Exhibit 10.1

 

PURCHASE AND SALE AGREEMENT

 

by and among

 

SWEPI LP

 

as Seller,

 

and

 

HALCÓN ENERGY PROPERTIES, INC.,

 

as Purchaser,

 

 

DATED FEBRUARY 6, 2018

 

 

RELATING TO OIL AND GAS INTERESTS IN WARD COUNTY, TX

 

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TABLE OF CONTENTS

 

Exhibits:

 

 

A-1

Mineral Interests

A-2

Wells

A-3

Surface Interests

A-4

Electrical Laterals

A-5

Field Pipelines

B

Other Excluded Assets

C

Assignment, Conveyance and Bill of Sale

D

Non-Foreign Affidavit

E

Williams Gathering Agreement

F

Shared Use and Access Agreement

G

Reprocessed Seismic Data License

 

Schedules:

 

 

 

 

 

A

 

Purchaser Account

B

 

Seller Account

1

 

Excluded Contracts

2.3

 

Allocated Values

2.6

 

Anadarko Tag Along Assets

5.3(j)

 

Transition Service Agreement Wells

6.1(g)

 

Litigation

6.1(i)

 

Consents and Preferential Rights

6.1(k)

 

Material Contracts

6.1(p)

 

Outstanding Capital Commitments

8.1

 

Owner Balances

 

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PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is dated as of February 6,
2018 (the “Execution Date”), by and between SWEPI LP, a Delaware limited
partnership (“Seller”), the address for which is 150 N. Dairy Ashford, Houston,
Texas 77079, and Halcón Energy Properties, Inc., a Delaware corporation
(“Purchaser”), the address for which is 1000 Louisiana Street, Suite 1500,
Houston, Texas 77002.  Each of Seller and Purchaser are sometimes separately
referred to as a “Party” and are sometimes collectively referred to as
“Parties”.

 

WHEREAS, subject to the terms and conditions set forth in this Agreement,
Purchaser desires to purchase from Seller, and Seller desires to sell to
Purchaser, Seller’s interests in oil and gas exploration, development and
producing properties located in Ward County, Texas and certain related assets.

 

NOW THEREFORE, in consideration of the mutual promises contained herein, the
benefits to be derived by each Party hereunder, and other good and valuable
consideration, Purchaser and Sellers agree as follows:

 

ARTICLE 1.  — DEFINITIONS

 

The following terms as used in this Agreement shall have the definitions set
forth below:

 

“Accounting Notice” has the meaning set forth in Section 8.3(a).

 

“Accounting Referee” has the meaning set forth in Section 8.3(b).

 

“Additional Oil and Gas Interest” has the meaning set forth in Section 4.2(c).

 

“Adjusted Initial Payment Amount” has the meaning set forth in Section 8.2.

 

“Adjusted Final Payment Amount” has the meaning set forth in Section 8.3.

 

“Affiliate(s)” means any Person that (a) controls, either directly or
indirectly, a Party, or (b) is controlled, directly or indirectly, by such
Party, or (c) is, directly or indirectly, controlled by a Person that directly
or indirectly controls such Party, for which purpose “control” shall mean the
right to exercise more than fifty percent (50%) of the voting rights in the
appointment of the directors or similar representation of a Person.

 

“Agreement” has the meaning set forth in the Preamble.

 

“Aggregate Environmental Deductible” means an amount equal to one and one half
percent (1.5%) of the Unadjusted Purchase Price.

 

“Aggregate Indemnity Deductible” means an amount equal to two percent (2%) of
the Unadjusted Purchase Price.

 

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“Aggregate Title Deductible” means an amount equal to one and one half percent
(1.5%) of the Unadjusted Purchase Price.

 

“Allocated Value” has the meaning set forth in Section 2.3.

 

“Anadarko” has the meaning set forth in Section 2.6(a)(i).

 

“Anadarko Tag Along Assets” has the meaning set forth in Section 2.6(a)(i).

 

“Anti-Bribery and Money-Laundering Laws and Obligations” means for each Party: 
(i) the Laws relating to combating bribery and corruption, and/or the principles
described in the Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions, signed in Paris on December 17, 1997, which
entered into force on February 15, 1999, and the Convention’s Commentaries;
(ii) the laws relating to combating bribery, corruption and money laundering in
the countries of such Party’s place of incorporation, principal place of
business, and/or place of registration as an issuer of securities, and/or in the
countries of such Party’s ultimate parent company’s place of incorporation,
principal place of business, and/or place of registration as an issuer of
securities; (iii) the United States Foreign Corrupt Practices Act of 1977;
(iv) the United Kingdom Bribery Act 2010 (as amended from time to time); and
(v) and all other applicable national, regional, provincial, state, municipal or
local laws and regulations that prohibit the bribery of, or the providing of
unlawful gratuities, Facilitation Payments or other benefits to, any Government
Official or any other person.

 

“Approval Evidence” has the meaning set forth in Section 10.4(b).

 

“Arbitrable Dispute” has the meaning set forth in Section 16.1(a).

 

“Assets” means all of Seller’s right, title and interest in and to the
following, to the extent transferable, other than Excluded Assets, each of which
may be separately referred to as an “Asset”;

 

(i)            the Hydrocarbon leases, subleases, royalties, overriding
royalties, net profits interests, carried interests, farmout rights, and other
rights to Hydrocarbons in place that are described on Exhibit A-1, including all
pooled or unitized acreage that includes all or a part of any such interests or
other rights, and all tenements, hereditaments and appurtenances belonging to
such interests (the “Mineral Interests”);

 

(ii)           the oil, gas, CO2, injection or other wells located on the
Mineral Interests, including any wells that have been temporarily or permanently
abandoned, and including without limitation the working interests or overriding
royalty interests in the wells listed on Exhibit A-2 but excluding the Excluded
Water Assets (the “Wells” and together with the Mineral Interests, the “Oil and
Gas Interests”);

 

(iii)          the surface fee interests, easements, permits, licenses,
servitudes, rights-of-way, surface or ground leases and other surface rights or
interests appurtenant to, and used or held for use in connection with the Oil
and Gas Interests, listed on Exhibit A-3, in each case, to the extent

 

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such is required in relation to the Oil and Gas Interests, (the “Surface
Interests” and, together with the Oil and Gas Interests, the “Properties” or
“Property”);

 

(iv)          the equipment, machinery, fixtures, and flowlines (connecting the
wellheads to the tanks and equipment), manifolds, processing units, compression
facilities, tanks and other tangible personal property and improvements used or
held for use in connection with and located on the Properties at the Closing
Date (the “Equipment”);

 

(v)           the electricity lines and poles listed and described in
Exhibit A-4, (the “Electrical Laterals”);

 

(vi)          the oil and water pipelines listed and described in Exhibit A-5
(the “Field Pipelines”);

 

(vii)         the contracts and contractual rights, obligations and interests,
to the extent assignable or transferable and insofar as they directly relate to
any Mineral Interest, or lands unitized therewith, included in the Oil and Gas
Interests, and those other contracts and contractual rights and obligations
related to any of the Properties, Equipment, Electrical Laterals, Field
Pipelines, the interests described in subpart (viii) below or the Governmental
Authorizations, but excluding the Excluded Contracts;

 

(viii)        all Hydrocarbons within or produced from the Oil and Gas Interests
on and after the Effective Time;

 

(ix)          electronic copies of the lease records, title records, well logs,
production records, regulatory files, environmental files, and other records
pertaining exclusively to the Assets, but excluding the Excluded Records (the
“Records”); and

 

(x)           any federal, state and local governmental licenses, permits,
franchises, orders, exemptions, variances, waivers, authorizations,
certificates, consents, rights, privileges and applications therefor that are
primarily used in connection with the ownership or operation of the Assets to
the extent assignable (“Governmental Authorizations”).

 

“Assignable Seismic Data” means any processed or interpretive geological or
geophysical analysis of underlying third-party owned seismic data, but where
such analysis and interpretation is owned by Seller, relating to or covering the
Mineral Interests.

 

“Assignment” means the Assignment, Bill of Sale and Conveyance in the form
attached as Exhibit C to be entered into by the Seller and Purchaser at Closing.

 

“Assumed Obligations” has the meaning set forth in Section 10.1.

 

“Business Day” means any day other than a Saturday, Sunday or a day on which
banks are closed for business in Houston, Texas.

 

“Casualty Losses” has the meaning set forth in Section 7.12.

 

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“CERCLA” has the meaning set forth in the definition of “Environmental Law”.

 

“Claim Notice” has the meaning set forth in Section 11.1(d)(i).

 

“Claimant” has the meaning set forth in Section 16.2(b).

 

“Closing” means (i) the execution and delivery of the operative conveyances and
other closing documents giving effect to the transactions contemplated in this
Agreement, and (ii) the payment of the Adjusted Initial Payment Amount to Seller
and any other amounts to be paid pursuant to the terms of this Agreement.

 

“Closing Date” has the meaning set forth in Section 5.2; provided, however, that
solely with regard to the Supplemental Closing Assets, it shall mean the date of
the Supplemental Closing.

 

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

 

“Commission” has the meaning set forth in Section 10.4(a)(i).

 

“Confidentiality Agreement” means that Confidentiality Agreement dated
October 25, 2017 between Seller and Halcón Resources Corporation.

 

“Confidential Information” has the meaning set forth in Section 12.1.

 

“Consumer Price Index” or “CPI” refers to the Consumer Price Index-All Urban
Consumer for the U.S. City Average for All Items 1982-84=100, as published by
the Bureau of Labor Statistics of the United States Department of Labor. If the
CPI is hereafter converted to a different standard reference base or otherwise
revised, the determination of the CPI adjustment shall be made with the use of
such conversion factor, formula or table for converting the CPI, as may be
published by the Bureau of Labor Statistics, or, if the Bureau shall no longer
publish the same, then with the use of such conversion factor, formula or table
as may be published by an agency of the United States, or failing such
publication, by a nationally recognized publisher of similar statistical
information.

 

“CPR” has the meaning set forth in Section 16.2(a).

 

“CPR Protocol” has the meaning set forth in Section 16.2(a).

 

“Data Exchange” has the meaning set forth in Section 7.1(a).

 

“Data Protection Law” means data protection legislation or any statutory
equivalent in force in the locale where Personal Data is being received,
processed or transferred.

 

“Decommissioning Security” means:

 

(i)                                     an irrevocable standby letter of credit,
commercial bank guarantee, surety bond or similar credit support instrument that
is issued by a financial institution that has a credit rating of “A-” or better
by Standard & Poor’s Rating Group or Fitch Ratings Ltd. or “A3” or better by
Moody’s Investor

 

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Service Inc. In cases where ratings of the aforementioned rating agencies are
different, the lower credit rating will be used to establish the applicable
rating in respect of any such entity.

 

(ii)                                  a guaranty in form acceptable to Seller
from a company with i) a minimum tangible net worth of five hundred million
United States Dollars ($500,000,000) and ii) a credit rating of “A-” or better
by Standard & Poor’s Rating Group or Fitch Ratings Ltd or “A3” or better by
Moody’s Investors Service Inc. In cases where ratings of the aforementioned
rating agencies are different, the lower credit rating will be used to establish
the applicable rating in respect of any such entity;

 

(iii)                               cash deposited in an escrow account or other
secure fund to be established and administered as directed by the Parties; or

 

(iv)                              such combination of (i), (ii), or (iii) above
as may be acceptable to Seller, in its sole discretion, totaling the relevant
amount of Decommissioning Security which must be provided pursuant hereto.

 

“Defensible Title” has the meaning set forth in Section 4.2(a).

 

“Disputed Environmental Matters” has the meaning set forth in Section 3.2(g).

 

“Disputed Title Matters” has the meaning set forth in Section 4.4(j)

 

“Effective Time” means 12:01am (midnight) Central Standard Time on February 1,
2018.

 

“Electrical Laterals” has the meaning set forth in the definition of “Assets”.

 

“Environmental Arbitration Decision” has the meaning set forth in
Section 3.2(g)(v).

 

“Environmental Arbitration Notice” has the meaning set forth in
Section 3.2(g)(ii).

 

“Environmental Arbitrator” has the meaning set forth in Section 3.2(g)(iii).

 

“Environmental Defect” has the meaning set forth in Section 3.1.

 

“Environmental Defect Amount” has the meaning set forth in Section 3.2(f).

 

“Environmental Defect Notice” has the meaning set forth in Section 3.2(a).

 

“Environmental Defect Property” has the meaning set forth in Section 3.2(a).

 

“Environmental Obligations” has the meaning set forth in Section 10.3.

 

“Environmental Law” means all applicable federal, state or local laws and
regulations concerning or relating to the pollution, protection or restoration
of the environment including, but not limited

 

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to, the Clean Air Act, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (“CERCLA”), the Federal Water Pollution Control Act,
the Safe Drinking Water Act, the Toxic Substance Control Act, the Hazardous and
Solid Waste Amendments Act of 1984, the Superfund Amendments and Reauthorization
Act of 1986, the Hazardous Materials Transportation Act, the Clean Water Act,
the National Environmental Policy Act, the Endangered Species Act, the Fish and
Wildlife Coordination Act, the National Historic Preservation Act and the Oil
Pollution Act of 1990, as such laws have been and may be amended, replaced or
substituted from time to time and all regulations, orders, rulings, directives,
requirements and ordinances promulgated thereunder.

 

“Equipment” has the meaning set forth in the definition of “Assets”.

 

“Excluded Assets” means the following:

 

(i)                                     the Excluded Records;

 

(ii)           the copies of Records retained by Seller pursuant to Section 7.9;

 

(iii)          the assets described in Exhibit B;

 

(iv)          all pipelines other than (i) the flowlines located on the Property
and (ii) the Field Pipelines (collectively the “Excluded Field Pipelines”);

 

(v)           all electricity lines, cables, poles, equipment and infrastructure
other than the Electrical Laterals;

 

(vi)          all water wells, including water disposal, salt water disposal and
water supply wells and related infrastructure (other than Field Pipelines)
located on any of the Properties including any contracts or agreements relating
to the such water assets (“Excluded Water Assets”);

 

(vii)         any Governmental Authorizations which by their own terms are not
transferable;

 

(viii)        any contracts or contract rights which; (a) relate to other
properties owned by Seller Group, (b) are by their own terms not assignable,
(c) contain Hard Consents that have not been obtained or waived, (d) are
retained by the Seller as a result of a partial contract assignment at Closing
for those contracts which currently cover assets which include the Properties
and other properties not subject to this Agreement and the transactions
contemplated herein, (e) relate to the processing of gas from the Assets, 
(f) relate to the gathering, transportation, marketing or sale of oil or gas
from the Assets, except as included on Schedule 6.1(k), or (g) are listed on
Schedule 1 (the “Excluded Contracts”);

 

(ix)          any surface fee interests, easements, licenses, permits,
servitudes, rights-of-way, surface or ground leases, and all contracts or
agreements which relate to the foregoing other than those rights in Exhibit A-3
and, specifically with respect to those agreements in Exhibit A-3 between the
Seller and WCT Cowboy Country LLC (“CCAs”), Seller retains, on a non-exclusive
basis, all concurrent rights and obligations (it being acknowledged that
Purchaser is also being

 

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assigned, on a non-exclusive basis, all concurrent rights and obligations
relative to the Assets) under those CCAs required in relation to properties
owned by Seller Group;

 

(x)           any intellectual property owned by Seller Group (including all
data, files and records relating thereto), including without limitation, all
software, all trademarks, tradenames and service names, including without
limitation, any rights in trademarks and service names, registered or
unregistered, containing the word “Shell”, the Shell Pecten logo, and any
interpretative techniques and processes, including without limitation, any
interpretive geological and geophysical information (excluding any Assignable
Seismic Data), economic analysis, and any information or other similar
proprietary data which might reveal Seller’s or its Affiliates’ economic
guidelines or other methods or systems by which Seller or its Affiliates conduct
their economic analyses, and any similar proprietary data; provided however that
this shall not include the Records;

 

(xi)          any future or existing accounts receivable, tax, contract,
insurance premium or other refunds, income or revenue, deposits, insurance or
condemnation proceeds or awards, rights with respect to operations or claims and
causes of action in favor of Seller (including, without limitation, any joint
operating, pooling or unit operating agreement audit claims), and any sales and
use tax refunds, any of which are attributable to Seller’s ownership of the
Assets prior to the Effective Time;

 

(xii)         any and all proceeds from the settlements of contract disputes
with purchasers of Hydrocarbons or byproducts from the Properties, including,
without limitation, settlement of take-or-pay disputes, insofar as said proceeds
are attributable to periods of time prior to the Effective Time irrespective of
when such proceeds are actually received;

 

(xiii)        all rights and interests of Seller (a) under any policy or
agreement of insurance or indemnity (including, without limitation, any rights,
claims or causes of action of Seller against third parties under any indemnities
or hold harmless agreements and any indemnities received in connection with
Seller’s prior acquisition of any of the Assets) to the extent and only to the
extent such rights and interests relate to the ownership of the Assets prior to
the Effective Time, and (b) under any bond;

 

(xiv)        all Hydrocarbons produced from the Properties with respect to all
periods prior to the Effective Time, and all proceeds from the disposition of
such Hydrocarbons irrespective of when such proceeds are actually received,
except for such Hydrocarbons produced from the Properties which have a negative
Owner Balance as at the Effective Time; provided, however, that notwithstanding
the above, Purchaser shall be entitled to the Inventory as a credit to Revenue
when the Inventory is actually sold and Seller shall receive an upward
adjustment for the Inventory to the Unadjusted Purchase Price;

 

(xv)         all “virtual courthouses” of Seller and Seller’s exclusive use
arrangements with title abstract facilities and all documents and instruments of
Sellers that may be protected by an attorney-client privilege and all data that
cannot be disclosed to Purchaser as a result of confidentiality arrangements
under agreements with third parties;

 

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(xvi)        all licensed radio frequencies and associated communications
infrastructure and equipment, including towers, antennas, data links and network
circuits;

 

(xvii)       any indenture, loan, credit agreement, promissory note or similar
agreement, in each case, for indebtedness of Seller or any Affiliate of Seller,
as well as any mortgages, deeds of trust, security agreements, pledges,
guarantees, or other agreements or instruments used to secure or support the
indebtedness, loan agreements, credit agreements or other such agreements;

 

(xviii)      all Hedge Agreements;

 

(xix)        all equipment, tools and other equipment brought onto a well site
temporarily for purposes of drilling, side-tracking, deepening, reworking or
maintaining a well, any equipment, inventory, machinery, tools and other
personal property not currently in use (or contemplated for use) for the
operation of a Well or Wells, any vehicles, rolling stock, work over rigs,
drilling rigs and related equipment, rental equipment, computers and their
associated equipment and software, copy machines, and televisions.

 

“Excluded Contracts” has the meaning set forth in the definition of “Excluded
Assets”.

 

“Excluded Field Pipelines” has the meaning set forth in the definition of
“Excluded Assets”.

 

“Excluded Records” means:

 

(i)            any data, information, software and records to the extent that
disclosure or change in ownership in connection with the transactions
contemplated by this Agreement is prohibited by applicable Law;

 

(ii)           all corporate, partnership, financial, tax, and legal records and
legal files, including but not limited to all work product of and attorney
client communications with Seller’s counsel (which shall include in-house
counsel), insofar as related to Excluded Assets or Retained Obligations;

 

(iii)          data and records relating to the sale of the Assets, including
bids received from and records of negotiations with third Persons;

 

(iv)          any data, information or records to the extent relating to the
Excluded Assets;

 

(v)           data, information or records containing Seller’s economic,
reserves or investment forecasts, analyses, criteria, or rationales or similar
information;

 

(vi)          any such data, information or records (including without
limitation Seller’s proprietary geological or geophysical interpretations or
similar data and information, other than Assignable Seismic Data) that are
transferrable only upon consent, payment of a license, transfer or other fee or
royalty to a third Person, or transferrable only if Purchaser executes a
license, royalty or other agreement with a third Person, unless Purchaser pays
such fee or royalty or executes such license; or

 

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(vii)         any seismic data owned by Seller, other than Assignable Seismic
Data.

 

“Excluded Wells” has the meaning set forth in the definition of “Excluded
Assets”.

 

“Execution Date” has the meaning set forth in the Preamble.

 

“Facilitation Payments” means payments to a Government Official to facilitate or
expedite performance of a routine governmental action which is an action which
is commonly performed by such Government Official.

 

“Field Pipelines” has the meaning set forth in the definition of “Assets”.

 

“Final Accounting Statement” has the meaning set forth in Section 8.3(a).

 

“Final Disputed Environmental Matters” has the meaning set forth in
Section 3.2(g)(ii).

 

“Final Disputed Title Matters” has the meaning set forth in Section 4.4(j)(ii).

 

“Final Purchase Price” has the meaning set forth in Section 8.3(a).

 

“Fundamental Representations” means, as to Seller, those representations and
warranties set forth in Sections 6.1(a), (b), (c)(i), and (l), and as to
Purchaser, means those representations and warranties set forth in
Section 6.3(a), (b), (c)(i), and (i).

 

“GAAP” means generally accepted accounting principles of the United States as
reasonably applied by Seller consistently with past accounting practices for the
Assets.

 

“Government Official” means (i) any official or employee of any government, or
any agency, ministry, department of a government (at any level), person acting
in an official capacity for a government regardless of rank or position,
official or employee of a company wholly or partially controlled by a government
(for example, a state owned oil company), political party and any official of a
political party; and (ii) any candidate for political office, any officer or
employee of a public international organization, such as the United Nations or
the World Bank, or any immediate family member (meaning a spouse, dependent
child or household member) of any of the foregoing.

 

“Governmental Authority” means any national government or government of any
political subdivision, and departments, courts, commissions, boards, bureaus,
ministries, agencies or other instrumentalities of any of them.

 

“Governmental Authorizations” has the meaning set forth in the definition of
“Assets”.

 

“Hard Consent” means any consent, approval, authorization or permit of, any
Person which is required to be obtained, made or complied with for or in
connection with any sale, assignment or transfer of any Asset or any interest
therein; provided, however, that “Hard Consent” shall not include any
(i) consent of, notice to, filing with, or other action by, any Governmental
Authority in connection with the sale or conveyance of oil and/or gas leases or
interests therein, if they are not

 

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required prior to the assignment of such oil and/or gas leases or interests or
they are customarily obtained subsequent to such sale or conveyance (including
consents from State agencies), or (ii) consent requirement set forth in any
agreement, contract, or oil and gas lease to be assigned which states that
consent thereto cannot unreasonably be withheld (or words to similar effect),
and as to which the lessor, or other holder of such consent, has not objected to
the transfer, or affirmatively stated that consent thereto will not be
forthcoming, twenty (20) days after such lessor or holder receives Seller’s
written request to said lessor or other holder for consent to transfer the
affected Assets to Purchaser or Purchaser’s designated Affiliate.

 

“Hedge Agreement” means a contract or agreement constituting a future hedge,
derivative, swap, collar, put, call, cap, option, or other contract that is
intended to benefit from, relate to, or reduce or eliminate the risk of
fluctuations in interest rates, basis risk, or the price of commodities,
including Hydrocarbons or securities.

 

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

 

“Hydrocarbons” means oil, gas, condensate or any other gaseous and liquid
hydrocarbons or any combination or constituents thereof, including sulfur and
other constituents extracted therefrom.

 

“Imbalances” means (i) any in-kind Hydrocarbon product imbalances, as measured
by the applicable commodity increment (MMBtu, barrel, gallon), existing as of
the Effective Time relating to applicable pipelines, processing plants and
condensate stabilization facilities multiplied by (ii) the then current monthly
commodity price, net of any transportation fees and location differentials,
settled under Seller’s contracts relating to deliveries of each such Hydrocarbon
product to the applicable pipeline, processing plant and condensate
stabilization facility. Imbalance amount is considered positive if Seller is
owed such amount and, conversely, imbalance amount is considered negative if
Seller owes such amount.

 

“Indemnified Party” has the meaning set forth in Section 11.1(e).

 

“Indemnifying Party” has the meaning set forth in Section 11.1(e).

 

“Individual Environmental Threshold” has the meaning set forth in
Section 3.2(h)(i).

 

“Individual Threshold” has the meaning set forth in Section 11.1(d)(ii)(B).

 

“Individual Title Threshold” has the meaning set forth in Section 4.4(k)(i).

 

“Interim Period” means the period from and including the Effective Time up to
and including the day preceding the actual Closing; provided, however, that with
regard to the Supplemental Closing Assets, this means the period from and
including the Effective Time up to and including the day preceding the
Supplemental Closing.

 

“Interim Period Indemnification Matters” means responsibility for claims for
personal injury or death, arising directly or indirectly from or incident to the
use, occupation, ownership, operation or maintenance of the Assets, or the
condition thereof, to the extent that such claims arise from Seller’s ownership
or operation of the Assets on or after the Effective Time and prior to the
actual

 

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Closing; provided, however, that with regard to the Supplemental Closing Assets,
this means the period on or after the Effective Time and prior to the
Supplemental Closing.

 

“Inventory” means Hydrocarbon and non-hydrocarbon substances associated with the
Properties in storage upstream of the applicable sales meter at the Effective
Time. The value of such Inventory shall be an amount calculated by applying the
Seller’s interest in merchantable Hydrocarbon volumes in storage upstream of the
applicable sales meter immediately prior to the Effective Time multiplied by the
average Hydrocarbon sales price actually received in the month of the Effective
Time less all applicable royalties, severance taxes, gravity adjustments and
transportation expenses necessary to market such production (without duplication
of any deductions already included as part of the Hydrocarbon sales price).

 

“Known/Knowledge” whenever a statement regarding the existence (or absence) of
any fact in this Agreement is qualified by a phrase such as “to such Party’s
Knowledge”, “Known to such Party,” or “had actual Knowledge”, the Parties intend
that the only information to be attributed to such Party is information actually
known to (a) the person in the case of an individual or (b) in the case of a
corporation (or other business entity), the current officer and manager who
devotes substantial attention to matters of such nature during the ordinary
course of his or her employment, including in Seller’s case, the Permian Land
Manager.  Unless otherwise specifically provided in this Agreement, no Party is
represented or obligated to have undertaken a separate investigation in
connection with the transaction contemplated in this Agreement to determine the
existence (or absence) of any statement or representation qualified by a phrase
such as “to such Party’s Knowledge”, “Known to such Party” or “had actual
Knowledge”.

 

“Laws” means all laws, statutes, rules, regulations, ordinances, orders, writs,
injunctions, decrees, requirements, judgments and codes of Governmental
Authorities, including obligations arising under the common law.

 

“Letter Agreement” has the meaning set forth in Section 2.6(a)(i).

 

“Losses” has the meaning set forth in Section 11.1(a).

 

“Lowest Cost Response” has the meaning set forth in Section 3.2(f)(iv).

 

“Material Adverse Effect” means a material adverse effect on the operation,
development for the production of Hydrocarbons, ownership or value of the
Assets, taken as a whole; provided however, that Material Adverse Effect shall
not include the following: adverse effects resulting from any of: changes in oil
and gas prices; changes in industry, economic or political conditions, or
markets; changes in condition or developments generally applicable to the oil
and gas industry in any area or areas where the Assets are located; acts of
nature, including hurricanes, storms, earthquakes and other natural disasters;
acts or failures to act of Governmental Authorities, including regulatory
changes; civil unrest or similar disorder; terrorist acts; changes or proposed
changes in Laws or GAAP or the interpretation or enforcement thereof; effects or
changes that are cured or no longer exist by the earlier of the Closing Date and
the termination of this Agreement pursuant to Section 13.1; failure to meet
internal or third party projections or forecasts; and changes resulting from the
announcement, pendency or consummation of the transactions contemplated hereby
or the performance of the covenants set forth in Article 7 hereof (including

 

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any disruption in supplier, distributor, customer, partner or similar
relationships, work stoppages, any loss or threatened loss of employees or other
employee disruption).

