Exhibit 10.2

 

Execution Version

 

PURCHASE AND SALE AGREEMENT

 

BY AND BETWEEN

 

LIBERTY RESOURCES MANAGEMENT COMPANY, LLC

 

LIBERTY RESOURCES BAKKEN OPERATING, LLC

 

(Liberty)

 

AND

 

EMERALD OIL, INC.

 

EMERALD WB LLC

 

(Emerald)

 

AND

 

LIBERTY RESOURCES II, LLC

 

(Guarantor)

 

Dated August 1, 2014

 

 

 

 

TABLE OF CONTENTS

 

  Page     ARTICLE 1 DEFINITIONS AND REFERENCES 1       1.1 Certain Defined
Terms 1 1.2 References and Construction 10     ARTICLE 2 PURCHASE AND SALE 11  
    2.1 Purchase and Sale 11 2.2 Consideration 11 2.3 Allocation of the Purchase
Price 11 2.4 Adjustments to Purchase Price and Preliminary Settlement Statement
13 2.5 Proration of Costs and Revenues 15 2.6 Escrow Amount 16     ARTICLE 3 Due
Diligence Review 16     3.1 Due Diligence Review 16 3.2 Access to Transferor
Records 16 3.3 Access to the Transferor Assets 17     ARTICLE 4 TITLE MATTERS 18
      4.1 Transferor’s Title 18 4.2 Purchase Price Adjustment Procedures 20 4.3
Title Dispute Resolution 24 4.4 Preferential Rights and Consents 25     ARTICLE
5 ENVIRONMENtAL MATTERS 26       5.1 Exclusive Remedy 26 5.2 Environmental
Defect Notice 26 5.3 Remedies for Environmental Defects 26 5.4 Environmental
Threshold; Deductible 27 5.5 Environmental Dispute Resolution 27 5.6 Transfer of
Burgundy Wellbore Interests 28     ARTICLE 6 LIBERTY’S REPRESENTATIONS AND
WARRANTIES 29       6.1 Organization and Standing 29 6.2 Power 29 6.3
Authorization and Enforceability 30 6.4 Liability for Brokers’ Fees 30 6.5
Litigation 30 6.6 Material Agreements 30 6.7 Capital Projects 30

 

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TABLE OF CONTENTS
(continued)

 

    Page       6.8 Taxes 31 6.9 Audits 31 6.10 Judgments 31 6.11 Compliance with
Law And Government Authorizations 31 6.12 Lease Status/Rentals/Royalties 31 6.13
Well Status 31 6.14 Calls on Production 32 6.15 Imbalances 32 6.16 No Other
Representations or Warranties; Disclosed Materials 32 6.17 Disclaimer 32 6.18
Liberty’s Evaluation 33     ARTICLE 7 EMERALD’S REPRESENTATIONS AND WARRANTIES
33       7.1 Organization and Standing 34 7.2 Power 34 7.3 Authorization and
Enforceability 34 7.4 Liability for Brokers’ Fees 34 7.5 Litigation 34 7.6
Financial Resources 34 7.7 Material Agreements 35 7.8 Capital Projects 35 7.9
Taxes 35 7.10 Audits 35 7.11 Judgments 35 7.12 Compliance with Law And
Government Authorizations 36 7.13 Lease Status/Rentals/Royalties 36 7.14 Well
Status 36 7.15 Calls on Production 36 7.16 Imbalances 36 7.17 No Other
Representations or Warranties; Disclosed Materials 37 7.18 Disclaimer 37 7.19
Emerald’s Evaluation 38     ARTICLE 8 COVENANTS AND AGREEMENTS 38       8.1
Covenants and Agreements of Transferor 38 8.2 Covenants and Agreements of
Transferee 39 8.3 Covenants and Agreements of the Parties 40     ARTICLE 9 TAX
MATTERS 41       9.1 Production Tax Liability 41

 

 

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TABLE OF CONTENTS
(continued)

 

    Page       9.2 Transfer Taxes 41 9.3 Tax Reports and Returns 42 9.4 Tax
Cooperation 42     ARTICLE 10 CONDITIONS PRECEDENT TO CLOSING 42       10.1
Liberty’s Conditions 42 10.2 Emerald’s Conditions 42     ARTICLE 11 RIGHT OF
TERMINATION 43       11.1 Termination 43 11.2 Liabilities Upon Termination 43  
  ARTICLE 12 CLOSING 44       12.1 Date of Closing 44 12.2 Place of Closing 44
12.3 Closing Obligations 44     ARTICLE 13 POST-CLOSING OBLIGATIONS 45      
13.1 Post-Closing Adjustments 45 13.2 Records 46 13.3 Further Assurances 46 13.4
Successor Operator 46     ARTICLE 14 INDEMNIFICATION 46       14.1 Emerald’s
Assumption of Liabilities and Obligations 46 14.2 Liberty’s Assumption of
Liabilities and Obligations 47 14.3 Retained Obligations 47 14.4 Indemnification
47 14.5 Procedure 49 14.6 Survival of Warranties, Representations and Covenants
50 14.7 Reservation as to Non-Parties 51 14.8 Reductions in Losses 51 14.9
Waiver 51     ARTICLE 15 MISCELLANEOUS 51       15.1 Exhibits and Schedules 51
15.2 Expenses 51 15.3 Notices 51

 

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TABLE OF CONTENTS
(continued)

 

    Page       15.4 Amendments 52 15.5 Assignment 53 15.6 Headings 53 15.7
Counterparts/Fax Signatures 53 15.8 Governing Law 53 15.9 Entire Agreement 53
15.10 Binding Effect 53 15.11 No Third-Party Beneficiaries 53 15.12 No Vicarious
Liability 53 15.13 Dispute Resolution and Arbitration 54 15.14 Publicity 54
15.15 Severability 55 15.16 Liberty Resources Guaranty 55

 

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Defined Terms   Section Reference       Affiliate   1.1 Aggregate Environmental
Deductible   5.4 Aggregate Title Deductible   4.2(e) Agreement   Preamble Assets
  1.1 Burgundy Liabilities   5.6(a) Burgundy Property Expenses   1.1 Burgundy
Remediation Costs   5.6(d) Burgundy Wellbore Interests   5.6(a) Business Day  
1.1 Cap   14.4(c) Casualty Loss   8.3(b) Claim   14.5(b) Claim Notice   14.5(a)
Closing   12.1 Closing Amount   2.2(c) Closing Date   12.1 Code   1.1 Condition
  1.1 Deductible   14.4(c) Defect Notice Date   3.1 Defensible Title   4.1(a)
Dispute   1.1 Due Diligence Review   3.1 Due Diligence Period   3.1 Effective
Time   1.1 Emerald   Preamble Emerald Allocated Value   2.3(a) Emerald Assets  
1.1 Emerald Assets Preliminary Adjusted Purchase Price   2.4 Emerald Assets
Preliminary Settlement Statement   2.4 Emerald Assets Purchase Price   2.2(b)
Emerald Assignment   12.3(b) Emerald Assumed Liabilities   14.1 Emerald Capital
Expenditures   7.8 Emerald Contracts   1.1 Emerald Disclosed Materials   Article
7 Emerald Hydrocarbons   1.1 Emerald Indemnified Parties   14.4(a) Emerald Lands
  1.1 Emerald Leases   1.1

 

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Emerald Material Agreements   7.7 Emerald Oil   Preamble Emerald Records   1.1
Emerald WB   Preamble Emerald Wells   1.1 Environmental Assessment   3.3(a)(1)
Environmental Defect   1.1 Environmental Defect Notice   5.2 Environmental
Defect Property   5.2 Environmental Disputed Matters   5.5 Environmental Laws  
1.1 Environmental Liabilities   1.1 Escrow Agent   2.6 Escrow Agreement   2.6
Escrow Amount   1.1 Excluded Assets   1.1 Exclusivity Payment   1.1 Final
Emerald Section 1060 Allocation Schedule   2.3(d) Final Liberty Section 1060
Allocation Schedule   2.3(c) Final Net Purchase Price   13.1(a) Final Settlement
Date   13.1(a) Final Settlement Statement   13.1(a) Force Majeure   1.1
Fundamental Representations   14.6 Governmental Entity   1.1 Hazardous Materials
  1.1 Indebtedness   1.1 Indemnified Party   14.5(a) Indemnifying Party  
14.5(a) Individual Environmental Threshold   5.4 Individual Title Threshold  
4.2(e) Knowledge   1.1 Landowner Release   5.6(c) Law   1.1 Liberty   Preamble
Liberty Allocated Value   2.3(a) Liberty Assets   1.1 Liberty Assets Preliminary
Settlement Statement   2.4 Liberty Assets Preliminary Adjusted Settlement
Statement   2.4 Liberty Assets Purchase Price   2.2(a) Liberty Assignment  
12.3(a)

 

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Liberty Assumed Liabilities   14.2 Liberty Bakken   Preamble Liberty Capital
Expenditures   6.7 Liberty Contracts   1.1 Liberty Disclosed Materials   Article
6 Liberty Hydrocarbons   1.1 Liberty Indemnified Parties   14.4(b) Liberty Lands
  1.1 Liberty Leases   1.1 Liberty Management   Preamble Liberty Material
Agreements   6.6 Liberty Records   1.1 Liberty Wells   1.1 Lien   1.1 Losses  
1.1 Material Adverse Effect   1.1 NDIC   5.6(b) Net Acre   1.1 Net Casualty Loss
  8.3(b) Net Revenue Interest   4.1(a)(1) Notice of Defective Interests   4.2(b)
Obligations   14.1 Party; Parties   Preamble Permitted Encumbrances   4.1(b)
Person   1.1 Plugging and Abandonment Obligations   1.1 Production Taxes   1.1
Property Expenses   1.1 Proposed Emerald Section 1060 Allocation Schedule  
2.3(d) Proposed Liberty Section 1060 Allocation   2.3(c) Release   1.1 Retained
Obligations   14.3 Remediate; Remediation   1.1 Remediation Costs   1.1
Representatives   1.1 Survival Period   14.6 Taxes   1.1 Tax Proceeding   9.4
Tax Return   1.1 Termination Date   11.1(b) Term Sheet   1.1 Title Benefit  
4.2(g) Title Benefit Amount   4.2(i)

 

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Title Defect   4.2(a) Title Defect Amount   4.2(d) Title Defect Property  
4.2(b) Title Disputed Matters   4.3 Transfer Taxes   9.2 Transferee   1.1
Transferee Indemnified Parties   1.1 Transferor   1.1 Transferor Allocated Value
  1.1 Transferor Assets   1.1 Transferor Contracts   1.1 Transferor Indemnified
Parties   1.1 Transferor Purchase Price   1.1 Transferor Records   1.1
Transferor Well   1.1 Working Interest   4.1(a)(2)

 

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List of Exhibits

          Exhibit A-1   Liberty Leases Exhibit A-2   Emerald Leases Exhibit B-1
  Liberty Wells Exhibit B-2   Emerald Wells Exhibit C-1   Liberty Surface
Agreements Exhibit C-2   Emerald Surface Agreements Exhibit D-1   Liberty
Material Agreements Exhibit D-2   Emerald Material Agreements Exhibit E-1   Form
of Assignment, Bill of Sale and Conveyance (Liberty Assets) Exhibit E-2   Form
of Assignment, Bill of Sale and Conveyance (Emerald Assets) Exhibit F-1   Form
of Assignment and Assumption Agreement (Liberty Contracts) Exhibit F-2   Form of
Assignment and Assumption Agreement (Emerald Contracts) Exhibit G   Affidavit of
Non-Foreign Status       List of Schedules           Schedule 1.1(a)   Emerald’s
Knowledge Representatives Schedule 1.1(b)   Liberty’s Knowledge Representatives
Schedule 1.1(c)   Excluded Assets Schedule 2.3(c)   Final Liberty Section 1060
Allocation Schedule Schedule 2.3(d)   Final Emerald Section 1060 Allocation
Schedule Schedule 2.4(a)   Liberty Assets Preliminary Settlement Statement
Schedule 2.4(b)   Emerald Assets Preliminary Settlement Statement Schedule 4.4  
Preferential Rights and Consents Schedule 6.5   Pending or Threatened Litigation
Schedule 6.7   Liberty Capital Expenditures Schedule 6.9   Audits Schedule 6.13
  Well Status Schedule 6.14   Calls on Production Schedule 7.5   Pending or
Threatened Litigation Schedule 7.8   Emerald Capital Expenditures Schedule 7.10
  Audits Schedule 7.14   Well Status Schedule 7.15   Calls on Production
Schedule 8.1(b)   Existing Drilling Plan

 

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PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (this “Agreement”), dated as of this 1st day of
August, 2014, is entered into by and between Liberty Resources Management
Company, LLC, a Delaware limited liability company (“Liberty Management”) and
Liberty Resources Bakken Operating, LLC, a Delaware limited liability company
(“Liberty Bakken” and together with Liberty Management, “Liberty”), and Emerald
Oil, Inc., a Delaware corporation (“Emerald Oil”) and Emerald WB LLC, a Colorado
limited liability company (“Emerald WB” and together with Emerald Oil,
“Emerald”), and Liberty Resources II, LLC, a Delaware limited liability company
(“Liberty Resources”), as guarantor. Each of the foregoing entities are
collectively referred to as the “Parties” and individually as a “Party”.

 

RECITALS

 

WHEREAS, Liberty Bakken desires to sell and Emerald desires to purchase
Liberty’s interest in the Liberty Assets (as defined below) upon the terms and
conditions set forth in this Agreement; and

 

WHEREAS, Emerald desires to sell and Liberty Bakken desires to purchase
Emerald’s interest in the Emerald Assets (as defined below) upon the terms and
conditions set forth in this Agreement.

 

NOW THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:

 

AGREEMENTS

 

ARTICLE 1

DEFINITIONS AND REFERENCES

 

1.1           Certain Defined Terms. In addition to the terms defined elsewhere
herein, the following terms will have the respective meanings assigned to them
in this Section 1.1 when used in this Agreement with initial capital letters:

 

“Affiliate” means, with respect to any Person, any other Person that directly or
indirectly controls, is controlled by or is under common control with such
Person. For purposes of the immediately preceding sentence, the term “control”
(including, with correlative meanings, the terms “controlling,” “controlled by”
and “under common control with”), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
ownership of voting securities, by contract or otherwise.

 

“Assets” means the Liberty Assets or Emerald Assets, as applicable.

 

“Burgundy Property Expenses” is defined in the definition of “Property
Expenses.”

 

 

 

 

“Business Day” means a day other than a Saturday, Sunday or a day on which
commercial banks in Denver, Colorado, or New York, New York, are authorized or
required by applicable Law to be closed for business.

 

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

 

“Condition” means any circumstance, status or defect that requires Remediation
to comply with Environmental Laws.

 

“Dispute” means any dispute, claim or controversy of any kind or nature related
to, arising under, or connected with this Agreement (including disputes as to
the creation, validity, interpretation, breach or termination of this
Agreement).

 

“Effective Time” means May 1, 2014, at 7:00 a.m. Mountain Time.

 

“Emerald Assets” means all of Emerald’s right, title, and interest, whether
present, contingent, or reversionary, in and to the following, but not including
the Excluded Assets:

 

(a)          all oil and gas leases specifically described in Exhibit A-2,
together with all amendments, renewals, extensions, top leases, and
ratifications thereof (collectively, the “Emerald Leases”);

 

(b)          the lands covered by the Emerald Leases or pooled or unitized
therewith (the “Emerald Lands”);

 

(c)          the oil, gas, casinghead gas, coal bed methane, condensate and
other gaseous and liquid hydrocarbons or any combination thereof that may be
produced from under the Emerald Leases or the Emerald Lands (the “Emerald
Hydrocarbons”);

 

(d)          all oil, gas, water or injection wells located on or associated
with the Emerald Lands, whether producing, shut-in, or temporarily abandoned,
including the wells described in Exhibit B-2 (the “Emerald Wells”), together
with all of the personal property, equipment, fixtures and improvements used in
connection therewith;

 

(e)          the unitization, pooling and communitization agreements,
declarations, spacing orders, and the pools, units, or spacing units created
thereby, in each case, relating to the properties and interests described in
Clauses (a) through (d) and to the production of Emerald Hydrocarbons, if any,
attributable to said properties and interests, and the force-pooled and
non-consent interests associated therewith;

 

(f)          all equipment, machinery, fixtures and other tangible personal
property and improvements located on or used or held for use solely in
connection with the operation of the interests described in Clauses (a) through
(e) including any tanks, boilers, buildings, fixtures, injection facilities,
saltwater disposal facilities, compression facilities, pumping units and
engines, platforms, flow lines, pipelines, gathering systems, gas and oil
treating facilities, machinery, power lines, telephone and telegraph lines,
roads, and other appurtenances, improvements and facilities;

 

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(g)          all surface leases, permits, rights-of-way, licenses, easements and
other surface rights agreements used in connection with the production,
gathering, treatment, processing, storage, sale or disposal of Emerald
Hydrocarbons or produced water from the interests described in Clauses (a)
through (f), including those described on Exhibit C-2, but excluding, in all
such instances, any items the transfer of which is prohibited by applicable Law;

 

(h)          all existing contracts and effective sales and purchase contracts,
operating agreements, exploration agreements, development agreements, balancing
agreements, farmout agreements, service agreements, transportation, processing,
treatment or gathering agreements, equipment leases and other contracts,
agreements and instruments, insofar as they are listed on Exhibit D-2 and
directly relate to the properties and interests described in Clauses (a) through
(g) and not to other properties of Emerald or Emerald’s corporate overhead, but
excluding any contracts, agreements and instruments the transfer of which is
prohibited by applicable Law (collectively, the “Emerald Contracts”); and

 

(i)          to the extent transferable without payment of additional
consideration, originals, to the extent available, or copies of all the files,
records, and data relating primarily to the items described in Clauses (a)
through (h) above, which records shall include, without limitation: lease
records; well records; division order records; well files; title records
(including abstracts of title, title opinions and memoranda, and title curative
documents); engineering records; geological and geophysical data (including
seismic data) and all technical evaluations, interpretive data and technical
data and information relating primarily to the properties and interests
described in Clauses (a) through (h); correspondence; electronic data files (if
any); maps; production records; electric logs; core data; pressure data; decline
curves and graphical production curves; reserve reports; appraisals and
accounting records (collectively, the “Emerald Records”).

 

“Environmental Defect” means a Condition in, on, under or relating to the air,
land, soil, surface and subsurface strata, surface water, groundwater, or
sediments of, or at, a particular Transferor Asset, including, without
limitation, the presence of Hazardous Materials, but excluding any Plugging and
Abandonment Obligations (which shall not constitute an Environmental Defect).

 

“Environmental Laws” means all federal, tribal, state, local or foreign law
(including common law), statute, rule, regulation, requirement, ordinance and
any writ, decree, bond, authorization, approval, license, permit, registration,
binding criteria, standard, consent decree, settlement agreement, judgment,
order, directive or binding policy issued by or entered into with a Governmental
Entity pertaining or relating to: (a) pollution or pollution control, including,
without limitation, storm water regulation; (b) protection of human health and
the environment from the Release of Hazardous Materials; and/or (c) the
management, presence, use, generation, processing, extraction, treatment,
recycling, refining, reclamation, labeling, transport, storage, collection,
distribution, or Release or threat of Release of Hazardous Materials.
“Environmental Laws” shall include, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et
seq.; the Solid Waste Disposal Act (as amended by the Resource Conservation and
Recovery Act), 42 U.S.C. § 6901 et seq.; the Hazardous Materials Transportation
Act, 49 U.S.C. § 1801 et seq.; the Toxic Substances Control Act, 15 U.S.C. §
2601 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.;
the federal Safe Drinking Water Act, 42 U.S.C. §§ 300f-300; the Clean Air Act,
42 U.S.C. § 7401 et seq.; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the
Occupational Safety and Health Act, 29 U.S.C. § 651 et seq.; the Endangered
Species Act, 16 U.S.C. § 1531 et seq.; the National Historic Preservation Act,
16 U.S.C. §470 et seq.; the Emergency Planning and Community Right-to-Know Act,
42 U.S.C. § 11001 et seq., the National Environmental Policy Act, 42 U.S.C. §
4321 et. seq. and the regulations and orders respectively promulgated
thereunder, each as amended, or any equivalent or analogous state or local
statutes, laws or ordinances, any regulation promulgated thereunder and any
amendments or reauthorizations thereof or thereto.

