ex_10-1.htm


    Exhibit 10.1

     

     

     

    
      PURCHASE
AND SALE AGREEMENT

       

      BETWEEN

       

      ST.
MARY LAND & EXPLORATION COMPANY

       

      AS
SELLER

       

      AND

       

      LEGACY
RESERVES OPERATING LP

       

      AS
BUYER

       

      Dated:

       

      December
17, 2009

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    
      TABLE
OF CONTENTS

       

      Page

      
        
          	
                  ARTICLE
      1

                	
                  ASSETS

                	
                  1

                
	 
      	
                  Section
      1.01

                	
                  Agreement
      to Sell and Purchase

                	
                  1

                
	 
      	
                  Section
      1.02

                	
                  Assets

                	
                  1

                
	 
      	
                  Section
      1.03

                	
                  Excluded
      Assets

                	
                  3

                
	
                  ARTICLE
      2

                	
                  PURCHASE
      PRICE

                	
                  6

                
	 
      	
                  Section
      2.01

                	
                  Purchase
      Price

                	
                  6

                
	 
      	
                  Section
      2.02

                	
                  Deposit.

                	
                  6

                
	 
      	
                  Section
      2.03

                	
                  Allocated
      Values

                	
                  7

                
	 
      	
                  Section
      2.04

                	
                  Section
      1031 Like-Kind Exchange

                	
                  8

                
	
                  ARTICLE
      3

                	
                  EFFECTIVE
      TIME

                	
                  9

                
	 
      	
                  Section
      3.01

                	
                  Ownership
      of Assets

                	
                  9

                
	 
      	
                  Section
      3.02

                	
                  Production
      Imbalances

                	
                  9

                
	
                  ARTICLE
      4

                	
                  TITLE
      AND ENVIRONMENTAL MATTERS

                	
                  9

                
	 
      	
                  Section
      4.01

                	
                  Examination
      Period

                	
                  10

                
	 
      	
                  Section
      4.02

                	
                  Title
      Defects

                	
                  10

                
	 
      	
                  Section
      4.03

                	
                  Notice
      of Title Defects

                	
                  11

                
	 
      	
                  Section
      4.04

                	
                  Remedies
      for Title Defects.

                	
                  13

                
	 
      	
                  Section
      4.05

                	
                  Special
      Warranty of Title

                	
                  14

                
	 
      	
                  Section
      4.06

                	
                  Preferential
      Rights to Purchase.

                	
                  17

                
	 
      	
                  Section
      4.07

                	
                  Consents
      to Assignment

                	
                  18

                
	 
      	
                  Section
      4.08

                	
                  Remedies
      for Title Benefits.

                	
                  19

                
	 
      	
                  Section
      4.09

                	
                  Environmental
      Review

                	
                  20

                
	 
      	
                  Section
      4.10

                	
                  Definitions
      Used in Article 4 and in this Agreement.

                	
                  22

                
	 
      	
                  Section
      4.11

                	
                  Notice
      of Environmental Defects

                	
                  23

                
	 
      	
                  Section
      4.12

                	
                  Remedies
      for Environmental Defects.

                	
                  24

                
	 
      	
                  Section
      4.13

                	
                  Independent
      Experts.

                	
                  25

                
	 
      	
                  Section
      4.14

                	
                  Limitation
      of Remedies For Title Benefits, Title Defects and

                	 
      
	 
      	 
      	 
      	
                  Environmental
      Defects

                	
                  27

                
	 
      	
                  Section
      4.15

                	
                  DISCLAIMER
      AND WAIVER

                	
                  28

                
	
                  ARTICLE
      5

                	
                  REPRESENTATIONS
      AND WARRANTIES OF SELLER

                	
                  28

                
	 
      	
                  Section
      5.01

                	
                  Existence

                	
                  29

                


        

      

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    
      
        	 
      	
                Section
      5.02

              	
                Legal
      Power

              	
                29

              
	 
      	
                Section
      5.03

              	
                Execution

              	
                29

              
	 
      	
                Section
      5.04

              	
                Brokers

              	
                29

              
	 
      	
                Section
      5.05

              	
                Bankruptcy

              	
                29

              
	 
      	
                Section
      5.06

              	
                Suits
      and Claims

              	
                30

              
	 
      	
                Section
      5.07

              	
                Taxes

              	
                30

              
	 
      	
                Section
      5.08

              	
                AFEs

              	
                30

              
	 
      	
                Section
      5.09

              	
                Compliance
      with Laws

              	
                30

              
	 
      	
                Section
      5.10

              	
                Contracts

              	
                30

              
	 
      	
                Section
      5.11

              	
                Production
      Imbalances

              	
                30

              
	 
      	
                Section
      5.12

              	
                Royalties;
      Payments for Production

              	
                30

              
	 
      	
                Section
      5.13

              	
                Insurance

              	
                31

              
	 
      	
                Section
      5.14

              	
                Plugging
      Obligations

              	
                31

              
	 
      	
                Section
      5.15

              	
                Personal
      Property and Equipment

              	
                31

              
	 
      	
                Section
      5.16

              	
                No
      Alienation

              	
                31

              
	 
      	
                Section
      5.17

              	
                Hydrocarbon
      Sales Contracts

              	
                32

              
	 
      	
                Section
      5.18

              	
                Area
      of Mutual Interest and Other Agreements

              	
                32

              
	 
      	
                Section
      5.19

              	
                Leases

              	
                32

              
	 
      	
                Section
      5.20

              	
                Property
      Expenses

              	
                32

              
	 
      	
                Section
      5.21

              	
                Governmental
      Permits

              	
                32

              
	 
      	
                Section
      5.22

              	
                No
      Adverse Change

              	
                33

              
	 
      	
                Section
      5.23

              	
                Information

              	
                33

              
	 
      	
                Section
      5.24

              	
                Representations
      and Warranties Exclusive

              	
                33

              
	
                ARTICLE
      6

              	
                REPRESENTATIONS
      AND WARRANTIES OF BUYER

              	
                34

              
	 
      	
                Section
      6.01

              	
                Existence

              	
                34

              
	 
      	
                Section
      6.02

              	
                Legal
      Power

              	
                34

              
	 
      	
                Section
      6.03

              	
                Execution

              	
                34

              
	 
      	
                Section
      6.04

              	
                Brokers

              	
                34

              
	 
      	
                Section
      6.05

              	
                Bankruptcy

              	
                35

              
	 
      	
                Section
      6.06

              	
                Suits
      and Claims

              	
                35

              
	 
      	
                Section
      6.07

              	
                Independent
      Evaluation

              	
                35

              
	 
      	
                Section
      6.08

              	
                Qualification

              	
                35

              
	 
      	
                Section
      6.09

              	
                Securities
      Laws

              	
                35

              
	 
      	
                Section
      6.10

              	
                No
      Investment Company

              	
                36

              
	 
      	
                Section
      6.11

              	
                Funds

              	
                36

              
	 
      	
                Section
      6.12

              	
                Notice
      of Changes

              	
                36

              
	 
      	
                Section
      6.13

              	
                Representations
      and Warranties Exclusive

              	
                36

              


      

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

     

    
      
        	
                ARTICLE
      7

              	
                OPERATION
      OF THE ASSETS

              	
                36

              
	 
      	
                Section
      7.01

              	
                Operation
      of the Assets.

              	
                36

              
	 
      	
                Section
      7.02

              	
                Buyer’s
      Qualification

              	
                38

              
	 
      	
                Section
      7.03

              	
                Operation
      of the Assets after the Closing.

              	
                38

              
	 
      	
                Section
      7.04

              	
                Post
      Closing Accounting by Seller

              	
                39

              
	 
      	
                Section
      7.05

              	
                Limitations
      on Liability of Operator

              	
                40

              
	 
      	
                Section
      7.06

              	
                Public
      Announcements

              	
                40

              
	
                ARTICLE
      8

              	
                CONDITIONS
      TO OBLIGATIONS OF SELLER

              	
                41

              
	 
      	
                Section
      8.01

              	
                Representations

              	
                41

              
	 
      	
                Section
      8.02

              	
                Performance

              	
                41

              
	 
      	
                Section
      8.03

              	
                Pending
      Matters

              	
                41

              
	
                ARTICLE
      9

              	
                CONDITIONS
      TO OBLIGATIONS OF BUYER

              	
                41

              
	 
      	
                Section
      9.01

              	
                Representations

              	
                41

              
	 
      	
                Section
      9.02

              	
                Performance

              	
                42

              
	 
      	
                Section
      9.03

              	
                Pending
      Matters

              	
                42

              
	 
      	
                Section
      9.04

              	
                Wachovia
      Liens

              	
                42

              
	
                ARTICLE
      10

              	
                THE
      CLOSING

              	
                42

              
	 
      	
                Section
      10.01

              	
                Time
      and Place of the Closing

              	
                42

              
	 
      	
                Section
      10.02

              	
                Allocation
      of Costs and Expenses and Adjustments to

              	 
      
	 
      	 
      	 
      	
                Purchase
      Price at the Closing.

              	
                42

              
	 
      	
                Section
      10.03

              	
                Closing
      Adjustments and Allocations Statement

              	
                44

              
	 
      	
                Section
      10.04

              	
                Post-Closing
      Allocations and Adjustments to Purchase Price.

              	
                44

              
	 
      	
                Section
      10.05

              	
                Transfer
      Taxes

              	
                46

              
	 
      	
                Section
      10.06

              	
                Ad
      Valorem and Similar Taxes

              	
                46

              
	 
      	
                Section
      10.07

              	
                Actions
      of Seller at the Closing

              	
                47

              
	 
      	
                Section
      10.08

              	
                Actions
      of Buyer at the Closing

              	
                48

              
	 
      	
                Section
      10.09

              	
                Recordation;
      Further Assurances.

              	
                48

              
	
                ARTICLE
      11

              	
                TERMINATION

              	
                49

              
	 
      	
                Section
      11.01

              	
                Right
      of Termination

              	
                49

              
	 
      	
                Section
      11.02

              	
                Effect
      of Termination

              	
                50

              
	 
      	
                Section
      11.03

              	
                Attorneys’
      Fees, Etc

              	
                50

              


      

    

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    
      
        	
                ARTICLE
      12

              	
                ASSUMPTION
      AND INDEMNIFICATION

              	
                50

              
	 
      	
                Section
      12.01

              	
                Buyer’s
      Obligations after Closing

              	
                50

              
	 
      	
                Section
      12.02

              	
                Seller’s
      Obligations after Closing

              	
                51

              
	 
      	
                Section
      12.03

              	
                Plugging
      and Abandonment Obligations.

              	
                52

              
	 
      	
                Section
      12.04

              	
                Environmental
      Obligations

              	
                53

              
	 
      	
                Section
      12.05

              	
                Definition
      of Claims

              	
                54

              
	 
      	
                Section
      12.06

              	
                Application
      of Indemnities.

              	
                55

              
	 
      	
                Section
      12.07

              	
                Buyer’s
      Indemnity

              	
                56

              
	 
      	
                Section
      12.08

              	
                Seller’s
      Indemnity

              	
                56

              
	 
      	
                Section
      12.09

              	
                Notices
      and Defense of Indemnified Claims

              	
                56

              
	 
      	
                Section
      12.10

              	
                Survival

              	
                57

              
	 
      	
                Section
      12.11

              	
                Exclusive
      Remedy

              	
                57

              
	 
      	
                Section
      12.12

              	
                Defenses
      and Counterclaims

              	
                58

              
	 
      	
                Section
      12.13

              	
                Anti-Indemnity
      Statute

              	
                58

              
	
                ARTICLE
      13

              	
                DISCLAIMERS;
      CASUALTY LOSS AND CONDEMNATION

              	
                58

              
	 
      	
                Section
      13.01

              	
                Disclaimers
      of Representations and Warranties

              	
                58

              
	 
      	
                Section
      13.02

              	
                NORM

              	
                60

              
	 
      	
                Section
      13.03

              	
                Casualty
      Loss; Condemnation.

              	
                60

              
	
                ARTICLE
      14

              	
                MISCELLANEOUS

              	
                61

              
	 
      	
                Section
      14.01

              	
                Names

              	
                61

              
	 
      	
                Section
      14.02

              	
                Expenses

              	
                61

              
	 
      	
                Section
      14.03

              	
                Document
      Retention

              	
                61

              
	 
      	
                Section
      14.04

              	
                Entire
      Agreement

              	
                62

              
	 
      	
                Section
      14.05

              	
                Waiver

              	
                62

              
	 
      	
                Section
      14.06

              	
                Construction

              	
                62

              
	 
      	
                Section
      14.07

              	
                No
      Third Party Beneficiaries

              	
                62

              
	 
      	
                Section
      14.08

              	
                Assignment

              	
                62

              
	 
      	
                Section
      14.09

              	
                Governing
      Law; Venue

              	
                63

              
	 
      	
                Section
      14.10

              	
                Notices

              	
                63

              
	 
      	
                Section
      14.11

              	
                Severability

              	
                64

              
	 
      	
                Section
      14.12

              	
                Interpretation

              	
                64

              
	 
      	
                Section
      14.13

              	
                Time
      of the Essence

              	
                66

              
	 
      	
                Section
      14.14

              	
                Counterpart
      Execution

              	
                66

              


      

    

     

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

     

    
      EXHIBITS
AND SCHEDULES

       

      
        
          
            
              	
                      Exhibit
      A

                    	
                      Subject
      Interests and Surface Agreements

                    
	
                      Exhibit
      B

                    	
                      Wells

                    
	
                      Exhibit
      C

                    	
                      Excluded
      Assets

                    
	
                      Exhibit
      D

                    	
                      Allocated
      Values

                    
	
                      Exhibit
      E

                    	
                      Form
      of Assignment and Bill of Sale

                    
	
                      Schedule
      1.02(g)

                    	
                      Production
      Imbalances

                    
	
                      Schedule
      4.06

                    	
                      Rights
      of Preferential Purchase

                    
	
                      Schedule
      4.07

                    	
                      Consents
      to Assignment

                    
	
                      Schedule
      5.06

                    	
                      Litigation

                    
	
                      Schedule
      5.08

                    	
                      Authorizations
      for Expenditures

                    
	
                      Schedule
      5.14

                    	
                      Inactive
      Wells

                    
	
                      Schedule
      5.17

                    	
                      Production
      Sales Agreements

                    
	
                      Schedule
      5.21

                    	
                      Non-Transferable
      Permits

                    


            

          

        

      

       

      
        
          
          

        

        
          v

          
            

          

        

        
          
          

        

      

       

      
        Table
of Defined Terms

         

        
          
            	
                    Agreement

                  	
                    1

                  	 
      	
                    Laws

                  	
                    15

                  
	
                    Allocated
      Asset

                  	
                    7

                  	 
      	
                    Lease
      and Leases

                  	
                    1

                  
	
                    Allocated
      Assets

                  	
                    7

                  	 
      	
                    Marketable
      Title

                  	
                    10

                  
	
                    Allocated
      Values

                  	
                    7

                  	 
      	
                    material

                  	
                    65

                  
	
                    Assets

                  	
                    1

                  	 
      	
                    Material
      Adverse Effect

                  	
                    65

                  
	
                    Assignment

                  	
                    14

                  	 
      	
                    NORM

                  	
                    60

                  
	
                    Assumed
      Obligations

                  	
                    50

                  	 
      	
                    Notice
      of Disagreement

                  	
                    45

                  
	
                    Breach

                  	
                    66

                  	 
      	
                    OPA

                  	
                    23

                  
	
                    Buyer

                  	
                    1

                  	 
      	
                    Overhead
      Fee

                  	
                    39

                  
	
                    Buyer’s
      Environmental Review

                  	
                    20

                  	 
      	
                    Parties

                  	
                    1

                  
	
                    Casualty

                  	
                    60

                  	 
      	
                    Party

                  	
                    1

                  
	
                    Casualty
      Loss

                  	
                    60

                  	 
      	
                    PDNP

                  	
                    7

                  
	
                    CERCLA

                  	
                    23

                  	 
      	
                    Permits

                  	
                    2

                  
	
                    Claims

                  	
                    54

                  	 
      	
                    Permitted
      Encumbrances

                  	
                    14

                  
	
                    Closing

                  	
                    42

                  	 
      	
                    Plugging
      and Abandonment Obligations

                  	
                    52

                  
	
                    Closing
      Date

                  	
                    42

                  	 
      	
                    Post-Closing
      Production Month

                  	
                    39

                  
	
                    Contracts

                  	
                    3

                  	 
      	
                    Probable
      and/or Possible Locations

                  	
                    7

                  
	
                    Deposit

                  	
                    6

                  	 
      	
                    Production
      Imbalances

                  	
                    9

                  
	
                    Documents

                  	
                    61

                  	 
      	
                    PUD
      Locations

                  	
                    7

                  
	
                    Effective
      Time

                  	
                    9

                  	 
      	
                    Purchase
      Price

                  	
                    6

                  
	
                    Environmental
      Defect

                  	
                    22

                  	 
      	
                    Purchase
      Price Allocations and Adjustments

                  	
                    44

                  
	
                    Environmental
      Defect Value

                  	
                    23

                  	 
      	
                    RCRA

                  	
                    23

                  
	
                    Environmental
      Information

                  	
                    22

                  	 
      	
                    Records

                  	
                    3

                  
	
                    Environmental
      Laws

                  	
                    22

                  	 
      	
                    Representatives

                  	
                    55

                  
	
                    Environmental
      Obligations

                  	
                    53

                  	 
      	
                    Retained
      Obligations

                  	
                    52

                  
	
                    Equipment

                  	
                    2

                  	 
      	
                    St.
      Mary

                  	
                    1

                  
	
                    Examination
      Period

                  	
                    9

                  	 
      	
                    Statement

                  	
                    44

                  
	
                    Excluded
      Assets

                  	
                    3

                  	 
      	
                    Subject
      Interests

                  	
                    2

                  
	
                    Expiration
      Date

                  	
                    57

                  	 
      	
                    Surface
      Agreements

                  	
                    2

                  
	
                    Facilities

                  	
                    2

                  	 
      	
                    Tax

                  	
                    66

                  
	
                    Final
      Settlement Date

                  	
                    45

                  	 
      	
                    Title
      Benefit

                  	
                    19

                  
	
                    Final
      Settlement Statement

                  	
                    44

                  	 
      	
                    Title
      Benefit Value

                  	
                    19

                  
	
                    Governmental
      Authority

                  	
                    22

                  	 
      	
                    Title
      Claim Date

                  	
                    11

                  
	
                    Hydrocarbons

                  	
                    2

                  	 
      	
                    Title
      Defect

                  	
                    10

                  
	
                    includes
      and including

                  	
                    65

                  	 
      	
                    Title
      Defect Value

                  	
                    11

                  
	
                    Independent
      Expert

                  	
                    25

                  	 
      	
                    Wachovia
      Liens

                  	
                    17

                  
	
                    Information

                  	
                    33

                  	 
      	
                    Wells

                  	
                    2

                  
	
                    Interim
      Operating Expenses

                  	
                    43

                  	 
      	 
      	 
      
	
                    knowledge
      or knowingly

                  	
                    65

                  	 
      	 
      	 
      
	
                    Lands

                  	
                    2

                  	 
      	 
      	 
      


          

        

         

        
          
            
            

          

          
            vi

            
              

            

          

          
            
            

          

        

         

        
          PURCHASE
AND SALE AGREEMENT

           

          This
Purchase and Sale Agreement (this “Agreement”) is made
and entered into this 17th day of December, 2009, by and between ST. MARY LAND
& EXPLORATION COMPANY, a Delaware corporation (“Seller”), and LEGACY
RESERVES OPERATING LP, a Delaware limited partnership (“Buyer”).  Buyer
and Seller are collectively referred to herein as the “Parties”, and are
sometimes referred to individually as a “Party.”

          


          R
E C I T A L S:

           

          WHEREAS,
Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the
Assets (as defined below), all upon the terms and conditions hereinafter set
forth;

           

          NOW,
THEREFORE, in consideration of Ten Dollars ($10.00) cash in hand paid and of the
mutual benefits derived and to be derived from this Agreement by each Party, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Seller and Buyer hereby agree as follows:

           

          ARTICLE
1

           

          


           

          ASSETS

           

          Section
1.01                      Agreement to Sell and
Purchase.  Subject to and in accordance with the terms and
conditions of this Agreement, Buyer agrees to purchase the Assets from Seller,
and Seller agrees to sell the Assets to Buyer.