 

“Material Contract” means a contract being assigned to, or assumed by, the
Purchaser (or by which the Assets are bound) pursuant to this Agreement
affecting the Assets, which is not an Excluded Contract, and which is of one or
more of the following types:

 

(i)            involves (or could reasonably be expected to involve) obligations
of, or payments to or from, Seller in any 12-month period in excess of one
million United States Dollars ($1,000,000), excluding master service agreements;

 

(ii)           restricts Seller from freely engaging in any business or
competing anywhere, including, without limitation, any contract containing an
area of mutual interest, non-competition or acreage dedication;

 

(iii)          is a joint development agreement, exploration agreement, term
assignment, data license agreement, participation agreement, acreage dedication
agreement, or contains a provision which allows any party to be presently
entitled to receive assignments or conveyances of any Property not yet made, or
earn additional assignments or conveyances of any Property after the Effective
Time (excluding rights and obligations arising after Closing under joint
operating agreements);

 

(iv)          is a Hydrocarbon sale, gathering, transportation, or processing
agreement;

 

(v)           provides for the joint operation or joint ownership of any
Property with an Allocated Value exceeding one million United States Dollars
($1,000,000);

 

(vi)          is a judicial order, consent order, settlement agreement (other
than a surface damage waiver) or similar document that affects the ownership or
operation of any of the Assets;

 

(vii)         contains unperformed commitments to drill or participate in the
drilling of additional wells (other than lease maintenance provisions requiring
optional drilling to extend a lease beyond the primary term);

 

(viii)        unit agreements (excluding designations of pooled units), unit
operating agreements, operating agreements, farmout or farmin agreements (to the
extent such agreements are active and acreage remains to be earned or granted);

 

(ix)          contains provisions with drilling carry or other carry obligations
with respect to costs normally chargeable to other lease or mineral owners (and
excluding rights and obligations under joint operating agreements);

 

(x)           an agreement or contract with any Affiliate of Seller or any
officer, director, employee or manager of Seller or any of those of Seller’s
Affiliates (in each case) that will not be terminated on or prior to Closing
(with no direct or indirect liability or obligation of Purchaser with regard to
such termination);

 

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(xi)          any agreement or contract which contains any take-or-pay, any
minimum volume commitment or minimum payment provisions but excluding any
minimum royalty provisions;

 

(xii)         any agreement or contract (other than an oil and gas lease that
contains limitations on drilling including, but not limited to offset
obligations for existing structures) that contains material restrictions or
prohibitions on the use of the surface for drilling or operations as are
required to produce Hydrocarbons, provided that, in the case of lands that
contain existing wells producing prior to the Effective Time, such use is not
restricted further than as of the Effective Time; and

 

(xiii)        contains any tag-along rights, drag-along rights, preferential
purchase rights, rights of first offer, rights of first refusal, rights to put
or call any Asset.

 

“Mineral Interest” has the meaning set forth in the definition of “Assets”.

 

“Net Mineral Acre” means, as computed separately with respect to each
Hydrocarbon lease included as part of the Assets:  (a) the number of gross acres
of land covered by the applicable Hydrocarbon lease, multiplied by (b) the
lessor’s mineral interest (stated as a decimal) in Hydrocarbons granted by such
Hydrocarbon lease, insofar and only insofar as such interest includes the depths
described in Exhibit A-1, multiplied by (c) Seller’s Working Interest in such
Hydrocarbon lease; provided that if clauses (a) and/or (b) and/or (c) vary as to
different tracts or depths, a separate calculation shall be done for each such
tract and depth.

 

“Net Revenue Interest” means the aggregate fractional or percentage ownership of
Seller of the right to receive Hydrocarbon production (either in-kind or the
share of proceeds from sales of Hydrocarbon production) from the applicable Oil
and Gas Interests, after the deduction of all burdens upon such Oil and Gas
Interest including royalties, overriding royalties, net profits interests or
other burdens on or payable out of production.  Net Revenue Interests (including
any applicable current before-payout and estimated final after-payout interests)
are shown in Exhibits A-1 and A-2.

 

“NORM” has the meaning set forth in Section 14.4.

 

“Notice Period” has the meaning set forth in Section 11.1(e).

 

“Oil and Gas Interest” has the meaning set forth in the definition of “Assets”.

 

“Operated Properties” has the meaning set forth in Section 7.6(a).

 

“Owner Balances” means those balances maintained by the Seller which represent
amounts due to or from third parties related to the sale of Hydrocarbon
production from the Properties. The following is a non-exhaustive list of the
type of matters represented by such balances; (i) amounts due from Seller to
third parties that relate to the period prior to the Effective Time which may
include amounts in suspense or amounts owed by Seller as a result of prior
period adjustments completed by the Seller (negative Owner Balances); or
(ii) amounts due from third parties to Seller that relate to the period prior to
the Effective Time which may be a result of prior period adjustments completed
by the Seller, but not yet collected as of the Effective Time (positive

 

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Owner Balances). The Owner Balances are listed in Schedule 8.1 as of the
Effective Time and will be updated in the Final Accounting Statement to account
for the final balances as of Closing Date.

 

“P-4 Form” means the Certificate of Compliance and Transportation Authority
required by the Commission necessary to (i) establish the operator of an oil
lease, gas well or other well, (ii) certify responsibility for regulatory
compliance, including plugging well(s) in accordance with Statewide Rule 14,
Plugging¸ and (iii) identify gatherers, purchasers and purchasers’ Commission
-assigned system codes authorized for each producing well or lease.

 

“Party(ies)” has the meaning set forth in the Preamble.

 

“Performance Deposit” has the meaning set forth in Section 2.4.

 

“Permitted Encumbrance” has the meaning set forth in Section 4.3.

 

“Person” means any individual, corporation, partnership, limited liability
company, trust, estate, Governmental Authority or any other entity.

 

“Personal Data” means any information relating to an identified or identifiable
individual.

 

“Price Adjustments” has the meaning set forth in Section 8.1.

 

“Pre-Acquisition Review” has the meaning set forth in Section 7.1(b).

 

“Pre-Closing Claim Date” has the meaning set forth in Section 3.2(a).

 

“Preliminary Accounting Statement” has the meaning set forth in Section 8.2.

 

“Properties” has the meaning set forth in the definition of “Assets”.

 

“Property Expense” means the following costs and expenses arising from or in
connection with the ownership and/or operation of the Properties incurred in the
ordinary course or in the case of an emergency or a threat to life, property or
the environment; all capital expenses, joint interest billings, lease operating
expenses, lease rentals, bonuses and shut-in payments, royalties, overriding
royalties, net profits interests, drilling expenses, workover expenses,
geological, geophysical and any other expenditures, including those expenditures
chargeable under applicable operating agreements, or other agreements consistent
with the standards established by COPAS, that are attributable to the operation
of the Assets, or that may be owed to co-tenants or co-lessees, and during the
Interim Period shall include overhead based upon the applicable joint operating
agreement and COPAS and, where no joint operating agreement is applicable, the
overhead shall be on a per well basis of nine thousand five hundred United
States Dollars ($9,500) per month (drilling well rate), and one thousand five
hundred United States Dollars ($1,500)  per month (producing well rate) with
on-site and off-site technical services not covered by overhead at a fixed rate
basis; provided, however, that Property Expenses shall not include (i) Taxes,
(ii) any Losses for which Seller has agreed to indemnify, defend or hold
harmless any Purchaser pursuant to this Agreement, (iii) any costs associated
with any debt for borrowed money of Sellers or any of their Affiliates, (iv) any
costs associated with curing any Title Defect or remediating any Environmental

 

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Defect, (v)  any Losses attributable to personal injury or death, or violation
of any Laws, or (vi) any negative Imbalances.

 

“Purchaser” has the meaning set forth in the Preamble.

 

“Purchaser’s Account” means the bank account and information set forth on
Schedule A.

 

“Records” has the meaning set forth in the definition of “Assets”.

 

“Revenues” means all revenue relating to the Assets, including but not limited
to Hydrocarbon production revenue from or attributable to any part of Assets,
including Inventory, actually received by the Seller during the Interim Period
which relate to the period on or after the Effective Time. Revenues will be
calculated net of royalties, net profits interest, or similar burdens, severance
tax and gathering, marketing and processing charges, and positive Imbalances
deducted by the operator of the Assets, to the extent such deductions have
actually been paid.

 

“Related Parties” means in relation to a Party:

 

(i)            any of its Affiliates;

 

(ii)           any person employed by that Party or its Affiliates;

 

(iii)          any director or other officer of that Party or its Affiliates.

 

“Remedy Deadline” has the meaning set forth in Section 3.2(g).

 

“Remediation” or “Remediate” has the meaning set forth in Section 3.2(b)(iii).

 

“Respondent” has the meaning set forth in Section 16.2(b).

 

“Retained Employee Liabilities” shall mean any liabilities of Seller (i) to
employees of Seller arising under the Worker Adjustment Retraining Notification
Act of 1988 as a result of actions taken by Seller prior to the Closing Date,
(ii) arising out of claims by Seller’s employees with respect to events that
occur prior to the Closing Date and that relate to their employment with, or the
terminations of their employment from, Seller, (iii) with respect to employees
of Seller arising under any “employee benefit plan” (as defined in
Section 3(3) of ERISA) that is sponsored by, contributed to, or maintained by,
Seller, or (iv) arising under ERISA for which Purchaser may have any liability
under ERISA solely as a result of the consummation of the transactions
contemplated by this Agreement.

 

“Retained Obligations” means:

 

(i)            any criminal fines or criminal penalties that may be levied
against Seller by any court or regulatory authority for any violation of any
laws, rules or regulations in connection with the ownership or operation of the
Assets prior to the Effective Time;

 

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(ii)           liability arising from Seller’s transportation or disposal
offsite from the Properties prior to the Effective Time of any hazardous
substances, wastes, or NORM generated by or used in connection with Seller’s
ownership or operation of the Properties;

 

(iii)          responsibility for claims for personal injury or death, arising
directly or indirectly from or incident to the use, occupation, ownership,
operation or maintenance of the Assets, or the condition thereof, to the extent
that such claims arise from Seller’s ownership or operation of the Assets prior
to the Effective Time;

 

(iv)          responsibility for proper payment of all royalties, rentals,
shut-in payments and all other burdens, charges or encumbrances to which the
Assets are subject, but not including the Owner Balances (to the extent there
has already been Price Adjustment for the same), attributable to periods prior
to the Effective Time;

 

(v)           properly accounting for and disbursing production proceeds from
the Oil and Gas Interests for the period prior to the Effective Time other than
negative Owner Balances (to the extent there has already been a Price Adjustment
for the same);

 

(vi)          all responsibility and liability associated with the pending, or
threatened, suits and proceedings relating to the Assets or other ownership or
operation thereof prior to the Effective Time, including, without limitation,
those listed on Schedule 6.1(g);

 

(vii)         any Taxes attributable to periods prior to the Effective Time; and

 

(viii)        all Retained Employee Liabilities.

 

“Rules” has the meaning set forth in Section 16.2(a).

 

“Secured Obligations” has the meaning set forth in Section 10.4(b).

 

“Seller” has the meaning set forth in the Preamble.

 

“Seller Group” means any Affiliate of Seller, and the directors, officers,
employees, agents and representatives of Seller or any Affiliate of a Seller.

 

“Seller’s Account” means the bank account and information set forth on Schedule
B.

 

“Shell Legacy Representative” is identified in Section 15.5.

 

“Supplemental Closing” has the meaning set forth in Section 5.4.

 

“Supplemental Closing Assets” has the meaning set forth in Section 5.4.

 

“Surface Interests” has the meaning set forth in the definition of “Assets”.

 

“Surviving Provisions” means Article 1, Section 7.4, Section 11.1(a)(iv)—(v),
Section 11.1(b)(v), Article 12, Section 13.2, Article 14 and all other waivers,
disclaimers and releases that are in bold

 

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and/or that are capitalized in this Agreement, Section 15.1, Section 15.2,
Section 15.5, Section 15.6, Section 15.8, Section 15.9, Section 15.10 and its
subsections, Section 15.11, Section 15.15, Section 15.16, Article 16, and the
Confidentiality Agreement.

 

“Tax” means (i) all taxes, assessments, customs, duties, imposts, unclaimed
property, fees and other governmental charges imposed by any Governmental
Authority, including any federal, state or local income tax, gains tax, surtax,
remittance tax, presumptive tax, net worth tax, special contribution, production
tax, pipeline transportation tax, transaction tax, freehold mineral tax, value
added tax, withholding tax, gross receipts tax, gross margin tax, windfall
profits tax, profits tax, utility tax, severance tax, personal property tax,
real property tax, ad valorem tax, sales tax, goods and services tax, service
tax, transfer tax, use tax, excise tax, premium tax, stamp tax, motor vehicle
tax, entertainment tax, insurance tax, capital stock tax, franchise tax,
occupation tax, payroll tax, employment tax, unemployment tax, disability tax,
alternative or add-on minimum tax and estimated tax, imposed by a Governmental
Authority, (ii) any interest, fine, penalty or additions to tax imposed by a
Governmental Authority in connection with any item described in clause (i), and
(iii) any liability in respect of any item described in clauses (i) or
(ii) above owing to a Governmental Authority, that arises by reason of a
contract, assumption, transferee or successor liability, operation of law or
otherwise.

 

“Texas DTPA” has the meaning set forth in Section 15.16.

 

“Title Arbitration Decision” has the meaning set forth in Section 4.4(j)(v).

 

“Title Arbitration Notice” has the meaning set forth in Section 4.4(j)(ii).

 

“Title Arbitrator” has the meaning set forth in Section 4.4(j)(iii).

 

“Title Benefit” has the meaning set forth in Section 4.2(c).

 

“Title Benefit Amount” has the meaning set forth in Section 4.4(f).

 

“Title Defect” has the meaning set forth in Section 4.2(b).

 

“Title Defect Amount” has the meaning set forth in Section 4.4(d)(i).

 

“Title Defect Notice” has the meaning set forth in Section 4.4(a).

 

“Title Defect Property” has the meaning set forth in Section 4.4(a).

 

“TNRC” has the meaning set forth in Section 10.4(a)(ii).

 

“Transfer Taxes” has the meaning set forth in Section 9.2.

 

“Unadjusted Purchase Price” has the meaning set forth in Section 2.3(a).

 

“United States Dollars” or “$” means the lawful currency of the United States of
America.

 

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“Wells” has the meaning set forth in the definition of “Assets”.

 

“Williams Gathering Agreement” has the meaning set forth in Section 5.3(f).

 

“Working Interest” means the aggregate fractional or percentage obligations of
Seller to bear costs and expenses for maintenance and development of, and
operations relating to, the applicable Oil and Gas Interest.  Working Interests
are shown in Exhibits A-1 and A-2.

 

ARTICLE 2. — PURCHASE AND SALE

 

2.1          Purchase and Sale of Assets.

 

On the terms and subject to the conditions contained in this Agreement, Seller
agrees to sell to Purchaser, and Purchaser agrees to purchase, accept and pay
for the Assets.  Seller shall reserve and retain all the Excluded Assets.

 

2.2          Assets Subject to Existing Agreements and Legal Requirements.

 

Upon Closing, but with effect from the Effective Time, and subject to
Purchaser’s rights in relation to; (i) the Retained Obligations, (ii) the
warranties in Section 6.1, (iii) the indemnification set forth in Article 11,
(iv) any post-Closing rights and remedies of Purchaser under Articles 3 or 4 of
this Agreement, and (v) any rights and remedies with regard to the special
warranty of title granted under the Assignment; the sale, transfer and
conveyance of the Assets to Purchaser or Purchaser’s designated Affiliate will
be made subject to, and Purchaser agrees to accept the Assets subject to and
agrees to be bound to and to perform, any and all Assumed Obligations.

 

2.3          Purchase Price.

 

(a)                                 The purchase price payable by Purchaser to
Seller for the Assets shall be Two Hundred Million United States Dollars
($200,000,000) (the “Unadjusted Purchase Price”) subject to adjustments as
provided for in this Agreement. The obligation of Purchaser to pay the
Unadjusted Purchase Price shall be satisfied by the payment by Purchaser to
Seller, as follows:

 

(i)                         the Adjusted Initial Payment Amount as set forth in
Section 8.2; and

 

(ii)                      the Adjusted Final Payment Amount, if any, pursuant to
Section 8.3;

 

in each case on the terms and conditions set forth in this Agreement.

 

(b)                                 Schedule 2.3 sets forth Purchaser’s good
faith allocation of the Unadjusted Purchase Price among the Oil and Gas
Interests, Equipment, Electrical Laterals and Field Pipelines for all purposes
under this Agreement (with respect to any of the Assets, such value is referred
to herein as the “Allocated Value” and collectively, the “Allocated Values”). 
Seller has accepted such Allocated Values for purposes of this Agreement and the
transactions

 

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contemplated hereby, but otherwise make no representation or warranty as to the
accuracy of such values.

 

2.4                               Performance Deposit.

 

Not later than one (1) Business Day after execution of this Agreement, Purchaser
shall pay to the Seller by wire transfer to the Seller’s Account an amount equal
to ten percent (10%) of the Unadjusted Purchase Price in good and immediately
available funds, as a performance deposit (“Performance Deposit”).  The
Performance Deposit is to assure the performance of Purchaser pursuant to the
terms and conditions of this Agreement. If Closing occurs, the Performance
Deposit shall be applied as a credit against the Adjusted Initial Payment Amount
payable by Purchaser at Closing. If this Agreement is terminated without a
Closing, then the distribution of the Performance Deposit shall be governed by
the provisions of Sections 13.2(b) and 13.2(c).

 

2.5                               Qualified Intermediary.

 

Seller and Purchaser hereby agree that this transaction may be completed as a
like-kind exchange and that each Party will assist in completing the sale as a
like-kind exchange.  As a like-kind exchange, Seller and Purchaser agree that
Purchaser, in lieu of the purchase of the Assets from Seller for the cash
consideration provided herein, shall have the right at any time prior to Closing
to assign all or a portion of its rights under this Agreement to a Qualified
Intermediary (as that term is defined in Treasury Regulation
Section 1.1031(k)-1(g)(4)(v)) in order to accomplish the transaction in a manner
that will comply, either in whole or in part, with the requirements of a
like-kind exchange pursuant to Section 1031 of the Code. Likewise, Seller shall
have the right at any time prior to Closing to assign all or a portion of its
rights under this Agreement to a Qualified Intermediary for the same purpose. In
the event any Party assigns its rights under this Agreement pursuant to this
Section 2.5, such Party agrees to notify the other Parties in writing of such
assignment at or before Closing. If Seller assigns its rights under this
Agreement for this purpose, Purchaser agrees to (i) consent to Seller’s
assignment of its rights in this Agreement in the form reasonably requested by
the Qualified Intermediary, and (ii) pay the Unadjusted Purchase Price (as may
be adjusted under the terms of this Agreement) for the Assets into a qualified
escrow or qualified trust account at Closing as directed in writing. If
Purchaser assigns its rights under this Agreement for this purpose, Seller
agrees to (i) consent to Purchaser’s assignment of its rights in this Agreement
in the form reasonably requested by the Qualified Intermediary, (ii) accept the
Unadjusted Purchase Price (as may be adjusted under the terms of this Agreement)
for the Assets from the qualified escrow or qualified trust account at Closing,
and (iii) at Closing, convey and assign directly to Purchaser the Assets that
are the subject of this Agreement upon satisfaction of the other conditions to
Closing and other terms and conditions hereof. Seller and Purchaser acknowledge
and agree that any assignment of this Agreement, shall not increase the costs,
expenses or liabilities of a Party as a result of the other Party’s assignment
of this Agreement to a Qualified Intermediary, shall not release either Party
from any of their respective liabilities and obligations to each other under
this Agreement, and that neither Party represents to the other that any
particular tax treatment will be given to either Party as a result thereof.

 

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2.6                               Tag Along Rights.

 

(a)                                 Anadarko Tag Along:

 

(i)                                     Within ten (10) Business Days of the
Execution Date, pursuant to the terms of a letter agreement between the Seller,
Anadarko E&P Onshore LLC and Kerr-McGee Oil and Gas Onshore LP (Anadarko and
Kerr-McGee being jointly “Anadarko”) dated July 27, 2017 (the “Letter
Agreement”), Seller must and shall provide to Anadarko notice of the
transactions contemplated in this Agreement, together with a summary of the
terms, which includes the purchase price that applies and a copy of the relevant
parts of this Agreement. Anadarko must confirm to the Seller within thirty (30)
days of receipt of the notice from the Seller whether it wishes to sell its
interest listed in Schedule 2.6 (the “Anadarko Tag Along Assets”).

 

(ii)                                  If Anadarko confirms that it wishes to
sell the Anadarko Tag Along Assets, Purchaser agrees to purchase the Anadarko
Tag Along Assets pursuant to a separate purchase and sale agreement to be
entered into between the Purchaser and Anadarko where such agreement shall be on
the same terms and conditions as set out in this Agreement. The price paid by
the Purchaser for Anadarko’s interests in the Anadarko Tag Along Assets shall be
the price set out in Schedule 2.6 for each of the Anadarko Tag Along Assets.
Purchaser does not have the right to refuse to acquire the Anadarko Tag Along
Assets or to negotiate different terms to those agreed in this Agreement, unless
otherwise agreed by Anadarko.

 

(iii)                               Purchaser agrees that no discussion or other
form of communication will occur between Anadarko and Purchaser in relation to
the Anadarko Tag Along Assets without the Seller being present at any meetings
or on telephone calls or included or copied on written communications.

 

(iv)                              Purchaser agrees and acknowledges that Seller
does not warrant or represent that the information in Schedule 2.6 is complete
and accurate. The information has been provided to Seller by Anadarko and
Purchaser must separately satisfy itself with the accuracy of the information
listed in Schedule 2.6.

 

ARTICLE 3. – ENVIRONMENTAL MATTERS

 

3.1                               Definition of Environmental Defect.

 

As used in this Agreement, the term “Environmental Defect” means with respect to
any of the Properties any (i) non-compliance with applicable Environmental Laws
or (ii) condition that exists with respect to the air, land, soil, surface,
subsurface strata, surface water, ground water or sediments that causes any of
the Assets to be subject to obligations to perform any response, removal,
construction, closure, disposal or other remedial action under Environmental
Laws.  Notwithstanding the foregoing, the following shall not be considered to
be an Environmental Defect: (i) any Retained Obligation, (ii) any condition,
contamination, liability, loss, cost, expense or claim related to NORM or
asbestos that does not require current remediation or removal, and (iii) all
obligations and liabilities for plugging, abandonment and restoration
obligations as described in Section 10.2.

 

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3.2                               Notice of Environmental Defects.

 

(a)                                 If, as a consequence of its Pre-Acquisition
Review, Purchaser desires to assert a claim of an Environmental Defect with
respect to any Property, Purchaser must deliver a claim notice to Seller for
each such Environmental Defect (each an “Environmental Defect Notice”) promptly
after the discovery thereof, but in no event later than forty-five (45) days
after the Execution Date, subject to Section 15.11, (such cut-off date being the
“Pre-Closing Claim Date”). To be effective, each Environmental Defect Notice
must be delivered on or prior to the Pre-Closing Claim Date, shall be in
writing, and shall include (i) a description of the alleged Environmental
Defect(s) reasonably sufficient for Seller to determine the basis of the alleged
Environmental Defect, including, at a minimum, the relevant Environmental Law
citation, (ii) identification of the Property adversely affected by the
Environmental Defect (each a “Environmental Defect Property”), (iii) the
Allocated Value of each Environmental Defect Property, (iv) all documents upon
which Purchaser relies for its assertion of an Environmental Defect, including,
at a minimum, supporting documents and/or written expert assessments reasonably
necessary for Seller (as well as any environmental engineering consultant hired
by Seller) to verify the existence of the alleged Environmental Defect(s), and
(v) the dollar amount by which Purchaser reasonably believes the Unadjusted
Purchase Price should be reduced by the alleged Environmental Defect(s) in
accordance with the terms of this Agreement and the computations and information
upon which Purchaser’s belief is based, including any analysis by any
environmental engineering consultant firm hired by Purchaser. The failure of an
Environmental Defect Notice to be delivered to Seller in accordance with the
Notice provisions hereof on or prior to the Pre-Closing Claim Date, or to
contain the information required by item nos. (i) through (v) of this
Section 3.2(a), shall render such notice ineffective, and for the purposes of
this Article 3, shall be treated as if it had never been served.

 

(b)                                 Subject to Section 7.1(e), within ten
(10) Business Days of receipt of an Environmental Defect Notice, and subject to
Section 3.2(c) below and the reservation of all rights to contest any aspect of
any such Environmental Defect Notice under Section 3.2(g), Seller shall, in its
sole discretion, by notice to Purchaser elect to:

 

(i)                                     reduce the Unadjusted Purchase Price at
Closing by an amount agreed upon in writing by Purchaser and Seller as being the
amount of the Lowest Cost Response to Remediate each such Environmental Defect;
or

 

(ii)                                  only if the value of the Environmental
Defect asserted by Purchaser in the Environmental Defect Notice exceeds the
Allocated Value for the affected Environmental Defect Property, retain the
Property that is affected by such Environmental Defect, in which event the
Unadjusted Purchase Price shall be adjusted downward by an amount equal to the
Allocated Value of such Environmental Defect Property and shall be reflected in
the Preliminary Accounting Statement in accordance with Sections 5.3(c) and 8.1,
and such Environmental Defect Property shall no longer be included within the
definition of Assets for any purpose under this Agreement other than
Section 5.4; or

 

(iii)                               perform or cause to be performed prior to
the Remedy Deadline, at the sole cost and expense of Seller, such operations as
may be necessary to remediate the

 

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Environmental Defect by (i) bringing such affected Property into compliance with
the applicable Environmental Law and (ii) correcting the condition that causes
the affected Property to be subject to an obligation to perform remedial action
under Environmental Law (subparts (i) and (ii) are collectively referred to as
“Remediation” or “Remediate”). Failing such Remediation of the Environmental
Defect, the Environmental Defect Property will be excluded from the Closing and
the Unadjusted Purchase Price will be reduced by the Allocated Value of the
Environmental Defect Property.  Prior to the Remedy Deadline and upon Seller’s
Remediation of the Environmental Defect, the Purchaser will acquire the affected
Property from Seller and pay the Allocated Value for the Environmental Defect
property, adjusted in accordance with Sections 5.3(c) and 8.1, in accordance
with Section 5.4. If Seller is unable to Remediate the Environmental Defect
prior to the end of the Remedy Deadline, then such Property shall become an
Excluded Asset and no longer be considered as an Asset under this Agreement.

 

(c)                                  If Seller receives an Environmental Defect
Notice and Seller disagrees with the existence or extent of any of the
Environmental Defects alleged in an Environmental Defect Notice, and the Parties
cannot agree on the existence or extent prior to the Closing Date: (a) the
Seller shall submit the dispute to arbitration pursuant to Section 3.2(g); and
(b) while awaiting the outcome from such arbitration, the Environmental Defect
Property shall be retained by the Seller and in which event the Unadjusted
Purchase Price shall be adjusted downward by an amount equal to the Allocated
Value of such Environmental Defect Property and shall be reflected in the
Preliminary Accounting Statement in accordance with Sections 5.3(c) and 8.1
pending the outcome of the arbitration pursuant to Section 3.2(g) at which point
Section 3.2(g)(viii)(A) and Section 5.4 shall apply.

 

(d)                                 If Seller elects to proceed under
Section 3.2(b)(i) and Purchaser and Seller have failed by Closing to agree on
the reduction to the Unadjusted Purchase Price, the Parties shall: (a) submit
the dispute to arbitration pursuant to Section 3.2(g); and (b) while awaiting
the outcome from such arbitration, remove such affected Property from the Assets
at Closing and proceed with Closing and the Unadjusted Purchase Price shall be
reduced by the Allocated Value for the affected Property pending the outcome of
the arbitration pursuant to Section 3.2(g).