 

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“Environmental Liabilities” means all Losses (including any civil fines,
penalties, Remediation Costs, any personal injury, illness or death, any damage
to, destruction or loss of property, and any damage to natural resources
(including soil, air, surface water or groundwater) and expenses for the
modification, repair or replacement of facilities on the Lands) brought or
assessed by any and all Persons, including any Governmental Entity, to the
extent any of the foregoing directly or indirectly involves any Condition
relating to the Assets, including Plugging and Abandonment Obligations, the
presence, disposal or release of any Hazardous Material of any kind in, on or
under the Assets, created or attributable to any period of time, whether before
or after Transferor acquired ownership of the Assets, including any period of
time prior to or after the Effective Time, but not including any Losses relating
to offsite disposal of Hazardous Materials by Transferor or its Affiliates prior
to the Effective Time.

 

“Escrow Amount” means the sum of (i) the aggregate Title Escrow Amounts, if any,
and (ii) the aggregate Environmental Escrow Amounts, if any.

 

“Excluded Assets” means, with respect to either Liberty or Emerald, (a) (i) all
corporate, financial, income, Tax and legal records of such Party that relate to
such Party’s business generally (whether or not relating to the Assets) and
(ii) all books, records and files that relate to the Excluded Assets or this
Agreement and the transactions contemplated hereby; (b) (i) equipment,
inventory, machinery, fixtures and other tangible personal property and
improvements that are leased by such Party or located at or used in connection
with any field office or yard of such Party that are not used solely in
connection with the Assets, (ii) any computers and related peripheral equipment
that are not located on the Assets, and (iii) communications equipment that is
not located on the Assets and not used solely in connection with the Assets; (c)
all rights to any refunds for Taxes or other costs or expenses borne by such
Party or such Party’s predecessors in interest and title attributable to periods
prior to the Effective Time in accordance with the principles of Section 9.1;
(d) such Party’s area-wide bonds, permits and licenses or other permits,
licenses or authorizations used in the conduct of such Party’s business
generally; (e) all geophysical and other seismic and related technical data and
information that is not transferrable without the payment of a fee or other
penalty or is otherwise not transferrable pursuant to a third party agreement or
applicable Law; (f) all data that cannot be disclosed to by a Party to the other
Party as a result of confidentiality arrangements under agreements with third
parties; (g) all trade credits, account receivables, note receivables, take or
pay amounts receivable, and other receivables attributable to the Assets with
respect to any period of time prior to the Effective Time; (h) any refunds due
to either Party by a third party for any overpayment of rentals, royalties,
excess royalty interests or production payments attributable to the Assets with
respect to any period of time prior to the Effective Time; (i) any causes of
action, claims, rights, indemnities or defenses with respect to the Assets,
whether arising before or after the Effective Time, that relate to any
indemnification obligation of either Party hereunder as more fully described in
Article 14 below; (j) all rights and interests of either Party (i) under any
policy or agreement of insurance or indemnity agreement, (ii) under any bond and
(iii) to any insurance or condemnation proceeds or awards arising, in each case,
from acts, omission or events, or damage to or destruction of property prior to
the Effective Time; (k) the assets listed on Schedule 1.1(c); and (l) until the
conditions set forth in Section 5.6 are met, the Burgundy Wellbore Interests.

 

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“Exclusivity Payment” means the exclusivity payment of $1,000,000 paid by
Emerald to Liberty pursuant to the terms of the Term Sheet.

 

“Force Majeure” means acts of terrorism, fire, explosion, earthquake, storm,
flood, freezing of wells or pipelines, delays in obtaining rights-of-way,
shutting-in facilities for repair or maintenance, strike, lock out, activities
of a combination of workmen or other labor difficulties, wars, insurrection,
riot, Law, act, order, export or import control regulations, proclamation,
decree, regulation, ordinance, or instructions of a Governmental Entity,
judgment or decree of a court of competent jurisdiction or any other cause not
reasonably within the control of the party claiming force majeure.

 

“Governmental Entity” means any national, state, local, native, or tribal
government or any subdivision, agency, court, commission, department, board,
bureau, regulatory authority or other division or instrumentality thereof.

 

“Hazardous Materials” means, without limitation, any waste, substance, product,
or other material (whether solid, liquid, gas or mixed), which is or becomes
identified, listed, published, or defined as a hazardous substance, hazardous
waste, hazardous material, toxic substance, pollutant, contaminant, radioactive
material, oil, or petroleum waste under any Environmental Law.

 

“Indebtedness” means, without duplication, with respect to the Emerald Assets or
the Liberty Assets, the outstanding principal amount of, accrued and unpaid
interest on, discounts and fees on, and any other payment obligations relating
to the Emerald Assets or the Liberty Assets, as applicable, existing under any
and all of the following, whether or not contingent: (i) indebtedness for
borrowed money and (ii) obligations evidenced by notes, bonds, debentures or any
other contractual arrangements, including any guarantees or other commitments or
obligations by which Emerald or Liberty, as applicable, assures a creditor
against loss.

 

“Knowledge” means, with respect to Emerald, the actual knowledge of Emerald’s
representatives listed on Schedule 1.1(a) and with respect to Liberty, the
actual knowledge of Liberty’s representatives listed on Schedule 1.1(b).

 

“Law” means any statute, law, principle of common law, rule, regulation,
judgment, order, ordinance, requirement, code, writ, injunction, or decree of
any Governmental Entity.

 

“Liberty Assets” means all of Liberty’s right, title, and interest, whether
present, contingent, or reversionary, in and to the following, but not including
the Excluded Assets:

 

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(a)          all oil and gas leases specifically described in Exhibit A-1,
together with all amendments, renewals, extensions, top leases, and
ratifications thereof (collectively, the “Liberty Leases”);

 

(b)          the lands covered by the Liberty Leases or pooled or unitized
therewith (the “Liberty Lands”);

 

(c)          the oil, gas, casinghead gas, coal bed methane, condensate and
other gaseous and liquid hydrocarbons or any combination thereof that may be
produced from under the Liberty Leases or the Liberty Lands (the “Liberty
Hydrocarbons”);

 

(d)          all oil, gas, water or injection wells located on or associated
with the Liberty Lands, whether producing, shut-in, or temporarily abandoned,
including the wells described in Exhibit B-1 (the “Liberty Wells”), together
with all of the personal property, equipment, fixtures and improvements used in
connection therewith;

 

(e)          the unitization, pooling and communitization agreements,
declarations, spacing orders, and the pools, units, or spacing units created
thereby, in each case, relating to the properties and interests described in
Clauses (a) through (d) and to the production of Liberty Hydrocarbons, if any,
attributable to said properties and interests, and the force-pooled and
non-consent interests associated therewith;

 

(f)          all equipment, machinery, fixtures and other tangible personal
property and improvements located on or used or held for use solely in
connection with the operation of the interests described in Clauses (a) through
(e) including any tanks, boilers, buildings, fixtures, injection facilities,
saltwater disposal facilities, compression facilities, pumping units and
engines, platforms, flow lines, pipelines, gathering systems, gas and oil
treating facilities, machinery, power lines, telephone and telegraph lines,
roads, and other appurtenances, improvements and facilities;

 

(g)          all surface leases, permits, rights-of-way, licenses, easements and
other surface rights agreements used in connection with the production,
gathering, treatment, processing, storage, sale or disposal of Liberty
Hydrocarbons or produced water from the interests described in Clauses (a)
through (f) including those described on Exhibit C-1, but excluding, in all such
instances, any items the transfer of which is prohibited by applicable Law;

 

(h)          all existing contracts and effective sales and purchase contracts,
operating agreements, exploration agreements, development agreements, balancing
agreements, farmout agreements, service agreements, transportation, processing,
treatment or gathering agreements, equipment leases and other contracts,
agreements and instruments, insofar as they are listed on Exhibit D-1 and
directly relate to the properties and interests described in Clauses (a) through
(g) and not to other properties of Liberty or Liberty’s corporate overhead, but
excluding any contracts, agreements and instruments the transfer of which is
prohibited by applicable Law (collectively, the “Liberty Contracts”); and

 

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(i)          to the extent transferable without payment of additional
consideration, originals, to the extent available, or copies of all the files,
records, and data relating primarily to the items described in Clauses (a)
through (h) above, which records shall include, without limitation: lease
records; well records; division order records; well files; title records
(including abstracts of title, title opinions and memoranda, and title curative
documents); engineering records; geological and geophysical data (including
seismic data) and all technical evaluations, interpretive data and technical
data and information relating primarily to the properties and interests
described in Clauses (a) through (h); correspondence; electronic data files (if
any); maps; production records; electric logs; core data; pressure data; decline
curves and graphical production curves; reserve reports; appraisals and
accounting records (collectively, the “Liberty Records”).

 

“Lien” means any of the following: mortgage, lien (statutory or other), other
security agreement, arrangement or interest, hypothecation, pledge or other
deposit arrangement, assignment, charge, levy, executory seizure, attachment,
garnishment, encumbrance (including any easement, exception, reservation or
limitation, right of way, and the like), conditional sale, title retention,
voting agreement or other similar agreement, arrangement, device or restriction,
preemptive or similar right, the filing of any financial statement under the
Uniform Commercial Code or comparable Law of any jurisdiction, or any option,
equity, claim or right of or obligation to any other Person of whatever kind and
character; provided, however, that the term “Lien” shall not include any of the
foregoing to the extent created by this Agreement.

 

“Losses” means any actual losses, costs, expenses (including court costs,
reasonable fees and expenses of attorneys, technical experts and expert
witnesses and the cost of investigation), liabilities, damages, demands, suits,
claims, and sanctions of every kind and character (including civil fines)
arising from, related to or reasonably incident to matters indemnified against;
excluding, however, (x) any special, consequential, punitive or exemplary
damages, diminution of value of any Transferor Assets, loss of profits incurred
by a Party or loss incurred as a result of the indemnified party indemnifying a
third party and (y) any increase in liability, loss, cost, expense, claim, award
or judgment to the extent such increase is caused by the actions or omissions of
any indemnified party after the Closing Date.

 

“Material Adverse Effect” means any state of facts, change, event, effect or
occurrence (when taken together with all other states of fact, changes, events,
effects or occurrences), that is (i) materially adverse to the ownership,
operations or value of the applicable Party’s Assets, or (ii) materially adverse
to the ability of the applicable Party to consummate the transactions
contemplated by this Agreement on a timely basis; provided, however, that no
state of facts, change, event, effect or occurrence arising or related to any of
the following shall be deemed to constitute, and none of the following shall be
taken into account in determining whether there has been a “Material Adverse
Effect”: (a) national or international business, economic or political
conditions, including the engagement by the United States of America in
hostilities, whether or not pursuant to the declaration of a national emergency
or war, or the occurrence of any military or terrorist attack upon the United
States of America or any of its respective territories, possessions or
diplomatic or consular offices or upon any military installation, equipment or
personnel of the United States of America; (b) events affecting the financial,
banking or securities markets (including any disruption thereof or any decline
in the price of securities generally or any market or index); (c) conditions (or
changes in such conditions) generally affecting the oil and gas industry or the
natural gas liquids industry in any area or areas where the Assets are located;
(d) increases in energy, electricity, natural gas, oil, or other raw materials
or operating costs; (e) changes in generally accepted accounting principles or
Law; (f) the taking of any action required by this Agreement; (g) changes as a
result of the negotiation, announcement, pendency or performance of this
Agreement, including by reason of the identity of the Parties or any
communication by either Party or any of their respective Affiliates of their
plans or intentions regarding the operation of the applicable Assets; (h) any
actions taken or omitted to be taken by or at the request or with the written
consent of a Party; (i) any event of Force Majeure; (j) changes in oil or
natural gas prices, including changes in price differentials; (k) effects or
changes that are cured or no longer exist by the earlier of the Closing and the
termination of this Agreement pursuant to Article 11; or (l) changes resulting
from the performance of the covenants set forth in Section 8.1 hereof (solely to
the extent that such changes are a result of a Party’s refusal to give its
written approval to the other Party’s written request to take any action
restricted therein).

 

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“Net Acre” means, as computed separately with respect to each Transferor Lease,
the (x) lessor’s percentage interest in the leasehold estate created by the
Transferor Lease multiplied by (y) the number of gross acres covered by the
Transferor Lease multiplied by (z) the Transferor’s Working Interest in such
Lease.

 

“Person” means any individual or entity, including, without limitation, any
corporation, limited liability company, partnership (general or limited), joint
venture, association, joint stock company, trust, unincorporated organization or
Governmental Entity.

 

“Plugging and Abandonment Obligations” means any and all responsibility and
liability for the following, arising out of or relating to the Transferor
Assets, whether before, on, or after the Effective Time: (a) the necessary and
proper plugging, replugging, and abandonment of all Transferor Wells; (b) the
necessary and proper removal, abandonment, and disposal of all structures,
pipelines, equipment, operating inventory, abandoned property, trash, refuse,
and junk located on or comprising part of the Transferor Assets; (c) the
necessary and proper capping and burying of all associated flow lines located on
or comprising part of the Transferor Assets; and (d) the necessary and proper
restoration of the surface and subsurface to the condition required by
applicable Laws, permits, orders, and contracts, except for interim reclamation
previously required to be performed under any Environmental Law.

 

“Production Taxes” means all ad valorem, property, production, excise, net
proceeds, severance, windfall profit and all other Taxes and similar obligations
assessed against the Emerald Assets or the Liberty Assets, as applicable, or
based upon or measured by the ownership of the Emerald Assets or the Liberty
Assets, as applicable, or the production of Hydrocarbons or the receipt of
proceeds therefrom, provided that Production Taxes shall not include income,
franchise, or margin Taxes, and Transfer Taxes, but shall include any interest,
penalties, additions to tax and fines assessed or due in respect of any
Production Taxes, whether disputed or not.

 

“Property Expenses” means all (i) capital expenses (including all capital
expenditures permitted by Section 8.1(a) and bonuses, broker fees, and other
lease acquisition costs, costs of drilling and completing wells and costs of
acquiring equipment), Production Taxes (as apportioned as of the Effective Time
pursuant to Article 9) and operating and production expenses (including costs of
insurance, rentals, shut-in payments and royalty payments; title examination and
curative actions; and gathering, processing and transportation costs in respect
of Hydrocarbons produced from the Assets), incurred in the ownership,
development and operation of the Assets in the ordinary course of business, (ii)
general and administrative costs with respect to the Assets and (iii) overhead
costs charged to the Assets under the applicable operating agreement; provided
however, that with respect to the Emerald Assets, (1) the Burgundy Remediation
Costs shall not constitute Property Expenses, and (2) the aggregate Property
Expenses related to the Burgundy Wellbore Interests (the “Burgundy Property
Expenses”) shall not exceed $5,000,000, regardless of the actual amount incurred
by Emerald in excess of that threshold.

 

-8-

 

 

“Release” means any “release” or “disposal” as defined by or under any
Environmental Law.

 

“Remediation” or “Remediate” means investigation, assessment, characterization,
delineation, monitoring, sampling, analysis, removal action, remedial action,
response action, corrective action, mitigation, treatment, cleanup, reporting,
or permitting of (a) any Release of Hazardous Materials or other similar actions
as required by any applicable Environmental Law from soil, land surface,
groundwater, sediment, surface water, or subsurface strata or otherwise or (b)
any failure of Transferor to operate the Transferor’s Assets in compliance with
all applicable Environmental Laws where such noncompliance would have,
individually or in the aggregate, a Material Adverse Effect.

 

“Remediation Costs” means all costs to Remediate an Environmental Defect to the
extent required to bring an Environmental Defect Property into compliance with
all applicable Environmental Laws, including the costs of any fines, penalties,
judgments, or similar amounts assessed or alleged against Transferor.

 

“Representatives” means each Party’s stockholders, members, managers, officers,
directors, employees, agents, and representatives.

 

“Taxes” means any taxes and assessments imposed by any Governmental Entity,
including net income, gross income, profits, gross receipts, license,
employment, stamp, occupation, premium, alternative or add-on minimum, ad
valorem, real property, personal property, transfer, real property transfer,
value added, sales, use, environmental (including taxes under Code Section 59A),
customs, duties, capital stock, franchise, excise, withholding, social security
(or similar), unemployment, disability, payroll, fuel, excess profits, windfall
profit, severance, estimated or other tax, including any interest, penalty or
addition thereto, whether disputed or not, and any expenses incurred in
connection with the determination, settlement or litigation of the Tax
liability, and “Tax” means any one of these.

 

“Tax Return” means any return, report or similar statement required to be filed
with respect to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.

 

“Term Sheet” means the Term Sheet dated July 11, 2014 entered into between
Liberty and Emerald.

 

“Transferee” means Emerald with respect to Liberty’s conveyance of the Liberty
Assets to Emerald, and Liberty, with respect to Emerald’s conveyance of the
Emerald Assets to Liberty.

 

-9-

 

 

“Transferee Indemnified Parties” means the Transferee, its affiliates, and its
and their Representatives.

 

“Transferor” means Emerald, with respect to Emerald’s conveyance of the Emerald
Assets to Liberty, and Liberty, with respect to Liberty’s conveyance of the
Liberty Assets to Emerald.

 

“Transferor Allocated Value” means the Emerald Allocated Value if Emerald is the
Transferor or the Liberty Allocated Value if Liberty is the Transferor.

 

“Transferor Assets” means the Emerald Assets if Emerald is the Transferor or the
Liberty Assets if Liberty is the Transferor.

 

“Transferor Contracts” means the Emerald Contracts if Emerald is the Transferor
or the Liberty Contracts if Liberty is the Transferor.

 

“Transferor Indemnified Parties” means the Transferor, its affiliates, and its
and their Representatives.

 

“Transferor Purchase Price” means the Emerald Assets Purchase Price if Emerald
is the Transferor or the Liberty Assets Purchase Price if Liberty is the
Transferor.

 

“Transferor Records” means the Emerald Records if Emerald is the Transferor or
the Liberty Records if Liberty is the Transferor.

 

“Transferor Well” means the Emerald Wells if Emerald is the Transferor or the
Liberty Wells if Liberty is the Transferor.

 

1.2          References and Construction.

 

(a)          When a reference is made in this Agreement to Articles, Sections,
Exhibits or Schedules, such reference will be to an Article, Section, Exhibit or
Schedules to this Agreement unless otherwise indicated. Whenever the words
“include,” “includes” or “including” are used in this Agreement, they will be
deemed to be followed by the words “without limitation.” Unless the context
otherwise requires, (i) ”or” is disjunctive but not necessarily exclusive,
(ii) words in the singular include the plural and vice versa, (iii) the words
“herein,” “hereof,” “hereby,” “hereunder” and words of similar nature refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited, and (iv) the use in this Agreement of a pronoun in reference to a
Party hereto includes the masculine, feminine or neuter, as the context may
require.

 

(b)          The Parties have participated jointly in negotiating and drafting
this Agreement. In the event that an ambiguity or a question of intent or
interpretation arises, this Agreement will be construed as if drafted jointly by
the Parties, and no presumption or burden of proof will arise favoring or
disfavoring any Party by virtue of the authorship of any provision of this
Agreement.

 

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ARTICLE 2

PURCHASE AND SALE

 

2.1          Purchase and Sale. Subject to the terms and conditions of this
Agreement, at the Closing, (i) Emerald agrees to purchase from Liberty and
Liberty agrees to sell, assign and deliver to Emerald all of Liberty’s right,
title and interest in the Liberty Assets, and (ii) Liberty agrees to purchase
from Emerald and Emerald agrees to sell, assign and deliver to Liberty all of
Emerald’s right, title and interest in the Emerald Assets, in each case, for the
consideration specified in this Article 2.

 

2.2          Consideration.

 

(a)          Subject to the terms and conditions of this Agreement, at the
Closing, as consideration for the purchase of the Liberty Assets, Emerald shall
assume and agree to discharge the Emerald Assumed Liabilities and pay to Liberty
the sum of $109,031,314 in immediately available funds (the “Liberty Assets
Purchase Price”), as adjusted pursuant to Section 2.4.