           

          Section
1.02                      Assets.  Subject
to 
Section 1.03, the
term “Assets”
shall mean all of Seller’s right, title and interest in and to:

           

          (a)           The
oil, gas, and other mineral leases described in Exhibit A
(collectively, the “Leases” and
singularly a “Lease”) whether or
not accurately or completely described in Exhibit A, and any
overriding royalty interests, royalty interests, non-working or carried
interests, mineral fee interests, operating rights, surface interests and other
rights and interests in and to the lands covered by the Leases or otherwise
described or referred to in Exhibit A, or in any
lands pooled, communitized or unitized therewith but excluding any specifically
described excluded depths, intervals or lands set forth in Exhibit A (said lands
and interests therein being collectively referred 

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

           

          to as the
“Lands”),
together with all production of oil, gas, associated liquids, and other
hydrocarbons (collectively “Hydrocarbons”) from
and after the Effective Time.  Said Leases, Lands, and Hydrocarbons
shall be collectively referred to as the “Subject Interests”
or, singularly, a “Subject
Interest”);

           

          (b)           all
easements, rights-of-way, servitudes, surface leases, surface use agreements,
and other rights or agreements related to the use of the surface and subsurface
(the “Surface
Agreements”), in each case to the extent used in connection with the
operation of the Subject Interests, including those recorded Surface Agreements
described in Exhibit
A;

           

          (c)           to
the extent assignable or transferable, all permits, licenses, franchises,
consents, approvals, and other similar rights and privileges (the “Permits”), in each
case to the extent used in connection with the operation of the Subject
Interests;

           

          (d)           all
equipment, machinery, fixtures, spare parts, inventory, and other personal
property (including Seller’s leasehold interests therein subject to any
necessary consents to assignment) used in connection with the operation of the
Subject Interests or in connection with the production, treatment, compression,
gathering, transportation, sale, or disposal of Hydrocarbons produced from or
attributable to the Subject Interests or any water, byproducts, or waste
produced from the Subject Interests or in association with or incident to the
production of Hydrocarbons, or otherwise attributable thereto(collectively the
“Equipment”);
all wells located on the Leases or the Lands or on lands pooled, communitized,
or unitized therewith whether producing, shut in, or abandoned, and whether for
production, produced water injection or disposal, or otherwise, and including
those Wells described in Exhibit B
(collectively, the “Wells”) together with
all of Seller’s interests within the spacing, producing, proration, federal
exploratory, enhanced recovery, or governmentally prescribed or voluntary unit
attendant to the Wells, including the wellhead equipment, pumps, pumping units,
flowlines, gathering systems, pipe, tanks, treatment facilities, injection
facilities, disposal facilities, compression facilities, and other materials,
supplies, buildings, trailers, and offices used in connection with the Subject
Interests and the other matters described in this definition of Assets (the
“Facilities”);

           

          
            
              
              

            

            
              2

              
                

              

            

            
              
              

            

          

           

          (e)           to
the extent assignable or transferable, (i) all contracts, agreements,
drilling contracts, equipment leases, production sales and marketing contracts,
farm-out and farm-in agreements, operating agreements, service agreements, unit
agreements, gas gathering and transportation agreements, and other contracts,
agreements, and arrangements, relating to the Subject Interests and the other
matters described in this definition of Assets, and subject to, and in
accordance with, any limitations set forth in such agreements, and
(ii) equipment leases and rental contracts, service agreements, supply
agreements, and other contracts, agreements, and arrangements relating to the
Subject Interests and the other matters described in this definition of Assets,
(the agreements identified in clauses (i) and (ii) above being, collectively,
the “Contracts”);

           

          (f)           all
files, records, and data relating to the items described in Sections 1.02
 (a) through 
(e) maintained by
Seller including, without limitation, the following, if and to the extent that
such files exist: all books, records, reports, manuals, files, title documents
(including correspondence), records of production and maintenance, revenue,
sales, expenses, warranties, lease files, land files, well files, division order
files, abstracts, title opinions, assignments, reports, property records,
contract files, operations files, copies of tax and accounting records (but
excluding Federal and state income tax returns and records) and files, maps,
core data, hydrocarbon analysis, well logs, mud logs, field studies together
with other files, contracts, and other records and data including all geologic
and geophysical data and maps, but excluding from the foregoing those files,
records, and data subject to written unaffiliated third party contractual
restrictions on disclosure or transfer (the “Records”).  To
the extent that any of the Records contain interpretations of Seller, Buyer
agrees to rely on such interpretations at its sole risk and without any duty on
the part of Seller regarding such interpretations; and

           

          (g)           all
Production Imbalances, including those set forth on Schedule 1.02(g) as
of the Effective Time.

           

          Section
1.03                      Excluded
Assets.  Notwithstanding the foregoing, the Assets shall not
include, and there is excepted, reserved, and excluded from the sale, transfer,
and assignment contemplated hereby the following excluded properties, rights,
and interests (collectively, the “Excluded
Assets”):

           

          (a)           those
assets, interests, rights, and properties described in Exhibit C;

           

          
            
              
              

            

            
              3

              
                

              

            

            
              
              

            

          

           

          (b)           all
trade credits and all accounts, instruments, and general intangibles
attributable to the Assets with respect to any period of time prior to the
Effective Time;

           

          (c)           except
for those Claims or rights against a third party for which Buyer has agreed to
indemnify Seller pursuant to the terms of this Agreement, all Claims of
Seller,

           

          (i)           arising
from acts, omissions, or events, or damage to or destruction of property,
occurring prior to the Effective Time,

           

          (ii)           arising
under or with respect to any of the Contracts that are attributable to periods
of time prior to the Effective Time (including claims for adjustments or
refunds), or

           

          (iii)           with
respect to any of the other Excluded Assets;

           

          (d)           all
rights and interests of Seller,

           

          (i)           under
any policy or agreement of insurance or indemnity,

           

          (ii)           under
any bond, or

           

          (iii)           to
any insurance or condemnation proceeds or awards arising in each case from acts,
omissions, or events, or damage to or destruction of property, occurring prior
to the Effective Time;

           

          (e)           all
Hydrocarbons produced from or otherwise attributable to the Subject Interests
with respect to all periods prior to the Effective Time, excluding those
Hydrocarbons referenced in 
Section 1.02(g)
together with all proceeds from the sale of such Hydrocarbons, and all Tax
credits attributable thereto;

           

          (f)           all
Claims of Seller for refunds of or loss carry forwards with respect
to

           

          (i)           ad
valorem, severance, production, or any other Taxes attributable to any period
prior to the Effective Time,

           

          (ii)           income,
gross margin, or franchise Taxes,

           

          (iii)           any
Taxes attributable to the other Excluded Assets, and such other refunds, and
rights thereto, for amounts paid in connection with the Assets and attributable
to the period prior to the Effective Time, including refunds of amounts paid
under any gas gathering or transportation agreement;

           

          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

          

           

          (g)           all
amounts due or payable to Seller as adjustments to insurance premiums related to
the Assets with respect to any period prior to the Effective Time;

           

          (h)           all
proceeds, income, or revenues (and any security or other deposits made)
attributable to the Assets for any period prior to the Effective Time, or any
other Excluded Assets;

           

          (i)           subject
to 
Section 1.02(f),
all of Seller’s proprietary technology and improvements, computer software,
patents, trade secrets, copyrights, names, trademarks, logos, and other
intellectual property;

           

          (j)           all
documents and instruments of Seller that may be protected by an attorney-client
or other privilege;

           

          (k)           data,
information, and other property, rights, or interests that cannot be disclosed
or assigned to Buyer as a result of confidentiality or similar
arrangements;

           

          (l)           all
audit rights arising under any of the Contracts or otherwise with respect to any
period prior to the Effective Time or to any of the other Excluded
Assets;

           

          (m)           all
computers, printers, and other electronic equipment located in any buildings,
offices, or trailers that may belong to Seller and that may constitute part of
the Assets, including, all software and electronic data relating in any way to
such electronic equipment, to the extent any such electronic data does not
constitute a part of the Records;

           

          (n)           All
corporate, income tax, and financial records of Seller not included in the
Records; and

           

          (o)           all
agreements providing for options, swaps, floors, caps, collars, forward sales,
or forward purchases involving commodities or commodity prices, or indexes based
on any of the foregoing and all other similar agreements and
arrangements.

           

          
            
              
              

            

            
              5

              
                

              

            

            
              
              

            

          

           

          ARTICLE
2

           

          


           

          PURCHASE
PRICE

           

          Section
2.01                      Purchase
Price.  The total consideration for the purchase, sale, and
conveyance of the Assets to Buyer and Buyer’s assumption of the Assumed
Obligations and all other liabilities provided for in this Agreement, is Buyer’s
payment to Seller of the sum of One Hundred Thirty Million Dollars
($130,000,000.00) (the “Purchase Price”), as
adjusted in accordance with the provisions of this Agreement.

           

          Section
2.02                      Deposit.

           

          (a)           Concurrently
with the execution of this Agreement by Buyer and Seller, Buyer shall deliver to
Seller in immediately available funds a performance guarantee deposit in an
amount equal to(5 percent of the Purchase
Price)  (the “Deposit”) in
accordance with wire transfer instructions provided by Seller to
Buyer.

           

          (b)           Subject
to the proviso set forth in 
Section 11.01, if
this Agreement is terminated by Seller pursuant to 
Section 11.01(b)
and Seller does not waive the non-satisfaction of any conditions to Closing set
forth in 
Article 8, Seller
shall retain the Deposit as liquidated damages, which remedy shall be the sole
and exclusive remedy available to Seller for Buyer’s failure to perform its
obligations under this Agreement. Buyer and Seller acknowledge and agree that
(i) Seller’s actual damages upon the event of such a termination are
difficult to ascertain with any certainty, (ii) the Deposit is a reasonable
estimate of such actual damages, and (iii) such liquidated damages do not
constitute a penalty.  Provided, however, that if this Agreement is
terminated by Seller pursuant to Section 11.01(b)
pursuant to Section 8.03, and the threatened or pending suit, action or other
proceeding described therein was not threatened or initiated by Buyer, Seller
shall promptly return the Deposit to Buyer in immediately available funds
pursuant to wire transfer instructions to be provided timely by Buyer to Seller
within three (3) business days after the event giving rise to such return
obligation.

           

          (c)           Subject
to the proviso set forth in 
Section 11.01, if
this Agreement is terminated (i) by Buyer pursuant to 
Section 11.01(c)
and Buyer does not waive the non-satisfaction of any conditions to Closing set
forth in 
Article 9 or (ii)
by Buyer or Seller pursuant to 
Section 11.01(a),

Section 11.01(d),

Section 11.01(e),

Section 11.01(f),

Section 11.01(g),

Section 11.01(h)
or 
Section 13.03(c),
then Seller shall promptly return the Deposit to Buyer in immediately available
funds pursuant to wire transfer instructions to be provided timely by Buyer to
Seller within three (3) business days after the event giving rise to such return
obligation. Buyer and Seller shall thereupon have the rights and obligations set
forth elsewhere herein.

           

          
            
              
              

            

            
              6

              
                

              

            

            
              
              

            

          

           

          (d)           If
all conditions precedent to the obligations of Seller set forth in 
Article 8 have
been met, then notwithstanding any provision in this 
Section 2.02 to
the contrary, if Closing does not occur because Seller wrongfully fails to
tender performance at Closing or otherwise Breaches this Agreement in any
respect prior to Closing, and Buyer is ready and otherwise able to close, at
Buyer’s sole election, either (i) Seller shall return the Deposit to Buyer
within three (3) business days after the determination that the Closing will not
occur, or (ii) Buyer shall have the right to pursue specific performance of this
Agreement, provided that Buyer must file an action for specific performance
within 21 days of Seller’s Breach.  If Buyer elects to pursue specific
performance, Buyer must pursue specific performance as its sole and exclusive
remedy in lieu of all other legal and equitable remedies.  If such
action for specific performance is not filed within 21 days of Seller’s Breach
or if Buyer is unsuccessful for any reason other than a Breach of this Agreement
by Buyer, Buyer shall be deemed to have waived all legal and equitable remedies
and its sole remedy for Seller’s Breach of this Agreement shall be limited to
the prompt return of the Deposit and the termination of this
Agreement.

           

          Section
2.03                      Allocated
Values.  The Purchase Price is allocated among the Assets
(including the Wells, PUD Locations, PDNP, and Probable and/or Possible
Locations) as set forth in Exhibit D (the “Allocated Values”).
In no event shall the aggregate of the Allocated Values of the Units, Wells, PUD
Locations, PDNP, Probable and/or Possible Locations, and any other item
specified on Exhibit
D (such as undeveloped leasehold) (with all such items specifically set
forth on Exhibit
D being referred to herein as the “Allocated Assets” or as to any single
specified item, an “Allocated Asset”) exceed the unadjusted Purchase Price. The
term “Unit” means any governmentally approved unit specifically referenced in
Exhibit
D.  The term “PUD Locations” means
those Proved Undeveloped potential well locations specifically identified in
Exhibit D.  The
term “PDNP”
means Proved Developed Not Producing intervals as specifically identified on
Exhibit D. The
term “Probable and/or
Possible Locations”  means those locations specifically
identified and designated as such on Exhibit
D.  Seller and Buyer agree that the Allocated Values shall be
used to compute any adjustments to the Purchase Price pursuant to the provisions
of 
Article
4.  Any adjustment to the Purchase Price hereunder shall be
reflected in the allocation set forth in Exhibit D consistent
with Treasury Regulation Section 1.1060-1T(f). For tax purposes, the
Parties agree to report the transactions contemplated by this Agreement in a
manner consistent with the terms of this Agreement, including the allocations
set forth above as of the Closing Date, and that neither Party will take any
position inconsistent therewith, including in any tax return, refund claim,
litigation, arbitration, or otherwise.

           

          
            
              
              

            

            
              7

              
                

              

            

            
              
              

            

          

           

          Section
2.04                      Section 1031
Like-Kind Exchange.  Seller
and Buyer hereby agree that Seller shall have the right at any time prior to
completion of all the transactions that are to occur at Closing to assign all or
a portion of its rights under this Agreement to a Qualified Intermediary (as
that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury
Regulations) in order to accomplish the transaction in a manner that will
comply, either in whole or in part, with the requirements of a like-kind
exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended. Likewise, Buyer shall have the right at any time prior to completion of
all the transactions that are to occur at Closing to assign all or a portion of
its rights under this Agreement to a Qualified Intermediary for the same
purpose. If Seller assigns all or any of its rights under this Agreement for
this purpose, Buyer agrees to (a) consent to Seller’s assignment of its rights
in this Agreement, which assignment shall be in a form reasonably acceptable to
Buyer, and (b) pay the Purchase Price (or a designated portion thereof as
specified by Seller) into a qualified escrow or qualified trust account at
Closing as directed in writing. If Buyer assigns all or any of its rights under
this Agreement for this purpose, Seller agrees to (i) consent to Buyer’s
assignment of its rights in this Agreement, which assignment shall be in a form
reasonably acceptable to Seller, (ii) accept the Purchase Price from the
qualified escrow or qualified trust account at Closing, and (iii) at Closing,
convey and assign directly to Buyer the Assets (or any portion thereof) as
directed by Buyer. Seller and Buyer acknowledge and agree that any assignment of
this Agreement  (or any rights hereunder) to a Qualified Intermediary
shall not release any Party from any of its respective liabilities and
obligations hereunder, and that neither Party represents to the other Party that
any particular tax treatment will be given to any Party as a result
thereof.  The Party electing to assign all or any of its rights under
this Agreement pursuant to this 
Section 2.04
shall defend, indemnify, and hold harmless the other Party and its Affiliates
from all Claims relating to such election.

           

          
            
              
              

            

            
              8

              
                

              

            

            
              
              

            

          

           

          ARTICLE
3

           

          


           

          EFFECTIVE
TIME

           

          Section
3.01                      Ownership of
Assets.  If the transactions contemplated hereby are
consummated in accordance with the terms and provisions hereof, the ownership of
the Assets shall be transferred from Seller to Buyer on the Closing Date, but
effective for all purposes as of 7:00 a.m. local time at the location of the
Assets on November 1, 2009 (the “Effective
Time”).

           

          Section
3.02                      Production
Imbalances.

           

          (a)           Assumption of Production
Imbalances Upon Closing.  Buyer shall assume the positions of
Seller with respect to all gas imbalances and make-up obligations related to the
Assets regardless of whether such imbalances or make-up obligations arise before
or after the Effective Time, at the wellhead, pipeline, gathering system, or
other location, and regardless of whether the same arise under contract or
otherwise (“Production
Imbalances”). As a result of such assumption, Buyer shall (a) be entitled
to receive any and all benefits which Seller would have been entitled to receive
by virtue of its position, including rights to produce and receive volumes of
production in excess of volumes which it would otherwise have been entitled to
produce and to receive cash gas balancing by virtue of ownership of the Assets,
(b) be obligated to suffer any detriments or losses which Seller would have been
obligated to suffer by virtue of such position, including the obligation to
deliver to others production volumes which would have otherwise been
attributable to its ownership of the Assets, to deliver production to purchasers
thereof without Buyer receiving full payment therefor, or to make cash balancing
payments or to repay any take or pay payments, and (c) be responsible for any
and all royalty obligations and other burdens with respect to such Production
Imbalances; provided however, nothing in this subsection (a) of 
Section 3.02
shall relieve Seller from any royalty obligation affecting production Seller has
actually received for production occurring prior to the Effective
Time.

           

          


           

          ARTICLE
4

           

          


           

          TITLE
AND ENVIRONMENTAL MATTERS

           

          
            
              
              

            

            
              9

              
                

              

            

            
              
              

            

          

           

          Section
4.01                      Examination
Period.  Until 5:00 p.m. MST on the date which is seven (7)
days prior to the Closing Date (the “Examination Period”),
Seller shall permit Buyer and/or its representatives to examine during normal
business days and hours at a location designated by Seller, all abstracts of
title, title opinions, title files, ownership maps, lease, Well and division
order files, assignments, operating, and accounting records and all Surface
Agreements, Permits, Contracts, and other agreements, data, analyses, and
information pertaining to the Assets insofar as same may now be in existence and
in the possession of Seller, subject to such restrictions upon disclosure as may
exist under confidentiality or other agreements binding upon Seller and relating
to such data.

           

          Section
4.02                      Title
Defects.  The term “Title Defect” means
(a) any encumbrance on, encroachment on, irregularity in, defect in, or
objection to Seller’s ownership of the Assets (excluding Permitted Encumbrances)
that causes Seller not to have Marketable Title to an Allocated Asset; or (b)
any default by Seller under a lease, farm-out agreement, or other contract or
agreement that would (i) have a material and adverse effect on the operation,
value, or use of such Asset, (ii) prevent Seller from receiving the proceeds of
production attributable to Seller’s interest therein, or (iii) result in
cancellation of all or a portion of Seller’s interest therein. The term “Marketable Title”
means such ownership by Seller in the Assets  that, subject to and
except for the Permitted Encumbrances:

           

          (a)           entitles
Seller to receive not less than the percentage set forth in Exhibit D as Seller’s
Net Revenue Interest of all Hydrocarbons produced, saved, and marketed from such
Allocated Asset , all without reduction, suspension, or termination of such
interest throughout the productive life of such Well, except as specifically set
forth in such exhibit;

           

          (b)           obligates
Seller to bear not greater than the percentage set forth in Exhibit D as
Seller’s Working Interest of the costs and expenses relating to the maintenance,
development, and operation of such Allocated Asset, all without increase
throughout the productive life of such Well, except as specifically set forth in
such exhibit; and

           

          (c)           is
free and clear of all liens, encumbrances, and defects in title.

           

          Subject
to the limitations of 
Section 4.14,
Breaches of Seller’s representations and warranties contained in 
Section 5.07
through 
Section 5.24
discovered prior to the Closing shall be treated as Title Defects for purposes
of making pre-Closing adjustments to the Purchase Price.

