Exhibit 10.1

Execution Version

PURCHASE AND SALE AGREEMENT

between

CENTENNIAL RESOURCE PRODUCTION, LLC,

AS SELLER

AND

WATERBRIDGE TEXAS MIDSTREAM LLC,

AS BUYER

DATED

February 24, 2020

 

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TABLE OF CONTENTS

 

         Page  

ARTICLE I PURCHASE AND SALE

     1  

Section 1.1

  Purchase and Sale      1  

Section 1.2

  The Assets      1  

Section 1.3

  Excluded Assets      2  

Section 1.4

  Effective Time      2  

ARTICLE II PURCHASE PRICE

     2  

Section 2.1

  Base Purchase Price; Deposit; Closing Amount      2  

Section 2.2

  Allocation of the Base Purchase Price      2  

Section 2.3

  Preliminary Settlement Statement      3  

Section 2.4

  Effect at Closing      3  

Section 2.5

  Withholding      3  

ARTICLE III BUYER’S DUE DILIGENCE; DISCLAIMERS

     4  

Section 3.1

  Access      4  

Section 3.2

  Disclaimers      5  

ARTICLE IV TITLE MATTERS

     6  

Section 4.1

  No Title Representations or Warranties      6  

Section 4.2

  Preferential Rights and Consents      6  

ARTICLE V ENVIRONMENTAL MATTERS

     7  

Section 5.1

  Environmental Procedures      7  

Section 5.2

  Contested Environmental Defects      9  

Section 5.3

  Physical Condition of the Assets      10  

ARTICLE VI REPRESENTATIONS OF SELLER

     10  

Section 6.1

  Organization and Qualification      10  

Section 6.2

  Power and Authority      10  

Section 6.3

  No Conflicts      10  

Section 6.4

  Authorization and Enforceability      11  

Section 6.5

  Liability for Brokers’ Fees      11  

Section 6.6

  No Bankruptcy      11  

Section 6.7

  Litigation      11  

Section 6.8

  Preferential Rights to Purchase and Required Consents      11  

Section 6.9

  Material Contracts      11  

Section 6.10

  Compliance with Laws; Permits      12  

Section 6.11

  Environmental Matters      12  

Section 6.12

  Tax Matters      13  

Section 6.13

  Capital Projects      13  

Section 6.14

  Personal Property; SWD Wells; Pipelines      14  

Section 6.15

  Real Property      15  

Section 6.16

  Interests      16  

Section 6.17

  Royalty Payments; Rentals      16  

Section 6.18

  Intellectual Property      16  

Section 6.19

  Insurance      16  

Section 6.20

  Condemnation      16  

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TABLE OF CONTENTS

(continued)

 

         Page  

Section 6.21

  Disclosures and Disclosure Schedule      16  

Section 6.22

  Seller Bonds      17  

ARTICLE VII REPRESENTATIONS OF BUYER

     17  

Section 7.1

  Organization and Standing      17  

Section 7.2

  Power and Authority      17  

Section 7.3

  No Conflicts      17  

Section 7.4

  Authorization and Enforceability      17  

Section 7.5

  Liability for Brokers’ Fees      18  

Section 7.6

  Litigation      18  

Section 7.7

  Securities Laws, Access to Data and Information      18  

Section 7.8

  Financial Resources      18  

Section 7.9

  Buyer Capable to Hold Surface Agreements      18  

Section 7.10

  Buyer’s Evaluation      18  

ARTICLE VIII PRE-CLOSING COVENANTS OF SELLER

     18  

Section 8.1

  Interim Conduct      18  

Section 8.2

  Permits      20  

Section 8.3

  Pressure and Disposal Capacity      20  

Section 8.4

  Curative Matters      21  

ARTICLE IX COVENANTS AND AGREEMENTS OF THE PARTIES

     21  

Section 9.1

  Confidentiality      21  

Section 9.2

  Communication Between the Parties      22  

Section 9.3

  Non-Solicitation      22  

Section 9.4

  Casualty Losses      22  

Section 9.5

  HSR Matters      23  

Section 9.6

  Replacement Bonding      24  

Section 9.7

  No Shop      24  

Section 9.8

  Financing Cooperation      24  

ARTICLE X TAX MATTERS

     24  

Section 10.1

  Allocation of Asset Taxes      24  

Section 10.2

  Apportionment of Asset Taxes      25  

Section 10.3

  True-Up for Certain Asset Taxes      25  

Section 10.4

  Tax Returns      25  

Section 10.5

  Refunds      25  

Section 10.6

  Income Taxes      25  

Section 10.7

  Transfer Taxes      26  

Section 10.8

  Allocations for Federal Income Tax Purposes      26  

Section 10.9

  Post-Closing Tax Matters      26  

ARTICLE XI CONDITIONS PRECEDENT TO CLOSING

     27  

Section 11.1

  Seller’s Conditions Precedent      27  

Section 11.2

  Buyer’s Conditions Precedent      27  

 

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TABLE OF CONTENTS

(continued)

 

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ARTICLE XII RIGHT OF TERMINATION AND ABANDONMENT

     28  

Section 12.1

  Termination      28  

Section 12.2

  Effect of Termination      29  

Section 12.3

  Remedies      29  

ARTICLE XIII CLOSING

     29  

Section 13.1

  Date of Closing      29  

Section 13.2

  Time and Place of Closing      30  

Section 13.3

  Deliveries by Seller      30  

Section 13.4

  Deliveries by Buyer      31  

ARTICLE XIV POST-CLOSING COVENANTS

     31  

Section 14.1

  Post-Closing Adjustments      31  

Section 14.2

  Records      33  

Section 14.3

  Name Changes      33  

Section 14.4

  Change of Operator      33  

Section 14.5

  Further Assurances      33  

ARTICLE XV ASSUMPTION AND RETENTION OF LIABILITIES; INDEMNIFICATION

     33  

Section 15.1

  Buyer’s Assumed Liabilities      33  

Section 15.2

  Seller’s Retained Liabilities      34  

Section 15.3

  Indemnification      35  

Section 15.4

  Limitation on Seller’s Indemnity Obligations      36  

Section 15.5

  Exclusive Remedy      36  

Section 15.6

  Procedure      37  

Section 15.7

  Express Negligence      39  

Section 15.8

  No Insurance      39  

Section 15.9

  Reservation as to Third-Parties      39  

Section 15.10

  Reduction in Losses      39  

Section 15.11

  Tax Treatment of Indemnification Payments      39  

Section 15.12

  Survival      39  

ARTICLE XVI MISCELLANEOUS

     40  

Section 16.1

  Expenses      40  

Section 16.2

  Notices      41  

Section 16.3

  Amendments      42  

Section 16.4

  Waiver      42  

Section 16.5

  Assignment      42  

Section 16.6

  Announcements      42  

Section 16.7

  Counterpart Signatures      43  

Section 16.8

  Governing Law; Jurisdiction      43  

Section 16.9

  Entire Agreement      43  

Section 16.10

  Binding Effect      43  

Section 16.11

  No Third-Party Beneficiaries      44  

Section 16.12

  Time of the Essence      44  

Section 16.13

  No Partnership; No Fiduciary Duty      44  

Section 16.14

  Limitation on Damages      44  

 

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TABLE OF CONTENTS

(continued)

 

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Section 16.15

  Waiver of Consumer Rights Under Texas Deceptive Trade Practices Consumer
Protection Act      44  

Section 16.16

  Specific Performance      44  

Section 16.17

  Other Contract Interpretation      45  

 

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PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (“Agreement”), dated February 24, 2020 (the
“Execution Date”), is by and between Centennial Resource Production, LLC, a
Delaware limited liability company (“Seller”), and WaterBridge Texas Midstream
LLC, a Texas limited liability company (“Buyer”). Buyer and Seller are,
individually, a “Party,” and are, collectively, the “Parties.” Capitalized terms
used in this Agreement have the meaning given such terms in the body of this
Agreement or as set forth in Annex I to this Agreement.

RECITALS

 

  A.

Subject to the terms and conditions herein, Seller intends to sell and assign to
Buyer, and Buyer intends to purchase and acquire from Seller, the Assets (as
defined herein); and

 

  B.

Upon Closing (as defined herein), Buyer and Seller will enter into a Water
Management Services Agreement, dated as of the Closing Date and in the form
attached hereto as Exhibit B (the “Services Agreement”), pursuant to which Buyer
will provide certain produced water gathering and disposal services to Seller
and Seller will dedicate to Buyer the Interests (as defined in the Services
Agreement) and all Saltwater (as defined in the Services Agreement) generated
therefrom and commit to use Buyer for the performance of such services for all
produced water produced from the Interests, except as otherwise permitted under
the Services Agreement.

AGREEMENT

In consideration of the mutual promises, covenants, and agreements contained in
this Agreement, 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

Section 1.1 Purchase and Sale. Upon and subject to the terms and conditions set
forth in this Agreement, at the Closing, Seller shall sell, convey, assign,
transfer, and deliver to Buyer, and Buyer shall purchase from Seller, the
Assets, free and clear of any Encumbrances other than Permitted Encumbrances,
other than the Excluded Assets.

Section 1.2 The Assets. The term “Assets” means, subject to the terms and
conditions of this Agreement, all of Seller’s right, title, and interest in and
to the following, other than the Excluded Assets:

(a) the Wells;

(b) the Pipelines;

(c) the Deeded Surface Interests;

(d) the Surface Agreements;

(e) the Partially-Assigned OGLs;

 

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(f) all Personal Property;

(g) all Material Contracts set forth on Section 6.9(a) of the Disclosure
Schedule and not on Section 6.9(b) of the Disclosure Schedule;

(h) all Permits set forth on Section 6.10(b) of the Disclosure Schedule;

(i) all saleable materials, including saltwater, Hydrocarbons, and chemical
inventories located in or on any portion of the Assets described in
Section 1.2(a) through Section 1.2(f) as of the Effective Time; and

(j) the Records.

Section 1.3 Excluded Assets. The Assets do not include, and Seller does hereby
expressly except and exclude from this Agreement and reserves to itself, the
Excluded Assets.

Section 1.4 Effective Time. The purchase and sale of the Assets is effective as
of 12:01 a.m., Central Time on the Closing Date (the “Effective Time”).

ARTICLE II

PURCHASE PRICE

Section 2.1 Base Purchase Price; Deposit; Closing Amount.

(a) Base Purchase Price. The “Base Purchase Price” for the Assets is One Hundred
Fifty Million U.S. Dollars (U.S. $150,000,000.00).

(b) Deposit. Contemporaneously with the execution of this Agreement, Buyer shall
deposit with JPMorgan Chase & Co. (the “Escrow Agent”) an amount in cash equal
to Ten Million U.S. Dollars (U.S. $10,000,000.00) (the “Deposit”).

(c) Application of Deposit. If the Closing occurs, then at the Closing, the
entirety of the Deposit shall be disbursed by the Escrow Agent, which
disbursement shall be made by wire transfer of immediately available funds to
such account designated by Seller in a joint written instruction delivered by
Buyer and Seller, pursuant to the terms and subject to the conditions set forth
in this Agreement, and the Deposit and all proceeds and interest earned thereon
shall be applied as a credit to the Base Purchase Price at Closing. If this
Agreement is terminated prior to Closing, the Deposit and all proceeds and
interest earned thereon shall be distributed to Buyer or Seller as set forth
under Article XII.

(d) Cash at Closing. At Closing, Buyer shall pay, to an account designated in
writing by Seller, the Base Purchase Price, less the Deposit, less an amount
equal to Seller’s good faith estimate of all Asset Taxes allocable to Seller in
accordance with Section 10.1 that are to be paid or economically borne by Buyer
or any of its Affiliates, less any Exclusion Amount, less any Environmental
Defect Adjustment, less any CLIF Amount which remains outstanding as of the
Closing Date in accordance with Section 9.4 (the “Closing Amount”).

Section 2.2 Allocation of the Base Purchase Price. Solely for the purposes of
this Agreement, Buyer and Seller have allocated the Base Purchase Price among
the Wells, Pipelines and Deeded Surface Interests as set forth on Exhibit N,
with no Well, Pipeline or Deeded Surface Interest allocated a negative value. No
Party makes any representation or warranty concerning the accuracy of the
Allocated Values.

 

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Section 2.3 Preliminary Settlement Statement. Any adjustment to the Base
Purchase Price at Closing shall be set out in a “Preliminary Settlement
Statement” prepared by Seller and submitted to Buyer no later than three
(3) Business Days prior to the Closing Date for Buyer’s comment and review.
Seller shall provide Buyer written wire transfer instructions for payment of the
Closing Amount, and the Parties shall settle on the contents of the Preliminary
Settlement Statement, and execute the same, at the Closing. If the Parties
cannot agree on the Preliminary Settlement Statement prior to such time, the
Preliminary Settlement Statement as presented by Seller will be used to adjust
the Base Purchase Price at Closing. The Preliminary Settlement Statement shall
set forth the Closing Amount and all adjustments to the Base Purchase Price and
associated calculations. After Closing, the Base Purchase Price shall be
adjusted under the Final Settlement Statement finalized under Section 14.1.

Section 2.4 Effect at Closing

(a) All income, proceeds, receivables, receipts, credits earned and other items
attributable to the Assets for the period prior to the Effective Time shall
belong to Seller. All such income, proceeds, receivables, receipts, credits
earned and other items attributable to the Assets for the period on and after
the Effective Time shall be assigned to and belong to Buyer.

(b) All accounts payable and other costs and expenses (including any refunds
with respect thereto) incurred with respect to the Assets for the period prior
to the Effective Time shall be the obligation of and shall be paid by Seller.
All such accounts payable and other costs and expenses (including any refunds
with respect thereto) incurred with respect to the Assets for the period on and
after the Effective Time shall be the obligation of and shall be paid by Buyer.
“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.

(c) If monies are received by any Party which, under the terms of this
Section 2.4 belong to the other Party, the Preliminary Settlement Statement or
Final Settlement Statements, as applicable, will be adjusted accordingly. If an
invoice or other evidence of an obligation is received which, under the terms of
this Section 2.4, is partially the obligation of more than one Party, then the
Parties shall consult each other, and the Preliminary Settlement Statement or
Final Settlement Statements, as applicable, will be adjusted accordingly. In the
event any adjustments are required pursuant to this Section 2.4 that cannot be
incorporated into the Preliminary Settlement Statement or Final Settlement
Statement, each Party shall promptly pay the other Party its portion of any
amounts owed.

(d) Seller shall be responsible for processing and paying any and all invoices
with respect to the Assets relating to service dates occurring in any period
that begins prior to the Effective Time and ends on or after the Effective Time
(a “Straddle Period Invoice”). Seller shall aggregate the Straddle Period
Invoices and invoice Buyer for its proportionate share of such Straddle Period
Invoices (such aggregate invoice to include reasonable supporting documentation)
on or before the 20th day of each month, and Buyer shall pay invoiced amounts
within fifteen (15) days from receipt of such invoice.

Section 2.5 Withholding. Buyer shall be entitled to deduct or withhold any
amounts Buyer is required to deduct or withhold pursuant to any applicable Law
in connection with payments to be made by Buyer pursuant to the terms of this
Agreement. Such amounts deducted or withheld shall be treated for all purposes
of this Agreement as having been paid to Seller or such other Person entitled to
receive such payments pursuant to the terms of this Agreement.

 

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ARTICLE III

BUYER’S DUE DILIGENCE; DISCLAIMERS

Section 3.1 Access.

(a) Access to Records. From and after the Execution Date and until the Defect
Notice Date, and subject to Section 9.1, Seller will make the Records available
to Buyer and its Representatives electronically to permit Buyer and its
Representatives to perform Buyer’s due diligence review. Buyer acknowledges that
access to the Records will be limited to electronic versions currently in
Seller’s possession. Seller shall make the Records available to Buyer on an ftp
or similar site. Subject to the consent and cooperation of third Persons, Seller
will use Reasonable Efforts to assist Buyer in Buyer’s efforts to obtain, at
Buyer’s expense, such additional information from third Persons as Buyer may
reasonably request in writing for the purposes of Buyer’s due diligence review.
Buyer and its Representatives may inspect the Records and such additional
information only to the extent such inspection does not violate any legal
privilege of Seller or its Affiliates or contractual commitment of Seller to a
third Person that is not an Affiliate of any Seller Indemnified Party.

(b) Access to the Assets. To the extent not completed prior to the Execution
Date, from the Execution Date until the Closing Date (or earlier termination of
this Agreement in accordance with the terms hereof) and subject to Section 5.1,
Seller shall (i) grant Buyer, its Representatives, and an Environmental
Consultant reasonable access to the Assets during normal business hours and
(ii) furnish to Buyer or make available at Seller’s offices such additional data
and other information regarding the Assets in Seller’s or its Affiliates’
possession as Buyer may from time to time reasonably request (including allowing
the performance of (A) Phase I environmental site assessments with respect to
each Well and each Held Permit, (B) H-5 pressure testing and step rate injection
testing for each of the Wells (which tests may be performed by Buyer or a
third-party contractor hired by Buyer) and (C) preparing the Assets for
transition to Buyer) (such actions, an “Environmental Assessment”); provided
that Buyer shall not conduct any Phase II environmental testing or other
Invasive Activities without Seller’s prior written consent, which may be
withheld in the sole discretion of Seller. Buyer shall, and shall cause its
Representatives and the Environmental Consultant to, abide by Seller’s safety
rules, regulations and operating policies. Seller shall have the right to have
one or more Representatives accompany Buyer at all times during the
Environmental Assessment, and Buyer shall give Seller at least forty-eight
(48) hours’ notice prior to any visits by it (or any Environmental Consultant)
to the Assets. If Buyer, its Representatives, or the Environmental Consultant
prepares any environmental assessment or report of any Asset (including any
Environmental Assessment), Buyer shall keep, and shall cause such
Representatives and/or the Environmental Consultant to keep, such report or
assessment confidential and furnish copies thereof (including any and all
drafts) to Seller within one week of receipt thereof by Buyer.

(c) Indemnity. BUYER WAIVES AND RELEASES, AND SHALL DEFEND, INDEMNIFY, SAVE, AND
HOLD THE SELLER INDEMNIFIED PARTIES HARMLESS FROM AND AGAINST ANY AND ALL LOSSES
TO THE EXTENT ARISING OUT OF, RESULTING FROM, OR RELATING TO THE ACCESS TO THE
ASSETS AFFORDED TO BUYER, ITS REPRESENTATIVES, AND THE ENVIRONMENTAL CONSULTANT
UNDER THIS AGREEMENT PRIOR TO CLOSING PURSUANT TO SECTION 3.1(b), 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 VIOLATION
OF LAW OF OR BY A MEMBER OF THE SELLER INDEMNIFIED PARTIES, EXCEPT TO THE EXTENT
ARISING OUT OF OR RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A
MEMBER OF THE SELLER INDEMNIFIED PARTIES; PROVIDED THAT NOTHING IN THIS
SECTION 3.1(c) SHALL MAKE BUYER RESPONSIBLE OR LIABLE FOR ANY DAMAGE TO SELLER’S
ASSETS OR INJURY TO SELLER’S PERSONNEL CAUSED BY PRE-EXISTING CONDITION NOT
CAUSED BY BUYER’S, ITS REPRESENTATIVES’ OR ITS ENVIRONMENTAL CONSULTANT’S
ACTIVITIES PURSUANT TO SECTION 3.1(a) OR SECTION 3.1(b). THIS SECTION 3.1(c)
WILL SURVIVE THE TERMINATION OF THIS AGREEMENT.

 

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Section 3.2 Disclaimers.

(a) EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER IN THIS
AGREEMENT AND IN THE OTHER TRANSACTION DOCUMENTS, 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 AND WAIVE
AND RELEASE (AND BUYER ACKNOWLEDGES IT HAS NOT RELIED UPON), ANY EXPRESS
WARRANTY OF MERCHANTABILITY, CONDITION, OR VALUE (PRESENT OR FUTURE) AND ANY
EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, OR OTHER STATEMENT,
EXPRESS, ORAL, STATUTORY, OR IMPLIED THAT MAY HAVE BEEN MADE AVAILABLE OR
COMMUNICATED TO THE BUYER IN CONNECTION WITH THE TRANSACTION OR ANY DISCUSSION
OR PRESENTATION RELATING THERETO; AND, SUBJECT TO THE EXPRESS REPRESENTATIONS
AND WARRANTIES OF SELLER IN THIS AGREEMENT AND THE TRANSACTION DOCUMENTS, BUYER
ACCEPTS THE ASSETS, “AS IS, WHERE IS,” WITH ALL FAULTS. EXCEPT FOR THE EXPRESS
REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT AND THE
OTHER TRANSACTION DOCUMENTS, ALL DESCRIPTIONS OF THE ASSETS HERETOFORE OR
HEREAFTER FURNISHED TO BUYER BY OR ON BEHALF OF 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, AND BUYER
ACKNOWLEDGES IT HAS NOT RELIED UPON ANY REPRESENTATION OR WARRANTY CONCERNING
THE SAME.