 

(e)                                  Subject to Section 6.1(q) and Seller’s
Retained Obligations in relation to offsite disposal of hazardous substances
(and right to indemnification for such Retained Obligations under Article 11),
this Article 3 shall be the exclusive right and remedy of Purchaser with respect
to Environmental Defects or any other matter or liability related to
Environmental Laws or the environmental condition of the Properties.
Notwithstanding anything to the contrary in this Agreement, if prior to the
Pre-Closing Claim Date Purchaser identifies an Environmental Defect which could
also result in the breach of any warranty other than Section 6.1(q), then
Purchaser shall only be entitled to assert such matter as an Environmental
Defect to the extent permitted by this Section 3.2 and shall be precluded from
also asserting such matter as the basis of the breach of any such representation
or warranty. For clarity, after the Pre-Closing Claim Date, Purchaser shall not
have the right to assert any claims for Environmental Defects (other than those
that are the subject of an Environmental Defect Notice submitted before the
Pre-Closing Date) provided that the Purchaser’s rights under this Agreement
relating to a breach of the Seller’s warranty in Section 6.1(q) shall not be
affected.

 

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(f)                                   The “Environmental Defect Amount”
resulting from an Environmental Defect shall be the amount determined in
accordance with the following methodology, terms and conditions:

 

(i)                                     if Purchaser and Seller agree on the
Environmental Defect Amount, that amount shall be the Environmental Defect
Amount;

 

(ii)                                  the Environmental Defect Amount shall be
based upon applicable Environmental Law in effect at the Effective Time; and

 

(iii)                               the estimated costs of Remediation shall not
exceed the estimated costs of complying with the requirements of Governmental
Authorities and Environmental Law and to fully satisfy all claims, fines and
penalties that may be imposed by, or asserted by, Governmental Authorities
related thereto; and

 

(iv)                              in addition, the estimated costs of
Remediation shall be based upon and not exceed the lowest estimated costs
reasonably required to comply with the requirements of Governmental Authorities
and Environmental Law, and fully satisfy all claims, fines and penalties that
may be imposed by, or asserted by, Governmental Authorities related thereto
(“the Lowest Cost Response”).

 

(g)                                  If, prior to the date that is one hundred
and ten (110) days after the Closing (the “Remedy Deadline”), there is a dispute
as to whether Remediation has occurred, or Seller and Purchaser cannot agree on
the proper and adequate Remediation for any such Environmental Defect, or if,
Seller and Purchaser cannot agree on (1) the Environmental Defect Amount, or
(2) whether the alleged Environmental Defect constitutes an Environmental
Defect, such dispute(s) (“Disputed Environmental Matters”) shall be finally and
exclusively resolved in accordance with the provisions of this Section 3.2(g);
provided, however, that notwithstanding anything stated in this Article 3 to the
contrary, Seller shall only be permitted to dispute after Closing the matters
described above to the extent that the affected Property was retained by Seller
at Closing pursuant to Section 3.2(b)(ii) or Section 3.2(b)(iii).  Seller’s
election to attempt Remediation shall be without prejudice to its rights under
this Section 3.2(g) and shall not constitute an admission against interests or a
waiver of Seller’s right to dispute the existence, nature or value of, or cost
to cure, the alleged Environmental Defect.

 

(i)                                     Purchaser shall provide to Seller by no
later than the tenth (10th) Business Day following the Remedy Deadline an
updated written description meeting the requirements of Section 3.2(a), together
with all supporting documentation, of the Disputed Environmental Matters.  By
not later than ten (10) Business Days after Seller’s receipt of Purchaser’s
written description of the Disputed Environmental Matters, Seller shall provide
to Purchaser a written response setting forth such Seller’s position with
respect to the Disputed Environmental Matters together with all supporting
documentation.

 

(ii)                                  By not later than ten (10) Business Days
after Purchaser’s receipt of Seller’s written response to Purchaser’s written
description of the Disputed Environmental Matters, Purchaser may initiate a
non-administered arbitration of any such dispute(s) by written notice to Seller
of any Disputed Environmental Matters not otherwise resolved or waived (“Final
Disputed

 

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Environmental Matters”) that are to be resolved by arbitration (the
“Environmental Arbitration Notice”).

 

(iii)                               The arbitration shall be held before a
single arbitrator (the “Environmental Arbitrator”), determined as follows.  The
arbitrator selected under this subparagraph shall be a licensed environmental
engineer with at least ten (10) years’ experience assessing the environmental
condition of oil and gas properties in Texas and not have been associated with
or worked with either Party in the past five (5) years.  Within three
(3) Business Days following Seller’s receipt of the Environmental Arbitration
Notice, Seller and Purchaser shall each exchange lists of three acceptable,
qualified arbitrators.  Within three (3) Business Days following the exchange of
lists of acceptable arbitrators, Purchaser and Seller shall select by mutual
agreement one arbitrator from the combined lists.  If no agreement is reached,
Purchaser and Seller shall each, by 5:00 pm Central Time of the second (2nd)
Business Day identify a single arbitrator from their original list of three
acceptable arbitrators.  The two selected arbitrators shall then together agree
on a third arbitrator from the original lists within three Business Days
following their own selection by each Party, which shall be no more than seven
(7) Business Days following the Environmental Arbitration Notice.  Such third
arbitrator shall serve as the Environmental Arbitrator.

 

(iv)                              Within three (3) Business Days following the
selection of the Environmental Arbitrator, the Parties shall submit one copy to
the Environmental Arbitrator of (A) this Agreement, with specific reference to
this Section 3.2(g), (B) Purchaser’s written description of the Final Disputed
Environmental Matters together with the supporting documents that were
previously provided to Seller pursuant to Section 3.2(g)(i), (C) Seller’s
written response to Purchaser’s written description of the Final Disputed
Environmental Matters, together with the supporting documents that were
previously provided to Purchaser pursuant to Section 3.2(g)(i), and (D) the
Environmental Arbitration Notice.  Within five (5) Business Days following such
submissions, each of the Parties may submit one written response to the other
Party’s submission.  The Environmental Arbitrator shall resolve the Final
Disputed Environmental Matters based only on the foregoing submissions.  Neither
Purchaser nor Seller shall have the right to submit additional documentation or
any additional written response to the Environmental Arbitrator nor to demand
discovery on the other Party.

 

(v)                                 The Environmental Arbitrator shall make its
determination by written decision within thirty (30) Business Days following
Seller’s receipt of the Environmental Arbitration Notice (the “Environmental
Arbitration Decision”).  The Environmental Arbitration Decision shall be final
and binding upon both Parties, without right of appeal. In making its
determination, the Environmental Arbitrator shall be bound by the rules set
forth in Section 3.2(f) and this Section 3.2(g).  The Environmental Arbitrator
may consult with and engage disinterested third Persons, including counsel, to
advise the Environmental Arbitrator, but shall disclose to the Parties the
identities of such consultants. Any such consultant shall not (i) be currently
working as an employee or consultant for either Party, nor be in discussions
about potential future work for either Party, (ii) have worked directly or
indirectly as an employee or consultant for either Party or its Affiliates
during the two-year period preceding the arbitration, or (iii) have any
financial or other personal interest in the dispute.

 

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(vi)                              The Environmental Arbitrator shall act as an
expert for the limited purpose of determining the specific disputed
Environmental Defects and Environmental Defect Amounts and shall not be
empowered to award damages, interest or penalties to either Party with respect
to any matter.

 

(vii)                           Each Party shall each bear its own legal fees
and other costs of preparing and presenting its case.  Each Party shall bear
one-half of the costs and expenses of the Environmental Arbitrator, including
any costs incurred by the Environmental Arbitrator that are attributable to the
consultation of any third Person.

 

(viii)                        Seller and Purchaser shall implement the
Environmental Arbitration Decision as follows:

 

(A)       in the case of alleged Environmental Defects determined to be
Environmental Defects, Seller shall elect the course of action set out in
Section 3.2(b)(i), (ii) or (iii) within ten (10) Business Days following
Seller’s receipt of the Environmental Arbitration Decision; provided that if
Section 3.2(c) applies and the Seller pursues Section 3.2(b)(i) or (iii) to
implement the Environmental Arbitration Decision the Purchaser shall purchase
the Environmental Defect Property and Section 5.4 shall apply;

 

(B)       in the case of disputed Environmental Defect Amounts, where Seller has
elected to reduce the Unadjusted Purchase Price in accordance with
Section 3.2(b)(i), Seller shall adjust the Unadjusted Purchase Price to give
effect to the Environmental Arbitration Decision.  Any Environmental Arbitration
Decision shall be a final and binding decision as to that Disputed Environmental
Matter.

 

(ix)                              Any dispute over the interpretation or
application of this Section 3.2 shall be decided by the Environmental Arbitrator
with reference to the Laws of the State of Texas.  Any award of the
Environmental Arbitrator may be enforced against both Parties in the courts
located in Harris County or Houston, Texas, or any other state in which any
Party holds or owns property of any kind.

 

(h)                                 Notwithstanding anything to the contrary in
this Agreement, in no event shall there be any remedies available under this
Article 3:

 

(i)                                     for any Environmental Defect Amount with
respect to an individual Environmental Defect Property if such amount does not
exceed fifty thousand United States Dollars ($50,000), but if exceeded, the
entire Environmental Defect Amount related thereto shall be counted for purposes
of this Agreement, without deduction of this individual threshold (the
“Individual Environmental Threshold”); and

 

(ii)                                  unless the aggregate amount of all such
Environmental Defect Amounts,  (provided that each such Environmental Defect
Amount exceeds the Individual Environmental Threshold and excluding any
Environmental Defect Amounts with respect to Environmental Defects cured by
Seller) exceeds the Aggregate Environmental Deductible, after which point
Purchaser, shall be

 

26

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entitled to remedies elected by Seller in accordance with Section 3.2(b) only to
the extent that such Environmental Defects exceed the Aggregate Environmental
Deductible.

 

(i)                                     Without prejudice to any of the other
dates by which performance or the exercise of rights is due hereunder, or the
Parties’ rights or obligations in respect thereof, the Parties hereby
acknowledge that, as set forth more fully in Section 15.7, time is of the
essence in performing their obligations and exercising their rights under this
Section 3.2, and, as such, that each and every date and time by which such
performance or exercise is due shall be the firm and final date and time.

 

(j)                                    If Seller pursues Remediation then
Purchaser agrees that at Seller’s election, all negotiations and contacts with
Governmental Authorities for approval and review of such remedial action shall
be made by Seller.

 

3.3                               SUBJECT TO THE RIGHTS OF THE PURCHASER TO
INDEMNIFICATION UNDER ARTICLE 11 WITH REGARD TO A BREACH OF SECTION 6.1(Q) OR
SELLER’S RETAINED OBLIGATIONS (TO THE EXTENT RELATED TO SELLER’S OFFSITE
DISPOSAL OF HAZARDOUS SUBSTANCES), THIS ARTICLE 3 SHALL CONSTITUTE PURCHASER’S
ENTIRE REMEDY WITH RESPECT TO THE ENVIRONMENTAL CONDITION OF THE PROPERTIES AND
COMPLIANCE WITH ENVIRONMENTAL LAW.

 

3.4                               EXCEPT AS PROVIDED IN SECTION 3.2 AND
SECTION 6.1(Q) (AND ARTICLE 11 WITH REGARD TO A BREACH OF SECTION 6.1(Q)) AND
EXCEPT WITH REGARD TO THE SPECIAL WARRANTY OF TITLE FROM SELLER IN THE
ASSIGNMENT, PURCHASER SHALL ACQUIRE THE PROPERTIES “WHERE IS” AND “AS IS” WITH
NO RIGHT TO RECOVER ANY FURTHER AMOUNTS FROM SELLER FOR ANY LIABILITIES, COSTS
OR EXPENSES RELATED TO THE CONDITION OF THE PROPERTIES (INCLUDING, WITHOUT
LIMITATION, ENVIRONMENTAL CONDITIONS AND DAMAGES TO NATURAL RESOURCES).
ACQUISITION OF THE PROPERTY CONTAINING SUCH CONDITIONS “WHERE IS” AND “AS IS”
SHALL CONSTITUTE PURCHASER’S WAIVER, GENERAL RELEASE AND AGREEMENT TO
DEFEND, INDEMNIFY AND HOLD SELLER AND EACH MEMBER OF SELLER GROUP HARMLESS FROM
ALL LIABILITIES, COSTS OR EXPENSES RELATED TO SUCH CONDITIONS (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL CONDITIONS, CERCLA LIABILITY AND DAMAGES TO
NATURAL RESOURCES), WHETHER CONTRACT, TORT OR STATUTORY, REGARDLESS OF THE PAST
NEGLIGENCE, GROSS NEGLIGENCE OR FAULT OR STRICT OR STATUTORY LIABILITY OF SELLER
OR ANY MEMBER OF SELLER GROUP.

 

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ARTICLE 4. – TITLE MATTERS

 

4.1                               Exclusive Title Remedy.

 

Except with regard to the Seller’s special warranty of title in the Assignment,
this Article 4 provides Purchaser’s exclusive remedy against Seller with respect
to any claim in connection with Seller’s claim of title relating to the Assets.

 

4.2                               Definitions of Defensible Title, Title Defect
and Title Benefit.

 

(a)                                 As used in this Agreement, the term
“Defensible Title” means such title of the Seller as of the Pre-Closing Claim
Date and as of Closing Date that, except for and subject to Permitted
Encumbrances:

 

(i)                                           with respect to the Oil and Gas
Interests, entitles the Seller to receive not less than the Net Revenue Interest
shown in Exhibits A-1 and A-2 for such Oil and Gas Interests, throughout the
productive life of such Wells and throughout the term of such Mineral Interests,
except (A) decreases in connection with those operations in which Seller or its
successors or assigns may elect after the Execution Date to be a non-consenting
co-owner, (B) decreases resulting from reversion of interest to co-owners with
respect to operations approved after the Execution Date in which such co-owners
elect not to consent, (C) decreases resulting from the establishment or
amendment, after the Execution Date, of pools or units including, but not
limited to allocation and pooled units, (D) decreases required to allow other
working interest owners to make up either Imbalances identified in this
Agreement or to make up underproduction or pipeline imbalances that occur after
Closing, (E) any other decrease required in connection with operations approved
(or in connection with breaches of such agreements occurring) after the Closing
by any applicable joint operating agreement or as required by Laws, or (F) as
otherwise stated in Exhibit A-1 or Exhibit A-2;

 

(ii)                                        with respect to the Wells, obligates
Seller to bear not greater than the Working Interest in the Wells as shown in
Exhibit A-2, throughout the productive life of such Wells, except (A) increases
resulting from contribution requirements with respect to non-consenting or
defaulting co-owners under applicable operating agreements with regard to
elections made or breaches occurring after the Execution Date, (B) increases
resulting from the establishment or amendment from and after the Execution Date
of pools or units including but not limited to allocation and pooled units,
(C) increases that are accompanied by at least a proportionate increase in
Seller’s Net Revenue Interest, or (D) as otherwise stated in Exhibit A-2;

 

(iii)                                     with respect to the Mineral Interests,
entitles Seller to receive not less than the Net Mineral Acres shown in
Exhibit A-1 for such Mineral Interests, throughout the term of such Mineral
Interests, except, (A) decreases resulting from the establishment or amendment,
after the Execution Date, of pools or units including but not limited to
allocation and pooled units, (B) increases resulting from contribution
requirements with respect to non-consenting or defaulting co-owners under
applicable operating agreements with regard to elections made or breaches
occurring after the Execution Date, or (C) as otherwise stated in Exhibit A-1;

 

(iv)                                    in the case of any Mineral Interest,
entitles Seller to a primary term under such Hydrocarbon lease or other Mineral
Interest (if such Hydrocarbon lease or other Mineral Interest is

 

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not held by production beyond its primary term) that does not expire sooner than
set forth on Exhibit A-1;

 

(v)                                       with regard to the Assets, is free and
clear of liens, encumbrances, obligations, or Title Defects.

 

(b)                                       As used in this Agreement, the term
“Title Defect” means (i) any lien, charge, encumbrance, obligation, defect, or
other similar matter that, if not cured, causes Seller not to have Defensible
Title in and to the Oil and Gas Interests to the extent specified in Exhibit A-1
and Exhibit A-2, and (ii) any lien or financial encumbrance on the Equipment,
Field Pipelines and Electrical Laterals. Notwithstanding the foregoing, the
following shall not be considered Title Defects:

 

(i)                                           defects based solely on: (A) lack
of information, including lack of information in Seller’s files, the lack of
third party records or unavailability of information from Governmental
Authorities; (B) references to a document(s) if such document(s) is not in
Seller’s files; or (C) Tax assessment, Tax payment or similar records (or the
absence of such activities or records);

 

(ii)                                        defects arising out of variation of
corporate name or lack of corporate or other entity authorization, unless
Purchaser provides affirmative evidence that the action was not authorized and
such lack of authorization results in a third Person’s actual and superior claim
of title to the relevant Oil and Gas Interest;

 

(iii)                                     defects based on failure to record
Mineral Interests granted by any Governmental Authority, or any assignments of
record title or operating rights in such Mineral Interests, in the real
property, conveyance or other records of the county in which such Oil and Gas
Interest is located;

 

(iv)                              defects based on a gap in Seller’s chain of
title in the county records as to Oil and Gas Interests, where such a gap occurs
in excess of twenty-five (25) years prior to the effective date of said Oil and
Gas Interests, and no challenge of record can be demonstrated, whether by
pending judicial, quiet title action, or other filing of record in the county
courthouse clearly demonstrating that such a gap represents a competing chain of
title;

 

(v)                                       defects as a consequence of cessation
of production, insufficient production, failure to produce in paying quantities
or failure to conduct operations during any period after the completion of a
well capable of production in paying quantities on any of the Oil and Gas
Interests held by production, or lands pooled, communitized or unitized
therewith, except to the extent of a court ordered termination of the lease or
affirmative release by Seller of a lease will constitute a title defect if such
interest is listed on Exhibit A-1;

 

(vi)                                    defects that have been cured by the
passage of time, the doctrine of adverse possession, applicable laws of
limitations or prescription or such other matter that would render such defect
invalid according to applicable law;

 

(vii)                                 defects in the chain of title or in the
Oil and Gas Interest itself consisting of the failure to recite marital status
in a document or omissions of successions of heirship or estate

 

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proceedings, unless Purchaser provides affirmative evidence that such failure or
omission results in another person’s superior claim of title to the relevant
Asset;

 

(viii)                              defects arising solely out of lack of survey
or lack of metes and bounds descriptions, unless a survey is expressly required
by applicable Law;

 

(ix)                                    defects arising from any change in
applicable Law after the Execution Date;

 

(x)                                 defects arising from prior oil and gas
leases relating to the Oil and Gas Interests that have expired (and Seller can
provide reasonable cause or support of such expiration, including the passage of
time) but are not surrendered of record;

 

(xi)                                    defects arising from an unsubordinated
mortgage that is not in default; and

 

(xii)                                 defects arising from assignments made by
Seller to obligated third parties or arising from interests to which Seller is
contractually entitled to, but for which have not received an assignment as of
the Closing Date, provided that the interests covered by such assignments are
reflected in Exhibit A-1 or Exhibit A-2, as applicable, and have been taken into
account in the Seller’s Net Revenue Interests, Working Interests and Net Mineral
Acres reflected thereon;

 

(xiii)                              defects arising from shut-in wells that are
operated under leases containing habendum and/or shut-in clauses which permit
the continuation of such leases by payment of shut-in royalties, and Seller can
provide evidence that all such royalties have been properly paid;

 

(xiv)                             defects arising from the expiration of any oil
and gas lease for any Mineral Interests after the Execution Date to the extent
such expiration date was stated on Exhibit A-1.

 

(c)                                  As used in this Agreement, the term “Title
Benefit” means any right, circumstance or condition that operates to
(i) increase the Net Revenue Interest of Seller in any of the Oil and Gas
Interests above that shown on Exhibit A-1 or Exhibit A-2 without causing a
proportionate or greater than proportionate increase in Seller’s Working
Interest, as applicable, above that shown on Exhibit A-1 or Exhibit A-2;
(ii) decrease the Working Interests of Seller in any of the Wells below that
shown on Exhibit A-2 without a decrease in Seller’s Net Revenue Interest, as
applicable, below that shown on Exhibit A-2, or (iii) increase the Seller’s Net
Mineral Acres above that shown in Exhibit A-1 (but if the reason is due to an
increase in Seller’s Working Interest, then such increase must be accompanied by
not less than a proportionate increase in Seller’s Net Revenue Interest in the
applicable Mineral Interest) (each, an “Additional Oil and Gas Interest”).

 

4.3                               Definition of Permitted Encumbrances.

 

The term “Permitted Encumbrances” means any or all of the following:

 

(a)                                 royalties and any overriding royalties, net
profits interests, free gas arrangements, production payments, reversionary
interests and other similar burdens on Hydrocarbon production to the extent that
the net cumulative effect of such burdens does not (i) reduce Seller’s Net
Mineral Acres below that shown in Exhibit A-1; or (ii) reduce Seller’s Net
Revenue Interest below that

 

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shown in Exhibit A-2 or (iii) increase the Seller’s Working Interest above that
shown in Exhibit A-2 without a proportionate increase in the Net Revenue
Interest of such Seller;

 

(b)                                 all contracts and contract rights included
within the definition of Assets, to the extent that the net cumulative effect of
such instruments does not (i) reduce the Seller’s Net Mineral Acres below that
shown on Exhibit A-1, (ii) reduce the Seller’s Net Revenue Interest below that
shown in Exhibit A-2 or (iii) increase the Seller’s Working Interest above that
shown in Exhibit A-2 without a proportionate increase in the Net Revenue
Interest of Seller, or (iv) prevent or materially impair the current ownership
or use of the Wells and associated acreage and surface area producing prior to
the Effective Time, or (v) prevent or materially impair the ability to develop
the undeveloped lands covered by the Oil and Gas Interests to produce
Hydrocarbons;

 

(c)                                  rights of first refusal, preferential
rights to purchase and similar rights, and third Person consent to assign rights
with respect to the Assets, to the extent and only to the extent such rights are
set forth on an applicable disclosure schedule to this Agreement;

 

(d)                                 liens for Taxes or assessments not yet
delinquent or, if delinquent, contested in good faith by appropriate actions;

 

(e)                                  materialman’s, mechanic’s, repairman’s,
employee’s, contractor’s, operator’s and other similar liens or charges arising
in the ordinary course of business for amounts not yet delinquent (including any
amounts being withheld as provided by Law), or if delinquent, being contested in
good faith by appropriate actions;

 

(f)                                   all rights to consent by, required notices
to, filings with, or other actions by Governmental Authorities in connection
with the sale or conveyance of the Oil and Gas Interests therein if they are not
required or customarily obtained prior to the sale or conveyance;

 

(g)                                  excepting circumstances where such rights
have already been triggered, rights of reassignment arising upon final intention
to abandon or release any of the Oil and Gas Interests;

 

(h)                                 easements, rights-of-way, covenants,
servitudes, permits, surface leases and other rights in respect of surface
operations to the extent that the same have been provided to Purchaser prior to
the Execution Date and the net cumulative effect of such rights do not
(i) reduce Seller’s Net Mineral Acres below that shown in Exhibit A-1,
(ii) reduce Seller’s Net Revenue Interest below that shown in Exhibit A-2 or
(iii) increase Seller’s respective Working Interest above that shown in
Exhibit A-2 without a proportionate increase in the Net Revenue Interest of
Seller;

 

(i)                                     calls on production set forth in the
Material Contracts provided that the current and future amounts to be paid for
the same included in such Material Contracts;

 

(j)                                    all rights reserved to or vested in any
Governmental Authorities to control or regulate any of the Assets in any manner
or to assess Tax with respect to the Assets, the ownership, use or operation
thereof, or revenue, income or capital gains with respect thereto, and all
rights, obligations and duties under all applicable Laws of any such
Governmental Authority or under any franchise, grant, license or permit issued
by any Governmental Authority;

 

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(k)                                 any lien, charge or other encumbrance on or
affecting the Assets which is expressly waived, assumed, bonded or paid by
Purchaser at or prior to Closing or which is discharged by Seller at or prior to
Closing and all defects or irregularities resulting from failure to record
releases of liens, production payments or mortgages that have expired by their
own terms or the enforcement of which are barred by applicable statutes of
limitation;

 

(l)                                     any lien or trust arising in connection
with workers’ compensation, unemployment insurance, pension or employment laws
or regulations, provided such lien or trust is not delinquent;

 

(m)                             limitations (including drilling or operating
limitations and any pooling obligations) imposed on the Oil and Gas Interests by
reason of the rights of subsurface owners or operators in a common property
disclosed in the Data Exchange as of the Execution Date, to the extent that the
net cumulative effect of such burdens does not (i) reduce Seller’s Net Mineral
Acres below that shown in Exhibit A-1; or (ii) reduce Seller’s Net Revenue
Interest below that shown in Exhibit A-2 or (iii) increase the Seller’s Working
Interest above that shown in Exhibit A-2 without a proportionate increase in the
Net Revenue Interest of such Seller; or (iv) prevent or materially impair the
ability to develop the undeveloped lands covered by the Oil and Gas Interests to
produce Hydrocarbons;

 

(n)                                 the matters described in Schedule 6.1(g);

 

(o)                                 any matters evident from Exhibit A-1 or
Exhibit A-2; and

 

(p)                                 except for any lien or financial encumbrance
on the Equipment, Field Pipelines and Electrical Laterals, any defect in title
to any Asset other than an Oil and Gas Interest.

 

(p)                                 any other liens, charges, encumbrances,
defects or irregularities
that (i) do not, individually or in the aggregate, materially detract from the
value of or materially interfere with the use or ownership of the Oil and Gas
Interests subject thereto or affected thereby (as currently used or owned),
(ii) would be accepted by a reasonably prudent title examiner engaged in the
business of reviewing and interpreting on the ownership and operations of oil
and gas properties in the region where the Oil and Gas Interests are located,
including the absence of any lease amendment or consent by any royalty interest
or mineral interest holder authorizing the pooling of any leasehold interest,
royalty interest or mineral interest and the failure of Exhibit A-1 or
Exhibit A-2 to reflect any lease or any unleased mineral interest where the
owner thereof was treated as a non-participating co-tenant during the drilling
of any well,  (iii) do not reduce the Seller’s Net Mineral Acres below that
shown in Exhibit A-1, or (iv) do not reduce the Seller’s Net Revenue Interest
below that shown in Exhibit A-2 or (v) increase the Seller’s Working Interest
above that shown in Exhibit A-2 without a proportionate increase in the Net
Revenue Interest of such Seller, or (vi) prevent or materially impair the
current ownership or use of the Wells and associated acreage and surface area,
producing prior to the Effective Time, or (vii) prevent or materially impair the
ability to develop the undeveloped lands covered by the Oil and Gas Interests to
produce Hydrocarbons.

 

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4.4                               Notice of Title Defects.

 

(a)                                 If, as a consequence of its Pre-Acquisition
Review, Purchaser desires to assert a claim of a Title Defect, Purchaser must
deliver claim notices to Seller (each a “Title Defect Notice”) promptly after
the discovery thereof, but in no event later than the Pre-Closing Claim Date. 
To be effective, each Title Defect Notice shall be in writing and shall include
(i) a description of the alleged Title Defect(s) reasonably sufficient for
Seller to determine the basis of the alleged Title Defect, (ii) identification
of the Oil and Gas Interest adversely affected by the Title Defect (each a
“Title Defect Property”), (iii) the Allocated Value of each Title Defect
Property, (iv) all documents upon which Purchaser relies for its assertion of a
Title Defect, including, at a minimum, supporting documents reasonably necessary
for Seller (as well as any title attorney or examiner hired by Seller) to verify
the existence of the alleged Title Defect(s), provided that if such documents
are not in Purchaser’s possession, Purchaser may instead provide Seller with
sufficient detail as to why the Purchaser cannot use reasonable commercial
efforts to obtain such documentation, where the documents are located (if
applicable) and/or how the Seller can obtain any necessary documents relied on,
but not in the Purchaser’s possession, and (v) the amount by which Purchaser
reasonably believes the Allocated Value of each Title Defect Property is reduced
by the alleged Title Defect(s) in accordance with the terms of this Agreement
and the computations and information upon which Purchaser’s belief is based,
including any analysis by any title attorney or examiner hired by Purchaser.

