Exhibit 10.1

PURCHASE AND SALE AGREEMENT

Various Fields

Offshore State of Louisiana and Offshore Gulf of Mexico

between

STONE ENERGY OFFSHORE, L.L.C. and STONE ENERGY CORPORATION

(collectively as the “SELLER”)

AND

TALOS ENERGY OFFSHORE LLC

(as “BUYER”)

Dated June 27, 2014

Effective April 1, 2014

 

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TABLE OF CONTENTS

 

          Page   ARTICLE 1   

SALE AND PURCHASE OF ASSETS

     6   

    1.1

  

Assets to be Sold

     6   

    1.2

  

Exclusions and Reservations

     8   

    1.3

  

Conveyancing Instruments

     9   

    1.4

  

Seller’s Election to Effect IRC 1031 Exchange

     9    ARTICLE 2   

PURCHASE PRICE AND EFFECTIVE DATE

     10   

    2.1

  

Purchase Price

     10   

    2.2

  

Transfer of Purchase Price

     10   

    2.3

  

Allocation of Purchase Price

     10   

    2.4

  

Adjustments to Purchase Price

     10   

    2.5

  

Additional Consideration

     12   

    2.6

  

Effective Date of Sale

     12   

    2.7

  

Performance Deposit

     12    ARTICLE 3   

ALLOCATION OF REVENUES, ASSUMPTION OF LIABILITIES AND INDEMNIFICATION

     12   

    3.1

  

Allocation of Revenues

     12   

    3.2

  

Payment of Invoices

     13   

    3.3

  

Liabilities After Closing and Indemnities

     13    ARTICLE 4   

ABANDONMENT OBLIGATIONS

     16   

    4.1

  

Performance Bond

     16   

    4.2

  

Replacement Bonds, Letter of Credit and Guarantees

     16   

    4.3

  

BOEM Bonding

     17   

    4.4

  

Additional Buyer Bond

     17   

    4.5

  

Quarterly Financial Statements

     17   

    4.6

  

Security Cap and Performance Bond Reduction

     18   

    4.7

  

Security Cap Reduction

     18    ARTICLE 5   

TAXES AND PAYABLES

     18   

    5.1

  

Payment of Taxes

     18    ARTICLE 6   

REPRESENTATIONS, WARRANTIES, DISCLAIMERS, ACKNOWLEDGMENTS AND WAIVERS

     19   

    6.1

  

Seller’s Representations and Warranties

     19   

    6.2

  

Buyer’s Representations and Warranties

     20   

    6.3

  

Disclaimers, Acknowledgments and Waivers

     21    ARTICLE 7   

TITLE MATTERS

     24   

    7.1

  

Asset Title Review

     24   

    7.2

  

Notice of Title Defects

     24   

    7.3

  

Alleged Title Defect

     25   

    7.4

  

Permitted Encumbrances

     25   

    7.5

  

Remedies for Title Failures

     27   

    7.6

  

Termination Amount

     28   

    7.7

  

Waiver

     28   

 

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ARTICLE 8   

ENVIRONMENTAL MATTERS

     28   

    8.1

  

Environmental Review

     28   

    8.2

  

Material Contamination

     28   

    8.3

  

Remedies for Material Contamination

     29   

    8.4

  

Indemnity Provisions

     29   

    8.5

  

Post-Closing Environmental Indemnification by Buyer

     30   

    8.6

  

Exclusion from Buyer’s Indemnification

     30   

    8.7

  

Condition of the Assets and Specific Buyer Indemnification with Respect to Norm
and Other Hazardous Substances

     31   

    8.8

  

Waiver

     31    ARTICLE 9   

ADDITIONAL COVENANTS

     32   

    9.1

  

Operations Prior to Closing

     32   

    9.2

  

Preferential Rights to Purchase

     32   

    9.3

  

Consents to Assignment

     33   

    9.4

  

Cooperation with Financial Statements

     33    ARTICLE 10   

COVENANTS, ASSIGNMENTS AND CONTINUING OBLIGATIONS

     34    ARTICLE 11   

CLOSING, TERMINATION AND FINAL ADJUSTMENTS

     35   

  11.1

  

Conditions Precedent

     35   

  11.2

  

Closing

     36   

  11.3

  

Termination

     37   

  11.4

  

Remedies Upon Termination

     37   

  11.5

  

Final Adjustments

     38    ARTICLE 12   

POST CLOSING OBLIGATIONS

     38   

  12.1

  

Records

     38   

  12.2

  

Recording and Filing

     39   

  12.3

  

Seller Operated Assets

     39   

  12.4

  

Buyer’s Approval

     40    ARTICLE 13   

MISCELLANEOUS

     40   

  13.1

  

Imbalances, Hydrocarbon Inventory and Linefill

     40   

  13.2

  

Insurance

     41   

  13.3

  

Casualty Loss of Assets

     41   

  13.4

  

Publicity

     42   

  13.5

  

Assignment

     42   

  13.6

  

Entire Agreement

     42   

  13.7

  

Notices

     43   

  13.8

  

Governing Law

     43   

  13.9

  

Hart-Scott-Rodino

     43   

13.10

  

Confidentiality

     44   

13.11

  

Default

     44   

13.12

  

Survival of Certain Obligations

     45   

13.13

  

Conflict of Interest

     45   

13.14

  

Further Cooperation

     46   

13.15

  

Counterparts

     46   

13.16

  

Severability

     46   

13.17

  

Removal of Signs and Markers

     46   

13.18

  

Conspicuousness / Express Negligence

     46   

 

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13.19

  

Waiver of Certain Damages

     47   

13.20

  

Suspense Funds

     47   

13.21

  

Entire Agreement; Conflicts

     47   

13.22

  

Non-Recourse

     47   

 

 

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EXHIBITS

 

Exhibit    Schedule    Description A    Schedule 1    Oil and Gas Leasehold
Interests and Allocation of Purchase Price    Schedule 2    Wells    Schedule 3
   Platforms and Other Facilities    Schedule 4    Pipelines    Schedule 5   
Easements, Surface Leases, and Permits    Schedule 6    Material Contracts   
Schedule 7    Overriding Royalty Interests    Schedule 8    Excluded Assets   
Schedule 9    Preferential Purchase Rights    Schedule 10    Hydrocarbon
Inventory B       Open AFEs C       Replacement Bonds, Guarantees, and Letters
of Credit D       Imbalances E       Encumbrances F       Litigation G      
Letters in Lieu H       Non-Foreign Certificate/Form W-9 I       Deep Rights
Participation/Farmout Option J       Transition Agreement K    Schedule 1   
Form of Assignment of Record Title Interest    Schedule 2    Form of Assignment
of Operating Rights Interest    Schedule 3    Form of Assignment and Bill of
Sale (Inclusive of Contracts)    Schedule 4    Form of Louisiana Deed   
Schedule 5    Form of Assignment of Rights-of-Way    Schedule 6    Form of
Assignment of Overriding Royalty Interests    Schedule 7    Form of Seismic
License    Schedule 8    Form of Preferential Rights Letter    Schedule 9   
Form of Performance Bond L       Guaranty Agreement M       Decommissioning
Schedule

 

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PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), dated June 27, 2014 is
between STONE ENERGY CORPORATION, a Delaware corporation with a mailing address
of P. O. Box 52807, Lafayette, Louisiana 70505, and STONE ENERGY OFFSHORE,
L.L.C., a Delaware limited liability company, with a mailing address of 625 East
Kaliste Saloom Road, Lafayette, Louisiana 70508 (collectively, “Seller”), and
TALOS ENERGY OFFSHORE LLC a Delaware limited liability company with a mailing
address of 500 Dallas St., Suite 2000, Houston, TX 77002 (“Buyer”).

W I T N E S S E T H:

That Seller desires to sell to Buyer and Buyer desires to purchase from Seller
on the terms set forth in this Agreement those certain oil and gas interests and
associated assets described herein. In connection with the execution and
delivery of this Agreement, Talos Energy LLC is executing and delivering a
Guaranty Agreement to Seller, in the form of Exhibit L (the “Guaranty”), in
support of Buyer’s payment obligations under this Agreement. Accordingly, in
consideration of the mutual promises contained herein, the mutual benefits to be
derived by each party hereunder and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree
as follows:

 

1. SALE AND PURCHASE OF ASSETS

 

  1.1 Assets To Be Sold

 

  1.1.1 Seller shall sell, transfer, assign, and deliver or cause others to
sell, transfer and assign and deliver to Buyer, and Buyer shall purchase and
receive, all of Seller’s rights, title, and interests (including without
limitation those interests specified on the Exhibits referenced below but
exclusive of the equipment, machinery, and other real, personal, movable,
immovable and mixed property expressly reserved by Seller pursuant to
Section 1.2 hereof) in and to the following:

 

  1.1.1.1 the oil and gas leases (including without limitation, working
interests, royalty interests, overriding royalty interests, net profits
interests and any other interest in or affecting same) described on Exhibit A,
Schedule 1 (collectively, the “Leases”);

 

  1.1.1.2 any and all oil and gas wells, salt water disposal wells, injection
wells, water wells, and other wells and wellbores, whether abandoned, not
abandoned, plugged or unplugged, located on, associated with or affecting the
Leases, including but not limited to those listed on Exhibit A, Schedule 2
(collectively, the “Wells”);

 

  1.1.1.3

all pipelines, structures, facilities, foundations, wellheads, tanks, pumps,
compressors, separators, equipment, machinery, fixtures, flowlines, platforms,
materials, improvements, and any other real, personal, immovable, movable and
mixed property located on and currently or

 

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  formerly used in the operation of, or relating to the in-field production,
treatment, sale, or disposal of Hydrocarbons (as defined below), water, and
associated substances produced from or attributable to the Leases, whether
located on the Leases or stored elsewhere, including such items stored as
inventory on-shore but procured exclusively for utilization with the Leases, all
including but not limited to those listed on Exhibit A, Schedules 3 and 4
(collectively, the “Personal Property”);

 

  1.1.1.4 all natural gas, casinghead gas, drip gasoline, natural gasoline,
natural gas liquids, condensate, products, crude oil and other hydrocarbons,
whether gaseous or liquid (“Hydrocarbons”), produced and severed from, or
allocable, after severance, to the Leases, the Wells or the Contracts on and
after the Effective Date (as hereinafter defined) (collectively, the “Sale
Hydrocarbons”);

 

  1.1.1.5 to the extent transferable, all contracts, permits, licenses and
authorizations, as well as any applications for same, rights-of-way, easements,
servitudes, surface leases, subsurface use agreements, licenses, pooling and/or
unit agreements, operating agreements, processing agreements, division orders,
farmin and farmout agreements, and other agreements of any kind or nature,
whether recorded or not, including but not limited to those described on Exhibit
A, Schedules 5 and 6, INSOFAR ONLY as they directly relate and are attributable
to the Leases, Wells or Personal Property or the ownership or operation thereof,
or the production, treatment, sale, transportation, gathering, storage or
disposal of Sale Hydrocarbons, water, or substances associated therewith (the
“Contracts”);

 

  1.1.1.6 digital or hard copies of records directly relating to the Leases,
Wells, Sale Hydrocarbons, Contracts, and Personal Property, in the possession of
Seller (the “Records”), including without limitation, lease, well, division
order and other title records (including title curative documents), surveys,
maps and drawings, correspondence, regulatory, geological records and
information, speculation data, geophysical data (either proprietary or not), and
the associated licensing agreements and seismic licenses between Seller and
third parties, if any, and any and all geophysical interpretations and
proprietary or licensed raw or processed geophysical data (including magnetic
tapes, field notes, seismic lines, analyses and similar data or information) and
interpretations therefrom (Seller will provide Buyer with the requisite
information so that Buyer may obtain any non-proprietary geophysical data
through acquisition of appropriate licenses if Buyer so chooses), production
records, electric logs, core data, pressure data, decline curves, graphical
production curves and all related matters and construction documents, accounting
and tax records which Seller believes would be useful to Buyer in the continued
operation of the Assets but not including any records which (i) Seller is
prohibited from transferring to Buyer by law, by court order or existing
contractual relationship, or (ii) would require Seller to bear any cost
associated with the transfer of licenses or data, or which (iii) constitute
Excluded Assets (hereinafter defined in Section 1.2); and

 

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  1.1.1.7 any and all prepaid items, whether classified as lease operating
expenses or capital expenditures, as paid by third parties to Seller as operator
of the Assets and in conjunction with any offshore operating agreement or
similar agreement to which Seller is a party.

All such Leases, Wells, Personal Property, Sale Hydrocarbons, Contracts, and
Records are hereinafter collectively referred to as the “Assets.”

 

  1.1.2 Transfer of Assets. The risk of loss and transfer of possession and
control of the Assets shall occur and be made at Closing (as hereinafter defined
in Section 11.2), but transfer of title to the Assets shall be made effective as
of the Effective Date (as hereinafter defined). Upon Closing as appropriate,
Seller and Buyer shall promptly execute such additional documents as may be
necessary to transfer the rights, titles or interests herein sold and purchased
in the records of any purchaser of Sale Hydrocarbons.

 

  1.2 Exclusions and Reservations: Specifically excepted and reserved from this
transaction are the following, hereinafter referred to as the “Excluded Assets”:

 

  1.2.1 Seller’s proprietary data (other than proprietary data transferred to
Buyer under Section 1.1.1.6), reserve estimates and reports, economic analyses,
computer programs and applications, pricing forecasts, legal files and legal
opinions (except abstracts of title, title opinions, certificates of title, or
title curative documents), attorney-client communications, attorney work
product, and records and documents subject to confidentiality provisions, claims
of privilege or other restrictions on access;

 

  1.2.2 All geophysical data (either proprietary or not) and the associated
licensing agreements and seismic licenses between Seller and third parties, if
any, and any and all geophysical interpretations and proprietary or licensed raw
or processed geophysical data (including magnetic tapes, field notes, seismic
lines, analyses and similar data or information) and interpretations therefrom
that are not transferred to Buyer under Section 1.1.1.6;

 

  1.2.3 Subject to the provisions of Section 13.1, all rights and claims
arising, occurring, or existing in favor of Seller prior to the Effective Date
including, but not limited to, any and all contract rights, claims, penalties,
receivables, revenues, recoupment rights, recovery rights, accounting
adjustments, mispayments, erroneous payments, personal injury, property damage,
royalty and other rights and claims of any nature in favor of Seller relating to
any time period prior to the Effective Date;

 

  1.2.4 All corporate, financial, and tax records of Seller; however, Buyer
shall be entitled to be furnished with copies of any financial and tax records,
other than income tax records, at Buyer’s sole cost and expense which directly
relate, in the opinion of Seller, to the Assets, or which are necessary for
Buyer’s ownership, administration, or operation of the Assets upon receipt by
Seller of a written request from Buyer indicating its desire to obtain copies,
and the purpose for same

 

  1.2.5 All rights, titles, claims and interests of Seller related to the Assets
for all periods prior to the Effective Date (i) under any policy or agreement of
insurance or indemnity, (ii) under any bond, or (iii) to any insurance or
condemnation proceeds or awards;

 

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  1.2.6 All Hydrocarbons produced from or attributable to Seller’s interest in
the Assets, with respect to all periods prior to the Effective Date, together
with all proceeds from and rights relating to the sale of such Hydrocarbons;

 

  1.2.7 Claims of Seller for any refund of or loss carry forwards with respect
to (i) production, windfall profit, severance, ad valorem or any other taxes
attributable to the Assets for any period prior to the Effective Date, and
(ii) income, occupational or franchise taxes;

 

  1.2.8 Subject to the terms hereof, all monies, proceeds, benefits, receipts,
credits, income or revenues (and any security or other deposits made)
attributable to the Assets or the operation thereof prior to the Effective Date,
specifically including, without limitation, amounts recoverable from audits
under operating agreements and any overpayments of royalties;

 

  1.2.9 All amounts due or payable to Seller as adjustments to insurance
premiums related to the Assets for all periods prior to the Effective Date;

 

  1.2.10 All of Seller’s intellectual property rights, patents, trade secrets,
copyrights, names, marks and logos;

 

  1.2.11 All material rights, obligations, benefits, awards, judgments, and
settlements, if any, applicable to any pending litigation, claim, or cause of
action, including but not limited to those set forth on Exhibit F to the extent
attributable to periods prior to the Effective Date, in which Seller is a named
claimant or plaintiff or holds beneficial rights or interests;

 

  1.2.12 Seller’s master service order agreements and charter party agreements,
storage or warehouse agreements, supplier contracts, service contracts,
insurance contracts, and construction agreements;

 

  1.2.13 All telecommunication and communications equipment, licenses and
services, WARS control stations, software and computers; and

 

  1.2.14 Those rights and items listed on Exhibit A, Schedule 8.

 

  1.3 Conveyancing Instruments. The Assets to be conveyed by Seller to Buyer
pursuant to this Agreement shall be conveyed “AS IS, WHERE IS”, without warranty
of title, express or implied, except as to claims by, through and under Seller,
unless otherwise specified herein, and subject to the express conditions and
limitations contained in this Agreement. The Assets to be transferred to Buyer
shall be transferred pursuant to an Assignment and Bill of Sale in substantially
the form of Exhibit K, Schedule 3 (the “Assignment”), together with such other
forms of transfer as may be required by the applicable governmental entity in
connection with certain of the Assets.

 

  1.4

Seller’s Election to Effect IRC §1031 Exchange. In the event Seller so elects,
Buyer agrees to reasonably cooperate with Seller in effecting a tax-deferred
exchange under Internal Revenue Code §1031, as amended. Seller shall have the
right to elect this tax-deferred

 

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  exchange at any time prior to the date of Closing. If Seller elects to effect
a tax deferred exchange, Buyer agrees to execute additional escrow instructions,
documents, agreements, or instruments to effect the exchange, provided that
(i) Buyer shall incur no additional costs, expenses, fees, obligations or
liabilities of any kind or character, as a result of or connected with the
exchange, and (ii) no assignment or other action taken by Seller pursuant to
this Section 1.4 shall release Seller from, or modify, any of its liabilities
and obligations under this Agreement.