(b) EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER IN THIS
AGREEMENT AND IN THE OTHER TRANSACTION DOCUMENTS, SELLER HEREBY EXPRESSLY
DISCLAIMS AND NEGATES (AND BUYER ACKNOWLEDGES IT HAS NOT RELIED UPON) ANY
IMPLIED OR EXPRESS WARRANTY AT COMMON LAW, BY STATUTE, OR OTHERWISE RELATING TO
THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY OF THE RECORDS OR OTHER
INFORMATION FURNISHED WITH RESPECT TO THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS. ANY DATA, INFORMATION, OR OTHER RECORDS FURNISHED BY OR ON BEHALF OF
SELLER OR ANY OF ITS AFFILIATES, EXCEPT AS TO THE DISCLOSURE SCHEDULE OR EXHIBIT
TO THIS AGREEMENT OR TO ANY OF THE OTHER TRANSACTION DOCUMENTS, ARE PROVIDED TO
BUYER AS A CONVENIENCE AND BUYER’S RELIANCE ON OR USE OF THE SAME IS AT BUYER’S
SOLE RISK, AND BUYER ACKNOWLEDGES IT HAS NOT RELIED UPON THE SAME.

(c) EXCEPT FOR BUYER’S RIGHTS AND REMEDIES UNDER ARTICLE V AND ARTICLE XV AND
THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER IN SECTION 6.11, SELLER HAS
NOT AND WILL NOT MAKE (AND BUYER ACKNOWLEDGES IT HAS NOT RELIED UPON) ANY
REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO
ENVIRONMENTAL LAWS, ENVIRONMENTAL LIABILITIES, OR ANY OTHER ENVIRONMENTAL
CONDITION OF THE ASSETS, OR THE PROTECTION OF HUMAN HEALTH OR SAFETY, AND
NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A
REPRESENTATION OR WARRANTY, AND SUBJECT TO BUYER’S RIGHTS AND REMEDIES UNDER
ARTICLE V AND ARTICLE XV AND THE EXPRESS REPRESENTATIONS AND WARRANTIES OF
SELLER IN SECTION 6.11, BUYER SHALL BE DEEMED TO BE TAKING THE ASSETS “AS IS”
AND “WHERE IS” WITH ALL FAULTS FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION,
AND, SUBJECT TO SELLER’S COMPLIANCE WITH SECTION 3.1(B) AS OF CLOSING, WITHOUT
LIMITING BUYER’S RIGHTS AND REMEDIES UNDER ARTICLE V AND ARTICLE XV, BUYER HAS
MADE OR CAUSED TO BE MADE SUCH ENVIRONMENTAL INSPECTIONS OR ENVIRONMENTAL
ASSESSMENTS AS BUYER DEEMS APPROPRIATE.

 

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

ARTICLE IV

TITLE MATTERS

Section 4.1 No Title Representations or Warranties. Except for Section 6.14 and
Section 6.15 and as expressly set forth in any other Transaction Document,
Seller makes no warranty or representation, express, implied, statutory, common
law, or otherwise, with respect to Seller’s title to any of the Assets.

Section 4.2 Preferential Rights and Consents. No later than 5:00 pm Mountain
time on the date that is 15 Business Days after the Execution Date, Seller shall
(a) deliver notices to the applicable Persons holding Consents (other than
Customary Post-Closing Consents) requesting that the holders of such Consents
grant their consent to the Transaction, and (b) deliver notices to the
applicable Persons required in connection with any applicable preferential
rights to purchase any Assets that are triggered by the execution of this
Agreement or the consummation of the Transaction, all such preferential rights
to purchase any Assets or portion thereof being set forth on Section 6.8 of the
Disclosure Schedule, in the case of each of clause (a) and (b), in accordance
with the applicable agreements and contracts creating such Consents or
preferential rights to purchase, as applicable. Seller shall use Reasonable
Efforts to obtain all Consents (other than Customary Post-Closing Consents)
prior to Closing. Prior to Closing, if Buyer discovers other Assets affected by
Consents (other than Customary Post-Closing Consents) or preferential rights to
purchase, Buyer shall notify Seller promptly, and Seller shall use Reasonable
Efforts to obtain such Consents and/or to give the notices required in
connection with such preferential rights to purchase prior to Closing.

(a) Consents. To the extent not obtained as of the Execution Date, Seller shall
use Reasonable Efforts to obtain all Required Consents prior to Closing and
shall pay all reasonable expenses to do so. Notwithstanding anything to the
contrary in this Agreement, if a Required Consent has not been obtained as of
Closing or any other Consent is denied in writing with respect to any Asset (a
“Restricted Asset”), the Closing shall not be delayed due to failure to obtain
any such Consent, and such Restricted Asset shall be excluded from the Assets
conveyed to Buyer at Closing, and upon the Closing, such Restricted Asset shall
be deemed to be held by Seller at all times during the Holding Period for the
benefit of Buyer in accordance with this Section 4.2(a). During the Holding
Period, Seller shall use Reasonable Efforts (and Buyer shall assist Seller as
reasonably requested) to provide Buyer with the economic benefits and risks of
ownership of the Restricted Asset and to obtain the Consent of the third Persons
related to such Restricted Asset and shall pay the reasonable expenses to do so
and shall not agree to a throughput fee or increase in royalty or other expenses
to be borne by Buyer without Buyer’s prior written consent. If the Restricted
Asset is an easement or similar right, then the term Restricted Asset shall
include the portion of any other associated Assets located thereon. With respect
to any such Restricted Asset as to which the necessary approval or consent for
the assignment or transfer to Buyer is obtained or waived by the holder thereof
following Closing, then promptly (but in no event later than 10 Business Days)
after the date such approval, consent, or waiver is obtained (i) for no
additional consideration, the Parties shall execute and deliver all documents
and take all such actions with respect to such Restricted Asset required under
Article XIII, with any necessary conforming changes and (ii) such Restricted
Assets shall be deemed to constitute Assets under this Agreement for all
purposes and shall not constitute Excluded Assets. For purposes of this
Agreement, the term “Holding Period,” for any particular Restricted Asset, shall
mean the period beginning on the Closing Date and ending on the earlier of
(x) the date upon which the applicable Material Contract or Surface Agreement
for which the Consent was not obtained prior to Closing expires or otherwise

 

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terminates and (y) the date upon which such Consent or an alternative
arrangement is obtained on terms that are substantially similar in operational
and economic effects as the assignment of the Restricted Asset to Buyer;
provided that Seller’s obligation to use its Reasonable Efforts to obtain
Consents associated with Restricted Asset shall expire on the first anniversary
of the Closing Date. Further, with respect to any Surface Agreements that the
Parties intend to partially assign to Buyer hereunder, if Seller is unable to
effectuate such assignment at Closing, then from and after Closing the Parties
agree to use Reasonable Efforts to obtain separate agreements for each such
Surface Agreement providing each Party the rights contemplated in this Agreement
at no additional cost or expense to Buyer.

(b) Preferential Purchase Rights.

(1) If any preferential right to purchase any portion of the Assets is exercised
and the sale to such preferential right holder closes prior to the Closing Date,
then that portion of the Assets affected by such preferential right to purchase
shall be excluded from the Assets at Closing and deemed to constitute an
Excluded Asset, and the Base Purchase Price shall be adjusted downward by an
amount equal to the Allocated Value of such affected Assets (the aggregate value
of all such adjustments, the “Exclusion Adjustment”).

(2) If (i) any preferential right to purchase any portion of the Assets is not
exercised prior to the Closing Date, or if such right is exercised prior to the
Closing Date but the closing of such sale will not happen prior to the Closing
Date, then in each such case, Seller shall convey such Asset to Buyer at Closing
without any adjustment to the Base Purchase Price and such Asset shall
constitute a part of the Assets for all purposes hereunder; or (ii) a
preferential right to purchase is not discovered prior to Closing and the
affected Asset is conveyed to Buyer at Closing, and the preferential right to
purchase is exercised after Closing, then in each such case, Buyer agrees to
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) as adjusted
under Section 2.3 and such other adjustments as may be permitted to reflect any
other post-Closing expenditures Buyer has made with respect to such Asset, and
Buyer shall retain all amounts paid by the party exercising such preferential
right to purchase. Promptly following the Closing Date, Buyer shall prepare,
execute, and deliver a form of purchase and sale agreement and conveyance of
such Asset to such exercising party, such purchase and sale agreement and
conveyance to be in form and substance as provided in this Agreement. Seller
will reimburse all costs incurred by Buyer in complying with this
Section 4.2(b)(2).

(c) Creditworthiness. If the holder of any Consent (including the Required
Consents) set forth on Section 6.8 of the Disclosure Schedule requires that the
Buyer deliver proof of its creditworthiness for the approval of such Consent,
then the Buyer shall use Reasonable Efforts to deliver to such holder any and
all reasonably requested credit information or other information concerning the
business, operations, property, condition (financial or otherwise), prospects,
or creditworthiness of Buyer, subject to the holder of such Consent entering
into a confidentiality agreement.

 

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ARTICLE V

ENVIRONMENTAL MATTERS

Section 5.1 Environmental Procedures.

(a) Use of Environmental Consultant. Buyer will have until the Defect Notice
Date to conduct an investigation of the environmental condition of the Assets,
which investigation shall be subject to the limitations in Section 3.1. Should
Buyer elect to conduct such an investigation, Buyer will have the right to
employ a qualified, independent third Person environmental consultant reasonably
selected by Buyer (the “Environmental Consultant”) to determine the existence of
any Environmental Defects and for the Remediation Costs, if any, associated
therewith.

(b) Environmental Defect Notice. To assert any alleged Environmental Defect,
Buyer must, on or before the Defect Notice Date, deliver to Seller one or more
Environmental Defect Notices. Buyer must deliver Environmental Defect Notices as
soon as reasonably practical, but no later than on the Defect Notice Date. The
Environmental Defect Notice must (i) be in writing and asserted in good faith,
(ii) name or describe the affected Asset(s), (iii) include a description of the
condition in, on, or under the Asset that constitutes, causes, or contributes to
each Environmental Defect, (iv) provide factual substantiation for each
Environmental Defect, and (v) state Buyer’s good faith estimate (with reasonable
supporting detail, including a description of the Remediation proposed) of the
Remediation Costs attributable to each Environmental Defect. For the purpose of
the preceding sentence, “factual substantiation for each 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, on or before the end of each calendar
week prior to the Defect Notice Date, written notice of all alleged
Environmental Defects discovered by Buyer during the preceding calendar week,
which notice may be preliminary in nature and supplemented prior to the
expiration of the Defect Notice Date. Buyer irrevocably waives all Environmental
Defects not submitted on or before the Defect Notice Date.

(c) Remedies. Following the Closing, Seller shall have the right to further
remediate any existing Environmental Defects until no later than forty-five
(45) days after the Closing Date (the “Cure Period”), provided that Seller must
provide to Buyer prior notice of such Remediation efforts and the opportunity to
observe such Remediation efforts, together with such information regarding such
Remediation efforts reasonably requested by Buyer, and such remediation efforts
of Seller shall not unreasonably interfere with Buyer’s operations. Subject to
(i) Seller’s right to dispute the existence of an Environmental Defect or the
Remediation Costs asserted with respect thereto, in which case the Parties shall
follow the procedures in Section 5.2, (ii) Seller’s right to terminate this
Agreement under Section 12.1 due to the failure of the condition precedent under
Section 11.1(c), (iii) the Environmental Deductible, and (iv) Seller’s right to
cure during the Cure Period, if any Environmental Defect asserted by Buyer under
Section 5.1(b) is not waived in writing by Buyer or cured prior to Closing, then
the Base Purchase Price will be reduced by an amount equal to (1) the Parties’
agreement on the estimated Remediation Cost of each such Environmental Defect or
(2) if the Parties are unable to agree on the estimated Remediation Cost of each
such Environmental Defect, Buyer’s good faith estimate of the cost of
remediation of such Environmental Defect, and the Assets will be conveyed
subject to such Environmental Defect to Buyer at Closing (the aggregate amount
of all such reductions to the Base Purchase Price under this Section 5.1(c), the
“Environmental Defect Adjustment”). If at the expiration of the Cure Period,
Seller has failed to cure to Buyer’s reasonable satisfaction an Environmental
Defect that Seller elected to cure pursuant to Section 5.1(b), the remaining
Remediation Cost, after crediting Seller for any reasonable, out-of-pocket
Remediation Costs incurred prior to the expiration of the Cure Period,
associated with such uncured Environmental Defect shall be credited to Buyer in
the Final Settlement Statement.

(d) Environmental Defect Threshold and Environmental Deductible. Notwithstanding
anything to the contrary set forth in this Agreement, in no event shall there be
any remedies provided by Seller, and Seller shall not be responsible for any
Environmental Defect with respect to which the Remediation Costs exceed the
Environmental Defect Threshold, unless and until the aggregate of all such
Remediation Costs that exceed the Environmental Defect Threshold (taking into
account the full amount of such Remediation Costs and not just the amount that
exceeds the Environmental Defect Threshold), exceeds an amount equal to the
Environmental Deductible, and then only with respect to the amount of such
Remediation Costs that exceed the Environmental Deductible.

 

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Section 5.2 Contested Environmental Defects.

(a) Rejection Notice. If Seller in good faith contests the existence or the
scope of an Environmental Defect or the asserted Remediation Costs associated
with such Environmental Defect, Seller shall notify Buyer in writing on or
before the day that is five 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. Within five Business Days of receipt of the Rejection Notice,
representatives of Buyer and Seller knowledgeable in environmental matters shall
meet in good faith and agree to either (i) reject the particular Environmental
Defect(s) or (ii) accept the validity of such Environmental Defect(s) and the
Remediation Costs. If the Parties cannot in good faith agree on either options
(i) or (ii) 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 or the Parties cannot in good faith resolve
Disputes relating to the adequacy of Seller’s Remediation efforts with respect
to an Environmental Defect (the “Environmental Disputed Matters”), such
Environmental Disputed Matters shall be exclusively and finally resolved in
accordance with the arbitration procedures set forth in Section 5.2(b) or by
agreement of the Parties.

(b) Dispute Resolution; Arbitration Procedure. Any Diligence Dispute will be
finally determined under this Section 5.2(b).

(1) In the event of any Diligence Dispute, management representatives of the
Parties with direct authority to enter into a settlement agreement shall meet
and make a good faith effort to resolve any Diligence Dispute. In the event the
management representatives are unable to resolve any Diligence Dispute within 30
days after commencement of the meetings to resolve such Diligence Dispute, then
either Party may submit all remaining Diligence Disputes to a mutually agreed
expert to resolve such Diligence Dispute (such individual, the “Arbitrator”),
and absent such agreement, formally apply to the Houston, Texas office of the
American Arbitration Association to choose the Arbitrator and submit such
Diligence Dispute along with such application. The Arbitrator shall not have
worked as an employee or outside consultant for any Party or its Affiliates
during the ten-year period preceding the arbitration or have any financial
interest in the dispute other than the payment of the Arbitrator’s fees and
expenses incurred as Arbitrator.

(2) The arbitration proceeding for any Diligence Dispute shall be held in
Houston, Texas, and shall be conducted in accordance with Commercial Arbitration
Rules of the American Arbitration Association, to the extent such rules do not
conflict with the terms of this Section 5.2. The Arbitrator’s determination
shall be made within 45 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 Arbitrator shall be bound by the
applicable rules set forth in this Article V with respect to Environmental
Disputed Matters and the applicable rules set forth in Section 9.4 with respect
to Disputed CLIF Matters, and, subject to the foregoing, may consider such other
matters as in the opinion of the Arbitrator are necessary to make a proper
determination. The Arbitrator may consult with and engage disinterested Third
Parties to advise the Arbitrator. The Arbitrator, however, may not render a
decision with respect to an Environmental Defect or Remediation Cost, in each
case, in excess of the highest value for such Environmental Disputed Matter
adjustment as claimed by Buyer or Seller, as applicable, or below the lowest
value for such Environmental Disputed Matter adjustment as claimed by Seller or
Buyer,

 

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as applicable. The Arbitrator shall act as an expert for the limited purpose of
determining a resolution to the specific Diligence Dispute submitted by either
Party and may not award damages, interest, or penalties to either Party with
respect to any Diligence Dispute. Promptly, but in no event later than five
Business Days, after the Arbitrator renders its decision as to all Diligence
Disputes and assuming Closing has occurred, Seller shall deliver to Buyer by
wire transfer of immediately available funds an amount equal to the Remediation
Costs as determined by the Arbitrator (and further subject to the application of
the Environmental Defect Threshold and Environmental Deductible, as provided in
Article V). Each of Seller and Buyer shall bear its own legal fees and other
costs of presenting its case to the Arbitrator. Buyer and Seller shall each bear
one-half of the costs and expenses of the Arbitrator.

Section 5.3 Physical Condition of the Assets. Without limiting Buyer’s rights
and remedies under this Agreement or any Transaction Document, Buyer
acknowledges that the Assets have been used for the transportation, storage and
disposal of Hydrocarbons, saltwater, Hazardous Substances, or other substances
related to standard oil field operations. The Assets also may contain buried
pipelines, water treating and water transportation equipment, storage tanks, and
other equipment, whether or not of a similar nature, the locations of which may
not now be known by Seller or be readily apparent by a physical inspection of
the Assets.

ARTICLE VI

REPRESENTATIONS OF SELLER

Seller makes the following representations and warranties as of the Execution
Date and as of the Closing Date:

Section 6.1 Organization and Qualification. Seller is a limited liability
company, duly formed, validly existing and in good standing under the Laws of
the State of Delaware and is qualified to conduct business, and is in good
standing, in the State of Texas.

Section 6.2 Power and Authority. Seller has all requisite limited liability
company power and authority to execute and deliver this Agreement and the other
Transaction Documents to which Seller is or will be a party and to perform its
obligations under this Agreement and the other Transaction Documents to which it
is or will be a party.

Section 6.3 No Conflicts. Except for (a) the Consents and approvals and waivers
from third Persons contemplated in Section 4.2 and set forth on Section 6.8 of
the Disclosure Schedule, and (b) all Customary Post-Closing Consents, and
subject to compliance with the HSR Act, the execution, delivery, and performance
of this Agreement by Seller will not (i) violate, conflict with or result in any
breach of any provision of Seller’s governing documents, (ii) create an
Encumbrance (other than a Permitted Encumbrance) on the Assets or trigger an
outstanding security interest in or right to buy any of the Assets that will
remain in existence after Closing, (iii) violate, breach, conflict with or
constitute a default, in any material respect, or give rise to any right of
termination, cancellation or acceleration, under the terms, conditions or
provisions of any Material Contract, except those Material Contracts set forth
on Section 6.9(b) of the Disclosure Schedule, or (iv) to Seller’s Knowledge,
violate, or be rendered void or ineffective under, any Law applicable to Seller
or by which Seller is bound, other than, in the case of the matters described in
clauses (ii), (iii), and (iv) of this Section 6.3, where such matters would not,
reasonably be expected to materially impair the ability of Seller to consummate
the Transaction.

 

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Section 6.4 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 and the Transaction have been duly and validly
authorized by all necessary action on the part of Seller. This Agreement has
been (and all other Transaction Documents to which Seller is or will be a party
and all other 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 Closing the other Transaction Documents
to which Seller is or will be a party and such other documents will constitute,
the legal, valid, and binding obligations of Seller, enforceable against Seller
in accordance with their terms, subject 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.

Section 6.5 Liability for Brokers’ Fees. Neither Seller nor any Affiliate of
Seller has incurred any liability, contingent or otherwise, or entered into any
agreement for any investment banking, brokers’ or finders’ fees, or commission
relating to the Transaction for which Buyer or any of its Affiliates shall have
any responsibility or incur any liability whatsoever.

Section 6.6 No Bankruptcy. Seller has not stopped or suspended payment of its
debts, become unable to pay its debts as they become due, or otherwise become
insolvent in any jurisdiction. Seller is not insolvent, and Seller will not be
rendered insolvent by the occurrence of the Transaction or any Transaction
Document. Seller is not the subject of any pending, rendered, or, to Seller’s
Knowledge, threatened insolvency, bankruptcy, reorganization, receivership or
similar proceedings of any character. Seller has not made a broad assignment of
substantially all of its assets for the benefit of creditors or taken any action
with a view to or that could constitute a valid basis for the institution of any
such proceedings. As used in this Section 6.6, “insolvent” means that the sum of
the present fair saleable value of Seller’s assets does not and will not exceed
its debts and other probable liabilities or the inability of Seller to pay its
debts as they become due.

Section 6.7 Litigation. Except as described in Section 6.7 of the Disclosure
Schedule, (a) there are no actions, suits, or proceedings pending or, to
Seller’s Knowledge, threatened against Seller with respect to the Assets or
which relate to the transactions contemplated by this Agreement and (b) there
are no Orders that remain unsatisfied that are binding upon Seller with respect
to the Assets.

Section 6.8 Preferential Rights to Purchase and Required Consents. To Seller’s
Knowledge, Section 6.8 of the Disclosure Schedule describes all (a) preferential
rights to purchase affecting the Non-Buyer-Operated Assets, and (b) Required
Consents, in each case of (a) and (b), that are required with respect to, or are
applicable to, the transfer of the Non-Buyer-Operated Assets in connection with
the Transaction.

Section 6.9 Material Contracts.

