Exhibit 10.1

 

Execution Version

 

 

 

PURCHASE AND SALE AGREEMENT

 

between

 

Cimarex Energy Co. et al.,

 

as Seller,

 

and

 

Callon Petroleum Operating Company,

 

as Buyer

 

Dated May 23, 2018

 

 

 

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TABLE OF CONTENTS

 

 

 

PAGE

 

 

ARTICLE 1 DEFINITIONS AND REFERENCES

1

1.1

General Definitions

1

1.2

Exhibits and Schedules

11

1.3

Amendment of Defined Instruments

11

1.4

References, Titles and Construction

11

 

 

 

ARTICLE 2 PURCHASE AND SALE

11

2.1

Purchase and Sale

11

2.2

Assets

11

2.3

Excluded and Reserved Assets

13

2.4

Effective Time

15

2.5

Purchase Price

15

2.6

Deposit

15

2.7

Adjustments to Base Purchase Price

15

2.8

Allocated Values

17

 

 

 

ARTICLE 3 RECORDS AND DUE DILIGENCE

17

3.1

Due Diligence

17

3.2

Records

18

3.3

Access to Properties

18

 

 

 

ARTICLE 4 TITLE MATTERS

19

4.1

Defensible Title

19

4.2

Permitted Encumbrances

20

4.3

Title Defect

22

4.4

Notices of Title Defect and Title Defect Value

22

4.5

Title Defect Adjustments

23

4.6

Interest Additions

25

4.7

Expert Determination of Title Defects, Title Defect Values and Interest
Additions

26

4.8

Title Defect Reduction Amount

28

4.9

Changes in Product Prices, Spacing and Pooling and Well Events

28

4.10

Consents

28

4.11

Preferential Purchase Rights

29

4.12

Casualty Loss

29

 

 

 

ARTICLE 5 ENVIRONMENTAL MATTERS

30

5.1

Environmental Investigation

30

5.2

NORM and Asbestos

31

5.3

Notice of Environmental Defects

31

5.4

Environmental Defect Adjustments

32

5.5

Expert Determination of Environmental Defect Values

32

5.6

Environmental Defect Reduction Amount

34

 

ii

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5.7

“As Is, Where Is” Purchase

34

5.8

Assumed Environmental Liabilities

34

 

 

 

ARTICLE 6 SELLER’S REPRESENTATIONS AND WARRANTIES

34

6.1

Existence

34

6.2

Power and Authority

35

6.3

Authorization

35

6.4

Execution and Delivery

35

6.5

Foreign Person

35

6.6

Liabilities for Brokers’ Fees

35

6.7

Liens

35

6.8

Taxes

35

6.9

Litigation

36

6.10

No Notice of Violation

36

6.11

Material Agreement; Notice of Defaults

36

6.12

Production Sales Contracts

37

6.13

Plugging Notices and Demands

37

6.14

Imbalances

37

6.15

Governmental Licenses

37

6.16

Compliance with Laws

37

6.17

Suspense Accounts

37

6.18

Consents and Preferential Rights

37

6.19

Bankruptcy

38

6.20

Wells and Equipment; Personal Property

38

6.21

Non-Consent Operations

38

6.22

Outstanding Capital Commitments; Payout Balances

38

 

 

 

ARTICLE 7 BUYER’S REPRESENTATIONS AND WARRANTIES

39

7.1

Existence

39

7.2

Power and Authority

39

7.3

Authorization

39

7.4

Execution and Delivery

39

7.5

Liabilities for Brokers’ Fees

39

7.6

Litigation

39

7.7

Independent Evaluation

39

7.8

Securities Laws

40

7.9

Qualification

40

7.10

Financial Resources

40

 

 

 

ARTICLE 8 COVENANTS AND AGREEMENTS

40

8.1

Operation Through Closing

40

8.2

Restriction on Operations

41

8.3

Marketing

41

8.4

Notices of Claims

42

8.5

Compliance with Laws

42

8.6

Government Reviews and Filings

42

8.7

Change of Operator

42

 

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8.8

Confidentiality

42

8.9

Required Bonding

42

8.10

Audits and Filings

43

8.11

Exclusive Agreement

44

 

 

 

ARTICLE 9 PERSONNEL

44

9.1

Available and Transferring Employees

44

9.2

Buyer’s Employee Benefit Plans

45

9.3

WARN Act

46

9.4

No Third Party Rights

46

 

 

 

ARTICLE 10 CONDITIONS TO CLOSING

46

10.1

Mutual Conditions

46

10.2

Seller’s Conditions

46

10.3

Buyer’s Conditions

47

 

 

 

ARTICLE 11 RIGHT OF TERMINATION AND ABANDONMENT

48

11.1

Termination

48

11.2

Liabilities Upon Termination

48

 

 

 

ARTICLE 12 CLOSING

49

12.1

Date of Closing

49

12.2

Closing Obligations

49

 

 

 

ARTICLE 13 POST-CLOSING OBLIGATIONS

50

13.1

Post-Closing Adjustments

50

13.2

Settlement Statement Dispute Resolution

51

13.3

Records

51

13.4

Suspense Accounts

51

13.5

Removal of Name

52

13.6

Further Assurances

52

 

 

 

ARTICLE 14 TAXES

52

14.1

Responsible Party

52

14.2

Transfer Taxes

52

14.3

Tax-Deferred Exchange Option

53

14.4

Allocation of Values

53

14.5

Tax Returns and Reports

53

 

 

 

ARTICLE 15 ASSUMPTION AND RETENTION OF OBLIGATIONS; INDEMNIFICATION

54

15.1

Buyer’s Assumption of Liabilities and Obligations

54

15.2

Buyer’s Plugging and Abandonment Obligations

54

15.3

Indemnification

54

15.4

Procedure

57

15.5

No Insurance; Subrogation

58

15.6

Reservation as to Non-Parties

58

 

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15.7

Exclusive Remedy

58

15.8

Waiver of Right to Rescission

58

15.9

Mutual Releases

58

 

 

 

ARTICLE 16 MISCELLANEOUS

59

16.1

Expenses

59

16.2

Notices

59

16.3

Entire Agreement

60

16.4

Amendments

60

16.5

Assignment

60

16.6

Confidentiality of this Agreement

60

16.7

Press Releases and Announcements

60

16.8

Counterparts

61

16.9

Exhibits and Schedules

61

16.10

Remedies, Governing Law and Jurisdiction

61

16.11

Binding Effect

62

16.12

Survival

62

16.13

No Third-Party Beneficiaries

62

16.14

Limitation on Damages

62

16.15

Severability

62

16.16

Knowledge and Reasonable and Good Faith Efforts

62

16.17

Joint and Several Liability

62

16.18

Disclaimers

63

16.19

Waiver of Trade Practices Acts

63

 

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SCHEDULES

 

Disclosure Schedule

 

Section 4.2

 

Pending State of Texas Approvals

 

 

 

Section 4.6(b)

 

Outline of Sale Area

 

 

 

Section 4.10

 

Consents

 

 

 

Section 4.11

 

Preferential Purchase Rights

 

 

 

Section 5.3

 

Disclosed Environmental Defects

 

 

 

Section 6.8

 

Taxes

 

 

 

Section 6.9

 

Existing Seller Claims

 

 

 

Section 6.10

 

Notices of Violation

 

 

 

Section 6.12

 

Production Sales Contracts

 

 

 

Section 6.13

 

Plugging Notices and Demands

 

 

 

Section 6.14

 

Imbalances

 

 

 

Section 6.15

 

Governmental Licenses

 

 

 

Section 6.17

 

Suspense Accounts

 

 

 

Section 6.21

 

Non-Consent Operations

 

 

 

Section 6.22

 

Outstanding Capital Commitments; Payout Balances

 

 

 

Section 9.1(a)

 

Available Employees

 

 

 

Section 16.16

 

Persons With Knowledge

 

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EXHIBITS

 

Exhibit

 

Description

 

Section or
Subsection
Where
Described

 

 

 

 

 

A

 

Leases

 

2.2(a)

 

 

 

 

 

B

 

Wells

 

2.2(c)

 

 

 

 

 

C

 

Allocated Values

 

2.8

 

 

 

 

 

D

 

Material Agreements

 

2.2(e)

 

 

 

 

 

E

 

Form of Assignment, Bill of Sale and Conveyance

 

1.1

 

 

 

 

 

F

 

Form of Non-Foreign Person Affidavit

 

1.1

 

 

 

 

 

G

 

Excluded Technical Data

 

1.1

 

 

 

 

 

H

 

Excluded Agreements

 

1.1

 

vii

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PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (this “Agreement”), executed as of May 23, 2018
(the “Execution Date”), is by and between Cimarex Energy Co., a Delaware
corporation (“Cimarex”), Prize Energy Resources, Inc., a Delaware corporation
(“Prize”) and Magnum Hunter Production, Inc., a Texas corporation (“Magnum
Hunter”) (Cimarex, Prize and Magnum Hunter being collectively called, “Seller”),
and Callon Petroleum Operating Company, a Delaware corporation (“Buyer”).

 

Recitals

 

Seller owns and desires to sell certain oil and gas interests and related real
and personal property, as more fully described and defined below as the Assets,
upon the terms and conditions set forth in this Agreement.

 

Buyer desires to purchase the Assets upon the terms and conditions set forth in
this Agreement.

 

Agreement

 

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

 

ARTICLE 1
DEFINITIONS AND REFERENCES

 

1.1          General Definitions.  As used herein the terms “Agreement,”
“Execution Date,” “Seller,” and “Buyer” shall have the meanings assigned thereto
above, and the following terms shall have the following meanings:

 

“Adjustment Termination Amount” shall mean an amount equal to 20% of the Base
Purchase Price.

 

“Affiliate” shall mean, with respect to a Person, any other Person controlling,
controlled by, or under common control with such Person.  As used in this
definition, the word “control” means the possession, directly or indirectly, of
the power or ability to direct or cause the direction of the management or
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.  A Person conclusively will be deemed to control another
Person if it owns greater than 50% of the equity or voting power of such Person.

 

“Allocated Value” shall have the meaning assigned thereto in Section 2.8.

 

“Alternative Proposal” shall have the meaning assigned thereto in Section 8.11.

 

“Applicable Regulatory Authority” shall mean the applicable Governmental
Authority or Governmental Authorities charged with the regulation of oil and gas

 

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exploration, development, operations or production, including spacing, pooling
and conservation.

 

“Assets” shall have the meaning assigned thereto in Sections 2.2 and 2.7.

 

“Assignment, Bill of Sale and Conveyance” shall mean the Assignment, Bill of
Sale and Conveyance in the form of Exhibit E.

 

“Assumed Environmental Liabilities” shall have the meaning assigned thereto in
Section 5.8.

 

“Assumed Liabilities” shall have the meaning assigned thereto in Section 15.1.

 

“Available Employees” shall have the meaning assigned thereto in Section 9.1(a).

 

“Background Materials” shall have the meaning assigned thereto in Section 7.7.

 

“Base Purchase Price” shall mean an amount equal to Five Hundred and Seventy
Million Dollars ($570,000,000).

 

“Benefit Period” shall have the meaning assigned thereto in Section 9.2(b).

 

“Business Days” shall mean any day other than a Saturday, Sunday or a day on
which national banks are allowed or required by the Federal Reserve System to be
closed; and “days” without further qualification shall mean calendar days.

 

“Buyer Indemnified Parties” shall have the meaning assigned thereto in
Section 15.3(a).

 

“Buyer’s Breach” shall have the meaning assigned thereto in Section 11.2(a).

 

“Buyer’s Plugging and Abandonment Obligations” shall have the meaning assigned
thereto in Section 15.2.

 

“Casualty Loss” shall have the meaning assigned thereto in Section 4.12.

 

“Claim” shall have the meaning assigned thereto in Section 15.4(c).

 

“Claim Notice” shall have the meaning assigned thereto in Section 15.4(b).

 

“Closing” shall have the meaning assigned thereto in Section 11.1.

 

“Closing Amount” shall have the meaning assigned thereto in Section 2.7.

 

“Closing Date” shall mean the date the Closing actually occurs.

 

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

 

2

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“Confidentiality Agreement” shall mean the Confidentiality Agreement, dated
February 5, 2018, between the Parties.

 

“COPAS” shall mean the COPAS 2005 Accounting Procedure — Joint Operations as
published by the Council of Petroleum Accountant Societies of North America and
as interpreted by the Council of Petroleum Accountants Societies of North
America under MFI-51 2005 COPAS Accounting Procedure.

 

“Cure Election Notice Deadline” shall have the meaning assigned thereto in
Section 4.5(a).

 

“Defect Escrow Account” shall have the meaning assigned thereto in
Section 4.5(a).

 

“Defect Escrow Agreement” shall have the meaning assigned thereto in
Section 12.2(k).

 

“Defensible Title” shall have the meaning assigned thereto in Section 4.1.

 

“Deposit” shall have the meaning assigned thereto in Section 2.6.

 

“Disclosed Environmental Matters” shall have the meaning assigned thereto in
Section 5.3.

 

“Disclosure Schedule” shall mean the Disclosure Schedule attached to this
Agreement.

 

“DTPA” shall mean the Texas Deceptive Trade Practices—Consumer Protection Act,
Tex. Bus. & Com. Code Ann.  § 17.41 et seq.

 

“Due Diligence Review” shall have the meaning assigned thereto in Section 3.1.

 

“Effective Time” shall mean April 1, 2018 at 7:00 a.m. CST.

 

“Employment Date” shall have the meaning assigned thereto in Section 9.1(b).

 

“Environmental Assessment” shall have the meaning assigned thereto in
Section 5.1.

 

“Environmental Defect” shall mean a condition in, on or under the Assets
(including air, land, soil, surface and subsurface strata, surface water, ground
water, or sediments) that (i) constitutes a violation of an Environmental Law
(ii) a condition that can reasonably be expected to give rise to costs or
liability under applicable Environmental Laws to the extent such condition arose
while such Asset was owned by Seller or (iii) constitutes the presence of
Hazardous Materials in excess of the remediation standards established under
Environmental Law or in excess of those allowed under the terms of any lease or
other agreement applicable to such Asset.

 

3

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“Environmental Defect Deductible” shall mean an amount equal to 1.5% of the Base
Purchase Price.

 

“Environmental Defect Minimum” shall mean $50,000.

 

“Environmental Defect Notice Deadline” shall mean 5:00 p.m. local time in
Houston, Texas on the date that is 60 days after the Execution Date.

 

“Environmental Defect Reduction Amount” shall have the meaning assigned thereto
in Section 5.6.

 

“Environmental Defect Value” shall have the meaning assigned thereto in
Section 5.3.

 

“Environmental Expert” shall have the meaning assigned thereto in Section 5.5.

 

“Environmental Law” shall mean any Law relating to the protection of the
environment, human health (with respect to exposure to contamination in the
environment), the release or disposal of waste materials, or the protection of
environmentally sensitive areas or threatened or endangered species, including
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. §§ 9601 et seq.), the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. § 6901 et  seq.), the Clean Water Act (33 U.S.C.
§§ 466 et seq.), the Safe Drinking Water Act (14 U.S.C. §§ 1401-1450), the Oil
Pollution Act (33 U.S.C. §§ 2702-2761), the Federal Water Pollution Control Act
(33 U.S.C. § 1251 et seq.), the Emergency Planning and Community Right to Know
Act (U.S.C. 42 §§ 301-313), the Hazardous Materials Transportation Act (49
U.S.C. §§ 1801 et seq.), the Toxic Substances Control Act (15 U.S.C. §§
2601-2629), the Clean Air Act (42 U.S.C. § 7401 et seq.) as amended, the Clean
Air Act Amendments of 1990 and all other federal, state and local laws, rules,
regulations and orders relating to reclamation of land, wetlands and waterways
or relating to use, storage, emissions, discharges, cleanup, releases or
threatened releases of pollutants, contaminants, chemicals or industrial, toxic
or hazardous substances on or into the workplace or the environment (including
ambient air, oceans, waterways, wetlands, surface water, ground water (tributary
and non-tributary), land surface or subsurface strata) or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of pollutants, contaminants, chemicals, or
industrial, toxic, hazardous or similar substances, as all of the foregoing may
be enacted, amended, supplemented or reauthorized from time to time.

 

“Escrow Agent” shall have the meaning assigned thereto in Section 4.5(a).

 

“Excluded Agreements” shall mean the agreements described on Exhibit H, which,
for the avoidance of doubt, shall not include any Material Agreements.

 

“Excluded Assets” shall have the meaning assigned thereto in Section 2.3.

 

“Excluded Technical Data” means Technical Data licensed from non-Affiliate
Persons that cannot be transferred without (a) consent from such non-Affiliate
Person

 

4

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(which consent cannot be obtained after the use of commercially reasonable
efforts by the Parties) or (b) additional consideration to such non-Affiliate
Persons and for which Buyer has not agreed (in its sole discretion) to pay such
additional consideration, and which are described on Exhibit G.

 

“Existing Seller Claims” shall have the meaning assigned thereto in Section 6.9.

 

“Final Purchase Price” shall have the meaning assigned thereto in Section 13.1.

 

“Final Settlement Date” shall have the meaning assigned thereto in Section 13.1.

 

“Final Settlement Statement” shall have the meaning assigned thereto in
Section 13.1.

 

“Governmental Authority” shall mean any federal, state, local, tribal, or
foreign government, court of competent jurisdiction, administrative or
regulatory body, agency, bureau, commission, governing body of any national
securities exchange, or other governmental authority or instrumentality in any
domestic or foreign jurisdiction, and any appropriate division of any of the
foregoing.

 

“Hazardous Materials” shall mean (i) any “hazardous substance,” as defined by
the Comprehensive Environmental Response, Compensation, and Liability Act,
(ii) any “hazardous waste” or “solid waste,” in either case as defined by the
Resource Conservation and Recovery Act, and any analogous state statutes, and
any regulations promulgated thereunder, (iii) any solid, hazardous, dangerous or
toxic chemical, material, waste or substance, within the meaning of and
regulated by any applicable Environmental Laws, (iv) any radioactive material,
including any naturally occurring radioactive material, and any source, special
or byproduct material as defined in the Atomic Energy Act and any amendments or
authorizations thereof, (v) any regulated asbestos-containing materials in any
form or condition, (vi) any regulated polychlorinated biphenyls in any form or
condition, and (vii) petroleum, petroleum hydrocarbons or any fraction or
byproducts thereof.

 

“HIPAA” shall have the meaning assigned thereto in Section 9.2(c).

 

“Hydrocarbons” shall have the meaning assigned thereto in Section 2.2(b).

 

“Indemnified Party” shall have the meaning assigned thereto in Section 15.4(b).

 

“Indemnified Title Defect” shall have the meaning assigned thereto in
Section 4.5(b)(iii).

 

“Indemnifying Party” shall have the meaning assigned thereto in Section 15.4(b).

 

“Interest Addition” shall have the meaning assigned thereto in Section 4.6.

 

“Interest Addition Deductible” shall mean an amount equal to 1.0% of the Base
Purchase Price.

 

5

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“Interest Addition Minimum” shall mean $50,000 with respect to a Well, $50,000
with respect to a Lease or section.

 

“Lands” shall have the meaning assigned thereto in Section 2.2(a).

 

“Law” shall mean any federal, state, local, municipal, foreign, tribal, or other
law, statute, legislation, constitution, principle of common law, resolution,
ordinance, code, proclamation, treaty, convention, order, rule, regulation, or
decree, whether legislative, municipal, administrative, or judicial in nature,
enacted, adopted, passed, promulgated, made, or put into effect by or under the
authority of any Governmental Authority.

 

“Leases” shall have the meaning assigned thereto in Section 2.2(a).

 

“Liability” shall mean with respect to any Person, any indebtedness or other
liability or obligation of such Person of any kind, nature, character or
description, whether known or unknown, absolute or contingent, accrued or
unaccrued, in contract, tort, strict liability, or otherwise, including all
costs and expenses relating to the foregoing.

 

“Losses” shall mean any actual losses, costs, expenses (including court costs,
reasonable fees and expenses of attorneys, technical experts and expert
witnesses and the reasonable costs of investigation), liabilities, damages,
demands, suits, claims, and sanctions of every kind and character (including
civil fines); excluding, however, any special, consequential, punitive or
exemplary damages, loss of profits incurred by a Party (other than loss of
profits, consequential damages, or punitive damages suffered by third Persons
for which responsibility is allocated to such Party) or Loss incurred as a
result of the Indemnified Party indemnifying a third party.

 

“Material Agreements” shall have the meaning assigned thereto in Section 2.2(e).

 

“Material Consent” means a consent by a third Person that if not obtained prior
to the assignment of an Asset, (a) voids or nullifies (automatically or at the
election of the holder thereof) the assignment, conveyance or transfer of such
Asset, (b) terminates (or gives the holder thereof the right to terminate) any
material rights in the Asset subject to such consent, or (c) requires payment of
a fee; provided, however, that “Material Consent” does not include any consent
which by its terms cannot be unreasonably withheld.

 

“Net Acres” means, as calculated separately with respect to each Lease or
section, (a) the number of gross acres of land covered by such Lease or section,
multiplied by (b) the lessor’s undivided interest in the Hydrocarbons in the
lands covered by such Lease or section, multiplied by (c) Seller’s undivided
interest in such Lease or section; provided, however, if items (b) and (c) vary
as to different areas of, or depths under the lands covered by such Lease or
section (including with respect to the depths specified on Part 1 of Exhibit C
for such section), a separate calculation shall be performed with respect to
each such area or depth.

 

“Net Casualty Loss” shall have the meaning assigned thereto in Section 4.12.

 

6

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“Net Revenue Acre” means, as calculated separately with respect to each Lease or
section, (a) the amount that is equal to the Net Revenue Interest for such Lease
or section multiplied by (b) the Net Acres for such Lease or section; provided,
however, if items (a) and (b) vary as to different areas of, or depths under the
lands covered by such Lease or section (including with respect to the depths
specified on Part 1 of Exhibit C for such section), a separate calculation shall
be performed with respect to each such area or depth.

