Exhibit 10.2
 
PURCHASE AND SALE AGREEMENT
 
between
 
GASTAR EXPLORATION TEXAS, LP,
 
as Seller,
 
and
 
HILLTOP RESORT GS, LLC
 
as Buyer,
 
dated November 16, 2009

 
 

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TABLE OF CONTENTS
 
Article 1 Definitions
1          
Section 1.1.
Certain Defined Terms
1  
Section 1.2.
References, Gender, Number
1        
Article 2 Purchase And Sale
1          
Section 2.1.
Purchase and Sale
1  
Section 2.2.
No Assumed Liabilities
1  
Section 2.3.
Excluded Liabilities
2        
Article 3 Purchase Price And Payment
2          
Section 3.1.
Purchase Price
2  
Section 3.2.
Closing Statement and Payment
2  
Section 3.3.
Post-Closing Adjustment to the Purchase Price
3  
Section 3.4.
Expense Adjustment
4  
Section 3.5.
Revenue Adjustment
4        
Article 4 Representations And Warranties
4          
Section 4.1.
Representations and Warranties of Seller
4  
Section 4.2.
Representations and Warranties of Buyer
9        
Article 5 Access Before Closing
10        
Article 6 Covenants of Seller and Buyer
10          
Section 6.1.
Conduct of Business Pending Closing
10  
Section 6.2.
Public Announcements
11  
Section 6.3.
Actions by Parties
11  
Section 6.4.
Further Assurances
11  
Section 6.5.
Records
11  
Section 6.6.
Certain Filings
12  
Section 6.7.
Regulatory Approvals
12  
Section 6.8.
Expenses And Revenues
12  
Section 6.9.
Conveyance of Certain Excluded Assets
12  
Section 6.10.
Certain Rights of Way
13  
Section 6.11.
Certain Consents
13        
Article 7 Closing Conditions
13          
Section 7.1.
Seller’s Closing Conditions
13  
Section 7.2.
Buyer’s Closing Conditions
14        
Article 8 Closing
15          
Section 8.1.
Closing
15  
Section 8.2.
Seller’s Closing Deliverables
15  
Section 8.3.
Buyer’s Closing Deliverables
15        
Article 9 Indemnification
15          
Section 9.1.
Indemnification by Buyer
15  
Section 9.2.
Indemnification by Seller
16  
Section 9.3.
Third Party Claims
16  
Section 9.4.
Survival
16  
Section 9.5.
Purchase Price Adjustment
16  
Section 9.6.
Exclusive Remedy
16  

 
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Section 9.7.
Disclaimers
17  
Section 9.8.
Waiver
17        
Article 10 Termination
17          
Section 10.1.
Termination of Agreement
17  
Section 10.2.
Effect of Termination
18        
Article 11 Taxes
18          
Section 11.1.
Allocation of Taxes
18  
Section 11.2.
Cooperation
19        
Article 12 Other Provisions
19          
Section 12.1.
Counterparts
19  
Section 12.2.
Governing Law
19  
Section 12.3.
Arbitration
19  
Section 12.4.
Casualty Loss Prior to Closing
20  
Section 12.5.
Entire Agreement
21  
Section 12.6.
Expenses
21  
Section 12.7.
Notices
21  
Section 12.8.
Successors and Assigns
21  
Section 12.9.
Amendments and Waivers
21  
Section 12.10.
Appendices, Schedules and Exhibits
21  
Section 12.11.
Interpretation and Rules of Construction
22  
Section 12.12.
Agreement for the Parties’ Benefit Only
22  
Section 12.13.
Severability
22  
Section 12.14.
Time of Essence
23  

 
 
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PURCHASE AND SALE AGREEMENT
 
THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), dated as of November 16,
2009, is by and between Gastar Exploration Texas, LP, a Delaware limited
partnership (“Seller”), and Hilltop Resort GS, LLC, a Delaware limited liability
company (“Buyer”).  Buyer and Seller are sometimes referred to herein
individually as a “Party” and collectively as the “Parties”.
 
Recital:
 
Seller desires to sell to Buyer, and Buyer desires to purchase from Seller,
Seller’s portion of the Hilltop Resort Gas Gathering System in Leon and
Robertson Counties, Texas (the “Hilltop Resort Gathering System”) and all
related assets, rights, and interests, as such assets, rights, and interests are
more fully described herein, upon the terms and subject to the conditions set
forth in this Agreement.
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements in this
Agreement, and for other good and valuable consideration, Seller and Buyer agree
as follows:
 
Article 1
Definitions
 
Section 1.1.       Certain Defined Terms Unless the context otherwise requires,
the terms defined in Appendix A shall, when used herein, have the meanings
therein specified, with each such definition to be equally applicable both to
the singular and the plural forms of the term so defined.
 
Section 1.2.       References, Gender, Number All references in this Agreement
to an “Article,” “Section,” or “subsection” shall be to an Article, Section or
subsection of this Agreement, unless the context requires otherwise.  Unless the
context requires otherwise, the words “this Agreement,” “hereof,” “hereunder,”
“herein,” “hereby,” or words of similar import shall refer to this Agreement as
a whole and not to a particular Article, Section, subsection, clause, or other
subdivision hereof.  Whenever the context requires, the words used herein shall
include the masculine, feminine and neuter gender, and the singular and the
plural.
 
Article 2
Purchase And Sale
 
Section 2.1.       Purchase and Sale On and subject to the terms and conditions
of this Agreement, Seller agrees to sell, transfer, assign, convey, and deliver
to Buyer, free and clear of all Liens, other than the Permitted Encumbrances,
and Buyer agrees to purchase or cause to be purchased from Seller, in
consideration of the payment of the Purchase Price by Buyer, all of Seller’s
right, title, and interest in and to the Subject Assets.
 
Section 2.2.       No Assumed Liabilities Notwithstanding anything to the
contrary set forth in this Agreement, Buyer is not assuming any liability or
obligation relating to, arising out of, or attributable to the ownership or
operation of the Subject Assets prior to the Closing Date, of whatever nature,
whether presently in existence or arising hereafter.

 
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Section 2.3.        Excluded Liabilities Notwithstanding anything to the
contrary in this Agreement, all liabilities and obligations of Seller and its
Affiliates relating to, arising out of, or attributable to the ownership or
operation of the Subject Assets prior to the Closing Date, whether presently in
existence or arising hereafter, shall be retained by and remain obligations of
Seller and its Affiliates (the “Excluded Liabilities”).  The Excluded
Liabilities shall include, without limitation, the following:
 
(a)         all liabilities and obligations to the extent relating to or
incurred in connection with the Excluded Assets;
 
(b)         all liabilities and obligations with respect to Taxes that are the
responsibility of Seller pursuant to Section 11.1; and
 
(c)         all liabilities and obligations arising out of or related to the
Navasota Proceeding or the subject matter thereof.
 
Article 3
Purchase Price And Payment
 
Section 3.1.        Purchase Price The purchase price for the sale and
conveyance of the Subject Assets to Buyer is $19,250,000 (the “Purchase Price”),
subject to adjustment under this Agreement.  The “Adjusted Purchase Price” shall
be the Purchase Price adjusted as follows:
 
(i)          adjusted for costs and expenses in accordance with Section 3.4;
 
(ii)         adjusted for revenues in accordance with Section 3.5;
 
(iii)        adjusted downward by the amount referred to in Section 12.4 in
connection with any Casualty, if applicable; and
 
(iv)         adjusted by any other amount specifically provided for in this
Agreement or agreed upon in writing by Buyer and Seller.
 
Section 3.2.         Closing Statement and Payment Not later than five (5)
Business Days prior to the Closing Date, Seller shall prepare and deliver to
Buyer a reasonably detailed statement (the “Closing Statement”) of the estimated
Purchase Price adjustments and the estimated Adjusted Purchase Price (the
“Estimated Adjusted Purchase Price”).  At the Closing, Buyer shall wire transfer
the Estimated Adjusted Purchase Price in immediately available funds to an
account or accounts specified by Seller to Buyer at least three (3) Business
Days immediately preceding the Closing Date.
 
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Section 3.3.      Post-Closing Adjustment to the Purchase Price Revised Closing
Statement.  On or before the date that is sixty (60) days after the Closing
Date, Seller shall prepare and deliver to Buyer a revised Closing Statement
setting forth the Purchase Price adjustments and Seller’s calculation of such
amount.  To the extent reasonably required by Seller, Buyer shall assist in the
preparation of the revised Closing Statement.  Seller shall provide to Buyer
such data and information and access to Seller’s personnel as Buyer may
reasonably request supporting the amounts reflected on the revised Closing
Statement to permit Buyer to perform or cause to be performed an audit at
Buyer’s expense.  The revised Closing Statement shall become final and binding
upon the parties on the date (the “Final Settlement Date”) that is sixty (60)
days following receipt thereof by Buyer unless Buyer gives written notice of its
disagreement (“Notice of Disagreement”) to Seller prior to such date.  Any
Notice of Disagreement shall specify in detail the dollar amount, nature, and
basis of any disagreement so asserted.  If a Notice of Disagreement is received
by Seller, then the Closing Statement (as revised in accordance with paragraph
(b) below) shall become final and binding on the parties on, and the Final
Settlement Date shall be, the earlier of (i) the date upon which Seller and
Buyer agree in writing with respect to all matters specified in the Notice of
Disagreement or (ii) the date upon which the Arbitrator’s Closing Statement (as
hereinafter defined) is issued by the Closing Statement Arbitrator (as
hereinafter defined).
 
(b)           Final Closing Statement.  During the thirty (30) days following
the date upon which Seller received the Notice of Disagreement, Seller and Buyer
shall use their reasonable best efforts to attempt to resolve in writing any
differences that they may have with respect to all matters specified in the
Notice of Disagreement.  If at the end of such thirty (30) day period (or
earlier by mutual agreement to arbitrate), Buyer and Seller have not reached
agreement on such matters, the matters that remain in dispute shall be submitted
to an arbitrator (the “Closing Statement Arbitrator”) for review and final and
binding resolution.  The Closing Statement Arbitrator shall be the accounting
firm of KPMG, or if unable or unwilling to act or if representing Seller or
Buyer in another matter, such other nationally recognized independent public
accounting firm as shall be agreed upon by Buyer and Seller in writing (but if
the parties have not so agreed by the date that is forty-five (45) days after
the date upon which Seller received the Notice of Disagreement, then the Closing
Statement Arbitrator shall be selected, upon the application of Buyer or Seller,
by the accounting firm of KPMG within ten (10) days of its receipt of such
application).  Buyer and Seller shall, not later than seven (7) days prior to
the hearing date set by the Closing Statement Arbitrator, each submit a brief to
the Closing Statement Arbitrator with dollar figures for settlement of the
disputes as to the amount of the Adjusted Purchase Price (together with a
proposed Closing Statement that reflects such figures) consistent with their
respective calculations delivered pursuant to this Section 3.3(b).  The hearing
will be scheduled seven (7) days following submission of the settlement briefs,
or as soon thereafter as is acceptable to the Closing Statement Arbitrator, and
shall be conducted on a confidential basis.  The Closing Statement Arbitrator
shall consider only those items or amounts in the Closing Statement as to which
the parties disagreed and render a decision resolving the matters in dispute
(which decision shall include a written statement of findings and conclusions)
promptly after the conclusion of the hearing, unless the parties reach agreement
prior thereto and withdraw the dispute from arbitration.  The Closing Statement
Arbitrator shall provide to the parties explanations in writing of the reasons
for its decisions regarding the Adjusted Purchase Price and shall issue the
Final Closing Statement reflecting such decision.  The decision of the Closing
Statement Arbitrator shall be final and binding on the parties.  The cost of any
arbitration (including the fees and expenses of the Closing Statement
Arbitrator) under this Section 3.3(b) shall be borne equally by Buyer and
Seller.  The fees and disbursements of Seller’s independent auditors incurred in
connection with the services performed with respect to the Closing Statement
shall be borne by Seller and the fees and disbursements of Buyer’s independent
auditors incurred in connection with their preparation of the Notice of
Disagreement shall be borne by Buyer.  As used in this Agreement, the term
“Final Closing Statement” shall mean the revised Closing Statement described in
Section 3.3(a), as prepared by Seller and as may be subsequently adjusted to
reflect any subsequent written agreement between the parties with respect
thereto, or if submitted to the Closing Statement Arbitrator, the Arbitrator’s
Closing Statement (“Arbitrator’s Closing Statement”) as described in this
Section 3.3(b).