(a) Section 6.9(a) of the Disclosure Schedule sets forth a true and complete
list of all Material Contracts affecting the Non-Buyer-Operated Assets. True and
complete copies of all such Material Contracts (including all amendments and
modifications thereto) have been Made Available to Buyer. To the Knowledge of
Seller, all Material Contracts affecting the Non-Buyer-Operated Assets are
legal, valid, binding on, and enforceable against, in accordance with their
respective terms, Seller and each other party to such Material Contracts. Seller
is not in breach of, or default under, and to the Knowledge of Seller, except as
disclosed on Section 6.9(a) of the Disclosure Schedule, no other Person is in
breach of, or default under, any such Material Contracts, and there does not
exist under any provision thereof any event that, with the giving of notice or
the lapse of time or both, would constitute such a breach or default by Seller
or, to the Knowledge of Seller, any other party to such Material Contract.

 

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(b) Section 6.9(b) of the Disclosure Schedule sets forth a list of all Material
Contracts that will be terminated effective prior to or at the Closing.

(c) Seller is not a party to any Material Contract with respect to the
Buyer-Operated Assets other than Material Contracts with Buyer.

Section 6.10 Compliance with Laws; Permits.

(a) Except as disclosed on Section 6.10(a) of the Disclosure Schedule, to
Seller’s Knowledge, Seller’s ownership and operation of the Non-Buyer-Operated
Assets is, and at all times has been, in compliance in all material respects
with the provisions and requirements of all Laws (except with respect to
compliance with or matters related to Environmental Laws, which are addressed in
Section 6.11 and Article V, and compliance with Laws concerning Taxes, which are
addressed in Section 6.12) of all Governmental Authorities having jurisdiction
with respect to such Assets. To Seller’s Knowledge, no event has occurred, nor
does any circumstance exist (with or without notice or passage of time or both)
that (i) would reasonably be expected to constitute or result in a material
violation by Seller of, or a failure on the part of Seller to comply with, any
applicable Law applicable to the Non-Buyer-Operated Assets, or (ii) would
reasonably be expected to give rise to any obligation under applicable Law on
the part of Seller to undertake or perform, or to bear all or any portion of the
cost of, any remedial action or measure of any nature with respect to the
Non-Buyer-Operated Assets. Except as disclosed on Section 6.10(a) of the
Disclosure Schedule, Seller has not received any written notice from any
Governmental Authority or any other Person regarding any (A) actual, alleged or
potential violation of, or failure to comply with, any applicable Law in
connection with the operation of the Non-Buyer-Operated Assets, or (B) actual,
alleged or potential obligation under applicable law on the part of Seller to
undertake or perform, or to bear all or any portion of the cost of, any remedial
action or measure of any nature in connection with the operation of the
Non-Buyer-Operated Assets.

(b) Section 6.10(b) of the Disclosure Schedule sets forth a true and complete
list of each Permit held by Seller (the “Held Permits”) and Permit applications
submitted by or on behalf of Seller (the “Pending Permits”), in each case that
are primarily used or held for use in connection with the Non-Buyer-Operated
Assets. True, complete and correct copies of each such Permit have been provided
to Buyer. Seller is in compliance in all material respects with the terms of
such Permits and each Permit is valid and in force. The Held Permits constitute
all material Permits necessary to own, operate and maintain the
Non-Buyer-Operated Assets in the manner currently operated. None of Seller nor
any of its Affiliates has received any written notice from a Governmental
Authority that (i) concerns any default or violation of Seller with respect to
any Held Permit, (ii) claims that the application for any Pending Permit is
invalid or deficient or (iii) threatens to impose any material restriction or
condition upon the approval of any Pending Permit.

Section 6.11 Environmental Matters. Except as set forth on Section 6.11 of the
Disclosure Schedule:

(a) Seller is not the subject of any pending Order that remains unsatisfied
under any Environmental Law applicable to the Non-Buyer-Operated Assets
requiring Remediation or the payment of a fine or penalty;

(b) Seller has not entered into any agreements, consents, orders, decrees,
judgments, or other directives of or with any Governmental Authorities based on
any prior violations of Environmental Laws that relate to the future use of any
of the Assets and that require any Remediation;

 

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(c) Seller has not received any written notice from any Governmental Authority
or other Person, nor is subject to any pending or, to Seller’s Knowledge,
threatened, claim, demand, proceeding, or complaint (i) alleging, with respect
to any such party, the violation of or liability under any Environmental Law
applicable to the Non-Buyer-Operated Assets or (ii) requesting, with respect to
the Non-Buyer-Operated Assets, information with respect to an investigation
pursuant to any Environmental Law;

(d) to Seller’s Knowledge, there has been no release of any Hazardous Substances
from or in connection with the Non-Buyer-Operated Assets required to be reported
to an applicable Governmental Authority; and

(e) Seller has provided or Made Available to Buyer true and complete copies of
all third Person environmental site assessments or similar reports and any
written complaints, violation notices or other notices of liability or alleged
violation related, in each case, to Environmental Laws, in Seller’s control or
possession that are related to the Non-Buyer-Operated Assets, a list of which
such reports, assessments, orders, decrees and notices is set forth on
Section 6.11(e) of the Disclosure Schedule.

Section 6.12 Tax Matters. For all taxable periods during Seller’s period of
ownership through the taxable period in which this Agreement is executed, all
Taxes imposed on or with respect to the ownership or operation of the Assets
that have become due and payable (whether or not shown or required to be shown
on any Tax Return) have been paid when due, unless contested in good faith by
appropriate proceedings. There are no liens of any Governmental Authorities for
Taxes on Seller’s interests in any of the Assets except for Permitted
Encumbrances. Seller has timely filed with appropriate Governmental Authorities
all Tax Returns and reports required to be filed by Seller in connection with
its ownership or operation of the Assets. All such Tax Returns and reports were
correct and complete in all material respects. No Tax Returns filed by Seller
with respect to Asset Taxes are now under audit or examination, or subject to
any other Tax-related proceeding currently being conducted, by any Governmental
Authority. Seller is not currently the beneficiary of any extension of time
within which to file any Tax Return with respect to Asset Taxes. All Tax
withholding and deposit obligations imposed on Seller by applicable Law with
respect to Asset Taxes have been satisfied in all material respects. Seller is
not a party to any Tax allocation or sharing arrangement which will survive the
Closing and be binding on Buyer. There is no ongoing dispute or claim concerning
any Asset Tax liability of Seller claimed or raised or, to the Seller’s
Knowledge, threatened by any Governmental Authority in writing, and to Seller’s
Knowledge, no event has occurred nor does any circumstance exist that with or
without notice or the passage of time, or both, would reasonably be expected to
result in such a claim or dispute. Seller has not waived any statute of
limitations in respect of Asset Taxes or agreed to any extension of time with
respect to any Asset Tax assessment or deficiency where, in each case, such
waiver or extension is still in effect. No written claim that has not been
resolved has been made by a Tax authority in a jurisdiction where Seller does
not file Tax Returns that the Assets are or may be subject to taxation in such
jurisdiction. None of the Assets is subject to any tax partnership as defined in
Section 761 of the Code or as defined for any state or local Tax purposes.

Section 6.13 Capital Projects. As of the Execution Date, Section 6.13 of the
Disclosure Schedule contains a list and description of all Wells or other
capital projects in progress and associated costs or estimates thereof to the
extent such costs or estimates as of the Execution Date exceed $100,000.00
individually or exceed $250,000.00 in the aggregate for any series of related
transactions per Well or project, net to Seller’s interest (the “Capital
Projects”). Section 6.13 of the Disclosure Schedule contains a list and
description of all other authorities for expenditures or other current
commitments relating to the Non-Buyer-Operated Assets to drill or rework wells,
build gathering systems, or for other capital expenditures (“AFEs”) that, in
each case, are outstanding as of the Execution Date and not expected to be
completed by the Closing Date, in each case that Seller reasonably anticipates
will individually require expenditures attributable to periods on or after the
Effective Time, other than any AFEs and Capital Projects outstanding as of the
Execution Date that do not exceed $100,000.00 individually or exceed $250,000.00
in the aggregate for any series of related transactions, net to Seller’s
interest. Each Party acknowledges and agrees that the amounts shown on
Section 6.13 of the Disclosure Schedule with respect to such Capital Projects
and AFEs are estimates.

 

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Section 6.14 Personal Property; SWD Wells; Pipelines.

(a) To the Knowledge of Seller, Section 6.14(a) of the Disclosure Schedule sets
forth in all material respects a true and complete list of the Personal
Property. Seller has good and valid title to, or holds by a valid, enforceable
and existing lease or license with respect to each item of Personal Property,
free and clear of all Encumbrances, except Permitted Encumbrances.

(b) Except as otherwise specified in Section 6.14(b) of the Disclosure Schedule,
no rights of Seller under any leases or licenses for any item of Personal
Property have been assigned or otherwise transferred as security for any
obligation of any Person. With respect to each such lease or license, except as
otherwise specified in Section 6.14(b) of the Disclosure Schedule, (i) Seller is
not in default under any such lease or license and to the Knowledge of Seller no
event has occurred which, with or without the passage of time, would constitute
a default of Seller’s obligations under such lease or license, (ii) to the
Knowledge of Seller no other party to any such lease or license is in default
thereunder and (iii) Seller has not received a written notice of default or
potential default with respect to such lease or license.

(c) Exhibit A-1 contains a true, complete and correct description of the Wells
and a map depicting the location of the Wells. Seller has Made Available to
Buyer a true, complete and correct wellbore diagram for each Well. The Wells
(i) have been drilled and completed in material compliance with all applicable
Law and Permits, (ii) except as otherwise specified in Section 6.14(c) of the
Disclosure Schedule, are each supplied with permanent electrical power adequate
to operate each Well at the operating capacity set forth on Exhibit A-1 with
respect to such Well, (iii) subject to the applicable Permits, are each capable
of continually disposing of quantities of produced water at the operating
capacity set forth on Exhibit A-1 with respect to such Well, and (iv) have been
used by Seller only for the disposal of materials in compliance in all material
respects with all applicable Permits. This Section 6.14(c) does not apply to any
Well operated by Buyer as of the Effective Date.

(d) Exhibit A-2 contains true, complete and correct description of the Pipelines
(indicating diameter, composition, whether each Pipeline is buried and the
approximate month that each Pipeline was placed into commercial operation) and a
map depicting the Pipelines, and all Pipelines have been completed and placed in
service. Seller has Made Available to Buyer all as-built drawings, hydrostatic
testing results and other records in Seller’s possession relating to the
Pipelines. Except as set forth on Section 6.14(d) of the Disclosure Schedule,
immediately following Closing, the Surface Agreements will entitle Buyer to use
all of the Pipelines to transport Saltwater from any source.

(e) The Assets (i) are in good working order and repair (taking age and ordinary
wear and tear into account) and are adequate for the uses to which they are
being put and are sufficient for the continued operation of the produced water
handling and disposal activities of Seller consistent with past practices and as
required under the Services Agreement, and (ii) have been owned, constructed,
maintained and operated in a good and workmanlike manner by Seller as a
reasonable and prudent operator in accordance with customary practices in the
produced water handling and disposal industry, in each case with respect to
clauses (i) and (ii), in all material respects.

 

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(f) Section 6.14(f) of the Disclosure Schedule sets forth a true and complete
(in all material respects) monthly volume report for each month from January
2019 through January 2020 for the Wells and the Pipelines.

(g) Exhibit F contains a true, complete and correct list of each existing
Delivery Point (as defined in the Services Agreement), the pipeline diameter of
such Delivery Point and the meter located at such Delivery Point.

Section 6.15 Real Property.

(a) Exhibit A-3 contains a true and complete list of all Surface Agreements.
Seller is not currently obligated by applicable Laws, rules, regulations or
contracts to plug, dismantle or abandon any salt water disposal well located on
the Real Property, excluding any such obligations that may arise on or after the
Closing Date.

(b) The Deeded Surface Interests, Surface Agreements, the Partially-Assigned
OGLs and the Real Property that will be subject to the Surface Use Agreement and
Joint Use Agreement to be delivered at Closing comprise all of the interests in
Real Property primarily used or held for use in connection with the Assets.

(c) Other than as set forth on Section 6.15(c) of the Disclosure Schedule and
the Permitted Encumbrances, the Real Property that will be subject to the
Surface Use Agreement and Joint Use Agreement is free and clear of all
Encumbrances. Seller or its Affiliate is in possession of all Real Property that
will be subject to the Surface Use Agreement and Joint Use Agreement and has the
ability to use such Real Property, in all material respects, for the purposes
for which it is currently being used with respect to the Assets, and, to the
Knowledge of Seller, no Persons, other than Seller or its Affiliates, are
occupying or have any right to occupy, or otherwise utilize in any way, such
Real Property in any way that would materially and adversely interfere with
Buyer’s use of the Assets as used by Seller immediately prior to Closing.

(d) Seller has provided or Made Available to Buyer true and complete copies of
all Surface Agreements.

(e) Except as set forth on Section 6.15(e) of the Disclosure Schedule, there are
no gaps (including any gap arising as a result of any breach by Seller of any
terms of any Surface Agreement and the Partially Assigned OGLs) in the easements
or rights-of-way primarily used or held for use in connection with the Assets
that would materially interfere with the ownership or use of the Assets.

(f) Except as set forth on Section 6.15(f) of the Disclosure Schedule,
(i) Seller has good and marketable title to each Surface Agreement and the
Partially-Assigned OGLs that are material to the use, ownership or operation of
the Assets; (ii) no event has occurred or circumstance exists that to Seller’s
Knowledge allows, or after the giving of notice of the passage of time, or both,
could allow limitations, revocation or termination of any of the Surface
Agreements or any of the Partially Assigned OGLs utilized by Seller and
necessary for the operation of the Assets or could result in any material
impairment of the rights of the holder of such easements, rights-of-way or oil
and gas lease; (iii) all of the Wells and Pipelines are located within the
geographic boundaries covered by a Surface Agreement or a Partially-Assigned
OGL, except as would not materially interfere with the ownership or operation of
the Assets as currently owned and operated, (iv) Seller has good and fee simple
title to the Deeded Surface Interests and has the ability to use such Deeded
Surface Interests for the purposes for which they are currently being used with
respect to the Assets and no parties, other than Seller or its Affiliates, are

 

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occupying or have any right to occupy or otherwise utilize in any way, the
Deeded Surface Interests in any way that would materially and adversely
interfere with Buyer’s use of the Assets; (v) neither Seller nor its Affiliates
have granted any Encumbrance on the Deeded Surface Interests except for
Permitted Encumbrances; (vi) Seller has not received any written notice of
material default or breach of any Surface Agreement or any Partially-Assigned
OGL; and (vii) subject to the Permitted Encumbrances, Seller has good and
indefeasible title to all Wells operated by Seller or its Affiliates.

Section 6.16 Interests. To the Knowledge of Seller, Exhibit A to the Services
Agreement describes all material Interests as of the Execution Date. Other than
the Existing Commitments (as defined in the Services Agreement and set forth on
Exhibit D thereto), the Interests are not subject to any existing contractual
commitment that would prevent Seller from granting the dedication under the
Services Agreement to Buyer or the delivery of Saltwater to Buyer under the
Services Agreement.

Section 6.17 Royalty Payments; Rentals. Section 6.17 of the Disclosure Schedule
sets forth a true and complete list of all royalties or similar burdens payable
by Seller with respect to the Non-Buyer-Operated Assets (and identifies the
Surface Agreement or Asset to which they are attributable), and all such
royalties that have become due and payable have been duly and timely paid by or
on behalf of Seller to the Knowledge of Seller.

Section 6.18 Intellectual Property. Seller does not own any material
intellectual property or possess any licenses to use any material intellectual
property (other than customary software licenses relating to “off-the-shelf”
software) that is used in connection with the Assets as currently operated.

Section 6.19 Insurance. Section 6.19 of the Disclosure Schedule sets forth (a) a
summary of all insurance policies of seller or any of its Affiliates that
provide coverage with respect to the Assets and (b) a list of all control of
well and/or oil lease property claims incurred with respect to the Assets. There
is no claim pending under any of the insurance policies of Seller or any of its
Affiliates that provide coverage with respect to the Assets as to which coverage
with respect to the policy holder or insured party has been denied or disputed
by the underwriters or issuers of such insurance policies.

Section 6.20 Condemnation. There is no actual or, to Seller’s Knowledge,
threatened taking (whether permanent, temporary, whole or partial) of any
Non-Buyer-Operated Asset by reason of condemnation or the threat of
condemnation.

Section 6.21 Disclosures and Disclosure Schedule.

(a) Effect of Disclosures. Inclusion of a matter in the Disclosure Schedule to a
representation or warranty which addresses matters having a “Material Adverse
Effect” (whether or not capitalized) shall not be deemed an indication that such
matter does, or may, have a “Material Adverse Effect” (whether or not
capitalized). Likewise, the inclusion of a matter in the Disclosure Schedule 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 in the Disclosure Schedule. Matters may be disclosed in the
Disclosure Schedule for purposes of information only.

(b) Effect of Schedules. All Section headings in the Disclosure Schedule
correspond to the Sections of this Agreement; provided, however, that
information provided in any Section of the Disclosure Schedule shall constitute
disclosure for purposes of any other Section of the Disclosure Schedule so long
as its relevance to such other Section of the Disclosure Schedule or Section of
the Agreement is reasonably apparent on the face of the information disclosed
therein.

 

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(c) Schedule Update. Seller shall have the right until Closing, to add,
supplement or amend the Disclosure Schedule applicable to its representations
and warranties with respect to any matter hereafter arising or discovered that,
if existing or known at the Execution Date or thereafter, would have been
required to be set forth or described in the Disclosure Schedule. For purposes
of determining whether the conditions set forth in Section 11.2 have been
fulfilled, the Disclosure Schedule will be deemed to include all information
contained in any such addition, supplement or amendment. For purposes of
determining Buyer’s indemnity rights under Section 15.3(a), the Disclosure
Schedule will be deemed to include only that information contained therein on
the Execution Date and shall be deemed to exclude all information contained in
any such addition, supplement or amendment.

Section 6.22 Seller Bonds. All Seller Bonds are set forth on Section 6.22 of the
Disclosure Schedule.

ARTICLE VII

REPRESENTATIONS OF BUYER

Buyer makes the following representations and warranties as of the Execution
Date and as of the Closing Date:

Section 7.1 Organization and Standing. Buyer is a limited liability company duly
formed, validly existing and in good standing under the Laws of the State of
Texas and has the requisite limited liability company power to conduct its
business as it is now being conducted. Buyer is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership and
operation of its assets and the Assets make such qualification necessary.

Section 7.2 Power and Authority. Buyer has all requisite limited liability
company power and authority to execute and deliver this Agreement and the other
Transaction Documents to which Buyer is or will be a party, and to perform its
obligations under this Agreement and the other Transaction Documents to which it
is or will be a party.

Section 7.3 No Conflicts. Subject to compliance with the HSR Act, the execution,
delivery and performance of this Agreement and the Transaction Documents by
Buyer will not (a) violate, conflict with or result in any breach of any
provision of Buyer’s governing documents, (b) violate, breach, conflict with or
constitute a default under the terms, conditions or provision of any agreement,
instrument or obligation to which the Buyer is a party or is bound, or
(c) violate, or be rendered void or ineffective under, any judgment, decree, or
order applicable to Buyer, other than, in the case of the matters described in
clauses (b) and (c) of this Section 7.3, where such matters would not,
individually or in the aggregate, reasonably be expected to materially impair
Buyer’s ability to consummate the Transaction and perform its obligations under
this Agreement.

Section 7.4 Authorization and Enforceability. The execution, delivery, and
performance by Buyer of this Agreement and the other Transaction Documents to
which it is or will be a party and the Transaction have been duly and validly
authorized by all necessary action on the part of Buyer. This Agreement has been
(and all other Transaction Documents to which Buyer is or will be a party and
all other 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 Closing the other Transaction Documents to which
Buyer is or will be a party and such other documents will constitute, the legal,
valid, and binding obligations of Buyer, enforceable in accordance with their
terms, subject 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.

 

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Section 7.5 Liability for Brokers’ Fees. Neither Buyer nor any Affiliate of
Buyer has incurred any liability, contingent or otherwise, or entered into any
agreement for investment banking, for brokers’ or finders’ fees, or commission
relating to the Transaction for which Seller or any of its Affiliates shall have
any responsibility or incurring any liability whatsoever.

Section 7.6 Litigation. There are no material actions, suits, proceedings,
claims, or investigations by any person, entity, administrative agency, or
Governmental Authority 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.

Section 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 is or may therefore be subject to the registration
requirements of such acts. Buyer is an “accredited investor,” as such term is
defined in Regulation D, and is familiar with the Assets and is a knowledgeable,
experienced, and sophisticated investor in the water transportation and disposal
business. Buyer has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risk of its
investment in the Assets.

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

Section 7.9 Buyer Capable to Hold Surface Agreements. Buyer is qualified, or
will be qualified as of the Closing, to hold title to the Surface Agreements and
Permits issued by any relevant Governmental Authority.

Section 7.10 Buyer’s Evaluation. Buyer is experienced and knowledgeable in the
water transportation and disposal business and is aware of its risks. In
entering into this Agreement, Buyer acknowledges 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.
Buyer or its Representatives have been given a reasonable opportunity to examine
the Background Materials. Except as expressly provided in this Agreement and the
other Transaction Documents, Seller shall not have any liability to the Buyer
Indemnified Parties resulting from any use, authorized or unauthorized, of the
Background Materials provided by or on behalf of Seller.