 

“Net Revenue Interest” or “NRI” shall mean, with respect to a Well, Lease or
section, the interest (expressed as a percentage or a decimal) in and to all
production of Hydrocarbons produced, saved and sold from such Well (from the
depths specified on Exhibit B or Part 2 of Exhibit C for such Well) or such
Lease or section (from the depths specified on Part 1 of Exhibit C for such
section), after giving effect to all Royalties, carried interests, reversionary
interests and other burdens on, measured by or payable out of production
therefrom.

 

“Non-De Minimus Environmental Defect” shall mean an Environmental Defect that
has an Environmental Defect Value in excess of the Environmental Defect Minimum.

 

“Non-De Minimus Interest Addition” shall mean an Interest Addition that has a
value in excess of the Interest Addition Minimum.

 

“Non-De Minimus Title Defect” shall mean a Title Defect that has a Title Defect
Value in excess of the Title Defect Minimum.

 

“Non-Foreign Person Affidavit” shall mean the non-foreign person affidavit in
the form of Exhibit F.

 

“Notice of Environmental Defect” shall have the meaning assigned thereto in
Section 5.3.

 

“Notice of Title Defect” shall have the meaning assigned thereto in Section 4.4.

 

“NORM” shall mean naturally occurring radioactive material.

 

“Operating Inventory” shall have the meaning assigned thereto in Section 2.2(i).

 

“Order” shall mean any order, judgment, injunction, edict, decree, ruling,
assessment, stipulation, pronouncement, determination, decision, opinion,
verdict, sentence, subpoena, writ or award issued, made, entered, rendered, or
otherwise put into effect by or under the authority of any court or other
Governmental Authority or any arbitrator or arbitration panel.

 

“Outside Date” shall mean September 30, 2018.

 

“Party” shall mean Buyer or Seller, individually; and “Parties” means Buyer and
Seller, collectively.

 

7

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“Per MCF Imbalance Amount” shall mean an amount equal to $1.00 per Mcf for
natural gas imbalances.

 

“Permitted Encumbrances” shall have the meaning assigned thereto in Section 4.2.

 

“Person” shall mean any natural person, corporation, company, limited liability
company, partnership, joint venture, trust, proprietorship or other entity,
organization or association of any kind and shall include all Governmental
Authorities.

 

“Post-Closing Non-Asset Interest Addition” shall have the meaning assigned
thereto in Section 4.6(b).

 

“Potential Financing” shall have the meaning assigned thereto in
Section 8.10(b).

 

“Preliminary Settlement Statement” shall have the meaning assigned thereto in
Section 2.7.

 

“Proceeding” shall mean any action, proceeding, litigation, suit, or arbitration
(whether civil, criminal, administrative, or judicial in nature) commenced,
brought, conducted, or heard before any Governmental Authority, arbitrator or
arbitration panel.

 

“Property Expenses” shall mean all capital expenditures, joint interest
billings, lease operating expenses, lease rentals, bonuses and shut-in payments,
drilling expenses, workover expenses, geological, geophysical and any other
exploration or development expenditures (other than expenditures relating to
Excluded Technical Data), including those expenditures charged under applicable
operating agreements or other agreements consistent with the standards
established by COPAS that are attributable to the operation of the Assets
conducted during the period in question (and shall include overhead for such
period charged under the applicable joint operating agreement or other
agreements consistent with the standards established by COPAS); provided that
Property Expenses shall not include Asset acquisition costs, Royalties, Taxes,
Casualty Losses, or costs and expenses with respect to Assumed Environmental
Liabilities or Buyer’s Plugging and Abandonment Obligations.

 

“Property Taxes” shall mean all federal, state or local taxes, assessments,
levies or other charges, which are imposed upon the Assets, including ad valorem
(including, for the avoidance of doubt, ad valorem taxes based on or measured by
production of Hydrocarbons or the value thereof), property, documentary or
stamp, as well as any interest, penalties and fines assessed or due in respect
of any such taxes, whether disputed or not.

 

“Records” shall have the meaning assigned thereto in Section 2.2(j).

 

“Remediation” and “Remediate” shall mean the containment, clean up, removal,
mitigation, abatement, elimination, control, investigation, removal,
remediation,

 

8

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prevention, monitoring, investigating, correction or any other action (including
the payment of any fine or penalty) in connection with an Environmental Defect.

 

“Representatives” shall mean, with respect to a Person, that Person’s directors,
shareholders, owners, officers, members, managers, partners, employees,
consultants, contractors, representatives and agents.

 

“Royalties” shall mean landowner royalties, mineral owner royalties, overriding
royalties, net profits interests, production payments and similar burdens.

 

“SEC Filings” shall have the meaning assigned thereto in Section 8.10(b).

 

“Seller Indemnified Parties” shall have the meaning assigned thereto in
Section 15.3(b).

 

“Severance Taxes” shall mean all federal, state or local taxes, assessments,
levies or other charges, which are imposed upon production from the Assets
(excluding, for the avoidance of doubt, ad valorem taxes based on or measured by
production of Hydrocarbons or the value thereof), including excise taxes on
production, severance or gross production, as well as any interest, penalties
and fines assessed or due in respect of any such taxes, whether disputed or not.

 

“Spacing Unit” shall mean a spacing or similar unit established by any spacing
or pooling declarations, orders and agreements, including those promulgated
under the regulations and rules of the Applicable Regulatory Authority.

 

“Suspense Accounts” shall mean suspense accounts maintained by Seller holding
monies payable to royalty owners, mineral owners and other persons with an
interest in production of Hydrocarbons attributable to the Assets prior to the
Closing Date that Seller has been unable to pay because of title defects, or
because such Persons cannot be located or their identity is unknown or any other
causes.

 

“Target Closing Date” shall mean August 10, 2018; provided, that if Buyer
exercises its right to extend the Title Defect Notice Deadline pursuant to
Section 4.4(a), “Target Closing Date” shall mean September 10, 2018.

 

“Tax Deferred Exchange” shall have the meaning assigned thereto in Section 14.3.

 

“Taxes” shall mean all taxes, levies or other like assessments of any
Governmental Authority, including gross receipts, excise taxes, asset, sales,
use, royalty, license, payroll, transaction, capital, net worth and franchise
taxes, withholding, employment, social security, workers compensation, utility,
state severance taxes, ad valorem taxes, real or property taxes, production
taxes and any other local, state or federal taxes or assessments, and shall also
include taxes based upon or measured by the ownership of the Assets or the
production of Hydrocarbons therefrom or the receipt of proceeds therefrom, and
in each instance such term shall include any interest, penalties or

 

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additions to tax attributable to any such Tax, including penalties for the
failure to file any tax return or report.

 

“Technical Data” shall mean geologic and geophysical information and
interpretive data and analyses, including seismic data, seismic licenses
proprietary data, studies, core samples, and maps.,

 

“Title Curative Date” shall mean 30 days from the date the applicable Notice of
Title Defect is sent.

 

“Title Defect” shall have the meaning assigned thereto in Section 4.3.

 

“Title Defect Deductible” shall mean an amount equal to 1.0% of the Base
Purchase Price.

 

“Title Defect Minimum” shall mean $50,000 with respect to a Well, and $50,000
with respect to a Lease or section.

 

“Title Defect Notice Deadline” shall mean 5:00 p.m. local time in Houston, Texas
on the date that is 60 days after the Execution Date; provided, that if Buyer
exercises its right to extend the Title Defect Notice Deadline pursuant to
Section 4.4(a), “Title Defect Notice Deadline” shall mean 5:00 p.m. local time
in Houston, Texas on the date that is 90 days after the Execution Date.

 

“Title Defect Reduction Amount” shall have the meaning assigned thereto in
Section 4.8.

 

“Title Defect Value” shall have the meaning assigned thereto in Section 4.4(b).

 

“Title Expert” shall have the meaning assigned thereto in Section 4.7.

 

“Transfer Taxes” shall have the meaning assigned thereto in Section 14.2.

 

“Transferring Employees” shall have the meaning assigned thereto in
Section 9.1(b).

 

“Transactions” shall mean the transactions provided for in this Agreement.

 

“WARN Act Obligations” means collectively any obligations under the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et seq., or under
any similar Laws arising as a result of the Transactions.

 

“Wells” shall have the meaning assigned thereto in Section 2.2(c).

 

“Working Interest” or “WI” shall mean, with respect to a Well or Lease, the
interest in and to the Well (from the depths specified on Exhibit B or Part 2 of
Exhibit C for such Well) or the Lease, insofar as such interest in such Well or
Lease is burdened

 

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with the obligation to bear and pay costs and expenses of maintenance,
development and operations.

 

1.2          Exhibits and Schedules.  All Exhibits and Schedules attached to
this Agreement are part hereof for all purposes.

 

1.3          Amendment of Defined Instruments.  Unless the context otherwise
requires or unless otherwise provided herein, references in this Agreement to a
particular agreement, instrument or document also refer to and include all
renewals, extensions, amendments, modifications, supplements or restatements of
any such agreement, instrument or document.

 

1.4          References, Titles and Construction.  All references in this
Agreement to Exhibits, Schedules, Articles, Sections, Subsections, and other
subdivisions refer to the Exhibits, Schedules, Articles, Sections, Subsections
and other subdivisions of this Agreement unless expressly provided otherwise. 
Titles and headings appearing at the beginning of any subdivision are for
convenience only and do not constitute any part of any such subdivision and
shall be disregarded in construing the language contained in this Agreement. 
The words “this Agreement,” “herein,” “hereby,” “hereunder” and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited.  The phrases “this Section” and “this Subsection”
and similar phrases refer only to the Sections or Subsections hereof in which
the phrase occurs.  The word “or” is not exclusive, and “including” (and its
various derivatives), means “including without limitation.”  Pronouns in
masculine, feminine and neuter gender shall be construed to include any other
gender.  Words in the singular form shall be construed to include the plural and
words in the plural form shall be construed to include the singular, unless the
context otherwise requires.  In the event an ambiguity or question of intent or
interpretation of this Agreement arises, this Agreement shall be construed as if
jointly drafted by the Parties, and no presumption or burden of proof shall
arise favoring or disfavoring a Party as a result of authorship or drafting of
any provision of this Agreement.  Inclusion of an item in a section of the
Disclosure Schedule (a) shall be deemed to be disclosure of such item on all
sections of the Disclosure Schedule for which it is reasonably apparent on its
face that such item applies, (b) does not represent a determination that such
item is material nor shall it be deemed to establish a standard of materiality,
(c) does not represent a determination that such item did not arise in the
ordinary course of business, and (d) shall not constitute, or be deemed to be,
an admission to any third party concerning such item.

 

ARTICLE 2
PURCHASE AND SALE

 

2.1          Purchase and Sale.  Seller agrees to sell and convey to Buyer, and
Buyer agrees to purchase and receive from Seller, the Assets, pursuant to the
terms and conditions of this Agreement.

 

2.2          Assets.  “Assets” means, subject to the exclusions set forth in
Section 2.3, all of Seller’s right, title and interest in and to the following:

 

(a)           The oil and gas leases described on Exhibit A hereto (the
“Leases”), the leasehold estates created by such Leases, including overriding
royalty interests in the

 

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Leases and the Wells (as defined below), and the lands covered by the Leases
(the “Lands”), and, without limiting the foregoing, all other rights (of
whatever character, whether legal or equitable, vested or contingent, and
whether or not the same are expired or terminated) in and to the Hydrocarbons
in, on, under, and that may be produced from, the Lands and any renewals,
modifications, supplements, ratifications or amendments to such Leases.  For the
avoidance of doubt, this clause (a) includes any Interest Additions pursuant to
Section 4.6.

 

(b)           All oil, gas and other hydrocarbons and products (“Hydrocarbons”),
in, on or under or that may be produced from the Lands, all Hydrocarbon
inventories from or attributable to the Lands that are in storage at the
Effective Time; and, to the extent related or attributable to the Lands, all
production, plant, and transportation imbalances as of the Effective Time.

 

(c)           The oil and gas wells located on the Leases and the Lands, or
lands pooled or unitized therewith, including the oil and gas wells specifically
described in Exhibit B (the “Wells”), whether producing or non-producing,
together with all injection, disposal, water and CO2 wells on the Leases and the
Lands or lands pooled or unitized therewith, and all personal property and
equipment associated therewith.  For the avoidance of doubt, this clause
(c) includes any Interest Additions pursuant to Section 4.6.

 

(d)           To the extent transferable, all existing and effective
unitization, pooling and communitization agreements, declarations and orders,
and the properties covered and the units created thereby, to the extent that
they relate to or affect any of the interests described in
Sections 2.2(a) through 2.2(c).

 

(e)           To the extent transferable, all Hydrocarbon sales, purchase,
gathering and processing contracts, operating agreements, balancing agreements,
joint venture agreements, exploration agreements, partnership agreements,
participation agreements, farmout and farmin agreements, area of mutual interest
agreements, exchange agreements, purchase and sale agreements and other
contracts in which Seller acquired interests in any other Asset, compressor
agreements, gathering agreements, agreements for the sale and purchase of
Hydrocarbons, disposal agreements, transportation agreements, processing
agreements and other contracts, agreements and instruments relating to the
interests described in Sections 2.2(a) through 2.2(d), including the agreements
described on Exhibit D hereto (collectively, the “Material Agreements”), only
insofar as they relate to the Leases and the Lands.

 

(f)            To the extent transferable, all permits, franchises, approvals,
consents, authorizations, certificates and licenses used or obtained for use in
connection with or otherwise related to the exploration for, development of or
production, gathering, treatment, processing, storing, sale or disposal of
Hydrocarbons produced from the Lands (the “Permits and Licenses”).

 

(g)           To the extent transferable, all of the rights-of-way, easements,
surface leases and other surface rights used or held for use in connection with
or otherwise

 

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related to the exploration for, development of or production, gathering,
treatment, processing, storing, sale or disposal of Hydrocarbons produced from
the Lands.

 

(h)           All of the personal property, equipment, machinery, fixtures,
improvements, permits, licenses, buildings, improvements, injection facilities,
saltwater disposal facilities, compression facilities, gathering systems, other
appurtenances and facilities located on the Lands and used or obtained for use
in connection with or otherwise related to the exploration for, development of
or production, gathering, treatment, processing, storing, sale or disposal of
Hydrocarbons produced from the Lands.

 

(i)            All pipes, tubulars, fittings, and other materials held as
operating inventory related to Seller’s operations on the Leases and Lands (the
“Operating Inventory”), together with all titled vehicles utilized by any
Transferring Employee hired by Buyer pursuant to Section 9.1.

 

(j)            The files, records, data and information relating to the items
described in Sections 2.2(a) through 2.2(i) maintained by or in the possession
of Seller (the “Records”), including accounting files, lease files, land files,
well files, gas, oil and other hydrocarbon sales contract and files, production
files, gas gathering and processing files, division order files, abstracts,
title opinions and all Technical Data, except for Excluded Technical Data.

 

2.3          Excluded and Reserved Assets.  Notwithstanding the foregoing, the
Assets shall not include, and the following are hereby excepted, reserved and
excluded from the sale contemplated hereby (the “Excluded Assets”):

 

(a)           any accounts receivable accruing or attributable to the period
before the Effective Time;

 

(b)           all Hydrocarbons from or attributable to the Assets with respect
to all periods prior to the Effective Time and all proceeds attributable thereto
(other than those for which an adjustment is made pursuant to
Section 2.7(a)(iv));

 

(c)           any refund with respect to, costs, taxes or expenses borne by
Seller or Seller’s predecessors in title attributable to the period prior to the
Effective Time, except to the extent relating to an Assumed Liability);

 

(d)           any and all proceeds from the settlements of contract disputes
with purchasers of Hydrocarbons from the Assets, insofar as said proceeds are
attributable to periods of time prior to the Effective Time;

 

(e)           the right to exercise any audit rights under operating agreements
or other agreements or state law with respect to periods prior to the Effective
Time (and Buyer will use commercially reasonable efforts to cooperate with
Seller to facilitate Seller’s exercise of such rights);

 

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(f)            any claims against third parties related to matters for which
Seller indemnifies Buyer under Section  15.3(a) to the extent Seller indemnifies
Buyer for such matters.

 

(g)           all Cygnet, SCADA and similar communication and control equipment
and facilities;

 

(h)           all titled vehicles and other rolling stock other than any titled
vehicles utilized by any Transferring Employees hired by Buyer pursuant to
Section 9.1.

 

(i)            all communications and work-product covered by the
attorney-client or attorney work-product privileges;

 

(j)            all Excluded Technical Data;

 

(k)           (i) all corporate, financial, tax and legal data and records of
Seller that relate to Seller’s businesses generally, (ii) any data and records
to the extent disclosure or transfer is prohibited or subjected to payment of a
fee or other consideration by any license agreement or other agreement with a
Person other than Affiliates of Seller, or by applicable law, and for which no
consent to transfer has been received or for which Buyer has not agreed in
writing to pay the fee or other consideration, as applicable, (iii) any data and
records relating to the sale of the Assets, including bids received from, and
records relating to Seller’s negotiations with Buyer or with Persons other than
Buyer, (iv) any data and records constituting or relating to the Excluded
Assets, (v) employee information, except with respect to Transferring Employees,
and (vi) internal valuation data, business plans, business studies, transaction
proposals and related correspondence, and similar records and information;

 

(l)            Seller’s intellectual property used in determining whether to
participate in the development or operation of the Assets, including proprietary
computer software, computer software licensed from third parties, patents,
pending patent applications, trade secrets, copyrights, names, marks and logos;

 

(m)          all deposits, cash, checks in process of collection, cash
equivalents, accounts and notes receivable and other funds attributable to any
periods before the Effective Time, and security or other deposits made with
third parties prior to the Effective Time;

 

(n)           all swap, futures, or derivative contracts backed by or related to
Hydrocarbons produced from the Assets;

 

(o)           any equipment, materials, spare parts, tools and other personal
property that may have been previously used on the Leases, but that as of the
Execution Date are  stored or warehoused at a Seller’s or third party site not
located on the Assets;

 

(p)           Seller’s Field Office located in the city of Monahans, Texas;

 

(q)           all insurance contracts and Excluded Agreements;

 

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(r)            all reserve reports prepared by Seller or Seller’s consultants,
and all reserve reporting and classification information and supporting
materials with respect to Seller’s determination or reporting of its reserves,
other than the information furnished to Buyer as part of the sale package
materials or presentations by Seller; and

 

(s)            Assets excluded from this Agreement pursuant to Sections
4.5(b)(ii), 4.10, 4.12, 5.1(b), 5.3, and 5.4(b).

 

2.4          Effective Time.  The purchase and sale of the Assets shall be
effective as of the Effective Time.

 

2.5          Purchase Price.  The total consideration for the Assets and the
purchase and sale thereof shall be the Base Purchase Price, as adjusted pursuant
to Section 2.7.

 

2.6          Deposit.  On the same day as the execution and delivery of this
Agreement, Buyer shall deliver or cause to be delivered to an account of Seller
(as designated by Seller in writing) a wire transfer in the amount equal to 5%
of the Base Purchase Price in same-day funds (the “Deposit”).  If Closing
occurs, the Deposit shall be deducted from the Closing Amount as provided in
Section 12.2(c) and shall be retained by Seller.  If this Agreement is
terminated, the Deposit shall be handled as provided in Section 11.2.

 

2.7          Adjustments to Base Purchase Price.  The Base Purchase Price shall
be adjusted according to this Section 2.7.  For all adjustments known or capable
of reasonable estimation as of Closing, the Base Purchase Price shall be
adjusted at Closing pursuant to a “Preliminary Settlement Statement” approved by
Seller and Buyer on or before Closing.  A draft of the Preliminary Settlement
Statement will be prepared by Seller and provided to Buyer at least 3 Business
Days prior to Closing.  The Preliminary Settlement Statement shall set forth the
Base Purchase Price as adjusted as provided in this Section 2.7 using the best
information available at the Closing Date (the “Closing Amount”).  The Closing
Amount less the Deposit shall be paid by Buyer to Seller at Closing by federal
funds wire transfer to an account or accounts to be designated by Seller to
Buyer in writing at least 2 Business Days prior to the Closing Date.  Following
Closing, any cash received by Seller applicable to post-Effective Time
production of Hydrocarbons will be paid to Buyer within 30 days of receipt
thereof, and any cash received by Buyer applicable to pre-Effective Time
production of Hydrocarbons will be paid to Seller within 30 days after receipt
thereof (other than Hydrocarbons for which an adjustment has been made pursuant
to Section 2.7(a)(iv)).  After Closing, final adjustments to the Base Purchase
Price shall only be made pursuant to the Final Settlement Statement to be
delivered pursuant to Section 13.1, pursuant to the Title Defect Reduction
Amount to be delivered pursuant to Section 4.8, pursuant to the Environmental
Defect Reduction Amount to be delivered pursuant to Section 5.6, or as otherwise
as expressly provided for in this Agreement.