 
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(c)           Final Settlement.  If the amount of the Adjusted Purchase Price as
set forth on the Final Closing Statement exceeds the amount of the Estimated
Adjusted Purchase Price, then Buyer shall pay to Seller, within five (5)
Business Days after the Final Settlement Date, the amount by which the Adjusted
Purchase Price as set forth on the Final Closing Statement exceeds the amount of
the Estimated Adjusted Purchase Price, together with interest at the Agreed Rate
on such excess amount from the Closing Date until paid.  If the amount of the
Adjusted Purchase Price as set forth on the Final Closing Statement is less than
the amount of the Estimated Adjusted Purchase Price, then Seller shall pay to
Buyer, within five (5) Business Days after the Final Settlement Date, the amount
by which the Adjusted Purchase Price, as set forth on the Final Closing
Statement, is less than the amount of the Estimated Adjusted Purchase Price,
together with interest at the Agreed Rate on such deficiency amount from the
Closing Date until paid.  Any post-Closing payment made under this Section
3.3(c) shall be made by means of a wire transfer of immediately available funds
to a bank account designated by the party receiving the funds.
 
 (d)           Allocation Statement.  Buyer and Seller agree that the Purchase
Price shall be allocated among the Subject Assets in accordance with Section
1060 of the Code and the Treasury regulations thereunder, as set forth on
Schedule 3.3(d) of this Agreement (the “Purchase Price Allocation”), and any
subsequent adjustments to the Purchase Price shall be made consistent with such
allocation.  Buyer and Seller shall duly prepare and timely file such reports
and information returns as may be required under Section 1060 of the Code and
any regulations thereunder and any corresponding provisions of applicable state
income tax laws to report the Purchase Price Allocation.  The Purchase Price
Allocation shall be binding on Buyer and Seller for Tax reporting purposes,
provided that no Party shall be unreasonably impeded in its ability and
discretion to negotiate, compromise and/or settle any Tax audit, claim or
similar proceedings.
 
Section 3.4.          Expense Adjustment The Purchase Price shall be adjusted
(i) upward by an amount equal to all costs and expenses paid by Seller for any
period after November 1, 2009 and attributable to the ownership or operation of
the Subject Assets after November 1, 2009 (other than Buyer’s portion of
Property Taxes paid to Seller pursuant to Section 11.1(b)) and (ii) downward for
all costs and expenses paid by Buyer for any period prior to November 1, 2009
and attributable to the ownership or operation of the Subject Assets prior to
the close of business on November 1, 2009.
 
Section 3.5.          Revenue Adjustment The Purchase Price shall be adjusted
(a) downward by an amount equal to all revenues, proceeds, and other monies
received by Seller attributable to the ownership or operation of the Subject
Assets after November 1, 2009 and (b) upward by an amount equal to all revenues,
proceeds and other monies received by Buyer attributable to the ownership or
operation of the Subject Assets prior to the close of business on November 1,
2009.
 
Article 4
Representations And Warranties
 
Section 4.1.           Representations and Warranties of Seller As of the date
of this Agreement and as of the Closing Date, Seller represents and warrants to
Buyer as follows:
 
(a)           Organization and Good Standing.  Each of Seller and its general
partner, Gastar Exploration Texas LLC, (the “General Partner”) is duly formed,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation or formation.
 
(b)           Qualification of Seller.  Each of Seller and the General Partner
has the requisite corporate or partnership power and authority, as applicable,
required to carry on the business of owning and operating its assets, including
the Subject Assets, as such business is now being conducted.  Each of Seller and
the General Partner is qualified to do business and is in good standing in each
jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not be material to Seller
and the General Partner.
 
(c)           Authority.  Seller has all requisite power and authority to
execute and deliver this Agreement and the Transaction Agreements to which it is
a party and to perform its obligations hereunder and thereunder.  The execution,
delivery, and performance of this Agreement and the Transaction Agreements and
the transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite action on the part of Seller and the General
Partner.
 
 
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(d)           Enforceability.  This Agreement and each of the Transaction
Agreements constitutes a valid and binding obligation of Seller enforceable
against it in accordance with its terms, subject to (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and other similar Laws of general
application with respect to creditors, (ii) general principles of equity, and
(iii) the power of a court to deny enforcement of remedies generally based upon
public policy.
 
(e)           No Violation or Breach.  Except as shown in Schedule 4.1(e),
neither the execution and delivery of this Agreement or the Transaction
Agreements nor the consummation of the transactions and performance of the terms
and conditions contemplated hereby and thereby shall (i) conflict with or result
in a violation or breach of any provision of the certificate of formation,
regulations, or other similar governing documents of Seller or any material
agreement, indenture, or other instrument under which Seller is bound, or
(ii) assuming the obtaining of all Required Consents, constitute a material
default under or give rise to any right of termination, cancellation, or
acceleration of any material right or obligation of Buyer or to a loss of any
material benefit relating to the ownership or operation of the Subject Assets to
which Seller is entitled under any provision of any agreement or other
instrument binding upon Seller or by which any of the Subject Assets is or may
be bound, (iii) violate in any material respect any Law applicable to Seller or
the Subject Assets, or (iv) result in the creation or imposition of any Lien on
the Subject Assets.
 
(f)           Consents.  Except for the consents, approvals, authorizations,
permits filings, or notices described in Schedule 4.1(f) (“Required Consents”),
no material consent, or filing with, or notification to, any Person is required
for or in connection with the execution and delivery of this Agreement or any
Transaction Agreement by Seller or for or in connection with the consummation of
the transactions and performance of the terms and conditions contemplated hereby
or thereby by Seller.
 
(g)           Actions.  Except as set forth on Schedule 4.1(g), there is no
Action pending against, or to the knowledge of Seller, threatened against or
affecting, the operation of the Subject Assets or which in any manner challenges
or seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement or the Transaction Agreements.
 
(h)           Compliance with Laws.  Except as set forth on Schedule 4.1(h),
Seller has operated and maintained its business and the Subject Assets in
compliance with all Laws in all material respects and to the knowledge of Seller
is not under investigation with respect to or has been threatened to be charged
with or given notice of any violation of any Law.  Except as set forth on
Schedule 4.1(h), Seller has not received written notice of any violation of any
Laws, or to the knowledge of Seller, is under investigation with respect to and
has not been threatened to be charged with any violation of any Law in respect
of its ownership and operation of the Subject Assets.
 
(i)           Brokerage Fees and Commissions.  Neither Seller nor any of its
Affiliates has incurred any obligation or entered into any agreement for any
investment banking, brokerage or finder’s fee, or commission in respect of the
transactions contemplated by this Agreement for which Buyer shall incur any
liability.
 
(j)           Bankruptcy.  There are no bankruptcy, reorganization, or
arrangement proceedings pending against, being contemplated by, or to the
knowledge of Seller, threatened against Seller.
 
(k)          Material Contracts.  Except for the contracts disclosed in
Schedule 4.1(k), with respect to the ownership or operation of the Subject
Assets, Seller is not a party to or bound by:
 
(i)           any lease (whether of real or personal property) providing for
annual rentals of $25,000 or more;
 
(ii)           any agreement or contract for the gathering, treating,
transportation, processing, or storage of natural gas or other hydrocarbons;

 
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(iii)        any agreement for the purchase or sale of materials, supplies,
goods, services, equipment or other assets that provides for either expenditures
or payments of $25,000 or more;
 
(iv)        any partnership, joint venture, or other similar agreement or
arrangement;
 
(v)         any agreement relating to the acquisition or disposition of any
business (whether by merger, sale of stock, sale of assets, or otherwise);
 
(vi)        any agreement relating to indebtedness for borrowed money or the
deferred purchase price of property (in either case, whether incurred, assumed,
guaranteed or secured by any asset);
 
(vii)       any option, license, franchise, or similar agreement;
 
(viii)      any agency, dealer, sales representative, marketing or other similar
agreement;
 
(ix)         any agreement that limits the freedom of Seller to compete in any
line of business or with any Person or in any area or to own, operate, sell,
transfer, pledge or otherwise dispose of or encumber any Subject Assets or which
would so limit the freedom of Buyer after the Closing Date;
 
(x)          any agreement with or for the benefit of any Affiliate of Seller;
or
 
(xi)         any other agreement, commitment, or arrangement not made in the
ordinary course of business that is material to the operation of the Subject
Assets.
 
(l)           Environmental Matters.  Except as set forth in Schedule 4.1(l):
 
(i)           the Subject Assets are and, during all surviving periods of
applicable statutes of limitation, have been during Seller’s period of ownership
or operation in compliance in all material respects with all Environmental Laws
and Environmental Permits, and to the knowledge of Seller, the Subject Assets
are not under investigation by any Governmental Authority with respect to, and
have not been the subject of any notice issued to Seller that remains pending
regarding violation of any Environmental Law;
 
(ii)          Seller has obtained or timely applied for all material
Environmental Permits that, to the knowledge of Seller,  are necessary for
operation of the Subject Assets as they are currently being operated by Seller
and, to the knowledge of Seller,  all such Environmental Permits obtained are
valid and in full force and effect;
 
(iii)         Seller has not received any written notice of a request for
information, order, complaint, violation, penalty or investigation issued by a
Governmental Authority pursuant to Environmental Law with respect to the Subject
Assets that remains unresolved as of the Closing Date, and there are no lawsuits
or proceedings pending or, to knowledge of Seller, threatened under
Environmental Law by any Person against Seller with respect to the Subject
Assets;
 
(iv)        there are no material Environmental Liabilities existing in
connection with the Subject Asset and, to the knowledge of Seller, there are no
events or conditions that could reasonably be expected to result in or be the
basis for any such material liability;
 
(v)         no Hazardous Material has been discharged, disposed of, dumped,
injected, pumped, deposited, spilled, leaked, emitted or released at, on or
under any of the real property included in the Subject Assets by Seller or its
Affiliates that is in violation of Environmental Law or that requires Seller to
perform any material investigatory or remedial, cleanup or similar corrective
activities under Environmental Law; and

 
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(vi)        Seller has made available to Buyer copies of all environmental site
assessment reports, studies and analyses on alleged environmental matters
including Hazardous Materials that are in the Seller’s possession and relating
to its operation of the Subject Assets.
 
Notwithstanding any other provisions of this Agreement to the contrary, this
Section 4.1(l) contains the sole and exclusive representations and warranties of
Seller on environmental matters, including Environmental Laws, Environmental
Permits, and Hazardous Materials.
 
(m)        Tax Matters.  Except as set forth in Schedule 4.1(m),
 
(i)          all Tax Returns required to be filed on or before the Closing Date
by Seller with respect to any Taxes payable in respect of the Subject Assets
have been or will be timely filed with the appropriate Governmental Authority in
the jurisdictions in which such Tax Returns are required to be filed, such Tax
Returns are or will be true and correct in all material respects, and all Taxes
required to be paid on or before the Closing Date by the Seller with respect to
the Subject Assets have been or will be paid;
 
(ii)         there are no claims, assessments, levies, administrative
proceedings, or lawsuits pending, or to the knowledge of Seller, threatened by
any taxing authority with respect to the Subject Assets; and
 
(iii)        no audit or investigation of any Tax Return of Seller with respect
to the Subject Assets is currently underway, or to the knowledge of Seller,
threatened.
 
(n)          Property Matters.
 