 

(b)          Subject to the terms and conditions of this Agreement, at the
Closing, as consideration for the purchase of the Emerald Assets, Liberty shall
assume and agree to discharge the Liberty Assumed Liabilities and pay to Emerald
the sum of $30,589,000 in immediately available funds (the “Emerald Assets
Purchase Price”) as adjusted pursuant to Section 2.4.

 

(c)          At Closing, Emerald shall pay to Liberty in immediately available
funds to an account designated by Liberty an amount equal to the Emerald Assets
Preliminary Adjusted Purchase Price, less the Liberty Assets Preliminary
Adjusted Purchase Price, less the Exclusivity Payment (such amount being
referred to as the “Closing Amount”).

 

(d)          After Closing, final adjustments to the Emerald Assets Preliminary
Adjusted Purchase Price and the Liberty Assets Preliminary Adjusted Purchase
Price shall be made pursuant to the Final Settlement Statement to be delivered
pursuant to Section 13.1(a) and payments made by Emerald or Liberty as provided
in Section 13.1(a).

 

2.3          Allocation of the Purchase Price.

 

(a)          For purposes of adjusting the Emerald Assets Purchase Price or the
Liberty Assets Purchase Price due to the existence of any title matters under
Article 4 or environmental matters under Article 5, (1) Emerald has allocated
the Liberty Assets Purchase Price among the Liberty Leases and Liberty Wells in
the amounts set forth on Exhibit A-1 and Exhibit B-1, as applicable; and (2)
Liberty has allocated the Emerald Assets Purchase Price among the Emerald Leases
and Emerald Wells in the amounts set forth on Exhibit A-2 and Exhibit B-2, as
applicable. The value allocated to each Emerald Asset is the “Emerald Allocated
Value,” and the value allocated to each Liberty Asset is the “Liberty Allocated
Value.”

 

-11-

 

 

(b)          Emerald and Liberty have agreed on the Allocated Values for the
Assets, but neither Emerald nor Liberty otherwise makes any representation or
warranty as to the accuracy of such values.

 

(c)          Liberty shall prepare an allocation of the Liberty Assets Purchase
Price on a schedule (the “Proposed Liberty Section 1060 Allocation Schedule”)
for purposes of, and in accordance with, Section 1060 of the Code and the
regulations promulgated thereunder within thirty (30) days after the Final
Settlement Date. Emerald shall notify Liberty in writing of any objections to
the Proposed Liberty Section 1060 Allocation Schedule within fifteen (15) days
of receipt thereof and if, within thirty (30) days after delivery of notice of
such objection, Emerald and Liberty cannot agree to a final allocation schedule
to be used for income Tax reporting purposes, Emerald and Liberty shall submit
the Disputed matters to binding arbitration pursuant to Section 15.13 to finally
determine the proper allocation of the Liberty Assets Purchase Price for
purposes of Section 1060 of the Code, and shall request that the arbitrator
issue a final allocation schedule (the “Final Liberty Section 1060 Allocation
Schedule”) within thirty (30) days of the submission of the Dispute. Liberty and
Emerald agree that the allocation of the Liberty Assets Purchase Price as set
forth on the Final Liberty Section 1060 Allocation Schedule shall be used by
Liberty and Emerald as the basis for reporting asset values and other items for
purposes of all federal, state and local Tax Returns, including without
limitation Internal Revenue Service Form 8594. Liberty and Emerald further agree
that each will take no position inconsistent with such allocations on any
applicable Tax Return, in any audit or proceeding before any Governmental Entity
related to Taxes, in any report made for Tax, financial accounting or any other
purpose, or otherwise. In the event that the allocation described herein is
disputed by any Governmental Entity, the Party receiving notice of the dispute
shall promptly notify the other Party concerning resolution of the dispute.

 

(d)          Emerald shall prepare an allocation of the Emerald Assets Purchase
Price on a schedule (the “Proposed Emerald Section 1060 Allocation Schedule”)
for purposes of, and in accordance with, Section 1060 of the Code and the
regulations promulgated thereunder within thirty (30) days after the Final
Settlement Date. Liberty shall notify Emerald in writing of any objections to
the Proposed Emerald Section 1060 Allocation Schedule within fifteen (15) days
of receipt thereof and if, within thirty (30) days after delivery of notice of
such objection, Liberty and Emerald cannot agree to a final allocation schedule
to be used for income Tax reporting purposes, Liberty and Emerald shall submit
the Disputed matters to binding arbitration pursuant to Section 15.13 to finally
determine the proper allocation of the Emerald Assets Purchase Price for
purposes of Section 1060 of the Code, and shall request that the arbitrator
issue a final allocation schedule (the “Final Emerald Section 1060 Allocation
Schedule”) within thirty (30) days of the submission of the Dispute. Emerald and
Liberty agree that the allocation of the Emerald Assets Purchase Price as set
forth on the Final Emerald Section 1060 Allocation Schedule shall be used by
Emerald and Liberty as the basis for reporting asset values and other items for
purposes of all federal, state and local Tax Returns, including without
limitation Internal Revenue Service Form 8594. Emerald and Liberty further agree
that each will take no position inconsistent with such allocations on any
applicable Tax Return, in any audit or proceeding before any Governmental Entity
related to Taxes, in any report made for Tax, financial accounting or any other
purpose, or otherwise. In the event that the allocation described herein is
disputed by any Governmental Entity, the Party receiving notice of the dispute
shall promptly notify the other Party concerning resolution of the dispute.

 

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2.4          Adjustments to Purchase Price and Preliminary Settlement Statement.
The Liberty Assets Purchase Price and the Emerald Assets Purchase Price shall be
adjusted according to this Section 2.4, without duplication. Such adjustment
shall be set out in (i) the “Liberty Assets Preliminary Settlement Statement”
that shall be delivered by Liberty to Emerald at least three (3) Business Days
prior to Closing, or (ii) the “Emerald Assets Preliminary Settlement Statement”
that shall be delivered by Emerald to Liberty at least three (3) Business Days
prior to Closing. The Liberty Assets Purchase Price, as adjusted pursuant to
this Section 2.4, is referred to as the “Liberty Assets Preliminary Adjusted
Purchase Price” and the Emerald Assets Purchase Price, as adjusted pursuant to
this Section 2.4, is referred to as the “Emerald Assets Preliminary Adjusted
Purchase Price”. No adjustment to the Emerald Assets Purchase Price shall be
made with respect to the Burgundy Wellbore Interests or the Burgundy Property
Expenses unless and until the conditions in Section 5.6 are satisfied and the
Burgundy Wellbore Interests are conveyed to Liberty.

 

(a)         Upward Adjustments. The Liberty Assets Purchase Price and the
Emerald Assets Purchase Price, as applicable, shall be adjusted upward by the
following:

 

(1)         (i) With respect to the Liberty Assets Purchase Price, the proceeds
received by Emerald, net of royalties, overriding royalties, profit payments and
similar burdens, from the sale of any Hydrocarbons that were produced from the
Liberty Assets prior to the Effective Time, and (ii) with respect to the Emerald
Assets Purchase Price, the proceeds received by Liberty, net of royalties,
overriding royalties, profit payments and similar burdens, from the sale of any
Hydrocarbons that were produced from the Emerald Assets prior to the Effective
Time;

 

(2)         (i) With respect to the Liberty Assets Purchase Price, an amount
equal to all Property Expenses attributable to the Liberty Assets from and after
the Effective Time that were paid by Liberty (all to be apportioned as of the
Effective Time except as otherwise provided), and (ii) with respect to the
Emerald Assets Purchase Price, an amount equal to all Property Expenses
attributable to the Emerald Assets from and after the Effective Time that were
paid by Emerald (all to be apportioned as of the Effective Time except as
otherwise provided);

 

(3)         With respect to the Liberty Assets Purchase Price, the Transfer
Taxes paid by Liberty with respect to the transactions contemplated by this
Agreement;

 

(4)         With respect to the Emerald Assets Purchase Price, the Transfer
Taxes paid by Emerald with respect to the transactions contemplated by this
Agreement;

 

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(5)         (i) With respect to the Liberty Assets Purchase Price, an amount
equal to the unbilled costs, as of the date hereof, for the joint interest
billings paid by Liberty on behalf of third party working interest owners in the
Leases, Wells or Units that are contained within the Liberty Assets, and (ii)
with respect to the Emerald Assets Purchase Price, an amount equal to the
unbilled cost, as of the date hereof, for the joint interest billings paid by
Emerald on behalf of third party working interest owners in the Leases, Wells or
Units that are contained within the Emerald Assets;

 

(6)         an amount equal to the aggregate of the Title Benefit Amounts with
respect to any Title Benefits; and

 

(7)         Any other amount agreed to by Emerald and Liberty.

 

(b)         Downward Adjustments. The Liberty Assets Purchase Price and the
Emerald Assets Purchase Price, as applicable, shall be adjusted downward by the
following:

 

(1)         An amount equal to the Title Defect Amounts for all Title Defect
Properties to be delivered at Closing under Section 4.2(c)(1);

 

(2)         An amount equal to the Remediation Costs for all Environmental
Defect Properties, which downward adjustment shall be made at Closing under
Section 5.3(a);

 

(3)         An amount equal to the Allocated Values of all Transferor Assets
excluded from this transaction under Sections 4.2(c)(2) and 5.3(b);

 

(4)         The Allocated Value of those Assets not conveyed at Closing due to
the failure to obtain a Material Consent in accordance with Section 4.4(a), or
the exercise of any preferential rights to purchase in accordance with
Section 4.4(b);

 

(5)         (i) With respect to the Liberty Assets Purchase Price, any proceeds
of Hydrocarbons produced from and after the Effective Time, net of royalties,
overriding royalties, net profit payments and similar burdens and Production
Taxes, received by Liberty between the Effective Time and Closing relating to
the Liberty Assets, and (ii) with respect to the Emerald Assets Purchase Price,
any proceeds of Hydrocarbons produced from and after the Effective Time, net of
royalties, overriding royalties, net profit payments and similar burdens and
Production Taxes, received by Emerald between the Effective Time and Closing
relating to the Emerald Assets;

 

(6)         (i) With respect to the Liberty Assets Purchase Price, an amount
equal to the revenue held in suspense by Liberty, as of the date hereof, for
royalties, overriding royalties and similar leasehold burdens, and (ii) with
respect to the Emerald Assets Purchase Price, an amount equal to the revenue
held in suspense by Emerald, as of the date hereof, for royalties, overriding
royalties and similar leasehold burdens; and

 

(7)         Any other amount agreed to by Emerald and Liberty.

 

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2.5          Proration of Costs and Revenues.

 

(a)          For purposes of determining the amounts of the adjustments to the
Liberty Assets Purchase Price and Emerald Assets Purchase Price provided for in
Section 2.4, the principles set forth in this Section 2.5(a) shall apply.
Transferee shall be entitled to all production of Hydrocarbons from or
attributable to the Leases, Lands, and Wells relating to those Assets of the
Transferor at and after the Effective Time (and all products and proceeds
attributable thereto), and to all other income, proceeds, receipts and credits
earned with respect to such Assets at or after the Effective Time, and shall be
responsible for (and entitled to any refunds with respect to) all Property
Expenses relating to those Assets of the Transferor incurred at and after the
Effective Time. Transferor shall be entitled to all Hydrocarbon production from
or attributable to Leases, Lands, and Wells relating to those Assets of the
Transferee prior to the Effective Time (and all products and proceeds
attributable thereto), and to all other income, proceeds, receipts and credits
earned with respect to such Assets prior to the Effective Time, and shall be
responsible for (and entitled to any refunds with respect to) all Property
Expenses relating to those Assets of the Transferor incurred prior to the
Effective Time. “Earned” and “incurred”, as used in the Agreement shall be
interpreted in accordance with generally accepted accounting principles and
Council of Petroleum Accountants Society standards, and expenditures that are
incurred pursuant to an operating agreement, unit agreement or similar agreement
shall be deemed incurred when expended by the operator of the applicable Lease,
Land or Well, in accordance with the applicable Transferor’s then current
practice. For purposes of allocating production (and accounts receivable with
respect thereto), under this Section 2.5(a), (i) liquid Hydrocarbons shall be
deemed to be “from or attributable to” the Leases, Lands, and Wells when they
pass through the inlet flange of the pipeline connecting into the storage
facilities into which they are run or, if there are no such storage facilities,
when they pass through the LACT meters or similar meters at the initial point of
entry into the pipelines through which they are transported from the field, and
(ii) gaseous Hydrocarbons shall be deemed to be “from or attributable to” the
Leases, Lands, and Wells when they pass through the royalty measurement meters,
delivery point sales meters or custody transfer meters on the gathering lines or
pipelines through which they are transported (whichever meter is closest to the
well). Transferor shall utilize reasonable interpolative procedures, consistent
with industry practice, to arrive at an allocation of production when exact
meter readings or gauging and strapping data are not available.

 

(b)          Should Transferee receive after Closing any proceeds, income or
other amounts to which Transferor is entitled under Section 2.5(a), Transferee
shall fully disclose, account for and promptly remit the same to Transferor. If,
after Closing, Transferor receives any proceeds, income or other amounts to
which Transferor is not entitled pursuant to Section 2.5(a), Transferor shall
fully disclose, account for, and promptly remit the same to Transferee.

 

(c)          Should Transferee pay after Closing any Property Expenses for which
Transferor is responsible under Section 2.5(a), Transferor shall reimburse
Transferee promptly after receipt of an invoice with respect to such Property
Expenses, accompanied by copies of the relevant vendor or other invoice and
proof of payment. Should Transferor pay after Closing any Property Expenses for
which Transferor is not responsible under Section 2.5(a), Transferee shall
reimburse Transferor promptly after receipt of an invoice with respect to such
Property Expenses, accompanied by copies of relevant vendor or other invoice and
proof of payment.

 

-15-

 

 

(d)          After Closing, Transferee shall handle all joint interest audits
and other audits of Property Expenses covering the period for which Transferor
is in whole or in part responsible under Section 2.5(a), provided that
Transferee shall not agree to any adjustments to previously assessed costs for
which Transferor is liable without the prior written consent of Transferor.
Transferee shall provide Transferor with a copy of all applicable audit reports
and written audit agreements received by Transferee and relating to periods for
which Transferor is wholly or partially responsible.

 

2.6           Escrow Amount. The Escrow Amount, from time to time, together with
the interest earned thereon, shall be deposited and held in an escrow account
and paid out by an “Escrow Agent” in accordance with the provisions of this
Section 2.6 and an escrow agreement to be agreed upon by the Parties (the
“Escrow Agreement”) if such Escrow Agreement is necessary under Articles 4 or 5
upon final resolution of any Title Disputed Matters or any Environmental
Disputed Matters in accordance with Articles 4 and 5, respectively, and which
Escrow Agreement will require the joint written instruction of the Parties to
the Escrow Agreement for any distributions. The full amount of any Escrow Amount
held under the Escrow Agreement shall be released upon final resolution of the
Title Disputed Matter or any Environmental Disputed Matter underlying such
Escrow Amount in accordance with Articles 4 and 5, respectively.

 

ARTICLE 3

Due Diligence Review

 

3.1           Due Diligence Review. Each of Liberty and Emerald will make their
respective Records and Assets available to the other Party and its
Representatives for inspection and review, at Transferee’s sole cost, to permit
Transferee to perform its due diligence (“Due Diligence Review”) pursuant to the
terms and conditions of Sections 3.2 and 3.3, respectively. The notices
pertaining to the Due Diligence Review for the Notice of Defective Interest (as
defined in Section 4.2(b)) and the Environmental Defect Notice (as defined in
Section 5.2) must be received by Transferor no later than 5:00 p.m. Mountain
Time on August 22, 2014 (the “Defect Notice Date”). Each of Liberty and Emerald
shall be entitled to conduct its Due Diligence Review until the Defect Notice
Date (such period from the Effective Date through the Defect Notice Date, the
“Due Diligence Period”).

 

3.2           Access to Transferor Records. Upon reasonable advance notice, the
Transferor will make the Transferor Records available to Transferee at the
offices of Transferor during Transferor’s normal business hours to the extent
the Transferor Records can be provided without unreasonable effort or expense
and are not subject to non-disclosure or confidentiality obligations to a third
party, so Transferee and its Representatives may conduct, during the Due
Diligence Period, at Transferee’s sole risk and expense, on-site inspections of
all or any portion of the Transferor Records.

 

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3.3         Access to the Transferor Assets.

 

(a)          Access.

 

(1)         To the extent that Transferor may do so as an operator or
non-operator of Transferor Assets, Transferor will grant Transferee and its
Representatives access to the Transferor Assets upon reasonable prior notice
during Transferor’s normal business hours, so Transferee and its Representatives
may conduct, during the Due Diligence Period, at Transferee’s sole risk and
expense, on-site inspections and an ASTM Phase I environmental review of all or
any portion of the Transferor Assets (each, an “Environmental Assessment”).
Transferee shall not conduct an ASTM Phase II environmental assessment or any
physical sampling, boring, drilling, or other invasive investigation activities
without the prior notice and consent of Transferor, which consent Transferor may
withhold in its sole and absolute discretion.

 

(2)          If Transferee or its agents prepares an Environmental Assessment of
any Transferor Asset, Transferee agrees to keep such assessment confidential and
to furnish final copies thereof to Transferor only upon request; provided,
however, that to the extent Transferee reasonably believes based on the advice
of legal counsel that disclosure to a Governmental Entity is required for any
matter identified by an Environmental Assessment in order for Transferee to
comply with Environmental Laws, Transferee may after prior written notice to
Transferor containing a brief analysis of why such Transferee disclosure is
required by the Environmental Laws, disclose such matter to the Governmental
Entity to which notice is required. In connection with any on-site inspections,
if any, prior to Closing, Transferee (1) agrees not to interfere with, and will
cause its Representatives not to interfere with, the normal operation of the
Transferor Assets, (2) agrees to comply with, and will cause its Representatives
to comply with, all requirements of the operators of the Transferor Assets (to
the extent such requirements are disclosed to Transferee prior to such on-site
inspections) and (3) agrees to maintain adequate insurance and to confirm to
Transferor that it and its Representatives are adequately insured.

 

(b)        Indemnity. Except to the extent caused by the gross negligence or
willful misconduct of any member of the Transferor Indemnified Parties,
Transferee waives, releases and agrees to defend, indemnify, and hold harmless
the Transferor Indemnified Parties from and against any and all losses arising
out of, resulting from, or relating to the access afforded to Transferee and its
Representatives under this Agreement or the activities of Transferee and its
Representatives related to such access or any Environmental Assessment; even if
such Losses arise out of or result from the active, passive, concurrent, or
comparative negligence, strict liability, or other fault or violation of Law of
or by a member of the Transferor Indemnified Parties; provided, however, that
such indemnity shall not extend to Remediation Costs required as a result of
disclosure to a Governmental Entity pursuant to Section 3.3(a)(2).

 

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(c)        Clean-Up. As soon as is reasonably practicable following completion
of Transferee’s due diligence, Transferee shall, at its sole cost and expense
and without any cost or expense to the Transferor Indemnified Parties (1) repair
all damage done to the Transferor Assets in connection with any Environmental
Assessment, (2) restore the Transferor Assets to the approximate same or better
condition in existence prior to commencement of any Environmental Assessment,
and (3) remove all equipment, tools or other property brought onto the
Transferor Assets in connection with any Environmental Assessment.