 

(a)           Upward Adjustments.  The Base Purchase Price shall be adjusted
upward by the following, without duplication:

 

(i)            The proceeds of production of Hydrocarbons attributable to the
Assets occurring before the Effective Time and received by Buyer;

 

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(ii)           The amount of all Property Expenses (including all prepaid
Property Expenses) attributable to the Assets after the Effective Time and paid
by Seller;

 

(iii)          The amount of all Royalties attributable to Hydrocarbons produced
from the Assets after the Effective Time and paid by Seller;

 

(iv)          An amount equal to all Hydrocarbons attributable to the Assets
that, at the Effective Time, are owned by Seller and are in storage, in tanks or
above the load level connection or within processing plants, multiplied by the
price for which production from the Assets was sold immediately prior to the
Effective Time, less Taxes (net of all landowner royalties and overriding
royalties payable to third Persons; provided that to the extent such a netting
is made, Buyer shall assume the obligation to pay the netted amounts to the
Persons to whom such amounts are due);

 

(v)           Any Property Taxes and Severance Taxes attributable to periods
after the Effective Time and paid by Seller as described in Section 14.1;

 

(vi)          All bonuses, extension payments, rentals, shut-in and similar
payments, if any, with respect to the Assets that are attributable to periods
after the Effective Time and paid by Seller after the Effective Time;

 

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

 

(b)           Downward Adjustments.  The Base Purchase Price shall be adjusted
downward by the following, without duplication:

 

(i)            The proceeds of production of Hydrocarbons attributable to the
Assets occurring on or after the Effective Time and received by Seller;

 

(ii)           The amount of all Property Expenses attributable to the Assets
prior to the Effective Time and paid by Buyer;

 

(iii)          Any Property Taxes and Severance Taxes attributable to periods
prior to the Effective Time and not paid as of the Closing Date as provided in
Section 14.1;

 

(iv)          The amount of all Royalties attributable to Hydrocarbons produced
from the Assets prior to the Effective Time and paid by Buyer;

 

(v)           An amount equal to the Title Defect Reduction Amount, if any

 

(vi)          An amount equal to the Environmental Defect Reduction Amount, if
any;

 

(vii)         An amount equal to any Net Casualty Loss;

 

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(viii)        The Allocated Value of Assets excluded from the transactions
contemplated by this Agreement as set forth in Sections 4.5(b)(ii), 4.10, 4.12,
5.1(b), 5.3 and 5.4(b);

 

(ix)          An amount equal to the aggregate of the amounts deposited into the
Defect Escrow Account at Closing pursuant to Sections 4.5(a), 4.5(b) and 5.4(a);
and

 

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

 

(c)           Imbalance Adjustments.  The Parties agree that the Base Purchase
Price will be adjusted downward or upward, as appropriate, by an amount equal to
(i) any well imbalances measured in MCF existing as of the Effective Time
multiplied by the Per MCF Imbalance Amount, and (ii) any pipeline or
transportation imbalances existing as of the Effective Time at the then current
contract amount applicable to under-deliveries or over-deliveries to the
pipeline.

 

2.8          Allocated Values.  The Parties agree to allocate the Base Purchase
Price among the Assets for all purposes as set forth on Exhibit C hereto, which
the Parties agree provides a specific and reasonable Allocated Value (as defined
herein) of (i) undeveloped Leases and (ii) Assets currently under development or
producing Hydrocarbons.  Each portion of the Assets to which a value is
separately allocated on Exhibit C is herein called an “Asset,” and such separate
value is herein called the “Allocated Value” of such Asset.

 

ARTICLE 3
RECORDS AND DUE DILIGENCE

 

3.1          Due Diligence.

 

(a)           From and after the Execution Date, Seller shall provide Buyer and
its Representatives with access in accordance with this Article 3 to the Records
and other Assets for inspection and review to permit Buyer to perform its due
diligence review (the “Due Diligence Review”) as provided in this Agreement.

 

(b)           Notwithstanding Section 3.1(a) or any other provision in this
Agreement to the contrary, any obligation of Seller under this Agreement to make
any such Records and other Assets or any other information available to Buyer
shall be (i) only to the extent that granting access to such Records or other
information does not waive attorney-client privilege, the work product doctrine
or other applicable legal privilege; and (ii) only to the extent Buyer has
received the consent of the operator of any of those Assets not operated Seller
or its Affiliates (and Seller shall use commercially reasonable efforts to
obtain such consent).

 

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3.2          Records.

 

(a)           Subject to Section 3.1, Seller shall make the Records available to
Buyer at the Tulsa, Oklahoma, offices of Seller during Seller’s normal business
hours or as otherwise reasonably requested by Buyer to complete its Due
Diligence Review.

 

(b)           Except for the representations and warranties specifically
contained in this Agreement, Seller makes no warranty or representation of any
kind as to the accuracy, completeness, or materiality of any Records or any
other information provided or made available by Seller or any of its Affiliates,
or its or their Representatives.  Buyer agrees that any conclusions drawn from
the Records or any such other information shall be the result of its own
independent review and judgment.

 

3.3          Access to Properties.

 

(a)           Upon reasonable advance notice to Seller, to the extent Seller or
its Affiliates have the authority (and if neither Seller nor any of its
Affiliates have authority, Seller shall use commercially reasonable efforts to
obtain such authority), Seller shall allow Buyer to conduct, at Buyer’s sole
risk, Liability, and expense, on-site inspections and an Environmental
Assessment of the Assets in accordance with Section 5.1(b).  In connection with
any such on-site inspections or Environmental Assessment, Buyer shall not
unreasonably interfere with the normal operations of any Assets in any material
respect and shall comply in all material respects with all requirements and
safety policies and procedures of the operator of such Assets to the extent that
such operator has notified Buyer of such requirements and safety policies.  If
Buyer or any of its Representatives prepares a final report with respect to its
Environmental Assessment of the Assets, Buyer shall furnish a copy thereof to
Seller (such final report provided without any representation or warranty or any
right of Seller to rely upon such final report, and Seller hereby releases any
claim it may have against Buyer or its Representatives related to Seller’s
reliance on such final report or Seller’s use thereof).  Seller and Buyer agree
that any such final report provided to Seller by Buyer is privileged and
protected (and Seller and Buyer shall take all such steps reasonably required to
maintain such privileged and protected status) and that such final report shall
be kept confidential pursuant to the confidentiality provisions of this
Agreement.

 

(b)           IN CONNECTION WITH THE GRANTING OF ANY ACCESS TO THE ASSETS AND
ANY SUCH ENVIRONMENTAL ASSESSMENT, BUYER REPRESENTS AND WARRANTS TO SELLER THAT
BUYER AND, TO BUYER’S KNOWLEDGE, EACH OF ITS REPRESENTATIVES THAT CONDUCTS ANY
SUCH ENVIRONMENTAL ASSESSMENT OR OTHERWISE ENTERS ONTO ANY OF THE ASSETS ARE
ADEQUATELY INSURED.  BUYER AGREES TO INDEMNIFY, DEFEND, AND SAVE AND HOLD
HARMLESS THE SELLER INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL CLAIMS OF
ANY PERSON FOR INJURY TO, OR DEATH OF, ANY NATURAL PERSON OR FOR LOSSES INCURRED
BY ANY PERSON ARISING FROM BUYER’S OR ITS REPRESENTATIVES NEGLIGENCE WITH
RESPECT TO ANY ACCESS AFFORDED TO BUYER.  THIS SECTION 3.3(b)

 

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SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT FOR ONE YEAR.

 

ARTICLE 4
TITLE MATTERS

 

4.1          Defensible Title.

 

(a)           The term “Defensible Title” means, with respect to each Well and
depth that is described in Exhibit B or Part 2 of Exhibit C, such title of
Seller in and to such Well and depth and production therefrom that, subject to
and except for Permitted Encumbrances:  (i) entitles Seller to receive not less
than the Net Revenue Interest set forth in Part 2 of Exhibit C throughout the
productive life of such Well for the depths set forth for such Well in Part 2 of
Exhibit C (except as such Net Revenue Interest may be reduced after the
Execution Date due to Seller’s exercise, in compliance with this Agreement, of
non-consent rights under applicable Spacing Units or under applicable operating
and similar agreements); (ii) obligates Seller to bear a Working Interest in an
amount not greater than the Working Interest set forth in Part 2 of Exhibit C
throughout the productive life of such Well for the depths set forth for such
Well in Part 2 of Exhibit C, without a corresponding increase in the Net Revenue
Interest (except as such Working Interest may be increased from time to time
(with a corresponding increase in the Net Revenue Interest) due to the exercise
of non-consent rights under applicable Spacing Units or under applicable
operating and similar agreements); and (iii) is free and clear of any and all
liens, Taxes, encumbrances, mortgages, claims and production payments and any
defects or irregularities that would impair use or enjoyment of, or result in a
loss of interest in, such Well.

 

(b)           The term “Defensible Title” means, with respect to each Lease that
is described in Exhibit A and section and depth that is described in Part 1 of
Exhibit C, such title of Seller in and to the Lease and section and depth that,
subject to and except for the Permitted Encumbrances:  (i) entitles Seller to
receive not less than the Net Revenue Interest set forth in Part 1 of Exhibit C
for the sections and depths set forth in Part 1 of Exhibit C, without regard to
spacing or unitization (except as such Net Revenue Interest may be reduced after
the Execution Date due to Seller’s exercise, in compliance with this Agreement,
of non-consent rights under applicable Spacing Units or under applicable
operating and similar agreements); (ii) entitles Seller to ownership of not less
than the Net Revenue Acres set forth in Part 1 of Exhibit C for the sections and
depths set forth in Part 1 of Exhibit C, without regard to spacing or
unitization (except as such Net Revenue Acres may be reduced after the Execution
Date due to Seller’s exercise, in compliance with this Agreement, of non-consent
rights under applicable Spacing Units or under applicable operating and similar
agreements); (iii) entitles Seller to ownership of not less than the Net Acres
set forth in Part 1 of Exhibit C for the sections and depths set forth in Part 1
of Exhibit C; and (iv) is free and clear of any and all liens, Taxes,
encumbrances, mortgages, claims and production payments and any defects or
irregularities that would impair use or enjoyment of, or result in a loss of
interest in, such Lease, section or depth.

 

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4.2          Permitted Encumbrances.  The term “Permitted Encumbrances” shall
mean:

 

(a)           Royalties if they do not, individually or in the aggregate, reduce
the NRIs, Net Acres or Net Revenue Acres ownership below those set forth on
Exhibits A,  B or C;

 

(b)           any required third-party consents to assignment of Leases and
contracts, and preferential purchase rights, all of which are handled
exclusively under Sections 4.10 and 4.11;

 

(c)           liens for taxes or assessments not yet due and payable or, if due
and payable, that are being contested in good faith by appropriate actions in
the ordinary course of business;

 

(d)           all rights to consent by, required notices to, filings with, or
other actions by any Governmental Authority in connection with the sale or
conveyance of any Lease if the same are customarily obtained subsequent to such
sale or conveyance; and consent requirements arising under a farmout or similar
agreement pursuant to which Seller has already satisfied all conditions for
earning any interests that constitute a part of the Assets and Seller has
received an assignment of the earned interests under such agreement;

 

(e)           the terms of (including any liens or security interests created by
Laws or reserved in the Leases for Royalties, bonus or rental, or created to
secure compliance with the terms of) the Leases (including the remaining term of
any Lease) and the agreements described in Exhibit  D; provided, that, such
matters do not and will not, individually or in the aggregate, operate to reduce
the NRIs, Net Acres or Net Revenue Acres below those set forth on Exhibits A, B
or C, or increase the WIs above those set forth on Exhibits A, B or C (except
where there is a corresponding increase in the NRI or Net Revenue Acres or
except as such NRIs or Net Revenue Acres may be reduced, or such WIs may be
increased, from time to time under non-consent provisions of applicable
operating agreements or state law due to participation elections made after the
Execution Date under applicable operating agreements or state law in compliance
with Section 8.1 and Section 8.2 of this Agreement);

 

(f)            conventional rights of reassignment, to the extent any exist as
of the date of this Agreement, upon the surrender or expiration of any Lease;

 

(g)           easements, rights-of-way, servitudes, permits, surface leases and
other rights with respect to surface operations, on, over or in respect of any
Asset or any restriction on access thereto and that do not, individually or in
the aggregate, materially interfere with the use, ownership or operation of or
materially detract from the value of the affected Asset;

 

(h)           materialmen’s, mechanics’, repairmen’s, employees’, contractors’,
operators’ or other similar liens or charges arising in the ordinary course of
business incidental to construction, maintenance or operation of any Asset: 
(i) if they have not been filed pursuant to law and the time for filing them has
expired, (ii) if filed, they are for amounts that have not yet become due and
payable or for which payment is being

 

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withheld as provided by law, or (iii) if their validity is being contested in
good faith by appropriate action;

 

(i)            rights reserved to or vested in any Governmental Authority to
control or regulate any Asset in any manner and all applicable Laws;

 

(j)            liens arising under operating agreements, unitization and pooling
agreements and production sales contracts securing amounts not yet due  and
payable or, if due and payable, being contested in good faith in the ordinary
course of business;

 

(k)           lack of a division order or an operating agreement covering any
Asset or failure to obtain waivers of maintenance of uniform interest,
restriction on zone transfer or similar provisions in operating agreements with
respect to assignments in Seller’s chain of title to the Asset, unless (i) there
is an outstanding, unresolved claim from a third party with respect to the
failure to obtain such waiver or (ii) such failure to obtain such waiver is
reasonably likely to result in a claim from a third party in the future.

 

(l)            defects consisting of the mere failure to recite marital status
in a document or omissions of heirship or probate proceedings unless Buyer
provides affirmative evidence that the lack thereof has resulted in another
Person’s claim of superior title to the Asset;

 

(m)          defects that result from the failure to demonstrate of record
proper authority for execution by any Person on behalf of a corporation, limited
liability company, partnership, trust or other entity unless Buyer provides
affirmative evidence that the lack thereof has resulted in another Person’s
claim of superior title to the Asset;

 

(n)           defects that have by proper affidavits of use and possession or
other affirmative evidence have been cured under applicable statutes of
limitation for adverse possession or for prescription and for which no actual
claim has been made with respect thereto within the last ten (10) years;

 

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

 

(p)           liens that are released and discharged at or prior to Closing;

 

(q)           defects based on failure to file any assignments of record title
or operating rights in Leases issued by the State of Texas, in the records of
the land office of such state, provided such assignments are recorded in the
county records where the lands covered by such Leases are located and there is
no assignment on file in the records of the land office of the State of Texas or
such county, that contradicts or diminishes the title of Seller, as reflected by
the instruments recorded in the county;

 

(r)            defects based on lack of approval of assignments in Seller’s
chain of title that have been filed for approval with the State of Texas but
that have not yet been approved or disapproved and are set forth on Section 4.2
of the Disclosure Schedule,

 

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provided that the applicable Governmental Authority has not indicated in writing
that it intends to deny such approval;

 

(s)            liens created under deeds of trust, mortgages and similar
instruments by the lessor under a Lease covering the lessor’s surface or mineral
interests in the land covered thereby that do not, individually or in the
aggregate, materially interfere with the use, ownership or operation of or
materially detract from the value of the affected Asset;

 

(t)            defects and irregularities that, individually or in the aggregate
(i) do not materially interfere with the use, ownership or operation of or
materially detract from the value of the affected Assets, (ii) could not
reasonably be expected to prevent or delay Buyer from receiving the proceeds of
production from the affected Assets, (iii) do not and will not operate to reduce
the NRIs or Net Revenue Acres below those set forth on Exhibits A, B or C
(except as such Net Revenue Interest or Net Revenue Acres may be reduced after
the Execution Date due to Seller’s exercise, in compliance with this Agreement,
of non-consent rights under applicable Spacing Units or under applicable
operating and similar agreements), reduce the Net Acres below those set forth on
Exhibits A, B or C or increase the WIs above those set forth on Exhibits A, B or
C (except where there is a corresponding increase in the NRI), (iv) would be
accepted or waived by a reasonably prudent purchaser engaged in the business of
owning and operating oil and gas properties, and (v) would not be considered
material when applying general industry standards;

 

(u)           any defects arising from the failure to file an affidavit relating
to the occurrence of a required contingency or expiration of an oil and gas
lease for non-production, unless Buyer provides affirmative evidence that the
lack thereof has resulted in another Person’s claim of superior title to the
Asset;

 

(v)           any defects that Buyer has knowledge of prior to executing this
Agreement, provided that for the purposes of this clause (v), Buyer’s knowledge
shall refer only to the actual knowledge of the Person set forth for Buyer on
Item 1 of Section 16.16 of the Disclosure Schedule; and

 

(w)          with respect to any Lease, Well or section, any defects affecting
any depths other than the depths specified for any Lease, Well or section, as
set forth on Exhibits A, B or C, as applicable.

 

4.3          Title Defect.  The term “Title Defect” means, with respect to an
Asset, any lien, charge, encumbrance, obligation, encroachment, irregularity,
defect in (including a discrepancy in Net Revenue Interest, Working Interest,
Net Acres or Net Revenue Acres) or objection to real property title of Seller,
that alone or in combination with other defects renders title to such Asset less
than Defensible Title.

 

4.4          Notices of Title Defect and Title Defect Value.

 

(a)           Prior to the Title Defect Notice Deadline, Buyer shall deliver to
Seller written notices (each, a “Notice of Title Defect”) setting forth each
Title Defect affecting the Assets that Buyer believes in good faith to be a
Non-De Minimus Title Defect.  With

 

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respect to each such Non-De Minimus Title Defect, the Notice of Title Defect
shall (i) describe such Title Defect, (ii) include documentation or information
supporting the existence such Title Defect, (iii) if such Title Defect is
curable, describe in general terms the curative action that Buyer reasonably
anticipates would need to be taken in order to cure such Title Defect, and
(iv) describe Buyer’s good faith estimate of the Title Defect Value and
associated calculations and documentation.  Buyer shall have the right at any
time prior to the Title Defect Notice Deadline to, by delivery of a written
notice to Seller, extend the date of the Title Defect Notice Deadline to 5:00
p.m. local time in Houston, Texas on the date that is 90 days after the
Execution Date.  From and after any such extension the term “Title Defect Notice
Deadline”, as used in this Agreement, shall refer to 5:00 p.m. local time in
Houston, Texas on the date that is 90 days after the Execution Date.  Without
limitation of Buyer’s rights pursuant to the special warranty of title contained
in the Assignment, Bill of Sale and Conveyance, Buyer shall be deemed to have
conclusively waived (A) any Title Defect about which it has knowledge of and
fails to notify Seller in writing prior to the Title Defect Notice Deadline, and
(B) any Title Defect with respect to which the Title Defect Value is less than
or equal to the Title Defect Minimum.

 

(b)           “Title Defect Value” shall mean and be determined as follows:

 

(i)            If the Title Defect is a lien or encumbrance on the Asset, the
Title Defect Value shall be the cost of unconditionally removing such lien or
encumbrance, not to exceed the Allocated Value of the affected Asset.

 

(ii)           If the Title Defect results from any matter not described in
Subsection (i), the Title Defect Value shall be an amount equal to the
difference between the value of the Asset affected by such Title Defect burdened
by such Title Defect, and the value of such Asset not burdened by such Title
Defect (i.e. the Allocated Value of such Asset), taking into consideration the
nature of such Title Defect, the likelihood that such Title Defect may actually
result in a claim against or loss of title and such other factors as are
necessary to make a proper evaluation.

 

(iii)          If a Title Defect affects a Lease that covers Lands that
contribute to a Well and Lands that contribute to a Lease, the Title Defect
shall be allocated independently to such Well to the extent it affects the Value
of such Well and to such Lease to the extent it affects the Value of such Lease;
such that there will be one Title Defect Value attributable to the Well and one
Title Defect Value attributable to the Lease.

 

(iv)          The Title Defect Value for an Asset, together with the aggregate
Title Defect Values attributable to any other Title Defects affecting such
Asset, shall not exceed the Allocated Value of such Asset.

 

4.5          Title Defect Adjustments.  The Parties shall proceed as follows
with respect to any Notice of Title Defect:

 

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(a)           Seller shall have the option, but not the obligation, to attempt
to cure to the reasonable satisfaction of Buyer, on or before the applicable
Title Curative Date, any curable Non-De Minimus Title Defect affecting the
Assets that is timely identified in the Notice of Title Defect under Section 4.4
by providing Buyer written notice of such election no later than 7 days after
the Title Defect Notice Deadline (the “Cure Election Notice Deadline”).  At
Closing, the Title Defect Value of any such Non-De Minimus Title Defect that is
not cured to the reasonable satisfaction of Buyer by Closing (and for which the
Title Curative Date has not yet passed), shall be deposited into an escrow
account (the “Defect Escrow Account”), pursuant to an escrow agreement, the form
of which is mutually acceptable to the Parties, to be executed by the Parties at
Closing pursuant to Section 12.2(k) herein,  and established with a mutually
agreeable escrow agent (the “Escrow Agent”) and shall be deducted in the
calculation of the Closing Amount.  On each Title Curative Date, (i) if the
applicable Non-De Minimus Title Defect is cured by Seller to the reasonable
satisfaction of Buyer, Seller and Buyer shall execute and deliver joint written
instructions to the Escrow Agent to disburse the associated Title Defect Value
(and any interest and earnings thereon) to Seller and (ii) if the applicable
Non-De Minimus Title Defect is not cured by Seller to the reasonable
satisfaction of Buyer and (x) the Title Defect Deductible has been satisfied as
of such date, Seller and Buyer shall execute and deliver joint written
instructions to the Escrow Agent to disburse the associated Title Defect Value
(and any interest and earnings thereon) to Buyer and (y) the Title Defect
Deductible has not been satisfied as of such date, Seller and Buyer shall
execute and deliver joint written instructions to the Escrow Agent to disburse
the associated Title Defect Value (and any interest and earnings thereon) to
Seller to the extent such disbursement does not result in satisfaction of the
Title Defect Deductible.

 

(b)           With respect to each Non-De Minimus Title Defect affecting an
Asset identified in the Notice of Title Defect that Seller has not elected to
cure pursuant to Section 4.5(a) (or Seller has elected to cure pursuant to
Section 4.5(a) but the Title Curative Date applicable to such Non-De Minimus
Title Defect has passed), the Parties shall, no later than 7 days after the Cure
Election Notice Deadline, attempt in good faith to reach agreement on the
existence of such Title Defect and the Title Defect Value.  In the event that
the Parties do not reach such an agreement by the date that is 7 days after the
Cure Election Notice Deadline, then:

 

(i)            Seller and Buyer shall each have the option to submit the
existence of such Non-De Minimus Title Defect and/or the Title Defect Value to
binding determination by the Title Expert pursuant to Section 4.7;

 

(ii)           Seller and Buyer may mutually agree to exclude the affected Asset
from the Assets being sold to Buyer under this Agreement, in which event the
Base Purchase Price shall be reduced by the Allocated Value of such Asset and
such Asset shall thereafter be treated as an Excluded Asset; or

 

(iii)          Seller and Buyer may mutually agree that Seller shall indemnify,
defend, save, and hold harmless Buyer under Section 14.3(a)(vii) (subject to the
other provisions of this Section 4.5(b)(iii) and Article 14) for all Claims and

 

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Losses arising out of, attributable to, or in connection with such Title Defect
(an “Indemnified Title Defect”), subject to the following:

 

(A)          The amount of any Loss or Claim arising out of, attributable to, or
in connection with each Indemnified Title Defect must exceed the Title Defect
Minimum before Seller shall have any Liability or obligation under this
Section 4.5(b)(iii) (or Section 15.3(a)(viii)) with respect to such Loss or
Claim.