(i)           Except as set forth in Schedule 4.1(n), Seller has good and
indefeasible title, or a valid leasehold interest in, or otherwise has the valid
right to use the real property and personal property included in the Subject
Assets, free and clear of all Liens, other than Permitted Encumbrances.
 
(ii)          Exhibit A correctly describes all rights of way and easements
included in the Subject Assets, which shall be assigned by Seller to Buyer under
special warranty assignments.  Except as set forth in Schedule 4.1(n), (A) the
rights of way and easements disclosed in Exhibit A constitute all of the
easements, servitudes, rights of way, leases, licenses, and similar agreements
held by Seller relating to real property constituting parts of the Subject
Assets; (B) each right of way or easement disclosed in Exhibit A is valid and
binding and in full force and effect; (C) Seller is not in breach of or default
under, and to Seller’s knowledge, no other party to any such right of way or
easement is in breach of or default under, in any material respect, any of the
provisions of any such right of way or easement; (D) all rentals and other
payments due under such rights of way and easement have been paid; (E) the
consummation of the transactions contemplated by this Agreement and the
Transaction Agreements and the performance of the provisions hereof or thereof
will not constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation under, or give rise to
any loss of any benefit under, any such right of way; and (F) except as set
forth in Schedule 4.1(n)(ii)(F), such rights of way and easements cover the
entire and continuous length of the Hilltop Resort Gathering System as it exists
and is used today, and there are no spatial gaps in any of such rights of way or
easements and such rights of way and easements grant Seller the right to
construct, operate, maintain the Hilltop Resort Gathering System as it exists
and is used today in, over, and across the real property covered thereby, and to
receive, gather, and redeliver Seller’s gas from lands in the AMI (as such term
is defined in the Gas Gathering Agreement).
 
(iii)         To Seller’s knowledge, there are no condemnation or similar
proceedings pending or threatened against any of the Subject Assets.

 
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(iv)         Except as set forth in Schedule 4.1(n), to the knowledge of Seller,
the personal property, fixtures, and improvements included in the Subject Assets
are in good repair, working order and operating condition in all material
respects, ordinary wear and tear excepted.
 
(v)          To Seller’s knowledge, no portion of the gathering system included
in the Subject Assets encroaches in any respect on property of others (other
than encroachments that would not materially impair the ownership or operation
of the Subject Assets).
 
(vi)         Except as set forth in Schedule 4.1(n), no portion of the Subject
Assets is subject to any preferential purchase rights or purchase options.
 
(o)          Permits. Schedule 4.1(o) correctly describes each license,
franchise, permit, certificate, approval, or other similar authorization,
excluding Environmental Permits of Seller or its Affiliates, affecting, or
relating in any way to, the Subject Assets (the “Permits”) together with the
name of the Governmental Authority issuing such Permit.  Except as set forth on
Schedule 4.1(o), (i) each material Permit is valid and in full force and effect,
(ii) Seller is not in default, and no condition exists that with notice or lapse
of time or both would constitute a default, under any such Permits, (iii) no
such Permit will be terminated or impaired or become terminable, in whole or in
part, as a result of the transactions contemplated hereby or by the Transaction
Agreements, and (iv) to the knowledge of Seller, the Permits constitute all of
the licenses, franchises, permits, certificates, approvals, or other similar
authorizations, excluding Environmental Permits, used or necessary for the
ownership and operation of the Hilltop Resort Gathering System.
 
(p)          Insurance Coverage.  Seller has furnished to Buyer a list of, and
true and complete copies of, all insurance policies and fidelity bonds relating
to the ownership or operation of the Subject Assets.  There is no claim by
Seller pending under any of such policies or bonds as to which coverage has been
questioned, denied, or disputed by the underwriters of such policies or bonds or
in respect of which such underwriters have reserved their rights.  All premiums
payable under all such policies and bonds have been timely paid and Seller has
otherwise complied fully with the terms and conditions of all such policies and
bonds.  Such policies of insurance and bonds (or other policies and bonds
providing substantially similar insurance coverage) have been in effect since
November 1, 2008 and remain in full force and effect.  Such policies and bonds
are of the type and in amounts customarily carried by Persons conducting
operations similar to the operation of the Subject Assets.  Seller does not know
of any threatened termination of, premium increase with respect to, or material
alteration of coverage under, any of such policies or bonds.  After Closing,
Seller shall continue to have coverage under such policies and bonds with
respect to events occurring prior to the Closing.
 
(q)          Regulatory Status.  No segment of the Subject Assets (i) has been
acquired through the use or threatened use of the power of eminent domain, or
(ii) is subject to regulation by (x) the Texas Railroad Commission as to the
rates or tariffs that can or must be charged or imposed or the services that can
or must be performed or (y) the Federal Energy Regulatory Commission as a
natural gas company under the Natural Gas Act or a Section 311 transporter under
the Natural Gas Policy Act of 1978.
 
(r)           No Fraudulent Transfer.  Neither Seller nor any of its Affiliates
is “insolvent” (and will not become “insolvent” as a result of consummation of
the transactions contemplated under this Agreement), and the Purchase Price
constitutes “reasonable equivalent value” and “fair consideration” for the
Subject Assets, in each case for the purposes of Section 548(a)(1)(B) of the
United States Bankruptcy Code or any other applicable fraudulent conveyance or
similar laws.
 
(s)           Books and Records.  The books and records necessary for the
ownership and operation of the Subject Assets are complete and correct in all
material respects and true, correct, and complete copies of such books and
records have been provided to Buyer.

 
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(t)           Reserve Report and Production.  The factual, non-interpretive
production data, and information (excluding interpretive data, projections, and
estimates) supplied by Seller and its Affiliates to the Reserve Engineers for
purposes of preparing the reserve report, dated June 30, 2009, of the proved
natural gas and oil reserve estimates of Seller and its Affiliates in Robertson
and Leon Counties, Texas was true and correct in all material respects on the
date supplied. Such factual, non-interpretive production data and information
consisted of:  a description of the producing wells connected to the Hilltop
Resort Gathering System; historical monthly and daily production data for such
wells; the net revenue interests and working interests of Seller and its
Affiliates in such wells; and the number of drilling rigs active as of the date
of the report.  Schedule 4.1(t) sets forth the aggregate throughput data for the
Hilltop Resort Gathering System included in the Subject Assets for the month of
September 2009.
 
Section 4.2.          Representations and Warranties of Buyer As of the date
hereof, Buyer represents and warrants to Seller as follows:
 
(a)          Organization and Qualification.  Buyer is a limited liability
company, duly formed, validly existing, and in good standing under the laws of
the State of Delaware and has the requisite power to carry on its business as it
is now being conducted.
 
(b)          Qualification of Buyer.  Buyer has the requisite limited liability
company power and authority required to carry on the business of owning and
operating its assets, as such business is now being conducted.  Buyer is
qualified to do business and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not be material to Buyer.
 
(c)           Authority.  Buyer has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations under this
Agreement.  The execution, delivery, and performance of this Agreement and the
transactions contemplated hereby have been duly and validly authorized by all
requisite action on the part of Buyer.
 
(d)           Enforceability.  This Agreement and each of the Transaction
Agreements constitutes a valid and binding obligation of Buyer enforceable
against Buyer in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar Laws of
general application with respect to creditors, (ii) general principles of
equity, and (iii) the power of a court to deny enforcement of remedies generally
based upon public policy.
 
(e)           No Conflict or Violation.  Neither the execution and delivery of
this Agreement or the Transaction Agreements nor the consummation of the
transactions and performance of the terms and conditions contemplated hereby or
thereby by Buyer (i) conflict with or result in a violation or breach of any
provision of the certificate of formation, regulations, or other similar
governing documents of Buyer or any agreement, indenture or other instrument
under which Buyer is bound or (ii) violate or conflict with any Law applicable
to Buyer or the properties or assets of Buyer.
 
(f)           Consents.  No consent, approval, authorization, or permit of, or
filing with, or notification to, any Person is required for or in connection
with the execution and delivery of this Agreement or any Transaction Agreement
by Buyer or for or in connection with the consummation of the transactions and
performance of the terms and conditions contemplated hereby or thereby by Buyer.
 
(g)           Actions.  There is no Action (or any basis therefor) pending
against Buyer, or to the knowledge of Buyer threatened against Buyer, which
could reasonably expected to have a material adverse effect on Buyer or which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement or the Transaction Agreements.
 
(h)           Brokerage Fees and Commissions.  Neither Buyer nor any Affiliate
of Buyer has incurred any obligation or entered into any agreement for any
investment banking, brokerage, or finder’s fee or commission in respect of the
transactions contemplated by this Agreement for which Seller shall incur any
liability.

 
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Article 5
Access Before Closing
 
Promptly following the execution of this Agreement and until the Closing Date
(or earlier termination of this Agreement), Seller shall permit Buyer and its
representatives (i) to have reasonable access at reasonable times in Seller’s
offices to records relating to the Subject Assets, and (ii) subject to any
required consent of any third Person, to conduct at reasonable times and at
Buyer’s cost and expense, in the presence of representatives of Seller,
reasonable inspections (but excluding any ground water or soil sampling or any
other invasive testing of the Subject Assets including the real property upon
which the Subject Assets are located, unless such sampling or testing is
approved in advance in writing by Seller, which approval may be refused by
Seller in its sole discretion) of the Subject Assets. Buyer shall indemnify the
Seller Indemnified Parties from and against any and all Losses incurred or
suffered by any of the Seller Indemnified Parties as a result of Buyer’s and its
representatives’ access and inspections, except to the extent caused by the
intentional misconduct or gross negligence of the Seller Indemnified Parties.
 
Article 6
Covenants of Seller and Buyer
 
Section 6.1.        Conduct of Business Pending Closing From the date hereof
through the Closing, except as disclosed in Schedule 6.1 or as otherwise
consented to or approved by Buyer, such consent not to be unreasonably withheld,
delayed or conditioned, Seller covenants and agrees as provided below.
 
(a)         Changes in Business.  From the date hereof until the Closing Date,
Seller shall operate the Subject Assets in the ordinary course consistent with
past practice and shall use its reasonable best efforts to preserve intact the
business organizations and relationships with third parties (including but not
limited to, suppliers, customers, and Governmental Authorities) and to keep
available the services of the present employees assigned to the operation of the
Subject Assets.  Without limiting the generality of the foregoing and except as
otherwise expressly set forth herein, from the date hereof until the Closing
Date, Seller shall not:
 
(i)            make any material change in the conduct of the business related
to the Subject Assets; and
 
(ii)           sell, lease, or otherwise dispose of any of the Subject Assets,
except (a) any Subject Assets sold, leased, or otherwise disposed of in the
ordinary course of business consistent with past practice and (b) any Subject
Assets having an individual value not exceeding $20,000 and an aggregate value
not exceeding $100,000.
 
(b)         No Liens.  Seller shall not create any express lien or security
interest on any Subject Assets, except for Permitted Encumbrances created in the
ordinary course of business.
 
(c)         Operation of Assets.  Seller shall:
 
(i)            cause the Subject Assets to be maintained and operated in the
ordinary course of business in accordance with Seller’s past practices
(including the repair or replacement of damaged, destroyed, obsolete,
depreciated, non-working or non-economical items of equipment or other personal
property and the investigation, monitoring and remediation of the Subject Assets
as required by Environmental Laws), maintain insurance now in force with respect
to the Subject Assets, and pay or cause to be paid all costs and expenses in
connection therewith promptly when due in the ordinary course of business in
accordance with Seller’s past practices;
 
(ii)           duly and timely file or cause to be filed all reports and returns
required to be filed with a Governmental Authority and timely pay all amounts
due in connection therewith, unless such amounts are being contested by Seller
in good faith; and

 
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(iii)          cause the value of the spare parts and inventory that are part of
the Subject Assets to be maintained at levels consistent with past practices, if
applicable.
 