 

ARTICLE 4

TITLE MATTERS

 

4.1         Transferor’s Title.

 

(a)       Defensible Title. The term “Defensible Title” means such ownership of
record to the Transferor Leases and Transferor Wells that is deducible from the
applicable county, state and federal records such that a reasonably prudent
person engaged in the business of the ownership, development and operation of
oil and gas leaseholds and properties and having knowledge of all of the facts
and their legal bearing would be willing to accept the same, and that, subject
to and except for Permitted Encumbrances as defined in Section 4.1(b):

 

(1)         entitles Transferor to receive a share of the Hydrocarbons produced,
saved and marketed from any Transferor Lease or Transferor Well throughout the
duration of the productive life of such Transferor Lease or Transferor Well,
only insofar as to the specified formation(s) shown on Exhibit A-1, Exhibit A-2,
Exhibit B-1, or Exhibit B-2 for such Transferor Lease or Transferor Well, as
applicable, and if there are no such specified formation(s), then as to all
formations, after satisfaction of all royalties, overriding royalties,
nonparticipating royalties, net profits interests or other similar burdens on or
measured by production of Hydrocarbons (a “Net Revenue Interest”), of not less
than the Net Revenue Interest share shown in Exhibit A-1 or Exhibit A-2, as
applicable for such Transferor, for such Transferor Lease (on an 8/8ths basis),
or Exhibit B-1 or Exhibit B-2, as applicable for such Transferor, for such
Transferor Well;

 

(2)         obligates Transferor to bear a percentage of the costs and expenses
for the maintenance, development, operation and the production relating to any
Transferor Well throughout the productive life of such Transferor Well (“Working
Interest”) not greater than the Working Interest shown in Exhibit B-1 or Exhibit
B-2, as applicable for such Transferor, from the currently producing formations
for such Transferor Well, without increase, except increases to the extent that
they are accompanied by a proportionate increase in Transferor’s Net Revenue
Interest;

 

(3)         enables such Transferor Lease to cover the Net Acre interest set
forth in Exhibit A-1 or Exhibit A-2, as applicable for such Transferor, only
insofar as to the specified formation(s) shown on Exhibit A-1 or Exhibit A-2 for
such Transferor Lease, as applicable, and if there are no such specified
formation(s), then as to all formations for such Transferor Lease; and

 

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(4)         is free and clear of Liens.

 

(b)          Permitted Encumbrances. The term “Permitted Encumbrances” shall
mean:

 

(1)         lessors’ royalties, overriding royalties, net profits interests,
production payments, reversionary interests and similar burdens if the net
cumulative effect of such burdens does not operate to reduce the Net Revenue
Interests below those set forth in Exhibit A-1 or Exhibit A-2, as applicable for
such Transferor, for such Transferor Lease, or Exhibit B-1 or Exhibit B-2, as
applicable for such Transferor, for such Transferor Well, only insofar as to the
specified formation(s) shown on Exhibit A-1, Exhibit A-2, Exhibit B-1, or
Exhibit B-2 for such Transferor Lease or Transferor Well, as applicable, and if
there are no such specified formation(s), then as to all formations;

 

(2)         statutory Liens for taxes that are not yet due and payable or that
are being contested in good faith in the normal course of business;

 

(3)         all rights to consent by, required notices to, filings with, or
other actions by Governmental Entities, in connection with the conveyance of the
applicable Transferor Asset if the same are customarily sought after such
conveyance;

 

(4)         rights of reassignment contained in any Transferor Leases, or
assignments thereof, providing for reassignment upon the surrender or expiration
of any Transferor Leases;

 

(5)         easements, rights of way, servitudes, permits, surface leases and
other rights with respect to surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like, and easements for streets, alleys,
highways, pipelines, telephone lines, power lines, railways and other easements
and rights-of-way, on, over or in respect of any of the Transferor Assets or any
restriction on access thereto that do not materially interfere with the
operation of the affected Transferor Asset;

 

(6)         the terms and conditions of the Transferor Contracts listed in
Exhibit C-1 or Exhibit C-2, as applicable for each Transferor, or any compulsory
pooling order of the North Dakota Industrial Commission; provided, however, that
the effect of any such items do not cause (i) the Net Revenue Interest to be
less than as set forth in Exhibit A-1, Exhibit A-2, Exhibit B-1, or Exhibit B-2
respectively, only insofar as to the specified formation(s) shown on Exhibit
A-1, Exhibit A-2, Exhibit B-1, or Exhibit B-2, as applicable, and if there are
no such specified formation(s), then as to all formations, for the applicable
Transferor Asset, or (ii) the Working Interest to be more than as set forth in
in Exhibit B-1 or Exhibit B-2, as applicable, from the currently producing
formations;

 

(7)         materialmen’s, mechanics’, operators’ or other similar Liens arising
in the ordinary course of business (i) if such Liens have not been filed
pursuant to Law and the time for filing such Liens has expired, (ii) if filed,
such Liens have not yet become due and payable or payment is being withheld as
provided by Law, or (iii) if their validity is being contested in good faith by
appropriate action;

 

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(8)         such Title Defects as Transferee has waived;

 

(9)         any Liens or encumbrances burdening the Transferor Assets which will
be released at or before Closing;

 

(10)        any defects, irregularities or deficiencies in title to easements,
rights-of-way or surface use agreements that do not materially adversely affect
the value of any Transferor Asset; and

 

(11)        all other Liens, contracts, agreements, instruments, obligations,
defects and irregularities affecting the Transferor Assets that do not (or would
not upon foreclosure or other enforcement) reduce the Net Revenue Interest set
forth in Exhibit A-1, Exhibit A-2, Exhibit B-1, or Exhibit B-2 respectively,
only insofar as to the specified formation(s) shown on Exhibit A-1, Exhibit A-2,
Exhibit B-1, or Exhibit B-2, as applicable, and if there are no such specified
formation(s), then as to all formations, nor prevent the receipt of proceeds of
production therefrom, nor increase the share of costs above the Working Interest
set forth in Exhibit B-1 or Exhibit B-2 respectively, from the currently
producing formations, nor materially adversely interfere with or detract from
the ownership, operation, value or use of the Transferor Assets.

 

4.2         Purchase Price Adjustment Procedures.

 

(a)          Title Defect. The term “Title Defect” means any Lien, obligation
(including contract obligation), defect, or other matter (including without
limitation a discrepancy in Net Revenue Interest or Working Interest) that
causes the Transferor not to have Defensible Title to any Transferor Lease or
Transferor Well. Notwithstanding the foregoing, the following shall not be
considered Title Defects:

 

(1)         defects based solely on lack of information in connection with
documents filed of record not contained in Transferor’s files;

 

(2)         defects in the chain of title consisting of the mere failure to
recite marital status in a document or omissions of successions of heirship or
estate proceedings, unless Transferee provides clear and convincing evidence
that such failure or omission has resulted in another Person’s actual and
superior claim of title to the relevant Transferor Asset;

 

(3)         defects arising out of lack of corporate or other entity
authorization unless Transferee provides affirmative evidence that such
corporate or other entity action was not authorized and results in another
Person’s actual and superior claim of title to the relevant Transferor Asset;

 

(4)         defects arising out of lack of survey, unless a survey is expressly
required by applicable Laws;

 

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(5)         Liens created under deeds of trust, mortgages and similar
instruments by the lessor under a Transferor Lease covering the lessor’s surface
and mineral interests in the land covered thereby which would customarily be
accepted in taking oil and gas leases or purchasing undeveloped oil and gas
leases and for which the lessee would customarily seek a subordination of such
Lien to the oil and gas leasehold estate prior to conducting drilling activities
on the Transferor Lease;

 

(6)         defects based on failure to record a Transferor Lease issued by the
Bureau of Land Management or the North Dakota Board of University and School
Lands, or any assignments of record title or operating rights in such Transferor
Leases, in the real property, conveyance or other records of the county in which
such Transferor Lease is located; and

 

(7)         defects that have been cured by applicable Laws of limitations,
prescription or otherwise.

 

(b)          Notice of Defective Interest. On or before the Defect Notice Date,
Transferee may formally advise Transferor in writing of any matters that in
Transferee’s reasonable opinion constitute a Title Defect with respect to
Transferor’s title to all or any portion of the Transferor Leases and Transferor
Wells (“Notice of Defective Interests”). The Notice of Defective Interests shall
be in writing and contain the following: (1) a clear, complete and accurate
description of the alleged Title Defect(s), (2) the Transferor Leases or
Transferor Wells (and the applicable zone(s) therein) affected by the alleged
Title Defect(s) (each a “Title Defect Property”), (3) the Transferor Allocated
Value of each Transferor Lease or Transferor Well subject to the alleged Title
Defect(s), (4) supporting documents reasonably necessary for Transferor (as well
as any title attorney or examiner hired by Transferor) to verify the existence
of the alleged Title Defect(s), and (5) the amount by which Transferee
reasonably believes the Transferor Allocated Value of each Title Defect Property
is reduced by the alleged Title Defect(s) and the computations and information
upon which Transferee’s belief is based. To give Transferor an opportunity to
commence reviewing and curing Title Defects, Transferee agrees to give
Transferor written notice of all Title Defects discovered by Transferee at the
end of each calendar week during the Due Diligence Period; provided, however,
any such written notice may be preliminary in nature and supplemented prior to
the Defect Notice Date. Any matters that may otherwise constitute a Title
Defect, but of which Transferor has not been notified by Transferee in
accordance with this Section 4.2(b) prior to the Defect Notice Date, shall be
deemed to have been waived by Transferee.

 

(c)          Remedies for Title Defects. Subject to (x) Transferor’s continuing
right to title Dispute resolution under Section 4.3, (y) the Individual Title
Threshold and (z) the Aggregate Title Deductible, in the event that any Title
Defect timely asserted by Transferee in accordance with Section 4.2(b) actually
exists and is not waived by Transferee or cured on or before Closing, the
Transferor shall, with the prior written consent of Transferee, take one of the
following options with respect to such Title Defect prior to Closing:

 

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(1)         Transferor may convey the Title Defect Property to Transferee at
Closing and reduce the Transferor Purchase Price by the Title Defect Amount and
retain the right to cure the Title Defect after Closing;

 

(2)         Transferor may exclude the Title Defect Property from the
transaction and reduce the Transferor Purchase Price by an amount equal to the
Transferor Allocated Value of the Title Defect Property; or

 

(3)         Transferor may convey the Title Defect Property to Transferee at
Closing, make no adjustment to the Transferor Purchase Price, and indemnify
Transferee against all Losses resulting from such Title Defect, pursuant to the
terms and conditions of an indemnification agreement to be agreed to between the
Parties.

 

In the event that the Transferor elects one of the remedies set forth in this
Section 4.2(c) as of the Closing but the Transferee does not consent on or
before Closing to such election, then the Parties will be deemed to have elected
the remedy in Section 4.2(c)(2).

 

(d)          Title Defect Amount. The “Title Defect Amount” means the amount by
which the Transferor Allocated Value of the Title Defect Property affected by
such Title Defect is reduced as a result of the existence of such Title Defect
and shall be determined in accordance with the following methodology, terms and
conditions:

 

(1)         if Transferee and Transferor agree on the Title Defect Amount, that
amount shall be the Title Defect Amount;

 

(2)         if the Title Defect is a Lien that is undisputed and liquidated in
amount, then the Title Defect Amount shall be the amount of the payment
necessary to remove such Title Defect from the Title Defect Property; and

 

(3)         if the Title Defect represents an obligation, encumbrance, burden or
charge upon or other defect in title to the Title Defect Property of a type not
described in subsections (1) or (2) above, the Title Defect Amount shall be
determined by taking into account the following factors: (i) any discrepancy
between (A) the Net Revenue Interest or Working Interest for any Title Defect
Property and (B) the Net Revenue Interest or Working Interest stated in Exhibit
A-1, Exhibit A-2, Exhibit B-1, or Exhibit B-2, respectively; (ii) the Transferor
Allocated Value of the Title Defect Property; (iii) the portion of the Title
Defect Property affected by the Title Defect; (iv) the legal effect of the Title
Defect; (v) the values placed upon the Title Defect by Transferee and
Transferor; (vi) any discrepancy between (A) the Net Acre interest covered by a
Transferor Lease and (B) the Net Acre interest covered by such Transferor Lease
stated in Exhibit A-1 or Exhibit A-2; and (vii) such other reasonable factors as
are necessary to make a proper evaluation.

 

Notwithstanding anything to the contrary in this Agreement, the aggregate Title
Defect Amounts attributable to the effects of all Title Defects upon any Title
Defect Property shall not exceed the Transferor Allocated Value of the Title
Defect Property.

 

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(e)          Title Threshold and Deductible. Notwithstanding anything to the
contrary, (1) in no event shall there be any adjustments to the Transferor
Purchase Price or other remedies provided by (i) Transferor for any individual
Title Defect, or (ii) Transferee for any individual Title Benefit for which the
Title Defect Amount or Title Benefit Amount, as applicable, does not exceed
$50,000 (“Individual Title Threshold”); and (2) in no event shall there be any
adjustments to the Transferor Purchase Price or other remedies provided by
(i) Transferor for any Title Defect that exceeds the Individual Title Threshold
or (ii) Transferee for any individual Title Benefit unless the Title Defect
Amounts of all such Title Defects or Title Benefit Amounts of all such Title
Benefits, in the aggregate, excluding any Title Defects cured by Transferor
(with respect to Title Defects), exceeds a deductible in an amount equal to 2.5%
of the Transferor Purchase Price (the “Aggregate Title Deductible”), after which
point Transferor or Transferee shall be entitled to adjustments to the
Transferor Purchase Price or other remedies only with respect to such Title
Defects or Title Benefits, as applicable, in excess of such Aggregate Title
Deductible.

 

(f)          Transferor’s Right to Cure.

 

(1)         Transferor shall have the right, but not the obligation, to attempt,
at its sole cost, to cure or remove at any time prior to Closing any Title
Defects of which it has been advised by Transferee.

 

(2)         Subject to the provisions of this Article 4, if there is a reduction
in the Transferor Purchase Price pursuant to Section 4.2(c), then Transferor
shall retain the right but not the obligation for 180 days after the Closing
Date to attempt to cure any such Title Defects at Transferor’s sole cost. If
Transferor cures any such Title Defect to Transferee’s reasonable satisfaction,
then Transferee shall promptly pay Transferor the Title Defect Amount with
respect to the Title Defect that is so cured.

 

(g)          Title Benefits. The term “Title Benefit” means any right,
circumstance, or condition that operates to increase:

 

(1)         the Transferor’s Net Revenue Interest in any Transferor Lease or
Transferor Well throughout the duration of the productive life of such
Transferor Lease or Transferor Well, only insofar as to the specified
formation(s) shown on Exhibit A-1, Exhibit A-2, Exhibit B-1, or Exhibit B-2 for
such Transferor Lease or Transferor Well, as applicable, and if there are no
such specified formation(s), then as to all formations, above the Net Revenue
Interest share shown in Exhibit A-1 or Exhibit A-2, as applicable for such
Transferor, for such Transferor Lease (on an 8/8ths basis), or Exhibit B-1 or
Exhibit B-2, as applicable for such Transferor, for such Transferor Well, to the
extent the same does not cause a greater than proportionate increase in
Transferor’s Working Interest; or

 

(2)         the Transferor’s Net Acres in each such Transferor Lease above the
Net Acres set forth in Exhibit A-1 or Exhibit A-2, as applicable for such
Transferor, only insofar as to the specified formation(s) shown on Exhibit A-1
or Exhibit A-2 for such Transferor Lease, as applicable, and if there are no
such specified formation(s), then as to all formations for such Transferor
Lease.

 

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(h)          Title Benefit Notice. If Transferor or Transferee discovers any
Title Benefit, then such Party may (but shall have no obligation to, other than
with respect to any Title Benefit discovered by Transferee, with respect to
which Transferee shall be obligated to) deliver to the other Party, prior to the
Defect Notice Date, a notice with respect to such Title Benefit. The notice must
be in writing and be asserted in good faith and include (1) a description of the
Title Benefit, (2) the Transferor Leases and/or Transferor Wells affected by the
Title Benefit, (3) the Transferor Allocated Values of the Transferor Leases
and/or Transferor Wells subject to such Title Benefit, and (4) the amount by
which Transferor or Transferee, as applicable, reasonably believes the
Transferor Allocated Value of those Transferor Leases and/or Transferor Wells is
increased by the Title Benefit, and the computations and information upon which
such Party’s belief is based.

 

(i)          Title Benefit Amount. The amount by which the Transferor Allocated
Value of any Transferor Lease or Transferor Well is increased as a result of the
existence of a Title Benefit with respect thereto is the “Title Benefit Amount.”
The Title Benefit Amount shall be determined in accordance with the same
methodology, terms, and conditions for determining the Title Defect Amount.

 

4.3           Title Dispute Resolution. The Parties shall resolve Disputes
concerning the following matters pursuant to this Section 4.3: (a) the existence
and scope of a Title Defect, Title Benefit, Title Defect Amount, or Title
Benefit Amount, (b) the Title Defect Amount or Title Benefit Amount of that
portion of the Transferor Asset affected by a Title Defect or Title Benefit,
respectively, and (c) the adequacy of Transferor’s Title Defect curative
materials and Transferee’s reasonable satisfaction thereof (the “Title Disputed
Matters”). The Parties agree to attempt to initially resolve all Disputes
through good faith negotiations. If the Parties cannot resolve the Title
Disputed Matters on or before Closing, then (y) with respect to all Title
Defects subject to a Title Disputed Matter, the Transferor Purchase Price shall
be reduced by the Allocated Value of the affected Transferor Asset and the Title
Defect Property shall not be conveyed at Closing, and (z) with respect to all
Title Benefits subject to a Title Disputed Matter, the Transferor Purchase Price
shall not be adjusted at Closing but the Title Defect Property shall be conveyed
at Closing, and, at Closing, Transferee shall pay the Title Escrow Amount to the
Escrow Agent to be held as part of the Escrow Amount. The term “Title Escrow
Amount” means (I) with respect to all Title Defects subject to a Title Disputed
Matter, the Allocated Value of the affected Transferor Asset, and (II) with
respect to all Title Benefits subject to a Title Disputed Matter, the Title
Benefit Amount associated with such Title Benefit. Further, the Title Disputed
Matters will be finally determined by binding arbitration before an independent
arbitrator appointed by the Parties, who shall be an oil and gas title attorney
licensed in North Dakota with a minimum of 10 years’ experience with title
issues affecting the types of properties which are the subject of the Title
Disputed Matters. The arbitrator shall employ such independent attorneys,
petroleum engineers and/or other consultants as deemed necessary. On or before
thirty (30) days after Closing, Transferee and Transferor shall present their
respective positions in writing to the arbitrator, together with such evidence
as each Party deems appropriate. The arbitrator shall be instructed to resolve
the Dispute through a final decision within twenty (20) days after submission of
the matters in Dispute and the final decision may be reflected in the Final
Settlement Statement. Upon final resolution of any Title Disputed Matters with
respect to any Title Defects that are subject to such Title Disputed Matters,
the Parties shall make the election of remedies under Section 4.2(c) and take
such further actions as are necessary to carry out such election including
executing the Liberty Assignment or Emerald Assignment, as applicable, and
delivering joint written instructions to the Escrow Agent directing the
distribution of the Title Escrow Amount. Upon final resolution of any Title
Disputed Matters with respect to any Title Benefits that are subject to such
Title Disputed Matters, the Parties shall take such further actions as are
necessary to carry out the arbitrator’s decision including executing the Liberty
Assignment or Emerald Assignment, as applicable, and delivering joint written
instructions to the Escrow Agent directing the distribution of the Title Escrow
Amount. All of Transferor’s covenants under Article 8 will apply to the Title
Defect Property until such time as the Parties have taken such actions as are
required based on the arbitrator’s decision.

 

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4.4           Preferential Rights and Consents Except for Permitted
Encumbrances, all preferential rights to purchase and consents to assign
relating to the Assets are listed on Schedule 4.4. The remedies set forth in
this Section 4.4 are the exclusive remedies under this Agreement for consents to
assign and preferential rights to purchase that are disclosed on Schedule 4.4 or
are discovered prior to Closing. A Transferor Asset affected by a Material
Consent or preferential right to purchase that is outstanding at Closing shall
be referred to as an “Affected Asset”.