 

(B)          The aggregate Liability of Seller for all Losses and Claims arising
out of, attributable to, or in connection with all Indemnified Title Defects
shall not exceed the difference of: (1) the aggregate sum of the Title Defect
Values assigned to Non-De Minimus Title Defects by Buyer in its Notices of Title
Defect; minus (2) the Title Defect Deductible.

 

(C)          The aggregate Liability of Seller for all Losses and Claims arising
out of, attributable to, or in connection with any particular Indemnified Title
Defect shall not exceed the Title Defect Value assigned thereto by Buyer in its
Notice of Title Defect for such Indemnified Title Defect.

 

At Closing, the Title Defect Value of any Non-De Minimus Title Defect that is
submitted for dispute pursuant to Section 4.5(b)(i) shall be deposited into the
Defect Escrow Account and shall be deducted in the calculation of the Closing
Amount.  On the date that the dispute relating to such Non-De Minimus Title
Defect is resolved pursuant to Section 4.7, Seller and Buyer shall execute and
deliver joint written instructions to the Escrow Agent to disburse the
associated Title Defect Value (and any interest and earnings thereon) in
accordance with the decision of the Title Expert (for the avoidance of doubt, if
the Title Defect Deductible has not been satisfied at the time of such
disbursement, the Title Defect Value shall be disbursed to Seller until
satisfaction of the Title Defect Deductible).

 

4.6          Interest Additions.

 

(a)           If either Party discovers any additional interest (each, an
“Interest Addition”) that is not listed in Exhibits A, B or C (including, for
example, any interest that entitles Seller to receive more than the NRI set
forth in Exhibits A, B or C without a corresponding increase in the WI; that
obligates Seller to bear costs and expenses in an amount less than the WI set
forth in Exhibits A, B or C without a corresponding reduction in the NRI; or
that increases Seller’s WI set forth in Exhibit A, B or C with a corresponding
increase in the NRI) and such Interest Addition is a Non-De Minimus Interest
Addition, the Party who discovers the Non-De Minimus Interest Addition shall
promptly notify the other Party of such Non-De Minimus Interest Addition.  There
shall be no increase to the Base Purchase Price as a result of Non-De Minimus
Interest Additions; however, the aggregate amount of the value of Non-De Minimus
Interest Additions that exceed the Interest Addition Deductible shall, to the
extent such aggregate amount exceeds the Interest Addition Deductible, be offset
against the aggregate amount of all Title Defect Values as provided in
Section 4.8.  The Party who discovers a Non-De Minimus Interest Addition, shall
give the other Party written notice of the Non-De Minimus

 

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Interest Addition as soon as possible, but in no event later than the Title
Defect Notice Deadline.  Such notice shall be in writing and shall include (i) a
description of each Non-De Minimus Interest Addition (and the depths to which
such Non-De Minimus Interest Addition applies), (ii) documentation or
information supporting the existence of such Non-De Minimus Interest Addition,
(iii) the Allocated Value of the Asset affected by the Non-De Minimus Interest
Addition (taking into account the depths for which such Non-De Minimus Interest
Addition applies), and (iv) the applicable Party’s good faith estimate of the
value of the Non-De Minimus Interest Addition and associated calculations and
documentation (taking into account the depths for which such Non-De Minimus
Interest Addition applies).  The Parties shall, no later than the date of the
Cure Election Notice Deadline, attempt in good faith to reach agreement on the
existence of such Non-De Minimus Interest Addition and the value of such Non-De
Minimus Interest Addition.  In the event the Parties cannot agree on the
existence and/or value of the Non-De Minimus Interest Addition, the disagreement
shall be submitted to binding determination by the Title Expert pursuant to
Section 4.7.

 

(b)           Post-Closing Non-Asset Interest Additions. Following Closing, if
either Party discovers additional leases, wells or undeveloped land of which
Defensible Title ownership is held by Seller, as of Closing, within the area
described as the “Sale Area” in Section 4.6(b) of the Disclosure Schedule, but
that are not included in the Assets as defined herein (“Post-Closing Non-Asset
Interest Addition”), the Parties agree that for a period of twenty-four (24)
months following Closing, Buyer shall have the exclusive right to purchase any
Post-Closing Non-Asset Interest Addition discovered, at a purchase price to be
mutually agreed upon by the Parties.  If the Parties are unable to agree upon a
purchase price for any Post-Closing Non-Asset Interest Additions identified
under this paragraph within thirty (30) days after such interest is identified,
then Buyer’s right under this paragraph shall terminate and Seller shall have no
further obligation to Buyer concerning such interest.  For clarity, Buyer’s
exclusive right to purchase any Post-Closing Non-Asset Interest Additions shall
not apply to leases, wells or undeveloped land of which Defensible Title
ownership is not held by Seller at Closing and Buyer’s exclusive right to
purchase any such interests shall terminate on the twenty-four (24) month
anniversary of the Closing Date, except for any such interests identified by
either Party prior to such date.

 

4.7          Expert Determination of Title Defects, Title Defect Values and
Interest Additions.  If, pursuant to Section 4.5(b)(i), the existence of a
Non-De Minimus Title Defect or the Title Defect Value thereof is submitted to
arbitration, or if pursuant to Section 4.6, the existence or value of an Non-De
Minimus Interest Addition is submitted to arbitration, then the arbitration
shall be conducted pursuant to this Section 4.7.

 

(a)           The arbitration shall be conducted before a single Person (the
“Title Expert”).  The Title Expert shall be neutral, not an affiliate, employee
or consultant of either Party and shall be an attorney with at least 10 years of
experience who practices oil and gas law or mineral law in the State of Texas.

 

(b)           The Parties shall mutually agree on the Title Expert; provided if
the Parties are not able to mutually agree on the arbiter within 5 Business Days
after the matter is submitted to arbitration, the Title Expert shall be selected
by the Dallas, Texas office of the American Arbitration Association (or in the
event that there is no such office

 

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in Dallas, Texas at such time, by any other office of the American Arbitration
Association) and such arbitration shall take place in Midland, Texas.

 

(c)           Within 10 Business Days of the selection of the Title Expert, the
Parties shall provide to the Title Expert the following materials:

 

(i)            if the arbitration is with respect to a disagreement under
Section 4.5(b), Buyer’s Notice of Title Defect and all documentation provided
therewith shall be provided to the Title Expert (and Buyer shall be allowed to
supplement such Notice of Title Defect with additional documentation or
information supporting the existence of such Title Defect and/or Seller’s good
faith estimate of the Title Defect Value), and Seller shall provide such
evidence and documentation as Seller deems appropriate to dispute Buyer’s
assertion of the existence of the Non-De Minimus Title Defect or the Title
Defect Value as assigned thereto by Buyer in the Notice of Title Defect,
together with Seller’s good faith estimate of the Title Defect Value, if any;

 

(ii)           if the arbitration is with respect to a disagreement under
Section 4.6, the notice provided by Seller shall be provided to the Title Expert
together with all documentation provided therewith, and Buyer shall provide such
evidence and documentation as it deems appropriate to dispute the existence
and/or value of the Non-De Minimus Interest Addition, together with Buyer’s good
faith estimate of the value of the Non-De Minimus Interest Addition, if any;

 

(iii)          Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 and 4.7 of this Agreement,
and the applicable portion of Exhibits A, B, C and D to this Agreement, together
with any definitions of terms used in such Sections and Exhibits, but no other
provisions of this Agreement; and

 

(iv)          Any other additional information requested by the Title Expert.

 

(d)           The Title Expert shall make his determination and provide to the
Parties written findings within 15 Business Days after he has received the
materials under Section 4.7(c).  The decision of the Title Expert shall be final
and non-appealable and shall be limited to awarding only Seller’s position or
Buyer’s position with respect to the Title Defect, Title Defect Value or
Interest Addition (or a position in between Seller’s position and Buyer’s
position).  The Title Expert shall make a separate determination with respect to
each Title Defect, Title Defect Value and Interest Addition submitted.

 

(e)           Each Party shall be responsible for paying its own costs of
presenting its case to the Title Expert, and the costs of the arbiter shall be
borne one-half by Seller and one-half by Buyer.

 

(f)            The written finding of the arbiter need only set forth the Title
Expert’s award with respect to each Title Defect, Title Defect Value and
Interest Addition and not the arbiter’s rationale for the award.

 

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(g)           The Title Expert shall act as an expert for the limited purpose of
determining the specific matters disputed and shall not act as an arbitrator,
and may not award damages, interest or penalties to either Party with respect to
any matter.

 

(h)           The Parties agree to execute such agreements as may be reasonably
requested or required by the Title Expert, including any engagement letters,
releases and indemnities consistent with this Agreement.

 

4.8          Title Defect Reduction Amount.  In the event (a) (i) the aggregate
amount of all Title Defect Values attributable to uncured Non-De Minimus Title
Defects as finally determined (whether by agreement or arbitration), less
(ii) the amount by which the aggregate amount of all Non-De Minimus Interest
Additions exceeds the Interest Addition Deductible, in each case, as finally
determined (whether by agreement or arbitration), exceeds (b) the Title Defect
Deductible, then the Base Purchase Price shall be reduced by such excess (the
“Title Defect Reduction Amount”), and such reduction shall be reflected, to the
extent determined on the date the Preliminary Settlement Statement is delivered,
on the Preliminary Settlement Statement, and otherwise on the Final Settlement
Statement.

 

4.9          Changes in Product Prices, Spacing and Pooling and Well Events. 
Subject to Seller’s representations, warranties and covenants made pursuant to
this Agreement, Buyer shall assume all risk of loss with respect to (i) changes
in product prices and any other market factors or conditions, (ii) Buyer not
being able to take over operations of any portion of the Assets (except as a
result of Seller’s failure to comply with Section 8.7 of this Agreement), and
(iii) production declines through normal depletion or any adverse change in the
production characteristics or downhole condition of a Well or other Asset,
including a Well watering out, experiencing a collapse in the casing or sand
infiltration, from and after the Effective Time (except as a result of Seller’s
failure to comply with Section 8.1 or 8.2 of this Agreement).

 

4.10        Consents.  No later than 5 Business Days after the Execution Date,
Seller shall prepare and send notices to the holders of any consents to the
assignment of the Assets (other than holders of consents that are customarily
obtained subsequent to sale, conveyance or other transfer), all of which
consents are described in Section 4.10 of the Disclosure Schedule, and Seller
shall use its reasonable commercial efforts to obtain all such consents.  If
Buyer discovers other consents to the assignment of the Assets (other than
holders of consents that are customarily obtained subsequent to sale, conveyance
or other transfer and consents to assign that are described in Section 4.10 of
the Disclosure Schedule) during the course of Buyer’s Due Diligence Review,
Buyer shall promptly notify Seller of such consents and Seller shall use its
reasonable commercial efforts to obtain such consents prior to Closing.  If
after the Execution Date Seller discovers other consents to the assignment of
the Assets (other than holders of consents that are customarily obtained
subsequent to sale, conveyance or other transfer and consents to assign that are
described in Section 4.10 of the Disclosure Schedule), Seller shall promptly
notify Buyer of such consents and Seller shall use its reasonable commercial
efforts to obtain such consents prior to Closing.  Except for consents that are
customarily obtained subsequent to sale, conveyance or other transfer and
consents that are not Material Consents, if a necessary consent to assign any
Asset has not been obtained as of the Closing, then (i) such Asset shall be
excluded from the Assets being sold to Buyer under this Agreement, the Base
Purchase Price shall be reduced by the Allocated Value of such Asset and such
Asset shall

 

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thereafter be treated as an Excluded Asset, (ii) Seller shall use its reasonable
commercial efforts to obtain such consent as promptly as possible following
Closing, and (iii) if such consent has been obtained as of the Final Settlement
Date, the Allocated Value of such Assets shall be an upward adjustment to the
Purchase Price on the Final Settlement Statement and Seller shall assign such
Asset to Buyer, effective as of the Effective Time, pursuant to the other terms
and conditions of this Agreement.  Buyer shall reasonably cooperate with Seller
in obtaining any required consent including providing evidence of financial
condition (but such cooperation shall not require the payment of consideration
by Buyer unless Buyer agrees).

 

4.11        Preferential Purchase Rights.  No later than 5 Business Days after
the Execution Date, Seller shall prepare and send notices to the holders of any
preferential rights to purchase any part of the Assets that would be triggered
by the transfer of the Assets by Seller to Buyer, all of which preferential
rights are described in Section 4.11 of the Disclosure Schedule.  If Buyer
discovers other preferential rights to purchase any part of the Assets that
would be triggered by the transfer of the Assets by Seller to Buyer (other than
preferential rights that are described in Section 4.11 of the Disclosure
Schedule) during the course of Buyer’s Due Diligence Review, Buyer shall
promptly notify Seller of such preferential rights and Seller shall prepare and
send notices to the holders of any such preferential rights no later than 5
Business Days after Buyer notifies Seller of such preferential rights.  If after
the Execution Date Seller discovers other preferential rights to purchase any
part of the Assets that would be triggered by the transfer of the Assets by
Seller to Buyer (other than preferential rights that are described in
Section 4.11 of the Disclosure Schedule), Seller shall promptly notify Buyer of
such preferential rights and Seller shall prepare and send notices to the
holders of any such preferential rights no later than 5 Business Days after
Seller notifies Buyer of such preferential rights.  If, prior to Closing, any of
such Persons asserting a preferential purchase right notifies Seller that it
intends to consummate the purchase of that portion of the Assets to which it
holds a preferential purchase right pursuant to the terms and conditions of such
notice and this Agreement, then such Assets shall be excluded from the Assets
identified in this Agreement and the Purchase Price shall be reduced by the
Allocated Values of such Assets; provided that if the holder of such
preferential right fails to consummate the purchase of such Assets prior to the
Closing Date, then Seller shall notify Buyer, and Seller shall sell to Buyer,
and Buyer shall purchase from Seller, the Assets to which the preferential
purchase right was asserted for the Allocated Values of such Assets. All Assets
for which a preferential purchase right is outstanding but has not been asserted
prior to Closing, or with respect to which closing does not occur on or before
the Closing Date following the assertion of a preferential purchase right shall
be sold to Buyer at Closing pursuant to the provisions of this Agreement.  If
one or more of the holders of any preferential purchase rights validly notifies
Seller subsequent to Closing that it intends to assert its preferential purchase
right, Seller shall immediately give notice thereof to Buyer, whereupon Buyer
shall perform all valid preferential purchase right obligations of Seller to
such holders and Buyer shall be entitled to receive (and Seller hereby assigns
to Buyer all of Seller’s rights to) all proceeds received from such holders in
connection with such preferential purchase rights.  Buyer hereby agrees to
indemnify, defend and hold harmless Seller from any claim by the holder of a
preferential right with respect to the allocation of the Base Purchase Price
among the Assets, including the Asset(s) subject to such preferential right.

 

4.12        Casualty Loss.  Prior to Closing, if any material portion of an
Asset is destroyed by fire or other casualty or if a portion of an Asset is
taken or threatened to be taken in

 

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condemnation or under the right of eminent domain (“Casualty Loss”) (provided
that none of the matters covered by Section 4.9 shall constitute a Casualty
Loss), at the option of Buyer (a) such Asset shall be excluded from this
Agreement and the Base Purchase Price shall be reduced by the Allocated Value of
the Asset and such Asset shall thereafter  be treated as an Excluded Asset or
(b) the Base Purchase Price shall be reduced by the estimated cost to repair
such Asset (with equipment of similar utility), which amount shall not exceed
the Allocated Value of the Asset (the Purchase Price adjustment, whether from
excluding the Asset or agreement upon an appropriated adjustment, is herein
called the “Net Casualty Loss”) and Seller shall retain all insurance proceeds
and all claims against third parties with respect to the Casualty Loss.  Seller,
upon consent of Buyer, may elect to cure such Casualty Loss to the reasonable
satisfaction of Buyer.  If Seller elects to cure such Casualty Loss, Seller 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 real property is acceptable to Buyer
in its sole discretion.  If Seller elects to cure the Casualty Loss and does in
fact cure the Casualty Loss to the reasonable satisfaction of Buyer, the
affected Asset shall be included in the Assets and transferred to Buyer at the
Closing with no adjustment to the Purchase Price.

 

ARTICLE 5
ENVIRONMENTAL MATTERS

 

5.1          Environmental Investigation.

 

(a)           Environmental Reports and Personnel.  Subject to Section 3.1(b),
Seller shall provide Buyer with access during the regular business hours of
Seller to all information in Seller’s possession or control pertaining to the
environmental condition of the Assets, including any environmental reports,
permits, records, and assessments.

 

(b)           Environmental Assessment.  Buyer may, or may engage a qualified
environmental contractor to, conduct an on-site inspection, environmental
assessment, and compliance audit of the Assets (an “Environmental Assessment”)
at Buyer’s sole risk, Liability, and expense; provided that: (i) Buyer shall
provide Seller with prior written notice of any activities conducted on-site at
the Assets with respect to any such Environmental Assessment, and shall provide
Seller the opportunity to participate in all such activities; (ii) any
contractor engaged to perform all or any portion of such Environmental
Assessment shall execute and deliver to Seller a confidentiality agreement in a
form reasonably acceptable to Seller; (iii) with respect to those Assets not
operated by Seller, Buyer shall have first received the written consent of the
operator of such Assets to the extent such consent is required (and Seller shall
use commercially reasonable efforts to assist Buyer in obtaining such written
consent); and (iv) Buyer shall not conduct, authorize, or permit any test
drilling, sampling, or other on-site activities without prior written notice to,
and the prior written consent of, Seller, which consent may be withheld at the
sole discretion of Seller (together with the prior written notice to, and prior
written consent of, the operator of those Assets not operated by Seller).  In
the event that (x) Buyer, in its reasonable discretion based on the findings of
Buyer’s Environmental Assessment, determines that an invasive test or procedure
(including test drilling, sampling, or other on-site activities) is needed with
respect to an Asset and Buyer does not receive any necessary consents to conduct
such invasive test or procedure

 

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or (y) Buyer is not granted access to an Asset for the purpose of conducting its
Environmental Assessment, Purchaser may, in its sole discretion exclude the
affected Asset, in which event the Base Purchase Price shall be reduced by the
Allocated Value of such Asset and such Asset shall thereafter be treated as an
Excluded Asset. If Buyer or any of its Representatives prepares a final report
with respect to its Environmental Assessment of the Assets, Buyer shall,
pursuant to and in accordance with the terms of Section 3.3(a), furnish a copy
thereof to Seller.

 

5.2                               NORM and Asbestos.  Some production equipment
may contain asbestos or NORM.  In this regard, the Parties expressly understand
that NORM may affix or attach itself to the inside of wells, materials and
equipment as scale or in other forms, that said wells, materials and equipment
located on the Lands or included in the Assets described herein may contain NORM
and that NORM containing material may have been buried or otherwise disposed of
on the Lands.  Buyer and Seller also expressly understand that special
procedures may be required for the Remediation, removal, transportation and
disposal of asbestos or NORM from the Assets and Lands where such material may
be found and that, after Closing, Buyer assumes all liability for or in
connection with the assessment, containment, removal, Remediation,
transportation and disposal of any such materials, in accordance with all
existing or future applicable laws, rules, regulations and other requirements of
any governmental or judicial bodies having jurisdiction and also with the terms
and conditions of all applicable leases and other contracts.  For purposes of
this Agreement asbestos and NORM contaminated pipe, tubing, well and other
equipment and materials that does not meet or exceed actionable levels of
contamination or does not meet the requirements for a Non-De Minimus
Environmental Defect shall not be an Environmental Defect.

 

5.3                               Notice of Environmental Defects.  Promptly
upon discovery, but in any event prior to the Environmental Defect Notice
Deadline, Buyer shall deliver to Seller written notices (each, a “Notice of
Environmental Defect”) setting forth each Environmental Defect (other than those
environmental matters described in Section 5.3 of the Disclosure Schedule (the
“Disclosed Environmental Defects”)) affecting the Assets that Buyer’s
Environmental Assessment identifies and that Buyer believes to be a Non-De
Minimus Environmental Defect, together with a description in reasonable detail
of the Environmental Defect (and, to the extent reasonably necessary to support
such description, reports, assessments and other documentation in Buyer’s
possession relating to such Environmental Defect) and Buyer’s good faith
estimate of the cost to Remediate such Environmental Defect (the “Environmental
Defect Value”).  Without limitation of Buyer’s remedies for any breach by Seller
of its representations and warranties in Article VI pertaining to environmental
matters, Buyer shall be deemed to have conclusively waived (a) any Environmental
Defect about which it fails to notify Seller in writing pursuant to a Notice of
Environmental Defect prior to the Environmental Defect Notice Deadline and
(b) the Disclosed Environmental Defects.  Buyer shall have the right to exclude
an Asset from this Agreement if Buyer’s good faith estimate of the Environmental
Defect Value, as set forth in the Notice of Environmental Defect relating to
such Environmental Defect exceeds 50% of the Allocated Value of the Asset
affected thereby, in which event the Base Purchase Price shall be reduced by the
Allocated Value of such Asset and such Asset shall thereafter be treated as an
Excluded Asset; provided, that Buyer’s right to exclude any such Asset shall not
apply to an Asset with an Allocated Value of less than $100,000 unless Buyer’s
good faith estimate of the

 

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Environmental Defect Value relating to the Environmental Defect affecting such
Asset exceeds $200,000.