Section 6.2.         Public Announcements Prior to the Closing Date, without the
prior written approval of the other party hereto (which approval shall not be
unreasonably withheld, delayed or conditioned), no party hereto will issue, or
permit any agent, representative, or Affiliate of it to issue, any press
releases or otherwise make, or cause any agent or Affiliate of it to make, any
public statements with respect to this Agreement, its existence, or the
transactions contemplated hereby, except where such release or statement is
deemed in good faith by the releasing party to be required by Law or under the
rules and regulations of any applicable public stock exchange on which the
shares of such party or any of its Affiliates are listed.  In each case to which
such exception applies, the releasing party will use its reasonable efforts to
provide a copy of such release or statement to the other parties prior to
releasing or making the same.  After the Closing Date, to the extent permitted
by Applicable Law and under the rules and regulations of any applicable public
stock exchange on which the shares of a party or any of its Affiliates are
listed, the parties will confer with each other in advance regarding the
respective initial public announcements proposed to be made by the parties in
connection with the transactions contemplated hereby.
 
Section 6.3.        Actions by Parties Each party agrees to use its reasonable
best efforts to satisfy the conditions to Closing set forth in Article 7 and
take, or cause to be taken, and do, or cause to be done, all things reasonably
necessary, proper, or advisable under applicable Laws to satisfy all of its
obligations hereunder, and to cause the transactions contemplated hereunder to
occur as soon as reasonably practicable, and to refrain from taking, or omit
from taking, any action within its reasonable control which would cause a breach
of a representation or warranty set forth herein.
 
Section 6.4.         Further Assurances Seller and Buyer each agree that from
time to time after the Closing Date it will execute and deliver, or cause its
respective Affiliates to execute and deliver, such documents, certificates,
instruments and other writings, and take (or cause its respective Affiliates to
take) such other actions, as may be necessary or desirable to carry out the
purposes and intents of this Agreement and to consummate or implement
expeditiously the transactions contemplated by this Agreement and to vest in
Buyer (or Buyer’s Affiliates) good and marketable title to the Subject Assets.
 
Section 6.5.         Records Buyer agrees to maintain the Records until the
fifth anniversary of the Closing Date, or if any of the Records pertain to any
claim or dispute pending on the fifth anniversary of the Closing Date, Buyer
shall maintain any of the Records designated by Seller until such claim or
dispute is finally resolved and the time for all appeals has been
exhausted.  Buyer shall provide Seller and its representatives reasonable access
to, and the right to copy the applicable portion of, the Records for the
purposes of:
 
(i)            preparing and delivering any accounting Records or reports
provided for under this Agreement and adjusting, prorating, and settling the
charges and credits provided for in this Agreement;
 
(ii)           complying with any Law affecting the Subject Assets prior to the
Closing Date;
 
(iii)          preparing any audit of the books and records of any third party
relating to Subject Assets prior to the Closing Date, or responding to any audit
prepared by such third parties;
 
(iv)          preparing Tax Returns;
 
(v)           responding to or disputing any Tax audit or otherwise dealing with
any Tax matters; or
 
(vi)          asserting, defending, or otherwise dealing with any claim,
dispute, or Action under this Agreement or with respect to the Subject Assets.
 
In no event shall Buyer or any of its Affiliates destroy any Records without
giving Seller sixty (60) days’ advance written notice thereof and the
opportunity, at Seller’s expense, to obtain such Records prior to their
destruction.

 
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Section 6.6.         Certain Filings Seller and Buyer shall cooperate with one
another and assist each other:
 
(i)            in determining whether any action by or in respect of, or filing
with, any Governmental Authority is required, or any actions, consents,
approvals in connection with the consummation of the transactions contemplated
by this Agreement; and
 
(ii)           in taking such actions or making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such actions, consents, approvals or waivers, including giving all notices to
third parties and using its reasonable best efforts to obtain all third party
consents necessary, proper, or advisable to consummate the transactions
contemplated hereunder.
 
Section 6.7.         Regulatory Approvals If Buyer or Seller decide that
approval of a Governmental Authority is required to permit Seller or Buyer to
continue to use any Permits with respect to the Subject Assets after Closing,
Buyer and Seller shall, as promptly as practicable after the date of this
Agreement, cooperate in filing the required applications and notices with the
appropriate Governmental Authorities seeking authorization to confirm Seller’s
continued right to use such Permits or to transfer or assign such Permits to
Buyer (the “Regulatory Approvals”) as necessary.  Each party agrees to use its
reasonable best efforts to obtain the Regulatory Approvals and the parties agree
to cooperate fully with each other and with all Governmental Authorities to
obtain the Regulatory Approvals at the earliest practicable date.
 
Section 6.8.         Expenses And Revenues Expenses.  To the extent there are
any costs and expenses attributable to the ownership or operation of the Subject
Assets that have not already been taken into  account in determining the
Adjusted Purchase Price, (i) Seller shall be entitled to be reimbursed by Buyer
for any costs and expenses paid by Seller for any period after the Closing Date
and attributable to the ownership or operation of the Subject Assets after the
Closing Date; provided, however, that Seller shall not be entitled to be
reimbursed for any Taxes paid by Seller under Article 11 hereof and (ii) Buyer
shall be entitled to be reimbursed by Seller for any costs and expenses paid by
Buyer for any period prior to the Closing Date and attributable to the ownership
or operation of the Subject Assets prior to the close of business on the Closing
Date.  Buyer and Seller agree to reimburse each other for all such costs and
expenses within ten (10) Business Days after receipt from Buyer or Seller, as
appropriate, of a notice of reimbursement accompanied by written evidence of the
underlying payment on account of such costs and expenses.
 
(b)         Revenues.  To the extent there are any revenues, proceeds, and
monies attributable to the ownership or the operation of the Subject Assets that
have not already been taken into account in determining the Adjusted Purchase
Price, (i) Buyer shall be entitled to be reimbursed by Seller for any revenues,
proceeds, and other monies received by Seller attributable to the ownership or
operation of the Subject Assets after the Closing Date and (ii) Seller shall be
entitled to be reimbursed by Buyer for any revenues, proceeds, and other monies
received by Buyer attributable to the ownership or operation of the Subject
Assets prior to the close of business on the Closing Date.  To the extent that
either Buyer or Seller receives such revenue, proceeds and monies, Buyer and
Seller agree to promptly (within ten (10) Business Days) remit such proceeds to
the designated bank account of Seller or Buyer, as appropriate.
 
Section 6.9.         Conveyance of Certain Excluded Assets If Buyer obtains a
right of way from the surface owner with respect to the pipeline assets set
forth on Exhibit B, Seller shall convey to Buyer all of its right, title and
interest in the relevant pipeline assets set forth on Exhibit B. In the event
that Buyer is unable to obtain any such right of way, Seller hereby agrees to
use commercially reasonable efforts to partially assign to Buyer Seller’s
surface rights under the oil and gas lease relating to such pipeline assets,
provided that (i) any such assignment shall not be a violation of the oil and
gas lease, (ii) any such assignment shall be non-exclusive and only for the term
of the Gas Gathering Agreement, (iii) the use of such surface rights and
pipeline assets shall be only as permitted by the oil and gas lease and shall be
limited to moving oil and gas produced from such lease, (iv) Buyer shall be
responsible for removing such pipeline assets at its sole cost if the oil and
gas lease terminates prior to the Gas Gathering Agreement and (v) Buyer shall
indemnify and hold Seller harmless against any and all Losses incurred by any
Seller Indemnified Party in connection with the granting of such assignment or
the use of such surface rights.

 
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Section 6.10.       Certain Rights of Way Seller hereby agrees to acquire, in
the name of Buyer, promptly after Closing and except as set forth in the
following sentence at no cost to Buyer, fully recordable, paid-up, right of way
instruments from the appropriate surface owners to connect the gaps set forth on
Schedule 4.1(n)(ii)(F).  In the event Seller is not able to recover from
Navasota and/or Presco their share of the costs incurred to satisfy Seller’s
obligation under this Section together with any costs associated with its
obligations under Section 6.11 to obtain certain consents (after the exercise of
its good faith efforts), Buyer shall promptly reimburse Seller for such
unrecovered amounts from Navasota and/or Presco (i.e., up to thirty percent
(30%) of the aggregate paid by Seller) in an aggregate amount not to exceed
$150,000 (the “Reimbursement Obligation”). If Seller does not obtain fully
recordable, paid-up, right of way instruments from the appropriate surface
owners to connect the gaps set forth on Schedule 4.1(n)(ii)(F) within 90 days
after the Closing Date, Buyer may acquire or obtain such right of way
instruments or, if such right of way instruments cannot be acquired or obtained
within forty-five (45) days, may seek other cure of such defects (including
obtaining alternative rights of way and construction of alternative pipelines;
provided that such pipelines are of substantially similar size, quality and
specifications), and, subject to the following sentence, such cure costs to
Buyer shall be deemed Losses subject to indemnification by Seller pursuant to
Section 9.2 in addition to any other Losses covered under Section 9.2.  In the
event Seller is not able to recover from Navasota and or/Presco their share of
such costs after the exercise of its good faith efforts, Buyer shall be
responsible for the Reimbursement Obligation in respect of such costs.
 
Section 6.11.       Certain Consents Seller shall use commercially reasonable
efforts to obtain, promptly after Closing and at no cost to Buyer, the consents
set forth on Schedule 4.1(f).  In the event Seller does not obtain such consents
within 90 days, Buyer may seek to obtain such consents and, subject to the
following sentence, any costs to Buyer in obtaining such consents shall be
deemed Losses subject to indemnification by Seller pursuant to Section 9.2 in
addition to any other Losses covered under Section 9.2. In the event Seller is
not able to recover from Navasota and or/Presco their share of such costs after
the exercise of its good faith efforts, Buyer shall be responsible for the
Reimbursement Obligation in respect of such costs together with costs incurred
to satisfy Seller's obligation under Section 6.10.
 
Article 7
Closing Conditions
 
Section 7.1.          Seller’s Closing Conditions The obligation of Seller to
proceed with the Closing contemplated hereby is subject, at the option of
Seller, to the satisfaction on or prior to the Closing Date of all of the
following conditions:
 
(a)           Representations, Warranties, and Covenants.  (i) The
representations and warranties of Buyer contained in Section 4.2 of this
Agreement and in any certificate or other writing delivered by Buyer pursuant
hereto shall be true and correct in all material respects on and as of the
Closing Date (after excluding the effect of any materiality qualifications set
forth in any such representation or warranty), and (ii) the covenants and
agreements of Buyer to be performed on or before the Closing Date shall have
been duly performed in all material respects in accordance with this Agreement.
 
(b)           Officer’s Certificate.  Seller shall have received a certificate
dated as of the Closing Date, executed by a duly authorized officer of Buyer, to
the effect that the conditions set forth in Section 7.1(a) have been satisfied
and attaching evidence of the requisite corporate actions of Buyer authorizing
the execution, delivery and performance of this Agreement and the Transaction
Agreements and the transactions contemplated hereby and thereby.
 
(c)           Closing Documents.  On or prior to the Closing Date, Buyer or its
Affiliates shall have executed and delivered, or be standing ready to execute
and deliver at Closing, all agreements, instruments, and other documents
required to be delivered by Buyer or its Affiliates under Section 8.3.
 
(d)           No Action.  No suit, action, or other proceeding shall be pending
or threatened before any court or Governmental Authority or body of competent
jurisdiction seeking to enjoin or restrain the consummation of the Closing or
recover damages from Seller or its Affiliates resulting therefrom and no written
notice shall have been received from any Governmental Authority indicating an
intent to prevent, materially delay, or restructure the transactions
contemplated hereunder.
 
 
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(e)           Consents.  All consents, waivers, authorizations, and approvals
listed in Schedule 7.1(e) shall have been obtained or waived on or before the
Closing Date, in each case in form and substance reasonably satisfactory to
Seller.
 
(f)           Other Regulatory Approvals.  All actions by or in respect of or
filings with any Governmental Authority required to permit the consummation of
the Closing shall have been taken, made or obtained.
 