ARTICLE VIII

PRE-CLOSING COVENANTS OF SELLER

Section 8.1 Interim Conduct.

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

 

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(1) operate and maintain its interests in the Assets in a good and workmanlike
manner reasonably consistent with past practices and in compliance with all
applicable Laws and the terms of the Surface Agreements, Material Contracts and
Permits;

(2) subject to Section 8.1(b), 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 any ongoing activities and major capital
expenditures in excess of $100,000 per activity (net to Seller’s interest),
exclusive of the Capital Projects or AFEs, conducted on the Assets and shall
inform Buyer of all such matters and operations involving such expenditures;
provided that except as prohibited under Section 8.1(b), Seller may make any
election it desires with respect to such expenditures without the prior consent
of Buyer;

(3) calibrate all meters included in the Personal Property, and deliver evidence
of same to Buyer;

(4) use Reasonable Efforts to promptly obtain all Consents;

(5) file on a timely basis all material notices, reports or other filings with
respect to the Assets required to be filed with or reported to any Governmental
Authority (excluding any notices related to this Transaction that are
customarily delivered after Closing);

(6) file on a timely basis all material applications or other documents
necessary to maintain, renew or extend any existing Permit, variance or any
other approval required by any Governmental Authority necessary or required with
respect to the ownership or operation of the Assets, whether or not such
approval would expire before or after the Closing Date;

(7) give written notice to Buyer as soon as practicable, but in any event within
three (3) Business Days of Seller acquiring Knowledge thereof, of (i) the
receipt or delivery by Seller of any written notice with respect to any material
breach or termination of any Surface Agreements, Material Contracts or Permits,
(ii) the receipt or delivery by Seller of any written claim for material damages
or any suit, action, proceeding or litigation made by or against Seller or its
Affiliates with respect to the Assets, or (iii) the occurrence of any material
casualty loss with respect to the Assets; and

(8) notify Buyer of any election that Seller is required to make under any
Material Contract or with respect to any Non-Buyer-Operated Asset, specifying
the nature and time period associated with such election.

(b) Negative Covenants on Operations. From and after the Execution Date and
until Closing, except with respect to any actions or operations set forth on
Section 8.1(b) of the Disclosure Schedule, unless Seller obtains the prior
written consent of Buyer in each case to act otherwise with respect to clauses
(2) through (5), which consent may not be unreasonably withheld, delayed, or
conditioned, Seller shall not:

(1) except for Capital Projects and AFEs as described on Section 6.13 of the
Disclosure Schedule, 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 operation or 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
provisions of any applicable Material Contract or Order of any Governmental
Authority, all of which will be deemed to be approved, provided that Seller
promptly notifies Buyer of any emergency operation or operation necessary to
avoid monetary penalty or forfeiture excepted in this Agreement);

 

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(2) convey, encumber, abandon or otherwise dispose of any material part of the
Assets (other than in the regular course of business and excluding the sale of
any skim oil);

(3) cancel, modify or let lapse any of Seller’s insurance now in force with
respect to the Assets;

(4) modify, amend or change the terms of any Surface Agreement, Material
Contract or Permit or terminate any Material Contract (except for those set
forth on Section 6.9(b) of the Disclosure Schedule), Surface Agreement or Permit
or enter into any agreement, contract or commitment that, if such agreement,
contract or commitment had been entered into prior to the Execution Date, would
be required to be listed in an Exhibit attached to this Agreement or the
Disclosure Schedule;

(5) propose any new drilling, construction or similar operation with respect to
any of the Assets in excess of $100,000;

(6) 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 $100,000.00 individually or in the aggregate (excluding amounts
to be paid under insurance policies); or

(7) (i) amend any Tax Return relating to Asset Taxes, (ii) make, change or
revoke any Tax election relating to Asset Taxes, or (iii) waive or extend
statute of limitations or enter into any agreement with any Governmental
Authority relating to Asset Taxes.

Section 8.2 Permits.

(a) Buyer shall provide all notices and otherwise take all actions required to
transfer or reissue any Permits that are required to be transferred or reissued,
including those required under Environmental Laws, as a result of or in
furtherance of the Transaction. Seller shall use Reasonable Efforts to cooperate
with Buyer to provide information necessary to apply for such Permits or
transfers thereof.

(b) From and after Closing until the date that is twelve (12) months following
the Closing Date, Seller shall use Reasonable Efforts to cause the approval and
issuance by the Texas Railroad Commission of each Pending Permit. In each case
when a Pending Permit is approved by the Texas Railroad Commission after the
Closing Date (such obtained permit, an “Approved Permit”), within ten
(10) Business Days following issuance of such Approved Permit, Seller shall
execute and deliver to Buyer, or cause its Affiliate to execute and deliver to
Buyer, a validly executed blanket transfer of Form P-4 designating Buyer (or its
applicable Affiliate) as operator of the applicable disposal well with the Texas
Railroad Commission that corresponds to such Approved Permit.

Section 8.3 Pressure and Disposal Capacity. If the results of Buyer’s diligence
under Section 3.1 show that any Well (a) does not pass a mechanical integrity
test and/or (b) is not capable of operating continuously, in all material
respects, at the operating capacity set forth with respect to such Well on
Exhibit A-1 for 30 minutes within the surface pressure tolerances specified in
the applicable Permit and/or (c) except as set forth on Section 6.14(c) of the
Disclosure Schedule, does not have adequate permanent electrical power to enable
Buyer to meet its obligations under the Services Agreement

 

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immediately after Closing (collectively, the “Testing Criteria”), then Seller
shall, in consultation with Buyer, perform such repairs and/or workover
operations required in order for the Well to meet the Testing Criteria. Seller’s
obligations under this Section 8.3 shall not in any way delay Closing, and
Seller shall be entitled at Seller’s sole cost and expense to perform such
repairs and/or workover operations, or cause such repairs and/or workover
operations to be performed, for a reasonable period of time after the Closing
Date.

Section 8.4 Curative Matters. Seller shall use Reasonable Efforts to cure, in a
manner reasonably acceptable to Buyer, the items set forth on Section 8.4 of the
Disclosure Schedule as necessary to provide Buyer the right to own, operate and
use the Assets identified on Section 8.4 of the Disclosure Schedule (the
“Curative Matters”) and shall pay all reasonable expenses to do so. To the
extent any of the Curative Matters with respect to any Asset identified on
Section 8.4 of the Disclosure Schedule (an “Affected Asset”) are not cured prior
to Closing and subject to Section 13.3(k), the Closing shall not be delayed due
to failure to cure any such Curative Matter, such Affected Asset shall not be
assigned to Buyer and shall be deemed to be held by Seller at all times during
the Curative Matters Holding Period for the benefit of Buyer in accordance with
this Section 8.4. During the Curative Matters Holding Period, Seller shall use
Reasonable Efforts to provide Buyer with the economic benefits and risks of
ownership of the Affected Asset and to cure the applicable Curative Matter and
shall pay the reasonable expenses to do so, and Buyer shall provide Seller with
any information and assistance reasonably requested by Seller in relation
thereto. If the Curative Matter is with respect to a real property right or an
easement or similar right, then the Affected Asset shall include the portion of
any other associated Assets located thereon. Upon curing a Curative Matter in a
manner reasonably acceptable to Buyer after Closing, promptly (but in no event
later than 10 Business Days) after the date of such cure (i) for no additional
consideration, the Parties shall execute and deliver all documents and take all
such actions with respect to such Affected Asset required under Article XIII,
with any necessary conforming changes, and (ii) such Affected Assets shall be
deemed to constitute Assets under this Agreement for all purposes and shall not
constitute Excluded Assets. For purposes of this Agreement, the term “Curative
Matters Holding Period” for any particular uncured Curative Matter and Affected
Asset shall mean the period beginning on the Closing Date and ending on the date
upon which such Curative Matter is cured to the reasonable satisfaction of Buyer
or an alternative arrangement is obtained on terms that are reasonably
acceptable to Buyer; provided that Seller’s obligation to use its Reasonable
Efforts to cure the Curative Matters shall expire on the first anniversary of
the Closing Date.

ARTICLE IX

COVENANTS AND AGREEMENTS OF THE PARTIES.

Section 9.1 Confidentiality.

(a) Effective upon Closing, the Confidentiality Agreement dated December 18,
2019, between Seller and Buyer (the “Confidentiality Agreement”) will be
automatically deemed terminated. Notwithstanding anything to the contrary in the
Confidentiality Agreement, and only to the extent reasonably required by such
Section, until Closing, Seller may disclose the existence of this Agreement and
the identity of the Buyer to comply with Section 4.2. Effective as of and after
Closing for a period of two years, except as required by Law or rule (including
a rule of any stock exchange), and except for announcements permitted by
Section 16.6, each Party, its Affiliates, and its and their Representatives
shall maintain as confidential all Confidential Information with respect to the
Assets or the transactions contemplated by the Transaction Documents, including
the terms and conditions of any of the Transaction Documents.

(b) Injunctive Relief. The Parties acknowledge that a Party will not have an
adequate remedy at Law if the other Party violates any of the terms of
Section 9.1(a). In such event, the non-breaching Party will have the right, in
addition to any other right it may have, to obtain injunctive relief to restrain
any breach or threatened breach of the terms of Section 9.1(a), and/or to seek
specific performance of such terms.

 

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Section 9.2 Communication Between the Parties. If a Party obtains Knowledge that
the other Party is in breach of any of its covenants, representations, or
warranties under this Agreement, such Party shall promptly inform the other
Party of such breach and the Party alleged to be in breach may attempt to remedy
or cure such breach prior to Closing.

Section 9.3 Non-Solicitation. For a period beginning on the Execution Date and
ending on the date that is 12 months after the Closing Date, Buyer shall not,
and shall cause its Affiliates and its and their Representatives to not,
directly or indirectly, in any capacity and either separately, jointly or in
association with others, solicit, induce, or attempt to induce, on behalf of
Buyer or any other Person, any employee who is employed by Seller or its
Affiliates as of the Execution Date or Closing Date (a “Seller Employee”) to
leave his or her employment with Seller or its Affiliates. Notwithstanding the
foregoing restrictions in this Section 9.3, Buyer and its Affiliates and its and
their Representatives shall not be precluded from (1) soliciting or hiring
Seller Employees six months after the later of (x) the date of termination of
his or her employment with Seller or its Affiliates, as applicable, and (y) the
last date on which such Seller Employee receives severance or other termination
payments from Seller or its Affiliates, as applicable, (2) conducting general
solicitations for employment or other services contained in a newspaper, other
periodical, or on the internet or by search firms not targeted at Seller
Employees, (3) soliciting or hiring Seller Employees after Seller consents to
such action in writing, which consent may be withheld for any or no reason at
Seller’s sole discretion and (4) hiring Seller Employees that approach Buyer on
their own volition without the solicitation or engagement of Buyer, its
Affiliates, or its and their Representatives.

Section 9.4 Casualty Losses.

(a) After the Execution Date and prior to Closing, if any portion of the Assets
is damaged or destroyed by fire, vandalism, theft, explosion, accident,
earthquake, act of nature, civil unrest, terrorist act, war or any other
hostilities, or other similar casualty or is taken in condemnation or under the
right of eminent domain or if proceedings for such purposes shall be pending or
threatened (each, a “Casualty Loss”), this Agreement shall remain in full force
and effect, notwithstanding any such destruction, damage, taking or proceeding
or the threat thereof. Seller shall, as soon as reasonably practicable following
any Casualty Loss, deliver to Buyer notice identifying such Casualty Loss, which
shall include Seller’s good faith estimate of the CLIF Amount (defined below)
attributable to such Casualty Loss, as applicable.

(b) With respect to each of the Assets affected by a Casualty Loss reported
under Section 9.4(a), in the event that the amount of the costs and expenses
associated with repairing or restoring the Assets affected by such Casualty Loss
(the “CLIF Amount”) exceeds $150,000, Seller shall have the right, prior to
Closing and in consultation with Buyer, to repair or replace such Asset (with
equipment of similar utility); provided that Seller must provide to Buyer prior
notice of such repair or replacement efforts and the opportunity to observe such
repair or replacement efforts together with such information regarding such
efforts reasonably requested by Buyer. If Seller does not elect to repair or
replace the Assets affected by a Casualty Loss, or any portion of such affected
Assets pursuant to this Section 9.4(b), and with respect to any of the Assets
affected by a Casualty Loss that Seller elected to repair or replace but which
the Parties do not agree in good faith have been repaired or replaced by Seller
as of the Closing Date, Buyer shall be entitled to a credit against the Base
Purchase Price at Closing in the amount of Buyer’s good faith estimate of the
remaining cost to repair or replace such affected Asset. In each case, Seller
shall retain all rights to insurance and other claims against Third Parties with
respect to the applicable Casualty Loss except to the extent the Parties
otherwise agree in writing.

 

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(c) With respect to any Casualty Loss that is less than $150,000, Seller shall
(i) pay to Buyer all insurance proceeds actually received by Seller with respect
to such Casualty Loss and (ii) use Reasonable Efforts to pursue and obtain
insurance proceeds with respect to any such Casualty Loss.

(d) Any disputes related to whether a Casualty Loss existed, the scope of
Seller’s repair or replacement of any Casualty Loss, or related accounting and
any corresponding CLIF Amount (each, a “Disputed CLIF Matter”) shall be
exclusively and finally resolved by arbitration pursuant to Section 5.2(b) or by
agreement of the Parties.

Section 9.5 HSR Matters.

(a) If applicable, promptly following the execution of this Agreement and no
later than 15 Business Days thereafter, the Parties will file or cause to be
filed any applicable notification and report forms and related material that
they may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act and will
join in a request for early termination of applicable waiting periods under the
HSR Act. Buyer and Seller shall evenly split the filing fee and all other fees
required to be paid in connection with any such filings contemplated by this
Section 9.5.

(b) Each Party shall (i) cooperate with the other Party and furnish all
information in such Party’s possession that is necessary in connection with such
other Party’s HSR Act filings, (ii) use Reasonable Efforts to cause the
expiration or termination of the notice or waiting periods under the HSR Act as
promptly as is reasonably practicable, (iii) promptly inform the other Party of
(and, at the other Party’s reasonable request, supply to such other Party) any
communication (or other correspondence or memoranda) from or to, and any
proposed understanding or agreement with, any Governmental Authority in respect
of such filings, (iv) consult and cooperate with the other Parties in connection
with any analyses, appearances, presentations, memoranda, briefs, arguments and
opinions made or submitted by or on behalf of any Party in connection with all
meetings, actions, discussions and proceedings with Governmental Authorities
relating to such filings, including, subject to Law, permitting the other
Parties to review in advance any proposed written communication between it and
any Governmental Authority, (v) comply, as promptly as is reasonably
practicable, with any requests received from any Governmental Authority by such
Party or any of its Affiliates under the HSR Act for additional information,
documents or other materials, and (vi) use Reasonable Efforts to resolve any
objections as may be asserted by any Governmental Authority under the HSR Act
with respect to the transactions contemplated by this Agreement.

(c) If a Party or any of its Affiliates intends to participate in any meeting or
discussion with any Governmental Authority with respect to such filings, it will
give the other Parties reasonable prior notice of, and an opportunity to
participate in, such meeting or discussion.

(d) Notwithstanding anything to the contrary in this Agreement, in no event
shall Buyer, Seller or any of their respective Affiliates be required, in
connection with any demand by any Governmental Authority or otherwise prior to
Closing, to agree or commit to (i) divest, hold separate, offer for sale,
abandon, limit its operation of, or take similar action with respect to any
assets (tangible or intangible) or any business interest of any of them, or
(ii) any restrictions or actions that after the Closing Date would limit the
freedom of Buyer to operate its business as of the Closing Date in a manner
consistent with past practices.

 

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Section 9.6 Replacement Bonding.

(a) Bonding. Buyer acknowledges that none of the Seller Bonds are transferable
to Buyer under this Agreement. On or before the Closing Date, Buyer shall
obtain, or cause to be obtained in the name of Buyer, such replacement surety
instruments, bonds, letters of credit, or guarantees, to the extent such
instruments are necessary to permit, as of Closing, (i) the release, return, or
replacement of the Seller Bonds, and (ii) Buyer to be named as operator of any
Asset in which Seller is an operator as of the Closing Date.

(b) Delivery of Evidence of Bonds. At or prior to Closing, except to the extent
customarily provided post-Closing, Buyer shall deliver to Seller evidence of the
posting of surety instruments, bonds, letters of credit, or guarantees with the
applicable Governmental Authority meeting the requirements of such Governmental
Authority to own and operate the Assets or evidence that such replacement bonds,
letters of credit, or guarantees that Buyer has previously posted with such
Governmental Authorities are adequate to secure the release of the Seller Bonds.

Section 9.7 No Shop. Subject to Seller’s obligations pursuant to Section 4.2, or
the period beginning on the Execution Date and ending on the Closing Date,
Seller shall not, and shall cause its Affiliates not to, authorize or permit any
of their respective Representatives to, directly or indirectly, (a) solicit or
initiate, or encourage the submission of, proposals or offers relating to the
acquisition or purchase of the Assets by a third Person or (b) engage in any
negotiations or discussions with any third Person relating to the acquisition or
purchase of the Assets by a third Person. Subject to Seller’s obligations
pursuant to Section 4.2, Seller shall cease immediately and cause to be
terminated any and all existing discussions or negotiations with any Person
(other than Buyer) with respect to any proposal or offer relating to the
acquisition or purchase of the Assets. If Seller receives a proposal or offer
relating to the acquisition or purchase of the Assets, Seller shall immediately
notify Buyer.

Section 9.8 Financing Cooperation. For the period beginning on the Execution
Date and ending on the Closing Date, Seller shall use Reasonable Efforts to
cooperate (and to cause its Representatives and applicable Affiliates to
cooperate) as reasonably requested by Buyer in connection with Buyer’s efforts
to obtain financing of its acquisition of the Assets, at Buyer’s sole cost and
expense, by: (a) making the appropriate personnel of Seller and its applicable
Affiliates reasonably available to Buyer and its financing sources to answer
questions and reasonably assist in Buyer’s and its financing sources’ review of
the Records (including providing reasonable access during normal business hours
to the financial records relating to the Assets to the extent such information
is reasonably available); and (b) to the extent in Seller’s possession,
providing to Buyer and its financing sources any financial records that are
customary for a bank information memoranda or other offering document and any
other Records reasonably necessary for the completion of Buyer’s financing, and
assisting with the updating of any such information. It is understood and agreed
by the Parties that (x) the cooperation by Seller described in this Section 9.8
shall not obligate Seller to take any action that materially interferes with its
business or Assets, (y) the access to be provided to Buyer shall not interfere
with Seller’s ability to prepare its own financial statements or its regular
conduct of business and shall be made available during Seller’s normal business
hours and (z) Seller shall not be responsible for the creation or production of
any new records or financial information or reports (audited or unaudited).

ARTICLE X

TAX MATTERS

Section 10.1 Allocation of Asset Taxes. Seller shall be allocated and bear all
Asset Taxes attributable to any Tax period (or portion thereof) ending prior to
the Effective Time and Buyer shall be allocated and bear all Asset Taxes
attributable to any Tax period (or portion thereof) beginning on or after the
Effective Time.

 

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Section 10.2 Apportionment of Asset Taxes. For purposes of determining the
allocations described in Section 10.1, (a) Asset Taxes that are based upon or
related to sales or receipts or imposed on a transactional bases shall be deemed
attributable to the period in which the transaction giving rise to such Asset
Taxes occurred using a “closing of the books methodology” as of the Effective
Time and (b) Asset Taxes that are ad valorem, property or other Asset Taxes
imposed on a periodic basis (other than such Asset Taxes described in clause
(a)) shall be deemed attributable to the period of ownership of the applicable
Asset subject to such Asset Taxes. For purposes of clause (b), Asset Taxes
imposed on a periodic basis that includes, but does not end at, the Effective
Time, shall be allocated between the portion of such Tax period ending prior to
the Effective Time and the portion of such Tax period beginning on or after the
Effective Time by prorating each such Asset Tax based on the number of days in
the applicable Tax period that occur before the day on which the Effective Time
occurs, on the one hand, and the number of days in such Tax period that occur on
and after the day on which the Effective Time occurs, on the other hand. For
purposes of the preceding sentence, the period for such Asset Taxes shall begin
on the date on which ownership of the applicable Assets gives rise to liability
for the particular Asset Tax and shall end on the day before the next such date.

Section 10.3 True-Up for Certain Asset Taxes. To the extent the actual amount of
an Asset Tax is not determinable at the time an adjustment to the Base Purchase
Price is to be made with respect to an Asset under Section 14.1, (a) the Parties
shall utilize the most recent information available in estimating the amount of
such Asset Tax for purposes of such adjustment, and (b) upon the later
determination of the actual amount of such Asset Tax, timely payments will be
made from one Party to the other to the extent necessary to cause each Party to
bear the amount of such Asset Tax that is allocable to such Party under
Section 10.1.