 

2. PURCHASE PRICE AND EFFECTIVE DATE

 

  2.1 Purchase Price. As consideration for the sale of the Assets, Buyer shall
pay to Seller or its respective designee, two hundred million United States
dollars ($200,000,000) (the “Purchase Price”), adjusted as set forth below, plus
Buyer shall grant to Seller a farmout option as additional consideration, more
fully described in Section 2.5 below. The Purchase Price as adjusted in
accordance with Section 2.4 shall be referred to as the “Adjusted Purchase
Price.”

 

  2.1.1 The Adjusted Purchase Price shall be paid at Closing as provided below.

 

  2.2 Transfer of Purchase Price. The Adjusted Purchase Price shall be paid by
Buyer at Closing by completed wire transfer, in immediately available funds, to
the account below or as directed in writing by Seller in the Closing Statement
(defined below):

 

Bank Name:    US Bank Location:    One U.S. Bank Plaza St. Paul, MN 55107
ABA Number    102000021 Account Name:    Stone Energy Corporation Operating
Account Account Number:    103690290541

 

  2.3 Allocation of Purchase Price. Buyer has submitted to Seller an allocation
of the Purchase Price to each individual part of the Assets as set forth in
Exhibit A, Schedule 1. Buyer will make reasonable allocations, in good faith,
and Seller may rely on the allocations for all purposes, including those
provided in this Agreement.

 

  2.4 Adjustments to Purchase Price. The Purchase Price shall be adjusted in
accordance with this Section 2.4.

 

  2.4.1 The Purchase Price shall be increased by the following amounts (without
duplication):

 

  2.4.1.1

the amount of all expenses and charges relating to the Assets or the operation
of the Assets which are paid by or on behalf of Seller and are attributable to
the period of time from and after the Effective Date and prior to the Closing
Date, including (a) all operating and capital

 

10

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  expenditures and prepaid expenses attributable to the Assets including,
without limitation, royalty disbursements, rentals and other similar charges,
excise, severance and production tax payments and any other tax payments based
upon or measured by the production of Sale Hydrocarbons or the receipt of
proceeds therefrom, (b) expenses paid, or to be paid, by Seller to any third
party under applicable joint operating agreements or other contracts or
agreements included in or bearing upon the Assets, or in the absence of any
joint operating agreement, those customarily billed under any such agreement,
including without limitation, drilling, completion, reworking, deepening,
side-tracking, plugging and abandoning, geological and geophysical and land
costs, (c) Seller’s overhead and administrative expenses allocable to the
Assets, provided that such expenses are not duplicative of any other expense or
charge under this Section 2.4.1.1, and (d) allocated insurance costs for the
insurance policies carried by Seller to which Buyer will receive the benefit;

 

  2.4.1.2 subject to adjustments made under Article 13.1, an amount equal to the
market value of all Hydrocarbons in storage, including but not limited to those
listed on Exhibit A, Schedule 10 (collectively, the “Hydrocarbon Inventory”);
linefill and product imbalances if Seller is underproduced, including but not
limited to those listed on Exhibit D (collectively, the “Imbalances” and
“Linefill”) existing on the Effective Date that are produced from, attributable
to, or otherwise credited to the Assets for production of Sale Hydrocarbons
prior to the Effective Date; and

 

  2.4.1.3 any other amount agreed upon by Seller and Buyer.

 

  2.4.2 The Purchase Price shall be decreased by the following amounts:

 

  2.4.2.1 an amount equal to the proceeds received by Seller from the sale of
Sale Hydrocarbons;

 

  2.4.2.2 subject to adjustments made under Article 13.1, Imbalances existing on
the Effective Date if Seller is overproduced;

 

  2.4.2.3 reductions due to Title Failures as provided for in Section 7.5;

 

  2.4.2.4 reductions due to Material Contamination as provided for in
Section 8.3;

 

  2.4.2.5 reductions due to the exercise of preferential rights to purchase as
provided for in Section 9.2;

 

  2.4.2.6 reductions due to Casualty Loss as provided in Section 13.3;

 

  2.4.2.7 any other amount agreed upon by Seller and Buyer;

 

  2.4.2.8 The Performance Deposit;

 

  2.4.2.9

an amount equal to all expenditures, liabilities and costs (whether capitalized
or expensed) relating to the Assets (other than taxes) and paid

 

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  or assumed by Buyer that are (a) unpaid as of the Closing Date and
(b) assessed for or attributable to periods of time prior to the Effective Date,
regardless of how such expenditures, liabilities and costs are calculated,
provided that to the extent the actual amounts cannot be determined prior to the
agreement of Buyer and Seller with respect to the Closing Statement, a
reasonable estimate of such expenditures, liabilities and costs shall be used
(and to such extent Buyer shall assume the liability and the responsibility for
payment thereof); and

 

  2.4.2.10 to the extent not transferred to Buyer at the Closing, all funds held
in suspense by Seller (“Suspense Funds”) with respect to the operation,
ownership, production and developments of the Assets.

 

  2.4.3 Closing Statement. Seller shall prepare and deliver to Buyer an
accounting statement (the “Closing Statement”) no later than five (5) business
days prior to Closing that shall set forth the adjustments to the Purchase Price
made in accordance with this Agreement, it being understood and agreed that the
Closing Statement shall contain reasonable estimates where actual amounts are
not known at the time and that as actual costs and revenues are known, these
amounts will be taken into account in the Final Settlement Statement provided
for in Section 11.5. The Closing Statement shall be prepared in accordance with
generally accepted accounting principles generally used in the oil and gas
industry.

 

  2.5 Additional Consideration – Farmout Option. Within sixty (60) days after
Closing, Seller and Buyer agree to execute a mutually agreeable
participation/farmout option agreement for certain deep rights in the Leases
from Buyer in favor of Seller substantially in the form attached hereto as
Exhibit I.

 

  2.6 Effective Date of Sale. The effective date of the sale of the Assets shall
be April 1, 2014, as of 7:00 a.m., Central Time, (the “Effective Date”).

 

  2.7 Performance Deposit. Upon execution of this Agreement, Buyer or its
designee shall pay to Seller fifteen million dollars ($15,000,000), as a
performance deposit (“Performance Deposit”) on the Assets to be transferred to
Buyer to assure Buyer’s performance under this Agreement. The Performance
Deposit is solely to assure the performance of Buyer pursuant to the terms and
conditions of this Agreement. If Closing occurs, Seller at its sole option may
either (i) return the Performance Deposit to Buyer, without interest, at
Closing, in which case Buyer must pay Seller the full amount of the Purchase
Price at Closing, adjusted as provided in Section 2.4, or (ii) retain and credit
the Performance Deposit against the Purchase Price at Closing, in which case
Buyer must pay Seller an amount equal to the Purchase Price, adjusted as
provided in Section 2.4, less the Performance Deposit.

 

3. ALLOCATION OF REVENUES, ASSUMPTION OF LIABILITIES AND INDEMNIFICATION

 

  3.1

Allocation of Revenues. Seller shall receive (or receive credit in the Closing
Statement or the Final Settlement Statement, as applicable, for) all proceeds
from the sale of Hydrocarbons physically produced from or allocable to the
Assets prior to the Effective Date, and shall also receive (or receive credit in
the Closing Statement or the Final Settlement Statement, as applicable, for) and
hold the right to receive all other revenues, proceeds and benefits attributable
to the Assets accruing or relating to all periods before the

 

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  Effective Date. Buyer shall receive (or receive credit in the Closing
Statement or the Final Settlement Statement, as applicable, for) all proceeds
from the sale of Sale Hydrocarbons and shall also receive (or receive credit in
the Closing Statement or the Final Settlement Statement, as applicable, for) and
hold the right to receive all other revenues, proceeds and benefits attributable
to the Assets which accrue or relate to all periods after the Effective Date.

 

  3.2 Payment of Invoices. After the Closing, Seller shall be responsible for
and required to pay only that portion of any charge or invoice received that is
applicable to work performed or material received in the period prior to the
Effective Date. Similarly, after the Closing, Buyer shall be responsible for and
required to pay only that portion of any charge or invoice received that is
applicable to work performed or material received in the period on or subsequent
to the Effective Date.

 

  3.3 Liabilities after Closing and Indemnities.

 

  3.3.1 Definition of Claims. As used in any provision of this Agreement,
“Claims” shall mean all liabilities, penalties, fines, obligations, judgments,
claims, governmental actions, causes of action, demands, administrative
proceedings, suits and other legal proceedings, together with any fees and
expenses associated therewith (including, without limitation, costs of
investigation, attorneys’ fees, experts’ fees and expenses associated with
investigation of claims, testing, assessment and remedial actions).

 

  3.3.2

Buyer’s Assumption of Abandonment Obligations. As additional consideration for
the sale of the Assets, and notwithstanding anything else to the contrary
herein, specifically including Section 3.3.6, effective as of Closing, Buyer
shall assume and shall timely and fully satisfy all the Abandonment Obligations
(as defined below) associated with the Assets. As used herein, the term
“Abandonment Obligations” shall mean and include all obligations associated with
and liability for (i) the plugging and abandonment of all wells, either active
or inactive, including but not limited to the Wells situated on, associated
with, or affecting any of the Leases; (ii) the removal of structures,
facilities, foundations, wellheads, tanks, pipelines, flowlines, pumps,
compressors, separators, heater treaters, valves, fittings and equipment and
machinery of any nature and all materials contained therein, located on or used
in connection with the Assets; (iii) the clearance, restoration and/or
remediation of the lands covered by the Leases; and (iv) the removal,
remediation and abatement of any petroleum material, any contamination or
pollution (including, without limitation, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, leaching, dumping or disposing of any chemical
substance, pollutant, contaminant, toxic substance, radioactive material,
hazardous substance, naturally occurring radioactive material (“NORM”), waste,
saltwater, crude oil, or petroleum product) of the surface (including surface
water), air, or any vessel, piping, equipment, tubing or subsurface strata
associated with the Assets, all in accordance with or as required by applicable
agreements, implied or express, including without limitation, leases, unit
agreements and operating agreements, or by law, regulation, order, permit,
judgment or decree. From and after Closing, Buyer shall protect, indemnify, hold
harmless and defend Seller, its affiliates, and its/their officers, directors,
employees and agents, against any and all Claims, whether based on any theory of
liability, including, but not limited to, tort, breach of contract (express or
implied), breach of warranty (express or implied), strict

 

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  liability, regulatory liability, or statutory liability, regardless of the
sole, joint or concurrent negligence, strict liability, regulatory liability,
statutory liability, breach of contract, breach of warranty, or other fault or
responsibility of Seller or any other person or party, arising from, resulting
from or related to Buyer’s failure to timely and fully satisfy the Abandonment
Obligations. Buyer further agrees from and after Closing to take whatever
actions that are necessary to protect Seller from being subjected to any such
Claims, including but not limited to remediation and restoration as and when
required by Law, and will comply with reasonable requests by Seller that Buyer
take such action. Buyer shall cause all future conveyances, assignments or
transfers of the Assets to specifically reference and describe Buyer’s
obligations to Seller set forth in this Section 3.3.2, and Buyer shall cause all
transferees of the Assets to expressly acknowledge and assume said obligations
jointly and in solido with Buyer with respect to the portion of the Assets
acquired by any such transferee. Notwithstanding anything in this Section 3.3.2
to the contrary, nothing herein shall limit Buyer’s rights under Section 3.3.7
with respect to a breach of representation and warranty in Section 6.1.4.

 

  3.3.3 Buyer’s Assumption of Contract Obligations. Buyer shall observe and
comply with all covenants, terms, and provisions, express or implied, contained
in the Leases and Contracts and this purchase and sale is made expressly subject
to all Contracts binding upon the Assets, whether or not the same are herein
specifically identified. From and after Closing, Buyer shall assume and be
responsible for all obligations and liabilities of Seller accruing under the
Contracts after the Effective Date and agrees to execute any instrument or
document required to evidence such assumption.

 

  3.3.4 Seller’s Indemnity with respect to Scheduled Litigation, Royalty Claims
and Taxes. Seller shall defend, indemnify and hold Buyer, its affiliates, and
its members, managers, employees, contractors, insurers and representatives
(which additional parties together with Buyer are hereinafter collectively
referred to as the “Buyer Parties”) harmless from any and all Claims relating to
periods of time prior to the Effective Date asserted or filed within seven
(7) years from the Closing and relating to: (i) the payment, underpayment or
nonpayment of royalties, overriding royalties, net profit interests and any
other burdens on or affecting production or the proper accounting or payment to
parties for their interests therein, and (ii) the payment, underpayment or
nonpayment of property, ad valorem, excise, sales, use, windfall profit,
production, severance and similar taxes attributable to the ownership or
operation of the Assets or the production of hydrocarbons therefrom. Buyer shall
be responsible for all Claims of these types with respect to the Assets insofar
as they relate to periods of time from and after the Effective Date and Buyer
shall defend, indemnify and hold the Seller Parties (as defined below) harmless
therefrom. Notwithstanding any provision in this Agreement to the contrary,
Seller shall defend, indemnify and hold the Buyer Parties harmless from (i) the
litigation matter disclosed on Exhibit F, (ii) any income, franchise or similar
taxes imposed on Seller (and such taxes shall not be taken into account as an
adjustment to the Purchase Price under Section 2.4), and (iii) any taxes
attributable to the ownership or operation of the Excluded Assets or any other
asset or business of Seller that is not part of the Assets.

 

  3.3.5

Seller’s Indemnity with respect to Certain Other Claims. Seller shall defend,
indemnify and hold Buyer and Buyer Parties harmless from any and all Claims

 

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  asserted or filed within two (2) years from the Closing and relating to:
(i) personal injury or death arising from an event that occurred or an exposure
to a condition that existed prior to the Closing Date and related to the
operation of the Assets, specifically including third party indemnity for such
Claims and (ii) any property damage of a third party arising from an event that
occurred or a condition that existed prior to the Closing Date and related to
the operation of the Assets, specifically including third party indemnity for
such Claims.

 

  (a) Seller shall not have any liability for any indemnification under this
Section 3.3.5 for any Claim unless the amount with respect to such Claim plus
the amount of all other Claims under this Section 3.3.5 and Section 3.3.7
exceeds four million dollars ($4,000,000) (the “Aggregate Deductible”).

 

  (b) Notwithstanding anything to the contrary contained in this Section 3.3.5,
Seller shall not be required to indemnify Buyer Parties for liabilities under
this Section 3.3.5 and Section 3.3.7 that, in the aggregate, exceed fifteen
percent (15%) of the initial unadjusted Purchase Price.

 

  3.3.6 Buyer’s General Indemnification. Subject to the provisions of Sections
3.3.4, 3.3.5 and 3.3.7 and other provisions of this Agreement specifically
requiring indemnification from Seller, Buyer shall defend, protect, indemnify
and hold Seller, its affiliates, and its/their directors, officers, members,
managers, employees, contractors, insurers and representatives (which additional
parties together with Seller are hereinafter collectively referred to as the
“Seller Parties”) harmless against any and all Claims in any way arising out of,
related to, or connected with the ownership, operations or activities related to
the Assets and the contracts and agreements pertaining thereto on or after the
Closing Date, or any of the obligations, responsibilities or liabilities
expressly assumed by Buyer hereunder, and including, but not limited to, acts or
omissions of Seller, based upon any theory, whether in contract, negligence,
liability without fault, strict liability, regulatory liability, statutory
liability, tort or other. Effective as of Closing, Buyer also hereby agrees to
defend, save, indemnify and hold Seller Parties harmless from and against any
and all Claims caused by, arising from, attributable to, or alleged to be caused
by, arising from or attributable to the breach by Buyer of any of Buyer’s
representations, warranties, covenants or agreements contained in this
Agreement.

 

  3.3.7 Seller’s General Indemnification. Subject to the provisions of 3.3.2,
3.3.3 and 3.3.6 above and other provisions of this Agreement specifically
requiring indemnification from Buyer, for a period of two (2) years after the
Closing Date, Seller shall defend, protect, indemnify and hold Buyer Parties
harmless against any and all Claims in any way arising out of, related to, or
connected with the ownership, operations or activities related to the Assets and
the contracts and agreements pertaining thereto prior to the Closing Date, or
any of the obligations, responsibilities or liabilities retained by Seller
hereunder, and including, but not limited to, acts or omissions of Buyer, based
upon any theory, whether in contract, negligence, liability without fault,
strict liability, regulatory liability, statutory liability, tort or other.
Effective as of Closing, for a period of five (5) years after the Closing Date,
Seller also hereby agrees to defend, save, indemnify and hold Buyer Parties
harmless from and against any and all Claims caused by, arising from,
attributable to, or alleged to be caused by, arising from or attributable to the
breach by Seller of any of Seller’s representations, warranties, covenants or
agreements contained in this Agreement.

 

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  (a) Seller shall not have any liability for any indemnification under this
Section 3.3.7 for any Claim unless the amount with respect to such Claim plus
the amount of all other Claims under this Section 3.3.7 and Section 3.3.5
exceeds the Aggregate Deductible.

 

  (b) Notwithstanding anything to the contrary contained in this Section 3.3.7,
Seller shall not be required to indemnify Buyer Parties for liabilities under
this Section 3.3.7 and Section 3.3.5 that, in the aggregate, exceed fifteen
percent (15%) of the initial unadjusted Purchase Price.