 

(a)          Consents. Promptly after the date hereof, Transferor shall use
commercially reasonable efforts to send notices to those Persons necessary to
request all consents to assignment of the Assets. If prior to Closing,
Transferor fails to obtain a consent to assign that would invalidate the
conveyance of the Asset affected by the consent to assign or materially affect
the value or use of the Asset (a “Material Consent”) and the failure to obtain
such Material Consent has not been waived by Transferee, then Transferor shall
retain the Affected Asset and the Transferor Purchase Price shall be reduced by
the Transferor Allocated Value of the Affected Asset. If such Material Consent
has been obtained as of the Final Settlement Date, Transferor shall convey the
Affected Asset to Transferee effective as of the Effective Time and Transferee
shall pay Transferor the Transferor Allocated Value of the Affected Asset in
accordance with the terms and conditions of this Agreement. If such Material
Consent has not been obtained as of the Final Settlement Date, the Affected
Asset shall be permanently excluded from the sale and the Transferor Purchase
Price shall be deemed to be permanently reduced by an amount equal to the
Transferor Allocated Value of the Affected Asset. Transferee shall reasonably
cooperate with Transferor in obtaining any Material Consent, including providing
assurances of reasonable financial conditions, but Transferee shall not be
required to expend funds or make any other type of financial commitments as a
condition of obtaining such Material Consent.

 

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(b)          Preferential Purchase Rights.  Transferor shall use commercially
reasonable efforts to give notices required in connection with preferential
purchase rights prior to Closing.  If any preferential right to purchase any
portion of the Assets is exercised prior to the Closing Date, then the Affected
Assets shall be excluded from the sale and the Transferor Purchase Price shall
be adjusted downward by an amount equal to the Transferor Allocated Value of
such Affected Assets.  If by Closing, either (1) the time frame for the exercise
of a preferential purchase right has not expired and Transferor has not received
notice of an intent not to exercise or a waiver of the preferential purchase
right, or (2) a third Person exercises its preferential right to purchase, but
the time frame for consummation of the preferential purchase right has not
expired prior to the Closing, then Transferor shall retain the Affected Assets
and the Transferor Purchase Price shall be adjusted downward by an amount equal
to the Transferor Allocated Value of such Affected Assets.  As to any Affected
Assets retained by Transferor hereunder, following Closing if a preferential
right to purchase is not consummated by the Final Settlement Date, then the
Affected Asset shall be permanently excluded from the sale, and the Transferor
Purchase Price shall be deemed to be permanently reduced by an amount equal to
the Transferor Allocated Value of the Affected Asset, provided, however, that
with respect to any Affected Assets retained by Transferor hereunder, if a
preferential right to purchase is not consummated within the time frame
specified in the preferential purchase right following Closing and before the
Final Settlement Date, or if the time frame for exercise of the preferential
purchase right expires without exercise after the Closing and before the Final
Settlement Date, then Transferor shall promptly convey the Affected Assets to
Transferee, effective as of the Effective Time, and Transferee shall pay the
Transferor Allocated Value thereof pursuant to the terms of this Agreement.

 

ARTICLE 5

ENVIRONMENtAL MATTERS

 

5.1           Exclusive Remedy. This Article V shall be the exclusive right and
remedy of Transferor with respect to the existence of any Condition or
Transferee’s failure to comply with Environmental Laws with respect to the
Transferor Assets.

 

5.2           Environmental Defect Notice. On or before the Defect Notice Date,
Transferee may formally advise Transferor in writing of any matters that in
Transferee’s reasonable opinion constitute an Environmental Defect
(“Environmental Defect Notice”). The Environmental Defect Notice shall be in
writing and contain the following: (a) a clear, complete and accurate
description of the alleged Environmental Defect(s), (b) the Transferor Assets
affected by the alleged Environmental Defect(s) (each an “Environmental Defect
Property”), (c) the Transferor Allocated Value of each Environmental Defect
Property, (d) supporting documents reasonably necessary for Transferor (as well
as any consultant hired by Transferor) to verify the existence of the alleged
Environmental Defect(s), and (e) an estimate of Remediation Costs and the amount
by which Transferee reasonably believes the Transferor Allocated Value of each
Environmental Defect Property is reduced by the alleged Environmental Defect(s)
and the computations and information upon which Transferee’s belief is based.

 

5.3           Remedies for Environmental Defects. Subject to (x) Transferor’s
continuing right to environmental Dispute resolution under Section 5.5, (y) the
Individual Environmental Threshold as defined in Section 5.4 and (z) the
Aggregate Environmental Deductible as defined in Section 5.4, in the event that
any Environmental Defect timely asserted by Transferee in accordance with
Section 5.2 actually exists and is not waived by Transferee or cured on or
before Closing, the Transferor shall, with the prior written consent of
Transferee, take one of the following options with respect to such Environmental
Defect prior to Closing:

 

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(a)          Transferor may convey the Environmental Defect Property to
Transferee at Closing and reduce the Transferor Purchase Price by the
Remediation Costs of the Environmental Defect Property;

 

(b)          Transferor may exclude the Environmental Defect Property from the
transaction and reduce the Transferor Purchase Price by an amount equal to the
Transferor Allocated Value of the Environmental Defect Property; or

 

(c)          Transferor may convey the Environmental Defect Property to
Transferee at Closing, make no adjustment to the Transferor Purchase Price, and
indemnify Transferee against all Losses resulting from such Environmental
Defect, pursuant to the terms and conditions of an indemnification agreement to
be agreed to between the Parties.

 

In the event that the Transferor elects one of the remedies set forth in this
Section 5.3 as of the Closing but the Transferee does not consent on or before
Closing to such election, then the Parties will be deemed to have elected the
remedy in Section 5.3(b).

 

5.4           Environmental Threshold; Deductible. Notwithstanding anything to
the contrary, (a) in no event shall there be any adjustments to the Transferor
Purchase Price or other remedies provided by Transferor for any individual
Environmental Defect for which the Remediation Costs does not exceed $50,000
(“Individual Environmental Threshold”); and (b) in no event shall there be any
adjustments to the Transferor Purchase Price or other remedies provided by
Transferor for any Environmental Defect that exceeds the Individual
Environmental Threshold unless the Remediation Costs of all Environmental
Defects, in the aggregate, excluding any Environmental Defects cured by
Transferor, exceed a deductible in an amount equal to 2.5% of the Transferor
Purchase Price (the “Aggregate Environmental Deductible”), after which point
Transferee shall be entitled to adjustments to the Transferor Purchase Price or
other remedies only with respect to such Remediation Costs in excess of such
Aggregate Environmental Deductible.

 

5.5           Environmental Dispute Resolution. The Parties shall resolve
Disputes concerning the following matters pursuant to this Section 5.5: (a) the
existence and scope of an Environmental Defect or the Remediation Costs, (b) the
Remediation Costs of that portion of the Transferor Asset affected by an
Environmental Defect and (c) the adequacy of Transferor’s cure of an
Environmental Defect and Transferee’s reasonable satisfaction thereof (the
“Environmental Disputed Matters”). The Parties agree to attempt to initially
resolve all Disputes through good faith negotiations. If the Parties cannot
resolve the Environmental Disputed Matters on or before Closing, then the
Purchase Price shall be reduced by the Allocated Value of such Environmental
Defect Property (such amount, the “Environmental Escrow Amount”), such
Environmental Defect Property shall not be conveyed at Closing, and, at Closing,
Transferee shall pay such Environmental Escrow Amount to the Escrow Agent as
part of the Escrow Amount. The Environmental Disputed Matters will be finally
determined by binding arbitration before an independent arbitrator appointed by
the Parties, provided that the independent arbitrator shall be qualified by
education, knowledge of, and experience with environmental defects affecting the
types of properties which are subject to or relate to the disputed Environmental
Defect or Environmental Disputed Matters. The arbitrator shall employ such
independent attorneys and/or other consultants as the arbitrator deems
necessary, with the costs of such employment to be shared equally by the
Transferor and Transferee. On or before thirty (30) days after Closing,
Transferor and Transferee shall present their respective positions in writing to
the arbitrator, together with such evidence as each Party deems appropriate. The
arbitrator shall be instructed to resolve the Dispute through a final decision
within twenty (20) days after submission of the matters in dispute, and the
final decision may be reflected in the Final Settlement Statement. Upon final
resolution of any Environmental Disputed Matters with respect to any
Environmental Defects that are subject to such Environmental Disputed Matters,
the Parties shall make the election of remedies under Section 5.3 and take such
further actions as are necessary to carry out such election including executing
the Liberty Assignment or Emerald Assignment, as applicable, and delivering
joint written instructions to the Escrow Agent directing the distribution of the
Environmental Escrow Amount. All of Transferor’s covenants under Article 8 will
apply to the Environmental Defect Property until such time as the Parties have
taken such actions as are required based on the arbitrator’s decision.

 

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5.6         Transfer of Burgundy Wellbore Interests.

 

(a)          Notwithstanding any other provision of this Agreement, Emerald
shall retain ownership, and shall not convey the Ron Burgundy 3-23-14H well
identified on Exhibit A-1 together with (1) all associated facilities and
equipment and (2) the applicable Leases in the unit for such well only insofar
as such Leases cover the wellbore of such Well (such assets, properties, and
wellbore interest in the Leases are, collectively, the “Burgundy Wellbore
Interests”) to Liberty, and the Liberty Assumed Obligations shall not include
any Obligations arising from or related to the Burgundy Wellbore Interests (the
“Burgundy Liabilities”), unless and until the conditions set forth in this
Section 5.6 are satisfied.

 

(b)          On or prior to the Final Settlement Date, Emerald shall take all
action necessary and appropriate to Remediate the Burgundy Wellbore Interests to
the extent required to comply with Environmental Laws and industry standards
generally followed in the upstream oil extraction business in the Bakken
formation. Emerald shall manage, supervise and administer the Remediation in
accordance with industry standards generally followed in the upstream oil
extraction business in the Bakken formation, and applicable Environmental Laws,
including applicable regulations of the North Dakota Industrial Commission
(“NDIC”), and Emerald shall provide Liberty prompt advance notice of the status,
and intended plan, of the Remediation, and shall provide Liberty prompt notice
of any notice from or discussions with the NDIC or any other Governmental Entity
concerning the Remediation.

 

(c)          On or prior to the Final Settlement Date, Emerald shall obtain, at
its sole cost and expense, a comprehensive waiver, release and settlement of
claims in a form satisfactory to Liberty in its reasonable discretion, from each
Person that owns surface rights on or adjacent to the Burgundy Wellbore
Interests (each, a “Landowner Release”).

 

(d)          All expenses related to, arising from or incurred in connection
with the Remediation or the Landowner Releases (collectively, the “Burgundy
Remediation Costs”) shall be borne Emerald. Liberty shall not be required to pay
or incur any cost or make any other type of financial or operational commitment
in connection with the obligations of Emerald under this Section 5.6.

 

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(e)          If the Remediation is completed and the Landowner Releases are
delivered on or prior to the Final Settlement Date, in each case, to the
satisfaction of Liberty in its reasonable discretion (provided that Liberty
shall not be permitted to assert it is dissatisfied with the completion of the
Remediation if Liberty has received verbal or written notice from the NDIC and
the North Dakota Department of Health, to the extent each such agency asserts
jurisdiction over the Remediation, that the Burgundy Well is in compliance with
applicable Environmental Laws and that no further action is required), then (1)
Emerald shall convey to Liberty the Burgundy Wellbore Interests in exchange for
the payment by Liberty of the Burgundy Property Expenses, and (2) Liberty shall
assume the Burgundy Liabilities, including Environmental Liabilities associated
with the Burgundy Wellbore Interests (but not including the payment of any
Burgundy Remediation Costs).

 

(f)          If the Remediation is not completed or the Landowner Releases are
not delivered on or prior to the Final Settlement Date, then unless Liberty
delivers written notice electing to acquire the Burgundy Wellbore Interests
within ten (10) days following the Final Settlement Date, the Burgundy Wellbore
Interests shall be permanently excluded from the Emerald Assets acquired
pursuant to this Agreement.

 

(g)          In no event shall any expenses incurred by Emerald be counted
toward the Aggregate Environmental Deductible for purposes of Section 5.4.

 

ARTICLE 6

LIBERTY’S REPRESENTATIONS AND WARRANTIES

 

Except as set forth in the schedule delivered to Emerald prior to the execution
of this Agreement setting forth specific exceptions to Liberty’s representations
and warranties set forth in this Agreement (each section of which qualifies the
correspondingly numbered representation and warranty by Liberty) (the “Liberty
Disclosed Materials”), Liberty represents and warrants to Emerald as of the date
hereof and as of the Closing Date as follows:

 

6.1           Organization and Standing. Each of Liberty Resources, Liberty
Management and Liberty Bakken is a limited liability company duly formed,
validly existing and in good standing under the Laws of the State of Delaware
and is duly qualified to carry on its business in such other jurisdictions as
may be necessary, except where the failure to be so qualified would not have a
Material Adverse Effect.

 

6.2           Power. Liberty has all requisite limited liability company power
and authority to carry on its business as presently conducted, to enter into
this Agreement, and to perform its obligations hereunder. The execution and
delivery of this Agreement does not, and the fulfillment of and compliance with
the terms and conditions hereof will not, violate, or be in conflict with, any
material provision of Liberty’s governing documents, or any judgment, decree,
order, statute, rule or regulation applicable to Liberty.

 

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6.3           Authorization and Enforceability. Assuming the due authorization,
execution and delivery by Emerald, this Agreement constitutes Liberty’s legal,
valid and binding obligation, enforceable in accordance with its terms, subject,
however, to the effects of bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other Laws for the protection of creditors, as well as
to general principles of equity, regardless whether such enforceability is
considered in a proceeding in equity or at law.

 

6.4           Liability for Brokers’ Fees. Liberty has not incurred any
liability, contingent or otherwise, for investment bankers’, brokers’ or
finders’ fees relating to the transactions contemplated by this Agreement for
which Emerald shall have any responsibility whatsoever.

 

6.5           Litigation. Except as provided on Schedule 6.5, there are no
actions, suits or proceedings pending or, to the Knowledge of Liberty,
threatened, against Liberty (with respect to the Liberty Assets) or any of the
Liberty Assets, in any court or by or before any Governmental Entity that would
have a Material Adverse Effect on Liberty (with respect to the Liberty Assets)
or the Liberty Assets or impair Liberty’s ability to consummate the transactions
contemplated by this Agreement and to assume the liabilities to be assumed by
Liberty under this Agreement.

 

6.6           Material Agreements. Except for the Leases, Exhibit D-1 includes
the following types of contracts (the “Liberty Material Agreements”) by which
any of the Liberty Assets are bound as of the date hereof: (a) any agreement
with any Affiliate of Liberty; (b) any agreement or contract for the sale,
exchange, or other disposition of Hydrocarbons produced from or attributable to
Liberty’s interest in the Liberty Assets or for the purchase, processing or
transportation of any Hydrocarbons, in each case that is not cancelable without
penalty or other payment on not more than ninety (90) days prior written notice;
(c) any agreement of or binding upon Liberty to sell, lease, farmout, or
otherwise dispose of any interest in any of the Liberty Assets after the date
hereof, other than nonconsent penalties for nonparticipation in operations under
operating agreements, conventional rights of reassignment arising in connection
with Liberty’s surrender or release of any of the Liberty Assets; (d) any Tax
partnership agreement of or binding upon Liberty affecting any of the Liberty
Assets; and (e) any agreement that creates any area of mutual interest or
similar provision with respect to the Liberty Assets. To Liberty’s Knowledge,
Liberty is not (and to Liberty’s Knowledge, no other Person is) in material
default (or with the giving of notice or the lapse of time or both, would not be
in default) under any Liberty Material Agreement except as disclosed on
Exhibit D-1. Prior to execution of this Agreement, Liberty has provided Emerald
or made available to Emerald, true, correct and complete copies of the Liberty
Material Agreements. To Liberty’s Knowledge, the Liberty Material Agreements are
in full force and effect in accordance with their terms, are valid and binding
obligations of Liberty, and to Liberty’s Knowledge, are enforceable in
accordance with their terms, except as may be limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and similar Laws affecting
creditor’s rights generally and by equitable principles.

 

6.7           Capital Projects. Except as described on Schedule 6.7 (“Liberty
Capital Expenditures”), (i) Liberty has incurred no expenses, and has made no
commitments to make expenditures in connection with the ownership or operation
of the Liberty Assets after the Effective Time (other than with respect to
routine operations performed in the ordinary course of operating the existing
Wells), which expenditures are, individually or in the aggregate, estimated to
exceed five hundred thousand dollars ($500,000), net to Liberty’s interest, and
(ii) no contractual obligations, proposals or authorities for expenditures are
currently outstanding (whether made by Liberty or by any other party) to drill
additional wells, or to deepen, plug back, rework any Well, to abandon any Well,
or to conduct any other operation on the Liberty Assets for which the estimated
cost exceeds five hundred thousand dollars ($500,000), net to Liberty’s
interest.

 

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6.8           Taxes. All material Taxes pertaining to the Liberty Assets based
on or measured by Liberty’s ownership of the Liberty Assets for all taxable
periods prior to the taxable period in which this Agreement is executed that
were required to be paid prior to the Effective Time have been paid. All income
Taxes pertaining to Liberty’s ownership of the Liberty Assets that, if unpaid,
could give rise to a Lien or other claim against any of the Liberty Assets have
been properly paid. Liberty has not received written notice of any pending claim
against or audit of Liberty from any taxing authority for the assessment of any
material Tax pertaining to the Liberty Assets that, if unpaid, could give rise
to a Lien or other claim against any of the Liberty Assets.

 

6.9           Audits. Except as provided on Schedule 6.9, there are no audits
currently being conducted by Liberty of the joint account under any operating
agreements related to the Liberty Assets nor are there any such audits of
Liberty currently underway.

 

6.10         Judgments. There are no unsatisfied judgments or injunctions issued
by a court of competent jurisdiction or other Governmental Entity outstanding
against Liberty related to the Liberty Assets.

 

6.11         Compliance with Law And Government Authorizations. To Liberty’s
Knowledge, the Liberty Assets are being operated in compliance with all
applicable Laws except for such noncompliance that would not have, individually
or in the aggregate, a Material Adverse Effect. Notwithstanding the foregoing,
this Section 6.11 does not relate to Taxes or Environmental Laws, which are
addressed in Section 6.8 and Article V, respectively.

 

6.12         Lease Status/Rentals/Royalties. To Liberty’s Knowledge, all
rentals, royalties and operating expenses payable with respect to the Liberty
Assets prior to the Effective Time, have been duly and properly paid in all
material respects, except as would not, individually or in the aggregate, have a
Material Adverse Effect. To Liberty’s Knowledge, there are no currently pending
requests or demands for payments, adjustments of payments or performance
pursuant to obligations under the Leases, to the extent that non-compliance with
the forgoing would have a Material Adverse Effect on any of the Assets.

 

6.13         Well Status. Except as set forth in Schedule 6.13, to the Knowledge
of Liberty, there are no wells located on the Liberty Assets that: (a) Liberty
is obligated by Law or contract to currently plug and abandon; or (b) to the
extent plugged and abandoned, have not been plugged in accordance with
applicable material requirements of each Governmental Entity having jurisdiction
over the Liberty Assets.

 

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6.14         Calls on Production. Except as set forth on Schedule 6.14, Liberty
has not (i)  received any material advance, “take-or-pay” or other similar
payments under production sales contracts that entitle the purchasers to “make
up” or otherwise receive deliveries of Hydrocarbons without paying at such time
the contract price therefore or (ii)  taken or received any amount of
Hydrocarbons under any gas balancing agreements or any similar arrangements not
accounted for in a purchase price adjustment that permit any Person thereafter
to receive any portion of the interest of Liberty to “balance” any
disproportionate allocation of Hydrocarbons. Except as set forth on Schedule
6.14, no Hydrocarbons attributable to the Liberty Assets are subject to a sales
contract (other than contracts terminable on no more than thirty (30) days’
notice or in accordance with rights of termination by non-operators under the
applicable joint operating agreement) and no Person has any call upon, option to
purchase or similar rights with respect to the production from the Liberty
Assets; production from the Liberty Assets is not bound by any gas dedications
or subject to any monetary or in kind through-put fees or charges in connection
with gathering or transportation; and the Liberty Assets are not bound by
futures, hedge, swap, collar, put, call, floor, cap, option or other contracts
that are intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons, securities,
foreign exchange rates or interest rates that will continue after Closing. To
Liberty’s Knowledge, proceeds from the sale of oil, condensate, and gas from the
Liberty Assets are being received by Liberty, as applicable, in a timely manner
and are not being held in suspense for any reason.

