Exhibit 10-1
 
 
PURCHASE AND SALE AGREEMENT
 

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), dated June 14, 2013, is
between ABRAXAS PETROLEUM CORPORATION, a Nevada corporation (“Seller”), with
offices at 18803 Meisner Drive, San Antonio, TX 78258, and NRP OIL AND GAS LLC,
a Delaware limited liability company (“Buyer”), with offices at 601 Jefferson
St., Ste. 3600, Houston, Texas 77002.  Seller and Buyer are sometimes referred
to individually as a “Party” and together as the “Parties.”
 
Recitals:
 

 
A.           Seller desires to sell, and Buyer desires to purchase, upon and
subject to the terms and conditions hereinafter set forth, all of Seller’s
right, title, and interest in and to the Subject Assets (as hereinafter
defined).
 
B.           Capitalized terms used in this Agreement, and in the schedules and
exhibits attached hereto, shall have the meanings given to such terms in Exhibit
A.
 
Agreements:

 
NOW, THEREFORE, in consideration of the above recitals and of the covenants and
agreements herein contained, Seller and Buyer agree as follows:
 
1. Purchase and Sale.  Subject to and upon the terms and conditions herein set
forth, Seller shall sell, transfer, assign, convey, and deliver to Buyer, and
Buyer shall purchase, receive, pay for, and accept from Seller, effective as of
March 1, 2013, 7:00 a.m., San Antonio, Texas, local time (the “Effective Time”),
all of Seller’s right, title and interest in and to the following,
(collectively, the “Subject Assets”):
 
(a) the Leases described in Exhibit B, to the extent they cover the Land, but
excluding the rights, title and interest in the Leases which are excluded under
Section 2 (the “Lease Assets”);
 
(b) the land described in the Leases, insofar and only insofar as described in
Exhibit B, and to the extent not excluded as Excluded Assets under Section 2
(the “Land”);
 
(c) the rights-of-way, easements and other rights or agreements of a similar
nature described in Exhibit F  or held under the terms of the Lease Assets, to
the extent relating to the Land or the Lease Assets;
 
(d) the Wells listed in Exhibit C, equipment, materials, fixtures, and
improvements located on the Land, or lands pooled or unitized therewith, as of
the Effective Time used in connection with the Lease Assets, or units comprised
of the Lease Assets, or with the production, treatment, sale, transportation,
processing, or disposal of Hydrocarbons or waste produced therefrom or
attributable thereto, and other appurtenances thereunto belonging, other than
leased equipment located on the Land;
 
 
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(e) the oil, gas, condensate and other Hydrocarbon production produced from the
Wells or the Land, or attributable thereto, or to lands pooled or unitized
therewith, from and after the Effective Time;
 
(f) the unitization, pooling, and operating agreements, and the units created
thereby, which relate to or include the Lease Assets, or which relate to units
or Wells located on the Land covered by the Lease Assets, including Regulatory
Units, together with any right, title, and interest created thereby in the Lease
Assets or otherwise (including any Non-Consent Interests);
 
(g) gas purchase contracts, product purchase and sale agreements, gas gathering
agreements, and gas processing agreements related to the Lease Assets (to the
extent the same are assignable); and
 
(h) claims and causes of action, including any rights to indemnification or
contribution under any operating agreements, to the extent attributable to
ownership, use, maintenance or operation of (i) the Subject Assets on or
subsequent to the Effective Time, and (ii) the New Wells before or after the
Effective Time.
 
2. Excluded Assets.  Notwithstanding anything to the contrary, the following
rights and interests (collectively the “Excluded Assets”) are not included in
the Subject Assets, and Seller hereby expressly reserves, excepts and retains
unto itself all of Seller’s right, title and interest in and to the following:
 
(a) the Wells listed in Exhibit D or Exhibit E;
 
(b) all rights under the Leases to produce from a Well listed in Exhibit D or
Exhibit E, including the right to rework, repair, recomplete, deepen, and/or
re-frac such Well, to the extent Seller holds rights to the productive depths
under this Agreement;
 
(c) as to the land included in the Sale Units for the Wells listed on Exhibit D,
all rights under the Leases to depths and formations other than the Bakken
Formation, provided, however, that the depths below the Base of the Madison
Formation for the land included in Sale Unit #16 and Sale Unit #17 on Exhibit G
shall not be an Excluded Lease Asset;
 
(d) as to the land included in the Sale Units for the Wells listed on Exhibit E,
all rights under the Leases to depths and formations other than the Bakken
Formation and the right to produce from the Bakken Formation, such right to be
limited to the wellbores of such Wells, provided, however, that as to the land
identified in Sale Unit #92 on Exhibit G, the wellbore of the Well identified on
Exhibit E and the right to produce from the Bakken Formation through that
wellbore, shall be the only Excluded Lease Asset in that Sale Unit (the
interests set forth in (a)-(d) of this Section 2 shall be collectively referred
to herein as the “Excluded Lease Assets”);
 
(e) in connection with, and to the extent reasonably necessary or convenient to
explore, develop and operate, the Excluded Lease Assets, the right to enter and
use the surface and subsurface of the Land to drill and operate through those
formations and depths that are part of the Subject Assets;
 
 
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(f) the equipment, materials, fixtures, and improvements located on the lands
covered by the Excluded Lease Assets as of the Effective Time, appurtenant
thereto, or used or obtained in connection with the Excluded Lease Assets or
with the production, treatment, sale, or disposal of Hydrocarbons or waste
produced therefrom or attributable thereto, and other appurtenances thereunto
belonging;
 
(g) the oil, gas, condensate and other Hydrocarbon production produced from the
Excluded Lease Assets, or attributable thereto, or to lands pooled or unitized
therewith, before and after the Effective Time;
 
(h) the oil, gas, condensate and other Hydrocarbon production produced from the
Lease Assets, or attributable thereto, or to lands pooled or unitized therewith,
before the Effective Time, provided, however, that Hydrocarbon production from
New Wells, regardless of when produced, is not an Excluded Asset;
 
(i) the unitization, pooling, and operating agreements, and the units created
thereby which relate to the Excluded Lease Assets or Wells listed on Exhibit D
or Exhibit E, including Regulatory Units for those Wells, together with any
right, title, and interest created thereby in the Excluded Lease Assets;
 
(j) gas purchase contracts, product purchase and sale agreements, gas gathering
agreements, and gas processing agreements related to the Excluded Lease Assets;
and
 
(k) claims and causes of action to the extent attributable to ownership, use,
maintenance or operation of the Subject Assets (except for New Wells) prior to
the Effective Time, including any rights to indemnification or contribution
under any operating agreements, provided, however, that claims and causes of
action related to New Wells, regardless of when such claims arose, are not
Excluded Assets.
 
Notwithstanding anything in this Section 2 to the contrary, to the extent that
any equipment, materials, fixtures, and improvements owned by Seller and
utilized in connection with a Well listed in Exhibit D or Exhibit E, is also
utilized in connection with a Well listed in Exhibit C, the Parties agree that
such assets shall be jointly utilized for such Wells.
 
3. Purchase Price and Performance Deposit.
 
(a) Base Purchase Price.  The base purchase price for the Subject Assets shall
be Thirty-five Million Three Hundred Thousand Dollars ($35,300,000.00) (the
“Base Purchase Price”).  The Base Purchase Price shall be adjusted as provided
herein and as adjusted is referred to herein as the “Purchase Price.”
 
(b) Deposit.  Upon execution of this Agreement, Buyer shall deliver to the
Escrow Agent a performance deposit of ten percent (10%) of the Base Purchase
Price (the “Performance Deposit”) to assure Buyer’s performance of its
obligations hereunder.  At Closing, the Performance Deposit shall be a Buyer’s
credit against the payment of the Purchase Price.  The escrow of the Performance
Deposit shall be governed by Section 23, and if this Agreement is terminated
without a Closing, then the distribution of the Performance Deposit by the
Escrow Agent shall also be governed by the provisions of Section 23.
 
 
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(c) Allocation.  Seller and Buyer agree that the Base Purchase Price shall be
allocated among the Subject Assets as set forth on Exhibit G for the purpose of
(i) establishing a basis for certain Taxes; (ii) giving notices of value to the
owners of any Preferential Purchase Rights; (iii) determining the value of a
Title Defect for purposes of adjusting the Base Purchase Price; and (iv)
determining the value of an Environmental Defect for purposes of adjusting the
Base Purchase Price.
 
(d) Adjustments.  Subject to Sections 5, 6, 13, 16 and 17, the Base Purchase
Price shall be adjusted as follows:
 
(i) Reduced by the aggregate amount of the following proceeds actually received
by Seller during the Adjustment Period:  (a) proceeds from the sale of
Hydrocarbons, net of Seller’s proportionate share of Property Costs incurred
during the Adjustment Period and paid by Seller, produced from or attributable
to the Subject Assets during the Adjustment Period, and (b) other proceeds
earned with respect to the Subject Assets during the Adjustment Period;
 
(ii) Reduced by the aggregate amount of the following proceeds actually received
by Seller, without regard to when they were received: (a) proceeds from the sale
of Hydrocarbons produced from or attributable to the New Wells, net of Seller’s
proportionate share of Property Costs for the New Wells paid by Seller, without
regard to when they were incurred, and (b) other proceeds earned with respect to
the New Wells;
 
(iii) Increased by Seller’s proportionate share of Property Costs attributable
to the ownership and operation of the Subject Assets which are paid by Seller
and incurred at or after the Effective Time, except any Property Costs and other
such costs already deducted in the determination of proceeds in Section 3(d)(i);
and
 
(iv) Increased by Seller’s proportionate share of Property Costs attributable to
the ownership and operation of the New Wells, without regard to when they were
incurred, which are paid by Seller, except any Property Costs and other such
costs already deducted in the determination of proceeds in Section 3(d)(ii).
 
(e) New Wells.  Notwithstanding anything to the contrary set forth in this
Agreement, Buyer shall be entitled to all proceeds from the sale of Hydrocarbons
from the New Wells from each of the New Wells’ first date of production, net of
Seller’s proportionate share of Property Costs for the New Wells paid by Seller,
without regard to when they were incurred, and shall be responsible for all
Property Costs and other costs attributable to the ownership and operation of
the New Wells, without regard to when such Property Costs and other costs
attributable to the ownership and operation of the New Wells were incurred.
 
(f) No Duplicate Effect.  The provisions of Section 3(d) and any other
adjustments to the Base Purchase Price under this Agreement shall apply in such
a manner so as not to give the components and calculations duplicative effect to
any item of adjustment and, except as otherwise expressly provided in this
Agreement, the Parties covenant and agree that no amount shall be (or is
intended to be) included, in whole or in part (either as an increase or
reduction) more than once in the calculation of (including any component of) the
Purchase Price, or any other calculated amount pursuant to this Agreement if the
effect of such additional inclusion (either as an increase or reduction)
 
 
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would be to cause such amount to be overstated or understated for purposes of
such calculation.
 
4. Title Defects.
 
(a) Defensible Title Definition.  “Defensible Title” means, as to a Lease Asset,
such title held by Seller that, subject to and except for Permitted Encumbrances
(as hereinafter defined):
 
(i) entitles Seller to receive not less than the “Net Revenue Interest” as set
forth in Exhibit G of all oil, gas, and associated liquid and gaseous
hydrocarbons produced, saved, and marketed from a Well producing from such Lease
Asset, or land pooled or unitized therewith, but only as to the extent of such
Lease Asset;
 
(ii) obligates Seller to bear costs and expenses relating to the maintenance,
development, and operation of the Wells identified on Exhibit G that are
producing from such Lease Asset, or land pooled or unitized therewith, in an
amount not greater than the “Working Interest” set forth in Exhibit G; and
 
(iii) is free and clear of any and all Encumbrances.
 
(b) Permitted Encumbrances Definition.  “Permitted Encumbrances” means:
 
(i) any obligations or duties reserved to or vested in any municipality or other
Governmental Authority to regulate any Subject Asset in any manner;
 
(ii) the terms and conditions of all Leases, division orders, contracts for
sale, purchase, or processing of Hydrocarbons, operating agreements, plant
agreements, pipeline, gathering, and transportation agreements, disposal
agreements, Permits, and any other agreements affecting the Subject Assets, but
only to the extent that they do not, individually or in the aggregate, operate
to reduce Seller’s Net Revenue Interest in a Well below that shown in Exhibit G
or increase Seller’s Working Interest in a Well above that shown in Exhibit G
without a proportionate increase in the Net Revenue Interest;
 
(iii) Preferential Purchase Rights and required third-party consent rights to
assignment (other than any consent of any Governmental Authority customarily
obtained subsequent to a sale or transfer) and similar agreements;
 
(iv) easements, rights-of-way, Permits, surface leases, and other similar rights
on, over, or in respect of any of the Subject Assets;
 
(v) lessor’s royalties, non-participating royalties, overriding royalties,
production payments, net profits interests, reversionary interests, and similar
burdens with respect to a Well if the net cumulative effect of such burdens does
not operate to reduce Seller’s Net Revenue Interest in such Well below that
shown in
 
 
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Exhibit G or increase Seller’s Working Interest in such Well above that shown in
Exhibit G without a proportionate increase in the Net Revenue Interest;
 
(vi) defects or irregularities of title as to which the relevant statute of
limitation or prescription would conclusively bar any attack or claim against
Seller’s title;
 
(vii) Encumbrances for ad valorem, property, production, severance, excise, and
similar Taxes or assessments not yet delinquent or, if delinquent, that are
being contested in good faith;
 
(viii) materialman’s, mechanic’s, repairman’s, employee’s, contractor’s,
operator’s liens, and other similar Encumbrances arising in the ordinary course
of business for payments or obligations not yet due or that are contained in
joint operating agreements covering the Subject Assets;
 
(ix) oil and gas production imbalances whether resulting from overproduction or
underproduction, and plugging and surface restoration obligations;
 
(x) any maintenance of uniform interest provision in an operating agreement if
waived by the party or parties having the right to enforce such provision or if
the violation of such provision would not give rise to the unwinding of the sale
of the affected Subject Asset by Seller to Buyer;
 
(xi) conventional rights of reassignment obligating Seller to reassign its
interest in any portion of the Lease Assets to a third party, if such right is
only triggered when Buyer expressly indicates its intention to release or
abandon such interest prior to the expiration of the primary term or other
termination of such interest;
 
(xii) Title Defects (as defined below) waived by Buyer or not timely asserted by
Buyer in accordance with Section 5(b);
 
(xiii) defects in the chain of title arising from the failure to recite marital
status, omissions of successors or heirs, or the lack of probate proceedings and
defects arising out of lack of corporate or other entity authorization, unless
Buyer provides reasonable evidence that the defect results in a third party’s
actual and valid claim of title to the affected Subject Assets;
 
(xiv) any mortgage lien on the fee estate or mineral fee estate from which title
to the relevant Subject Asset is derived which pre-dates the creation of the
Subject Asset but which is not currently subject to foreclosure or other
enforcement proceedings by the holder of the mortgage lien;
 
(xv) Encumbrances to be released at the Closing; and
 
(xvi) any defects waived by Buyer under this Agreement.
 