Section 7.2.         Buyer’s Closing Conditions The obligation of Buyer to
proceed with the Closing contemplated hereby is subject, at the option of Buyer,
to the satisfaction on or prior to the Closing Date of all of the following
conditions:
 
(a)           Representations, Warranties, and Covenants.  (i) The
representations and warranties of Seller in Section 4.1 of this Agreement and in
any certificate or other writing delivered by Seller pursuant hereto shall be
true and correct in all material respects on and as of the Closing Date (after
excluding the effect of any materiality qualifications set forth in any such
representation or warranty), and (ii) covenants and agreements of Seller to be
performed on or before the Closing Date in accordance with this Agreement shall
have been duly performed in all material respects in accordance with this
Agreement.
 
(b)           Officer’s Certificate.  Buyer shall have received a certificate
dated as of the Closing Date, executed by a duly authorized officer of Seller,
to the effect that the conditions set forth in Section 7.2(a) have been
satisfied and attaching evidence of the requisite corporate actions of the
General Partner authorizing the execution, delivery and performance of this
Agreement and the Transaction Agreements and the transactions contemplated
hereby and thereby.
 
(c)           Closing Documents.  On or prior to the Closing Date, Seller shall
have executed and delivered, or be standing ready to execute and deliver at the
Closing, all agreements, instruments, and documents required to be delivered by
Seller under Section 8.2.
 
(d)           No Action.  No suit, action, or other proceeding shall be pending
or threatened before any court or Governmental Authority or body of competent
jurisdiction seeking to enjoin or restrain the consummation of the Closing or
recover damages from Buyer or any Affiliate of Buyer resulting therefrom and no
written notice shall have been received from any Governmental Authority
indicating an intent to prevent, materially delay, or restructure the
transactions contemplated hereunder.
 
(e)           Consents.  All consents, waivers, authorizations, and approvals
set forth in Schedule 7.2(e) shall have been obtained or waived on or before the
Closing Date, in each case in form and substance reasonably satisfactory to
Buyer.
 
(f)           Other Regulatory Approvals.  All actions by or in respect of or
filings with any Governmental Authority required to permit the consummation of
the Closing shall have been taken, made or obtained.
 
(g)           Gas Gathering Agreements.  Gastar shall have executed and
delivered the Gas Gathering Agreement and each of Navasota and Presco shall have
executed and delivered a separate gas gathering agreement in a form that is
acceptable to Buyer, and each such gas gathering agreement shall be in full
force and effect.
 
(h)           Conveyances and Purchase and Sale Agreements.  Gastar shall have
conveyed a portion of the Hilltop Resort Gathering System to each of Navasota
and Presco, and each of Navasota and Presco shall have executed and delivered a
separate purchase and sale agreement in a form that is acceptable to Buyer for
the purchase and sale of the portion of the Hilltop Resort Gathering System
owned by each such party, and each such purchase and sale shall be consummated
concurrently with the Closing.

 
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Article 8
Closing
 
Section 8.1.         Closing The Closing shall be held on the Closing Date at
10:00 a.m., Houston time, at the offices of Andrews Kurth LLP at 600 Travis
Street, Suite 4200, Houston, Texas, 77002 or at such other time or place as
Seller and Buyer may otherwise agree in writing.
 
Section 8.2.         Seller’s Closing Deliverables At Closing, Seller shall
execute and deliver, or cause to be executed and delivered, to Buyer the
following:
 
(i)           the assignment agreement and bill of sale in substantially the
form of Exhibit 8.2(i) (the “Assignment and Bill of Sale”) and such other
conveyance and transfer instruments under which the Subject Assets will be
assigned and transferred to Buyer;
 
(ii)          the officer’s certificates referred to in Section 7.2(b);
 
(iii)         a non-foreign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the IRC, in form attached hereto as Exhibit 8.2(iii),
dated as of the Closing Date; and
 
(iv)         the Gas Gathering Agreement.
 
Section 8.3.         Buyer’s Closing Deliverables At Closing, Buyer shall
deliver, or cause to be delivered, the Estimated Adjusted Purchase Price and the
Closing Property Tax Payment to Seller in immediately available funds to the
bank account as provided in Section 3.2, and Buyer shall execute and deliver, or
cause to be executed and delivered, to Seller the following:
 
(i)           the Assignment and Bill of Sale executed by Buyer;
 
(ii)          the officer’s certificate of Buyer referred to in Section 7.1(b);
and
 
(iii)         the Gas Gathering Agreement.
 
Article 9
Indemnification
 
Section 9.1.         Indemnification by Buyer From and after the Closing Date,
Buyer shall indemnify and hold harmless Seller, its Affiliates, and its and
their directors, officers, employees, representatives, agents, successors, and
permitted assigns (collectively, the “Seller Indemnified Parties”) from and
against any and all Losses incurred or suffered by any of Seller Indemnified
Parties (i) for any breach of Buyer’s representations or warranties made in this
Agreement and (ii) for any breach of the covenants or obligations made or to be
performed by Buyer under this Agreement.
 
 
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Section 9.2.      Indemnification by Seller From and after the Closing Date,
Seller shall indemnify and hold harmless Buyer, its Affiliates, and its and
their directors, officers, employees, representatives, agents, successors, and
permitted assigns (collectively, the “Buyer Indemnified Parties”) from and
against any and all Losses incurred or suffered by any of Buyer Indemnified
Parties (i) for any breach of Seller’s representations or warranties made in
this Agreement, (ii) for any breach of the covenants or obligations made or to
be performed by Seller and its Affiliates pursuant to Section 2.3, (iii) for any
breach of the remaining covenants or obligations made or to be performed by
Seller and its Affiliates under this Agreement, (iv) for the Excluded
Liabilities and (v) relating to connecting the gaps in the pipeline set forth in
Section 4.1(n)(ii)(F) or obtaining the consents set forth on Schedule 4.1(f)
(other than Losses that are subject to the Reimbursement Obligation if
applicable) or the ownership, operation, maintenance or other use of the
applicable Subject Assets prior to the acquisition of right of way instruments
connecting such gaps or obtaining such consents.  Notwithstanding anything in
this Agreement to the contrary, Seller shall not be required to indemnify any
Buyer Indemnified Party pursuant to clause 9.2(i) or (ii) (a) unless and only to
the extent the aggregate of all Losses for which Seller would be liable under
clause 9.2(i) or (ii) exceeds one percent (1%) of the Purchase Price, and (b) to
the extent Losses for which Seller would be liable under clause 9.2(i) or (ii)
exceed $3,500,000 in the aggregate; provided, that, such limitations shall not
apply to Losses incurred or suffered for any breach of the representations and
warranties contained in Section 4.1(c) (Authority), Section 4.1(d)
(Enforceability), Section 4.1(i) (Brokerage Fees and Commissions), or Section
4.1(m) (Tax Matters). Notwithstanding anything in this Agreement to the
contrary, with respect to Losses relating to the Hilltop Resort Gathering System
(other than Losses described in Section 9.2(v)), Seller’s liability to Buyer
pursuant to this Agreement shall be limited to a proportionate share of such
Losses equal to the proportionate interest in the Hilltop Resort Gathering
System conveyed by Seller to Buyer.
 
Section 9.3.       Third Party Claims If a claim by a third party a (“Third
Party Claim”) is made against a Seller Indemnified Party or a Buyer Indemnified
Party (an “Indemnified Party”), and if such party intends to seek indemnity with
respect thereto under Section 9.1 or Section 9.2, such Indemnified Party shall
promptly furnish written notice to the indemnifying party (the “Indemnitor”) of
such claims.  The Indemnitor shall have thirty (30) days after receipt of such
notice to undertake, conduct, and control (through counsel of its own choosing
and at its own expense) the defense thereof.  If the Indemnitor elects to
undertake the defense of any Third Party Claim, the Indemnified Party shall
cooperate with it in connection therewith; provided that the Indemnitor shall
not settle any such Third Party Claim without the prior written consent of the
Indemnified Party (which consent will not be unreasonably withheld or delayed)
unless the relief consists solely of money damages and includes a provision
whereby the plaintiff or claimant in the matter releases Buyer Indemnified
Parties or Seller Indemnified Parties, as applicable, from all liability with
respect thereto.  The Indemnitor shall permit the Indemnified Party to
participate in such settlement or defense through counsel chosen by such
Indemnified Party (however, the fees and expenses of such counsel shall be borne
by such Indemnified Party except if (i) the Indemnified Party shall have
determined reasonably and in good faith that an actual or potential conflict of
interest makes representation by the same counsel or the counsel selected by the
Indemnitor inappropriate or (ii) the Indemnitor shall have authorized the
Indemnified Party to employ separate legal counsel at the Indemnitor’s
expense).  So long as the Indemnitor, at Indemnitor’s cost and expense, (i) has
undertaken the defense of such claim, (ii) is reasonably contesting such claim
in good faith, by appropriate proceedings, and (iii) has taken such action
(including the posting of a bond, deposit, or other security) as may be
necessary to prevent any action to foreclose a lien against or attachment of the
property of the Indemnified Party for payment of such claim, the Indemnified
Party shall not pay or settle any such claim.  If within thirty (30) days after
the receipt of the Indemnified Party’s notice of a claim of indemnity hereunder,
the Indemnitor does not notify the Indemnified Party that it elects (at
Indemnitor’s cost and expense) to undertake the defense thereof or gives such
notice and thereafter fails to contest such claim in good faith or to prevent
action to foreclose a lien against or attachment of the Indemnified Party’s
property as contemplated above, the Indemnified Party shall have the right to
contest but shall not settle and/or compromise the claim and, to the extent the
actions taken by the Indemnified Party in settling or compromising such claim
are reasonable and in good faith, the Indemnified Party shall not thereby waive
any right to indemnity therefor pursuant to this Agreement.
 
Section 9.4.      Survival The representations and warranties of the parties in
this Agreement or in any certificate or other writing delivered in connection
herewith shall survive until eighteen (18) months after the Closing; provided,
that the representations and warranties contained in Section 4.1(m) (Tax
Matters) shall survive the Closing until thirty (30) days after the expiration
of the applicable statute of limitations (including any extensions
thereof).  The covenants and agreements contained herein shall expire as of the
Closing Date; provided that agreements or covenants in this Agreement that by
their terms contemplate performance after Closing shall survive until performed
in full.
 
Section 9.5.      Purchase Price Adjustment Any amount paid by Seller or Buyer
under this Article 9 will be treated as an adjustment to the Purchase Price.
 
Section 9.6.      Exclusive Remedy Except as otherwise provided in Article 5,
after the Closing Date, the remedies provided in this Article 9 shall be the
sole and exclusive remedies hereunder for any breach hereof, and shall preclude
assertion by an Indemnified Party of any other rights or the seeking of any and
all other remedies against an Indemnifying Party for claims for breach hereof,
whether arising in contract, tort or otherwise.
 