           

          
            
              
              

            

            
              10

              
                

              

            

            
              
              

            

          

           

          Section
4.03                      Notice of Title
Defects.  Buyer shall provide Seller notice of all Title
Defects no later than 5:00 p.m. MST on the date which is seven (7) days prior to
the Closing Date (the “Title Claim Date”).
To be effective, such notice must (a) be in writing, (b) be received by Seller
on or prior to the Title Claim Date, (c) describe the Title Defect in reasonable
detail (including any alleged variance in the Net Revenue Interest or Working
Interest), (d) identify the specific Asset or Assets affected by such Title
Defect, (e) include the Title Defect Value, as reasonably determined by Buyer in
good faith, and (f) comply with the limitations and Title Defect Value
qualifications set forth in 
Section 4.14. Any
matters identified by Buyer during the Examination Period that constitute Title
Defects, but of which Seller has not been specifically notified by Buyer in
accordance with the foregoing, shall be deemed to have been waived by Buyer for
all purposes and shall constitute Permitted Encumbrances and Assumed Obligations
hereunder. Upon receipt of notices of Title Defects, the Parties shall meet and
determine upon which of the Title Defects, Title Defect Values, and methods of
cure the Parties have reached agreement. Upon the receipt of such notice from
Buyer, Seller shall have the option, but not the obligation, for a period ending
ninety (90) days after the Closing to cure such defect. If Seller should not
elect to cure a Title Defect, and no aspect of such defect is reasonably in
dispute, the Purchase Price shall be adjusted for such defect by the amount of
the Title Defect Value.

           

          (a)           The
value attributable to each Title Defect (the “Title Defect Value”)
that is asserted by Buyer in the Title Defect notices shall be determined based
upon the criteria set forth below:

           

          (i)           If
the Title Defect is a lien upon any Asset, the Title Defect Value is the amount
necessary to be paid to remove the lien from the affected Asset;

           

          (ii)           If
the Title Defect asserted is that the Net Revenue Interest attributable to any
Allocated Asset is less than that stated in Exhibit D, then
the Title Defect Value shall be the absolute value of the number determined by
the following formula:

           

          Title
Defect Value  = A  x  (1-[B/C])

           

          A  =
Allocated Value for the affected Asset

           

          B  =
Correct Net Revenue Interest for the affected Asset

           

          
            
              
              

            

            
              11

              
                

              

            

            
              
              

            

          

           

          C  =
Net Revenue Interest for the affected Asset as set forth on Exhibit
D.

           

          (iii)           If
the Title Defect represents an obligation, encumbrance, burden, or charge upon
the affected Asset (including any increase in Working Interest for which there
is not a proportionate increase in Net Revenue Interest) for which the economic
detriment to Buyer is unliquidated, the amount of the Title Defect Value shall
be determined by taking into account the Allocated Value of the affected Asset,
the portion of the Asset affected by the Title Defect, the legal effect of the
Title Defect, the potential discounted economic effect of the Title Defect over
the life of the affected Asset, and the Title Defect Value placed upon the Title
Defect by Buyer and Seller;

           

          (iv)           If
a Title Defect is not in effect or does not adversely affect an Asset throughout
the entire post Effective Time productive life of such Asset, such fact shall be
taken into account in determining the Title Defect Value;

           

          (v)           The
Title Defect Value of a Title Defect shall be determined without duplication of
any costs or losses included in another Title Defect Value
hereunder;

           

          (vi)           Notwithstanding
anything herein to the contrary, in no event shall a Title Defect Value exceed
the Allocated Value of the Allocated Asset affected thereby;

           

          (vii)           If
the Title Defect Value of an Asset is equal to the Allocated Value of such
Asset, the affected Asset shall remain in the purchase and sale contemplated by
this Agreement, but the Purchase Price shall be adjusted
accordingly;

           

          (viii)           Notwithstanding
the provisions of this 
Section 4.03 to
the contrary, the Title Defect Value of any Title Defect comprising a required
consent not obtained (other than consents customarily obtained after Closing)
shall be determined subject to any accommodation implemented pursuant to 
Section 4.07;
and

           

          (ix)           Such
other factors as are reasonably necessary to make a proper
evaluation.

           

          
            
              
              

            

            
              12

              
                

              

            

            
              
              

            

          

           

          (b)           The
term Title Defect shall not include:

           

          (i)           Defects
based solely on an assertion that Seller’s files lack information, provided that
any missing material information can be obtained by the reasonable efforts of
Buyer;

           

          (ii)           Defects
in the early chain of title consisting of the failure to recite marital status
in a document or omissions of successors of heirship or estate proceedings,
unless Buyer provides a reasonable basis for the assertion that such failure or
omission has resulted in a third party’s actual and superior claim of title to
the affected Asset;

           

          (iii)           Defects
arising out of lack of survey;

           

          (iv)           Defects
arising out of lack of corporate or other entity authorization unless Buyer
provides a reasonable basis for the assertion that the action was not authorized
and that such lack of authorization has resulted in a third party’s actual and
superior claim of title to the affected Asset;

           

          (v)           Defects
asserting a change in an applicable Working Interest or Net Revenue Interest
based on a change in drilling and spacing units, tract allocation or other
changes in pooling or unit participation occurring after the date of this
Agreement; and

           

          (vi)           Title
requirements customarily considered as advisory or which can be waived as a
matter of prudent business judgment.

           

          Section
4.04                      Remedies for Title
Defects.

           

          (a)           For
any Title Defect noticed pursuant to 
Section 4.03 that
has not been cured at or prior to Closing, the Purchase Price shall, subject to
the provisions of 
Section 4.14, be
decreased at Closing by either (i) the amount the Parties acting reasonably and
in good faith agree in lieu of a cure of the asserted Title Defect, or (ii) with
respect to any Title Defect for which the Parties have not yet agreed as to the
validity of the Title Defect, the Title Defect Value, or the manner of cure,
then by the amount of the Title Defect Value asserted by Buyer for such uncured
or unadjusted Title Defect.

           

          (b)           Notwithstanding
anything to the contrary in this 
Section 4.04, if
any Title Defect is in the nature of a consent to assignment that is not
obtained or other restriction on assignment, the provisions of 
Section 4.07
shall apply.

           

          
            
              
              

            

            
              13

              
                

              

            

            
              
              

            

          

           

          (c)           If
at the expiration of thirty (30) days after Closing, the Parties have not agreed
upon the validity of any asserted Title Defect, the appropriate cure of the
same, or the Title Defect Value attributable thereto, either Party shall have
the right to elect to have any such dispute determined by an Independent Expert
pursuant to 
Section
4.13.

           

          (d)           Once
a Title Defect is cured by Seller at its sole cost and expense to Buyer’s
reasonable satisfaction, or the existence or value of the Title Defect is
determined with finality either by agreement between the affected Parties or in
accordance with Section 4.13, Buyer
shall promptly pay to Seller (i) in the case of a Title Defect which is cured,
the amount the Purchase Price was decreased at Closing as a result of this
previously uncured Title Defect or (ii) in the case of an Asset affected by an
unresolved Title Defect and for which the validity of the Title Defect or the
Title Defect Value is determined with finality whether by agreement or in
accordance with Section 4.13, the
difference, if any, between the amount the Purchase Price was decreased at
Closing as a consequence of such  asserted and unresolved Title Defect
and the amount determined with finality.

           

          Section
4.05                      Special Warranty of
Title.  The documents to be executed and delivered by Seller to
Buyer, transferring title to the Assets as required hereby, including the
Assignment and Bill of Sale the form of which (subject to modification to meet
state recording statute requirements) is attached hereto as Exhibit E (the “Assignment”), shall
provide for a special warranty of title, by, through, and under Seller, subject
to the Permitted Encumbrances and the terms of this Agreement. The term “Permitted
Encumbrances” shall mean any of the following matters to the extent the
same are valid and subsisting and affect the Assets:

           

          (a)           any
(i) undetermined or inchoate liens or charges constituting or securing the
payment of expenses that were incurred incidental to the maintenance,
development, production, or operation of the Assets or for the purpose of
developing, producing, or processing Hydrocarbons therefrom or therein (A) that
Seller has agreed to retain or pay pursuant to the terms hereof, or (B) for
which Seller is responsible for paying or releasing at the Closing, and (ii)
liens of materialmen, mechanics, repairman, employees, contractors, or
operators, or other similar liens or charges for liquidated amounts arising in
the ordinary course of business (A) that Seller has agreed to retain or pay
pursuant to the terms hereof, or (B) for which Seller is responsible for paying
or releasing at the Closing;

           

          
            
              
              

            

            
              14

              
                

              

            

            
              
              

            

          

           

          (b)           any
liens for Taxes and assessments not yet delinquent or, if delinquent, that are
being contested in good faith in the ordinary course of business and for which
Seller has agreed to pay pursuant to the terms hereof or which have been
prorated pursuant to the terms hereof;

           

          (c)           the
terms, conditions, restrictions, exceptions, reservations, limitations, and
other matters contained in (including any liens or security interests created by
law or reserved in oil and gas leases for royalty, bonus or rental, or created
to secure compliance with the terms of) the Contracts, Surface Agreements,
Leases, and any other agreements, instruments, documents, and other matters
described or referred to in any Exhibit or Schedule hereto, or other terms in
such instruments that create or reserve to Seller its interest in the Assets;
provided, that, such matters do not operate to (i) reduce the Net Revenue
Interest of Seller in any Allocated Asset as reflected in Exhibit D, or
(ii) increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the Working Interest of Seller with
respect to any Allocated Asset as reflected in Exhibit D,
unless there is a proportionate increase in Seller’s applicable Net Revenue
Interest;

           

          (d)           any
obligations or duties affecting the Assets to any Governmental Authority with
respect to any franchise, grant, license, or permit, and all applicable federal,
state, and local laws, rules, regulations, guidance, ordinances, decrees, and
orders of any Governmental Authority (“Laws”);

           

          (e)           any
(i) easements, rights-of-way, servitudes, permits, surface leases, and other
rights in respect of surface operations, pipelines, grazing, hunting, lodging,
canals, ditches, reservoirs, or the like, and (ii) easements for streets,
alleys, highways, pipelines, telephone lines, power lines, railways, and other
similar rights-of-way on, over, or in respect of property owned or leased by
Seller or over which Seller owns rights-of-way, easements, permits, or
licenses;

           

          (f)           all
royalties, overriding royalties, net profits interests, carried interests,
production payments, reversionary interests, and other burdens on or deductions
from the proceeds of production created or in existence as of the Effective
Time, whether recorded or unrecorded, that do not (i) reduce the Net Revenue
Interest of Seller in any Allocated Asset and as reflected in Exhibit D, or (ii)
increase the proportionate share of costs and expenses of leasehold operations
attributable to or to be borne by the Working Interest of Seller with respect to
any Allocated Asset as reflected in Exhibit D, unless
there is a proportionate increase in Seller’s applicable Net Revenue
Interest;

           

          
            
              
              

            

            
              15

              
                

              

            

            
              
              

            

          

           

          (g)           preferential
rights to purchase or similar agreements (i) with respect to which (A) waivers
or consents are obtained from the appropriate parties for the transaction
contemplated hereby, or (B) required notices have been given for the transaction
contemplated hereby to the holders of such rights and the appropriate period for
asserting such rights has expired without an exercise of such rights, or (ii)
not exercised prior to Closing, subject to 
Section
4.06;

           

          (h)           required
third party consents to assignments or similar agreements with respect to which
(i) waivers or consents have been obtained from the appropriate parties for the
transaction contemplated hereby, or (ii) required notices have been given for
the transaction contemplated hereby to the holders of such rights and the
appropriate period for asserting such rights has expired without an exercise of
such rights;

           

          (i)           all
rights to consent by, required notices to, filings with, or other actions by,
Governmental Authorities in connection with the sale, transfer, or conveyance of
the Assets that are customarily obtained after such sale or
conveyance;

           

          (j)           production
sales contracts; division orders; contracts for sale, purchase, exchange,
refining, or processing of hydrocarbons; unitization and pooling designations,
declarations, orders, and agreements; operating agreements; agreements of
development; area of mutual interest agreements; gas balancing or deferred
production agreements; processing agreements; plant agreements; pipeline,
gathering, and transportation agreements; injection, repressuring, and recycling
agreements; water or other disposal agreements; seismic or geophysical permits
or agreements; and any and all other agreements that are ordinary and customary
to the oil, gas, and other mineral exploration, development, processing, or
extraction business or in the business of processing of gas and gas condensate
production for the extraction of products therefrom; provided, that, such
matters do not (i) reduce the Net Revenue Interest of Seller in any Allocated
Asset as reflected in Exhibit D or
(ii) increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the Working Interest of Seller with
respect to any Allocated Asset as reflected in Exhibit D,
unless there is a proportionate increase in Seller’s applicable Net Revenue
Interest;

           

          
            
              
              

            

            
              16

              
                

              

            

            
              
              

            

          

           

          (k)           rights
reserved to or vested in any Governmental Authority to control or regulate any
of the Wells or units included in the Assets and the applicable laws, rules, and
regulations of such Governmental Authorities;

           

          (l)           all
defects and irregularities affecting the Assets which individually or in the
aggregate do not (i) reduce the Net Revenue Interest of Seller in any
Allocated Asset as reflected in Exhibit D,
(ii) increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the Working Interests of Seller
with respect to any Allocated Asset as reflected on Exhibit D unless
there is a proportionate increase in Seller’s applicable Net Revenue Interest,
or (iii) otherwise result in a material and adverse interference with the
operation, value, or use of the Assets;

           

          (m)           conventional
rights of reassignment arising upon decision to surrender or abandon an
interest; and

           

          (n)           all
deeds of trust and other security interests burdening the Assets granted by
Seller in connection with its credit facilities under which Wachovia Bank serves
as administrative agent (the “Wachovia Liens”), it
being understood that the release of the Wachovia Liens is a condition to the
Closing as provided in 
Section
9.04.

           

          Section
4.06                      Preferential Rights to
Purchase.

           

          (a)           After
consultation with Buyer, Seller shall use its reasonable efforts, but without
any obligation to incur anything but reasonable costs and expenses in connection
therewith, to comply with all preferential right to purchase provisions relative
to any Asset prior to the Closing, including those rights of preferential
purchase identified on Schedule
4.06.

           

          (b)           Prior
to the Closing, Seller shall promptly notify Buyer if any of such preferential
purchase rights are exercised or if the requisite period has elapsed without
such rights having been exercised.

           

          
            
              
              

            

            
              17

              
                

              

            

            
              
              

            

          

           

          (c)           If
a third party who has been offered an interest in any Asset pursuant to a
preferential right to purchase elects prior to the Closing to purchase all or
part of such Asset, and the closing of such transaction occurs on or before the
Closing Date, then the Asset or part thereof so affected will be eliminated from
the Assets and the Purchase Price shall be reduced by the Allocated Value of
such Asset. If any such third party has elected to purchase all or a part of an
interest in any Asset subject to a preferential right to purchase, but has
failed to close the transaction by the Closing Date, then all of the Assets will
be conveyed to Buyer at Closing, without adjustment to the Purchase Price, and
on the Closing Date, Buyer shall, as an Assumed Obligation, assume all duties,
obligations, and liabilities, of any kind or nature, arising from, out of, or in
connection with, any enforceable preferential right to purchase that is
outstanding, and, if exercised, Buyer shall receive the payment therefor and
shall assign the affected portion of the Assets to the holder of such exercised
preferential right to purchase. In addition, in the event an interest is offered
by Seller pursuant to a preferential right to purchase for which notice has been
given but the time period for response by the holder of such right extends
beyond Closing, such interest shall be conveyed to Buyer at the Closing, without
reduction to the Purchase Price, and shall be subject to such preferential right
of purchase.

           

          Section
4.07                      Consents to
Assignment.  If any Asset is subject to a Title Defect as a
result of a consent to assignment not having been obtained, including those
consents to assignment set forth on Schedule 4.07, or, of
the existence of other restrictions on assignment or conveyance, Buyer and
Seller shall cooperate in any reasonable and lawful arrangement proposed to
provide Buyer with the benefits of ownership of the affected Asset without
breaching the consent requirement or restriction comprising such Title
Defect.  If such consent is obtained or such restriction eliminated
following the Closing, then Seller shall execute and deliver to Buyer an
assignment of Seller’s retained title and any related obligations consistent
with the terms of this Agreement.  Provided, however, that Buyer shall
not be obligated to enter into any arrangement whereby Seller retains actual
title with beneficial title being assigned to Buyer at the Closing unless Seller
can demonstrate to Buyer’s reasonable satisfaction that such consent to
assignment will be obtained or such restriction eliminated within ninety (90)
days after the Closing.  If Seller cannot demonstrate to Buyer’s
reasonable satisfaction that such consent to assignment will be obtained or such
restriction shall be eliminated within ninety (90) days after the Closing, such
consent to assignment or restriction shall be treated for all purposes as a
Title Defect.

           

          
            
              
              

            

            
              18

              
                

              

            

            
              
              

            

          

           

          Section
4.08                      Remedies for Title
Benefits.

           

          (a)           If
Buyer discovers any Title Benefit affecting the Assets, it shall promptly notify
Seller in writing thereof. Subject to 
Section 4.14,
Seller shall be entitled to an upward adjustment to the Purchase Price with
respect to all Title Benefits in an amount (the “Title Benefit Value”)
determined in accordance with the formula provided for in this 
Section
4.08(a).  The term “Title Benefit” shall mean
Seller’s Net Revenue Interest in any Allocated Asset that is greater than or in
addition to the Net Revenue Interest set forth in Exhibit D, or
Seller’s Working Interest in any Allocated Asset that is less than the Working
Interest set forth in Exhibit D
(without a proportionate decrease in the Net Revenue Interest). The Title
Benefit Value shall be the absolute value of the number determined by the
following formula:

           

          Title
Benefit Value  = [A  x  (B/C)] - A

           

          A  =
Allocated Value for the affected Asset

           

          B  =
Correct Net Revenue Interest for the affected Asset

           

          C  =
Net Revenue Interest for the affected Asset as set forth on Exhibit
D.

           

          (b)           If
the Title Benefit represents a decrease in Working Interest for which there is
not a proportionate decrease in Net Revenue Interest, the amount of the Title
Benefit Value shall be determined by taking into account the Allocated Value of
the affected Asset, the portion of the Asset affected by the Title Benefit, the
legal effect of the Title Benefit, the potential discounted economic effect of
the Title Benefit over the post Effective Time life of the affected Asset, and
the Title Benefit Values placed upon the Title Benefit by Buyer and
Seller.

           

          (c)           If
the Parties have not agreed on the amount of the Title Benefit Value of a Title
Benefit by the expiration of thirty (30) days after Closing, Seller or Buyer
shall have the right to elect to have such Title Benefit Value determined by an
Independent Expert pursuant to 
Section 4.13. If
the Title Benefit Value is not determined pursuant to this Agreement by the
Closing, the Purchase Price paid at Closing shall be increased, subject to 
Section 4.14, by
the Title Benefit Value determined by Seller, acting reasonably and in good
faith.  Upon the final determination of Title Benefit Value either by
mutual agreement of the Parties or by the Independent Expert, (i) Seller
shall refund to Buyer the amount, if any, by which the amount so paid by Buyer
at Closing exceeds such Title Benefit Value, or (ii) Buyer shall pay to
Seller the amount, if any, by which such Title Benefit Value exceeds the amount
so paid by Buyer at Closing.