(c) Title Defect.  A Lease Asset shall be deemed to have a “Title Defect” if
Seller has less than Defensible Title to such Lease Asset. For the avoidance of
doubt, a Title Defect may apply to multiple Lease Assets if the Title Defect
arises from the same instruments or the same set of facts.
 
 
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5. Adjustments for Title Defects.
 
(a) Notice.  If Buyer, in good faith, determines a Title Defect exists, then
Buyer may, by delivery of written notice to Seller of the existence of such
alleged Title Defect, request reduction of the portion of the Base Purchase
Price allocated to the Lease Assets affected.  The Title Defect notice shall
clearly indicate (i) the nature of the Title Defect, (ii) the Lease Assets and
Sale Unit to which it relates, (iii) an explanation of the Title Defect,
including the supporting legal theories, (iv) the allocated value of the Lease
Assets which are affected by the Title Defect, and (v) the amount by which Buyer
believes the value of the affected Lease Assets have been reduced because of the
Title Defect, including the computation and information upon which Buyer’s
belief is based. The value of any Title Defect shall not exceed the allocated
value of the affected Lease Assets as shown in Exhibit G.  In determining
whether a Lease Asset contains a Title Defect, it is the intent of the Parties
to include, when possible, only that portion of such Lease Asset materially and
adversely affected.
 
(b) Notice and Cure of Title Defects.  The Title Defect notice by Buyer shall be
delivered to Seller on or before 5:00 p.m., San Antonio, Texas time, on the date
that the Inspection Period expires.  If such notice is not timely delivered, all
Title Defects shall be deemed waived for all purposes and Buyer shall thereafter
have no right to claim Title Defects.  If the Title Defect notice is timely
delivered, all Title Defects not claimed in such notice shall be deemed waived
for all purposes.  Seller shall have the right, but not the obligation, to
attempt to cure any alleged Title Defect prior to Closing.  If Seller is unable
or unwilling to cure an alleged Title Defect, Buyer and Seller shall meet and
use their reasonable efforts to agree on the validity of the claim of Title
Defect and the amount of any required adjustment to the portion of the Base
Purchase Price allocated to such Lease Assets.  In evaluating the significance
of a fact, circumstance, or condition for purposes of determining an alleged
Title Defect, due consideration shall be given to the length of time since such
time Title Defect arose and the length of time that the particular Lease or Well
has been producing Hydrocarbon substances and whether such fact, circumstance,
or condition is of the type expected to be encountered in the area involved, and
is usually and customarily acceptable to reasonable and prudent persons engaged
in the business of the ownership, development, and operation of oil and gas
properties with knowledge of all of the facts and appreciation of their legal
significance.
 
(c) No Agreement.  If the Parties cannot mutually agree on either the existence
of a Title Defect or an adjustment amount for an alleged Title Defect, either
Party may elect to terminate this Agreement as to the Sale Unit affected by the
alleged Title Defect and receive an adjustment in the Base Purchase Price by the
amount allocated to the Lease Assets comprising the Sale Unit in which the Lease
Assets with the alleged Title Defect are included as set forth in Exhibit G.  In
the event that either Party desires to terminate this Agreement as to a Sale
Unit affected by an alleged Title Defect, then that Party shall deliver written
notice to the other Party of its intention to do so on or before 5:00 p.m., San
Antonio, Texas time, on a date that is not more than three (3) days prior to the
Closing Date.  Buyer’s failure to timely deliver notice to Seller of its
election to terminate this Agreement as to the Sale Unit affected by an alleged
Title Defect shall be deemed a waiver of such Title Defect, and Buyer
shall proceed to Closing and accept the Lease
 
 
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Assets with the alleged Title Defect with no adjustment to the portion of the
Base Purchase Price allocated to such Lease Assets comprising the Sale
Unit.  Upon receipt of any such notice timely delivered by Buyer, Seller shall
have the option to agree to the adjustment amount to such Sale Unit as
calculated, in good faith, in Buyer’s Title Defect notice by delivering written
notice to Buyer prior to Closing, and, if timely delivered, the Parties shall
proceed to Closing without terminating this Agreement as to the Sale Unit
affected by the alleged Title Defect.  Upon receipt of any such notice timely
delivered by Seller, Buyer shall have the option to accept the Sale Unit with
the alleged Title Defect with no adjustment to the portion of the Base Purchase
Price allocated to the Lease Assets comprising the Sale Unit by delivering
written notice to Seller prior to Closing, and, if timely delivered, the Parties
shall proceed to Closing without terminating this Agreement as to the Sale Unit
affected by the alleged Title Defect.  The adjustment amount of any Sale Unit
excluded from this Agreement pursuant to this provision shall be treated as an
individual Title Defect for purposes of Section 5(d).
 
(d) Individual Losses and Deductible.  There shall be no adjustments for any
individual Title Defect with a value of less than Forty Thousand Dollars
($40,000.00), and there shall be no adjustment for all Title Defects unless the
aggregate total of all adjustments for all Title Defects exceeds one-half of one
percent (0.5%) of the Base Purchase Price, and then only to the extent the total
of such adjustments exceeds one-half of one percent (0.5%) of the Base Purchase
Price.
 
(e) Additional Interests.  If Buyer or Seller determines that Seller owns a
greater net revenue interest in any of the Lease Assets that would increase the
Net Revenue Interest set forth on Exhibit G, such Party shall notify the other
Party and Seller shall be entitled to an increase in the portion of the Base
Purchase Price allocated to such Lease Assets determined pursuant to procedures
comparable to the procedures set forth in subsections (a)-(c), above.  The Party
discovering such greater net revenue interest shall give the other Party written
notice of any such greater net revenue interest of which it becomes aware as
soon as possible, but in no event later than on or before ten (10) Business Days
prior to the Closing.  This provision does not apply to Non-Consent Interests.
 
(f) No Effect on Special Warranty of Title. Notwithstanding anything herein to
the contrary, the terms of this Section 5 and any adjustment made hereunder
shall have no effect on, or otherwise invalidate, the special warranty of title
set forth in the instruments of conveyance executed and delivered by Seller at
Closing.
 
6. Environmental Matters.
 
(a) Environmental Defects.  For purposes of this Agreement, the term
“Environmental Defect” means, with respect to any given Lease Assets, an
individual environmental condition identified with specificity by Buyer that
constitutes a violation of Environmental Laws or contamination by a Hazardous
Substance or Contaminant, excluding, however any environmental conditions deemed
not to be Environmental Defects by application of this Section 6.  For the
avoidance of doubt, an Environmental Defect may apply to multiple Lease Assets.
 
 
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(b) Notice of Environmental Defects.  If Buyer, in good faith, determines an
Environmental Defect exists, then Buyer may, by delivery of written notice to
Seller of the existence of any alleged Environmental Defect, request reduction
of the portion of the Base Purchase Price allocated to the Lease Assets
affected.  The Environmental Defect notice shall clearly (i) identify the Sale
Unit and Lease Assets to which the Environmental Defect relates, (ii) describe
the Environmental Defect in reasonable detail by providing Seller with copies of
any and all environmental site assessments and other documentation related to
the alleged Environmental Defect, (iii) describe the professional qualifications
of the person who determined the alleged Environmental Defect exists, (iv)
identify the procedures recommended to correct the Environmental Defect, and (v)
state the amount by which Buyer believes the value of the affected Lease Assets
have been reduced because of the Environmental Defect, with the computation and
information upon which Buyer’s belief is based.
 
(c) Remedies for Environmental Defects.  Any Environmental Defect notice from
Buyer shall be delivered to Seller on or before 5:00 p.m., San Antonio, Texas
time, on the date that the Inspection Period expires.  Seller shall have the
right, but not the obligation, to attempt to cure any alleged Environmental
Defect prior to Closing.  If Seller is unable or unwilling to cure an alleged
Environmental Defect, Buyer and Seller shall meet and use their reasonable
efforts to agree on the validity of the claim of Environmental Defect and the
amount of any required adjustment to the portion of the Base Purchase Price
allocated to such Lease Assets.  The value of any Environmental Defect disclosed
by Buyer to Seller prior to Closing shall not exceed the allocated value of the
affected Lease Assets as shown in Exhibit G.  In determining whether a Lease
Asset contains an Environmental Defect, it is the intent of the Parties to
include, when possible, only that portion of such Lease Asset materially and
adversely affected.
 
(d) No Agreement.  If the Parties cannot mutually agree on either the existence
of an Environmental Defect or an adjustment amount for an alleged Environmental
Defect, either Party may elect to terminate this Agreement as to the Sale Unit
affected by the alleged Environmental Defect and receive an adjustment in the
Base Purchase Price by the amount allocated to the Lease Assets comprising that
Sale Unit in which the Lease Assets with the alleged Environmental Defect are
included as set forth in Exhibit G.  In the event that either Party desires to
terminate this Agreement as to a Sale Unit affected by an alleged Environmental
Defect, then that Party shall deliver written notice to the other Party of its
intention to do so on or before 5:00 p.m., San Antonio, Texas time, on a date
that is not more than three (3) days prior to the Closing Date.  Buyer’s failure
to timely deliver notice to Seller of its election to terminate this Agreement
as to the Sale Unit affected by an alleged Environmental Defect shall be deemed
a waiver of such Environmental Defect, and Buyer shall proceed to Closing and
accept the Lease Assets with the alleged Environmental Defect with no adjustment
to the portion of the Base Purchase Price allocated to the Lease Assets
comprising the Sale Unit.  Upon receipt of any such notice timely delivered by
Buyer, Seller shall have the option to agree to the adjustment amount to such
Sale Unit as calculated, in good faith, in Buyer’s Environmental Defect notice
by delivering written notice to Buyer prior to Closing, and, if timely
delivered, the Parties shall proceed to Closing without terminating this
Agreement as to the Sale Unit affected by the alleged Environmental
Defect.  Upon receipt of any such notice timely delivered by Seller, Buyer shall
have the option to accept the Lease Assets with the alleged Environmental Defect
with no adjustment to the portion of the Base Purchase Price allocated to the
Lease Assets
 
 
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comprising the Sale Unit by delivering written notice to Seller prior to
Closing, and, if timely delivered, the Parties shall proceed to Closing without
terminating this Agreement as to the Sale Unit affected by the alleged
Environmental Defect.  The  adjustment amount of any Sale Unit excluded from
this Agreement pursuant to this provision shall be treated as an individual
Environmental Defect for purposes of Section 6(e).
 
(e) Individual Losses and Deductible.  There shall be no adjustments for any
individual Environmental Defect with a value of less than Forty Thousand Dollars
($40,000.00), and there shall be no adjustment for all Environmental Defects
unless the aggregate total of all adjustments for all Environmental Defects
exceeds one percent (1%) of the Base Purchase Price, and then only to the extent
the total of such adjustments exceeds one percent (1%) of the Base Purchase
Price.
 
7. Representations of Seller.  As of the date hereof, except as set forth in the
Seller’s Disclosure Schedule attached hereto, Seller represents to Buyer as
follows:
 
(a) Qualification.  Seller is a corporation validly existing and in good
standing under the laws of the State of Nevada and is duly qualified to own its
properties and Subject Assets and to carry on its business as now being
conducted in the states where the Subject Assets are located.
 
(b) Authority.  Seller has the requisite power and authority to execute and
deliver this Agreement and the contracts, agreements, documents and instruments
executed and delivered in connection with this Agreement (the “Ancillary
Documents”) and to consummate the transactions contemplated hereby and thereby,
and the execution and delivery of this Agreement and the Ancillary Documents by
Seller and the consummation of the transactions contemplated hereby and thereby
have been duly authorized.
 
(c) Enforceability.  This Agreement and the Ancillary Documents have been duly
executed and delivered by Seller and constitute the valid and binding obligation
of Seller, enforceable against it in accordance with the terms hereof and
thereof, subject to the effects of bankruptcy, insolvency, and other similar
laws affecting creditors’ rights.  No consent or approval on the part of Seller
or any other party is required to authorize the execution and delivery of this
Agreement and the Ancillary Documents by Seller or the consummation of the
transactions contemplated hereby and thereby.
 