 

5.4                               Environmental Defect Adjustments.  With
respect to each Non-De Minimus Environmental Defect timely asserted by Buyer
pursuant to Section 5.3, the Parties shall, no later than 10 Business Days after
the Environmental Defect Notice Deadline, attempt in good faith to reach
agreement on the existence of such Non-De Minimus Environmental Defect and the
Environmental Defect Value relating thereto.  In the event the Parties do not
reach such agreement by the end of such 10 Business Day period, then:

 

(a)                                 Seller and Buyer shall each have the option
to submit the existence of the Non-De Minimus Environmental Defect and/or the
Environmental Defect Value to binding determination by the Environmental Expert
pursuant to Section 5.5; or

 

(b)                                 Seller and Buyer may mutually agree to
exclude the affected Asset from the Assets being sold to Buyer under this
Agreement, in which event the Base Purchase Price shall be reduced by the
Allocated Value of such Asset and such Asset shall thereafter be treated as an
Excluded Asset.

 

At Closing, the Environmental Defect Value of any Non-De Minimus Environmental
Defect that is submitted for dispute pursuant to Section 5.4(a) shall be
deposited into the Defect Escrow Account pursuant to the Defect Escrow Agreement
and shall be deducted in the calculation of the Closing Amount.  On the date
that the dispute relating to such Non-De Minimus Environmental Defect is
resolved pursuant to Section 5.5, Seller and Buyer shall execute and deliver
joint written instructions to the Escrow Agent, pursuant to the Defect Escrow
Agreement, to disburse the associated Environmental Defect Value (and any
interest and earnings thereon) in accordance with the decision of the
Environmental Expert (for the avoidance of doubt, if the Environmental Defect
Deductible has not been satisfied at the time of such disbursement, the
Environmental Defect Value shall be disbursed to Seller until satisfaction of
the Environmental Defect Deductible).

 

5.5                               Expert Determination of Environmental Defect
Values.  If, pursuant to Section 5.4(a), the existence of a Non-De Minimus
Environmental Defect or the Environmental Defect Value thereof is submitted to
expert arbitration, then the arbitration shall be conducted pursuant to this
Section 5.5.

 

(a)                                 The determination shall be conducted before
a single Person (the “Environmental Expert”).  The Environmental Expert shall be
neutral, not an affiliate, employee or consultant of either Party and shall be
an environmental consultant with at least 10 years of experience in the oil and
gas industry in the State of Texas.

 

(b)                                 The Parties shall mutually agree on the
Environmental Expert; provided if the Parties are not able to mutually agree on
the Environmental Expert within 5 Business Days after the matter is submitted to
arbitration, the Environmental Expert shall be selected by the Dallas, Texas
office of the American Arbitration Association (or in the event that there is no
such office in Dallas, Texas at such time, by any other office of the

 

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American Arbitration Association) and such arbitration shall take place in
Midland, Texas.

 

(c)                                  Within 10 Business Days of the selection of
the Environmental Expert, the Parties shall provide to the Environmental Expert
the following materials:

 

(i)                                     Buyer’s Notice of Environmental Defect
and all documentation provided therewith shall be provided to the Environmental
Expert (and Buyer shall be allowed to supplement such Notice of Environmental
Defect with additional documentation or information supporting the existence of
such Environmental Defect and/or Seller’s good faith estimate of the
Environmental Defect Value), and Seller shall provide such evidence and
documentation as Seller deems appropriate related to, or to dispute Buyer’s
assertion of the existence of, the Non-De Minimus Environmental Defect or the
Environmental Defect Value assigned thereto by Buyer in the Notice of
Environmental Defect, together with Seller’s good faith estimate of the
Environmental Defect Value, if any;

 

(ii)                                  Sections 5.2, 5.3, 5.4 and 5.5 of this
Agreement, and the applicable portions of Exhibits A, B, C and D to this
Agreement, together with any definitions of terms used in such Sections and
Exhibits, but no other provisions of this Agreement; and

 

(iii)                               Any other additional information requested
by the Environmental Expert.

 

(d)                                 The Environmental Expert shall make his
determination and provide to the Parties written findings within 15 Business
Days after he has received the materials under Section 5.5(c).  The decision of
the Environmental Expert shall be final and non-appealable and shall be limited
to awarding only Seller’s position or Buyer’s position with respect to the
Environmental Defect (or a position in between Seller’s position and Buyer’s
position).  The Environmental Expert shall make a separate determination with
respect to each Environmental Defect and Environmental Defect Value submitted.

 

(e)                                  Each Party shall be responsible for paying
its own costs of presenting its case to the Environmental Expert, and the costs
of the Environmental Expert shall be borne one-half by Seller and one-half by
Buyer.

 

(f)                                   The written findings of the Environmental
Expert need only set forth the Environmental Expert’s award with respect to each
Environmental Defect and Environmental Defect Value, and not the Environmental
Expert’s rationale for the award.

 

(g)                                  The Environmental Expert shall act as an
expert for the limited purpose of determining the specific matters disputed and
shall not act as an arbitrator, and may not award damages, interest or penalties
to either Party with respect to any matter.

 

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(h)                                 The Parties agree to execute such agreements
as may be reasonably requested or required by the Environmental Expert,
including any engagement letters, releases and indemnities consistent with this
Agreement.

 

5.6                               Environmental Defect Reduction Amount.  In the
event (a) the aggregate amount of all Environmental Defect Values attributable
to Non-De Minimus Environmental Defects as finally determined (whether by
agreement or arbitration), exceeds (b) the Environmental Defect Deductible, then
the Base Purchase Price shall be reduced by such excess (the “Environmental
Defect Reduction Amount”), and such reduction shall be reflected, to the extent
determined on the date the Preliminary Settlement Statement is delivered, on the
Preliminary Settlement Statement, and otherwise on the Final Settlement
Statement.

 

5.7                               “As Is, Where Is” Purchase.  Except as
otherwise provided in this Agreement, Buyer shall acquire the Assets (including
Assets for which a notice was given under Section 5.3 that are not otherwise
excluded from this Agreement) in an “AS IS, WHERE IS” condition and shall assume
all risks that the Assets may contain waste materials (whether toxic, hazardous,
extremely hazardous or otherwise) or other adverse physical conditions,
including the presence of unknown abandoned oil and gas wells, water wells,
sumps, pits, pipelines or other waste or spill sites that may not have been
revealed by Buyer’s investigation.  Subject to Article 15, at and after the
Closing, all responsibility and liability related to all such conditions,
whether known or unknown, fixed or contingent, will be transferred from Seller
to Buyer, regardless of when the responsibility and liability arose.

 

5.8                               Assumed Environmental Liabilities.  From and
after the Closing, Buyer shall be deemed to have assumed and agreed to perform
and pay (or cause to be performed and paid) any and all duties, obligations,
liabilities and other Losses (including any civil fines, penalties, costs of
assessment, clean-up, removal and Remediation of pollution or contamination and
expenses for the modification, repair or replacement of facilities on the Lands)
directly or indirectly caused by or otherwise involving any environmental
condition of the Assets, where created or existing before, on or after, the
Effective Time, including the presence, disposal or release of any Hazardous
Material, on or under the Assets, including those brought or assessed by any
Persons on account of post-Effective Time personal injury, illness or death, any
damage to, destruction or loss of property, and any contamination or pollution
of natural resources (including soil, air, surface water or groundwater) (the
“Assumed Environmental Liabilities”).

 

ARTICLE 6
SELLER’S REPRESENTATIONS AND WARRANTIES

 

Seller makes the following representations and warranties:

 

6.1                               Existence.

 

(a)                                 Cimarex  (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and (ii) is duly qualified to do business in the State of Texas.

 

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(b)                                 Prize (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and (ii) is duly qualified to do business in the State of Texas.

 

(c)                                  Magnum Hunter is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas.

 

6.2                               Power and Authority.  Seller has all requisite
power and authority to carry on its business as presently conducted, to enter
into this Agreement and each of the documents contemplated to be executed by
Seller pursuant to this Agreement, and to perform its obligations under this
Agreement and under such documents.  The consummation of the transaction
contemplated by this Agreement and each of the documents contemplated to be
executed by Seller pursuant to this Agreement  will not violate, nor be in
conflict with, (i) any provision of Seller’s organizational or governing
documents, (ii) any agreement or instrument to which Seller is a party or is
bound, or (iii) any judgment, decree, order, statute, law, rule or regulation
applicable to Seller.

 

6.3                               Authorization.  The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Seller pursuant to this Agreement have been duly and validly
authorized by all requisite corporate action on the part of Seller.

 

6.4                               Execution and Delivery.  This Agreement has
been duly executed and delivered on behalf of Seller, and at the Closing, all
documents and instruments required hereunder to be executed and delivered by
Seller shall have been, duly executed and delivered.  This Agreement does, and
such documents and instruments shall, constitute legal, valid and binding
obligations of Seller enforceable in accordance with their terms, subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity, and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.

 

6.5                               Foreign Person.  Seller is not a “foreign
person” within the meaning of Section 1445 of the Code (i.e. Seller is not a
nonresident alien, foreign corporation, foreign partnership, foreign trust, or
foreign estate as those terms are defined in the Code and any regulations
promulgated thereunder).

 

6.6                               Liabilities for Brokers’ Fees.  Seller has
incurred no liability, contingent or otherwise, for brokers’ or finders’ fees
relating to the transaction contemplated by this Agreement for which Buyer shall
have any responsibility whatsoever.

 

6.7                               Liens.  Except for the Permitted Encumbrances,
Seller’s interest in the Assets is free and clear of all liens, claims, security
interests, mortgages, charges and encumbrances created by, through or under
Seller.

 

6.8                               Taxes.  Except as set forth in Section 6.8 of
the Disclosure Schedule, all Taxes and assessments pertaining to Seller’s
interest in the Assets or the production of Hydrocarbons therefrom for all
taxable periods that are due and payable have been properly paid.  Seller has
not received any written notice from any governmental authority of any
delinquency in the payment of Taxes on the Assets or the production of
Hydrocarbons from the Assets.  All Tax returns

 

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required to be filed by Seller with respect to such Taxes have been duly and
timely filed.  There is not currently in effect any extension or waiver of any
statute of limitations in any jurisdiction regarding the assessment or
collection of any Tax arising from the ownership of the Assets or the production
of Hydrocarbons from the Assets.  None of the Assets are subject to any Tax
partnership agreement or is otherwise treated as held in an arrangement
requiring a partnership income Tax Return to be filed under Subchapter K of
Chapter 1 of Subtitle A of the Code.

 

6.9                               Litigation.  Except as set forth in
Section  6.9 of the Disclosure Schedule (“Existing Seller Claims”), there is no
action, suit, proceeding, claim or, to its knowledge, investigation, pending or,
to its knowledge, threatened, against Seller or any of its Assets in any court
or by or before any governmental authority or arbitration or mediation that
would materially adversely affect the value of the Assets taken as a whole, or
impair Seller’s ability to consummate, or that would reasonably be expected to
prevent, delay or make illegal the transaction contemplated hereby.  No
condemnation or eminent domain proceedings are pending, or, to Seller’s
knowledge, threatened, by any governmental authority affecting any of the
Assets. Seller has not received any notice of potential liability or request for
information, in each case with respect to any location used for the off-site
disposal of Hazardous Materials.

 

6.10                        No Notice of Violation.  Except as set forth in
Section 6.10 of the Disclosure Schedule, Seller has not received written notice
of any continuing or uncured violation on the part of Seller of any laws
(including Environmental Laws) applicable to the Assets or of any license or
permit, which violation or violations have not been cured, abated or otherwise
remedied and would, singularly or in the aggregate, adversely affect the
ownership, operation or value of Seller’s interest in any of the Assets.

 

6.11                        Material Agreement; Notice of Defaults.

 

(a)                                 The Material Agreements include all
contracts and agreements that materially affect Seller’s interest in the Assets,
or any portion of the Assets or that involve the performance of services or the
delivery of goods or materials by or to Seller or require expenditures in excess
of $200,000 per year.  Except for the Material Agreements, Seller is not subject
to any agreement relating to its interest in the Assets or with any Affiliate of
Seller that cannot be terminated by Buyer after Closing without penalty, cost or
liability.

 

(b)                                 Seller has not received written notice of
any continuing or uncured default on the part of Seller with respect to any
contractual obligation (including any Lease or Material Agreement), which
default or defaults would, singularly or in the aggregate, materially adversely
affect the ownership, operation or value of Seller’s interest in any of the
Assets.  There is no existing material default on the part of Seller or, to
Seller’s knowledge, any other Person under any Material Agreement.  To Seller’s
knowledge, there is no existing event or circumstance which with notice or lapse
of time would give rise to a material default on the part of Seller or any other
Person under a Material Agreement.  All Material Agreements are in full force
and effect and constitute the valid and binding obligation of Seller, and to
Seller’s knowledge, the other parties thereto, and are enforceable in accordance
with their respective terms.

 

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6.12                        Production Sales Contracts.  Except as set forth in
Section 6.12 of the Disclosure Schedule, Seller’s interests in the Assets are
not subject to any contract for the sale of Hydrocarbons attributable to periods
after the Effective Time other than contracts that can be terminated on 90 days’
or less prior notice.  Except as set forth in Section 6.12 of the Disclosure
Schedule, Seller’s interest in the Assets is not encumbered by any obligation
under a sales contract, hedging contract, take-or-pay clause, or any similar
arrangement, to deliver Hydrocarbons produced from such interest in the Assets
without receiving payment at the time of or subsequent to delivery, or to
deliver Hydrocarbons in the future for which payment has already been received
(e.g., a “forward” sale contract).

 

6.13                        Plugging Notices and Demands.  Except as set forth
in Section 6.13 of the Disclosure Schedule, Seller has not received any notices
or demands from governmental authorities or other third parties to plug,
dismantle or abandon any of the Wells and Seller is not obligated as of the
Effective Date by any Laws to plug, dismantle or abandon any of the Wells of
Seller.

 

6.14                        Imbalances.  Except as set forth in Section 6.14 of
the Disclosure Schedule, there are no gas, production, sales, processing,
pipeline or transportation imbalances with respect to the Assets as of the date
hereof.

 

6.15                        Governmental Licenses.  Except as set forth in
Section 6.15 of the Disclosure Schedule, Seller has obtained all material
governmental permits, licenses, registrations and other authorizations required
(including those required under Environmental Law) to be obtained by Seller to
own and, with respect to that portion of the Assets, if any, operated by Seller,
to operate the Assets.

 

6.16                        Compliance with Laws.  Except for violations that in
the aggregate would not, individually or in the aggregate, have a material
adverse effect on the Assets, Seller is not in violation of, or in default
under, and no event has occurred that (with notice or the lapse of time or both)
would constitute a violation of or default under, any law, rule, regulation,
ordinance, order, writ, decree or judgment of any governmental authority
applicable to the Assets (excluding royalties, which are addressed in other
provisions of this Agreement). None of the Assets are subject to any order or
agreement with any Governmental Authority with respect to Environmental Law.

 

6.17                        Suspense Accounts.  Except as set forth in
Section 6.17 of the Disclosure Schedule, Seller does not hold any third party
funds in suspense with respect to production of Hydrocarbons from any of the
Assets.

 

6.18                        Consents and Preferential Rights.  Except as set
forth in Section 4.10 of the Disclosure Schedule, there are no required consents
which may be applicable to the sale of the Assets by Seller as contemplated by
this Agreement.  Except as set forth in Section 4.11 of the Disclosure Schedule,
there are no preferential rights to purchase, rights of first refusal, rights of
first offer, or tag-along rights which may be applicable to the sale of the
Assets by Seller as contemplated by this Agreement.

 

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6.19                        Bankruptcy.  There are no bankruptcy,
reorganization, or receivership proceedings pending, being contemplated by, or,
to Seller’s knowledge, threatened against Seller (whether by Seller or a third
Person).  Immediately prior to, and immediately subsequent to, the Closing,
(a) Seller will not have incurred, nor does it intend to or believe that it will
incur, debts (including contingent obligations) beyond its ability to pay such
debts as such debts mature or come due (taking into account the timing and
amounts of cash to be received from any source, and amounts to be payable on or
in respect of debts), (b) the amount of cash available to Seller after taking
into account all other anticipated uses of funds is anticipated to be sufficient
to pay all such amounts on or in respect of debts, when such amounts are
required to be paid, and (c) Seller will have sufficient capital with which to
conduct its business.

 

6.20                        Wells and Equipment; Personal Property.  All Wells
operated by Seller or its Affiliates and, to Seller’s knowledge, all other Wells
have been drilled and completed within the limits permitted by all applicable
Leases and no such Well operated by Seller or its Affiliates and, to Seller’s
knowledge, no such other Well  is subject to penalties on allowables after the
Effective Date because of any overproduction or any other violation of laws. To
Seller’s knowledge, all currently producing Wells (and related equipment) are in
an operable state of repair adequate to maintain normal operations in accordance
with past practices, ordinary wear and tear excepted.  Seller has good and
marketable title to, or valid rights to lease or otherwise use, all items of
personal property that are included in the Assets, in each case free and clear
of all liens, encumbrances, obligations, or defects, other than Permitted
Encumbrances.

 

6.21                        Non-Consent Operations.  Except as set forth on
Section 6.21 of the Disclosure Schedule, Seller has not elected not to
participate in any operation or activity proposed with respect to the Assets
which could result in any of Seller’s interest in such Assets becoming subject
to a penalty or forfeiture as a result of such election not to participate in
such operation or activity.

 

6.22                        Outstanding Capital Commitments; Payout Balances. 
Except as set forth on Section 6.22 of the Disclosure Schedule, there are no
outstanding authorities for expenditure, known to Seller, which are binding on
the Assets and which Seller reasonably anticipates will individually require
expenditures by the owner of the Assets after the Effective Time in excess of
$100,000, net to the interest of Seller. Provided, however, should Seller
discover, prior to Closing, authorities for expenditures which were in existence
as of the Execution Date and that have been omitted from Section 6.22 of the
Disclosure Schedule,  Seller shall promptly notify Buyer of such omitted items
and may supplement and amend Section 6.22 of the Disclosure Schedule to include
such omitted items (and in the event Buyer obtains knowledge of any such omitted
items prior to Closing, Buyer shall promptly notify Seller of such omitted
items) so long as the aggregate amount of expenditures with respect to such
omitted items added to Section 6.22 of the Disclosure Schedule after the
Execution Date does not exceed 1.5% of the Base Purchase Price .  The Parties
further agree that any such authorities for expenditures added to Section 6.22
of the Disclosure Schedule, shall, for purposes of the correctness of Seller’s
representations in Section 6.22 or breaches thereof, as applied in Buyer’s
conditions in Section 10.3(a),  be subject to the indemnity cap and deductible
set forth in Section 15.3(a)(ii), otherwise limited to breaches of other
representations arising after Closing.  As of the date of this Agreement, the
payout balance for each Well and overriding royalty interest that has a payout
balance is reflected in Section 6.22 of the Disclosure Schedule as of the
respective date shown thereon.

 

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ARTICLE 7
BUYER’S REPRESENTATIONS AND WARRANTIES

 

Buyer makes the following representations and warranties:

 

7.1                               Existence.  Buyer is a corporation, duly
organized, validly existing and formed under the laws of the State of Delaware,
and Buyer is duly qualified and in good standing in the State of Texas.

 

7.2                               Power and Authority.  Buyer has all requisite
power and authority to carry on its business as presently conducted, to enter
into this Agreement and each of the documents contemplated to be executed by
Buyer at Closing, and to perform its obligations under this Agreement and under
such documents.  The consummation of the transaction contemplated by this
Agreement and each of the documents contemplated to be executed by Buyer at
Closing will not violate, nor be in conflict with:  (i) any provision of Buyer’s
organizational or governing documents, (ii) any agreement or instrument to which
Buyer is a party or is bound, or (iii) any judgment, decree, order, statute,
rule or regulation applicable to Buyer.

 

7.3                               Authorization.  The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Buyer at Closing have been duly and validly authorized by all
requisite action on the part of Buyer.

 

7.4                               Execution and Delivery.  This Agreement has
been duly executed and delivered on behalf of Buyer, and at the Closing all
documents and instruments required hereunder to be executed and delivered by
Buyer shall have been duly executed and delivered.  This Agreement does, and
such documents and instruments shall, constitute legal, valid and binding
obligations of Buyer enforceable in accordance with their terms, subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity, and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.

 

7.5                               Liabilities for Brokers’ Fees.  Buyer has
incurred no liability, contingent or otherwise, for brokers’ or finders’ fees
relating to the transaction contemplated by this Agreement for which Seller
shall have any responsibility whatsoever.

 

7.6                               Litigation.  There is no action, suit,
proceeding, claim or, to its knowledge, investigation by any Person pending or,
to Buyer’s knowledge, threatened in writing, against Buyer before any
governmental authority that impedes or is likely to impede Buyer’s ability to
consummate the transactions contemplated by this Agreement and to assume the
liabilities to be assumed by Buyer under this Agreement.