 

6.15         Imbalances. There are no well or pipeline imbalances affecting the
Liberty Assets.

 

6.16         No Other Representations or Warranties; Disclosed Materials. Except
for the representations and warranties contained in this Article 6 (as qualified
by the Liberty Disclosed Materials), neither Liberty nor any other Person makes
(and Emerald is not relying upon) any other express or implied representation or
warranty with respect to Liberty (including the value, condition or use of any
Liberty Asset) or the transactions contemplated by this Agreement, and Liberty
disclaims any other representations or warranties not contained in this Article
6, whether made by Liberty, any Affiliate of Liberty or any of their respective
officers, directors, managers, employees or agents. The disclosure of any matter
or item in the Liberty Disclosed Materials shall not be deemed to constitute an
acknowledgment that any such matter is required to be disclosed or is material
or that such matter would or would reasonably be expected to result in a
Material Adverse Effect

 

6.17         Disclaimer. EXCEPT AS EXPRESSLY WARRANTED, REPRESENTED OR
COVENANTED OTHERWISE IN THIS AGREEMENT OR IN THE SPECIAL WARRANTY OF TITLE
CONTAINED IN THE ASSIGNMENT, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING
AND WITHOUT LIMITING IN ANY RESPECT EMERALD INDEMNIFIED PARTIES’ RIGHTS TO
DEFENSE AND INDEMNIFICATION UNDER ARTICLE 14, LIBERTY EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO (I) LIBERTY’S TITLE TO ANY
OF THE LIBERTY ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE
MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY
GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE LIBERTY ASSETS,
(III) THE QUANTITY, QUALITY OR RECOVERABILITY OF PETROLEUM SUBSTANCES IN OR FROM
THE LIBERTY ASSETS, (IV) ANY ESTIMATES OF THE VALUE OF THE LIBERTY ASSETS OR
FUTURE REVENUES GENERATED BY THE LIBERTY ASSETS, (V) THE PRODUCTION OF PETROLEUM
SUBSTANCES FROM THE LIBERTY ASSETS, OR WHETHER PRODUCTION HAS BEEN CONTINUOUS OR
IN PAYING QUANTITIES, (VI) THE MAINTENANCE, REPAIR, CONDITION, QUALITY,
SUITABILITY, DESIGN OR MARKETABILITY OF THE LIBERTY ASSETS, OR (VII) ANY OTHER
MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
EMERALD OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS,
REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO, AND EXCEPT AS
STATED IN THIS AGREEMENT, FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY OF THE LIBERTY ASSETS, IT
BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT EMERALD SHALL BE
DEEMED TO BE OBTAINING THE LIBERTY ASSETS IN THEIR PRESENT STATUS, CONDITION AND
STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS AND THAT EMERALD HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS EMERALD DEEMS APPROPRIATE.

 

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6.18       Liberty’s Evaluation.

 

(a)          Review. Liberty is an experienced and knowledgeable investor in the
oil and gas industry or is an owner of oil, gas and mineral properties and is
aware of its risks. Liberty has been afforded the opportunity to examine the
Records and materials made available to it by Emerald in Emerald’s offices with
respect to the Emerald Assets. Liberty acknowledges that Emerald has not made
any representations or warranties as to the Records or otherwise except as
expressly and specifically provided herein and that Liberty may not rely on any
of Emerald’s estimates with respect to reserves, the value of the Emerald
Assets, projections as to future events or other internal analyses or forward
looking statements.

 

(b)          Independent Evaluation. In entering into this Agreement, Liberty
acknowledges and affirms that it has relied and will rely solely on the terms of
this Agreement and upon its independent analysis, evaluation and investigation
of, and judgment with respect to, the business, economic, legal, tax or other
consequences of this transaction including without limitation its own estimate
and appraisal of the extent and value of the Hydrocarbon reserves of the Emerald
Assets.

 

ARTICLE 7

EMERALD’S REPRESENTATIONS AND WARRANTIES

 

Except as set forth in the schedule delivered to Liberty prior to the execution
of this Agreement setting forth specific exceptions to Emerald’s representations
and warranties set forth in this Agreement (each section of which qualifies the
correspondingly numbered representation and warranty by Emerald)(the “Emerald
Disclosed Materials”), Emerald represents and warrants to Liberty as of the date
hereof and as of the Closing Date as follows:

 

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7.1           Organization and Standing. Emerald Oil is a corporation duly
organized, validly existing and in good standing under the Laws of Delaware,
(ii) Emerald WB is a limited liability company duly organized, validly existing
and in good standing under the Laws of Colorado, and (iii) each of Emerald Oil
and Emerald WB is duly qualified to carry on its business in such other
jurisdictions as may be necessary, except where the failure to be so qualified
would not have a Material Adverse Effect.

 

7.2           Power. Emerald has all requisite power and authority to carry on
its business as presently conducted, to enter into this Agreement, and to
perform its obligations hereunder. The execution and delivery of this Agreement
does not, and the fulfillment of and compliance with the terms and conditions
hereof will not, as of Closing, violate, or be in conflict with, any material
provision of Emerald’s governing documents, or, to Emerald’s Knowledge, any
judgment, decree, order, statute, rule or regulation applicable to Emerald.

 

7.3           Authorization and Enforceability. Assuming the due authorization,
execution and delivery by Liberty, this Agreement constitutes Emerald’s legal,
valid and binding obligation, enforceable in accordance with its terms, subject,
however, to the effects of bankruptcy, insolvency, reorganization, moratorium
and other Laws for the protection of creditors, as well as to general principles
of equity, regardless whether such enforceability is considered in a proceeding
in equity or at law.

 

7.4           Liability for Brokers’ Fees. Emerald has not incurred any
liability, contingent or otherwise, for investment bankers’, brokers’ or
finders’ fees relating to the transactions contemplated by this Agreement for
which Liberty shall have any responsibility whatsoever.

 

7.5           Litigation. Except as provided on Schedule 7.5, there are no
actions, suits, or proceedings pending or, to Emerald’s Knowledge, threatened
against Emerald (with respect to the Emerald Assets) or any of the Emerald
Assets, in any court or by or before any Governmental Entity that would have a
Material Adverse Effect on Emerald (with respect to the Emerald Assets) or the
Emerald Assets or impair Emerald’s ability to consummate the transactions
contemplated by this Agreement and to assume the liabilities to be assumed by
Emerald under this Agreement.

 

7.6           Financial Resources. Emerald has the financial resources available
to consummate the transactions contemplated by this Agreement and to pay the
Closing Amount and any and all fees and expenses incurred by Emerald in
connection with the transactions contemplated by this Agreement.

 

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7.7           Material Agreements. Except for the Leases, Exhibit D-2 includes
the following types of contracts (the “Emerald Material Agreements”) by which
any of the Emerald Assets are bound as of the date hereof: (a) any agreement
with any Affiliate of Emerald; (b) any agreement or contract for the sale,
exchange, or other disposition of Hydrocarbons produced from or attributable to
Emerald’s interest in the Emerald Assets or for the purchase, processing or
transportation of any Hydrocarbons, in each case that is not cancelable without
penalty or other payment on not more than ninety (90) days prior written notice,
(c) any agreement of or binding upon Emerald to sell, lease, farmout, or
otherwise dispose of any interest in any of the Emerald Assets after the date
hereof, other than nonconsent penalties for nonparticipation in operations under
operating agreements, conventional rights of reassignment arising in connection
with Emerald’s surrender or release of any of the Emerald Assets; (d) any Tax
partnership agreement of or binding upon Emerald affecting any of the Emerald
Assets; and (e) any agreement that creates any area of mutual interest or
similar provision with respect to the Emerald Assets. To Emerald’s Knowledge,
Emerald is not (and to Emerald’s Knowledge, no other Person is) in material
default (or with the giving of notice or the lapse of time or both, would not be
in default) under any Emerald Material Agreement except as disclosed on
Exhibit D-2. Prior to execution of this Agreement, Emerald has provided Liberty
or made available to Liberty, true, correct and complete copies of the Emerald
Material Agreements. To Emerald’s Knowledge, the Emerald Material Agreements are
in full force and effect in accordance with their terms, are valid and binding
obligations of Emerald, and to Emerald’s Knowledge, are enforceable in
accordance with their terms, except as may be limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and similar Laws affecting
creditor’s rights generally and by equitable principles.

 

7.8           Capital Projects. Except as described on Schedule 7.8 (“Emerald
Capital Expenditures”), (i) Emerald has incurred no expenses, and has made no
commitments to make expenditures in connection with the ownership or operation
of the Emerald Assets after the Effective Time (other than with respect to
routine operations performed in the ordinary course of operating the existing
Wells), which expenditures are, individually, or in the aggregate, estimated to
cost exceeds five hundred thousand dollars ($500,000), net to Emerald’s
interest, and (ii) no contractual obligations, proposals or authorities for
expenditures are currently outstanding (whether made by Emerald or by any other
party) to drill additional wells, or to deepen, plug back, rework any Well, to
abandon any Well, or to conduct any other operation on the Emerald Assets for
which the estimated cost exceeds five hundred thousand dollars ($500,000), net
to Emerald’s interest.

 

7.9           Taxes. All material Taxes pertaining to the Emerald Assets based
on or measured by Emerald’s ownership of the Emerald Assets for all taxable
periods prior to the taxable period in which this Agreement is executed that
were required to be paid prior to the Effective Time have been paid. All income
Taxes pertaining to Emerald’s ownership of the Emerald Assets that, if unpaid,
could give rise to a Lien or other claim against any of the Emerald Assets have
been properly paid. Emerald has not received written notice of any pending claim
against or audit of Emerald from any taxing authority for the assessment of any
material Tax pertaining to the Emerald Assets that, if unpaid, could give rise
to a Lien or other claim against any of the Emerald Assets.

 

7.10         Audits. Except as provided on Schedule 7.10, there are no audits
currently being conducted by Emerald of the joint account under any operating
agreements related to the Emerald Assets nor are there any such audits of
Emerald currently underway.

 

7.11         Judgments. There are no unsatisfied judgments or injunctions issued
by a court of competent jurisdiction or other Governmental Entity outstanding
against Emerald related to the Emerald Assets.

 

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7.12         Compliance with Law And Government Authorizations. To Emerald’s
Knowledge, the Emerald Assets are being operated in compliance with all
applicable Laws except for such noncompliance that would not have, individually
or in the aggregate, a Material Adverse Effect. Notwithstanding the foregoing,
this Section 7.12 does not relate to Taxes or Environmental Laws, which are
addressed in Section 7.9 and Article V, respectively.

 

7.13         Lease Status/Rentals/Royalties. To Emerald’s Knowledge, all
rentals, royalties and operating expenses payable with respect to the Emerald
Assets prior to the Effective Time, have been duly and properly paid in all
material respects, except as would not, individually or in the aggregate, have a
Material Adverse Effect. To Emerald’s Knowledge, there are no currently pending
requests or demands for payments, adjustments of payments or performance
pursuant to obligations under the Leases, to the extent that non-compliance with
the forgoing would have a Material Adverse Effect on any of the Emerald Assets.

 

7.14         Well Status. Except as set forth in Schedule 7.14, to the Knowledge
of Emerald, there are no wells located on the Emerald Assets that: (a) Emerald
is obligated by Law or contract to currently plug and abandon; or (b) to the
extent plugged and abandoned, have not been plugged in accordance with
applicable material requirements of each Governmental Entity having jurisdiction
over the Emerald Assets.

 

7.15         Calls on Production. Except as set forth on Schedule 7.15, Emerald
has not (i)  received any material advance, “take-or-pay” or other similar
payments under production sales contracts that entitle the purchasers to “make
up” or otherwise receive deliveries of Hydrocarbons without paying at such time
the contract price therefore or (ii)  taken or received any amount of
Hydrocarbons under any gas balancing agreements or any similar arrangements not
accounted for in a purchase price adjustment that permit any Person thereafter
to receive any portion of the interest of Emerald to “balance” any
disproportionate allocation of Hydrocarbons. Except as set forth on Schedule
7.15, no Hydrocarbons attributable to the Emerald Assets are subject to a sales
contract (other than contracts terminable on no more than thirty (30) days’
notice or in accordance with rights of termination by non-operators under the
applicable joint operating agreement) and no Person has any call upon, option to
purchase or similar rights with respect to the production from the Emerald
Assets; production from the Emerald Assets is not bound by any gas dedications
or subject to any monetary or in kind through-put fees or charges in connection
with gathering or transportation; and the Emerald Assets are not bound by
futures, hedge, swap, collar, put, call, floor, cap, option or other contracts
that are intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons, securities,
foreign exchange rates or interest rates that will continue after Closing. To
Emerald’s Knowledge, proceeds from the sale of oil, condensate, and gas from the
Emerald Assets are being received by Emerald, as applicable, in a timely manner
and are not being held in suspense for any reason.

 

7.16         Imbalances. There are no well or pipeline imbalances affecting the
Emerald Assets.

 

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7.17         No Other Representations or Warranties; Disclosed Materials. Except
for the representations and warranties contained in this Article 7 (as qualified
by the Emerald Disclosed Materials), neither Emerald nor any other Person makes
(and Liberty is not relying upon) any other express or implied representation or
warranty with respect to Emerald (including the value, condition or use of any
Emerald Asset) or the transactions contemplated by this Agreement, and Emerald
disclaims any other representations or warranties not contained in this Article
7, whether made by Emerald, any Affiliate of Emerald or any of their respective
officers, directors, managers, employees or agents. Except for the
representations and warranties contained in this Article 7 (as qualified by the
Emerald Disclosed Materials), Emerald disclaims all liability and responsibility
for any representation, warranty, projection, forecast, statement or information
made, communicated or furnished (orally or in writing) to Liberty or any of its
Affiliates or any of its officers, directors, managers, employees or agents
(including any opinion, information, projection or advice that may have been or
may be provided to Liberty by any director, officer, employee, agent, consultant
or representative of Emerald or any of its Affiliates). The disclosure of any
matter or item in the Emerald Disclosed Materials shall not be deemed to
constitute an acknowledgment that any such matter is required to be disclosed or
is material or that such matter would or would reasonably be expected to result
in a Material Adverse Effect.

 

7.18         Disclaimer. EXCEPT AS EXPRESSLY WARRANTED, REPRESENTED OR
COVENANTED OTHERWISE IN THIS AGREEMENT OR IN THE SPECIAL WARRANTY OF TITLE
CONTAINED IN THE ASSIGNMENT, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING
AND WITHOUT LIMITING IN ANY RESPECT LIBERTY INDEMNIFIED PARTIES’ RIGHTS TO
DEFENSE AND INDEMNIFICATION UNDER ARTICLE 14, EMERALD EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO (I) EMERALD’S TITLE TO ANY
OF THE ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE
MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY
GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE EMERALD ASSETS,
(III) THE QUANTITY, QUALITY OR RECOVERABILITY OF PETROLEUM SUBSTANCES IN OR FROM
THE EMERALD ASSETS, (IV) ANY ESTIMATES OF THE VALUE OF THE EMERALD ASSETS OR
FUTURE REVENUES GENERATED BY THE EMERALD ASSETS, (V) THE PRODUCTION OF PETROLEUM
SUBSTANCES FROM THE EMERALD ASSETS, OR WHETHER PRODUCTION HAS BEEN CONTINUOUS OR
IN PAYING QUANTITIES, (VI) THE MAINTENANCE, REPAIR, CONDITION, QUALITY,
SUITABILITY, DESIGN OR MARKETABILITY OF THE EMERALD ASSETS, OR (VII) ANY OTHER
MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
LIBERTY OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS,
REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO, AND EXCEPT AS
STATED IN THIS AGREEMENT, FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY OF THE EMERALD ASSETS, IT
BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT LIBERTY SHALL BE
DEEMED TO BE OBTAINING THE EMERALD ASSETS IN THEIR PRESENT STATUS, CONDITION AND
STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS AND THAT LIBERTY HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS LIBERTY DEEMS APPROPRIATE.

 

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7.19       Emerald’s Evaluation.

 

(a)          Review. Emerald is an experienced and knowledgeable investor in the
oil and gas industry or is an owner of oil, gas and mineral properties and is
aware of its risks. Emerald has been afforded the opportunity to examine the
Records and materials made available to it by Liberty in Liberty’s offices with
respect to the Liberty Assets. Emerald acknowledges that Liberty has not made
any representations or warranties as to the Records or otherwise except as
expressly and specifically provided herein and that Emerald may not rely on any
of Liberty’s estimates with respect to reserves, the value of the Liberty
Assets, projections as to future events or other internal analyses or forward
looking statements.

 

(b)          Independent Evaluation. In entering into this Agreement, Emerald
acknowledges and affirms that it has relied and will rely solely on the terms of
this Agreement and upon its independent analysis, evaluation and investigation
of, and judgment with respect to, the business, economic, legal, tax or other
consequences of this transaction including without limitation its own estimate
and appraisal of the extent and value of the Hydrocarbon reserves of the Liberty
Assets.

 

ARTICLE 8
COVENANTS AND AGREEMENTS

 

8.1         Covenants and Agreements of Transferor. Transferor covenants and
agrees with Transferee as follows:

 

(a)          Operations Prior to Closing. Except as otherwise consented to in
writing by Transferee or provided in this Agreement, from the date of execution
of this Agreement to the Closing Date, where Transferor is the operator,
Transferor will operate the Assets or cause the Assets to be operated in a
manner consistent in all material respects with past practice. From the date of
execution of this Agreement to the Closing Date, Transferor shall pay or cause
to be paid its proportionate share of all costs and expenses incurred in
connection with such operations. Transferor will notify Transferee of capital
expenditures anticipated to cost in excess of two hundred fifty thousand dollars
($250,000) per operation, net to Transferor’s interest, conducted on the Assets,
exclusive of the Capital Projects listed on Schedule 6.7. All costs and expenses
incurred by the Parties with respect to the Capital Projects will be apportioned
between the Parties as of the Effective Time, with Transferee assuming all
post-Effective Time costs and expenses and Transferor retaining all
pre-Effective Time costs and expenses.

 

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(b)          Restriction on Operations. Subject to Section 8.1(a) and except as
otherwise provided in this Section 8.1(b), unless Transferor obtains the prior
written consent of Transferee to act otherwise, which consent shall not be
unreasonably withheld, conditioned or delayed, Transferor will use commercially
reasonable efforts within the constraints of the applicable operating agreements
and other applicable agreements not to: (i) abandon any part of the Assets
(except in the ordinary course of business, Leases that have terminated in the
ordinary course of business based upon the expiration of their primary terms, or
Leases that are no longer capable of production in paying quantities);
(ii) except for the Capital Projects listed on Schedule 6.7 and operations
consistent with the existing drilling plan attached hereto as Schedule 8.1(b),
approve any operations on the Assets anticipated in any instance to cost more
than two hundred fifty thousand dollars ($250,000) per activity, net to
Transferor’s interest (excepting emergency operations required under presently
existing contractual obligations, ongoing commitments under existing AFEs and
operations undertaken to avoid a monetary penalty or forfeiture provision of any
applicable agreement or order all of which shall be deemed to be approved,
provided Transferor immediately notifies Transferee of any emergency operation
or operation to avoid monetary penalty or forfeiture excepted herein); or
(iii) convey or dispose of any part of the Assets (other than replacement of
equipment or sale of Hydrocarbons produced from the Assets in the ordinary
course of business).

 

(c)          Consents. For the purposes of obtaining the written consents for
AFEs required in this Section 8.1, Liberty designates the following contact
person: Paul Vitek, and Emerald designates the following contact person Ryan
Smith, in each case, at the address and telephone number for Transferee set
forth in Section 15.3. Such consents may be obtained in writing by overnight
courier or given by .pdf or facsimile transmission.

 

(d)          Notices of Claims. Transferor shall promptly notify Transferee, if,
between the date of execution of this Agreement and the Closing Date, Transferor
receives verbal or written notice of any claim, suit, action or other proceeding
or verbal or written notice of any material default under any Material Agreement
affecting the Assets.