(d) No Violation.  This Agreement and the Ancillary Documents, and the execution
and delivery hereof and thereof by Seller, do not and the consummation of the
transactions contemplated hereby will not (i) conflict with or result in a
breach of the charter or bylaws of Seller or any other governing documents of
Seller, (ii) violate, conflict with, or constitute a default under, or result in
the creation or imposition of any Encumbrance under any mortgage, indenture, or
agreement (including the Leases) to which Seller is a party or by which the
Subject Assets are bound, which violation, conflict, or default might adversely
affect the ability of Seller to perform its obligation under this Agreement and
the Ancillary Documents, or (iii) violate any statute or law or any judgment,
decree, order, writ, injunction, regulation, or rule of any court or
governmental authority, which violation might adversely affect the ability of
Seller to perform its obligations under this Agreement.
 
 
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(e) No Brokers’ Fees.  Seller has incurred no liability, contingent, or
otherwise, for brokers’ or finders’ fees relating to the transactions
contemplated by this Agreement for which Buyer shall have any responsibility
whatsoever.
 
(f) Election Proposals.  With respect to the joint, unit or other operating
agreements or regulatory orders controlling operations relating to the Subject
Assets, except as set forth in Seller’s Disclosure Schedule, there are: (i) no
material outstanding calls or payments under authorities for expenditures or
elections under regulatory orders for operations related to the Subject Assets
(“Election Proposals”) which are due by Seller and are unpaid as of the date of
this Agreement; and (ii) no Election Proposals, other than for New Wells, in
which Seller has elected to participate during the time period after the
Effective Time. Exhibit J sets forth separately all Election Proposals for New
Wells.
 
(g) Contractual Restrictions.  Seller has not entered into any prepayments
arrangement, take-or-pay arrangement, buydown, property-specific hedging
arrangement, buyout or storage arrangement, or production payment or any other
arrangement to deliver oil and gas produced from the Subject Assets at some
future time and/or for some future price which would be in effect as to the
Subject Assets after the Effective Time.
 
(h) Litigation.  Seller is not a party to, and has not received written notice
of, any suit or action pending, arising out of, or related to the ownership or
operation of the Subject Assets or the transactions contemplated by this
Agreement; and to Seller’s knowledge, there is no suit or action pending,
arising out of, or related to the ownership, operation or value of the Subject
Assets or the transactions contemplated by this Agreement.
 
(i) Permits and Consents.  Seller has not received written notice that any of
the following has occurred with respect to the Subject Assets: (i) the operators
of the Subject Assets have failed to acquire any material permits, licenses,
approvals or consents from appropriate governmental bodies, authorities and
agencies necessary to conduct operations on the Subject Assets in compliance
with applicable laws; or (ii) there is a dispute, claim or regulatory action
concerning any failure by any operator to comply with or obtain any such
permits, licenses, approvals and consents.
 
(j) Taxes.  Seller has not received written notice that any of the following has
occurred with respect to the Subject Assets that:
 
(i) the operators of the Subject Assets have failed to timely file any material
returns for ad valorem, property, severance, extraction or production Taxes when
due;
 
(ii) the operators of the Subject Assets have failed to timely make any payments
(with respect to the Subject Assets) shown to be due on such returns;
 
(iii) there is a material dispute or claim concerning any ad valorem, property,
severance, extraction or production Tax liability or other tax liability of
Seller (with respect to the Subject Assets) claimed or raised by any tax
authority in writing; or
 
 
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(iv) there is currently in effect any extension or waiver of any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Tax owed by Seller relating to or in connection with the Subject Assets; and
 
(v) the Subject Assets are held by or are subject to any contractual arrangement
between Seller and any other Persons, whether owning undivided interests therein
or otherwise, that are treated as or constitute a partnership for United States
federal Tax purposes or, to the knowledge of Seller, have been treated as or
constitute a partnership for United States federal Tax purposes.
 
(k) Material Agreements. Any agreements material to the ownership, operation or
value of the Subject Assets (“Material Agreements”) which are in Seller’s
possession are included in the Records (as defined below). The Records include
all of the agreements listed in (i) through (iii) below, and to Seller’s
knowledge, the Records also include the agreements listed in (iv) through (vii)
below:
 
(i) any agreement(s) with any affiliate(s) of Seller pertaining to the Subject
Assets;
 
(ii) any agreement(s) of Seller which require Seller to sell, lease, farmout, or
otherwise dispose of any of its interests in any of the Subject Assets after the
Effective Time;
 
(iii) any tax partnership(s) of Seller affecting any of the Subject Assets;
 
(iv) any operating agreement(s), exploration agreements, joint development
agreements, unit agreements or unit operating agreements to which the Subject
Assets are subject;
 
(v) any purchase, farmin, participation or similar agreements to which the
Subject Assets are subject;
 
(vi) any agreement creating an area of mutual interest with respect to the
Subject Assets; and
 
(vii) any agency agreements or trust agreements giving a party other than Seller
control over any of the Subject Assets.
 
All agreements set forth in (i) through (iii) above are listed in Seller’s
Disclosure Schedule. To the knowledge of Seller, Seller is not in material
default under the terms of any Material Agreement.  To the knowledge of Seller,
each Material Agreement is in full force and effect in all material respects
and, to the extent Seller is a party to such agreement, is valid and enforceable
by Seller in accordance with its terms, assuming the due authorization,
execution and delivery thereof by each of the other parties thereto (except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors’ rights generally or by
application of equitable principles).  As of the date of this Agreement, except
as set forth in Seller’s Disclosure Schedule, Seller has not received or given
any unresolved written notice of default, amendment, waiver, price
redetermination, market out, curtailment or termination with respect to any
Material Agreement.
 
 
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(l) Environmental Matters.  Seller has not received written notice that any of
the following has occurred with respect to the Subject Assets that:  (i) there
has been a Release of a Hazardous Material or Contaminant at, on, under, from,
or migrating to any of the Subject Assets; (ii)  either Seller or, to Seller’s
knowledge, the operator of the Lease Assets or any other owner of an interest in
the Leases or the land described in the Leases has received any citation,
directive, inquiry, notice, Claim, warning or other similar written
communication that relates to any alleged, actual, or potential Release of
Hazardous Materials or Contaminants, violation of any Environmental Law, or
obligation to undertake or bear the cost of any Remedial Action or other
liability under Environmental Law; or (iii) a Claim or governmental information
request is pending or, to Seller’s knowledge, has been threatened against
Seller, or to Seller’s knowledge is pending or has been threatened against the
operator of the Lease Assets or any other owner of an interest in the Leases or
the land described in the Leases, concerning a Release of any Hazardous Material
or Contaminant at, on, under or from any of the Subject Assets, a material
violation of any Environmental Law related to the Subject Assets, or an
obligation to undertake or bear the cost of any Remedial Action or other
liability under Environmental Law related to the Subject Assets, and there are
no circumstances that with the giving of notice or the passage of time would
form a valid basis of any such Claim or governmental information request. To
Seller’s knowledge, there are no underground storage tanks, buried pipes or
equipment, active or abandoned groundwater wells, or, except for the Wells
listed in Exhibit C hereto, active or abandoned Wells at the Subject Assets.
 
(m) Compliance with Laws.  Seller has not received written notice that (i) there
is a material uncured violation by Seller of any applicable laws with respect to
Seller’s ownership of the Subject Assets, or (ii) there is a material uncured
violation of any Applicable Law by any operator of the Subject Assets in regards
to the manner in which the Subject Assets have been developed, operated and
maintained.
 
(n) Oil and Gas Interests; Non-Consent Operations.
 
(i) All valid calls for payment or prepayment under operating agreements to
which the Subject Assets are subject that are due and owing by Seller have been
made by Seller in all material respects (timely, and before the same became
delinquent), and, to the knowledge of Seller, as of the date of this Agreement,
all payments with respect to delay rentals, shut-in royalties and royalties due
and owing by Seller with respect to the Subject Assets have been and are being
made (timely, and before the same became delinquent) by the operator of such
Subject Assets in all material respects other than those delinquent payments
that are contested by such operator in good faith in the normal course of
business or are held in suspense;
 
(ii) except as set forth in Exhibit C, as of the date of this Agreement, no
operations are being conducted or have been conducted with respect to the
Subject Assets as to which Seller has elected to be a non-consenting party under
the terms of the applicable operating agreement; and
 
 
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(iii) to Seller’s knowledge, all proceeds from the sale of oil and gas produced
from the Subject Assets are being received by Seller in accordance with the
terms of the applicable joint operating agreements in a timely manner and are
not being held in suspense.
 
(o) Well Status; Plugging and Abandonment.  Except as set forth on Exhibit C, as
of the date of this Agreement and excluding the Wells set forth in either
Exhibit D or Exhibit E, there are no Wells:
 
(i) with respect to which Seller has received an order from any Governmental
Entity requiring that such Well be plugged and abandoned that has not been
plugged and abandoned;
 
(ii) that, to the knowledge of Seller, formerly produced but that are currently
shut in without intent to restore production or are temporarily abandoned;
 
(iii) that, to the knowledge of Seller, is subject to penalties on allowables
after the Effective Time because of overproduction; or
 
(iv) that, to the knowledge of Seller, have been plugged and abandoned but have
not been plugged in accordance in all material respects with all applicable
requirements of each Governmental Entity having jurisdiction over the Well.
 
(p) Consents, Preferential Purchase Rights and Other Transfer Requirements.  To
Seller’s knowledge, no consent, approval, authorization or permit of, or filing
with or notification to, any Person is required for or in connection with the
execution and delivery of this Agreement by Seller or for or in connection with
the consummation of the transactions and performance of the terms and conditions
contemplated hereby by Seller.  To Seller’s knowledge, there are no Preferential
Purchase Rights.
 
(q) Bankruptcy.  There are no bankruptcy, reorganization or arrangement
proceedings pending, contemplated by or, to the knowledge of Seller, threatened
against Seller or any affiliate of Seller.
 
(r) Operatorship.  Neither Seller nor any affiliate of Seller serves as operator
of any of the Subject Assets.
 
(s) Salt Water Disposal Wells.  Except as set forth in Exhibit C, the Subject
Assets do not include ownership interests in any salt water disposal wells,
either directly or indirectly through a joint operating agreement or other
similar arrangement.
 
(t) Bonds and Credit Support.  No bonds, letters of credit or other similar
credit support instruments are maintained by Seller with any Person with respect
to Seller’s ownership of the Subject Assets.
 
(u) Mortgages and Other Instruments.  Except as set forth in Seller’s Disclosure
Schedule and except for Permitted Encumbrances, no deeds of trust, liens,
mortgages, fixture filings, security agreements or other financing statements
made by, under or against Seller or its affiliates burden the Subject Assets.
 
 
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(v) No Material Adverse Change.  Between the Effective Time and the date of this
Agreement, to the knowledge of the Seller, no events have occurred that have
caused, or would cause, a material adverse change in the Subject Assets.  For
purposes of this Agreement, a “material adverse change” shall mean any event,
occurrence, or change in facts which has materially diminished the value of the
Subject Assets other than any change occurring in the ordinary course of
business, changes in the price of Hydrocarbons or resulting from the production
of Hydrocarbons, changes in the United States and world economy or changes in
the oil and gas industry generally including any changes in the regulation of
the oil and gas industry.
 
(w) Definition of Seller’s Knowledge.  In those instances where Seller’s
representations are made on the basis of Seller’s “knowledge,” such
representations are made by Seller on the basis of the actual, conscious
knowledge of Stephen T. Wendel, Vice President of Land & Marketing, and Lee T.
Billingsley, Vice President of Exploration, without any inquiry.
 
8. Representations of Buyer.  As of the date hereof, Buyer represents to Seller
as follows:
 
(a) Qualifications.  Buyer is a limited liability company validly existing and
in good standing under the laws of the State of Delaware and, as of Closing,
will be duly qualified to own its properties and assets and to carry on its
business as now being conducted in the states where the Subject Assets are
located.
 
(b) Authority.  Buyer has the requisite power and authority to execute and
deliver this Agreement and the Ancillary Documents and to consummate the
transactions contemplated hereby and thereby.  The execution and delivery of
this Agreement and the Ancillary Documents by Buyer and the consummation of the
transactions contemplated hereby and thereby have been duly authorized.
 
(c) Enforceability.  This Agreement and the Ancillary Documents have been duly
executed and delivered by Buyer and constitute the valid and binding obligation
of Buyer, enforceable against it in accordance with the terms hereof and
thereof, subject to the effects of bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting creditors’ rights.  No other act,
approval, or proceeding on the part of Buyer or any other party is required to
authorize the execution and delivery of this Agreement and the Ancillary
Documents by Buyer or the consummation of the transactions contemplated hereby
and thereby.
 
(d) No Violation.  This Agreement and the Ancillary Documents, and the execution
and delivery hereof and thereof by Buyer, do not and the consummation of the
transactions contemplated hereby and thereby will not (i) conflict with or
result in a breach of the charter or bylaws of Buyer or any other governing
documents of Buyer, or (ii) violate any statute or law or any judgment, decree,
order, writ, injunction, regulation, or rule of any court or governmental
authority, which violation might adversely affect the ability of Buyer to
perform its obligations under this Agreement and the Ancillary Documents.
 
 
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(e) Sufficient Funds.  Buyer has, and will have on the Closing Date, sufficient
cash to enable it to make payment in immediately available funds of the Purchase
Price and any other amounts to be paid by it hereunder.
 