           

          
            
              
              

            

            
              19

              
                

              

            

            
              
              

            

          

           

          Section
4.09                      Environmental
Review.  Buyer may conduct an environmental assessment of the
Assets prior to the expiration of the Title Claim Date, subject to the
following:

           

          (a)           Buyer
shall have the right to conduct a Phase I (as that term is defined by the
American Society for Testing and Materials) environmental review of the Assets
prior to the expiration of the Examination Period (“Buyer’s Environmental
Review”) and Seller shall provide to Buyer a copy of any environmental
review Seller has in its possession subject to the same terms of confidentiality
subsequently set forth herein;

           

          (i)           The
cost and expense of Buyer’s Environmental Review shall be borne solely by
Buyer;

           

          (ii)           All
inspections must be coordinated through a designated representative of Seller
who may accompany Buyer during the course of Buyer’s inspection of the
Assets;

           

          (iii)           All
environmental assessments shall be conducted by an independent environmental
consultant engaged by Buyer at Buyer’s expense;

           

          (iv)           Buyer
shall give Seller notice not more than seven (7) days and not less than forty
eight (48) hours before any visits by Buyer and/or its consultant to the Assets,
and Buyer shall seek and obtain Seller’s prior consent (which shall not be
unreasonably withheld) before either it or its consultant enters the
Assets;

           

          (v)           Buyer
shall provide Seller a copy of the Phase I report affecting the Assets promptly
after Buyer’s receipt of the same;

           

          (vi)           Buyer
shall give Seller prompt written notice and obtain Seller’s prior written
consent (not to be unreasonably withheld) if Buyer desires to conduct a Phase II
(as that term is defined by the American Society for Testing and Materials)
study based on the recommendations of Buyer’s independent environmental
consultant (acting reasonably) with respect to the Assets.  With
respect to any samples taken in connection with Buyer’s Environmental Review,
Buyer shall take split samples, providing one of each such sample, properly
labeled and identified, to Seller;

           

          
            
              
              

            

            
              20

              
                

              

            

            
              
              

            

          

           

          (vii)           Buyer
and/or its consultant shall perform all such work in a safe and workmanlike
manner, shall not unreasonably interfere with Seller’s operations, and shall
comply with all Laws of applicable Governmental Authorities;

           

          (viii)           Buyer
shall be primarily responsible for obtaining any third party consents that are
required in order to perform any work comprising Buyer’s Environmental Review,
and Buyer shall consult with Seller prior to requesting each such third party
consent;  provided, however, that Seller shall cooperate with Buyer
(at no out of pocket cost to Seller) in Buyer’s efforts to obtain any third
party consents required to perform any work comprising Buyer’s Environmental
Review; and

           

          (ix)           Buyer
hereby agrees to release and defend, indemnify and hold harmless Seller and
Seller’s Representatives from and against all Claims made by (or attributable to
the acts or omissions of) Buyer or Buyer’s Representatives (INCLUDING THOSE RESULTING FROM THE
SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT OF SELLER OR ANY OF SELLER’S
REPRESENTATIVES) arising out of or
relating to Buyer’s Environmental Review. The release and indemnity provisions
of this 
Section 4.09
shall survive termination or Closing of this Agreement notwithstanding anything
to the contrary provided for in this Agreement.

           

          (b)           Unless
otherwise required by applicable Laws, Buyer shall treat any matters revealed by
Buyer’s Environmental Review and any environmental review provided by Seller to
Buyer, including any analyses, compilations, studies, documents, reports, or
data prepared or generated from such review (the “Environmental
Information”), as confidential, and, except as provided below, Buyer
shall not disclose any Environmental 

           

          
            
              
              

            

            
              21

              
                

              

            

            
              
              

            

          

           

          Information
to any Governmental Authority or other third party without the prior written
consent of Seller. Buyer may use the Environmental Information only in
connection with the transactions contemplated by this Agreement. The
Environmental Information shall be disclosed by Buyer to only those persons who
need to know the Environmental Information for purposes of evaluating the
transaction contemplated by this Agreement, and who agree to be bound by the
terms of this 
Section 4.09. If
Buyer or any third party to whom Buyer has provided any Environmental
Information is requested, compelled, or required to disclose any of the
Environmental Information, Buyer shall provide Seller with prompt notice
sufficiently prior to any such disclosure so as to allow Seller to file for any
protective order, or seek any other remedy, as it deems appropriate under the
circumstances. If this Agreement is terminated prior to the Closing, upon
Seller’s request Buyer shall deliver the Environmental Information, and all
copies thereof and works based thereon, to Seller, which Environmental
Information shall become the sole property of Seller. Upon request, Buyer shall
provide copies of the Environmental Information to Seller without charge. The
terms and provisions of this 
Section 4.09(b)
shall survive any termination of this Agreement, notwithstanding anything to the
contrary.

           

          Section
4.10                      Definitions Used in

Article 4 and in this
Agreement.

           

          (a)           Environmental
Defects. The term “Environmental Defect”
shall mean, with respect to any given Asset, a violation of Environmental Laws
in effect as of the Effective Time in the jurisdiction in which such Asset is
located.  For the purpose of determining whether or not the
Environmental Defect Value threshold for a given Environmental Defect has been
met as required in Section 4.14(a), all
Environmental Defects affecting any particular Well or any discrete Facility may
be aggregated into a single Environmental Defect.  It is not intended
that this aggregation concept shall apply to the entirety of any particular Unit
described in Exhibit
D.

           

          (b)           Governmental
Authority. The term “Governmental
Authority” shall mean the United States and any state, county, city, and
political subdivisions that exercises jurisdiction, and any agency, department,
board, commission, or other instrumentality thereof.

           

          
            
              
              

            

            
              22

              
                

              

            

            
              
              

            

          

           

          (c)           Environmental Laws.
The term “Environmental Laws”
shall mean any and all laws, statutes, ordinances, rules, regulations, or orders
of any Governmental Authority pertaining to health and natural resources (but
excluding laws, orders, rules, and regulations that pertain to the prevention of
waste or the protection of correlative rights) and the protection of wildlife or
the environment including, without limitation, the Clean Air Act, as amended,
the Clean Water Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980, as amended (“CERCLA”), the Federal
Water Pollution Control Act, as amended, the Resource Conservation and Recovery
Act of 1976, as amended (“RCRA”), the Safe
Drinking Water Act, as amended, the Toxic Substances Control Act, as amended,
the Hazardous & Solid Waste Amendments Act of 1984, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, the Oil Pollution Act of 1990 (“OPA”), any state laws
implementing the foregoing federal laws, and any state laws pertaining to the
handling of oil and gas exploration and production wastes or the use,
maintenance, and closure of pits and impoundments, and all other environmental
conservation or protection laws in effect as of the date hereof which are
applicable to the Assets.  For purposes of this Agreement, the terms
“hazardous substance,” “release,” and “disposal” have the meanings specified in
the applicable Environmental Laws as in effect as of the date
hereof.

           

          (d)           Environmental Defect
Value. For purposes of this Agreement, the term “Environmental Defect
Value” shall mean, with respect to any Environmental Defect, the
estimated costs and expenses net to Seller’s interest in the affected portion of
the Assets to correct and/or remediate such Environmental Defect in the most
cost effective manner reasonably available, consistent with Environmental Laws,
taking into account that non-permanent remedies (such as, by way of example but
not by limitation or similarity, mechanisms to contain or stabilize hazardous
materials, including monitoring site conditions, natural attenuation, risk-based
corrective action, institutional controls, or other appropriate restrictions on
the use of property, caps, dikes, encapsulation, leachate collection systems,
etc.) may be the most cost effective manner reasonably available.

           

          Section
4.11                      Notice of Environmental
Defects.  Buyer shall provide Seller notice of all
Environmental Defects no later than 5:00 p.m. MST on the date which is seven (7)
days prior to the Closing Date. To be effective, such notice must (a) be in
writing, (b) be received by Seller prior to the expiration of the Examination
Period, (c) describe the Environmental Defect in reasonable detail, including
the written conclusion of Buyer that an Environmental Defect exists, which
conclusion shall 

           

          
            
              
              

            

            
              23

              
                

              

            

            
              
              

            

          

           

          be
reasonably substantiated by the factual data gathered in Buyer’s Environmental
Review, (d) identify the specific Assets affected by such Environmental Defect,
(e) set forth the procedures recommended to correct the Environmental Defect,
(f) set forth Buyer’s reasonable good faith estimate of the Environmental Defect
Value, including the basis for such estimate, and (g) comply with the
Environmental Defect Value provisions of 
Section 4.14. Any
matters that may otherwise constitute Environmental Defects, but of which Seller
has not been specifically notified by Buyer in accordance with the foregoing,
together with any environmental matter that does not constitute an Environmental
Defect, shall be deemed to have been waived by Buyer for all purposes and
constitute an Assumed Obligation. Upon receipt of notices of Environmental
Defects, the Parties shall meet and determine upon which of the Environmental
Defects, Environmental Defect Values, and methods of correction the Parties have
reached agreement. Upon the receipt of such effective notice from Buyer, Seller
shall have the option, but not the obligation, to attempt to correct such
Environmental Defect during a period expiring ninety (90) days after Closing. If
Seller should not elect to correct an Environmental Defect, and no aspect of
such defect is in dispute, the Purchase Price shall, subject to Section 4.14, be
adjusted for such defect by the amount of the Environmental Defect
Value.

           

          Section
4.12                      Remedies for Environmental
Defects.

           

          (a)           If,
as of the Closing Date, the Assets are affected by an uncured or otherwise
unresolved Environmental Defect noticed pursuant to the provisions of 
Section 4.11, the
affected portion of the Assets shall not be sold, transferred, or conveyed to
Buyer at Closing, and the Purchase Price shall, subject to the terms of 
Section 4.14, be
decreased by the Allocated Value of the portion of the Assets so
affected.  Thereafter, Buyer and Seller shall act reasonably and in
good faith either (i) to agree (y) as to the manner of cure for such
Environmental Defect or (z) the value of such Environmental Defect and adjust
the Final Settlement Statement in the amount thereof net of any Purchase Price
adjustment made at Closing, in which event the affected portion of the Assets
shall be conveyed to Buyer; provided that if option (y) is agreed to, no
assignment of the affected portion of the Assets shall be made as between Seller
and Buyer until such agreed cure is accomplished to Buyer’s reasonable
satisfaction whereupon the Allocated Value previously deducted from the Purchase
Price shall be paid to Seller, or (ii) with respect to any Environmental Defect
as to which the Parties are unable to agree within 30 days of Closing as to the
validity of the Environmental Defect, the Environmental Defect Value, or the
manner of correction, submit such matter to be determined by an Independent
Expert pursuant to Section
4.13.

           

          
            
              
              

            

            
              24

              
                

              

            

            
              
              

            

          

           

          (b)           With
respect to any Asset which is not sold, transferred, or conveyed to Buyer at the
Closing pursuant to the terms of 
Section 4.12(a),
after the Closing and at such time as any Environmental Defect Value or the
manner of correction for an Environmental Defect is determined and, in either
event, the amount thereof is determined to be less than the Allocated Value for
the affected portion of the Assets, Seller shall have the right (i) in the
case of an Environmental Defect Value determination, to have the Purchase Price
reduced by only the Environmental Defect Value as so determined or (ii) in
the case of the cure determination, to elect to cure the Environmental Defect to
Buyer’s reasonable satisfaction. The consequence of (i) shall be that Buyer
will pay to Seller an amount equal to the Allocated Value for the affected
Assets minus the Environmental Defect Value and the affected portion of the
Assets previously retained by Seller shall be conveyed to Buyer.  The
consequence of (ii) shall be that upon achieving Buyer’s written
acknowledgement that the Environmental Defect has been cured to its reasonable
satisfaction, the Allocated Value for such previously retained Asset shall be
paid to Seller and the affected portion of the Assets shall be conveyed to
Buyer.  If no Environmental Defect is determined to exist, Buyer shall
pay the Allocated Value attributable to the affected portion of the Assets to
Seller, and Seller shall convey the previously retained portion of the Assets to
Buyer.  If the Environmental Defect Value or the cost to cure an
Environmental Defect is determined to be greater than the Allocated Value of the
affected portion of the Assets, Seller shall retain the affected portion of the
Assets, and the Purchase Price shall be reduced by the Allocated Value
attributable to such portion of the Assets.

           

          Section
4.13                      Independent
Experts.

           

          (a)           Any
disputes regarding Title Defects, Title Benefits, Environmental Defects, Title
Defect Value, Title Benefit Value, Environmental Defect Value, appropriate cure
of any Title Defects or correction of any Environmental Defects, and the
calculation of the Statement or the Final Settlement Statement, or revisions
thereto, may, subject to the provisions of 
Section 4.04, 
Section 4.12, and

Section 4.14, be
submitted by a Party, with written notice to the other Party, to an independent
expert (the “Independent Expert”),
who shall serve as the sole and exclusive arbitrator of any such dispute. The
Independent Expert shall be selected by the Parties (acting reasonably and in
good faith) within fifteen (15) days following the effective date of said
notice. The Independent Expert shall be a person who is independent, impartial,
and knowledgeable in the subject matter and substantive laws
involved.  For example, but not by way of limitation, in the case of a
dispute concerning an alleged Environmental Defect, Environmental Defect Value,
or cure of the same, the Independent Expert shall have expertise in both the
applicable Environmental Laws and environmental science relating to the oil and
gas industry.

           

          
            
              
              

            

            
              25

              
                

              

            

            
              
              

            

          

           

          (b)           The
Parties shall determine, acting in good faith, the procedures to be followed to
facilitate the decision of the Independent Expert. Such procedures shall include
the following scenario:

           

          (i)           If
the dispute involves the method or adequacy of cure or correction of a Title
Defect or Environmental Defect, the Independent Expert shall provide in writing
the particulars necessary to cure or correct or to remedy any such Title Defect
or Environmental Defect, and shall provide Seller sixty (60) days (or such
additional time as reasonable and necessary under the circumstances, but not to
exceed 90 days unless specifically agreed to in writing by Seller and Buyer) to
effect such cure or correction; and

           

          (ii)           In
the event of circumstances described in clause (i) above, Seller at its option
may at any time during the sixty (60) day cure period pursuant to clause (i) (as
such period may be extended pursuant to such clause) decline to cure or correct
the applicable defect.

           

          (c)           If
the Parties fail to select an Independent Expert within the 15-day period
referred to in 
Section 4.13(a)
above, within three (3) days thereafter, each of Buyer and Seller shall choose
an Independent Expert meeting the qualifications set forth above, and such
experts shall promptly choose a third Independent Expert (meeting the
qualifications provided for herein) who alone shall resolve the disputes between
the Parties. Each Party shall bear its own costs and expenses incurred in
connection with any such proceeding, and one-half (1/2) of the costs and
expenses of the Independent Expert.

           

          
            
              
              

            

            
              26

              
                

              

            

            
              
              

            

          

           

          (d)           Disputes
to be resolved by an Independent Expert shall be resolved in accordance with
mutually agreed procedures and rules and failing such agreement, in accordance
with the rules and procedures for non-administered arbitration set forth in the
commercial arbitration rules of the American Arbitration
Association.  The Independent Expert shall be instructed by the
Parties to resolve such dispute as soon as reasonably practicable in light of
the circumstances using the terms and provisions of this Agreement with respect
to title and environmental matters. The decision and award of the Independent
Expert shall be binding upon the Parties and shall be final and nonappealable to
the maximum extent permitted by Laws or Environmental Laws, as applicable, and
judgment thereon may be entered in a court of competent jurisdiction and
enforced by any Party as a final judgment of such court.

           

          (e)           All
proceedings under this 
Section 4.13
shall be conducted at a mutually agreed location, or if Buyer and Seller acting
reasonably do not mutually agree upon a location for such proceeding, the
proceeding shall be conducted in Denver, Colorado.

           

          Section
4.14                      Limitation of Remedies For
Title Benefits, Title Defects and Environmental
Defects.  Notwithstanding anything to the contrary contained in
this Agreement,

           

          (a)           if
the Title Defect Value for a given Title Defect, or the Title Benefit Value of a
given Title Benefit, in each case as determined pursuant to this 
Article 4 does
not exceed Ten Thousand Dollars ($10,000), or if the Environmental Defect Value
for a given Environmental Defect, as determined pursuant to this 
Article 4 does
not exceed Ten Thousand Dollars ($10,000), such Title Defect, Title Benefit, or
Environmental Defect shall not qualify for either a Purchase Price adjustment,
cure, or correction of such defect, nor shall it be included in the calculation
of subparagraphs (b), (c), (d), or (e) below;

           

          (b)           if
the aggregate net value of all Title Defects and Title Benefits does not exceed
Five Hundred Thousand Dollars ($500,000) (prior to any adjustments thereto),
then no adjustment of the Purchase Price shall be made therefor;

           

          (c)           if
the aggregate net value of all Title Defects and Title Benefits exceeds Five
Hundred Thousand Dollars ($500,000) (prior to any adjustments thereto), then the
Purchase Price shall be adjusted by the entire amount of such aggregate net
value, it being understood that this amount is a threshold and not a
deductible;

           

          
            
              
              

            

            
              27

              
                

              

            

            
              
              

            

          

           

          (d)           if
the aggregate value of all Environmental Defects does not exceed Five Hundred
Thousand Dollars ($500,000) (prior to any adjustments thereto), then no
adjustment of the Purchase Price shall be made therefor; and

           

          (e)           if
the aggregate value of all Environmental Defects exceeds Five Hundred Thousand
Dollars ($500,000) (prior to any adjustments thereto), then the Purchase Price
shall be adjusted by the entire amount of such aggregate value, it being
understood that this amount is a threshold and not a deductible.

           

          All Title
Defects and Environmental Defects asserted by Buyer pursuant to this 
Article 4 after
being resolved in accordance with this 
Article 4 shall
thereafter constitute Permitted Encumbrances and Assumed Obligations, whether or
not an adjustment to the Purchase Price is made with respect thereto in
accordance with this 
Article
4.

           

          Section
4.15                      DISCLAIMER AND
WAIVER.  EXCEPT AS SET
FORTH IN THIS AGREEMENT, SELLER DOES NOT MAKE ANY, AND EXPRESSLY DISCLAIMS ALL
REPRESENTATIONS OR WARRANTIES, AND BUYER EXPRESSLY DISCLAIMS ANY SUCH
REPRESENTATION OR WARRANTIES, AS TO THE ACCURACY OR COMPLETENESS OF ANY FILE
AND/OR OTHER INFORMATION, INCLUDING, PRINTOUTS, EXTRAPOLATIONS, PROJECTIONS,
DOCUMENTATION, MAPS, GRAPHS, CHARTS, OR TABLES WHICH REFLECT, DEPICT, PRESENT,
PORTRAY, OR WHICH ARE BASED UPON OR DERIVED FROM ANY SUCH INFORMATION AND/OR
FILES, INCLUDING MATTERS OF GEOLOGICAL, GEOPHYSICAL, ENGINEERING, OR OTHER
SCIENTIFIC INFORMATION THAT MAY BE PROVIDED TO BUYER BY SELLER OR BY OTHERS ON
BEHALF OF SELLER. BUYER EXPRESSLY AGREES THAT ANY CONCLUSIONS DRAWN FROM REVIEW
OF SUCH INFORMATION AND/OR FILES SHALL BE THE RESULT OF ITS OWN INDEPENDENT
REVIEW AND JUDGMENT.

           

          ARTICLE
5

           

          


           

          REPRESENTATIONS
AND WARRANTIES OF SELLER

           

          Seller
represents and warrants to Buyer that:

           

          
            
              
              

            

            
              28

              
                

              

            

            
              
              

            

          

           

          Section
5.01                      Existence.  Seller
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Seller has full legal power, right, and is
authorized to do business and is in good standing in, the State or States in
which the Assets are located.

           

          Section
5.02                      Legal
Power.  Seller has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement will not
violate, or be in conflict with:

           

          (a)           any
provision of Seller’s articles of incorporation, bylaws, and other governing
documents;

           

          (b)           except
for provisions customarily contained in oil and gas agreements relating to
maintenance of uniform interest, preferential purchase rights, and consents to
assignment, any material agreement or instrument to which Seller is a party or
by which Seller or the Assets are bound; or

           

          (c)           any
judgment, order, ruling, or decree applicable to Seller as a party in interest
or any law, rule, or regulation applicable to Seller.

           

          Section
5.03                      Execution.  The
execution, delivery, and performance of this Agreement and the transactions
contemplated hereby are duly and validly authorized by all requisite corporate
action on the part of Seller as required under its formation documents. This
Agreement constitutes the legal, valid, and binding obligation of Seller
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, or other laws relating to or affecting the rights of
creditors generally, and by general equitable principles.

           

          Section
5.04                      Brokers.  No
broker or finder is entitled to any brokerage or finder’s fee, or to any
commission, based in any way on agreements, arrangements, or understandings made
by or on behalf of Seller or any affiliate of Seller for which Buyer has or will
have any liabilities or obligations (contingent or otherwise).

           

          Section
5.05                      Bankruptcy.  There
are no bankruptcy, reorganization, or arrangement proceedings pending, being
contemplated by or to the knowledge of Seller threatened against
Seller.  Seller is not “insolvent” as such term is defined under the
Federal Bankruptcy Code or any fraudulent transfer or fraudulent conveyance
statute applicable to the transactions contemplated by this
Agreement.

           

          
            
              
              

            

            
              29

              
                

              

            

            
              
              

            

          

           

          Section
5.06                      Suits and
Claims.  Except as set forth in Schedule 5.06,
there is no litigation or Claims that have been filed by any person or entity or
by any administrative agency or Governmental Authority in any legal,
administrative, or arbitration proceeding or, to Seller’s knowledge, threatened
against Seller or the Assets that would impede Seller’s ability to consummate
the transactions contemplated herein or would have a material and adverse effect
on the Assets.