 

  3.3.8 General Indemnity Provisions. THE DEFENSE, RELEASE, INDEMNIFICATION AND
HOLD HARMLESS OBLIGATIONS SET FORTH IN THIS AGREEMENT SHALL ENTITLE THE
INDEMNIFIED PARTY TO SUCH DEFENSE, RELEASE, INDEMNIFICATION AND HOLD HARMLESS
HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE CLAIM
GIVING RISE TO SUCH OBLIGATION IS THE RESULT OF THE SOLE, JOINT, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY, LIABILITY WITHOUT FAULT, REGULATORY
LIABILITY, STATUTORY LIABILITY, BREACH OF CONTRACT, BREACH OF WARRANTY,
VIOLATION OF ANY LAW, OR OTHER FAULT OR RESPONSIBILITY OF OR BY SELLER OR ANY OF
SELLER PARTIES, OR BY A PRE-EXISTING CONDITION.

 

  3.3.9 Exclusive Remedy. Each of Seller and Buyer acknowledges and agrees that,
from and after Closing, its sole and exclusive remedy with respect to any and
all Claims pursuant to or in connection with this Agreement and relating to the
Assets, the purchase of the Assets by Buyer, or the sale of the Assets by Seller
shall be limited to the indemnification and representation and warranty
provisions set forth in this Agreement.

 

4. ABANDONMENT OBLIGATIONS

 

  4.1 Performance Bond. Prior to Closing, Buyer shall provide bonds, letters of
credit or guarantees, reasonably acceptable to Seller, for the account of Buyer
in favor of Seller (collectively “Performance Bond”) in the initial sum of sixty
million dollars ($60,000,000), less the face amount or sum of any replacement
security posted through replacement bonds, letters of credit or guarantees
described on Exhibit C issued on behalf of Seller and/or its affiliates in favor
of either third parties (the “Third Party Bonds”) or government authorities
having jurisdiction, to the extent required to obtain the release or
cancellation of the bonds, letters of credit and guarantees by the current
holders.

 

  4.2 Replacement Bonds, Letter of Credit and Guarantees. Prior to Closing,
Buyer shall use commercially reasonable efforts to obtain from a financial
institution, surety, or similar entity reasonably acceptable to Seller and
deliver same to Seller or Seller’s designee, at Closing, replacements for the
Third Party Bonds, which currently aggregates $15,740,000.

 

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  4.3 BOEM Bonding. After Closing, Buyer will post with the Bureau of Ocean
Energy Management (“BOEM”) supplemental bonds in an amount equal to the amount
of decommissioning liabilities for all the Assets that Buyer is required to post
bonds with BOEM (the “BOEM Bonds”). If the amount of BOEM Bonds plus the Third
Party Bonds actually posted by Buyer is greater than the Performance Bond in
effect, then Seller shall cancel the Performance Bond. If the amount of BOEM
Bonds plus the Third Party Bonds actually posted by Buyer is less than the
Performance Bond in effect, then the Performance Bond shall be reduced to the
difference between $60,000,000 and the aggregate of the BOEM Bonds and the Third
Party Bonds. In the event BOEM increases the amount of the decommissioning
liabilities associated with any of the Assets that Buyer is required to post
bonds with BOEM in connection with the assignment of the Assets to Buyer or at
any time after Closing, Buyer shall post BOEM Bonds with the government in the
amount of such increase, provided that if BOEM decreases the amount of the
decommissioning liabilities associated with the Assets that Buyer is required to
post bonds with BOEM or Buyer is no longer required to post a bond with BOEM
because it has satisfied its decommissioning obligations with respect to such
Asset, Buyer shall be entitled to reduce the amount of the BOEM Bonds posted to
the BOEM by the amount of such decrease.

 

  4.4 Additional Buyer Bond. If at any time after Closing, Talos Production LLC
does not maintain a Debt to EBITDA Ratio of 2.0x or less, then Buyer shall
furnish to Seller bonds, substantially in the form attached hereto as Exhibit K,
Schedule 9, or other surety or guarantee reasonably acceptable to Seller,
securing the Abandonment Obligations in an amount equal to the Security Cap less
the aggregate amount of the Performance Bond, BOEM Bonds and the Third Party
Bonds in effect (the “Seller Additional Bonds”). “Debt to EBITDA Ratio” shall
mean Talos Production LLC’s long term debt divided by Talos Production LLC’s
previous twelve month trailing Adjusted EBITDA, each as based on Talos
Production LLC’s quarterly financial statements provided to Seller pursuant to
Section 4.5 and calculated in accordance with Talos Production LLC’s then
outstanding debt instruments. The Seller Additional Bonds shall be in a form
reasonably acceptable to and subject to the reasonable prior approval of Seller.
It is specifically understood and agreed that Buyer’s obligations to assume the
Abandonment Obligations under Section 3.3.2 of this Agreement are not limited by
the amount of the Seller Additional Bonds, the Performance Bond, the BOEM Bonds
and/or the Third Party Bonds, if any. The Seller Additional Bonds shall be
maintained in full force and effect at all times that Talos Production LLC’s
Debt to EBITDA Ratio exceeds 2.0x by and at the sole cost of Buyer until Seller,
or its designee, is satisfied, in its reasonable discretion, that all
Abandonment Obligations have been completely performed and fulfilled. Exhibit M
identifies the Assets that are required to be decommissioned, together with the
estimated costs of such decommissioning. The Security Cap and the required
amount of the Seller Additional Bonds will be reduced to the extent of (i) the
amount of the BOEM Bonds is increased at any time and (ii) the estimated cost of
decommissioning set forth on Exhibit M with respect to the Abandonment
Obligations that have been performed. If Talos Production LLC attains a Debt to
EBITDA Ratio of 2.0x or less subsequent to posting the Seller Additional Bonds,
Seller shall notify the surety to promptly release any Seller Additional Bonds;
provided that such release will not relieve Buyer of its obligations under this
Section 4.4 if Talos Production LLC’s Debt to EBITDA Ratio thereafter exceeds
2.0x.

 

  4.5

Quarterly Financial Statements. Talos Production LLC shall provide its financial
statements and the calculation and supporting documentation of its previous
twelve months trailing Adjusted EBITDA to Buyer each quarter within five
(5) business days of

 

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  the date it provides such financial statements to its investors, but in any
case within twenty (20) days after the time period specified in the Security and
Exchange Commission rules and regulations for non-accelerated filers for filing
an annual report on Form 10-K with respect to Talos Production LLC’s annual
financial statements or a quarterly report on Form 10-Q with respect to Talos
Energy LLC’s quarterly financial statements.

 

  4.6 Security Cap and Performance Bond Reduction. The security posted by Buyer
under Sections 4.1, 4.2, 4.3 and 4.4 shall never exceed, and shall be capped at
$117,000,000 (the “Security Cap”). If at any time after Closing, the aggregate
of the sums or face amounts of the Performance Bond, the Third Party Bonds, the
BOEM Bonds and the Seller Additional Bonds then in effect as security for the
Abandonment Obligations exceeds the Security Cap, Buyer may request that Seller
allow Buyer to reduce the amount of the Performance Bond or the Seller
Additional Bonds so that the aggregate of the Third Party Bonds, the BOEM Bonds,
the Performance Bond and the Seller Additional Bonds does not exceed the
Security Cap. Seller shall promptly cancel the Performance Bond and the Seller
Additional Bond, if any, at such time as all Abandonment Obligations set forth
on Exhibit M have been performed.

 

  4.7 Security Cap Reduction. The Security Cap shall be reduced as Abandonment
Obligations are satisfied on an individualized line item basis as identified on
Exhibit M. Buyer may submit to Seller documentation reasonably acceptable to
Seller reflecting that all Abandonment Obligations associated with one or more
line items on Exhibit M have been fully performed in compliance with all laws,
rule and regulations of all governmental authorities having jurisdiction.

 

5. TAXES AND PAYABLES

 

  5.1 Payment of Taxes. All real estate, use, occupation, ad valorem, personal
property taxes and charges on any of the Assets shall be prorated as of the
Effective Date. Seller shall pay all such items for all periods prior to the
Effective Date and shall be entitled to all refunds, recoupments, rebates and
credits with regard to such periods. Seller shall be responsible for all oil and
gas production taxes, windfall profits taxes, and any other similar taxes
applicable to Hydrocarbons produced from or attributable to the Leases or the
Units prior to the Effective Date, and Buyer shall be responsible for all such
taxes applicable to Sale Hydrocarbons produced from or attributable to the
Leases or the Units on and after the Effective Date. Both of the parties believe
that the sale of the Assets is one occasional sale exempt from sales or use
taxes. In the event that any such taxes are assessed against the transaction,
both parties will cooperate in an attempt to eliminate or reduce such taxes. If
unsuccessful, it is agreed that Buyer shall be responsible for any such sales,
use and similar taxes arising out of the sale of the Assets. In that event,
Buyer shall pay Seller any such state and local sales or use taxes, and Seller
shall remit such amount to the appropriate taxing authority in accordance with
applicable law. Buyer shall hold harmless and shall indemnify the Seller Parties
for any sales or use taxes assessed against Seller by any taxing authority in
respect of this sale, including the amounts of any penalties, interest and
attorney’s fee. Any reasonable legal expenses incurred by Seller to reduce or
avoid any of the aforementioned taxes attributable to Buyer, shall be paid or
reimbursed by the Buyer.

 

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6. REPRESENTATIONS, WARRANTIES, DISCLAIMERS, ACKNOWLEDGMENTS, AND WAIVERS

 

  6.1 Seller’s Representations and Warranties. Seller represents and warrants to
Buyer that, as of the date hereof and as of Closing, the following statements
are accurate:

 

  6.1.1 Formation. Seller Stone Energy Corporation is a corporation duly
organized and validly existing, in good standing, under the laws of the State of
Delaware. Seller Stone Energy Offshore, L.L.C. is a limited liability company
duly organized and validly existing, in good standing under the laws of the
State of Delaware. Both of them have the organizational power and authority to
own the Assets and to carry on their business as now conducted and to enter into
and to carry out the terms of this Agreement. Seller is qualified to own and
operate federal leases in the Gulf of Mexico and leases in the State of
Louisiana in accordance with applicable laws, rules, regulations and orders
governing the ownership and operation of leases on the Outer Continental Shelf
and in the coastal waters of the State of Louisiana, as applicable.

 

  6.1.2 Authorization. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary company action on behalf of Seller, and Seller is not subject
to any charter, by-law, lien, encumbrance, agreement, instrument, order, or
decree of any court or governmental body (other than any governmental approval
required) which would prevent consummation of the transactions contemplated by
this Agreement.

 

  6.1.3 No Brokers. Seller is not a party to, or in any way obligated under, nor
does Seller have any knowledge of, any contract or outstanding claim for the
payment of any broker’s or finder’s fee in connection with the origin,
negotiation, execution, or performance of this Agreement for which Buyer will
have any liability.

 

  6.1.4 No Suits; Compliance with Laws; Abandonment Obligations. There are no
suits, actions, claims, investigations or any legal, administrative or
arbitration proceedings pending which may affect the Assets in any material
respect, except as disclosed on Exhibit F. The Assets have been owned and
operated in compliance, in all material respects, with all applicable laws,
ordinances, rules and regulations and, from and after the dates of Seller’s
acquisition of each of the Assets, Seller has obtained and has maintained all
permits required by public authorities in connection with the Assets. To the
best of Seller’s knowledge, Exhibit M lists, as of the date hereof, all
Abandonment Obligations.

 

  6.1.5 Royalty and Payments. All royalties, rental and other payments due under
the Leases have been properly paid in all material respects, and all conditions
necessary to keep the Leases in force and effect have been fully performed in
all material respects.

 

  6.1.6 Third Party Rights. All preferential rights to purchase and third party
consents to assign affecting the Assets are set out in Exhibit A, Schedule 9.
Subject to any such rights of preferential rights to purchase holders, Seller
has not agreed to sell or encumber the Assets to any party other than Buyer.

 

  6.1.7 No Encumbrances. Except as described on Exhibit E, mortgages that will
be released on or before Closing and for Permitted Encumbrances, Seller has
title to the Assets, free and clear of all liens, pledges, and encumbrances
created by, through or under Seller.

 

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  6.1.8 Open AFEs. Except as disclosed on Exhibit B, with respect to the Assets,
there are no individual outstanding calls or payments under authorities for
expenditures (“AFEs”) in excess of $250,000.00, net to Seller’s interest, for
which Buyer would be liable.

 

  6.1.9 Material Contracts. Exhibit A, Schedule 6 identifies Contracts that may
have a material or adverse effect on the ownership and operation of any of the
Assets. To the best of Seller’s knowledge, Seller is in compliance with all of
the material terms and provisions set forth in such Contracts, and Seller has no
knowledge of any pending or threatened Claims related thereto.

 

  6.1.10 Except as set forth on Exhibit A, Schedule 6, no Asset is subject to
any contractual or other arrangement whereby payment for production is or can be
deferred for a substantial period after the month in which production is
delivered (in the case of oil, not in excess of 60 days, and in the case of gas,
not in excess of 90 days).

 

  6.1.11 Tax Partnership. None of the Assets is subject to any tax partnership
agreement or is otherwise treated, or required to be 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 Internal Revenue Code of 1986, as
amended.

 

  6.2 Buyer’s Representations and Warranties. Buyer represents and warrants to
Seller that, as of the date hereof and as of Closing, the following statements
are accurate:

 

  6.2.1 Formation. Buyer is a limited liability company duly organized and
validly existing, in good standing, under the laws of the state of its
organization and is duly qualified to carry on its business in each of the
states in which it is required to be qualified and has the power and authority
to own its property and to carry on its business as now conducted and to enter
into and to carry out the terms of this Agreement and the transactions
contemplated by this Agreement.

 

  6.2.2 Qualification. Buyer is qualified to own and operate federal leases in
the Gulf of Mexico and leases in the State of Louisiana in accordance with
applicable laws, rules, regulations and orders governing the ownership and
operation of leases on the Outer Continental Shelf and in the coastal waters of
the State of Louisiana, as applicable.

 

  6.2.3 Authorization. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary company action on behalf of Buyer, and Buyer is not subject to
any charter, by-law, lien, encumbrance, agreement, instrument, order or decree
of any court or governmental body which would prevent consummation of the
transactions contemplated by this Agreement.

 

  6.2.4 No Brokers. Buyer is not a party to, or in any way obligated under, nor
does Buyer have any knowledge of, any contract or outstanding claim for the
payment of any broker’s or finder’s fee in connection with the origin,
negotiation, execution, or performance of this Agreement for which Seller will
have any liability.

 

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  6.2.5 Compliance. From and after Closing, Buyer shall comply with all
applicable laws, ordinances, rules and regulations, in all material respects,
and shall promptly obtain and maintain all permits required by public
authorities in connection with the Assets purchased.

 

  6.2.6 Financing. Buyer has, and Buyer shall have as of the Closing Date,
access to sufficient cash in immediately available funds with which to pay the
Purchase Price, consummate the transactions contemplated by this Agreement and
perform its obligations under this Agreement and the transaction documents.

 

  6.3 Disclaimers, Acknowledgments, and Waivers

 

  6.3.1 Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE ASSETS
ARE TO BE SOLD AS IS, WHERE IS AND WITH ALL FAULTS AND SELLER MAKES NO WARRANTY
OR REPRESENTATION, EXPRESS OR IMPLIED IN FACT OR BY LAW, WITH RESPECT TO ORIGIN,
QUANTITY, QUALITY, OPERATING CONDITION, SAFETY OF EQUIPMENT, TITLE TO PERSONAL
PROPERTY, TITLE TO REAL PROPERTY, COMPLIANCE WITH GOVERNMENT REGULATIONS,
MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSES, CONDITION, THE QUANTITY,
VALUE OR EXISTENCE OF RESERVES OF OIL, GAS OR OTHER MINERALS PRODUCIBLE OR
RECOVERABLE FROM THE LEASES OR WELLS, OR OTHERWISE, CONCERNING ANY OF THE
ASSETS. ALL WELLS, PERSONAL PROPERTY, DATA, RECORDS, MACHINERY, EQUIPMENT AND
FACILITIES THEREIN, THEREON AND APPURTENANT THERETO ARE TO BE CONVEYED BY SELLER
AND ACCEPTED BY BUYER PRECISELY AND ONLY “AS IS, WHERE IS”.

 

  6.3.2 ACCEPTANCE OF ASSETS “AS IS, WHERE IS”. BUYER HAS MADE, OR ARRANGED FOR
OTHERS TO MAKE, OR HAS BEEN AFFORDED THE OPPORTUNITY TO MAKE AN INSPECTION AND
INVENTORY OF THE ASSETS AND, IF NOT PERFORMED, WAIVES SUCH RIGHT AT AND WITH
CLOSING. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, BUYER, AT CLOSING, WILL
ACCEPT ALL ASSETS IN AN “AS IS AND WHERE IS” CONDITION, WITH AN EXPRESSED
ACCEPTANCE AND UNDERSTANDING OF THE DISCLAIMERS CONTAINED IN THIS AGREEMENT.

 

  6.3.3 INFORMATION IN EXHIBITS. EXCEPT AS OTHERWISE HEREIN, SELLER MAKES NO
REPRESENTATION OR WARRANTY AS TO THE COMPLETENESS OR ACCURACY OF THE INFORMATION
CONTAINED IN THE EXHIBITS AND SCHEDULES REFERRED TO IN THIS AGREEMENT AND SAME
ARE HEREBY INCORPORATED INTO THIS AGREEMENT BY REFERENCE AND CONSTITUTE A PART
OF THIS AGREEMENT.