(f) Knowledgeable Investor.  Buyer is an experienced and knowledgeable investor
in the oil and gas business, and understands the risks of investing in the oil
and gas assets.  Buyer is not acquiring the Subject Assets in connection with a
distribution or resale thereof in violation of federal or state securities laws
and the rules and regulations thereunder.  Buyer understands and acknowledges
that:  (i) an investment in the Subject Assets involves certain risks; and
(ii) neither the Securities and Exchange Commission nor any federal, state or
foreign agency has passed upon the Subject Assets or made any finding or
determination as to the fairness of an investment in the Subject Assets or the
accuracy or adequacy of the disclosures made to Buyer.
 
(g) No Reliance.  In entering into this Agreement, Buyer has relied solely on
the express representations and covenants of Seller in this Agreement, the
Ancillary Documents, the certificates or other instruments delivered pursuant
thereto, its independent investigation of, and judgment with respect to, the
Subject Assets, and the advice of its own legal, tax, economic, environmental,
engineering, geological, and geophysical advisors, and not on any comments or
statements of Seller or its affiliates, or any representatives or agents of, or
consultants or advisors engaged by, Seller or its affiliates.
 
(h) No Brokers’ Fees.  Buyer has incurred no liability, contingent or otherwise,
for brokers’ or finders’ fees relating to the transactions contemplated by this
Agreement for which Seller shall have any responsibility whatsoever.
 
(i) Bankruptcy.  There are no bankruptcy, reorganization or arrangement
proceedings pending, contemplated by or, to the knowledge of Buyer, threatened
against Buyer or any affiliate of Buyer.
 
(j) Definition of Buyer’s Knowledge.  In those instances where Buyer’s
representations are made on the basis of “Buyer’s knowledge,” such
representations are made by Buyer on the basis of the actual knowledge of
Buyer’s personnel at or above the Vice President level, after due inquiry.
 
9. Due Diligence Review.
 
(a) Records.  Within five (5) days after the execution of this Agreement, Seller
will make available, to Buyer, and Buyer’s authorized representatives, for
examination as Buyer may reasonably request, electronic copies (and hard copies,
upon request, and at Buyer’s expense) of all lease files, land files,
right-of-way files, Well files, product purchase and sale, gathering, processing
and other contracts, division order files, abstracts, drilling and division
order title opinions, Environmental Permits, Environmental Claims, environmental
reports (including without limitation all Phase I and Phase II Environmental
Site Assessments and other reports, studies, audits, evaluations and data)
concerning actual or potential Releases of Hazardous Substances or Contaminants
and compliance with Environmental Laws (“Environmental Reports”), engineering
and geological data (including electric logs, core data,
 
 
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and pressure data), reports, maps, logs, geophysical data, agreements and Well
records contained in Seller’s files relating to the Subject Assets, other than
(i) any geophysical data that cannot be licensed, sublicensed or transferred by
Seller to Buyer without payment of license or transfer fees, (ii) any
information subject to third party confidentiality agreements for which a
consent or waiver cannot be secured by Seller after reasonable efforts, (iii)
with exception to the title opinions referenced above, any information subject
to an attorney/client, work product, or similar privilege, or (iv) any
proprietary evaluations or projections of Seller related to the Subject Assets
(collectively, the “Records”).  Seller shall notify Buyer of the existence of
any Environmental Reports withheld from Buyer on the basis of any of clauses (i)
through (iv) above.  Seller shall have a continuing obligation through Closing
to provide any new or previously undisclosed material Records to Buyer.
 
(b) Inspections.  For a period of forty-five (45) days immediately following the
date of this Agreement (the “Inspection Period”), Seller shall permit Buyer and
Buyer’s authorized representatives to consult with Seller’s employees during
reasonable business hours and, subject to the limitations in Section 9(a) above,
Seller shall furnish to Buyer and its consultants all information reasonably
requested by them.  To the extent Buyer desires site visits to the Subject
Assets, Buyer shall provide Seller with a written request identifying any and
all such well site(s), and Seller shall use reasonable efforts to obtain
approval from the applicable operator(s) to allow Buyer to visit such sites
during the Inspection Period for purposes of observing the Well sites and taking
photographs; provided, however, that Buyer shall only be permitted access to
those Subject Assets for which approval to do so has been granted by the
applicable operator and only to the extent the operator has approved the date
and time of the site visit and the actions proposed to be taken by Buyer during
the site visit.  Buyer shall not conduct site visits to any Subject Asset for
which the request for access has been denied by the applicable operator.  Buyer
shall not contact the operator of the Subject Assets directly, except as
reasonably required after 24 hours’ advance written notice to Seller and
providing Seller an opportunity to participate in the planned meeting or
discussion with the operator.  If Buyer or any of its representatives access any
of the Subject Assets or Seller’s offices, Buyer agrees to protect, defend,
indemnify, and hold harmless the Seller Parties (as hereinafter defined) from
and against any and all Claims and Damages occurring on the premises or arising
out of access to or testing or assessments of the Subject Assets or Seller’s
offices, as the case may be, by Buyer and its representatives.  Buyer agrees to
comply fully with all reasonable rules, regulations, and instructions issued by
Seller or any operator regarding Buyer’s actions while upon, entering, or
leaving the Subject Assets or Seller’s offices.
 
(c) Land Descriptions.  Notwithstanding Section 1(a) and Section 1(b), if,
during the Inspection Period, either Party discovers that, as to a Lease Asset,
the Land described in Exhibit B does not include acreage covered by such Lease
Asset and owned by Seller that is within the boundaries of the lands set forth
in the “Location (Sec,Twn-Rng)” column in Exhibit G, then Seller’s right, title
and interest to any such excluded acreage shall be included in the conveyance of
the Subject Assets to Buyer at Closing without any adjustment to the Base
Purchase Price, or at Buyer’s option, Buyer may assert a Title Defect in
accordance with Section 5 as to the affected Lease Asset.  Provided, however,
that the foregoing sentence does not apply to Excluded Assets.  Further, if
during the Inspection Period, either Party discovers that the Land described in
Exhibit B includes acreage outside of the boundaries of the lands set forth in
the “Location (Sec,Twn-Rng)” column in Exhibit G, then any such acreage shall be
excluded from
 
 
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the conveyance of Subject Assets to Buyer at Closing and, if such exclusion
results in a reduction in the Net Revenue Interest or Working Interest for the
affected Wells set forth in Exhibit G, Buyer may assert a Title Defect in
accordance with Section 5.
 
(d) Review.  Prior to the Closing Date, Buyer will have (i) had access to all
contracts, documents, records, and information which it desired to review, to
the extent such materials were available in the public records or otherwise
contained in the Records, in connection with its decision to enter into this
Agreement, and to consummate the transactions contemplated hereby, (ii) examined
the Subject Assets made available for inspection and such documents,
instruments, and other materials as it has requested to be provided to it by
Seller, including the Records, to the extent Seller had such materials in its
possession, and (iii) discussed with representatives of Seller such documents,
instruments, and other materials and the nature, condition, and operation of the
Subject Assets.
 
10. Operations Pending Closing.
 
(a) During the period from the date of this Agreement to Closing, Seller shall
(i) consult with Buyer with respect to each Election Proposal in excess of One
Hundred Thousand Dollars ($100,000.00) net to the interests of Seller which is
received by Seller with respect to any Subject Asset, and consult with Buyer
with respect to all material decisions to be made with respect to the Subject
Assets regarding the incurring of costs for discretionary expenditures for
operations in excess of One Hundred Thousand Dollars ($100,000.00) net to the
interest of Seller for which approval for expenditures are not prepared and
(ii) not transfer, sell, hypothecate, encumber, abandon, or otherwise dispose of
or terminate any portion of the Lease Assets (other than the sale of production
in the ordinary course of business or as required in connection with the
exercise by third parties of any Preferential Purchase Rights to purchase any of
the Lease Assets) without the written consent of Buyer.
 
(b) During the period from the date of this Agreement to the Closing Date,
Seller shall have the right to elect to participate or not to participate in any
New Well proposed by an operator on the Land.  Seller may consult with Buyer
prior to making the election but shall have the right to make the election in
its sole discretion, and will have no obligations or liability to the Buyer when
making such election.
 
(c) Notwithstanding Section 10(a) and Section 10(b) above, in the event that,
during the period from the date of this Agreement to Closing, Seller elects to
participate in Election Proposals with respect to the Subject Assets,
discretionary expenditures, or New Wells, and in the event that Seller’s
proportionate share of the aggregate estimated costs for such operations, as set
forth in any such Election Proposals, would exceed five percent (5%) of the Base
Purchase Price, Seller shall be required to obtain Buyer’s permission for the
first such operation that exceeds the five percent (5%) threshold, and any
operations thereafter, in which it desires to participate. 
 
11. Conditions of Closing by Seller.  The obligation of Seller to consummate the
transaction contemplated hereunder is subject to the satisfaction of the
following conditions:
 
 
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(a) the representations of Buyer contained in Section 8 are true and correct in
all material respects on and as of the Closing Date, and all covenants and
agreements hereunder to be performed by Buyer at or prior to the Closing have
been performed and satisfied in all material respects;
 
(b) Buyer and Seller shall have adjusted the Base Purchase Price in accordance
with the provisions of Sections 3, 5, 6, 13 and 17, and the aggregate value of
all such adjustments shall not have exceeded ten percent (10%) of the Base
Purchase Price; and
 
(c) no proceeding, action, suit, or investigation before any arbitrator or
governmental authority shall, on the Closing Date, be pending or threatened that
seeks to restrain, prohibit, or seek damages or other relief in connection with
the Closing.
 
12. Conditions of Closing by Buyer.  The obligation of Buyer to consummate the
transaction contemplated hereunder is subject to the satisfaction of the
following conditions:
 
(a) the representations of Seller contained in Section 7 are true and correct in
all material respects on and as of the Closing Date, and all covenants and
agreements hereunder to be performed by Seller at or prior to the Closing have
been performed and satisfied in all material respects;
 
(b) Buyer and Seller shall have adjusted the Base Purchase Price in accordance
with the provisions of Sections 3, 5, 6, 13 and 17, and the aggregate value of
all such adjustments shall not have exceeded ten percent (10%) of the Base
Purchase Price; and
 
(c) no proceeding, action, suit, or investigation before any arbitrator or
governmental authority shall, on the Closing Date, be pending or threatened that
seeks to restrain, prohibit, or seek damages or other relief in connection with
the Closing.
 
13. Other Purchase Price Adjustments.
 
(a) Casualty Loss.  Seller shall promptly notify Buyer of any Casualty Loss of
which Seller becomes aware.  If any Casualty Loss occurs prior to Closing to any
of the Subject Assets and such Casualty Loss may be repaired prior to Closing
and, when repaired, the value of such Subject Assets shall not be diminished,
then Seller may repair and remedy such Casualty Loss prior to Closing at
Seller’s cost and shall notify Buyer of such election.  If Seller (i) elects to
repair such Casualty Loss and such repair is not completed prior to Closing or
the repair completed by Seller does not cause the value of such Subject Assets
to be the same as such value prior to the Casualty Loss, or (ii) is unable or
unwilling to repair the Casualty Loss, then Buyer shall have the right to
(x) proceed to Closing and accept the Subject Assets affected by the Casualty
Loss with no adjustment to the Base Purchase Price, or (y) terminate this
Agreement as to the Lease Assets related to the Subject Assets affected by the
Casualty Loss and receive a reduction in the Base Purchase Price by the amount
allocated to such Lease Assets in Exhibit G.
 
(b) Preferential Purchase Rights.  Seller shall make a good faith effort to
identify Preferential Purchase Rights to Buyer and shall promptly give notices
to third parties holding any Preferential Purchase Right.  Seller shall use all
reasonable efforts, but without obligation to incur any unreasonable cost or
expense, to obtain waivers of, or to comply with,
 
 
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any such Preferential Purchase Right prior to Closing.  If a Preferential
Purchase Right is properly exercised by a third party prior to Closing, the Base
Purchase Price shall be reduced by the amount allocated to each affected Lease
Asset in Exhibit G, and Seller shall convey the affected Lease Assets to the
holder of such right and be entitled to all amounts paid by such holder.  If a
holder exercises its Preferential Purchase Right but fails to consummate the
purchase within the required time frame for such right, whether before or after
Closing, Seller agrees to convey the affected Lease Assets to Buyer effective as
of the Effective Time, and Buyer agrees to pay Seller the allocated amount for
the affected Lease Assets as set forth in Exhibit G.  If a Preferential Purchase
Right is exercised after Closing, Buyer shall convey the affected Lease Assets
to the holder of such right on the same terms and conditions under which Seller
conveyed the Subject Assets to Buyer and shall be entitled to all amounts paid
by such holder.
 
(c) Consents.  Seller shall make a good faith effort to identify any consents
which could reasonably render the transfer of a Subject Asset to Buyer void or
voidable, and Seller shall promptly give notices to all third parties holding
any such consents.  Seller shall use all reasonable efforts, but without
obligation to incur any unreasonable cost or expense, to obtain such
consents.  Upon Seller’s request, Buyer will provide such information regarding
Buyer and its operations and financial condition as Seller reasonably believes
to be necessary or appropriate to obtain such consents.  Unless waived by Buyer,
if Seller fails to receive prior to Closing any such consent (other than
consents of any Governmental Authority customarily obtained subsequent to a sale
or transfer), then the Base Purchase Price shall be reduced by the amount
allocated to the affected Lease Assets in Exhibit G, and such Lease Assets shall
be excluded from the purchase and sale under this Agreement.  Any such consent
waived by Buyer shall be deemed a Permitted Encumbrance.
 
14. Closing.  The Closing shall be held on or before ten (10) days after the end
of the Inspection Period at the offices of Seller in San Antonio, Texas or at
such other time and place as Seller and Buyer may mutually agree in writing (the
“Closing” or “Closing Date”).
 
