in the United States,
consistently applied.

 

“Governmental Authority” means (a) any federal, state, local, municipal, tribal
or other government, (b) any governmental, regulatory or administrative agency,
commission, body or other authority exercising or entitled to exercise any
administrative, executive, judicial, legislative, regulatory or taxing authority
or other taxing power, and (c) any court or governmental tribunal.

 

“Hazardous Substances” is defined in Section 5.5.

 

“Hedge Contract” means any Contract to which Seller is a party with respect to
any swap, forward, future, put, call, floor, cap, collar option or derivative
transaction or option or similar agreement, whether exchange traded,
“over-the-counter” or otherwise, involving or settled by reference to one or
more rates, currencies, commodities (including Hydrocarbons), equity or debt
instruments or securities, or economic, financial or pricing indices or measures
of economic, financial or pricing risk or value or any similar transaction or
any combination of these transactions or any derivative instrument as defined in
Accounting Standards Codification Section 815.

 

“Huffman Litigation” means the lawsuit described on Schedule 6.1(g) of the
Disclosure Letter.

 

“Hydrocarbons” is defined in Section 1.3(a).

 

“Imbalances” means over-production or under-production or over-delivery or
under-delivery with respect to Hydrocarbons produced from the Assets, regardless
of whether the same arise at the wellhead, pipeline, gathering system,
transportation system, processing plant, or any other location, including any
imbalances under gas balancing or similar agreements, production handling
agreements, processing agreements, and/or gathering or transportation
agreements.

 

“Income Taxes” means all Taxes based upon, measured by, or calculated with
respect to (a) gross or net income or gross or net receipts or profits
(including franchise Tax and any capital gains, alternative minimum Taxes, net
worth and any Taxes on items of Tax preference, but not including sales, use,
goods and services, real or personal property transfer or other similar Taxes),
(b) multiple bases (including corporate franchise, doing business or occupation
Taxes) if one or more of the bases upon which such Tax may be based upon,
measured by, or calculated with respect to, is described in clause (a) above, or
(c) withholding Taxes measured with reference to or as a substitute for any Tax
described in clauses (a) or (b) above, and (d) and any penalties, additions to
Tax, and interest levied or assessed with respect to a Tax described in (a),
(b), or (c).

 

“Indemnified Party” is defined in Section 14.7(b).

 

“Indemnifying Party” is defined in Section 14.7(b).

 

“Indemnity Threshold” is defined in Section 14.4(b).

 

“Individual Title Threshold” is defined in Section 4.2(f).

 

“Interest Addition” is defined in Section 4.3(a).

 

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“Interest Addition Amount” is defined in Section 4.3(c).

 

“Interest Addition Notice” is defined in Section 4.3(b).

 

“Knowledge” means (a) with respect to Seller, the actual knowledge of a person
having supervising management authority over the matters to which such knowledge
pertains, after due investigation; provided, however, Seller does not and will
not have any duty (express or implied) to contact any third-Person operator of
any of the Assets; and (b) with respect to Buyer, the actual knowledge of a
person having supervising management authority over the matters to which such
knowledge pertains, after due investigation.

 

“Lands” is defined in Section 1.3(a).

 

“Law” means any applicable statute, law (including common law), rule,
regulation, requirement, ordinance, order, code, ruling, writ, injunction,
decree, or other official act of or by any Governmental Authority.

 

“Leases” is defined in Section 1.3(a).

 

“Losses” and “Loss” are defined in Section 14.3(d).

 

“Lowest Cost Response” is defined in Section 5.5.

 

“Material Agreements” is defined in Section 6.2(b).

 

“NORM” is defined in Section 5.5.

 

“NRI” is defined in Section 4.1(c)(1).

 

“Net Acres” means, as computed separately with respect to each Lease,
(i) Seller’s Working Interest in the Lease multiplied by (ii) the number of
gross acres covered by the Lease multiplied by (iii) the undivided interest in
the oil and gas mineral fee estate in the land covered by the Lease.

 

“Outside Date” is defined in Section 11.1(b).

 

“Parties” and “Party” are defined in the preamble.

 

“Permit” means any credit, permit, license, approval, waiver, or similar
qualification or authorization issued or given by any Governmental Authority.

 

“Permitted Encumbrances” is defined in Section 4.1(d).

 

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

 

“Plugging and Abandonment Obligations” means any and all responsibility and
liability for the following, arising out of or relating to the Assets, whether
before, on or after the Effective Time: (a) the necessary and proper plugging,
replugging and abandonment of the Wells; (b) the necessary and proper removal,
abandonment, and disposal of all structures, pipelines, equipment, operating
inventory, abandoned property, trash, refuse, and junk located on or comprising
part of the Assets; (c) the necessary and proper capping and burying of all
associated flow lines located on or comprising part of the Assets in connection
with any plugging, replugging or abandonment of the Wells; (d) to the extent not
covered by

 

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clause (b) above, the necessary and proper removal, abandonment and
decommissioning of any facilities comprising part of the Assets; and (e) the
necessary and proper restoration of the surface and subsurface (including any
required reclamation) to the condition required by applicable Laws of any
Governmental Authority and contracts.