           

          Section
5.07                      Taxes.  During
the period of Seller’s ownership of the Assets up to and including the Effective
Time, Seller has caused to be timely filed all material Tax returns relating to
the Assets.  Seller has paid or caused to be paid all ad valorem,
property, production, severance, mineral documentary, and similar Taxes based
upon or measured by its ownership of or the production of Hydrocarbons from the
Assets.  Seller has not received written notice of any pending Claim
against Seller from any applicable taxing authority for assessment of Taxes with
respect to the Assets.  There are no audits of Seller by any
applicable taxing authority with respect to Taxes attributable to the
Assets.  Except for statutory liens for property Taxes and ad valorem
Taxes, there are no tax liens on or with respect to the Assets.

           

          Section
5.08                      AFEs.  Except
as set forth on Schedule 5.08, there
are no outstanding authorizations for expenditures or other capital commitments
which are binding on the Assets and which individually would require the owner
of the Assets after the Effective Time to expend monies in excess of Fifty
Thousand Dollars ($50,000).

           

          Section
5.09                      Compliance with
Laws.  Seller’s operation (i.e., where Seller is
operator of record) of the Assets has been in compliance with Laws where
noncompliance with such Laws would have a Material Adverse Effect on the
Assets.

           

          Section
5.10                      Contracts.  Seller
is not in Breach of any of the Contracts and to Seller’s knowledge, the
Contracts are in full force and effect in accordance with their terms, and, to
the knowledge of Seller, no other party to any of the Contracts is in Breach
thereof.

           

          Section
5.11                      Production
Imbalances.  Except as set forth in Schedule 1.02(g) and
subject to the provisions of Section 3.02(b), to
Seller’s knowledge, there are no material Production Imbalances as of the
Effective Time as to any of the Subject Interests.

           

          Section
5.12                      Royalties; Payments for
Production.  Seller has not been and is not in Breach of any
payment obligations under any of the Leases.  Seller is not obligated


           

          
            
              
              

            

            
              30

              
                

              

            

            
              
              

            

          

           

          by virtue
of a take or pay payment, call, advance payment, production payment, or other
similar payment or obligation (other than royalties, overriding royalties, or
similar arrangements that do not cause Seller’s NRI to be less than that set
forth on Exhibit
D), to deliver Hydrocarbons, or proceeds from the sale thereof,
attributable to the Leases at some future time without receiving payment
therefor at or after the time of delivery at the then market price or price
called for by an applicable production sales agreement, and no take or pay
credits must be provided before natural gas can be transported through any
interstate carrier under FERC Order 500, et al, and there are no obligations on
the Assets under FERC Order 451.

           

          Section
5.13                      Insurance.  Seller
maintains, and through the Closing will maintain, with respect to the Assets,
the insurance coverage pertaining to the Assets as it currently
maintains.  This includes traditional third party liability and
operator’s extra expense coverage.  Buyer understands and accepts the
fact that Seller does not carry property damage insurance pertaining to the
Assets.

           

          Section
5.14                      Plugging
Obligations.  Except for wells listed in Schedule 5.14, there
are no dry holes, shut in, or otherwise inactive wells, located on the Assets or
lands pooled, communitized, or unitized therewith that Seller has either the
obligation to plug and abandon in accordance with an applicable operating
agreement or Law or as to Wells for which Seller is not the operator, received a
written proposal to plug and abandon.

           

          Section
5.15                      Personal Property and
Equipment.  Seller is the owner of the Equipment free and clear
of all liens and encumbrances other than those to be released at
Closing.  Other than in connection with normal and customary prudent
operations, Seller has not removed any personal property, equipment, or fixtures
from the Wells, unless it has been replaced with personal property, equipment,
or fixtures of similar grade and utility.  Unless removed, repaired,
or replaced (a) with personal property, equipment, and fixtures of similar grade
and utility or (b) in connection with normal and customary prudent operations,
the personal property, equipment, and fixtures currently attendant to the Wells
was the equipment historically used by Seller on the Wells to produce the
Hydrocarbons prior to the execution of this Agreement.

           

          Section
5.16                      No
Alienation.  Within 120 days of the date hereof, Seller has not
voluntarily or involuntarily sold, assigned, conveyed, or transferred or
contracted to sell, assign, convey, or transfer any right or title to, or
interest in, the Assets other than (i) production sold in the ordinary course of
Seller’s business and (ii) equipment which was worthless, obsolete, or replaced
by equipment of equal suitability and value.

           

          
            
              
              

            

            
              31

              
                

              

            

            
              
              

            

          

           

          Section
5.17                      Hydrocarbon Sales
Contracts.  Except for the Hydrocarbon Sales Contracts listed
in Schedule
5.17, no Hydrocarbons are subject to a sales contract (other than
division orders or spot sales agreements terminable on no more than 30 days
notice) and no person has any call upon, option to purchase, or similar rights
with respect to the production from the Assets.  Proceeds from the
sale of oil, condensate, and gas from the Assets are being received in all
respects by Seller in a timely manner and are not being held in suspense for any
reason.

           

          Section
5.18                      Area of Mutual Interest and
Other Agreements.   No Asset is subject to (or has related
to it) any area of mutual interest agreements not disclosed in the Contracts or
any farm-out or farm-in agreement under which any party thereto is entitled to
receive assignments not yet made, or could earn additional assignments after the
Effective Time other than the Wells listed on Exhibit B as having
an after payout NRI.

           

          Section
5.19                      Leases.  The
Leases are in full force and effect.  Seller has not received a
written notice of termination of any of the Leases and Seller is not in Breach
or violation of any of the Leases; provided, however, that Buyer’s remedy for
Seller’s Breach of this representation and warranty shall be the Title Defect
mechanism set forth in 
Article
4.

           

          Section
5.20                      Property
Expenses.  In the ordinary course of business, Seller has paid
all property expenses attributable to the period of time prior to the Effective
Time as such property expenses become due, and such property expenses are being
paid in a timely manner before the same become delinquent, except such property
expenses as are disputed in good faith by Seller in a timely manner and for
which Seller shall retain responsibility.

           

          Section
5.21                      Governmental
Permits.  Except as set forth on Schedule 5.21, Seller
has all Permits (including, without limitation, permits, licenses, approval
registrations, notifications, exemptions, and any other authorizations pursuant
to Law) necessary or appropriate to own and operate the Assets as presently
being owned and operated.  The Permits are in full force and effect
and the Assets have been operated in accordance with the terms thereof in all
material respects.  Seller has not received notice (written or actual)
of any violations in respect of any of the Permits that remain
uncured.

           

          
            
              
              

            

            
              32

              
                

              

            

            
              
              

            

          

           

          Section
5.22                      No Adverse
Change.  With respect to the Assets for which Seller is the
operator and, to Seller’s knowledge with respect to the Assets for which Seller
is not the operator, since the time of the information provided in the data
room, the Assets have been operated in the ordinary course of business
consistent with past practices and there has been no event or series of events
that have either individually or in combination had a Material Adverse Effect on
the Assets.

           

          Section
5.23                      Information.  The
information pertaining to revenue and expenses attributable to the Assets that
Seller has furnished to Buyer (the “Information”) is (a)
accurate in all material respects to the extent relating to the period of
Seller’s ownership of the Assets and (b) to the knowledge of Seller, accurate in
all material respects to the extent relating to any period of ownership of the
Assets prior to the time owned by Seller reflected in the
Information.  Seller has no data in its possession that it has failed
to furnish that would cause the Information to be materially
inaccurate.  Except as specifically set forth in this 
Section 5.23,
Seller makes no representations regarding the accuracy of any of the Records;
provided, however, Seller does represent that (i) all of the Records are files,
or copies thereof, that Seller has used in the ordinary course of operating and
owning the Assets, (ii) Seller has not intentionally withheld any material
information from the Records, and (iii) Seller has not knowingly misrepresented
any material information in the Records.  Except as set forth in this

Section 5.23, no
representation or warranty of any kind is made by Seller as to the Information
or with respect to the Assets to which the Information relates and Buyer
expressly agrees that any conclusions drawn therefrom shall be the result of its
own independent review and judgment.  The representations and
warranties contained in this paragraph shall apply only to matters of fact, and
shall not apply to any information, data, printouts, extrapolations,
projections, documentation, maps, graphs, charts, or tables which reflect,
depict, present, portray, or represent, or which are based upon or derived from,
in whole or in part, interpretation of the Information including, but not
limited to, matters of geological, geophysical, engineering, or scientific
interpretation.

           

          Section
5.24                      Representations and
Warranties Exclusive.  All representations and warranties
contained in this 
Article 5 are
exclusive, and are given in lieu of all other representations and warranties,
express, implied, or statutory.

           

          
            
              
              

            

            
              33

              
                

              

            

            
              
              

            

          

           

          ARTICLE
6

           

          


           

          REPRESENTATIONS
AND WARRANTIES OF BUYER

           

          Buyer
represents and warrants to Seller that:

           

          Section
6.01                      Existence.  Buyer
is a limited partnership duly formed, organized, validly existing, and in good
standing under the laws of the state of its formation.  Buyer has full
legal power, right, and authority to carry on its business as such is now being
conducted.  As of the Closing Date, Buyer will be authorized to do
business in and shall be in good standing in the State or States in which the
Assets are located.

           

          Section
6.02                      Legal
Power.  Buyer has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement does not and
will not violate, or be in conflict with:

           

          (a)           any
provision of Buyer’s formation documents or other governing
documents;

           

          (b)           any
material agreement or instrument to which Buyer is a party or by which Buyer or
its assets are bound; or

           

          (c)           any
judgment, order, ruling, or decree applicable to Buyer as a party in interest or
any law, rule, or regulation applicable to Buyer.

           

          Section
6.03                      Execution.  The
execution, delivery, and performance of this Agreement and the transactions
contemplated hereby are duly and validly authorized by all requisite
organizational action on the part of Buyer. This Agreement constitutes the
legal, valid, and binding obligation of Buyer enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency, or other
laws relating to or affecting the rights of creditors generally, and by general
equitable principles.

           

          Section
6.04                      Brokers.  No
broker or finder is entitled to any brokerage or finder’s fee, or to any
commission, based in any way on agreements, arrangements, or understandings made
by or on behalf of Buyer or any affiliate of Buyer for which Seller has or will
have any liabilities or obligations (contingent or otherwise).

           

          
            
              
              

            

            
              34

              
                

              

            

            
              
              

            

          

           

          Section
6.05                      Bankruptcy.  There
are no bankruptcy, reorganization, or arrangement proceedings pending, being
contemplated by or to the knowledge of Buyer threatened against Buyer or any
affiliate of Buyer.

           

          Section
6.06                      Suits and
Claims.  There is no Claim by any person or entity or by any
administrative agency or Governmental Authority and no legal, administrative, or
arbitration proceeding pending or, to Buyer’s knowledge, threatened against
Buyer or any affiliate of Buyer that is reasonably likely to have a material
effect on Buyer’s ability to consummate the transactions contemplated
herein.

           

          Section
6.07                      Independent
Evaluation.  Buyer acknowledges that it is an experienced and
knowledgeable investor in the oil and gas business, and the business of
purchasing, owning, developing, and operating oil and gas properties such as the
Assets. If Closing occurs, Buyer represents, warrants, and acknowledges to
Seller that it has had full access to the Assets, the officers and employees of
Seller, and to the books, records, and files of Seller relating to the Assets.
In making the decision to enter into this Agreement and to consummate the
transactions contemplated hereby, Buyer has relied solely upon the
representations, warranties, covenants, and agreements of Buyer and Seller set
forth in this Agreement and Buyer’s own independent due diligence and
investigation of the Assets, and has been advised by and has relied solely on
its own expertise and its own legal, tax, operations, environmental, reservoir
engineering, and other professional counsel and advisors concerning this
transaction, the Assets and the value thereof. In addition, Buyer acknowledges
and agrees that Buyer will be or has been advised by and relies solely on its
own expertise, and its legal counsel and any advisors or experts concerning
matters relating to Title Defects, Title Benefits, and Environmental
Defects.

           

          Section
6.08                      Qualification.  As
of the Closing, the Buyer shall be, and thereafter shall continue to be,
qualified with all applicable Governmental Authorities to own and operate the
Assets, including meeting all bonding requirements.

           

          Section
6.09                      Securities
Laws.  Buyer is acquiring the Assets for its own account or
that of its affiliates and not with a view to, or for offer of resale in
connection with, a distribution thereof, within the meaning of the Securities
Act of 1933, 15 U.S.C. § 77a et seq., and any other rules,
regulations, and laws pertaining to the distribution of securities. Buyer has
not sought or solicited, nor is Buyer participating with, investors, partners,
or other third parties other than its lenders in order to fund the Purchase
Price and to close this transaction, and all funds to be used by Buyer in
connection with this transaction are Buyer’s own funds or those borrowed from
its lenders.

           

          
            
              
              

            

            
              35

              
                

              

            

            
              
              

            

          

           

          Section
6.10                      No Investment
Company.  Buyer is not (a) an investment company or a company
controlled by an investment company within the meaning of the Investment Company
Act of 1940, as amended, or (b) subject in any respect to the provisions of that
Act.

           

          Section
6.11                      Funds.  Buyer
has arranged to have available by the Closing Date immediately available funds
to enable Buyer to pay in full the Purchase Price as herein provided and
otherwise to perform its obligations under this Agreement.

           

          Section
6.12                      Notice of
Changes.  Promptly upon its discovery or identification of
same, but in any event prior to Closing, Buyer shall provide to Seller written
notice of any matter it so identifies that has a material effect on any of
Seller’s representations or warranties under this Agreement, or rendering any
such warranty or representation untrue or inaccurate.

           

          Section
6.13                      Representations and
Warranties Exclusive.  All representations and warranties
contained in this Agreement and the documents delivered in connection herewith,
are exclusive, and are given in lieu of all other representations and
warranties, express, implied, or statutory.

           

          ARTICLE
7

           

          


           

          OPERATION
OF THE ASSETS

           

          Section
7.01                      Operation of the
Assets.

           

          (a)           From
and after the date of execution of this Agreement, and subject to the provisions
of applicable operating and other agreements, Seller shall (i) use its
reasonable efforts during the period prior to the Closing, to operate and
administer the Assets in a manner consistent with its past practices,
(ii) make payment of all costs and expenses attributable to the ownership
or operation of the Assets and relating to the period prior to the transfer of
operations to Buyer, and shall carry on its business with respect to the Assets
in substantially the same manner as before execution of this Agreement,
(iii) not, without Buyer’s express written consent, commit to participate
in the drilling of any well, or make or enter into any other commitments
reasonably anticipated to require future capital expenditures by Buyer in excess
of $50,000 net to Seller’s interest for each proposed 

           

          
            
              
              

            

            
              36

              
                

              

            

            
              
              

            

          

           

          operation,
or terminate, materially amend, or extend any Contracts affecting the Assets, or
enter into or commit to enter into any new material contract or agreement
relating to the Assets, or settle, compromise, or waive any material right
relating to the Assets, (iv) maintain insurance coverage on the Assets in
the amounts and of the types presently in force, (v) maintain in full force
and effect the Leases, the Surface Agreements, and other Assets, and pay all
costs and expenses and perform all material obligations of the owner of the
Assets promptly when due, (vi) maintain all Permits, (vii) not
transfer, sell, hypothecate, encumber, or otherwise dispose of any Assets except
for sales and dispositions of Hydrocarbons made in the ordinary course of
business consistent with Seller’s past practices, (viii) not grant or
create any preferential right to purchase, right of first opportunity, or other
transfer restriction or requirement with respect to the Assets except in
connection with the renewal or extension of Assets after the Effective Time if
granting or creating such right or requirement is a condition of such renewal or
extension and then with prompt written notice of such action to Buyer,
(ix) not elect to become a nonconsenting party in any operation proposed by
any other Person with respect to the Assets unless requested to do so in writing
by Buyer, (x) maintain the Equipment in at least as good a condition as it
is on the date hereof, ordinary wear and tear excepted, (xi) not make any
change in any method of accounting or accounting practice or policy with respect
to the Assets, and (xii) not agree to extend any statute of limitations
with respect to Taxes or any extension of time with respect to a Tax assessment
or deficiency for any Taxes, or make any change in any Tax elections with
respect to the Assets.

           

          (b)           Buyer
acknowledges that Seller owns undivided interests in some or all of the Assets,
and Buyer agrees that the acts or omissions of the other working interests
owners shall not constitute a violation of the provisions of this 
Article 7, nor
shall any action required by a vote of working interest owners constitute such a
violation so long as Seller has voted its interests in a manner that complies
with the provisions of this 
Article 7. Seller
will, without penalty for the failure to do so except to the extent that the
failure to give Buyer such notice has a Material Adverse Effect, notify Buyer of
the occurrence of such event to the extent of Seller’s knowledge.

           

          (c)           Promptly
upon its discovery or identification of same, but in any event prior to Closing,
Seller shall provide Buyer written notice of any matter Seller identifies that
has a material adverse effect on or that constitutes a Breach of Seller’s
representations or warranties under this Agreement.

           

          
            
              
              

            

            
              37

              
                

              

            

            
              
              

            

          

           

          Section
7.02                      Buyer’s
Qualification.  At Closing, Buyer (or Buyer’s designee as
contract operator) shall be qualified and shall meet all requirements, including
bonding requirements, to be designated operator of that portion of the Assets
for which Seller serves as operator.

           

          Section
7.03                      Operation of the Assets
after the Closing.

           

          (a)           Seller
shall not be obligated to continue operating any of the Assets following the
Closing, and, subject to Seller’s retention of the Retained Liabilities, Buyer
hereby assumes full responsibility for operating (or causing the operation of)
all Assets following the Closing for which Seller is the operator prior to the
Closing Date. Seller shall make its employees and contractors available to Buyer
prior to the Closing as may be reasonably necessary to assist in the transition
if Buyer becomes the operator. Seller does not warrant or guarantee that Buyer
will become the operator of the Assets or any portion thereof, as such matter
will be controlled by the applicable joint operating agreement(s) and other
applicable agreement(s). Without implying any obligation on Seller’s part to
continue operating any Assets after the Closing, if Seller elects, at its sole
option, to continue to operate any Assets following the Closing at the request
of Buyer, or by any third party working interest owner due to constraints of
applicable joint operating agreement(s) and other applicable agreement(s),
failure of a successor operator to take over operations, or for other reasonable
cause, such continued operation by Seller shall be for the account of Buyer, and
at the sole risk, cost, and expense of Buyer. Buyer agrees to release and
defend, indemnify and hold Seller and its Representatives harmless from Claims,
including any Claims of Buyer or its affiliates or successors and assigns
relating in any manner directly or indirectly to the operation of the Assets
after Closing (INCLUDING THOSE
CLAIMS RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT OF
SELLER OR ANY OF SELLER’S REPRESENTATIVES).

           

          (b)           Any
conduct of operations of the Assets by Seller on behalf of Buyer after Closing
shall be conducted pursuant to a transition services agreement or other contract
operating agreement to be separately negotiated 

           

          
            
              
              

            

            
              38

              
                

              

            

            
              
              

            

          

           

          by and
between Buyer and Seller, which agreement shall provide for reimbursement to
Seller for any monies expended on Buyer’s behalf and shall further compensate
Seller for all general and administrative overhead incurred by Seller in
connection with the conduct of operations undertaken pursuant to such
agreement.  This agreement shall provide the services that Seller
shall provide and such may be of an operational nature or may be limited to
accounting, distribution, and/or reporting services, all as the Parties shall
agree in such subsequent agreement.  In the event Seller transfers
operations to Buyer or its designee between the first and last day of a calendar
month, Seller shall be paid such amount of the general and administrative
overhead prorated over the number of days in which Seller conducted operations
for such month.

           

          Section
7.04                      Post Closing Accounting by
Seller.  In the event Seller agrees to operate the Assets after
Closing, and unless otherwise agreed to by the Parties, Seller shall perform the
following accounting tasks subject to the limitations provide for
herein:

           

          (a)           Seller
will continue to pay royalties and severance, production, and similar Taxes for
sales through the production month following the month in which Closing occurs
(“Post-Closing
Production
Month”). If any revenue is received by Seller for later months, it will
be credited to Buyer in the Final Settlement Statement; provided however, Seller
shall not be obligated to and will not pay any royalties and severance,
production, and similar Taxes, if applicable, with respect to Hydrocarbons
produced after the Post-Closing Production Month.