15. Transactions at Closing.  The following actions shall occur at Closing:
 
(a) Seller shall execute, acknowledge, and deliver to Buyer the instrument of
conveyance in the form as set forth in Exhibit H conveying the Subject Assets;
 
(b) Seller and Buyer shall execute and deliver a preliminary closing statement
that shall set forth the Base Purchase Price, each adjustment to the Base
Purchase Price under this Agreement, and the calculation of such adjustments
used to determine such amount under this Agreement, and the final Purchase
Price, in the form as set forth in Exhibit K, Form of Preliminary Closing
Statement;
 
(c) Seller shall deliver to Buyer originals (to the extent available) or copies
of those Records pertaining exclusively to the Subject Assets (copies of which
Seller shall be entitled to retain), and Seller shall deliver to Buyer copies,
but shall retain any originals, of those Records which relate to both the
Subject Assets and the Excluded Assets;
 
(d) Seller shall deliver to Buyer (i) a certificate stating that the
representations of Seller contained in Section 7 are true and correct, in all
material respects, as of the Closing
 
 
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Date and that Seller has performed, in all material aspects, all covenants and
agreements to be performed by Seller hereunder at or prior to Closing, (ii) a
“non-foreign person” affidavit in the form as set forth in Exhibit I, and (iii)
executed letters-in-lieu or other appropriate transfer orders for each of the
operators of the Subject Assets;
 
(e) Buyer shall deliver to Seller a certificate stating that the representations
of Buyer contained in Section 8 are true and correct, in all material respects,
as of the Closing Date, and that Buyer has performed, in all material aspects,
all covenants and agreements to be performed by Buyer hereunder, including, but
not limited to, the covenant set forth in Section 9(c), at or prior to Closing;
 
(f) Seller shall deliver to Buyer possession of the Subject Assets, subject to
any applicable operating agreements or other related agreements affecting the
Subject Assets; and
 
(g) Buyer and Escrow Agent shall deliver to Seller cash by wire transfer of
immediately available funds in the amount of the Purchase Price to an account
designated in writing by Seller.
 
16. Closing Payment and Post-Closing Purchase Price Adjustments.
 
(a) Closing Payment.  No later than 5:00 p.m., San Antonio, Texas time, on the
date that is two (2) days prior to the Closing Date, Seller shall prepare and
deliver to Buyer, using and based upon the best information reasonably available
to Seller, a preliminary settlement statement estimating the Purchase Price and
the amounts payable by Buyer at Closing, after giving effect to all Purchase
Price adjustments set forth in Sections 3, 5, 6, 13 and 17, if
applicable.  Seller shall include all records or data supporting the calculation
of amounts in the preliminary settlement statement. Prior to the Closing, Buyer
and Seller shall review the preliminary settlement statement proposed by Seller
and shall work in good faith to agree upon the adjustments and Purchase
Price.  When available, actual figures will be used for the Purchase Price
adjustments, and to the extent actual figures are not available, estimates shall
be used subject to final adjustments as described in Section 16(b).  The agreed
upon  estimate of Purchase Price less the Performance Deposit shall constitute
the dollar amount to be paid by Buyer to Seller at the Closing (the “Closing
Payment”).
 
(b) Post-Closing Purchase Price Adjustments.  As soon as reasonably practicable
after the Closing but not later than the 90th day following the Closing Date,
Seller shall prepare and deliver to Buyer a statement setting forth the final
calculation of the Purchase Price and showing the calculation of each
adjustment, based, to the extent possible, on actual credits, charges, receipts
and other items before and after the Effective Time.  Seller shall at Buyer’s
request supply reasonable documentation available to support any credit, charge,
receipt or other item.  As soon as reasonably practicable but not later than the
30th day following receipt of Seller’s statement hereunder, Buyer shall deliver
to Seller a written report containing any changes that Buyer proposes be made to
such statement.  The Parties shall undertake to agree on the final statement of
the Purchase Price no later than one hundred twenty (120) days after the Closing
Date (the “Final Settlement Date”).  If Seller and Buyer have not so agreed on
or before the Final Settlement Date, the matters that remain in dispute shall be
submitted to an arbitrator
 
 
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(the “Accountant”) for review and resolution.  The Accountant shall be a
nationally recognized independent public accounting firm as shall be agreed upon
by Buyer and Seller in writing.  The Accountant shall render a decision
resolving the matters in dispute, in a manner consistent with the provisions of
Sections 3, 5, 6, 13 and 17 and the other provisions of this Agreement, within
thirty (30) days following their submission to the Accountant.  The
determination of the Accountant shall be final and binding on the parties.  The
cost of any arbitration (including the fees and expenses of the Accountant)
pursuant to this Section 16(b) shall be borne one-half by Buyer and one-half by
Seller.  If the Purchase Price as adjusted in the final settlement statement
exceeds the Purchase Price received by Seller at Closing, Buyer shall pay to
Seller the difference within three (3) Business Days after the Final Settlement
Date.  If the Purchase Price received by Seller at Closing exceeds the Purchase
Price as adjusted in the final settlement statement, Seller will pay to Buyer
the difference within three (3) Business Days after the Final Settlement
Date.  Any post-Closing payment made pursuant to this Section 16(b) shall bear
simple interest, compounded annually, at a variable rate per annum (based on a
365-day year) equal to 3.25% from the Closing Date to the date of such payment.
 
17. Taxes.  All ad valorem, property, extraction,  severance and production
Taxes and similar obligations with respect to the tax period in which the
Effective Time occurs (the “current tax period”) shall be apportioned between
Seller and Buyer as of the Effective Time based on an estimate of the
immediately preceding tax period assessment, and the Base Purchase Price shall
be reduced at Closing by the amount of such estimated Taxes owed by Seller for
that portion of the current tax period prior to the Effective
Time.  Notwithstanding such estimate, Buyer shall be responsible for the portion
of ad valorem, property, extraction, severance and production Taxes allocated to
the period at and after the Effective Time and Seller shall be responsible for
the portion allocated to the period before the Effective Time, except with
respect to any Taxes relating to any New Wells, as to which Buyer shall be
responsible for all Taxes.  Taxes (other than Taxes measured by gross proceeds,
income, profits or capital gains), including, without limitation, ad valorem and
property Taxes assessed for the 2013 tax year, shall be prorated based on the
number of days in the applicable period falling before, and at or after, the
Effective Time, except that (i) production, extraction, severance and similar
Taxes shall be prorated based on the amount of Hydrocarbons actually produced,
purchased or sold, as applicable, before, and at or after, the Effective Time,
and (ii) Buyer shall be responsible for all such Taxes relating to the New
Wells.
 
18. Retention of Obligations and Indemnities of Seller.
 
(a) Retention by Seller.  From and after Closing, Seller agrees to retain,
perform, pay, and fully discharge the following losses, costs, Damages,
liabilities and obligations or alleged or threatened losses, costs, Damages,
liabilities and obligations for the following:
 
(i) Property Costs, assignments, operating agreements, leases, permits, deeds,
rights-of-way, licenses, easements, options, orders, gas purchase contracts,
product purchase and sale agreements, gas gathering agreements, gas processing
agreements, or any other agreements or contracts attributable to, affecting, or
otherwise relating to the Subject Assets, to the extent such liabilities and
obligations arose prior to the Effective Time or under Section 10;
 
 
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(ii) Seller’s obligations in connection with or arising out of Section 24;
 
(iii) in connection with or arising out of balancing of overproduction or
underproduction from the Subject Assets (but only to the extent that the
relevant imbalance arose prior to the Effective Time);
 
(iv) in connection with or arising out of claims for personal injury (including
wrongful death) or damage to tangible property, to the extent arising prior to
the Effective Date;
 
(v) any Taxes (including applicable penalties and interest) for which Seller has
agreed to be responsible hereunder; and
 
(vi) as to any Material Agreements which are not contained in either the Records
or the public records, or referenced therein, any liabilities arising out of
such agreements regarding Preferential Purchase Rights, requirements for consent
to assign, area of mutual interest obligations, or any other obligations which
in whole or in part, void or prohibit the transactions contemplated by this
Agreement.
 
(b) Retention by Seller (Environmental Claims). Seller agrees to retain,
perform, pay, and fully discharge any Environmental Claims arising out of or
related to any Environmental Defect existing prior to the Effective Time,
provided that such Environmental Defect is disclosed by Buyer to Seller by
written notice consistent with the requirements of Section 6(b)(i)-(iii) no
later than one hundred eighty (180) days following the Closing Date.
 
(c) The liabilities described in Sections 18(a) and (b) are hereinafter referred
to as the “Retained Liabilities”.  Notwithstanding the foregoing, Retained
Liabilities shall not include, and there is excepted, reserved and excluded from
the Retained Liabilities, the liabilities and obligations for which Buyer has
agreed to indemnify the Seller Parties pursuant to Section 19, and any other
liabilities or obligations for which Buyer specifically assumes or retains
responsibility pursuant to this Agreement.
 
(d) Survival; SELLER’S INDEMNITY.  FROM AND AFTER CLOSING, SUBJECT TO THE
PROVISIONS OF THIS AGREEMENT, SELLER SHALL, TO THE FULLEST EXTENT PERMITTED BY
LAW, PROTECT, DEFEND, INDEMNIFY, RELEASE, AND HOLD HARMLESS BUYER AND ITS
AFFILIATES, AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, INCLUDING THE
DIRECTORS, OFFICERS, MEMBERS, MANAGERS, EMPLOYEES, CONTRACTORS, AGENTS, AND
REPRESENTATIVES OF EACH OF THEM (COLLECTIVELY, THE “BUYER PARTIES”) FROM AND
AGAINST ANY AND ALL CLAIMS AND DAMAGES ATTRIBUTABLE TO OR ARISING OUT OF (I) THE
RETAINED LIABILITIES, (II) THE BREACH BY SELLER OF ANY OF ITS REPRESENTATIONS
AND WARRANTIES IN THIS AGREEMENT AND THE ANCILLARY DOCUMENTS, AND (III) THE
BREACH BY SELLER OF ANY OF ITS AGREEMENTS AND COVENANTS IN THIS AGREEMENT AND
THE ANCILLARY DOCUMENTS.  The Seller shall not be liable under this Section 18
for any Claims or Damages resulting from any event relating to the Breach of any
of Seller’s representations, warranties, covenants, and agreements in this
Agreement or any of the Ancillary Documents if any of the Buyer Parties had
knowledge of such Breach.  The indemnification obligations of Seller made in
this Agreement shall survive the Closing as follows:
 
 
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(i) with regard to the Retained Liabilities or a breach of the representations
and warranties contained in Sections 7(a), (b), (c), (d), (e), (g), (q) or (r)
(the “Seller Fundamental Representations”), for a period in perpetuity; and
 
(ii) with regard to a breach of any other representations and warranties or
covenant by Seller in this Agreement, for a period of one (1) year following
Closing.
 
(e) Notice and Defense.  If a Claim arises for which the Buyer Parties intend to
seek indemnity with respect thereto under Section 18, Buyer shall notify Seller
of such Claim within thirty (30) days after the date on which Buyer becomes
aware of such Claim.  Seller shall have thirty (30) days after receipt of such
notice to undertake, conduct, and control, through counsel of its own choosing
and at its own expense, the settlement or defense thereof, and the Buyer Parties
shall cooperate with Seller in connection therewith.  So long as Seller has
undertaken the defense of, and responsibility for, any such Claim and is
reasonably contesting any such Claim in good faith, by appropriate proceedings
(including the filing or posting of appeal bonds, supersedeas bonds and similar
bonds), the Buyer Parties shall not pay or settle any such Claim.  The Buyer
Parties shall have the right to pay or settle any such Claim, but such payment
or settlement shall waive any right to indemnity by Seller for such Claim.  If
Seller does not notify Buyer within thirty (30) days after the receipt of a
notice of a claim of indemnity hereunder from the Buyer Parties that Seller
elects to undertake the defense thereof, or if Seller has not undertaken the
defense of, or responsibility for, such claim or is not reasonably contesting
such Claim, then Buyer shall have the right to contest, settle, or compromise
the Claim, but shall not thereby waive any right to indemnity therefor under
this Section 18.
 
(f) Deductible.  Except for the Retained Liabilities set forth in Section 18(a),
which are excluded from this limitation, none of the Buyer Parties shall be
entitled to assert any right to indemnification under Section 18(c) until the
aggregate amount of all Damages actually suffered by the Buyer Parties exceeds
one percent (1%) of the Base Purchase Price, and then only to the extent such
Damages exceed, in the aggregate, one percent (1%) of the Base Purchase Price.
 
(g) Aggregate Limitation on Seller’s Liability.  Except for the Retained
Liabilities set forth in Section 18(a) and Section 18(b) and Seller’s
Fundamental Representations, which are excluded from this limitation, in no
event shall Seller ever be required to indemnify the Buyer Parties for Claims or
Damages under Section 18, or to pay any other amount in connection with or with
respect to the transactions contemplated by this Agreement, in any amount
exceeding, in the aggregate, ten percent (10%) of the Base Purchase Price.
 
(h) COMPLIANCE WITH EXPRESS NEGLIGENCE RULE.  THE INDEMNIFICATION, WAIVER, AND
RELEASE PROVISIONS OF SELLER IN THIS AGREEMENT, INCLUDING THOSE IN THIS
SECTION 18 AND SECTION 20 BELOW, SHALL BE APPLICABLE WHETHER OR NOT THE CLAIMS
OR DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE,
COMPARATIVE, CONTRIBUTORY, CONCURRENT, GROSS, SOLE OR JOINT NEGLIGENCE, STRICT
LIABILITY OR OTHER FAULT OF ANY OF THE BUYER PARTIES.
 