 

  6.3.4

ACKNOWLEDGMENT. BUYER ACKNOWLEDGES THAT THE ASSETS HAVE BEEN USED FOR OIL AND
GAS DRILLING AND PRODUCING OPERATIONS, TRANSPORTATION OPERATIONS, RELATED

 

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  OILFIELD OPERATIONS AND POSSIBLY THE STORAGE AND DISPOSAL OF WASTE MATERIALS
INCIDENTAL TO OR OCCURRING IN CONNECTION WITH SUCH OPERATIONS, AND THAT PHYSICAL
CHANGES IN THE LAND MAY HAVE OCCURRED AS A RESULT OF SUCH USES AND THAT BUYER
HAS ENTERED INTO THIS AGREEMENT ON THE BASIS OF BUYER’S OWN INVESTIGATION OF, OR
RIGHT TO INVESTIGATE, THE PHYSICAL CONDITION OF THE ASSETS, INCLUDING, WITHOUT
LIMITATION, EQUIPMENT, SURFACE AND SUBSURFACE CONDITIONS, AND THE EXPRESS
PROVISIONS CONTEMPLATED BY THIS AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, BUYER IS ACQUIRING THE ASSETS PRECISELY AND ONLY IN AN “AS IS AND
WHERE IS” CONDITION AND ASSUMES THE RISK THAT ADVERSE PHYSICAL CONDITIONS
INCLUDING, BUT NOT LIMITED TO, THE PRESENCE OF UNKNOWN ABANDONED OR UNPRODUCTIVE
OIL WELLS, GAS WELLS, EQUIPMENT, PITS, LANDFILLS, FLOWLINES, PIPELINES, WATER
WELLS, INJECTION WELLS AND SUMPS WHICH MAY OR MAY NOT HAVE BEEN REVEALED BY
BUYER’S INVESTIGATION, ARE LOCATED THEREON OR THEREIN, AND WHETHER KNOWN OR
UNKNOWN TO BUYER AS OF CLOSING. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
ON AND AFTER CLOSING BUYER HEREBY AGREES TO ASSUME FULL RESPONSIBILITY FOR
COMPLIANCE WITH ALL OBLIGATIONS ATTRIBUTABLE, IN ANY WAY, TO THE ASSETS AND ALL
LAWS, ORDERS, RULES AND REGULATIONS CONCERNING ALL OF SUCH CONDITIONS, KNOWN OR
UNKNOWN.

 

  6.3.5 WAIVER OF CONSUMER RIGHTS. BUYER WAIVES ITS RIGHTS UNDER THE TEXAS
DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 et seq., TEXAS
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF BUYER’S OWN SELECTION, BUYER
VOLUNTARILY CONSENTS TO THIS WAIVER.

IN ORDER TO EVIDENCE ITS ABILITY TO GRANT THE ABOVE WAIVER, BUYER HEREBY
REPRESENTS AND WARRANTS TO SELLER THAT BUYER (I) IS IN THE BUSINESS OF SEEKING
OR ACQUIRING, BY PURCHASE OR LEASE, GOODS OR SERVICES FOR COMMERCIAL OR BUSINESS
USE, (II) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT
ENABLE IT TO EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED
HEREBY, AND (III) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION.

 

  6.3.6

WAIVER OF LOUISIANA RIGHTS IN REDHIBITION. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, BUYER EXPRESSLY WAIVES THE WARRANTY OF FITNESS FOR INTENDED PURPOSES
OR GUARANTEE AGAINST HIDDEN OR LATENT REDHIBITORY VICES UNDER LOUISIANA LAW,
INCLUDING LOUISIANA CIVIL CODE ARTICLES 2520 THROUGH 2548, AND THE WARRANTY

 

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  IMPOSED BY LOUISIANA CIVIL CODE ARTICLE 2475; WAIVES ALL RIGHTS IN REDHIBITION
PURSUANT TO LOUISIANA CIVIL CODE ARTICLES 2520, et seq.; OR FOR RESTITUTION OR
OTHER DIMINUTION OF THE PURCHASE PRICE; ACKNOWLEDGES THAT THIS EXPRESS WAIVER
SHALL BE CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS SALE AND THE
CONSIDERATION THEREOF; AND ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT TO THE
ATTENTION OF BUYER AND EXPLAINED IN DETAIL AND THAT BUYER HAS VOLUNTARILY AND
KNOWINGLY CONSENTED TO THIS WAIVER OF WARRANTY OF FITNESS AND/OR WARRANTY
AGAINST REDHIBITORY VICES AND DEFECTS FOR THE ASSETS. EXCEPT AS EXPRESSLY
PROVIDED IN THIS AGREEMENT, SELLER MAKES THIS SALE OF THE ASSETS TO BUYER
WITHOUT ANY WARRANTY AS TO THE CONDITION OF THE ASSETS, INCLUDING ABSENCE OF
VICES OR DEFECTS (WHETHER APPARENT OR LATENT, KNOWN OR UNKNOWN, EASILY
DISCOVERABLE OR HIDDEN), FITNESS FOR ANY ORDINARY USE, OR FITNESS FOR ANY
INTENDED USE OR PARTICULAR PURPOSE, EVEN FOR RETURN OR REDUCTION OF THE PURCHASE
PRICE OR OTHERWISE, IT BEING UNDERSTOOD THAT BUYER TAKES THE ASSETS “AS IS” AND
“WHERE IS”; EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, BUYER HEREBY
ACKNOWLEDGES RELIANCE SOLELY ON ITS OWN INSPECTION OF THE ASSETS, AND NOT ON ANY
WARRANTIES OR REPRESENTATIONS FROM SELLER WITH RESPECT TO THE CONDITION OF THE
ASSETS. IN ADDITION, EXCEPT AS SET FORTH IN THIS AGREEMENT, BUYER ACKNOWLEDGES
THAT SELLER HAS MADE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND OR CHARACTER,
EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDITION OF THE ASSETS, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTIES OR REPRESENTATIONS AS TO ABSENCE OF VICES OR
DEFECTS (WHETHER APPARENT OR LATENT, KNOWN OR UNKNOWN, EASILY DISCOVERABLE OR
HIDDEN), FITNESS FOR ANY ORDINARY USE, FITNESS FOR ANY INTENDED USE OR
PARTICULAR PURPOSE, TAX CONSEQUENCES, OR ENVIRONMENTAL CONDITION OF THE ASSETS.
EXCEPT AS SET FORTH IN THIS AGREEMENT, ALL WARRANTIES WITH RESPECT TO THE
CONDITION OF THE ASSETS ARE HEREBY DISCLAIMED BY SELLER AND EXPRESSLY WAIVED BY
BUYER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, BUYER HAS NOT RELIED AND
WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESS OR
IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION
PERTAINING TO THE CONDITION OF THE ASSETS OR RELATING THERETO MADE OR FURNISHED
BY SELLER, ANY PARTY ACTING OR PURPORTING TO ACT FOR SELLER, OR ANY BROKER OR
AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN,
DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING.

 

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IN ADDITION, EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE
ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION
OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER
IN CONNECTION WITH THIS SALE, INCLUDING WITHOUT LIMITATION, THE QUALITY,
QUANTITY OR ENVIRONMENTAL CONDITION OF THE ASSETS OR ANY OTHER MATTERS CONTAINED
IN THE DATA OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER BY
SELLER, ITS AGENTS, REPRESENTATIVES OR EMPLOYEES. ANY AND ALL SUCH DATA,
RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS FURNISHED BY
SELLER OR OTHERWISE MADE AVAILABLE TO BUYER ARE PROVIDED TO BUYER AS A
CONVENIENCE, AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST
SELLER. ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER’S SOLE RISK TO THE
MAXIMUM EXTENT PERMITTED BY LAW.

 

  6.3.7 Special Warranty. The disclaimers set forth in this Section 6.3 shall
not alter, amend or otherwise limit Buyer’s rights with respect to the special
warranty of title in the Assignment(s).

 

7. TITLE MATTERS

 

  7.1. Asset Title Review. Promptly after signing this Agreement and until five
(5) days before Closing, Buyer shall have reasonable access to copies of
non-privileged information in Seller’s possession regarding Seller’s title to
the Assets, which information Buyer may copy at its sole cost and expense
(unless prohibited by agreement between Seller and a third party). Except as
otherwise may be provided in this Agreement, Seller shall not be required to
perform any additional title work. Although all title materials in the
possession of Seller shall be provided to Buyer, Seller is under no obligation
to update any abstracts of title or title opinions. Should Buyer prepare or
update abstracts or title opinions, a copy of such will be made available to
Seller, without cost and without warranty of any kind, for Seller’s independent
examination at least five (5) days prior to Closing or upon the delivery of a
Notice of Alleged Title Defect (defined below), whichever is the earlier. Buyer
specifically agrees that any conclusions made from any examination done or
caused to be done from Seller furnished information regarding title have
resulted and shall result from its own independent review, skill, knowledge and
judgment only.

 

  7.2.

Notice of Title Defects. If Buyer determines the existence of an “Alleged Title
Defect” as defined in Section 7.3 below, Buyer shall notify Seller in writing of
any matter Buyer considers to be an Alleged Title Defect as soon as Buyer
becomes aware of such Alleged Title Defect but, in any event, by not later than
4:00 p.m. Central Time, five (5) days prior to Closing (the “Defect Notice
Date”). Such notice (“Notice of Alleged Title Defect”) shall include (i) a
specific description of the matter Buyer asserts as an Alleged Title Defect,
(ii) a specific description of the Asset or portion of the Assets that is
affected by the Alleged Title Defect, (iii) Buyer’s calculation of the amount by
which each Alleged Title Defect has diminished the value of the Assets, such
amount to be determined by Buyer in

 

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  good faith and in a commercially reasonable manner, and (iv) all necessary and
desirable supporting documentation, including any updates obtained by Buyer of
abstracts and title opinions.

 

  7.3. Alleged Title Defect. The term “Alleged Title Defect” shall refer to any
defect or deficiency in title, except for Permitted Encumbrances, that is
reasonably expected to have a value in excess of $2,000,000.00 and (i) creates a
lien, claim, encumbrance or other obligation affecting the interests of Seller
in the Assets, (ii) diminishes Seller’s net revenue interest (defined as
Seller’s share of the proceeds from the sale of Hydrocarbons produced from and
allocable to the Assets, net of all royalties, overriding royalties, and other
burdens on production) from that set forth on Exhibit A, Schedule 1, or
(iii) increases Seller’s working interest (defined as Seller’s share of the
costs of operation, development or production borne by the owner of such
interest) from that set forth in Exhibit A, Schedule 1 without a corresponding
increase in Seller’s net revenue interest, or which creates an obligation to pay
costs or expenses in an amount greater than such interest. No adjustment to the
Purchase Price for Alleged Title Defects shall be made unless and until, and
only to the extent that with respect to each Lease, the individual value of each
Alleged Title Defect exceeds $2,000,000.00.

 

  7.4. Permitted Encumbrances. As used in this Section 7, the term “Permitted
Encumbrances” means:

 

  7.4.1. lessor’s royalties, non-participating royalties of public record,
overriding royalties of public record, division orders, sales and transportation
contracts containing customary terms and provisions, reversionary interests, and
similar burdens if the net cumulative effect of such burdens does not operate to
reduce the net revenue interest in any Asset to an amount less than the net
revenue interest set forth on Exhibit A, Schedule 1, or increase the working
interest of any Asset from that set forth in Exhibit A, Schedule 1, without a
corresponding and proportionate increase in the net revenue interest;

 

  7.4.2. preferential rights to purchase and required non-governmental third
party consents to assignments and similar agreements with respect to which prior
to Closing (i) waivers or consents are obtained from the appropriate parties, or
(ii) the appropriate time period for asserting such rights has expired without
an exercise of such rights;

 

  7.4.3. liens for taxes or assessments not yet due or delinquent or, if
delinquent, that are being contested in good faith in the normal course of
business;

 

  7.4.4. all rights to consent by, required notices to, filings with, or other
actions by governmental entities in connection with the sale or conveyance of
oil and gas leases or interests therein, if the same are customarily obtained
subsequent to such sale or conveyance and Buyer and Seller have no reason to
believe they cannot be obtained;

 

  7.4.5. such Alleged Title Defects or other deficiencies or irregularities
waived by Buyer in writing;

 

  7.4.6. easements, rights-of way, servitudes, permits, surface leases and other
rights in respect of surface operations, provided they do not materially
interfere with Buyer’s operation or use of the Assets;

 

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  7.4.7. defects, irregularities and deficiencies in title of or to any
rights-of-way, easements, surface leases or other rights which in the aggregate
do not materially impair the use of such rights-of-way, easements, surface
leases or other rights for the purpose for which such rights will be held by
Buyer and would not have a material adverse effect on the operation or value of
any of the Assets;

 

  7.4.8. environmental laws and regulations to the extent valid and applicable
to the Assets;

 

  7.4.9. vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’,
workmen’s, materialmen’s, construction or other like liens arising by operation
of law in the ordinary course of business or incident to the construction or
improvement of any Assets in respect of obligations which are not yet due;

 

  7.4.10. all other liens, claims, charges, encumbrances, contracts, agreements,
instruments, obligations, defects, and irregularities affecting the Assets
relating to obligations not yet in default and which individually or in the
aggregate are not such as to interfere materially with the operation, value, or
use of any of the Assets, do not materially prevent Buyer from receiving the
proceeds of production from the Assets, do not reduce the net revenue interest
of any of the Assets to less than the net revenue interest set forth on Exhibit
A, Schedule 1, and do not increase the working interest of any Asset from that
set forth in Exhibit A, Schedule 1, without a corresponding and proportionate
increase in the net revenue interest;

 

  7.4.11. any liens or security interests created by law or reserved in oil and
gas leases for royalties, bonuses or rentals, or created to secure compliance
with the terms of the agreements, instruments and documents that create or
reserve to Seller its interests in the Assets which, in each case, individually
or in the aggregate are not such as to interfere materially with the operation,
value, or use of any of the Assets, do not materially prevent Buyer from
receiving the proceeds of production from the Assets, do not reduce the net
revenue interest of any of the Assets to less than the net revenue interest set
forth on Exhibit A, Schedule 1, and do not increase the working interest of any
Asset from that set forth in Exhibit A, Schedule 1, without a corresponding and
proportionate increase in the net revenue interest; and

 

  7.4.12. all contracts, including all production sales contracts; division
orders; contracts for sale, purchase, exchange, refining or processing of
hydrocarbons; unitization and pooling designations, declarations, orders and
agreements; operating agreements; agreements of development; area of mutual
interest agreements; gas balancing or deferred production agreements; processing
agreements; plant agreements; pipeline, gathering and transportation agreements;
injection, repressuring and recycling agreements; carbon dioxide purchase or
sale agreements; salt water or other disposal agreements; seismic or geophysical
permits or agreements; and any and all other agreements that are ordinary and
customary in the oil and gas exploration, development or extraction business, or
in the business of processing of gas and gas condensate production for the
extraction of products therefrom, which (in each case) are not in default and
individually or in the aggregate are not such as to interfere materially with
the operation, value, or use of any of the Assets, do not materially prevent
Buyer from receiving the proceeds of production from the Assets, do not reduce
the net revenue interest of any of the Assets to less than the net revenue
interest set forth on Exhibit A, Schedule 1, and do not increase the working
interest of any Asset from that set forth in Exhibit A, Schedule 1, without a
corresponding and proportionate increase in the net revenue interest.

 

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  7.5. Remedies for Title Failures. With respect to each Alleged Title Defect
asserted by Buyer in the Notice of Alleged Title Defect, if Seller requests,
Seller and Buyer shall discuss and agree whether a particular matter constitutes
an Alleged Title Defect. Seller shall have the right but not the obligation to
cure any Alleged Title Defect asserted in such Notice at its own expense prior
to Closing, in which case the parties shall proceed to Closing without
adjustment of the Purchase Price. If Seller fails to cure any Alleged Title
Defect on or prior to Closing, it shall be deemed to be a title failure (“Title
Failure”) for the relevant Asset. Buyer and Seller shall negotiate in good faith
to reach agreement regarding the value of any Title Failure, and unless waived
by Buyer shall mutually agree to one of the following options with respect to
each Title Failure:

 

  7.5.1. if the Title Failure results from a difference in the net revenue
interest for an Asset from that shown on Exhibit A, Schedule 1 (and the
corresponding working interest is reduced in the same proportion), the parties
shall proceed to Closing and reduce the Purchase Price by an amount (“Defect
Amount”) determined by multiplying the amount of the Purchase Price allocated to
the affected Asset by a fraction the numerator of which shall be the difference
between the actual net revenue interest being conveyed and the net revenue
interest shown on Exhibit A, Schedule 1, and the denominator of which shall be
the net revenue interest shown on Exhibit A, Schedule 1;

 

  7.5.2. if the Title Failure results from a difference in the working interest
for an Asset from that shown on Exhibit A, Schedule 1 (and the corresponding net
revenue interest is reduced in the same proportion), the parties shall proceed
to Closing and reduce the Purchase Price by a Defect Amount determined by
multiplying the amount of the Purchase Price allocated to the affected Asset by
a fraction the numerator of which shall be the difference between the actual
working interest being conveyed and the working interest shown on Exhibit A,
Schedule 1, and the denominator of which shall be the working interest shown on
Exhibit A, Schedule 1; or

 

  7.5.3. if the Title Failure is one other than described in items (a) or (b),
the Defect Amount shall be an amount determined in good faith by the mutual
agreement of Buyer and Seller, taking into account the portion of the Purchase
Price to be allocated by agreement of Seller and Buyer to the portion of the
Assets affected by the Title Failure, the legal effect of the Title Failure, and
the potential economic effect of the Title Failure over the life of the Assets.

If the parties are unable to agree upon the value of a Defect Amount prior to
Closing, then the parties shall proceed to Closing without reduction to the
Purchase Price in respect of such Defect Amount. If Buyer and Seller are unable
to agree within sixty (60) days after Closing on any such Defect Amount, then
either party may submit such disagreement to arbitration which shall be
conducted under the rules of the American Arbitration Association. Within five
(5) days after the decision of the arbitrator, Seller shall promptly make a cash
payment to Buyer in an amount (if any) equal to the difference between the value
allocated to such affected Asset on Exhibit A, Schedule 1, as applicable, and
the Defect Amount of such Title Failure as finally determined by the arbitrator.