 

(b)                                 Should Purchaser discover any Title Benefit
on or before the Pre-Closing Claim Date, Purchaser shall as soon as practicable,
but in any case by the Pre-Closing Claim Date, deliver a notice to Seller in
writing, which shall include (i) a description of the Title Benefit, (ii) the
Oil and Gas Interest or Additional Oil and Gas Interest affected, (iii) the
Allocated Values of the Oil and Gas Interest subject to such Title Benefit or
the fair market value of the Additional Oil and Gas Interest affected and
(iv) the amount by which Purchaser reasonably believes the Allocated Value of
each of those Oil and Gas Interests is increased by such Title Benefit, and the
computations and information upon which Purchaser’s belief is based including
any analysis by any title attorney or examiner hired by Purchaser.  Seller has
the right, but not the obligation, to deliver to Purchaser a similar notice on
or before the Pre-Closing Claim Date with respect to each Title Benefit
discovered by Seller.

 

(c)                                  Seller shall have the right, but not the
obligation, to attempt, at Seller’s sole cost, to cure or remove on or before
the Remedy Deadline, any Title Defects for which Seller has received a timely
Title Defect Notice from Purchaser, subject to the terms and conditions of this
Section 4.4.  If, by the Remedy Deadline, Seller has not cured the Title Defects
or if prior to Closing, Seller and Purchaser cannot agree on (i) the proper and
adequate cure for any such Title Defect, (ii) the Title Defect Amount, or
(iii) whether the alleged Title Defect constitutes a Title Defect, such dispute
shall be finally and exclusively resolved in accordance with the provisions of
Section 4.4(j); provided, however, that notwithstanding anything stated in this
Article 4 to the contrary, Seller shall only be permitted to dispute after
Closing the matters described above to the extent that the affected Property was
retained by Seller at Closing pursuant to Section 4.4(d)(ii) and 4.4(d)(iii).  
Seller’s election to attempt to cure a Title Defect shall be without prejudice
to its rights to have the matter decided under Section 4.4(j) and shall not
constitute an admission against interest or a waiver of Seller’s right to
dispute as to the existence, nature or value of the alleged Title Defect. Prior
to the Remedy Deadline and following the Closing, Seller shall conduct any cure
of alleged

 

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Title Defects using its own resources, personnel and advisors; provided,
however, that Purchaser, shall reasonably cooperate with Seller’s efforts but
shall not be required to incur any out of pocket costs other than de minimus
costs. Any disputed Title Defects that have not been cured, waived, or otherwise
resolved by the Parties prior to the Remedy Deadline shall be exclusively and
finally resolved in accordance with the provisions of Section 4.4(j).
Notwithstanding anything contained herein to the contrary, Seller shall deliver
a written notice to Purchaser of its election to cure any Title Defects prior to
Closing.

 

(d)                                 In the event that any Title Defect is not
waived by Purchaser or, subject to Section 4.4(c), cured prior to the Closing,
Seller shall, at its sole election, and subject to the Aggregate Title
Deductible, elect prior to Closing to:

 

(i)                                     accept a reduction in the Unadjusted
Purchase Price equal to an amount determined pursuant to Section 4.4(h) (the
“Title Defect Amount”) as being the value of such Title Defect net of any Title
Benefit Amount calculated in accordance with Section 4.4(i); in which event, the
Title Defect Amount shall be deducted from the Unadjusted Purchase Price in
accordance with Sections 5.3(c) and 8.1; or

 

(ii)                                  only if the value of the Title Defect
asserted by Purchaser in the Title Defect Notice exceeds fifty percent (50%) of
the Allocated Value for the affected Title Defect Property, retain the entirety
of the Title Defect Property, in which event, the Unadjusted Purchase Price
shall be adjusted downward by an amount equal to the Allocated Value of such
Title Defect Property in accordance with Sections 5.3(c) and 8.1; or

 

(iii)                               prior to the Remedy Deadline, at the sole
cost and expense of Seller, cure such Title Defect. If the Title Defect is not
cured prior to Closing, then the Title Defect Property will be excluded from the
Closing and the Unadjusted Purchase Price will be reduced by the Allocated Value
of the Title Defect Property.  Prior to the Remedy Deadline and upon Seller’s
curing the Title Defect, the Purchaser will acquire the affected Property from
Seller in accordance with Section 5.4.  If Seller is unable to cure the Title
Defect prior to the end of the Remedy Deadline, then such Property shall become
an Excluded Asset and no longer be considered as an Asset under this Agreement

 

(e)                                  Upon Seller electing to retain a Title
Defect Property because of a Title Defect pursuant to Section 4.4(d)(ii) or
4.4(d)(iii), the Parties shall complete any further conveyancing in accordance
with Section 5.4.

 

(f)                                   With respect to each Oil and Gas Interest
or Additional Oil and Gas Interest affected by Title Benefits reported under
Section 4.4(b) (or which Purchaser should have reported under such section), an
amount (the “Title Benefit Amount”) equal to the increase in the Allocated Value
for such Oil and Gas Interest or the fair market value of such Additional Oil
and Gas Interest caused by such Title Benefits will be determined pursuant to
Section 4.4(i), and such Title Benefit Amount shall be exclusively used to
offset any Title Defect Amounts that are finally determined under this
Section 4.4. If Purchaser disputes any Title Benefit or Title Benefit Amount, it
shall be resolved in accordance with the dispute resolution provisions governing
Title Defects in Section 4.4(j).

 

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(g)                                  Except with regard to Purchaser’s rights
under the special warranty of title in the Assignment, this Section 4.4 shall be
the exclusive right and remedy of Purchaser with respect to Title Defects or any
other matter related to title or ownership of the Assets.  In this regard and
notwithstanding anything to the contrary in this Agreement, if prior to the
Pre-Closing Claim Date Purchaser identifies any matter that could be asserted as
a Title Defect which could also result in the breach of any representation or
warranty of a Seller as set forth in Section 6.1, then Purchaser shall only be
entitled to assert such matter as a Title Defect to the extent permitted by this
Article 4 and shall be precluded from also asserting such matter as the basis of
the breach of any such representation or warranty. For clarity, after the
Pre-Closing Claim Date, except with regard to claims under the special warranty
of title in the Assignment, Purchaser shall not have the right to assert any
claims for Title Defects (other than those that are the subject of a Title
Defect Notice submitted before the Pre-Closing Date).

 

(h)                                 The Title Defect Amount resulting from a
Title Defect shall be the amount by which the Allocated Value of the Title
Defect Property adversely affected by such Title Defect is reduced as a result
of the existence of such Title Defect and shall be determined in accordance with
the following methodology, terms and conditions:

 

(i)                                     if Purchaser and Sellers agree on the
Title Defect Amount, that amount shall be the Title Defect Amount;

 

(ii)                                  if the Title Defect is a lien, encumbrance
or other charge which is undisputed and liquidated in amount, then the Title
Defect Amount shall be the undisputed and liquidated amount necessary to be paid
to remove the Title Defect from the appropriate Seller’s interest in the
affected Title Defect Property;

 

(iii)                               if the Title Defect reflects a discrepancy
between (A) the Net Mineral Acres for any Title Defect Property and the Net
Mineral Acres shown in Exhibit A-1, then the Title Defect Amount shall be the
product of the Allocated Value of such Title Defect property multiplied by a
fraction the numerator of which is the Net Mineral Acres for the Title Defect
Property and the denominator of which is the Net Mineral Acres stated in
Exhibit A-1, if the Title Defect reflects a discrepancy between (A) the Net
Revenue Interest for any Title Defect Property and (B) the Net Revenue Interest
stated in Exhibit A-2, then the Title Defect Amount shall be the product of the
Allocated Value of such Title Defect Property multiplied by a fraction, the
numerator of which is the amount of the Net Revenue Interest decrease and the
denominator of which is the Net Revenue Interest stated in Exhibit A-2;

 

(iv)                              if the Title Defect represents an obligation,
encumbrance, burden or charge upon or other defect in title to the Title Defect
Property of a type not described in Section (h)(i), (ii) or (iii) above, the
Title Defect Amount shall be determined by taking into account the Allocated
Value of the Title Defect Property, the portion of the Title Defect Property
adversely affected by the Title Defect, the legal effect of the Title Defect,
the potential economic effect of the Title Defect over the life of the Title
Defect Property, the values placed upon the Title Defect by Purchaser and
Sellers and such other factors as are necessary to make a proper evaluation;

 

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(v)                                 the Title Defect Amount with respect to a
Title Defect shall be determined without duplication of any costs or losses
included in another Title Defect Amount hereunder, or for which Purchaser
otherwise receives credit in the calculation of the Final Purchase Price; and

 

(vi)                              notwithstanding anything to the contrary in
this Article 4, the aggregate Title Defect Amounts attributable to the effects
of all Title Defects upon any Title Defect Property shall not exceed the
Allocated Value of such Title Defect Property.

 

(i)                                     The Title Benefit Amount for any Title
Benefit described in Section 4.2(b) shall be: (A) for any increase in Net
Revenue Interest, the product of the Allocated Value of the affected Oil and Gas
Interest multiplied by a fraction, the numerator of which is the Net Revenue
Interest increase and the denominator of which is the Net Revenue Interest
stated in Exhibit A-2; (B) for any increase in Net Mineral Acres, the product of
the Allocated Value of the affected Oil and Gas Interest multiplied by a
fraction, the numerator of which is the Net Mineral Acres increase and the
denominator of which is the Net Mineral Acres stated in Exhibit A-1 and (C) for
any Additional Oil and Gas Interest, the fair market value thereof, determined
with reference to the Allocated Values of Oil and Gas Interests with
characteristics similar to such Additional Oil and Gas Interest.

 

(j)                                    Seller and Purchaser shall attempt to
agree on all Title Defects and Title Benefits and Title Defect Amounts and Title
Benefit Amounts, respectively, prior to the Closing, but Closing shall not be
delayed because of failure to so agree.  If, by Closing, Seller and Purchaser
are unable to agree on an alleged Title Defect/Title Benefit or Title Defect
Amount/Title Benefit Amount (the “Disputed Title Matters”), the Title Defect
Property which is the subject of such Disputed Title Matter shall be retained by
the Seller and the Unadjusted Purchase Price shall be adjusted downward by an
amount equal to the Allocated Value of such Title Defect Property and shall be
reflected in the Preliminary Accounting Statement in accordance with Sections
5.3(c) and 8.1, and such dispute(s), and only such dispute(s), shall be
exclusively and finally resolved in accordance with the following provisions of
this Section 4.4(j).

 

(i)                                     Purchaser shall provide to Seller by not
later than the tenth (10th) Business Day following the Remedy Deadline an
updated written description meeting the requirements of Section 4.4(a), together
with all supporting documentation, of the Disputed Title Matters.  By not later
than ten (10) Business Days after Seller’s receipt of Purchaser’s written
description of the Disputed Title Matters, Seller shall provide to Purchaser a
written response setting forth Seller’s position with respect to the Disputed
Title Matters together with all supporting documentation, including a written
description meeting the requirements of Section 4.4(b) in the case of any Title
Benefit Amount asserted by a Seller.

 

(ii)                                  By not later than ten (10) Business Days
after Purchaser’s receipt of Seller’s written response to Purchaser’s written
description of the Disputed Title Matters, Purchaser may initiate a
non-administered arbitration of any such dispute(s) by written notice to Sellers
of any Disputed Title Matters (“Final Disputed Title Matters”) not otherwise
resolved or waived that are to be resolved by arbitration (the “Title
Arbitration Notice”).

 

(iii)                               The arbitration shall be held before a
single arbitrator (“Title Arbitrator”), determined as follows.  Each arbitrator
selected under this subparagraph shall be an attorney with at least fifteen (15)
years’ experience examining oil and gas titles in Texas and shall not have

 

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performed work for either Seller, Purchaser or their Affiliates for the past
five years or have a financial or other personal interest in either Party, any
Disputed Title Matters or outcome of the arbitration.  Within three Business
Days, following receipt of the Title Arbitration Notice, Seller and Purchaser
shall each exchange lists of three acceptable, qualified arbitrators.  Within
three (3) Business Days, following the exchange of lists of acceptable
arbitrators, Purchaser and Seller shall select by mutual agreement one
arbitrator from the combined lists.  If no such agreement is reached, Purchaser
and Seller shall each, by 5:00 pm Central Time of the second Business Day,
following the exchange of lists of acceptable arbitrators, identify a single
arbitrator from their original list of three acceptable arbitrators.  The two
selected arbitrators shall then agree on a third arbitrator from the original
lists within five (5) Business Days, following their own selection by each
Party, which shall be no more than ten (10) Business Days, following the Title
Arbitration Notice. Such third arbitrator shall serve as the Title Arbitrator.

 

(iv)                              Within three (3) Business Days following the
selection of the Title Arbitrator, the Parties shall submit one copy to the
Title Arbitrator of (A) this Agreement, with specific reference to this
Section 4.4(j), (B) Purchaser’s written description of the Final Disputed Title
Matters together with the supporting documents that were previously provided to
Seller pursuant to Section 4.4(j)(i), (C) Seller’s written response to
Purchaser’s written description of the Final Disputed Title Matters, together
with the supporting documents that were previously provided to Purchaser
pursuant to Section 4.4(j)(i), and (D) the Title Arbitration Notice.  Within
five (5) Business Days following such submissions, each of the Parties may
submit one written response to the other Party’s submission.  The Title
Arbitrator shall resolve the Final Disputed Title Matters based only on the
foregoing submissions.  Neither Purchaser nor Seller shall have the right to
submit additional documentation or any additional written response to the Title
Arbitrator nor to demand discovery on the other Party.

 

(v)                                 The Title Arbitrator shall choose a location
convenient for deliberation, or may deliberate by telephone conference.  The
Title Arbitrator shall make its determination by written decision within thirty
(30) Business Days following Seller’s receipt of the Title Arbitration Notice
(the “Title Arbitration Decision”).  The Title Arbitration Decision shall be
final and binding upon both Parties, without right of appeal. In making its
determination, the Title Arbitrator shall be bound by the rules set forth in
this Section 4.4.  The Title Arbitrator may consult with and engage
disinterested third Persons to advise the Title Arbitrator, but shall disclose
to the Parties the identities of such consultants. Any such consultant shall not
(i) be currently working directly or indirectly as an employee or consultant for
either Party, nor be in discussions about potential future work for either
Party, (ii) have worked as an employee or consultant for either Party or its
Affiliates during the two-year period preceding the arbitration, or (iii) have
any financial or other personal interest in the dispute.

 

(vi)                              The Title Arbitrator shall act as an expert
for the limited purpose of determining the specific disputed Title Defects and
Title Defect Amounts or Title Benefits and Title Benefit Amounts and shall not
be empowered to award damages, interest or penalties to either Party with
respect to any matter.

 

(vii)                           Each Party shall each bear its own legal fees
and other costs of preparing and presenting its case.  Each Party shall bear
one-half of the costs and expenses of the Title Arbitrator,

 

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including any costs incurred by the Title Arbitrator that are attributable to
the consultation of any third Person.

 

(viii)                        Seller and Purchaser shall implement the Title
Arbitration Decision as follows: (A) in the case of alleged Title Defects
determined to be Title Defects, Seller shall elect to remedy, at its sole
election, such Title Defects pursuant to Section 4.4(d) within twenty (20)
Business Days following Seller’s receipt of the Title Arbitration Decision, and
(B) in the case of disputed Title Benefits and Title Benefit Amounts, any
amounts that are determined to be owed to Seller shall be paid to Seller, and in
the case of disputed Title Defect Amounts, Seller shall pay any amounts
determined to be owed to Purchaser.  Any alleged Title Defects/Title Benefits
determined to be or not to be Title Defects/Title Benefits under the Title
Arbitration Decision shall be final and binding as being or not being Title
Defects/Title Benefits.  The Parties shall complete any further conveyancing in
accordance with Section 5.4 to effect the remedy chosen by Seller pursuant to
subsection (A) above.

 

(ix)                              Any dispute over the interpretation or
application of this Section 4.4(j) shall be decided by the Title Arbitrator with
reference to the Laws of the State of Texas.  Any award of the Title Arbitrator
may be enforced against both Parties in the courts described in Harris County,
Houston, Texas.

 

(k)                                 Notwithstanding anything to the contrary in
this Agreement, in no event shall there be any remedies available under
Section 4.4(d):

 

(i)                                     for any Title Defect Amount with respect
to an individual Title Defect Property if such amount does not exceed fifty
thousand United States Dollars ($50,000), but if exceeded, the entire Title
Defect Amount related thereto shall be counted for purposes of this Agreement,
without deduction of this individual threshold (the “Individual Title
Threshold”); and

 

(ii)                                  unless the aggregate amount of all such
Title Defect Amounts (provided that each such Title Defect Amount exceeds the
Individual Title Threshold and excluding any Title Defect Amounts with respect
to Title Defects cured by Seller) exceeds the Aggregate Title Deductible, after
which point, Purchaser shall be entitled to remedies elected by Seller in
accordance with Section 4.4(d) only to the extent that such Title Defects exceed
the Aggregate Title Deductible; provided that the aggregate amount of all Title
Benefit Amounts shall be credited against and reduce any Title Defect Amounts.

 

In the event the aggregate amount of Title Benefit Amounts equals or exceeds the
aggregate amount of Title Defect Amounts, Seller shall not be entitled to any
payment from Purchaser with respect to such excess amounts.

 

(l)                                     Without prejudice to any of the other
dates by which performance or the exercise of rights is due hereunder, or the
Parties’ rights or obligations in respect thereof, the Parties hereby
acknowledge that, as set forth more fully in Section 15.7, time is of the
essence in performing their obligations and exercising their rights under this
Article 4, and, as such, that each and every date and time by which such
performance or exercise is due shall be the firm and final date and time.

 

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4.5                               Limitations on Applicability.

 

The right of Purchaser or Seller to assert a Title Defect or Title Benefit,
respectively, under this Agreement shall terminate on the Pre-Closing Claim
Date; provided, however, that until the alleged Title Defect or Title Benefit or
Title Defect Amount or Title Benefit Amount, as the case may be, is resolved in
accordance with this Agreement, there shall be no termination of Purchaser’s or
Seller’s rights under Section 4.4 with respect to any alleged Title Defect or
Title Benefit or Title Defect Amount or Title Benefit Amount properly notified
in accordance with Section 4.4 on or before the Pre-Closing Claim Date.

 

4.6                               Consents to Assignment and Preferential Rights
to Purchase.

 

(a)                                 Promptly, and in no event later than ten
(10) Business Days after the Execution Date, Seller shall prepare and send
(i) notices to the holders of any required consents to assignment to Purchaser
or its designated Affiliate, that are set forth on Schedule 6.1(i) or are
otherwise identified prior to Closing, requesting consents to the transactions
contemplated by this Agreement and (ii) notices to the holders of any applicable
preferential rights to purchase or similar rights that are set forth on Schedule
6.1(i) in compliance with the terms of such rights and requesting waivers of
such rights.  The notices regarding consents required under this Section 4.6
shall include language to the effect that the counterparty, to the extent it
agrees to give consent, is consenting to an assignment to Purchaser or any of
its Affiliates in one or more series of transactions.  The consideration payable
under this Agreement for any Property for purposes of preferential purchase
right notices shall be the Allocated Value for such Property.  Seller shall use
commercially reasonable efforts (at no cost to Seller other than de minimus
costs) to cause such consents to assignment and waivers of preferential rights
to purchase or similar rights (or the exercise thereof) to be obtained and
delivered prior to the Closing. Purchaser shall use reasonable commercial
efforts to cooperate with Seller in seeking to obtain such consents to
assignment and waivers of preferential rights and will provide any additional
financial information, collateral or security as are required under the Material
Contracts to meet reasonable financial requirements demanded by counterparties
in order to obtain consents from such counterparties. Notwithstanding anything
to the contrary, in no event or circumstance shall Seller be required to post
collateral or security on behalf of the Purchaser nor shall Purchaser be
obligated to provide collateral or security in an amount greater than as
required in the applicable Material Contract.

 

(b)                                 If Seller fails to obtain a Hard Consent,
then (unless waived in writing by Purchaser) the affected Property shall be
excluded from the Assets to be conveyed to Purchaser and the Unadjusted Purchase
Price shall be reduced by the Allocated Value of such Property. In the event
that a Hard Consent that was not obtained prior to Closing, is obtained within
one hundred and twenty (120) days following Closing then within ten (10) days
after such consent is obtained, Purchaser shall purchase such Property in
accordance with Section 5.4.

 

(c)                                  If Seller fails to obtain a consent prior
to the Closing and such consent is not a Hard Consent then the Property subject
to such unobtained consent shall be assigned by Seller to Purchaser at Closing
and Purchaser (or its designated Affiliate) shall have no claim against, and
Seller shall have no liability for, the failure to obtain such consent.

 

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(d)                                 If Seller fails to obtain a Hard Consent
which is waived by the Purchaser, Purchaser hereby indemnifies and holds Seller
harmless against all Losses suffered or incurred by Seller, or any of its
Affiliates, resulting from or in connection with the assignment of the relevant
Property from the Seller to the Purchaser or its designated Affiliate without
obtaining such Hard Consent.

 

(e)                                  If any third Person exercises a
preferential right to purchase any Property prior to the Closing, Seller shall
retain such Property in order to convey such Property to such Person, and the
Unadjusted Purchase Price shall be reduced by the Allocated Value of such
Property.

 

4.7                               THE PROVISIONS OF THIS ARTICLE 4 AND THE
SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT CONSTITUTE PURCHASER’S ENTIRE
REMEDY WITH RESPECT TO THE TITLE TO THE ASSETS.

 

4.8                               EXCEPT AS PROVIDED IN THIS ARTICLE 4 AND THE
SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, PURCHASER SHALL ACQUIRE THE ASSETS
“WHERE IS” AND “AS IS” WITH NO RIGHT TO RECOVER ANY FURTHER AMOUNTS FROM SELLER
FOR ANY DEFECT (INCLUDING TITLE DEFECTS) TO OR LIEN OR ENCUMBRANCE UPON THE
TITLE TO THE ASSETS.

 

ARTICLE 5. – CLOSING

 

5.1                               Closing Conditions.

 

(a)                                 Purchaser’s Closing Conditions.

 

The obligation of Purchaser to comply with its Closing obligations contemplated
by this Agreement shall be subject to the satisfaction prior to the Closing Date
of the following conditions:

 

(i)                                     No representation and warranty of Seller
set forth in Section 6.1, either individually or in the aggregate, is untrue and
incorrect to an extent that results in a Material Adverse Effect; provided,
however, that to the extent such representation or warranty is qualified by
materiality, such qualification shall be disregarded for purposes of this
Section 5.1(a)(i).

 

(ii)                                  Seller shall have performed in all
material respects those covenants and agreements of Seller set forth herein that
are required to be performed at or prior to Closing.

 

(iii)                               No suit, action or proceeding, with respect
to the Assets, seeking an injunction or order enjoining, restraining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement shall have been issued or brought by any Governmental Authority or
Person (other than Seller or its Affiliates) and shall have remained in effect
on the Closing Date.

 

(b)                                 Seller’s Closing Conditions.

 

The obligation of Seller to close the transactions contemplated by this
Agreement shall be subject to the satisfaction prior to the Closing Date of the
following conditions:

 

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(i)                                     The representations and warranties of
Purchaser set forth in Section 6.3 shall be true and accurate in all material
respects.

 

(ii)                                  Purchaser shall have performed in all
material respects those covenants and agreements of Purchaser set forth herein
that are required to be performed prior to Closing.

 

(iii)                               No suit, action or proceeding, seeking an
injunction or order enjoining, restraining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement shall have been
issued or brought by any Governmental Authority or Person (other than Purchaser
or its Affiliates) and shall have remained in effect on the Closing Date.

 

5.2                               Time and Place.

 

Unless otherwise mutually agreed, the Closing shall be held on April 3, 2018
(the “Closing Date”), at 10:00 AM Central Time, at the offices of Seller at 150
N. Dairy Ashford, Houston, Texas 77079.  The time and place for Closing may be
changed to an earlier or later time and place by mutual written agreement of the
Parties, but any acceleration or postponement of the Closing shall not change
the Effective Time.

 

5.3                               Closing.

 

The following shall take place at the Closing:

 

(a)                                 Seller and Purchaser shall execute and
deliver the Assignment.

 

(b)                                 Purchaser and Seller shall execute such
designation of operator forms, to be prepared by Seller and reasonably
satisfactory to Purchaser, as are necessary to transfer operations to Purchaser
for those Oil and Gas Interests that are operated by Seller and which are to be
operated by Purchaser after the Closing and such other remaining documents,
letters-in-lieu of transfer orders, joinders, ratifications, certificates,
instruments or agreements which are contemplated by the transaction described
herein or deemed necessary or appropriate by the Parties.

 

(c)                                  Purchaser shall pay to Seller by wire
transfer to Seller’s Account an amount equal to the Adjusted Initial Payment
Amount, as detailed in Preliminary Accounting Statement, less an amount equal to
the Performance Deposit (provided that Seller may direct that Purchaser shall
pay the Unadjusted Purchase Price, less the Performance Deposit, without making
adjustments prescribed under Section 8.1, to the Qualified Intermediary, and in
such event on the Closing Date the Party that owes the net amount of adjustments
under Section 8.1 shall pay such amount by wire transfer directly to the other
Party).

 

(d)                                 Purchaser and Seller shall execute and
deliver the Non-Foreign Affidavit attached as Exhibit D, such designation of
operator forms as are necessary to transfer operations to Purchaser for those
Oil and Gas Interests that are operated by Seller and which are intended to be
operated by Purchaser after the Closing, and such other remaining documents,
letters-in-lieu of transfer orders, joinders, ratifications, certificates,
instruments or agreements which are contemplated by the transaction described
herein or deemed necessary or appropriate by the Parties.

 

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(e)                                  Seller shall deliver to Purchaser releases,
in form and substance reasonably satisfactory to Purchaser, releasing all
mortgages and financial liens by, through or under Seller and burdening any
portion of the Assets.

 

(f)                                   Seller shall execute and deliver, and
Purchaser shall execute and agree to be bound to the terms of, that certain gas
gathering agreement by and between Williams Midstream Gas Services LLC, Seller
and Purchaser which will become effective upon the Closing Date and in the form
attached hereto as Exhibit E (“Williams Gathering Agreement”).

 

(g)                                  Seller shall execute and deliver and
Purchaser shall execute and agree to be bound to the terms of the Shared Use and
Access Agreement attached hereto as Exhibit F.

 

(h)                                 Seller and Purchaser shall execute the
Reprocessed Seismic Data License, in the form attached as Exhibit G, relating to
the Assignable Seismic Data; provided that Purchaser has obtained, and
demonstrates same to Seller, a license from the third-party owner of the
underlying seismic data prior to the Closing Date.

 

(i)                                     If requested by Purchaser prior to
Closing, Seller and Purchaser shall execute a Transition Services Agreement in
form and substance reasonably acceptable to both Parties which will provide that
Seller shall continue to perform certain operations with respect to the Wells
set forth on Schedule 5.3(j) for a limited period of time after Closing.

 

No agreement to be executed and delivered at the Closing, or action to be taken
at the Closing, shall be effective until all such agreements have been executed
and delivered or actions have been taken, and all such agreements and actions
shall be deemed to be effective concurrently.