 
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(i) Purchase Price Adjustments. Notwithstanding anything to the contrary set
forth in this Agreement, Seller shall have no liability to the Buyer Parties or
obligation to indemnify any of the Buyer Parties for any specific matter or
Claim for which Buyer has received an adjustment to the Base Purchase Price.
 
(j) Sole and Exclusive Remedy.  Following Closing hereunder, the sole and
exclusive remedy of the Buyer Parties hereto for any Claim as a result of a
Breach by any of the Seller Parties of Seller’s respective representations,
warranties, covenants, or agreements made hereby or the failure of any of the
Seller Parties to perform their respective obligations under this Agreement
shall be a claim under this Section 18.  To the fullest extent permitted by Law,
the Parties hereby waive any provision of Law to the extent that it would limit
or restrict the agreements set forth in this Section 18. Without limiting the
generality of the foregoing, from and after the Closing, the Buyer Parties shall
be deemed to have waived to the fullest extent permitted under applicable Law,
any right to contribution against Seller (including, without limitation, any
contribution Claim arising under Environmental Laws) except as provided in this
Agreement.
 
(k) Fraud.  The liability of Seller for fraud shall not be limited by the
provisions of this Section 18.
 
19. Assumption of Obligations and Indemnities of Buyer.
 
(a) Assumption by Buyer.  From and after Closing, Buyer agrees to assume,
perform, pay, and fully discharge any and all of the losses, costs, Damages,
liabilities and obligations or alleged or threatened losses, costs, Damages,
liabilities and obligations of any of the Seller Parties that arise or first
occurred before or after the Effective Time in respect of the Subject Assets
that are not expressly retained by Seller as Retained Liabilities under Section
18(a).
 
(b) Assumption by Buyer (Environmental Claims).  Buyer agrees to assume,
perform, pay, and fully discharge any Environmental Claims arising out of or
related to any Environmental Defect not expressly retained by Seller as Retained
Liabilities under Section 18(b).
 
The liabilities described in Section 19(a) and (b) are collectively hereinafter
referred to as the “Assumed Liabilities”.  Notwithstanding the foregoing,
Assumed Liabilities shall not include, and there is excepted, reserved and
excluded from the Assumed Liabilities, the liabilities and obligations for which
the Seller has agreed to indemnify the Buyer Parties pursuant to Section 18, and
any other liabilities or obligations for which Seller specifically retains
responsibility pursuant to this Agreement.
 
(c) Survival; BUYER’S INDEMNITY.  FROM AND AFTER CLOSING, SUBJECT TO THE
PROVISIONS OF THIS AGREEMENT, BUYER SHALL, TO THE FULLEST EXTENT PERMITTED BY
LAW, PROTECT, DEFEND, INDEMNIFY, AND HOLD HARMLESS SELLER AND ITS AFFILIATES,
AND THEIR RESPECTIVE
 
 
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SUCCESSORS AND ASSIGNS, AND THE DIRECTORS, OFFICERS, MEMBERS, MANAGERS,
EMPLOYEES, CONTRACTORS, AGENTS, AND REPRESENTATIVES OF EACH OF THEM
(COLLECTIVELY, THE “SELLER PARTIES”) FROM AND AGAINST ANY AND ALL CLAIMS AND
DAMAGES ATTRIBUTABLE TO OR ARISING OUT OF THE FOLLOWING:  (I) THE ASSUMED
LIABILITIES, (II) THE BREACH BY BUYER OF ANY OF ITS REPRESENTATIONS AND
WARRANTIES IN THIS AGREEMENT AND THE ANCILLARY DOCUMENTS, AND (III) THE BREACH
BY BUYER OF ANY OF ITS AGREEMENTS AND COVENANTS IN THIS AGREEMENT AND THE
ANCILLARY DOCUMENTS.  The Buyer shall not be liable under this Section 19 for
any Claims or Damages resulting from any event relating to the Breach of any of
Buyer’s representations, warranties, covenants, and agreements in this Agreement
or any of the Ancillary Documents if any of the Seller Parties had knowledge of
such Breach.  The indemnification obligations of Buyer made in this Agreement
shall survive the Closing as follows:
 
(i) with regard to the Assumed Liabilities or a breach of the representations
and warranties contained in Sections 8(a), (b), (c), (d), (h) or (i) (the “Buyer
Fundamental Representations”), for a period in perpetuity; and
 
(ii) with regard to a breach of any other representation, warranty, covenant, or
agreement by Buyer in this Agreement (other than those contained in this Section
19), for a period of one (1) year following Closing.
 
(d) Notice and Defense.  If a Claim arises for which Seller intends to seek
indemnity with respect thereto under Section 19(c), Seller shall notify Buyer of
such Claim no later than  5:00 p.m., San Antonio, Texas time, on the date that
is  thirty (30) days after the date on which Seller becomes aware of such
Claim.  Buyer shall have until 5:00 p.m., San Antonio, Texas time, on the date
that is thirty (30) days after receipt of such notice to undertake, conduct, and
control, through counsel of its own choosing and at its own expense, the
settlement or defense thereof, and Seller shall cooperate with Buyer in
connection therewith.  So long as Buyer has undertaken the defense of, and
responsibility for, any such Claim and is reasonably contesting any such Claim
in good faith, by appropriate proceedings (including the filing or posting of
appeal bonds, supersedes bonds and similar bonds), Seller shall not pay or
settle any such Claim.  Seller shall have the right to pay or settle any such
Claim, but such payment or settlement shall waive any right to indemnity by
Buyer for such Claim.  If Buyer does not notify Seller 5:00 p.m., San Antonio,
Texas time, on the date that is  thirty (30) days after the receipt of Seller’s
notice of a claim of indemnity hereunder that Buyer elects to undertake the
defense thereof, or if Buyer has not undertaken the defense of, or
responsibility for, such Claim or is not reasonably contesting such Claim, then
Seller shall have the right to contest, settle, or compromise the Claim, but
shall not thereby waive any right to indemnity therefor under this Section 19.
 
(e) Deductible.  None of the Seller Parties shall be entitled to assert any
right to indemnification under Section 19(c) until the aggregate amount of all
Damages actually suffered by the Seller Parties exceeds one percent (1%) of the
Base Purchase Price, and then only to the extent such Damages exceed, in the
aggregate, one percent (1%) of the Base Purchase Price.
 
 
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(f) Aggregate Limitation on Buyer’s Liability.  Except for the Assumed
Liabilities and Buyer Fundamental Representations, which matters are excluded
from this limitation, in no event shall Buyer ever be required to indemnify the
Seller Parties for Claims or Damages under Section 19, or to pay any other
amount in connection with or with respect to the transactions contemplated by
this Agreement, in any amount exceeding, in the aggregate, ten percent (10%) of
the Base Purchase Price.
 
(g) COMPLIANCE WITH EXPRESS NEGLIGENCE RULE.  THE INDEMNIFICATION, WAIVER,
RELEASE, AND ASSUMPTION PROVISIONS OF BUYER IN THIS AGREEMENT, INCLUDING THOSE
IN THIS SECTION 19 AND SECTION 20 BELOW, SHALL BE APPLICABLE WHETHER OR NOT THE
CLAIMS OR DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE,
COMPARATIVE, CONTRIBUTORY, CONCURRENT, GROSS, SOLE OR JOINT NEGLIGENCE, STRICT
LIABILITY OR OTHER FAULT OF ANY OF THE SELLER PARTIES.
 
(h) Sole and Exclusive Remedy.  Following Closing hereunder, the sole and
exclusive remedy of the Seller Parties hereto for any Claim as a result of a
Breach by any of the Buyer Parties of Buyer’s respective representations,
warranties, covenants, or agreements made hereby or the failure of any of the
Buyer Parties to perform their respective obligations under this Agreement shall
be a claim under this Section 19.  To the fullest extent permitted by Law, the
Parties hereby waive any provision of Law to the extent that it would limit or
restrict the agreements set forth in this Section 19.  Without limiting the
generality of the foregoing, from and after the Closing, the Seller Parties
shall be deemed to have waived to the fullest extent permitted under applicable
Law, any right to contribution against Buyer except as provided in this
Agreement.
 
(i) Fraud.  The liability of Buyer for fraud shall not be limited by the
provisions of this Section 19.
 
20. DISCLAIMERS AND WAIVERS.
 
(a) Title Waiver.  Except as provided in the instruments of conveyance executed
and delivered by Seller at Closing, the Subject Assets shall be conveyed and
transferred without any representation, warranty, or covenant of title of any
kind or nature, either express, implied, or statutory. Notwithstanding anything
to the contrary set forth in this Agreement, the special warranty of title set
forth in the instruments of conveyance executed and delivered by Seller at
Closing shall survive in perpetuity.
 
(b) No Reliance.  Buyer has not relied upon any representation, warranty,
statement, advice, document, projection, or other information of any type
provided by Seller, or its affiliates, or any of their representatives, except
for those expressly set forth in this Agreement and the Ancillary Documents and
the certificates or other instruments delivered pursuant thereto.  In deciding
to enter into this Agreement and the Ancillary Documents, and to consummate the
transactions contemplated hereby, Buyer has relied solely upon its own
knowledge, investigation, and analysis (and that of its representatives and
advisers) and not on any disclosure or representation made by, or any duty to
disclose on the part of, Seller
 
 
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or its affiliates, or any of their representatives or advisers, other than the
representations, warranties, covenants and agreements of Seller expressly set
forth in this Agreement and the Ancillary Documents and the certificates or
other instruments delivered pursuant thereto.
 
(c) Limited Duties.  Any and all duties and obligations which either Party may
have to the other Party with respect to or in connection with the Subject
Assets, this Agreement, or the transactions contemplated hereby are limited to
those in this Agreement.  The Parties do not intend (i) that the duties or
obligations of either Party, or the rights of either Party, shall be expanded
beyond the terms of this Agreement on the basis of any legal or equitable
principle or on any other basis whatsoever or (ii) that any equitable or legal
principle or any implied obligation of good faith or fair dealing or any other
matter requires either Party to incur, suffer, or perform any act, condition, or
obligation contrary to the terms of this Agreement and that it would be unfair,
and that they do not intend, to increase any of the obligations of any Party
under this Agreement on the basis of any implied obligation or otherwise.
 
(d) Defects.  Except as provided elsewhere in this Agreement or the Ancillary
Documents, the Subject Assets are being conveyed and assigned to and accepted by
Buyer in their “as is, where is” condition and state of repair, and with all
faults and defects, without any representation, warranty, or covenant of any
kind or nature, express, implied, or statutory, including, but not limited to,
warranties of marketability, quality, condition, conformity to samples,
merchantability, and/or fitness for a particular purpose, all of which are
expressly disclaimed by Seller and waived by Buyer.  Buyer recognizes that the
Subject Assets have been used for oil and gas drilling, production, gathering,
pipeline, transportation, storage, and related operations.  Physical changes in
the Subject Assets and in the lands burdened thereby may have occurred as a
result of such uses.  The Subject Assets also may include buried pipelines and
other equipment, the locations of which may not be known by Seller or readily
apparent by a physical inspection of the Subject Assets.  It is understood and
agreed that Buyer shall have inspected prior to Closing (or shall be deemed to
have waived its right to inspect) the Leases, equipment, pipelines, and the
associated premises and satisfied itself as to their physical condition, both
surface and subsurface, and that Buyer shall accept all of the same in their “as
is, where is” condition and state of repair, and with all faults and defects,
except as set forth in this Agreement or the Ancillary Documents.
 
(e) Records Disclaimer.  Seller makes no representation, covenant, or warranty,
express, implied, or statutory, as to the accuracy or completeness of any data
or records (including the Records) delivered or made available to Buyer with
respect to the Subject Assets, or concerning the quality or quantity of
Hydrocarbon reserves, if any, attributable to the Subject Assets, or the ability
of the Subject Assets to produce Hydrocarbons, or the product prices which Buyer
is or will be entitled to receive from the sale of any such Hydrocarbons.
 
(f) Waiver And Release.  EXCEPT AS SET FORTH IN SECTIONS 16 AND 18 ABOVE, FROM
AND AFTER CLOSING, THE BUYER PARTIES RELEASE, REMISE AND FOREVER DISCHARGE THE
SELLER PARTIES FROM ANY AND ALL CLAIMS AND DAMAGES WHATSOEVER, IN LAW OR IN
EQUITY, KNOWN OR UNKNOWN, WHICH THE BUYER PARTIES MIGHT NOW OR SUBSEQUENTLY
 
 
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 MAY HAVE, BASED ON, RELATING TO OR ARISING OUT OF (i) THIS AGREEMENT, (ii)
SELLER’S OWNERSHIP, USE OR OPERATION OF THE SUBJECT ASSETS OR (iii) THE
CONDITION, QUALITY, STATUS OR NATURE OF THE SUBJECT ASSETS, INCLUDING, IN EACH
SUCH CASE, RIGHTS TO CONTRIBUTION UNDER CERCLA OR ANY OTHER ENVIRONMENTAL LAW,
BREACHES OF STATUTORY OR IMPLIED WARRANTIES, NUISANCE OR OTHER TORT ACTIONS,
RIGHTS TO PUNITIVE DAMAGES AND COMMON LAW RIGHTS OF CONTRIBUTION, RIGHTS UNDER
AGREEMENTS BETWEEN SELLER AND ANY PERSONS WHO ARE AFFILIATES OF SELLER, AND
RIGHTS UNDER INSURANCE MAINTAINED BY SELLER OR ANY PERSON WHO IS AN AFFILIATE OF
SELLER, EVEN IF CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE,
JOINT OR CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY RELEASED
PERSON.
 