Section 10.4 Tax Returns. Subject to Buyer’s indemnification rights under
Article XV of this Agreement, after Closing, Buyer shall timely file or cause to
be filed all Tax Returns for Asset Taxes required to be filed after the Closing
and shall timely pay or cause to be paid to the taxing authorities all Asset
Taxes that become due and payable after the Closing. Any penalty, addition to
Tax, or interest levied or assessed with respect to any Asset Tax shall be
allocated to, and shall be payable by, the Party to which the Tax to which such
penalty, addition to Tax, or interest relates is allocated, regardless of when
such penalty, addition to Tax, or interest is levied or assessed; provided,
however, that the liability for any penalty, addition to Tax, or interest levied
or assessed with respect to any failure of Buyer to comply with the previous
sentence shall be allocated to, and shall be payable by, Buyer; provided
further, however, that Buyer shall not be liable for any penalty, addition to
Tax, or interest levied or assessed with respect to any Tax Return that was
required to be filed on or before the Closing Date.

Section 10.5 Refunds. Buyer shall be entitled to all rights to any refunds of
Asset Taxes allocable to Buyer under Section 10.1 regardless of when received.
Seller shall be entitled to all rights to any refunds of Asset Taxes allocable
to Seller under Section 10.1 regardless of when received. If a Party or its
Affiliate receives a refund to which the other Party is entitled under this
Section 10.5, such receiving Party shall forward to the other Party the amount
of such refund within 30 days after such refund is received, net of any
reasonable costs or expenses incurred by such receiving Party in procuring such
refund and without interest other than interest received from the applicable
Governmental Authority.

Section 10.6 Income Taxes. Seller shall retain responsibility for, and shall
bear and pay, all Income Taxes incurred by or imposed on it, its direct or
indirect owners or Affiliates, or any combined, unitary, or consolidated group
of which any of the foregoing is or was a member, and no such Taxes shall be
taken into account as adjustments to the Base Purchase Price under Section 14.1.

 

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Section 10.7 Transfer Taxes. 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 equally borne and paid by Buyer and Seller. If
required by applicable Law, Seller shall, in accordance with applicable Law,
calculate and remit any sales or similar Taxes that are required to be paid as a
result of the transfer of the Assets to Buyer, and Buyer shall promptly
reimburse Seller for fifty percent (50%) thereof. 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 such Transfer Taxes). Any
expenses, fees, or costs incurred by the Parties in connection with preparing or
filing such Tax Returns shall be split evenly by Buyer and Seller.

Section 10.8 Allocations for Federal Income Tax Purposes. Buyer and Seller
acknowledge that, under Section 1060 of the Code, Buyer and Seller must report
information regarding the allocation of the Base Purchase Price, the Assumed
Liabilities, and any other amounts treated as consideration for federal Income
Tax purposes (collectively, the “Allocation Amount”) to the United States
Secretary of Treasury by attaching Department of Treasury, Internal Revenue
Service, Form 8594 to their federal Income Tax returns for the Tax period that
includes the Closing Date. Buyer and Seller agree that the Allocation Amount
shall be allocated for Tax purposes among each class of assets provided for in
Treasury Regulations Section 1.338-6. Buyer will provide an allocation of such
Allocation Amounts among the classes of assets within 90 days after the Closing
Date. Such allocation shall be revised in a manner consistent with Section 1060
of the Code to take into account any adjustments to the Base Purchase Price
under this Agreement, including any indemnification payments under Article XV.
Buyer and Seller shall each prepare their respective Forms 8594 with respect to
the Transaction in a manner consistent with such allocation, as adjusted. 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; provided, however, that no Party shall be
unreasonably impeded in its ability and discretion to negotiate, compromise,
and/or settle any Tax audit, claim, or similar proceedings in connection with
such allocation.

Section 10.9 Post-Closing Tax Matters. After Closing, Buyer and Seller shall:

(a) reasonably cooperate and assist the other (1) in preparing any Tax Returns
regarding any Tax relating to the Assets, or the Transaction, and (2) in
qualifying for any exemption or reduction in Tax that may be available;

(b) reasonably cooperate in preparing for any audits, examinations, or other Tax
proceedings by, or disputes with, taxing authorities regarding any Tax relating
to the Assets or the Transaction;

(c) make available to the other, and to any taxing authority as reasonably
requested, any information, records, and documents relating to a Tax incurred or
imposed in connection with the Assets or the Transaction;

(d) provide timely notice to the other in writing of any pending or threatened
Tax audit, examination, or assessment that could reasonably be expected to
affect the other’s Tax liability for Asset Taxes under this Agreement (a “Tax
Controversy”), and to promptly furnish the other with copies of all
correspondence with the applicable Governmental Authority with respect to any
Tax Controversy; and

 

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(e) allow the other to participate, at its own expense, in any Tax Controversy,
and not settle any Tax Controversy without the prior written consent of the
other, which may not be unreasonably withheld, conditioned, or delayed.

ARTICLE XI

CONDITIONS PRECEDENT TO CLOSING

Section 11.1 Seller’s Conditions Precedent. The obligations of Seller to
consummate the Transaction are subject to the satisfaction or waiver by Seller
at or prior to Closing of the following conditions precedent:

(a) (i) each of the representations and warranties of Buyer contained in Article
VII shall be true and correct as of the Closing Date in accordance with their
terms as if such representations and warranties were remade at and as of such
date (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), except where the failure to be so true
and correct (without giving effect to any limitation or qualification as to
materiality or material adverse effect), individually or in the aggregate has
not and would not reasonably be expected to materially impair the ability of
Buyer to consummate the Transaction and perform its obligations under this
Agreement, (ii) Buyer shall have performed or satisfied all covenants and
agreements required by this Agreement to be performed and satisfied by Buyer at
or prior to Closing in all material respects, and (iii) Buyer shall have
delivered the Buyer’s Certificate to Seller confirming that the conditions
precedent set forth in Section 11.1(a)(i) and Section 11.1(a)(ii) have been
satisfied in all respects;

(b) other than an order affecting only a portion of the Assets that is treated
as a Casualty Loss, no order shall have been entered by any court or
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 all relevant waiting periods under
the HSR Act shall have expired or been terminated;

(c) the aggregate amount of the sum of all Remediation Costs for Environmental
Defects, the Exclusion Adjustment, and the CLIF Amount, if applicable, shall not
exceed $30,000,000.00; and

(d) Buyer shall be ready, willing, and able to perform each of the actions and
deliver those deliverables specified in Section 13.4 as required to be delivered
by or on behalf Buyer at Closing.

Section 11.2 Buyer’s Conditions Precedent. The obligations of Buyer at Closing
are subject to the satisfaction or waiver at or prior to Closing of the
following conditions precedent:

(a) (i) each of the representations and warranties of Seller contained in this
Agreement shall be true and correct at and as of Closing in accordance with
their terms as if such representations and warranties were remade at and as of
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), except where the failure to be so
true and correct (without giving effect to any limitation or qualification as to
materiality or Material Adverse Effect), individually or in the aggregate has
not had and would not reasonably be expected to result in a Material Adverse
Effect, (ii) 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 Closing in all material respects, and (iii) Seller shall have
delivered the Seller’s Certificate to Buyer confirming the foregoing;

 

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(b) other than an order affecting only a portion of the Assets that is treated
as a Casualty Loss, no order shall have been entered by any court or
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 all relevant waiting periods under
the HSR Act shall have expired or been terminated;

(c) the aggregate amount of the sum of all Remediation Costs for Environmental
Defects, the Exclusion Adjustment, and the CLIF Amount, if applicable, shall not
exceed $30,000,000.00; and

(d) Seller shall be ready, willing, and able to perform each of the actions and
deliver those deliverables specified in Section 13.3 as required to be delivered
by or on behalf of Seller at Closing.

ARTICLE XII

RIGHT OF TERMINATION AND ABANDONMENT

Section 12.1 Termination. This Agreement may be terminated prior to Closing as
follows:

(a) by mutual written consent of Seller and Buyer;

(b) by Seller or Buyer by written notice to the other Party if the Closing does
not occur on or before 5:00 pm in Denver, Colorado, on May 15, 2020 (the
“Outside Date”); provided that such failure does not result primarily from the
terminating Party’s material breach of this Agreement; provided, however, if the
conditions set forth in Section 11.1 (other than Section 11.1(c)) and
Section 11.2 (other than Section 11.2(c)) have been satisfied or waived as of
the Outside Date, and an arbitration is pending under Section 5.2(b) or
Section 9.4(d), then neither Party shall be permitted to terminate this
Agreement under this Section 12.1(b) until a decision has been rendered by the
applicable arbitrator;

(c) by Seller, at or after the Scheduled Closing Date, by written notice to
Buyer (so long as Seller is not then in material breach of any of its
representations, warranties, covenants or agreements contained in this
Agreement) if there has been a breach of any of Buyer’s representations,
warranties, covenants or agreements contained in this Agreement that would
result in the failure of a condition set forth in Section 11.1 (other than
Section 11.1(b) or Section 11.1(c)), and which breach has not been cured or
cannot be cured by the Outside Date; provided, however, Seller may not to
terminate this Agreement under this Section 12.1(c) if as of such time the sole
reason that the conditions set forth in Section 11.1 are not satisfied or are
not capable of satisfaction at such time through no fault of Seller and are not
waived by Seller is because the Parties are resolving Environmental Disputed
Matters under Section 5.2(b) or Disputed CLIF Matters under Section 9.4(d); or

(d) by Buyer, at or after the Scheduled Closing Date, by written notice to
Seller (so long as Buyer is not then in material breach of any of its
representations, warranties, covenants or agreements contained in this
Agreement), if there has been a breach of any of Seller’s representations,
warranties, covenants or agreements contained in this Agreement that would
result in the failure of a condition set forth in Section 11.2 (other than
Section 11.2(b) or Section 11.2(c)), and which breach has not been cured or
cannot be cured by the Outside Date; provided, however, Buyer may not to
terminate this Agreement under this Section 12.1(d) if as of such time the sole
reason that the conditions set forth in Section 11.2 are not satisfied or are
not capable of satisfaction at such time through no fault of Buyer and are not
waived by Buyer is because the Parties are resolving Environmental Disputed
Matters under Section 5.2(b) or Disputed CLIF Matters under Section 9.4(d).

 

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Any termination under Section 12.1(a) through Section 12.1(d) is effective upon
the non-terminating Party’s receipt of the terminating Party’s written notice of
termination.

Section 12.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 12.1, all further obligations of the Parties under this Agreement shall
terminate; provided that (a) such termination shall not impair nor restrict the
rights of either Party against the other with respect to Section 12.3, and
(b) the following provisions shall survive the termination: Section 3.2, 12.2,
12.3, 15.6(c), 16.2 through 16.4, 16.7 through 16.11 and 16.14 and such defined
terms in Annex I as may be required to give meaning to such sections, shall
survive termination of this Agreement.

Section 12.3 Remedies.

(a) If Seller terminates this Agreement under Section 12.1(b) (only in the event
Seller is ready, willing and able to comply with Section 13.3 on or prior to
such date, but due to Buyer’s failure to consummate the Closing, the Closing has
not occurred by the Outside Date) or Section 12.1(c), then, as its sole and
exclusive remedy, Seller shall have the right to retain the Deposit as
liquidated damages and not as a penalty, and, in such case, Buyer and Seller
shall immediately (but in no event later than two Business Days after
termination) execute a joint instruction to distribute the Deposit and all
proceeds and interest earned thereon to Seller in accordance with the terms of
the Escrow Agreement. The Parties agree that the monetary damages set forth in
this Section 12.3(a) will be deemed liquidated damages (not a penalty) and
acknowledge that the actual damages caused by a Party’s material breach of this
Agreement would be impracticable or extremely difficult to estimate and agree
that the Deposit would be a reasonable liquidated damages amount for such
material breach. Seller shall have no right to seek specific performance to
require Buyer to close.

(b) If Buyer shall be entitled to elect to terminate this Agreement under
Section 12.1(b) (only in the event Buyer is ready, willing and able to comply
with Section 13.4 prior to such date, but due to Seller’s failure to consummate
the Closing, the Closing has not occurred by the Outside Date) or
Section 12.1(d), then, Buyer shall have the right, as its sole and exclusive
remedies, to (i) terminate this Agreement and recover the Deposit and all
interest and proceeds earned thereon in accordance with Section 12.3(b) and
(ii) sue for damages in an amount not to exceed $10,000,000.00. Buyer shall have
no right to seek specific performance to require Seller to close.

(c) Termination Under Section 12.1. If this Agreement is terminated for any
reason other than pursuant to Section 12.3(a), then Buyer and Seller shall
immediately (but in no event later than two Business Days after termination)
execute a joint instruction to distribute the Deposit and all interest and
proceeds earned thereon to Buyer in accordance with the terms of the Escrow
Agreement. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE REMEDIES SET FORTH IN THIS
SECTION 12.3 SHALL BE THE PARTIES’ SOLE AND EXCLUSIVE REMEDIES FOR THE FAILURE
OF THE PARTIES TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREUNDER PRIOR TO
CLOSING.

ARTICLE XIII

CLOSING

Section 13.1 Date of Closing. The closing of the Transaction (“Closing”) shall,
unless otherwise agreed to in writing by the Buyer and Seller, be held on
March 31, 2020 (the “Scheduled Closing Date”), or, if all conditions in Article
XI required to be satisfied at or prior to Closing have not 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 XII; provided,
however, that if there exists any Dispute as to whether any termination right in
Article XII has been triggered or if any of the conditions precedent in Article
XI have failed to be satisfied, the Closing shall occur 10 Business Days after
the final determination of such Dispute (the date on which the Closing actually
occurs, the “Closing Date”).

 

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Section 13.2 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.

Section 13.3 Deliveries by Seller. At Closing, Seller shall execute and deliver,
or cause to be executed and delivered, to Buyer the following:

(a) a counterpart of the Assignment, duly executed by Seller;

(b) a counterpart to the Preliminary Settlement Statement delivered under
Section 2.3, duly executed by Seller;

(c) the Seller’s Certificate, duly executed by Seller;

(d) a counterpart of the Services Agreement and Memorandum of Agreement thereof,
duly executed by Seller;

(e) a counterpart of the Deed, duly executed by Seller.

(f) a counterpart of the Surface Use Agreement, duly executed by Seller.

(g) a counterpart of the Joint Use Agreement, duly executed by Seller;

(h) a counterpart of the Performance Incentive Agreement, duly executed by
Seller;

(i) a counterpart of the Side Letter, duly executed by Seller;

(j) a counterpart of the joint written instructions directing Escrow Agent to
release the Deposit to Seller, duly executed by Seller;

(k) evidence that Seller has cured the items identified as “Required Curative
Matters” on Section 8.4 of the Disclosure Schedule to Buyer’s reasonable
satisfaction;

(l) lien releases in form and substance reasonably satisfactory to Buyer,
effecting the full and complete release of all Encumbrances by, through or under
Seller or its Affiliates and burdening the Assets (with the exception of
Permitted Encumbrances), duly executed by the holders thereof;

(m) a Certificate of Non-Foreign Status of Seller (or its regarded owner if
Seller is disregarded as separate from its owner for U.S. federal income Tax
purposes) executed by the appropriate Person and that meets the requirements set
forth in Treasury Regulation § 1.1445-2(b)(2), in the form attached as
Exhibit J;

(n) copies of each consent and approval required to be obtained by Seller in
accordance with Section 6.8; and

 

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(o) any other agreements, instruments and documents which are required by other
terms of this Agreement to be executed and/or delivered by Seller to Buyer at
the Closing or as are reasonably requested by the Buyer in order to consummate
the Transaction.

Section 13.4 Deliveries by Buyer. At Closing, Buyer shall deliver, or cause to
be delivered, to Seller the following:

(a) the Closing Amount in immediately available funds to an account designated
by Seller;

(b) a counterpart of the Assignment, duly executed by Buyer;

(c) a counterpart to the Preliminary Settlement Statement delivered under
Section 2.3, duly executed by Buyer;

(d) the Buyer’s Certificate, duly executed by Buyer;

(e) a counterpart of the Services Agreement and Memorandum of Agreement thereof,
duly executed by Buyer;

(f) a counterpart of the Deed, duly executed by Buyer.

(g) a counterpart of the Surface Use Agreement, duly executed by Buyer.

(h) a counterpart of the Joint Use Agreement, duly executed by Buyer;

(i) a counterpart of the Performance Incentive Agreement, duly executed by
Buyer;

(j) a counterpart of the Side Letter, duly executed by Buyer;

(k) a counterpart of the joint written instructions directing Escrow Agent to
release the Deposit to Seller, duly executed by Buyer;

(l) evidence that Buyer has provided replacement instruments as required under
Section 9.6; and

(m) any other agreements, instruments and documents which are required by other
terms of this Agreement to be executed and/or delivered by Seller to Buyer at
the Closing or as are reasonably requested by the Buyer in order to consummate
the Transaction.

ARTICLE XIV

POST-CLOSING COVENANTS

Section 14.1 Post-Closing Adjustments.

(a) Final Settlement Statement. No later than the date that is 90 days after the
Closing Date, 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) the calculation of such
adjustment, and (iii) the final adjustments to the Base Purchase Price (the Base
Purchase Price subject to such final

 

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adjustments is the “Final Purchase Price”). No later than 30 days after receipt
of Seller’s proposed Final Settlement Statement and all supporting
documentation, Buyer shall deliver to Seller a written report (with supporting
documentation including all relevant invoices with specific references and other
information reasonably requested by Seller) 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 60 days after
Seller’s delivery of the proposed Final Settlement Statement. The date upon
which such agreement is reached or upon which the Final Purchase Price is
established is the “Final Settlement Date.” If the Final Purchase Price is more
than the sum of the Closing Amount and the Deposit, Buyer shall pay Seller the
amount of such difference. If the Final Purchase Price is less than the sum of
the Closing Amount and the Deposit, Seller shall pay to Buyer the amount of such
difference. Any payment by a Party under this Section 14.1(a) shall be made by
wire transfer of immediately available funds within five days of the Final
Settlement Date. Subject to and except for the rights and obligations of the
Parties described in Section 14.1(b) or Article XV (with respect to any
obligation related to Taxes), the adjustments set out in the Final Settlement
Statement shall be final settlement of the Parties with respect to all matters
addressed in such Final Settlement Statement.

(b) Dispute Resolution. If the Parties are unable to resolve a Dispute as to the
Final Purchase Price by 60 days after Seller’s delivery of the proposed Final
Settlement Statement, then either Seller or Buyer may submit the Disputed
matters (other than Diligence Disputes, which disputes are governed by
Section 5.2) to be resolved by the Houston, Texas, office of a
nationally-recognized independent accounting firm or consulting firm mutually
acceptable to both Seller and Buyer that neither Seller nor Buyer has contracted
with to perform services in the past five (5) years (the “Accounting Referee”),
for review and final determination by arbitration. If Seller and Buyer have not
agreed upon a mutually acceptable Person to serve as Accounting Referee within
10 Business Days of commencing discussions to agree on such Accounting Referee,
either Party may, within 10 Business Days after the end of such initial 10
Business Day period, formally apply to the Houston, Texas, office of the
American Arbitration Association to choose the Accounting Referee. The
arbitration proceeding shall be held in Houston, Texas, and shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association to the extent such rules do not conflict with the terms of this
Section 14.1(b). The FAA shall govern the interpretation, enforcement and
proceedings under this Section 14.1(b). The Accounting Referee’s award shall be
made within 30 days after submission by the Parties of the Disputed matters
absent an extension of such deadline for good cause (as determined by such
Accounting Referee in its sole discretion). The award of such Accounting Referee
shall be final and binding upon all Parties, without right of appeal. In making
its determination, the Accounting Referee shall be bound by the rules set forth
in Article II and this Section 14.1 and, subject to the foregoing, may consider
such other matters as in the opinion of the Accounting Referee are necessary to
make a proper determination. The Accounting Referee, however, may not render an
award with respect to a disputed adjustment, in each case, in excess of the
highest value for such disputed adjustment as claimed by Buyer or Seller, as
applicable, or below the lowest value for such disputed adjustment as claimed by
Seller or Buyer, as applicable. The Accounting Referee may not otherwise award
damages, interest, or penalties to either Party with respect to any disputed
matter. Seller and Buyer shall each bear their own legal fees and other costs of
presenting their case to the Accounting Referee. Buyer and Seller shall each
bear one half of the costs and expenses of the Accounting Referee. Judgment on
any award of an Accounting Referee may be entered by any court having
jurisdiction thereof.

 

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Section 14.2 Records. Seller agrees to make all Records (as such Records exist
in their native format as of the Execution Date) available to Buyer as soon as
is reasonably practical, but no later than 30 days after the Closing. In the
event that Buyer requests in writing physical copies of the Records that are in
Seller’s or its Affiliates’ possession in electronic form, (i) Seller will (and
shall cause its Affiliates to) provide physical copies of such Records to Buyer
within 30 days following such request, and (ii) Buyer shall pay all actual costs
incurred by Seller and Seller’s Affiliates in retrieving and transferring such
Records. Seller has no duty to convert any of the electronic records into any
file format beyond the native file format that such Records exist in as of the
Execution Date. Seller may retain copies of the Records and 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 within seven years after
Closing unless Buyer first gives Seller reasonable notice and an opportunity to
copy the Records to be destroyed. Buyer acknowledges and agrees that 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, the Retained Liabilities, and any other matter
for which Seller must indemnify Buyer.