 

5.4                               Supplemental Closings.

 

To the extent that any Assets are initially excluded from the Closing and
retained by Seller for the purpose of allowing the Seller the right to cure or
dispute any asserted Title Defects or Environmental Defects related thereto, but
subsequently become assignable to Purchaser pursuant to the terms of this
Agreement (as to those applicable Assets being retained, collectively, the
“Supplemental Closing Assets” and individually, a “Supplemental Closing Asset”),
then there shall be a supplemental closing (the “Supplemental Closing”) on a
date mutually agreed to by the Parties, but in no event later than twenty (20)
Business Days from the date such Supplemental Closing Asset becomes, or is
deemed to become assignable to Purchaser.  At such Supplemental Closing, Seller
shall convey the applicable Supplemental Closing Asset to Purchaser by means of
an assignment and bill of sale using the form attached hereto as Exhibit C.
Purchaser shall pay to Seller the Allocated Value attributable to such
Supplemental Closing Asset, as adjusted by the Price Adjustments, or other
amount determined in accordance with this Agreement. The Parties shall perform
such other obligations in Section 5.3 that apply to that Asset, including
amending any such agreements to include the Supplemental Closing Assets
associated with the respective Supplemental Closing.  Notwithstanding anything
to the contrary in this Agreement, with regard to the Supplemental Closing
Assets and the Supplemental Closing: (i) the conditions to the obligations of
the Parties to close set forth in Section 5.1 shall be applicable with regard
thereto as of the date of the Supplemental Closing, instead of as of the date of
Closing or the Closing Date, (ii)

 

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the representations and warranties of the Parties in Article 6 shall also be
deemed made with regard thereto as of the Supplemental Closing (unless any
particular subsection therein specifies that it applies as of another date),
(iii) the covenants of the Parties set forth in Sections 7.2 and 7.3 shall
continue to apply with regard to the Supplemental Closing Assets until the
Supplemental Closing, (iv) the dates specified in Section 8.1 relating to the
Preliminary Accounting Statement and the Final Accounting Statement for such
Supplemental Closing Assets shall, instead, refer to the date of the
Supplemental Closing instead of any references therein to the Closing or Closing
Date, and (v) for purposes of any Assumed Obligations, Retained Obligations and
indemnification obligations under Article 11, any Supplemental Closing Assets
shall otherwise be treated as Excluded Assets unless and until a Supplemental
Closing relating thereto occurs.

 

ARTICLE 6. – GENERAL REPRESENTATIONS AND WARRANTIES

 

6.1                               Seller’s Representations & Warranties.

 

Seller represents and warrants to Purchaser, as of the Execution Date and as of
the Closing Date (unless any subsection below specifies that it applies as of
another date) that:

 

(a)                                 Organization.  Seller is duly incorporated
or formed, validly existing and in good standing under the laws of Delaware and
is duly qualified to carry on its business in the State of Texas.

 

(b)                                 Validity of Agreement. Seller has the
corporate power to carry on its business as presently conducted, to execute and
deliver this Agreement and the other agreements and documents contemplated
hereby and to perform its obligations under this Agreement and the other
agreements and documents contemplated hereby. This Agreement has been duly
executed and delivered by Seller and constitutes a valid and binding obligation
of Seller, duly authorized and enforceable against it in accordance with the
terms hereof, subject to applicable bankruptcy and other similar laws affecting
creditor’s rights and to principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).

 

(c)                                  No Conflict.  The execution and delivery of
this Agreement by Seller does not, and the consummation of the transaction
contemplated hereunder will not, (i) violate any provision of, or constitute a
default under, the certificate of incorporation or by-laws of Seller, or
(ii) materially violate any Law to which Seller is subject, or any provision of
any material agreement, indenture, mortgage, lien, lease, instrument, order,
arbitration award, judgment, or decree to which Seller is a party or by which it
or any of the Oil and Gas Interests are bound, except for any such violations
which would not reasonably be expected, individually or in the aggregate, to
prevent or materially delay the consummation by Seller of the transactions
contemplated by this Agreement.

 

(d)                                 Bankruptcy.  There is no bankruptcy,
reorganization or receivership proceeding pending, being contemplated or
threatened against Seller.

 

(e)                                  Governmental Authorizations.  Seller has,
to its Knowledge, all Governmental Authorizations required and issued by
Governmental Authorities under provisions of Law, necessary or required to own
and operate the Assets, and all such Governmental Authorizations are in full
force and effect.  Seller has not received written notice of any material
violations in respect

 

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of any such Governmental Authorizations that are unresolved at the Execution
Date, and to Seller’s Knowledge, Seller is not in violation of the terms of any
such Governmental Authorizations.

 

(f)                                   Compliance with Laws.  Seller is not in
material violation of any applicable Laws with respect to the ownership and
operation of the Operated Properties. To Seller’s Knowledge, Seller is not in
material violation of any applicable Laws with respect to the ownership or
operation of any Asset that is not an Operated Property. To Seller’s Knowledge,
with regard to any time prior to Closing, Seller has not materially violated any
applicable Laws with respect to the ownership and operation of the Assets. This
provision has no application to Environmental Laws.

 

(g)                                  Litigation.  As of the date hereof, there
is no action, complaint, investigation, claim, judicial or administrative
action, proceeding or litigation of any type pending or commenced or, to
Seller’s Knowledge, threatened to which Seller is a party or to which any of the
Assets are bound that (i) questions or involves the validity or enforceability
of Seller’s obligations under this Agreement or (ii) seeks (or reasonably might
be expected to seek) to prevent or delay the consummation by Seller of the
transactions contemplated by this Agreement or damages in connection with any
such consummation.  There are no actions, suits or proceedings pending, or to
Seller’s Knowledge, threatened in writing, before any Governmental Authority or
arbitrator against Seller with respect to the Assets except for those actions,
suits and proceedings listed on Schedule 6.1(g).

 

(h)                                 Taxes.   To Seller’s Knowledge, Seller has
filed all tax returns required to be filed with respect to the Assets, and paid
in full all Taxes owed with respect to the Assets (whether or not shown on a Tax
Return).  To Seller’s Knowledge, there are no liens for Taxes on any of the
Assets other than with respect to Taxes not yet due and payable.  None of the
Assets are (or will be as of the Closing Date) held in an arrangement (other
than as may arise by virtue of Seller’s organizational or governing documents)
that is treated as a partnership or any entity for federal, state or local
income Tax purposes.

 

(i)                                     Preferential Rights and Consents to
Assign.  The Assets are not subject to any preferential rights to purchase, and,
except for those consents that are customarily obtained after Closing, are not
subject to any consents to assign, other than those preferential rights to
purchase and those consents to assign that are set forth in one or more of the
agreements identified on Schedule 6.1(i) hereto.

 

(k)                              Material Contracts.  All Material Contracts as
of the Execution Date are listed on Schedule 6.1(k).  Except as disclosed in
Schedule 6.1(k) and as set forth in the complaints in suits disclosed in
Schedule 6.1(g), (i) Seller has not received written notice from any
counterparty to a Material Contract of any alleged material default under any
such Material Contract, (ii) to Seller’s Knowledge, all Material Contracts are
in full force and effect, and (iii) Seller is not in breach or default with
respect to any of its obligations under any of the Material Contracts in any
material respect. Seller has made available to Purchaser true and correct copies
of the Material Contracts and all amendments thereto prior to the Execution
Date.

 

(l)                                     Liability for Brokerage Fees.  Purchaser
shall not directly or indirectly have any responsibility, liability or expense,
as a result of undertakings or agreements of Seller or any

 

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Affiliate of Seller, for brokerage fees, finder’s fees, agent’s commissions or
other similar forms of compensation to an intermediary in connection with the
negotiation, execution or delivery of this Agreement or any agreement or
transaction contemplated hereby.

 

(m)                             Anti-Bribery and Anti-Money Laundering.

 

(i)                                     In relation to the transactions the
subject of this Agreement, neither Seller nor any of its Related Parties has
made, offered or authorized any payment, gift, promise or other advantage,
whether directly or through any other person or entity, to or for the use or
benefit of any Government Official or any entity or other person where such
payment, gift, promise or other advantage would (A) comprise a Facilitation
Payment; or (B) violate the Anti-Bribery and Money-Laundering Laws and
Obligations or any other applicable law.

 

(ii)                                  Seller undertakes to Purchaser that, in
connection with this Agreement, it is knowledgeable about and will comply with
all laws, regulations, rules and requirements relating to anti-money laundering
applicable to its performance of this Agreement.

 

(iii)                               Seller represents and warrants to Purchaser
that any payments to Purchaser hereunder shall not constitute the proceeds of
crime in contravention of anti-money laundering laws.

 

(n)                                 Payments for Production.  None of Seller or
its Affiliates are obligated under any contract or agreement or Hydrocarbon
lease, being assigned (or by which Purchaser will be bound) at Closing, for the
sale of Hydrocarbons from the Assets containing a take-or-pay, advance payment,
prepayment, or similar provision, or under any gathering, transmission, or any
other contract or agreement, being assigned at Closing (or by which Purchaser
will be bound), with respect to any of the Assets to gather, deliver, process,
or transport any Hydrocarbons without then or thereafter receiving full payment
therefor.

 

(o)                                 No Prepayments.  There have been no advance,
take or pay or other prepayments received by Seller with respect to Seller’s
interest in the Assets that would obligate Purchaser to deliver Hydrocarbon
production from the Assets after the Effective Time without receiving full
payment.

 

(p)                                 Outstanding Capital Commitments.  Except as
listed on Schedule 6.1(p), as of the Execution Date, there are no outstanding
AFEs or other commitments to make capital expenditures which are binding on the
Assets and which Seller reasonably anticipates will individually require
expenditures by the owner of the Assets, net to its proportionate interest,
after the Effective Time in excess of two hundred and fifty thousand United
States Dollars ($250,000).

 

(q)                                 Environmental.  Seller has not received any
written notice that the Assets are not in compliance with any Environmental
Laws, except for such non-compliance which has been remediated or otherwise
resolved. Seller has not received any written notice of any claims against it
with respect to Environmental Liabilities with respect to the Assets or any
demands to clean-up any portion of the Assets, except for such claims or demands
which have been resolved and closed with the applicable Governmental Authority.
With respect to the Assets operated by Seller or its Affiliate (and to Seller’s
Knowledge, with regard to Assets operated by a non-Affiliate third party),
neither Seller nor any Affiliate has entered into or is a party to or bound by
any agreement with or

 

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consent, order, decree or judgment of, any Governmental Authority that is in
existence and (i) is based on any current Environmental Laws that relate to the
use of any of the Assets, or (ii) requires any remediation of any of the Assets.

 

(r)                                    Suspended Funds.  Schedule 8.1 lists all
funds held in suspense (including funds held in suspense for unleased interests)
by Seller as of the date of Execution Date that are attributable to the Assets.

 

(s)                                   Imbalances.  As of the Effective Time, the
Oil and Gas Interests are not subject to any material Imbalances. In addition,
there are no Imbalance amounts that would be the obligation, liability or to the
benefit of Purchaser after Closing.

 

6.2                               Limitations on Seller’s Representations &
Warranties.

 

(a)                                 Except as and to the extent expressly set
forth in this Article 6 and the special warranty of title set forth in the
Assignment; (i) Seller makes no representations or warranties, express or
implied, and (ii) Seller expressly disclaims all liability and responsibility
for any representation, warranty, statement or information made or communicated
(orally or in writing) to Purchaser or Purchaser Group (including any opinion,
information, projection or advice that may have been provided to Purchaser or
Purchaser Group by any officer, director, employee, agent, consultant,
representative or advisor of Seller or Seller Group).

 

(b)                                 WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING AND EXCEPT FOR THE SPECIAL WARRANTY OF TITLE SET FORTH IN THE
ASSIGNMENT AND THE REPRESENTATIONS AND WARRANTIES IN SECTION 6.1 OF THIS
AGREEMENT, SELLER (1) MAKES NO AND EXPRESSLY DISCLAIMS ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO (I) TITLE TO ANY OF THE ASSETS, (II) THE
CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF
ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC DATA OR
INTERPRETATION, RELATING TO THE OIL AND GAS INTERESTS, (III) THE QUANTITY,
QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE OIL AND GAS INTERESTS,
(IV) THE EXISTENCE OF ANY PROSPECT, RECOMPLETION, INFILL OR STEP-OUT DRILLING
OPPORTUNITIES, (V) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES
GENERATED BY THE ASSETS, (VI) THE PRODUCTION OF HYDROCARBONS FROM THE ASSETS, OR
WHETHER PRODUCTION HAS BEEN CONTINUOUS, OR IN PAYING QUANTITIES, OR ANY
PRODUCTION OR DECLINE RATES, (VII) THE MAINTENANCE, REPAIR, CONDITION, QUALITY,
SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, (VIII) INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHT, OR (IX) ANY OTHER MATERIALS OR INFORMATION THAT
MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO PURCHASER OR ITS AFFILIATES, OR
ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY
DISCUSSION OR PRESENTATION RELATING THERETO, AND (2) FURTHER DISCLAIMS ANY
REPRESENTATION OR WARRANTY,

 

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EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OR ANY OF THE ASSETS, IT BEING
EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT, EXCEPT AS EXPRESSLY
REPRESENTED OTHERWISE IN THIS ARTICLE 6 AND FOR THE SPECIAL WARRANTY OF TITLE
SET FORTH IN THE ASSIGNMENT,  PURCHASER SHALL BE DEEMED TO BE OBTAINING THE
ASSETS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND
“WHERE IS” WITH ALL FAULTS AND DEFECTS, AND THAT PURCHASER HAS MADE OR CAUSED TO
BE MADE SUCH INSPECTIONS AS PURCHASER DEEMS APPROPRIATE.  FURTHERMORE, EXCEPT AS
SPECIFICALLY SET FORTH IN SECTION 6.1(Q), SELLER HAS NOT AND WILL NOT MAKE ANY
REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO
ENVIRONMENTAL LAWS, ENVIRONMENTAL LIABILITIES, THE RELEASE OF MATERIALS INTO THE
ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE
ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE COMPANIES OR THE
ASSETS, AND NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A
REPRESENTATION OR WARRANTY.

 

(c)                                  Inclusion of a matter on a schedule
attached hereto with respect to a representation or warranty that addresses
matters that are material or have a Material Adverse Effect shall not be deemed
an indication that such matter is material or does, or may, have a Material
Adverse Effect.  Schedules may include matters not required by the terms of the
Agreement to be listed on the Schedule, which additional matters are disclosed
for purposes of information only, and inclusion of any such matter does not mean
that all such matters are included.

 

6.3                               Purchaser’s Representations & Warranties.

 

Purchaser represents and warrants to Seller as of the Execution Date and as of
the Closing Date (unless any subsection below specifies that it applies at
another date) that:

 

(a)                                 Organization.  Purchaser is a corporation,
duly organized, validly existing and in good standing under the laws of
Delaware, and is duly qualified to carry on its business in the State of Texas.

 

(b)                                 Validity of Agreement.  Purchaser has the
corporate or limited liability company authority, as applicable, to carry on its
business as presently conducted, to execute and deliver this Agreement and the
other agreements and documents contemplated hereby and to perform its
obligations under this Agreement and the other agreements and documents
contemplated hereby. This Agreement has been duly executed and delivered by
Purchaser and constitutes a valid and binding obligation of Purchaser,
enforceable against it in accordance with the terms hereof, subject to
applicable bankruptcy and other similar laws affecting creditor’s rights and to
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

 

(c)                                  No Conflict. The execution and delivery of
this Agreement by Purchaser does not, and the consummation of the transaction
contemplated hereunder will not, (i) violate any provision of, or

 

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constitute a default under, the governing documents of Purchaser or,
(ii) violate any Law to which Purchaser is subject, or any provision of any
material agreement, indenture, mortgage, lien, lease, instrument, order,
arbitration award, judgment, or decree to which Purchaser is a party, except,
for any such violations which would not reasonably be expected, individually or
in the aggregate, to prevent or materially delay the consummation by Purchaser
of the transactions contemplated by this Agreement.

 

(d)                                 Bankruptcy.  There is no bankruptcy,
reorganization or receivership proceeding pending, being contemplated or
threatened against Purchaser or to Purchaser’s Knowledge, any direct or indirect
shareholder of Purchaser that is an Affiliate of Purchaser.

 

(e)                                  Receipt of Data.  As of the Closing Date,
Purchaser has had the ability to perform diligence on the Assets based on
information provided in the Data Exchange and conduct a field visit pursuant to
Section 7.1; provided, however, that the foregoing representation shall not
limit or restrict Purchaser’s rights and remedies under Article 3, Article 4, 
the special warranty of title in the Assignment or other conveyances delivered
under this Agreement, or for claims regarding a breach of any of Seller’s
representations and warranties under Section 6.1.

 

(f)                                   Independent Evaluation.  Purchaser is an
experienced and knowledgeable investor in the oil and gas business and is
experienced with the usual and customary practices of producers such as Seller. 
In making the decision to enter into this Agreement and consummate the
transactions contemplated hereby, Purchaser has relied solely on the basis of
its own independent due diligence investigation of the environmental Assets,
relying upon Purchaser’s own legal, financial, engineering and technical
expertise and advisors.

 

(g)                                  No Securities Distribution.  Purchaser
intends to acquire the Assets for Purchaser’s own benefit and account and not
with a view of making any distribution of securities, within the meaning of the
Securities Act of 1933, as amended.

 

(h)                                 Financing.  Prior to Closing, Purchaser will
have arranged to have available sufficient funds to enable Purchaser to (i) pay
the Adjusted Initial Payment Amount to Seller at Closing, (ii) pay or post any
collateral or security required under contracts or agreements to be assigned, or
(iii) provide such financial support as is required by any Governmental
Authority to be approved as an operator of oil and gas properties in the State
of Texas.

 

(i)                                     Liability for Brokerage Fees.  Seller
shall not directly or indirectly have any responsibility, liability or expense,
as a result of undertakings or agreements of Purchaser or any Affiliate of
Purchaser, for brokerage fees, finder’s fees, agent’s commissions or other
similar forms of compensation to an intermediary in connection with the
negotiation, execution or delivery of this Agreement or any agreement or
transaction contemplated hereby.

 

(j)                                    Litigation.  There are no actions,
proceedings, or investigations pending, or to Purchaser’s Knowledge, any basis
or threat thereof, which question the validity of this Agreement or any other
action taken or to be taken in connection herewith.

 

(k)                                 Qualifications.  Purchaser is qualified with
all applicable Governmental Authorities to own and operate the Properties.

 

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(l)                                     Anti-Bribery and Anti-Money Laundering.

 

(i)                                     In relation to the transactions the
subject of this Agreement, neither Purchaser nor any of its Related Parties has
made, offered or authorized any payment, gift, promise or other advantage,
whether directly or through any other person or entity, to or for the use or
benefit of any Government Official or any entity or other person where such
payment, gift, promise or other advantage would (A) comprise a Facilitation
Payment; or (B) violate the Anti-Bribery and Money-Laundering Laws and
Obligations or any other applicable law.

 

(ii)                                  Purchaser undertakes to Seller that, in
connection with this Agreement, it is knowledgeable about and will comply with
all laws, regulations, rules and requirements relating to anti-money laundering
applicable to its performance of this Agreement.

 

(iii)                               Purchaser represents and warrants to Seller
that its payments to Seller hereunder shall not constitute the proceeds of crime
in contravention of anti-money laundering laws.

 

(iv)                              Purchaser stipulates that the funds used to
pay the Performance Deposit and the Purchase Price shall be made from the
Purchaser’s Account.

 

(m)                             Operatorship.  Halcón Operating Co., Inc., an
affiliate of Purchaser, is not in continuing violation of any statutes, rules or
regulations of the State of Texas in any material respects and is not aware of
any reason why Halcón Operating Co., Inc. may not be accepted as an operator by
the State of Texas or other applicable regulator. At the Closing Date, Purchaser
has accurately provided all of the required information regarding Halcón
Operating Co., Inc. necessary to complete and file the P-4 Forms with the
Commission.

 

ARTICLE 7. – COVENANTS OF THE PARTIES.

 

7.1                               Access to Properties and Information.

 

(a)                                 Seller has provided, and shall continue to
provide up to the Closing Date, to Purchaser (i) access to a virtual data room
containing images of certain documents, instruments and agreements relevant to
Purchaser’s examination of the Assets,  (ii) the opportunity, to the extent
Seller was able to provide it, to conduct site visit(s) of certain of the
Properties, (iii) the opportunity to review certain lease, well, financial,
land, contract and regulatory files in Seller’s possession that relate to the
Assets, (iv) the opportunity to ask questions related to the Assets of certain
of the managers and employees of Seller and its Affiliates, (v) the opportunity
to view geological and geophysical data on workstations at the offices of
Seller, and (vi) drafts of the Exhibits and Schedules to this Agreement
(collectively referred to as the “Data Exchange”).

 

(b)                                 Upon execution of and pursuant to the terms
of this Agreement, Purchaser may, at reasonable times during normal business
hours, at Purchaser’s sole cost and expense, conduct an expert investigation
into the environmental condition of the Properties for the purposes set out in
Article 3 and the status of title to the Oil and Gas Interests for the purposes
set out in Article 4 (the “Pre-Acquisition Review”) in accordance with the
provisions of this Section 7.1(b).  The entirety

 

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of the Pre-Acquisition Review shall be subject to the indemnity provisions of
Section 7.4 below. During all periods that Purchaser or any of its
representatives are on the Assets, Purchaser shall maintain, at its sole expense
and with reputable insurers, such insurance as is reasonably sufficient to
support Purchaser’s indemnity obligations under Section 7.4.

 

The scope of the Pre-Acquisition Review includes:

 

(i)                                     The right to enter all or any part of
the Properties at any reasonable time and with reasonable advance notice before
accessing any Property (which shall be not less than 48 hours advance notice),
and to conduct an environmental assessment which may include a Phase I review of
the Properties, as defined by the current American Society for Testing and
Material (“ASTM”) Standard Practice for Phase I environmental property
assessments (Designation E1527-05), a review of the compliance status of the
Assets relative to Environmental Laws, a review of other site conditions
including the presence of endangered species habitat and waters of the United
States, and to otherwise inspect, inventory, investigate, perform environmental
assessments, study and examine the same and the operations conducted thereon
(provided that Purchaser shall have no right to conduct any invasive
environmental sampling or testing which includes, but is not limited to digging
and collecting samples on any Properties without the consent of Seller, which
consent may be withheld in Seller’s sole discretion and may be subject to any
conditions), provided that Purchaser (including its agents or consultants) be
limited to two (2) visits to the Properties; and

 

(ii)                                  The right, subject to compliance with
applicable Law, including the HSR Act, to inspect and review at Seller’s offices
at reasonable times and upon reasonable advance notice, all of the Records.

 

(c)                                  Purchaser shall maintain the results of its
investigation, testing and evaluation and review of files and records,
confidential in accordance with and otherwise comply with the terms of the
Confidentiality Agreement.

 

(d)                                 Purchaser shall provide Seller a copy of any
final environmental assessment reports and the supporting documentation of or
about the Properties commissioned by Purchaser, including, without limitation,
any reports, data and conclusions developed pursuant to the Pre-Acquisition
Review, promptly after such assessment report has been furnished to or obtained
by Purchaser, and Seller shall be permitted to discuss the contents of any such
assessment reports with the party who prepared such reports.  Neither Party
shall be deemed by its receipt of said documents to have made any representation
or warranty, expressed, implied or statutory, as to the condition of the Assets
or the accuracy of said documents or the information contained therein.

 

(e)                                  Seller shall have the right to have a
representative or representatives accompany Purchaser and Purchaser’s
representatives (including without limitation environmental consultants and
experts) at all times during Purchaser’s Pre-Acquisition Review.  With respect
to any samples taken in connection with Pre-Acquisition Review, Purchaser shall
take split samples, providing one of each such sample, properly labeled and
identified, to Seller without charge.  In the event that Purchaser’s Phase I
identifies the need for additional investigation or sampling, then Purchaser may
request Seller’s consent to conduct Phase II environmental property assessments
or

 

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such other activities.  The Phase II procedures and plan concerning any
additional investigation shall be submitted to Seller in a written environmental
property assessment plan, and shall be reasonable based on the findings of the
Phase I.  Thereafter, Seller may, in its sole discretion, approve said
environmental property assessment plan, in whole or in part, and Purchaser shall
not have the right to conduct any activities set forth in such plan until such
time that Seller has approved such plan in writing; provided that, in the event
of the Seller’s rejection of said environmental property assessment plan, in
whole or in part, Purchaser may request that an independent environmental
consultant or expert (not being the same person used by the Purchaser) be
engaged by Seller, at Purchaser’s cost, to verify whether, in their opinion, a
Phase II report is necessary. If such person reports that a Phase II is
necessary, but Seller still does not approve, the Purchaser (i) may still
deliver an Environmental Defect Notice with respect to such Assets and
(ii) notwithstanding anything in this Agreement to the contrary, may elect to
have such Assets excluded from the transactions contemplated hereunder whereby
such Asset shall be deemed an Excluded Asset, and the Unadjusted Purchase Price
shall be reduced by the Allocated Value of such Excluded Assets.

 

(f)                                   While conducting the Pre-Acquisition
Review, Purchaser and its employees, agents and consultants shall abide by
Seller’s safety rules, regulations and other operating policies applicable to
such Properties. Seller has the right to be present during any activities
conducted on the Assets as part of the Pre-Acquisition Review.

 

(g)                                  Purchaser shall not contact directly or
indirectly, any Governmental Authorities, lessors, midstream companies doing
business with Seller in connection with the Assets, or similar third parties,
without Seller’s express written consent and limited to the purposes for which
consent is sought.

 

7.2                               Notification of Breaches.

 

(a)                                 Until the Closing Date;

 

(i)                                     Purchaser shall notify Seller promptly
after Purchaser obtains Knowledge that any representation or warranty of Seller
contained in this Agreement is untrue in any material respect or will be untrue
in any material respect as of the Closing Date or that any covenant or agreement
to be performed or observed by Seller prior to or on the Closing Date has not
been so performed or observed in any material respect.

 

(ii)                                  Seller shall notify Purchaser promptly
after Seller obtains Knowledge that any representation or warranty of Purchaser
contained in this Agreement is untrue in any material respect or will be untrue
in any material respect as of the Closing Date or that any covenant or agreement
to be performed or observed by Purchaser prior to or on the Closing Date has not
been so performed or observed in a material respect.

 

(b)                                 Any of Purchaser’s or Seller’s
representations or warranties that are untrue or that shall become untrue in any
material respect between the Execution Date and the Closing Date, and any of
Purchaser’s or Seller’s covenants or agreements to be performed or observed
prior to the Closing Date that have not been so performed or observed in any
material respect, shall be

 

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considered not to have occurred for all purposes of this Agreement to the extent
that any such breach of representation, warranty, covenant or agreement is cured
by the applicable Closing.

 

7.3                               Operation of the Business.

 

(a)                                                              From the
Execution Date until the Closing occurs, Seller will continue to operate the
Assets in the ordinary course of business and in material compliance with all
applicable Laws, including, without limitation, Environmental Laws, and in
material compliance with all Material Contracts and Mineral Interests.  From the
Execution Date until Closing, Seller agrees not to, without Purchaser’s prior
consent (provided that such consent may not be unreasonably withheld,
conditioned or delayed to the effect that the Seller incurs a cost which would
not be reimbursed by the Purchaser under the terms of this Agreement):

 

(i)                                     Except as listed in Schedule 6.1(p),
expend, propose or approve the commitment to expend any funds, net to Seller’s
interest, in excess of two hundred and fifty thousand United States Dollars
($250,000) per operation or per well, or make any commitments to expend funds,
net to Seller’s interest, in excess of two hundred and fifty thousand United
States Dollars ($250,000) per operation, or otherwise incur any other
obligations or liabilities, other than in the ordinary course of business,
except in the event of an emergency requiring immediate action to protect life,
prevent environmental contamination, or to preserve the Assets (including
without limitation where needed to comply with any drilling obligations needed
to maintain any Mineral Interest);

 

(ii)                                  except (i) as listed in Schedule 6.1(p),
(ii) where necessary to prevent the termination of a Mineral Interest or
(iii) where needed to comply with any drilling obligations needed to maintain
any Mineral Interest, propose: the drilling of any additional wells, propose the
deepening, plugging back, side-tracking or reworking of any existing wells, or
propose the abandonment of any wells relating to the Oil and Gas Interests;

 

(iii)                               sell, transfer (including any mortgage or
hypothecation, farmout, or assign) or abandon any portion of the Assets other
than sales and dispositions of Hydrocarbons and items of materials, supplies,
Equipment, improvements or other personal property or fixtures forming a part of
the Assets that have become obsolete or unusable and except for any abandonment
that is required by law or regulation;

 

(iv)                              amend or terminate any Material Contract in
any material respect or enter into any new Material Contract other than the
Williams Gathering Agreement and Shared Use and Access Agreement;

 

(v)                                 fail to maintain any Governmental
Authorization affecting the Assets;

 

(vi)                              enter into any settlement of any material
issues with respect to any assets or audit or other administrative or judicial
proceeding with respect to Taxes for which Purchaser may have liability;

 

(vii)                           not waive, compromise or settle any material
right or claim if such waiver, compromise or settlement regarding the use,
ownership or operation of any of the Assets;

 

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(viii)                        terminate (excluding expiration) or materially
amend any Mineral Interest or Surface Interest; or

 

(ix)                              elect to non-consent any operation on any of
the Oil and Gas Interests.