(g) Consequential Damages Waiver.  Notwithstanding anything to the contrary in
this Agreement and the Ancillary Documents, neither Party shall be liable to the
other Party for any exemplary, punitive, special, indirect, consequential,
remote, or speculative Damages arising out of or relating to, in any manner,
this Agreement, the Ancillary Documents , the transactions contemplated
hereunder and thereunder, or the Subject Assets, even if such Damages are caused
by the sole, joint, or concurrent negligence, strict liability, or other fault
of the Party whose liability is being waived hereby.
 
21. Confidentiality.  All Records, and all other confidential data provided to
Buyer, whether before or after the date of this Agreement shall be subject to
the Confidentiality Agreement until Closing.
 
22. Further Assurances.  Incidental and subsequent to Closing, each of the
Parties shall execute, acknowledge, and deliver to the other Party such further
instruments, and take such other actions, as may be reasonably necessary to
carry out the provisions of this Agreement.
 
23. Failure to Close; Escrow Fund.
 
(a) Upon execution of this Agreement, Buyer shall deposit with the Escrow Agent,
by wire transfer of immediately available funds, the Performance Deposit. The
Performance Deposit shall be held in escrow by the  Escrow Agent pursuant to the
terms and conditions of the Escrow Agreement entered into of even date herewith,
by and among Escrow Agent, Seller and Buyer in the form attached hereto as
Exhibit M (the “Escrow Agreement”) and shall be disbursed by the Escrow Agent in
accordance with Section 23(b) below.  Buyer shall be solely responsible for
paying any and all expenses and fees related to the use of Escrow Agent whether
or not this transaction is consummated, and the Parties agree that no such
expenses or fees shall be deducted from the Performance Deposit.
 
(b) Subject to the other provisions of this Section 23, if all of the conditions
to Closing set forth in Sections 11 and 12 hereof have not been satisfied or
waived by the Parties on or before the Closing Date (or such later date as
hereafter may be mutually agreed upon by the Parties in writing), this Agreement
shall terminate automatically.  If the conditions to Buyer’s obligations to
close as set forth in Section 12 have not been satisfied or waived by Buyer by
such
 
 
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date, the Performance Deposit shall be disbursed by Escrow Agent to Buyer as
Buyer’s sole and exclusive remedy.  If this transaction is not consummated by
Buyer on such date for any other reason, the Performance Deposit shall be
disbursed by Escrow Agent to Seller as agreed liquidated damages and not as a
penalty, it being agreed that actual damages would be difficult to ascertain and
that such amount is reasonable, and Buyer and Seller shall promptly (and in no
event later than two (2) calendar days) execute a Joint Direction to authorize
such disbursement.  If the transactions contemplated herein are consummated by
the Parties, Escrow Agent shall disburse the Performance Deposit to Seller at
Closing.  Prior to any disbursement by Escrow Agent of the Performance Deposit,
the Parties shall provide to the Escrow Agent a Joint Direction instructing the
Escrow Agent to disburse to the appropriate Party.  Upon any termination of this
Agreement, Seller shall be free immediately to enjoy all rights of ownership of
the Subject Assets and to sell, transfer, encumber, or otherwise dispose of the
Subject Assets to any party without any restriction under this Agreement.
 
24. Renewal and Replacement Leases.  To the extent that, as of Closing,
production of a Well listed on either Exhibit D or Exhibit E holds, perpetuates
or otherwise maintains a Lease Asset, the following shall apply to such Lease
Asset:
 
(a) For a period of three (3) years after Closing, Seller shall notify Buyer,
within fifteen (15) days, of its decision to shut-in indefinitely or temporarily
abandon any such Well that would cause a Lease Asset to terminate; and
 
(b) In the event that, during a period of three (3) years after Closing, such a
Lease Asset terminates, and if Seller secures a renewal, extension or
replacement of such Lease Asset within one (1) year of the expiration of such
Lease Asset, then Buyer shall be notified promptly upon such acquisition or, in
the case of a replacement oil and gas lease taken before expiration of an
existing Lease Asset promptly upon expiration of the existing Lease Asset. 
Buyer shall have the right for a period of thirty (30) days following delivery
of such notice in which to elect to participate in the ownership of the renewal,
extension or replacement oil and gas lease, by paying to Seller fifty percentage
(50%) of the actual acquisition cost for such oil and gas lease.  If Buyer
participates in the purchase of a renewal or replacement oil and gas lease,
Buyer shall be given an assignment of fifty percent (50%) of the rights under
such lease by Seller, SAVE AND EXCEPT as to the existing wellbores of the
Seller-operated wells.  The provisions of this paragraph shall apply to renewal
or replacement oil and gas leases whether they are for the entire interest
covered by the expiring Lease Asset or cover only a portion of its area or an
interest therein.
 
25. Use of Seller Names.  Buyer agrees that, as soon as practicable after
Closing, it will remove or cause to be removed the names and marks “Abraxas”
where and if they exist, and all variations and derivatives thereof and logos
relating thereto from the Subject Assets and will not thereafter make any use
whatsoever of such names, marks, and logos.
 
26. Recording Documents.  Buyer shall pay all documentary, filing, and recording
fees incurred in connection with the filing and recording of the instruments of
conveyance.  Within sixty (60) days after Closing, Buyer shall provide Seller
with recorded copies of all documents conveying the Subject Assets to Buyer.
 
 
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27. Notices.  All notices hereunder shall be sufficiently given for all purposes
hereunder if in writing and delivered personally, or sent by documented
overnight delivery service, by United States Mail, or email (with a copy to
follow the next Business Day by overnight courier) to the appropriate address or
number as set forth below.  Notices to Seller or Buyer shall be addressed to:
 
SELLER
 
Abraxas Petroleum Corporation
18803 Meisner Drive
San Antonio, TX 78258
Attn:  Geoffrey R. King
Email: GKing@abraxaspetroleum.com
 
 
With a copy (which shall not constitute notice to Seller) to:

 
Jackson Walker L.L.P.
112 East Pecan Street
San Antonio, Texas 78205
Attention: Steven R. Jacobs
Email:  sjacobs@jw.com
 
BUYER
 
NRP Oil and Gas LLC
601 Jefferson St., Ste. 3600
Houston, Texas 77002
Attn:  Wyatt Hogan
Email:  whogan@nrplp.com
 
28. Entire Agreement.  This instrument states the entire agreement and
supersedes all prior agreements (except the Confidentiality Agreement between
the Buyer and Seller) between the Parties concerning the subject matter
hereof.  This Agreement may be supplemented, altered, amended, modified, or
revoked by writing only, signed by both Parties.
 
29. Counterparts.  This Agreement may be executed in any number of counterparts
and by different Parties hereto in separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same instrument.  In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format date file, such signature
shall create a valid and binding obligation of the Party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
 
 
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30. Time of Essence.  Time is of the essence in this Agreement.
 
31. Announcements.  Except as may be required or contemplated by applicable
laws, rules, regulations and orders (including those of any governmental
authority having jurisdiction over Seller or Buyer, as the case may be) or the
applicable rules and regulations of any governmental authority or stock
exchange, neither Buyer nor Seller shall issue any such press release or other
publicity at any time without the prior written consent of the other Party,
which consent may be withheld in the sole discretion of the other Party.  The
opinion of counsel of either Party shall be conclusive evidence of such
requirement or contemplation of applicable laws, rules, regulations, and orders.
 
32. Waiver.  Any of the terms, provisions, covenants, representations,
warranties, or conditions hereof may be waived only by a written instrument
executed by the Party waiving compliance.  The failure of any Party at any time
or times to require performance of any provisions hereof shall in no manner
affect such Party’s right to enforce the same.  No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
 
33. Governing Law.  This Agreement and the rights and obligations of the Parties
hereto shall be governed, construed, and enforced in accordance with the laws of
the State of Texas.  Any claim or cause of action arising from this Agreement
shall be brought in the State or Federal District Court of Bexar County, Texas.
 
34. Venue and Jurisdiction.  Each Party consents to personal jurisdiction in any
legal action, suit or proceeding with respect to this Agreement in any court,
federal or state, within Bexar County, Texas, having subject matter jurisdiction
and with respect to any such claim, each Party irrevocably waives, to the
fullest extent permitted by law, any Claim, or any objection that it may now or
hereafter have, that venue or jurisdiction is not proper with respect to any
such legal action, suit or proceeding brought in such court in Bexar County,
Texas, including any claim that such legal action, suit or proceeding brought in
such court has been brought in an inconvenient forum and any Claim that such
Party is not subject to personal jurisdiction or service of process in such
Bexar County, Texas forum.
 
35. Interpretation of Agreement.  In construing this Agreement, the following
principles shall be followed:
 
(i) no consideration shall be given to the fact or presumption that one Party
had a greater or lesser hand in drafting this Agreement;
 
(ii) examples shall not be construed to limit, expressly or by implication, the
matter they illustrate;
 
(iii) the word “includes” and its syntactical variants mean “includes, but is
not limited to” and corresponding syntactical variant expressions;
 
 
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(iv) a defined term has its defined meaning throughout this Agreement,
regardless of whether it appears before or after the place in this Agreement
where it is defined;
 
(v) the words “herein,” “hereof” and “hereunder refer to this Agreement as a
whole and not a particular section or provision of this Agreement.
 
(vi) unless otherwise specified, the plural shall be deemed to include the
singular, and vice versa; and
 
(vii) each gender shall be deemed to include the other genders.
 
36. Agreement for the Parties’ Benefit Only.  Except for the rights conferred
upon the Buyer Parties and Seller Parties in Sections 18 and 19, this Agreement
is not intended to confer upon any person not a party hereto any rights or
remedies hereunder, and no person other than the Parties hereto is entitled to
rely on any representation, covenant, or agreement contained herein.
 
37. 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
transactions contemplated hereby is not affected in any adverse manner to any
party.  Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto 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
transactions contemplated hereby are fulfilled to the extent possible.
 
38. Assignment and Binding Effect.  This Agreement or any portion thereof and
the rights and obligations hereunder shall not be assignable or delegable by
either Party without the prior written consent of the other Party, which consent
shall not be unreasonably withheld.  Except as provided in the preceding
sentence, the terms, provisions, covenants, representations, and conditions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the Parties hereto and their successors and assigns, and shall
run with the land (which land includes the Excluded Assets subject to Section
24).
 
 [Remainder of Page Intentionally Left Blank]
 
 
 
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first written above.
“Seller”
 
ABRAXAS PETROLEUM CORPORATION
 
By:________________________                                                                
Name:______________________                                                                
Title:_______________________                                                                
 
“Buyer”
 
NRP OIL AND GAS LLC
 
By:_________________________                                                                      
Name:_______________________                                                                      
Title: _______________________   
                                                                  
 
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LIST OF SCHEDULES AND EXHIBITS
 
Exhibits:
 
A          Definitions
B          Leases
C          Wells
D          Wells Operated by Seller and Not Completed in the Bakken Formation
E          Wells Operated by Seller and Completed in the Bakken Formation
F          Related Assets
G          Sale Units, Net Revenue Interest, Working Interest and Lease
Allocated Values
H          Assignment, Assumption Agreement, and Bill of Sale
I          Non-Foreign Person Affidavit
J          New Wells
K          Form of Preliminary Closing Statement
L          Well Log
M          Escrow Agreement
 
 
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EXHIBIT A
 

 
DEFINITIONS
 

 
The following terms, when used in this Agreement and the attached schedules and
exhibits, shall have the meanings given below.
 
“Accountant” is defined in Section 16(b).
 
“Adjustment Period” shall mean the period between the Effective Time and the
Closing Date.
 
“Agreement” is defined in the preamble.
 
“Ancillary Documents” is defined in Section 7(b).
 
“Assumed Liabilities” is defined in Section 19(a).
 
“Bakken Formation” means the stratigraphic interval or its correlative
equivalent between those log depths beginning fifty feet (50’) above the top of
the Upper Bakken Shale, which appears at a depth of eleven thousand two hundred
sixty-three feet (11,263’) as shown in the well log attached as Exhibit L, down
to the top of the Birdbear (Nisku) Formation, which appears at a depth of eleven
thousand five hundred seventy-two feet (11,572’) as shown in Exhibit L.  Such
Gamma ray, resistivity, and porosity well log dated March 31, 2001, relates to
the Continental Resources, Inc.’s Charlotte #1-22H well, with API# 3305303358,
located in Section 22, Township 152N, Range 99W in the State of North Dakota.
 
“Base of the Madison Formation” means the correlative stratigraphic equivalent
of nine thousand five hundred twenty-one feet (9,521’) below the surface as
identified on the log of BTA Oil Producer’s  20401 JV-P Nelson 33-8 well, with
API# 33-105-01636, located in Section 8, Township 158 N, Range 95W in the State
of North Dakota.
 
“Base Purchase Price” is defined in Section 3(a).
 
“Breach” of a representation, warranty, covenant, obligation, or other provision
of this Agreement or any instrument delivered pursuant to this Agreement will be
deemed to have occurred if there is or has been any falsity, inaccuracy in or
breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation or other provision.
 
“Business Day” means any day other than a Saturday, Sunday or a day on which
banks are closed for business in San Antonio, Texas.
 
“Buyer” is defined in the preamble.
 
“Buyer Fundamental Representations” is defined in Section 19(c)(i).
 
“Buyer Parties” is defined in Section 18(c).
 
 
 

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“Casualty Loss” means, with respect to all or any portion of the Subject Assets,
any destruction by fire, blowout, storm, earthquake, flood, condemnation, the
exercise of any right of eminent domain, acts of God, or other similar casualty
of all or any portion of the Subject Assets between the date hereof and Closing.
 