 

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  7.6. Termination Amount “Termination Amount”. Notwithstanding anything to the
contrary herein, if the aggregate amount of adjustments to the Purchase Price
for Title Failures reaches an amount equal to fifteen percent (15%) of the
initial unadjusted Purchase Price set forth in Section 2.1 (the “Termination
Amount”), either Buyer or Seller shall have the option to terminate this
Agreement, without any liability, upon written notice to the other party on or
prior to the Closing pursuant to the provisions of Section 11.3.1. For purposes
of determining each party’s right to terminate this Agreement pursuant to this
Section 7.6, the amount of Alleged Title Defect adjustments shall be the amounts
set forth in Buyer’s Notices of Title Defects unless Buyer and Seller agree to a
lesser amount in accordance with Section 7.5. If either party exercises its
option to terminate this Agreement pursuant to this Section 7.6, this Agreement
shall become void and have no effect, and neither party shall have any further
right or duty to or claim against the other party under this Agreement, except
as expressly provided to the contrary in this Agreement, and Buyer shall be
entitled to a refund of the Performance Deposit.

 

  7.7. Waiver. Except for the special warranty of title to be given by Seller in
the Assignment(s), Buyer waives for all purposes all objections associated with
the title to the Assets (including “Alleged Title Defects”), unless raised by
proper notice within the applicable time period set forth in Section 7.2 and not
cured or settled under Section 7.5; and Buyer (and on behalf of Buyer Parties
and their successors and assigns) irrevocably waives any and all claims they may
have against Seller and Seller Parties associated with the same.

 

8. ENVIRONMENTAL MATTERS

 

  8.1 Environmental Review. Promptly after signing this Agreement, Buyer may
request access to the Assets (if operated by Seller) and the non-privileged
environmental data in Seller’s files for the Assets to be sold herein. Buyer may
request Seller’s assistance in gaining access to Assets operated by others, but
Buyer will be responsible for contacting the operators of such Assets to arrange
for review and inspection, at Buyer’s sole cost, risk and expense. Buyer
specifically acknowledges that any access to Seller-operated Assets or such
Seller data is given as an accommodation only, at Buyer’s sole cost, risk and
expense, that Seller makes no representations whatsoever as to the accuracy,
completeness, or reliability of any such environmental information so or
otherwise disclosed to or obtained by Buyer and that Buyer relies and depends on
and uses any and all such environmental information, review or inspection
exclusively and entirely at its own risk and without any recourse to Seller
whatsoever. Seller shall cooperate with Buyer for the performance by Buyer of
any additional environmental testing at Buyer’s expense prior to Closing, which
testing shall be conducted in a reasonable manner so as not to interfere with
Seller’s or operator’s operation of the Assets, and Seller and Buyer shall
cooperate to ensure that such testing is performed on an expedited and
confidential basis before Closing. Results of any such tests shall be treated as
confidential, except to the extent disclosure is required under applicable law.

 

  8.2

Material Contamination. If as a result of information provided or discovered
pursuant to Section 8.1, or any additional information which Buyer discovers or
obtains from other sources, or any such testing done by Buyer, it is determined
prior to Closing that the environment associated with the Assets has been
materially contaminated (“Material Contamination” or “Alleged Material
Contamination”, such terms being defined as the violation of Environmental Laws
(as defined below) to the extent that as to each claim (i) prosecution, if
instituted, would be reasonably likely to result in a penalty, fine or damage
payment of $1,000,000.00 or more, or (ii) removal and remediation of such
contamination

 

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  required by Environmental Laws, and/or the actions necessary or prudent to
cause the Assets or the operation or ownership thereof be in compliance with
applicable Environmental Laws, would be reasonably likely to result in
expenditures of $1,000,000.00 or more, Buyer shall notify Seller in writing of
any and all such Alleged Material Contamination claims no later than 4:00 p.m.
CST, five (5) days prior to Closing. Such notification shall include (i) a
detailed description of such claims, (ii) a copy of any environmental
assessment, reports, data and information pertaining to such claims, and
(iii) Buyer’s calculation of the amount by which such claims have diminished the
value of the Assets, which amount shall be determined by Buyer in good faith and
in a commercially reasonable manner.

 

  8.3 Remedies for Material Contamination. Either:

 

  8.3.1 Prior to or at Closing, Seller and Buyer mutually agree in writing,
separate and apart from this Agreement, that Seller shall correct or make
arrangements for the correction of such Alleged Material Contamination, but only
in an amount up to each claim, and that Closing shall proceed with Seller
indemnifying Buyer against all Claims attributable to such Alleged Material
Contamination and without reduction of the Purchase Price;

 

  8.3.2 Buyer corrects or makes arrangements for the correction of such Alleged
Material Contamination, after Closing, and the parties shall proceed to Closing
with a reduction of the Purchase Price in an amount mutually agreed to by the
parties and with Buyer defending, indemnifying and holding the Seller Parties
harmless against all Claims attributable to such Alleged Material Contamination;
or

 

  8.3.3 Prior to or at Closing, Seller and Buyer mutually agree in writing
separate and apart from this Agreement that Buyer shall accept the Assets
subject to such Alleged Material Contamination, that the parties shall proceed
to Closing without adjustment of the Purchase Price, and that Seller shall
indemnify Buyer against all Claims incurred by Buyer with respect to such
Alleged Material Contamination up to but in no event to exceed ten percent
(10%) of the initial unadjusted Purchase Price set forth in Section 2.1 and only
as to that portion of such Claims which are in excess of $1,000,000.00 of the
initial unadjusted Purchase Price set forth in Section 2.1 (such amounts being
cumulative for any and all claims of Alleged Material Contamination made by
Buyer).

If the parties are unable to agree upon one of the foregoing options, either
party shall be entitled to terminate this Agreement without further liability to
or for either party pursuant to the provisions of Section 11.3, unless Buyer
agrees to waive such Alleged Material Contamination and assume all liability and
obligations relating thereto. Each party shall cooperate with the other party’s
reasonable corrective work, and any operations unreasonably interfering with the
corrective work shall cease until correction is completed.

 

  8.4

Indemnity Provisions. The indemnities provided for in this Section 8 by Buyer
and Seller, as the case may be, for Claims shall include, without limitation, an
agreement to protect, indemnify, hold harmless and defend the Buyer or Seller,
as the case may be, and Buyer’s and Seller’s Parties, respectively, against any
and all Claims, demands, losses, liabilities, liens, judgments, settlements,
suits, causes of action, fines, penalties, fees (including, without limitation,
attorney’s fees and court costs), costs, expenses (including, without
limitation, expenses associated with investigation of claims, testing and
assessment),

 

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  whether based on any theory of liability, including, but not limited to,
negligence, tort, breach of contract (express or implied), breach of warranty
(express or implied), strict liability, regulatory liability, or statutory
liability, regardless of the sole, joint or concurrent negligence, strict
liability, regulatory liability, statutory liability, breach of contract, breach
of warranty, or other fault or responsibility of Buyer or Seller or any other
person or party, arising under any obligations under this Agreement or imposed
by any applicable statutes, laws, rules, regulations, or orders. The indemnities
will further include an agreement by the party providing the indemnification to
take whatever actions are necessary to protect the party being indemnified from
being subjected to any such Claims, demands, losses, liabilities, liens,
judgments, settlements, suits, causes of action, fines, penalties, fees, costs
or expenses, and to comply with reasonable requests by the party being
indemnified to take such actions.

 

  8.5 Post-Closing Environmental Indemnification by Buyer. As of the Closing,
but subject to the provisions of Sections 8.3, 8.6 and 13.3, Buyer specifically
assumes and shall be responsible for all environmentally related duties and
obligations of Seller and Seller Parties with respect to the Assets from and
after the Effective Date and shall protect, defend, indemnify and hold Seller
and Seller Parties harmless from and against any and all Claims under any
Environmental Law (hereafter defined) with respect to the Assets from and after
the Effective Date, including with respect to any conditions and obligations
existing as of the Effective Date or relating to periods before the Effective
Date. The term “Environmental Law(s)” here and in this Section 8 includes the
Occupational Safety and Health Act, 29 U.S.C.A. §651, et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C.A. §6901, et seq.; the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C.A. §9601, et
seq.; the Clean Water Act, 33 U.S.C.A. §1251 et seq.; the Clean Air Act, 42
U.S.C.A. §7401, et seq.; the Safe Drinking Water Act, 42 U.S.C.A. §3001, et
seq.; the Toxic Substances Control Act, 15 U.S.C.A. §2601 et seq.; the Oil
Pollution Act of 1990, 33 U.S.C.A. §2701 et seq.; the Louisiana Environmental
Quality Act, La. R.S. 30:2001 et seq.; the Louisiana Conservation Act, La. R.S.
30:1 et seq.; the Louisiana Oilfield Site Restoration Law, La. R.S. 30:80 et
seq.; the Louisiana Coastal Zone Management Program, La. R.S. 49:214.21 et seq.;
the Louisiana Coastal Wetlands Conservation and Restoration Act, La. R.S.
49:214.1 et seq.; and all rules, regulations and orders adopted under the
foregoing statutes or statutes enacted after the date of this Agreement
applicable to any waste material, produced water, tank bottoms, sludge, or
constituents thereof, radioactive materials (including naturally occurring
radioactive materials), or hazardous substances on or included with the Assets
or the presence, disposal, release or threatened release of all waste material,
produced water, tank bottoms, sludge, or constituents thereof, radioactive
materials (including naturally occurring radioactive materials), or hazardous
substances on, included with, or emanating from or through the Assets into the
atmosphere or in or upon land or any water course or body of water, whether
above or below the ground, and all other federal, state and local environmental
and oil and gas laws and regulations, as well as all acts, laws, and regulations
amendatory or supplemental thereto.

 

  8.6 Exclusion from Buyer’s Indemnification. Anything in this Agreement to the
contrary notwithstanding, it is agreed and understood that Buyer shall have no
liability for, and Buyer’s post-Closing environmental indemnification of Seller
shall not include any responsibility for disposal off-site from the Assets, that
occurred at any time before the Closing, of hazardous substances, wastes,
materials and products generated by or used by or used in connection with the
Seller’s operation of the Assets.

 

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  8.7 CONDITION OF THE ASSETS AND SPECIFIC BUYER INDEMNIFICATION WITH RESPECT TO
NORM AND OTHER HAZARDOUS SUBSTANCES: Subject to the terms of this Agreement,
Buyer specifically assumes the risk of the condition of the Assets and shall
inspect the Assets prior to Closing, or hereby expressly waives such right, if
not exercised. Any such inspection, if made, shall cover but not be limited to
the physical and environmental condition, both surface and subsurface, of the
Assets. It is expressly recognized by Buyer that the lands and/or water bottoms,
along with surface facilities and production equipment located thereon, having
been used in connection with oil, gas, and water production, treatment, storage,
and disposal activities, may contain Naturally Occurring Radioactive Materials
(NORM), asbestos and other hazardous substances as a result of these operations.
Except as expressly provided in this Agreement, the generation, formation, or
presence of NORM, asbestos or other hazardous substances in or on the Assets
shall, after the Effective Date set forth herein, be the sole responsibility of
Buyer and Buyer shall defend, indemnify and hold Seller and Seller Parties
harmless from any and all Claims resulting from any and all claims, demands,
losses, liabilities, liens, judgments, settlements, suits, causes of action,
fines, penalties, fees (including, without limitation, attorneys’ fees and court
costs), costs, and expenses (including, without limitation, expenses associated
with investigation of claims, testing and assessment), whether based on any
theory of negligence, tort, breach of contract, breach of warranty, strict
liability, regulatory liability or statutory liability, regardless of the sole,
joint or concurrent negligence, breach of contract, breach of warranty, strict
liability, regulatory liability, statutory liability, or other fault or
responsibility of Seller or any other person or party, asserted or filed on or
after the Effective Date in any way arising from, resulting from or related to
the presence of NORM, asbestos or other hazardous substances whether such NORM,
asbestos or other hazardous substance was in place on or after the Effective
Date. Accordingly, lands and/or water bottoms, the Wells, and the Personal
Property transferred herein are transferred with the restriction that they will
be used only in connection with oil and gas producing activities associated with
the Leases, and will not be subsequently transferred by Buyer or Buyer’s
assignee for unrestricted use unless the concentrations of NORM, asbestos or
other hazardous substances associated therewith are independently determined by
a competent laboratory and are found below the levels specified as allowable for
unrestricted transfer as set forth in any and all applicable laws, orders, rules
or regulations of any governmental agency or court having jurisdiction.
Additionally, Buyer agrees to comply with all provisions of such laws, orders,
rules or regulations applicable to said lands and/or water bottoms, the Wells,
and the Personal Property. Buyer further agrees to cause any and all purchasers
or transferees of any or all of the Assets to expressly acknowledge and assume
all the obligations set forth in this Section 8.7 with respect to the portion of
the Assets acquired by any such transferee.

 

  8.8 Waiver. Buyer waives for all purposes all objections associated with the
environmental and physical and other condition of the Assets (including Material
Contamination and Alleged Material Contamination), unless raised by proper
notice within the applicable time period set forth in Section 8.2 and made
Seller’s responsibility under Sections 8.3.1 or 8.3.3, and Buyer (and on behalf
of Buyer Parties and their successors and assigns) irrevocably waives any and
all claims, except Claims under Seller’s indemnities pursuant to Sections 8.3.1
and 8.3.3, they may have against Seller and Seller Parties associated with the
same.

 

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9. ADDITIONAL COVENANTS

 

  9.1 Operations Prior to Closing. After the date of this Agreement and prior to
the Closing as to any of the Assets operated by Seller, Seller shall use,
operate and maintain the Assets in substantially the same manner in which they
have been used, operated and maintained prior to this Agreement. During the
period from the Closing Date until Seller is replaced as operator, and subject
to Sections 3.3.5 and 3.3.7, Seller as operator shall have no liability to Buyer
for losses, Claims or damages sustained or liabilities incurred by Buyer, except
such Buyer losses, Claims or damages as may result directly and solely from
Seller’s gross negligence or willful misconduct. Unless Seller and Buyer
otherwise agree, or as may be disclosed on Exhibit B hereto, during the period
from Effective Date until Closing, Seller shall only enter into agreements or
transactions in relation to the Assets which (i) individually involve a fair
market value of less than Two Hundred Fifty Thousand United States dollars
($250,000.00), net to Seller’s interest, and (ii) are entered into in the
ordinary course of business consistent with past practices. Unless otherwise
provided herein, Seller shall not be obligated for any expenditures after the
execution of this Agreement or the Effective Date, whichever is the earlier, and
shall recover any charges and expenses as part of the Final Settlement Statement
adjustments as appropriate. Such charges and expenses include, but are not
limited to, those incurred pursuant to the authority for expenditures (“AFEs”)
listed on Exhibit B hereto. In the event that an expenditure for purposes other
than day-to-day operations or those pursuant to the AFEs is proposed or
contemplated, Seller shall submit such proposal to Buyer for concurrence. From
and after Closing, Buyer will assume the risk of any consequences which arise as
a result of Buyer’s failure or refusal to participate in or approve and pay such
expenditure. Additionally, after the signing of this Agreement and prior to
Closing, Seller shall have the right to make any changes, repairs or
modifications, or incur any expenditure deemed necessary by Seller to prevent or
react to an emergency or environmental incident. With regard to the preceding
sentence, Seller shall attempt to secure Buyer’s consent prior to any such
expenditure or action, however, Seller shall have the right to cause or effect
such expenditure or action with or without such approval, acting as would any
prudent operator under similar circumstances. Unless Buyer and Seller otherwise
agree, Seller shall not materially alter the Assets (other than the use of
supplies and consumables) or remove any improvements, equipment or property
which comprise the Assets (other than the use of supplies and consumables).
Seller shall promptly notify Buyer of any material matter affecting the Assets
known to Seller which arises from the date of this Agreement to the date of
Closing.

 

  9.2 Preferential Rights to Purchase.

 

  9.2.1 Notice. Seller shall provide any required preferential right to purchase
notifications to the applicable third parties, with the amount of the offer
price in such notifications being the amount allocated to the applicable
Asset(s) on Exhibit A, Schedule 1.

 

  9.2.2 Third Party Exercise. If a third party gives notice of its intent to
exercise a preferential right to purchase any of the Assets, the affected
Asset(s) will not be sold to Buyer and the Purchase Price will be reduced by the
amount allocated to such Asset(s) on Exhibit A, Schedule 1. Any preferential
purchase right must be exercised subject to and on the same terms and conditions
of this Agreement.

 

  9.2.3 Third Party Failure to Purchase. If a third party gives notice of its
intent to exercise a preferential right to purchase any of the Assets, but does
not close the purchase for any reason either before or within a reasonable time
after Closing, then there shall promptly be an additional Closing between Seller
and Buyer for said Assets pursuant to the terms of this Agreement, by which
Seller will transfer the Assets to Buyer and Buyer will promptly pay Seller the
Purchase Price associated therewith.

 

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  9.3 Consents to Assignment.

 

  9.3.1 Notice. Seller shall use commercially reasonable efforts to obtain all
consents to assignment applicable to the transfer of the Assets to Buyer and the
transactions contemplated hereby.