 

(b)                                 Notwithstanding the foregoing, Seller will
be free to do any of the foregoing without the consent of Purchaser where needed
to comply with Seller’s HSSE policies or to safeguard life, property or the
environment; provided, however, that Seller shall provide written notice of the
same to Purchaser as promptly as reasonably practicable.

 

(C)                               EXCEPT WITH REGARD TO SELLER’S BREACH OF THE
COVENANTS SET FORTH IN THIS SECTION 7.3, PURCHASER RELEASES SELLER AND EACH
MEMBER OF SELLER GROUP FROM ANY LIABILITY FOR SELLER’S OR SELLER GROUP MEMBER’S
OWN NEGLIGENCE, INCLUDING SELLER’S OR SELLER GROUP MEMBER’S SOLE NEGLIGENCE OR
GROSS NEGLIGENCE (BUT NOT WILLFUL MISCONDUCT OF SELLER OR SELLER GROUP), IN ANY
CAPACITY, OR FROM ANY LIABILITY TO PURCHASER EXISTING BY OPERATION OF STATUTE OR
UNDER STRICT LIABILITY, ARISING OUT OF, CONNECTED WITH OR RELATED TO, SELLER’S
OPERATION, OWNERSHIP OR CONTROL OF THE ASSETS FROM THE EFFECTIVE TIME UNTIL THE
CLOSING DATE.

 

(d)                                 Requests for approval of any action
restricted by this Section 7.3 shall be delivered to the following individual,
who shall have full authority to grant or deny such requests for approval on
behalf of Purchaser:

 

Jon Wright

Email: jwright@halconresources.com

Phone: (720) 446-1036

 

Purchaser’s approval of any action restricted by this Section 7.3 shall be
considered granted upon the expiry of ten (10) days (unless a shorter time is
reasonably required by the circumstances and such shorter time is specified in
Seller’s notice) of Seller’s notice to Purchaser requesting such consent unless
Purchaser notifies Seller to the contrary during that period.

 

7.4                               Indemnity Regarding Access.

 

PURCHASER AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER, THE SELLER
GROUP, THE OTHER OWNERS OF INTERESTS IN THE PROPERTIES, AND ALL SUCH PERSONS’
AFFILIATES, AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
REPRESENTATIVES FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, LOSSES, COSTS
AND EXPENSES (INCLUDING COURT COSTS AND REASONABLE ATTORNEYS’ FEES), INCLUDING
CLAIMS, LIABILITIES, LOSSES, COSTS AND EXPENSES ATTRIBUTABLE TO PERSONAL INJURY,
DEATH, OR PROPERTY DAMAGE, ARISING OUT OF OR RELATING TO ACCESS TO THE ASSETS
PRIOR TO CLOSING BY PURCHASER OR ANY PERSON UNDER PURCHASER’S CONTROL,

 

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EVEN IF CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE, GROSS NEGLIGENCE (WHETHER
SOLE, JOINT OR CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY
INDEMNIFIED PERSON, EXCLUDING ANY WILLFUL MISCONDUCT OF ANY INDEMNIFIED PERSON;
PROVIDED, HOWEVER, THAT PURCHASER’S IDENTIFICATION OF AN ENVIRONMENTAL CONDITION
ON OR ATTRIBUTABLE TO THE ASSETS THAT WAS NOT CAUSED BY PURCHASER SHALL NOT BE
CONSIDERED TO BE PROPERTY DAMAGE FOR THE PURPOSES OF THIS SECTION 7.4.

 

7.5                               Governmental Reviews.

 

(a)                                 Upon the terms and subject to the conditions
set forth in this Agreement, each Party shall use its commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and reasonably cooperate with the other Party (without
obligation to spend money in its cooperation with the other Party’s efforts) in
doing, all things necessary, proper or advisable under applicable Laws to
consummate the transactions contemplated by this Agreement as promptly as
practicable, including (i) the obtaining of all necessary actions or
non-actions, waivers, authorizations, expirations or terminations of waiting
periods, clearances, consents and approvals from Governmental Authorities,
(ii) the making of all necessary registrations and filings and the taking of all
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Authority, and (iii) the defending of
any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
by this Agreement.  Except for any filing fees that may be imposed by law on
Seller, Seller shall not be required to pay or reimburse Purchaser for any fees
or other payments to any Governmental Authority in connection with any such
actions, approvals, or consents.

 

(b)                                 Purchaser shall use its commercially
reasonable efforts to resolve prior to Closing any objections as may be asserted
by any Governmental Authority with respect to Purchaser’s participation in the
transactions contemplated by this Agreement.  Seller shall cooperate with
Purchaser, including by timely providing such information and making available
such personnel as Purchaser may reasonably request to prepare for and
participate in meetings with Governmental Authorities, and/or to respond to any
questions raised by Governmental Authorities.

 

If a Party intends to participate in any meeting with any Governmental Authority
with respect to such filings, it shall give the other Party reasonable prior
notice of such meeting and permit the other Party to attend such meeting to the
extent practicable.

 

7.6                               Operatorship.

 

(a)                                 Purchaser agrees that it will promptly take
such actions as are necessary to become the successor operator of those
Properties operated by Seller as of the Effective Time (“Operated Properties”)
and to obtain all necessary approvals of Governmental Authorities and will
indemnify Seller Group from any and all liabilities, costs and expenses in
connection with the succession of Seller by Purchaser as operator of the
Operated Properties. Seller makes no representation or warranty or provides any
assurance that Purchaser shall succeed Seller as operator of any portion of the
Operated Properties; provided, however, that Seller will assist, to the extent
reasonable,

 

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Purchaser in Purchaser’s efforts to succeed Seller as operator of any Well, at
no cost to Seller greater than a de minimus cost, including designating and/or
appointing by assignment, to the extent legally possible, Purchaser as successor
operator or taking any other actions permitted or required under applicable
Laws, the applicable operating agreement or other governing document (including
executing letters whereby the applicable Seller resigns as operator of all
Seller-operated Wells and Assets).

 

(b)                                 If any Governmental Authority has not
accepted Purchaser, or Purchaser’s designated operator, as operator of any
Operated Properties at or after the date that is one hundred twenty (120) days
from the Closing Date, Purchaser and Seller will use commercially reasonable
efforts to negotiate a mutually beneficial solution to facilitate the transfer
of operatorship to Purchaser or its designated operator.   If the Parties cannot
agree on a mutually beneficial solution, Seller may give the Purchaser notice
and within thirty (30) days following the expiry of such period requiring the
Purchaser to re-assign or cause to be re-assigned those applicable Assets to the
Seller and the Seller will return eighty-five percent (85%) of the applicable
portion of the Adjusted Initial Payment Amount relating to such returned Assets,
together with any other reasonable costs, expenses or amounts paid by Purchaser
after Closing relating to the prudent operation of such applicable Assets.

 

(c)                                  IF THERE IS A RE-ASSIGNMENT PURSUANT TO
SECTION 7.6(b), PURCHASER SHALL INDEMNIFY AND HOLD HARMLESS SELLER AND SELLER
GROUP AGAINST ALL CLAIMS, LOSSES AND LIABILITIES, IF ANY, RESULTING FROM
PURCHASER’S OPERATION OF THE ASSETS DURING THE TIME PERIOD BETWEEN CLOSING AND
THE DATE OF THE RE-ASSIGNMENT OF THE ASSETS TO THE SELLER, EXCEPT TO THE EXTENT
SUCH CLAIMS ARISE FROM OR ARE ATTRIBUTABLE TO THE WILLFUL MISCONDUCT OF SELLER.

 

7.7                               Recording & Filing.

 

Within seven (7) Business Days of the Closing Date, Seller shall, at no expense
to Seller (other than de minimus costs), use its reasonable commercial efforts
to file the P-4 Forms with the Commission.  If Seller fails to file the P-4
Forms after fifteen (15) Business Days from the Closing Date, the Purchaser
shall have the right to file the P-4 Forms with the Commission.  In addition,
within (30) days of Closing, Purchaser shall, at its expense, use its reasonable
commercial efforts to file or record the conveyance documents other than P-4
Forms, as necessary with the appropriate governmental agencies or records
office.  Seller and Purchaser shall provide a copy of same, including recording
date, to the other Party and any other contract parties requiring the same.

 

7.8                               Notice to Third Persons.

 

In relation to lessors, royalty owners, operators, non-operators, purchasers of
production, other contract parties and Government Authorities Seller has the
right to notify all or such of those parties as it deems appropriate that
Purchaser has purchased the Assets and has assumed liability for the Assumed
Obligations relating to their continued operation from and after the Closing
Date, with an effective date of the Effective Time; provided that Seller shall
provide Purchaser with the form that such notices will take and Purchaser shall
have the right to consent to the such form, such

 

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consent not to be unreasonably withheld, delayed or conditioned. Purchaser and
Seller shall execute all transfer orders, division orders, or letters-in-lieu
necessary to transfer payment of the proceeds from the sale of production from
the Assets as of the Effective Time to Purchaser, and joinders, ratifications or
other similar instruments required to transfer Assets as of the Effective Time
to Purchaser.

 

7.9                               Property Records.

 

Within fifteen (15) days after Closing, Seller shall deliver to Purchaser
electronic copies of the Records (subject to the limitations contained in this
Agreement) which were not already delivered by Seller.  Any electronic
information or data provided shall be in the same format as that then currently
used by Seller and Seller is not required to perform or create additional
programming or system support in connection therewith.  Seller may retain
photocopies, electronic images or other formats of the Records. Seller may
excise or redact Records to remove information that would constitute an Excluded
Record.  Seller and Purchaser shall each appoint one (1) focal point for
coordination of the transfer of electronic information and data to Purchaser.

 

7.10                        Use of Name.

 

On or before sixty (60) days after Closing, Purchaser will permanently remove,
or cause to be permanently removed (and not simply covered or obscured), from
the facilities pertaining to the Assets, the name, logo and service mark of
Seller and its Affiliates, and all variations and derivations thereof, and will
not thereafter make use thereof in respect of the Properties being conveyed to
Purchaser.

 

7.11                        Seller’s Insurance.

 

Purchaser acknowledges and agrees that (a) no insurance policies arranged for
the benefit of or provided to Seller or any member of Seller Group, including
any current insurance policies relating to the business or assets of Seller
(“Current Insurance Policies”), shall continue after Closing and (b) Purchaser
shall not, and shall procure that no member of Purchaser Group shall, make any
claims under any such insurance policies or insurance coverage in respect of
facts, events or circumstances arising before or after Closing.  Purchaser
further hereby acknowledges and agrees that no historic insurance coverage
provided by or to Seller, including the Current Insurance Policies, shall be
available to Purchaser or Seller after Closing, with the exception of insurance
coverages required by statute or law and, in such limited instances only to the
extent that the policies provide such historical coverage.  Purchaser further
acknowledges and agrees that it has no right, title or interest in any unearned
premiums on any policies maintained by or for the benefit of Seller or any
member of Seller Group.

 

7.12                        Casualty Loss.

 

If after the Execution Date and prior to the Closing any part of the Assets
shall be damaged or destroyed by fire or other casualty or if any part of the
Assets shall be taken in condemnation or under the right of eminent domain
(collectively, “Casualty Losses”) or if proceedings for such purposes shall be
pending or threatened, this Agreement shall remain in full force and effect
notwithstanding any such destruction, taking or proceeding, or the threat of any
such destruction,

 

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taking or proceeding, and the Parties shall proceed with the transactions
contemplated by this Agreement notwithstanding such destruction or taking
without reduction of the Unadjusted Purchase Price; provided, however, Seller
shall pay to Purchaser all sums paid to Seller by third parties by reason of the
destruction or taking of such Assets (up to the Allocated Value), including any
sums paid pursuant to any agreement or indemnity (for avoidance of doubt other
than insurance), and shall assign, transfer and set over unto Purchaser all of
the rights, title and interest of Seller in and to any claims, causes of action,
unpaid proceeds or other payments from third parties, including any agreement of
indemnity, arising out of such destruction or taking (up to the Allocated
Value).

 

7.13                        Data Privacy.

 

(a)                                 Each Party acknowledges that it may be
required to process Personal Data during the undertaking of its obligations
under this Agreement.  Each Party agrees that it shall comply with the
obligations imposed by all applicable Data Protection Laws and take appropriate
technical and organizational measures against unauthorized or unlawful
processing of, accidental loss or destruction of, or damage to Personal Data;
provided that, having regard to the state of technological development and the
cost of implementing any measures, the measures must ensure a level of security
appropriate to the harm that might result from unauthorized or unlawful
processing or accidental loss, destruction or damage and the nature of the
Personal Data to be protected.  These measures shall also aim at preventing
unnecessary collection and further processing of such Personal Data.

 

(b)                                 All Personal Data made available to any
Party or their representatives hereunder shall be made available on an “as is”
basis without any warranties, either express or implied, as to the quality,
completeness, accuracy, validity, non-infringement or utility of such Personal
Data.  In no event shall the Party providing Personal Data be liable for any
actual, incidental, punitive, consequential or other damages arising out of, or
resulting from the receiving Party’s or their representatives’ (i) use of or
reliance upon the Personal Data or (ii) disclosure of the Personal Data to a
third party in breach of this Agreement or any applicable Data Protection Law. 
The Parties agree that the Party responsible for a breach of data privacy or a
violation of relevant applicable Data Protection Laws will indemnify, defend and
hold harmless the non-breaching Party from and against any and all claims,
liabilities, losses, causes of actions, costs and expenses (including, without
limitation, those involving theories of negligence or strict liability and
including court costs and attorneys’ fees) asserted against, resulting from,
imposed upon or incurred by the non-breaching Party as a result of, or arising
out of the breach of data privacy or a violation of relevant applicable Data
Protection Laws.

 

7.14                        Environmental Reporting.

 

For any reporting to a Governmental Authority related to the Assets that because
of the Closing Date and particular Law could involve the potential for combined
or split reporting, Purchaser and Seller shall confer at an agreed time prior to
Closing in order to resolve any issues related to such reporting.

 

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7.15                        Assignable Seismic Data.

 

If the Parties do not enter into the Reprocessed Seismic Data License at Closing
pursuant to Section 5.3(h), but subsequent to the Closing Date, the Purchaser
obtains, and demonstrates same to Seller, a license from the third-party owner
of the underlying seismic data prior to the date upon which the Seller submits
to Purchaser the Final Accounting Statement, Seller and Purchaser shall execute
the Reprocessed Seismic Data License, in the form attached as Exhibit G,
relating to the Assignable Seismic Data.

 

7.16                        Interim Assistance with Survey, Staking and
Permitting.

 

Purchaser and Seller agree that from and after the Execution Date until the
Closing Date, Seller shall use reasonable efforts to provide Purchaser (or its
Affiliates) with access to the Assets, identified in advance written notice to
Seller and during normal business hours, for the purposes of surveying, staking
and other preliminary surface work in order to facilitate Purchaser’s drilling
operations after Closing.  Seller further agrees to use commercially reasonable
efforts (at no cost to Seller other than de minimus costs) to assist Purchaser
in preparing any necessary Governmental Authorizations or third party
notifications for such post-Closing operations; provided, however, that
Purchaser shall be solely responsible for any costs, expenses and liability
associated therewith and for purposes of clarity, the indemnity obligations of
Purchaser set forth in Section 7.4 shall expressly apply to any access granted
to or action taken by Purchaser pursuant to this Section 7.16.

 

ARTICLE 8. – ACCOUNTING FOR REVENUE & EXPENSES

 

8.1                               Adjustments to Purchase Price.

 

The Unadjusted Purchase Price shall be adjusted as follows, without double
counting any amounts, (the “Price Adjustments”).

 

(a)                                 The Unadjusted Purchase Price shall be
adjusted upward by the following amounts (without duplication):

 

(i)                                     Property Expenses attributable to
periods from and after the Effective Time which have been paid by Seller;

 

(ii)                                  Inventory;

 

(iii)                               Imbalances, if positive;

 

(iv)                              Owner Balances, if positive, pursuant to
Schedule 8.1;

 

(v)                                 Property and ad valorem taxes accrued by
Seller and attributable to the Assets after the Effective Time; and

 

(vi)                              any other amount provided for elsewhere in
this Agreement.

 

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(b)                                 The Unadjusted Purchase Price shall be
adjusted downward by the following amounts (without duplication):

 

(i)                                     Revenues;

 

(ii)                                  Environmental Defects pursuant to Sections
3.2(b)(i) and 3.2(g)(viii), subject to 3.2(h);

 

(iii)                               Title Defects pursuant to Section 4.4(d)(i),
subject to 4.4(k);

 

(iv)                              Allocated Value of Assets that are excluded
from this Agreement because of (a) the exercise of preferential rights or
unobtained Hard Consents pursuant to Section 4.6(b); (b) Seller’s election to
exclude Assets under Sections 3.2(b)(ii), 3.2(b)(iii), 3.2 (d) and 3.2(g)(viii),
subject to 3.2(h); (c) Seller’s election to exclude Assets under 4.4(d)(ii),
4.4(d)(iii) and 4.4(j)(viii), subject to 4.4(k); and Purchaser’s election to
exclude Assets pursuant to Section 7.1(e);

 

(v)                                 Imbalances, if negative;

 

(vi)                              Owner Balances, if negative, pursuant to
Schedule 8.1;

 

(vii)                           Property and ad valorem taxes paid by Purchaser
and attributable to the Assets before the Effective Time;

 

(viii)                        Property Expenses attributable to periods prior to
the Effective Time which have been paid by Purchaser;

 

(ix)                              Any other amount provided for elsewhere in
this Agreement; and

 

(x)                                 The expenses incurred during the period
between the Effective Time and the Closing Date which relate to the workover
operations on the Crockett 1-26 1H well (API #42475355820000).

 

8.2                               Preliminary Accounting Statement.

 

Not less than five (5) Business Days prior to Closing, Seller shall furnish
Purchaser with a good faith estimated accounting (“Preliminary Accounting
Statement”), prepared in a manner consistent with Seller’s past accounting
practices, reflecting the Price Adjustments as of the date of preparation of
such Preliminary Accounting Statement and the effect of such Price Adjustments
on the Unadjusted Purchase Price. The Parties shall in good faith attempt to
agree on the Preliminary Accounting Statement as soon as reasonably possible.
The amount resulting from the application of the Price Adjustments to the
Unadjusted Purchaser Price included in the Preliminary Accounting Statement, as
agreed upon by the Parties, will be the “Adjusted Initial Payment Amount”;
provided, however, that if the Parties do not agree upon an adjustment set forth
in the Preliminary Accounting Statement, then the Adjusted Initial Payment
Amount shall be that amount set forth in the draft Preliminary Accounting
Statement delivered by Seller to Purchaser

 

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pursuant to this Section 8.2 and that any disagreement with respect to Title
Defects and Environmental Defects will be resolved pursuant to the applicable
provisions of this Agreement.

 

8.3          Final Accounting Statement.

 

(a)          On or before one hundred twenty (120) days after Closing, Seller
shall prepare and deliver to Purchaser a draft of the proposed final accounting
statement (the “Final Accounting Statement”) setting forth Seller’s good faith
updated determination of the Price Adjustments and applies those Price
Adjustments to the Unadjusted Purchase Price (the “Final Purchase Price”) which
shall be the final amount payable by Seller or by Purchaser (as the case may be)
to the extent not already paid or taken into account at Closing (the “Adjusted
Final Payment Amount”).  Parties shall cooperate to avoid split month accounting
for revenue. In the event Closing does not occur on the first day of a calendar
month, Seller will market Hydrocarbon production, pay associated royalties for
the calendar month in which Closing occurs on Purchaser’s behalf, and Seller’s
remittance of the amount of production sales, less royalties, paid by Seller to
Purchaser will be included in the Final Accounting Statement and the Adjusted
Final Payment Amount will be adjusted accordingly. To the extent reasonably
required by Seller, Purchaser shall assist in the preparation of the Final
Accounting Statement. Purchaser shall have the right to audit the Final
Accounting Statement.  The Parties’ failure to complete the Final Accounting
Statement shall not constitute a waiver of the right to receive any amount
otherwise due.  The Final Accounting Statement shall become final and binding
upon the Parties and payable thirty (30) days after receipt thereof by
Purchaser, unless Purchaser gives written notice of its disagreement (an
“Accounting Notice”) to Seller prior to such date.  Time is of the essence with
respect to the Accounting Notice.  Any Accounting Notice shall specify in detail
the dollar amount, nature and basis of the disagreement so asserted.   Purchaser
shall not be entitled to dispute any expenditure or payment made by Seller, as a
prudent operator, substantially in accordance such of Seller’s past practices as
evident from the lease operating statements provided in the Data Exchange,
subject, in all instances, to the restrictions and limitations on Seller’s
authority set forth in this Agreement, including those set forth in Section 7.3.
If an Accounting Notice is received by Seller in a timely manner, then the Final
Accounting Statement (as revised in accordance with clause 8.3(a)(i) or
8.3(a)(ii) below) shall become final and binding on the Parties and any amounts
due shall be payable by the earlier of thirty (30) days after (i) the date
Seller and Purchaser agree in writing with respect to all matters as to which
there is a disagreement or (ii) the date on which the Accounting Referee issues
its decision.

 

(b)           During the sixty (60) days following the date of receipt by Seller
of an Accounting Notice, Seller shall make available the records relevant to the
disagreement and Seller and Purchaser shall attempt in good faith to resolve in
writing any differences that they may have with respect to all matters specified
in the Accounting Notice.  If, at the end of such sixty (60) day period, Seller
and Purchaser have not reached agreement on such matters, the matters that
remain in dispute shall be submitted to a mutually agreed neutral accountant
(the “Accounting Referee”) for review and final binding resolution.  The
Accounting Referee shall be a certified public accountant, with at least 15
years of oil and gas accounting experience, who is an employee or partner of a
recognized independent public accounting firm and experienced in oil and gas
accounting.  In the event the Parties cannot agree upon the Accounting Referee,
each Party will appoint a neutral accountant who meets the criteria set forth in
the foregoing sentence and the two selected accountants shall appoint a third
accountant meeting the foregoing criteria to be the “Accounting Referee.”  All
determinations and adjustments with respect to allocating items to the period
before or after the

 

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Effective Time shall be in accordance with GAAP, consistently applied, and this
Agreement. The Accounting Referee shall render a decision resolving the matters
in dispute within fifteen (15) days following their submission to the Accounting
Referee. Seller and Purchaser shall each be responsible for one-half of the fees
and expenses of the Accounting Referee.  In the event the disagreement relates
to a contract interpretation matter as opposed to an accounting matter, such
matter shall be resolved pursuant to the provisions of Article 16 and not this
Article 8.

 

(c)           If, prior to the first anniversary of the Closing Date, a Party
receives any proceeds or makes any expenditure for the benefit of the other
Party, it shall promptly remit to the other Party the relevant amount (to the
extent such amounts had not been previously accounted for in the Final
Accounting Statement). No claim made pursuant to this Section 8.2(c) shall be
valid unless it is brought prior to the first anniversary of the Closing Date.

 

8.4          Inventory

 

Seller shall gauge all merchantable Hydrocarbon and non-hydrocarbon substances
associated with the Mineral Interests in storage as of the Effective Time and
shall provide Purchaser with all reasonable detail and support necessary to
confirm such amounts.

 

8.5          Notice to Remitters of Proceeds and Expenses.

 

After the Closing, the Parties shall inform the remitters of any proceeds
attributable to the Assets to pay Purchaser to the extent practical after the
Effective Time.  To the extent that any remitter pays revenues or sends invoices
or claims (for Owner Balances or Property Expenses) to the incorrect Party, that
Party shall promptly remit such revenues (without interest) or forward such
invoices or claims to the correct Party.

 

8.6          Post-Closing Payments.

 

Payments to be made following the Closing under this Agreement shall be made by
wire transfer of immediately available funds within five (5) Business Days after
the final determination is made that such payments are due and payable to the
Purchaser’s Account or Seller’s Account (as the case may be).

 

ARTICLE 9. — TAX MATTERS

 

9.1          Apportionment of Taxes.

 

All Taxes (except as provided below) pertaining to the Assets or Hydrocarbon
production from the Assets and similar obligations, including, without
limitation, production, severance, excise, and other similar Taxes that are
based upon production of, or income or revenues from Hydrocarbons, are Seller’s
responsibility where attributable to the period prior to the Effective Time and
Purchaser’s responsibility where attributable to the period after the Effective
Time (regardless of when assessed on the Assets or Hydrocarbon production). 
Seller shall be allocated and shall bear all ad valorem taxes, real property
taxes, Personal Property taxes, and similar Tax obligations (the “Property
Taxes”) with respect to the Assets for any Tax period (or portion thereof)
ending prior to the Effective Time.  Purchaser shall be allocated and shall bear
all Property Taxes with respect to the Assets for any Tax period (or portion
thereof) beginning on or after the Effective Time.

 

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Property Taxes for any Tax period in which the Effective Time occurs shall be
apportioned based on the number of days in such Tax period before and after the
Effective Time, between Seller and Purchaser.  To the extent possible, amounts
relating to such Taxes shall be included in the Final Accounting Statement, but
the Final Accounting Statement shall not constitute a final settlement of Tax
liability as allocated between the Parties pursuant to this Section 9.1. 
Notwithstanding the foregoing, each Party shall be responsible for its own
federal, state, or local income taxes, gross margin taxes, franchise taxes or
gross receipts taxes with respect or attributable to the ownership of the Assets
and the transactions pursuant to the terms of this Agreement and each Party
agrees to indemnify and hold the other Party harmless with respect to such
Taxes.  PURCHASER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER FOR ALL
PROPERTY AND HYDROCARBON PRODUCTION TAXES ATTRIBUTABLE TO ANY TAX PERIOD (OR
PORTION THEREOF) ENDING ON OR AFTER THE EFFECTIVE DATE AND SELLER SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS PURCHASER FOR ALL PROPERTY HYDROCARBON
PRODUCTION TAXES ATTRIBUTABLE TO ANY TAX PERIOD (OR PORTION THEREOF) ENDING
PRIOR TO THE EFFECTIVE DATE.

 

9.2          Transfer Taxes.

 

Purchaser shall be responsible for paying Transfer Taxes or other fees, if any,
that are payable upon or because of the transfer of any of the Assets to
Purchaser.  “Transfer Taxes” means any sales, use, excise, stock, stamp,
documentary, filing, recording, registration, authorization and similar taxes,
fees and charges. The Parties shall reasonably cooperate (including by the
provision of exemption certificates, documentation to support an occasional or
isolated sale exemption, or other evidence or documentation) to reduce the
amount of any such Transfer Taxes.

 

9.3          Tax Reporting of the Allocation of Purchase Price.

 

Seller and Purchaser agree to allocate the Final Purchase Price and any
liabilities assumed by Purchaser under this Agreement based on the Allocated
Values provided that no more than 10% of the Purchase Price shall be allocated
to tangible property and no less than 90% shall be allocated to the Mineral
Interests. Seller and Purchaser each agree that the Assets subject to this
Agreement do not constitute an “applicable asset acquisition” as described under
Code Section 1060, and do not constitute a trade or business in the ordinary
sense of the term. Seller and Purchaser each agree to report the Tax
consequences of the transactions contemplated herein as a purchase and sale of
assets, and in particular to report the information consistent with the terms of
this Agreement and shall not take any position inconsistent therewith upon
examination of any Tax return, in any refund claim, in any litigation,
investigation or otherwise unless required to do so by applicable Law after
notice to the other Party, or with such other Party’s prior consent.