 
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Section 9.7.        Disclaimers BUYER ACKNOWLEDGES AND AGREES THAT BUYER IS
EXPERIENCED IN THE OWNERSHIP AND OPERATION OF PROPERTIES SIMILAR TO THE SUBJECT
ASSETS AND THAT BUYER PRIOR TO THE CLOSING DATE WILL HAVE INSPECTED THE SUBJECT
ASSETS TO ITS SATISFACTION AND IS QUALIFIED TO MAKE SUCH INSPECTION.  WITHOUT
LIMITING ANY OF SELLER’S REPRESENTATIONS IN THIS AGREEMENT OR THE OTHER
TRANSACTION AGREEMENTS, BUYER ACKNOWLEDGES THAT IT IS FULLY RELYING ON BUYER’S
(OR BUYER’S REPRESENTATIVES’) INSPECTIONS, EXAMINATIONS AND EVALUATIONS OF THE
SUBJECT ASSETS AND NOT UPON ANY STATEMENTS (ORAL OR WRITTEN) WHICH MAY HAVE BEEN
MADE OR MAY BE MADE (OR PURPORTEDLY MADE) BY SELLER OR ANY OF ITS
REPRESENTATIVES.  BUYER ACKNOWLEDGES THAT BUYER HAS (OR BUYER’S REPRESENTATIVES
HAVE), OR PRIOR TO THE CLOSING DATE WILL HAVE, THOROUGHLY INSPECTED AND EXAMINED
THE SUBJECT ASSETS TO THE EXTENT DEEMED NECESSARY BY BUYER IN ORDER TO ENABLE
BUYER TO EVALUATE THE CONDITION OF THE SUBJECT ASSETS AND ALL OTHER ASPECTS OF
THE SUBJECT ASSETS (INCLUDING, BUT NOT LIMITED TO, THE ENVIRONMENTAL CONDITION
OF THE SUBJECT ASSETS), AND BUYER ACKNOWLEDGES THAT BUYER IS RELYING SOLELY UPON
ITS OWN (OR ITS REPRESENTATIVES’) INSPECTION, EXAMINATION AND EVALUATION OF THE
SUBJECT ASSETS (EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT OR THE OTHER
TRANSACTION AGREEMENTS).  AS A MATERIAL PART OF THE CONSIDERATION FOR THIS
AGREEMENT AND THE PURCHASE, BUYER HEREBY AGREES TO ACCEPT THE SUBJECT ASSETS ON
THE CLOSING DATE IN ITS AS-IS, WHERE-IS CONDITION, WITH ALL FAULTS AND DEFECTS
(KNOWN OR UNKNOWN, LATENT, DISCOVERABLE OR UNDISCOVERABLE), AND WITHOUT
REPRESENTATIONS AND WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, OR ARISING BY
OPERATION OF LAW, OF MERCHANTABILITY, FREEDOM FROM LATENT VICES OR DEFECTS,
FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS
OF ANY ASSETS, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT OR THE OTHER
TRANSACTION AGREEMENTS. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, THE PROVISIONS OF THIS SECTION 9.7 SHALL SURVIVE THE CLOSING.
 
Section 9.8.        Waiver EACH PARTY HEREBY AGREES THAT THE OTHER PARTY SHALL
NOT BE LIABLE FOR ANY SPECIAL, DIRECT, INDIRECT, CONSEQUENTIAL, OR OTHER
DAMAGES) RESULTING OR ARISING FROM OR RELATED TO THE TRANSACTIONS CONTEMPLATED
UNDER THIS AGREEMENT OR THE SUBJECT ASSETS OR THE OWNERSHIP, USE, CONDITION,
LOCATION, MAINTENANCE, REPAIR OR OPERATION THEREOF.  EXCEPT ONLY AS MAY BE
DIRECTLY AND PROXIMATELY CAUSED BY ANY BREACH BY SELLER OF ITS REPRESENTATIONS
AND WARRANTIES PROVIDED IN THIS AGREEMENT OR THE OTHER TRANSACTION AGREEMENTS,
BUYER EXPRESSLY RELEASES AND AGREES NOT TO SUE ANY OF THE SELLER INDEMNIFIED
PARTIES FOR (TO THE EXTENT ALLOWED BY APPLICABLE LAW) ANY CLAIMS UNDER FEDERAL,
STATE OR OTHER LAW (INCLUDING, BUT NOT LIMITED TO COMMON LAW, WHETHER SOUNDING
IN CONTRACT OR TORT, AND ANY AND ALL ENVIRONMENTAL LAWS) THAT BUYER MIGHT
OTHERWISE HAVE OR LATER ACQUIRE AGAINST SELLER INDEMNIFIED PARTIES RELATING TO
THE USE, CHARACTERISTICS OR CONDITION OF THE SUBJECT ASSETS.  NOTWITHSTANDING
ANYTHING IN THIS AGREEMENT TO THE CONTRARY, THE PROVISIONS OF THIS SECTION 9.8
SHALL SURVIVE THE CLOSING.
 
Article 10
Termination
 
Section 10.1.       Termination of Agreement This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing:
 
(i)           by Buyer, as provided in Section 12.4;
 
 
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(ii)           by the mutual written consent of Seller and Buyer; or
 
(iii)           if the Closing has not occurred by the close of business on
December 1, 2009, then (a) by Seller if any condition specified in Section 7.1
has not been satisfied on or before such close of business, and shall not
theretofore have been waived in writing by Seller, or (b) by Buyer if any
condition specified in Section 7.2 has not been satisfied on or before such
close of business, and shall not theretofore have been waived in writing by
Buyer; provided, in each case, that the failure to consummate the transactions
contemplated hereby on or before such date did not result from the failure by
the party or parties or its Affiliates seeking termination of this Agreement to
fulfill any undertaking or commitment provided for herein on the part of such
party or parties that is required to be fulfilled on or prior to Closing.
 
Section 10.2.       Effect of Termination In the event of termination of this
Agreement by Seller or Buyer under Section 10.1, written notice thereof shall
forthwith be given by the terminating Party to the other Party, and this
Agreement shall thereupon terminate; provided that each Party shall remain
liable for any material breach by such Party of this Agreement prior to the date
of termination.  Following such termination, the provisions of this Section
10.2, Section 12.2, and Section 12.6 shall survive any termination hereof.  If
this Agreement is terminated as provided herein all filings, applications, and
other submissions made to any Governmental Authority shall, to the extent
practicable, be withdrawn from the Governmental Authority to which they were
made.
 
Article 11
Taxes
 
Section 11.1.        Allocation of Taxes Transfer Taxes.  Any Transfer Taxes
incurred in connection with the transactions contemplated by this Agreement
shall be borne by Buyer.
 
(b)           Property Taxes.  Property Taxes for any taxable period in which
the Closing Date occurs shall be prorated between Seller and Buyer on a per diem
basis (with Seller liable for the Property Taxes for the portion of the taxable
period prior to November 1, 2009 (the “Pre-Closing Tax Period”) and Buyer liable
for the Property Taxes for the portion of the taxable period beginning on
November 1, 2009 (the “Post-Closing Tax Period”)).  Not later than five (5) days
prior to the Closing Date, Seller shall deliver to Buyer Seller’s calculation of
the portion of the Property Taxes owed to each Governmental Authority for the
Post-Closing Tax Period (in the aggregate, the “Closing Property Tax Payment”)
and any Tax bills or other information supporting such calculation.  At the
Closing, Buyer shall pay to Seller the Closing Property Tax Payment. Seller
shall pay or cause to be paid to the appropriate Governmental Authorities the
Property Taxes relating to the tax period in which the Closing Date occurs.  To
the extent any Property Taxes imposed on or with respect to the Subject Assets
for a taxable period that contains the Closing Date are not finally determined
as of the Closing Date, the prorated Property Taxes shall be calculated by
multiplying (i) the Property Tax appraised values for the current taxable
period, if determined as of Closing Date, or the Property Tax appraised values
for the immediately preceding taxable period if such values have not been
determined for the current taxable period as of Closing Date, by (y) the
Property Tax rates for the relevant taxing units in which the Subject Asset are
located for the current taxable period if such rates have been determined or, to
the extent such Tax rates have not been determined, the Tax rates for the
immediately preceding taxable period.  Upon receipt of the Property Tax bills
for the taxable period that contains the Closing Date, Seller shall calculate
the prorated Property Taxes and shall bill Buyer for the amount, if any, by
which Buyer’s prorated Property Taxes for the Post-Closing Tax Period exceed the
estimated amount of Buyer’s prorated Property Taxes for the Post-Closing Tax
Period paid at Closing, with Buyer making such payment within twenty (20) days
of receipt of such bill, or shall refund to Buyer within twenty (20) days the
amount, if any, by which Buyer’s prorated Property Taxes for the Post-Closing
Tax Period are less than the estimated amount of Buyer’s prorated Property Taxes
for the Post-Closing Tax Period paid at Closing.  Buyer shall promptly forward
to Seller any Property Tax bills for the taxable period that contains the
Closing Date that are received by Buyer.

 
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(c)           Allocation of Other Taxes.  Except as set forth in Section 11.1(a)
and (b), Seller shall be responsible for all Taxes imposed on or with respect to
the Subject Assets that are attributable to any whole or partial taxable period
before November 1, 2009, and Buyer shall be responsible for all Taxes imposed on
or with respect to the Subject Assets that are attributable to any whole or
partial taxable period on or after November 1, 2009.
 
Section 11.2.       Cooperation Buyer and Seller will cooperate with each other
and with each other’s respective agents, including accounting firms and legal
counsel, in connection with the preparation or audit of any Tax Return or report
and any Tax claim or litigation in respect of the Subject Assets that include
whole or partial taxable periods, activities, operations, or events on or prior
to the Closing Date, which cooperation shall include, but not be limited to,
making available during normal business hours employees, if any, or original
documents, or either or both of them, for the purpose of providing testimony and
advice (the cost of which shall be borne by the requesting party).  In the event
of a contest with a Tax authority regarding Taxes relating to the Subject Assets
for which Seller is wholly responsible hereunder, Seller shall have the right to
control the contest; provided, however that Seller shall not settle any such
contest in a manner that would materially adversely affect the Subject Assets or
Buyer for any tax period after the Closing Date.  In a contest with a Tax
authority regarding Taxes related to the Subject Assets for which Seller and
Buyer are jointly responsible hereunder, Seller and Buyer shall jointly control
the contest in good faith with each other.  Reasonable out-of-pocket expenses
with respect to such contests shall be borne by the parties pro-rata in
accordance with their responsibility for such Taxes as set forth in this
Agreement.
 
Article 12
Other Provisions
 
Section 12.1.       Counterparts This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
 
Section 12.2.       Governing Law This Agreement and the respective rights and
obligations of the parties to this transaction shall be governed by,
interpreted, and enforced in accordance with the laws of the State of Texas.
 
Section 12.3.        Arbitration Agreement to Arbitrate.  Any claim,
counterclaim, demand, cause of action, dispute, or any other controversy arising
out of or relating in any way to this Agreement, the subject matter of this
Agreement, or the relationship between the Parties created by this Agreement
(each a “Dispute”), shall be resolved by binding arbitration in accordance with
the terms of this Section 12.3.  A Dispute must be resolved through arbitration
regardless of whether the Dispute involves claims that the Agreement is
unlawful, unenforceable, void, or voidable or involves claims sounding in tort,
contract, statute or common law.  The validity, construction and interpretation
of this agreement to arbitrate, and all other procedural aspects of the
arbitration conducted pursuant hereto, shall be decided by the arbitral
tribunal.
 
(b)           Rules and Applicable Law.  Any arbitration of a Dispute shall be
administered by the American Arbitration Association (“AAA”) and conducted in
accordance with the Commercial Arbitration Rules (the “Rules”) of the AAA in
existence at the time of the arbitration.  In resolving any Dispute, the
arbitral tribunal shall refer to the governing law as specified in Section 12.2,
provided that legal issues relating to arbitration procedure or the scope or
enforceability of the arbitration agreement shall be governed by the Federal
Arbitration Act.  The arbitral tribunal shall not be empowered to award
exemplary, punitive, indirect, consequential, remote, speculative, treble,
multiple or special damages, and the Parties waive any right they may have to
recover such damages from one another.
 
(c)           Location of the Proceeding.  The seat (or legal place) and venue
of the arbitration shall be in Houston, Texas.
 
(d)           Parties.  This Section 12.3 shall apply to any Dispute between the
Parties, and it shall also apply to any (a) Dispute between a Party and any
Affiliate of the other Party, (b) Dispute between a Party and any officer,
director, employee, representative, agent, successor or assign of the other
Party or of an Affiliate of such other Party, (c) Dispute between an Affiliate
of one Party and an Affiliate of the other Party, and (d) Dispute between an
Affiliate of a Party and an officer, director, employee, representative, agent,
successor or assign of the other Party or of an Affiliate of the other
Party.  With regard to any Dispute, the Affiliates of the Parties and the
officers, directors, employees, representatives, agents, successors and assigns
of the Parties, and their Affiliates, are intended third party beneficiaries of
the agreement to arbitrate set out in this Section 12.3.