           

          (b)           Seller
will continue to pay or bill joint interest owners for expenses through the
Post-Closing Production Month. All later expenses will be either accumulated or
charged to Buyer in the Final Settlement Statement, or the invoices will be
returned to the vendor for rebilling to Buyer.  Seller will continue
to pay to the operator of any Assets not operated by Seller the joint billings
for the billing month after the month in which Closing occurs.  All
subsequent bills will either be returned to the applicable operator for
rebilling to Buyer or forwarded to Buyer for payment, or if already paid by
Seller, will be charged against Buyer in the Final Settlement
Statement.  Seller will continue to prepare all regulatory and other
monthly production reports through the Post-Closing Production Month. Copies of
such reports attributable to the period after the Effective Time will be
provided to Buyer, along with the final ending inventory balance.

           

          
            
              
              

            

            
              39

              
                

              

            

            
              
              

            

          

           

          (c)           Seller
will continue to pay all shut-in royalties, minimum royalties, delay rentals,
and other lease payment obligations through the Post-Closing Production
Month.

           

          (d)           Seller
shall market and nominate all Hydrocarbons in the same manner as Seller has been
marketing and nominating Hydrocarbons.

           

          Section
7.05                      Limitations on Liability of
Operator.  Notwithstanding anything herein to the contrary, in
the event Seller or an affiliate of Seller should assume any accounting
functions on behalf of Buyer from and after Closing, Seller shall have no
liability to Buyer for, and Buyer hereby agrees to release and defend, indemnify
and hold Seller and Seller’s Representatives harmless from, the incorrect
payment of expenses, Taxes, billings, delay rentals, royalties, minimum
royalties, payments required by any of the Leases, shut-in royalties, or similar
payments, or for any failure to pay any such payments through mistake or
oversight (INCLUDING THOSE
RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY, OR OTHER LEGAL FAULT OF
SELLER OR ANY OF SELLER’S REPRESENTATIVES) from and after the
Effective Time, except to the extent of any amounts included in the upward
Purchase Price Allocations and Adjustment made pursuant to 
Section
10.02.  In no event shall Buyer’s remedy for Breach of
obligations by Seller (or any of its Representatives) under this 
Article 7 exceed
the Allocated Value of the portion of the Subject Interests affected by such
Breach.

           

          Section
7.06                      Public
Announcements. Prior to the Closing,
neither Party shall make any press release or other public announcement
regarding the existence of this Agreement, the contents hereof or the
transactions contemplated hereby without the express written consent of the
other Party; provided, however, the foregoing shall not restrict disclosures by
Buyer or Seller which are required by applicable securities or other Laws or the
applicable rules of any stock exchange having jurisdiction over the disclosing
Party or its Affiliates.  Following Closing, the Parties shall issue a
Press Release in form and substance to be agreed upon by the Parties prior to
the Closing, but again, the foregoing shall not restrict disclosures by Buyer or
Seller which are required by applicable securities or other Laws or the
applicable rules of any stock exchange having jurisdiction over the disclosing
Party or its Affiliates.

           

          
            
              
              

            

            
              40

              
                

              

            

            
              
              

            

          

           

          ARTICLE
8

           

          


           

          CONDITIONS
TO OBLIGATIONS OF SELLER

           

          The
obligations of Seller to consummate the transactions provided for herein are
subject, at the option of Seller, to the fulfillment on or prior to the Closing
Date of each of the following conditions:

           

          Section
8.01                      Representations.  The
representations and warranties of Buyer herein contained shall be true and
correct in all material respects on the Closing Date as though made on and as of
such date;

           

          Section
8.02                      Performance.  Buyer
shall have performed all material obligations, covenants, and agreements
contained in this Agreement to be performed or complied with by it at or prior
to the Closing and shall have taken the actions set forth in 
Section 10.08;
and

           

          Section
8.03                      Pending
Matters.  No suit, action, or other proceeding shall be pending
or threatened that seeks to, or could reasonably result in a judicial order,
judgment, or decree that would, restrain, enjoin, or otherwise prohibit the
consummation of the transactions contemplated by this Agreement.

           

          ARTICLE
9

           

          


           

          CONDITIONS
TO OBLIGATIONS OF BUYER

           

          The
obligations of Buyer to consummate the transaction provided for herein are
subject, at the option of Buyer, to the fulfillment on or prior to the Closing
Date of each of the following conditions:

           

          Section
9.01                      Representations.  (a)
The representations and warranties of Seller contained in Section 5.01 through

Section 5.06,
inclusive, shall be true and correct in all material respects on the Closing
Date as though made on and as of such date, and (b) no action or omission of
Seller or event shall have occurred during the period of time
commencing  upon the expiration of the Title Claim Date and ending on
the Closing Date which shall have caused any of the representations and
warranties of Seller contained in 
Section 5.07
through 
 Section 5.23,
inclusive, not to be true and correct in all material respects on the Closing
Date as though made on and as of such date;

           

          
            
              
              

            

            
              41

              
                

              

            

            
              
              

            

          

           

          Section
9.02                      Performance.  Seller
shall have performed all material obligations, covenants, and agreements
contained in this Agreement to be performed or complied with by it at or prior
to the Closing and shall have taken the actions set forth in 
Section
10.07;

           

          Section
9.03                      Pending
Matters.  No suit, action, or other proceeding shall be pending
or threatened that seeks to, or could reasonably result in a judicial order,
judgment, or decree that would, restrain, enjoin, or otherwise prohibit the
consummation of the transactions contemplated by this Agreement;
and

           

          Section
9.04                      Wachovia
Liens.  Seller shall have delivered to Buyer releases of all
Wachovia Liens and any other liens, charges, or encumbrances on the Assets other
than Permitted Encumbrances in form suitable for recording or filing (as
applicable) and such releases shall be reasonably satisfactory to
Buyer.

           

          ARTICLE
10

           

          


           

          THE
CLOSING

           

          Section
10.01                                Time and Place of the
Closing.  If the conditions referred to in 
Article 8 and
Article 9 have
been satisfied or waived in writing, the transactions contemplated by this
Agreement (the “Closing”) shall take
place at the offices of Seller at 9:00 a.m. MST on February 17, 2009, or such
other day and time to which the Parties mutually agree (the “Closing
Date”).

           

          Section
10.02                                Allocation of Costs and
Expenses and Adjustments to Purchase Price at the Closing.

           

          (a)           At
the Closing, the Purchase Price shall be increased by the following
amounts:

           

          (i)           the
amount of all (A) paid ad valorem, property, or similar Taxes and assessments
based upon or measured by the ownership of the Assets, insofar as such Taxes
relate to periods of time from and after the Effective Time, and (B) paid
charges, costs, and expenses of any kind or nature that are attributable to the
Assets and the period from and after Effective Time;

           

          (ii)           all
expenses, including operating and capital expenditures, incurred and paid by or
on behalf of Seller in connection with ownership, operation, and use of the
Assets attributable to the period from and after the Effective Time, and
including the costs incurred in connection with the AFEs described on Schedule 5.08 which
costs shall be the responsibility of Buyer notwithstanding that they may have
accrued prior to the Effective Time;

           

          
            
              
              

            

            
              42

              
                

              

            

            
              
              

            

          

           

          (iii)           all
royalties, rentals, insurance premiums, and other charges attributable to the
Assets for the period of, from, and after the Effective Time to the extent paid
by or on behalf of Seller;

           

          (iv)           expenses
incurred under applicable operating agreements including any overhead charges
allowable under the applicable accounting procedure (COPAS) where Seller is
non-operator attributable to the Assets for the period from and after the
Effective Time to the extent paid by or on behalf of Seller (the costs and
expenses for which Seller shall receive an upward adjustment to the Purchase
Price pursuant to clauses (i) through (iv) inclusive, shall be referred to as
the “Interim Operating
Expenses”);

           

          (v)           all
upward Purchase Price adjustments for Title Benefits determined in accordance
with 
Article
4;

           

          (vi)           the
value of all Hydrocarbons in storage on the Subject Interests and above pipeline
connections as of the Effective Time, such value (A) for purposes of the
Statement, to be the actual price received for such Hydrocarbons upon the first
unaffiliated third party sale thereof, if available, and upon such estimates as
are reasonably agreed upon by the Parties, to the extent actual amounts are not
known at Closing, and (B) for purposes of the Final Settlement Statement,
to be based upon actual amounts; and

           

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

           

          (b)           At
the Closing, the Purchase Price shall be decreased by the following
amounts:

           

          (i)           the
Deposit;

           

          (ii)           an
amount equal to the sales price paid to Seller by the first purchaser of the
Hydrocarbons produced, saved, and sold from the Subject Interests from the
Effective Time to the Closing Date (without deductions of any kind or nature,
including, but not limited to, royalties and any Taxes based on production),
which shall (A) for purposes of the Statement, be based upon actual
amounts, if available, and upon such estimates as are reasonably agreed upon by
the Parties, to the extent actual amounts are not known at Closing, and
(B) for purposes of the Final Settlement Statement, be based upon actual
amounts;

           

          
            
              
              

            

            
              43

              
                

              

            

            
              
              

            

          

           

          (iii)           an
amount equal to all cash in, or attributable to, suspense accounts held by
Seller relating to the Assets for which Buyer has assumed responsibility under

Section
12.01;

           

          (iv)           the
Allocated Value of any Asset sold prior to the Closing to the holder of a
preferential right pursuant to 
Section
4.06;

           

          (v)           the
Allocated Value of any Asset excluded from the purchase and sale contemplated
herein pursuant to the provisions of 
Article 4;

           

          (vi)           all
downward Purchase Price Adjustments for Title Defects and Environmental Defects
determined in accordance with 
Article 4;
and

           

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

           

          (c)           The
allocations of costs and expenses and/or adjustments described in 
Section 10.02(a)
and 
Section 10.02(b)
are referred to herein as the “Purchase Price Allocations
and Adjustments.”

           

          Section
10.03                                Closing Adjustments and
Allocations Statement.  Not later than three (3) business days
prior to the Closing Date, Seller shall prepare and deliver to Buyer a statement
of the estimated Purchase Price Allocations and Adjustments with appropriate
support (the “Statement”), which
Statement shall be based upon the then most currently available data and
information in order to make the adjustments as provided in 
Section
10.02.

           

          Section
10.04                                Post-Closing Allocations and
Adjustments to Purchase Price.

           

          (a)           On
or before 120 days after the Closing Date, Seller shall prepare and deliver to
Buyer a revised Statement (“Final Settlement
Statement”) setting forth the actual Purchase Price Allocations and


           

          
            
              
              

            

            
              44

              
                

              

            

            
              
              

            

          

           

          Adjustments.
Each Party shall provide the other such data and information as may be
reasonably requested to permit Seller to prepare the Final Settlement Statement
or to permit Buyer to perform or cause to be performed an audit of the Final
Settlement Statement. The Final Settlement Statement shall become final and
binding upon the parties on the thirtieth (30th) day following receipt thereof
by Buyer (the “Final
Settlement Date”) unless Buyer gives written notice of its disagreement
(a “Notice of Disagreement”) to
Seller prior to such date. Any Notice of Disagreement shall specify in
reasonable detail the dollar amount and the nature and basis of any disagreement
so asserted. If a Notice of Disagreement is received by Seller in a timely
manner, then the Parties shall resolve the dispute evidenced by the Notice of
Disagreement by mutual agreement, or otherwise in accordance with 
Section
4.13.

           

          (b)           If
the amount of the adjusted Purchase Price as set forth on the Final Settlement
Statement exceeds the amount of the estimated Purchase Price paid at the
Closing, then Buyer shall pay in immediately available funds to Seller the
amount by which the Purchase Price as set forth on the Final Settlement
Statement exceeds the amount of the estimated Purchase Price paid at the Closing
within five (5) business days after the Final Settlement Date.  If the
amount of the adjusted Purchase Price as set forth on the Final Settlement
Statement is less than the amount of the estimated Purchase Price paid at the
Closing, then Seller shall pay in immediately available funds to Buyer the
amount by which the Purchase Price as set forth on the Final Settlement
Statement is less than the amount of the estimated Purchase Price paid at the
Closing within five (5) business days after the Final Settlement
Date.

           

          (c)           Pursuant
to 
Section 10.02(b),
the Purchase Price is to be reduced by the value of Hydrocarbons produced during
the period from the Effective Time to the Closing Date. If Buyer shall receive
any revenues attributable to such Hydrocarbons for any reason for which Buyer
has received a reduction in the Purchase Price pursuant to this 
Section 10.04(c),
Buyer shall promptly remit same in immediately available funds to Seller.
Likewise, if Seller shall for any reason receive any of the proceeds of sale of
Hydrocarbons produced and saved from the Subject Interests and attributable to
the period from and after the Closing Date or any other revenues attributable to
the ownership or operation of the Assets from and after the Effective Time,
Seller shall promptly remit same in immediately available funds to
Buyer.

           

          
            
              
              

            

            
              45

              
                

              

            

            
              
              

            

          

           

          (d)           Except
as otherwise provided in this Agreement, any costs and expenses, including Taxes
(other than income taxes) relating to the Assets which are not reflected in the
Final Settlement Statement shall be treated as follows:

           

          (i)           All
costs and expenses relating to the Assets for the period of time prior to the
Effective Time shall be the sole obligation of Seller and Seller shall promptly
pay, or if paid by Buyer, promptly reimburse Buyer in immediately available
funds for and indemnify, defend, and hold Buyer harmless from and against the
same; and

           

          (ii)           All
costs and expenses relating to the Assets for which Buyer is responsible (being
those incurred on or after the Effective Time) shall be the sole obligation of
Buyer and Buyer shall promptly pay, or if paid by Seller, promptly reimburse
Seller in immediately available funds for and indemnify, defend, and hold Seller
harmless from and against the same.

           

          (e)           Purchase
Price adjustments, if any, with respect to Title Defects or Environmental
Defects the cure or correction of which or a dispute with respect to the same
remains pending on the Final Settlement Date shall be made on a date mutually
agreed by the Parties, both acting reasonably.

           

          Section
10.05                                Transfer
Taxes.  All sales, use, documentary, recording, stamp,
transfer, and other taxes (other than taxes on gross income, net income or gross
receipts) and duties, levies, assessments, fees, or other governmental charges
incurred by or imposed with respect to the property transfers undertaken
pursuant to this Agreement shall be the responsibility of, and shall be paid by,
Buyer.  The Parties will reasonably cooperate to eliminate or reduce
the assessment of sales or use taxes to the extent permitted by applicable
Law.  If Seller (not Buyer) is required by applicable Law to appeal or
protest the assessment of sales or use taxes, Seller shall protest the
assessment of those taxes if Buyer requests Seller in writing to make such
appeal or protest, and, in such event, Buyer will reimburse Seller all
out-of-pocket expenses authorized by Buyer and incurred by Seller in connection
with such appeal or protest.

           

          Section
10.06                                Ad Valorem and Similar
Taxes.  All ad valorem, property, production, severance, and
similar Taxes attributable to any period prior to the Effective Time will be
paid by the Seller.  All ad valorem, property, production, severance,
and similar Taxes attributable to any period on or after the Effective Time
shall be paid by Buyer. Notwithstanding anything to the contrary set forth in
this Agreement, for 

           

          
            
              
              

            

            
              46

              
                

              

            

            
              
              

            

          

           

          all
purposes of this Agreement, Taxes based on or measured by production of
Hydrocarbons or the value thereof shall be deemed attributable to the period
during which such production occurred regardless of the year when such Taxes are
assessed.  Seller shall provide written evidence to Buyer that it has
paid all Taxes for periods prior to the Effective Time that are payable after
the Effective Time including production Taxes in the state of Wyoming provided
such Taxes are based on production occurring prior to the Effective
Time.

           

          Section
10.07                                Actions of Seller at the
Closing.  At the Closing, Seller shall:

           

          (a)           execute,
acknowledge, and deliver to Buyer the Assignment in the form of Exhibit E, effective
as of the Effective Time, and such other conveyances, assignments, transfers,
bills of sale, and other instruments (in form and substance mutually agreed upon
by Buyer and Seller) as may be necessary or desirable to convey the Assets to
Buyer, including, without limitation appropriate state and federal assignments
of record title and operating rights;

           

          (b)           execute,
acknowledge, and deliver to Buyer such letters in lieu of transfer or division
orders as may be reasonably requested by Buyer no less than five (5) business
days prior to the Closing Date directing all purchasers of production from the
Subject Interests to make payment of proceeds attributable to such production to
Buyer from and after the later of the Closing Date or the date operations and
accounting functions are transferred to Buyer;

           

          (c)           deliver
to Buyer possession of the Assets (excluding the Records);

           

          (d)           execute
and deliver to Buyer an affidavit attesting to its non-foreign
status;

           

          (e)           execute,
acknowledge, and deliver any other agreements  provided for herein or
necessary or desirable to effect the transactions contemplated hereby, including
a corporate resolution certified by the Secretary or other appropriate officer
of Seller authorizing execution and performance of this Agreement and the
transactions contemplated hereby; and

           

          
            
              
              

            

            
              47

              
                

              

            

            
              
              

            

          

           

          (f)           execute
and deliver any documents or instruments required by any Governmental Authority
in order to transfer the operatorship of the Assets being operated by Seller to
Buyer.

           

          Section
10.08                                Actions of Buyer at the
Closing.  At the Closing, Buyer shall:

           

          (a)           pay
the Purchase Price (as adjusted pursuant to the provisions hereof) in
immediately available funds pursuant to wire transfer instructions to be
provided by Seller to Buyer;

           

          (b)           provide
any necessary evidence including proof of proper bonding and other
qualifications to be entitled to take and actually take possession of the
Assets; and

           

          (c)           execute,
acknowledge, and deliver the Assignment and any other agreements provided for
herein or necessary or desirable to effect the transactions contemplated
hereby.

           

          Section
10.09                                Recordation; Further
Assurances.

           

          (a)           Promptly
following the Closing, Buyer shall cause the documents identified in 
Section 9.04 and

Section 10.07(a)
to be recorded or filed in the appropriate real property and other applicable
records, in the order reasonably agreed upon by the Parties, and Buyer shall
promptly provide Seller copies of all such recorded or filed
instruments.

           

          (b)           Subject
to such additional period of time that Seller reasonably requires to use the
Records in the conduct of operations after Closing, Seller shall make the
Records available to be picked up by Buyer at the offices of Seller during
normal business hours within fifteen (15) days after the Closing, to the extent
the Records are in the possession of Seller and are not subject to contractual
restrictions on transferability. Seller shall have the right at its sole expense
to make and retain copies of any of the Records.

           

          (c)           After
the Closing Date, each Party, at the request of the other Party and without
additional consideration, shall execute and deliver, or shall cause to be
executed and delivered, from time to time such further instruments of conveyance
and transfer and shall take such other action as the other Party may reasonably
request to convey and deliver the Assets to Buyer and to accomplish the orderly
transfer of the Assets to Buyer in the manner contemplated by this Agreement.
After the Closing, the Parties will cooperate to have all proceeds received
attributable to the Assets to be paid to the proper Party hereunder and to have
all expenditures to be made with respect to the Assets be made by the proper
Party hereunder.