 

9.4          Cooperation on Tax Returns and Tax Proceedings.

 

Purchaser and Seller will cooperate fully as and to the extent reasonably
requested by the other party, in connection with the filing of any Tax Returns
with respect to the Properties (other than with respect to income and franchise
taxes) and any audit, litigation or other proceedings.

 

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ARTICLE 10. — PURCHASER’S ASSUMED OBLIGATIONS

 

10.1        Purchaser’s Assumed Obligations.

 

At Closing, but with effect from the Effective Time (except for the matters
below stated to take effect at a time other than the Effective Time) and subject
to and except with regard to any of Purchaser’s rights in relation to (i) the
Retained Obligations, (ii) indemnification set forth in Article 11, and
(iii) post-Closing matters relating to Title Defects and Environmental Defects,
Purchaser shall assume and agree to fulfill, perform, pay and discharge all of
the obligations and liabilities arising from, related to or connected with the
ownership, operatorship (where applicable) and operation of the Assets (all of
which shall constitute the “Assumed Obligations”).  The Assumed Obligations
include, without limitation, the following:

 

(a)           the express and implied obligations, conditions and covenants
under the terms of all contracts, agreements, instruments and orders to which
the Assets are subject, other than the Excluded Contracts, and including, for
the avoidance of doubt, liability for breach of any of the foregoing, whether
such breach occurred prior to or after the Effective Time;

 

(b)           the responsibility for compliance with all applicable Laws, the
maintenance of all Governmental Authorizations, and bonds required by
Governmental Authorities relating to the Assets and including, for the avoidance
of doubt, subject to Section 10.2, liability for breach of any of the foregoing,
whether such breach occurred prior to or after the Effective Time;

 

(c)           the responsibility for royalties, overriding royalties, minimum
royalties, net profits interests, rentals, shut-in payments and all other
burdens, charges or encumbrances to which the Oil and Gas Interests are subject
and including, for the avoidance of doubt liability for failures to pay any of
the foregoing, with respect to Hydrocarbon production on and after the Effective
Time;

 

(d)           the responsibility for proper accounting for and disbursement of
production proceeds from the Oil and Gas Interests on and after the Effective
Time, and the obligation to maintain and hold Owner Balances, funds or royalties
in suspense in at least the amounts set forth on Schedule 8.1;

 

(e)           the responsibility for any liquid or gaseous Hydrocarbon
imbalances existing as of the Effective Time in connection with any of the
Assets;

 

(f)            the responsibility for any and all claims for personal injury or
death arising directly or indirectly from or incident to the use, occupation,
ownership, operation or maintenance of any of the Assets, or the condition
thereof and including, for the avoidance of doubt, liability for claims arising
on or after the Closing Date; and

 

(g)           the responsibility to properly plug, abandon and restore the
Assets, as provided in Section 10.2, the Environmental Obligations, as provided
in Section 10.3, the obligations in Section 10.4 (to the extent such obligations
have not terminated) and all other obligations assumed by Purchaser under the
terms of this Agreement.

 

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10.2        Plugging and Abandonment of Wells, Removal of Facilities.

 

Upon and after Closing, but with effect from the Effective Time, Purchaser
assumes full responsibility and liability for all plugging, abandonment and
restoration obligations with respect to the Properties, regardless of whether
such obligations relate or are attributable to the ownership or operation of the
Properties prior to or after the Effective Time, and including, but not limited
to, the obligation to:

 

(a)           plug and abandon (or re-plug) any and all oil, gas, condensate,
CO2, injection or other wells and wellbores, located on each Mineral Interest
(or lands pooled with a Mineral Interest), whether producing, not producing or
abandoned or plugged in each case prior to or after the Effective Time;

 

(b)           remove and dispose of all structures, equipment and facilities
located on or comprising the Properties;

 

(c)           restore each Mineral Interest and wellsite associated with the Oil
and Gas Interests, including the surface, and subsurface;

 

(d)           cleanup and dispose of any equipment or materials contaminated
with NORM or asbestos;

 

(e)           perform all other obligations related to the foregoing that arise
by contract, lease terms, applicable law or demands of governmental agencies;

 

all to be performed in a good and workmanlike manner and in accordance with, and
to the extent required by, lease and contract obligations and applicable Law.

 

10.3        Environmental Obligations.

 

Subject to the Retained Obligations and excluding any liability or condition
that relates to any Excluded Assets, and subject to Purchaser’s right to
indemnification in relation to Section 6.1(q) set forth in Article 11, and the
rights the Purchaser may have in relation to any Final Disputed Environmental
Matters, the Assumed Obligations include the assumption by Purchaser of full
responsibility and liability for all liabilities and obligations arising out of,
related to, or connected with, the environmental condition of the Assets
(“Environmental Obligations”), including without limitation, claims arising out
of the following circumstances, conditions, occurrences, events and activities
on or related to the Assets, regardless of whether occurring, or arising or
resulting from any acts or omissions of Seller or any other Person prior to the
Effective Time and regardless of the condition of the Assets when acquired:

 

(a)           environmental pollution or contamination, including pollution or
contamination of the soil, subsurface, groundwater or air by hydrocarbons,
brine, hazardous wastes, hazardous substances, asbestos, NORM or otherwise,
attributable to the Assets acquired by Purchaser;

 

(b)           underground injection activities and waste disposal occurring on
any of the Properties;

 

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(c)           cleanup responses, and the cost of remediation, control,
assessment or compliance, with respect to surface and subsurface pollution;

 

(d)           disposal on the Properties of any hazardous substances, wastes,
materials, and products generated by or used in connection with the ownership or
operation of the Properties; and

 

(e)           compliance or noncompliance with, or satisfaction of remedies (to
include, but not be limited to, cost reimbursement, fines and/or penalties, if
any) provided under any Environmental Law.

 

10.4        Additional Security for Assumed Obligations.

 

(a)           Within sixty (60) days after Closing, Purchaser shall, or shall
procure that its designated Affiliate shall, deliver to Seller (to the attention
of the Shell Legacy Representative in accordance with the terms of Section 15.5)
a certificate certified by an officer of Purchaser, certifying that:

 

(i)            the P-4 Form has been filed with the Texas Railroad Commission
(the “Commission”) and approved by the Commission identifying the Operated
Properties as Properties for which the Purchaser is the successor operator and
assumes plugging and decommissioning responsibility;

 

(ii)           with respect to Operated Properties, if applicable, Purchaser has
filed with the Commission an active organization report that meets the
requirements of Section 91.142 of the Texas Natural Resources Code (the “TNRC”)
and any relevant Commission rules, guidance or regulations; and

 

(iii)          with respect to Operated Properties, if applicable, Purchaser has
obtained a Commission-approved bond, letter of credit, or cash deposit covering
such Operated Properties and such bond, letter of credit, or cash deposit must
be in compliance with:

 

(1)           Sections 91.103-107 of the TNRC; and

 

(2)           any other relevant law, statute, rule guidance or regulation.

 

(b)           Within ten (10) Business Days after the Commission has approved
and accepted the Purchaser’s P-4 Form filing, Purchaser shall deliver evidence
of such approval to Seller (to the attention of the Shell Legacy Representative
in accordance with the terms of Section 15.5) which evidence must be reasonably
acceptable to Seller (the “Approval Evidence”); provided, however, that if the
Commission provides written notice of any objection to such Purchaser’s P-4
Form filing, the sixty-day period described in Section 10.4(a) above shall be
extended for another forty-five (45) days after receipt of the Commission’s
objection to file a corrective P-4 Form.  Upon Seller’s receipt of (i) the
certificate described in Section 10.4(a) above, and (ii) the Approval Evidence,
then automatically and with no further action required by either Party,
Purchaser shall be deemed to have satisfied its obligations under this
Section 10.4, and this Section 10.4 shall automatically terminate (with no
further action by or notice to any Party) and be of no further force and effect.
If Purchaser has not (x) timely delivered the certificate described in
Section 10.4(a) above to Seller or (y) delivered the Approval Evidence in each
case within (9) months after the

 

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Closing Date, Purchaser must provide to Seller, within fifteen (15) days after
the expiration of the applicable deadline set forth in Section 10.4(a) above or
in this sentence, Decommissioning Security in an amount equal to twenty million
United States Dollars ($20,000,000), which Seller may draw upon in the event
Purchaser does not fulfill its obligations under Section 10.2, (the “Secured
Obligations”), without limiting any other remedies Seller has hereunder or at
law or in equity.  Once the Seller draws upon the Decommissioning Security, it
must use the funds for the sole purpose of satisfying such Section 10.2
obligations as the obligations fall due and in any event within twenty-four (24)
months, and Seller shall provide detailed statements, invoices and receipts with
regard to the use of such funds to evidence Seller’s compliance with these
provisions.  Seller shall have the right, not more than once every two years, to
require that Purchaser increase the amount of the Decommissioning Security by a
percentage equal to the percentage increase in the Consumer Price Index from the
date of this Agreement (in the event of the first increase) or from the date of
the most recent Decommissioning Security increase (in the event of subsequent
increases).  Should Seller decide to exercise such right, Seller must provide
written notice to Purchaser in the manner set forth in Section 15.5 of this
Agreement, and Purchaser must provide evidence of its compliance with Seller’s
request within thirty (30) days of receipt of such request.

 

(c)           The Purchaser expressly covenants that it will continue to comply
in all material respects with all laws, statutes, rules, and regulations which
allow for the release of Seller’s liability and plugging responsibility
contemplated in this Article 10, including without limitation Sections 89.011,
89.012, 91.103-.107, and 91.142 of the TNRC.

 

(d)           If Purchaser is required to provide Decommissioning Security, then
on or before each anniversary of the Closing Date, Purchaser must deliver to
Seller (to the attention of the Shell Legacy Representative in accordance with
the terms of Section 15.5) a report describing the status of all the Secured
Obligations, such report to include without limitation the following:

 

(i)                                     an update of contact information for the
primary personnel within Purchaser’s organization who are involved with the
fulfillment of the Secured Obligations;

 

(ii)                                  an update of the progress of the Secured
Obligations;

 

(iii)                               an updated plan for how Purchaser intends to
fulfill the Secured Obligations; and

 

(iv)                              any changes to ownership status due to a
conveyance or assignment that alter the party responsible for fulfilling the
Secured Obligations.

 

(e)           Conveyance or assignment of this Agreement or the Assets to
another party does not release Purchaser from obligations under this
Section 10.4.

 

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ARTICLE 11. — INDEMNIFICATION

 

11.1        Indemnification.

 

(a)           Upon Closing, Purchaser shall, except to the extent that a claim
or matter is indemnified by Seller pursuant to Section 11.1(b), indemnify,
defend and hold harmless the Seller and each member of Seller Group from and
against any and all claims, liabilities, losses, causes of actions, costs and
expenses (including, without limitation, those involving theories of negligence
or strict liability and including court costs and attorneys’ fees) (“Losses”)
asserted against, imposed upon or incurred by Seller or such other persons
entitled to indemnification under this Section 11.1(a) as a result of, or
arising out of:

 

(i)            the breach (without regard to any qualification of materiality or
Material Adverse Effect) of any of the representations or warranties of
Purchaser contained in Section 6.3 when made at either the Execution Date or
Closing Date (as applicable);

 

(ii)           the failure of Purchaser to perform any of the covenants or
agreements of Purchaser contained in this Agreement;

 

(iii)          the Assumed Obligations;

 

(iv)          any obligations for a brokerage or finder’s fee or commission
incurred by Purchaser in connection with the transactions contemplated by this
Agreement; and

 

(v)           any violation or alleged violation of securities laws by Purchaser
in connection with the Assets and any claim arising out of Purchaser’s dealings
with its partners, investors, lender, assignees or other third Persons in
connection with the transactions evidenced by this Agreement.

 

(vi)          Purchaser’s liability, if any, with regard to the ownership or
operation of any portion of the Assets that may be re-conveyed or reassigned to
Seller pursuant to the provisions of Section 7.6(b);

 

(vii)         the cost and expenses, including reasonable attorneys’ fees, of
enforcing this Section 11.1(a).

 

(b)           Subject to Section 11.1(d), upon Closing, Seller shall indemnify,
defend and hold harmless Purchaser and its Affiliates, and Purchaser’s and such
Affiliates’ directors, officers, employees, stockholders and agents, from and
against all Losses asserted against, imposed upon or incurred by Purchaser or
such other persons entitled to indemnification under this Section 11.1(b) as a
result of, or arising out of:

 

(i)            the breach (without regard to any qualification of materiality or
Material Adverse Effect) of any of the representations or warranties of Seller
contained in Section 6.1 when made at either Execution Date or Closing Date (as
applicable);

 

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(ii)           the failure of Seller to perform any of the covenants or
agreements of Seller contained in this Agreement;

 

(iii)          the Excluded Assets;

 

(iv)          the Retained Obligations;

 

(v)           any obligations for a brokerage or finder’s fee or commission
incurred by Seller in connection with the transactions contemplated by this
Agreement;

 

(vi)          the cost and expenses, including reasonable attorneys’ fees, of
enforcing this Section 11.1(b); and

 

(vii)         the Interim Period Indemnification Matters.

 

(c)           EXTENT OF INDEMNIFICATION.  WITHOUT LIMITING OR ENLARGING THE
SCOPE OF THE INDEMNIFICATION, DEFENSE AND ASSUMPTION PROVISIONS SET FORTH IN
THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY LAW, AN INDEMNIFIED PERSON
SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS OF
SECTIONS 11.1(a) OR 11.1(b), REGARDLESS OF WHETHER THE ACT, OCCURRENCE OR
CIRCUMSTANCE GIVING RISE TO ANY SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF
THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, GROSS
NEGLIGENCE, STRICT LIABILITY, BREACH OF DUTY (STATUTORY OR OTHERWISE), OR OTHER
FAULT OR VIOLATION OF ANY LAW OF OR BY ANY SUCH INDEMNIFIED PERSON, PROVIDED
THAT NO SUCH INDEMNIFICATION SHALL BE APPLICABLE TO THE EXTENT OF ANY WILLFUL
MISCONDUCT OF THE INDEMNIFIED PERSON.

 

(d)           Notwithstanding anything to the contrary in this Agreement, the
liability of Seller and Purchaser under this Agreement and any documents
delivered in connection herewith or contemplated hereby shall be limited as
follows:

 

(i)            Except for the Fundamental Representations, which survive
indefinitely, the representations and warranties of the Parties set forth in
this Agreement shall survive the Closing Date for a period of nine (9) months
and all representations and warranties of the Parties under this Agreement shall
terminate nine (9) months after the Closing Date; provided, however, that any
such representation or warranty for which a written notice of claim specifying
in reasonable detail the specific nature of the Losses and the estimated amount
of such Losses (“Claim Notice”) delivered in good faith in compliance with the
requirements of this Section 11.1(d) shall survive with respect only to the
specific matter described in such Claim Notice until the earlier to occur of
(A) the date on which a final non-appealable resolution of the matter described
in such Claim Notice has been reached or (B) the date on which the matter
described in such Claim Notice has otherwise reached final resolution.  The
indemnities in Section 11.1(a)(ii) — (vii) and Section 11.1(b)(iv) shall survive
the Closing Date indefinitely.  The indemnities in Section 11.1(b)(vii) shall
survive the Closing Date for a period of twelve months and the indemnities in
Sections

 

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11.1(b)(iii), (v) and (vi) shall survive the Closing Date for a period of seven
(7) years. For purposes of clarity, any Losses arising from or attributable to
Retained Obligations shall not be subject to the limitations set forth in
Section 11.1(d)(ii)(B) or Section 11.1(d)(ii)(C) and any Losses arising from or
attributable to the Interim Period Indemnification Matters shall not be subject
to the limitations set forth in Section 11.1(d)(ii)(B).  Covenants to be
performed at or after Closing shall survive until performed.  Claims for
covenants to be performed prior to Closing shall survive for twelve months after
the Closing Date.

 

(ii)           Notwithstanding anything to the contrary herein, in no event
shall:

 

(A)          SELLER OR PURCHASER BE LIABLE TO THE OTHER FOR INDIRECT OR
CONSEQUENTIAL LOSSES (EXCEPT WHERE SUCH LOSSES CONSTITUTE PART OF A CLAIM OF A
THIRD PERSON WHICH IS INDEMNIFIED PURSUANT TO THE PROVISIONS OF THIS AGREEMENT),
LOSS OF PROFITS, LOSS OF OPPORTUNITY, OR ANY PUNITIVE, EXEMPLARY OR SPECIAL
DAMAGES THAT MAY BE AWARDED IN THE OTHER PARTY’S FAVOR; and

 

(B)          Seller indemnify Purchaser, or be otherwise liable to Purchaser for
any Losses arising from a breach of a representation or warranty of Seller that
is not a Fundamental Representation (1) for any individual claim for Loss that
does not exceed fifty thousand United States Dollars ($50,000), but if exceeded,
the entire amount of the Loss thereto shall be counted for purposes of this
Agreement, without deduction of this individual threshold (the “Individual
Threshold”), and (2) until Purchaser has suffered Losses in the aggregate in
excess of the Aggregate Indemnity Deductible, after which point Seller will be
obligated only to indemnify Purchaser from and against further Losses  in excess
of the Aggregate Indemnity Deductible; and

 

(C)          Seller indemnify Purchaser under (1) Sections 11.1(b)(i),
11.1(b)(ii) and 11.1(b)(vii) in excess of fifteen percent (15%) of the
Unadjusted Purchase Price or (2) Sections 11.1(b)(v) and (vi) in excess of the
Unadjusted Purchase Price.

 

(iii)          No amount shall be recovered from any Party for the breach or
untruth of any representations or warranties, of the other Party, or for any
other matter, to the extent that the Party claiming a Loss as a result thereof
had actual Knowledge of such breach, untruth or other matter at or prior to the
Execution Date, nor shall such Party be entitled to rescission with respect to
any such matter.

 

(iv)          The amount of any indemnification provided under
Section 11.1(a) or (b) shall be net of any amounts of insurance proceeds or
other amount from any third person actually recovered or realized by the
indemnified party in respect of the indemnification claim to which such
insurance proceeds or other amounts relate.

 

(v)           Notwithstanding anything stated herein to the contrary: 
(A) neither Party will have any liability to the other Party or such other
Party’s indemnified parties under this Article 11 with respect to any item for
which a specific adjustment has already been made to the Unadjusted Purchase
Price under the terms of this Agreement; and (B) Seller will have no liability
to Purchaser or Purchaser’s indemnified parties hereunder for any matter which
is claimed as a Title Defect or

 

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an Environmental Defect.  Claims for Title Defects or Environmental Defects,
even those not resulting in an adjustment to the Unadjusted Purchase Price
because the applicable aggregate deductible is not exceeded, are not subject to
the terms of this Article 11, may not be claimed under this Article 11, may not
be included for purposes of determining whether the limitations set forth in
this Section 11.1(d) have been met and may not be included in the Aggregate
Indemnity Deductible for purposes of the limitations set forth in this
Section 11.1(d).  Nothing herein, however, limits Purchaser’s rights and claims
under the special warranty of title in the Assignment.

 

(vi)          Each person entitled to indemnification hereunder or otherwise to
damages in connection with the transactions contemplated in this Agreement shall
use commercially reasonable efforts to mitigate all losses, costs, expenses and
damages after becoming aware of any event which could reasonably be expected to
give rise to any losses, costs, expenses and damages that are indemnifiable or
recoverable hereunder or in connection herewith.

 

(e)           All claims for indemnification under this Agreement shall be
asserted and resolved pursuant to this Section 11.1(e). Any Person claiming
indemnification hereunder is hereinafter referred to as the “Indemnified Party”
and any Person against whom such claims are asserted hereunder is hereinafter
referred to as the “Indemnifying Party.” In the event that any Losses are
asserted against or sought to be collected from an Indemnified Party by a third
Person, said Indemnified Party shall with reasonable promptness provide to the
Indemnifying Party a Claim Notice. The Indemnifying Party shall not be obligated
to indemnify the Indemnified Party with respect to any such Losses if the
Indemnified Party fails to notify the Indemnifying Party thereof in accordance
with the provisions of this Agreement in reasonably sufficient time so that the
Indemnifying Party’s ability to defend against the Losses is not materially
prejudiced. The Indemnifying Party shall have thirty (30) days from the personal
delivery or receipt of the Claim Notice (the “Notice Period”) to notify the
Indemnified Party; (i) whether or not it disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such
Losses and/or (ii) whether or not it desires, at the sole cost and expense of
the Indemnifying Party, to defend the Indemnified Party against such Losses;
provided, however, that any Indemnified Party is hereby authorized prior to and
during the Notice Period to file any motion, answer or other pleading that it
shall deem necessary or appropriate to protect its interests or those of the
Indemnifying Party (and of which it shall have given notice and opportunity to
comment to the Indemnifying Party). In the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that it desires to
defend the Indemnified Party against such Losses, the Indemnifying Party shall
have the right to defend all appropriate proceedings with counsel of its own
choosing, which proceedings shall be promptly settled or prosecuted by them to a
final conclusion. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement it may do so at its sole cost and
expense. If requested by the Indemnifying Party, the Indemnified Party agrees to
cooperate with the Indemnifying Party and its counsel in contesting any Losses
that the Indemnifying Party elects to contest or, if appropriate and related to
the claim in question, in making any counterclaim against the person asserting
the third-party Losses, or any cross-complaint against any person. No claim may
be settled or otherwise compromised without the prior written consent of the
Indemnifying Party and no claim may be settled or compromised by the
Indemnifying Party without the prior written consent of the Indemnified Party
(not to be unreasonably withheld or delayed) unless such settlement or
compromise entails a full and

 

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unconditional release of the Indemnified Party without any admission or finding
of fault or liability.

 

11.2        Exclusive Remedy.

 

If Closing occurs, the indemnities set forth in this Agreement and the remedies
expressly provided for herein, together with, and the special warranty of title
in the Assignment, shall be the sole and exclusive remedies of the parties
indemnified hereunder for breach of any representation, warranty or covenant set
forth in this Agreement; provided, however, that nothing in this Section 11.2
shall be deemed to affect any Person’s right to post-Closing equitable relief
(including specific performance in a court of law) for breach of a covenant set
forth in this Agreement (whether or not such covenant is set forth in
Article 7), nor shall it affect any Party’s right to avail itself of the other
dispute resolution provisions set forth in this Agreement relating to Title
Defects, Environmental Defects, and accounting matters.  Except for such
remedies and the special warranty of title in the Assignment, Purchaser shall be
deemed to release and forever discharge Sellers and their Affiliates and their
respective officers, directors, managers, members, employees, agents, advisors
and representatives from any and all other Losses whatsoever, in law or in
equity, known or unknown, which such parties might now or subsequently may have,
based on, relating to or arising from Seller’s ownership, use or operation of
the Properties, or the condition, quality, status or nature of the Properties,
including rights to contribution under CERCLA or any other Environmental Law,
breaches of statutory or implied warranties, nuisance or other tort actions,
rights to punitive damages and common law rights of contribution, rights under
agreements between Seller or any of its Affiliates, and rights under insurance
maintained by Seller or any of its Affiliates, EVEN IF CAUSED IN WHOLE OR IN
PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT, GROSS OR CONCURRENT, BUT EXCLUDING
WILLFUL MISCONDUCT), OF ANY RELEASED PERSON.

 

ARTICLE 12. — CONFIDENTIALITY

 

12.1        Subject to Section 12.2 and without prejudice to the terms of the
Confidentiality Agreement, until the earlier of Closing or termination of this
Agreement, all confidential information furnished or disclosed to the Purchaser
or any of its Affiliates by Seller or its Affiliates in connection with the
transactions contemplated by this Agreement (“Confidential Information”) shall
be held confidential by the Purchaser and shall not be divulged in any way by
Purchaser to any third party without the prior written approval of Seller
provided that Purchaser may, without such approval, disclose such Confidential
Information to:

 

(a)           any outside professional consultants, upon obtaining a similar
undertaking of confidentiality (but excluding this proviso) from such
consultants;

 

(b)           any bank or financial institution from whom Purchaser is seeking
or obtaining finance, upon obtaining a similar undertaking of confidentiality
(but excluding this proviso) from such bank or institution;

 

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(c)           any department, authority, ministry or agency of any government or
other governmental authority lawfully requesting such information;

 

(d)           any court or arbitral tribunal of competent jurisdiction acting in
pursuance of its powers;

 

(e)           any of its Affiliates upon obtaining a similar undertaking of
confidentiality from such Affiliates; and

 

(f)            any of its employees or contractors (in the case of contractors,
upon obtaining a similar undertaking of confidentiality) who have a need to know
such information both prior to Closing and after Closing;

 

(g)           any disclosure in connection with any capital markets transaction
of Purchaser or an Affiliate of Purchaser, whether equity or debt, provided that
recipients of the information are under an obligation of confidentiality;

 

(h)           any disclosure to a prospective buyer or assignee, as long as they
are bound by a confidentiality agreement with a similar undertaking of
confidentiality;

 

(i)            the extent required by any applicable laws, or the requirements
of any recognised stock exchange or the Securities and Exchange Commission in
compliance with its rules and regulations.

 

12.2        The Purchaser agrees that any information obtained by, furnished or
disclosed to the Purchaser relating to Environmental Defects shall remain
confidential indefinitely and the time period in Section 12.1 above shall not
apply to this information.

 

12.3        The Purchaser shall remain bound by this Article 12, notwithstanding
any termination of this Agreement.  If this Agreement is terminated, the
Purchaser shall, at the request of the Seller, promptly return to the Seller
(and delete from the Purchaser’s systems, where electronically stored) all
Confidential Information.

 

ARTICLE 13. — TERMINATION

 

13.1        Termination.

 

This Agreement may be terminated at any time after the Execution Date and prior
to the actual occurrence of the Closing (or, with regard to the Supplemental
Closing Assets only, prior to the actual occurrence of the Supplemental Closing)
only:

 

(a)           by the mutual written consent of Seller and Purchaser;

 

(b)                                 by either Seller or Purchaser, at any time
after April 20, 2018 by written notice to the other Party if the Closing has not
occurred on or before such date; provided, however, that solely with regard to
the Supplemental Closing Assets, by either Seller or Purchaser, at any time
after August 15, 2018 by written notice to the other Party if the Supplemental
Closing with regard to such Supplemental Assets has not occurred on or before
such date);

 

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(c)                                  by either Seller or Purchaser, by written
notice to the other Party, if a Governmental Authority shall have issued an
injunction, order or award or taken any other action permanently restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement and such injunction, order, award or other action
shall have become final and non-appealable;

 

(d)                                 by Seller, immediately on written notice to
Purchaser, if

 

(i)                                     Purchaser fails to pay the Performance
Deposit on the date due hereunder;

 

(ii)                                  Purchaser fails to pay the Adjusted
Initial Payment Amount on the Closing Date, unless Closing is delayed because
the conditions in Section 5.1(a) are not satisfied;

 

(iii)                               Purchaser otherwise breaches or fails to
perform its representations, warranties or covenants contained in this
Agreement, which breach or breaches or failure or failures to perform;
(A) would, individually or in the aggregate, give rise to the failure of a
condition set forth in Section 5.1(b); and (B) cannot be cured or, if curable,
is not or are not cured within ten (10) days after receiving written notice from
Seller;

 

(iv)                              Purchaser wrongfully fails to tender
performance at Closing in breach of this Agreement, notwithstanding all of
Purchaser’s conditions to Closing having been fully satisfied; provided that
Purchaser’s failure to close shall not be considered wrongful if (i) Purchaser’s
conditions under Section 5.1(a) are not satisfied through no fault of Purchaser
and are not waived by Purchaser, or (ii) Purchaser has terminated this Agreement
according to its right under Section 13.1(a), (b), (c), (e) or (f); or

 

(v)                                 fails to provide such additional collateral
or security as required pursuant to any Material Contract in relation to a
required consent as set forth in Section 4.6(a);

 

(e)                                  by Purchaser, immediately on written notice
to Seller, if

 

(i)                                     Seller breaches or fails to perform its
representations, warranties or covenants contained in this Agreement, which
breach or breaches or failure or failures to perform; (A) would, individually or
in the aggregate, give rise to the failure of a condition set forth in
Section 5.1(a); and (B) cannot be cured or, if curable, is not or are not cured
within ten (10) days after receiving written notice from Purchaser; or

 

(ii)                                  Seller wrongfully fails to tender
performance at Closing or otherwise materially breaches this Agreement; provided
that Seller’s failure to close shall not be considered wrongful if (i) Seller’s
conditions under Section 5.1(b) are not satisfied through no fault of Seller or
are not waived by Seller; or (ii) Seller has terminated this Agreement according
to its rights under Section 13.1(a), (b), (c), (d) or (f).