Required Consents. If, as of Closing, Seller fails to obtain a consent (or a
waiver as to any prohibition on assignment) and the failure to obtain such
consent (or waiver) causes (a) the assignment of any of the Assets affected
thereby to Buyer to be void or voidable, (b) the termination of an Asset under
the express terms of the instrument creating or evidencing the Asset or
(c) would prevent Buyer from fully participating in development activities
relating to the Assets without disproportionate additional costs with respect to
any portion of the Assets (collectively, a “Required Consent”), then, (i) if the
Required Consent relates to a Lease, such Lease shall be deemed to be excluded
from the Assets conveyed to Buyer at Closing, and the Purchase Price shall be
adjusted downward by the value allocated to such Lease on Exhibit A, Schedule 1,
and (ii) if the Required Consent relates to an Asset other than a Lease, such
Asset or affected portion thereof shall be deemed to be excluded from the Assets
conveyed to Buyer at Closing, and Seller shall hold for the benefit of Buyer and
shall use commercially reasonable efforts to enter into arrangements with Buyer
to provide Buyer with all of the benefits associated with such Asset. For
clarification, it is specifically understood and agreed that any Permitted
Encumbrance provided in Section 7.4.4 does not constitute a Required Consent. In
the event that a Required Consent (with respect to an Asset excluded pursuant to
this Section 9.3.2 that was not obtained prior to Closing) is obtained within
120 days following Closing, then, within ten days after such consent is
obtained, Buyer shall purchase such portion of such Asset that was so excluded
and pay to Seller the amount by which the Purchase Price was reduced with
respect to such portion of such Asset (subject to any adjustments contemplated
by this Agreement to give economic effect to the transfer of such Asset as of
the Effective Time), and Seller shall assign to Buyer such portion of such Asset
pursuant to an assignment in form substantially similar to the Assignment and
Bill of Sale

 

  9.4

Cooperation with Financial Statements. After the execution of this Agreement,
Seller shall provide Buyer and Buyer’s auditors with access (upon reasonable
notice and during normal business hours) to information reasonably requested by
Buyer and Buyer’s auditors from Seller’s operating and financial records
relating primarily to the Properties for the fiscal years ended December 31,
2011 , December 31, 2012 and December 31, 2013 and for the six month periods
ended June 30, 2013 and June 30, 2014 which were previously have been or will be
made available to Seller’s auditors for purposes of preparing the Seller’s
annual audited and quarterly reviewed financial statements for those periods
years with respect to the Properties and any other financial information and
data for the period from June 30, 2014 to Closing reasonably necessary to allow
Buyer to complete a year end audit, in each case to the extent necessary to be
included in any filings under the Securities Exchange Acts of 1933 and 1934, as
amended and to assist with any inquiries from the Securities Exchange Act staff
with respect to

 

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  or as a result of the transactions contemplated by this Agreement (it being
acknowledged that Seller shall not be required to prepare any pro formas and
forward-looking statements). Seller shall cause Seller’s and Seller’s
Affiliates’ personnel to reasonably cooperate with Buyer and Buyer’s auditors in
providing such access and to reasonably assist Buyer and Buyer’s auditors in
locating and interpreting such Records with a goal of issuing such statements by
September 1, 2014. The cost incurred by Seller and its Affiliates in providing
the financial Records (including fees of accountants and contractors) to Buyer
and assisting Buyer as provided in this Article shall be borne by Buyer. Buyer
releases Seller Group from and shall fully protect, defend, indemnify and hold
Seller Group harmless from and against any and all claims, liabilities, losses
or damages (including costs of investigation and attorneys’ and experts’ fees
and expenses) relating to, arising out of, or connected with, directly or
indirectly, the preparation or furnishing of any such records to Buyer, any
actions, representations or certifications of Seller’s and its Affiliates’
personnel or auditors with respect to the information contained in such Records,
or Buyer’s use of the information contained in such Records, the inclusion of
such financial Records in any debt or equity offering documents or related
materials, regardless of cause or of any negligent acts or omissions (including
active or passive, sole, concurrent or comparative negligence), strict
liability, breach of duty (statutory or otherwise), violation of Law, or other
fault of Seller Group, or any pre-existing defect.

 

10. COVENANTS, ASSIGNMENTS AND CONTINUING OBLIGATIONS

 

  10.1

It is the intent and effect of this Agreement that the conveyance, transfer or
assignment of any Assets by Buyer or any future conveyances, transfers or
assignments made by Buyer shall not in any way diminish, compromise, extinguish,
or effect a release of Seller’s rights against Buyer, or Buyer’s obligations to
Seller. It is also the intent and effect of this Agreement that all conveyances,
transfers or assignments of any Assets by Buyer and all future conveyances,
transfers or assignments made by Buyer shall create rights in favor of Seller
under this Agreement and under all subsequent conveyances, transfers or
assignments pertaining to the portion of the Assets conveyed, transferred of
assigned, and that the Seller is a third party beneficiary of such subsequent
conveyances, transfers or assignments, so that the party or parties to whom
Buyer conveys, transfers or assigns any Assets shall likewise be bound with
Buyer to Seller for performance of Buyer’s obligations to Seller under this
Agreement in connection with Buyer’s obligations under Section 3.3.2, 3.3.3,
3.3.6 and 8.7 with respect to and limited to the portion of the Assets conveyed,
transferred or assigned and as otherwise provided in this Section 10.1. Buyer
specifically agrees and warrants that in the event of future conveyances,
transfers or assignments of the Assets (in whole or in part) by Buyer, Buyer
shall require that as part of the conveyances, transfers or assignments the
party or parties to whom the Assets are conveyed, transferred or assigned shall
agree to assume, be bound by and subject to all of Buyer’s obligations to
Seller, and shall fulfill those obligations in connection with Buyer’s
obligations, under Section 3.3.2, 3.3.3, 3.3.6 and 8.7 with respect to and
limited to the portion of the Assets conveyed, transferred or assigned;
provided, however, that notwithstanding anything in this Agreement to the
contrary, any such acquiring party or parties shall only be required to assume,
be bound by and subject to Buyer’s obligations

 

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  in Sections 3.3.3 and 3.3.6 insofar and only insofar as such obligations
relate to the period from and after the effective date of the conveyance,
transfer or assignment to such party or parties. Buyer further agrees,
understands and warrants that in the event of future conveyances, transfers or
assignments of the Assets (in whole or in part) by Buyer, Buyer shall remain
bound and subject to all of Buyer’s obligations to Seller and shall remain
responsible for fulfilling those obligations even though Buyer has conveyed,
transferred or assigned the Assets. Buyer further agrees, understands and
warrants that all future assignments, conveyances or transfers of any Assets
shall also be accompanied by the assignees’, grantees’ or transferees’
acceptance and full assumption of the obligations that Buyer owes to Seller as
provided in this Section 10.1. The obligations and responsibilities of Buyer to
Seller, and of Buyer’s assignees, grantees or transferees to Seller to the
extent required to be assumed above, shall be joint and several and shall run
with the Assets assigned, conveyed or transferred, so that all subsequent
assignees, grantees and transferees also accept the same obligations to Seller,
without Buyer or any assignees, grantees or transferees being released of any of
their obligations to Seller.

 

11. CLOSING, TERMINATION AND FINAL ADJUSTMENTS

 

  11.1 Conditions Precedent. Each party’s obligation to consummate the
transactions contemplated by this Agreement is subject to the satisfaction by
the other party of the following conditions, unless the former party waives the
condition:

 

  11.1.1 The other party shall have performed and complied with all terms of
this Agreement required to be performed or complied with by it at or prior to
Closing and the other party shall have delivered to such former party a
certificate signed by an authorized officer of such other party certifying the
same (in form reasonably acceptable to the former party).

 

  11.1.2 No action or proceeding by or before any governmental authority shall
have been instituted or threatened (and not subsequently dismissed, settled or
otherwise terminated) which might restrain, prohibit or invalidate any of the
transactions contemplated by this Agreement, other than an action or proceeding
instituted or threatened by a party or any of its affiliates.

 

  11.1.3 The representations and warranties of the other party contained in
Section 6 shall be true and correct in all material respects on the Closing Date
as though made on and as of the Closing Date and the other party shall have
delivered to such former party a certificate signed by an authorized officer of
such other party certifying the same (in form reasonably acceptable to the
former party). Additionally, no material adverse effect on the on the ownership,
operation or value of the Assets, taken as a whole, shall have occurred prior to
the Closing.

 

  11.1.4 Buyer shall have delivered to Seller (if available, after use by Buyer
of its commercially reasonable efforts): (A) (i) copies of any bonds covering
the Assets required under any laws, rules or regulations of any federal, state
or local governmental agency having jurisdiction over the Assets, issued by
corporate sureties satisfactory to Seller; or (ii) a commitment by a surety
company, satisfactory to Seller, to issue such bonds upon Closing; and
(B) copies of all other necessary or appropriate consents, permits, insurance,
approvals, authorizations and similar items required of Buyer to purchase,
receive, own and operate the Assets as of the Closing Date and to otherwise
transact business in the applicable jurisdiction(s).

 

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  11.2 Closing. The Closing of the transactions contemplated herein and the
transfer of the Assets shall occur on or before July 31, 2014, at Seller’s
office, 625 East Kaliste Saloom Road, Lafayette, Louisiana 70508, at 10:00 a.m.,
Central Time, or such other date, time, and place as Seller and Buyer may agree
in writing (the “Closing” or “Closing Date”); provided that if all conditions in
Section 11.1 to be satisfied at or prior to the Closing have not been satisfied
or waived on such date, the Closing shall occur on the third Business Day
following the date on which all such conditions have been (or, at Closing, will
be capable of being) satisfied or waived (subject to all such conditions in
Section 11.1 being satisfied or waived at the Closing). At Closing, the
following shall occur:

 

  11.2.1 Buyer and Seller shall execute and acknowledge an Assignment and Bill
of Sale in substantially the form of Exhibit K, Schedule 3, in form and
substance sufficient to convey title to the Assets in accordance with the terms
of this Agreement;

 

  11.2.2 Buyer and Seller shall execute and acknowledge any such other
instruments as are reasonably necessary to effectuate the transfer, sale or
conveyance of the Assets to Buyer, including without limitation, separate
assignments of the Assets on officially approved forms, in sufficient
counterparts to satisfy applicable statutory and regulatory requirements for the
transfer of the Assets, including but not limited to those attached on Exhibit K
and the transition agreement on Exhibit J (the “Transition Agreement”);

 

  11.2.3 To the extent permitted by law or contract, Seller or Buyer shall
execute and deliver at Closing the requisite number of change of operator forms
or other Designation of Operator forms and any other necessary forms as may be
required by any governmental agency having jurisdiction;

 

  11.2.4 At the Closing, upon and against delivery of the Assignment and other
instruments described in this Section, Buyer shall pay to Seller the Adjusted
Purchase Price by bank wire, as designated in advance by Seller under
Section 2.2 and any required bond, replacement bonds, letters of credit and/or
guaranties pursuant to Section 4.1 and 4.2;

 

  11.2.5 On or before Closing, Seller shall, where Buyer is to become operator,
supply Buyer with an appropriate governmental form as required by the
governmental agency, board or commission having jurisdiction and authority to
change the name of operator from Seller to Buyer, for each Seller-operated Well
(whether dry, inactive, injector or producing), Lease or any other well or
facility or Personal Property, as may be required or defined by said agency,
board or commission, located on the premises that form a part of the subject
matter of this Agreement. All such forms shall be executed by Buyer and/or
Seller as may be required prior to or during Closing. Buyer shall be responsible
for any fee as may be required by such governmental agency, board or commission
and credit this fee amount to Seller in the Final Settlement Statement. Seller
shall mail the completed form and fee to the proper governmental agency, board
or commission after Closing;

 

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  11.2.6 Immediately after Closing, Buyer shall notify all pertinent operators,
non-operators, oil or gas purchasers, governmental agencies and royalty owners
that it has purchased the Assets;

 

  11.2.7 Seller shall deliver to Buyer copies of the executed consents obtained
pursuant to Section 9.2 and notices and elections or waivers of all preferential
purchase rights that have been sent or obtained pursuant to Section 9.1;

 

  11.2.8 Seller shall deliver to Buyer releases of all mortgages, deeds of
trust, security interests and other similar encumbrances securing indebtedness
for borrowed money, if any, affecting any of the Assets, in form and substance
reasonably satisfactory to Buyer;

 

  11.2.9 Seller shall deliver to Buyer letters-in-lieu, in substantially the
form of Exhibit G, directing all purchasers of production from the Assets to pay
Buyer the proceeds of Hydrocarbons produced from the Assets from and after the
Closing Date; and

 

  11.2.10 Each of Stone Energy Corporation and Stone Energy Offshore, L.L.C.
shall deliver a certification of non-foreign status in accordance with Treasury
regulation section 1.1445-2(b)(2), in substantially the form of Exhibit H, and a
properly completed Internal Revenue Service Form W-9.

 

  11.3 Termination. This Agreement and the transactions contemplated hereby may
be terminated in the following instances:

 

  11.3.1 By Buyer or Seller in accordance with Section 7.6;

 

  11.3.2 By Buyer or Seller in accordance with Section 8.3;

 

  11.3.3 By Buyer or Seller in accordance with Section 13.3;

 

  11.3.4 By Buyer or Seller, as applicable, if any of its conditions to Closing
set forth in Section 11.1 have not been satisfied or waived by the Closing Date;

 

  11.3.5 By mutual written agreement of Buyer and Seller; and

 

  11.3.6 Without any further action by Seller or Buyer if the Closing does not
occur on or before August 8, 2014, unless the date of such Closing shall have
been extended in writing by mutual agreement of the parties.

 

  11.4 Remedies Upon Termination. If this Agreement is terminated by Buyer
and/or Seller pursuant to Section 11.3, neither party shall have any further
liability whatsoever to the other party pursuant to this Agreement and Seller
shall return the Performance Deposit to Buyer without interest; provided that:

 

  11.4.1

If, at the time this Agreement is terminated, Buyer, (x) through no fault of
Seller, fails, refuses, or is unable for any reason not permitted by this
Agreement to Close the sale pursuant hereto or (y) is otherwise is in material
breach of its covenants and agreements under this Agreement and such breach has
resulted in a failure of Seller’s Closing condition in Section 11.1.1 to be
satisfied, Seller may, at its option, (i) assert its right of specific
performance, (ii) return the Performance

 

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  Deposit to Buyer and pursue any other rights or remedies to which it may be
entitled, at law or in equity or (iii) retain the Performance Deposit as agreed
liquidated damages and not as a penalty; and

 

  11.4.2 If, at the time this Agreement is terminated, Seller, (x) through no
fault of Buyer, fails, refuses, or is unable for any reason not permitted by
this Agreement to Close the sale pursuant hereto or (y) is otherwise is in
material breach of its covenants and agreements under this Agreement and such
breach has resulted in a failure of Buyer’s Closing condition in Section 11.1.1
to be satisfied, Buyer may, at its option, (i) assert its right of specific
performance or (ii) have Seller return the Performance Deposit to Buyer and
pursue any other rights or remedies to which Buyer may be entitled, at law or in
equity.

 

  11.5 Final Adjustments. Within one hundred twenty (120) days after the date of
Closing, Seller shall prepare a Final Settlement Statement (the “Final
Settlement Statement”) for the adjustments to the Purchase Price provided for in
Section 2.4 and any other adjustments arising pursuant to this Agreement,
together with copies of third party invoices in excess of one hundred thousand
($100,000) or other evidence of expenses agreed to by Buyer and Seller.
Additionally, either Seller or Buyer may offset any resulting amount due to the
other party against any amount or sum that one party may otherwise owe to the
other party under the terms of this Agreement. Buyer shall respond in writing
with objections and proposed corrections within thirty (30) days of receiving
the Final Settlement Statement. If Buyer does not respond to the Final
Settlement Statement by signing or objecting in writing within the thirty
(30) day period, the statement will be deemed approved by Buyer. After approval
of the Final Settlement Statement, Seller will send a check or invoice to Buyer
for the net amount. If Buyer and Seller are unable to agree to all adjustments
within thirty (30) days after Buyer’s receipt of the Final Settlement Statement
submitted by Seller, adjustments which are not in dispute shall be paid by Buyer
or Seller, as the case may be, at the expiration of such thirty (30)-day period.
As to the adjustments which remain in dispute, if Buyer and Seller are unable to
agree within sixty (60) days after Seller provides the Final Settlement
Statement to Buyer, the parties shall submit such disagreement to arbitration
which shall be conducted under the rules of the American Arbitration
Association. Within five (5) days after the decision of the arbitrator, the
Buyer or Seller, as the case may be, shall promptly make cash payment to the
other equal to the sum as may be found to be due.

Nothing in this Section shall limit any right of either party to assert a claim
for revenues or reimbursement after Buyer’s receipt of the Final Settlement
Statement, and in this regard (i) should any party receive revenues to which the
other is entitled, such party shall pay over such revenues to the appropriate
party within thirty (30) days of receipt thereof, and (ii) should any party pay
for costs or expenses for which the other party is responsible, such party shall
reimburse the other party within thirty (30) days of the date the responsible
party receives an invoice for such costs and expenses.

 

12. POST CLOSING OBLIGATIONS

 

  12.1

Records. Within thirty (30) days after Closing, Seller shall deliver to Buyer
the Records at a location designated by Buyer. Any transportation, postage or
delivery costs from Seller’s offices shall be at Buyer’s sole cost, risk and
expense. If Seller retains any original Records, Buyer shall have the right to
access and review those original Records during normal business hours. If Buyer
gains access to any additional Records through

 

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  the acquisition of appropriate licenses, Seller shall deliver the additional
Records to Buyer and at Buyer’s sole cost, risk and expense. Buyer agrees to
maintain the Records for seven (7) years after Closing. Buyer shall provide
Seller and its representatives reasonable access to and the right to copy such
Records for the purposes of (i) preparing and delivering any accounting provided
under this Agreement and adjusting, prorating and settling the charges and
credits provided in this Agreement; (ii) complying with any law, rule or
regulation affecting Seller’s interest in the Assets prior to the Closing Date;
(iii) preparing any audit of the books and records of any third party relating
to Seller’s interest in the Assets prior to the Closing Date, or responding to
any audit prepared by such third parties; (iv) preparing tax returns;
(v) responding to or disputing any tax audit; or (vi) asserting, defending or
otherwise dealing with any claim or dispute under this Agreement. Buyer shall
notify Seller in writing before destroying any Records. Seller agrees to use all
reasonable efforts, but without any obligation to incur any cost or expense in
connection therewith, to cooperate with Buyer’s efforts to obtain access to
files, records and data relating to the Assets not provided by Seller which are
in the possession of any third party operator of any of the Assets.