 
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(e)           Selection of the Arbitral Tribunal.  The Dispute shall be decided
by a panel of three neutral arbitrators.  The claimant shall nominate an
arbitrator at the time it serves its request for arbitration.  The respondent
shall nominate an arbitrator at the time it serves its response to the request
for arbitration.  If a Party fails to appoint an arbitrator, then that
arbitrator shall be appointed in accordance with the Rules.  The two arbitrators
shall together agree upon a third arbitrator to recommend to the AAA to chair
the arbitration.  If the two party-appointed arbitrators are unable to agree
upon an arbitrator within fifteen (15) days of the respondent’s appointment of
an arbitrator, then the chairman shall be chosen according to the Rules.
 
(f)           Interim Measures and Provisional Remedies. The arbitral tribunal
is authorized to award interim measures, provisional remedies or injunctive
relief, which may be enforced by the arbitral tribunal or by a court of law.  In
the event of an emergency or if one of the arbitrators is unavailable, then the
chairman is authorized to award interim measures or injunctive relief, which may
upon the request of a Party be reviewed by the entire arbitral tribunal.
 
(g)           The Award.  The award shall be final and binding.  The award shall
be required to be in writing, stating the award and the reasons therefor.
 
(h)           Enforcement of Award by a Court.  Any arbitration award may be
enforced by the courts sitting in Houston, Texas or any other court of competent
subject matter jurisdiction (including any jurisdiction in which a Party holds
or keeps assets).  The Parties further agree that any action to challenge,
vacate or set aside the Award in whole or in part must be brought in the courts
sitting in Houston, Texas.  The Parties agree to waive any objections they may
have to personal jurisdiction, venue, or forum non-conveniens for any action
brought to enforce the award in the courts sitting in Houston, Texas or any
other jurisdiction where a Party holds or keeps assets.
 
(i)           Costs and Attorneys Fees.  The arbitral tribunal is authorized to
award costs of the arbitration in its award and to allocate costs between the
Parties, including (a)  the fees and expenses of the arbitrators; (b) the costs
of assistance required by the tribunal, including the fees and expenses of its
experts; (c) the fees and expenses of the AAA; (d)  the reasonable costs for
legal representation of a successful Party, including attorneys’ fees, expert
witness fees, out of pocket costs and other expenses; and (e) any such costs
incurred in connection with an application for interim or emergency measures.
 
(j)           Severability.  If any provision of this arbitration provision is
found by a court to be unenforceable or unlawful, then it shall be severed from
this Agreement and the remaining terms shall be enforced as written.
 
Section 12.4.       Casualty Loss Prior to Closing Non-Material Casualty.  If,
prior to Closing, any part of the Subject Assets is damaged or destroyed by
fire, flood, storm, or other casualty, are taken in condemnation or under the
right of eminent domain or proceedings for such purposes are pending or
threatened (a “Casualty”), if in Buyer’s reasonable good faith estimation the
amount of aggregate damage caused by one or more Casualties does not exceed
$1,000,000 (the “Casualty Threshold”), Buyer shall proceed to purchase the
Subject Assets and, at Seller’s election, either (i) the Purchase Price shall be
reduced by the amount of the repair or replacement cost thereof, as applicable,
of the damaged or destroyed Subject Assets or (ii) Seller shall diligently
proceed to make the applicable repairs or restoration at Seller’s sole cost and
expense.
 
(b)           Material Casualty.  If, prior to Closing, any part of the Subject
Assets is damaged or destroyed by a Casualty and the amount of aggregate damage
caused by one or more Casualties exceeds the Casualty Threshold, Seller shall
promptly notify Buyer of such Casualty.  Buyer will then have a right to
terminate this Agreement by written notice to Seller.  If Buyer does not elect
to so terminate this Agreement, Buyer shall proceed to purchase the Subject
Assets, and the Purchase Price shall be reduced by the repair cost or
replacement cost, as applicable, of such damaged or destroyed Subject
Assets.  All repair and replacement costs shall be determined jointly by Seller
and Buyer.
 
 
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Section 12.5.   Entire Agreement This Agreement (including the Confidentiality
Agreement), the Transaction Agreements and the Appendices, Schedules, and
Exhibits hereto contain the entire agreement between the parties with respect to
the subject matter hereof and there are no agreements, understandings,
representations, or warranties between the parties other than those set forth or
referred to herein.
 
Section 12.6.   Expenses Except as otherwise provided herein, all other costs
and expenses incurred by each party hereto in connection with all things
required to be done by it hereunder, including attorney’s fees, accountant fees
and the expense of environmental and title examination, shall be borne by the
party incurring such costs and expenses.
 
Section 12.7.    Notices All notices hereunder shall be sufficiently given for
all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed, by
United States Mail, telecopy, telefax, or other electronic transmission service
to the appropriate address or number as set forth below.  Notices to Seller
shall be addressed as follows:
 
Gastar Exploration Ltd.
1331 Lamar, Suite 1080
Houston, Texas 77010
Attention:  Mr. Michael Gerlich
Telecopy No.: (713) 739-0458
 
or at such other address and to the attention of such other Person as Seller may
designate by written notice to Buyer.  Notices to Buyer shall be addressed to:
 
Hilltop Resort GS, LLC
500 North Capital of Texas Highway
Building #3, Suite 100
Austin, Texas 78746
Attention:  President
Telecopy No.:  (512) 328-9410
 
or at such other address and to the attention of such other Person as Buyer may
designate by written notice to Seller.
 
Section 12.8.    Successors and Assigns This Agreement shall be binding upon and
inure to the benefit of the Parties and their successors and permitted
assigns.  Neither Buyer nor Seller may assign any of its rights or obligations
under this Agreement without the prior consent of the other; provided that Buyer
may assign any or all of its rights and interests hereunder to one or more of
its Affiliates or designate one or more of its Affiliates; provided further that
Buyer shall remain liable for its obligations hereunder.  Seller will execute
and deliver such documents or instruments as may be reasonably requested by
Buyer to effectuate any such assignment. Any such assignment in violation of
this Section 12.8 shall be void and of no force or effect.
 
Section 12.9.    Amendments and Waivers This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought.  Any
party hereto may, only by an instrument in writing, waive compliance by another
party hereto with any term or provision of this Agreement on the part of such
other party hereto to be performed or complied with.  The waiver by any party
hereto of a breach of any term or provision of this Agreement shall not be
construed as a waiver of any subsequent breach.
 
Section 12.10.   Appendices, Schedules and Exhibits All Appendices, Schedules,
and Exhibits hereto which are referred to herein are hereby made a part hereof
and incorporated herein by such reference.

 
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Section 12.11.     Interpretation and Rules of Construction This Agreement shall
not be construed against any party, and no consideration shall be given or
presumption made, on the basis of who drafted this Agreement or any particular
provision hereof or who supplied the form of Agreement.  Each party agrees that
this Agreement has been purposefully drawn and correctly reflects such party’s
understanding of the transaction that it contemplates.  In construing this
Agreement:
 
(i)           examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;
 
(ii)          the word “includes” and its derivatives means “includes, but is
not limited to” and corresponding derivative expressions;
 
(iii)         a defined term has its defined meaning throughout this Agreement
and each Appendix, Exhibit, and Schedule to this Agreement, regardless of
whether it appears before or after the place where it is defined;
 
(iv)         each Exhibit and Schedule to this Agreement is a part of this
Agreement, but if there is any conflict or inconsistency between the main body
of this Agreement (including Appendix A which shall be considered part of the
main body of this Agreement) and any Exhibit or Schedule, the provisions of the
main body of this Agreement shall prevail; and
 
(v)          the headings and titles herein are for convenience only and shall
have no significance in the interpretation hereof.
 
Section 12.12.      Agreement for the Parties’ Benefit Only Except as specified
in Article 9, which are also intended to benefit and to be enforceable by any of
the indemnified parties under Article 9, this Agreement is not intended to
confer upon any Person not a party hereto any rights or remedies hereunder, and
no Person, other than the parties hereto or the indemnified parties is entitled
to rely on any representation, warranty, covenant, or agreement contained
herein.  In each case, such third party beneficiary may only bring suit against
the defaulting party or parties.
 
Section 12.13.     Severability If any term or other provision of this Agreement
is invalid, illegal, or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any adverse manner to
any party.  Upon such determination that any term or other provision is invalid,
illegal, or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
 
 
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Section 12.14.   Time of Essence Time is of the essence in this Agreement.  If
the date specified in this Agreement for giving any notice or taking any action
is not a Business Day (or if the period during which any notice is required to
be given or any action taken expires on a date which is not a Business Day),
then the date for giving such notice or taking such action (and the expiration
date of such period during which notice is required to be given or action taken)
shall be the next day which is a Business Day.
 
[Signature pages follow.]
 
 
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of Seller and
Buyer as of the day first above written.
 
Seller:
 
GASTAR EXPLORATION TEXAS, LP
 
BY: GASTAR EXPLORATION TEXAS LLC, its general partner
   
By:
/s/ Michael A. Gerlich
Name:  Michael A. Gerlich Title:    Secretary and Treasurer

Signature Page to Purchase and Sale Agreement – Gastar and Hilltop

 

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Buyer:
 
HILLTOP RESORT GS, LLC
   
By:
/s/ Gilbert Burciaga__________________
Name:  Gilbert Burciaga
Title: Chief Executive Officer

 
Signature Page to Purchase and Sale Agreement – Gastar and Hilltop

 

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APPENDIX A
TO
PURCHASE AND SALE AGREEMENT
DEFINITIONS
 
“AAA” is defined in Section 12.3(b).
 
“Action” means any action, suit, proceeding, investigation, condemnation, or
audit by or before any court or other Governmental Authority or any arbitration
proceeding.
 
“Adjusted Purchase Price” is defined in Section 3.1.
 
“Affiliate” means, as to the Person specified, any Person controlling,
controlled by or under common control with such specified Person.  The concept
of control, controlling or controlled as used in the aforesaid context means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of another, whether through the
ownership of voting securities, by contract or otherwise.  No Person shall be
deemed an Affiliate of any Person by reason of the exercise or existence of
rights, interests or remedies under this Agreement.
 
“Agreed Rate” means an annual rate of interest equal to the lesser of (i) the
interest rate that is publicly announced from time to time by JPMorgan Chase
Bank, N.A. as its prime rate and (ii) the maximum rate of interest allowed from
time to time by Law.
 
“Agreement” is defined in the preamble.
 
“Arbitrator’s Closing Statement” is defined in Section 3.3(b).
 
“Assets” means all of Seller’s right, title and interest to:
 
(i)           the easements, rights of way, servitudes, licenses, permits, other
real property rights and similar instruments owned or held by Seller or its
Affiliates in connection with the Hilltop Resort Gathering System, including but
not limited to the pipeline system and related facilities located thereon, all
as more fully described in Exhibit A;
 
(ii)          all equipment, personal property, fixtures and other improvements
held for use or used by Seller or its Affiliates in connection with the Hilltop
Resort Gathering System, whether owned or leased, including all pipes, valves,
compressors, meters, machinery, pumps, dehydrators, towers, liquids extractors,
storage tanks, storage sheds, pump houses, instrumentation, and other equipment
and facilities, in each case including those listed on Exhibit A;
 
(iii)         all Permits;
 
(iv)         supplies, inventory, and other spare parts and materials used or
held for use in connection with the Hilltop Resort Gathering System;
 
(v)          all existing financial, operating, Tax, environmental, safety,
marketing and other data, files, computer tapes, discs, papers, books and
records of Seller to the extent relating to the Hilltop Resort Gathering System,
in Seller’s possession or control, including deeds, property records, title
policies, maps, charts, surveys, permits, certificates, filings with
Governmental Authorities, reports, process safety management records and records
regarding the construction, maintenance and testing of the Subject Assets,
together with copies of budgets, journals, ledger and customer and supplier
lists; provided that this shall not include any personnel or employment records;
 
Appendix A to
Purchase and Sale Agreement
Page 1
 

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(vi)         all of Seller’s rights, claims, credits, causes of action, or
rights of set-off against third parties relating to the Assets.
 