“Claims” means any notice of violation, order, direction, claim, demand,
accusation, allegation, lawsuit, decree, investigation, administrative
proceeding, arbitration or judgment by a Governmental Authority or any Person of
any kind or character, including Environmental Claims.
 
“Closing” and “Closing Date” are defined in Section 14.
 
“Closing Payment” is defined in Section 16(a).
 
“Condition of the Assets” is defined in Section 19(a).
 
“Confidentiality Agreement” means that certain confidentiality agreement between
Seller and Buyer, dated March 22, 2013.
 
“Contaminant” means any substances or materials defined as hazardous or toxic or
which are regulated or form a basis of liability under any Environmental Law and
including, without limitation, solid waste (whether toxic, non-toxic hazardous
or non-hazardous), asbestos, polychlorinated biphenyls (PCB’s), crude oil and
any refined or unrefined fractions thereof and radioactive substances and
including any other material or substance which may constitute a health, safety
or environmental hazard.
 
“current tax period” is defined in Section 17.
 
“Damages” shall mean the amount of any actual liability, loss, cost, expense,
Claim, award or judgment incurred or suffered by any Indemnified Party arising
out of or resulting from any Claims, including reasonable fees and expenses of
attorneys, consultants, accountants or other agents and experts reasonably
incident to matters indemnified against, the costs of investigation and/or
monitoring of such matters, Remedial Action costs, and the costs of enforcement
of the indemnity; provided, however, “Damages” shall not include loss of profits
or other consequential damages suffered by the Party claiming indemnification,
or any special or punitive damages other than indirect, consequential, special
or punitive damages suffered by third Persons and actually paid by an
Indemnified Person pursuant to a Third Party Claim. The amount of any Damages
shall be deemed reduced by the amount of any insurance proceeds and any tax
benefits received by the Indemnified Party with respect to any Claims.
 
“Defensible Title” is defined in Section 4(a).
 
“Effective Time” is defined in Section 1.
 
“Election Proposals” is defined in Section 7(f).
 
 
 

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“Encumbrances” means any pledges, restrictions, charges, liens, leases,
mortgages, security interests, contract obligations, options, claims or
encumbrances of any kind or character, including any obligations, irregularities
or other defects.
 
“Environmental Claim” means any claim for personal injury (including, without
limitation, sickness, disease or death), damage to tangible property, damage to
the environment, nuisance, pollution, contamination or other adverse effects
upon human health or the environment or for fines, penalties or restrictions set
forth in an Election Proposal delivered by an operator resulting from or based
upon:
 
(i)           the existence or the continuation of the existence of a Release
(whether sudden or non-sudden, accidental or non-accidental) of or exposure to
any Hazardous Material or Contaminant, into or onto the environment (including,
without limitation, the indoor and outdoor air, ground, ground water, surface
water or any surface) at, in, by, from or related to the Subject Assets;
 
(ii)           the generation, transportation, handling, storage, treatment or
disposal of Hazardous Materials or Contaminants in connection with the operation
of any facilities or activities conducted on, in or under the land subject to
the Lease Assets; or
 
(iii)           the violation or alleged violation of any Environmental Law or
Environmental Permit connected with any facilities or activities conducted on,
in or under the land subject to the Lease Assets as such requirements exist as
of the date of this Agreement.
 
“Environmental Law” means any and all laws, statutes, ordinances, rules,
regulations or orders of any Governmental Authority pertaining to health or the
environment including, without limitation, the Clean Air Act, as amended, 42
U.S.C. §7401 et seq, the Comprehensive Environmental, Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. §9601 et seq (“CERCLA”), the
Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1251 et seq., the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §651 et seq,
the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. §6901
et seq (“RCRA”), the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, 15 U.S.C. §2601 et seq, the Hazardous & Solid Waste
Amendments Act of 1984, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, Pub. L. 99-499 100 Stat. 1613, the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. § 5101 et seq, the Oil Pollution Act
of 1990, 33 U.S.C. §2701 et seq (“OPA”), any state laws implementing the
foregoing federal laws, and any state laws pertaining to the handling of oil and
gas exploration and production wastes or the use, maintenance and closure of
pits and impoundments, and all other environmental conservation or protection
laws in effect as of the date hereof which are applicable to the Subject
Assets.  For purposes of this Agreement, the term “disposal” has the meaning
specified in RCRA.
 
“Environmental Defect” is defined in Section 6(a).
 
 
 

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“Environmental Permit” means any permit, approval, authorization, license,
variance or permission required or received from a Governmental Authority under
any Environmental Law as such requirements exist as of the date of this
Agreement.
 
“Environmental Reports” is defined in Section 9(a).
 
“Escrow Agent” means Wells Fargo Bank, National Association, in its capacity as
escrow agent.
 
“Escrow Agreement” is defined in Section 23(a).
 
“Excluded Assets” is defined in Section 2.
 
“Excluded Lease Assets” is defined in Section 2(d).
 
“Final Settlement Date” is defined in Section 16(b).
 
“Governmental Authority” means any nation and any political subdivision thereof
or therein, and any government, department, court, commission, board, bureau,
ministry, agency, or other instrumentality of such a nation or political
subdivision exercising or entitled to exercise administrative, executive,
judicial, legislative, police, regulatory or taxing authority.
 
“Hazardous Material” means any (a) “hazardous substance” or “toxic substance” as
defined in CERCLA or the Hazardous Materials Transportation Act, 49 U.S.C.
§1802; (b) “hazardous waste” as that term is defined by RCRA; (c) any “hazardous
waste” or “hazardous waste constituent” as defined in 40 C.F.R. §260–270
specifically including Appendix VII of the subpart B of 40 C.F.R. part 261;
(d) any source, special, nuclear or byproduct material as defined in 42 U.S.C.
2070 et seq.; (e) asbestos or an asbestos containing substance; (f) a toxic or
hazardous chemical substance that is present in the quantities that exceed
exposure standards as those terms are interpreted pursuant to 29 U.S.C. §655 and
the rules, regulations and orders promulgated thereunder including, without
limitation, 29 C.F.R. part 1910; (g) an acid forming or toxic material regulated
pursuant to 30 U.S.C. 1265; (h) a pesticide other than a pesticide registered
for general use under Subchapter 2 of Chapter 6 of 7 U.S.C. 136(b); (i) a
“hazardous air pollutant” as defined in 42 U.S.C. §7412(1); (j) a chemical
substance or mixture for which a finding has been made subjecting it to
regulation pursuant to or which is otherwise subject to regulation pursuant to
15 U.S.C. §2604(f) and 2605; (k) an “imminently hazardous chemical substance or
mixture” as defined in 15 U.S.C. §2606(f); (l) a “hazardous substance” as
defined in 33 U.S.C. §1321(a)(14); (m) a “toxic pollutant” as defined in 33
U.S.C. §1362(13); (n) any pollutant or contaminant or hazardous, dangerous or
toxic chemicals materials or substances within the meaning of any other
applicable federal, state or local regulation, ordinance or requirement
(including consent decrees and administrative order) relating to or imposing
liability or standards of conduct concerning any hazardous, toxic or dangerous
waste substance or material; (o) polychlorinated biphenyls or substances or
compounds containing product chlorinated biphenyls; (p) any other waste,
substance or material either (i) identified as of the date of this Agreement as
hazardous, dangerous or toxic by the office, agency, department, commission,
board, bureau or instrumentality responsible for environmental matters of the
state having or exercising jurisdiction over such waste substance or material,
(ii) having characteristics or qualities of flammability, corrosivity,
carcinogenicity, mutogenicity or toxicity
 
 
 

--------------------------------------------------------------------------------

 
or (iii) that creates or contributes conditions that any governmental agency can
require to be subject to Remedial Action.
 
“Hydrocarbons” means oil, gas, other liquid or gaseous hydrocarbons, and/or
other minerals, or any of them or any combination thereof.
 
    “Indemnifying Party” when used in connection with particular Damages shall
mean the Party having an obligation to indemnify the other Party with respect to
such Damages
  
    “Indemnified Party” when used in connection with particular Damages shall
mean the Party having the right to be indemnified with respect to such Damages
by the other Party.
  
   “Inspection Period” is defined in Section 9(b).
 
                  “Joint Direction” means joint written instructions from Buyer
and Seller to the Escrow Agent, made in accordance with the Escrow Agreement and
this Agreement, setting forth the amounts to be paid to Buyer or Seller, as
applicable, from the Performance Deposit.
 
   “Laws” means all laws, statutes, rules, regulations, ordinances, orders,
decrees, requirements, judgments, and codes of Governmental Authorities in
effect as of the date hereof.
 
                   “Lease Assets” is defined in Section 1(a).
 
                   “Leases” means the oil and gas leases identified in
Exhibit B.
 
“Material Agreements” is defined in Section 7(k).
 
“Net Revenue Interest” is defined in Section 4(a)(i).
 
“New Wells” means: (i) Wells listed in Exhibit J; (ii) Wells for which Seller
receives or is entitled to receive drilling or participation proposals after the
date of this Agreement based on Seller’s ownership of Lease Assets or Seller’s
rights under an operating agreement covering the Lease Assets; or (iii) Wells
for which drilling was commenced prior to the Closing Date, but as to which no
notice or proposal for participation was received by Seller prior to Closing
Date.
 
               “Non-Consent Interests” means those interests, whether under an
operating agreement, statute, or otherwise, relinquished by other owners of the
Lease Assets to Seller by their election not to participate in operations on the
Lease Assets.
 
“Party” and “Parties” are defined in the preamble.
 
“Performance Deposit” is defined in Section 3(b).
 
“Permits” means all franchises, grants, authorizations, licenses, permits,
easements, right-of-way, variances, exemptions, consents, waivers, certificates,
approvals and orders necessary to own, lease and operate the Subject Assets as
they are being conducted as of the date hereof.
 
“Permitted Encumbrances” is defined in Section 4(b).
 
 
 

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“Person” means an individual, a corporation, a partnership, a limited liability
company, a trust, an unincorporated association, a Governmental Authority, or
any other entity or body.
 
“Preferential Purchase Right” means any right or agreement that enables any
Person to purchase or acquire any of the Subject Assets, or any interest therein
or portion thereof, as a result of or in connection with (a) the sale,
assignment or other transfer of any Subject Asset or any interest therein or
portion thereof, or (b) the execution or delivery of this Agreement or the
consummation or performance of the terms and conditions contemplated by this
Agreement.
 
“Property Costs” means, as to the Subject Assets, all operating and production
expenses (including, without limitation, costs of insurance and ad valorem,
property, severance, extraction, production and similar Taxes based upon or
measured by the ownership of the Subject Assets or the production of
Hydrocarbons therefrom, but excluding income taxes and any other Taxes),
disbursements of royalty, overriding royalty, production payments, net profits
interest payments, and any other burden payable to third parties, capital
expenditures incurred in the ownership and operation of the Subject Assets in
the ordinary course of business, and overhead costs charged to the Subject
Assets under the applicable operating agreement or regulatory order controlling
operations, or, if neither is applicable, charged to the Subject Assets on the
same basis as charged on the date of this Agreement.
 
“Purchase Price” is defined in Section 3(a).
 
“Records” is defined in Section 9(a).
 
“Regulatory Unit(s)” means the acreage heretofore designated by the North Dakota
Industrial Commission or the Montana Board of Oil and Gas, as the case may be,
for drilling, completion, and production of a Well or Wells.
 
“Release” means any spill, emission, leaking, pumping, injecting, depositing,
disposal, discharge, dispersal, leaching or migration into the indoor/outdoor
environment or onto or out of any Property or Asset including, without
limitation, the movement of any Hazardous Material or Contaminant through or in
the air, soil, surface water, groundwater or property and including, without
limitation, the meanings of such words as set forth in the Environmental Laws.
 
“Remedial Action” means any action whether required or voluntarily undertaken
to:  (a) clean up, remove, treat or in any other way address any Contaminant or
Hazardous Material in the indoor/outdoor environment; (b) contain, mitigate or
otherwise prevent the Release or the threat of Release or minimize the further
Release of any Contaminant or Hazardous Material so that it does not migrate or
endanger or threaten to endanger public health or welfare of the indoor or
outdoor environment; (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care required under the Environmental Laws or
Environmental Permits; or (d) recover response or remedial costs or to secure
the involvement or cooperation of other Persons potentially responsible for any
cost of remediation including, without limitation, prosecuting any legal action.
 
“Sale Unit” means the acreage identified on Exhibit G, as to each of the
numbered units ranging from 9 through 163.
 
 
 

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“Seller” is defined in the preamble.
 
“Seller Fundamental Representations” is defined in Section 18(c)(i).
 
 “Seller Parties” is defined in Section 19(c).
 
“Seller’s Disclosure Schedule” means the exhibits and schedules prepared by
Seller related to its representations and warranties and attached hereto.
 
“Seller’s knowledge” is defined in Section 7(w).
 
“Taxes” means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, production, extraction, severance,
transportation, employment, payroll, franchise, or other tax imposed by any
federal, state, or local taxing authority, including any interest, penalties, or
additions attributable thereto.
 
“Third Party Claim” means a Claim by a Person other than the Buyer Parties or
the Seller Parties against an Indemnified Party.
 
“Title Defect” is defined in Section 4(c).
 
“Well(s)” means the wellbore and the equipment, materials, fixtures, and
improvements used in connection with the wellbore or with the production,
treatment, sale, or disposal of Hydrocarbons or waste produced therefrom or
attributable thereto.

 “Working Interest” is defined in Section 4(a)(ii).