 

  12.2 Recording and Filing. Buyer, no later than five (5) business days after
Closing, shall (i) record all properly executed assignment documents and all
other instruments that must be recorded to effectuate the transfer of the
Assets; and (ii) file for approval with the applicable government agencies all
properly executed assignment documents and other state and federal transfer
documents required to effectuate the transfer of the Assets. Buyer shall be
responsible for all costs and fees associated therewith and shall provide Seller
a recorded copy of each assignment document and other recorded instruments, and
approved copies of the assignment documents and other state and federal transfer
documents as soon as they are available.

 

  12.3

Seller Operated Assets. With respect to any of the Assets operated by Seller,
(the “Operated Assets”), which Buyer is attempting to succeed Seller as
operator, Buyer shall promptly file all appropriately executed forms,
declarations or bonds with federal and state agencies relative to its assumption
of operations. From the Closing until the Actual Termination Date (as defined in
the Transition Agreement between Seller and Buyer) and such time as a successor
operator of all the Operated Assets has been selected in accordance with the
applicable operating agreements and approved by the Bureau of Ocean Energy
Management (BOEM) or State of Louisiana, as applicable (the “Transition
Period”), Seller shall continue to operate the Operated Assets on behalf of
Buyer. Such continued operations by Seller during the Transition Period shall be
for the account of Buyer and be conducted subject to Buyer’s sole direction and
right of control and in accordance with the Transition Agreement. In addition,
Seller’s operation of the Operated Assets during the Transition Period shall be
at the sole cost, risk and expense of Buyer, and such continued operations by
Seller shall be covered by Buyer’s indemnity set forth in Section 3.3.6. In
addition to the fees set forth on the Transition Agreement, Buyer shall
reimburse Seller for all costs and expenses incurred by Seller in connection
with the continued operation of the Assets by Seller during the Transition
Period. Seller will have no obligation to make capital expenditures or
extraordinary operating expenditures in connection with the Operated Assets
during the Transition Period. Additionally, Seller may require Buyer to prepay
on a monthly basis any and all expenses that Seller estimates it will pay or
incur in connection with the operation of the Operated Assets. If Buyer is
ultimately selected as operator of the Operated Assets, Buyer will additionally
reimburse Seller for the amounts of any unpaid operating expenses and capital
expenditures of other working interest owners paid or incurred by Seller and
attributable

 

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  to operations during the Transition Period. All costs and expenses incurred by
Seller in conjunction with such continued operations of the Operated Assets
during the Transition Period shall be reimbursed to Seller through an upward
adjustment to the Purchase Price in the Final Settlement Statement. To the
extent Seller continues to operate the Operated Assets after the Final
Settlement Statement, or to the extent such costs and expenses were not
reimbursed through the Final Settlement Statement, Buyer shall reimburse Seller
periodically upon receipt of Seller’s invoice therefor (unpaid invoices shall
bear simple annual interest at the maximum allowed by the state in which the
applicable portion of the Operated Assets is governed). After Buyer assumes
operations of the Operated Assets, Seller shall be granted access and reasonable
ingress and egress onto and across the Operated Assets without any requirement
of payment by Seller to Buyer but otherwise at Seller’s sole risk, cost and
expense to allow Seller to remove from the Operated Assets any of its property
excluded from this Agreement. Seller shall make its personnel available to Buyer
as may be reasonably necessary to assist in the transition of operations, and
any such assistance shall be covered by Buyer’s indemnity set forth in this
Agreement. Seller does not warrant or guarantee that Buyer will become the
operator of the Operated Assets or any portion thereof. Buyer shall comply with
all balloting procedures under such operating agreement(s) for the selection of
the successor operator and shall furnish copies of same to Seller.

 

  12.4 Buyer’s Approval. In conducting operations after the Closing Date, Seller
shall have no duty to Buyer other than to follow Buyer’s explicit instructions,
and perform the services pursuant to the Transition Agreement, except that
Seller shall (other than for emergency action taken in the face of serious risk
of life, property or the environment), (i) obtain Buyer’s prior written approval
of all expenditures and proposed contracts and agreements, or amendments to
existing contracts and agreements relating to the Assets that involve individual
commitments of more than $100,000, net to Buyer’s interest, in the Operated
Assets; and (ii) obtain Buyer’s written approval before voting under any
operating, unit, joint venture or similar agreement. Seller shall notify Buyer
of any emergency action taken, and to the extent reasonably practicable, obtain
Buyer’s prior approval of such actions. However, except for emergency action
that must be taken in the face of serious risk of life, property or the
environment, Seller will have no obligation to undertake any actions with
respect to the Operated Assets that are not required in the course of the normal
operation of the Operated Assets. Notwithstanding the foregoing, Seller will not
be required to undertake any action or provide any service it deems as unsafe or
is inconsistent with Seller’s operations conducted prior to the Transition
Period.

 

13. MISCELLANEOUS

 

  13.1

Imbalances, Hydrocarbon Inventory, and Linefill. Such volumes will be settled,
on the Closing Statement, pursuant to Sections 2.4.1.1 and 2.4.1.2 at (i) at
$4.00 per mmbtu for the Hydrocarbon Imbalance and (ii) the market price as of
the Effective Date for Hydrocarbon Inventory and Linefill. Regarding production
imbalances, regardless of whether Seller is overproduced or underproduced as to
its share of total oil, condensate, or gas production, any balancing obligation
or credit arising from such overproduction or underproduction with third parties
or under a pipeline imbalance prior to or as of the Effective Date shall
transfer to Buyer on the Effective Date, provided, however, that in the event of
a production imbalance, Buyer or Seller as appropriate, shall be
charged/credited in the Closing and Final Settlement Statements, at Seller’s net
revenue interest. For purposes of calculating the initial Purchase Price
adjustment at Closing, the estimated volumes for Imbalances, Hydrocarbon
Inventory, and Linefill will be utilized.

 

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  For purposes of calculating the final Purchase Price adjustment, the estimated
volumes for Imbalances, Hydrocarbon Inventory, and Linefill, as revised by the
parties on or before the issuance of the Final Settlement Statement, shall be
utilized by the parties. Thereafter, Seller shall have no further liability
therefor nor benefit therefrom (whichever the case may be) and as of the
Effective Date, Buyer assumes any such obligation or credit. If Seller is a
party to a gas balancing agreement(s) or other reconciliation obligations
pursuant to any commingling authority covering all or a portion of the Assets,
Buyer shall assume all rights and duties of Seller pursuant thereto. If the
Assets are not covered by a gas balancing agreement or other reconciliation
obligations pursuant to any commingling authority, Buyer shall fulfill its
obligations under this provision in accordance with applicable law. Buyer agrees
to indemnify, defend and hold Seller and Seller Parties harmless against any and
all losses, Claims, suits and liabilities arising directly or indirectly out of
Buyer’s failure to fulfill its obligation under this provision.

 

  13.2 Insurance.

 

  13.2.1 Seller and Buyer acknowledge that insurance coverage for the Assets and
the operations in which the Assets have been used have been provided, in part,
under insurance programs arranged and maintained by Seller for itself and its
subsidiaries and affiliates (such policies are herein called “Seller Policies”).
Seller agrees to maintain all such Seller Policies in their present format
through the Closing Date.

 

  13.2.2 Effective upon the Closing Date, Buyer shall obtain and maintain
insurance policies in support of the risks and liabilities assumed by Buyer
under this Agreement and with policy terms and limits that are commercially
reasonable for the area in which the Assets are located.

 

  13.2.3 To the extent of the risks and liabilities assumed by Seller under this
Agreement, between the Effective Time and Closing, Seller shall 1) name Buyer as
an additional insured under all Seller’s liability policies, with the exception
of Worker’s Compensation and Employer’s Liability Policies, and 2) all Seller’s
insurance policies will contain provisions that the insurance companies will
have no right of recovery or subrogation against Buyer Parties.

 

  13.2.4 To the extent of the risks and liabilities assumed by Buyer under this
Agreement, Buyer shall 1) name Seller as an additional insured under all Buyer’s
liability insurance policies, with the exception of Worker’s Compensation and
Employer’s Liability Policies, and 2) all Buyer’s insurance policies will
contain provisions that the insurance companies will have no right of recovery
or subrogation against Buyer Parties.

 

  13.2.5 Seller and Buyer agree that, from and after the Closing Date, Seller
shall no longer be required to maintain insurance coverage for the Assets.

 

  13.3

Casualty Loss of Assets. In the event any physical Asset(s), including fixtures
and improvements, is damaged by storm, fire, flood, wind, hurricane, other act
of God, theft, vandalism, terrorism, act of war, explosion, or other casualty or
calamity that would reasonably result in a loss of $1,000,000.00 or more in the
aggregate, (a “Casualty Event”) after the Effective Date but before Closing,
Seller shall either repair the damage at its cost or, at its sole option, either
reduce the Purchase Price by the amount of the

 

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damage or withdraw the damaged Asset from the sale and reduce the Purchase Price
by the undamaged value thereof. Any reductions to the Purchase Price for the
amount of the damage shall not preclude an increase in the Purchase Price for
insurance premiums paid by Seller until Closing to the extent Buyer receives the
benefit of such insurance.

If (x) Buyer and Seller cannot agree as to the amount of such price reduction
for a Casualty Event or (y) the amount of the damage or other losses (including
losses relating to environmental liabilities) that are reasonably expected to be
suffered or incurred by Buyer as a result of all Casualty Events exceeds
twenty-five percent (25%) of the initial unadjusted Purchase Price, and only as
to that portion of such aggregate of Casualty Events in excess of $1,000,000.00,
then this Agreement may be terminated by either party. This paragraph shall not
apply to the decline in or cessation of production resulting from subsurface
causes or mechanical integrity of the Personal Property occurring in the
ordinary course of business. The occurrence of such decline or cessation shall
not relieve Buyer of its obligation to purchase the Assets and the risk of such
occurrence is specifically assumed by Buyer.

 

  13.4 Publicity. Seller and Buyer shall consult with each other with regard to
all press releases or other public or private announcements made concerning this
Agreement or the transactions contemplated hereby, and except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency, stock exchange or current debt instrument of a Party, neither Buyer nor
Seller shall issue any such press release or other publicity without the prior
written consent of the other party. Except as may be required by applicable laws
or the applicable rules and regulations of any governmental agency, stock
exchange or current debt instrument of a Party, no press release shall ever
include any reserve estimates.

 

  13.5 Assignment. Prior to Closing, neither Seller nor Buyer may assign any
rights acquired hereunder or delegate any duties assumed hereunder without the
prior written consent of the other Party or its respective successors and
assigns. After Closing, Buyer may not sell, transfer, assign, sublease or
delegate any rights or interests acquired under this Agreement and the
Assignment or delegate any duties assumed thereunder without any such grantee,
transferee, assignee, sublessee or delegee having agreed in writing to be bound
by all the covenants, terms and conditions set forth in Section 10.1 hereof.

 

  13.6 Entire Agreement. This Agreement constitutes the entire agreement between
Seller and Buyer with respect to the transactions contemplated herein, and
supersedes all prior oral or written agreements, commitments, and understandings
between the parties. No amendment shall be binding unless in writing and signed
by both parties. Headings used in this Agreement are only for convenience of
reference and shall not be used to define the meaning of any provision. This
Agreement is for the benefit of Seller and Buyer and their respective
successors, representatives, and assigns and not for the benefit of third
parties.

 

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  13.7 Notices. All notices and consents to be given hereunder shall be in
writing and shall be deemed to have been duly given if delivered either by
personal delivery, telex, telecopy or similar facsimile means, by certified or
registered mail, return receipt requested, or by courier or delivery service,
addressed to the parties hereto at the following addresses:

 

If to Seller:   If to Buyer:

Stone Energy Corporation

Stone Energy Offshore, L.L.C.

625 East Kaliste Saloom Road

Lafayette, LA 70508

 

Talos Energy Offshore LLC

500 Dallas St., Suite 2000

Houston, TX 77002

Attention:   

Michael D. Deville

Director of Land

  Attention:   

William S. Moss III

General Counsel

  

Phone: 337-521-2184

Fax No.: 337- 521-0296

DevilleMD@StoneEnergy.com

 

Phone: 713.328.3005

Fax: 713.351.4100

bmoss@talosenergyllc.com

or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner herein above
set forth. Notices shall be deemed given when received: the transmittal of a
facsimile with confirmation receipt, the sending of electronic mail with a
return receipt, and if hand-delivered, sent by express courier or delivery
service, or sent by certified or registered mail, return receipt requested.

 

  13.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Louisiana without reference to the
principles of conflict of laws. The Parties hereby consent to the jurisdiction
of the federal district court for the Western District of Louisiana and the
state courts geographically located therein and irrevocably agree that all
actions or proceedings related to this Agreement shall be litigated in such
courts, and each party waives any defense or forum non conveniens and agrees to
be bound by any judgment rendered thereby in connection with this Agreement.
Each party agrees that service upon it by registered or certified mail shall
constitute sufficient notice; provided that nothing herein shall affect the
right to serve process in any other manner permitted by law. TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
OR OTHERWISE.

 

  13.9

Hart-Scott-Rodino: This Agreement is subject in all respects to and conditioned
upon compliance by the parties with Title II of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the “Hart-Scott-Rodino Act”), and rules and
regulations promulgated pursuant thereto, to the extent that said act, rules and
regulations are applicable to the transaction contemplated by this Agreement.
Seller and Buyer agree to make such filings with and provide such information to
the Federal Trade Commission and the Department

 

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  of Justice with respect to the transaction contemplated by this Agreement as
are required in connection with the Hart-Scott-Rodino Act sufficiently in
advance of the Closing Date to permit the lapse of the initial waiting periods
prescribed in connection with the Hart-Scott-Rodino Act before the Closing Date.

 

  13.10 Confidentiality.

 

  13.10.1 Buyer agrees that all information furnished or disclosed by Seller in
connection with the sale of the Assets shall remain confidential prior to
Closing. Prior to Closing, Buyer may disclose such information only to its
subsidiaries or affiliates, agents, advisors, counsel or representatives (herein
“Representatives”) who have agreed, prior to being given access to such
information, to maintain the confidentiality thereof. In the event that Closing
of the transactions contemplated by this Agreement does not occur for any
reason, Buyer and its Representatives shall promptly return to Seller any and
all materials and information, including any notes, summaries, compilations,
analyses or other material derived from the inspection or evaluation of such
material and information, without retaining copies thereof. Notwithstanding the
provisions of Section 13.10, nothing in this Section and this Agreement shall
have the effect, prior to Closing, of terminating, modifying or superseding the
Confidentiality Agreement entered into by the parties; provided that the
Confidentiality Agreement shall automatically terminate upon the occurrence of
Closing.

 

  13.10.2 Except as required by Law or rule (including a rule of any stock
exchange), from and after the Closing, Seller shall and shall cause its
affiliates and its and their Representatives to keep confidential and not use
the Records for a period of two years following the Closing Date.

 

  13.11 Default. Seller shall notify Buyer in the event that Seller becomes
aware that Buyer or Buyer’s successors or assigns have failed to satisfy one or
more obligations assumed by Buyer pursuant to the terms of this Agreement, the
Assignments, and/or any amendments thereto (any such failures hereinafter
referred to as “Defaults”). Buyer shall correct or redress or respond to or
begin to correct or redress or respond to such Defaults within thirty (30) days
after receipt of such written notice or such lesser or greater time as may be
dictated by any emergency situation or as required by applicable agreements or
as required by any law, order, rule or regulation of any governmental authority.

If (i) within such time as defined hereinabove, Buyer does not correct or
redress or respond to or begin to correct or redress or respond to such
Defaults, or (ii) after beginning such efforts Buyer does not correct or redress
such Defaults within a reasonable amount of time and within the time required by
any applicable agreements or any law, order, rule or regulation of any
governmental authority, or (iii) Seller is unable to locate Buyer in order to
notify Buyer after reasonable efforts to do so, Seller, at its option, may
endeavor to and shall be authorized to plug and abandon well(s), remove
facility(ies) or equipment or restore the surface area(s), or otherwise correct
such Defaults, or cause such to be done provided that Seller shall exercise
reasonable discretion and endeavor to accomplish only that necessary to remedy
such Defaults, all at the entire cost, risk and expense of Buyer. Compliance
with the Notices requirements under this Agreement shall be considered as
sufficient notice hereunder.

 

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Seller shall in no event be obligated to satisfy any Defaults by Buyer or its
successors or assigns.

Within a reasonable period of time after any such efforts by Seller to correct
or redress such Defaults, Seller shall furnish Buyer at its last known address
with detailed invoices and supporting documentation for expenses incurred by
Seller in the efforts to correct such Defaults, including appropriate charges
for overhead, salaries, legal costs, permits, penalties, interest, and other
losses and expenses incurred for or by Seller for the purpose of correcting or
redressing such Defaults. In the event that Buyer does not pay Seller within
fifteen (15) days after the mailing of said invoices and supporting
documentation, Seller shall be entitled to reimburse itself for such invoices by
recovering such sums pursuant to the Seller Additional Bonds. Any such recovery
by Seller under the Seller Additional Bonds shall satisfy only those liabilities
and obligations of Buyer with respect to the particular Default and only to the
extent that Seller has been reimbursed therefor by recovery under the Seller
Additional Bonds.