 

7.7                               Independent Evaluation.  Buyer is
knowledgeable about the oil and gas business and Buyer is aware of its risks. 
Buyer has been afforded the opportunity to examine the Records and other
materials made available to it by Seller and Seller’s authorized representatives
with respect to the Assets (the “Background Materials”).  The Background
Materials include files, or copies thereof, that Seller has used in its normal
course of business and other information about the Assets that Seller and
Seller’s authorized representatives have compiled or generated; provided Buyer
acknowledges and agrees that, except for the representations and warranties of

 

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Seller contained in this Agreement, neither Seller nor any other Seller
Indemnified Party has made any representations or warranties, express or
implied, written or oral, as to the accuracy or completeness of the Background
Materials or, except for the representations and warranties of Seller contained
in this Agreement, as to any other information relating to the Assets, furnished
or to be furnished to Buyer or its representatives by or on behalf of Seller,
including any estimate with respect to the value of the Assets or reserves, the
ability to develop the Assets or to obtain any permits required to develop the
Assets, or any projections as to events that could or could not occur.  In
entering into this Agreement, Buyer acknowledges and affirms that it has relied
and will rely solely on the terms of this Agreement (including the
representations and warranties of Seller contained in 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 its own estimate and appraisal of the extent and value of
the petroleum (including oil and natural gas) and other reserves attributable to
the Assets and the prices that may be received for Hydrocarbons produced
therefrom.  Buyer’s Representatives have been given opportunities to visit the
offices of Seller or Seller’s Representatives and have been given opportunities
to examine the Records.  Except as expressly provided in this Agreement, absent
any fraudulent conduct by Seller, neither Seller nor any other Seller
Indemnified Party shall have any liability to Buyer or its Affiliates, agents,
representatives or employees resulting from any use of, authorized or
unauthorized, or reliance on, the Background Materials or other information
relating to the Assets provided by or on behalf of Seller or any other Seller
Indemnified Party.

 

7.8                               Securities Laws.  Buyer has such knowledge,
sophistication and experience in business and financial matters that Buyer is
capable of evaluating the merits and risks of the acquisition of the Assets and
has so evaluated the merits and risks of such acquisition.  Buyer is able to
bear the economic risk of its acquisition of the Assets and, at the present
time, is able to afford a complete loss of such investment.  The Assets are
being acquired for Buyer’s own account for the purpose of investment or
consumption and not with a view to reselling or distributing the Assets in
violation of any securities registration or qualification requirements of any
securities laws.

 

7.9                               Qualification.  Buyer is and will continue
through the Closing to be qualified to own and operate the Assets, including
meeting all bonding requirements.

 

7.10                        Financial Resources.  Buyer has or, as of the
Closing, will have the financial resources available to close the transactions
contemplated by this Agreement.

 

ARTICLE 8
COVENANTS AND AGREEMENTS

 

8.1                               Operation Through Closing.  Except as
otherwise consented to in writing by Buyer or expressly provided in this
Agreement, from the Execution Date to the Closing, Seller shall (a) maintain and
operate the Assets in a good and workmanlike manner, consistent with past
practices and as a reasonably prudent operator (provided, that in the case of
Assets that are not operated by Seller or its Affiliates, Seller shall be in
compliance with the forgoing obligation if it uses commercially reasonable
efforts to cause the operator of such Assets to comply with such obligation),
(b) subject to the provisions of Section 2.7, pay or cause to be paid its share
of

 

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all Property Expenses incurred in connection with such operations that become
due and payable, (c) maintain insurance coverage on the Assets in the amount and
of the types currently maintained by Seller and not make any election to be
excluded from any coverage provided by an operator for the joint account
pursuant to a joint operating, unit operating, or similar contract, (d) maintain
in full force and effect all Leases to the extent that such Leases are capable
of producing in paying quantities at Hydrocarbon prices in effect as of the date
that Seller or any third Person proposes to relinquish any such Leases or allow
any such Leases to terminate or expire, (e) maintain in full force and effect
all operating agreements, easements, rights-of-way, permits, and licenses that
relate to the Assets, (f) maintain the books of account and records (including
the Records) relating to the Assets in the usual, regular and ordinary manner,
in accordance with the usual accounting practices of Seller, and (g) obtain
Buyer’s written approval prior to voting under any operating, joint venture,
partnership or similar agreement, which approval shall not be unreasonably
withheld or delayed .  To the extent Seller sends (as operator) or receives (as
a non-operator) written AFE’s or actual notice of such that pertain to
operations to be commenced after the Execution Date, Seller shall promptly (and
in any event within 3 Business Days of sending of receiving) provide Buyer a
copy of such AFE’s and shall consult with Buyer regarding all such matters and
operations.  Upon the Closing, to the extent Buyer becomes operator of such
Assets, Buyer shall assume full responsibility for operations of the Assets
operated by Seller.  Seller does not warrant or guarantee that Buyer will become
operator of the Assets or any portion thereof under any applicable joint
operating agreements, as such will be controlled by the applicable joint
operating agreements.

 

8.2                               Restriction on Operations.  From the Execution
Date to the Closing, subject to Section 8.1, unless Seller obtains the prior
written consent of Buyer to act otherwise, which consent will not be
unreasonably withheld (and which shall be deemed to have been given by Buyer if
Buyer fails to respond to a request from Seller for such consent within 5
Business Days (or 48 hours if a rig is on location and such request reasonably
relates to activities involving such rig) after receipt of such request), Seller
will not (a) plug or abandon any part of the Assets, (b) approve or commit to
any operations on the Assets anticipated in any instance to cost more than
$250,000 per activity net to Seller’s interest and that are attributable to
periods after the Execution Date (excepting emergency operations, ongoing
commitments under existing AFE’s described on Section 6.22 of the Disclosure
Schedule), (c) convey, dispose of or encumber any part of the Assets (other than
replacement of equipment or sale of oil, gas, and other Hydrocarbons produced
from the Assets in the regular course of business and other than pursuant to
existing well-takeover provisions in existing agreements (i.e. provisions that
allow a third Person to takeover a well and the associated leasehold interests
if Seller or its successor in interest expects to plug and abandon a well)) or
enter into any farmout, farmin or other similar contract affecting the Assets,
(d) materially amend or modify, terminate or extend any contract material to the
operation of the Assets, including the Material Agreements, (e) not expressly
waive, release, assign, settle or compromise any claim, action or proceeding
relating to the Assets, and (f) not grant or create any preferential right to
purchase, right of first refusal, preferential purchase right, right of first
negotiation, option, or transfer restriction or similar right, obligation, or
requirement, with respect to the Assets.

 

8.3                               Marketing.  From the Execution Date to the
Closing, unless Seller obtains the prior written consent of Buyer to act
otherwise, Seller will not alter any existing marketing

 

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contracts currently in existence, or enter into any new marketing contracts or
agreements providing for the sale of Hydrocarbons for a term in excess of 2
months.

 

8.4                               Notices of Claims.  Each Party shall promptly
notify the other Party if, between the Execution Date and the Closing Date, such
Party receives notice of any claim, suit, action or other proceeding of the type
referred to in Sections 6.9 or 7.6.

 

8.5                               Compliance with Laws.  During the period from
the Execution Date to the Closing Date, Seller shall comply in all material
respects with all applicable statutes, ordinances, rules, regulations and orders
relating to the ownership of its interest in the Assets and, to the extent that
it is the operator, the operation of the Assets.

 

8.6                               Government Reviews and Filings.  Before and
after the Closing, Buyer and Seller shall cooperate to provide requested
information, make required filings with, prepare applications to and conduct
negotiations with each Governmental Authority as required to consummate the
transaction contemplated hereby, including any required filings under the
Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended.  Each Party
shall make any governmental filings occasioned by its ownership or structure. 
Buyer shall make all filings after the Closing at its expense with each
Governmental Authority necessary to transfer title to the Assets.

 

8.7                               Change of Operator.  On the Closing Date,
Seller will send out notifications of its resignation as operator under any
operating agreements (and related agreements), effective as of the Closing Date
for all Wells that Seller or any of its Affiliates currently operate.  Each
Party agrees to use its respective reasonable efforts to obtain all consents
necessary to cause Buyer to be elected as the operator of that portion of the
Assets currently operated by Seller as of the Closing Date, and Buyer hereby
consents and agrees, subject to obtaining the necessary consents, to accept the
designation and responsibilities as the operator of such Assets as of the
Closing Date.  Notwithstanding anything to the contrary contained in this
Section 8.7, the Parties shall execute Texas Railroad Commission Form P-4s for
all Wells currently operated by Seller or its Affiliates, naming Buyer (or its
designated Affiliate) as operator of such Wells with the Texas Railroad
Commission at Closing as provided in Section 12.2(f).

 

8.8                               Confidentiality.  The Confidentiality
Agreement shall continue to apply to the Confidential Information (as defined
therein), including the Records, until the Execution Date, and thereafter shall
terminate with respect to Buyer. From and after Closing, Seller agrees to
protect (and to cause its Affiliates, and its and their respective directors,
officers, employees, agents, representatives, consultants, contractors,
attorneys, advisors, lenders and investors, to protect) the Confidential
Information (as defined in the Confidentiality Agreement), including the Records
as confidential.

 

8.9                               Required Bonding.  Buyer shall obtain all
required bonds and other surety arrangements relating to the ownership or
operation of the Assets necessary to cause Seller’s bonds and surety
arrangements with respect to the Assets to be released at and as of the
Closing.  No later than 5 Business Days prior to Closing, Buyer shall provide
Seller with reasonably satisfactory evidence that all such bonds and surety
arrangements have been obtained and will be in place as of the Closing.

 

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8.10                        Audits and Filings.

 

(a)                                 From and after the date of this Agreement
until the date that is eighteen (18) months after the Closing Date, Seller shall
cooperate (and shall use reasonable efforts to cause its Affiliates, employees
and auditors to cooperate) with Buyer and its Affiliates and their respective
agents and representatives to provide information that is within its possession
or, if such information is in the possession of third Persons, which it can
obtain or cause to be provided provide without unreasonable effort or expense,
regarding the Assets to the extent Buyer believes it is reasonably necessary for
Buyer and its Affiliates to comply with their tax, financial, or other reporting
requirements and audits, including (i) any filings with any Governmental
Authority; and (ii) any filings that may be required by the United States
Securities and Exchange Commission under securities Laws applicable to Buyer and
its Affiliates.

 

(b)                                 Without limiting the generality of the
foregoing, Seller will permit Buyer and its representatives to contact Seller’s
(and, if applicable, its Affiliates’) current and historical accountants,
auditors and employees, and Seller shall use reasonable efforts to cause its
(and, if applicable, its Affiliates’) current and historical accountants,
auditors and employees to (i) discuss, cooperate and provide information that is
within its possession or, if such information is in the possession of third
Persons, which it can obtain or cause to be provided provide without
unreasonable effort or expense, regarding the Assets to the extent reasonably
requested by Buyer or its representatives, in order for Buyer to prepare audited
and unaudited historical financial statements for Buyer or the Assets and pro
forma financial statements of Buyer’s parent or any of its subsidiaries, in each
case as would be required in connection with reports, registration statements
and other filings to be made by Buyer’s parent or any of its Affiliates’ with
the United States Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended from time to time, and the rules and regulations
promulgated thereunder or the Securities Exchange Act of 1934, as amended from
time to time, and the rules and regulations promulgated thereunder
(collectively, “SEC Filings”) and (ii) cooperate with Buyer’s parent (and shall
use reasonable efforts to cause its Affiliates’, auditors and employees to
cooperate) with regard to responding to the United States Securities and
Exchange Commission’s comments on such financial statements.  In addition, from
the date of this Agreement until the Closing, Seller agrees to reasonably
cooperate with Buyer’s parent in connection with any potential financing by
Buyer’s parent for the transactions contemplated by this Agreement (the
“Potential Financing”), including providing information that is within Seller’s
possession or, if such information is in the possession of third Persons, which
it can obtain or cause to be provided provide without unreasonable effort or
expense, regarding the Assets to the extent Buyer reasonably requests such
information for the preparation of materials for meetings, drafting sessions,
presentations, road shows and due diligence sessions for the Potential Financing
and otherwise providing reasonable access to the employees of Seller (and, if
applicable, its Affiliates’) during Seller’s (and its applicable Affiliate’s)
normal business hours and at their normal locations of business in connection
with the same; provided further that the access and cooperation obligations
contained in this Section 8.10 shall not unreasonably interfere with the normal
business operations of Seller.  In addition, Seller and its employees shall not
be required to sign representation letters to Buyer’s auditors and

 

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petroleum engineers.  Buyer shall not use Seller’s reserve estimates, and
Seller’s employees and independent engineers shall not be named as experts or as
having prepared reserve estimates for reserves in Buyer’s SEC filings.

 

(c)                                  Buyer shall reimburse Seller promptly, but
no later than ten (10) Business Days after a written demand is received, for any
and all out-of-pocket costs and expenses incurred by Seller or any of its
Affiliates, employees, accountants and auditors in performing Seller’s
obligations of cooperation and assistance under this Section 8.10.

 

(d)                                 For a period of eighteen (18) months
following the Closing, Seller shall retain all books, records, information and
documents in its or its Affiliates’ possession that are reasonably necessary to
prepare and audit financial statements with respect to the Assets, except to the
extent originals or copies thereof are transferred to Buyer in connection with
Closing.

 

8.11                        Exclusive Agreement.  In consideration of the time
and expense to be incurred by Buyer in its evaluation of the transactions
contemplated by this Agreement, Seller agrees that until the earlier to occur of
the termination of this Agreement or the Closing, Seller shall not, and shall
not authorize or permit any of its respective subsidiaries, Affiliates or
representatives to (a) solicit, initiate or encourage the submission from any
Person of any proposal to directly or indirectly acquire any of the Assets by
such Person (any proposal for such a transaction, an “Alternative Proposal”),
(b) enter into any agreement with respect to, or approve or recommend, any
Alternative Proposal or (c) participate in any discussions or negotiations
regarding, or furnish to any Person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or could reasonably be expected to constitute, any Alternative
Proposal (and any such activity that is being undertaken as of the date of this
Agreement shall be terminated immediately).  Without limiting the foregoing, it
is understood and agreed that any violation of the restrictions set forth in
this Section 8.11 by any representative or Affiliate of Seller (to the extent
such Person is acting on behalf of Seller’s instructions) shall be deemed to be
a breach of this Section 8.11 by Seller.

 

ARTICLE 9
PERSONNEL

 

9.1                               Available and Transferring Employees.

 

(a)                                 Section 9.1(a) of the Disclosure Schedule
sets forth a list of all employees of Seller or its Affiliates who may be
considered for employment by Buyer or its Affiliate (collectively, the
“Available Employees”).

 

(b)                                 Not less than 14 days prior to the
anticipated Closing Date, Buyer or its Affiliate, in its sole discretion, may
make offers of employment, which offers will be effective as of the Closing Date
and contingent upon the occurrence of Closing (“Employment Date”), to one or
more of the Available Employees that it desires to employ. Any such offer of
employment to an Available Employee shall be for a salary or wage rate that is
at least as favorable as such Available Employee’s salary of wage rate as of the
Execution Date.  Available Employees offered employment shall have not less than

 

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7 days to accept or reject the offer in writing with the final day of such
period to occur not less than 2 days prior to the Closing Date. Those Available
Employees who accept Buyer or its Affiliate’s offer of employment shall then
terminate their employment with Seller or its Affiliate effective as of the
Closing Date and commence employment with Buyer or its Affiliate as of the
Employment Date (such Available Employees who actually become employees of Buyer
or its Affiliate as of the Employment Date are referred to individually and
collectively as “Transferring Employees”).  Buyer shall be responsible for all
costs, expenses, damages, liabilities and obligations arising from or relating
to (i) the hiring of any Transferring Employee and (ii) pre-employment tests or
inquiries required by Buyer or its Affiliate with respect to any Available
Employee. Further, Buyer and Seller agree to equally share all costs, expenses
and obligations for all Available Employees who are not offered employment by
Buyer and not otherwise retained by Seller as a result of the Closing of this
Agreement, in an amount of a severance payment equal to one year of base wages
for each non-retained Available Employee.

 

(c)                                  From the Execution Date through the Closing
Date, Seller shall cooperate with Buyer in permitting Buyer or its Affiliate
reasonable access to the Available Employees to (i) interview during normal
business hours, (ii) seek consent to perform background checks consistent with
Buyer’s or its Affiliate’s pre-employment policies, (iii) administer or perform
any pre-employment tests, inquiries or screening, and (iv) communicate any
information concerning employment offers or employment with Buyer or its
Affiliates.

 

9.2                               Buyer’s Employee Benefit Plans.

 

(a)                                 Buyer or its Affiliate shall (i) provide an
election to roll over the Transferring Employees’ interests under any Seller
benefit plan that is tax qualified under Section 401(a) of the Code (excluding
any plan loans), to any similar Buyer benefit plan that is tax qualified under
Section 401(a) of the Code, and (ii) cause such Buyer benefit plan to accept any
such rollovers if Buyer or its Affiliate determines, to its reasonable
satisfaction, that any such rollover would not adversely affect the tax
qualified status of its benefit plan.

 

(b)                                 Buyer or its Affiliate shall cause the
Transferring Employees to be credited with credited employment service with
Seller and its Affiliates under the employee benefit plans maintained by Buyer
or its Affiliate for purposes of eligibility and vesting (and not for benefit
accruals), but only if Seller or its Affiliate timely provides adequate records
to Buyer or its Affiliate to support the determination of credited service which
are reasonably satisfactory to Buyer or its Affiliate.

 

(c)                                  For each Transferring Employee, Buyer or
its Affiliates shall make a commercially reasonable effort, subject to approval
of the relevant insurers, to cause Buyer’s major medical, group health plan to
apply towards any deductible requirements and out-of-pocket maximum limits
applicable to the year of such Transferring Employee’s Employment Date under
such Buyer’s plan, any amounts paid by such Transferring Employee during such
year toward such requirements and limits under

 

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Seller’s major medical, group health plan until the Employment Date.  As soon as
reasonably practical after each Transferring Employee’s Employment Date, and
subject to compliance with any Health Insurance Portability and Accountability
Act of 1996 (“HIPAA”) restrictions or any other applicable laws concerning
protected health information, Seller or its Affiliate shall provide to Buyer
with all information that is reasonably necessary for Buyer to comply with its
obligations pursuant to this Section 9.2(c) with respect to the affected
Transferring Employees, and Buyer’s obligations under this Section 9.2(c) shall
apply only if and to the extent that such information is timely received by
Buyer and reasonably satisfactory to it. Notwithstanding the foregoing, Seller
shall retain responsibility for any medical, dental or other health and other
welfare benefit plan expenses and benefits with respect to any and all claims
incurred with respect to each Transferring Employee and his or her dependents
prior to the Employment Date.

 

9.3                               WARN Act.  Without limiting the provisions of
Article 15, Seller shall be responsible for any WARN Act Obligations related to
any Available Employees’ loss of employment that occurs on or prior to the
Closing Date.

 

9.4                               No Third Party Rights.  Seller and Buyer
acknowledge and agree that all provisions contained in this Article 9 are
included for the sole benefit of Seller and Buyer and that nothing contained
herein, express or implied, is intended to (i) confer upon any Person any right
to continued employment for any period or continued receipt of any specific
employee benefit, (ii) constitute an amendment to or any other modification of
any employee benefit plan, program or agreement of any kind or (iii) create any
third party beneficiary or other rights in any other Person, any participant in
any benefit plan or any dependent or beneficiary thereof.  Nothing in this
Agreement shall be interpreted as limiting the power of Seller or Buyer or any
of their Affiliates to amend or terminate any particular employee benefit plan,
program, agreement or policy.

 

ARTICLE 10
CONDITIONS TO CLOSING

 

10.1                        Mutual Conditions.  The obligations of the Parties
at the Closing are subject to the satisfaction or waiver by both Parties at or
prior to the Closing of the following conditions:

 

(a)                                 Changes in Laws and Orders.  No Governmental
Authority shall have enacted, issued, promulgated, or deemed applicable any Law,
or issued or granted any Order, that is in effect and that has the effect of
enjoining, making illegal, or otherwise prohibiting or preventing the
consummation of the Transactions, and no Governmental Authority shall have
threatened in writing to enact, issue, promulgate, make applicable, or grant any
such Law or Order.

 

(b)                                 No Proceeding.  No Proceeding shall be
pending or threatened in writing against any Party or the Assets that seeks to
enjoin, make illegal, or otherwise prohibit or prevent the consummation of the
Transactions.

 

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

 

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(a)                                 Representations and Warranties.  All
representations and warranties of Buyer contained in Article 7 of this Agreement
shall be true and correct in all material respects (and in all respects in the
case of representations and warranties qualified by materiality or material
adverse effect) as of the Execution Date and as of the Closing Date as though
made on and as of the Closing Date (other than representations and warranties
that refer to a specified date, which need only be true and accurate as of such
specified date).

 

(b)                                 Covenants.  Buyer shall have performed or
complied in all material respects (and in all respects in the case of any
covenants and agreements qualified by materiality or material adverse effect)
with all obligations and covenants required by this Agreement to be performed or
complied with by Buyer on or before the Closing.

 

(c)                                  Closing Deliveries.  Buyer shall have
delivered or be prepared to deliver to Seller duly executed copies of each of
the documents or instruments required by this Agreement to be delivered by Buyer
at Closing.

 

(d)                                 Adjustments.  The sum of all downward
adjustments to the Base Purchase Price made pursuant to Sections 2.7(b)(v),
2.7(b)(vi), 2.7 (b)(vii) and 2.7(b)(viii) shall be less than or equal to the
Adjustment Termination Amount.

 

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

 

(a)                                 Representations and Warranties.  The
representations and warranties of Seller contained in Article 6 of this
Agreement shall be true and correct in all material respects (and in all
respects in the case of representations and warranties qualified by materiality
or material adverse effect) as of the Execution Date and as of the Closing Date
as though made on and as of the Closing Date (other than representations and
warranties that refer to a specified date, which need only be true and accurate
as of such specified date).

 

(b)                                 Covenants.  Seller shall have performed or
complied in all material respects (and in all respects in the case of any
covenants and agreements qualified by materiality or material adverse effect)
with all obligations and covenants required by this Agreement to be performed or
complied with by Seller on or before the Closing.

 

(c)                                  Closing Deliveries.  Seller shall have
delivered or be prepared to deliver to Buyer duly executed copies of each of the
documents or instruments required by this Agreement to be delivered by Seller at
Closing.