Section 14.3 Name Changes. As promptly as practicable, but in any case within 60
days after the Closing, Buyer shall, at its sole cost and expense, eliminate the
name “Centennial Resource Production,” “CRP,” “Centennial Resource Development,”
“CDEV,” “Centennial” and any variants thereof from the Assets and, except with
respect to such grace period for eliminating existing usage, shall have no right
to use any logos, trademarks, or trade names belonging to Seller or any of its
Affiliates.

Section 14.4 Change of Operator. As promptly as practicable after Closing, Buyer
shall file all change of operator forms executed at Closing with the applicable
Governmental Authorities and shall use its best efforts to ensure that such
change of operator forms are filed promptly after Closing.

Section 14.5 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.

ARTICLE XV

ASSUMPTION AND RETENTION OF LIABILITIES; INDEMNIFICATION

Section 15.1 Buyer’s Assumed Liabilities. Without limiting the indemnity
provisions set forth in Section 15.3 and Section 15.4 or Buyer’s and Seller’s
rights and obligations under Section 5.1(b) or Section 5.1(c), and less and
except the Retained Liabilities, at Closing, Buyer shall assume all obligations,
liabilities, and Losses of any kind whatsoever relating or incidental to the
ownership, or operation of the Assets in each case to the extent that the acts,
omissions, events or conditions giving rise to such obligation, liability, or
other Loss arise or occur (a) on or after the Closing Date, or (b) with respect
to the Environmental Liabilities, before, on, or after the Closing Date
(collectively, the “Assumed Liabilities”), including, to the extent consistent
with the foregoing, obligations and liabilities relating or incidental to:

(a) the abandonment of all wellbores, pipelines, flowlines, structures, personal
property, and materials of whatever kind included among the Assets and the
performance of all related plugging operations, dismantling, salvage, removal,
remediation and surface restoration operations and activities pursuant to the
Assets and applicable Laws;

(b) any contamination or condition arising out of or attributable to any offsite
disposal, removal, arrangement, or transportation of Hazardous Substances
related to the Assets,

 

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(c) the performance and discharge of all obligations, covenants, and agreements
arising from or relating to the Material Contracts included among the Assets or
as is required by applicable Laws;

(d) all other claims and liabilities for injury to or death of any person,
persons or other living things, or loss or destruction of or damage to property
affecting or relating to the Assets;

(e) any Buyer Taxes; and

(f) the responsibility for compliance with applicable Laws relating to the
Assets, and the maintenance and, when necessary, procurement of Permits required
by any Governmental Authority in connection therewith, in each case before, on
and after the Closing Date;

Buyer does not assume (i) to the extent and for the periods Seller is obligated
under this Agreement to indemnify any Buyer Indemnified Party under
Section 15.3(a), any Losses for which Seller is obligated under this Agreement
to indemnify any Buyer Indemnified Party, or (ii) the Retained Liabilities. By
assuming in the Assumed Liabilities pursuant to this Section 15.1, Seller and
Buyer do not intend to admit, and are not deemed to have admitted, any liability
to any third Person. Buyer’s assumption of the Assumed Liabilities shall not
affect the Parties’ agreement with respect to adjustments to the Base Purchase
Price under Section 14.1.

Section 15.2 Seller’s Retained Liabilities. Without limiting the indemnity
provisions set forth in Section 15.3 or Buyer’s and Seller’s rights and
obligations under Section 5.1(b) or Section 5.1(c), Seller shall retain and
shall pay, perform, fulfill, and discharge all Losses of any kind whatsoever to
the extent they are attributable to, arise out of or in connection with (all of
the following are, collectively, the “Retained Liabilities”):

(a) any personal injury or death occurring on or attributable to the ownership,
use, or operation of the Assets prior to the Closing Date (except for any
personal injury or death attributable to or resulting from Environmental
Liabilities or Buyer’s access under Section 3.1, all of which are assumed by
Buyer at Closing);

(b) all Losses for violations of Law (other than Environmental Law) arising or
occurring before the Closing Date and related to the operation of the
Non-Buyer-Operated Assets or the ownership of the Assets;

(c) any Seller Taxes;

(d) the items set forth on Section 6.7 of the Disclosure Schedule;

(e) all obligations and liabilities of any kind whatsoever arising from,
relating, or incidental to (i) any employees of Seller or its Affiliates and
Seller’s or its Affiliates’ employment or termination thereof (including express
or implied contracts, wages, bonuses, commissions, and severance benefits) or
(ii) any benefit plans of Seller

(f) all obligations to pay royalties or similar payments attributable to the
Assets prior to the Closing Date; and

(g) any Excluded Assets.

 

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By retaining any liabilities or obligations in this Section 15.2, Seller and
Buyer do not intend to admit, and shall not be deemed to have admitted, any
liability to any third Person.

Section 15.3 Indemnification.

(a) Seller’s Indemnification of Buyer. From and after the Closing, subject to
the limitations set forth in Section 15.4, Seller shall defend, indemnify, save,
and hold harmless the 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 breach or inaccuracy of any representation or warranty made by Seller in
this Agreement;

(3) any breach or nonperformance of any covenant or agreement of Seller
expressly set forth in this Agreement; and

(4) to the extent relating to actual Losses associated with Third-Party Claims
(but not any Losses of Buyer or any of its Affiliates), Environmental
Liabilities to the extent that the acts, omissions, events or conditions giving
rise to such Losses arise or occur prior to the Closing Date.

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

(1) the Assumed Liabilities;

(2) Buyer Taxes;

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

(4) any breach or inaccuracy of any representation or warranty made by Buyer in
this Agreement; and

(5) any breach or nonperformance of any covenant or agreement of Buyer expressly
set forth in this Agreement;

provided that this will not relieve Seller of any of its indemnity obligations
under Section 15.3(a) or require Buyer to indemnify Seller for any Losses to the
extent Buyer is entitled to indemnity from Seller under Section 15.3(a).

(c) Release. The Buyer Indemnified Parties shall be deemed to have released
Seller at the Closing from any Losses for which Buyer has agreed to indemnify
Seller under this Agreement, and the Seller Indemnified Parties shall be deemed
to have released Buyer at Closing from any Losses for which Seller has agreed to
indemnify Buyer under this Agreement.

 

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Section 15.4 Limitation on Seller’s Indemnity Obligations. Notwithstanding
anything contained to the contrary in this Agreement, the following limitations
shall apply:

(a) Threshold. Except for any indemnification pursuant to Section 15.3 related
to Taxes, if a Loss that is the subject of a claim for indemnification by Buyer
Indemnified Parties does not exceed an amount equal to $100,000.00 (“De Minimis
Threshold”) per event or circumstance, then Buyer Indemnified Parties shall not
be entitled to indemnification from Seller for such Loss.

(b) Deductible. Except for any indemnification pursuant to Section 15.3 related
to Taxes or the Fundamental Representations, Seller shall not have any liability
for indemnification to the Buyer Indemnified Parties until and unless the
aggregate amount of all liability for all Losses arising out of or relating to
Section 15.3(a)(2) that exceed the De Minimis Threshold (taking into account the
full amount of liability for such Losses and not just the amount that exceeds
the De Minimis Threshold) exceeds a deductible equal to $3,000,000.00 (the
“Indemnity Deductible”), after which point the Buyer Indemnified Parties shall
be entitled to claim such Losses solely for the amount in excess of the
Indemnity Deductible, subject to the other limitations set forth in this
Agreement.

(c) Cap. Except for any indemnification pursuant to Section 15.3 related to
Taxes or the Fundamental Representations, in no event shall Seller’s aggregate
liability arising out of or relating to Section 15.3(a)(2) with respect to a
breach by Seller of or any inaccuracy in any representation or warranty made by
Seller in this Agreement exceed $30,000,000.00, and in no event shall Seller’s
aggregate liabilities arising out of or relating to Section 15.3 exceed an
amount equal to the Final Purchase Price.

(d) Environmental Deductible. Seller shall not have any liability for
indemnification to the Buyer Indemnified Parties under Section 15.3(a)(4) unless
and until the sum of (i) all liability for all Losses arising out of or relating
to Section 15.3(a)(4) that exceed the Environmental Deductible (taking into
account the full amount of liability for such Losses and not just the amount
that exceeds the De Minimis Threshold) plus (ii) the aggregate amount of all
Remediation Costs for Environmental Defects, exceeds the Environmental
Deductible, after which point the Buyer Indemnified Parties shall be entitled to
claim indemnification by Seller for such Losses solely for the amount in excess
of the Environmental Deductible, subject to the other limitations set forth in
this Agreement.

(e) Materiality. For purposes of determining the amount of Losses (but not for
the purpose of determining whether a particular representation or warranty has
been breached) for which Buyer is entitled to indemnification under
Section 15.3(a)(2), as the case may be, each representation and warranty set
forth in this Agreement, and any qualification with respect to any
representation or warranty set forth in the Disclosure Schedule, shall be read
without regard for or giving effect to “material,” “materially,” “material
adverse effect,” and words of similar qualification. A Party’s knowledge of any
particular fact or circumstance at any time will not affect that Party’s right
to indemnification hereunder.

Section 15.5 Exclusive Remedy. EXCEPT (A) AS PROVIDED IN ARTICLE X, (B) WITH
RESPECT TO ENVIRONMENTAL DEFECTS, ALL OF WHICH MUST BE ASSERTED BEFORE THE
DEFECT NOTICE DATE OR SUCH ENVIRONMENTAL DEFECTS ARE WAIVED AND SUBJECT TO AND
WITHOUT LIMITING BUYER’S RIGHTS AND REMEDIES UNDER ARTICLE V AND
SECTION 15.3(A), (C) WITH RESPECT TO FRAUD (AS DEFINED IN THIS AGREEMENT), AND
(D) FOR ANY AND ALL RIGHTS TO SEEK SPECIFIC PERFORMANCE FOR THE BREACH OR
FAILURE OF A PARTY TO PERFORM ANY COVENANTS REQUIRED TO BE PERFORMED AFTER
CLOSING, BUYER AND SELLER ACKNOWLEDGE AND AGREE THAT FROM AND AFTER THE CLOSING,
THE INDEMNIFICATION PROVISIONS OF ARTICLE XV ARE THE SOLE AND EXCLUSIVE RECOURSE
OF SELLER AND BUYER, FOR THE BREACH OF ANY

 

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REPRESENTATION OR WARRANTY OR NONFULFILLMENT OF ANY COVENANT OR AGREEMENT ON THE
PART OF SELLER OR BUYER RELATING TO THIS AGREEMENT OR CONFIRMED IN ANY
CERTIFICATE DELIVERED PURSUANT HERETO OR CONTAINED IN ANY TRANSACTION DOCUMENT,
AND SELLER DOES HEREBY RELEASE, ACQUIT AND FOREVER DISCHARGE ALL BUYER
INDEMNIFIED PARTIES AND BUYER DOES HEREBY RELEASE, ACQUIT AND FOREVER DISCHARGE
ALL SELLER INDEMNIFIED PARTIES FROM ANY SUCH OTHER REMEDIES.

Section 15.6 Procedure. All claims for indemnification under this Agreement
shall be asserted and resolved as follows:

(a) Claim Notice. Any Buyer Indemnified Party or Seller Indemnified Party
seeking indemnification under the terms of this Agreement (“Indemnified Party”)
with respect to any claim asserted against an Indemnified Party by a third
Person (a “Third-Party Claim”) in respect of any matter that is subject to
indemnification under Section 15.3 shall promptly submit a written notice
(“Claim Notice”) to the other Party (“Indemnifying Party”) of the Third-Party
Claim, which, to be effective, must state: (i) the Indemnified Party’s good
faith, reasonable estimate of the amount claimed by such Indemnified Party to be
owing, (ii) the basis for such claim, described in reasonable detail with
supporting documentation and a copy of all papers served with respect to such
Third-Party Claim, if applicable, and (iii) a list identifying to the extent
reasonably possible each separate item of Loss for which payment is so claimed
to such Indemnified Party. The failure of an Indemnified Party to timely provide
a Claim Notice shall not affect the right of the Indemnified Party’s
indemnification under this Agreement except to the extent that the defense of
such Third-Party Claim is materially prejudiced by the failure to give such
notice. If the Indemnifying Party or its counsel so requests, the Indemnified
Party shall furnish the Indemnifying Party with copies of all pleadings and
other information with respect to such Third-Party Claim. The Indemnified Party
is authorized, prior to the election by the Indemnifying Party to assume the
defense of such Third-Party Claim, 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 shall be included as Losses in respect of such claim for
indemnification.

(1) At the election of the Indemnifying Party, which shall be made within 45
days after receipt of the Claim Notice related thereto, if such election is
timely made, the Indemnified Party shall permit the Indemnifying Party to assume
control of the defense of such Third-Party Claim (such election to be without
prejudice to the right of the Indemnifying Party to dispute whether such claim
is an indemnifiable claim under this Article XV), to defend such Third-Party
Claim with counsel selected by the Indemnifying Party (who shall be reasonably
satisfactory to the Indemnified Party), by all appropriate means, to a final
conclusion or settlement at the discretion of the Indemnifying Party in
accordance with this Section 15.6(a)(1). If the Indemnifying Party elects to
assume control of the defense of the Third-Party Claim, (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, including the making of any related counterclaim against the
Person asserting the Third-Party Claim or any cross complaint against any
Person. The Indemnified Party may retain separate co-counsel at its sole cost
and expense and participate in, but not control, the defense of the Third-Party
Claim. If the Indemnifying Party elects to defend the Third-Party Claim under
this Section 15.6(a)(1), then the Indemnifying Party shall work diligently to
defend the Third-Party Claim.

 

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(2) If the Indemnifying Party does not elect to assume control of the defense of
the Third-Party Claim within the 45-day period provided in Section 15.6(a)(1),
the Indemnified Party will use its Reasonable Efforts to defend, at the
Indemnifying Party’s expense (but only if the Indemnified Party is actually
entitled to indemnification hereunder), in regards to the Third-Party Claim with
counsel selected by the Indemnified Party (who shall be reasonably satisfactory
to the Indemnifying Party), by all appropriate proceedings, which proceedings
shall be prosecuted diligently by the Indemnified Party. In such circumstances,
the Indemnified Party shall defend any such Third-Party Claim in good faith and
have full control of such defense and proceedings; provided that the Indemnified
Party may not enter into any compromise or settlement of such Third-Party Claim
if indemnification is to be sought hereunder without the Indemnifying Party’s
consent (which consent shall not be unreasonably withheld, conditioned, or
delayed). The Indemnifying Party may retain separate co-counsel at its sole cost
and expense and participate in, but not control, the defense of the Third-Party
Claim.

(3) The Indemnifying Party shall not enter into any judgment, compromise,
settlement, or discharge with respect to the Third-Party Claim without the prior
written consent of the Indemnified Party (such consent not to be unreasonably
withheld, conditioned, or delayed), unless such judgment, compromise,
settlement, or discharge (w) provides for the payment by the Indemnifying Party
of money as the sole relief for the claimant, (x) involves no finding or
admission of any violation of Law or the rights of any Indemnified Party,
(y) 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
(z) includes, as a condition of any entry of judgment, settlement, compromise,
discharge, or other resolution, a complete and unconditional general release by
the third Person asserting the claim of each affected Indemnified Party from any
and all liabilities in respect of such Third-Party Claim.

(4) In the case of a conflict between this Section 15.6(a) and Section 10.9,
Section 10.9 will control.

(b) Direct Claims. If an Indemnified Party determines that it has a claim for
indemnification under this Agreement against the Indemnifying Party other than
as a result of a Third-Party Claim (a “Direct Claim”), the Indemnified Party and
the Indemnifying Party shall negotiate in good faith for a 30-day period
beginning on the date the Indemnified Party provides the Claim Notice to the
Indemnified Party for such Direct Claim. If the Indemnified Party and the
Indemnifying Party are unable to reach a resolution as to such Direct Claim
within the 30-day period, the Indemnified Party will be entitled to seek
appropriate remedies in accordance with the terms of this Agreement, including
the limitations on recovery in this Article XV. Promptly following the final
determination of the amount of any Losses claimed by the Indemnified Party in
the Direct Claim, the Indemnifying Party shall pay such Losses, if any, to the
Indemnified Party by wire transfer of immediately available funds. If the
Indemnified Party is required to institute any proceedings in order to recover
Losses, the cost of such proceedings (including costs of investigation and
reasonable attorneys’ fees and disbursements) will be added to the amount of
Losses payable to the Indemnified Party if and only to the extent the
Indemnified Party recovers and it is determined by the Arbitrators to be
entitled to such treatment.

 

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(c) Non-Party Indemnified Parties. Any claim for indemnity under this Agreement
(including this Article XV) by any Person other than Buyer or Seller must be
brought and administered by the applicable Party to this Agreement. No
Indemnified Party or Person other than Seller and Buyer shall have any rights
against Seller or Buyer under this Agreement (including this Article XV) except
as may be exercised on its behalf by Buyer or Seller, as applicable, under this
Article XV. Each of Seller and Buyer may elect to exercise or not exercise
indemnification rights under this Article XV on behalf of the other Indemnified
Party affiliated with such Party in its sole discretion and shall have no
liability to any such other Indemnified Party for any action or inaction under
this Article XV. Without limiting the rights of Seller under and to the extent
provided under Section 12.3, except to the extent a named Party to this
Agreement (and then only to the extent of the specific obligations undertaken by
such named Party in this Agreement), (i) no past, present, or future director,
officer, employee, incorporator, member, partner, stockholder, agent, attorney,
advisor, or Representative or Affiliate of any named Party to this Agreement,
and (ii) no past, present, or future director, officer, employee, incorporator,
member, partner, stockholder, agent, attorney, advisor, or Representative or
Affiliate of any of the foregoing shall have any liability (whether in contract,
tort, equity or otherwise) for any one or more of the representations,
warranties, covenants, agreements, or other obligations or liabilities of Seller
or Buyer under this Agreement (whether for indemnification or otherwise) of or
for any claim based on, arising out of, or related to this Agreement or the
Transaction.

Section 15.7 Express Negligence. THE DEFENSE, INDEMNIFICATION, HOLD HARMLESS,
RELEASE, ASSUMED LIABILITIES, RETAINED 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.

Section 15.8 No Insurance. The indemnifications provided in this Agreement shall
not be construed as a form of insurance.

Section 15.9 Reservation as to Third-Parties. Nothing in this Agreement 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 suffered
by or incurred with respect to the Assets, the Retained Liabilities, or the
Assumed Liabilities.

Section 15.10 Reduction in Losses. Each Indemnified Party shall use Reasonable
Efforts to mitigate any Losses to the extent required by Law or by using
Reasonable Efforts to maintain customary insurance coverage with respect to the
Assets, the Retained Liabilities or the Assumed Liabilities and validly making
and diligently pursuing claims relating to the Assets, the Retained Liabilities,
or the Assumed Liabilities under this Agreement, including any insurance claims.
The amount of any Losses for which an Indemnified Party is entitled to indemnity
under this Article XV shall be reduced by the amount of insurance proceeds
actually realized by the Indemnified Party or its Affiliates with respect to
such Losses.

Section 15.11 Tax Treatment of Indemnification Payments. All indemnification
payments made under this Agreement shall be treated by the Parties as an
adjustment to the Base Purchase Price for U.S. federal and applicable state
income Tax purposes, unless otherwise required by Law.

Section 15.12 Survival.

(a) Seller’s Representations and Warranties. All Non-Fundamental Representations
of Seller shall survive the Closing until the date that is 12 months after the
Closing Date. The Fundamental Representations shall survive the Closing without
time limit, except for those contained in Section 6.12, which shall survive the
Closing until the date that is 60 days after the expiration of all applicable
statutes of limitation.

 

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(b) Seller’s Indemnity for Pre-Closing Environmental Liabilities. Seller’s
indemnity obligations under Section 15.3(a)(4) shall survive the Closing until
the date that is 12 months after the Closing Date. As a condition precedent to
Seller’s indemnity obligations under Section 15.3(a)(4) if Seller does not
receive from Buyer (either on behalf of itself or on behalf of any other Buyer
Indemnified Party under Section 15.6(c)) a Claim Notice before the date that is
12 months after the Closing Date, Seller has no obligation to indemnify the
Buyer Indemnified Parties for any such Losses arising under Section 15.3(a)(4)
and Buyer (on behalf of itself and on behalf of the Buyer Indemnified Parties)
hereby waives all rights to receive indemnification from Seller pursuant to
Section 15.3(a)(4) for any Losses claimed, alleged, incurred, or otherwise in
such Claim Notice not timely delivered in accordance with this Section 15.12(b).

(c) Seller’s Covenants. Each of (i) the covenants and performance obligations of
Seller set forth in this Agreement to be performed prior to or at Closing shall
survive until the date that is six months after the Closing Date, and (ii) the
covenants and performance obligations of Seller set forth in this Agreement or
any Transaction Document to be performed after Closing shall survive until fully
performed.

(d) Seller’s Retained Liabilities. All Retained Liabilities of Seller shall
survive until the date that is 60 days after the expiration of all applicable
statutes of limitation.