 

(f)                                   by either Seller or Purchaser, if under
the HSR Act or otherwise, the Federal Trade Commission or the U.S. Department of
Justice shall have commenced or threatened to

 

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commence any proceeding to delay or enjoin or seek damages in respect of the
transactions evidenced by this Agreement (“threatened,” for purposes of this
Section 13.1(d), means an actual vote of the Commissioners of the Federal Trade
Commission to commence such a proceeding). For purposes of clarity, issuance of
a second request by either the Federal Trade Commission or the U.S. Department
of Justice shall not constitute a proceeding to delay or enjoin or seek damages
in respect of the transactions evidenced by this Agreement;

 

provided, however, that no Party shall have the right to terminate this
Agreement pursuant to clause (b), (d), or (e) above if that Party is at the time
in material breach of any provision of this Agreement.

 

13.2        Effect of Termination.

 

(a)           If this Agreement is terminated pursuant to Section 13.1, this
Agreement shall become void and of no further force and effect except for the
Surviving Provisions.  Except for the rights and remedies of the Seller under
Section 13.2(b) and the Purchaser under Section 13.2(c), neither Party shall
have any other claims or liabilities with regard to termination of this
Agreement.

 

(b)           If this Agreement is terminated pursuant to Section 13.1(d)(ii-v),
Seller shall be entitled to retain the Performance Deposit as liquidated damages
in lieu of all other damages and as Seller’s sole and exclusive remedy in such
event.  Purchaser shall be entitled to the immediate return of the Performance
Deposit if this Agreement is terminated for any other reason than pursuant to
Section 13.1(d)(ii)-(v).

 

(c)           If this Agreement is terminated pursuant to Section 13.1(e)(i-ii),
Purchaser shall be entitled to pursue all remedies available at law for damages
or other relief, in equity or otherwise.  Seller shall also return the
Performance Deposit to Purchaser immediately after the determination that the
Closing will not occur as a result of the circumstances in
Section 13.1(e)(i-ii).

 

(d)           If this Agreement is terminated, Purchaser shall return or destroy
(whichever is required pursuant to the terms of the Confidentiality Agreement)
to Seller on or before the fifth (5th) Business Day thereafter all copies of the
Records and other information in the possession of Purchaser or obtained or
generated by Purchaser.

 

ARTICLE 14. — DISCLAIMERS; WAIVERS; RELEASES

 

14.1        Sale “As Is” “Where Is”/ Release for Physical and Environmental
Condition.

 

PURCHASER REPRESENTS, SUBJECT TO ANY ENVIRONMENTAL DEFECTS AND PURCHASER’S
REMEDY RELATING THERETO IN ACCORDANCE WITH ARTICLE 3 OF THIS AGREEMENT AND
SUBJECT TO ANY WARRANTY CLAIM THE PURCHASER MAY HAVE RELATING TO
SECTION 6.1(Q) (INCLUDING THE INDEMNIFICATION IN ARTICLE 11 RELATION TO ANY
CLAIM UNDER SECTION 6.1(Q), THAT IT HAS INSPECTED OR HAS HAD THE OPPORTUNITY TO
INSPECT THE PROPERTIES AND AGREES TO ACCEPT THE PHYSICAL AND ENVIRONMENTAL
CONDITION OF SAME ON AN “AS IS-WHERE IS” BASIS AND

 

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WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND (WHETHER EXPRESS,
STATUTORY, IMPLIED OR OTHERWISE). PURCHASER ACKNOWLEDGES ALSO THAT PHYSICAL
CHANGES OCCURRING AFTER THE EFFECTIVE TIME IN THE PROPERTIES OR ADJACENT LANDS
MAY HAVE OCCURRED AS A CONSEQUENCE OF THE OIL AND GAS DRILLING, PRODUCTION AND
RELATED OPERATIONS CONDUCTED ON THE MINERAL INTERESTS.  THE PROPERTIES
MAY CONTAIN UNPLUGGED OR IMPROPERLY PLUGGED WELLS, WELLBORES OR BURIED PIPELINES
OR OTHER EQUIPMENT, THE LOCATIONS OF WHICH MAY NOT NOW BE KNOWN TO SELLER OR BE
READILY APPARENT FROM A PHYSICAL INSPECTION OF THE PROPERTY, AND PURCHASER
ASSUMES THE OBLIGATION AND LIABILITY TO PROPERLY PLUG, ABANDON, REMOVE AND/OR
RESTORE THE SAME WITHOUT RECOURSE TO SELLER.

 

14.2        DISCLAIMER OF WARRANTIES FOR ASSETS.

 

SUBJECT TO ANY ENVIRONMENTAL DEFECTS AND PURCHASER’S REMEDY RELATING THERETO IN
ACCORDANCE WITH ARTICLE 3 OF THIS AGREEMENT, PURCHASER ACKNOWLEDGES THAT NEITHER
SELLER, NOR ANY MEMBER OF SELLER GROUP, OR ANY PERSON ACTING ON BEHALF OF
SELLER, HAS MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF THE
ASSETS (INCLUDING, WITHOUT LIMITATION, (a) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES
OF MATERIALS, (d) ANY RIGHTS OF PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION OR RETURN OF THE FINAL PURCHASE PRICE, (e) ANY
IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT,
(f) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM REDHIBITORY VICES OR DEFECTS
OR OTHER VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, AND (g) ANY AND ALL IMPLIED
WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, IT BEING
THE EXPRESS INTENTION OF SELLER AND PURCHASER THAT THE ASSETS SHALL BE CONVEYED
TO PURCHASER AS IS AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR AND
PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH
INSPECTIONS WITH RESPECT TO THE ASSETS AS PURCHASER DEEMS APPROPRIATE AND
PURCHASER WILL ACCEPT THE ASSETS AS IS, IN THEIR PRESENT CONDITION AND STATE OF
REPAIR.

 

14.3        DISCLAIMER REGARDING INFORMATION.

 

SELLER HEREBY EXPRESSLY NEGATES AND DISCLAIMS, AND PURCHASER, HEREBY WAIVES, AND
ACKNOWLEDGES, THAT, EXCEPT AS PROVIDED FOR IN THIS AGREEMENT, NEITHER SELLER,
NOR ANY MEMBER OF SELLER GROUP, OR ANY PERSON ACTING ON BEHALF OF SELLER, SHALL
HAVE MADE, AND

 

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PURCHASER IS NOT RELYING UPON, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, OR OTHER ASSURANCE RELATING TO (a) THE ACCURACY, COMPLETENESS OR
MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR VERBAL) NOW,
HERETOFORE, OR HEREAFTER FURNISHED TO PURCHASER BY OR ON BEHALF OF SELLER OR
(b) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GEOLOGICAL OR
GEOPHYSICAL DATA OR INTERPRETATIONS, THE QUALITY, QUANTITY, RECOVERABILITY OR
COST OF RECOVERY OF ANY HYDROCARBON RESERVES, ANY PRODUCT PRICING ASSUMPTIONS,
OR THE ABILITY TO SELL OR MARKET ANY HYDROCARBONS AFTER  CLOSING.

 

14.4        DISCLAIMER REGARDING ASBESTOS AND NORM.

 

PURCHASER ACKNOWLEDGES THAT SOME OILFIELD PRODUCTION EQUIPMENT INCLUDED WITHIN
THE ASSETS MAY CONTAIN ASBESTOS AND/OR NATURALLY OCCURRING RADIOACTIVE MATERIAL
(“NORM”).  PURCHASER SPECIFICALLY ACKNOWLEDGES THAT NORM MAY AFFIX OR ATTACH
ITSELF TO THE INSIDE OF WELLBORES, MATERIALS AND EQUIPMENT AS SCALE OR IN OTHER
FORMS, AND THAT WELLS, MATERIALS AND EQUIPMENT INCLUDED WITHIN THE ASSETS AND/OR
LOCATED ON A MINERAL INTEREST MAY CONTAIN NORM AND NORM-CONTAINING MATERIAL
MAY HAVE BEEN DISPOSED OF ON OR OFF A PROPERTY.   PURCHASER UNDERSTANDS
THAT, INASMUCH AS THE PRESENCE OF ASBESTOS AND/OR NORM MAY CONSTITUTE A HEALTH
HAZARD, SPECIAL SAFETY AND HANDLING PROCEDURES MAY BE REQUIRED FOR THE REMOVAL
AND DISPOSAL OF ASBESTOS AND NORM FROM THE PROPERTIES IF AND WHERE SUCH MAY BE
FOUND.

 

14.5        DISCLAIMER AS TO TITLE TO ASSETS

 

SELLER SHALL CONVEY SELLER’S INTERESTS IN AND TO THE ASSETS TO PURCHASER OR
PURCHASER’S DESIGNATED AFFILIATE WITH THE SPECIAL WARRANTY OF TITLE PURSUANT TO
THE ASSIGNMENT BUT WITHOUT ANY OTHER WARRANTY OF TITLE, EXPRESS OR IMPLIED.
SUBJECT TO ANY TITLE DEFECTS AND PURCHASER’S REMEDY RELATING THERETO IN
ACCORDANCE WITH ARTICLE 4, SELLER DOES NOT MAKE OR PROVIDE (AND SELLER HEREBY
EXPRESSLY DISCLAIMS) AND PURCHASER HEREBY WAIVES, ANY WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, OR OTHER ASSURANCES CONCERNING THE
DESCRIPTION OF THE MINERAL INTERESTS, INCLUDING LISTINGS OF NET MINERAL ACRES,
WORKING INTERESTS OR NET REVENUE INTERESTS.

 

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14.6        CONSPICUOUSNESS.

 

PURCHASER ACKNOWLEDGES THAT THE DISCLAIMERS, WAIVERS AND RELEASES CONTAINED IN
THIS ARTICLE 14 AND ELSEWHERE IN THIS AGREEMENT ARE CONSPICUOUS.

 

ARTICLE 15. — ADMINISTRATIVE PROVISIONS

 

15.1        Expenses of Sale.

 

Except as otherwise specifically provided herein, each Party to this Agreement
shall pay its own expenses (including without limitation, the fees and expenses
of their respective agents, representatives, counsel and accountants) with
respect to the negotiation, execution and the delivery of this Agreement and the
consummation of the transactions under this Agreement.

 

15.2        Third Party Rights.

 

Except as to those indemnity obligations owed to the indemnified Persons listed
in Section 11.1(a) or 11.1(b), the indemnity, release and waiver provisions in
this Agreement in favor of Seller Group, and the provisions of Sections 2.6 and
7.4, notwithstanding any other provision of this Agreement, this Agreement shall
not create benefits on behalf of any person who is not a Party to this Agreement
(including without limitation, any broker or finder, creditor or other Person),
and this Agreement shall be effective only as between the Parties hereto, their
successors and permitted assigns.

 

15.3        Further Actions.

 

Purchaser and Seller further agree that they will, from time to time and upon
reasonable request, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, such instruments, and take such other action as may
be necessary, or advisable, to carry out their obligations under this Agreement.

 

15.4        Assignment; Designation of Certain Affiliates to Receive Assets.

 

(a)           Except as provided in Section 2.5 and as set forth below, neither
Party shall assign this Agreement or any of its rights or obligations under this
Agreement prior to Closing without obtaining the prior written consent of the
other Party, and any purported assignment by any Party without the prior written
consent of the other Party shall be void; provided, however, that
notwithstanding anything stated in this Agreement to the contrary, at or prior
to Closing, Purchaser shall have the right, without consent or approval of
Seller, to designate in writing one or more of Purchaser’s Affiliates to receive
specified Assets at Closing directly from Seller, but such designation or
receipt of such Assets by an Affiliate shall not alter or relieve Purchaser of
its obligations under this Agreement with regard thereto.

 

(b)           After Closing, in the event that Purchaser sells or assigns all or
a portion of the Properties, (i) this Agreement shall remain in effect between
Purchaser and Seller regardless of such assignment, and such assignment shall
not constitute a release or novation of any obligation or

 

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liability owed by Purchaser to Seller under this Agreement; (ii) Purchaser shall
require its successors and assigns to expressly assume the Assumed Obligations
and all of its other duties, responsibilities and obligations under this
Agreement, to the extent related or applicable to the Assets or the portion
thereof acquired by them, but such assumption shall not release Purchaser from
any such Assumed Obligation or other duty, responsibility or obligation, and
such assumption by Purchaser’s successors and assigns shall be in a writing
delivered to Seller; and (iii) for the avoidance of doubt, no such assignment
will in any way relieve Purchaser of any obligations under Section 10.4, solely
to the extent such obligations in Section 10.4 are surviving as of the time of
said assignment.

 

15.5        Notices.

 

Any notice provided or permitted to be given under this Agreement shall be in
writing, and may be sent by hand delivery, e-mail, express courier, delivery
service addressed to the Party to be notified, postage prepaid, and registered
or certified with a return receipt requested.  Notice shall be deemed to have
been given and received only if and when actually received by the addressee and
when delivered and receipted for, if hand-delivered, sent by express courier or
delivery service.  For purposes of notice, the addresses of the Parties shall be
as follows:

 

Seller:

 

SWEPI LP

Attn:  Permian Land Manager

150 N. Dairy Ashford

Houston, TX 77079

Telephone: (832)337-3409

Email: Jeff.Turnbull@shell.com

 

For Seller Legacy Representative:

SWEPI LP

Attn: Shell Legacy Representative

150 N. Dairy Ashford

Houston, TX 77079

 

Telephone: (832)762-2284

Email: Skip.Koshak@shell.com

 

Purchaser:

 

c/o Halcón Resources Corporation

Attn: Steve W. Herod

1000 Louisiana Street, Suite 1500

Houston, TX 77002

Telephone: (832) 538-0506

Email: sherod@halconresources.com

 

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And

 

c/o Halcón Resources Corporation

Attn: David S. Elkouri

1801 California Street, Suite 3500

Denver, CO 80202

Telephone: (303) 297-2028

Email: delkouri@halconresources.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 hereinabove
set forth. As a courtesy only, the Parties will use reasonable efforts to send a
copy of the notice by email to the email address above, provided always that
email delivery alone shall not constitute valid notice under this Agreement.

 

15.6        Public Announcements.

 

The Parties agree that prior to any Party making any public announcement or
statement with respect to the transaction contemplated by this Agreement, such
Party shall obtain the written approval of the other Party to the text of such
announcement or statement, which approval may be withheld for any reason. 
Nothing contained in this Section 15.6 shall be construed to require either
Party to obtain approval of the other Party to disclose information with respect
to the transaction contemplated by this Agreement to any Governmental Authority
and/or the public to the extent required by applicable Law or stock exchange
regulation; provided that a Party required to make such a disclosure shall
consult with the other Party prior to making such disclosure.

 

15.7        Seller’s Time Limits; Waiver.

 

Time is of the essence in this Agreement and all time limits shall be strictly
construed and enforced. Subject to the foregoing, however, the failure or delay
of any Party in the enforcement of the rights granted under this Agreement shall
not constitute a waiver of said rights nor shall it be considered as a basis for
estoppel.  Except as otherwise limited by the time limits contained in this
Agreement, such Party may exercise its rights under this Agreement despite any
delay or failure to enforce the rights when the right or obligation arose.

 

15.8        Applicable Law.

 

The provisions of this Agreement and the relationship of the Parties shall be
governed and interpreted according to the Laws of the State of Texas without
giving effect to principles of conflicts of Laws.

 

15.9        Severance of Invalid Provisions.

 

In case of a conflict between the provisions of this Agreement and the
provisions of any applicable laws or regulations, the provisions of the laws or
regulations shall govern over the provisions of this Agreement. If, for any
reason and for so long as, any clause or provision of this Agreement is held by
a court of competent jurisdiction to be illegal, invalid, unenforceable or
unconscionable under any present or future law (or interpretation thereof), the
remainder of this Agreement shall

 

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not be affected by such illegality or invalidity. Any such invalid provision
shall be deemed severed from this Agreement as if this Agreement had been
executed with the invalid provision eliminated.

 

15.10      Construction & Interpretation.

 

The interpretation and construction of the terms of this Agreement will be
governed by the following conventions:

 

(a)           Headings for Convenience.  Except for the definition headings, all
the table of contents, captions, numbering sequences, paragraph headings and
punctuation used in this Agreement are inserted for convenience only and shall
in no way define, limit or describe the scope or intent of this Agreement or any
part thereof, nor have any legal effect.

 

(b)           Gender & Number.  The use of pronouns in whatever gender or number
shall be deemed to be a proper reference to the Parties to this Agreement though
the Parties may be individuals, business entities or groups thereof.  Any
necessary grammatical changes required to make the provisions of this Agreement
refer to the correct gender or number shall in all instances be assumed as
though each case was fully expressed.

 

(c)           Independent Representation.  Each Party has had the benefit of
independent legal representation with respect to the subject matter of this
Agreement and has had the opportunity to exercise business discretion in
relation to the negotiation of the details of the transactions contemplated
hereby.  This Agreement is the result of arms’ length negotiations from equal
bargaining positions. This Agreement shall be construed fairly and reasonably
and not more strictly against one Party than another, on the basis of who
drafted this Agreement or any provision hereof.

 

(d)           Section References.  Unless otherwise stated, references in this
Agreement to articles, sections or subsections are references to the articles,
sections or subsections of this Agreement.

 

15.11      Days.

 

If a deadline falls on a day that is not a Business Day, then the deadline will
extend to the next Business Day.

 

15.12      Integrated Agreement.

 

This Agreement, the Exhibits and Schedules attached and incorporated herein, the
Confidentiality Agreement, and the instruments delivered at or in connection
with the Closing hereunder contain the final and entire agreement of the Parties
with respect to the subject matter of this contract.  There are no
representations, warranties or promises, oral or written, between the Parties
other than those included in this Agreement or in any such Closing document. 
Upon execution of this Agreement by all Parties, this Agreement shall supersede
and replace all previous negotiations, understandings or promises, whether
written or oral, relative to the subject of this Agreement.  Each of the Parties
acknowledges that no other Party has made any promise, representation or
warranty that is not expressly stated in this Agreement or in any Closing
document.  This Agreement shall not be modified or changed (nor any provision of
this Agreement waived) except

 

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by a written amendment signed by all the Parties.  This Agreement is entire as
to all the performances to be rendered under it, and breach of any provision
shall constitute a breach of the entire Agreement.  A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a Party’s rights under this Agreement at any time
to enforce strict compliance thereafter with any other term or condition of this
Agreement.

 

15.13      Binding Effect.

 

This Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors and assigns.

 

15.14      Multiple Counterparts.

 

This Agreement may be executed by signing the original or a counterpart hereof. 
If this Agreement is executed in multiple counterparts, each counterpart shall
be deemed an original, and all of which when taken together shall constitute but
one and the same agreement with the same effect as if all Parties had signed the
same instrument.

 

15.15      Fair Notice Disclosure Statement.

 

PURCHASER’S ATTENTION IS DIRECTED TO CERTAIN PROVISIONS OF THIS AGREEMENT THAT
REQUIRE PURCHASER TO DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS IRRESPECTIVE OF
THE STRICT LIABILITY OF SELLER OR THE SOLE, JOINT OR CONCURRENT, ACTIVE OR
PASSIVE, NEGLIGENCE OR GROSS NEGLIGENCE OF SELLER.

 

15.16      WAIVER OF CONSUMER RIGHTS UNDER THE DTPA.

 

PURCHASER HEREBY REPRESENTS AND ACKNOWLEDGES THAT IT IS A “BUSINESS CONSUMER”
FOR THE PURPOSES OF THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT
(SUBCHAPTER E OF CHAPTER 17 OF THE TEXAS BUSINESS AND COMMERCE CODE (THE “TEXAS
DTPA”)), AND THAT IT HAS ASSETS OF TWENTY FIVE MILLION UNITED STATES DOLLARS
($25,000,000) OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENTS PREPARED
IN ACCORDANCE WITH GAAP OR IS OWNED BY AN ENTITY THAT HAS ASSETS OF MORE THAN
TWENTY FIVE MILLION UNITED STATES DOLLARS ($25,000,000), AND THAT THEREFORE IT
IS NOT A “CONSUMER” FOR PURPOSES OF THE TEXAS DTPA, THAT IT HAS BEEN REPRESENTED
BY LEGAL COUNSEL OF ITS CHOICE IN ENTERING INTO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND THAT IT IS NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH RESPECT TO THE PARTIES TO AND
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  PURCHASER HEREBY WAIVES THE
PROVISIONS OF THE TEXAS DTPA, TO THE EXTENT ANY SUCH PROVISION MAY BE
APPLICABLE, AND OF ANY OTHER APPLICABLE DECEPTIVE TRADE PRACTICES OR CONSUMER
PROTECTION LEGISLATION OF ANY JURISDICTION, EXCEPT THAT PURCHASER DOES NOT WAIVE
ANY PROVISION FOR

 

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WHICH, BY EXPRESS PROVISION OF LAW, A WAIVER BY PURCHASER CANNOT BE EFFECTIVE.

 

ARTICLE 16. — DISPUTE RESOLUTION

 

16.1        Dispute Resolution.

 

(a)           In the event that any Arbitrable Dispute arises, the Parties shall
first seek to resolve such dispute by negotiations as provided in this
Article 16 between senior representatives who have authority to settle the
controversy.  “Arbitrable Dispute” means (except for:  (i) disputes involving
Title Defects, Environmental Defects or any cure relating thereto or involving
Title Benefits, each of which will be resolved as provided in Section 3.2(g) or
Section 4.4(j), as applicable, or (ii) any matters to be resolved by the
Accounting Referee as provided in Section 8.3(b)), any and all disputes, claims,
counterclaims, demands, causes of action, controversies and other matters in
question arising out of or relating to this Agreement, the transactions
contemplated by this Agreement or any alleged breach hereof, including any
disputes regarding a Party’s indemnification obligations pursuant to Article 11
or relating to matters that are the subject of this Agreement or the
relationship between the Parties under this Agreement, regardless of whether
(i)  extra-contractual in nature, (ii) sounding in contract, tort or otherwise,
(iii) provided for by law or otherwise, or (iv) any such matters could result in
damages or any other relief, whether at law, in equity or otherwise; but the
term “Arbitrable Dispute” does not include any claim for injunctive relief.  Any
claim for injunctive relief can only be sought through a court of competent
jurisdiction.  The sole and exclusive venue and forum for any action for
injunctive relief brought in connection with this Agreement is any state or
federal court of competent jurisdiction located in Harris County, Texas.

 

(b)           When an Arbitrable Dispute exists, each Party has the right to
give the other Party written notice of the Arbitrable Dispute.

 

(c)           Senior representatives of the Parties shall meet at a mutually
acceptable time and place within fifteen (15) days after a Party’s receipt of
the notice of the Arbitrable Dispute in order to exchange relevant information
and to attempt to resolve the matter.  If a senior representative intends to be
accompanied to a meeting by an attorney, he or she shall give the other Party’s
senior representatives at least three (3) Business Days’ notice of such
intention so that he or she also can be accompanied by an attorney.  If a
Party’s senior representative does not meet with the other Party’s senior
representative within such fifteen (15) day period, the other Party may, at such
Party’s sole option, proceed directly to arbitration under Section 16.2.

 

(d)           All offers, promises, conduct and statements, whether oral or
written, made in the course of meetings between senior representatives, by any
of the Parties, their agents, employees, experts and attorneys and by any CPR
employees, are confidential, privileged and inadmissible for any purpose
including impeachment, in any arbitration or other proceeding involving the
Parties, provided that evidence that is otherwise admissible or discoverable
shall not be rendered inadmissible or non-discoverable as a result of its use in
the meetings between senior representatives.

 

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16.2        Arbitration Procedure.

 

(a)           Any Arbitrable Dispute not resolved by agreement of the Parties
pursuant to Section 16.1 shall be resolved exclusively through final and binding
arbitration using three (3) arbitrators applying by reference the arbitration
rules of the International Institute for Conflict Prevention & Resolution
(“CPR”) Non-Administered Arbitration Rules, as supplemented by the CPR Protocol
on Disclosure of Documents and Presentation of Witnesses in Commercial
Arbitration (“CPR Protocol”), as currently in effect on the date of this
Agreement (collectively, the “Rules”).  If there is any inconsistency between
the provisions of this Agreement and the Rules, the provisions of this Agreement
shall control.

 

(b)           Arbitration must be initiated within the applicable time limits
set forth in this Agreement and not thereafter or if no time limit is given in
this Agreement, within the time period allowed by the applicable statute of
limitations; provided, however, that if a Party files a notice of Arbitrable
Dispute within the applicable time limits or limitations period but such
Arbitrable Dispute is not resolved before the expiration of the applicable time
limits or limitations period, the time period for initiating arbitration for
that specific Arbitrable Dispute shall be extended for ninety (90) calendar
days.  Arbitration, if initiated, must be initiated by a Party (“Claimant”)
sending written notice on the other Party (“Respondent”) that the Claimant
elects to refer the Arbitrable Dispute to binding arbitration.

 

(c)           Seller shall appoint one arbitrator and Purchaser shall appoint
one arbitrator.  The two arbitrators so appointed shall select the third
arbitrator, and failing agreement on selection of the third arbitrator by the
two arbitrators within thirty (30) days after their appointment, the third
arbitrator shall be appointed by the CPR in accordance with the Rules.  Each
appointer of the first two arbitrators shall pay the compensation and expenses
of the arbitrator it appoints.  Seller shall pay one-half of the compensation
and expenses of the third arbitrator and Purchaser shall pay the other half. 
All arbitrators must (i) be neutral persons who have never been officers,
directors, employees, or consultants or had other business or personal
relationships (except acting as arbitrator) with the Parties or any of their
Affiliates, officers, directors or employees and (ii) have experience in or be
knowledgeable about the matters in dispute.  The location of all arbitration
proceedings shall be Houston, Texas.

 

(d)           The Parties and the arbitrators shall proceed diligently so that
the award can be made as promptly as possible.  If the amount in controversy is
less than or equal to one million United States Dollars ($1,000,000), the
hearing shall commence within forty-five (45) Business Days after the selection
of the third arbitrator.  If the amount in controversy exceeds one million
United States Dollars ($1,000,000), the hearing shall commence at such time as
agreed by the Parties and the arbitrators but no later than three (3) months
after the selection of the third arbitrator.  Expedited discovery will be
permitted if and as agreed by the Parties.  If the Parties are unable to agree,
the arbitrators shall resolve any discovery disputes consistent with the Rules.

 

(e)           Except as provided in the Federal Arbitration Act, the decision of
the arbitrators shall be binding on and non-appealable by the Parties.  In
rendering any decision or award, the arbitrators must abide by all terms and
conditions of this Agreement.

 

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(f)            The Parties shall each bear their own costs and expenses
(including attorneys’ fees) incurred in arbitrating any Arbitrable Dispute.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.

SIGNATURE PAGES FOLLOW.]

 

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IN WITNESS WHEREOF, the Parties have executed the Agreement as of the date first
above written, effective as of the Effective Time.

 

 

 

SELLER:

 

 

 

 

SWEPI LP

 

 

 

 

 

 

 

By:

/s/ Christi Clancy

 

 

 

 

Printed Name: Christi Clancy

 

 

 

Title: Attorney-in-Fact

 

 

 

 

 

PURCHASER:

 

 

 

HALCÓN ENERGY PROPERTIES, INC.

 

 

 

 

 

 

 

By:

/s/ Steve W. Herod

 

 

 

 

Printed Name: Steve W. Herod

 

 

 

Title: Executive Vice President, Corporate Development

 

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