           

          
            
              
              

            

            
              48

              
                

              

            

            
              
              

            

          

           

          ARTICLE
11

           

          


           

          TERMINATION

           

          Section
11.01                                Right of
Termination.  This Agreement may be terminated at any time at
or prior to the Closing:

           

          (a)           by
mutual written consent of the Parties;

           

          (b)           by
Seller on the Closing Date if the conditions set forth in 
Article 8 have
not been satisfied in all material respects by Buyer or waived by Seller in
writing by the Closing Date;

           

          (c)           by
Buyer on the Closing Date if the conditions set forth in 
Article 9 have
not been satisfied in all material respects by Seller or waived by Buyer in
writing by the Closing Date;

           

          (d)           by
either Buyer or Seller if the Closing shall not have occurred by March 31,
2010;

           

          (e)           by
either Buyer or Seller if any Governmental Authority shall have issued a final
and non-appealable order, judgment or decree or taken any other final and
non-appealable action challenging, restraining, enjoining, prohibiting, or
invalidating the consummation of any of the transactions contemplated
herein;

           

          (f)           by
either Buyer or Seller if (i) the aggregate amount of the Title Defect Values
with respect to all Title Defects asserted by Buyer reasonably and in good
faith, and that have not been cured to Buyer’s reasonable satisfaction prior to
the Closing Date (net of the aggregate amount of the Purchase Price Adjustments
for all Title Benefits) plus (ii) the aggregate
amount of the Environmental Defect Values with respect to all Environmental
Defects asserted by Buyer reasonably and in good faith, and that have not been
cured to Buyer’s reasonable satisfaction prior to the Closing Date plus (iii) the aggregate
amount of all Casualty Losses exceeds twenty percent (20%) of the unadjusted
Purchase Price;

           

          
            
              
              

            

            
              49

              
                

              

            

            
              
              

            

          

           

          (g)           by
either Buyer or Seller if between execution of this Agreement and Closing, an
event should occur having a Material Adverse Effect on the ownership, operation,
or value of the Assets; or

           

          (h)           as
otherwise provided herein.

           

          provided,
however, that no Party shall have the right to terminate this Agreement pursuant
to Sections
11.01(b), 11.01(c), or 11.01(d) above if
such Party is at such time in Breach of any provision of this Agreement, or such
Party instigates a proceeding of the nature described in 
Section 8.03 or

Section
9.03.

           

          Section
11.02                                Effect of
Termination.  In the event that the Closing does not occur as a
result of any Party exercising its right to terminate pursuant to 
Section 11.01,
then except as set forth in 
Section 2.02,
this Agreement shall be null and void and no Party shall have any further rights
or obligations under this Agreement; provided, that, nothing herein shall
relieve any Party from any liability for any Breach hereof or any liability that
has accrued prior to the date of such termination, which liability, and the
applicable terms and provisions of this Agreement, shall survive such
termination.

           

          Section
11.03                                Attorneys’ Fees,
Etc.  If either Party to this Agreement resorts to legal
proceedings to enforce this Agreement, the prevailing Party in such proceedings
shall be entitled to recover all costs incurred by such Party, including
reasonable attorneys’ fees, in addition to any other relief to which such Party
may be entitled.

           

          ARTICLE
12

           

          


           

          ASSUMPTION
AND INDEMNIFICATION

           

          Section
12.01                                Buyer’s Obligations after
Closing.  Upon and after Closing, except to the extent
reflected in upward Purchase Price Allocations and Adjustments, Buyer will
assume and perform all the obligations, liabilities, and duties relating or with
respect to the ownership and/or operation of the Assets that are attributable to
periods on or after the Effective Time, together with the Plugging and
Abandonment Obligations, the Environmental Obligations, and all other
obligations assumed by Buyer under this Agreement (collectively, the “Assumed
Obligations”). Without limiting the generality of the foregoing, the
Assumed Obligations shall also specifically include:

           

          (a)           Responsibility
for the performance of all express and implied obligations under the instruments
described in Exhibit A,
together with all other instruments in the chain of title to such Assets, the
Leases, the Contracts, the Surface Agreements, the Permits, and all other
orders, contracts, and agreements to which the Assets are subject, including the
payment of royalties and overriding royalties, in each case to the extent
attributable to the periods on or after the Effective Time;

           

          
            
              
              

            

            
              50

              
                

              

            

            
              
              

            

          

           

          (b)           Responsibility
for payment of all amounts held in suspense accounts by Seller as of the Closing
Date, and for which the Purchase Price is adjusted pursuant to 
Section 10.02(b),
without regard to whether such suspense amounts relate to periods before or
after the Effective Time. Seller covenants and agrees to provide to Buyer with
the Records, the owner name, address, and tax identification number (if known by
Seller), the reason such amounts are in suspense, the amount of suspense funds
for each such owner making up the total of such funds, and all other information
with respect thereto required to be provided to the owner or to the state under
the laws, rules, and regulations of the affected jurisdiction. To the extent
practicable, Seller shall provide such information in the electronic or computer
sensible form maintained by Seller. Seller shall remain responsible for the
payment of any statutory interest and penalties which may have accrued prior to
the Effective Time with respect to such suspense amounts, whether payable to the
interest owner or to any state agency in connection with unclaimed property
laws, to the extent such interest and penalties are not included in the amount
deducted from the Purchase Price pursuant to 
Section
10.02(b);

           

          (c)           Responsibility
for compliance with all Laws now or hereafter in effect pertaining to the
Assets, and the procurement and maintenance of all permits, consents, and
authorizations of or required by Governmental Authorities in connection with the
Assets, attributable to periods on or after the Effective Time; and

           

          (d)           Responsibility
for all obligations with respect to Production Imbalances attributable to the
Assets, whether attributable to periods before or after the Effective
Time.

           

          Section
12.02                                Seller’s Obligations after
Closing.  After Closing, Seller will retain responsibility for
(a) the payment of all operating expenses and capital expenditures related to
the Assets and attributable to Seller’s ownership and/or operation of the Assets
prior to the Effective Time, but not including the AFEs set forth in Schedule 5.08, (b)
severance, ad valorem, production, property, personal property, and similar
Taxes measured by the value of the Assets or measured by 

           

          
            
              
              

            

            
              51

              
                

              

            

            
              
              

            

          

           

          the
production of Hydrocarbons attributable to all periods prior to the Effective
Time, (c) the payment of all broker’s and finder’s fees of Seller in connection
with the transactions contemplated by this Agreement, (d) the obligations,
liabilities, and duties of Seller relating or with respect to the ownership
and/or operation of the Assets that are attributable to periods prior to the
Effective Time other than the Plugging and Abandonment Obligations and the
Environmental Obligations, and (e) Seller’s proportionate share of any third
party Claims with respect to payments of lease royalties in respect of the
Leases attributable to periods prior to the Effective Time (collectively the
“Retained
Obligations”).

           

          Section
12.03                                Plugging and Abandonment
Obligations.

           

          (a)           Buyer’s
Obligations.  Provided Closing occurs and to the extent not
otherwise addressed by the express provisions of this Agreement, Buyer assumes
full responsibility and liability for the following plugging and abandonment
obligations related to the Assets (the “Plugging and Abandonment
Obligations”), regardless of whether they are attributable to the
ownership or operation of the Assets before or after the Effective
Time:

           

          (i)           The
necessary and proper plugging, replugging, and abandonment of all wells on the
Assets, whether plugged and abandoned before or after the Effective Time, in
compliance with applicable Laws and the terms of the Leases;

           

          (ii)           The
necessary and proper decommissioning, removal, abandonment, and disposal of all
structures, pipelines, Facilities, Equipment, abandoned Assets, junk, and other
personal property located on or comprising any part of the Assets in compliance
with applicable Laws and the terms of the Leases;

           

          (iii)           The
necessary and proper capping and burying of all associated flow lines located on
or comprising any part of the Assets, to the extent required by applicable Laws,
the Leases, the Contracts, or other agreements;

           

          (iv)           The
necessary and proper restoration of the Assets, both surface and subsurface, in
compliance with any applicable Laws, the Leases, the Surface Agreements, the
Contracts, or any other applicable agreements;

           

          
            
              
              

            

            
              52

              
                

              

            

            
              
              

            

          

           

          (v)           To
the extent not addressed by operation of 
Article 4, any
necessary clean-up or disposal of any part of the Assets contaminated by NORM,
asbestos containing materials, lead based paint, or any other substances or
materials considered to be hazardous under Laws, including Environmental Laws,
and Laws relating to the protection of natural resources;

           

          (vi)           All
obligations arising from contractual requirements, and demands made by
Governmental Authorities or parties claiming a vested interest in any part of
the Assets; and

           

          (vii)           Obtaining
and maintaining all bonds and securities, including supplemental or additional
bonds or other securities, that may be required by contract or by Governmental
Authorities.

           

          (b)           Standard of
Operations. Buyer shall conduct all Plugging and Abandonment Obligations
and all other operations with respect to the Assets in a good and workmanlike
manner and in compliance with all Laws, including Environmental Laws and Laws
(now or hereafter in effect) relating to the protection of natural
resources.

           

          Section
12.04                                Environmental
Obligations.  Provided Closing occurs and to the extent not
otherwise addressed by the express provisions of this Agreement, Buyer assumes
full responsibility and liability for the following occurrences, events,
conditions, and activities on, or related to, or attributable to Seller’s
ownership or operation of the Assets (the “Environmental
Obligations”) regardless of whether arising from Seller’s ownership or
operation of, or relating to, the Assets before or after the Effective Time,
and regardless of whether
resulting from any acts or omissions of Seller or its Representatives
(INCLUDING THOSE ARISING FROM
THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT), STRICT LIABILITY, OR OTHER LEGAL FAULT OF SELLER OR ANY OF SELLER’S
REPRESENTATIVES) or the condition, including the environmental condition
of the Assets when acquired:

           

          (a)           Environmental
pollution or contamination, including pollution or contamination of the soil,
groundwater, or air by Hydrocarbons, drilling fluid and other chemicals, brine,
produced water, NORM, asbestos containing materials, lead based paint, mercury,
or any other substance, and any other violation of Environmental Laws or Laws
now or hereafter in effect relating to the protection of natural
resources;

           

          
            
              
              

            

            
              53

              
                

              

            

            
              
              

            

          

           

          (b)           Underground
injection activities and waste disposal;

           

          (c)           Clean-up
responses, and the cost of remediation, control, assessment, or compliance with
respect to surface and subsurface pollution caused by spills, pits, ponds,
lagoons, or storage tanks;

           

          (d)           Failure
to comply with applicable land use, surface disturbance, licensing, or
notification requirements;

           

          (e)           Disposal
on the Assets of any hazardous substances, wastes, materials, and products
generated by or used in connection with the ownership, development, operation,
or abandonment of any part of the Assets; and

           

          (f)           Non-compliance
with Environmental Laws (now or hereafter in effect).

           

          Section
12.05                                Definition of
Claims.  Except as expressly provided in Section 4.09(a)(ix)
and Section 7.03(a)
that specifically operate to include Buyer, the term “Claims” means any and
all direct or indirect, demands, claims, notices of violation, notices of
probable violation, filings, investigations, administrative proceedings,
actions, causes of action, suits, other legal proceedings, judgments,
assessments, damages, deficiencies, Taxes, penalties, fines, obligations,
responsibilities, liabilities, payments, charges, losses, costs, and expenses
(including costs and expenses of operating the Assets) of any kind or character
asserted by a third party (whether or not asserted prior to Closing, and whether
known or unknown, fixed or unfixed, conditional or unconditional, based on
negligence, strict liability or otherwise, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent, or other
legal theory), including penalties and interest on any amount payable as a
result of any of the foregoing, any legal or other costs and expenses incurred
in connection with investigating or defending any Claim, and all amounts paid in
settlement of Claims. Without limiting the generality of the foregoing, the term
“Claims”
specifically includes any and all Claims arising from, attributable to or
incurred in connection with any (a) breach of contract, (b) loss or damage to
property, injury to or death of persons, and other tortuous injury and (c)
violations of applicable Laws, including Laws relating to the protection of
natural resources, Environmental Laws (each as now or hereafter in effect) and
any other legal right or duty actionable at law or equity.

           

          
            
              
              

            

            
              54

              
                

              

            

            
              
              

            

          

           

          Section
12.06                                Application of
Indemnities.

           

          (a)           All
indemnities set forth in this Agreement extend to the officers, directors,
partners, managers, members, shareholders, agents, contractors, employees, and
affiliates of the indemnified party (“Representatives”).

           

          (b)           UNLESS THIS AGREEMENT EXPRESSLY
PROVIDES TO THE CONTRARY, THE INDEMNITY AND RELEASE, AND WAIVER AND ASSUMPTION
PROVISIONS SET FORTH IN THIS AGREEMENT APPLY, REGARDLESS OF WHETHER THE
INDEMNIFIED PARTY (OR ITS REPRESENTATIVES) CAUSES, IN WHOLE OR PART, AN
INDEMNIFIED CLAIM, INCLUDING INDEMNIFIED CLAIMS ARISING OUT OF OR RESULTING, IN
WHOLE OR IN PART, FROM, OUT OF, OR IN CONNECTION WITH THE CONDITION OF THE
ASSETS OR THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT SECURITIES FRAUD
CLAIMS THAT REQUIRE SCIENTER OR KNOWLEDGE AS ONE ELEMENT OF THE CAUSE OF ACTION,
GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD BY THE INDEMNIFIED
PARTY),  STRICT LIABILITY, OR OTHER LEGAL FAULT OF THE INDEMNIFIED
PARTY OR ANY OF ITS REPRESENTATIVES.

           

          (c)           NEITHER BUYER NOR SELLER SHALL BE
ENTITLED TO RECOVER FROM THE OTHER PARTY, RESPECTIVELY, AND EACH PARTY RELEASES
THE OTHER PARTY FROM AND WAIVES, ANY LOSSES, COSTS, EXPENSES, OR DAMAGES ARISING
UNDER THIS AGREEMENT OR IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT ANY AMOUNT IN EXCESS OF THE ACTUAL COMPENSATORY
DAMAGES SUFFERED BY SUCH PARTY EXCEPT THAT IF THE DISPUTE BETWEEN SELLER AND
BUYER IS BASED ON A FAILURE OF THE TRANSACTION CONTEMPLATED HEREBY TO CLOSE, THE
SOLE AND EXCLUSIVE REMEDIES SHALL BE THOSE PROVIDED FOR IN SECTION
2.02. BUYER AND SELLER
WAIVE, AND RELEASE EACH OTHER FROM ANY RIGHT TO RECOVER PUNITIVE, SPECIAL,
EXEMPLARY, AND CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH OR WITH


           

          
            
              
              

            

            
              55

              
                

              

            

            
              
              

            

          

           

          RESPECT TO THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT; PROVIDED, HOWEVER, ANY SUCH DAMAGES RECOVERED BY
A THIRD PARTY (OTHER THAN SUBSIDIARIES, AFFILIATES, OR PARENTS OF A PARTY) FOR
WHICH A PARTY OWES THE OTHER PARTY AN INDEMNITY UNDER THIS AGREEMENT SHALL NOT
BE WAIVED. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT IS
CONSPICUOUS.

           

          (d)           The
indemnities of the indemnifying Party in this Agreement do not cover or include
any amounts that the indemnified party may legally recoup from other third party
owners under applicable joint operating agreements or other agreements, and for
which the indemnified party is reimbursed by any third party. The indemnifying
Party will pay all costs incurred by the indemnified party in obtaining
reimbursement from third parties. There will be no upward or downward adjustment
in the Purchase Price as a result of any matter for which Buyer or Seller is
indemnified under this Agreement.

           

          Section
12.07                                Buyer’s
Indemnity.  Buyer shall release and indemnify, defend and hold
Seller and its Representatives harmless from and against any and all Claims
caused by, resulting from, or incidental to the Assumed Obligations, and any
Claims caused by, resulting from, or attributable to (a) any inaccuracy of any
representation or warranty of Buyer set forth in this Agreement, or (b) any
Breach of, or failure to perform or satisfy any of the covenants and obligations
of Buyer hereunder.

           

          Section
12.08                                Seller’s
Indemnity.  Subject to 
Section 12.10,
Seller shall release and indemnify, defend and hold Buyer and its
Representatives harmless from and against any and all Claims caused by,
resulting from, or incidental to the Retained Obligations, and any Claims caused
by, or resulting from, or attributable to (a) the Breach of any representation
or warranty of Seller set forth in 
Section 5.04 to
5.06,
inclusive, of this Agreement, and (b) any Breach of, or failure to perform or
satisfy, any of the covenants and obligations of Seller hereunder.

           

          Section
12.09                                Notices and Defense of
Indemnified Claims.  Each Party shall immediately notify the
other Party of any Claim of which it becomes aware and for which it is entitled
to indemnification from the other Party under this Agreement. The indemnifying
Party shall be obligated to defend, at the indemnifying Party’s sole expense,
any litigation or other administrative or adversarial proceeding 

           

          
            
              
              

            

            
              56

              
                

              

            

            
              
              

            

          

           

          against
the indemnified Party relating to any Claim for which the indemnifying Party has
agreed to release and indemnify and hold the indemnified Party harmless under
this Agreement; provided, however, that the failure to give such notice shall
not relieve the indemnifying Party from its obligations unless such failure to
give notice actually prejudices the indemnifying Party and so long as the notice
is given within the period set forth in Section
12.10.  The indemnified Party shall have the right to
participate with the indemnifying Party in the defense of any such Claim at its
own expense.

           

          Section
12.10                                Survival.  Except
as specifically provided in Section 10.04, Section 12.01, Section 12.02, 
Section 12.07, 
Section
12.08,
this Section
12.10, Section
14.03 and Section 14.15, the
representations, warranties, covenants, and agreements of the Parties set forth
herein shall not survive the Closing and the consummation of the transactions
contemplated hereby, and Buyer and Seller each covenant not to sue the other
based upon any alleged Breach of any such representations or warranties that do
not survive the Closing. The indemnity of Seller as provided in 
Section 12.08
shall survive only for a period of twenty-four (24) months after the Closing.
Notwithstanding anything to the contrary, Buyer shall not be entitled to make,
and hereby waives the right to assert, any claim for indemnity pursuant to the
provisions of this 
Article 12
against Seller unless Buyer seeks indemnification for such claim by a written
notice received by Seller on or before the date that is twenty-four (24) months
after the Closing Date (the “Expiration Date”).
Anything in this Agreement to the contrary notwithstanding, after the Expiration
Date, all of the Retained Liabilities and all of Seller’s other liabilities and
obligations with respect to the Assets (and all Claims with respect thereto)
shall be deemed and constitute Assumed Obligations except to the extent of any
Claims of which Buyer notifies Seller on or before the Expiration Date in
accordance with this Agreement.

           

          Section
12.11                                Exclusive
Remedy.  The terms and provisions of this 
Article 12 and
those provided in 
Article 2, 
Article 4, 
Article 7, 
Article 8, 
Article 9, 
Article 10, and

Article 11 shall
be the sole and exclusive remedy of each of the Parties indemnified hereunder
with respect to the representations, warranties, covenants, and agreements of
the Parties set forth in this Agreement and the other documents executed and
delivered hereunder; provided, however, that the terms of this 
Section 12.11
shall not be applicable to the extent that a Party has committed fraud,
securities fraud (where one of the elements of the cause of action is scienter
or knowledge), willful misconduct, or gross negligence.

           

          
            
              
              

            

            
              57

              
                

              

            

            
              
              

            

          

           

          Section
12.12                                Defenses and
Counterclaims.  Each Party that is required to assume any
obligation or liability of the other Party pursuant to this Agreement or that is
required to release and defend, indemnify or hold the other Party harmless
hereunder shall, notwithstanding any other provision hereof to the contrary, be
entitled to the use and benefit of all defenses (legal and equitable) and
counterclaims of such other Party in defense of third party Claims arising out
of any such assumption or indemnification.

           

          Section
12.13                                Anti-Indemnity
Statute.  Buyer and Seller agree that with respect to any
statutory limitations now or hereafter in effect affecting the validity or
enforceability of the indemnities provided for in this Agreement, such
indemnities shall be deemed amended in order to comply with such limitations.
This provision concerning statutory limitations shall not apply to indemnities
for all liabilities of the indemnifying Party which are covered by such Party’s
insurance.