(e) Buyer’s Representations and Covenants. The representations, warranties,
covenants and performance obligations of Buyer in this Agreement and the other
documents executed at Closing, and all covenants, assumptions, and indemnities
set forth in this Article XV shall survive the Closing indefinitely.

(f) Survival After Claim. Notwithstanding Sections 15.12(a) through 15.12(d), if
a Claim Notice has been properly delivered under Section 15.6 on or before the
date any representation, warranty, covenant, indemnity 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, indemnity or performance obligation,
such representation, warranty, covenant, indemnity 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, indemnity or
performance obligation have been fully and finally resolved or by agreement of
the Parties and satisfied.

(g) Reasonableness. The Parties acknowledge that the time limitations set forth
in this Section 15.12 for making a claim for indemnification are reasonable.

ARTICLE XVI

MISCELLANEOUS

Section 16.1 Expenses. Except as otherwise specifically provided herein, all
fees, costs, and expenses incurred by Buyer or Seller in negotiating this
Agreement or in consummating the Transaction shall be paid by the Party
incurring the same, including engineering, land, title, legal and accounting
fees, consultant, and other professional costs and expenses. Buyer shall be
solely responsible and pay for (a) all recording fees related to the transfer of
the Assets (and, for the sake of clarity, shall be responsible for the recording
of documents in the appropriate county offices and in the files of the
applicable Governmental Authorities), and (b) any and all fees, costs, and
similar charges required in connection with the transfer of any of the Assets
(excluding, for the avoidance of doubt, any reasonable expenses required to
obtain the Required Consents, or in connection with the curative matters set
forth on Section 8.4 of the Disclosure Schedule).

 

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Section 16.2 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 electronic mail, upon the sending Party’s receipt
of a confirmation email (including read-receipt or other automatic delivery
confirmation) from the receiving Party that the receiving Party received the
notice or communication email transmission, when received, (c) if mailed, five
Business Days after mailing, certified mail, return receipt requested, or (d) if
sent by overnight courier, one day after sending (provided, that if such day is
not a Business Day, such notice or communication shall be deemed received on the
first Business Day thereafter). All notices shall be addressed as follows:

If to Seller:

Centennial Resource Production, LLC

1001 17th Street, Suite 1800

Denver, CO 80202

Attn: Davis O’Connor – Vice President and General Counsel

And with a copy to (which will not constitute notice):

Davis Graham & Stubbs LLP

1550 17th Street, Suite 500

Denver, CO 80202

Attn: Sam Niebrugge

If to Buyer:

WaterBridge Texas Midstream LLC

840 Gessner Road, Suite 100

Houston, Texas 77024

Attn: General Counsel

And with a copy to (which will not constitute notice):

Winston & Strawn LLP

800 Capitol Street, Suite 2400

Houston, Texas 77002

Attn: Isaac Griesbaum

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

 

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Section 16.3 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.

Section 16.4 Waiver. Except as expressly provided in this Agreement:

(a) 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;

(b) 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; and

(c) no failure or delay on the part of any Party to exercise or enforce any
claim, power, right, privilege, remedy, or condition under this Agreement or to
require the satisfaction of any condition under this Agreement and no course of
dealing between or among the Parties shall operate as a waiver, discharge, or
estoppel of any such claim, power, right, privilege, remedy, or condition.

Section 16.5 Assignment. No 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 for any or no reason in 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 such purported assignment
or delegation in breach of the previous sentence is void.

Section 16.6 Announcements. No press release or other public announcement, or
public statement or public comment in response to any inquiry, relating to this
Agreement or the Transaction shall be issued or made by Seller or the Buyer, or
any of their respective Affiliates, without the prior written consent of the
other Party, as the case may be. Notwithstanding the immediately preceding
sentence, the Parties agree that:

(a) a press release or other public announcement, regulatory filing, statement
or comment made without such consent shall not be in violation of this
Section 16.6 if (i) it is made in order to comply with applicable Laws or stock
exchange rules and (ii) in the reasonable judgment of the Party or Affiliate
making such release or announcement, based upon advice of counsel, obtaining
consent from the other Party would prevent dissemination of such release or
announcement in a sufficiently timely fashion to comply with such applicable
Laws or rules;

(b) in all instances Buyer, on the one hand, or Seller, on the other hand, shall
provide prompt notice of any such proposed release, announcement, statement, or
comment to the other Party and shall provide the other Party with the
opportunity to provide comments with respect to such proposed press release or
publicity (which comments shall be considered in good faith by the proposing
Party); and

(c) Seller and its Affiliates are permitted to issue a press release after the
execution of this Agreement after consulting with Buyer under Section 16.6(b).

 

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Section 16.7 Counterpart 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
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 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 electronic scan transmission in .pdf
format shall promptly thereafter deliver a manually executed counterpart
signature page to each of the other Party; provided that the failure to do so
shall not affect the validity, enforceability, or binding effect of this
Agreement.

Section 16.8 Governing Law; Jurisdiction.

(a) THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS, EXCLUDING ALL CONFLICTS OF LAWS PROVISIONS CALLING FOR
APPLICATION OF THE LAWS OF ANOTHER STATE.

(b) Except for Diligence Disputes, which shall be resolved under Section 5.2(b),
and Disputes as to the Final Purchase Price, which shall be resolved under
Section 14.1(b), the Parties agree that the appropriate, exclusive and
convenient forum for any Disputes between the Parties arising out of this
Agreement or the Transaction shall be in any state or federal court in Houston,
Texas, and each of the Parties irrevocably submits to the jurisdiction of such
courts solely in respect of any legal proceeding arising out of or related to
this Agreement. The Parties further agree that the Parties shall not bring suit
with respect to any Disputes arising out of this Agreement or the Transaction in
any court or jurisdiction other than the above specified courts; provided that
the foregoing shall not limit the rights of the Parties to obtain execution of
judgment in any other jurisdiction. The Parties further agree, to the extent
permitted by Law, that a final and unappealable judgment against a Party in any
action or proceeding contemplated above shall be conclusive and may be enforced
in any other jurisdiction within or outside the United States by suit on the
judgment, a certified copy of which shall be conclusive evidence of the fact and
amount of such judgment. Except to the extent that a different determination or
finding is mandated due to the Law being that of a different jurisdiction, the
Parties agree that all judicial determinations or findings by a state or federal
court in Houston, Texas, with respect to any matter under this Agreement shall
be binding.

(c) EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE
RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND
THE TRANSACTION DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE PARTIES ENTERING INTO THIS AGREEMENT.

Section 16.9 Entire Agreement. This Agreement, including the Exhibits and
Schedules, the Confidentiality Agreement, and the other Transaction Documents
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.

Section 16.10 Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, the Parties and their respective successors and
permitted assigns.

 

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Section 16.11 No Third-Party Beneficiaries. Subject to Section 15.6(c), except
for the Buyer Indemnified Parties and the Seller Indemnified Parties, all of
which Persons are expressly made third-party beneficiaries to this Agreement for
purposes of Article XV, this Agreement is intended to benefit only the Parties
and their respective successors and permitted assigns.

Section 16.12 Time of the Essence. Time is of the essence in this Agreement.

Section 16.13 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.

Section 16.14 Limitation on Damages. NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY
OR TO ANY OTHER PARTY’S INDEMNIFIED PARTIES FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, PUNITIVE, EXEMPLARY, OR INCIDENTAL DAMAGES SUFFERED BY SUCH PARTY
RESULTING FROM OR ARISING OUT OF THIS AGREEMENT OR THE BREACH THEREOF (INCLUDING
CLAIMS PURSUANT TO SECTION 12.3 OR ARTICLE XV) OR UNDER ANY OTHER THEORY OF
LIABILITY, WHETHER TORT, NEGLIGENCE, STRICT LIABILITY, BREACH OF CONTRACT,
WARRANTY, INDEMNITY, OR OTHERWISE, INCLUDING LOSS OF USE, INCREASED COST OF
OPERATIONS, LOSS OF PROFIT OR REVENUE, OR BUSINESS INTERRUPTIONS. IN FURTHERANCE
OF THE FOREGOING, EACH PARTY RELEASES THE OTHER PARTY AND WAIVES ANY RIGHT OF
RECOVERY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, EXEMPLARY, OR
INCIDENTAL DAMAGES SUFFERED BY SUCH PARTY REGARDLESS OF WHETHER ANY SUCH DAMAGES
ARE CAUSED BY ANY OTHER PARTY’S NEGLIGENCE (AND REGARDLESS OF WHETHER SUCH
NEGLIGENCE IS SOLE, JOINT, CONCURRENT, ACTIVE, PASSIVE, OR GROSS NEGLIGENCE),
FAULT, OR LIABILITY WITHOUT FAULT. THE EXCLUSION OF SPECIAL, INDIRECT,
CONSEQUENTIAL, PUNITIVE, EXEMPLARY, OR INCIDENTAL DAMAGES AS SET FORTH IN THE
PRECEDING SENTENCE SHALL NOT APPLY TO ANY SUCH DAMAGES RECOVERED BY THIRD
PARTIES AGAINST A BUYER INDEMNIFIED PARTY OR A SELLER INDEMNIFIED PARTY, AS THE
CASE MAY BE, IN CONNECTION WITH LOSSES THAT MAY BE INDEMNIFIED UNDER THIS
AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THE AGREEMENTS CONTAINED IN THIS
SECTION 16.14 ARE AN INTEGRAL PART OF THE TRANSACTION, AND THAT, WITHOUT THESE
AGREEMENTS, THE PARTIES WOULD NOT ENTER INTO THIS AGREEMENT.

Section 16.15 Waiver of Consumer Rights Under Texas Deceptive Trade Practices
Consumer Protection Act. Buyer certifies that it is not a “consumer” within the
meaning of the Texas Deceptive Trade Practices Consumer Protection Act, as
amended, and any similar Laws related to the protection of consumers applicable
in any other jurisdictions. Buyer covenants, for itself and for and on behalf of
any successor or assignee, that, if the Texas Deceptive Trade Practices Consumer
Protection Act is applicable to this Agreement, AFTER CONSULTATION WITH
ATTORNEYS OF BUYER’S OWN SELECTION, BUYER HEREBY VOLUNTARILY WAIVES AND RELEASES
ALL OF BUYER’S RIGHTS AND REMEDIES UNDER THE TEXAS DECEPTIVE TRADE PRACTICES
CONSUMER PROTECTION ACT AS APPLICABLE TO SELLER AND SELLER’S SUCCESSORS AND
ASSIGNS IN CONNECTION WITH THE TRANSACTION.

Section 16.16 Specific Performance. Without amending, modifying, or expanding
the remedies set forth in Section 12.3, if any of the provisions of this
Agreement that are required to be performed by a Party after Closing are not
performed by such Party in accordance with their specific terms, the other Party
shall be entitled to specific performance of the terms hereof.

 

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Section 16.17 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; provided, however, that if the limitations set
forth in Section 15.12 are determined to be unenforceable, the applicable notice
period will be the shortest time that is enforceable under applicable Law.

(c) Agreement Not to be Construed Against Drafter. The Parties have participated
jointly in negotiating and drafting this Agreement. If an ambiguity or a
question of intent or interpretation arises, this Agreement will be construed as
if drafted jointly by the Parties, and no 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. 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, (1) “or” is disjunctive but not necessarily exclusive,
(2) words in the singular include the plural and vice versa, (3) 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 (4) the use in this Agreement of a pronoun in reference to a
Party includes the masculine, feminine or neuter, as the context may require.
The Disclosure Schedule 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.
References to any Law or agreement shall mean such Law or agreement as it may be
amended from time to time. All references to “dollars” or “$” shall refer to
United States Dollars.

[Signature pages follow.]

 

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Seller has executed this Agreement as of the Execution Date.

 

SELLER CENTENNIAL RESOURCE PRODUCTION, LLC By:  

/s/ Sean R. Smith

Name:   Sean R. Smith Title:   Vice President and Chief Operating Officer

Seller’s Signature Page to

Purchase and Sale Agreement

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Buyer has executed this Agreement as of the Execution Date.

 

BUYER WATERBRIDGE TEXAS MIDSTREAM LLC By:  

/s/ Jason Long

Name:   Jason Long Title:   Co-President & Chief Operating Officer

Buyer’s Signature Page to

Purchase and Sale Agreement

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Annex I

Definitions

“Accounting Referee” is defined in Section 14.1(b).

“Affected Asset” is defined in Section 8.4.

“AFEs” is defined in Section 6.13.

“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 more than 50% of the equity interest or 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.

“Agreement” is defined in the preamble.

“Allocated Value” means the value allocated to a specific Asset in the column
with the heading “Allocated Value” on Exhibit N.

“Allocation Amount” is defined in Section 10.8.

“Approved Permit” is defined in Section 8.2(b).

“Arbitrator” is defined in Section 5.2(b).

“Assets” is defined in Section 1.2.

“Asset Taxes” means all ad valorem, real property, personal property, excise,
severance, production, sale, use and all other similar Taxes assessed against
the Assets or based upon or measured by the ownership of the Assets, but not
including Income Taxes or Transfer Taxes imposed on any transfer of the Assets
under this Agreement.

“Assignment” means an assignment, bill of sale and conveyance in substantially
the same form as Exhibit G.

“Assumed Liabilities” is defined in Section 15.1.

“Background Materials” means the Records, data room materials, and other
materials Made Available to Buyer by Seller or any of their Affiliates including
documents reflecting (a) indices, compilations, or summaries of other documents
(including summaries of any of the Material Contracts); (b) reserve estimates,
engineering, geological, geophysical, or other interpretive information; or
(c) projections, predictions, or other estimation of future events.

“Base Purchase Price” is defined in Section 2.1(a).

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

Annex I – Page 1

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“Buyer” is defined in the preamble.

“Buyer Indemnified Parties” means, individually and in any combination,
(a) Buyer and its Affiliates, (b) as to each of the Persons described in clause
(a), each of such Person’s Representatives to the extent acting on behalf of
Buyer in connection with or related to the Transaction, and (c) as to each of
the Persons described in clauses (a) and (b), such Person’s successors, assigns,
legal representatives, spouses, heirs, or devisees.

“Buyer-Operated Assets” means those Wells and other Assets that Buyer (or its
Affiliates), as of the Execution Date, is designated or was designated as
operator under applicable Laws or Material Contract.

“Buyer Taxes” means (a) Buyer’s portion of Transfer Taxes as determined under
Section 10.7 imposed on any transfer of the Assets under this Agreement; and
(b) any Asset Taxes allocable to Buyer under Section 10.1 (taking into account,
and without duplication of, (i) such Asset Taxes effectively borne by Buyer as a
result of the adjustments to the Base Purchase Price made under Section 14.1 and
(ii) any payments made from one Party to the other in respect of Asset Taxes
under Section 10.3).

“Buyer’s Certificate” means an officer’s certificate of Buyer in substantially
the same form as Exhibit H.

“Capital Projects” is defined in Section 6.13.

“Casualty Loss” is defined in Section 9.4.

“Claim Notice” is defined in Section 15.6(a).

“CLIF Amount” is defined in Section 9.4(b).

“Closing” is defined in Section 13.1.

“Closing Amount” is defined in Section 2.1(d).

“Closing Date” is defined in Section 13.1.

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

“Confidentiality Agreement” is defined in Section 9.1.

“Consent” means, other than any preferential right to purchase, any required
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.

“Conveyed Surface Interests” means, collectively, the Deeded Surface Interests,
the SUA Surface Interests, and the Surface Agreements.

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

“Curative Matters” is defined in Section 8.4.

“Curative Matters Holding Period” is defined in Section 8.4.

Annex I – Page 2

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“Cure Period” is defined in Section 5.1(c).

“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.

“De Minimis Threshold” is defined in Section 15.4(a).

“Deed” means a deed substantially in the same form as Exhibit K.

“Deeded Surface Interests” means those fee surface interests owned by Seller and
set forth on Exhibit C.

“Defect Notice Date” means 5:00 p.m., Mountain Time, on March 25, 2020.

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

“Diligence Dispute” means a Disputed CLIF Matter or an Environmental Disputed
Matter, as applicable.

“Direct Claim” is defined in Section 15.6(b).

“Disclosure Schedule” means that disclosure schedule delivered by Seller to
Buyer concurrently with the entry into this Agreement setting forth certain
disclosures pursuant to and certain exceptions to the representations and
warranties contained in this Agreement, as updated pursuant to Section 6.21(c).

“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, the Transaction, or the
other Transaction Documents, 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, the Transaction, or the other Transaction Documents.

“Disputed CLIF Matter” is defined in Section 9.4(c).

“Effective Time” is defined in Section 1.4.

“Encumbrance” means any charge, pledge, option, mortgage, deed of trust,
hypothecation, lien, collateral assignment, security interest or other similar
encumbrance.

“Environmental Assessment” is defined in Section 3.1(a).

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

“Environmental Condition” means (a) any non-compliance with Environmental Laws
or Permits applicable to the Assets; (b) any liability arising under
Environmental Laws or Permits applicable to the Assets; and (c) the Release of
Hazardous Substances on, under or about real property leased or owned as of the
Closing Date by the applicable Person, including the subsurface. For the
avoidance of doubt, any condition, contamination or liability related to the
presence of NORM, TE-NORM, or asbestos located at or on the Assets shall not
form the basis of an Environmental Condition unless and only to the extent such
presence of NORM, TE-NORM, or asbestos is in amounts that violate Environmental
Law. In all respects,

 

Annex I – Page 3

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each Environmental Condition that is not the result of a single incident or
condition or single ongoing incident or condition will be addressed as a single
incident or condition, and such Environmental Conditions will not be aggregated
on a per condition basis or otherwise (e.g., 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 Deductible” means an amount equal to $1,000,000.00 (which is a
deductible, not a threshold).

“Environmental Defect” means an Environmental Condition existing prior to the
Defect Notice Date that requires Remediation and for which the associated
Remediation Costs exceed the Environmental Defect Threshold.

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

“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 Defect Threshold” means an amount equal to $100,000.00 per
condition, net to Seller’s interest.

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

“Environmental Law” means any Law in effect on or before the Execution Date
relating to the prevention of pollution, protection of human health and safety,
preservation and restoration of environmental quality, protection of the
environment, damage to natural resources, protection of any endangered,
threatened, or similarly protected species, birds, and other organisms, or the
Release, generation, handling, storage, transportation, or disposal of Hazardous
Substances.

“Environmental Liabilities” means any and all environmental response costs
(including Remediation Costs), damage to natural resources (including soil, air,
surface water, or groundwater), liabilities (including STRICT LIABILITIES),
settlements, consulting fees, expenses penalties, fines, orphan share,
prejudgment and post-judgment interest, court costs, attorneys’ fees, and other
liabilities assessed or reasonably incurred (a) pursuant to any order, notice of
responsibility, directive (including requirements embodied in Environmental
Laws), injunction, judgment, or similar act (including settlements) by any
Governmental Authority to the extent arising out of any violation of, or
compliance or remedial obligation under, any Environmental Laws which are
attributable to the ownership or operation of the Assets prior to, on or after
the Closing Date, (b) pursuant to any claim or cause of action by a Governmental
Authority or other Person for personal injury, property damage, damage to
natural resources, remediation or response costs to the extent arising out of
any presence, disposal, exposure to or Release of any Hazardous Substances of
any kind in, on, or under the Assets, or (c) for any violation of, or any
remediation or compliance obligation under, any Environmental Laws which is
attributable to the ownership or operation of the Assets.

“Escrow Agent” has the meaning set forth in Section 2.1(b).

“Escrow Agreement” means that certain Escrow Agreement, dated as of the
Execution Date, by among Buyer, Seller and the Escrow Agent.

“Excluded Assets” means all rights or interests of Seller not expressly set
forth in the definition of “Assets,” including:

 

Annex I – Page 4

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(a) any rights of the Seller or any of its Affiliates to produce, explore for,
or develop any of the lands in, on, or under any portion of the lands covered by
the Conveyed Surface Interests (or the mineral estates covered by such lands),
or any other real property interests which are pooled, unitized, or communitized
therewith (collectively, the “Lands”), for the production of Hydrocarbons in,
on, or under any of the Lands, including the Leases (collectively, the “Oil and
Gas Interests”);

(b) except for the Surface Agreements and Material Contracts set forth on
Section 6.9(a) of the Disclosure Schedule, all contracts, arrangements,
commitments or other agreements related to the Oil and Gas Interests;

(c) all of Seller’s rights, title and interests in and to the Surface Agreements
other than those rights, title and interest that constitute the Surface
Agreements (or portions thereof, if the same are to be partially assigned) to be
assigned to Buyer under this Agreement;

(d) all of Seller’s rights, title and interests in and to oil and gas leases
other than those rights, title and interest that constitute the portions of the
Partially Assigned OGLs to be assigned to Buyer under this Agreement;

(e) any facilities located upstream of the Delivery Points (as defined in the
Services Agreement) or downstream of the Recycling Take Points (as defined in
the Services Agreement), including any surface interests to the extent necessary
or convenient for the construction, operation, maintenance, and/or ownership of
such facilities;

(f) all corporate, financial (including consolidated financial statements), Tax,
and legal records of Seller;

(g) all contracts of insurance and contractual indemnity rights other than under
the Material Contracts;

(h) all documents and instruments of Seller (or any Affiliate of Seller) that
are (1) (except for title opinions and except for copies of documents relating
to Assumed Liabilities that Buyer is assuming), 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 of such
documents or instruments (unless Buyer notifies Seller in advance in writing
that it is willing to pay a specific fee associated therewith (if any)), in
which case Seller will request that any such restriction be waived without the
requirement for Seller to make payment of additional consideration),
(2) interpretative or subjective data, (3) personnel information, (4) Income Tax
information, (5) claims retained by Seller received from, and records of
negotiations with, third Persons and economic analyses associated therewith;

(i) the files, records, and data relating to the Assets that are maintained by
Seller or its Affiliates (1) on Seller’s or its Affiliate’s email systems or
(2) in emails, schedules, notes, calendars, contacts, or task lists of the
employees of Seller or its Affiliates;

(j) all geological surveys, seismic records, gravity maps, gravity meter
surveys, seismic surveys and other similar geological or geophysical surveys or
data covering any portion of the Lands;

(k) any logo, service mark, copyright, trade name, domain name, phone number, or
trademark of or associated with Seller or any Affiliate of Seller or any
business of Seller or of any Affiliate of Seller;

 

Annex I – Page 5

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(l) all Records to the extent relating to the Buyer-Operated Assets;

(m) all Seller Bonds; and

(n) any assets described on Section 1.3 of the Disclosure Schedule.