 

(e)          Notices of Changes in Unit Sizes. Transferor shall promptly notify
Transferee, if, between the date of execution of this Agreement and the Closing
Date, Transferor receives verbal or written notice of any purported change in
drilling and spacing units, tract allocation, or other changes in pool or unit
participation occurring by a Person other than the Transferor;

 

(f)          Suspense Accounts. Prior to Closing, Transferor will provide to
Transferee (a) information regarding all of Transferor’s accounts holding moneys
in suspense together with a written explanation (as contained in Transferor’s
files) of why such moneys are held in suspense or other information identifying
the proper disposition of such moneys and (b) Transferor’s division of interest
and all supporting documentation regarding those royalty owners and working
interest owners in the Leases for whom Transferor disburses proceeds of
production. After Closing, Transferee shall be solely responsible for the proper
distribution of such moneys held in suspense to the party or parties which or
who are entitled to receive payment of the same, and hereby agrees to indemnify,
defend and hold Transferor harmless from any Claims therefor.

 

8.2          Covenants and Agreements of Transferee. Transferee covenants and
agrees with Transferor that Transferee shall use all reasonable efforts to
assure that as of the Closing Date it will not be under any material legal or
contractual restriction that would prohibit or delay the timely consummation of
the transactions contemplated hereby.

 

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8.3          Covenants and Agreements of the Parties.

 

(a)          Communication Between the Parties Regarding Breach. If Transferee
or Transferor acquires Knowledge during its due diligence that leads either
Party to believe that the other Party has materially breached a representation
or warranty under this Agreement, the non-breaching Party shall inform the
alleged breaching Party in writing of such potential breach as soon as possible,
but in any event, at or prior to Closing.

 

(b)          Casualty Loss. Prior to Closing, if a portion of the Assets is
destroyed by fire or other casualty or if a portion of the Assets is taken or
threatened to be taken in condemnation or under the right of eminent domain
(“Casualty Loss”), Transferee shall not be obligated to purchase such Asset. If
Transferee declines to purchase such Asset, the Purchase Price shall be reduced
by the Allocated Value of such Asset. If Transferee elects to purchase such
Asset, the Purchase Price shall be reduced by the estimated cost to repair such
Asset (with equipment of similar utility), less all insurance proceeds which
shall be payable to Transferee, up to the Allocated Value thereof (the reduction
being the “Net Casualty Loss”). Transferor, at its sole option, may elect to
cure such Casualty Loss and, in such event, Transferor shall be entitled to all
insurance proceeds. If Transferor elects to cure such Casualty Loss, Transferor
may replace any personal property that is the subject of a Casualty Loss with
equipment of similar grade and utility, or replace any real property with real
property of similar nature and kind if such property is acceptable to Transferee
in its sole discretion. If Transferor elects to cure the Casualty Loss,
Transferee shall purchase the affected Asset at Closing for the Allocated Value
thereof.

 

(c)          Cooperation and Good Faith. Upon the terms and subject to the
conditions set forth in this Agreement, Transferee and Transferor will use their
respective reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other Party or
Parties hereto in doing, all things reasonably necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
transactions, including using reasonable efforts to: (i) cause the conditions
set forth in Article 10 to be satisfied and (ii) execute or deliver any
additional instruments reasonably necessary to consummate the transactions
contemplated by this Agreement and to fully carry out the purposes of this
Agreement; provided, however, that the foregoing provisions of this
Section 8.3(d) will not require (y) any Party to perform, satisfy or discharge
any obligations of any other Party under this Agreement or otherwise or (z)
Transferor or Transferee to pay any money or other consideration or grant
forbearances to any third party in order to perform, satisfy or discharge any of
its obligations under this Agreement.

 

(d)          Successor Operator. Promptly after Closing, Transferor shall send
notices (in form mutually agreed to by Transferee) to co-owners, if any, of
those Assets that Transferor currently operates stating that Liberty Management
(in the case of Liberty) and Emerald WB (in the case of Emerald), is resigning
as operator, effective upon the Closing Date, and providing notice that
Transferee or one of its Affiliates shall become (or to the extent governed by
an operating agreement or similar agreement, recommending that Transferee be
elected) successor operator for the Assets operated by Transferor. Transferor
makes no representations or warranties to Transferee as to the transferability
of operatorship of any Assets which Transferor currently operates. Rights and
obligations associated with operatorship of the Assets may be governed by
operating agreements or similar agreements and will be decided in accordance
with the terms of such agreements.

 

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ARTICLE 9

TAX MATTERS

 

9.1           Production Tax Liability. Subject to the treatment of ad valorem
Taxes provided below, all Production Taxes shall be allocated between Transferor
and Transferee as of the Effective Time for all taxable periods that include the
Effective Time. All Production Taxes that are not ad valorem taxes shall be
allocated to Transferor to the extent they relate to production prior to the
Effective Time and to Transferee to the extent they relate to production on or
after the Effective Time. No liability for Production Taxes shall duplicate an
adjustment to the Liberty Assets Preliminary Adjusted Purchase Price or the
Emerald Assets Preliminary Adjusted Purchase Price, as applicable, made pursuant
to Section 2.4. Ad valorem Taxes for each assessment period shall be allocated
to Transferor based on the percentage of the assessment period occurring before
the Effective Time and to Transferee based on the percentage of the assessment
period occurring on or after the Effective Time. Each Party shall promptly
furnish to the other copies of any Production Tax assessments and statements (or
invoices therefor from the operator of the applicable Assets) received by it to
the extent such assessment, statement, or invoice relates to a Production Tax
allocable to the other Party under this Section. Each Party shall timely pay all
Production Taxes subject to allocation under this Section and shall furnish to
the other Party evidence of such payment. The Parties shall estimate all Taxes
(excluding Transferor’s income, franchise, or margin Taxes) attributable to the
ownership or operation of the Assets to the extent they relate to the period on
and after the Effective Time and through the date hereof and all Transfer Taxes
and incorporate such estimates into the Preliminary Settlement Statement. The
actual amounts (to the extent the actual amounts differ from the estimates
included in the Preliminary Settlement Statement and are known at the time of
the Final Settlement Statement) shall be accounted for in the Final Settlement
Statement. If the actual amounts are not known at the time of the Final
Settlement Statement, the amounts shall be re-estimated based on the best
information available at the time of the Final Settlement Statement. When the
actual amounts are known, Emerald and Liberty shall make such payments to the
other (if any) as are necessary to effect the allocation of Taxes described in
this Section 9.1.

 

9.2           Transfer Taxes. All sales, use or other Taxes (other than Taxes on
gross income, net income or gross receipts) and duties, levies, recording fees
or other governmental charges incurred by or imposed with respect to the
property transfers undertaken pursuant to this Agreement (“Transfer Taxes”)
shall be the responsibility of, and shall be paid by, Emerald provided that, in
the event that Liberty pays any Transfer Tax, Emerald shall promptly reimburse
Liberty for such payment (without duplication to any adjustment to the Liberty
Assets Purchase Price or the Emerald Assets Purchase Price, as applicable). The
Parties shall reasonably cooperate in taking steps that would minimize or
eliminate any Transfer Taxes.

 

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9.3           Tax Reports and Returns. For Tax periods in which the Effective
Time occurs, Transferor agrees to forward to Transferee within five (5) days of
receipt copies of any Tax reports and returns received or filed by Transferor
after Closing and provide Transferee with any information Transferor has that is
reasonably necessary for Transferee to file any required Tax Return related to
the Assets. Transferee agrees to file all Tax Returns and reports applicable to
the Assets that Transferee is required to file after the Closing and, subject to
the provisions of Section 9.1, to pay all required Production Taxes payable with
respect to the Assets.

 

9.4           Tax Cooperation. The Parties shall cooperate fully as and to the
extent reasonably requested by the other party, in connection with the filing of
any Tax Returns and any audit, litigation or other proceeding (each, a “Tax
Proceeding”) with respect to Taxes relating to or in connection with the Assets.
Such cooperation shall include the retention and (upon the other Party’s
request) the provision of such records and information which are reasonably
relevant to any such Tax Return or Tax Proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder.

 

ARTICLE 10

CONDITIONS PRECEDENT TO CLOSING

 

10.1       Liberty’s Conditions. The obligations of Liberty to consummate the
transactions contemplated in this Agreement are subject, to the satisfaction (or
waiver in writing by Liberty) at or prior to the Closing of the following
conditions precedent:

 

(a)          All representations and warranties of Emerald contained in this
Agreement will be true and correct in all material respects as of the Closing
Date as though made on and as of the Closing Date (except to the extent such
representations and warranties are made as of a specified date, in which case
such representations and warranties shall be true and correct as of the
specified date).

 

(b)          Emerald shall have performed and satisfied in all material respects
all covenants and agreements required by this Agreement to be performed and
satisfied by Emerald at or prior to the Closing.

 

(c)          No temporary restraining order, preliminary or permanent
injunction, or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
transactions contemplated by this Agreement will be in effect.

 

(d)          All authorizations, consents, orders, or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Entity necessary for the consummation of the transactions
contemplated by this Agreement will have been filed, occurred, or been obtained.

 

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

 

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(a)          All representations and warranties of Liberty contained in this
Agreement will be true and correct in all material respects as of the Closing
Date as though made on and as of the Closing Date (except to the extent such
representations and warranties are made as of a specified date, in which case
such representations and warranties shall be true and correct as of the
specified date).

 

(b)          Liberty shall have performed and satisfied in all material respects
all covenants and agreements required by this Agreement to be performed and
satisfied by Liberty at or prior to the Closing.

 

(c)          No temporary restraining order, preliminary or permanent
injunction, or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
transactions contemplated by this Agreement will be in effect.

 

(d)          All authorizations, consents, orders, or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Entity necessary for the consummation of the transactions
contemplated by this Agreement will have been filed, occurred, or been obtained.

 

ARTICLE 11

RIGHT OF TERMINATION

 

11.1       Termination. This Agreement may be terminated in accordance with the
following provisions:

 

(a)          by mutual consent of Liberty and Emerald; or

 

(b)          by Liberty or Emerald if the Closing has not occurred on or before
October 15, 2014 (the “Termination Date”); provided that the right to terminate
this Agreement under this Section 11.1(b) shall not be available to the Party
requesting termination if the Closing has failed to occur because of such
Party’s breach of representation, warranty or covenant;

 

(c)          by Liberty or Emerald, if the sum of (i) the Title Defect Amounts
and (ii) the Remediation Costs with respect to the Liberty Assets exceeds 15% of
the Liberty Assets Purchase Price;

 

(d)          by Liberty or Emerald, if the sum of (i) the Title Defect Amounts
and (ii) the Remediation Costs with respect to the Emerald Assets exceeds 15% of
the Emerald Assets Purchase Price.

 

11.2       Liabilities Upon Termination.

 

(a)          Liberty’s Default. If Closing does not occur because of Liberty’s
failure to act in good faith toward the consummation of the transaction, Emerald
shall be entitled to, in its sole discretion, require that Liberty return the
Exclusivity Payment as its sole remedy for Liberty’s failure.

 

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(b)          Other Termination; Specific Performance. If Closing does not occur
because either Party has breached any representation, warranty or covenant set
forth in this Agreement, and such breach has caused a failure of any condition
in Section 10.1 or 10.2 to be satisfied, each Party shall be entitled to pursue
any and all other rights and remedies to which such Party may be entitled at law
or in equity, including without limitation the remedy of specific performance.

 

ARTICLE 12

CLOSING

 

12.1         Date of Closing. Subject to the satisfaction of the conditions to
Closing set forth in Article 10, the “Closing” of the transactions contemplated
hereby shall be held on September 2, 2014, or a later date prior to the
Termination Date agreed to by Emerald and Liberty. The date the Closing actually
occurs is called the “Closing Date.”

 

12.2         Place of Closing. Subject to the satisfaction of the conditions to
Closing set forth in Article 10, the Closing shall be held at the offices of
Davis Graham & Stubbs LLP at 9:00 a.m. Denver, Colorado time or at such other
time and place as Emerald and Liberty may agree in writing.

 

12.3         Closing Obligations. Subject to the satisfaction of the conditions
to Closing set forth in Article 10, at Closing, the following events shall
occur, each being a condition precedent to the others and each being deemed to
have occurred simultaneously with the others:

 

(a)          Liberty shall execute, acknowledge and deliver to Emerald (i) an
Assignment, Bill of Sale and Conveyance of Liberty Assets effective as of the
Effective Time substantially in the form of Exhibit E-1 (the “Liberty
Assignment”) with a special warranty of title by, through and under Liberty but
not otherwise and with no warranties, express or implied, as to the personal
property, fixtures or condition of the Liberty Assets which are conveyed “as is,
where is”; (ii) such other assignments, bills of sale, certificates of title, or
deeds necessary to transfer the Liberty Assets to Emerald including, without
limitation, federal and state forms of assignment; and (iii) an Assignment and
Assumption Agreement in the form attached as Exhibit F-1 under which Emerald
assigns and Liberty assumes Emerald’s interest in the Contracts in accordance
with the terms of this Agreement;

 

(b)          Emerald shall execute, acknowledge and deliver to Liberty (i) an
Assignment, Bill of Sale and Conveyance of Emerald Assets effective as of the
Effective Time substantially in the form of Exhibit E-2 (the “Emerald
Assignment”)with a special warranty of title by, through and under Emerald but
not otherwise and with no warranties, express or implied, as to the personal
property, fixtures or condition of the Emerald Assets which are conveyed “as is,
where is”; (ii) such other assignments, bills of sale, certificates of title, or
deeds necessary to transfer the Emerald Assets to Liberty including, without
limitation, federal and state forms of assignment; and (iii) an Assignment and
Assumption Agreement in the form attached as Exhibit F-2 under which Liberty
assigns and Emerald assumes Liberty’s interest in the Contracts in accordance
with the terms of this Agreement;

 

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(c)          Liberty and Emerald shall each deliver a certificate duly executed
by an officer thereof confirming that the closing conditions set forth in
Sections 10.1(a) and (b) and 10.2(a) and (b), respectively, have been satisfied;

 

(d)          Liberty and Emerald shall execute and deliver the Preliminary
Settlement Statement;

 

(e)          Emerald shall cause the Closing Amount to be paid by wire transfer
of immediately available funds;

 

(f)          Each Party shall execute, acknowledge and deliver transfer orders
or letters in lieu thereof notifying all purchasers of production of the change
in ownership of the Assets and directing all purchasers of production to make
payment to Emerald or Liberty, as applicable, of proceeds attributable to
production from the Assets;

 

(g)          Each Party shall execute and deliver to the other Party an
affidavit of non-foreign status and no requirement for withholding under
Section 1445 of the Code in the form of Exhibit G;

 

(h)          Each Party shall deliver, or cause to be delivered to the other
Party, a recordable form of release of any pledges, mortgages, financing
statements, fixture filings and security agreements, if any, affecting the
Assets; and

 

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

 

ARTICLE 13

POST-CLOSING OBLIGATIONS

 

13.1       Post-Closing Adjustments.

 

(a)          Final Settlement Statements. As soon as practicable after the
Closing, but in no event later than ninety (90) days after Closing, Liberty,
with the assistance of Emerald’s staff and with access to such records as
necessary, will cause to be prepared and delivered to Emerald, in accordance
with customary industry accounting practices, (i) the final settlement statement
(the “Final Settlement Statement”) setting forth each adjustment to the Liberty
Assets Preliminary Adjusted Purchase Price and the Emerald Assets Preliminary
Adjusted Purchase Price, respectively, in accordance with Section 2.4 and
showing the calculation of such adjustments and the resulting final purchase
price (the “Final Net Purchase Price”). As soon as practicable after receipt of
the Final Settlement Statement but in no event later than on or before
forty-five (45) days after receipt of such statement, Emerald shall deliver to
Liberty a written report containing any changes that Emerald proposes to make to
the Final Settlement Statement. Emerald’s failure to deliver to Liberty a
written report detailing proposed changes to the Final Settlement Statement by
that date shall be deemed an acceptance by Emerald of the Final Settlement
Statement as submitted by Liberty. The Parties shall engage in good faith
efforts to agree with respect to the changes proposed by Emerald, if any, no
later than forty-five (45) days after Emerald’s delivery to Liberty of its
proposed changes to the Final Settlement Statement. The date upon which such
agreement is reached or upon which the Final Net Purchase Price is established
shall be herein called the “Final Settlement Date.” If the Final Net Purchase
Price is more than the Closing Amount, Emerald shall pay to Liberty the amount
of such difference by wire transfer of immediately available funds no later than
five (5) days after the Final Settlement Date. If the Final Net Purchase Price
is less than the Closing Amount, Liberty shall pay the amount of such difference
to Emerald by wire transfer in immediately available funds no later than
five (5) days after the Final Settlement Date.

 

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(b)          Dispute Resolution. If the Parties are unable to resolve a dispute
as to the Final Purchase Price within sixty (60) days after Emerald’s receipt of
Liberty’s proposed Final Settlement Statement, the Parties shall submit the
dispute to binding arbitration to be conducted in accordance with the provisions
of Section 15.13.

 

13.2         Records. Transferor shall make the Records available for pick up by
Transferee at Closing to the extent possible, but in any event, within
thirty (30) days after Closing. Transferor may retain copies of the Records and
Transferor shall have the right to review and copy the Records during standard
business hours upon reasonable notice for so long as Transferee retains the
Records. Transferee agrees that the Records will be maintained in compliance
with all applicable Laws governing document retention.

 

13.3         Further Assurances. From time to time after Closing, each Party
shall each execute, acknowledge and deliver to the other such further
instruments and take such other action as may be reasonably requested in order
to accomplish more effectively the purposes of the transactions contemplated by
this Agreement.

 

13.4         Successor Operator. Promptly after Closing, Transferor shall send
notices (in form mutually agreed to by Transferee) to co-owners, if any, of
those Assets that Transferor currently operates stating that Transferor is
resigning as operator, effective upon the Closing Date, and providing notice
that Transferee shall become (or to the extent governed by an operating
agreement or similar agreement, recommending that Transferee be elected)
successor operator for the Assets operated by Transferor. Transferor makes no
representations or warranties to Transferee as to the transferability of
operatorship of any Assets which Transferor currently operates. Rights and
obligations associated with operatorship of the Assets may be governed by
operating agreements or similar agreements and will be decided in accordance
with the terms of such agreements.

 

ARTICLE 14

INDEMNIFICATION

 

14.1         Emerald’s Assumption of Liabilities and Obligations Upon Closing,
Emerald shall assume and pay, perform, fulfill and discharge all claims, costs,
expenses, liabilities and obligations (“Obligations”) accruing or relating to
the following, but not including the Retained Obligations: (a) ownership and
operation of the Liberty Assets after the Effective Time including owning,
developing, exploring, operating or maintaining the Liberty Assets or the
producing, transporting and marketing of Hydrocarbons from the Liberty Assets,
the payment of Property Expenses, the make-up and balancing obligations for
overproduction of gas from the Wells, and all liability for royalty and
overriding royalty payments and Production Taxes (allocated in accordance with
Article 9) made with respect to the Liberty Assets; and (b) all Environmental
Liabilities accruing or relating to the ownership or operation of the Liberty
Assets, whether accruing before or after the Effective Time except to the extent
that Liberty elects to indemnify Emerald against such Environmental Liabilities
pursuant to Section 5.3 (subsections (a) and (b) of this Section 14.1,
collectively, the “Emerald Assumed Liabilities”).

 

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14.2         Liberty’s Assumption of Liabilities and Obligations. Upon Closing,
Liberty shall assume and pay, perform, fulfill and discharge all Obligations
accruing or relating to the following, but not including the Retained
Obligations: (a) ownership and operation of the Emerald Assets after the
Effective Time including owning, developing, exploring, operating or maintaining
the Emerald Assets or the producing, transporting and marketing of Hydrocarbons
from the Emerald Assets, the payment of Property Expenses, the make-up and
balancing obligations for overproduction of gas from the Wells, and all
liability for royalty and overriding royalty payments and Production Taxes
(allocated in accordance with Article 9) made with respect to the Emerald
Assets; and (b) all Environmental Liabilities accruing or relating to the
ownership or operation of the Emerald Assets, whether accruing before or after
the Effective Time (except to the extent that Emerald elects to indemnify
Liberty against such Environmental Liabilities pursuant to Section 5.3
(subsections (a) and (b) of this Section 14.2, collectively, the “Liberty
Assumed Liabilities”); provided that the Liberty Assumed Liabilities shall not
include the Burgundy Liabilities unless and until the conditions set forth in
Section 5.6 are satisfied and the Burgundy Wellbore Interests are conveyed to
Liberty.