 

(d)                                 Adjustments.  The sum of all downward
adjustments to the Base Purchase Price made pursuant to Sections 2.7(b)(v),
2.7(b)(vi), 2.7 (b)(vii) and 2.7(b)(viii) shall be less than or equal to the
Adjustment Termination Amount.

 

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ARTICLE 11
RIGHT OF TERMINATION AND ABANDONMENT

 

11.1                        Termination.  This Agreement may be terminated by
Seller or Buyer under the following provisions:

 

(a)                                 By Seller, if the conditions set forth in
Sections 10.1 and 10.2 are not satisfied or are not waived by Seller in writing,
as of the Target Closing Date;

 

(b)                                 By Buyer, if the conditions set forth in
Sections 10.1 and 10.3 are not satisfied or are not waived by Buyer in writing,
as of the Target Closing Date;

 

(c)                                  By Buyer if the Closing has not occurred by
the Outside Date;

 

(d)                                 By Seller if the Closing has not occurred by
the Outside Date; or

 

(e)                                  By the mutual written agreement of the
Parties;

 

provided, however, that no Party shall have the right to terminate this
Agreement pursuant to clauses (a) through (d) above if such Party is at such
time in material breach of its representations, warranties or covenants in this
Agreement.

 

11.2                        Liabilities Upon Termination.

 

(a)                                 Buyer’s Breach.  If all conditions to the
obligations of Buyer set forth in Sections 10.1 and 10.3 are satisfied or are
waived by Buyer in writing and Seller terminates this Agreement pursuant to
Section 11.1(a) or Section 11.1(d), and Seller has materially performed all of
its obligations hereunder and has not materially breached any representation or
warranty herein by Seller (collectively, a “Buyer’s Breach”), Seller shall
retain the Deposit as liquidated damages.  Such remedy shall be Seller’s sole
and exclusive remedy for Buyer’s wrongful failure to tender performance at
Closing or other breach of this Agreement, and Seller expressly waives any and
all other remedies, legal and equitable, that they otherwise may have had for
Buyer’s wrongful failure to close.  It is expressly stipulated by the Parties
that the actual amount of the damages resulting from such a breach by Buyer
would be difficult if not impossible to determine accurately because of the
unique nature of this Agreement, the unique nature of the Assets, the
uncertainties of applicable commodity markets and differences of opinion with
respect to such matters, and that the liquidated damages provided for herein are
a reasonable estimate by the Parties of such damages.

 

(b)                                 Seller’s Breach.  If all conditions to the
obligations of Seller set forth in Sections 10.1 and 10.2 are satisfied or are
waived by Seller in writing and Buyer terminates this Agreement pursuant to
Section 11.1(b) or Section 11.1(c), and Buyer has materially performed all of
its obligations hereunder and has not materially breached any representation or
warranty herein by Seller, Seller shall return the Deposit to Buyer immediately
after the determination that the Closing will not occur, and Buyer shall retain
any legal or equitable remedies for Seller’s breach of this Agreement, including
specific performance; provided that Seller shall not have any liability to Buyer
for consequential, special, punitive or exemplary damages, lost profits, or lost
business opportunities arising out of or related to Seller’s breach of any
provision of this Agreement.

 

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(c)                                  Other Termination.  If this Agreement is
terminated pursuant to Section 11.1(e) or pursuant to Sections 11.1(a) — (d) in
the absence of a Buyer’s Breach, Seller shall return the Deposit to Buyer
immediately after such termination.

 

ARTICLE 12
CLOSING

 

12.1                        Date of Closing.  The closing of the transactions
contemplated by this Agreement (“Closing”) shall be held on the Target Closing
Date, provided if all the conditions to Closing set forth in Article 10 have not
been satisfied or waived by such date, the Closing shall occur within 2 Business
Days after the last of such conditions has been met or waived.  The Closing
shall be held at the offices of Seller in Denver, Colorado, at 9:00 a.m. or at
such other time and place as the Parties may agree in writing.

 

12.2                        Closing Obligations.  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)                                 Assignment.  The Parties shall execute,
acknowledge and deliver (i) the Assignment, Bill of Sale and Conveyance
effective as of the Effective Time (in sufficient counterparts to facilitate
filing and recording), warranting that, except for the Permitted Encumbrances,
title to the Assets is free and clear of all liens, security interests and
encumbrances created by, through or under Seller, but not otherwise, but
disclaiming any warranties, express or implied, as to the personal property,
fixtures or condition of the Assets which are conveyed “AS IS, WHERE IS”; and
(ii) such other assignments and assumptions (in a form and content substantially
similar to the Assignment, Bill of Sale and Conveyance), bills of sale, or deeds
necessary to transfer the Assets to Buyer.

 

(b)                                 Preliminary Settlement Statement.  The
Parties shall execute and deliver the Preliminary Settlement Statement.

 

(c)                                  Closing Amount.  Buyer shall deliver to
Seller the Closing Amount, less the Deposit, by federal funds wire transfer to
the account designated by Seller as provided in Section 2.6.

 

(d)                                 Letters-in-Lieu.  The Parties shall execute
and deliver all necessary letters-in-lieu of transfer orders directing all
purchasers of production to pay Buyer the proceeds attributable to production
from the Assets from and after the Effective Time.

 

(e)                                  Non-Foreign Person Affidavit.  Cimarex,
Prize and Magnum Hunter shall each execute and deliver to Buyer a Non-Foreign
Person Affidavit.

 

(f)                                   Change of Operator Forms.  The Parties
shall execute appropriate change of operator forms with respect to those Assets
that will be operated by Buyer after Closing in accordance with Section 8.7 and
Seller shall, pursuant to Section 8.7 execute and deliver to Buyer resignation
of operator letters in a form reasonably acceptable to Buyer.

 

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(g)                                  Seller’s Certificate.  Seller shall execute
and deliver to Buyer (i) a certificate, in form and substance reasonably
satisfactory to Buyer, duly executed by an authorized officer of Seller,
certifying on behalf of Seller, that the conditions set forth in
Section 10.3(a) and (b) have been fulfilled and (ii) a certificate, in form and
substance reasonably satisfactory to Buyer, duly executed by an authorized
officer of Seller, (x) attaching and certifying on behalf Seller complete and
correct copies of the resolutions of the governing body of Seller authorizing
the execution, delivery, and performance by Seller of this Agreement and the
transactions contemplated hereby and (y) certifying on behalf of Seller the
incumbency of each officer of Seller executing this Agreement or any document
delivered in connection with the Closing.

 

(h)                                 Buyer’s Certificate.  Buyer shall execute
and deliver to Seller (i) a certificate, in form and substance reasonably
satisfactory to Seller, duly executed by an authorized officer of Buyer,
certifying on behalf of Buyer, that the conditions set forth in
Section 10.2(a) and (b) have been fulfilled and (ii) a certificate, in form and
substance reasonably satisfactory to Seller, duly executed by an authorized
officer of Buyer, (x) attaching and certifying on behalf Buyer complete and
correct copies of the resolutions of the governing body of Buyer authorizing the
execution, delivery, and performance by Seller of this Agreement and the
transactions contemplated hereby and (y) certifying on behalf of Buyer the
incumbency of each officer of Buyer executing this Agreement or any document
delivered in connection with the Closing.

 

(i)                                     Lien Releases.  Releases and
terminations of any mortgages, deeds of trust, assignments of production,
financing statements, and fixture filings burdening the Assets.

 

(j)                                    Possession.  Seller shall deliver
possession of the Assets to Buyer.

 

(k)                                 Defect Escrow Agreement. If necessary
pursuant to Section 4.5(a) and/or Section 5.4, Buyer and Seller shall each
execute and deliver to the Escrow Agent an escrow agreement that is jointly
signed by Buyer and Seller in a mutually acceptable form that complies with the
Section 4.5(a) and/or Section 5.4 requirements (as applicable) of this Agreement
(the “Defect Escrow Agreement”).

 

(l)                                     Other Items.  Each Party shall deliver
all other instruments, documents, and other items reasonably necessary to
effectuate the terms of this Agreement, as may be reasonably requested by the
other Party.

 

ARTICLE 13
POST-CLOSING OBLIGATIONS

 

13.1                        Post-Closing Adjustments.  On or before 120 days
after the Closing Date, Seller with the assistance of Buyer’s staff and with
access to such records as reasonably necessary, shall prepare and deliver to
Buyer a final settlement statement (the “Final Settlement Statement”) setting
forth each adjustment to the Base Purchase Price or payment that was not finally
determined as of the Closing (including payments pursuant to Section 4.8
relating to any Title Defect Reduction Amount and Section 5.5 relating to any
Environmental Defect Reduction

 

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Amount) and showing the calculation of such adjustment and the resulting
Purchase Price as finally adjusted (the “Final Purchase Price”).  The Final
Settlement Statement shall set forth all Wells (on a Well-by-Well or
property-by-property basis) and pipeline imbalances for which no adjustments to
the Base Purchase Price were made in the Preliminary Settlement Statement.  As
soon as practicable after receipt of Seller’s proposed Final Settlement
Statement, but in any event on or before 30 days after receipt of Seller’s
proposed Final Settlement Statement, Buyer shall deliver to Seller a written
report containing any changes that Buyer proposes to make to the Final
Settlement Statement.  Buyer’s failure to deliver to Seller a written report
detailing changes to the proposed Final Settlement Statement within such 30 day
period shall be deemed an acceptance by Buyer of the Final Settlement Statement
as submitted by Seller.  The Parties shall attempt in good faith to agree with
respect to the changes proposed by Buyer, if any, no later than 30 days after
receipt by Seller of Buyer’s comments on the proposed Final Settlement
Statement.  The date upon which such agreement is reached or upon which the
Final Purchase Price is established shall be called the “Final Settlement
Date.”  If the Final Purchase Price is more than the Closing Amount plus the
Deposit plus the amount deposited into the Defect Escrow Account at Closing,
Buyer shall pay Seller the amount of such difference.  If the Final Purchase
Price is less than the Closing Amount plus the Deposit plus the amount deposited
into the Defect Escrow Account at Closing, Seller shall pay to Buyer the amount
of such difference.  Any such payment by Buyer or Seller shall be by wire
transfer in immediately available funds within 5 Business Days after the Final
Settlement Date.  No further adjustments to the Base Purchase Price shall be
made.

 

13.2                        Settlement Statement Dispute Resolution.  If the
Parties are unable to resolve any dispute concerning the Final Settlement
Statement or Final Purchase Price (other than disputes covered by Section 4.7 or
Section 5.5) on or before 30 days after receipt by Seller of Buyer’s comments on
the proposed Final Settlement Statement, such dispute shall be finally
determined by binding arbitration in Midland, Texas, with the Dallas, Texas
office of Moss Adams LLP, acting as a single arbitrator, pursuant to the
Commercial Arbitration Rules of the AAA, and the arbitrator’s determination
shall be final and binding upon Seller and Buyer.  The fees charged by the
arbitrator for making a determination under this Section 13.2 shall be paid
one-half by Buyer and one-half by Seller.

 

13.3                        Records.  Seller shall make the Records available in
electronic form, or if not available in electronic form, for pick up by Buyer at
a mutually agreeable time, in each case, promptly after Closing (but in any
event no later than 5 Business Days after Closing).  Seller may retain copies of
the Records; provided, that shall be subject to Section 8.8 with respect to such
copies.  For a period of seven years after the Closing, the Records shall be
made available to Seller for review and copying (at Seller’s expense) as
reasonably requested at any time after Closing by Seller.  Buyer agrees not to
destroy or otherwise dispose of the Records for a period of seven years after
the Closing without giving Seller reasonable notice and an opportunity to copy
the Records.

 

13.4                        Suspense Accounts.  At Closing Seller shall transfer
to Buyer, and Buyer shall assume, any Suspense Accounts.  Buyer will assume full
and complete responsibility and liability in accordance with applicable Law for
proper handling and payment of such amounts and all accounts and for all monies
payable to royalty owners, mineral owners and other Persons with an interest in
production of Hydrocarbons before, on or after the Effective Time and of

 

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maintaining any necessary suspense accounts relating to production of
Hydrocarbons before, on or after the Effective Time.

 

13.5                        Removal of Name.  As promptly as practicable, but in
any case within 60 days after the Closing Date, Buyer shall eliminate the name
“Cimarex”, “Prize”, “Magnum Hunter” and any variants thereof from the Assets and
shall have no right to use any logos, trademarks or trade names belonging to
Seller or any of its affiliates.

 

13.6                        Further Assurances.  From time to time after
Closing, the Parties shall each execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such further instruments and take such
other action as may be reasonably requested in order to accomplish the purposes
of the transactions contemplated by this Agreement.

 

ARTICLE 14
TAXES

 

14.1                        Responsible Party.  All Property Taxes and Severance
Taxes attributable to the ownership or operation of the Assets prior to the
Effective Time are the Seller’s responsibility, subject to the remaining
provisions of this Section 14.1, and all refunds pertaining to the
aforementioned Taxes, no matter when received, belong to Seller. All Property
Taxes and Severance Taxes attributable to the ownership or operation of the
Assets on or after the Effective Time are the responsibility of Buyer, subject
to the remaining provisions of this Section 14.1, and all deductions, credits or
refunds pertaining to the aforementioned Taxes, no matter when received, belong
to Buyer.  Severance Taxes shall be attributable to the period during which
production occurred.  Property Taxes, whether or not based on production, shall
be prorated based on a percentage of the assessment period occurring before the
Effective Time.  Property Taxes calculated based on production (other than
Severance Taxes) shall be deemed by the Parties to be attributable to the Tax
period for which the Tax is levied.  Subject to Section 2.7, Buyer shall pay all
Property Taxes and Severance Taxes attributable to the ownership or operation of
the Assets and not paid on or prior to the Closing Date. Property Taxes and
Severance Taxes that are attributable to the ownership and operation of the
Assets prior to the Effective Time and that are not paid as of the Closing Date
shall be treated as a reduction in the Base Purchase Price under Section 2.7,
and Property Taxes and Severance Taxes that are attributable to the ownership
and operation of the Assets after the Effective Time and that are paid by Seller
prior to the Closing Date shall be treated as an increase in the Base Purchase
Price under Section 2.7.  The Parties shall estimate all Property Taxes and
Severance 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 prior to
Closing Date and incorporate such estimate into the Preliminary Settlement
Statement.  The actual amounts (to the extent the same differ from the estimate
included in the Preliminary Settlement Statement) shall be accounted for in the
Final Settlement Statement.

 

14.2                        Transfer Taxes.  Notwithstanding anything to the
contrary herein, it is acknowledged and agreed by and between Seller and Buyer
that the Purchase Price excludes any sales taxes or other Taxes of a similar
nature in connection with the sale of property pursuant to this Agreement. Buyer
and Seller will use commercially reasonable efforts and cooperate in good faith
to exempt the sale, conveyance, assignments and transfers to be made to Buyer
from any

 

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sales, use, stamp, real estate transfer, documentary, registration, recording
and other similar Taxes (each a “Transfer Tax”). If a determination is ever made
that a Transfer Tax applies, Buyer will be liable for such Transfer Tax.  Buyer
shall prepare and timely file or cause to be filed all required tax returns and
reports for, or related to, or incident to such Transfer Taxes.

 

14.3                        Tax-Deferred Exchange Option.  Either Party may
elect to effect a tax-deferred exchange under Internal Revenue Code §1031 (a
“Tax Deferred Exchange”) for all or part of the Assets at any time prior to the
Closing Date. If a Party elects to effect a Tax-Deferred Exchange (“Electing
Party”), the other Party agrees to execute escrow instructions, documents,
agreements or instruments to effect the exchange; provided that the other Party
incurs no additional costs, expenses, fees or liabilities as a result of or
connected with the exchange.  Seller and Buyer may assign any of their
respective rights and delegate performance of any of their respective duties
under this Agreement in whole or in part to a Third Party in order to effect
such an exchange; provided that the Electing Party will remain responsible to
the other Party for the full and prompt performance of its respective delegated
duties. The Electing Party will indemnify and hold other Party harmless from and
against all Claims resulting from its participation in any exchange undertaken
pursuant to this Section 14.3 pursuant to the request of the Electing Party.

 

14.4                        Allocation of Values.  Seller and Buyer agree that
the transaction under this Agreement is not subject to the reporting requirement
of Section 1060 of the Code and that, therefore, IRS Form 8594 (Asset
Acquisition Statement Under Section 1060) is not required to be and will not be
filed for this transaction.  In the event that the Seller and Buyer mutually
agree that a filing of Form 8594 is required, Seller and Buyer will confer and
cooperate in the preparation and filing of their respective forms to reflect a
consistent reporting of the agreed upon allocation.  In the event that the
allocation is disputed by any taxing authority, the Party receiving notice of
such dispute will promptly notify and consult with the other Party and keep the
other Party apprised of material developments concerning resolution of such
dispute.

 

14.5                        Tax Returns and Reports.  For tax periods in which
the Effective Time occurs, Seller agrees to immediately forward to Buyer copies
of any tax reports and returns (other than income tax returns) received by
Seller after Closing and provide Buyer with any information Seller has that is
necessary for Buyer to file any required tax reports and returns related to the
Assets.  Buyer agrees to file all tax returns and reports applicable to the
Assets that Buyer is required to file after the Closing and, subject to the
provisions of Section 14.1 and 15.3(a), to pay all Taxes payable with respect to
the Assets.  The Parties shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with any audit, litigation, or other
proceeding with respect to Taxes relating to the Assets.  Such cooperation shall
include the retention and (upon another Party’s request) the provision of
records and information that are relevant to any audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided under
this Agreement.  Seller and Buyer agree to retain all books and records with
respect to Tax matters pertinent to the Assets relating to any taxable period
beginning before the Effective Time until the expiration of the statute of
limitations of the respective taxable periods and to abide by all record
retention agreements entered into with any Governmental Authority.

 

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ARTICLE 15
ASSUMPTION AND RETENTION OF
OBLIGATIONS; INDEMNIFICATION

 

15.1                        Buyer’s Assumption of Liabilities and Obligations. 
Except to the extent covered by Seller’s indemnification of Buyer under
Section 15.3(a), upon Closing, Buyer shall assume and pay, perform, fulfill and
discharge:  (a) all claims, costs, expenses, liabilities, obligations and other
Losses (other than the Assumed Environmental Liabilities) accruing or relating
to the ownership or operation of the Assets before, on or after the Effective
Time, including the owning, developing, exploring, operating and maintaining of
the Assets and the producing, transporting and marketing of Hydrocarbons from
the Assets, including all obligations of liabilities arising under the Material
Agreements, the payment of Property Expenses, the make-up and balancing
obligations for overproduction of gas from the wells (subject to adjustments to
the Base Purchase Price set forth in Section 2.7(c)), and all liability for
Royalties and similar payments, with respect to the Assets, (b) any Suspense
Accounts as provided in Section 13.4, (c) Buyer’s Plugging and Abandonment
Obligations, and (d) the Assumed Environmental Liabilities (collectively, the
“Assumed Liabilities”).

 

15.2                        Buyer’s Plugging and Abandonment Obligations.  As
part of the Assumed Liabilities, upon Closing, Buyer assumes full responsibility
and liability for the following plugging and abandonment obligations related to
the Assets (“Buyer’s Plugging and Abandonment Obligations”), regardless of
whether they are attributable to the ownership or operation of the Assets
before, on or after the Effective Time:

 

(a)                                 The necessary and proper plugging,
replugging and abandonment of the Wells as required by applicable laws,
regulations or contract;

 

(b)                                 The necessary and proper removal,
abandonment and disposal of all structures, facilities, pipelines, equipment,
abandoned property, trash, refuse and junk located on or comprising part of the
Assets as required by applicable laws, regulations or contract;

 

(c)                                  The necessary and proper capping and
burying of all associated flow lines located on or comprising part of the Assets
as required by applicable laws, regulations or contract; and

 

(d)                                 The necessary and proper restoration of the
surface and subsurface to the condition as required by applicable laws,
regulations or contract.

 

15.3                        Indemnification.  After the Closing, the Parties
shall indemnify each other as follows:

 

(a)                                 Seller’s Indemnification of Buyer.  Subject
to the limitations set forth below, Seller shall indemnify, defend and save and
hold harmless Buyer and its Affiliates, and its and their respective
Representatives (the “Buyer Indemnified Parties”), from and against any and all
Losses attributable to or which arise from or in connection with:

 

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(i)                                     (Certain Representations)  any breach by
Seller of any of its representations or warranties under Sections 6.1 through
6.6, inclusive, Section 6.8 and Section 6.19;

 

(ii)                                  (Other Representations)  any breach by
Seller of any of its representations or warranties under Sections 6.7,
Section 6.9 through 6.18, inclusive, and Section 6.20 through 6.22, inclusive;
provided (A) Seller shall not have any liability for claims made under this
clause (ii) after the first anniversary of the Closing Date; (B) Seller shall
have liability for claims made under this clause (ii) only to the extent that
such claims in the aggregate exceed a deductible amount equal to 1.5% of the
Base Purchase Price; and (C) Seller’s aggregate liability for all claims made
under this clause (ii) shall be limited to and shall not exceed 20% of the Base
Purchase Price;

 

(iii)                               (Covenants and Agreements) any breach by
Seller of its covenants or agreements under this Agreement; provided that Seller
shall not have any liability for claims made under this clause (iii) after the
second anniversary of the Closing Date;

 

(iv)                              (Royalties) any Royalties payable by Seller on
or attributable to production from the Assets during the period prior to the
Effective Time; provided Seller shall not have any liability for claims made
under this clause (iv) after the second anniversary of the Closing Date;

 

(v)                                 (Property Expenses)  any Property Expenses
(excluding Assumed Environmental Liabilities and Buyer’s Plugging and
Abandonment Obligations) that are attributable to periods prior to the Effective
Time; provided Seller shall not have any liability for claims made under this
clause (v) after the second anniversary of the Closing Date;

 

(vi)                              (Personal Injury) any claim by any Person for
personal injury or wrongful death that is attributable to events relating to the
Assets and occurring during the period prior to the Closing Date; provided
Seller shall not have any liability for claims made under this clause (vi) after
the second anniversary of the Closing Date;

 

(vii)                           (Taxes) any Taxes allocable to Seller under
Section 14.1 (to the extent not taken into account as an adjustment to the Base
Purchase Price pursuant to Section 2.7); provided that Seller shall have no
liability for claims made under this clause (vii) after the expiration of the
applicable statute of limitations with respect to such matter;

 

(viii)                        (Indemnified Title Defect) any Indemnified Title
Defect to the extent set forth in Section 4.5(b)(iii);

 

(ix)                              (Excluded Assets) any claim by any Person
relating to ownership, use or operation of the Excluded Assets;

 

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(x)                                 (Existing Litigation) any Existing Seller
Claims and any litigation that should have been set forth on Section  6.9 of the
Disclosure Schedule;

 

(xi)                              (Offsite Disposal) any claim by any Person for
offsite disposal prior to the Closing Date of Hazardous Materials, NORM,
asbestos, mercury, drilling fluids, chemicals, produced waters, Hydrocarbons or
any other materials of any nature produced from the Assets;

 

(xii)                           (Former Employees) any claim by any employees of
Seller or its Affiliates relating to the employment or termination thereof by
Seller or its Affiliates, and the compensation and benefits inuring thereto;

 

(xiii)                        (Debt of Seller) any debt of Seller, whether or
not relating to or encumbering the Assets;

 

(xiv)                       (Corporate Governance) any claim relating to current
or former Affiliates, partners, managers, members, directors, officers and
employees of Seller or of its respective current or former Affiliates, partners,
managers, members, directors, officers and employees to the extent arising out
of the governance of Seller; and

 

(xv)                          (Civil and Criminal Matters) any civil fines or
penalties or criminal sanctions imposed on Seller or its Affiliates to the
extent relating to any pre-Closing violation of Law by Seller or any of its
Affiliates.