 

“Preliminary Settlement Statement” is defined in Section 2.3(b).

 

“Production Taxes” means all ad valorem, property, production, severance and
similar Taxes based upon or measured by the ownership or operation of the Assets
or the production of Hydrocarbons therefrom but not including Income Taxes or
Transfer Taxes.

 

“Property Expenses” is defined in Section 2.3(c).

 

“Purchase Price” is defined in Section 2.1.

 

“Records” is defined in Section 1.3(f).

 

“Rejection Notice” is defined in Section 5.2(a).

 

“Release” is defined in Section 5.5.

 

“Remediate” and “Remediation” are defined in Section 5.5.

 

“Remediation Costs” is defined in Section 5.5.

 

“Representatives” means any stockholders, members, managers, officers,
directors, employees, agents, and representatives of a Party.

 

“Required Consent” is defined in Section 4.5(b).

 

“Restricted Asset” is defined in Section 4.5(b).

 

“Restricted Information” is defined in Section 8.2(c).

 

“Retained Liabilities” is defined in Section 14.2.

 

“Scheduled Closing Date” is defined in Section 12.1.

 

“Seller” is defined in the preamble.

 

“Seller Fundamental Representations” means the representations and warranties of
Seller in Sections 6.1(a), 6.1(b), 6.1(c), 6.1(d), 6.1(e), 6.1(f), and 6.2(f).

 

“Seller Indemnified Parties” means Seller, its Affiliates, its and their
Representatives, and each such Person’s successors and assigns.

 

“Seller Parent Guarantee” means the Seller Parent Guarantee dated as of the
Execution Date, in form and substance similar to Exhibit G.

 

“Seller Taxes” means any (a) Income Taxes imposed by any applicable Law on
Seller, Seller’s Affiliates or any consolidated, combined or unitary group of
which Seller is or was a member, including all Income Taxes imposed with respect
to all items of income, gain, loss and deduction with respect to the

 

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Assets through the Closing Date (including all gain recognized on the sale of
the Assets pursuant to this Agreement); (b) any Production Taxes allocable to
Seller under Section 9.1; and (c) any Taxes (other than Income Taxes and
Production Taxes) attributable to the ownership or operation of the Assets prior
to the Effective Time except to the extent such other Taxes resulted in a
downward adjustment in the final determination of the Final Purchase Price.

 

“Supporting Documentation” is defined in Section 4.2(c).

 

“Tax” or “Taxes” means any and all taxes, including any interest, penalties or
other additions to tax that may become payable in respect thereof, imposed by
any Governmental Authority, which taxes shall include all income taxes, profits
taxes, taxes on gains, alternative minimum taxes, estimated taxes, payroll
taxes, employee withholding taxes, unemployment insurance taxes, social security
taxes, welfare taxes, disability taxes, severance taxes, license charges, taxes
on stock, sales taxes, harmonized sales taxes, use taxes, ad valorem taxes,
value added taxes, excise taxes, goods and services taxes, franchise taxes,
gross receipts taxes, occupation taxes, real or personal property taxes,
production taxes, land transfer taxes, stamp taxes, environmental taxes,
transfer taxes, workers’ compensation taxes, windfall taxes, net worth taxes,
and other taxes, levies, and assessments of the same or of a similar nature to
any of the foregoing.

 

“Tax Allocation Schedule” is defined in Section 9.4.

 

“Tax Benefit” is defined in Section 14.11.

 

“Tax Return” means any and all returns, reports, information returns,
declarations, statements, certificates, bills, schedules, claims for refund or
other written information of or with respect to any Tax, including any and all
attachments, amendments, and supplements thereto.

 

“TE-NORM” is defined in Section 5.5.

 

“Third-Party Claim” is defined in Section 14.7(c)(1).

 

“Title Arbitrator” is defined in Section 4.4.

 

“Title Defect” is defined in Section 4.2(a).

 

“Title Defect Adjustment” is defined in Section 4.2(d)(1).

 

“Title Defect Notice” is defined in Section 4.2(c).

 

“Title Defect Property” is defined in Section 4.2(c).

 

“Title Defect Value” is defined in Section 4.2(b).

 

“Title Disputed Matters” is defined in Section 4.2(e).

 

“Transaction” is defined in Section 2.1(a).

 

“Transaction Documents” means the Assignment and the other documents and
agreements to be delivered by the Parties pursuant to Article XII hereof.

 

“Transfer Taxes” means any and all transfer taxes (excluding Income Taxes and
Production Taxes), including sales, use, excise, goods and services, stock,
conveyance, registration, securities

 

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transactions, real estate or land transfer, stamp, documentary, notarial,
filing, recording, license, authorization and similar taxes, levies, and
assessments.

 

“Wells” is defined in Section 1.3(b).

 

“Willful Breach” means a breach that is a consequence of an intentional act
undertaken by the breaching Party with the actual knowledge that the taking of
such act would, or would be reasonably expected to, cause a breach of this
Agreement.

 

“Working Interest” is defined in Section 4.1(c)(1).

 

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