“Assignment and Bill of Sale” is defined in Section 8.2(i).
 
“Business Day” means any day which is not a Saturday, Sunday, or legal holiday
recognized by the federal government of the United States of America.
 
“Buyer” is defined in the preamble.
 
“Buyer Indemnified Parties” is defined in Section 9.2.
 
“Casualty” is defined in Section 12.4(a).
 
“Casualty Threshold” is defined in Section 12.4(a).
 
“Closing” means the consummation of the transaction contemplated by Article 8.
 
“Closing Date” means the first day of the month following the date on which the
conditions to Closing in Article 8 are either satisfied or waived by the Party
entitled to waive such conditions, or such other date mutually agreed to by
Seller and Buyer.
 
“Closing Property Tax Payment” is defined in Section 11.1(b).
 
“Closing Statement” is defined in Section 3.2.
 
“Closing Statement Arbitrator” is defined in Section 3.3(b).
 
“Code” means the Internal Revenue Code of 1985, as amended from time to time and
the regulations promulgated thereunder.
 
“Dispute” is defined in Section 12.3(a).
 
“Dedicated Properties” means the oil and gas leases and other interests
described in Exhibit C.
 
“Environmental Laws” means any and all applicable Laws, judgments or legally
enforceable directives of any Governmental Authority with lawful jurisdiction
over the Subject Assets and relating to: (i) pollution, protection of the
environment (including air, water and land), natural resources or human health
and safety (but only to the extent that human health and safety relate to
exposure to Hazardous Materials); and (ii) generation, processing, use,
distribution, handling, treatment, storage, disposal, transportation, or
release, of Hazardous Materials.  “Environmental Laws” shall include the Clean
Air Act, 42 U.S.C. § 7401 et seq., the Resource Conservation Recovery Act, 42
U.S.C. § 6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251
et seq., the Safe Drinking Water Act, 42 U.S.C. § 300f et seq., and the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. § 9601 et
seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C. §§11001
et seq., and the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
§§136 et seq, each as amended and in effect as of the Closing Date and all
related regulations or legally enforceable formal governmental interpretations
thereof.
 
“Environmental Liabilities” means any and all costs (including, but not limited
to, remediation and monitoring costs), damages, liabilities, monetary settlement
amounts, expenses, penalties, fines, prejudgment and post-judgment interest,
court costs and reasonable attorneys’ fees (i) pursuant to any order, notice of
violation, legally enforceable directive, injunction, judgment, or settlement by
any Governmental Authority to the extent arising under Environmental Laws, (ii)
pursuant to any claim, demand or cause of action brought by a Governmental
Authority or other third Person for personal injury, property damage, damage to
natural resources, or remedial obligations pursuant to Environmental Law, or
(iii) otherwise arising out of unlawful disposal, or unauthorized release of any
Hazardous Material.
 
Appendix A to
Purchase and Sale Agreement
Page 2
 

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“Environmental Permits” means any and all permits, licenses, certificates,
approvals and other similar authorizations of Governmental Authorities required
by Environmental Laws.
 
“Estimated Adjusted Purchase Price” is defined in Section 3.2.
 
“Excluded Assets” means the properties, assets, rights, and interests described
in Exhibit B.
 
“Excluded Liabilities” is defined in Section 2.3.
 
“Final Closing Statement” is defined in Section 3.3(b).
 
“Final Settlement Date” is defined in Section 3.3(a).
 
“Gas Gathering Agreement” means the Gas Gathering Agreement attached hereto as
Exhibit 7.2.
 
“General Partner” is defined in Section 4.1(a).
 
“Governmental Authority” means (i) the United States of America, (ii) any state,
county, municipality or other governmental subdivision within the United States
of America, and (iii) any court or any governmental department, commission,
board, bureau, agency or other instrumentality of the United States of America
or of any state, county, municipality or other governmental subdivision within
the United States of America.
 
“Hazardous Material” means any substance, waste, material, chemical, pollutant
or contaminant regulated under any Environmental Law including: (i) any
“pollutant”, “contaminant”, “toxic substance”, “hazardous waste”, “solid waste”,
“hazardous substance” or “hazardous material” as defined under any Environmental
Law, and (ii) any radioactive material, radon, asbestos, asbestos-containing
material, polychlorinated biphenyls and petroleum, its derivatives, products,
byproducts and hydrocarbons.
 
“Hilltop Resort Gathering System” is defined in the recital.
 
“Indemnified Party” is defined in Section 9.3.
 
“Indemnitor” is defined in Section 9.3.
 
“IRC” means the Internal Revenue Code of 1986, as amended.
 
“knowledge of Seller”, “Seller’s knowledge” or any phrase of similar import
means the actual knowledge of J. Russell Porter (CEO), Michael A. Gerlich (CFO),
Henry Hansen (VP Land) or David Rhodes (VP Completions and Operations).
 
“knowledge of Buyer”, “Buyer’s knowledge” or any phrase of similar import means
the actual knowledge of Gilbert Burciaga (CEO), Elias F. Urbina (CFO) or Zachary
D. Lee (President).
 
“Law” means any applicable statute, law (including common law), ordinance,
regulation, rule, ruling, order, writ, injunction, decree, treaty, permit or
other legally enforceable official act of or by any Governmental Authority.
 
“Lien” means, with respect to any property or asset, any mortgage, lien, pledge,
charge, security interest or other encumbrance of any kind in respect of such
property or asset.
 
“Losses” means all claims, liabilities, losses, causes of action, judgments,
demands, settlements, taxes, fines, penalties, damages, obligations, litigation,
lawsuits, administrative proceedings, administrative investigations, costs, and
expenses, including reasonable attorneys’ consultants’ and experts’ fees, court
costs, and other costs of suit.
 
Appendix A to
Purchase and Sale Agreement
Page 3
 

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“Material Adverse Effect” means any change, event, or effect that is or would
reasonably expected to be, individually or in the aggregate, materially adverse
to the business related to, results of operations of or condition (financial or
otherwise) of, or prospects for, the Subject Assets, taken as a whole, excluding
any effect resulting from any change in economic, industry or market conditions
(whether general or regional in nature).
 
“Navasota” means Navasota Resources Ltd., LLP.
 
“Navasota Proceeding” means Navasota Resources, L.P. v. First SourceTexas, Inc.
et al, Cause No. 0-05-451, in the 12th Judicial District Court of Leon County,
Texas.
 
“Notice of Disagreement” is defined in Section 3.3(a).
 
“Party” and “Parties” is defined in the preamble.
 
“Permits” is defined in Section 4.1(o).
 
“Permitted Encumbrances” means any of the following matters:
 
(i)           any (a) undetermined or inchoate liens or charges constituting or
securing the payment of expenses which were incurred incidental to maintenance
or operation of the Subject Assets and (b) materialman’s, mechanics’,
repairman’s, employees’, contractors’, operators’ or other similar liens,
security interests or charges for liquidated amounts arising in the ordinary
course of business incidental to construction, maintenance or operation of the
Subject Assets that are not due and payable and that will be paid in the
ordinary course of business, in each case other than with respect to amounts
being contested in good faith;
 
(ii)          any liens for Taxes, assessments or other government charges that
are not yet due and payable, other than with respect to amounts being contested
in good faith;
 
(iii)         any easements, rights of way, servitudes, permits, licenses,
leases and other rights with respect to operations to the extent such matters do
not interfere in any material respect with the operation of the portion of the
Subject Assets burdened thereby; and
 
(iv)         rights reserved to or vested in any Governmental Authority to
control or regulate any of the Subject Assets and all applicable Laws.
 
“Person” means any Governmental Authority or any individual, firm, partnership,
corporation, joint venture, trust, unincorporated organization or other entity
or organization.
 
“Post-Closing Tax Period” is defined in Section 11.1(b).
 
“Pre-Closing Tax Period” is defined in Section 11.1(b).
 
“Presco” means Presco, Inc.
 
“Property Taxes” means all ad valorem, property (whether real or personal), and
similar Taxes with respect to the Subject Assets.
 
“Purchase Price” is defined in Section 3.1.
 
“Purchase Price Allocation” is defined in Section 3.3(d).
 
Appendix A to
Purchase and Sale Agreement
Page 4
 

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“Records” means any and all of the books, records, contracts, agreements,
documents, and files of Seller existing on the Closing Date which are part of
the Subject Assets and all additions thereto after the Closing Date, including
computer records and electronic copies of such information maintained by Buyer
or its Affiliates.
 
“Regulatory Approvals” is defined in Section 6.7.
 
“Reimbursement Obligation” is defined in Section 6.10.
 
“Required Consents” is defined in Section 4.1(f).
 
“Reserve Engineers” means Netherland, Sewel and Associates or such other third
party engineering firm that after the date hereof prepares reports of the proved
natural gas and oil reserve estimates of Seller and its Affiliate in connection
with disclosure of such data in Seller’s or any of its Affiliates’ reports to
the Securities and Exchange Commission.
 
“Rules” is defined in Section 12.3(b).
 
“Seller” is defined in the preamble.
 
“Seller Indemnified Parties” is defined in Section 9.1.
 
“Subject Assets” means all Assets other than the Excluded Assets.
 
“Tax” or “Taxes” means all taxes, however, denominated, including any interest,
penalties or other additions to tax that may become payable in respect thereof,
imposed by any federal, territorial, state, local, parish or foreign government
or any agency or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income or profits
taxes (including federal income taxes and state income taxes), real property
gains taxes, payroll and employee withholding taxes, unemployment insurance
taxes, social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, gross receipts taxes, business license taxes, occupation
taxes, real and personal property taxes, environmental taxes, Transfer Taxes,
workers’ compensation, and other obligations of the same or of a similar nature
to any of the foregoing.
 
“Tax Return” means all returns, reports, declarations, statements, bills,
schedules, or written information of or with respect to any Tax which is
required to be supplied to any taxing authority or depository.
 
“Third Party Claim” is defined in Section 9.3.
 
“Transaction Agreements” means this Agreement, the Gas Gathering Agreement, and
the Assignment and Bill of Sale.
 
“Transfer Taxes” means all transfer Taxes (excluding Taxes measured by net
income), including sales, use, excise stock, stamp, documentary, filing,
recording, permit, license, authorization and similar Taxes, filing fees and
similar charges.
 
“Working Interest Owner” means any Person that owns or controls a working
interest in the Dedicated Properties.
 
Appendix A to
Purchase and Sale Agreement
Page 5
 

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LIST OF EXHIBITS AND SCHEDULES
 
Exhibits:
             
Exhibit A
-
 
Description of Rights of Way and Pipeline System
Exhibit B
-
 
Description of Excluded Assets
Exhibit C
-
 
Dedicated Properties
Exhibit 7.2
-
 
Gas Gathering Agreement
Exhibit 8.2(i)
-
 
Assignment and Bill of Sale
Exhibit 8.2(iii)
-
 
Affidavit Non-Foreign Status

 
Schedules:
             
Schedule 4.1(e)
-
 
Violations or Breaches
Schedule 4.1(f)
-
 
Consents
Schedule 4.1(g)
-
 
Pending Actions
Schedule 4.1(h)
-
 
Compliance with Laws
Schedule 4.1(k)
-
 
Material Contracts
Schedule 4.1(l)
-
 
Environmental Matters
Schedule 4.1(m)
-
 
Tax Matters
Schedule 4.1(n)
-
 
Property Matters
Schedule 4.1(n)(ii)(F)
   
Spatial Gaps
Schedule 4.1(o)
-
 
Permits
Schedule 4.1(t)
-
 
Throughput
Schedule 6.1
-
 
Preclosing Matters
Schedule 7.1(e)
-
 
Seller’s Required Consents
Schedule 7.2(e)
-
 
Buyer’s Required Consents

 
Appendix A to
Purchase and Sale Agreement
Page 6
 

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