“Exclusion Adjustment” is defined in Section 4.2(b)(1).

“Execution Date” is defined in the preamble.

“Final Purchase Price” is defined in Section 14.1(a).

“Final Settlement Date” is defined in Section 14.1(a).

“Final Settlement Statement” is defined in Section 14.1(a).

“Fraud” means, with respect to a Party, an actual and intentional fraud with
respect to the making of the representations and warranties under this
Agreement, provided, that such actual and intentional fraud of such Party shall
only be deemed to exist if any of the individuals identified in the definition
of “Knowledge” had actual knowledge (as opposed to imputed or constructive
knowledge) that the representations and warranties made by such Party under this
Agreement were actually breached when made, with the intention that the other
Party rely thereon to its detriment.

“Fundamental Representations” means the representations and warranties of Seller
set forth in Sections 6.1, 6.2, 6.3 (except for Section 6.3(3), which is a
Non-Fundamental Representation), 6.4, 6.5, 6.6, and 6.12 and the certifications
of the foregoing representations and warranties set forth in Seller’s
Certificate.

“GAAP” means 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” means any pollutants, contaminants, toxins, or hazardous
or extremely hazardous substances, materials, wastes, constituents, substances,
compounds, or chemicals that are regulated by, or may form the basis of any
liability under, any Environmental Laws, including petroleum, waste oil,
hydrogen sulfide, polychlorinated biphenyls, urea formaldehyde, Hydrocarbons,
NORM, TE-NORM asbestos, and man-made material fibers.

“Held Permits” is defined in Section 6.10(b).

“Holding Period” is defined in Section 4.2(a).

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

“Hydrocarbons” means oil, gas, gas liquids, and all other hydrocarbons and
non-hydrocarbons.

“Income Taxes” means (a) all Taxes based upon, measured by, or calculated with
respect to (1) gross or net income or gross or net receipts or profits
(including franchise Tax and any capital gains,

 

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alternative minimum Taxes, net worth, and any Taxes on items of Tax preference,
but not including ad valorem, property, sales, use, goods and services,
severance, production, real or personal property transfer or other similar
Taxes), or (2) multiple bases (including corporate franchise, doing business or
occupation Taxes) if one or more of the bases upon which such Tax may be based,
measured by, or calculated with respect to, is described in clause (a)(1) above,
and (b) withholding Taxes measured with reference to or as a substitute for any
Tax described in clause (a) above.

“Indebtedness” means, with respect to a Person at any applicable time of
determination, without duplication: (a) all obligations for borrowed money
(whether or not contingent); (b) all obligations evidenced by bonds, debentures,
notes or other similar instruments or debt securities; (c) all obligations under
swaps, hedges or similar instruments; (d) all obligations in respect of letters
of credit, surety bonds, performance bonds or bankers’ acceptances; (e) all
obligations recorded or required to be recorded as capital leases in accordance
with GAAP as of the date of determination thereof; (f) all obligations created
or arising under any conditional sale or other title retention agreement with
respect to acquired property; (g) all guaranties and similar obligations of such
Person in connection with any of the foregoing; (h) all obligations secured by a
lien; and (i) all interest, principal, premiums, fees or expenses due or owing
in respect of any item listed in clauses (a) through (h) above.

“Indemnified Party” is defined in Section 15.6(a).

“Indemnifying Party” is defined in Section 15.6(a).

“Indemnity Deductible” is defined in Section 15.4(b).

“Invasive Activities” means an ASTM Phase II environmental assessment or any
sampling, boring, drilling, or other invasive investigation activities other
than activities permitted under Section 3.1 and Section 9.4.

“Joint Use Agreement” means the joint use agreement in the form of Exhibit M to
be executed at Closing.

“Knowledge” means (a) with respect to Seller, the actual knowledge of Sean
Marshall [VP of Land], Sean Smith [Chief Operating Officer], and Reggie Phillips
[HSE Manager], after reasonable inquiry of directly reporting employees into the
matters referenced; and (b) with respect to Buyer, the actual knowledge of Jason
Long [Co-President and Chief Operating Officer] and Steve Jones [Co-President
and Chief Financial Officer], after reasonable inquiry of directly reporting
employees into the matters referenced.

“Lands” is defined in the definition of “Excluded Assets.”

“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.

“Loss” means any and all payments, 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, fees, penalties, fines,
obligations, responsibilities, liabilities, payments, charges, losses, costs,
and expenses (including costs and expenses of owning or operating the Assets,
expert fees, court costs, costs of consultants, accountants, and other agents
and experts, costs of enforcement, and costs of collection) of any kind or
character (whether known or

 

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unknown, fixed or unfixed, conditional or unconditional, based on negligence,
strict liability, or otherwise, choate or inchoate, liquidated or unliquidated,
secured or 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 (a) breach of
contract, (b) loss or damage to property, injury to, illness, or death of
Persons, and other tortious injury, and (c) violations of applicable Laws,
including Environmental Laws, and any other legal right or duty actionable at
Law or equity.

“Lowest Cost Response” means the response required or allowed under
Environmental Laws that addresses the identified Environmental Defect in the
lowest cost manner (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) that is consistent with
applicable cleanup objectives under relevant Environmental Laws and applicable
Material Contracts as compared to any other response that is required or allowed
under Environmental Laws and applicable Material Contracts. The Lowest Cost
Response shall 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 and applicable Material
Contracts.

“Made Available to Buyer” means that Seller has uploaded such information to the
virtual data room or otherwise provided Buyer, in each case, at least the Day
prior to the Execution Date.

“Material Adverse Effect” means any actions, events, occurrences, conditions, or
matters that individually or in the aggregate have resulted in or would be
reasonably likely to result in a material adverse effect on (a) the ownership,
operation, or value of the Assets, as currently owned and operated, which is
material to the ownership, operation, or value of the Assets, taken as a whole,
or (b) Seller’s ability to consummate the Transaction or perform its obligations
under this Agreement; provided, however, that “Material Adverse Effect” shall
not include (i) general changes in industry or economic conditions, (ii) changes
resulting from a change in commodity prices, (iii) changes in Laws or in
regulatory policies, (iv) changes or conditions resulting from civil unrest or
terrorism or acts of God or natural disasters, (v) changes or conditions
resulting from the failure of a Governmental Authority to act or omit to act
under Law, (v) changes or conditions that are cured or eliminated prior to
Closing, (vi) material adverse effects resulting from entering into this
Agreement or the announcement of the Transaction, (vii) any action or omission
of Seller taken in accordance with the terms of this Agreement without the
violation thereof or with the prior written consent of Buyer, (viii) civil
unrest, any outbreak of disease or hostilities, terrorist activities or war or
any similar disorder, (ix) a change in Laws or COPAS standards and any
interpretations thereof from and after the Execution Date, (x) any
reclassification or recalculation of reserves in the ordinary course of
business, (xi) changes in service costs generally applicable to the oil and gas
industry in the United States, (xii) strikes and labor disturbances,
(xiii) natural declines in well performance, or (xiv) any failure by any Seller
or the Assets to meet any internal or published projections, forecasts, or
revenue or earnings predictions; provided that with respect to preceding clauses
(i) and (ii), any event that materially disproportionately impacts Seller or its
Affiliates in comparison to others in the industry in which they operate or in
which the material assets of Seller and its Affiliates are located will be
deemed not to be an exception to the definition of Material Adverse Effect.

 

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“Material Contracts” means the following types of contracts that relate to the
Assets that will be binding on Buyer or encumber or bind the Assets at and after
Closing:

(a) any contract that can reasonably be expected to involve payments or proceeds
in excess of $100,000.00 during the current year or any subsequent fiscal year
(including any such agreements for the sale, gathering, processing, exchange,
storage, or transportation of produced water or otherwise relating to the
Assets);

(b) any contract or agreement that constitutes a partnership agreement, joint
venture agreement or similar contract;

(c) any contract or agreement evidencing or guaranteeing Indebtedness;

(d) any contract or agreement creating or conferring rights to acquire, own,
use, store, gather, transport, sell, or dispose of saltwater, freshwater,
groundwater, produced water, frac water, and/or flowback water;

(e) any contract granting to any Person a right of first refusal, first offer,
or right to purchase any of the Assets;

(f) any Surface Agreement;

(g) other than office equipment leased in the ordinary course of Seller’s
business, any agreement to sell, lease, farmout, exchange, or otherwise dispose
of all or any part of the Assets, respectively, but excluding rights of
reassignment upon intent to abandon an Asset and excluding sales, in the
ordinary course of Seller’s business, of any Hydrocarbons or obsolete inventory
and equipment;

(h) any agreement that contains a non-competition agreement or restriction or
any agreement that purports to restrict, limit, or prohibit the manner in which,
or the locations in which Seller or any of its Affiliates conducts business,
including any area of mutual interest agreements;

(i) any agreement between Seller, on the one hand, and any Affiliate of Seller,
or an employee, officer or director of Seller or its Affiliates, on the other
hand, that will continue to be binding on the Assets after the Closing; and

(j) any agreement that constitutes a material modification in respect of any of
the foregoing.

“Non-Buyer-Operated Assets” means all Assets that are not Buyer-Operated Assets.

“Non-Fundamental Representations” means the representations and warranties of
Seller set forth in this Agreement and in the other Transaction Documents,
excluding in each case the Fundamental Representations.

“NORM” means naturally occurring radioactive material.

“Oil and Gas Interests” is defined in the definition of “Excluded Assets.”

“Order” means any judgment, injunction order, ruling, award, decree or other
order that is issued by a Governmental Authority.

“Outside Date” is defined in Section 12.1(b).

 

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“Partially-Assigned OGLs” means those oil and gas leases set forth on Exhibit O
to the extent necessary to operate and maintain the Pipelines as they exist at
the Effective Time. For the avoidance of doubt, Buyer shall not have the right
(i) to transport produced water owned or controlled by third-parties through
those segments of the Pipelines that are located on the Partially-Assigned OGLs
or (ii) to construct additional pipelines under the Partially-Assigned OGLs.

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

“Pending Permits” is defined in Section 6.10(b).

“Performance Incentive Agreement” means that certain Performance Incentive
Agreement by and between Seller and Buyer, dated as of the Closing Date and
attached Exhibit P.

“Permits” means any permit, license, permission, grant or other similar
authorization issued by, or required to be issued by, any Governmental Authority
used or held for use primarily in connection with the construction, operation,
ownership, or maintenance of the Wells, Pipelines, Deeded Surface Interests, or
Surface Agreements, but in each case, to the extent and only to the extent they
primarily relate to and are used in connection with the construction, operation,
ownership, or maintenance of the Wells, Pipelines, Deeded Surface Interests, or
Surface Agreements, including those set forth on Exhibit E.

“Permitted Encumbrances” means:

(a) statutory liens or encumbrances arising out of operation of Law with respect
to a Loss incurred in the normal course of business and that are not delinquent
or that are being contested in good faith;

(b) liens for Taxes or assessments for which payment is not yet due and
delinquent or, if delinquent, that are being contested in good faith in the
normal course of business and, if so required by statute, for which a bond has
been posted;

(c) all Customary Post-Closing Consents;

(d) easements, rights-of-way, servitudes, permits, surface leases and other
surface rights on or over the Assets or any restrictions on access thereto that
do not materially interfere with the operation or ownership of the affected
Asset;

(e) rights of a common owner of any interest in rights-of-way or easements
currently held by Seller and such common owner as tenants in common or through
other common or joint ownership, in all cases that do not, individually or in
the aggregate, interfere in any material respect with the value, use or
ownership of the Assets;

(f) the terms and conditions of the Material Contracts to the extent the same do
not materially interfere with the ownership or use of the Assets as currently
owned and operated;

(g) materialmen’s, mechanics’, operators’, or other similar liens arising in the
ordinary course of business incidental to operation of the Assets that secure
amounts not yet due or delinquent or, if delinquent, are being contested in good
faith by appropriate proceedings, or for which the applicable statute of
limitations has expired on or prior to the Execution Date;

 

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

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

(j) all preferential rights to purchase and Consents, including all Required
Consents and similar agreements (a) for which applicable the consent or waiver
has been obtained prior to Closing or (b) that are not triggered by the
transactions contemplated by the Transaction Documents.

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

“Personal Property” means all tangible personal property, now owned, leased or
licensed by Seller and primarily used or held for use in connection with the
Non-Buyer-Operated Assets.

“Phase I Activities” means a Phase I Environmental Site Assessment under ASTM
Standard Practice E1527-13 for Environmental Site Assessments: Phase I
Environmental Site Assessment Process, with modifications to expand the scope as
agreed to by Seller.

“Pipelines” means the produced water gathering pipelines detailed on Exhibit
A-2, commencing downstream of Seller’s meter at the applicable Delivery Point
(as such term is defined in the Services Agreement).

“Preliminary Settlement Statement” is defined in Section 2.3.

“Real Property” means, to the extent used or held for use primarily in
connection with the Assets, any fee, easement, license, servitude, or leasehold
estates in real property and all surface rights appurtenant thereto of Seller,
together with the interests of Seller in all buildings, facilities, fixtures and
other improvements located thereon and all appurtenances thereto and any surface
right leases or agreements for the use or occupancy by Seller of land above, on,
or below the surface for any purpose or for the injection by Seller of products
into the ground or removal of products from the ground (including all Surface
Agreements).

“Reasonable Efforts” means efforts in accordance with reasonable commercial
practice and without the incurrence of unreasonable costs or expenses, except to
the extent the other Party agrees to reimburse for such costs or expenses.

“Records” means all files, records, and data directly attributable to the
Assets, whether tangible or intangible, whether physically or electronically
stored, including copies of all land and lease files, Asset Tax records,
accounting and production records (including invoices, work-tickets, material
transfers, revenue remittances, check details, journal entries, ledgers, and
sub-ledgers), contract files, equipment inventory, division orders, surface
damage and other related agreements, title records (including abstracts of
title, title opinions, ownership reports and title curative documents),
engineering records, production and processing records, operation records,
technical records, right-of-way records, surveys, maps, plats, drawings and
other books and records, but excluding any books and records included in the
definition of Excluded Assets.

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

 

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“Release” means the actual 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), however defined,
whether intentional or unintentional, into the environment.

“Remediate” or “Remediation” means action taken to investigate, remove, correct,
restore and/or remediate an Environmental Condition in accordance with
applicable Environmental Laws; provided, however, as used in this definition,
investigations do not include any Environmental Assessments or Invasive
Activities.

“Remediation Costs” means the net present value costs, or estimates thereof, of
the Lowest Cost Response sufficient to Remediate a particular Environmental
Defect, calculated net to Seller’s interest. The Remediation Costs do not
include (a) the costs of Buyer’s and/or its Affiliate’s employees, project
manager(s), or attorneys, (b) 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/amendment
activities in connection with operation of the Assets, (c) overhead costs of
Buyer and/or its Affiliates, (d) 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 assets, operations, or facilities
or that fails to reasonably take advantage of applicable risk reduction or risk
assessment principles allowed under applicable Environmental Laws and Material
Contracts, (e) any costs or expenses relating to the assessment, remediation,
removal, abatement, transportation, and disposal of any asbestos, asbestos
containing materials, NORM, or TE-NORM, and/or (f) costs of taking any
Remediation action that is not the Lowest Cost Response.

“Representatives” means any stockholders, members, managers, officers,
directors, employees, agents, lenders, auditors, accountants, attorneys, and
representatives of a Person.

“Required Consent” means any Consent that, if not obtained by Closing, would, by
the express terms of the applicable instrument or Material Contract
(a) invalidate or terminate or give the holder of such Consent right the right
to invalidate or terminate the conveyance of an Asset or (b) invalidate or
terminate or give the holder of such Consent right the right to invalidate or
terminate the underlying Asset, including any such restriction that by its
express terms includes words such as or with similar effect as “the failure to
obtain such Consent will void the assignment” or “the failure to obtain such
Consent will void this lease.”

“Restricted Asset” is defined in Section 4.2(a).

“Retained Liabilities” is defined in Section 15.2.

“Scheduled Closing Date” is defined in Section 13.1.

“Seller” is defined in the preamble.

“Seller Bonds” means, collectively, all surety instruments, bonds, letters of
credit, or guarantees, if any, posted by Seller with any Governmental Authority
or third Persons and relating to the Assets.

“Seller Employee” is defined in Section 9.3.

“Seller Indemnified Parties” means, individually and in any combination,
(a) Seller and its Affiliates, (b) as to each of the Persons described in clause
(a), each of such Person’s Representatives to the extent acting on behalf of
Seller in connection with or related to the Transaction, and (c) as to each of
the Persons described in clauses (a) and (b), such Person’s successors, assigns,
legal representatives, spouses, heirs, or devisees.

 

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“Seller Taxes” means any liability for the following Taxes (whether such
liability is direct or as a result of transferee or successor liability, joint
and/or several liability, pursuant to a contract or other agreement, pursuant to
the filing of a Tax Return or pursuant to an adjustment by a Governmental
Authority, in each case, whether disputed or not): (a) Seller’s portion of
Transfer Taxes as determined under Section 10.7 imposed on any transfer of the
Assets under this Agreement, (b) Income Taxes imposed by any applicable Law on
Seller, any of Seller’s direct or indirect owners or Affiliates or any
consolidated, combined, or unitary group of which any of the foregoing is or was
a member; (c) any Asset Taxes allocable to Seller under Section 10.1 (taking
into account, and without duplication of, (i) such Asset Taxes effectively borne
by Seller as a result of the adjustments to the Base Purchase Price made
Section 14.1 and (ii) any payments made from one Party to the other in respect
of Asset Taxes under Section 10.3); and (d) any Taxes imposed on or with respect
to the ownership or operation of the Excluded Assets or that are attributable to
any asset or business of Seller that is not part of the Assets.

“Seller’s Certificate” means an officer’s certificate of Seller in substantially
the same form as Exhibit I.

“Services Agreement” is defined in the recitals.

“Side Letter” means the side letter agreement by and between Buyer and Seller,
to be executed at Closing.

“Straddle Period Invoice” is defined in Section 2.4(d).

“SUA Surface Interests” means those surface interests owned by Seller set forth
on Exhibit D.

“Surface Agreements” means all easements, permits, licenses, servitudes,
rights-of-way, surface and mineral leases (including the Partially-Assigned
OGLs), surface use agreements and other surface rights appurtenant to, and used
or held for use in connection with the Wells and Pipelines, but in each case, to
the extent and only to the extent they primarily relate to and are used for
operating and maintaining the Wells and Pipelines.

“Surface Use Agreement” means the surface use agreement in substantially the
same form as Exhibit L to be executed at Closing.

“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,
privilege taxes, conservation taxes, value added taxes, excise taxes, goods and
services taxes, franchise taxes, gross receipts taxes, occupation taxes, real or
personal Asset Taxes, land transfer taxes, stamp taxes, environmental taxes,
transfer taxes, workers’ compensation taxes, windfall taxes, net worth taxes,
and other taxes, fees, duties, levies, customs, tariffs, imposts, assessments,
unclaimed property, and escheat obligations and charges of the same or of a
similar nature to any of the foregoing.

“Tax Controversy” is defined in Section 10.9(d).

 

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“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” means technologically-enhanced NORM.

“Testing Criteria” is defined in Section 8.3.

“Third-Party Claim” is defined in Section 15.6(a).

“Transaction” means the transactions contemplated by this Agreement.

“Transaction Documents” means (a) this Agreement, (b) the Assignment, (c) the
Services Agreement, (d) the Surface Use Agreement, (e) the Joint Use Agreement,
(f) the Performance Incentive Agreement and (g) all other documents,
certificates, and instruments delivered in connection with the foregoing.

“Transfer Taxes” means any and all transfer, sales, use, excise, goods and
services, stock, conveyance, registration, real estate transfer, land transfer,
stamp, documentary, notarial, filing, recording, and similar Taxes (excluding
Income Taxes).

“Wells” means those 16 certain salt water disposal wells and related facilities
located in Reeves County, Texas, as further detailed on Exhibit A-1.

 

Annex I – Page 14