           

          ARTICLE
13

           

          


           

          DISCLAIMERS;
CASUALTY LOSS AND CONDEMNATION

           

          Section
13.01                                Disclaimers of
Representations and Warranties.  The express representations and
warranties of Seller contained in this Agreement are exclusive and are in lieu
of all other representations and warranties, whether express, implied, at common
law, or statutory. BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER
HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY EXPRESSLY WAIVES, ANY
REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE, OR
OTHERWISE, RELATING TO (a) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE
RATES, INFORMATION IN RESPECT OF PRODUCTION IMBALANCES, OR THE QUALITY,
QUANTITY, OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE
ASSETS, (b) THE ACCURACY, COMPLETENESS, OR MATERIALITY OR SIGNIFICANCE OF ANY
INFORMATION, DATA, GEOLOGICAL AND GEOPHYSICAL DATA (INCLUDING ANY
INTERPRETATIONS OR DERIVATIVES BASED THEREON), OR OTHER MATERIALS (WRITTEN OR
ORAL) CONSTITUTING PART OF THE ASSETS, NOW, HERETOFORE, OR HEREAFTER FURNISHED
TO BUYER BY OR ON BEHALF OF SELLER, (c) THE CONDITION, INCLUDING, THE
ENVIRONMENTAL CONDITION OF THE ASSETS, AND (d) THE COMPLIANCE OF


           

          
            
              
              

            

            
              58

              
                

              

            

            
              
              

            

          

           

          SELLER’S PAST PRACTICES WITH THE
TERMS AND PROVISIONS OF ANY AGREEMENT IDENTIFIED IN EXHIBIT A, OR ANY SURFACE AGREEMENT, PERMIT,
CONTRACT, OR APPLICABLE LAWS, INCLUDING ENVIRONMENTAL LAWS AND LAWS RELATING TO
THE PROTECTION OF NATURAL RESOURCES, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ARTICLE 5. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THIS AGREEMENT, SELLER EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER
HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY,
FIXTURES, BUILDINGS, OFFICES, TRAILERS, ROLLING STOCK, VEHICLES, AND GEOLOGICAL
AND GEOPHYSICAL DATA (INCLUDING ANY INTERPRETATIONS OR DERIVATIVES BASED
THEREON)  CONSTITUTING A PART OF THE ASSETS (i) ANY IMPLIED OR EXPRESS
WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR
A PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS, (iv) ANY IMPLIED OR EXPRESS WARRANTY THAT ANY
DATA TRANSFERRED PURSUANT HERETO IS NONINFRINGING, (v) ANY RIGHTS OF PURCHASERS
UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE
PURCHASE PRICE, (vi) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM DEFECTS,
WHETHER KNOWN OR UNKNOWN, (vii) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER
APPLICABLE LAWS, AND (viii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING
ENVIRONMENTAL LAWS, OR LAWS RELATING TO THE PROTECTION OF THE ENVIRONMENT,
HEALTH, SAFETY, OR NATURAL RESOURCES OR RELATING TO THE RELEASE OF MATERIALS
INTO THE ENVIRONMENT, INCLUDING ASBESTOS CONTAINING MATERIAL, LEAD BASED PAINT,
MERCURY, OR ANY OTHER HAZARDOUS SUBSTANCES OR WASTES, IT BEING THE EXPRESS
INTENTION OF BUYER AND SELLER THAT THE ASSETS, INCLUDING ALL PERSONAL PROPERTY,
EQUIPMENT, FACILITIES, INVENTORY, MACHINERY, FIXTURES, BUILDINGS, OFFICES,
TRAILERS, VEHICLES, AND ROLLING STOCK INCLUDED IN THE ASSETS, SHALL BE CONVEYED
TO BUYER, AND BUYER SHALL ACCEPT THE SAME, AS IS, WHERE IS, WITH ALL FAULTS AND
IN THEIR PRESENT CONDITION AND STATE OF REPAIR. BUYER REPRESENTS AND


           

          
            
              
              

            

            
              59

              
                

              

            

            
              
              

            

          

           

          WARRANTS TO SELLER THAT BUYER WILL
MAKE, OR CAUSE TO BE MADE SUCH INSPECTIONS WITH RESPECT TO SUCH ASSETS AS BUYER
DEEMS APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY
APPLICABLE LAWS (INCLUDING ENVIRONMENTAL LAWS AND LAWS RELATING TO THE
PROTECTION OF NATURAL RESOURCES, HEALTH, SAFETY, OR THE ENVIRONMENT) TO BE
EFFECTIVE, THE DISCLAIMERS OF THE WARRANTIES CONTAINED IN THIS SECTION ARE
“CONSPICUOUS” DISCLAIMERS FOR ALL PURPOSES.

           

          Section
13.02                                NORM.  BUYER ACKNOWLEDGES THAT IT HAS BEEN
INFORMED THAT OIL AND GAS PRODUCING FORMATIONS CAN CONTAIN NATURALLY OCCURRING
RADIOACTIVE MATERIAL (“NORM”). SCALE FORMATION OR SLUDGE
DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM ON EQUIPMENT AND OTHER ASSETS. THE
ASSETS SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE BACKGROUND
LEVELS, AND A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THE ASSETS BY REASON
THEREOF. THEREFORE, BUYER MAY NEED TO AND SHALL FOLLOW SAFETY PROCEDURES WHEN
HANDLING THE EQUIPMENT AND OTHER ASSETS.

           

          Section
13.03                                Casualty Loss;
Condemnation.

           

          (a)           Except
as otherwise provided in this Agreement, Buyer shall assume all risk of loss
with respect to, and any change in the condition of, the Assets from and after
the Effective Time, including with respect to the depletion of Hydrocarbons, the
watering-out of any well, the collapse of casing, sand infiltration of wells,
and the depreciation of personal property.

           

          (b)           Prior to the Closing, there
shall not have been a material adverse change in the Assets taken as a whole
caused by an event of casualty (a “Casualty”), including but not limited to,
volcanic eruptions, acts of God, fire, explosion, earthquake, wind storm, flood,
drought, condemnation, the exercise of any right of eminent domain,
confiscation, or seizure, but excepting depletion due to normal production and
depreciation or failure of equipment or casing.

           

          (c)           If,
prior to the Closing, a Casualty occurs (or Casualties occur) which results in a
reduction in the value of the Assets in excess of fifteen percent (15%) of the
Purchase Price (“Casualty Loss”),
Buyer or Seller may 

           

          
            
              
              

            

            
              60

              
                

              

            

            
              
              

            

          

           

          elect to
terminate this Agreement.  If this Agreement is not so terminated,
then this Agreement shall remain in full force and effect notwithstanding any
such Casualty Loss, and, at Buyer’s sole option, (i) Seller shall retain such
Asset subject to such Casualty and such Asset shall be the subject of an
adjustment to the Purchase Price in the same manner set forth in 
Section 4.03
hereof, or (ii) at the Closing, Seller shall pay to Buyer all sums paid to
Seller by reason of such Casualty Loss, provided, however, that the Purchase
Price shall not be adjusted by reason of such payment, and Seller shall assign,
transfer, and set over unto Buyer all of the right, title, and interest of
Seller in and to such Asset and any unpaid awards or other payments arising out
of such Casualty Loss.

           

          (d)           For
purpose of determining the value of a Casualty Loss, the Parties shall use the
same methodology as applied in determining the value of a Title Defect as set
forth in 
Section
4.03(a).

           

          ARTICLE
14

           

          


           

          MISCELLANEOUS

           

          Section
14.01                                Names.  As
soon as reasonably possible after the Closing, but in no event later than 45
days after the Closing, Buyer shall remove the names of Seller and its
affiliates, and all variations thereof, from all of the Assets and make the
requisite filings with, and provide the requisite notices to, the appropriate
Governmental Authorities to place the title or other indicia or responsibility
of ownership, including operation of the Assets where applicable, in a name
other than the name of the Seller or any of its affiliates, or any variations
thereof.

           

          Section
14.02                                Expenses.  Each
Party shall be solely responsible for all expenses, including due diligence
expenses, incurred by it in connection with this transaction, and neither Party
shall be entitled to any reimbursement for any such expenses from the other
Party.

           

          Section
14.03                                Document
Retention.  As used in this Section 14.03, the
term “Documents” shall mean
all files, documents, books, records, and other data delivered to Buyer by
Seller pursuant to the provisions of this Agreement (other than those that
Seller has retained either the original or a copy of), including financial and
tax accounting records; land, title and division order files; contracts;
engineering and well files; and books and records related to the operation of
the Assets prior to the Closing Date. Buyer shall retain and preserve the
Documents for a period of no less than seven (7) years following the Closing
Date (or for such 

           

          
            
              
              

            

            
              61

              
                

              

            

            
              
              

            

          

           

          longer
period as may be required by Laws of any Governmental Authority), and shall
allow Seller or its representatives to inspect the Documents at reasonable times
and upon reasonable notice during regular business hours during such time
period. Seller shall have the right during such period to make copies of any of
the Documents at its expense.

           

          Section
14.04                                Entire
Agreement.  This Agreement, the documents to be executed and
delivered hereunder, and the Exhibits, Schedules, and Appendices attached hereto
constitute the entire agreement between the Parties pertaining to the subject
matter hereof and supersede all prior agreements, understandings, negotiations,
and discussions, whether oral or written, of the Parties pertaining to the
subject matter hereof; provided, however, that this Agreement does not supersede
that certain Data Secrecy Agreement dated effective October 23, 2009, by and
between the Seller and Buyer, which agreement shall not survive the
Closing.  No supplement, amendment, alteration, modification, or
waiver of this Agreement shall be binding unless executed in writing by each of
the Parties and specifically referencing this Agreement.

           

          Section
14.05                                Waiver.  No
waiver of any provision of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly
provided.

           

          Section
14.06                                Construction.  The
captions in this Agreement are for convenience only and shall not be considered
a part of or affect the construction or interpretation of any provision of this
Agreement.

           

          Section
14.07                                No Third Party
Beneficiaries.  Except as provided in 
Section 12.06(a),
nothing in this Agreement shall provide any benefit to any third party or
entitle any third party to any claim, cause of action, remedy, or right of any
kind, it being the intent of the Parties that this Agreement shall not be
construed as a third party beneficiary contract.

           

          Section
14.08                                Assignment.  Except
as provided in 
Section 2.04, no
Party may assign or delegate any of its rights or duties hereunder to any
individual or entity other than an affiliate of such Party without the prior
written consent of the other Party and any assignment made without such consent
shall be void. Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
permitted successors, assigns, and legal
representatives.  Notwithstanding any assignment to an affiliate,
Buyer shall nevertheless remain liable to Seller in accordance with the terms of
this Agreement.

           

          
            
              
              

            

            
              62

              
                

              

            

            
              
              

            

          

           

          Section
14.09                                Governing Law;
Venue.  This
Agreement, the other documents delivered pursuant hereto, and the legal
relations between the Parties shall be governed and construed in accordance with
the laws of the State of Colorado. Any litigation arising out of this Agreement
shall only be brought before the Federal or state courts sitting in the City and
County of Denver, Colorado, and the Parties irrevocably waive any right to
choose or request any other venue.

           

          Section
14.10                                Notices.  Any
notice, communication, request, instruction, or other document required or
permitted hereunder (including notices of Title Defects and Environmental
Defects) shall be given in writing and delivered in person or sent by U.S. Mail
postage prepaid, return receipt requested, overnight delivery service,
electronically, or facsimile to the addresses of Seller and Buyer set forth
below. Any such notice shall be effective and deemed given only upon
receipt.

           

          
            	
                    Seller:

                  	
                    ST.
      MARY LAND & EXPLORATION COMPANY

                    777
      N. Eldridge Parkway, Suite 1000

                    Houston,
      TX 77079

                    Attention:  Kenneth
      Knott

                    Fax
      No.:  281-677-2810

                    Tel.
      No.:  281-677-2791

                    Email:
      kknott@stmaryland.com

                     

                  
	
                    With
      a copy which shall not constitute notice to:

                  	
                    ST.
      MARY LAND & EXPLORATION COMPANY

                    1776
      Lincoln Street, Suite 700

                    Denver,
      CO 80203

                    Attention:  Milam
      Randolph Pharo

                    Fax
      No.:  303-861-0934

                    Tel.
      No.:  303-863-4313

                    Email:
      rpharo@stmaryland.com

                     

                  


             

            
              
                
                

              

              
                63

                
                  

                

              

              
                
                

              

            

             

            	
                    Buyer:

                  	
                    LEGACY
      RESERVES OPERATING LP

                    303
      W. Wall Street, Suite 1400

                    Midland,
      TX 79701

                    Attention:
      Kyle McGraw

                    Fax
      No.:  432-686-8318

                    Tel.
      No.:  432-689-5200

                    Email:
      kmgraw@legacylp.com

                  


          

          


           

          Either
Party may, by written notice delivered to the other Party, change its address
for notice purposes hereunder.

           

          Section
14.11                                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
and the Parties shall negotiate in good faith to modify this Agreement so as to
effect their original intent as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.

           

          Section
14.12                                Interpretation.  This
Agreement shall be deemed and considered for all purposes to have been jointly
prepared by the Parties, and shall not be construed against any one Party (nor
shall any inference or presumption be made) on the basis of who drafted this
Agreement or any particular provision hereof, who supplied the form of
Agreement, or any other event of the negotiation, drafting, or execution of this
Agreement. Each Party agrees that this Agreement has been purposefully drawn and
correctly reflects its understanding of the transaction that it contemplates. In
construing this Agreement, the following principles will apply:

           

          (a)           A
defined term has its defined meaning throughout this Agreement and each Exhibit
and Schedule to this Agreement, regardless of whether it appears before or after
the place where it is defined.

           

          (b)           If
there is any conflict or inconsistency between the provisions of the main body
of this Agreement and the provisions of any Exhibit or Schedule hereto, the
provisions of this Agreement shall take precedence. If there is any conflict
between the provisions of any Assignment or other transaction
documents attached to this Agreement as an Exhibit and the provisions of any
Assignment and other transaction documents actually executed by the parties, the
provisions of the executed Assignment and other executed transaction documents
shall take precedence.

           

          
            
              
              

            

            
              64

              
                

              

            

            
              
              

            

          

           

          (c)           Schedules
and Exhibits referred to herein are hereby incorporated and made a part of this
Agreement for all purposes by such reference.

           

          (d)           The
omission of certain provisions of this Agreement from the Assignment does not constitute a
conflict or inconsistency between this Agreement and the Assignment, and will
not effect a merger of the omitted provisions. To the fullest extent permitted
by Laws, all provisions of this Agreement are hereby deemed incorporated into
the Assignment by reference.

           

          (e)           The
words “includes” and “including” and their
derivatives means “includes, but not limited to” or “including, but not limited
to,” and corresponding derivative meanings.

           

          (f)           The
Article, Section, Exhibit, and Schedules references in this Agreement refer to
the Articles, Sections, Exhibits, and Schedules of this Agreement. The headings
and titles in this Agreement are for convenience only and shall have no
significance in interpreting or otherwise affect the meaning of this
Agreement.

           

          (g)           The
terms “knowledge” or “knowingly,” whether
or not capitalized, shall mean the actual knowledge of a Party’s employees who,
as of Closing are in a supervisory capacity responsible for the ownership and
operation of the Assets and any material facts relating thereto, after a due and
diligent inquiry.

           

          (h)           The
adjective, “material”, whether or
not capitalized, shall mean a situation, circumstance, consequence, or concept
whose relevance to the transactions contemplated by this Agreement as a whole is
of significance, and would not be considered a small or insignificant deviation
from the terms of this Agreement.

           

          (i)           The
term “Material Adverse
Effect” shall mean any defect, condition, change, or effect (other than
with respect to which an adjustment to the Purchase Price has been made) that
when taken together with all other such defects, conditions, changes, and
effects significantly diminishes the value, use, operations, or development of
the Assets, taken as a whole. Notwithstanding the foregoing, the following shall
not be considered in determining whether a Material Adverse Effect has
occurred:

           

          
            
              
              

            

            
              65

              
                

              

            

            
              
              

            

          

           

          (i)           Fluctuations
in commodity prices;

           

          (ii)           Changes
in Laws or Environmental Laws; or

           

          (iii)           Changes
in the oil and gas industry that do not have a disproportionate impact on the
ownership and operation of the Assets.

           

          (j)           “Breach” shall mean
any breach of, or any falsity or inaccuracy in, any representation or warranty
or any breach of, or failure to perform or comply with, any covenant or
obligation, in or of this Agreement or any other contract, agreement, or
instrument contemplated by this Agreement or any event which with the passing of
time or the giving or notice, of both, would constitute such a breach,
inaccuracy, or failure; provided that to constitute a Breach, such breach,
inaccuracy, or failure must be material to the subject matter regarding which
the Breach is asserted.

           

          (k)           “Tax” means all taxes
and any other assessments, duties, fees, levies, or other charges imposed by a
Governmental Authority based on or measured by the value of the Assets, the
production of Hydrocarbons, the receipt of proceeds with respect to such Assets
or Hydrocarbons, or otherwise related in any manner or attributable to the
Assets or the production of Hydrocarbons including any production tax, windfall
profits tax, severance tax, personal property tax, real property tax, or ad
valorem tax, together with any interest, fine, or penalty thereon, or in
addition thereto.

           

          (l)           The
plural shall be deemed to include the singular, and vice versa.

           

          Section
14.13                                Time of the
Essence.  Time shall be of the essence with respect to all time
periods and notice periods set forth in this Agreement.

           

          Section
14.14                                Counterpart
Execution.  This Agreement may be executed in any number of
counterparts, and each counterpart hereof shall be effective as to each Party
that executes the same whether or not all of such Parties execute the same
counterpart. If counterparts of this Agreement are executed, the signature pages
from various counterparts may be combined into one composite instrument for all
purposes. All counterparts together shall constitute only one Agreement, but
each 

           

          
            
              
              

            

            
              66

              
                

              

            

            
              
              

            

          

           

          counterpart
shall be considered an original.  In the event that this Agreement is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
date file, such signature shall create a valid and binding obligation of the
Party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.  To facilitate the execution and recording of the conveyance
of the Assets from Seller to Buyer, the Parties agree that they may execute
multiple assignments substantially in the form attached as Exhibit E which
contain only that portion of the Assets that are located in a particular county,
and all such assignments shall constitute a single conveyance of the Assets from
Seller to Buyer.

           

          Section
14.15. Audit
Rights.   Seller agrees to make available to Buyer prior
to and for a period of twelve (12) months following the Closing any and all
existing information and documents in the possession of Seller that Buyer may
reasonably require to comply with Buyer’s tax and financial reporting
requirements and audits.  Without limiting the generality of the
foregoing, Seller will use its commercially reasonable efforts after execution
of this Agreement and for twelve (12) months following Closing to cooperate with
the independent auditors chosen and paid for by Buyer (“Buyer’s Auditor”) in
connection with their audit of any annual revenue and expense statements of the
Assets that Buyer or any of its affiliates requires to comply with their tax and
financial reporting requirements, and their review of any interim quarterly
revenue and expense statements of the Assets that Buyer requires to comply with
such reporting requirements.  Seller’s cooperation will include (i)
such reasonable access to Seller’s employees who were responsible for preparing
the revenue and expense statements and work papers and other supporting
documents used in the preparation of such financial statements as may be
required by Buyer’s Auditor to perform an audit in accordance with generally
accepted auditing standards, and (ii) delivery of one or more customary
representation letters (in substantially the form previously approved by Seller
and Buyer) from Seller to Buyer’s Auditor that are requested by Buyer to allow
such auditors to complete an audit (or review of any interim quarterly
financials), and to issue an opinion that in Buyer’s experience is acceptable
with respect to an audit or review of those revenue and expense statements
required pursuant to this Section.  Buyer will reimburse Seller,
within three (3) business days after demand therefor, for any reasonable
out-of-pocket and overhead costs with respect to any costs incurred by Seller in
complying with the provisions of this Section.  In the event that
Buyer’s Auditors determine that any of the Assets are not auditable due to
insufficient financial records, or for any reason determined by Buyer’s
Auditors, then Buyer may exclude the unauditable Assets from this sale and the
Purchase Price will be reduced by the Allocated Value of said
Assets.

           

          
            
              
              

            

            
              67

              
                

              

            

            
              
              

            

          

          


           

          IN
WITNESS WHEREOF, Seller and Buyer have executed and delivered this Agreement as
of the date first set forth above.

           

          
            
              	 	
                      SELLER:

                       

                      ST. MARY LAND &
      EXPLORATION

                      COMPANY

                    	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	/s/ Milam
      Randolph Pharo	 
	 	 	Name:
      Milam Randolph Pharo 	 
	 	 	Title:
      Senior Vice President and General Counsel 	 
	 	 	 	 


            

          

        

      

    

    
      	 	
              BUYER:

               

              LEGACY RESERVES
      OPERATING LP

              By:  Legacy
      Reserves Operating GP LLC,

                     
      Its General Partner

               

              By:  Legacy
      Reserves LP

                     
      Its sole member

               

              By:  Legacy
      Reserves GP, LLC,

                     
      Its General Partner

            	 
	 	 	 	 
	
               

            	
              By:
      

            	/s/ Kyle
      A. McGraw	 
	 	 	Name:
      Kyle A. McGraw	 
	 	 	Title:
      Executive Vice President