 

14.3         Retained Obligations. Other than with respect to the Emerald
Assumed Liabilities and the Liberty Assumed Liabilities, the treatment of which
is set forth in Sections 14.1 and 14.2, each Party shall retain and shall pay,
perform, fulfill and discharge all Obligations accruing or relating to the
following (the “Retained Obligations”): (a) the ownership and operation of such
Party’s Assets prior to the Effective Time including owning, developing,
exploring, operating or maintaining such Assets or producing, transporting and
marketing Hydrocarbons from such Assets, the payment of Property Expenses, the
make-up and balancing obligations for overproduction of gas from the Wells, all
liability for royalty and overriding royalty payments and Production Taxes
(allocated in accordance with Article 11) made with respect thereto, (b) offsite
disposal of Hazardous Materials by Transferor or its Affiliates prior to the
Closing Date, and (c) with respect to Emerald, the Burgundy Liabilities, unless
and until the conditions set forth in Section 5.6 are satisfied and the Burgundy
Wellbore Interests are conveyed to Liberty.

 

14.4         Indemnification. After the Closing, Emerald and Liberty shall
indemnify each other as follows:

 

(a)          Liberty’s Indemnification. Liberty shall defend, indemnify and save
and hold harmless Emerald and its Affiliates and their respective members,
managers, shareholders, officers, directors, employees and agents (the “Emerald
Indemnified Parties”), from and against all Losses which arise directly or
indirectly from or in connection with (i) the Liberty Assumed Liabilities, (ii)
any breach by Liberty of any of Liberty’s representations and warranties
contained in this Agreement or in the certificate delivered pursuant to Section
12.3, or (iii) any breach of Liberty’s covenants or agreements contained in this
Agreement.

 

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(b)          Emerald’s Indemnification. Emerald shall defend, indemnify and save
and hold harmless Liberty and its Affiliates and their respective members,
managers, shareholders, officers, directors, employees and agents (the “Liberty
Indemnified Parties”), from and against all Losses which arise directly or
indirectly from or in connection with (i) the Emerald Assumed Liabilities,
(ii) any breach by Emerald of any of Emerald’s representations and warranties
contained in this Agreement or in the certificate delivered pursuant to Section
12.3, or (iii) any breach of Emerald’s covenants or agreements contained in this
Agreement.

 

(c)          Limitations on Indemnity. Notwithstanding anything to the contrary
set forth herein, each of Liberty and Emerald shall have no liability for
indemnification hereunder or for any Losses pursuant to Section 14.4(a)(ii) or
(b)(ii), as applicable, until the total of all Losses with respect to such
matters exceed (i) with respect to Liberty’s obligations under
Section 14.4(a)(ii), 2% of the Liberty Assets Purchase Price, and (ii) with
respect to Emerald’s obligations under Section 14.4(b)(ii), 2% of the Emerald
Assets Purchase Price (as to each of (i) and (ii), the “Deductible”), after
which point the Emerald Indemnified Parties or the Liberty Indemnified Parties,
as applicable, shall be entitled to indemnification only in excess of the
Deductible. The aggregate liability of Liberty or Emerald, as applicable for
indemnification pursuant to Section 14.4(a)(ii) or (b)(ii), as applicable, with
respect to Losses suffered by the Emerald Indemnified Parties or the Liberty
Indemnified Parties, as applicable shall not exceed (I) with respect to
Liberty’s obligations under Section 14.4(a)(ii), 10% of the Liberty Assets
Purchase Price, and (ii) with respect to Emerald’s obligations under
Section 14.4(b)(ii), 10% of the Emerald Assets Purchase Price (as to each of (I)
and (II), the “Cap”). Notwithstanding the foregoing, the Deductible and the Cap
will not apply to a breach of the Fundamental Representations.

 

(d)          Notwithstanding anything to the contrary contained in this
Agreement, from and after Closing, the Parties’ sole and exclusive remedy
against each other with respect to breaches of the representations, warranties,
covenants and agreements of the Parties contained in this Agreement is set forth
in this Section 14.4, and if no such right of indemnification is expressly
provided, then such claims are hereby waived to the fullest extent permitted by
Law; provided however, that each Party shall retain the right to seek injunctive
or other equitable relief, including specific performance for breaches of this
Agreement. Except as set forth in the preceding sentence, upon Closing, each
Party releases, remises, and forever discharges the other Party from any and all
suits, legal or administrative proceedings, claims, demands, damages, Losses,
costs, liabilities, interest, or causes of action whatsoever, in law or in
equity, known or unknown, which such Parties might now or subsequently may have,
based on, relating to, or arising out of this Agreement or such Party’s
ownership, use, or operation of the Assets, or the condition, quality, status,
or nature of the Assets, INCLUDING RIGHTS TO CONTRIBUTION OR COST RECOVERY UNDER
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED, BREACHES OF STATUTORY AND IMPLIED WARRANTIES, NUISANCE OR
OTHER TORT ACTIONS, RIGHTS TO PUNITIVE DAMAGES, COMMON LAW RIGHTS OF
CONTRIBUTION, ANY RIGHTS UNDER INSURANCE POLICIES ISSUED OR UNDERWRITTEN BY THE
OTHER PARTY OR ANY OF ITS AFFILIATES, 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, invitee, or third Person, and whether or not
caused by a preexisting condition.

 

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(e)          EACH PARTY CONFIRMS THAT IT IS NOT RELYING ON ANY REPRESENTATION OR
WARRANTY OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT, AND EACH PARTY
ACKNOWLEDGES THAT THIS NO RELIANCE CONFIRMATION IS A MATERIAL INDUCEMENT TO THE
OTHER PARTY’S WILLINGNESS TO ENTER INTO THIS AGREEMENT AND CONSUMMATE THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

14.5         Procedure. The indemnifications contained in Section 14.4 shall be
implemented as follows:

 

(a)          Claim Notice. The Party seeking indemnification under the terms of
this Agreement (“Indemnified Party”) shall submit a written “Claim Notice” to
the other Party (“Indemnifying Party”) which, to be effective, must be delivered
prior to the end of the Survival Period applicable under Section 14.6 to the
representation or warranty that is the subject of such Claim Notice and must
state: (i) the amount of each payment claimed by an Indemnified Party to be
owing, (ii) the basis for such claim, with supporting documentation, and (iii) a
list identifying to the extent reasonably possible each separate item of Loss
for which payment is so claimed. Unless, within sixty days of receipt of a Claim
Notice, the Indemnifying Party provides written notice to the Indemnified Party
that it contests the Losses identified in such Claim Notice, the Indemnifying
Party shall, subject to the other terms of this Section 14.5, pay to the
Indemnified Party the amount of the Losses related to such indemnification claim
or the uncontested portion thereof. If the Indemnifying Party objects to a Claim
Notice on the basis that it lacks sufficient information, it shall promptly
request from the Indemnified Party any specific additional information
reasonably necessary for it to assess such indemnification claim, and the
Indemnified Party shall provide the additional information reasonably requested.
Upon receipt of such additional information, the Indemnifying Party shall notify
the Indemnified Party of any withdrawal or modification of the objection. All
disputed indemnification claims shall be resolved by Emerald and Liberty in
accordance with either (A) a mutual agreement between Emerald and Liberty, which
shall be memorialized in writing, or (B) final arbitration in accordance with
Section 15.13.

 

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(b)          Information. Promptly after the Indemnified Party receives notice
of a claim or legal action by a third party that may result in a Loss for which
indemnification may be sought under this Article 14 (a “Claim”), the Indemnified
Party shall give written notice of such Claim to the Indemnifying Party. If the
Indemnifying Party or its counsel so requests, the Indemnified Party shall
furnish the Indemnifying Party with copies of all pleadings and other
information with respect to such Claim. At the election of the Indemnifying
Party made within sixty (60) days after receipt of such notice, the Indemnified
Party shall permit the Indemnifying Party to assume control of such Claim (to
the extent only that such Claim, legal action or other matter relates to a Loss
for which the Indemnifying Party is liable), including the determination of all
appropriate actions, the negotiation of settlements on behalf of the Indemnified
Party, and the conduct of litigation through attorneys of the Indemnifying
Party’s choice; provided, however, that no such settlement can result in any
liability or cost to the Indemnified Party for which it is entitled to be
indemnified hereunder without its consent. If the Indemnifying Party elects to
assume control, (i) any expense incurred by the Indemnified Party thereafter for
investigation or defense of the matter shall be borne by the Indemnified Party,
and (ii) the Indemnified Party shall give all reasonable information and
assistance, other than pecuniary, that the Indemnifying Party shall deem
necessary to the proper defense of such Claim, legal action, or other matter. In
the absence of such an election, the Indemnified Party will use its best efforts
to defend, at the Indemnifying Party’s expense, any claim, legal action or other
matter to which such other Party’s indemnification under this Article 14 applies
until the Indemnifying Party assumes such defense, and, if the Indemnifying
Party fails to assume such defense within the time period provided above, settle
the same in the Indemnified Party’s reasonable discretion at the Indemnifying
Party’s expense with the Indemnifying Party’s consent which shall not be
unreasonably withheld. If such a Claim requires immediate action, both the
Indemnified Party and the Indemnifying Party will cooperate in good faith to
take appropriate action so as not to jeopardize defense of such Claim or either
Party’s position with respect to such Claim. If the Indemnifying Party is
entitled to, and does, assume the defense of any such Claim, the Indemnified
Party shall have the right to employ separate counsel at its own expense and to
participate in the defense thereof; provided, however, that notwithstanding the
foregoing, the Indemnifying Party shall pay the reasonable attorneys’ fees of
the Indemnified Party if the Indemnified Party’s counsel shall have advised the
Indemnified Party that there is a conflict of interest that could make it
inappropriate under applicable standards of professional conduct to have common
counsel for the Indemnifying Party and the Indemnified Party (provided that the
Indemnifying Party shall not be responsible for paying for more than one
separate firm of attorneys and one local counsel to represent all of the
Indemnified Parties subject to such Claim).

 

14.6         Survival of Warranties, Representations and Covenants. All
representations and warranties contained in Articles 3 and 4 of this Agreement
shall survive the Closing and remain in full force and effect until 5:00 p.m.,
Denver, Colorado time, on the date that is six (6) months after the date hereof,
at which time they shall terminate, except that those representations and
warranties set forth in Sections 6.1 (Status), 6.2 (Power) and 6.3
(Authorization and Enforceability) made by Liberty, and Sections 7.1
(Organization and Standing), 7.2 (Power) and 7.3 (Authorization and
Enforceability) made by Emerald (those representations made by Liberty and
Emerald, collectively the “Fundamental Representations”), will survive
indefinitely (the applicable period, being referred to herein as the “Survival
Period”). The covenants and performance obligations contained in this Agreement
that contemplate performance after the Closing shall survive the Closing and
shall continue until all obligations with respect thereto shall have been
performed or satisfied or shall have been terminated in accordance with their
terms. Both Parties acknowledge that the limitations on survival in this Section
14.6 are a contractual statute of limitations that limits such Party’s ability
to make a claim against the other Party that such Party may otherwise have
available under Law.

 

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14.7         Reservation as to Non-Parties. Nothing herein is intended to limit
or otherwise waive any recourse Emerald or Liberty may have against any
non-party for any obligations or liabilities that may be incurred with respect
to the Assets.

 

14.8         Reductions in Losses. The amount of any Losses for which an
Indemnified Person is entitled to indemnity under this Article 14 shall be
reduced by the amount of insurance proceeds realized by the Indemnified Person
or its Affiliates with respect to such Losses (net of any collection costs, and
excluding the proceeds of any insurance policy issued or underwritten by the
Indemnified Person or its insurance captive or other Affiliate), and by the
amount of any net Tax benefit actually realized by either Party as a result of
the events giving rise to the Losses in question.

 

14.9         Waiver. Neither Party shall have any obligation or liability under
this Agreement or in connection with or with respect to the transactions
contemplated by this Agreement for any breach, misrepresentation, or
noncompliance with respect to any representation, warranty, covenant, indemnity,
or obligation if such breach, misrepresentation, or noncompliance shall have
been waived by the other Party, or if the other Party had knowledge of the
relevant facts at or before Closing.

 

ARTICLE 15

MISCELLANEOUS

 

15.1         Exhibits and Schedules. The Exhibits and Schedules to this
Agreement are hereby incorporated in this Agreement by reference and constitute
a part of this Agreement.

 

15.2         Expenses. Except as otherwise specifically provided, all fees,
costs and expenses incurred by Emerald or Liberty in negotiating this Agreement
or in consummating the transactions contemplated by this Agreement shall be paid
by the Party incurring the same, including, without limitation, engineering,
land, title, legal and accounting fees, costs and expenses.

 

15.3         Notices. All notices and communications required or permitted under
this Agreement shall be in writing and addressed as set forth below. Any
communication or delivery hereunder shall be deemed to have been duly made and
the receiving Party charged with notice (i) if personally delivered, when
received, (ii) if sent by facsimile transmission, when received, (iii) if
mailed, five (5) Business Days after mailing, certified mail, return receipt
requested, or (iv) if sent by overnight courier, one (1) Business Day after
sending. All notices shall be addressed as follows:

 

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If to Liberty:

Liberty Resources LLC
1200 17th Street, Suite 2050
Denver, CO 80202
Attn: Paul Vitek
Telephone: (303) 749-5714
Fax: (303) 749-5759

 

With a copy to:

Davis Graham & Stubbs LLP
1550 17th Street, Suite 500
Denver, CO 80202
Attn: Brian Boonstra
Telephone: (303) 892-7334
Fax: (303) 893-1379

 

If to Emerald:

Emerald Oil, Inc.
1600 Broadway, Suite 1360
Denver, CO 80202
Attn: Ryan Smith
Telephone: 303-595-5600

 

With a copy to:

Husch Blackwell LLP
1700 Lincoln, Suite 4700
Denver, CO 80203
Attn: James Muchmore
Telephone: 303-749-7264
Fax: 303-749-7272

 

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

 

15.4         Amendments. This Agreement may not be amended except by an
instrument expressly modifying this Agreement signed by each of the Parties.
Except for waivers specifically provided for in this Agreement, no waiver by
either Party of any breach of any provision of this Agreement shall be binding
unless made expressly in writing. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (regardless of whether similar), nor shall any such waiver constitute a
continuing waiver unless expressly so provided. Delay in the exercise, or
non-exercise, of any such right is not a waiver of that right.

 

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15.5         Assignment. Neither Party shall assign all or any portion of its
respective rights or delegate all or any portion of its respective duties
hereunder without the written consent of the other Party.

 

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

 

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

 

15.8         Governing Law. This Agreement and the transactions contemplated
hereby and any arbitration or dispute resolution conducted pursuant hereto shall
be construed in accordance with, and governed by, the Laws of the State of
Colorado, without regards to conflicts of Laws principles.

 

15.9         Entire Agreement. This Agreement constitutes the entire
understanding among the Parties, their respective partners, members, trustees,
shareholders, officers, directors and employees with respect to the subject
matter hereof, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter, including the
Term Sheet.

 

15.10         Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, the Parties hereto, and their respective successors and
assigns. Notwithstanding anything to the contrary herein, this Agreement is not
a binding agreement between the Parties hereto unless and until this Agreement
is duly executed in writing by representatives of the Parties and delivered by
the Parties.

 

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

 

15.12         No Vicarious Liability. Emerald and Liberty shall not, and shall
cause the Emerald Indemnified Parties and the Liberty Indemnified Parties not
to, assert or threaten any claim or other method of recovery, in contract, in
tort or under statute, against any Person other than Liberty or Emerald. Liberty
and Emerald, as applicable shall be liable for all attorneys’ fees and court
costs arising from a breach of this Section 15.12.

 

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15.13      Dispute Resolution and Arbitration. All Disputes between the Parties
related to this Agreement shall be resolved by arbitration, pursuant to the
following procedures:

 

(a)          The parties to any arbitration pursuant to this Section 15.13 shall
select an arbitrator or arbitrators as follows:

 

(1)         Each side to such arbitration shall each select a single,
independent arbitrator within ten (10) days after written demand for such
arbitration by any Party. The two (2) arbitrators selected by the respective
sides shall, in turn, select the third neutral and independent arbitrator. For
any Dispute concerning Section 9.4 (with respect to the preparation of Tax
Returns and the payment of Taxes), each of the three (3) arbitrators shall be a
tax accountant with a minimum of ten years’ experience with the types of Taxes
in question.

 

(b)          The arbitration shall be governed by Colorado Law but the specific
procedure to be followed shall be determined by the arbitrator(s). It is the
intent of the Parties that the arbitration be conducted as efficiently and
inexpensively as possible, with only limited discovery as determined by the
arbitrator without regard to the discovery permitted under the Colorado or
Federal Rules of Civil Procedure.

 

(c)          The arbitration proceeding shall be held in the City and County of
Denver, Colorado, and a hearing shall be held no later than sixty (60) days
after submission of the matter to arbitration, and a written decision shall be
rendered by the arbitrators within thirty (30) days of the hearing.

 

(d)          At the hearing, the Parties shall present such evidence and
witnesses as they may choose, with or without counsel. Adherence to formal rules
of evidence shall not be required but the arbitrator shall consider any evidence
and testimony that he or she determines to be relevant, in accordance with
procedures that it determines to be appropriate.

 

(e)          Any award entered in the arbitration shall be made by a written
opinion stating the reasons and basis for the award made.

 

(f)          The costs incurred in employing the arbitrators, including the
arbitrators’ retention of any independent qualified experts, shall be borne 50%
by Liberty and 50% by Emerald.

 

(g)          The arbitrator’s award may be filed in any court of competent
jurisdiction and may be enforced by any Party as a final judgment of such court.

 

(h)          IN ENTERING INTO THIS AGREEMENT, THE PARTIES ARE KNOWINGLY AND
VOLUNTARILY WAIVING THEIR RIGHTS TO A TRIAL BY JURY.

 

15.14      Publicity. Neither Emerald or Liberty nor any of their respective
Affiliates or representatives shall issue or cause the publication of any press
release or other announcement with respect to the transactions contemplated by
this Agreement without the prior consultation of the other Party, except as may
be required by applicable Law, and each Party shall use its reasonable efforts
to provide copies of such release or other announcement to the other Party
hereto, and give due consideration to such comments as each such other Party may
have, prior to such release or other announcement.

 

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15.15         Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction will not invalidate or
render unenforceable such provision in any other jurisdiction. Should any
provision of this Agreement be or become invalid or unenforceable as a whole or
in part, this Agreement shall be reformed to come closest to the original intent
and purposes of the parties hereto.

 

15.16         Liberty Resources Guaranty. Liberty Resources hereby irrevocably
and unconditionally guarantees the full and prompt payment and performance of
all obligations of Liberty to pay any amounts and perform any obligations under
this Agreement prior to or concurrent with the Closing when and if such payment
as performance obligations become due and payable prior to or concurrent with
the Closing in accordance with the terms of the Agreement. Liberty Resources
acknowledges that valuable consideration supports this guaranty and that it
executed this guaranty as an inducement to Emerald to enter into this Agreement
and consummate the transactions contemplated herein on the terms and subject to
the conditions contained herein.

 

[Signature page follows.]

 

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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of
the day and year first above written.

 

  LIBERTY RESOURCES MANAGEMENT COMPANY, LLC         By: /s/ Christopher A Wright
  Name: Christopher A Wright   Title: CEO       LIBERTY RESOURCES BAKKEN
OPERATING LLC       By: /s/ Christopher A Wright   Name: Christopher A Wright  
Title: CEO       EMERALD OIL, INC.       By: /s/ McAndrew A. Rudisill   Name:
McAndrew A. Rudisill   Title: CEO and President       EMERALD WB, LLC       By:
/s/ McAndrew A. Rudisill   Name: McAndrew A. Rudisill   Title: CEO

 

Executing this Agreement solely with   respect to Section 15.16 hereof:      
LIBERTY RESOURCES II, LLC       By: /s/ Christopher A Wright   Name: Christopher
A Wright   Title: CEO  

 

[Signature Page – Purchase and Sale Agreement]