 

PROVIDED THAT SELLER’S LIABILITY WITH RESPECT TO CLAIMS UNDER THIS SECTION 15.3
SHALL BE FURTHER LIMITED AS FOLLOWS:

 

(A)                               Losses arising from diminution of value of an
Asset shall in no event exceed the Allocated Value of such Asset as set forth in
Exhibit C, less the net proceeds received by Buyer therefrom; and

 

(B)                               Seller shall have liability for all claims
made under Section 15.3(a)(ii) through (a)(vi) (other than claims relating to
the covenant in Section 13.6) only to the extent that such claims in the
aggregate exceed a deductible amount equal to 1.5% of the Base Purchase Price;
and

 

(C)                               Seller’s aggregate liability for all claims
made under Section 15.3(a)(ii)  through (a)(vi) (other than claims relating to
the covenant in Section 13.6) shall be limited to and shall not exceed an amount
equal to 20% of the Base Purchase Price.

 

(b)                                 Buyer’s Indemnification of Seller.  Buyer
shall defend, indemnify, and save and hold harmless Seller and its Affiliates,
and its and their respective Representatives (the “Seller Indemnified Parties”),
from and against any and all Losses attributable to or which arise from or in
connection with (i) the Assumed Liabilities

 

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(including the Assumed Environmental Liabilities and Buyer’s Plugging and
Abandonment Obligations) and (ii) any breach of any representation, warranty,
covenant or agreement made by Buyer in this Agreement.

 

(c)                                  Scope.  Except as otherwise provided herein
or prohibited by applicable Law, the indemnification obligations under this
Agreement shall be without regard to the indemnified Person’s sole, joint or
concurrent negligence, gross negligence, strict liability or other fault.

 

15.4                        Procedure.  The indemnification obligations
contained in Section 15.3 shall be implemented as follows:

 

(a)                                 Coverage.  Such indemnity shall extend to
all Losses suffered or incurred by the Indemnified Party.

 

(b)                                 Claim Notice.  The party seeking
indemnification under the terms of this Agreement (the “Indemnified Party”)
shall submit a written “Claim Notice” to the other party (the “Indemnifying
Party”) which, to be effective, 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.  The amount
claimed shall be paid by the Indemnifying Party to the extent required herein
within 10 Business Days after receipt of the Claim Notice, or after the amount
of such payment has been finally established, whichever last occurs.

 

(c)                                  Information.  Within 20 Business Days after
the Indemnified Party receives notice of a claim or legal action that may result
in a Loss for which indemnification may be sought under this Article 15
(“Claim”), the Indemnified Party shall give written notice of such Claim to the
Indemnifying Party; provided that any failure to provide notice within such time
period shall not affect the Indemnified Party’s rights to indemnification
hereunder unless the Indemnifying Party is materially adversely affected by such
failure.  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 30 Business 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 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 not to be unreasonably withheld.  If
the Indemnifying Party elects to assume control of a claim or legal action,
(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 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

 

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Indemnified Party will use its reasonable efforts to defend, at the Indemnifying
Party’s expense, any claim, legal action or other matter to which the
Indemnifying Party’s indemnification under this Article 15 applies until the
Indemnifying Party assumes such defense, and, if the Indemnifying Party fails to
assume such defense within the time period provided above, settle the same in
the Indemnified Party’s reasonable discretion at the Indemnifying Party’s
expense.  If 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.

 

15.5                        No Insurance; Subrogation.  To the extent of the
indemnification obligations in this Agreement, Buyer and Seller hereby waive for
themselves, their successors and assigns, including any insurers, any rights to
subrogation for Losses for which each of them is respectively liable or against
which each respectively indemnifies the other, and, if required by applicable
policies, Buyer and Seller shall obtain waiver of such subrogation from their
respective insurers.

 

15.6                        Reservation as to Non-Parties.  Nothing in this
Agreement is intended to limit or otherwise waive any recourse Buyer or Seller
may have against any Person who is not a party to this Agreement for any
obligations or liabilities that may be incurred with respect to the Assets.

 

15.7                        Exclusive Remedy.  From and after Closing, absent
fraud, the sole and exclusive remedy of the Parties with respect to the matters
provided for in this Agreement shall be pursuant to the express provisions of
this Article 15 (provided that Section 13.6 shall also be separately enforceable
by Seller and Purchaser, as applicable, pursuant to whatever rights and remedies
are available to it outside of this Article 15), the special warranty of title
contained in the Assignment, Bill of Sale and Conveyance, Section 4.7 with
respect to Title Defects, Title Defect Values and Interest Additions,
Section 5.5 with respect to Environmental Defects and Environmental Defect
Values, and Section 13.2 with respect to Settlement Statement Dispute
Resolution.

 

15.8                        Waiver of Right to Rescission.  Other than Buyer’s
right to enforce specific performance under Section 11.2, Seller and Buyer
acknowledge that the payment of money shall be adequate compensation for breach
of any representation, warranty, covenant or agreement contained herein or for
any other claim arising in connection with or with respect to the transactions
contemplated in this Agreement.  As the payment of money shall be adequate
compensation, Buyer and Seller waive any right to rescind this Agreement, the
sale of the Assets to Buyer, or any of the transactions contemplated hereby.

 

15.9                        Mutual Releases.  Buyer shall be deemed to have
released the Seller Indemnified Parties, at Closing, from any and all Losses for
which Buyer has agreed to indemnify the Seller Indemnified Parties hereunder,
and Seller shall be deemed to have released the Buyer Indemnified Parties, at
Closing, from any and all Losses for which Seller has agreed to indemnify the
Buyer Indemnified Parties hereunder.

 

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ARTICLE 16
MISCELLANEOUS

 

16.1                        Expenses.  Except as otherwise specifically provided
in this Agreement, all fees, costs and expenses incurred by the Parties in
negotiating or entering into this Agreement or in consummating the transactions
contemplated by this Agreement shall be paid by the Party incurring same,
including legal and accounting fees, costs and expenses.

 

16.2                        Notices.  All notices and other communications under
this Agreement shall be in writing and delivered (a) personally, (b) by
registered or certified mail with postage prepaid, and return receipt requested,
(c) by a nationally recognized commercial overnight courier service with charges
prepaid, or (d) by electronic mail, directed to the intended recipient as
follows:

 

If to Seller:

 

 

 

 

 

 

Cimarex Energy Co.

 

 

1700 Lincoln, Suite 3700

 

 

Denver, Colorado 80203

 

 

Telephone:

(303) 285-4902

 

Email:

sbell@cimarex.com

 

Attention:

Stephen P. Bell

 

 

 

with a copy to:

 

 

 

 

 

 

Bryan Cave LLP

 

 

1700 Lincoln Street, Suite 4100

 

 

Denver, Colorado 80203

 

 

Telephone:

(303) 866-0227

 

Email:

phil.clark@bryancave.com

 

Attn:

Phil Clark

 

 

 

If to Buyer:

 

 

 

Callon Petroleum Operating Company

 

 

1401 Enclave Parkway, Suite 600

 

 

Houston, Texas 77077

 

 

Telephone:

(281) 368-7716

 

Email:

mecklund@callon.com

 

Attention:

Michol Ecklund

 

 

 

with copy to:

 

 

 

Haynes and Boone, LLP

 

 

1221 McKinney, Suite 2100

 

 

Houston, Texas 77010

 

 

Telephone:

713-547-2084

 

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Email:

bill.nelson@haynesboone.com

 

Attention:

Bill Nelson

 

A notice or other communication shall be deemed delivered and received on the
earlier to occur of (i) its actual receipt, (ii) the fifth Business Day
following its deposit in registered or certified mail, with postage prepaid and
return receipt requested, (iii) the first Business Day following its deposit
with a national commercial overnight courier service, with charges prepaid, or
(iv) the date it is sent by confirmed email transmission (acknowledgement from
the intended recipient, such as by the “return receipt requested” function, as
available, return message or other written acknowledgement), if sent before
4:00 p.m. local time of the receiving party on a Business Day) or the next
Business Day (if sent after 4:00 p.m. of such local time or sent on a day that
is not a Business Day).  Either Party may change the address to which notices
and other communications hereunder can be delivered by giving the other Party
notice in the manner herein set forth.

 

16.3                        Entire Agreement.  This Agreement, the
Confidentiality Agreement and the documents to be executed hereunder, constitute
the entire Agreement between the Parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of Seller and Buyer pertaining to the
subject matter hereof. For the avoidance of doubt, upon Closing the
Confidentiality Agreement shall automatically terminate, effective as of the
Closing Date, or if Closing does not occur, the Confidentiality Agreement shall
survive in accordance with its terms.

 

16.4                        Amendments.  Except for waivers specifically
provided for in this Agreement, this Agreement may not be amended nor any rights
hereunder waived except by an instrument in writing signed by Seller and Buyer
and expressly identified as an amendment or waiver.

 

16.5                        Assignment.  Except as provided in Section 14.3,
neither Party may assign all or any portion of its respective rights hereunder
(including any of its rights under Article 15) or delegate all or any portion of
its respective duties hereunder without the prior written consent of the other
Party; provided Buyer may assign its rights and delegate its duties hereunder to
any of its Affiliates provided Buyer and any such assignee or delegate remain
jointly and severally liable for the performance of the duties, obligations and
liabilities of Buyer hereunder.

 

16.6                        Confidentiality of this Agreement.  The Parties
agree to keep the provisions of this Agreement confidential except as disclosure
may be required by applicable law, rules and regulations of governmental
agencies or stock exchanges or required by deposition, interrogatories, requests
for information or documents in legal or regulatory proceedings, subpoena, civil
investigative demand or other similar process or law.  Buyer shall inform Seller
in advance of all such disclosures by Buyer.  Seller shall inform Buyer in
advance of all such disclosures by Seller.  Notwithstanding the foregoing,
Seller shall be entitled to provide a copy of this Agreement to any preferential
right holder or to any holder of a consent relating to the transfer of any
portion of the Assets, together, in each case, with the identity of Buyer and
such other terms as deemed by Seller to be necessary or expedient.

 

16.7                        Press Releases and Announcements.  The Parties shall
consult with each other prior  to the release of any press releases and other
announcements concerning this Agreement or

 

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the transactions contemplated hereby.  Any press release or other announcements
will be at a time and in a form reasonably acceptable to Seller and Buyer.  The
restrictions in this Section 16.7 and in Section 16.6 shall  not apply if a
Party makes a release or announcement and such release or announcement has been
deemed in good faith by the releasing Party to be required by applicable law,
rule, or regulation or under the rules and regulations of any applicable public
stock exchange on which the shares of such Party or any of its Affiliates are
listed.

 

16.8                        Counterparts.  This Agreement may be executed in any
number of counterparts. If counterparts of this Agreement are executed, the
signature pages from various counterparts may be combined into one composite
instrument for all purposes.  All counterparts together shall constitute only on
Agreement, but each counterpart shall be considered an original.  This Agreement
and any counterparts may be delivered by facsimile, portable document format or
similar electronic transmission, and a facsimile, portable document format or
similar electronic transmission evidencing execution shall be effective as a
valid and binding agreement between the Parties for all purposes.

 

16.9                        Exhibits and Schedules.  The Exhibits and Schedules
attached to this Agreement are incorporated into and made a part of this
Agreement for all purposes.  In the event of a conflict or inconsistency between
the provisions of the Exhibits, Schedules or the executed assignment documents
and the provisions of this Agreement, the provisions of this Agreement shall
take precedence.  In the event of a conflict or inconsistency between the
provisions of the pro forma assignment documents and other transaction documents
attached to this Agreement as Exhibits or Schedules and the assignment documents
and other transaction documents actually executed by the Parties, the provisions
of the executed assignment documents and other executed transaction documents
shall take precedence.

 

16.10                 Remedies, Governing Law and Jurisdiction.  Except as
provided in Section 4.7 with respect to Title Defects, Title Defect Values and
Interest Additions, Section 5.5 with respect to Environmental Defects and
Environmental Defect Values, and Section 13.2 with respect to Settlement
Statement Dispute Resolution, and as otherwise provided in this Section 16.10,
the Parties have all of the rights that they would have under law and equity
with respect to any dispute hereunder.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS THEREOF, EXCEPT TO THE EXTENT
THAT THE LAWS OF THE STATE IN WHICH THE ASSETS ARE LOCATED NECESSARILY GOVERN
WITH RESPECT TO MATTERS PERTAINING TO REAL PROPERTY, INCLUDING TITLE MATTERS AND
CONVEYANCING.  EACH OF THE PARTIES HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF ANY UNITED STATES FEDERAL OR TEXAS STATE COURT SITTING IN MIDLAND, TEXAS AND
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS PROVIDED FOR HEREIN.  EACH OF THE PARTIES
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT NOT PROHIBITED BY LAW, ANY OBJECTION
THAT ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN A INCONVENIENT FORUM.  TO THE EXTENT

 

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THAT SUCH COURTS REFUSE TO EXERCISE JURISDICTION HEREUNDER, THE PARTIES AGREE
THAT JURISDICTION SHALL BE PROPER IN ANY COURT IN WHICH JURISDICTION MAY BE
OBTAINED.  EACH OF BUYER AND SELLER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY
AND IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY A JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.

 

16.11                 Binding Effect.  This Agreement shall be binding upon, and
shall inure to the benefit of, the Parties and, except as otherwise prohibited,
their respective successors and assigns.

 

16.12                 Survival.  The representations and warranties of the
Parties shall survive to the extent claims for indemnification may be made for
breach thereof under Article 15.  The covenants of the Parties contained in this
Agreement shall survive until they are fully performed.

 

16.13                 No Third-Party Beneficiaries.  Except as provided in
Article 15, This Agreement is intended only to benefit the Parties and their
respective permitted successors and assigns.

 

16.14                 Limitation on Damages.  The Parties expressly waive any
and all rights to consequential, special, punitive or exemplary damages, or loss
of profits resulting from breach of this Agreement (other than consequential,
special, punitive or exemplary damages or loss of profits suffered by third
Persons for which responsibility is allocated between the Parties).

 

16.15                 Severability.  It is the intent of the Parties that the
provisions contained in this Agreement shall be severable.  Should any
provisions, in whole or in part, be held invalid as a matter of law, such
holding shall not affect the other portions of this Agreement, and such portions
that are not invalid shall be given effect without the invalid portion.

 

16.16                 Knowledge and Reasonable and Good Faith Efforts.  The
knowledge or best knowledge of a Person, or similar phrases, shall mean for
purposes of this Agreement, the actual knowledge of the Person.  If the Person
is a corporation or other entity other than a natural person, such actual
knowledge must be on the part of the Person or Persons listed on Section 16.16
of the Disclosure Schedule with respect to such Person.  Reasonable efforts,
reasonable commercial efforts, or good faith efforts, as used in this Agreement,
do not include the obligation to pay consideration.

 

16.17                 Joint and Several Liability.  Seller agrees and
acknowledges that each of Cimarex, Prize and Magnum Hunter shall be jointly and
severally liable for the obligations of Seller under this Agreement.

 

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16.18                 Disclaimers.

 

(a)                                 Disclaimers Conspicuous.  The Parties agree
that, to the extent required by applicable Law to be operative, the disclaimers
contained in this Section 16.18 are “conspicuous” disclaimers for the purposes
of any applicable Law.

 

(b)                                 No other representations and warranties. 
The express representations and warranties of Seller contained in this
Agreement, together with the special warranty of title contained in the
Assignment, Bill of Sale and Conveyance,  are Seller’s exclusive representations
and warranties and are in lieu of all other representations and warranties,
express, implied, statutory or otherwise.  Without limitation of the foregoing,
Seller expressly disclaims any and all other representations and warranties,
including any warranties or representations, whether express, implied, statutory
or otherwise, relating to: (i) title to the Assets; (ii) the condition,
quantity, quality, conformity to models or samples, fitness for a particular
purpose, merchantability, or non-infringement of any Assets; (iii) the accuracy
or completeness of any data, reports, records, projections, information, or
materials furnished or made available to Buyer whether before, on, or after the
effective time; (iv) pricing assumptions, or quality or quantity of Hydrocarbon
reserves (if any), attributable to the Assets or the ability or potential of the
Assets to produce Hydrocarbons; (v) the environmental condition of the Assets,
both surface and subsurface; or (vi) any other matters contained in any
materials furnished or made available to Buyer or any of its Representatives.

 

(c)                                  Inspection.  Upon Closing, Buyer shall have
inspected, or waived (and upon Closing shall be deemed to have waived) its right
to inspect, the Assets for all purposes, and satisfied itself as to their
physical and environmental condition, both surface and subsurface, including
conditions specifically relating to the presence, release, or disposal of any
materials.  Except as otherwise provided in this Agreement, Buyer is relying
solely upon its own inspection of the Assets.

 

16.19                 Waiver of Trade Practices Acts.

 

(a)                                 It is the intention of the Parties that
Buyer’s rights and remedies with respect to the transactions contemplated by
this Agreement and with respect to all acts or practices of Seller, past,
present or future, in connection with such transactions shall be governed by
legal principles other than the Texas Deceptive Trade Practices—Consumer
Protection Act, Tex. Bus. & Com. Code Ann.  § 17.41 et seq. (the “DTPA”).  As
such, Buyer hereby waives the applicability of the DTPA to such transactions and
any and all duties, rights or remedies that might be imposed by the DTPA,
whether such duties, rights and remedies are applied directly by the DTPA itself
or indirectly in connection with other statutes; provided, however, Buyer does
not waive § 17.555 of the DTPA.  Buyer acknowledges, represents and warrants
that it is purchasing the goods and services covered by this Agreement for
commercial or business use; that it has assets of $5 million or more according
to its most recent financial statement prepared in accordance with generally
accepted accounting principles; that it has knowledge and experience in
financial and business matters that enable it to evaluate the merits and risks
of a transaction such as this; and that it is not in a significantly disparate
bargaining position with Seller.

 

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(b)                                 Buyer expressly recognizes that the price
for which Seller has agreed to perform its obligations under this Agreement has
been predicated upon the inapplicability of the DTPA and this waiver of the
DTPA.  Buyer further recognizes that Seller, in determining to proceed with the
entering into of this Agreement, has expressly relied on this waiver and the
inapplicability of the DTPA.

 

[Signature Page Follows]

 

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The Parties have executed this Agreement as of the date first set forth above.

 

 

SELLER:

 

 

 

CIMAREX ENERGY CO.

 

 

 

By:

/s/ Stephen P. Bell

 

 

Stephen P. Bell

 

 

Executive Vice President, Business Development

 

 

 

PRIZE ENERGY RESOURCES, INC.

 

 

 

By:

/s/ Stephen P. Bell

 

 

Stephen P. Bell

 

 

Executive Vice President, Business Development

 

 

 

MAGNUM HUNTER PRODUCTION, INC.

 

 

 

 

By:

/s/ Stephen P. Bell

 

 

Stephen P. Bell

 

 

Executive Vice President, Business Development

 

 

 

BUYER:

 

 

 

CALLON PETROLEUM OPERATING COMPANY

 

 

 

 

By:

/s/ Joseph C. Gatto, Jr.

 

 

Joseph C. Gatto, Jr.

 

 

President and Chief Executive Officer

 

Signature Page – Purchase and Sale Agreement

 

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DISCLOSURE SCHEDULE

 

Section 4.2

Pending State of Texas Approvals

 

 

Section 4.6(b)

Post-Closing Non-Asset Interest Additions

 

 

Section 4.10

Consents

 

 

Section 4.11

Preferential Purchase Rights

 

 

Section 5.3

Disclosed Environmental Defects

 

 

Section 6.8

Taxes

 

 

Section 6.9

Existing Seller Claims

 

 

Section 6.10

Notices of Violation

 

 

Section 6.12

Production Sales Contracts

 

 

Section 6.13

Plugging Notices and Demands

 

 

Section 6.14

Imbalances

 

 

Section 6.15

Governmental Licenses

 

 

Section 6.17

Suspense Accounts

 

 

Section 6.21

Non-Consent Operations

 

 

Section 6.22

Outstanding Capital Commitments; Payout Balances

 

 

Section 9.1(a)

Available Employees

 

 

Section 16.16

Persons With Knowledge

 

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