Seller’s right to proceed in the manner above described to correct or redress
Defaults of Buyer or its successors or assigns is not intended to be nor shall
it limit or be exclusive of any other right or remedy, whether personal or in
“rem”, available to Seller under this Agreement, the Assignments, and/or any
amendments thereto, or otherwise by law, all of which remedies are expressly and
fully ratified, granted and reserved to Seller.

The recovery by Seller of amounts under the Seller Additional Bonds is not
intended and shall not be deemed to be a waiver by Buyer of any claim, protest,
dispute or cause of action conceding the amount or nature of the activities
performed by Seller pursuant to this Section or the necessity thereof or the
amounts expended therefor. Notwithstanding any recovery by Seller of amounts
under the Seller Additional Bonds, Buyer shall have the right to pursue in any
manner all rights and remedies available to it in connection with any such
claim, protest, dispute or cause of action.

 

  13.12 Survival of Certain Obligations. With the exception of the
representation and warranty contained in section 6.1.5, the representations and
warranties in Section 6 of this Agreement (with the exception of the disclaimers
and waivers contained therein) shall terminate two (2) years after the Closing
Date; and thereafter no action may be commenced in court based on breach of
those representations and warranties, without prejudice to the right to recovery
in connection with actions or disputes commenced in the appropriate forum prior
to the end of the two-year period. Except as expressly provided otherwise in
this Agreement, waivers, disclaimers, releases, continuing obligations of Buyer,
and obligations of indemnity and defense contained in this Agreement shall
survive the Closing indefinitely and shall be binding upon each party’s
successors and assigns. Notwithstanding anything in this Agreement to the
contrary, if a claim of indemnification under this Agreement is properly
asserted prior to the end of the survival period applicable to such
indemnification obligation (or the underlying representation, warranty, covenant
or agreement), then the indemnification relating to such claim (and any
applicable underlying representation, warranty, covenant or agreement) shall
continue to survive until such claim has been fully and finally resolved and
satisfied.

 

  13.13

Conflict of Interest. Conflicts of interest related to this Agreement are
strictly prohibited. Each party, for itself and for its respective directors,
partners, employees, and agents warrants, covenants and represents to the other
that, except as otherwise expressly

 

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  provided in this Agreement, neither it nor any of its directors, members,
managers, employees, partners or agents has given to or received from the other
party, or such party’s directors, partners, employees or agents, any commission,
fee, rebate, gift or other thing or service in connection with this Agreement.
Likewise, prior to Closing, neither Buyer, nor any member, manager, employee or
agent of Buyer shall enter into any business relationship with any director,
member, manager or employee or agent of Seller (or of any affiliate of Seller),
unless such person is acting for and on behalf of Seller, without prior written
notification thereof to Seller. Buyer and Seller each agree that its books and
records shall be subject to reasonable audit by the other as may be required to
substantiate compliance with this provision.

 

  13.14 Further Cooperation. After the Closing, each party shall execute,
acknowledge, and deliver all documents, and take all such acts which from time
to time may be reasonably requested by the other party, in order to carry out
the purposes and intent of this Agreement.

 

  13.15 Counterparts. This Agreement may be executed in one or more counterparts
with the same effect as if all signatures of the parties hereto were on the same
document, but in such event each counterpart shall constitute an original, and
all of such counterparts shall constitute one Agreement; but in making proof of
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart signed by each party.

 

  13.16 Severability. If any term or provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, all other conditions
and provisions of the Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby are not affected in any materially adverse manner to the
other party.

 

  13.17 Removal of Signs and Markers. Seller may either remove its name and
signs from the Seller-operated Wells, facilities and Personal Property or
require Buyer, at Buyer’s cost, to do so for those Assets that Buyer will
operate. If Seller’s name or signs remain on the Assets after Seller ceases to
be operator and Buyer has become operator, Buyer shall (a) remove any remaining
signs and references to Seller within forty-five (45) days after Seller ceases
to be operator or such earlier time as may be required by applicable
regulations, (b) install signs complying with applicable governmental
regulations, including signs showing Buyer as operator of the Assets it
operates, and (c) notify Seller of the removal and installation. Seller reserves
a right of access to the Assets after it ceases to be operator to remove its
signs and name from all Wells, facilities and Personal Property, or to confirm
that Buyer has done so for the Assets operated by Buyer. If Seller removes signs
because Buyer has not done so, Seller will charge its costs to Buyer either
through the Final Settlement Statement or by separate invoice, which Buyer
agrees to pay within fifteen (15) days of receipt.

 

  13.18 CONSPICOUSNESS / EXPRESS NEGLIGENCE. THE DEFENSE, INDEMNIFICATION AND
HOLD HARMLESS PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE
WHETHER OR NOT THE DAMAGES, LOSSES, INJURIES, LIABILITIES, COSTS OR EXPENSES IN
QUESTION AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR CONCURRENT
NEGLIGENCE, STRICT LIABILITY, BREACH OF DUTY (STATUTORY OR OTHERWISE), OR OTHER
FAULT OF ANY INDEMNIFIED PARTY, OR FROM ANY PRE-EXISTING DEFECT. BUYER AND
SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE
AND IS CONSPICUOUS.

 

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  13.19 Waiver of Certain Damages. Each Party irrevocably waives and agrees not
to seek indirect, consequential, punitive or exemplary damages of any kind in
connection with any dispute arising out of or related to this Agreement or the
breach hereof. For the avoidance of doubt, this Section 13.19 does not diminish
or otherwise affect the parties’ rights and obligations to be indemnified
against, and provide indemnity for, indirect, consequential, punitive or
exemplary damages awarded to any third party for which indemnification is
provided in this Agreement or Seller’s right to receive liquidated damages.
Notwithstanding anything to the contrary contained elsewhere in this Agreement,
Seller’s cumulative indemnity obligations to Buyer and Buyer Parties under this
Agreement shall not exceed the Purchase Price.

 

  13.20 Suspense Funds. “Suspense Funds” as used herein means proceeds of
production, and penalties and interest with respect thereto, payable to Third
Parties but held in suspense by Seller. Buyer acknowledges that Suspense Funds
may exist that are associated with the Assets. Seller shall transfer all
Suspense Funds and the obligation therefor to Buyer by adjustments to the
Purchase Price in the Final Accounting Statement. Notwithstanding anything
contained in this Agreement to the contrary, if Closing occurs, Buyer, from and
after Closing, accepts sole responsibility for and agrees to pay all costs and
expenses associated with suspense funds (including any additional fines,
penalties or interest (i) that accrue prior to Closing to the extent, but only
to the extent, that the suspense funds delivered to Buyer include such amounts
and (ii) that may accrue after Closing, and Buyer irrevocably waives any and all
claims they may have against associated with the same.

 

  13.21 Entire Agreement; Conflicts. In the event of a conflict between the
terms and provisions of this Agreement and the terms and provisions of the
Guaranty, as described herein in Article 4.1, the terms and provisions of the
Guaranty shall govern and control.

 

  13.22 Non-Recourse. Without limiting the rights of Seller under the
Abandonment Obligations under Section 4 and the Guaranty, this Agreement may
only be enforced against, and any claim or cause of action based upon, arising
out of, or related to this Agreement or the transactions contemplated hereby may
only be brought against, the entities that are expressly named as parties herein
and then only with respect to the specific obligations set forth herein with
respect to such party. Without limiting the rights of Seller under the
Abandonment Obligations under Section 4 and the Guaranty, except to the extent a
named party to this Agreement (and then only to the extent of the specific
obligations undertaken by such named party in this Agreement), (a) no past,
present or future director, officer, employee, incorporator, member, partner,
stockholder, financing source, agent, attorney, advisor or representative or
affiliate of any named party to this Agreement and (b) no past, present or
future director, officer, employee, incorporator, member, partner, stockholder,
financing source, agent, attorney, advisor or representative or affiliate of any
of the foregoing shall have any liability (whether in contract, tort, equity or
otherwise) for any one or more of the representations, warranties, covenants,
agreements or other obligations or liabilities of any one or more of Seller or
Buyer under this Agreement (whether for indemnification or otherwise) of or for
any claim based on, arising out of, or related to this Agreement or the
transactions contemplated hereby.

 

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EXECUTED as of the date first above written.

SELLER:

 

STONE ENERGY CORPORATION     STONE ENERGY OFFSHORE, L.L.C.       through its
sole member       Stone Energy Corporation By:  

/s/ Michael D. Deville

    By:  

/s/ Michael D. Deville

Name:  

Michael D. Deville

    Name:  

Michael D. Deville

Title:  

Director of Land

    Title:  

Director of Land

BUYER:

 

TALOS ENERGY OFFSHORE LLC By:  

/s/ Timothy S. Duncan

Name:  

Timothy S. Duncan

Title:  

President and Chief Executive Officer

 

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AMENDMENT TO PURCHASE AND SALE AGREEMENT

This Amendment to Purchase and Sale Agreement is entered into the 31st day of
July, 2014 (this “Amendment”), between STONE ENERGY CORPORATION, a Delaware
corporation with a mailing address of P.O. Box 52807, Lafayette, Louisiana
70505, and STONE ENERGY OFFSHORE, L.L.C., a Delaware limited liability company,
with a mailing address of 625 East Kaliste Saloom Road, Lafayette, Louisiana
70508 (collectively, “Seller”), and TALOS ENERGY OFFSHORE LLC, a Delaware
limited liability company with a mailing address of 500 Dallas St., Suite 2000,
Houston, TX 77002 (“Buyer”).

WHEREAS, Seller and Buyer entered into that certain Purchase and Sale Agreement
dated June 27, 2014, but effective April 1, 2014 (the “Agreement”), covering
certain oil and gas leases in the Gulf of Mexico; and

WHEREAS, Seller and Buyer desire to amend the Agreement to reflect certain
revisions as outlined below;

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

 

1. Section 4.4 to the Agreement is hereby replaced in its entirety with the
following paragraph:

4.4 Additional Buyer Bond. If at any time after Closing, Talos Production LLC
does not maintain a Debt to EBITDA Ratio of 2.0x or less, then Buyer shall
furnish to Seller bonds, substantially in the form attached hereto as Exhibit K,
Schedule 9, or other surety or guarantee reasonably acceptable to Seller,
securing the Abandonment Obligations in an amount equal to the Security Cap less
the aggregate amount of the Performance Bond, BOEM Bonds and the Third Party
Bonds in effect (the “Seller Additional Bonds”). “Debt to EBITDA Ratio” shall
mean Talos Production LLC’s net long term debt divided by Talos Production LLC’s
previous twelve month trailing Adjusted EBITDA, each as based on Talos
Production LLC’s quarterly financial statements provided to Seller pursuant to
Section 4.5 and calculated in accordance with Talos Production LLC’s then
outstanding credit agreements. The Seller Additional Bonds shall be in a form
reasonably acceptable to and subject to the reasonable prior approval of Seller.
It is specifically understood and agreed that Buyer’s obligations to assume the
Abandonment Obligations under Section 3.3.2 of this Agreement are not limited by
the amount of the Seller Additional Bonds, the Performance Bond, the BOEM Bonds
and/or the Third Party Bonds, if any. The Seller Additional Bonds shall be
maintained in full force and effect at all times that Talos Production LLC’s
Debt to EBITDA Ratio exceeds 2.0x by and at the sole cost of Buyer until Seller,
or its designee, is satisfied, in its reasonable discretion, that all
Abandonment Obligations have been completely performed and fulfilled. Exhibit M
identifies the Assets that are required to be decommissioned, together with the
estimated costs of such decommissioning. The Security Cap and the required
amount of the Seller Additional Bonds will be reduced to the extent of (i) the
amount of the BOEM Bonds is increased at any time and (ii) the estimated cost of
decommissioning set forth on Exhibit M with respect to the Abandonment
Obligations that have been performed. If Talos Production LLC attains a Debt to
EBITDA Ratio of 2.0x or

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  less subsequent to posting the Seller Additional Bonds, Seller shall notify
the surety to promptly release any Seller Additional Bonds; provided that such
release will not relieve Buyer of its obligations under this Section 4.4 if
Talos Production LLC’s Debt to EBITDA Ratio thereafter exceeds 2.0x.

 

2. Exhibit A, Schedule 1 – Oil and Gas Leasehold Interests and Allocation of
Purchase Price- to the Agreement is replaced in its entirety with Exhibit A,
Schedule 1 attached hereto to reflect Buyer’s final allocated prices; and to
update the lease descriptions for the East Cameron 265, Main Pass 314, Ship
Shoal 198, and South Marsh 108 fields.

 

3. Exhibit A, Schedule 2 – Wells - to the Agreement is replaced in its entirety
with Exhibit A, Schedule 2 attached hereto to reflect revisions to certain
working interest ownership in the Main Pass 74 field; and to add the OCS-G 23809
No. A003 well, located in the Vermilion 51 field.

 

4. Exhibit A, Schedule 3 – Platforms and Other Facilities- to the Agreement is
replaced in its entirety with Exhibit A, Schedule 3 attached hereto to reflect
revisions to certain working interest ownership in the Main Pass 74 and
Vermilion 46 fields; to add the removal date to the SM 108 “J” platform, South
Marsh Island 108 field; to add the complex ID, installation and removal dates
for the ST 111 “A” platform, South Timbalier 111 field; and to add the SL 16944
Caisson No. 1, located in the South Pelto 5 field.

 

5. Exhibit, Schedule 4 – Pipelines - to the Agreement is replaced in its
entirety with Exhibit A, Schedule 4 attached hereto to reflect revisions to
certain working interest ownership in the Main Pass 74 field; and to add
pipeline segment numbers 18567, 18568, & 18602, all located in the Main Pass 314
field.

 

6. Exhibit A, Schedule 9 – Preferential Rights and Consent to Assign- to the
Agreement is replaced in its entirety with Exhibit A, Schedule 9 attached hereto
to reflect revisions to the lease descriptions for the East Cameron 265, Main
Pass 314, Ship Shoal 198, and South Marsh 108 fields; to list additional
consents to assign in the Main Pass 74 and South Marsh 108 fields; the deletion
of the requirement to obtain a consent to assign for that certain Interconnect
Agreement between Texas Gas Transmission, LLC and Stone Energy Offshore, L.L.C.,
dated February 16, 2012, Ship Shoal 66 Field, due to its termination; and the
deletion of the requirement to obtain a consent to assign for that certain
Operating Agreement by and between Chevron Oil Company and Continental Oil
Company, dated November 1, 1973, as amended, South Marsh Island 288 field.

 

7. Exhibit B, Open AFEs - to the Agreement is replaced in its entirety with
Exhibit B attached hereto to reflect the addition of the certain AFEs previously
omitted located in the Vermilion 131, South Pelto 22, Main Pass 74, Ship Shoal
69, South Timbalier 30, South Marsh Island 108, Ship Shoal 111, South Timbalier
75, South Pelto 23, and Vermilion 96 fields; and revisions to the work status
for AFE No. 2014-0257, South Marsh Island 288 field, and AFE 2014-0267-F, Ewing
Bank 305 field.

 

Amendment to Purchase and Sale Agreement (Stone / Talos)    Page 2 of 4

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8. Exhibit C – Replacement Bonds, Guarantees, and Letters of Credit - to the
Agreement is replaced in its entirety with Exhibit C attached hereto to include
a Letter of Credit in favor of Chevron U.S.A. Inc. in the South Pelto 23 field
in the amount of $700,000; the deletion of Performance Bond No. RLB0009484 for
ROW OCS-G 07533, Ship Shoal 69 field, in the amount of $300,000, due to its
cancelation; the reduction of the Performance Bond No. RLB0004068, for South
Marsh Island 108 field, in the amount of $2,495,000 to $575,000 due to the
retention of liability, by Seller, of the South Marsh Island 108 “D” Platform
and the South Marsh Island “G” Platform being decommissioned prior to the
effective date of the Agreement.

 

9. Exhibit K, Schedule 1 – Form of Assignment of Record Title Interest - to the
Agreement is replaced in its entirety with Exhibit K, Schedule 1 attached hereto
to reflect a new form of Exhibit “A” attached hereto.

 

10. Exhibit K, Schedule 2 – Form of Assignment of Operating Rights Interest - to
the Agreement is replaced in its entirety with Exhibit K, Schedule 2 attached
hereto to reflect a new form of Exhibit “A” attached hereto.

 

11. Exhibit M – Decommissioning Schedule - to the Agreement is replaced in its
entirety with Exhibit M attached hereto to remove the Working Interest and Gross
P&A Cost Columns; to update certain P&A values in order to reflect the most
recent estimates; and to list certain wells and platforms not previously
reflected.

The revised referenced exhibits are attached hereto.

Seller and Buyer hereby ratify and confirm the Agreement, as herein amended, and
acknowledge the Agreement, as amended, to be in full force and effect. Except as
herein amended, all the terms and provisions of the Agreement shall remain the
same. The Agreement, as herein amended, shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.

EXECUTED as of the date first above written, but effective April 1, 2014.

[Signature Page Follows]

 

Amendment to Purchase and Sale Agreement (Stone / Talos)    Page 3 of 4

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SELLER:

 

STONE ENERGY CORPORATION     STONE ENERGY OFFSHORE, L.L.C.       through its
sole member       Stone Energy Corporation By:  

/s/ E.J. Louviere

    By:  

/s/ E.J. Louviere

Name:  

E.J. Louviere

    Name:  

E.J. Louviere

Title:  

Senior Vice President, Land

    Title:  

Senior Vice President, Land

BUYER:

TALOS ENERGY OFFSHORE LLC

 

By:  

/s/ Timothy S. Duncan

Name:  

Timothy S. Duncan

Title:  

President

 

Amendment to Purchase and Sale Agreement (Stone / Talos)    Page 4 of 4